Malam Suleiman Yahyah, a Cambridge University-trained economist, currently chairs the boards of AshakaCem Plc, NAHCO Aviance Plc, The Rosehill Group and Asokoro Island Limited. He is also a director of several other corporate organisations. In this interview, Yahyah says Nigeria must enlarge its tax base and simultaneously cut the tax rate to remain competitive. He also tells how the companies he heads are faring:
AshakaCem held its Annual General Meeting (AGM) recently and you said that electricity has been a challenge. How does that affect profitability, productivity and the price of cement in the market?
Electricity affects us in a significant way. Let me give you an example: Last year, the price of electricity was about N24 per kilowatt to industries including AshakaCem. Suddenly, without negotiations, Discos increased it to N36 per kilowatt. Every N1 increase impacts negatively on us by N60 million per month. So, you can imagine how N12 increase would hurt us. AshakaCem requires 22 megawatts per day to run efficiently. This is a company that is operating in the insurgency-ravaged North-East. This is a company that has been challenged by its history and environment. This is a company that was attacked twice by insurgents – these attacks cost us N2.5 billion and we are still counting the losses. So, if you add the electricity cost in billions, you will appreciate the impact on our profitability, our sustainability and on the price of cement to the consumers and why it impedes our progress.
But one of your competitors reduced its price…
Yes, they did reduce price but quickly reversed it to the status quo because it was not sustainable. We are at different levels of capital expenditures — renewing our plants, building new plants and renewing our production capabilities, and don’t enjoy the same level of waivers as others do. We need sustainable policies to achieve long-term development. The price of cement is greatly impacted by energy cost and distribution cost. So, the problem is not at the production side but on the transportation and distribution side. A trailer cost [transportation] from Lagos to Abuja is almost as high as the cost of the cement it will carry. Shipping a container from China to Lagos will cost you 60 per cent less than transporting it from Lagos to Abuja. That is to tell you how difficult it is to operate and succeed in Nigeria. If we had a railway infrastructure, the price of cement would be low.
AshakaCem used to be the star of the North. What has gone wrong?
No, I don’t agree. We are still the Northern star. We are the largest employer of labour in the entire North-East. We have over 700 people in employment. There is no company in those six North-Eastern states that is comparable to AshakaCem. Ninety-eight per cent of the businesses that you know in the North-East have collapsed; AshakaCem, by the special grace of God and the ingenuity of its managers, is still standing. Yes, our contribution to the Nigerian cement economy has shrunk from about 45 per cent in the 1980s to only 4 per cent now as a result of not only ferocious competition but because of historical problems the company has had and its inability to respond to opportunities in the past by not expanding its capacity. Sadly, AshakaCem has still been operating at its nameplate-commissioned capacity of 1million metric tons for 40 years. This, you will agree, is lethargic. That is why Lafarge-AshakaCem last year embarked on a massive expansion of capacity that will hit 4.5 million metric tons by 2018. AshakaCem will then employ more than 1, 500 Nigerians and create and add more than N180 billion in wealth every year to Nigeria. The foundation stone for that expansion was laid last year by the President. It will include an embedded power plant of 64 megawatts that will use our abundant coal reserves, and achieve 95per cent coal substitution in our energy mix.
AshakaCem will be producing roughly 4.5 million metric tons in 2018, but don’t forget that this noble target had been punctured and temporarily delayed by the two insurgency attacks of November and December 2014.We were about moving a large number of men and materials to our plant sites when the insurgents attacked us. We were forced to delay the expansion programme because we did not understand the intentions of the attackers and we were not able to plan for the large number of people that would be in Gombe State. We needed full security first, to restore confidence.
I’m happy to say that security is getting better now, thanks to the Nigerian Army, civil defence, the police and the NSA and the leadership of Badeh who moved swiftly and decisively to secure our people and the investments. We will soon revisit our timelines and go on with the expansion.
NAHCO Aviance is one of the companies that you chair. What are your expansion plans?
Yes, we are doing relatively well. NAHCO was the most complex turnaround that I and my team have been engaged in for the past six years, because of the culture of corruption, significantly decayed infrastructure, and manpower challenge. There has been no expansion of Nigerian airports since the 1970s. Our airports were designed to handle 3million passengers nationwide. Now we have 17 million people flying in and out Nigeria on literally the same infrastructure. So it’s right to say the Nigerian government is a poor manager of business.
Our airports experience has been very complicated – our airports are among the worst worldwide. Travellers including our staff have collapsed and died on account of all kinds of challenges in our airports. We recently had to donate defibrillators to rescue heart failures. Our airport charges are among the highest in the world — another paradox. Nigerians pay more for the lowest quality of service to the government (the airport owners and managers). It was against this difficult background that we operated and yet were able to transform our business, realign our business and realign our operations to achieve what you have seen. We won several corporate governance awards, industry excellence awards etc. as Nahco grew over 400 per cent in less than seven years.
