We should stop securitizing income, instead securitize assets - Ayo Teriba

Ayo Teriba (PhD), the Chief Executive Officer of Economic Associates and former Vice Chairman of the Technical Committee of the National Council on Privatisation, has urged Nigeria to desist from the habit of securitizing income and instead devote more attention to securitizing assets as a way to attract foreign loans into the country.

Teriba put forward this proposal in alignment with the Islamic model embraced by prominent Islamic nations like Malaysia and Saudi Arabia. He suggested that these countries focus on attracting foreign loans by securing them against underutilised economic assets, as opposed to other methods.

In this over 30-minute interview on the Arise News Television News programme, the economist sat down with Reuben Abati to offer insights on national issues centred around the supplementary budget, in particular the money budgeted for the controversial presidential yacht, the presidential villa renovation, and the vehicles budgeted for the office of the president.

Why is the supplementary budget of N2.1 trillion justifiable?

The N2.1trillion budget, I should remind us is about 10 percent of the original budget that was appropriated for 2023. And you will recall that after the attempt to unify the exchange rate since June, the exchange rate of the naira has weakened considerably, the budget was set at about N435/dollar in the official market and at the moment we are talking about an average of N800 since July this year.

Now this positively affects the dollar related revenue as at that time when converted into naira because it will negatively affect the expenditure. So, if you consider the impact of the devaluation, most of the prices budgeted would have risen higher—inflation is running about 25 percent. So, a 10 percent markup on the budget that is described as appropriation—is more than reasonable given that inflation is running about 25 percent.

And you will also recall that in the aftermath of the unification and subsidy removal, the populace had groan under the adverse effects of increased prices. And the president has compassionately, pledged to provide relieve to the vulnerable. The workers and small and medium enterprises he has rolled out a long list of palliatives and he has also agreed to some dated pain relieve for workers. All of these palliatives rolled out by the president since he came into power are extra budgetary and it make sense to use the instrumentality of a supplementary budget to assimilate them into a budget. If you look at the budget it is dominated by security and defense proposals followed by the palliatives and then infrastructure.

All of this in keeping with the pledge of the president to make sure that the vulnerable will not suffer in silence. So those are the justifications.

On another programme, we had Senator Alli Ndume who said that look this supplementary budget that we are talking about is just for seven weeks because the year is almost over. So, what really is the priority all about? What are the realities? What are the expectations? How will this be of any effect in 2024 because we are almost in 2024.

It has nothing to do with 2024. The 2024 appropriation act, the debate on it will soon commence and issues related to 2024 will be addressed. So, this is more like clearing off the backlog left in 2023, fresh pledges that the president had felt obliged to make to the populace to maintain peace; persuade Labour to call off strikes that they had planned and the relief given to several segments of Nigerians. And quite a number of the segments were actually projects of the outgoing regime, for example you refer to the interview with Senator Alli Ndume—he informed us that the controversial presidential yacht had been delivered and the spokesman for the Navy said that it had been delivered as far back as June.

Which meant that it was something that the outgone regime did, in which they were trying to replace a previous Yacht that the Federal Government had, MV Harare that has become dysfunctional and so this is meant to fill gaps that had emerged in the implication of the 2023 act. It doesn’t matter if it is week left in 2023, even if it happens in January of 2024, as long as there are gaps there are shortfalls in what the 2023 budget had intended to do and the reality is that they had met on the ground you can always do appropriation act, so it is justified. It is legitimate.

Let us talk about the allocations. In matters to Nigerians, that the office of the first lady is going to get over N1.5 billion just to buy vehicles. That the villa is going to get over N2billion to buy vehicles and do some renovations. Does it make sense to tell Nigerians that Nigeria is going to buy a presidential yacht. We were told by Ndume that it was delivered since June and that this government has to pay N5billion for a presidential yacht—whose child is that person who is going to be riding a yacht when the rest of us are struggling to buy petrol.

How do you defend the allocations?

