… the market determine where prices are
…rebasing GDP requires integrity laced with transparency
…Dirty December” is a phenomenon which is also a function of domestic security
Renowned economist and CEO of Financial Derivatives Company, Bismarck Rewane, in this webinar on Economic and Wealth Serie 14 of February 21, 2025, put together by Alpha Morgan and Capital Managers, spoke extensively on President Donald Trump’s kind of economics, CBN policies, using real life examples to punctuate his points to a logical conclusion.
Excerpts:
You made a comment about one of the major developments in the last few days which is that inflation in Nigeria dropped from 34 to 24. My comment is that “not all that glitters is gold”.
So let me start off now by saying our view is that, what are the global changes? One thing that is clear is that while there’s global connectedness there’s also global disconnection taking place at the same time.
There’s globalization there’s also isolationism, there is also trade, wider trade but also tariffs, there’s also geopolitical uncertainty or let me put it this way part of it bargaining, part of it strategic and part of it reaction.But what is clear is that there’s a disruption but also what is clear is that you have what they call the triapatide which is when a political party in the US controls the White House, controls Congress and controls the Senate.Typically what happens in that situation is that during the midterm elections and you can go back as far as you want, the party in power kind of loses almost everything at that midterm election and if care is not taken the correction follows, the correction goes all the way to the White House.It happened during the time of George Bush II, it happened during time of Clinton, it also happened during the time of Obama so that’s as far back as my memory can serve me.
The German economy is the third largest if I may, in the world after the US and China, Germany and Japan and then India.It’s very important because the Germans are right in the epicenter of the Ukraine-Russia crisis.
Germany is a major user of gas for heating that comes from gas prom in Russia.Germany does not have the right to have an army, Germany and Japan were not allowed to have an army after the Second World War but they’ve also done a lot.So what does it mean? It means that in Germany has history of being very anti-inflation because the Second World War started because of the inflationary measures that hit Germany.
Germany also has a lot of immigrants mainly from Turkey and other places, so this will be a true test whether the world wants to go conservative and go rightwing?
Whether the world wants to have tariffs? Whether the world wants to stop the expansion of NATO because this whole thing in Ukraine was NATO was a smaller, what we call a North Atlantic Treaty Organization, smaller body but expanded and got others to join, as much as Poland, Slovenia and all of that.
Now they’ve gone beyond what was the boundary of this former Soviet Union and so the Russians are fighting in defense because they want to restore and defend themselves.I was trying to put some context into the global situation we are in.
Don’t forget that in 2024 we had massive elections and the elections taught incumbent a lesson, in other words Biden lost or Biden’s party lost, the Conservative party in England lost, the Indian party in power lost a lot of its majority, the South African majority party also had to share with the…So in almost all cases we saw a rebellion by the electorate against partisan power and mainly because of two things, one cost of living and two, the fact that when there’s economic crisis people tried to blame it on foreigners and immigrant, so you had immigration and all of that.
Now we are going into a cycle which as you can see and I was giving examples all the way from South Africa to India to Britain and also most recently in Ghana next door to us, so when will this cycle end because where there’s global cyclicality in economics there’s also global cyclicality in politics. So we are the threshold.
Now so many things are happening and America is the largest economy in the world, the US dollar is the hegemonic and preeminent currency in the world. The US financial system virtually controls the world.Why is it so? It’s so because they bore the brunt of the Second World War, they bore the brunt of the Cold War and this is the time to reap from the spoils; those who suffered typically in the days past if there’s a war, he who loses pays reparations to he who wins, so and that is what happened.
So Germany and Japan, Japan of course we dropped the atomic bombs on them and all of that.But I want you to note something that Trump is saying that we cannot be, it is transaction man, we are spending so much in defending global democracy but we are not getting anything in return.What does it want in return? He wants trade balance.
He’s using tariffs as a negotiating ploy so that people will rather than export to America, will come and invest in America but the world has since passed that level and he’s trying to go back to the past.But having said that, the first thing we’re going to be talking about today is, has the investors, those who are on this call are going to be asking themselves, did I make money in 2024 and if I made money, why and where did I make money and what is going to be different between 2025 and 2024?
