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.

Local Governments and Nigerian Federalism

The renewal by President Yar’adua of the quarrel which his PDP predecessor Olusegun Obasanjo started with Asiwaju Bola Tinubu and the AC government of Lagos State presents another opportunity for us to review the defects of our so-called federal constitution. Beginning with the 1979 Constitution, our constitutional order has essentially been dictated by whichever soldiers were in charge of the departing military regime. In the 1979 example, then General Obasanjo and his colleagues made pretences as to allowing Nigerians write their constitution but at the end of the day, the final outcome reflected the wishes of the soldiers. The soldiers appointed the initial Constitution Drafting Committee led by Chief Rotimi Williams and nominated many members of the Constituent Assembly that debated the draft the CDC came up with.
When trouble erupted in the Constituent Assembly over Sharia and other contentious issues, the soldiers exercised their veto power and later inserted provisions (such as the Land Use Act and NYSC) into the Constitution, a severe aberration of constitution-making that remains a problem for the nation till date. Subsequent attempts at constitution-making were worse. In the Babangida regime, the process was so completely micro-managed that it was clear that whatever would emerge would reflect IBB’s Nigerian world view rather than the will of Nigeria’s peoples, communities, ethnic groups and federating units. The 1999 Constitution can in no way be attributed to the will of the people either. Indeed the Abdulsalam Abubakar regime in a mockery of the political class delayed release of the “Constitution” until the elections were concluded; the equivalent of releasing the rules of a football competition after a winner has emerged.
During the period of military rule, between 1966 and 1999, (with only a short civilian interlude under Alhaji Shehu Shagari), the soldiers bastardized every notion of federalism as we went along. All mineral revenues went to the federal government and were then distributed to the states, rather than the other way round; the federal government appointed governors or administrators (often non-indigenes) and posted them to the states like garrison commanders; occasionally the military high command re-shuffled the governors and re-posted them according to their whims and caprices; the federal government created states without reference to the indigenes of those states often lumping together people into states which they had no desire to be a part off; the federal government legislated on matters which ought to be the preserve of states; and the federal government assumed responsibility for creating local governments.
That is the true background to the several problems confronting the Nigerian state today-whether resource control as sought by the Niger-Delta; fiscal federalism in tax and other matters; the Sharia issue (which remains unresolved with several Northern State governments in effect confronting the Nigerian Constitution, extending Sharia into criminal law and setting up “Hisbah”-the Sharia Police); the debate over state policing; the excessive concentration of powers and responsibilities at the federal level; and the constitutional bottleneck over local government creation which re-erupted into the exchange of letters by Yar’adua and Governor Babatunde Fashola of Lagos. This issue (as well as Sharia which “Boko Haram” forcefully restored to our consciousness, and the unending crisis in the Niger-Delta) reminds us that the defects of our constitution can not be wished away or solved by intimidation and stonewalling! Nigerians would have to sit down and dialogue on the structure of our federal system and agree to a system that all federating units can be comfortable with.
With particular regard to the Local Government issue, it is clearly erroneous in the first place for a federal constitution to descend to the level of listing local governments in each of the constituent states. Yet even in spite of that error, it is still clear that the 1999 constitution intends the creation and operation of local governments to be within the province of the state legislature. Section 7 of the constitution asserts that “…the government of every state shall, subject to section 8 of this Constitution, ensure their (local governments) existence under a law which provides for the establishment, structure, composition, finance, and functions of such councils”. Section 8(3) which deals with creation of local governments involves only the local government councils, House of Assembly and a referendum of the residents in the council. It is clear from the explicit wordings of the Constitution that once the provisions of section 8(3) are complied with, a local government has been “created”. That is why section 8(5) only talks about the National Assembly making “consequential provisions” and section 8(6) says that “…each house of Assembly shall, after the creation of more local government areas pursuant to subsection (3) of this section, make adequate returns to each House of the National Assembly”. It is clear from the wordings of section 8(6) that the House of Assembly exclusively creates local governments while the National Assembly only makes consequential provisions.
That I believe is why the Supreme Court, as Governor Fashola pointed out in his reply to the President’s ultimatum, affirmed that the Lagos State Laws-Creation of Local Government Areas Law No 5 of 2002 and the Creation of New Local Governments Areas (Amendment) Law of 2004 were validly created and constitutional. The Supreme Court’s view that the creation of the new local governments is “inchoate” does not operate to nullify their existence. It only notes that there are procedural steps which a third party is still required to take. The President should encourage that party, the National Assembly to take the required procedural steps!

