Nigerians will have problems coping with psychological adjustment- Kpakol

Executive Chairman of the Economic Growth and Development Centre (EGDC), Prof Magnus Kpakol, speaks on subsidy removal and other economic issues on Sunrise Daily, a Channels TV programme. Deborah Onyofufeke monitored the interview where the former Chief Economic Adviser to the President, explained why Nigeria is economically behind and proffered some solutions to the issues

Before presidents come in and make their statements of giving or having some economic component, they usually get a lot of advice from economic teams, it also goes to suggest that that kind of statement (subsidy removal); gives you the typology of what to expect from economic policy; is that right?

He campaigned, so, I suppose he was speaking from his manifesto. Speaking based on the things that they had discussed that they would do when they become president. So, I mean we weren’t really surprised about what he had to say, but I think if we want to settle, like deconstruct what he said, break it down, and rationalise it, I think that he was on point. I thought that his speech was wonderful. I think that if he can do some of the things that he’s talked about, and the way and manner he talked about, then I think it would be really good for the country. Now, the thing is this; there are several moving parts to get the economy running because governments tried different policies to see how they could get it right. So, what makes this particular one is, what gives you the impression that this might just be different from the other ones, to get different results.

Perhaps better results from what we’ve seen previously?

I think that I have followed the President well before he assumed office for some time. When I was in the government, you know I had the cause to interface with him a little bit, and I know that he’s a guy committed to rational proper economic ideas, and so, I am not surprised that he comes from the perspective that he’s coming from. I think that he understands the economy pretty well, and he understands the nature of the world – the problem is how to get it, how to sell the story to the populace. So, his storytelling has to be very good, and because the whole thing is about how you tell the story, I think that he has studied well in trying to say that he’s going to be accommodative – that he’s going to be working with the people, and he’s going to be looking at the economic issues that Nigerians have been talking about. I believe that he will do just that, especially trying to give the economic freedom that we want in the country. We don’t have much economic freedom. For example, you say that people are poor. Like they say in the Niger Delta, or say, in Zamfara, the reason they are poor is because they’re needed from their endowments. I mean, so you tie people’s hands from their endowments, they can’t go and mine the resources that God has given to them. And then, you say that they’re poor, so we have to find a way that we can cause people to be more powerful in being able to engage the natural resources and the environmental resources that they have. In many societies, you will have, say, a piece of property you have rights to. You have surface rights and you also have mineral rights, so there’s a way you can do it so that people have a way of exploiting the resources that are available to them. I think that with proper consideration, we will look into this. The government is too fat – the government is not going to be able to do everything the way we’ve been looking at it. The staff is to have a situation where the government almost literally confiscates the resources of people, brings them to Abuja, tries to sensitise them, and then says okay, this is what comes back to you in that location. It should not be that way, so hopefully, they will look at that. But even like with the fuel subsidy thing, I’m sure that you asked a question or two on that, well, he’s caught between a rock and a hard place because there is no money to continue past June because it’s not provided the budget, but it’s going to cause serious problems as we have seen. But it probably can be ameliorated if we talk properly to the people. If the story is told well, and people are engaged, this could have been done all. This time, unfortunately, we didn’t do it. So, now, he’s taxed with the possibility of having to bring the people together to understand, but sometimes it’s hard to understand when you have not eaten, and that we’re going to face the situation. See, the problem usually is not that you make a change, but that you cause people to be able to adapt to the change. And suddenly, it’s like when you raise taxes because people have already programmed themselves. Households also have their budget, and they programme themselves through the year. Then, suddenly, somebody comes and disorganises that. That is disrupted. Then, in most cases, they don’t have regular rooms, and they don’t know how to adjust them. The problem we’re facing now is an adjustment problem. Everybody knows that this cannot continue as it is, and I can tell you that, I am not really for the complete removal of subsidies. I can say that right away because I think that you know people say, well, you know, there’s only that bottom four per cent. You know, consumes only one per cent; but not the bottom 20 per cent consume only one per cent of the subsidy; or petrol. That may be true, but there is a transmission mechanism. I mean, you don’t expect the poor people in the villages to be lining up their Mercedes-Benz cars to buy fuel. That does not happen, but they depend on the richer people who buy fuel, because those guys have the vehicles, the taxis, and all the others, that these guys must pay. So, while I don’t come directly to purchase fuel, I use their vehicle, you know, for which they have purchased fuel, for which now the fuel price has gone up. And so, let’s say that my presence here in Abuja, I say you live in Mararaba, and your income is N30,000, and they are spending maybe nearly half of that on transportation; obviously, this approach is going to cause, you know, some dislocations for them.

