45th Annual Accounting Conference Of Institutes Of Chartered Accountants Of Nigeria, ICAN

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REMARKS BY HIS EXCELLENCY PROF. YEMI OSINBAJO SAN, GCON, AT THE 45TH ANNUAL ACCOUNTING CONFERENCE OF INSTITUTES OF CHARTERED ACCOUNTANTS OF NIGERIA, ICAN, ABUJA ON THE 4^TH  OF SEPTEMBER, 2015

50 years on, I pray that this will only be the beginning of greater glory for ICAN, and for the accountancy profession in Nigeria.

I’m going to be speaking for a few minutes on “Repositioning Nigeria for Sustainable Development: From Rhetoric to Performance.” The topic assumes, and I believe correctly so, that the nation’s pathway to sustainable development in the last few years has probably been wrongheaded and needs to be repositioned. I think that the assumption of the topic is that, there needs to be a repositioning, because the way, or the path that we have charted for sustainable development, may not be the right path.

I’ve also mentioned that the main reason for the optimism of those who take the view that we’re on the right track is usually the growth figures. Usually the figures, GDP figures, and other indices of growth which we regularly see, and of course, some very good, but largely uncoordinated successes in the Nigerian economy, but growth figures can be extremely deceptive, especially where we’re not looking at structure and quality of growth, where we’re looking only at quantity.

I’ve quoted here, a UNDP report in 1996, which said that policymakers are often mesmerized by the quantity of growth. They need to be more concerned with the structure and quality unless governments take timely corrective action; economic growth can become lopsided and flawed. Determined efforts are needed to avoid growth that is jobless, ruthless, voiceless, rootless, and futureless. I think that by and large, we’ve experienced in Nigeria, the kinds of growth figures that suggest that we should be doing well. But I have taken some time to look at three administrations; the Obasanjo administration, the Yar’Adua Administration, and the Jonathan Administration looking basically at oil prices and foreign reserve prices, GDP figures and then unemployment figures.

The first slide that we can see there is the Obasanjo administration Where in 1999 oil price started at $7.8, as you can see up there. It went up to $26.1, $24.5 in 2001, $25.4 & $29.1. So, there was a steady rise in the price of oil, and then look at foreign reserves just down there, foreign reserves also rose steadily, on the average, foreign reserves would probably come to something like about $7billion on the average from 1999 to 2001. Look at GDP, GDP also appears to have risen steadily from $50.48, all the way to $76.64 in 2001. But then, look at unemployment, unemployment also seemed to have just, you know from 3.1, went up, and went down slightly again. But you can see that unemployment doesn’t seem to be picking up anywhere near the figures up there. But let’s take a look quickly at the Obasanjo Administration.

Now, we’re looking at job creation, spending, investing in job creation; that is investing in technology hubs and skill acquisition centers for young people. The National School Feeding Scheme; that’s the feeding of primary school children. We’re going to take a closer look at some of these, conditional cash transfers, reflating the economies of the States. The theory here is that, just as it says thereby Andrew Jackson, we should measure the health of our society not at its apex, but at its base. The health of our society today, if you look at the base, it shows clearly that it’s a very, very unhealthy society.  Because the base is in a situation of extreme poverty, and we certainly need to take a second look at all of that.

Again, just to support the theory, according to the IMF specifically, if the income share of the top 20%, that’s the rich increases, then GDP growth actually declines over the medium-term, suggesting that the benefits did not trickle down. In contrast, an increase in the income share of the bottom 20%, the poor, is associated with higher GDP growth.

The poor and the middle-class matter the most for growth; via a number of interrelated economic, social and political channels. So, all that this is saying is that, if we invest in the base, then we are surer, not just of income equality and a balance, but we’re sure of a healthier society economically, because the vast majority of people have some access to opportunity, and access to wealth.