Is the world facing a massive shift in investor perception, tolerance and risk levels? Is the world changing, facing a changing paradigm of consumer patterns as well?Is there global coordination to make sure that the financial system remains safe and stable or is there a, what we call creative tension, challenging the old order?My view is that challenging the old order would only go so far, that we are going to go back to the basics but certain trends are there that cannot be changed, that is there’s a neocolonialist approach, there’s a very aggressive dominant posture of the leading countries in the world, so you are going to be having the United States, European Union, China, Russia all of them coming together and there will be to a large extent an oppression of developing economies.
Having said that, the reaction to that in the next three to four years, I will say two years back particularly because there will be midterm elections by November next year and then the battle to succeed Trump would have started and therefore America not be in a position to do that which they’re doing now.
So you have an 18 months window in which they’re going to do all these crazy things.Now you as investors have to look at the universal and global markets and say what is, one, where did I make money and why will it be different?So let’s start at the global level, we just said it now, firstly the US, if you know what happened throughout 2024, towards the end the US started cutting rates and they cut rates quite aggressively.
Inflation came down all the way from 11, 10, then 9, all the way down to 2.6, unemployment stable and global trade increased. The disruption due to the Ukraine-Russian war was there but the world factored that in.So now the US economy all of a sudden because of Trump’s style we are going to see the US deficit balloon.
When the US deficit balloons and the Federal Reserve Bank has said we are not going to cut rates anymore so don’t expect a cut in US rate this year. You expect the dollar to strengthen this year.
So all of these things have implications for your portfolio, so if you made money last year you made money because the dollar was kind of traeding soft water, you made money because the expectation of their interest rates are going to come down globally, you made money last year because you bought your bonds or you bought your equities.
So what happens when the US or the FED refuses to cut rates? Your US equity portfolio is going to come under water, the dollar is going to strengthen and when the dollar strengthens the price of gold will come down but in this case , but also the price of oil begins to come down.So it tells you a lot of things and that’s where we are and I think it was this morning the EIU came up with a clear understanding to say that US monetary using will halt earlier than in other economies causing global economic volatility.
And the context was clear and the trigger is clear and the impact, the impact they say is that an extended period of divergence of money policy between the US and the rest of the world will keep the US dollar strong, weigh on valuation of other currencies, persistent non US dollar currency weakness would have an impact on prices owing to higher import cost for many markets and lead to challenges in the repayment of US dollar debt.
So the question is that how much US dollar debt does your customer or your investee company has? How much US dollar debt does your country have and how much US dollar debt do you have, that’s a big question as an investor.If the case is that is high like Nigeria said yes, Nigeria has issued two sets of Euro bonds $2billion, another $2billion plus and therefore and Nigeria is talking about raising additional money.
The big difference between debt and investment is that debt is you borrow and are liabilities and investments are there and you service it with the income.
So today we’re going to talk about US tariff, we’re going to be talking about geopolitical uncertainties which I’ve actually touched. Then the meaning of AI technology advancement, renewed inflation threats across the world and US monetary easing halt earlier and moderate global growth.So like we said US started easing rates in September and that was good for everybody, in fact two times and we are expecting a third one.
We think that the cycle will run into 2016 but it will slow down now.But we also believe that the Chinese are playing very carefully and watching the US, once US goes into that within the next two, three months you’ll start seeing people in certain parts of the US complaining.
For example KFC which is the Kentucky Fried Chicken from the state of Kentucky, have moved the headquarters from Kentucky to Texas because of tax advantages.So if a company as old and as traditional as Kentucky Fried Chicken can move its headquarters to Texas and Boeing has moved his headquarters, you are beginning to see changes and these things mean a lot.
So you investors are going to be asking yourself, how did I perform? How did my portfolio perform in 2024? If you are in Nigeria your portfolio would have performed to a large extent modestly well but you would see that maybe banking stocks appreciated or increased in value, you will see that technology stocks stayed flat other words the MTN and Airtels and manufacturers also reported massive FX losses.
You will see that many of the companies you invested are having to face energy crisis, faced logistics problems in 2024 and faced higher interest rates; so these companies, so two things happened.
One, if you borrowed money to buy the shares. Two, if those companies that you bought into also are borrowing money, you are hit with a high interest cost, the company that you bought into is hit with a high interest cost and the company that you bought into faced foreign exchange challenges, that was early part 2024.
