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Sanusi’s Interview With London Financial Times (2)

By Les Leba

Absent a fortnight or so ago, Lamido Sanusi, our new Central Bank Governor gave a detailed interview to the London Financial Times. It was clear that the new CBN top dog is not too happy with the performance of the Central Bank management and the Securities and Exchange Commission in their primary duties as the policemen of the money and capital markets.

Although Sanusi agrees that there is no system that is infallible, but he also insists that both operators and regulators should at least be honest enough to admit whenever they make mistakes and thereafter set forth with determination to remedy their failings!

As a starter, CBN auditors have now been deployed to banks to investigate the extent of the burden of margin loans which banks granted their customers for the purchase of the shares of the same lending banks. Readers of this column will recall that we had earlier frowned at this practice and described it as incestuous and potentially destabilising to the system.

In last week’s column, we invited Sanusi to take a closer look at the proposal in our paper titled “A Liberalised Foreign Exchange Market: and its Economic Benefit” Boyo/Ojomaikre 2002 to the National Economic Intelligence Committee (see in which we recommended that CBN auditors be permanently embedded in the Treasury and Foreign Exchange Departments of each bank as the only way to guarantee that the  information submitted by our banks are accurate and reflect a true position of their state of health.

Indeed, Mr. Sanusi’s apprehension of the quality of information churned out by our banks may have been lately buttressed by a Paris based Agency’s report that only 4 banks are truly strong. Of course, this report has been quickly lampooned by the banking confraternity who has questioned the basis for such conclusion; indeed the Paris Agency had even been accused of churning out such uncomplimentary reports as a way of inducing international advert placements from Nigerian banks!

However Sanusi, in the interview under review is of the opinion that a 10% limit is ineffective as an instrument of control of foreign equity in Nigerian banks, substantial equity has already been acquired by nominees who may in fact represent overseas interests! In this event, Sanusi would prefer an open and transparent ownership structure and will consequently remove any limit on foreign ownership of our banks! Indeed, the CBN Governor sees this option as a means of forestalling major failures in the banking sector after the current ongoing audit exercise; such additional foreign ownership, by for example, such reputable International banks as “Barclays, HSBC or China Construction Bank” Sanusi believes would improve the level of transparency and also accommodate best practices in International financial reporting in place of the ‘suspect’ reports of our banks today!

In plain language, Sanusi’s gameplan is that the current audit which will last eight weeks, will reveal the weaker banks who carry poor quality assets and uncomfortably high burden of margin loans. An asset Management Company may be created to take up the toxic debts, ‘not at cost’, but after these debts have “been properly written down on the book of the banks”. Ultimately, particularly fragile banks may still remain of interest to stronger local banks or foreign investors who may find, the ‘huge investments infrastructure, the extensive branch network and wide customer base of these weak banks as attractive potentials to turn around their fortunes.
The above projections seem quite plausible and basically desirable. However, it is necessary to consider the potential danger of foreign ownership and domination of our banking system.

I recall that one of the reasons adduced for the rapid collapse of the Nigerian Stock market last year was the claim that prices crashed because foreign investors pulled out of the market! Thus, in a country like Nigeria where government policies vacillate arbitrarily or with political colouration, foreign investors may just decide they have had enough and embark on a free offloading of their equity at short notice with the attendant dislocational and destabilising impact on the fortunes of our economy and the pauperisation of millions of investors in the stock market!

Aside from those issues relating to Commercial banks stability and regulation; Lamido Sanusi sees his fundamental role as central banker as that of ‘price stability’ (management of inflation) and protection of the national tender (value of the Naira).

The governor hopes to achieve these objectives by “pushing for lower interest rates” and thereby “stimulating growth in the economy”.  Indeed the foregoing may seem to readers of this column as a direct lift from the series of articles in Rational Perspectives over the years! Infact, Sanusi also agrees that “24% is too high, as a lending rate”! Contrast this assertion with his predecessor who berated Manufacturers Association (MAN) for being unappreciative of such interest rate levels when other countries like Ghana have prevailing lending rates of about 30%!

Sanusi on the other hand, hopes to bring down interest rates by “addressing the source of the fundamental reasons for high interest rates”. However, in response to questions on his vision for monetary policy strategy, Sanusi reveals his befuddlement with the interplay between the cause of excessive money supply, rising (double digit) inflation, very high interest rate and a strong exchange rate! He describes this interplay as an “unholy trinity” that is difficult to deal with simultaneously. Consequently, his immediate objective would be to reduce inflation and interest rate and hope that “depending on what happens to the oil price, revenues and capital flows, I would hope that the naira will hold. But long term I think lower interest rates are more fundamental than a very strong exchange!”

Dear Mr. Sanusi, how wrong can you be! The truth my dear Governor is that the current mechanism for the infusion of our dollar earnings into the economy is the villain in the whole mix; the current system whereby CBN substitutes Naira for our dollar earnings before sharing creates the problem of continuous and unyielding excess liquidity which instigates high interest rates and the need for mopping up of funds at great cost to the country (almost N300bn in 2009 budget) and the storage of the borrowed funds inertly in CBN vaults and Accounts records! The high interest rates necessary to deter borrowing and reduce inflation invariably becomes a disservice to industry and in fact triggers high production costs in a burdensome environment of inadequate infrastructure.

The substitution of Naira for dollar revenue is also the reason behind the inexplicable continuous decline of the Naira rate as increasing dollar revenue, means increased excess Naira liquidity, which is inturn pitched against controlled dollar releases in various auction models in the foreign exchange market. This invariably ensures that there is always more Naira chasing limited dollars at any one time. Indeed any fortuitous increase in crude oil price will not improve the value of the Naira as Sanusi expects but would in reality, as happened in the past, when crude prices exceeded $140/barrel, put severe pressure on the value of the Naira! This is nothing short of madness if you ask me, but regrettably this has been our lot for the past 30 years and succinctly explains why we ended up in the lowest rungs of the world’s poorest only at that time when we earned our best ever dollar export reserves!
Mr. Sanusi’s concept of a liberalised exchange rate will keep us in the pits of poverty and his expectation that the present official rate is ‘a good target’ should sound an alarm to all well meaning Nigerians! The Naira rate has not been “a sensitive issue primarily because the elite have taken an interest in it” according to Sanusi; the reality is that the depreciating Naira value has gone hand in hand with the poverty of 140 million Nigerians over time, and my dear sir! Do not be deceived by the usual talk of the need for a diversified economy.

A diversified economy with excess for export will not at best earn us different quality dollars from what crude oil has brought us! It is the infusion process of our dollar revenue that is the killer bug! A process whereby dollar revenue is disbursed to the three tiers of governments as dollar Certificates is the most plausible available framework that can redeem our economy! Shikena!


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