Abimbola Olashore: Belt Tightening in Times of Economic Hardship Should Start from Govt. Officials

Prince Abimbola Olashore is a seasoned investment banker who over the years has acquired in-depth knowledge and vast experience in financial advisory services and other sectors in the economy. He is an engineering graduate of the University of Hull, United Kingdom, a Fellow of the Institute of Chartered Accountants of Nigeria and also holds a master’s degree in Business Administration from IESE Business School, Barcelona, Spain. Olashore, who presently is the founder of Lead Advisory Partners, which offers consultancy services to corporates and SME also has interest in agricultural as well as the education sector, where is the Chairman of Olashore International School, an institution committed to excellence. In this interview, he speaks about the current state of the Nigerian economy, how to reset the economy as well as opportunities in the education sector. Dike Onwuamaeze brings the excerpts

Can you tell us about your background and experience in the banking industry?

My background cut across three different professions. I started with engineering even though people do not know about that; later I became a chartered accountant and I had a career in banking. I left what they called formal banking in 2016, and started my own investment firm. I have been a bit involved in the financial sector for quite a while. But nowadays, I spend much time on a number of non-governmental organisations (NGOs) that are also very active in the financial sector and also in the informal economy of Nigerian. From that perspective one is still very much in touch with what is going on. The advantage of a career in banking is that it gives you opportunity to meet almost all the players in the industry, which gives you a fairly good idea of what is going on. And especially if you have been involved in policy formulation you are also good at critically assessing where we are and you ask yourself: are we going in the right direction?

Why did you leave engineering for a career in the financial services sector?

That is a long story. But if I am to go back, I will say that right from school I was good in the sciences, which meant that I either became a doctor or an engineer. But I hated biology. At the same time, I think my natural interest was that I was also good in mathematics. This was why accountancy was a major interest to me. The first time that I had to do JAMB, I put accountancy as my first choice and engineering as second choice. I remembered people telling me that I was very confused. Why these very extreme courses that would ask me. The second time I did JAMB, I switched it around and put engineering as my first choice and accountancy as second choice. My natural instinct was to become more of an analyst. So, I did engineering but as I was graduating I sold all my textbooks on engineering because I didn’t think that it was for me. I did not even join any engineering institute in The United Kingdom. So, I came back to Nigeria and decided to become an accountant. So, I started studying accountancy for three years. I trained with Deloitte. By the time I was finishing the banking boom was upon us and I came into banking where I started my career. But I am still very much active in the three professions. Late last year I was in Abuja, as the guest of the Nigerian Society of Engineers where I delivered a paper for the body of fellows. I have gone full circle.

Now let’s talk about Nigeria and recent development in the country. We have seen protests in some states over the rising economic hardship. What do you think is the way out of this predicament?

Before we talk about the way out, it is always good to put things into perspectives. The situation in Nigeria is about the case of the chicken coming home to roost. A lot of things have been said about the productive capacity of this economy; about our propensity for importation; about policies that would promote local industries; about fiscal and monetary policies that will encourage productivity; and how to ensure that Nigerians move away from instant rewards to delayed gratifications. A lot has been said about Nigeria as a country, the structure of its economy, the constitutional constraints that are not promoting hard work. A lot have also been said about our rule of law.

These are all issues that nobody can say that he is not aware. In the past when we had global crisis that should have forced us to rethink, Nigeria has always been very lucky. It was either that we have reserves to cover it or that we are able to get ourselves out of it. But now we have a big problem. We have a problem of production, as we are not producing. I always laugh that ever since I have been doing analysis on the Nigerian economy, our oil production has always been around two million barrels per day (mbpd), I always go to other countries that were in the two million barrels per day bracket with us and out of nowhere Mexico has moved to seven million; Kuwait moved from two million barrels, but Nigerian leaders where so satisfied with two million barrels per day because of the structure of the country’s oil and gas sector. If you are not doing anything in terms of production and somebody is just crediting you money, there will be no incentive for you to reinvest. So, when we should have re-invested in our oil industry we did not. Instead we saw the place as a cash cow where you extract revenue from. Now, Nigeria is not even producing two mbpd. In the past we were battling against fluctuations in the price; but all of a sudden, in the last couple of years we are now battling with acute reduction in the volume that we are producing.

