Modupe Adedoyin James is the Finance and Admin Manager of the Mikada Group of Companies. A fellow of the Institute of Chartered Accountants of Nigeria (ICAN), member of the Chartered Institute of Taxation of Nigeria (CITN) and a lover of figures, in this interview, sheds light on the remote and immediate causes of the Nigerian recession; advising the government to learn from history to avoid policy inconstancy. She also spoke on the requirements of growing an enterprise in the financial sub-sector in Nigeria.
Excerpts:
Why did you choose to operate for so long in the financial sector?
The reason for being in the financial sector which has been right from the days of my Tertiary education till now is not farfetched. I am an ardent lover of figures. I can analyse and interpret them without stress. I understand the language of money. I am fulfilled when I see smiles radiate from the faces of whoever I work with as they reap the benefits of good financial decisions made through our expert advice. It is my passion. I enjoy doing it. I seamlessly unravel any mystery behind compounded accounts without being bored. I love what I’m doing, and I will continue as long as we remain to meet the needs and help make society become better through my expertise in finance.
Can you relate your journey into the sector and how you have fared over the years?
My journey into Accounting started on the day I filled out my JAMB form. I obtained my form like every other aspiring tertiary institution student will do and I was just about to fill in my course of study of Mathematics. I have always been an outstanding student of Mathematics. I consecutively won the award of Best Student in Mathematics throughout my secondary school days. I inarguably represented my school in Mathematics at various competitions. Also, I maintained the 1st position throughout my primary school.
Back to the story of my journey into accounting, I was a science student in my senior secondary school because back in those days, students were usually shared into science/commercial/art classes based on their performance in junior WAEC. So, I wanted to study medicine. Unfortunately, I didn’t do well in Physics in WAEC. Then, I decided to study mathematics since I love the subject and I have all the requirements to further my education already. Thank God for one of my classmates who saw me as I was filling out the JAMB form and exclaimed, “Dupe, you want to study Mathematics, ah! You will end up as a teacher”. On hearing that, I then changed the course of study to Accounting since it is also a course that deals with figures I was told everyone who studies a single subject course ends up as a Teacher/Lecturer.
As to how I have fared over the years, I believe I have done well for myself, my family, and the nation at large. That ordinary local girl solving mathematics for the fun of it has now become a global reference.
The Nigerian economy has been going through difficulties over the years. Having gone through a few recessions, the economy is still struggling. What do you think is the cause and what solution can you recommend?
The Nigerian economy slipped into recession in the second quarter of 2016. which was seen by many as the worst economic crisis that Nigeria has ever faced in decades. However, this was not the first time the country’s economy has slipped into recession. Historical evidence abounds on various periods of economic downturns in Nigeria, and some of the period was also met with serious economic recession. The first recession was in 1967 when Nigeria’s GDP growth rate fell below the cumulative figure of -15.74%, followed by that of 1975, then in 1978 and 1981, 1982 and 1983 consecutively. Nigeria slipped into another recession in the year 2020 after the country’s GDP contracted for the second consecutive quarter according to official data released by the Central Bank of Nigeria. The case, as Nigeria sees it today is not a novelty, but a reoccurrence of past events albeit with severe outcomes.
A recession can be described as a period of significant decline in output (income or expenditure) and a rise in unemployment. For the first and the second quarters of 2016, Nigeria recorded negative economic growth rates of 0.36% and 2.06% respectively (CBN, 2016). Hence, it became obvious that the Nigerian economy was in recession. A decline in production activities leads to a fall in output which invariably leads to retrenchment of workers, basically, because these firms would not be able to cover their cost of production; and this automatically results in an increase in the rate of unemployment in the country.
Evidently, the causes of economic recession can be divided into two broad factors namely endogenous and exogenous factors. The former is usually a result of a conflict of ideas, misapplication of economic theory and regulatory negligence or policy inconsistency. The external causes of recession have to do with factors that are exogenous to the economy over which policymakers have little or no control. Factors like natural disasters, climate change, revolution and wars. The reasons for the emergence of the 2020 economic recession in Nigeria, can be linked to natural occurrences like the COVID-19 pandemic while previous recessions were largely caused by endogenous factors.
We can attribute the remote and immediate causes that led Nigeria into the series of economic recessions witnessed to include:
The country’s over-dependence on oil production: Nigeria hugely depends on oil production for government revenue. Nearly all the years of the recession were pre-informed by unabated decreases in oil prices globally. When there is an economic slowdown in the world economy (U.S., China, India and EU), it leads to a negative impact on the demand for Nigerian crude oil from these countries. As a result, the price of crude oil which was sold for over $100 per barrel went as low as below $50 per barrel as at the beginning of year 2016. Also, Government’s revenue and spending dropped, taxes rose, disposable income fell and aggregate demand also fell, adversely impacting the production of goods and services in the economy. These developments consequently led to an economic recession.
