Lemo: Tinubu’s Administration Shouldn’t Sacrifice Merit on Altar of Federal Character

Former Deputy Governor, of the Central Bank of Nigeria (CBN) AND immediate past Chairman of the Federal Roads Maintenance Agency (FERMA) Mr. Tunde Lemo, in this interview with Festus Akanbi and Gboyega Akinsanmi, spoke on sundry issues including the composition of the cabinet of the new administration, Nigeria’s debt profile, managing gains of fuel subsidy removal

What are the pitfalls you will advise the new government to avoid?

The 1999 Constitution stipulates that every appointment must be based on federal character. The new government should not sacrifice merit on the altar of federal character. If you are looking for merit and skill, you can find it in all parts of Nigeria. In the event that you are unable to find it in a particular place, do not feel shy to get it elsewhere because, at the end of the day, poverty does not know colour, neither does it know the state of origin. Also, when you want to do things for the public good, it is not all the time you will be applauded initially. What is important is for the new government to be convinced that what they are doing is good whether they are applauded or not. If you are in government and you are looking for applause, you become a populist. Before you know it, you derail at the end of the day. It is not all the time that the public knows what is best for them. I always use this metaphor. When you take your five-year-old grandson for inoculation, do you think he will like it? He will cry by the time you put that needle in his hand. If you want to please him, you will not give him the polio vaccine. You will not give all the necessary vaccinations. What happens eventually? He comes down with polio. God forbid! Have you been helpful to him? He will understand how helpful you have been when he is 12 years old. But he may not understand when he is four or five years old because of the pain he feels in his hands. I think the new government should learn from this metaphor. Let us ensure that we do things right from the inception. It may be painful at the beginning. They should communicate it to let the people know. Finally, there are many sycophants. The new government should now listen to sycophants. They should hit the ground running to do what is in the best interest of the country. Over time, they will be better for it. When Lee Kuan Yew started in Singapore, he was seen as a dictator and as a very draconian leader. But he became very iconic by the time the Singaporeans started seeing the benefits. I think we have that opportunity now in Asiwaju Bola Ahmed Tinubu.

Nigerians will like to know why you voluntarily resigned from your appointment as Chairman of the Federal Roads Maintenance Agency (FERMA). What really happened?

I have two good reasons for my decision. First, FERMA is good. It was established to maintain all federal roads in the country. It was fashioned after the federal road maintenance agency in the United States. However, it is not my line of best fit even though I did my best in the four years I was in charge. As Chairman of the FERMA Governing Board, I am not an engineer. Apart from directors, nearly everybody on the board is an engineer. I just felt like a fish out of water. but I actually tried my best. When it comes to technical issues, I had to depend on those with whom I served on the board. I told the then Minister of Works and House, Mr. Babatunde Fashola (SAN) that it was not my line of best fit. Everybody worked very hard. It could be renewed. Second, I did not disclose the other reason to the then minister. Based on procedures, I would have wished he pencilled it down as part of opportunities for the new president to assemble his team. If you have to appoint people to positions even one week before your exit, it is like you are binding the new president for another four years. I felt it was not too proper. I politely said I will step down. I thank President Muhammadu Buhari for the opportunity to serve. However, I felt I would have performed better if I was given an assignment in my line of best fit. I am a banker, an accountant, and an economist. I could do much better in the financial sector. That is part of the reasons I said I was not interested again.

In the last eight years, Nigeria slumped into an economic downturn twice. What are the pitfalls that culminated in the recession?

During the eight years of President Buhari, we ran into recession twice. On the two occasions, I cannot really say it was Nigeria’s fault. The first was global. It was global because there was a global economic crisis around the period. The only reason we slumped into recession was because we did not have a reserve buffer that could support our economy. Between 2008 and 2009, there was also a global economic meltdown. Nigeria did not go into recession because we had a reserve buffer. Then, we had over $60 billion in the foreign reserve. It was like we had a cushion or an insulator that would stabilise our economy against the global economic meltdown.

So, at what point did the past administration falter?

