Wednesday, December 30, 2009

Princess Diana or Hillary Clinton?

Everyone is familiar with the Biblical story of Adam and Eve. Genesis 1: 27-28 says “So God created man in his own image, in the image of God created he him; male and female created he them. And God blessed them, and God said unto them, Be fruitful, and replenish the earth, and subdue it: and have dominion over the fish of the sea…” birds, and every living thing God in effect giving man a mission statement. We know specifically that God first created man, and then seeing that “…It is not good that the man should be alone…”, God proceeded to make a “help meet” for him (Genesis 2). Implicit in this we see that God created woman for COMPANIONSHIP AND HELP OR SUPPORT for man. In Genesis 2: 21-25, we know that God created Eve out of the rib he took from Adam after he had “caused a deep sleep to fall upon him” implying again that only in woman is man COMPLETE.
They were as Adam declared “bone of my bones, and flesh of my flesh…and they shall be one flesh…And they were both naked, the man and his wife, and were not ashamed” again suggesting the INTIMACY, SEXUAL AND EMOTIONAL UNION and SOLIDARITY that God intended between man and woman. These verses also suggest than man would be a COVERING for woman and vice versa and that in each other would their DESTINIES be fulfilled. I would not bother recounting the story of man’s fall recounted in Genesis 3, as that is not the focus of this write-up. Suffice to note that both man and woman failed this first and critical spiritual test. The story however reminds us that the enemy will always seek to penetrate the relationship between man and woman through the more vulnerable or naïve of the two.
After the fall Adam and Eve continued their (now) mortal existence outside the garden of Eden, and the indirect Biblical evidence is that Eve for the rest of her relationship with Adam succeeded in her multiple roles-conception, co-habitation, comfort, help, completeness, covering and consummation of destiny enabling Adam to live to a ripe old age of 930 years (Genesis 5:5). There are other Biblical stories that till this day provide insight into the possibilities of relationships between man and woman. Sarah and Abraham-proceeding from an initial error (giving Hagar, her servant to Abraham as wife, but eventually fulfilling the vision (Genesis 21:5). In the story of David and Bathsheba (and Uriah) (2 Samuel 11-12), we see how adultery, lying, oppression and eventually murder can result from complex relationships between men and women. From Uriah’s point of view, we also see how a man can lose his life because of a cheating lover.
The story of Samson and Delilah (Judges 16) also contains eternal wisdom. Samson’s only weakness was his love for women, and his enemies, the Philistines, having failed in every other stratagem, successfully penetrated Samson’s household by getting Delilah to seek out and reveal his secrets to his enemies. It is interesting that in spite of several previous attempts which revealed Delilah’s evil intent (verses 7-9; 10-12; and 13-14), Samson eventually (verse 17) revealed his strength to her, and through her to his enemies, reminding us that a woman would always have the ability to destroy her lover, and sometimes vice versa. What does all this have to do with Princess Diana or Hillary Clinton? Both were famous women, married to very important men, and known all over the world. But they were very different in important ways, and with severely divergent consequences.
Diana was the young, pretty and adorable bride of Prince Charles, at the time probably the most eligible bachelor in the world. She was not highly educated, but had an appearance of innocence that the world loved. She was however, as it later emerged not very wise, even though highly manipulative. When she experienced problems in her marriage, she appears to have turned to other men and eventually was divorced from her husband. Her lovers included Asian cricketers, doctors and eventually an Egyptian Moslem, Dodi El-Fayed with whom she died in a tragic car accident in Paris. Hillary Clinton on the other hand was married to Bill Clinton. Both Bill and Hillary were brilliant lawyers, and when Bill became Governor of Arkansas, she continued in private legal practice. Eventually with Hillary’s strong support and encouragement, Bill became President of America and Hillary the First Lady. The Monica Lewinsky scandal almost destroyed Clinton and Hillary held Bill Clinton’s destiny in her hand. If she turned against him, his Presidency was likely to be irredeemably damaged. Fortunately Hillary saw the bigger picture. She decided to fight the “vast right wing conspiracy” that sought to destroy her husband, and even though she was mad at Bill, she understood that their destinies, not just his, were at stake.
While Diana lies dead in her grave, her husband has married Camilla his long time lover, and may yet become King of England. Hillary on the other hand, became Senator from New York, almost became Democratic Presidential Candidate, losing very narrowly to Barack Obama, and is now US Secretary of State. While Hillary understood her God-given role, to help her husband fulfil his destiny and therein fulfil hers as well, Diana did not and trifled with it. She did not understand her great and historical role, as Princess, Queen, Queen Mother and in the Church of England.

Wednesday, December 23, 2009

The Priests of Jeroboam

Solomon’s Kingdom was “outwardly rich, prosperous, and thriving… ” (quoting from the Nelson’s New Illustrated Bible Dictionary, p.649), “But the great building projects he undertook were accomplished by forced labour, high taxes, and other oppressive measures. When the great king died, the kingdom was like a powder keg awaiting a spark”. Before Solomon’s death, the prophet, Ahijah had prophesied to Jeroboam who was Solomon’s servant (1 Kings 11: 28) that God was going to tear the kingdom out of the hand of Solomon into twelve pieces and would give Jeroboam ten of those pieces. Unfortunately Solomon’s successor, the unwise Rehoboam provided the final straw, listening to the advice of his inexperienced companions and declaring to the Isrealite delegation led by Jeroboam, “Whereas my father laid a heavy yoke on you, I will add to your yoke…” The consequence was the cry, “to your tents O Israel” and thus was Jeroboam, the servant made king over ten tribes of Israel.
But Jeroboam, like the servant that he truly was, feared for the safety and security of his new status as king. He feared that for as long as Israel went to worship at the Temple of Solomon in Jerusalem, they would experience nostalgia for the Kingdom of the House of David. So for reasons of strategy, and not faith he had to create a new religion for Israel! He turned to idolatry and made two calves of gold, putting one in Bethel and the other in Dan, for Israel to worship. This action was inspired by Jeroboam’s own desire for self-preservation and clearly contrary to the explicit commandments of God and his covenant with Israel. Jeroboam went beyond this initial error. He “made an house of high places, and made priests of the lowest of the people, which were not of the sons of Levi” (1 Kings 12: 31-33), again clearly for reasons of self and regime viability rather than service to God. In spite of several warnings, Jeroboam continued in his destructive path. He continued to make priests of the lowest of the people and consecrated any willing person as priests of the high places (1 Kings 13: 33) and according to the Bible, “this thing became sin unto the house of Jeroboam, even to cut it off, and to destroy it from off the face of the earth”.
Jeroboam was succeeded by his son Nadab, who continued in his father’s errors and not long thereafter, Baasha killed all the House of Jeroboam fulfilling the prophesy. Baasha was succeeded by his son Elah. Elah in turn was killed by his servant Zimri, but the people turned against Zimri and sided with Omri who prevailed against Zimri. Omri was succeeded by his son, Ahab, the husband of Jezebel, in the time of Elijah, the Tishbite. Ahab did worse than all those who reigned before him, (“And Ahab the son of Omri did evil in the sight of the Lord above all that were before him”-1 Kings 16: 30) and not only did he walk in the path trodden by Jeroboam, but he escalated the defiance of God by Israel’s Kings, and “Ahab did more to provoke the Lord God of Israel to anger than all the kings of Israel that were before him” and elevated the worship of Baal (a fertility and nature god of the Canaanites and Phoenicians) to a state religion in Israel.
Indeed by the time of Ahab, it was recorded that there was only one prophet of God left-Elijah while the prophets of Baal were abundant in their multitude. In the words of Elijah himself, “I even I only remain a prophet of the Lord; but Baal’s prophets are four hundred and fifty men” (1 Kings 18: 22). I have previously wondered about an incongruity here. We know what became of Jeroboam-after his death, his son and successor, Nadab along with his entire genealogy was wiped out as decreed by the Lord. But what happened to the priests whom Jeroboam ordained carelessly and recklessly all over Israel, thus provoking the Lord to anger? Fittingly the Bible does not speak explicitly about them after Jeroboam, but the revelation is there for the wise. In the time of Jeroboam and perhaps for some while thereafter, those false priests may have continued to pretend to be ministers of the Lord God of Israel, but by the time of Ahab, they had all shed all pretences and were now prophets of Baal! Thus Elijah was the only prophet of God left in Israel!!!
Now we know what became of the priests of Jeroboam-they became prophets of Baal. And we know what became of the prophets of Baal. Though their numbers were many, they were destroyed at the confrontation with Elijah. When all the people saw the fire of the Lord consume Elijah’s sacrifice, they fell on their faces and acknowledged “The Lord, he is the God; the Lord, he is the God” restoring the true worship of God in Israel and putting the plans of men to shame. And all the prophets of Baal were slain at the brook, Kishon. Have a good Christmas!

