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�Interest rates, bane of industries�
Chairman, House Committee on Industries, Uche Maduako, told JUDE OWUAMANAM that government should legislate on interest rates in order to revive dead and ailing industries. Excerpts:
A lot of companies are not producing to their installed capacity because imported products dominate the market. What is the House doing in this regard?
There are a lot of factors that may have contributed to low capacity utilisation. One of them is capital. And when I say capital, I mean the interest at which they borrow money from banks is very high compared to other nations even within the sub-Sahara. Dumping of inferior goods also contributes to low capacity utilisation. You have goods coming from abroad, with high technology, with low cost of production coming to compete with our own production setting whereby we don�t have adequate electricity or constant electricity, always on generator bearing the cost of fuel. That apart, we don�t have the infrastructure on ground. The rail system is not functioning, the road network is in shambles. In fact, we have not built new trunk A roads for many years. Apart from that, there is need for all the security agencies in our country to try and do their job. For instance, let�s look at the Standards Organisation of Nigeria. If SON is unable to check the inferior batteries, car batteries, radio batteries that come into this country, the kind of havoc it would cause in terms of injuries, deaths are enormous. With the bureaucracy involved in public-driven compared to private-driven sector of an economy, you find out that is why most of the government companies cannot make much headway. Not that we don�t have capable men and women that will be managing them but because of corruption, because of waste and because government has no business being in business. So, having made that mistake in the past, we find ourselves in a situation whereby it seems we are awake now. We are now taking the industries, the heavy industries that belongs to government, we are now selling them off so that the private sector could now do a better job.
But a lot of people believe that the privatisation process does not favour the masses. What is your position on this?
Many people may disagree with you. I don�t think the extent of what is being privatised only by the Nigerian government is such that in the long run it would have a serious impact on the entire economy. That is why today, I am happy that we have Small and Medium Enterprises Development Agency because this gigantic industries are not usually what makes the engine room of an economy. The small and medium scale enterprises are what actually boosts an economy. That is what is happening in the United States, Indonesia, South Korea and even in India. So, I don�t buy the idea that they are selling to their cohorts. What I would have rather preferred in my own opinion is that we take what we want to sell to the stock exchange and let Nigerians buy it. Then after they may have completed the sales, then let them use the normal procedure and appoint executive directors and what have you.
But what have you done in the House to give the SMEs a sharper focus?
You know the SMEDAN law was passed in 2003, less than a year now. What they are doing now is that they are trying to gather statistics, local government by local government, as regards what they have, what they can produce, what nature has given them and so forth. Then after the identification process, they will act as a linkage between those that are willing to invest in the private sector, mainly in small scale and medium scale. They link them up with banks and also recommend them for bank loan after they must have gone through their feasibility studies. In trying to encourage this small and medium enterprises, because that was why the BYO was established and so far they are doing their best, but fund is also lacking. Initially when they came on board we approved N50 billion as their take-off grant. But unfortunately, the Federal Government released only N2 billion or even less. One thing with our country is that on one hand, we want to move forward on the other hand we are dragging ourselves backward. What I think the Federal Government should have done on this issue of SMEDAN, they have it in US and in UK, is that after the identification and after looking at the feasibility studies, try to build a link between small and medium scale businesses here in Nigeria and abroad, then get them a source of funding. The banks here cannot do much for now. Raising the banks base to about N25 billion is to make them stronger and make them capable of giving long term facilities. For instance, a bank that has a capital base of N2 billion cannot loan as much as N1 billion out under a long term because it may not survive to probably recover the interest or the principal. So, I think all these things are being done to strengthen the financial sector so that they could be able to lend out money on long-term business. The issue of interest rate is also a very serious problem. All those people giving their money to banks for fixed deposits or what have you, most of them expect their returns immediately.
Although most of these funds, in my opinion are government funds. In the paper, you may see lower interest rates, but probably behind the scene it might not be so. I hope that Charles Soludo (CBN Governor) would check a lot of irregularities that are currently going on in the banking sector, because until those irregularities are settled, the issue of having banks finance our economy through low facilities and low interest rates would be a mirage.
What do you expect, because I hear that presently they charge as high as 32%.
I think currently he has started. By 2005 banks should capitalize their total equity to N25 billion in assets. I think that is the beginning. Central Bank as the regulating agency of the firm must not play politics, must be independent I mean absolute independence and if he can achieve that, then they will have the will. Where some banks are worse off and they are still operating. Where banks that are not healthy are not liquidated they are not operating. Nigerians have their funds stocked in these banks and still nobody is saying anything and they are talking about sanity, how can this be. I think Soludo, with what he has started, if he could remain consistent, I hope, once we are able to sanitise the banking sector, then small and medium scale enterprises would come to actual existence.
How do you think the proposed N25 billion capital base for bank would affect industrialization in Nigeria?
You know the banks we have in Nigeria are not all that financially strong most of them. Looking at South Africa, almost one third of our banks put together is one bank in South Africa; look at a bank with a base of probably N3 billion, and out there people are looking for facilities for about N2 billion, such facility they can not give it our in a long term basis leaving themselves with only N1 billion naira to operate. But when they have a large capital base, they would be able to cushion large volume of risk. So you will find out that at the end that is where he is going to. That would encourage acquisitions and mergers and so forth. Its just to make the bank stronger. They can withstand and be able to give out loan on long term.
But some people have expressed fears that the banking sector could be hijacked by foreign investors.