Unfortunately, we did not repeat that when we had the second experience. It was largely because we tolerated fuel subsidy under the Goodluck Jonathan and Muhammadu Buhari administrations. I am glad President Bola Ahmed Tinubu confronted it headlong. There is no reason that we should have held onto that fuel subsidy since the tenure of Chief Olusegun Obasanjo. President Obasanjo attempted to remove it completely. It was like a moving target. If we remove the subsidy today and price structures do not underpin the market dynamics, the subsidy will reappear. People think fuel pump prices should be fixed. They do not know it responds to market dynamics like any other product. When I have conversations with people, I always ask this question. Why will you expect fuel pump prices to remain the same in the last decade when prices of soft drinks, even table water we drink, are longer the same? They have all adjusted due to market dynamics. Why should petrol be different to the point that we became very emotive? Incrementally, we were increasing subsidies from two major fronts. The only one that people see is the one that NNPC does. Every importer, whether it is NNPC or independent marketers, also gets foreign exchange at subsidised rates. That subsidy is in two forms. As at the last time I reviewed it, the government was spending N400 billion per month on direct subsidy. Forex subsidy was approximately about N300 billion per month. When you add the two together, you then understand why we did not have enough forex for people, particularly in the real sector. That was also why NNPC could no longer contribute money to the Federation Accounts. Also, state governments were broke. When you look at what happened during the second recession, that was because we did not have a reserve buffer. So, we slipped into recession. The good news was that the recession lasted only for two quarters. If you look at the way our economy has been lacklustre over time, it is largely because we did not allow market dynamics to work. So, resources were not allocated optimally. In the downstream oil sector, there should have been additional investments. Who will invest where the cost is bigger than the revenue? Of course, you have to wait on the government to make up the difference. Because there are so many charlatans, a lot of them will get subsidies and direct their ships to Gabon. Because of that, everyone who carries subsidy papers is perceived to be a crook. Most guys in the oil sector just abandoned it, almost to the point that NNPC became the main importer. As a result, there have been significant investments in the downstream oil sector in the last ten years. But we are laying a solid foundation now. I tell people that the pain we are going through today is necessary because we have abandoned it for so long. At the end of the day, we will look back in the next two or three yeast and thank God that we did what we did. It will free up resources to do so many things. Our schools are in shatters. Roads are deplorable. Everything is upside down because the federal government is broke. If we begin to rain in such funds and then intervene in real sectors as we should by providing physical and social infrastructure, we are going to see the benefits. I was at a forum just last week. I said: “Do not think because your budget will increase from N10,000 to N30,000 per week due to fuel subsidy removal. It does not work like that.” You will discover that there are fewer vehicles on the roads. So, you do not have to burn your fuel for that long. I estimate that you could save 50 per cent of that. You are not going to spend three times. You are also going to be more efficient in the way you move around. If three of us live in Ikorodu and come to Lagos Island in our different cars, why can’t we agree to have a pool and take only one car out one day a week? If we are four, for instance, my car comes out one day in a week. Then, we can save a lot. We may even have net savings. We are going to be more rational in the way we do things. At the end of the day, we may hit a new equilibrium and find out that it is just a life change we need. With this, we can free up resources to enable the federal government to provide what it should for the benefit of the people.

You just mentioned the revenue crises we are facing. How can the revenue challenges facing the new administration be addressed without plunging Nigeria into a further debt trap?

There is nothing wrong with debt per se. It depends on what you do with the debt. When you look at our debt-to-GDP ratio, it was around 35.2 per cent in September 2022. It is far less than America’s debt-to-GDP ratio. This means we can borrow more. Am I saying we should go and borrow more? No! The major thing the federal government has done now should make Nigeria borrow less. Do you know we have been funding fuel subsidies through bonds? When people ask about the money we have saved, we have not saved as much as people think. If the subsidy is N400 billion per month, it does not mean that money is on the table. It means out of the N400 billion, the federal government was borrowing N300 billion. But now they will no longer borrow. It is not like the government should tell us what they will do with the money. That is the kind of narrative we get from organised labour. The major thing is that the propensity will be much less because the pressure will be less. Then, the government will just settle down and focus on real governance. This new government is market-friendly given the background of the new president. He is going to embark on many activities through public–private partnership (PPP) because of his background. Before he went into politics in 1999, he was a private sector person. He was a treasurer in Mobil Oil. He understands that very well. The global capital is waiting for Nigeria. All they need to see is that we have a stable macroeconomic environment. It means we have a foreign exchange rate that can be determined a priori. All investors will know that if they invest in Nigeria, this is what they will benefit from. Nobody embarks on huge capital projects with government revenue. No! When you go to Brazil, you will see many of their highways. They are constructed with private funds, and most of these roads are tolled anyway. When we restructure your economy, we free up a lot of resources that the government was using for unnecessary things. We also make the country more competitive for global capital. That is basically what we are going to see under the new government.

During his inauguration, President Tinubu directed the CBN to work out the unification of exchange rates. How should he go about it without hurting the economy?

