We need private sector support in energy sector– Jide Mike, MAN DG
24 Mar 2008: CHRISTIAN OCHIAMA
The Director-General of Manufacturers Association of Nigeria (MAN), Mr Jide Akerele Mike, said that nothing short of a state of emergency in the energy sector would rescue the nation from the morass it is currently mired.
“We know that currently we run below 4,000 megawatts but government said that by 2011 they should be able to generate 30,000 megawatts, while in 2015, we should be able to generate 50,000 megawatts. But my problem is, the way things are going, can we really achieve the target without declaring an emergency?” he asked.
Jide advised that President Umaru Yar’Adua should summon the political will and do what was necessary to pull the nation and her energy requirements back from the brink of social and economic disaster.
According to him, “I expect that if the president braces up and takes the bull by the horns, declare a state of emergency as it is and give them a time frame, look within nine months I want 24 hour power supply uninterrupted in this country. It is something we can achieve”
The MAN D-G spoke with Daily Sun recently on such issues as low tariff and influx of cheap foreign goods into the country.
Present administration and private sector
The president, since he was sworn-in, has come out with what we have come to know as his seven-point agenda which include energy, agriculture, anti-corruption, economy and so on. I would say, for now, the private sector is still reeling under a very tense investment climate. And so far, the private sector’s presence in the administration is not really noticeable. If you look at the economic team, for instance, there is only one representative from the private sector. I believe that it shouldn’t be government thing alone. But if the team is really capable of turning around our economy by pursuing the seven- point agenda, the private sector will be glad to support it and we are already supporting it.
Representation to government
At different fora, we have always pressed for this public/private partnership (PPP) and unless this happens, government successes in some areas would be reduced because the private sector, who are operating at different levels, in different sectors, wear the shoe and they know where it is pinching them. I give you an example where the private sector presence is seriously needed but up till now nothing has been done. We are negotiating a common tariff for the West African sub-region and the negotiators comprise only government representatives. But we believe that the private sector should be included strongly for them to really tell the other negotiating representatives from other countries from the sub-region what the problem is in Nigeria. We have made it known to the government that it needs private sector’s backing especially in any of the negotiations.
The Economic Partnership Agreement (EPA), we are very happy that it is there. We are very well represented. Even the non-governmental organizations are very well represented and that is why we are able to push the issue thus far particularly when Nigeria insisted that we want to see reciprocal benefits to be derived from this partnership agreement. If we do not have any partnership and we just enter into an agreement with European Union countries, I think it is going to be very disastrous for Nigeria especially our local industry because it will be an opportunity for them to push whatever they want to push to this country and flood them with such whereas some of the goods are adequately produced in this country.
Energy and the economy
I’m happy that we have realized that we need private sector support in this area. You see, the issue of government declaring a state of emergency in the sector, it was a welcome idea when the president announced that action. But even you in the media will notice that our energy supply is getting worse. I don’t know of some other states, at least, in Lagos where you have productive activity going on, energy has been a very terrible problem. For instance, in the seven-point agenda of Mr President, we know that currently we run below 4,000 megawatts but government said that by 2011, they should be able to generate 30,000 megawatts, while in 2015 we should be able to generate 50,000 megawatts. But my problem is the way things are going, can we really achieve this target without declaring an emergency? Of course, I expect that if the president braces up and takes the bull by the horns, declares a state of emergency as it is and give them a time frame, look within nine months, I want 24-hour power supply uninterrupted in this country.
It is something we can achieve. Other countries with even less resources than Nigeria have achieved it. And I think that if you have spent 10 billion dollars and you have not seen the result, it is also right for the government to find out where the money was spent. What infrastructure have you provided? Again, the human element of it is also very important. Who are the people in charge of providing electricity for this country? If they are not doing well, ask them to leave and bring in younger people. As long as someone is supposed to provide electricity for this country and he is unable to and nothing has been done about him, the country will suffer for it. Remember, electricity is the backbone of productive activity in any nation from whatever level up to the industrial level. If we do not have electricity, I think we still have problem.
On the side of the private sector, the former administration initiated the idea of private sector going into power/electricity investment and a few private sector operators have gone to do this to provide electricity for their use particularly heavy industries. Not all industries can do this. In fact, even the state governments who tried to do it, we saw the failure. Only a few independent power supply projects have succeeded. I know just a few. What we have recommended is that the government should give the necessary incentives that would encourage the private sector to provide their own power. They don’t have to go into heavy electricity projects that would produce several thousands of megawatts of electricity.