We talk about foreign investors as if we are no longer in a global village. We don�t bring sentiments into business. We don�t bring nationalism into business, if actually the motive is to make profit and make sure that everything works. If we can get away from this issue of foreigners are coming to take away our business, its neither here nor there. Rather what government should do, we can by legislation bring up regulations that would prevent them from taking the money away. As far as the money is here in Nigeria. Like in US, you can�t just remit 200,000 dollars from the U.S without actually investing the equivalent amount in the U.S. They have laws that you don�t just make the money and carry the money away, even after paying taxes.
Talking about legislation, are you people addressing your minds legislating about improvement on small and medium scale enterprise in terms of empowering the youth to finance them on industries without asking for long term collateral which most of them cannot provide?
There is a problem there. If you look at the NDE, most of them were given loan, but if you look at their records, less than half have been able to pay back. If you look at the former NIDB, bank of industry and commerce, we have a lot of billions of naira as defaults, and nobody would give other people money to loan out without interest. In NDE, they tried it. Loans were given out for agriculture, but if you look at their records today, a lot of those people, who took those loans were graduates from the university. I benefited from that loan. The farm section of the loan.
Have you paid yours?
I�ve paid completely, and I know a lot of my colleagues who didn�t pay. They said, it is national cake which means there is need for us to start changing our orientation. Some of the beneficiaries are living are doing very well in this country, but we got this loan, as at that time to help us take off and less than one percent used the loan for what it was meant for. NDE is still giving out loans. The reason why the government has not being able to monitor these loans is because we have not actually entrenched a national identification system, or what we call social security or National insurance like in Britain. We don�t have it in this country we can not even identify who is a Nigerian citizen or who is not a Nigerian citizen. Some come from other countries to take this loan. If those of us who are Nigerians give fake particulars, their addresses they gave were fake, their names were fake, so the Nigerian situation is such that we have to sit down and do first things first. I thought that the nation identification system would have been able to solve this problem but from what I have seen so far, am yet to actually appreciate the intent of the national identification system, because as at now, I don�t know why we don�t have a data bank on it, starting at the age of 18. I don�t understand the rationale. What we could have done was that we start from those that are given birth say from January 2005 all children born in Nigeria would start having a National Identification system from the date they were born like in the U.S. Then in 30 to 40 years we would be able to document who is a Nigerian and who is not. But in this case people from other areas, because of the way we are the way our immigration system is structured, they way national defense is structured and other things, can easily come, and they have been coming with our international passport. It�s every where, because we don�t have a guided system. The only guided system, I think I�ve actually appreciated is that of the U.S, where you have a social security number. Until we are able to have this national identification system, we will be able to trace who has been exempted from this or that.
There is this issue you said on Daily Times, somebody commented that how can government sell what belongs to the public to a core investor
Before that was done, we now have a revised version of law of privatisation as approved by the National Assembly with the law right now in place that kind of experience would not repeat itself again. We are operating with laws signed by Abubakar, and Abacha until we are opportuned to revise these laws, we have now revised it, and the president also signed it. With that now there are certain thing that were done be in the past that will not be done now.Their hand are right now tied that they can not do it.
Are they going to recycle, those they�ve already sold, are they going to bring it back again so they can sell it to right way according to the new rules.
You don�t treat any law in retrospect.
But they�ve sold the bulk already.
I disagree with you. There are so many other industries to yet to be privatized. Apart from the Savannah sugar company sold to Dangote, we have about six other sugar companies yet to be privatized.
In funding of small and medium scale industries, what is the rate of interest you consider reasonable presently for the economy chargeable by the banks? Some banks give 4 or 5 per cent on deposits and charge as high as 35 per cent on loans, Does it make for an industralising country like Nigeria?
I don�t think there is any bank that pays 4% on deposit. The problem as you have stated is that banks in Nigeria no longer depend on the formula of money creation. What they take home is the difference between the money you give them for deposit and what they give out to somebody else. From what you have said now, 4%, on deposit; you see the wide margin, which means that banks are making a lot of money and that is why in the economy presently we are having banks everywhere. If we have the will, we can legislate on it, in China they have legislated on interest rate, if we have the will, why not. Yes, I am a legislator, but it takes the will of the majority to have any bill passed. In legislating on issues that borders on interest, you must have a every strong economy, you don�t do that on a weak country because it has to do with demand and supply of money. If you look at our own economy because of the high interest rate people receive, for keeping their money with banks, you may not know you have better options than your 4% but they have regulations which Central Bank should be able to check, monitor and stop. If we go abroad, the margin is probably 1 or 2% but in Nigeria if we legislate on it, but before we do that we must make sure that our economy is strong in terms of production, rate of production and industrial mobilization has to be high because currently it�s not high in almost all the sectors. Soludo, I think he knows where he�s leading to, lets give him the chance, you can�t do it overnight. Over time, by the time their capital base increase, by the time banks are stronger and they can compete and the leakages within the banking sector, laundering, making money through forex and so forth, when banks sit down to face the real banking, then these things would come and go.
What is your rate that you are suggesting?
When interest rates are low, it doesn�t encourage savings, it encourages investment and when people invest, you create jobs. When you create jobs you alleviate poverty and when alleviate poverty, a lot would be interested to know then what happens in government. But because of the present situation we have found ourselves, what I think Soludo should do is that savings should be discouraged for now by bringing down the interest rate in order to encourage investment. Because if one is able to put ones money in a bank, say N1 million and you are getting a return of 300,00.00 a year, what�s the essence of investing the money, knowing fully well that a lot of variables that may make you crash in trying to manage human and resource, that is human beings and resources. What am saying is that we have to discourage high interest rate that encourages savings, so we can encourage investment, so we can reap the benefits of the multifacets of investments which is employment and what have you.
The Punch, Monday August 02, 2004
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