As we came towards the end of 2024 we started seeing some changes i.e Dangote Refinery started, we began to see some changes towards the end of the year and that affects the performance of those companies but you will not see those results until, 2025, late 2025 when you begin to see the results.So your performance in 2024 will be totally different, the performance of your portfolio I say will be totally different from the performance of your portfolio in 2025 going into 2026.
But also Nigeria in 2025 is a political battlefield, it’s quite clear that it takes two years of politicking to either win or lose an election in Nigeria, so you start counting, if it’s 2027 you count back two years and then if it’s 2029 you count back two years.So the battle ground is set time, the game is up and the calculus is different and if you think it’s the party structure that you had that fought in 2019 and 2023, it’s not going to be the same, completely different, so the juggling has started, the meetings have started and the pieces are being put together.
I want you to understand that.Now what you are seeing right now, like I said the US policy is going to be more volatile and less convention, now so what are we going to see?
We are going to see higher consumer prices, we’re going to see internal battle. One thing about, let me go back to the US, in 2016 if my memory serves me right, Trump brought a lot of professionals into office and Trump had to listen and between his personal needs and his global, his political ambition, if there was any conflict he fired the people.But this time when he won he said I won on my own speed, so he didn’t go for any professional, he got people who are loyal to him period, end of story; so the US government, the White House is an extension of the Trump organization, his children, his daughters and everybody there, so he’s running a personal serfdom.Therefore in that circumstance there’ll be very few people who can tell him the right thing because he has become an emperor, a maximum ruler but therein lies a danger because the system we run, the system the US runs is based on checks and balances, the separation of powers.
So they have institutional checks, you have financial checks and all of that, so it won’t take long within the first 100 or 150 days of his administration he will run into head ways and the battle for who to succeed him starts and that would fragment and dismantle most of the things that you see, one.Two, the Federal Reserve chairman is not about to leave until his term expires February 2026, so Trump cannot do anything to him because it was Trump that nominated him, so Trump will have to be thinking of who to take over from him.
And by the time, by February 2026 there will be enough battle within the senate for confirmation that he will have difficulty just picking what I call a yo-man somebody, a journey-man; so if that is the case and if FED remains totally independent and autonomous we expect to see financial system stability in America in this year.We also expect to see that his journey men are not going to be able to do that much and his influence is a declining function of time, every day that passes Trump’s influence begins to decline because of institutional checks and balances and the battle for succeeding him.So he becomes very quickly, he goes from being a lame dog to a dead dog very quickly and his opponents, the whole thing that Russia, we don’t know what Russia is up to but definitely he has an arrangement with Russia and the Chinese they’re playing a long game.
So the battles are going to be seen more in global financial stability, going to be seen more in artificial intelligence-AI, we are going to see a lot of the FinTechs that have been very successful stagger and suffer.So, many people in this audience are saying oh FinTech is a new thing, no it’s actually the whole thing.
So, I think that we are going to be seeing this trend of the global markets and you will see that if for example you invested in Nividia a year ago or 18 months ago, I think Nividia had more, they gave a lot of their stocks to their staff, stock options.
They have more millionaires in Nividia than the whole state in the United States, everybody in Nividia even from the messengers all millionaires.Now what happened? Deeps in comes in and Nividia stock lose over a trillion dollars in one week, they lost another half a trillion and so those millionaires, those overnight millionaires have actually become, they are still millionaires but they’re not as rich as they thought they were.
Many of them actually borrowed against their stocks, many of them did not sell their stocks and many people on this call today also bought Nividia and thought they were very rich. But like I said at the beginning of this call not all the glitters is gold, so bear that in mind.So your portfolio diversification strategy and looking at the future, thinking that what goes up will continue to go up and what goes down will stay down all the time, that’s a fundamental philosophy in investment which makes you, what rewards the man who thinks differently.Always believe, in Real Estate we say that a winner is a man who plans for when he loses and a loser is a man who plans for only when he wins, please take note of that.Warren Buffett also said that rule number one, do not lose money. Rule number two is do not forget rule number one; so I want you to understand that.So we see a situation where people are going to be, they made a lot of assumption and I’ll bring it back to your Nigerian portfolio where everybody made up their mind.