No. We want projects that would produce for a small community, a small production area and so on. For instance, WAPCO now has its electricity supply project which is utilizing gas. And when we talk of gas, the problem also is there – the issue of vandalization of the pipelines you have to pass gas through. We are trying to promote an independent power project and we have reached a stage whereby we are looking for core investors and financiers. We have done our surveys and the need of the industries. After doing our survey, we know that people would be interested in investing in it. So, investors need a lot of encouragement to be able to do this. Let me finally say that some years back and even currently, the activities of an Independent Power Project (IPP) in Plateau State, we call it NESCO is remarkable.
They have been there since the 1960s because they provided electricity for the miners at that time and today they are supplying electricity to domestic users and industrial users in Jos. So, it is not a new thing that private sector should provide its own electricity but remember also that it is very capital intensive and the brickwall again is the purchaser of that electricity that you are generating. So, the power purchase agreement is an important element in the private sector power supply. If you invested in it, is the Power Holding Company of Nigeria ready to purchase the power from you? What is the price that they are going to pay that will pay you back for this investment? Because it is PHCN only that owns the transmission line. So, you can’t transmit the generated electricity through anywhere else other than the PHCN transmission lines. So, it is quite a complicated, technical and capital intensive project.
Discussions on way out
We have the Nigerian Electricity Regulatory Commission. We have been talking, discussing with them and they have encouraged us on what to do. Again, the technical area is that you must locate the facility on a site where you can evacuate your generated power and it must be close to a transmission line. If not, it will cost you more again. If you need to use gas, you must site it not too far from the gas pipeline. If not, you have to lay your own pipes. Also, you are expected to have a heavy budget on gas pipelines to link up with energy line. So, it is not something that one would just go into without trying to overcome some of the technical things.
Every year, we submit to the Federal Government what we call pre-budget memorandum. It has all the issues that are affecting our economy not just the manufacturing sector. And we make some suggestions having had inputs from all the sectors that are in the association. We have about 11 sectors and over 75 sub-sectors doing some manufacturing activities. Now, when you submit such memo to government, in the past, they received it with a lot of enthusiasm. But I don’t know whether they really take it serious. But these are data and suggestions that are very relevant to the economy. For instance, we tell them that to invest in this country, you need a very modest and affordable interest rate. Gradually, they acceded to this and reduced the interest rate. It is still not good enough for investment especially if you are going to the bank to use their facility.
Today, interest rate hovers between 16 and 17 per cent, while developing countries in other parts of the world have interest rate at single digit. Why should we be borrowing at such high rates? We work for the banks because you will be paying the bank almost forever until you realize your principal investment cost. Also, exchange rates, we will congratulate government. Exchange rate has stabilized within the last five years and it is still improving. Currently, exchange rate is about N115-N119 to the dollar. I believe this is good thing for planning unlike in the past where it shot well over N130, N140. Also we have suggested, as it is done in other countries, that we abolish this dual exchange rate --- having exchange rate from the official side and exchange rate from the black market – the bureau d'change.
Even though there is very little margin for the bureau d’change, why don’t we collapse the two, so that if you want to buy foreign currency and you go to any bank or bureau d’change you know that you are getting it at the same rate? Probably, you only pay the usual commission which is very meager. I think, on the macro economic side, government is listening to some of our suggestions. But we still want them to dig deep into some of our recommendations especially in the areas of tariff and fiscal policy. We are telling you that the duty on the importation of raw materials should not be more than five per cent. We have proved in several cases that this is what is good for Nigeria.
The Common External Tariff (CET) for West African sub-region, is what we now want to utilize as part of the integration process because there is a division between Nigeria and some other parts of West Africa. In their case, they want a much lower duty because they have the advantage but we have industries that have adequate capacity for some of the products. So, we must protect it. We are advocating a reasonable high duty that is also affordable. Also, if you have such duty, it will be difficult for smugglers or somebody who wants to import for importing sake because he is not going to make any profit from it if he actually paid the duty attached to it.
We still have that problem in convincing government and I think they are still working on it. On the issue of other fiscal policies, we are a member of some of the committees. But sometimes the committees make recommendations that are detrimental to the manufacturing sector because as a lone voice, it is difficult for government to really carry on these things. But we try to convince them as much as possible. We also know that there are other interests. It is not only the Manufacturers Association that is pushing for a particular policy.