Friday, August 7, 2009

Boko Haram, And Other Absurdities

Corruption Haram

Now we know there is an Afghan and Pakistani Taliban-style Islamic fundamentalist sect in Nigeria that regards western (and women) education as sinful and forbidden; that opposes the Nigerian Constitution and legal order; that seeks the overthrow of the current system in favour of an Islamic State founded on interpretations of Shariah that reject western values, civilisation and science; and that is prepared to use force and wage war to achieve its objectives. These are precisely the same items on the mission statement of the global Al Qaeda and Taliban, so the issue as to whether there is an actual connection between this group or other home-grown ones and global terrorism is really a moot point.
As usual our people will not bother to carry out a fundamental diagnosis as to why a religious zealot like Muhammad Yusuf can easily recruit hundreds or thousands of young men and women and convince them that western education is responsible for all the ills of the Nigerian society. Perhaps unemployment, poverty, illiteracy, ignorance and absence of a structure of social welfare and law and order are the real issues? Or may be mis-governance, abuse of office, corruption, weak institutions of state including security agencies, an unrepresentative democracy which alienates the poor are the underlying factors? Probably it was easy for the leaders of the “Boko Haram” group to point to our western-educated ruling class who have so spectacularly mis-governed and impoverished Nigerians as evidence of the fact that such education leads only to materialism, selfishness, and wickedness? So why is Europe, Japan, Singapore and America generally better governed? And Iraq, Iran, Saudi-Arabia, Syria, Egypt, Sudan, Yemen less so? Unfortunately due to their limited education, the Boko Haram people attributed the greed and incompetence of their leaders to western education rather than corruption and lack of accountability. Perhaps we would all agree with them if their slogan was, “Corruption Haram” or “Election Rigging Haram”!

Yar’adua Versus Lagos

Apparently the federal government does not have enough problems in the Niger-Delta. The militants have brought our oil production down reportedly to around 1.4milliion barrels per day as against a budget of 2.02 million. The amnesty offer is under threat with complaints of ethnic cleansing at the NNPC, the trouble over the move of the Petroleum University to Kaduna and the anger of the Niger-Delta governors and legislators over the Petroleum Industry Bill. MEND and other sundry militant groups in the Niger-Delta have effectively demonstrated that while they may be unable to win a direct military confrontation with the Nigerian armed forces, they cannot be prevented from destroying oil infrastructure and shutting down oil production.
The regime is not sufficiently engaged dealing with ASUU, Doctors and other groups (including NEPA or is it PHCN workers!) who are threatening to go on strike. We are yet to find a solution to the electricity crisis that the country is currently facing or the nation-wide absence of governance that has now been elevated to an unprecedented level. No one has offered any realistic hopes to Nigerians that we would have free and fair elections in 2011 or anytime for that matter. Or that the Nigerian state, as our constitution mandates will take strong measures to abolish corrupt practices and abuse of office. Crime and insecurity, and a wave of armed robbery and kidnapping for ransom still pervade the land. And the macroeconomic situation remains dicey with plummeting oil production, falling reserves, a depreciating currency and an essentially stalled economic reform programme. No. Apparently Abuja’s major headache is the fact that Lagos State has Local Council Development Areas which were validly created by the state Legislature but which the National Assembly is yet to take action to ratify. In the government’s view, this is a grave constitutional issue that threatens to undermine our national unity and stability! Talk about leaving leprosy and fighting acne! Is this an indication of rapprochement between Yar’adua and Obasanjo? Or additional evidence that sooner or later, Nigerians will have to discuss and agree on the structure of our federal system?

Political Will

I have learnt in my short but interesting four and a half decades on earth to listen to people’s actions rather than their words. Taking off from the new pre-occupation with Lagos State’s LCDAs, I decided to explore a broader question. On which matters has the current regime demonstrated passion, commitment and political will since it came to office in May 2007, judging by actions rather than words? Well the answer is revealing-the removal of Nuhu Ribadu from EFCC; the non-implementation of the Electric Power Sector Reform Act 2005, destabilisation of NERC-the power regulator under that Act, and emphasis on new state spending on power rather than private investment; the “re-organisation” of the NNPC and the Petroleum Industry Bill; huge budget appropriations for defence and security expenditure apparently in anticipation of a military solution to the Niger-Delta problem; the eviction of Virgin Nigeria from the international airport in Lagos; the reversal of refineries and NITEL privatisations; the recruitment of non-PDP governors into the PDP and ensuring PDP victories in all election re-runs; appointment of regional loyalists to critical cabinet and government positions; the transfer of oil wells from state to state in the Niger-Delta; and now Lagos State’s 57 LCDAs. Mischievous people will add securing nice marriages for Presidential daughters! Is there a strategy behind the tactics?