As I was coming this morning I saw long queues again in petrol station, MRS and the difference between MRS and Mobile down the road is N925 per litre versus N970 per litre, so it’s about almost N50 per litre.For a car that has 50 litres or 60 litres, it means a difference of N10,000 a month, N2,500 a week to fill your tank, so it changes the picture, whether you are buying MRS or whether you are buying Mobile, it changes the picture whether you’re buying Dangote Refinery whether you’re buying NNPC in the stock market.
So you heard about tariffs and domino effect of tariffs, what it does mean is that let me put it to you that if there’s a tariff on steel importation in America which America feels very strongly about, first of all they blocked NEPON steel from buying the US Steel company.Now by doing that it means that the Chinese and others and the Japanese will have more, there’ll be excess steel outside America and shortage of Steel inside America which means that in the short run the price of steel will drop and if the price of steel drops, you will find out that the price of steel drops and it can bring down construction cost in Nigeria for a short run until because the Japanese and others will counter that.But eventually it means that in the short run the disruption will lead to lower prices before the adjustment and higher prices.Now, so enough of trump and China fighting back because we know what it means but what it does mean is that in having your balanced portfolio it’s just like the “Japa” syndrome people jumping out of Nigeria and many of them are jumping back.I give an example, last week the British announced something which was very interesting, VAT on education and VAT is about 18% per annum.
So if for example your school fee was £10,000, all of a sudden your school fee is now £12,000 or if your child goes to a private school, so there’s almost a 20% increase in fees.So when people jumped out of Nigeria going to England they didn’t know that that will happen. Why is the Labour Party doing it?
The Labour Party is party of the people, so they want to use the tax on those who go to private schools to fund the public schools.So the same thing, the next thing they’re going to do tax on private medical bills to fund…so the basic assumptions that drove people’s decisions have changed and will change further, like Warren Buffet said the trend must be your friend.
So let’s be clear, one, there is individuals, two, there is investors and three, there is nationals, these are going to happen.So what are the things that are very clear to us? One the Ukraine-Russian war will come to a precipitous truce, NATO will fight but cannot do much because the US and Russia and Saudi Arabia coming together will put the rest of the world under pressure.Commodity prices, Trump is not going to talk too much about drill anymore, he’s going to be talking about how to keep the Russian, Saudi Arabians happy therefore he will see some oil price, oil price will not drop as sharply as he wanted.But at the same time because he is going to be under pressure because the inflation went up in the US to 3% it’s likely to creep up a little bit to 3.1, 3.2, once that starts happening the polls will begin to show that Trump’s favourable rating is beginning to decline, one.
Two, the stock market in the US will begin to factor in an increase in interest rates which means that equities begin to come down and Trump looks at only two things they looks at his Twitter handle and he looks at the stock market value of his investment, he thinks of nothing else because that’s all it does as a gambler.So you will see that and he will begin to respond and therefore the only thing that can save him is if the price of oil comes down and that’s where it becomes very tricky for Nigeria.Let me take it back a bit, first and foremost because interest rates increased then your mortgage rates increase and one thing Americans and everybody in Europe doesn’t want is to pay higher mortgage rates, to pay higher for your petrol and to pay higher bills.So we are going to be seeing this change very quickly at the end of the first quarter of 2025, so don’t bet, what you see is not, not everything that glitters is gold.So we will see slow down in Ukraine, we will see Gaza thing, I think there was an attack and kill somebody ISWAP yesterday so that they are trying to show that just like Obama was able to take out Osama Bin Ladin, that America is going to be going after..You are going to be seeing Israel; I think that Israel and Gaza, the whole Gaza situation is not going to be acceptable. I think the Middle East is going to stand up and say no, the very pro-Israel policy stance of the US will roar a lot of the North American and Middle East.Then the whole idea of BRICS and the question that anybody who is talking about the de-dollarization is an enemy of the US, you will see part of that and that again because the US rates are increasing because the dollar is strengthening this will even strengthen the dollar further.But the disadvantage of a strong dollar is that America will begin to import more and export less because America products become more expensive, so if you look at it there’s a contradiction between short term and long-term policy objectives.But again the mentality of somebody who was born and bred in a casino that everything is, the mentality of a gambler is you can’t, so that’s what’s going to happen.49:25
On the US, at some point you saw a lot of people moving their Investments to dollars because of the concern about exchange rates and everything and then Trump resuming office, you know the markets love Trump, the markets rallied even the crypto markets rallied and everything but how sustainable is it? And then when you put that side by side what is going on in Nigeria now with real return at about 3% is that enough for people to like rejig their portfolio not knowing how sustainable this US rally is versus increasing their Nigerian portfolio.