Friday, December 11, 2009

Nigeria in 2010

The Great Recession of 2008-2009 is now, according to most data officially over. Taken as a unit, the global economy has stopped contracting even though some national economies, notably the British are still in recession. America has started growing again, though slowly, and the country’s finances and macroeconomic situation are still bad-growing deficits, huge debt, two wars and high unemployment. Asia is in better shape, driven by China and India, both of whom appear to have shaken off the recessionary flu. Emerging economies are generally doing better than developed ones, perhaps signifying an incipient shift in the global balance of power. The IMF subtly confirms the power shift-moving quotas from “over-represented” developed nations to “dynamic emerging economies”.
Nigeria, as corroborating data from the Central Bank of Nigeria (CBN), National Bureau of Statistics (NBS) and Economist Intelligence Unit (EIU) all confirm never went into recession-all of them put 2008 GDP growth around a range of 5-7% driven by the non-oil sector even as oil production contracted again in 2008. Amazingly NBS data in fact puts GDP growth in Q4 2008 and Q2 2009 at over 7%. Oil prices have recovered from the below-$40 depths it sunk to in December 2008 to an average in the last month of over $70 per barrel well over our $45 budget price benchmark and production is also reportedly rising as a result of the fairly successful amnesty programme in the Niger-Delta which has significantly reduced disruptions to oil production activities. The prospects for global recovery were briefly shaken as a result of the Dubai collapse and debt debacle but markets appear to be shaking off the panic that initially developed.
With regard to the financial sector, which was the origin of recent economic turmoil, consensus is gradually developing around some principles for regulating financial institutions going forward-tighter capital standards; curbs on compensation and executive pay; stricter regulation of derivatives, securitisation, hedge funds and rating agencies; risk-adjusted capital and profits; consumer protection; and the need for increased global coordination in financial services regulation. As a general rule, it appears Central Banks will be increasingly involved in directly regulating “systemically important” (meaning large) banks. Indeed if the Conservatives take power in Britain, as appears likely, the FSA may be abolished as the industry regulator and may become a consumer protection institution within financial services while banking regulation returns to the Bank of England. Many of these trends may manifest locally. Additionally, there may be a greater role for the Financial Services Regulatory Coordinating Committee, further industry consolidation and stronger capital market regulation. The insurance sector may also have to clean up its books.
The outlook for 2010 for Nigeria appears mixed, with positives and negatives. The most significant negative, as I highlighted last week may be increased political risk, as attention shifts from policy and governance to politics and elections. The risks associated with presidential health and succession remains high as is now becoming obvious. Macroeconomic and fiscal management may strain under the weight of electoral calculations; spending (and “quantitative easing”) may increase; inflation is likely to increase as money supply expands and oil sector deregulation raises transport and food prices. The credit crunch that is developing as a result of the loan write-offs and shock of recent regulatory interventions in the sector may also constrain private sector activity, at least in Q4 2009 and Q1 2010. Higher unemployment is likely.
But there are positives as well-the prospect of higher government revenue as both oil prices and production rises; the likelihood of some re-accumulation of foreign reserves and relative exchange rate stability; the fact that financial sector “toxic” assets have now been recognised and dealt with therefore increasing industry transparency; stock market prices may now have fallen to bargain levels (except that lack of confidence and liquidity and perhaps political risk may yet constrain recovery); the improving security situation in Lagos and the Niger-Delta which are responsible for most economic activity etc. Unfortunately the government appears committed to a wrong power policy-instead of completing the unbundling and privatisation of PHCN and encouraging private investment, the regime has chosen incremental growth financed by government. And even then, the 6,000 MW by December 2009 target is almost certain to be missed. Already officials are re-interpreting the target in terms of generated rather than distributed power!
We expect continued GDP growth in 2010-indeed given the prospects of higher oil production, the growth rate may even be higher. Government has given up on single-digit inflation, at least in 2010 as its own budget proposals targets 11.2% inflation. We think further Naira devaluation is possible. The EIU projects a N/$ exchange rate of N165 for 2010, which we think is not unrealistic. Regulatory standards are likely to be tougher across sectors and tax enforcement is also getting stricter. The social conditions of course remain dire-poverty around 54%, high unemployment, decrepit schools, poor healthcare coverage, the absence of a social welfare net while our population goes above 160 million people!

Tuesday, December 1, 2009

Assessing Nigerian Political Risk

Political risk is usually elevated in Nigeria whenever we enter electoral cycles reflecting the fact that we are yet to become a stable, mature democracy. This season is no different. As we enter into 2010, politics, elections and succession will take the front burner and policy and governance will recede to the background. There are some economic implications usually associated with electoral cycles in Nigeria-fiscal expansion and a rash of contract awards as war chests are built, less value-for-money from government procurement etc. The macroeconomic implications may include higher inflation, foreign currency volatility and higher budget deficits. We have already seen some of these phenomena and the others may yet manifest.
The uncertainty introduced as regards the quality and legitimacy of the approaching party primaries and general elections, possible electoral violence, election-related disputes and litigation, policy continuity or instability etc, all help to undermine the investment climate and business and consumer confidence. In one of the most extreme examples, the 1993 elections indisputably won by Chief MKO Abiola was annulled plunging the country into the June 12 political crisis and the terrorist dictatorship of General Sanni Abacha. The 1983 elections were so massively rigged by the then National Party of Nigeria (NPN) that the ensuing government lasted only three months before it was toppled by the Generals. The earlier 1964-65 election cycle led directly to the 1966 military coup and the 1967-70 civil war. In Nigeria, politics and succession is a big deal and the appearance of political continuity and stability since the return to civil rule in 1999 should give no one an illusion that those dangerous electoral cycles are behind us.
Indeed the reality is that both the elections of 2003 and 2007 were of doubtful credibility and legitimacy and the polity may be unable to withstand a third straight flawed polls. As we move into 2010, the battlefield logistics therefore revolve around electoral reform (or lack of it); creation of an opposition alliance (in particular, will the opposition be able to successfully build a cohesive platform and agree on a common candidate for the presidency?); building of war chests (witness the spate of contract awards since the second half of 2009 and the budget proposals for 2010) and the role of the international community. Unfortunately the issue of presidential health introduces additional risks and uncertainties and further complicates the sensitive electoral cycle. If not carefully managed, some of the possible scenarios may be analogous to the June 12, 1993 crisis in their implications!
My working assumption is that given the concerns over President Umaru Yar’adua’s health, he will not be the PDP candidate in 2011. Of course his inner circle have an interest in projecting otherwise-to prevent him becoming a lame duck and to preserve their influence over succession-but it is unlikely that Yar’adua will endure the stress of another electioneering cycle. So who could be the candidates? I have a shortlist that includes the First Lady Turai Yar’adua; Governors Isa Yuguda and Saidu Dakingari; Chief Economic Adviser Tanimu Yakubu and Agriculture Minister, Sayyadi Abba Ruma; National Planning Minister, Dr Shamsudeen Usman; and Governors Bukola Saraki, Danjuma Goje, Namadi Sambo, Ibrahim Shema and Aliyu Babangida. In fact, technically all Hausa-Fulani Governors between 1999 to date may also be considered as possibilities.
Vice President Goodluck (!) Jonathan could also be the candidate, especially if he inherits the office before then. Of course, it cannot be presumed that if anything happens to Yar’adua, Jonathan will be “allowed” to succeed him as prescribed by the Constitution. His seemingly deliberate exclusion from international fora such as the United Nations and strenuous efforts to ensure that power is never formally handed over to him whenever the President is absent are indicators that some critical constituencies are averse to his possible succession. I can only hope that those tempted to consider preventing a constitutional succession recognise the clear implications-the notion of a Nigerian nation may be irredeemably damaged and any arguments for restraining the “militants” in the Niger-Delta and ethnic agitators from other parts of the country from seeking “self-determination” may lack credibility in such a scenario. Whatever happens, it is critical to Nigeria’s territorial integrity and national cohesion to preserve the integrity of the Constitution while negotiating future political arrangements.
Which factors or constituencies will exercise decisive influence over the choice of candidates? In the opposition, it is clear that Asiwaju Bola Tinubu, Atiku Abubakar, Muhammadu Buhari, Attahiru Bafarawa are the king pins. Nuhu Ribadu and Nasir El-Rufai have in effect become opposition-in-exile and may also be in play. In the PDP, there are evidently two critical power groups-the President and Katsina clique around him including the First Lady, Tanimu Yakubu, Dahiru Mangal, Abba Ruma, Ibrahim Shema etc, and the Governors. Already the Governors represent the political centre-of-gravity in the current political dispensation and if anything happens to Yar’adua, the Katsina clique immediately loses relevance and the Governors become the sole deciding group. I am watching this space!

The Credit Crunch is Here! Part 2

In the aftermath of our domestic stock market collapse and the global financial crisis last year, a friend and former student of mine sent me an e-mail. The story reproduced hereunder with my comments in bold teach all anyone needs to know about financial crisis.

“Tamedu is the proprietor of a Foo-Foo and Isi-Ewu Shop… in Lagos, Nigeria. Sales are low and, in order to increase them, he comes up with a plan to allow his customers to eat now and pay later. (In effect, Tamedu stops being a food seller and becomes a financial institution engaged in lending. Unfortunately he has not acquired any credit risk management skills) He keeps track of the meals consumed on a ledger. Word gets around and as a result increasing numbers of customers flock to Tamedu's shop. (If credit is freely available, borrowers will flock to any lender; the test is whether he can collect the debts on due date) His suppliers are delighted and are very willing to sell more and more raw materials for the meals he prepares. Tamedu shows them his ledger of receivables and they extend him credit (a financial system develops)

“A young and dynamic Customer Service Consultant at the local Nairaland bank recognizes these customer debts as valuable future assets and gives Tamedu a credit line and then increases Tamedu's borrowing limit (In AIG’s financial products division, they would have called it financial innovation). Taking advantage of his customers' freedom from immediate payment constraints, Tamedu jacks up the prices of his Foo-Foo and Isi-Ewu. Customers don't mind as they are not required to pay on the spot (A borrower who has no intention of repaying doesn’t care what the interest rate is!). Sales volume increases massively; Banks and suppliers lend more (the bubble begins); Tamedu opens more outlets in Abuja, Kaduna, Port Harcourt and Ibadan (In effect he becomes a mega-food seller!). He sees no reason for undue concern since he has the debts of the customers as collateral. At the bank's corporate headquarters, expert bankers recognize Tamedu's customer loans as assets and transform these customer assets into Bonds (that is called securitisation. Unfortunately a securitized instrument is only as good as the underlying asset, which in the US sub-prime market were bad mortgages based on over-valued houses; in the Nigerian margin loan transactions, the underlying stock prices were determined by Peter Ololo!) .

