It was precisely on 21st June 2012, a hot afternoon, a day geography scholars call the summer solstice. A crew of the Nigerian Footnote Magazine (NFM) journalists led by no less a juggernaut than the publisher of the NFM Chief Ebi Odeigah himself had the rare and privileged access to the thoughts of a former Wall Street guru Chief Ken Iwelumo (the current Alibo of Onicha-Ugbo) and Senior Vice President – Investments at Bank of America/ Merrill Lynch in New Jersey. B of A/Merrill Lynch is one of the largest investment banks in the world. The crew that includes Aham Onyemachi and Jessica Edozie met with Chief Ken Iwelumo on one and one. Questions on the national economy and investment opportunities were fielded by Chief Ken Iwelumo who gave highly inspiring and illuminating answers. You will enjoy this interview as you read it.
Good afternoon Sir.Good afternoon.
The Nigerian Footnote crew just decided to talk to you at this moment. You are welcome Sir.
Thank you very much.
Please may we get to know who you are Sir?
My name is Ken Iwelumo. I am a former Senior Vice President - Investments and a Senior Financial Advisor at the Global Wealth Management Division, Bank of America/ Merrill Lynch. I am in the process of moving back to Nigeria where I hope my knowledge, financial skills and awareness can contribute to the development of my country. I took an early retirement last December, 2011 to fulfill my dream of assisting Nigeria in its economic development to help attract and retain quality Foreign Direct Investments and Private Equity Investors. So I am transiting back to Nigeria.You are welcome sir
Ken Iwelumo: Thank you very much.
I hope you are going to enjoy Nigeria?
I have been visiting Nigeria several times a year for the past 10 years so I am very much at home.
OK Sir.
There is this news making its round in the media and investment banking circles that Nigeria is maintaining a foreign reserve of about forty billion dollars but Nigeria has a lot of challenges, some of which include unemployment, lack of new infrastructure and the old ones not maintained because of funding, electricity that is power. We cannot generate enough for ourselves principally because of funding, there is lack of funding for education, agriculture even security. We are also faced with lack of funding for aviation, ports development and so on. Poverty is everywhere yet we maintain a very large reserve. What can you say about it?
The reserve doesn’t mean that the money belongs to the government. Foreign reserves are foreign exchange balances that accrue to Nigeria being receipts for products and services that Nigerians and Nigerian Corporations export abroad. What it means is that the Central Bank Nigeria can only tap into this reserve to fund local foreign exchange demand. The money is not for development, the money for development is what the Federal Executive Council gets monthly. The funds belonging to the federal government include funds in the Excess Crude Account (ECA), tax revenues, royalties, short and long term loans etc. The reserves are simply what people in Nigeria sold abroad and the dollars that came from it.
Having 40 billion simply means that you are able to pay for your import not that you can use that money to develop your country.
If Nigeria can make use of that money to pay for imports, what it means is that Nigeria can use the money to import, say aviation equipments, security equipments like guns, etc.
Yes, but the government has to raise naira to access that money. The money is not free and does not belong to the government. The only way the government can have access to the money is to go and print naira. We are trying to achieve a balanced budget in Nigeria and not the deficit finance budget like the US so that is the problem here.
You were quoted as saying that you favour our currency to remain soft so that it will be attractive to foreign investors, were you quoted correctly?
I was correctly quoted. The stronger the naira, the more we are going to find frivolous import of goods by the rich and investors will not invest in Nigeria. For example, at 100 naira to 1 dollar, very few people in diaspora will send money home but at 200 naira to 1 dollar they will even borrow to send money home. Whenever the naira is weak, you will notice a boom in housing as people abroad will send money home to set up their businesses. Every country in the world is trying to make their currency weak in order to attract investors. China is a great example, India is another. When you are trying to export goods and services to the world, you need your currency to be weak so as to be competitive with other nations. When your currency is strong, people are not going to import from you or invest in you and you will have a greater risk of capital flight from your own citizens. Foreign Portfolio Investors (those who buy and sell shares in the Nigeria Stock Exchange) are notorious for trying to invest when the Naira is weak and cashing out whenever the Naira is relatively strong. Weak Naira encourages home remittances by Nigerians in the Diaspora. Strong Naira encourages fraudulent practices such as inflated invoices for imports in a corrupt contract fuel driven economy such as ours.
There are instances in the 1980s where some rich Nigerians thought it fashionable to fly their BMW’s and exotic cars abroad for servicing. Something that is never done today. This was in an era when the naira was two to one dollar. So, a weak naira attracts foreign investment, encourages export and also encourages Nigeria’s business men to go around the world looking for the cheapest sources of goods to import.