So, we have a problem from a revenue perspective. Nigeria’s population has grown from the time it gained independence till now. We also structured the economy in such a manner that the federal government is in charge of everything whereas government should be an enabler, creating an environment for the private sector to take the leading role. The rule of law is not there. The capitalist system is dependent on two things: the rule of law and the other one is property right. What is mine should be mine and if you are going to take it from me you should pay me adequate compensation. But these two are totally missing in Nigeria. The government passed the law that everything below the ground is its own because of oil. Now, it is almost impossible to get the federal government out of it. These are all issues that have been agitating our minds and have brought us to where we are now. So, we have been playing around the edges without addressing the issues. There was a motion in the National Assembly recently that we should go back to the parliamentary system of government. Why won’t there be food crisis when farmers cannot go to their farms because of insecurity? We have crippling high inflation because too much money is chasing few goods.

We compounded the problem by borrowing and releasing money to unproductive ends. We ran a deficit budget for eight years and were borrowing heavily under ex-President Muhammadu Buhari. The basic things that would have moved us forward were not addressed even though I must give him credit for infrastructure. The money printed by the Central Bank of Nigeria (CBN) under Ways and Means was enormous and must be drawn back. The central bank governor has said there will no longer be borrowings until the government extinguishes its outstanding Way and Means. So, how do you get the money back from the economy? It will be through a very painful process. Interest rate must go up significantly; naira must also depreciate because we are chasing dollar with too much naira. So, the prevailing high interest rate, inflation and exchange rate should be traced back to when we were playing the ostrich. Now the price has to be paid and the government cannot do it alone. But my biggest problem is that President Bola Ahmed Tinubu’s administration did not manage Nigerians’ expectations very well by preparing citizens for the hardship. But how could it have done it when those in government are living large? These are some of the things we cannot just understand. Belt tightening should start from the government because leadership has a role to play in everything we do.

It is the government that sets the tone for the behavior of everyone. If the government is going to give you a contract, would you trust it? Would you trust it if the government says that it will do this? Everywhere in the world government payment is taken without debate because it has the ability to borrow to make sure that it meets its obligations. If the biggest player is not meeting its obligations, can it set the tone for behavior? So, are those saying belt tightening, tightening theirs? Are the people saying buy Nigerian products to support local production buying locally made goods and services? I still cannot understand why government’s institutions are buying cars but are not buying Innoson’s vehicles? Government should give him (owner of Innoson Motors) cash upfront for the cars it will need in two years’ time so that it will modernise and improve its products because that is how most people start. If you want to travel as a government official, you should fly Air Peace. But do we see examples of that? If you say that you want to enhance the healthcare system, do not announce it when you are going abroad for health tourism.

So, what kind of investments should Nigeria have made in the oil sector over the years?

Number one, the structure of investment was joint venture. So as a partner Nigeria should bring out its counterpart funding for oil explorations. But Nigeria was not bringing its own funding. So, our partners fund the projects and pay themselves first. That was defective ab initio. We should have been paying our own part of the investment and tax them afterward. What we did with the Nigeria LNG Limited (NLNG) is a perfect model of how we should have done things. We already have a model that can work and that model must be replicated in every of our institutions. We saw the oil industry as a cash cow and we never did our own investments. Some countries do not have oil like us but go and see their state petroleum companies. Instead of making investments to ramp up our production we were so contented with the money that we were making.  It did not matter to the decision makers in Abuja, when the oil industry started becoming dangerous and insecurity problem was building up until Warri became a no go area; Port Harcourt later became a no go area. Who invests in a place that is unsafe? This is why I can say that there is something wrong with the structure of our country.

What is your view on the CBN’s floating of the Naira?