It cannot hurt the economy. When we talk about unification, it suggests that we are going to have only one rate. Naira is not freely convertible. When a currency is not easily convertible, you will still see some divergence. Unification is right because we are going to have convergence. Even if you do not buy from the official window, the rate at which you get it may not be two per cent different. That is understandable. In many of the emerging and frontier economies, we have that kind of arrangement. I was in the CBN under Prof. Charles Soludo and Mallam Lamido Sanusi. The difference between the official and parallel rates was very slim. It was between N4 and N6. It did not matter. People do not have to wait endlessly if they do not have enough from the CBN because the alternative channel does not add so much. That is the unified exchange rate that Mr. President talked about during his inauguration. And it is achievable. In fact, it makes the economy better. FDIs and portfolio funds dried up for two reasons. The first is because of the wide gyration. If an investor brings into the capital market, he queues in the CBN for months or years when he is repatriating his dividends. He does not get it. Of course, the expectation is distorted. The plans are distorted. And the appetite to invest more in Nigeria disappears. But you have a unified exchange rate where all rates converge plus or minus two per cent, and then of course, they come in and go out. It does not have to depend 100 per cent on CBN’s allocations because all the other funds from the energy sector and exporters converge around the official rates. That is what deepens the foreign exchange market. In the period I was talking about, there were times when the CBN would go to the market with $600 million and they would not sell everything. Sometimes, they would even buy the surplus. That was why the foreign reserve went up as high as $60 billion. When you have a unified exchange rate, you make your market more competitive. Foreign investors will want to come in. Even, if your rating goes up, you then free your economy for more businesses. It is like telling the world that we are ready for business. But corollary happens when there is a wide gap. It is only the rent-seekers, those who take the arbitrary opportunity, that cash in on that. There is no meaningful development. That has been our experience in the last few years.

What are the low-hanging fruits in the economy which the new government can take advantage of?

Of course, there are low-hanging fruits for the new president. First, he has already taken off the fuel subsidy on premium motor spirit. But he must deepen it by allowing market dynamics to drive fuel pump prices like other communities in the market. Second, he must make sure that there are square pegs in squares in the appointment. He must get experts to do what they are expected to do. Third, he has to signal accountability and efficiency. Every head of MDA must justify the reason for being in the office because that is the reason for his engagement. If somebody is not contributing, he should be scrapped. For almost two weeks he has been in the office, I have been very impressed with what the new president has done. We have seen the expectation. We have seen his body language. The body language is when it comes to security, there must be coordination. He had to visit the National Counter Terrorism Centre personally. He brought the NNPC and CBN together. At that session, he emphasised the significance of data to his administration. He also told them that they had to report timeously. He had the CBN to unify the exchange rates. And to NNPC, he insisted that it had to be efficient because it had ceased to be a public corporation. That is what we have been witnessing since he assumed office. The era of rent is gone. Because I know people in government, I will get some privileges. No, it does not work like that. Let us be in the same spot, and that is how we can drive efficiency.

How will you assess the role of organised labour in the initial opposition to subsidy removal?

So far, so good. People said perhaps they had bribed labour. No! Labour backtrack because they started to see that this is a government that understands how things should be done. They decided to give the new government the chance. It is important to emphasise that while we have the subsidy removal, it is going to hit people’s pockets. Yes, it will hit people’s pockets, but it will not be in the quantum people are thinking. People think that prices from x to 3x, then salaries should move at the rate. The fact is that the price moved, and other prices are coming down. Do you know that diesel prices have been coming down? Do you know that gas prices have been coming down? That is the way the economy works. Because you have freed resources in certain areas, it is going to positively affect so many other areas. On a net basis, we are not likely to see more than three per cent inflation. And it is going to be a one-off. After that, we will get to a new equilibrium. The base salaries must be jacked up. If you see an average worker, how much does he spend on transportation from his N30,000 salary? Perhaps, he only spends N10,000. Out of the N10,000, maybe he gives the N10,000 to the busman. If you analyse the man who runs the bus, what percentage of it will he use to fuel the bus? He may use another 40 per cent because he has to repair the vehicle and give money to his conductor. It is just 40 per cent of the N10,000 you are talking about. At the end of the day, the impact on workers may not be more than 15 or 20 per cent. Yes, I agree that there must be a minimum wage review. It must not be in the quantum people are talking about. Some are proposing N200,000. If that happens, of course, the exchange rate will hit N1000 to a Dollar. And you will see money and run because it will not be worth the paper. It simply means CBN will print more money. It will be cheaper than the tissue paper that we use in the toilet. We should not go through that route. There should be more reasons for the way we negotiate. The low-hanging fruit is: let us roll up our sleeves and be productive. Workers should know that wages are low in Nigeria not because employers of labour are mean, but because of low productivity. When we ratchet up our productivity, water will find its level naturally. If productivity is high and my staff is short-changed, they will move to other places. The new government should grant all public universities full autonomy. Now is the time for us as a country to ensure university autonomy. Besides, the new government should ensure the sale of non-earning assets, including our four refineries. Finally, it should, as a matter of priority, carry our rationalisation of ministries, departments, and agencies (MDAs) in line with the recommendations of the Presidential Committee on Restructuring and Rationalization of Federal Government Parastatals, Commissions and Agencies chaired by Stephen Oronsaye