We are succeeding. We have just been granted a free trade zone licence — the first free trade zone that will happen in any airport in Africa. So, we will run a new platform which will be called the NAHCO FTZ [Free Trade Zone].
We are also establishing businesses in Senegal, Ivory Coast and other African countries to further de-risk the business under our Africanisation programme launched two years ago.
At what level is the project now?
The project is at the critical implementation stage. We are at the point of execution. The aviation sector is a quick win for Nigeria’s diversification strategy and jobs creation. Let me assure you that as soon as we see clarity in policies and governance improvement, we shall rally massive international investment in the aviation industry.
How far have you gone with the Asokoro Island Limited (AIL)?
Asokoro Island project is an international collaboration of Nigerian, Spanish, French and American investment that will certainly change the global conversation about Abuja and indeed Nigeria – it will show that we have class and talents and are ready to invest in our country. We felt challenged that Nigerians were investing in properties in places like Dubai or even Australia, seeking both returns and safe escape for capital. It will reduce the huge capital flight on offshore property investment which is running into over $10billion annually. We have apartments that are affordable.
The business environment in Nigeria last year was unfavourable to many investors. How did you manage to survive it?
Of recent, doing business in Nigeria has been extremely difficult. The energy crisis (we are relying on generators 80 per cent), the increasing level of low-quality managers (good people with talents are migrating or not returning), the huge macro-economic shock devaluation, insurgency and the conversation about the huge corruption going on made it very difficult to do business last year. Nigeria was just fighting itself and destroying business platforms and confidence.
Our overall performance is that of relative success, however. We can do much, much better if the conditions I listed could be reversed, because our business mantra is driven by a high level of corporate governance and ethics. We have to hire experts and best talents every time to just remain competitive. We are focused on value creation and those businesses that have flexibility and capability to deliver services to our customers. So, what we do is that we deliver customer values first, then employee values, and then shareholder value in that order. When you combine these three, you will be successful wherever you operate, anywhere in the world.
The exception is what we economists call externality, by which we mean the quality of public-sector governance, effectiveness of regulation and security — and these are outside our control. That’s why our trajectory is rough and bumpy. The whole graph is not a smooth, rising graph. It is a fluctuating graph, but when you measure it in time you see that it is a rising graph hiding the imperfections in our journey thus far. We are successful because you just see the final output, but we have a series of significant challenges. We have been able to ride through the challenges by re-strategizing and moving on. Excellence is a process of continuous trial while seeking perfection.
Some businessmen believe that if you don’t cut corners in Nigeria you cannot succeed. What is your take on this?
Certainly not. If you cut corners, you fail. Cutting corners is like digging a ditch, and one day you will fall into the ditch. How many corners you cut — that is how hard you fail. We believe in our God-given talent and our expertise. We believe in the golden transparency rule that, if you cannot say and celebrate it publicly because it will be embarrassing, then don’t do it. We believe in best practices and good governance, and fight for it; we hate unjust practices. We believe in obeying the rules and the laws of any country in which we want to do business. We believe that the ultimate reason we are in business is to make legitimate profits, and we will remain sustainable only if we are socially responsible.
How has the devaluation of the naira affected the Nigerian economy?
Devaluation is worse than inflation. It reduces consumption which reduces production and ultimately reduces output. It is also inflationary.
It destroys values and valuations. Devaluation reduces our capacity to make investments and renew our businesses. It reduces consumers’ ability to make choices. So, devaluation is a harmful poison to the Nigerian economy. It was the most painful impact last year that wiped out the gains that were achieved in the previous four years. We are now poorer by 30 or 40 per cent, relative to the rest of world.
Do you see Nigeria getting out of this in the next few months?
Yes. Change is here. I’m optimistic. But it’s going to be a robust journey and must be well thought out and modelled. Difficult choices must be made.
And I think oil prices have slightly rebounded, which will help. You remember that the crude oil price collapse was the announced reason for the devaluation. I don’t believe that’s the only or main reason, but it was a good excuse for an inferior strategy.
I think other reasons for the devaluation included the grand conversation about the mismanagement of the fiscal surplus accumulated by Nigeria (which was started by the former CBN governor), the wrong application of monetary tools, weakness in the financial system and what some people call square pegs in round holes masquerading as global experts handling the Nigerian economy.
The result, of course, would be the devaluation of the naira, which was like an escape route. So, if you ask me whether we have seen the worst, I’m not sure as we’re still very prone to more mistakes and policy errors and the data doesn’t provide any comfort.
