SOLUDO'S FIRST MISTAKE
by Madaki O. Ameh
INTRODUCTION
To many informed
watchers of the Nigerian economy, there have been a number of
interesting developments in recent times, suggesting that at last, the
country may be coming to grips with its developmental challenges and
moving in the right direction. After a lack lustre first term in
office where words were hardly matched with action on any of the
campaign promises, the constitution of an economic team, made up of
brilliant and focused professionals at the beginning of the current
term of President Obasanjo’s administration rekindled hope that maybe,
the stage was set for some enduring changes to occur on the economic
front, which holds the key to any other positive changes that can be
expected in other sectors.
The fear however has
been the sustainability of those efforts, especially in the face of
extreme cynicism by a weary Nigerian public, who have sadly watched
successive governments tinker with their collective future through a
process of experimentation that leaves no room for sanctions in the
event of woeful failure, even at colossal costs in taxpayers’ money.
And such fears are not entirely unfounded, as the nation’s experience
is replete with examples of half hearted and ill thought out policies,
the wisdom of which is mostly lost on even the pedestrian thinkers and
beer parlour economic analysts, who abound in their numbers in every
part of Nigeria. The truth is that most of the problems with the
Nigerian economy do not require sophisticated analysis, and many of
the conclusions arrived at during such light hearted sessions may well
provide an insight and offer some wisdom in the solution of the many
problems bedevilling Nigeria, especially in the economic and political
front.
Without claiming to
be an expert in this area, this writer subjects some recent policy
pronouncements and decisions of the apex bank under Professor Charles
Soludo to common sense scrutiny and argues that at least one of them
may portend a frightening sign of inconsistency, which could derail
the entire efforts being currently made to achieve consolidation in
the nation’s banking sector.
BANKING REFORMS
When Professor Soludo
was named the Central Bank Governor in 2004 by President Obasanjo, the
decision was hailed as a fantastic choice by those who have followed
the rise of the brilliant and energetic young man in economic circles,
starting from his first visible role as Chief Economic Adviser to the
President. Professor Soludo represents, for the Nigerian younger
generation, an acknowledgement of the confidence of President Obasanjo
in the ability of young people to contribute to the future of this
country, given the right opportunities and empowerment. Without
meaning any disrespect for the elderly, this assurance became very
critical at a time of extreme despondency by the young generation at
President Obasanjo’s style, especially in his first tenure, of
surrounding himself with old and expired people, as if wisdom and
knowledge is their exclusive preserve. Many were worried that, if as
a military man, General Obasanjo could preside over the affairs of
Nigeria in his early 40s, why has he suddenly realised that only
people about his current age and above have anything to offer to
Nigeria?
The way and manner
Prof. Soludo approached his new role as CBN Governor went further to
galvanise support for his appointment and rekindle hope in the future
of Nigeria’s economy, under the capable hands of the current Finance
Minister, Mrs. Ngozi Okonjo-Iweala, the Minister of State for Finance,
Mrs. Esther Nenadi Usman, and the CBN Governor, among other brilliant
members of the economic team. Parallels were already being drawn in
certain circles between Prof. Soludo and the youthful and brilliant
Gordon Brown, the current British Chancellor of the Exchequer, whose
economic wizardry has been acknowledged widely around the world, and
whose firm grip of the British economy has created the strongest
economy the country has witnessed in the last 100 years.
Soludo’s announcement
of his vision for the Nigerian banking sector where mega banks would
emerge through a consolidation process was welcomed by many, both
within and outside the banking sector, as the limited services
rendered by the sector had become a source of grave concern. The
stipulation of a minimum of N25 billion as share capital for banks and
the discouragement of family and individual banks was seen as the
future for a sector which had, over the years, been fragmented by
proliferation and many underhand deals bothering on fraud and
corruption, leading to easy money by a few, while the support for
industry required to see the economy grow, was lacking. The strict
time frame within which the banks were to comply and the clear
guidelines and clarifications made by the apex bank from time to time,
also created a lot of confidence in the banking public, who were at
last happy that some measure of discipline was emerging in the
hitherto largely ill regulated banking sector in Nigeria.