“These negotiable instruments are given exotic names such as FoofooBond, IsiBond, EwuBond AND EgusiBond (that’s what they call derivatives). These securities are then listed on the Stock Exchange and traded on markets worldwide (globalisation of financial markets, which guarantees that like global pandemics, modern financial crisis infect the whole world). No one really understands what the names mean and how the securities are guaranteed (In the US crisis, the CEO thought the COO knew, the COO thought the risk manager did, the risk manager thought the investment bankers did, they thought the product managers did, the investors assumed all these Harvard MBAs in the bank did, and the regulators assumed that the bankers knew-apparently no one knew anything) but, nevertheless, as their prices continuously climb (a bull market celebrated by the NSE DG) , the securities become top-selling items One day, although the prices are still climbing, a credit risk manager of the Nairaland bank decides that the time has come to demand payment of one of the debts incurred by Tamedu(He in effect puts a pin to the balloon).

“Tamedu in turn asks his clients to pay up. One by one they refuse; the clients cannot pay back the debts. Tamedu refuses to serve them anymore. The clients stop coming. Tamedu is really screwed now. (And the bubble bursts) He cannot fulfil his loan obligations and therefore claims bankruptcy. All bonds drop in price by between 80 to 95% (meltdown). The suppliers of Tamedu, having granted generous payment due dates and having invested in the securities (bad debts, toxic assets) are faced with similar problems. The goat-meat supplier defaults on payment to the Mallam who sells goats to him and to the cattle supplier and claims bankruptcy. The yam supplier is taken over by a competitor; Tamedu lays off the cook and staff. Bankruptcies soar, unemployment mushrooms (Recession, unemployment, corporate bankruptcies, credit crunch etc). The Nairaland bank that lent the money in the first place is set to collapse (Lehman Brothers, AIG, Freddie Mac, Fannie Mae, and the local examples) It is saved by the Government following dramatic round-the-clock consultations by leaders from the …(ruling) Party with Tamedu commuting back and forth in his Executive jet and Mercedes 500SEL, brokering the deal. The funds required to save the economic collapse are obtained by a tax levied on the citizens, most of whom do not eat Foo-Foo or Isi-Ewu. (Privatised profits and socialised losses-the people always end up paying!)

The meltdown was not caused by the credit risk manager who asked Tamedu to pay up his debts. He in fact probably prevented a bigger collapse in future if the bubble was allowed to get bigger…and bigger…blaming Lamido Sanusi for the current credit crunch amounts to blaming the surgeon, who undertook the corrective surgery, rather than the patient who made wrong lifestyle choices, and the doctor who delayed treatment. But then the surgeon must also be calm and careful to ensure the patient does not die after a “successful” surgery!

Thursday, November 19, 2009

The Credit Crunch is Here!

It is now clear that the sequence of events that led to the global financial crisis is unfolding in the domestic economy after a one year delay. The strategy and advisory firm, Resources and Trust Company (RTC) where I work as CEO has since the last quarter of 2008 identified some striking similarities between the fundamental causes of the US (and later Global) financial crisis and the underlying realities of our financial system and economy. As we have pointed out to multiple audiences since then, with the exception of our (relatively) better macroeconomic conditions, virtually every other factor present in the US scenario was manifest in ours.
We had an asset price bubble, even though ours was in stocks while the US had a property bubble. The jury remains out regarding our property prices as well! The same way US bankers aggressively booked mortgages against over-valued properties, our financial system also booked margin loans against over-valued stocks. The underlying market conditions in both economies were the same-an over-exuberant capital market and a financial system loaded with excess capital. In the US and Nigeria, every (or at least almost every) participant in the financial system believed “nothing could go wrong”. The last piece of the disastrous jig-saw puzzle was regulation-weak in both environments though for different reasons.
In the US, the motivation was ideological-the Republicans believed in the market sorting itself out. Everyone celebrated financial innovation and regulators believed they had finally tamed the economic cycle. Alan Greenspan believed asset prices were infinitely sustainable! In Nigeria, our CBN was in an over-celebratory mood after a very successful banking consolidation exercise, our SEC probably lacked the capacity to regulate the evolving market and our Stock Exchange did not have the detachment and independence required. The real substantive differences between our markets were the macroeconomic conditions, the absence of securitisation in our market and our limited integration into global financial markets.
Even concerning macroeconomics, the difference was nuanced. Even though our static macroeconomic condition going into the global financial crisis was strong (large foreign currency reserves, low external debt, recapitalised banks etc), the trends to all knowledgeable people were weaker (falling oil price, stalled economic reforms, declining capital flows, a domestic capital market crisis that preceded the global slump and inherent vulnerabilities in the financial sector). The only factor that delayed the domestic manifestation of the global financial crisis in effect then was transparency and disclosure about what was going on-while the US and global banks had no choice but to write down their capital to reflect their toxic assets and publish resultant losses, the Nigerian CBN agreed with the banks to defer recognition of bad loans till December 2009. With Sanusi Lamido revoking this policy, conducting stress tests, requiring immediate loan write-offs and publication of the resultant Profit and Loss Accounts, the last difference in our scenarios have been removed.
Now let’s go back to the global financial crisis. After the US and global banks took the massive loan write-offs their next response was not surprising-they stopped lending and an economy-wide credit crunch developed. That credit crunch led directly to recession and unemployment in the US and other western economies as firms were forced to lay off workers and cut output and as families and firms reduced consumption. You do not have to be a rocket scientist or Nobel Prize winning economist to recognise the similarities with Nigeria as a domestic credit crunch develops in the wake of the huge loans write-offs by the local banking system. We are at risk of a collapse of trade, services, manufacturing and jobs if the local banking system is not encouraged to resume lending and/or if as in the US the government does not respond with an appropriate policy package to mitigate the developing credit crunch. The CBN decisions arising out of the Monetary Policy Committee Meeting of November 3, 2009 are a fair start-introducing an asymmetric MPR structure (plus 2, minus 4) to discourage banks dumping all their deposits at the CBN; removing the ban on BAs and CPs; waiver of the 1 percent general loan loss provision; fast-tracking efforts to set up the asset management company; and “quantitative easing” (i.e. printing money!) to boost money supply. Concerning quantitative easing, we hope the capacity to properly calibrate and time the measures and the will to reverse the easing at the right time are present.
Of course our situation is better than the US equivalent. Virtually all major US banks were in danger of collapse as the situation unfolded. Citibank, Goldman Sachs, AIG etc all required some form of rescue or the other from the US government or the Federal Reserve. Here only eight or ten banks are mortally threatened according to the CBN. The other banks have by and large absorbed the loan write-offs against capital or earnings and may resume normal activities after the shock wears off, probably late in Q1 2010. Perhaps the CBN over-dramatised its actions in relation to the sector and could have minimised disruptive emotions? Perhaps the systemic implications could have been better anticipated and counter-cyclical measures adopted in advance rather than as a reaction? Whatever it takes, we must get the banking sector to resume lending or else a sharp drop in private sector output is imminent in 2010.

Is our Captain 25?

I did not read Adokiye Amiesimaka’s allegation that the captain of our “Golden Eaglets” (the euphemism for our “Under-17” national football team) Mister Fortune Chukwudi is at least 25 years old in the newspaper in which the claim was made. I heard it instead on a Rhythm 93.7fm sports discussion programme, Xtratime. The programme anchor, a certain KBT Bankole (she can count me as one of her fans) raised the issue for her co-discussants to comment on. I was shocked at the angle from which one of the commentators named Tega approached the issue. In her opinion, Adokiye was the villain. Why did he leave the issue till now? What were his motives? She was certain that it was because he was not a member of the LOC etc etc. Tega concluded her remarks without any reference whatsoever to the substance of Adokiye’s point, and asserted passionately that “even when you want to say the truth, you apply wisdom!”
Then I knew where she was coming from. Her point of reference was her Church, where evidently they do not teach truth, honesty and integrity, but wisdom! I agonised over the damage some of our Churches are doing to the future of our country as young people are taught a new Nigerian theology of wisdom. In that doctrine, implicitly Jesus was unwise for castigating the Pharisees and speaking the truth; John the Baptist did not “apply wisdom”; Elijah, Elisha, Jeremiah, Moses, and indeed all the prophets would count as unwise by this interpretation of Christian conduct. Ultimately if these people had a chance they would be wiser than God himself, putting them squarely in Lucifer’s camp, since he is the father of those who believe they are wiser than God and Jesus! I was not surprised then when I saw the comments of the “accused person”-Fortune Chukwudi himself. He said, “I thank God we were able…..” attributing the team’s 5-0 victory over New Zealand’s teenagers to God! He also did not comment on the veracity of his former mentor’s claim except to assert like a Nigerian politician that he would not be distracted by the matter! Mr Chukwudi, if truly you are lying and cheating, then God has absolutely nothing to do with your team’s victory, except of course in his mercy!
The Nigerian Football Federation (NFF) similarly focused on Amiesimaka’s motives. NFF spokesman, one Musa Amadu expressed shock at his “derogatory comments” and said “it is a shame that people can take personal hatred and vendetta to the level that Amiesimaka has taken his own.” He proceeded to accuse the ex-Eagles star of a “destroy-them-by-all-means” attitude querying why Amiesimaka is “obsessed with so much hatred for our successful players because he never played in the World Cup” Now for those who do not know him, Adokiye played for the Nigerian national team in the 1970s and 1980s and he is probably the most distinguished ex-footballer Nigeria has ever produced. While he was playing for the national team, he was a law student and proceeded to qualify as a lawyer rising to become Solicitor-General/Permanent Secretary and then Attorney-General of Rivers State. Mr Musa Amadu who was described as a “Barrister” is probably many years Amiesimaka’’s junior!
Not surprisingly another NFF big-wig and ex-international Taiwo Ogunjobi also weighed in on the subject of Adokiye’s motives. Mr Ogunjobi accused Adokiye of “plotting to take over the board of the NFF” and being a member of a “cabal” working round the clock to ensure the board failed. The real surprise for me was the comment by one Justin Akpovi-Esade in an op-ed piece in The Guardian on November 5, 2009. I do not know Akpovi-Esade, but I think his name is one I have seen in the dailies. I must have associated him with something positive because I was scandalised by his piece. Like the others, Mr Akpovi-Esade focused explicitly on Adokiye’s motives. He claimed, “Adokiye is pursuing an agenda, I smell a vendetta…why did he wait till now to reveal what he knew? Was the Chukwudi boy (?) just appointed the captain of the Eaglets” and concluded he was motivated by spite for not being invited into the Local Organising Committee of the on-going Under-17 World Cup. Worse still Mr Akpovi-Esade went further than all the others to implicitly justify cheating. In his own words, “there has never been a time that Nigeria fielded the right boys (age wise) in any of these cadet competitions, that was why we have been winning most of these events without breaking any sweat...it is common knowledge in the football industry that a player has real age and “football age”, and Adokiye who has played football all his adult life cannot feign ignorance of that fact”. Shame.
Now that everyone has wasted newspaper space and time faulting Adokiye Amiesimaka’s motives can the NFF and all its sympathisers as well as Mr Fortune Chukwudi comment on the substance of Adokiye’s claims? Was Fourtune Chukwudi a member of Adokiye’s feeder team at Sharks football club in 2002/2003? What was his age at that time? Was he 18 years old then as Adokiye claims? Is he at least 25 years old now? Did he take the Magnetic Resonance Imaging (MRI) test? How did he pass the test? Does age cheating help or destroy the development of our football?