Let’s just spend a bit of time on some of the social investments. We’ve been talking about education; the National Teacher Training Program. Basically, what we’re saying here is that aside from free education for teachers, and free education for science, technology, engineering and mathematics, we also need to have a teacher-training program, a national teacher-training program as a matter of urgency, because one of the big problems that we have is just the poverty of teacher education generally. Teacher education is at its lowest.

For some of us who are engaged especially with public school education in different parts of the country, you will notice that there’s just a big problem with the public school system. Teachers are just poorly educated, and they need to be educated. Sacking teachers is just not the solution. Saying that you are not going to pay them and all of that, or you are not going to pay them well, is not the solution. They can be trained, they can be re-trained.

I think that the National Teacher Education Program is a vital one. It’s absolutely important that we spend time and resources, training teachers. And of course, along with a change in the curriculum, we also need to look at the curriculum in the primary schools; we need to look at the curriculum in the secondary schools. Everybody else, anywhere in the world that plans for progress for their nations have gone beyond where we are. We’re using curricula that are outdated.

There’s been a recent revision of the primary school curriculum; I’ve been taking a look at it. It’s quite an interesting one. There’s more emphasis on early education, more emphasis on technology, more emphasis on literacy. There are so many different methods and so many different things that can accelerate teaching today. And we need to concentrate on a lot of those issues, and measures that are to be taken; some investment in skill acquisition centers just to ensure that there are more opportunities for young people, especially young school leavers.

The National School Feeding Scheme is an important policy of the present government, and one of the reasons why this is particularly important is because we think that it has important implications for the economy overall.

The whole idea is to have children in primary schools being fed one meal, a balanced meal; carbohydrate, protein and fruit every day at lunchtime. And we think that would have important implications for the agriculture, poultry, catering and delivery services. We have a model in Osun State, where they have a school feeding program and their school feeding program costs on the average N51 all the way to about N55 per child; now that sounds like a small amount of money. But you need to look at the quality of the food. The quality of the food is extremely high. And of course, that’s because they are dealing with large numbers of people, about over 300,000 enrolled in primary school. But what it has led to is an interesting dynamic in Osun State.

One is that it has improved employment in agriculture especially, and of course, there are more farmers. They now have to import eggs from other states, because they’ve simply run out of chicken, and there’s a whole poultry economy, and then all the products, because the primary thing with the national school feeding scheme is that, everything has to be locally produced, all the food has to be locally produced, which of course has great important multiplier effects – catering and delivery services.

An interesting point and which is another scheme that we’ve been looking at is the Conditional Cash Transfer. This program is intended to support 25 million poorest households to incentivize vaccination, education and production. The multiplier effect of the introduction of the program included; lifting millions out of poverty, putting millions into rural production, and boosting the rural economy. Now, let me just very quickly explain the conditional cash transfer. First, it is not original; I mean this is not an original thought of the government or the APC.  So, it’s a program that’s been tried in several developing countries especially Brazil. Brazil was the first and has one of the most successful models. But there are several other countries, especially in Latin America that have tried this and it worked very well.

Now, the World Bank is behind this particular program and is working with us, and PCD, another organization. They are also working with us in designing the program, and in partly funding aspects of the program. What it involves is that, over the next four years, government will incrementally pay to 25 million people; 25 million of the poorest households in Nigeria, giving the women in those households N5000, if they will enrol their children in school, and participate in immunization. Now, if they enrol their children in school, of course in many parts of the country, especially where school enrollment is extremely low, that’s a very important thing. There are states in Nigeria where you have 90% out of school, in fact I was speaking to a few governors about three or two weeks ago, where you have out of school percentages of over 70%, and there are quite a few states, where out of school percentages is over 70%.

Now that is a major problem for any economy that wants to develop, when there is stark illiteracy, and are you talking of people who have never been to school? This is especially so amongst the female population; the younger female population, loads and loads of people out of school.

In some states, over 65% illiteracy amongst women, when we say illiteracy, there are people, who I mean in some states cannot even speak the general language. For instance, in some states in the north, you’d expect that everyone should be able to speak Hausa, but many cannot even speak Hausa, that’s the level of illiteracy we’re talking about. They speak only their local dialect, which is a very major problem all by itself. But anyway, we expect that this will incentivize school enrolment. It will also incentivize vaccination and immunization.