A: Trump is what we call a bitter-sweet pill. Trump comes with disrupt, so two things, one is that his immigration policies and he’s playing to the gallery, deporting people doing all of these things on one hand.But Trump is a realist and after all the posturing, he will now see that economics, the markets run everything and that he has no control whatsoever over the Federal Reserve for now, he has no control over inflation, he can say what he likes, the market determine where prices are.
This is a free market economy, America cannot be a price controlled economy. So in a free market economy it’s the force of demand and supply that determines prices, the invisible hand. So what are we going to see? Once Trump begins to see inflation increase, once Trump sees that Federal Reserve is increasing interest rates and people begin to complain, he has to change tactics.
But in the short run, maybe next two, three months it means something to us. The Nigerian government, yesterday I spoke about the level of debt but the debt you have raised is not as important as the interest rate on the debt.When the interest starts to be a burden, high borrowing cost both as companies and as governments and I tell you for free that you see those forward commitments which everybody is talking about now and the pressure on the Central Bank, how did forward commitments arise?There were people that were importing petrol and importing products who use their partners to fund the transactions and the goods came into Nigeria even before the M form, so when the Central Bank was looking at, the Central Bank said no these are not legitimate transactions.
And when those people stopped funding the Nigerian suppliers it created a crisis in this country, now the Central Bank has paid those…the Central Bank has actually borrowed money, federal government has borrowed to pay this.The high borrowing cost of both the government, the high borrowing cost of the companies that have gone to raise money to meet these obligations and the dollar value means that there is, that is the downside of the Trump policies right now for us.
Well, what we borrowed we have borrowed. Nigeria will not default I can assure you on that, there’s enough resources to make sure that we meet our obligations.But Nigeria will struggle, every time you put money in or you go and refinance to repay those whom you borrow from, your debt is increasing, your interest expense is increasing and when you pay for that you have less to spend on hospitals, roads and others.
So what it does mean, there’s an opportunity for government to sell their interest in some areas and improve service and reduce government expenditure.
So you will see very interestingly that all the governments, the recent appointments of government boards, have been privatized almost all these companies, so party stalwarts are being appointed to be chairman of medical centres.If it have got appointment and people are struggling to be on university councils so that this university can award contracts, so if it has got to that level it means that government as a dominant player in the microeconomic activity of a country is dropping.So question about Trump and I said yes, that borrowing costs both for public and private sectors but also that the government, how to manage government finance will become an issue in 2025 and that will fit into the political process.
And you the financial institutions especially you are a bank, as a financial intermediary, a wealth manager who is providing private sector funding, you have to look at everything together, where am I going to put my money? Am I going to put my money in series A,B,C bonds issued by Dangote or MTN? Am I going to put my money in the bond issued by the federal government? Am I going to put my money in the treasury bill? Am I going to put my money in the PPP project because I hear they are launching, is it today they’re launching the new Lagos to Abuja rail or Lagos to Kano rail, bullet train. I think I heard it somewhere bullet train that will take you three or four hours to go from Lagos by train to Kano, in our dreams for now.I have not gone on the Lagos-Ibadan rail. But the Lagos-Ibadan rail I think takes about two and half hours and that is 100kms, so that should actually be about a 30 minute, 1hour ride but anyway.So but that it just tells you if the federal government is going to sell the Lagos-Ibadan rail to somebody and you buy it, that may be a big investment opportunity.
But the traffic between Lagos-Ibadan, not human traffic, the goods that go between one and the other will not justify that investment, so I would rather buy the Lagos-Ibadan Express way than buying a rail.
Q: Will rebasing the GDP to achieve a lower inflation rate have any real implications on the actual prices of goods and should we expect any widespread policy change based on this?
A: Okay let’s not confuse issues. One, rebasing the GDP is, GPD measures output of goods and services and then rebasing makes it more current for GDP that’s one.The question of the inflation basket and the different base here are two different things.
I think the government made a big mistake by trying to put up the two issues in the market at the same time.As if people are not confused enough you added more confusion to the issue, so these things are complex enough to understand, they are abstract and complex then when you add other dimensions of complexity to it, people just say forget they are not interested.