Tuesday, November 3, 2009

Soludo's Legacy

Chukwuma Soludo was already an accomplished person before he became Central Bank Governor. Appointed Chief Economic Adviser by President Obasanjo as the second term commenced in 2003, he was an early and critical member of the Ngozi Okonjo-Iweala economic team that later turned out to be without doubt the most successful that Nigeria had since independence. I was probably the first Nigerian to publicly celebrate that team beginning from December 2003, when I declared them my “Team of the Year” and in December 2004, “Still Team of the Year”. But even before his appointment into government, Soludo was by all standards a successful person-a first class economist, a professor and an international consultant with an impeccable academic and professional resume.
As Economic Adviser, he was also in charge of the National Planning Commission and can claim some credit for producing the National Economic Empowerment and Development Strategy (NEEDS), the blueprint upon which the significant economic reforms of 2003 to 2006 was based. The fact that the International Monetary Fund accepted that domestically-written document as sufficient basis for supporting Nigeria’s reforms culminating in the Paris Club debt write-off is a particular credit to Okonjo-Iweala, Soludo, Mansur Muktar (then in charge of the Debt Management Office, now Nigeria’s Finance Minister) etc. It is also significant that based on the strength of the NEEDS programme and the reforms entailed there under, the IMF devised a new instrument, the Policy Support Instrument (PSI) which was first applicable to Nigeria.
As CBN Governor, Soludo’s singular legacy was banking consolidation which transformed Nigeria’s banking and financial services industry. It was a risky and revolutionary industry restructuring but it was a credit to Soludo and the regime’s political will that it was successfully accomplished with minimal adverse consequences. I have written several times and I still believe that having succeeded with consolidation, Soludo’s error was to encourage a second round of capital raising rather than actually “consolidating” the institutions that emerged from the rushed mergers and acquisitions of 2004-2005. The industry needed to deepen skills and competences, build institutional capacity in risk management, corporate governance, systems and processes etc and the regulator itself needed to upgrade its ability to supervise the post-consolidation banking industry, but instead fed by hype and over-celebration, Soludo actually instigated multiple capital raising by banks who had not acquired the capacity to manage at their new “mega-bank” status.
Some of these errors resulted in the current problems in the banks which Lamido Sanusi is addressing and somewhat call to question Soludo’s legacy. But then in spite of the eight or ten banks which have run into fairly serious problems and the huge write-offs which the rest of them are having to make, the shape of the Nigerian banking industry going forward, will still have been determined by Soludo’s banking consolidation. It is impossible to visualise say Access Bank, Skye Bank, Stanbic IBTC, UBA, Ecobank, Diamond Bank, Fidelity etc in their current forms without the consolidation exercise. And the nation’s ability to withstand the global economic and financial crisis without a domestic economic collapse has been partly as a result of consolidation.
Beyond the dent on Soludo’s legacy by the industry’s current challenges, the “Polymer” bribery allegations emerging from Australia have also threatened Soludo’s legacy. It is not difficult to envisage a scenario in which embarrassing allegations emerge! But it is Soludo’s engagement with Anambra politics that most potentially threatens to leave his reputation and legacy in tatters! Any intelligent person familiar with Nigerian politics (PDP-style) can reconstruct what is going on in Anambra State. Evidently Soludo has decided that after losing his Governorship of the Central Bank, it would be desirable if he acquired another Governorship-of Anambra State. Rather than speak to the voters in Anambra State, and the membership of the PDP who vote in the party primaries, he has (again PDP-style) convinced Chief Tony Anenih (who hails from Edo State), Alhaji Dahiru Mangal (from Katsina ) and perhaps Dr Alex Ekwueme (an elite politician who may have lost his links with the party’s grassroots) that he is the right person to “capture” Anambra State.
Given the calibre of persons supporting him, it is also not improbable that he has secured a tacit endorsement from Aso Rock! He then proceeds into the party primaries and when it is evident that he is losing, he procures a court injunction to stop the process from producing an embarrassing, but fair outcome. And then the party caucus sitting in Abuja contrives to declare Soludo as the party’s governorship candidate. Shame! And all this is in aid of the governorship ambitions of a gentleman who just a few weeks ago served as Governor of our Central Bank? Now Soludo’s intellectual sparring partner is Chief Chris Uba and at least this time, the moral justification appears to be on Chris Uba’s side!!! Soludo’s father has been kidnapped, allegations are circulating that contestants in the aborted primaries were bribed to drop their objections to the Abuja imposition, and Chris Uba has now according to newspaper reports alleged that Soludo offered him $10million to support his ambition. At the rate Soludo is going, whatever is left of his legacy will be in ruins by the time he is done.

Tuesday, October 27, 2009

Has The Economy Turned The Corner?

In October the International Monetary Fund issued its World Economic Outlook (WEO) and Global Financial Stability Reports. The message from both reports was similar-the global economic contraction has stopped and growth, albeit slow and sluggish has started. The Fund expects the global contraction of 1percent in 2009, but expects 3 percent growth in 2009, which is low, by pre-recession standards. The recovery is stronger in emerging and developing economies, particularly the Asian duo-China and India, but major challenges lie ahead. Global imbalances that result in some economies accumulating huge current account surpluses while others have offsetting external deficits will have to be addressed; the recession has been fought essentially by fiscal expansion-the so-called “accommodative” policy stances embarked upon by Treasuries and Central Banks all over the world.
The world now has to carefully calibrate its easing of such measures; unemployment remains a major issue across the world; and the root cause of the problem-the financial sector-must be restructured to prevent the type of calamity Western bankers almost plunged the whole world into, with evidence that other economies, (such as ours) have similar work to do on their financial sectors though on a lesser scale. And the problems of poverty and social inequality have probably only gotten worse while the whole world battled to save bankers and their institutions. The GFSR confirms that systemic risks have been substantially reduced, but warns against complacency-the hard work of reform and re-igniting new and sustainable sources of growth and prosperity lies ahead.
The recent Pittsburgh, USA G20 meeting hosted by President Barack Obama reached similar conclusions as the IMF. The leaders of the world’s twenty largest economies agreed to work together to generate strong, sustainable and balanced global growth, to begin to shift back to private, rather than public sources of demand, and to pursue policies geared towards macroeconomic and price stability. The leaders also agreed to reform banking regulation to rein in the excesses that led to the global financial crisis. Policies canvassed include strengthening prudential oversight over “systemically important” banks; raising capital standards; tighter regulation of OTC derivatives, credit rating agencies, securitisation and hedge funds; instituting compensation standards; and protecting depositors and consumers.
Domestically economic prospects are of course much brighter. Oil prices have recovered rising above $70 per barrel and actually hitting $80 in recent days. The question of what the average and sustainable price for 2009 will be remains unclear, but the trend since the end of the first quarter has been clearly upwards. We must caution budget writers to be conservative in setting the oil price budget benchmark for 2010, given expectations that the global recovery will be subdued and the need to restore lost external reserves. We expect that the financial sector clean up will yield fruit in 2010 as confidence, locally and internationally returns and after the equity markets absorb the massive loan loss provisions that virtually all our banks are going to have to make.
But the substantive issues about the structure of our economy remain. External revenue is almost wholly dependent on oil exports, but oil output has declined every year since 2006-by 4.2%, 4.5% and 4.8% in 2006, 2007 and 2008 according to the CBN Report for 2008. On the other hand, the non-oil sector grew by 9.4%, 9.5% and 9.1% in the equivalent periods. Growth in agricultural output in the three years averaged around 7%, services almost 10%, finance and banking-5%, and not surprisingly the fastest growing sector of the Nigerian economy remains communications which grew by 32%, 28% and 37% in 2006, 2007 and 2008. It remains one of the abiding mysteries of our nation that we have refused to apply the lessons of telecommunications reform to other areas where similar approaches will bear results-power, solid minerals and perhaps agriculture. Unfortunately communications in spite of its phenomenal growth constitutes only 3% of our GDP. Imagine if agriculture, solid minerals and manufacturing were growing at similar rates as the communication sector.
The most depressing statistics about our economy however remains the contribution of manufacturing to output-4% even though growing according to CBN and NBS statistics at 9% in the last two years. The CBN also puts manufacturing capacity utilisation at 53%. Again imagine the results in employment generation and other economic indices if we could raise manufacturing output to 20% of GDP and increase capacity utilisation to 90%. We all know what it takes to do this-privatise power generation and distribution as provided in the Electric Power Sector Reform Act 2005 and encourage massive private investment in power, while directing the bulk of government spending into improving transmission. Unfortunately government remains unwilling to follow this path and has chosen instead government-led power strategy. I see no reason to think that strategy will succeed! The other constraints of manufacturing are also well-known-transportation and logistics, multiple taxation and charges, corruption and high interest rates and financing costs.