People have spoken about equilibrium; that at some point, if the transport costs are too high, people cannot afford it, and when the transporters do not find any customers, they will come down to a price that people can afford; an equilibrium of sorts?

Oh yeah, the price is not going to be N700 per litre. I mean, this is sort of a knee-jerk reaction that we’ve seen. I think that, in the end, we’ll have prices in the N400 per litre range because you remove them. Let’s see…the subsidy per litre right now is N200. I think it’s somewhere in that vicinity, and let’s say the landing cost is N115, or so. So, if you do the simple math, it takes you somewhere in the N400 range. But you have to have regulations for that to happen. So, the government’s job is to be sure about this regulation. I think at the end of the day it is not going to be as bad as people are saying, but there’s going to be an adjustment problem, and that is the psychological adjustment that people have to also have. The NNCPCL, we understand, held a press briefing to tell people that the President did not mean that it was going to be right away, but it would seem that the damage had already been done. The dissemination of information that it wasn’t going to happen immediately because by the following morning, of course, before they could, they had already besieged the field, that is and that’s still the situation until today, but let me take you up on all the parts cause you started with broad parts of the speech and being an economist, I’m sure that there are many parts of this speech that you were looking at. It would seem that almost immediately when the president wanted to speak about the principles of his administration, the principles that would guide his administration. He seemed rather partial to the economy, on the five cardinal points, at least two of them point to the economy – the part that talks about remodelling the economy to bring about growth and development. He also wants to increase the GDP, he wants to create jobs, food, and security, and he also wants to put an end to extreme poverty. I know that you’ve been very concerned about ending poverty for the longest of times and then looking at the bottom here at N5, it says our government will take proactive steps such as championing a credit culture to discourage corruption while strengthening the effectiveness and efficiency of the various anti-corruption agencies. I mean that’s under principles.

If you now look at other aspects of the speech where he now starts to break down the sections of the economy, you see the broad head as security, the economy, then you see jobs, a separate header, agriculture, infrastructure, a separate header, fuel subsidy, a separate header, monetary policy, a separate header, and all of this. Isn’t it all tied to the economy?

Yeah. They’re all tied absolutely, and I think that he’s looking at it holistically. As I said, I like his speech. You know, listening to him, the problem of the country is a human capital problem, and as you said, the problem of Africa, the reason Africa is poor, is because of our grave human capital deficiency, and if we don’t solve it, it doesn’t matter what you say, how you write it. We don’t have the capability of producing the goods and services that the people of the world want. You know, it is at the level of complexity and sophistication. So, Nigeria, for example, is the largest economy in Africa, but it is not the most complex. It’s not the most sophisticated, say, compared to South Africa.