Let us start with the problem because we must narrow the gap between the official and parallel forex markets. The gap used to encourage all kinds of malpractices and needed to be closed. We should not have such disparity in the market. No country leaves its currency on a free float. They use other tools to manage it. In our own case we have problems with the tools we need to manage it. Some countries will raise interest rate to compensate people to invest in their markets. But our biggest problem right now is on the fiscal side because of the structure of our country that shares money among the tiers of governments every month that has got nothing to do with each government’s productive capacity. Was anything done to the governors that were converting FAAC allocation to dollars when this abuse first started in 1999? Nothing! But everybody saw it. I was in banking then and what the governors were doing was changing money and buying houses abroad. What happened was that same people that had the money came back to pervert democracy. The problem we have with the Naira is loss of confidence in its ability as a store of value. It is now an emotional thing to see foreign currency as a store of value.

The CBN has given notice of an impending recapitalisation of the banking system. What is your take on this?

I was in the system during the last round of banking recapitalisation. They probably know better whether the banks are in the position to play the roles they are expected to play. Banks are meant to be the intermediary between the surplus and deficit parts of the financial system. So, they are meant to finance big ticket transactions. But the question is whether they have the buffer in terms of their capital? I think that is what the CBN is saying. Nigeria is in need of serious financing and the capacity of the government to finance Nigeria’s need is getting weaker. So, we now look at the banks. Are they capable? We need the banks to be strong and able to finance big ticket transactions. Obviously, capital plays a role because it is the buffer if things go wrong. So, N25 billion that was a big money in 2005, is nothing today. It is barely $25 million.

I think that this recapitalisation is a method to say to weak banks to go and merge together. The capital increase is a way to consolidate the industry. Because when you have weak banks that are fragmented, they are the ones that will take all kinds of risk to stay afloat. And their risk taking is what that will endanger confidence because it will only eed one or two of them to fail and there will be a run on everybody. Mergers in developed countries are matter of moral persuasion. But Nigerians will prefer to go to court even if their banks are failing. Today we still have banks that failed since the 1990s that have not been liquidated because they are in court. Can those banks be reopened? They have been dead. But guess what, their depositors have not been paid up till now. We have a legal framework that makes it difficult for us to do in Nigeria what is a normal business practices elsewhere. So, what that means is that you must use a crude method like capitalisation to force them. To me capitalisation is the crude method for other things that do not work. In abroad you do not hear them talking about capitalisation. They talk about capital ratios that if you cannot meet them you will go and merge.

Were there lessons you learnt from the 2005 banking capitalisation exercise to guide the industry?

Oh yes, there were many lessons. First of all, we must learn to be proactive. When you see signs, be proactive about them and do not wait until things get out of hands. Our political environment is enabling individuals to be bigger than institutions. From a central bank perspective, there should be more stringent regulation and also rule of law to ensure adherence to policies. What happens is that all of us are players but you see somebody committing offence and he gets away with it while you are there trying to play by the rule and you are not making money. But other people who are not playing by the rules are being celebrated. It will get to a point that you will want to join them. If there is punishment for bad behavior, you that want to keep your name will not do it. But has there been any punishment for bad behavior in our society till today? Why do we believe that these things do not matter? Government must set the moral tone; it must set the tone for behavior. Once you hold public office you are no longer a private citizen. And everything you do has a signal. Government must stop giving credibility to bad behavior. The problem we have in Nigeria is that it is the leaders that will cause the revolution that people talk about.

What do you think can be done to reset the economy?

First of all, the Nigerian economy is very simple. What is the biggest contributor to the Gross Domestic Product (GDP)? Agriculture. So face it. It is the biggest contributor to employment; it enhances food security and it is where we have comparative advantage. So, how are we able to get people back to the farms? As a family we have two farmlands. One is about 50 hectares of land and I have not been there for over two years now because of insecurity challenge. So, I am only cultivating the smaller one that is about eight hectares. The middle belt is the food basket of Nigeria, but a lot of people are not going to their farm lands because of ethnic and farmers-herdsmen clashes. So, the first thing is to ensure that people start going back to their farms. The second thing is to make the farms more productive with enhanced technology. To me the solution is in agriculture. Another area that is viable that we can make more money from is mining. We have to look inwards and look at our natural resources and think about how we can add value to them. We missed the boat in investing in hospital and education. Thank God private investments have come into health.