Leveraging the "Amnesty"

To the best of my knowledge, the word “amnesty” does not occur in Nigerian law. The Webster’s dictionary defines amnesty as “an act of pardon on the part of a government or authority, absolving offenders or groups of offenders”. Section 175 of the 1999 Constitution however gives the President (and Section 212 gives state governors a similar power) to pardon any person “concerned with or convicted of any offence” after consultation with the Council of State. State Governors are required to similarly consult with the state’s Advisory Council on Prerogative of Mercy. These provisions would seem to provide legal cover for the President’s amnesty programme for Niger-Delta “militants”. More importantly, contrary to the argument advanced by several people, including some legal practitioners, the inclusion of persons “concerned with” an offence and not just those “convicted of” same in the constitutional provision, would appear to negate the argument that only convicted persons may be granted amnesty. So the problem with the amnesty programme in my view is essentially not a legal defect.
Secondly in spite of all my reservations about the scheme, I must admit that it appears to have been an apparent success, at least in the short term. The fact that all the key “militants”-Henry Okah, Soboma George, Government Tompolo, Ateke Tom, Farah Dagogo, and even those with interesting nicknames- Boyloaf, Osama Bin Ladin, Busta Rhymes etc have signed on to the programme should be cheering news for proponents of the scheme and sceptics like us have been somewhat confounded. In the short term, it is undeniable that there has been a reduction or even a temporary cessation of violence, sabotage, destruction of oil installations and other “militant activities” in the region.
However the real problem with the amnesty programme is that it does not address the fundamental issues that led first to genuine agitation and then its “deregulation” to less-scrupulous persons and inevitable criminalisation by persons from the Niger-Delta. I have on several occasions in this column discussed these fundamentals. Some of these are the need to discuss and redress the defects in our federal structure, defects which manifest in different forms in separate parts of Nigeria. In the North, its takes a Sharia colouration with Hausa-Fulani Muslims wondering why they cannot be ruled by a system of laws based on their Islamic beliefs. In the Yoruba West, the discussion is about fiscal federalism, devolution of powers and allowing each state or region develop at its own pace. In the East, it is a similar need for a more devolved federation and regional identity. Where as in the Niger-Delta, the issues are not addressed they degenerate into Boko Haram, OPC and MASSOB!
In this regard, the Niger-Delta is hardly unique, except that the anger over transfer of oil wealth and development to other parts of the country, while they bear the residual costs of oil exploration is more intense. That leads us to the other fundamentals-the absence of development, the destruction of their environment, the call for “resource control”, unemployment and poverty, electoral reform and corruption. The region is justifiably angry that its remains undeveloped while its resources have been invested in Lagos, Abuja and other parts of Nigeria; Corruption means that even the limited available resources are diverted into private pockets rather than invested in the region; absence of credible elections means that elected office holders are not accountable to the people and cannot be removed by them; poverty and unemployment means that there are large numbers of angry and hungry young persons desperate enough to join in militant activity, and their communities are sufficiently impoverished such that their actions find quiet or even active support within the society. The destruction of the Niger-Delta environment further re-enforces poverty and unemployment as it severely limits economic opportunities in the two most readily available occupations in the region-farming and fishing.
The point really is while this amnesty programme has been an apparent success, such will be temporary and fleeting except we proceed to deal with these fundamentals. Now it should have been the other way round-deal with the fundamentals and then offer amnesty but in our peculiarly Nigerian government magic, we have done the amnesty first before wondering about how to proceed from there. It is obvious that little attention has been paid to what many have called a “post-amnesty plan” even (as was recently demonstrated with the ejection of militants camped in a federal government college in Benin) concerning simple logistics. Didn’t anyone know that school would eventually resume? Beyond the Benin example, it is clear everywhere that no one has a clear view of what follows. As my initial title for this article asked, “amnesty… and then what?”
The process is already defective, but can it still be salvaged? Will someone now begin to deal with these fundamental issues? Will a legitimate dialogue with not just Niger-Delta leaders, but also the entire country commence to discuss our federal structure? Will Gen Abbe, Timi Alaibe and others in charge of the process now articulate a clear way forward? Otherwise the next scenes are predictable-the “militants” drift one-by-one back into criminality and militancy? New war Lords take over from the retiring (and wealthy) chiefs and as the Bible says, the last condition may indeed be worse than the former!

Tuesday, October 13, 2009

Barack Obama's Nobel Prize

Conservative groups are for some reason always better organised and united in their attitude to power. Liberals and progressives on the other hand are usually critical of themselves, naive about the extents to which their opponents will go, and disunited. The consequence is often that right wing groups are more adept at securing and holding on to power in spite of progressives and liberals being more popular with the people. When occasionally, progressive or liberal politicians seize power, the right wing quickly regroups and mounts a vicious fight back and are soon back in power. Remember Monica Lewinsky and the “vast right wing conspiracy”? Remember the Iran-Contra scandal and the destruction of Jimmy Carter’s Presidency? Remember how Al Gore foolishly fell for right-wing propaganda that Bill Clinton was a liability such that he forsook his greatest electoral asset-a sitting, popular president-and ended up losing narrowly to George W Bush. Remember the truncation of “June 12” in Nigeria with progressives in disarray?
The other outcome is that conservatives then define the political agenda putting progressives on the defensive. I was reminded of this phenomenon as I watched the reaction to President Obama’s nomination as the winner of this year’s Nobel Prize for Peace. If the international (and even domestic media) is to be believed, Obama does not deserve the Nobel Peace Prize. I watched CNN as news of the award broke with Jonathan Mann as anchor. In those first minutes, it was clear as Mann and his colleagues broke the news what the right wing strategic response to the development would be-they would imply that the Nobel Committee played politics with the award; that Obama had done nothing to deserve the award; and that the Nobel Committee was stepping into US politics. The entire CNN reportage was carefully scripted to convince viewers of this point of view such that soon, that tele-guided logic was the prevalent opinion and most people imagined they had come to that conclusion on their own.
But is the evidence that Obama is undeserving of the award that uncontroversial? Actually in my view, no! To the contrary, the actual evidence is that Obama is a once-in-a-generation universal phenomenon that indeed has already had a significant positive impact on the prospects for world peace and global cooperation. On the day Obama was overwhelmingly elected President of the United States of America, by blacks, whites, Latinos, Jews, men and women, he earned a Nobel Prize. The fact that millions all over the world-in Africa, Russia, Europe, Asia and the Arab world prayed fervently for his victory was a significant achievement for peace and unity in the world. Before Obama was even elected President, he addressed a rally in Germany in which over two hundred thousand people were present. What was the import of that? Why did Europeans wish so enthusiastically for an Obama Presidency? Peace happens in the minds of men. It is not an event or ceremony!
The point is that Obama’s candidacy and eventual election so captivated the world because he offered a vision of a world where race, class, religious and other divisions would not be a barrier amongst people. He united the world behind his vision of unity and change. In seeking to play a different type of politics in which he refused to demonise and attack his opponent’s person, a politics in which he conceded that his opponents were patriots who wished to do their best for America, but in which he disagreed with them only on policies, he offered a new template for politicians all over the world. And he motivated a new generation of people, not just in America, but all over the world, to consider public service as a noble career.
And since his election, in spite of deliberate provocation from the right wing, Obama’s has refused to get drawn into the politics of hate and recrimination. His opponents have called him a liar, Nazi, African witch doctor, the anti-Christ; they have questioned his citizenship of America, they have carried guns to his rallies implicitly threatening him, yet Obama has stayed above the fray, pursuing his dream of a different type of politics. He has started a new conversation in the world-America is talking to North Korea with ex-President Bill Clinton even visiting to retrieve an American held by the communist regime; the Israelis and Palestinians are talking again, even if they will not find peace tomorrow; the United Nations is regaining relevance again with Obama personally attending the Security Council meeting at the recent UN General Assembly; Europe is happy with America again; even the Iranians are responding in their own peculiar fashion to Obama’s offer of discussions over their attempt to get the nuclear bomb.
Tensions between America and Russia have been defused as America has withdrawn its missile shield project and Russia has reciprocated with security measures of its own. Both countries have agreed on some token nuclear de-commissioning presaging more significant nuclear cuts in future. Since his election, Obama has re-inforced global economic cooperation with a remarkably consensual G20 meeting in Pittsburgh, USA agreeing on the framework for economic and financial reform. In Africa, Obama and his Secretary of State, Hillary Clinton have begun to speak the truth to African leaders about corruption, democracy, strong institutions, good governance and poverty-the real prerequisites to sustainable peace on the African continent. Obama has changed the tenor of global relations and has helped to pull the world back from the brink. He deserves the Nobel Prize for Peace.

