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.
Thursday, November 19, 2009
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?
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.
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.
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