Now, immunization is absolutely important, because of course, we’re talking about primary health care. The health figure especially mortality for many of the diseases, you know that our primary health care system by itself cannot save us, because most people will not go to the hospital. So, the way to do this is by immunization, by an active immunization program. I will think that this will incentivize immunization, also giving cash to poor women gives them an opportunity to engage in some form of useful trade whatever that may be, and it’s a direct injection into the economy itself because these are not people, who are looking to buy foreign exchange or anything like that. They’re basically looking to survive. And that amount of money, immediately lifts them out of poverty especially, when we consider that the consideration that the UN, for instance, gives for poverty is that if you earn a dollar 25 cents a day ($1.25), these days, they say two dollars a day ($2.00), but that would immediately lift these ones out of that extreme poverty level.

Now, of course, it’s going to go over a period of five years. There are issues of course around identifying the very poor, that project has been done now by PCD, and also the World Bank. They have done quite a bit of conditional cash transfers already in Nigeria. They’ve identified some places, and they’ve started doing some conditional cash transfers. But we are going to work on pilots in six geopolitical zones. In the next few months, right after the budget comes into place. But there is a lot to be done around there, by way of planning, and also, by way of projecting for the future, and how long we will continue to give this amount of money.

Reflating economies of the states; of course, many of us have heard about the so-called bailouts of the states. Some people have said, there is no such thing as a bailout, maybe people don’t like the expression bailout very much.  I think that what we’ve tried to do with the States of course, the states experienced a very substantial downturn in their economies, when revenues from federal allocation dipped by over 40percent (40%). So, many could not pay salaries, and many were hampered in both recurrent and capital expenditure. So, there was an attempt to help the states get back on their feet. One of the steps taken was the bond in exchange for debt.

Basically, what this meant was that we looked at how much the state owed commercial banks. For example, if a state was owing a commercial bank N10 billion, what the DMO would do is to give the commercial bank, bonds worth that amount of money, worth 10 billion, and the commercial bank will be taken out in that way. So that the commercial bank is happy, it goes away. Of course with a bond, there’s also some liquidity there. The debt then becomes a debt owed to the Federal Government, so as between the Federal Government and the State, the debt remains.

But the Federal Government now looks at the length of time, and the bond is about a 25-year bond. The debt itself between the state and Federal Government is also for that time period. So the Federal Government says okay, we will allow you 25 years to repay this debt. Of course, that frees up the resources of the states, so everyone is happy. The banks take their bond; the Federal Government bond and the state governments become debtors to the Federal Government, and the Federal Government accepts that this amortization takes place over a 25-year period.

Diversification – Agriculture, Manufacturing Entertainment and Technology; Agriculture is extremely important because, at the moment, of course, we’re importing huge quantities of rice still. Our rice importation bill is about $4billion and we still have a huge gap in terms of local consumption; the difference between what we are producing and local consumption. Wheat is also a huge major foreign exchange drain. 7 States are working together now, looking at this issue of self-sufficiency in rice production. Niger, Nasarawa, Kebbi State, some of these States are working together and of course, Ebonyi State as well, is working very closely together, to be able to work out a way by which this country in the next 3 years can become self-sufficient in rice production.

We’re working extremely hard on that, because it is not particularly difficult if we focus and put our heart to it, to be able to get a level of self-sufficiency in rice production. Wheat has always been a problem because the particular species of wheat that we plant have not done as well as has been expected over the years. But now, there are about one or two new species that have been shown to be capable of yielding substantially above any that we’ve known already. And so, we think that with these developments in the seed, we will be able to do very well in wheat production as well in the next few years.