Beyond The Banking Tsunami

Now that the Central Bank has completed its special audit of the country’s twenty-four banks, it is necessary to do a post-mortem on the whole exercise. At the end of the CBN’s “stress tests”, ten banks were “indicted” by the regulators and fourteen certified fit. The fourteen “good” banks were First Bank, UBA, GTBank, Diamond, Sterling, Access, Skye, Zenith, FCMB, Fidelity, Ecobank, Standard Chartered, Stanbic IBTC and Citibank. Two banks, Wema and Unity (interestingly Nigeria’s remaining regional banks) were deemed by the regulators to have issues with capital and/or liquidity, but those issues were in the opinion of the bank obviated by other issues and both were given till June 2010 to raise capital. The remaining banks-Union, Oceanic, Intercontinental, Afribank and Finbank (in the first phase), and Bank PHB, Spring and ETB were deemed to be in grave condition and the executive managements were dismissed.
The CBN has injected a total of N620billion into these eight banks and has applied other sanctions (for instance the removal of a non-executive controlling director, Mike Adenuga in ETB) and criminal prosecutions against the erring bank CEOs, some other officials and some stockbrokers to signal a tough stance against financial malpractices going forward. I have always believed strong measures were required to restore transparency and professionalism in Nigerian banking (and to avert a more cataclysmic systemic crisis not too far in the future) and therefore we broadly support the Governor’s actions stated above. On the other hand, it was clear that the management of the first phase involving the audit of the first ten banks left the CBN exposed to plausible charges of breaching legal, constitutional and procedural requirements precedent to the actions embarked upon in relation to the banks.
More troubling was the involvement of the Economic and Financial Crimes Commission (EFCC) in pure debt recovery matters and the breach of banking confidentiality involved in the publication of debtors names in the national newspapers. As we have always maintained, borrowing is a legitimate (and desirable) economic activity and except where there are specific crimes such as insider abuse, diversion, false pretences, fraud, misrepresentation etc, a defaulting borrower can only be dealt with under our civil laws. One must acknowledge however that the unorthodox strategy has been effective in getting some of the difficult loans repaid. The other point about the management of the first round of the sector clean-up was the fact that a clear strategy for managing the systemic implications did not appear to have been put in place before the Governor’s action. Our strategy and policy consultancy, RTC has in its monthly business and economic reviews for the past three months anticipated the Governor’s actions and noted that it would entail some short term shocks and hoped that the bank would have a strategy in place to mitigate those dislocations.
Nevertheless the banking clean up was the right thing. The financial sector must be professional, transparent, sound and credible, locally and internationally for it to play its proper economic role in a modern economy. It was no longer possible for anyone to separate hype from reality in respect of our banks and all semblance of governance and risk management was being lost in a large proportion of the sector. By and large, the CBN’s measures should pay off in the medium to long term and perhaps sooner than we expect as investors and counterparties deal with the unindicted banks with increased confidence. The real policy challenge is what to do with the eight banks now under government control. A disturbing kite about nationalisation is already been flown! Given our history with nationalised banks in the 1970s and 1980s, this would be a severe error.
The CBN should move towards recapitalisation of these banks by their owners, a quick off load to other acceptable international private core investors or a merger or acquisition of these institutions by the stronger of the remaining 14 banks. The CBN can take deliberate steps to make these banks attractive to potential acquirers. Contrary to some opinions, I do not consider it necessarily undesirable if some of the banks are acquired by credible international banks. As we seek to become an international financial centre, some might even argue that such should be a deliberate strategy. Unfortunately given the confusion and law suits around the process, it is unlikely any foreign institutions would want to rush in until all clouds are cleared. It may be necessary for the CBN to accept a negotiated solution with the bank owners that preserves the regulators original goals. The bankers have an incentive to negotiate-avoidance or mitigation of criminal liability, and so does the regulator-its actions may strain under judicial review.
But after all these the substantive issues remain-strengthening regulatory capacity; improving governance, risk management, ethics, transparency and professionalism; deepening human capital, skills and competences in the industry; creating a macroeconomic environment conducive to lower interest rates; reducing inflation; diversifying our nation’s revenue base away from oil; improving foreign currency and reserves management; resolving the structure of financial sector regulation going forward; poverty reduction; and achieving sustained economic growth and development.

Wandering At 49?

There was a time when the Nigerian Police would arrest any young man walking on the streets and charge him for wandering! How did police officers differentiate between people who were on their way to or from work, or visiting friends or family, or perhaps someone who had gone out looking for employment, or a university undergraduate who was home on holidays and visiting his classmates? Our police officers then had that unique insight that enabled them distinguish between people who were “going” somewhere and those who were “wandering”. Implicitly taking a stroll was illegal, at least in poor neighbourhoods! Of course whenever the officers or their DPO was broke, the line between the two categories was liable to get blurred and any male walking the streets could be bundled into their vans and dumped behind the counter.
In my characterisation of Nigerian history and evolution of our political economy, I find certain periods that have a distinct theme. In 1960 to 1966 for instance, which I describe as the post-independence years, the key attributes are keen regional competition for economic development, (which other writers have described as “competitive communalism”) within a strong federal structure but which was eventually undermined by a ruinous struggle for political hegemony between the regions and their leaders. This was the first, but not the last example of politics getting in the way of economics in Nigeria. I have identified other peculiar periods-1966 to 1970 which was dominated by crisis and war; 1970 to 1979 which were the years of oil, soldiers, big government, powerful civil servants and profligacy; 1986 to 1990-the years of structural adjustment and economic reform; and 1999 to 2007 which for me was Nigeria’s second chance, with democracy, economic reform and international relations.
In my depiction, some eras however look very much alike-1979 to 1983 was characterised by weak leadership, policy stagnancy and drift (I called it “an interlude of drift”- a short period of civil leadership within two extended periods of military rule) under Alhaji Shehu Shagari and the National Party of Nigeria (NPN); on the other hand even though 1990 to 1999 featured several “leaders”-the last three years of General Ibrahim Babangida, the three months interim administration of Chief Earnest Shonekan, the five years of terror under General Sanni Abacha and the ten months transitional administration of General Abdulsalam Abubakar-for the nation it was similarly a period of drift and aimlessness. Each of those regimes was weak and unstable, though for different reasons.
Babangida had been scared by the April 1990 Orkar Coup and had fled to Abuja for safety. The Orkar Coup had also strengthened Abacha’s hand both because Abacha had essentially saved IBB’s life and while IBB hid away in Abuja, Abacha schemed and plotted and built a military constituency in Lagos that would later shove IBB aside. Of course Shonekan’s interim government was by definition inherently weak-It was neither a military government nor a civilian democracy, an illegitimate hybrid that would sooner than later give way. Abacha’s regime was also founded on multiple deceit-Abiola was told he would be helped to retrieve his stolen mandate, IBB that he would be protected, and many of Abacha’s military co-plotters wanted the office for themselves having bought the dummy that Abacha was not keen on ruling.
In the circumstances of his ascension to power, and his instincts and personality, it was clear Abacha could only sustain his hold on power by force. And of course after the death of Abacha and Abiola, Abdulsalam could only hope to run a transitional government of ten months only. What the 1979 to 1983 and 1990 to 1999 eras have in common is a nation that was rolling along aimlessly-politically and economically and in the process, social values were also been destroyed. I usually joke that if the United Nations had a Police Force that was empowered to arrest nations for crimes and misdemeanours, Nigeria in those years ought to have been arrested for wandering!
The question now is-how will the post-2007 years under President Umaru Yar’adua be characterised? So far, the signs do not look encouraging. In international relations, Nigeria has essentially disappeared from the global radar. Last week the United Nations was meeting, with President Obama presiding personally at the Security Council and virtually all world leaders taking the opportunity to stamp their impression on global audiences. We were absent. The issue of climate change was on top of the global agenda and the structure of the world’s response to this issue were been shaped, and we were not there. The G20 was meeting in Pittsburgh to agree on rules for a new global financial architecture, and we were not there. Meanwhile our Attorney-General was enmeshed in controversy over his perceived defence of persons with charges of corruption in local and foreign courts.
While a Vision 20: 2020 document was being presented many of our compatriots were wondering whether the political will to implement such a lofty vision was evident in the land. Our economy is drifting aimlessly along, paralysed by power failure, corruption and poor infrastructure. Kidnappers, armed robbers and assassins have free reign over the people. Unemployment is at an unprecedented high, irrespective of what official statistics says and 54 per cent of our people are officially in poverty. All our government-owned universities are shut as lecturers and government argue endlessly. And our democracy is subverted as elections are rigged and leaders are unaccountable. Is our nation wandering around after 49 years of independence?

Right Wing Rage In America

Barack Obama was supposed to be the harbinger of “post-racial” politics in America. He was the candidate whose appeal transcended race, whose support base included Whites, Jews, Hispanics, Asian-Americans, Arab-Americans and African-Americans. After Obama, race was supposed to become irrelevant in America, his election having established that any American of any race or class could rise to any position in America. Post-racial my…foot! As it turns out, Obama’s election may even worsen rather than improve race relations in America, especially God forbid, if one of the gun-totting White activists attending his rallies eventually shoots at the first black President.
Is it the case that white racism in the US was only barely suppressed just below the surface since it was viewed as politically incorrect? Has watching a black man preside over America apparently so excited repressed racist sentiments that true instincts are now bubbling to the top? That in any event is the hypothesis offered by no less a person than Jimmy Carter, former President of America and a strong moral voice in US and global politics. According to Carter, the excessively “demonstrated animosity” towards Obama purportedly over healthcare, is really a mask for a deeper (and difficult to verbalise) matter-the unacceptably dark colour of his skin!
Even before the elections in November 2008, there were signs that the right wing, evangelical base of the Republican Party was uncomfortable with Obama’s person. The politically correct term for these people during the campaigns was “cultural conservatives” but since explicit racism was likely to backfire, they spoke about his Pastor (Jeremiah Wright); wondered if he was in reality a Muslim; claimed he had attended a “madrassah” (Islamic School now identified with fundamentalism and terror in Pakistan and Afghanistan) in Indonesia; questioned his links with “terrorists” (the only evidence of which was his fairly casual relationship with Chicago Professor William “Bill” Ayers); and Sarah Palin the Republican pit bull conjured to save John McCain’s faltering campaign accused him of being a socialist (even though it was the Republican President George W Bush who was nationalising banks, insurance companies and auto companies).
But since the election, Obama has graduated beyond Islam, terror and socialism. If Rush Limbaugh and the petulant right are to be believed, he is not a native-born American and he is actually implementing a plan to convert the US into a Soviet-styled socialist state. He is depicted in cartoons as a swastika-bearing Nazi and compared to Hitler, an African witch doctor, or even Satan himself. Some say he is the “anti-Christ”! A Republican Representative from South Carolina, Joe Wilson has acquired notoriety for proclaiming Obama a liar, right on the floor of Congress. Now even a speech by the US President to returning school children is an objectionable attempt by Obama to convert innocent children to his evil agenda, prompting some parents to withdraw their children from school on the day of the speech and some school districts to refuse to broadcast the speech. A peculiar kind of malady is evidently taking hold of the right wing in the US!
I watched on satellite TV a US Baptist Pastor actually pray that God should kill Obama; Protesters are carrying (and openly displaying) guns to rallies addressed by the President and I have seen several emotional and teary-eyed couples lamenting about the future of America under Obama, and saying they want their America back. The sub-text indeed seems like racism, or are we to believe all this angst is all because of healthcare reform? Isn’t the argument compelling for doing something about a system which leaves out the poor and people with “pre-existing conditions” from healthcare coverage, bankrupts those who suddenly require expensive treatment and on most accounts is more expensive yet less efficient than those of other developed nations? Clearly if you believe this is all about healthcare reform, then you’ll believe anything!
But then I doubt that it is all about race either. There is political strategy-cynical calculations by the Republicans who see healthcare as the issue on which they can “break” Obama (Van Jones, an African-American appointee (perhaps correctly) described them as “assholes”, but was then forced to resign by an over-careful Obama); then there is ideology-many Americans on the right have a genuine fear of government taking over their lives, not surprisingly given that the country itself was founded on notions of liberty and freedom; there are also genuine faith-based concerns by the Christian right who believe that left to the liberal (Democratic) left, America would become a nation devoid of any religious compunctions where abortion and gay rights and perhaps legitimised drugs would be the order of the day, reservations which even I share. And then there is the illogic of a predominantly white electorate voluntarily voting a patently black President and then turning against him precisely because of that.
But it seems undeniable that race is a huge factor as well. All these rational concerns are being allowed to develop into hysteria, I think, because of white fears that the notion of America as a white nation is slipping away, maybe irreversibly if Obama gets to spend eight years in the White House. Obama has wisely refused to get into an argument over race, which given American demographics he is guaranteed to lose. Whether or not it is true, Obama’s best bet is to remain the post-racial President!