You talk about coordination. I want to draw from your experience as a former CBN Deputy Governor. What is responsible for the lack of synergy between fiscal and monetary authorities?

Honestly, the way the system is structured, it should be so. If we start from the composition of the CBN Board, do you know that the Permanent Secretary of the Federal Ministry of Finance is a member? Do you know that the Accountant General of the Federation is a member of the CBN Board? What that tells me is that they sit down when the monetary authorities are taking decisions and go back to their base. Through them, information flows left and right. That is how it should be. From time to time, the CBN Governor and Finance Minister should have private time. Once every month, they can sit down and review issues that affect the federation. I do not really know what was responsible because I was not in the financial sector of the government for the past eight years. Honestly, I will blame the operators because the system is calibrated in such a way that there should be synergy. They all converge at the level of the National Economic Council. The CBN Governor is a member. Finance Minister is also a member. And the Vice President chairs the Council. We have enough framework that promotes coordination. I do not just know what fails.

If you are to meet the president today, what will be your advice on the new Naira notes? Or put differently, do you foresee the new administration revising the policy on new naira notes?1

I stand by what the president has said. I will not speak too much on this question because I am a former CBN Deputy Governor. I want to avoid a situation whereby I sit down in judgment against CBN. I have a channel to advise them. But I stand by what the president has said. For him, the two notes will be recognised, at least in line with the decision of the Supreme Court. That is also in line with the international best practice. Let me take you back to what just happened in England. The United Kingdom just moved from paper to polymer. That affected £50, £20, £10 and £5. It took them one year to switch over. Even, they published something last week. The regulation time, I think for £50 and £20, is fixed for the end of this month. That is when they will no longer be legal tender. Meanwhile, it has been on since 2022. So, there was sufficient time. It was seamless. In a situation whereby you gave a very short time in an economy that is more cash-based than the United Kingdom, you know it is a recipe for confusion. When you want to cross over from old notes to new notes, you need to give sufficient time. Where are we running to? I am completely in agreement with what Mr. President has said. I do not want to say so much about the CBN because I am the product of the CBN. I do not want to sound controversial.

This day, the noise about fintech has come down. Is it that fintech companies have outlived their usefulness? Or what is the situation now?

Fintech companies are working and running very well. They are part of the payment system. They are also part of the support banking services. They support communications and so on. I do not know what noise you are talking about. Flutterwave and other fintech companies are doing well. Do not forget that financial institutions see them as partners in progress and not as competitors. There is a new buzzword in business literature, which is now called coopetition. In other words, even if you compete with one another, there is room by which we can cooperate more and not compete with ourselves. Using competition as a framework, fintech has been able to integrate properly into financial services to the benefit of all. I sit on the boards of many financial institutions that sign agreements with many fintech companies. Flutterwave, for instance, has agreements with three or four banks. They work hand in hand together. And everybody is happy.

What’s the update on the takeover of Union Bank Plc by Titans Bank and what are the plans for the new entity?
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We are making good progress. Remember the core shareholders in Titan Trust Bank have bought the core shareholding in Union Bank. Titan Bank has over 90 per cent of the Union Bank. In the next few days, we are going to have a court-ordered meeting so that the two institutions will finally merge. What made it to be a bit protracted was the SEC rule. Because if you are buying a majority shareholding in an institution, you should also give the minority shareholders the same rights you gave to the majority shareholders. If a particular share is selling in the market at N5 and you bought from the core shareholders at N7, you have to give the minority shareholders also the opportunity to sell their little shares to you at the same N7 so that they will not be short-changed. The process is long and tortuous because everybody should be carried along. The process is almost completed. What we are going to do now is to have a court-ordered meeting so that they can finally sign off. By God’s grace, you see one institution by July 2023. It will now be an amalgam of Union Bank and Titan Trust Bank.