We know of course, that power generation has been privatized; we have the capacity of about 12,500 megawatts of power, that’s installed capacity. But currently, we’re doing about 3,800. Now at the peak, we do something like, the highest that we’ve done in the history of the country’s 4,800, that was about two weeks ago. But 4,800 in generation, we’re not talking losses. By the time you factor in the losses, we’re effectively at about something like 3,800 in terms of usable electricity. So, we have installed capacity that’s about 12,500, but usable capacity is about 3,800.

Now, there are all sorts of constraints that bring us down to 3,800. Of course, there’s gas which is a popular complain, there’s water, there are transmission problems, and then, there are also losses, just you know technical losses and commercial losses, problems with distribution of electricity. Of course, gas remains a major problem, because we still have a lot of uncompleted gas projects, pipelines that we need to complete, which we are working on as diligently as possible. Then, of course, there’s vandalisation of gas pipelines, that’s also a problem. In the past few months, the Escravos Lagos pipeline, which is a major pipeline, which has just been repaired, has not experienced any vandalisation in the past two months, which partly also accounts for the steady generation of power we’re experiencing.

Transmission remains somewhat of a problem. At the moment, transmission is as you know is not privatized, it is the only part of that value chain that is not privatized. So, we have with transmission, we have a commercial agreement with a Canadian company, Manitoba Hydro, who is managing the transmission grid. Now, of course, there are issues around whether or not that is being done very well. But one thing that’s sure, we have far fewer outages than ever before, and so, for now, we think that transmission is a major problem. And the reason is that, even if we were to increase production now to 5,000, which we hope, we’ll be able to achieve by the end of the year. If we do so anything over 5,000, our current transmission grid cannot evacuate, so even if we were to go over 5,000, at the moment with the state of the transmission grid, we can’t evacuate anything over 5,000 megawatts of power. So, we need to ramp up transmission capacity very quickly, in order to be able to meet up all of the different GenCos that are coming, the  IPPs that are coming on stream, and several IPPs are coming on stream in the next few months to the next few years. So, we really need to deal with transmission.

Distribution, of course, remains a problem as well. Now, some of the problems with distribution of course – is collection. Collection, losses and all of that, but more importantly with distribution, there’s also the problem of the tariff, and that affects the whole value chain. As you know, just before the elections, the tariffs were halved. Now, that has given rise to a situation where everybody in the value chain is owed money. So, the GenCos are owed, and the reason why they are owed, of course, is because there isn’t enough collection. Because tariffs are about half of what they used to be, gas suppliers are owed huge sums of money. Everybody is shouting, and there’s no way of remunerating that value chain, unless we have a cost-reflective tariff. So currently, the tariff regime has to be re-done, and we are working on that with all of the relevant authorities at the moment, to ensure that we’re able to have a cost-reflective tariff.

Without a cost-reflective tariff, the entire system simply cannot work. So, we have a situation where a lot still has to be done with respect to all those various problems.

Re-orientation: the way forward. Power alternatives, Solar, of course, solar is very important, these are some of the solutions. We need to do a lot more in the area of solar. We are looking at 500 megawatts of power per state in solar, especially for schools and healthcare centers. Solar power is a lot cheaper now than ever before.  Of course in the years gone by, solar power was good renewable energy, but expensive. But now, it’s dropping very quickly because of some of the innovations especially coming from China and countries like that, doing a lot of work in that area.

So, we think that we’ll be able to be a lot more in terms of renewable energy, especially solar power.  Of course, wind is also there, and hydro, but these, of course, are longer-term solutions. Solar would be one of the major focuses. Coal also, there’s quite a bit of work going on with coal-fired plants especially Dangote’s. Dangote has been doing quite a bit of work using coal-fired plants in his own plants, and it’s obviously something that is attracting a lot of attention from the government because we also have huge coal deposits.

We have huge coal deposits in Kogi, Enugu and so many other places. So, coal remains viable. There are those who say that coal is dirty energy, but it can, and I think Dangote has proved in some of his plants that we can actually have clean coal production, and we think that that would work. In any event, we may not be left with much of a choice, since we do not have as much power as we need.

Thank you.