In the 1980s when naira was two to one, very few Nigerians wore shoes, wore clothes. Birthday photos with a heap of Jollof rice and a bottle of coke was the norm as opposed to today’s beautifully crafted made-in-Nigeria birthday cakes. In 2012, the Naira is N160 to 1 dollar, everybody wears decent shoes and clothes.
In the 1980s and 1970s the UAC imported goods through the UK; the British parent company would now add a substantial agency fee and bring in overpriced and expensive goods in Nigeria. Since the difficult 1990s and with the liberalization of foreign exchange policies, Nigerian business men routinely move through Asia looking for reasonably priced goods for the Nigerian market. This is why Kingsway Stores, UTC, Leventis, PZ and other pre-1990’s icons have all disappeared or morphed into entities that are more locally focused (UAC). Weaker naira has fostered or encouraged entrepreneurship within Nigeria Dangote etc). And this has happened in spite of the difficulties encountered in doing business in Nigeria, issues on importation and the unwillingness of the Federal Government to allow full liberalization of the Naira.
Foreign exchange is now more efficiently utilized in Nigeria today than in the 1980s. How many times have you heard of anybody shipping in containers of sand as a way to smuggle out dollars? That was when the naira was strong not now that the naira is weak. The recent drop in the naira is due to foreign portfolio investors moving their money out. This kind of situation is to be expected. It is temporal in nature. The naira will strengthen back to the N155 level when the portfolio investors are done moving out their funds. To get to the current exchange rate for the dollar, the Federal Government through the Central Bank has to balance the need of the various tiers of Government to import capital goods etc and the need for the economy to pass scarce foreign exchange to those who can utilize it most efficiently and profitably and attract foreign investments. I pray that Toyota, Mercedes Benz, General Electric, Siemens, Boeing, Airbus, Foxconn, Whipro, Heico, Qanta, GM, Merck and other major manufacturing and service concerns will take advantage of the weak naira and lower labor costs in Nigeria to set up parts manufacturing plants and assembly plants in Nigeria to provide jobs for Nigerians. The transformation agenda of President Goodluck Jonathan is about creating jobs, creating wealth and these cannot be achieved with a strong naira but only with the weak naira. Foreign investors investing over $250 million do not need any infrastructure. They bring in their own infrastructure including power. This in turn attracts smaller support companies creating an industrial center.
Thank you very much for educating us on this. There is another thing, it was reported in one of the papers recently that the nation’s income from oil is steadily moving south wards and government appears not to bother about it. As an acclaimed international investment banker and a Nigerian, are you bothered about it?
We have to understand that since 2009, oil prices have been fluctuating so you can expect some swings. But the challenge the government has is to be prepared for this fluctuation,that is why the government has some reserve in the Excess Crude Account (ECA). That is all I can say for now.
Apart from what you have just told us, what can you tell us more about Nigeria. Are you hopeful?
I am fully optimistic about Nigeria but the greatest problem we have in Nigeria is that we lack patience, we want everything immediately. Nigeria has over 160 million people and blessed with natural resources. We are evolving from an era when ruthless dictators did as they pleased towards full democracy where resources are channeled for the good of the people. Chief Olusegun Obasanjo’s regime was a transition regime. Nigeria is evolving towards a point where reckless corruption, selfishness and greed will not be tolerated anymore. Part of being a democratic nation means that you are going to have right to full knowledge of what is going on. Part of the price of democracy is that you will have from time to time radical groups like Boko Haram trying to disrupt the development of the Nation. We have a police force that until recently had no clue about intelligence gathering. We need to give Nigeria time to evolve and Nigeria is one of the countries that the world is not going to give up on. Our GDP based on the 1990 baseline is 70% of the economy with the Government not being aware of it. We are planning with inaccurate information based on extrapolation of erroneous UN estimates. If Nigeria revalued its real GDP today, you may be shocked that Nigeria’s economy is far bigger than South Africa’s economy. Nigeria’s real GDP is not known. I have a country home at Onicha-Ugbo, the Government is not aware of it. There are millions of properties and assets in Nigeria that the Government is not aware of. So what GDP are we talking about? So, I am optimistic about Nigeria. We should do away with corruption and bring in accountability and transparency. Ghana increased its own GDP using 2010 as a baseline and came up with $30 billion instead of the previous estimate of $20 billion. South Africa increased its own GDP using 2009 as the baseline. We are still using outdated data that is 22 years old.
Thank you very much Sir, we are very grateful. We hope to meet you again, maybe in Abuja.
Have a nice day.
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