FROM RELUCTANCE
TO COMPLIANCE
From an initial
situation of reluctance and negative analysis on how the new policies
were too ambitious and would not work, coming largely from bankers who
were afraid of losing out in the consolidation exercise, the emerging
trend has been that of enthusiasm and a frenzied effort to comply,
when it became obvious that the new policies had come to stay, and
apparently had the blessing of the powers that be. Not even the
danger signal of a policy reversal by the passage of the Bill, which
sought to create categories of banks, has provided a reprieve, as the
status of a mega bank appears to now be what all surviving banks in
Nigeria consciously aspire to assume at the conclusion of the exercise
in December 2005.
It is against this
backdrop of a growing confidence that recent pronouncements by the
apex bank has created huge concerns of an apparent slip into the
vestiges of our uncertain past, where government policies were
manipulated and adjusted to suit the interests of seemingly powerful
people.
DANGER SIGNS
After a much
publicised meeting between the CBN Governor and the Governors of the
19 Northern States (by the way, they are all Governors!) at which the
State Governors were reported to have requested the release of their
allocation of the excess crude oil revenue to enable them recapitalise
the ailing and poorly managed Bank of the North, the usually
sure-footed and smart talking CBN Governor, in a rare show of
capitulation, announced that the CBN was going to bail out some banks
by writing off their debts with the apex bank. There have been
conflicting accounts of the total amount of this bail out exercise,
but authoritative sources have reported about N82 billion, and the
beneficiaries have been named as: Bank of the North (N41billion),
Africa International Bank (N7 billion), Societe Generale Bank (N13
billion), Fortune Bank (N2 billion), City Express (N2.5 billion) and
Afex Bank (N5 billion). (Vanguard online – 2/5/2005). In a
recent interview, the CBN Governor said that there are 13
beneficiaries, without naming them.
An analysis of the
list of beneficiaries and the proportion of their benefits makes it
easy, even for the wary analyst, that there is a direct correlation
between the meeting of the Governors and this bail out exercise, as
the Bank of the North came off with the Lion (or is it Elephant?)
share of N41 billion. Even more worrisome are the reasons provided by
the often convincing CBN Governor on why the apex bank decided to
embark on this exercise.
In a press statement,
Prof. Soludo is reported to have said that “.…The CBN is also mindful
of the fact that the issue of granting loans to banks and writing them
off in the future would no longer arise in the light of the new
settlement system. This is a special one-off concession, which would
not re-occur in the future." He said further that "…. the board of
the CBN was very mindful of the need to avoid rewarding the past
mismanagement of the institutions by ensuring that the forbearance was
contingent on the recovery of the owner/insider non-performing
facilities." Finally, Soludo explained that
"….if the CBN does not write-off the loans and the banks remain
unattractive to potential acquirers/investors, they would eventually
be liquidated and the system would lose more, including the deposits,
bank employees as well as debt to the CBN."`
Apparently under
pressure to justify the unjustifiable, Soludo’s additional excuse of
drawing a comparison between the ultimate cost of Nigeria’s
consolidation exercise, which he put at N173 Billion or 2% of
Nigeria’s GDP with Malaysia, which he stated to be 4% of their GDP,
completely begs the question, and is another attempt to thread the
well worn path of silencing genuine concerns by reeling out usually
questionable statistics. What he should address is what the Malaysian
costs were applied to, which was definitely not debt forgiveness to
ailing and poorly managed institutions. After the consolidation of
Malaysia’s 54 domestic Banks into 11, there are currently 11 domestic
and 14 foreign banks operating in Malaysia, with a national network of
1,710 branches. Rather than write off their debts as is being
proposed by Prof. Soludo, all the non performing loans and debts were
transferred to Danaharta, an asset management company, which has to
date recovered over 56% of such debts, with efforts still on-going.
With all due respect to the CBN Governor, the reasons he has given
fall far short of what one would expect from a reform-minded and
ebullient Professor of Economics of Soludo’s standing. This writer
believes that, it is exactly for the reasons advanced by Prof. Soludo
that the banks should not be bailed out, as he has acknowledged the
fact that those debts were accumulated largely due to insider dealings
and mismanagement, which should land most of the owners and directors
of such banks in the net of the EFCC and ICPC. What credible excuse
can Soludo possibly give for using public funds to salvage privately
owned banks, in an economy where there are also several well managed
banks who are not requesting for the same bail out from the CBN? What
ever happened to all the theories of a level playing field, fairness
and firmness which underscore any successful scheme of the magnitude
being embarked upon by the CBN in the banking sector?