Wednesday, September 16, 2009

The Federal Civil Service Reforms

There are two significant reforms going on in the country-Sanusi Lamido’s Tsunami in the banking sector and the federal civil service reforms. Both have attracted massive media and public attention, with the banking crisis clearly enjoying more “air and talk time”. I have already made my views about the banking reforms clear in this column-by and large, I believe Sanusi Lamido’s actions are required to stop the complete descent into an unprofessional, unethical and unsound banking sector and an inevitable massive industry collapse down the line, if nothing drastic is done now. I suspect there may be legal, procedural and constitutional questions about the process adopted by the CBN governor, (and that is why the Courts exist), but in any financial sector, anywhere in the world, the actions alleged against the banks and bankers are likely to attract similar, or worse sanctions from regulators.
But I have till date not commented on the federal public service reforms being pursued by the (relatively) new head of Service of the federation, Stephen Orosanye. In my view, Orosanye’s reforms are at least as important, as the one in the banking sector. The need to improve capacity in the civil services across the nation and in Abuja is imperative if Nigeria is to achieve its Vision 2020 objectives. In many countries of the world that have achieved rapid development-Japan, Singapore, China, India, Honk Kong etc, the quality of policy advice and implementation support offered by the civil service has been a critical success factor. Since NEEDS was launched under the Obasanjo regime, the imperative to reform the public service as a crucial element of economic reform and development was quickly reduced to only two issues (which not surprisingly were financially beneficial)-monetization and sale of government houses.
The fundamental problems of the public sector-weak capacity, an aging service, low morale, lack of IT skills, limited opportunities for career progression etc- were not addressed, until now. I can say right away that I strongly support the policies introduced by the federal public service commission and the Head of Service. Incidentally as the Presidential spokesman, Segun Adeniyi pointed out, while opponents of the banking reforms being implemented by Sanusi Lamido accuse him of a “Northern Agenda” of wanting to take over the ownership of Southern banks, opponents of the public service reforms accuse Steve Orosanye of a “Southern Agenda” of seeking to wipe out the Northern leadership of the civil service. I wonder what the poor, illiterate and unemployed youths in Kano, Bauchi, Kebbi and Maiduguri have benefitted from these civil servants who have suddenly realised that their job in the service is to protect Northern interests, the same way I wonder whether the Southern bankers shared any of their massive wealth with the poor people in their villages.
The new measures which require both permanent secretaries and directors in the federal service to spend a maximum of eight years in office, subject to satisfactory performance; that compels civil servants to resign before taking up tenured service; and that requires senior civil servants to be computer-literate are commendable initiatives. They will re-invigorate the service, revive morale in middle and upper-middle level career officers who should now see a future for themselves in the service and should help create a better-motivated leadership for the service. It also looks to me like the first tentative steps towards a more professional and efficient federal public service. For me, the real surprise is why anyone would oppose such a policy! How can a system in which assistant and deputy directors retire before their directors and permanent secretaries be sustainable? How can that motivate the service? What is the incentive for such officers knowing that irrespective of their competence or contributions they are unlikely to rise to the pinnacle of their career to give of their best, or to avoid corruption?
Meanwhile many of these “permanent” permanent secretaries and directors have short-circuited the system by coming in at the top either through their state civil services or some extra-ministerial agencies. And many sustain their unduly prolonged tenures through false age declarations and doctored service records. It is a sign of the impunity and audacity that has taken over in our nation that such people are ready to bring down the service rather than accept this sensible policy change. The argument that if an officer having served eight years as a director or permanent secretary is still below sixty years old, and has not served thirty-five years in service according to existing guidelines is neither hear nor there. That guideline provides a mandatory retirement date, a maximum rather than a minimum! If an officer has served as CEO (which in effect is what Permanent Secretaries are) or Executive Director (Directors) for eight years in the private sector (banks, multinationals etc), will it be anomalous to ask him to retire, even if he hasn’t reached the mandatory retirement age?
But these actions should only be the beginning of institution-building (actually re-building) in the federal service, and the states should also take a cue. We need better human capital management practices, process and systems re-engineering, enhanced public service remunerations, training, clear service standards and deliverables and other initiatives to enhance the quality and efficiency of our public services. We also need a system for weeding out unproductive civil servants and either encouraging them to take early retirement through incentives, or retraining them and creatively re-allocating them to other areas (such as agriculture, education or public works) where a massive national need exists.
I interpret the two bold reforms embarked upon by the federal government as tentative signs of revived political will. I hope the new mood can be carried to implementation of the electric power sector reform act, the mines and minerals act and into crafting a sound policy for managing the education sector.

Gani Fawehinmi (1938-2009)

This columnist has kept to a tradition of announcing a “Person of the Year” since 2003. In 2003 and 2004, I selected the then Economic Management Team led by Ngozi Okonjo-Iweala as “Team of the Year” and in 2005, Okonjo-Iweala in her personal capacity. In 2006 and 2007, I returned to institutions, first the Judiciary and then specifically the Supreme Court as having, in my view, made the most significant positive impact on the Nigerian nation. In 2008, I had the shortest “shortlist” since embarking on the exercise, with initially only four names-Adams Oshiomole, Nuhu Ribadu, Rotimi Amaechi and Babatunde Raji Fashola meeting my strict criteria. And then I remembered Chief Gani Fawehinmi!
It was public knowledge at that time that Gani was ill, striken by lung cancer. For some reason, I was clear in my mind that it would probably be my last chance to honour and acknowledge him while he was alive. I did not want to be one of the many that would inevitably describe him after his demise as the greatest Nigerian that ever lived (and that’s what they are all doing now!) and I had no difficulty selecting him as my person of the year 2008. That article was published on Wednesday January 7, 2009. As I feared, the tireless, courageous and indefatigable Gani Fawehinmi passed on Saturday September 5, 2009 at 71 years. In that article, I wrote my “citation” as follows, “My person of the year is Gani Fawehinmi. This selection honours Gani’s lifelong commitment to the Nigerian nation and particularly the under-privileged. For most of the year, Gani was on his sick bed inside or outside the country, but that did not stop him from continuing to raise his voice passionately against corruption and mis-governance in our dear country. He has used his legal training, media access and even founded a political party, National Conscience Party to realise his dreams for a better Nigeria. He has given of his best, and will go to his God with a clear conscience. He is my person of 2008”
Today those words while appropriate, seem inadequate to describe the commitment, courage, integrity, sacrifice and tenacity Gani Fawehinmi brought to public life, legal practice, law publishing, social commentary, pro-democracy struggles and citizen advocacy in his unending crusade to improve our nation, and to enthrone social justice and egalitarian principles in our national life. He rose instinctively, consistently and persistently in defence of the under-privileged, the weak, the poor and the oppressed. Gani hated injustice, like many Nigerians. He hated corruption, oppression, abuse of power, and man’s inhumanity to man. Unlike most Nigerians however, he just could not keep quiet in the face of these vices. He could not be scared off by personal danger or economic considerations. He was never intimidated by power or its ability to put him in prison, deny him honours or awards, or even the possibility that he could be assassinated by a state which he believed killed Dele Giwa, one of the many clients whose battles he assumed. He was not ignorant of the devices of the autocratic and retrogressive forces which he continually confronted, but he was not cowed by them.
Gani was arrested, clamped in detention and prosecuted several times in the course of his struggles; indeed his health suffered from the many trials and tribulations he was subjected to; he fought on behalf of students, workers, journalists-any time there was an underdog, trampled upon by our internal colonialists, he was sure to rise up in defence. He was relentless in his struggles, passionate in his interventions, sacrificial in his contributions and tenacious in the vigour and energy he devoted to making Nigeria a better place. It is difficult to identify any other Nigerian that demonstrated these virtues to the level of this great patriot and hero. He was not a perfect person as no man could be. At times, he chose the wrong allies (the Buhari/Idiagbon regime for instance), or supported the wrong causes (the impeachment of Joshua Dariye by only six legislators under the supervision of the EFCC), but even when you disagreed with Gani, it was clear he was motivated only by his passion to confront corruption and social injustice in Nigeria.
If Gani had a regret, it would probably be Nigerians’ docility in the face of evil and our willingness to accept bad leadership. I also often wonder why our people seem so complacent and resigned to poverty, corruption, rigged elections and national drift. Gani must have wondered just like Fela before him why our people so fear danger and death, that they are prepared to accept a diminished existence. As I wrote in another article, “What do we lack? Part 2”, (April 15, 2009) “What are we Nigerians doing to restrain, challenge or replace bad leadership? If our national government is too remote for us to put pressure on and demand better performance from, what about the state and local governments, and national legislators who live amongst us? What about the commissioners and house of assembly members who stay in our communities? Why are Nigerians so willing to bend over backwards perhaps until we break?”
Well Gani Fawehinmi did his very best, and can now leave the rest to another generation. In his frustration, he even founded a party-National Conscience Party-and offered himself to Nigerians as its presidential candidate! As I wrote in my testimony, he will go to his God with a clear conscience.