Secondly, low sovereign savings and fiscal leakages: Nigeria is a country of abundant human and natural resources. The over-dependence on oil revenue has resulted in the misappropriation of government funds which leads to low savings and fiscal leakages. Fiscal leakages come in the form of using government funds for individual aggrandizement rather than channelling the same to the real sector that the funds are meant for. For instance, Nigeria’s foreign reserves plunged to $ 30 billion in 2015 from over $ 65 billion in 2007 (CBN, 2019). The foreign reserve is intended to safeguard the economy against budgetary deficits being a last resort from which the government may withdraw annually to meet shortfalls in the budget brought about by falls in oil prices or other budgetary constraints.
Thirdly, official endemic corruption.
The mismanagement of government funds and the neglect of key sectors of the economy is another factor that plunged Nigeria into a series of economic recessions.
Fourthly, lack of clarity over economic policy: A major contributor to the recent economic recessions in Nigeria was the wrong and policy incoherence over foreign exchange policy. The ban on 41 items in a market-based forex market perpetuated multiple exchange rates. Manufacturers who rely on some of these imports will have to buy from the parallel market at a very high rate, leading to a high cost of production and a rise in the general price level (inflation). Also, the recession witnessed in the 1980s was partly caused by inconsistent monetary policies which could not sustain the huge oil revenues at the time.
Another one is inconsistencies between monetary policies.
Nigeria pursued monetary tightening through treasury single account (TSA), raising cash reserve requirement (CRR) and monetary policy rate (MPR). Furthermore, the budget relies exclusively on borrowing for fiscal stimulus in the absence of a private capital strategy. And the big gap in policy is the lack of a strategy to leverage and optimize private capital. From the preceding, the consequence of policy factors has resulted in low investment and market confidence from both domestic and foreign investors and has impacted forex flows, foreign direct investment (FDI), new domestic investment, capital markets, employment, and economic growth negatively.
Then you have the political/security factors. The political tensions emanating from the coup d’état and counter-coup d’état witnessed in the 1980s impacted negatively on the economy. Since Nigeria changed to civilian rule in 1999, there have been cases of civilian unrest prominent among them in the early 2000s was the Niger Delta militancy on oil production facilities. More recently, the impact of herdsmen/farmers conflicts on agricultural production across the country particularly in the North-Central the continuing impact of Boko Haram activity on agricultural output and trade in the North-East and the impact of grave internally displaced persons (IDPs) situation in the region has contributed to the current economic recession in Nigeria.
Nigerian Policymakers can learn from history. The current economic crisis facing Nigerians has affected virtually every sector of the economy. Both the rich and the poor have been adversely hit by the current economic realities. Recent evidence points to the fact that the economic situation in Nigeria is getting worse by the day, as the prices of foodstuff and other basic needs have increased at alarming rates; The current economic recession has caused extreme poverty and suffering of the masses; children right to quality education, affordable inclusive healthcare are deprived, cost of living has gone extremely high for the core poor and the middle-income class. It is a no-brainer that there is an urgent need to diversify the Nigerian economy beyond oil revenue. The basic needs of life have eluded almost 85% of Nigerians due to the harsh effects of the economic recession. There is a high cost of transportation, a lack of potable water, epileptic power supply and poor aggregate infrastructure. Social indices are fast declining as oil revenue continues to fall. The economy is deteriorating in human development indices, and the quality of education and healthcare has collapsed, with extreme poverty, acute hunger and starvation prevailing amongst the poorest poor.
The government can learn from history and avoid policy inconsistencies, diversify the Nigerian economy not only to the agricultural sector but also to look out for the tourism sector, export human resources (for example in entertainment, sports etc.), engage people with sound technical economic knowledge, ensure political stability etc. These and many more form part of our recommendations summarized below:
An effective synchronisation between measures of fiscal and monetary policy in the direction of increasing liquidity in the economy, decreasing interest rates, increasing investment and employment, increasing the income of economic entities and finally, in the direction of increasing aggregate demand as an exit from the phase of recession.
Nigeria is a mono-product economy, which solely depends on oil exportation for its survival. Therefore, the fall of oil prices in the international market and the Niger Delta unrest calls for an inward-looking into the Nigerian economy, and the need to shore up the non-oil sector of the economy to diversify the structure of government revenue and export revenue. A mere increase in government spending will not solve the problems posed by the recession, but rather planned and strategic spending in areas with high multiplier effects such as the entertainment industry, agricultural sector, manufacturing sector, construction sector etc. These sectors can stimulate aggregate demand.