A: The supplementary budget, the value is N2.1trillion, so you are asking questions about N5billion out of N2.1 trillion. The total budget for the state house is probably the smallest component of that supplementary budget, is about N28billion. My suspicion since its about renovation of residence, replacement of cars that has become dysfunctional, I will be thinking that this something that the outgone regime had initiated preparatory to handover. I don’t think that it is in the place of any new president to come in and approval budget for renovation. The outgone president had used the place for eight years and had moved out shortly before the handover. He must have initiated these things. The date you overrun for example you take the yacht it had been delivered since June but it was not paid for.

So it was something that president Buhari’s regime executed as a matter of fact they had intended to parade it in May but didn’t arrive in time for the parade it had arrived a few weeks later. Was it justified, in replacing an asset—a water transport equipment which Nigeria used to have, upon which I had listened to you in the morning show. Listen on how many visiting presidents had been hosted on MV Harare. President Buhari I thought did well, he met some equipment that had become dysfunctional. Are you saying that he should not replace it? So, these are the questions. Offices or homes in the villa needed to be renovated, are you saying that they should not renovate it? You are picking issues with N5billion with N1.5billion out of a N2.17trillion budget—lets regain our sense of proportion.

So, I think we are just sensationalizing things. We are talking of arms of the defence agencies who got more than a N100billion, we are not talking of the infrastructure agency who got hundreds of billion, we are talking about N1.5billion and N5billion. Which are merely footnotes in the appropriation budget.

I do think that the populace are entitled to share the concerns that they had shared because the way the news was presented was that the presidency was seeking supplementary budget to go an buy a presidential yacht, not known to us that the fact was that this was a done deal that they were just seeking appropriation act to regularize gaps left by the previous administration.

Well, it is kind of the presidential spokesman to have issued a statement but I think it would have been more proper for him to get the Naval spokesman to speak on the subject. This is a deed that has been done six months to the time that the presidential spokesman himself took charge. This is a deal that has been done even while the presidential spokesman tried to settle down into the office. Even while the National Assembly had just been inaugurated even when trying to settle down into office. So I though that we should be patient to get facts and if this is an historical fact, we shouldn’t be presenting it as if it is new intention in the face of all the hardship that Nigerians are enduring. Is it proper for the president to now be buying a new yacht.

The matter is more serious than you take it because Nigerians are saying that at a time when the ordinary man finds it difficult to live with electricity, to generate electricity , to travel with keke marwa, to move around in peace, to buy even fuel, that it would be scandalous for the leaders of Nigeria not to be making sacrifice. And they ask the question, who is the mother of that child whether president of whoever, who will be riding a pleasure boat when the rest of us are working very hard to make sacrifice. But you have looked at economistically and Nigerians are saying don’t buy that boat, but the question is well are we faced with a fairer complain or not? But apart from the supplementary budget there is also something they call the Medium-Term Expenditure Framework. What do we need to hold government for in 2024 with that MTEF?

Thank you Dr. Abati, let me respond to the remarks you made. That any new proposal at the moment to be pursuing a luxury when Nigerians are feeling the pinch of painful reforms should be objected to by the populace. If these are the current proposals but I am afraid that the matter of the yacht, the decision was taken by the previous administration to replace an asset the country used to have and has become dysfunctional. The deal has been done; it is not that anybody is initiating a purchase of any luxury item. The people you could have engaged on this have left the government and the Navy has taken delivery.

You may want to want to invite the spokesman of the Navy to give more details on this. Now the issue you brought is quite important about the Medium Term Expenditure Framework (MTEF). We should be grateful to the economic team in particular, the Ministry of Budget and Economic Planning but bringing in the much needed facts about how the 2023 budget has performed is to our knowledge.

So if you look at the MTEF the two important components for me are the following: How has the budget faired, thus far this year relative to the original intentions. The revenue expectations, how did it fare with the revenue realities as captured up to July.

The spending aspirations how does it compare with realities particularly recurrent spending and the capital spending in particular the debt service component of the current spending. How much have we paid, relative to how much we had planned to pay. All of this facts are there in that MTEF, so it is important that we engage in those facts, so that we can be able to engage the realism of what is been proposed for next year.