So, it’s interesting. You say that you know human capital development is a major problem. That doesn’t happen here. I would imagine that would be under a head, separate header

I’ve said, maybe education, a separate header, human capital development, and then there’ll be an explanation, but it would seem that all of these different aspects of it are tied to different headers under the economy does it mean that somehow, even while the president wants to improve all of these other aspects, he’s missed a fundamental part of it. I hope he has not missed it, because I take it in the context of what he said. What is human capital? Human capital is the economic and professional potential of a country to produce goods and services. So, if he’s going to do those things that he’s saying, somebody’s got to do it for him. He’s not going to get aliens from somewhere to do those things he’s expecting human beings to do. Even the security issue; I mean, I heard him say that he wants to look at the whole security issue in terms of the architecture and all of that. So, it is people that will do it. When I talk of human capital, we talk of human capital in the stock of knowledge and awareness, and the behaviour, because that knowledge could be formal education. It could be on-the-job training; it could be experiential knowledge, and all of that coming together. But the purpose of it is to be able to produce the goods and services that the people of the world want; that the people would want now. So, it’s about being more productive; the whole thing about the economy is to be more productive. The reason why the per capita GDP of South Korea today is about 33,000 hours is about 2,000 and 2,200. But let’s call it 2000. It is because when we used to be about the same in the early 60s, it’s because of the human capital differential. When I say human capital, it is not so much just going to school. There is what I call tax-specific human capital development, so I can go to a village person and I’ll have to give that person a PhD, and within two weeks I can give them the skills that they can use to be more productive. So, I like to have people understand that it is not so much the degrees that you have, the certificates that you have, but basically, the ability to produce goods and services people want. Economists have to start looking at things.

When we interact with some of these political officeholders behind the scenes, they seem to tell us that sometimes when policies are pronounced or made by governments, then they try to take advantage of these policies. They see some politicking being played down to impede what they want to do, and as such, they cannot genuinely achieve the target for which those policies came up in the first place. So, when you say our problem is human capital in Africa, how much of that can be addressed if we played these politics differently and see to the fact that the professionals out there may not or will not necessarily pander to your whims and capital as a politician?

Well, in every arrangement, there is like a principal-agent problem, so the principal has a certain objective or a set of objectives that he or she wants to achieve. But then, you hire an agent that may have some other set of objectives and the resolution of this principal-agent problem is important. If a president or politician has hired staff, you hire technicians. You’ve got to be able to introduce into them, get them to imbibe what your issue is about, what your objectives are, so the agent has to understand It and this is a nice why I think that when I talk about human capital development I’m talking also for politicians leaders because I’m thinking in terms of productiveness. If you’re a senator, what am I supposed to produce? Let them understand what they are supposed to produce. If you’re a taxi driver, what am I supposed to produce? If you are a farmer, from what farm am I supposed to produce? When the country understands, this is extremely important. That’s when I say human capital development. That’s what I’m looking at. If you learn something but you don’t produce a thing, you don’t have any human capital as far as I am concerned because you can’t produce stuff. It’s simple economics we use to teach in those days that capital is produced to be used to produce another thing. It’s the same with human capital. So, if you have human capital what is it that you are producing? This table is sitting here and it doesn’t function for sunrise, it is not capital, it is just a piece of junk so it is the same with human beings when we put someone there as president we should be asking what are you producing? So, they need to go find the skills to do so. I heard this President talk before he became President and he understands that the various units at its various levels of government, what I mean by that is at the various local government state or whatever, should have some degree of freedom or degrees of freedom to be able to do their work and not be so terribly constricted and constrained by the federal. So fuel I mean power, electricity we should allow modular refineries. We should let people go into modular refineries, we should let people mine their stuff, give them rights, you will see the way the economy will explode if we cause freedoms to happen so, I imagine that this president will look at that like I said you can’t go to people that have their hand tied behind their back and say that they are poor. They are poor because you have restricted them. They don’t have freedom. Economic freedom is extremely important so you combine economic freedom with training at all levels for politicians. There are some people as I would say that come into politics but are not exactly very clear themselves what they are supposed to do.

It looks like a lot of people have good things to say about the President’s economic plan and, at least, the expectations…If he says there is going to be budgetary reform, we have over six months to go this year, and clearly, there are a lot of expectations. What does the President need to do in that area?

The President has a problem, and that’s why he’s President. He has to be the person to find a way to deal with this budget deficit.