Low tariff and influx of cheap foreign goods
The low tariff is part of it. First of all, because the world is a global village now, most countries want to liberalise trade. We have already done it with West Africa as a region. That is what we call ETLS (ECOWAS Trade Liberalisation Scheme) where you move goods from any part of West Africa to your country and pay zero duty. This is understood to boost trade within the sub-region. But this has been abused over time because the Asians will bring goods to this country, label it as made in that country and you can now send them to other parts of West Africa, purporting it to have been made in the sub-region at zero duty. It is real economic sabotage that is affecting the manufacturing sector where as the ETLS has its requirements.
For instance, if I want to import a particular item from Cote D’Ivoire to Nigeria, that item must have its rule of foreign trade, which stipulates that the raw material must be derived from that country 60 per cent. But the issue is that they are not really following it and it appears the Custom service is closing its eyes on some of these things. But going back to your question about the influx of products from Asian countries, it has been the greatest problem. One, the issue of counterfeiting, faking and piracy have so devastated the manufacturing sector that we had to raise it as an association when I attended the World Congress of Counterfeiting and Trade in Dubai recently. It was shocking that even the United States and EU countries also accused Asia particularly China of sending in sub-standard products or even fake and pirated products to their countries.
United States claimed 85 per cent of fake products to come from China and EU claimed 80 per cent. In Nigeria, you can be sure that it will be over 80 per cent too. Because it is all over the place. But the dangerous aspect of it is that they also go to fake and counterfeit successful local products and labeling them as made in Nigeria. That is the biggest problem we have with faking and counterfeiting. So, it is really affecting our local industries. We are imploring government to take this up at very high bilateral level. And we suggested that at the congress that if bigger powers, bigger economies have experienced this, you can imagine what is happening to developing countries like Nigeria. So, we are recommending that the issue should be taken up at the United Nations level and at G8 level because China also is a member of the G8. That’s the problem with goods coming from Asian countries. We are ready to compete with any product coming into Nigeria provided they meet our standards.
Remember, Nigerian manufacturers are not just producing any goods. We have a regulatory agency that guides and supervises the quality of the products. Once you meet the NIS – Nigeria Industrial Standards, it is acceptable all over the world. Just as ISO 9000-9200. So, I don’t see any reason why a country like China will now decide to bring in goods that are counterfeited or fake. When I had the opportunity to discuss with the Consul-General of China at a forum in Lagos and I put it to him that I do see high quality product from China in United States and Europe why do they bring fake and sub-standard products to developing countries including Nigeria. He said: “Look some of these things are perpetrated by indigenes of Nigeria.
They go there to ask that if this particular product costs 10 dollars, produce for me one that will cost two dollars”. Then I told him, is it not wrong, because it takes two to tango, for a Chinese manufacturer to accept to produce such? He shouldn’t have accepted it. Because, invariably the summary is that we are now boosting your home economy by making sure that all your factories are working, employment goes on and other value addition to the economy through such process. He had no answer to that. But he said that they are really working on it by trying to blacklist all companies doing that. But I think that is not good enough.We still need to really check it. If it is affecting the USA and EU ours is a tip of the ice berg.
MAN and multiple taxation
It is true. First of all, despite Act 21 of 1998, it appears that we are yet to really put that problem behind us. Every citizen is encouraged to pay tax. It is actually very unpatriotic if you try to run away from paying tax. But when tax is getting too much, you have to run away from it. This Act of 1998 has stated the categories of taxes to be collected by the three tiers of government – federal, the states and local governments. They are listed there and we have had occasions where our survey show that one local government alone is asking for well over 500 taxes. In Lagos State it is about 115 taxes. They are perpetrated mainly by the local governments.
Taxation generally has been a big problem for the manufacturers. I know, too, for other sectors. A lot of taxes are being reeled out by state and local governments and the worst culprit are the local governments. Despite the fact that the Lagos State governor gave directives on the taxes to be collected by the local governments, they still went ahead to ask for so many ridiculous and frivolous taxes. At a summit Lagos State organized late last year, a very welcome gathering on this issue, we bared our minds on some of the problems and the present governor, I think, is ready to cooperate.
But I think they are laying so much emphasis on some of the taxes. If they really go out to collect normal acceptable taxes, people will even voluntarily go and pay their taxes.The government has heeded our advice by advertising in the newspapers to let people know what and what they are expected to pay particularly on direct assessment tax which is a very good thing the Lagos State government has done. But the other issue is about taxes that are not tenable, not listed in the Act 21 of 1998 that the local governments continue to harass not only manufacturers but others too. You have a manufacturer who has a company vehicle with a logo, they stop you, harass you. I don’t think this is good. It’s not done in other countries.