Normally data should bring about clarity and clarity means that investors are able to make efficient decisions but when you achieve the opposite of clarity by making it cloudy, people just say anytime, what people don’t understand they will go back to what they understood and they won’t touch what it is.And if you notice most countries when you re-denominate the currency or change the currency, there’s always some chaos. People would want to use the old things that they understand and that is why we have not introduced, up to now we have not introduced any more, after N1,000 we haven’t gone to anywhere, there was a plan to introduce N5,000 note.But if you introduce the N5,000 note and the minimum wage is N70,000 so you probably have about, your salary for the month will be about seven pieces of currency or that. By the time you spend two your salary is gone.Anyway, but I think I want you to understand something, one, let’s differentiate between GDP. GDP is an output measure, it measures the goods and services produced and if the GDP is large and the population is small, the income per head is high and the income per head and real income means that people can spend more and an economy could be in a boom era.
Item number one, because we’ve changed the base here and we use more current data, we could go from 300 billion to 500billion maybe $600 billion divided by number of people in the country.
What does a big economy do? It means that some people say because the economy is big, there will be scale economies opportunity, so I come and invest in that market and get things done.Two, rebasing of the Consumer Price Index; this means that every five years normally we change the consumer, consumption patterns change. Like the Central Bank Governor made a comment yesterday and it was very interesting joke that in the Consumer Price Index, one of the products is black and white television.I’m not sure, I go around places but I haven’t seen a black and white television in a long time, anywhere, so they’ve taken that out, they’ve taken out some other things.
Circle machine, in those days before now before photocopiers, before all that, when you are doing hand out in school, they go and do you know things and all of that and roll out.We used to have what this movie camera, many things have been overtaken by events, they don’t exist anymore. Records, do you know this music, all those things, gramophone, those things are gone.
So yes, the new technology of cameras which are on the phones, electric vehicles, all sorts of things, Zoom calls, have changed consumption patterns, change production patterns and therefore what it means technically speaking because of technology productivity increases, when productivity increases output increases.If money supply is been managed at the same time it means that inflation naturally should begin to reduce but the other side of it is that if what is increasing the productivity are things that are displacing people, then you have a major, you have displacement effect, all this frictional unemployment and things like that, it means that, so you have to absorb those people quickly into this workforce and then they produce.
What happens in the end I don’t know because you’ve seen United States become a service economy, you’ve seen the big struggle today between rural America and urban America, you’ve seen the distinction between digital America and analog America and we’ve seen what happens between the Democrats and Republicans in the election.Democrats were still talking about the digital economy while Trump and others were talking about the whole economy and saying that it was foreigners that caused all these problems.Now, so I bring it back to the fact that we should think about what’s going to happen here.
Dangote Refinery was a major disruptor, by this time last year people were carrying jerry cans in front of petrol stations, people were importing petrol and kerosene and others. But since Dangote started we are now seeing queues between where petrol is expensive to where it is cheap, it’s a different ball game.So I think that as we look forward into 2025 every month is going to bring a new surprise.
Two years ago nobody knew Opay and Monie Point and somebody was telling, yesterday we were at an event and somebody said oh yes it was at Channels and said that when they said, the guy had something and he tried to buy something from the POS and while the one was failing, the traditional, the other one, the Monie Point did not fail it was instantaneous and the POS women knew it, they said don’t bother just you know.So it’s a different dispensation we are in where one the customer is king and two, the market is the disciplinarian, just bear that in mind, you cannot give the market what the market doesn’t want.
Q: If the banks put more money in the ATM or rather people have limited amounts they can withdraw from the ATM but then there is the POS operators who are dolling out cash, somebody here is wondering with the increased withdrawal charge by CBN won’t that have a negative impact on their business. But to add to that doesn’t this counter the cashless policy that the CBN was trying to drive with POS operators increasingly dolling out this cash.And the last question, you made reference to the “japa” syndrome reversing, there’s a new phenomenon “Dirty December” where both Nigerians and foreigners are coming to Nigeria in December and there’s this whole buzz; how can the country cash in on that to improve our FX inflows and all of that?