In Nigeria today, there is nothing that cannot be diagnosed. Government should now say ‘no more medical tourism.’ Let us conserve our foreign reserves. Much will be achieved if the amount of money we are exporting for secondary school education is invested in schools in Nigeria. It is Nigerians that must invest in Nigeria to make Nigeria grow. These are what I call the low hanging fruits. We must ramp up our oil production to about three mbpd. Oil is a wasting investment and we have about 20 years window to exploit as much as we can before other alternatives comes up. The beauty about some of the oil companies that are leaving is that indigenous companies are buying them. Hopefully they will invest more. These is not rocket science, but commitment and carrying Nigerians along by living by example, within five years it will be a different story. Nigerians are actually patriotic but they are learning from their leaders.  I feel sorry for people under the age of 40 in Nigeria. They never saw Nigeria work normally and have taken our dysfunctional behavior as normal behavior.

You are an investor in the education sector, what is your assessment of Nigeria’s educational system?

Education is an area that needs investments because it is always changing. Going to school is not the only way of getting educated. Sometimes I tell people that after going to university that they also need to develop social skills and networks. For us we have decided that education is an area we have invested. We have our flagship, which is the Olashore International School that is delivering world class education in our local setting. It is a Nigerian school but it enables our students to compete globally. We have always tried to encourage as many people as possible to go into education. The biggest challenge with education now is that people see it as if there is money in it. There is no money in it. All the money you generate is also reinvested. When we built the school, Tower Aluminum told us that they are giving us 10 years guarantee on the roof. By the time the 10 years was coming up and we are looking at the cost of re-roofing it was almost 10 to 15 times the amount we used to do it initially. Did our school fees go up 15 times? Where do you get the capital to reinvest in physical structure? Government blows hot and cold with taxes. One year they will say you are tax free and another year they will say you are not tax free. Education requires investment if you want it to stand the best of time. Technology plays a very big role in education. The solid walls you built 30 years ago for classrooms may not allow Wi-Fi to penetrate.  How often do they revamp the curriculum in Nigeria? The inspectors will say that we are expected to deliver English, Mathematics and the sciences. Fine! But what people need today are skills. Nobody listens if I say I want to do vocational education.

The students do not even want to pay for it. In Nigeria we put a lot of premium on certificates whereas premium should be on skills. Education now means that you must blend formal education in the curriculum and also make sure that you are giving those students skills that will be useful for the world they are going to live in. Let me give you an example. If anyone enters my school today at the age of 10 in 2024 and spends six years with us and another four years in the university that is a minimum of 10 years. Therefore, the child will enter the workforce in 2035. So why am I giving him skills for today’s market? I must try and prepare him for the market of 2035. As a school I have to anticipate what industries that will be relevant in 2035 and beyond? What will be the environment in 2035 and beyond and make sure that my school will deliver it? But if you will tell people to pay for that they will say no. My concern is how I can deliver a kid with skills and attitudes that will be relevant in 2035 and beyond.

Otherwise your students will not be relevant. What that means is that you keep on investing. I happened to be in the UK in January and spent three days at BET Educational Fair so that I can know the future of education. I told my board members that we will deliver students that will still be globally relevant and at the same time make sure that they are also relevant for Nigeria. So, it is a challenge. But we are enjoying it and are quite happy about it. We are adding three tripods to the basic education. Tripod number one is sports. I have just built eight football pitches because I want it to be a centre of excellence in training footballers. We are starting what we call Olashore International School Football Academy. Beyond skills football requires a mindset to cope with both success and failure. Another tripod is technology where students will learn robotics, coding etc. The third tripod that we have not started has to do with creativity and drama. These are the key areas that we believe are for the future. So let me give my children skills apart from basic vocational training in carpentry etc.