Reflections on Nigerian Banking Part 5

Last week in this column, I offered essentially my personal reflections in the wake of the Lamido Sanusi bombshell which led to the CBN dismissal of the CEO and Executive Directors of three of our largest banks-Union Bank (Bartholomew Ebong), Intercontinental Bank (Erastus Akingbola), Oceanic Bank (Cecilia Ibru), and two others, Afribank-which used to be one of our “big 4” banks before it fell from grace (Sebastian Adigwe) and Fin Bank (Okey Nwosu). On Friday, August 14 2009 when the Tsunami hit, I was interviewed through telephone by three newspapers and one radio station, and later that night by Silverbird TV as the main item on its late night news. The next day, I was on Channels TV’s early morning discussion programme and a day later on TV Continental discussing the same issue, as well reflecting how the banking shocker took over the media and private discussions of most Nigerians.
In all those discussions, I chose to focus on the technical aspects of the matter rather than the unfolding allegations of a “Northern Agenda” which continue to trail Lamido Sanusi’s actions. Knowing Sanusi, I find it difficult to think that he would act essentially driven by parochial considerations, rather than the merits of a matter. I also do not think it is in our interests as “Southerners” to suggest that while we complain about public sector corruption, we are more tolerant or ambivalent about private sector corruption, or at least allegations thereof. I am certain there is no Southern agenda of fraud, ostentation, corporate abuses or financial misdemeanour. Nevertheless I am concerned about the trend towards a wholesale criminalisation of borrowing, entrepreneurship or venturing that may be an unfortunate side effect of the unfolding saga.
On the TVC phone-in segment for instance, viewers reacted negatively to my point that borrowing or owing is not in itself a criminal matter. It is only where some specifically criminal activity (such as fraud, false representation, diversion, money laundering, insider dealing etc) is implicit or explicit in the transaction that criminal liability may attach. Indeed even cases of inability to repay a debt, for instance because a business venture has failed, normally attracts civil liability enabling the creditor to sue, appoint a receiver, sell pledged assets, execute judgment against corporate or personal assets or other such remedies. Therefore I am concerned about resort to publication of debtors names in the newspapers or inviting the EFCC into purely banker-customer relationships except as I have already pointed out, where a crime is alleged.
In relation to the substance of the matter, several arguments have been made over the last three to four years in this column concerning the direction of our financial sector. In a two-part serial, “Banking Consolidation…and then what?” published on January 25 and February 1, 2006 right after the consolidation exercise, I argued that “simply consolidating the industry will not automatically put an end to all the problems therein. Like they say, it is not yet Uhuru! Many of the Banks suffered from poor corporate governance and weak institutional capacity, low skill levels, weak processes and standardization, weak management information systems, sub-optimal utilization of technology, amongst others-in addition to low capital which recapitalization and consolidation has addressed. Crucially the concept of who a good banker is has changed from a trained, thinking, careful person of very high integrity to what in effect has become some thing resembling a clever, aggressive, “sharp” and unscrupulous person. Consolidation will not change that!”
In “Nigerian Banking: Differentiating or Commoditising?” (August 1, 2007), I warned against the increasing homogenous industry behaviour I observed. Banks were abandoning unique strategies in favour of herd behaviour noting that “since July 2004, most Nigerian Banks have done largely the same things-raise capital, merge with or acquire other institutions, change names, logos or colours, build many branches, buy ATMs and build e-commerce capabilities, increase retail market penetration, establish subsidiaries, go back to raise more money and open branches in West Africa and beyond-such that unique competitive positions are more difficult to sustain”. Indeed in that same article, I recounted the usual sequence in commoditized industries which our banks were likely to fall into once they were undifferentiated-“The classic sequence then is for price competition to ensue, margins to drop, and in the specific context of banking, imprudent loans and transactions to be booked.” Unfortunately that prediction turns out to have been more than accurate!
These arguments were subsequently repeated over and over again in more than twelve articles. In “The Banking Industry in 2008” (February 20, 2008), I complained that the industry imperatives at the end of consolidation (“stronger corporate governance, professional ethics and transparency in financial reporting, stronger regulation, tighter credit standards …strengthening capacity-human, risk management, information technology and systems and processes…”) were ignored in favour of a second round of capital raising, which I considered an error. I very recently re-stated these points in my “Reflections on Nigerian Banking”, Parts 1-3 published in March. In “Memo to Lamido Sanusi” (June 10, 2009), I identified Sanusi’s short-term priorities as CBN governor as dealing with foreign currency and reserves management, restoring macroeconomic confidence and “resolving concerns around financial sector soundness and health, including asset quality, provisioning, risk management, transparency and professional ethics”
My only regret is that the banking industry failed to take these good faith warnings seriously to everyone’s unfolding anguish!

Tuesday, August 18, 2009

Reflections on Nigerian Banking Part 4

Mid way through 2003, I was still a General Manager in an “emerging” Nigerian bank. I was experiencing some professional dissatisfaction and had made up my mind to resign from the job. I was frequently running into trouble with the de facto (family) owners of the bank over sundry official and human issues. I started evaluating my options-was I to strike out on my own? (I had always wanted to be self-employed before my fortieth birthday) or should I move to another bank? In the few years preceding, I had made two career changes and I was concerned that another switch would be one too many. While I was in the midst of this dilemma, I was appointed an Executive Director in the bank in August 2003! I had sought the elevation at a point, but by the time it came, I really wanted out. Indeed I had tendered my resignation to the CEO of the bank on two or three occasions already (late in 2002 and in 2003) but he had managed to persuade me to reconsider my decision to leave. I convinced myself to give the job one last shot-perhaps the promotion was a sign that I should stay.
Having decided on one last throw of the dice, I discussed the measures I thought were necessary to achieve our objectives for the institution. I had no problems convincing the CEO that we needed to increase the bank’s capital base to at least N5billion and expand its branch network, while continuing with efforts to reposition the institution in the market place. We commenced discussions immediately with an investment bank and the corporate finance team of a leading “new generation” commercial bank, and soon management settled on the investment bank to act as financial advisers for the proposed capital raising. The first bottleneck was that the board (or its head) disagreed with our objective of raising the capital base to N5billion. The institution was family-controlled and perhaps there were fears about loss of control. The figure was eventually reduced to N2billion (after several months of stalling) before board authority to appoint the financial advisers was obtained. This was long before Soludo!
Indeed in December 2003, I convened a management retreat and shared with participants the conclusions of a carefully selected research and planning team on the direction of Nigeria’s banking industry. We noted the continuing demarcation between smaller and bigger banks and predicted that industry consolidation (those were my exact words! And I was referring not to a regulator-induced consolidation, but a market-evolving one) was imminent. We identified a group of ten or eleven banks that were increasingly significantly larger than the rest and warned that there was a maximum of two or three year window for the others to catch up or else the game would be over. The retreat was fired up and we agreed on a specific two-year implementation plan to ensure we leveraged the strategic insights we discussed. The critical elements of the plan were capital, branch network, products, people, alliances and the brand. We shared these plans with the bank’s board but again there was no apparent enthusiasm for the proposed measures.
By Christmas 2003, my personal resolution was to observe the level of institutional commitment to the plan for a maximum of two months and if I was in doubt to leave before the end of March 2004. Midway through February, I was overwhelmingly convinced that the plan would not happen so I again resigned. This time I also informed the Chairman and a few other persons, in addition to the CEO of my decision. As usual, the pressure to rescind the decision was strong but my mind was made up. But considering executive management and board protocol, I agreed to “think about it” for a few weeks. On June 28, 2004, I informed the bank’s “exco” and the CEO that my mind was made up and on the morning of July 6, 2004, , I tendered my official letter of resignation. Later that day, Professor Charles Soludo made his famous “N25 billion” speech. Professionals would say I made a professional decision. Strategists would say, I made a strategic decision. Moralists would say I acted on principles. And those who believe in God would understand if I say there was also an audible voice and hand pulling my ears and telling me to “come out from amongst them”, but I know I was completely shocked when later that day, I heard about the CBN “earthquake” stipulating an over 1000 per cent increase in capital for banks operating in Nigeria.
I reflected on these matters as the news of CBN Governor Sanusi Lamido’s bombshell hit the airwaves on Friday. I reflected also on the fact that this column had by and large predicted all these developments. Immediately after the successful conclusion of Soludo’s banking consolidation in December 2005, I wrote early in 2006 a column titled, “Banking Consolidation and Then What?” The essential message in that article was continuously repeated over and over again over the next three years culminating most recently in my “Reflections on Nigerian Banking”-a three part series published on March 4th, 11th and 18th and “Memo to Lamido Sanusi” published on June 10th. My constant refrain has been that banking consolidation was good, but it has not by one stroke of the pen put an end to all the critical issues militating against the development of our banking sector; the real issues are strengthening corporate governance and institutional capacity, improving credit and risk management, deepening competences and skills, improving technology, systems and processes, restoring ethics and professionalism, reducing costs, and deepening regulatory capacity.
With few exceptions the banking sector and its erstwhile regulators over-celebrated the success of consolidation now to everyone’s regret. Next week, we will review all our previous arguments on the sector, discuss the CBN’s recent actions and proffer our suggestions on future industry direction.