Why harass people on the highway with police and gang of area boys. This is very uncivilized. I think that Lagos State government in particular should look into this problem. People will be willing to pay their taxes if they know what taxes. They have promised to publish the list of taxes that are to be paid by citizens – people living in Lagos. But they are yet to do that. As soon as we see it, we’ll now look at it appropriately and know those ones that are really genuine taxes and those that are not.
It shouldn’t be me or the manufacturers alone that should be disturbed. A country where you don’t have peace, it will never grow and the economy will be shaky because there will be no investors. Even local investors will think twice before they go into investment. The existing ones will be sitting on the edge of their seats because they don’t know exactly what will happen next. So, I think it is very important in order to assure our foreign potential investors and even those of us who are citizens of the country. They must find a lasting solution to this Niger-Delta problem.
I don’t know why it was allowed to aggravate to this level. And the people are taking advantage of the situation to perpetrate criminal activities, things that are linked to the issue of derivation or whatever. I think what government is doing now is quite laudable but we need to have a high powered commission to look into the real problems of this region. It is not possible to accept some of their demands because that would eventually render Nigeria a useless country. But let us really see areas we can assist the region particularly development, education, human resources development and assure the investors that they can invest in the region.
I am happy that the Federal Government recently directed oil companies that are operating outside the Niger Delta to move back there. But they have to assure them of their security. Because just giving them directive that they should go there is not enough. How secured are they when they go back? Look at it this way, one, the Niger-Delta people. What are their demands? What are their problems and what has been done in the past? Because they have the largest allocation of the federation account. What have they been doing with the allocation? So, we look at all these things and the Federal Government will have to take over some of the projects but deducting their cost from their allocations because they need to develop. I have visited the area about two years ago. Let me say, frankly, they need a lot of development infrastructure wise – more roads, the creeks should be developed in such a way that you can use it in a more attractive atmosphere because that is their life. It’s just like asking a Fulani nomad not to live in the bush with his animal.
They will tell you that it is their ways of life. Whatever you want to do for him, take it there and do it for them. I was in Thailand, Bankok in particular, and we took time off to visit Island of Bankok and you see people living on the high seas with their boats and so on. What the government did was… they had invited them to come to town or allow their children to come to school in town. They said no, this is where we live, what are we coming to town to do? What are we going to eat? What the government did was to appoint special teachers, they sent in very powerful generators, put them on their boats and the teachers will go there, teach them everyday. They are getting wiser. You will see electricity at the center of the sea . You ask yourself, is it an oil drilling rig? We should learn from the countries with similar problems who were far behind us some years back but are now better than us. I think it is just the planning and commitment. I believe that the Niger Delta problem is not insurmountable. We can resolve it. But let’s look at it critically, the areas of need.
Are you worried about corruption?
Of course, any patriotic citizen of this country will be worried. We are worried in the sense that when we were growing up, we didn’t know anything called corruption. Or even misappropriation of government money. But today, people do these with impunity and at the end of the day, there is no serious punitive measure or sanctions taken against such people. Corruption is weakening the fabric of this country.
Everybody wants to get rich. Our leaders are not even showing good examples. And this new generation of Nigerians definitely are not happy seeing people who are doing nothing and yet they are swimming in wealth.
They want to know how they made their money. So, I think on the issue of corruption, the government has to take a serious look at it. That’s why I support EFCC because, at least, it is an organization that confirmed that corruption can be checked to a level and if we are doing it at a very high level and coming down, it is okay. It is not when somebody who has stolen a fowl, you jail him six months, a person who stole a bicycle, you jail him one year, somebody who has stolen billions of naira, what have you done to this particular person?
Look at what happened recently in the National Assembly when one of the members alerted the house that the place was full of 419s. Even though he changed his mind but he has told the world, whether it is true or not it is for the Federal Government to go back and rethink and check the real status of some of the people. For me, if he withdrew that, it has no effect because he has just told us the truth. I fear for his life, yes, there is no doubt about that. That’s why he withdrew it but I think he has made a case. Corruption is really painting this country in a very bad light.
Do you have it in the private sector?
Of course, we have it but we have better checks and balances in the private sector. That is why it is easy to catch somebody who is corrupt or who is misappropriating. But in government, sometimes, it is very difficult because of bureaucracy and red tapism. There is nowhere without corruption. Is it in manufacturing, police, customs? Even ordinary buying of ticket at the airport, you will see the way people are desperate. Somebody will go and give money to somebody because he wants to get it before somebody who is already on queue. That’s corruption. Until we are able to checkmate it, we may not totally eradicate it. It’s not possible. There is nowhere there is no corruption. It is the level. I can’t remember the number Transparency International has placed us on now, but it is still not too good for Nigeria.
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