The government needs to learn from history and expand its export earnings and production base away from the oil sector through wise investment in the non-oil sector because such sectors will produce alternative goods that can be exported to make up for the earnings or deficit for imported goods.
Also, the government should ensure continued efforts to restore normalcy in the North-East and resolve the recent agitations for secession by groups in the South East region of Nigeria. The mishandling of secessionist threats by the South East region in the late 1960s led Nigeria to a series of economic downturns. Thus, we can learn from this and find an amicable way of ensuring stability in the political economy of Nigeria. There should be political engagement, professional security measures, as well as zero tolerance for herdsmen/farmers clashes in the North-Central and across the country.
There should also be improvement in institutions to make them more functional to reduce the level of official corruption, and fiscal leakages as well as, political, social and religious crises (the likes of Boko Haram, Fulani herdsmen, Niger-delta Avengers etc.) to ensure stable government and guarantee the sustainability of democratic rule free from unwarranted changes, or intervention by the military.
To date, many Nigerians are not banking and there seems to be a bulk of our currency not going through the financial institutions. Do you agree with this and how do you advise the government on better financial policies?
I totally agree, many Nigerians have lost confidence in the banking system of Nigeria and as a result refused to pass their funds through the banks due to some reasons like Illiteracy, lack of financial education, difficulty in accessing bank funds, greed, corruption, complicated bank procedures and unexpected bank charges and instability of the financial sector. Many also keep foreign currencies at home in order to sell for profit at an auspicious time.
It is worthy of note to state that, this has impacted negatively on our economy, and it has made it extremely difficult to manage the economy, especially the liquidity of the system, since the amount in circulation cannot be established.
One negative effect of keeping money at home is the denial of more opportunities to give loans for productive purposes and the destabilisation of the economic system. This practice has negative effects because such huge funds would not be made functional, and it’s one of the contributions to the poor health of our economic system.
We would advise the government to focus more on public enlightenment, financial inclusiveness, and strict enforcement of the extant laws. The real solution to building Nigeria’s financial fortune is to holistically promote a sustainable culture of savings. It is these savings that can fuel Nigeria’s passionate entrepreneurial spirit. Nigerians will have to be the ones investing in Nigeria more than foreign investors. When people have substantial funds in savings, they can easily plan, invest, and lead a better life and the economy will then thrive again.
Furthermore, we would urge banks to reward loyal customers who are consistent in their saving habits with higher interest rates and reduce bank charges on depositors’ accounts.
Getting money from the ATMs can be frustrating. Aside from the queues, you may not even get anything while your account is debited. We want to call for a liberal monetary policy by the CBN to make banking more accessible and IT-driven for accelerated transactions. We advocate more friendly innovation, prompt banking service delivery, expansion of bank branches, minimum or no bank charges, higher interests, and user-friendly bank applications.
Talking about your personal enterprise, how did you start and how has the Nigerian economy affected you positively or negatively?
I believe that everyone who wants to make a positive impact in life should have a dream, and aspiration to give back to his immediate community and the nation at large. As an accountant, I have a strong desire to right the wrong notions and believe that no one can make it except through the back door or benefit from a corrupt practice as many opined in our present world. The journey began around 2011 when I qualified as a chartered accountant. Precisely, a friend called me for assistance on business formation and financial policy introduction into a new business, I took it as a starting point, and the result is what we are discussing today.
As an entrepreneur, starting an enterprise in the service industry requires a lot, especially in the financial sub-sector, and being a non-commodity-based enterprise, I struggled through the path of growth and God has been faithful in birthing the dream. I have developed a couple of clients and experience has placed me in a vantage position such that I can confidently handle complex business models in the financial services space. It is worthy of note to mention that support from friends has really spiced up the growth of my enterprise as a tree cannot make a forest.
On the impact of the Nigerian economy, every entrepreneur in Nigeria today has had a fair share of negative and positive impacts but to different degrees. Some of the identified challenges affecting the performance of SMEs in Nigeria include financial constraints, infrastructural problems, management problems, marketing problems, technological problems, corruption problems, lack of skilled labour, Government unfavourable fiscal policy and policy inconsistency, the Nigerian economy has honestly dealt negatively to our business in no small measure.
We shall continue to strive, and ensure that we impress on our mission and vision, as we cannot make a detour at this point because of the belief that the negative trend cannot continue forever.