A: Let me take the POS thing. The thing is that in efficient markets, I’ll come back to the “Dirty December”. In efficient markets you have to understand, what is money? Money is what money can buy and money as a medium of exchange driven by transactions, precautionary and speculative motives.And if I can get value, if I can pay you and get my goods from you efficiently why must I carry cash; so total cash in circulation is not up to 5% or 4% of Total Money Supply.So you can imagine, thousands of transactions taking place which are not cash, if we are talking about one trillion or one quazillion or whatever they call it of transactions in an economy like this and where the velocity of circulation is turn round, whether they increase ATM charges, whether they put cash in the ATMs, people are using what is most convenient for them and not just convenient in terms of service but price.So they’ve done the calculation, these people are much more efficient than you and I.
I tell you something, the biggest traders in a dealing room in a treasury are not as efficient as the BDC boys outside there, they know everything.The POS women are much more efficient than anything else they’ve done their factoring and they’re pricing in it, they know cash, they know the difference between one and they know the charges.
The day you increase the charges they increase their own price, so the market will determine what it is, don’t try and game it, you can put ATMs everywhere, if it’s too much trouble and after the first five charges, then three payment you would pay N100, N100 plus N500, that’s all nonsense.The reality is that just as the people who are selling petrol in jerry cans outside the petrol station disappeared so also, what is happening, the people in the petrol station are buying cash, taking cash and selling to the POS women and getting a commission on it, the people in supermarkets are selling cash to the POS women getting commission, the bank managers are selling their own cash to their own agents who are their POS. So like every market, the enterprise will settle somewhere, I think that is the important thing.
The goal wasn’t financial inclusion, the goal was to the cashless policy, the goal was to increase the efficiency of the payment system because the more efficient payment system, the more inefficient payment system, the more you pay interest on money that is, your own money which you cannot get across to the person, so you are borrowing money to do that.But if you can settle your transaction instantaneously and you won’t believe it that Nigeria, Kenya and some of these countries have a much more efficient payment system than many of the advanced economies.They don’t use cash, everything is settled but the Nigerian system after Emefiele did this change of colour of currency, this is the only country where you have two legal tenders running side by side at the same time, it has never happened before but the Nigerian system has found a way around it and everybody is happy and they are doing whatever they want to do.I have never used the POS, I don’t know what they do but I hear about it and the people that use it are very happy and is at the bottom of the pyramid for that matter and those are the transactions that people are using, so I think that is clear.
So let’s accept that that has come to stay and give them their need, they will do it.Somebody asked the CBN Governor yesterday about rural areas, financial inclusion and all that.
The rural areas are settling their transactions efficiently and paying a price for it.Secondly, you said something about “Dirty December”. Well, you see the weaker the value of your currency in the market, the more attractive your market is for all these things.So it is cheaper, a man who has dollars who was getting N800 for $1 before, he is now getting N1500, so it’s likely to come back to come and share in all of these things.
At the same time the people that were, five, six years ago you could get any artist to come and play for you for 3, 4, 5 million naira, today you can’t even get the talking drum man, you can’t even get any of them, you can’t even get the person who will make up the woman to come on stage, they’re talking about N100,000 to makeup the artist, then the hair person who will do the hair, the other person who will do this, so if all of these is to get the person on stage, how much will you pay for the act on stage.I remember many years ago Tiwa Savage use to charge N1million per minute for 15 minutes of half time program, show, so now it’s much more than that now. Asake is charging quite a bundle for whatever it is and they are getting more recognition than people who are getting GCON and GCFR.
So I see it in two ways, one adjustment of the currency. Two, the service sector because of the desperation to earn dollars and targeting the outside market so Nollywood, creative art, artists and all of that and what we don’t understand is that the value chain for entertainment is such a wide and long value chain.I just told you about the person who is making up the artist, the person making her hair, the person making her face, then the lyricist who writes the song, the producer, the director.I was listening to RMD, talk yesterday and you will be amazed how many people are between because the music director, the radio station that will air it because if nobody listens to it, so all the way down and so many and you can’t do it if those acts are not there.But even when they had this their award show here and they had Flavour, the guys who put the music system together charged about almost N100million because if Flavor comes to sing in this room now without any music equipment, his voice will just be as bad as mine.So but if you put the sound system out there even I will begin to sound like somebody with some skill; so you are only as good as the infrastructure that provides…So my answer is “Dirty December” is a stage in that because before now the Ghanaians had what they call Africa logic or something where they did that December thing, so Nigeria is now cashing on.