There is no other name to call it than a reward for poor corporate
governance, for the CBN under Soludo to announce such largesse at this
time, when there are several other sectors of the nation’s economy
yearning for attention due to inadequate funding. If the CBN has
excess funds, as appears to pleasantly be the case, it should explore
ways of channelling such funds to the productive sectors of the
economy, instead of feeding the already over bloated owners of these
banks and their directors from hard earned public funds, when we all
know that most of the banks became distressed due to questionable and
often fraudulent activities of their owners and directors.
WHAT IS GOOD FOR THE GOOSE…
Not unexpectedly, some other banks are beginning to question the
rationale for CBN’s selective largesse, and are legitimately asking
for their own share of what appears now to be the proverbial “National
Cake”. At the last count, banks like
Liberty Bank Plc, Assurance Bank, Midas Bank, Trust Bank of Africa,
IMB International Bank Plc and ACB International Bank Plc, have
reportedly made such requests and are awaiting a response from Prof.
Soludo’s CBN. And it will be interesting to see what that response
will be.
For private sector
enterprise to thrive anywhere, subsidies in any form must be
eliminated, unless it is inevitable for the strategic growth of that
sector, such as agriculture and education, which are still heavily
subsidised by even the most developed and private sector driven
economies of the world. The amount Soludo is proposing to reward poor
performing banks with can create a revolution in agriculture or
education in Nigeria, if properly applied. These sectors are however
still sadly neglected in Nigeria.
Prof. Soludo cannot
claim ignorance of the recent events leading to the collapse of the
Rover vehicle manufacturing company in the UK, and the manner in which
it was handled by the duo of Tony Blair and Gordon Brown. Faced with
the challenge of the imminent collapse of the company, which for
Britain is a matter of national pride, given the long history of the
company and its association with the best of British technology in
vehicle manufacturing, the British Government did not offer to write
of its debts and save its workers’ jobs, even in an election month
when it would have been very convenient to do so. Rather, Tony Blair
and Gordon Brown made frantic efforts to get the Chinese interested in
the company and make a take over bid, in the knowledge that only the
private sector can effectively salvage private enterprise. When those
efforts failed, the company was allowed to fail, and its employees,
running into thousands, who lost their jobs in the process, have been
paid off with the support of funds provided by government.
The lesson in the
above is that sound business sense dictates that government must not
salvage private industry, but rather deal with the issues and fallouts
from failure of those companies which must fail, if they are poorly
managed. It is indeed a good thing to allow the weak and poorly
managed banks which are not attractive for acquisition to fail because
their survival in any form will have a leprous effect on the banking
sector and create credibility problems, even after the
recapitalisation and consolidation exercise is concluded. This
analysis is so common place and mundane that it is really shocking
that an Economist of Prof. Soludo’s standing will throw away all his
efforts in moving the Nigerian banking sector forward by one act of
seeming recklessness which defies any rational thinking.
The onslaught by the
NLC against this obviously ill thought out decision of the CBN is
clearly justified and deserving of the support of all well meaning
Nigerians. It also gives a lot of kudos to the well informed and
purposeful labour leadership in Nigeria under Comrade Adams Oshiomole,
as he has demonstrated that the vigilance of organised labour
transcends bread and butter issues, and encompasses other larger
issues in the Nigerian economy.
The time to back
track that decision is now, if Prof. Soludo is not to lose his growing
army of fans, who are largely satisfied with his bold intervention in
the Nigerian economy. It will be shameful indeed for all the optimism
associated with Prof. Soludo’s efforts so far to be dismissed as a
mere fluke, as that will be the ultimate triumph of his detractors,
who are still apparently smarting from the pains of his emergence into
such a powerful position, when they would have preferred an ‘older and
more seasoned’ technocrat. Soludo should realise that the job he is
currently doing as CBN Governor is not just for himself, but on behalf
of the entire generation of younger Nigerians who believe that they
have a lot to offer, and so he cannot afford the luxury of annoying
errors and mistakes of this nature, which will be a source of scorn,
even for beer parlour and pepper soup economic analysts. [back
to Top News]