Let’s look at the data. Corporate profits all over have shrunk. Strong corporates in most sectors had nearly 50 per cent reduction in profits in the first quarter of 2015 – that means low output and eventually low taxes and employment and aggregate demand. If you look at the federal revenue data, you see continuous weakness and wasteful expenditure even in the approved 2015 budget and very tiny investment, and the actors are calling for belt-tightening. If you look at the interest rates, they are still very high and a big bubble. Our public sector borrowing and the compounding of the double-digit interest rate have created over $60 billion public debt. And much more has not been recorded and announced — the correct figure would be around $150billion if you dug deeply in the ministries and aggregate their committed contractual liabilities. That’s over 35 per cent of the country’s wealth. So the answer to the question is: we must get out fast and quickly.
We pray that when the new administration comes in we will begin to see major re-alignments in the fiscal space to launch an interventionist fiscal strategy backed by a massive fiscal stimulus package, easing of credits and rewriting our financial system strategy and reinventing the monetary policy framework that will give confidence to the Nigerian capital market in the first instance, and to the money market and the international financial and monetary system: that Nigeria is not only ready for business but is the bride of Africa. Government should intervene and must intervene massively. Without a stimulus package, we will continue to diminish Nigeria’s ability to rise responsibly because there is no strength in our disposable income to support consumption, production and for us to live normal lives.
Some of the issues you raised may affect the new government. What advice do you have for them?
It is a very difficult task for a new government. The first advice is to avoid the austerity trap. Second, the government should rewrite our monetary and fiscal policies. Third, there should be a deliberate strategy for expanding, renewing and developing infrastructure. That is what I call a stimulus package.
They should focus on massive government interventions in several billions of dollars with focus on infrastructure, welfare and strengthening of markets. They should re-align domestic economic policies in favour of the local domestic economy and in favour of Nigerians — align and respond to global trend in such a way that Nigeria is repositioned to play an active role not only in domestic space but also to compete. Domestic energy prices have gone up, and it just doesn’t make any sense to produce in Nigeria. If energy prices are not moderated, there could be another round of de-industrialization. Interest rates are very high. In Nigeria, the cost of doing business is very high. There is no incentive for business. The quality of regulation is very weak. Our tax system has decayed; the tax code needs a lot of revision to make it simple and clear. You also need to create a social welfare strategy for the Nigerian people in dire need, for both our sustainability and for the enlightened self-interest of all of us. Our size matters but it matters to business only if there’s large enough effective aggregate demand for goods and services. That’s why the business community is happy that change is coming, and we hope that the change will be fair change for everyone.
The relationship between the private and public sectors has not been smooth of recent. Waivers given recently ended in a mess. In what ways do you think this relationship can be enhanced?
Let me start with waivers. These are market constraints that create huge imperfections and are a source of corruption. Waivers do not help transparency and productivity, so it’s not good for the country. It complicates our competitiveness and creates a class that’s favoured versus the rest. It creates bias and a lack of clarity in taxation. I’m not in favour of waivers. Rather, we would like to have a simple tax code that is also lower.
Nigeria has to remain competitive. Where there’s a special constraint or some kind of market failure like the North-East, or in power, we should give incentives for trade and investments.
Remember: Singapore has a tax rate that does not exceed 25 per cent. Tax collection is almost 100 per cent. We have such a high tax rate that’s cumulatively nearing 48 per cent and yet less than 20 per cent is collected. So, the challenge and paradox of taxation is not the tax rate but the tax base; and; at our rate of development, taxation should be a tool to attract investment and capital formation. We have over 1 million registered businesses in Nigeria; how many of them are paying taxes?
In fact, if you are to have a minimum tax rate based on share capital only, government can generate from the majority of the businesses registered (without considering operating turnover) more than N3trillion in taxes today. This is achievable only by enlarging the tax base and paying minimum tax rate. Therefore it’s only logical that by reducing the tax rate and enlarging the base governments will garner more taxes. That’s why I’m an advocate of taxation.
As Nigeria swiftly restructures and reforms its taxation, emphasis must be placed on lowering the tax rate. So, the first challenge of government is to decide: if you lower the tax rate for a number of years, businesses are bound to increase investment, output, employment, and enhance our international competitiveness and efficiency so that we can increase the creation of Nigerian champions. We have only a few champions.
We need to create a framework where business champions would emerge from this country so that we can justify our No. 1 status on the continent. Government strategy must help to ensure that more businesses are created. The surest solution for new jobs is for more businesses to be created. To create more businesses, you must make the conditions right for businesses to invest with ease from retained earnings.
Interview conducted by Daily Trust reporters