What was interesting was that in December, this December we had less incidents of kidnap and ransom than the previous year, so that’s one. Also when I read the data, I don’t know how reliable the data that people did not go to the South East because South East is the home of kidnappers, so the big “Dirty December” thing was in Lagos and the other areas where there’s safety and so that becomes an issue for South East politics, what they’re going to do about, IPOB and all the other things.So again when you look at it, now is there a business opportunity in this? Yes. The business opportunity and you go back to what Cardoso was saying yesterday that he has spent a lot of time trying to ensure that the IMTOs and that the monies that are being brought in and that is hoping, he said this very clearly that once this system is in place and the Davidos and the Burna Boys and Rhemas, can now decide to invest their money in Nigeria rather than keep it in the hands of all sort of sharks that are out there.That increase flow of money will provide a major cushion to support this currency because he referred to the whole idea of the balance of payments and the reserves.
He was going somewhere which this question of “Dirty December” means that one “Dirty December” is good because the currency has become weak and therefore people will bring in money.“Dirty December” is good because the creative art industry has done some things and people are coming back home to come and see this artist.“Dirty December” is a phenomenon which is also a function of domestic security and then becomes a big place; so it’s going to be “Dirty December” dirty April, dirty whatever it is but it’s a major thing that is showcasing the creative art industry, the movie industry and the entire value chain because Nigeria has the talent across it.
To me that the economics of the creative industry is important and the specialization that goes into the different segments and pockets of these whole processes.
Q: The last question I was going to ask you sir is from AP Securities and funds and the question is while rebasing can provide a more accurate representation of value it also carries several risks, so could you please speak to the attendant …. financial markets and that is our very last question.
A: Yes, I don’t know what the risks are as far as I know, the risk of, the only risk I know is that if I tell you data integrity, say a few years ago Nigeria went to play football in what they call it Under 16, they have different categories.The long and short of it, the financial advisers to the Nigerian Football Federation turns out that some people said there were 16 in fact one of the people that said he was 16 was around 28 because they had tests that they did eventually and they knocked off almost all our people, so much so now that nobody believes so they are now subjected tobtesrs. I’m saying that the data integrity has a reputation risk for a country and therefore when you now say that your GDP is X and it turns out not to be so then everything that is associated with it becomes questionable.
So when you now say this is my GDP, what happens is that you see for every action there is a reaction. There is somebody else who is at the other end of the transaction in any other part of the world and they will see it.So it’s better to be honest about what you’re doing rather than trying to play all sort of silly games.
So we say that, when we look at it very closely and think that there’s no risk, the only risk that you have is the risk of what we call when people believe their own lies and that’s the most dangerous risk.It’s good enough to peddle falsehood but when you begin to believe your own falsehood then the problem is not just a personality disorder it becomes what you need, those people need treatment.So we think that the reason why for four or five days we couldn’t announce the new CPI figures because people were testing it to ensure that it had integrity and even then when they announced it everybody looked at it and said okay.
And the Central Bank Governor yesterday said we are users of data, we don’t produce data and that we are going to be taking it in gradually, in small doses, that spoke volumes because what happened with the unemployment numbers? Nobody has, up to today has quoted those unemployment numbers anywhere, it’s so embarrassing that when you get to a point where nobody can say is this the person who says he is 16 years old. And one of them who said he was 16 or something or something, was the owner of a commercial boat, so how could they have amassed enough money to own a commercial boat because what happened was that some people, there was an accident in one of the boats and it turned out that one of those footballers was the owner of the boat.But you said you were 16, when did you acquire the money to buy the boat and to organize the business and carrying passengers, so how? So definitely there was some inconsistency.So my biggest problem is that, I know that the rebased GDP is not going to come out as soon as fast as the CPI and you see, you are going to use some of these things to determine…So why is the FAAC, I won’t be surprised if some of the data points being used for the FAAC threw up some contradiction which led to chaos where they couldn’t agree on anything and they said let’s step it down for now.
So I would say that let’s be careful.And the last point I will make here is that when we rebase our GDP, I can’t remember when Obasanjo was president, we were smart, we used the old GDP with smaller numbers to get debt relief under the highly indebted poor country initiative, the moment after that we now rebased now Nigeria became a medium income country. Once you’re a medium income country you cannot have access anymore to the other, so that’s what happened.