The latter part of that MTEF gives you first flashes of the direction that the government projects that the economy will be headed. We have had revenue assumptions for this year that hasn’t been met in the light of the performance of budget attainment this year. How reasonable are the revenue proposals for next year? How reasonable are the expenditure proposals for next year? Particularly capital expenditurewhihc is the component where the performance is least.

So we need to be careful, a situation in which a government come out in the beginning of the year and make a lot of paper allocations for capital spending and when the drill performance comes middle of the year and end of the year, you find out that when they face revenue shortfalls, the first component that they cut off is the capital items and have no choice but to pay interest on their loans that they arode.

They must pay salaries, they must pay overheads. The main culprit is the capital spending. We wont have the time to go into the details and the specifics but I do think that we would be doing Nigeria a lot of good if we draw attention to those two components. The reality that the new regime met as captured up until July and the realism of the proposals that are now coming about revenue, spending and about debt cost. It should be about the connection between the reality captured current performance and the expectation.

President Tinubu says borrowing is not a crime and that people should stop saying, “Nigeria will borrow, Nigeria will borrow,” and he wants to borrow more. Do we keep borrowing?

I don’t know any country in the world today that can say they can afford not to borrow. All countries spend more but what differentiate countries is the quality of their borrowing. Some borrowing options are better than others, and I think that to debate the alternative part to borrowing that will enslave you, there are borrowing types that will make you to sacrifice your future today. Particularly, borrowing instruments that are like IOU, promissory notes against income that has been declining. But there are also borrowing instruments that are not IOUs that are loans raised against assets and doesn’t compromise against any future income. It doesn’t promise to pay any interest. If you look at middle-size countries that are comparable to ours, you will be looking at maybe Malaysia, Saudi Arabia, and UAE they borrow more heavily than us. But these are sharia countries who are forbidden by sharia to borrow against income. They are compel by sharia to borrow against asset and therefore the quality of the debt that they raise are rated as investment grade compared to the junk instrument that we raise—IOUs. So they are forbidden from raising IOUs, they are bound to go find an idel asset that the investor will put money in and it is from that asset that the principal and the dividend will be recovered.

Nigeria needs to move in that way. Nigeria has more asset than any of the countries that I have mentioned. Whether you are talking of corporate asset, or real estates, or infrastructure. We prefer to do IOUs to invest in our companies. Do IOUs to invest in infrastructure and begin to say that interest payment is now higher than our revenue. We should stop doing IOUs. We should stop securitizing income and begin to securitize assets. Let investors come and out money in assets, the way some investors have put money in LNG, GSM telephone and let them sweat to recover their profit and their investment.

Nigeria will gain fresh income, growth and employment in the process and we will get liquidity when the investment arrives. So when the coordinating minister of the economy said that we can’t borrow we need to look for equity that is what he is saying. So the fiscal proposals for next year we have learnt that are going to be deficits close to N10 trillion. Don’t fund that deficit with debt fund it with equity investment. It is done. That is what India is doing—the president is on point.

What is your comment on the new CBN under Yemi Cardoso?

Lucky for Mr. Cardoso, the situation he met in which the naira was steadily losing value in the days before he took charge and a few days after he took charge has given way to a new reality in which over the past couple of weeks the naira has steadily been gaining value, lets hope that that trend continues under his watch.

It is the kind of expectations you would have that as the new as helmsmen and Mr. Cardoso got his four deputies and they all arrived to work that will see a stronger naira and I think that the Supreme Court judgement contributed a lot because naira started strengthening the day the judgement which lifted the cloud of uncertainty on the political terrain and brought closure to the election, eight months after the president had been declared. And I think the judgement in the interest of Nigeria put $11 billion at risk would have played a role but the facts that the CBN has started clearing the backlog must also have played a role and the open mouth policies central bankers made scrapping the list of 43 items. So, naira is gaining strength in the aftermath of scrapping that list is positive. So, let us hope that the central bank will say more and do more things that will strengthen the naira.