In August of 2009, the Governor of the Central Bank of Nigeria, Sanusi Â Â Â Lamido Sanusi embarked on the famous banking sanitisation venture which saw the headships of certain mega banks changed, leaving a banking industry that might never be the same again.
Many months on, controversies continue to rage over the raison dâ€™etre, the style and most importantly, the consequences of the sanitisation exercise, prompting Morenike Taire, in this interview to seek the views of Baba Omojola on that and other economic matters. Having renown as an economist as much as an activist, Dr. Baba Omojola is a first class product of the London School of Economics and serves as Economic Consultant to many state and local governments, as well as international organisations.
Some have attributed the current goings on in the Nigerian banking industry to the global financial meltdown. Is that the case?
Itâ€™s not exactly. Even when the former Central Bank Governor, Soludo, was trying to restructure banks, it was to make them perform the duties for which they were there. In Nigeria, one hardly gets a loan and the rate of interest was abnormally too high. When the world average was 4.5%, we were saying 22%. There was no way any serious investment or industry can be made because the average of publicly quoted company from the published report advertised in the papers is usually between 20, 25% of invested capital.
How much do you have left to declareÂ Â dividends? Soludo wanted them to be restructured so that they will have funds for credit so that the sustaining role of economy can go on. All modern economies survive on credits. In America you have specialist banks. 8 national banks, u have banks for chemicals, private banks.
I did some work among fishmongers in Britain and they had their own bank. I was consulted to build a bank for construction. The idea was to be able to raise money for building projects. The mortgage banking industry is very low. The world average is 4.5%. You cant borrow money at 18% and then use what should have been your rents to pay back in 10 years.
So also all other sectors of industry. Its virtually impossible to borrow money to buy ships. Thereâ€™s no market for chattering of ships. When people are making policy they just use fiscal instruments and financial packages which they read in their text book. We are not an economy which is well informed. Most of the economic activities in the country are not monitored.
Yet they do employ the larger number of people . entrepreneurs, transport owners, women traders. Yet they determine policy as though they take an inventory of instruments that will enable policy to be implemented down the line. So Soludo would never have succeeded. There are other aspects of the economy that would benefit from specialized banks, private banks. Now comes Sanussi. If he had not intervened many small income people would have lost their money.
Banks have not developed to sell credit competitively. When you go to the bank itâ€™s as if they want to do you a favour. You would never have been asking for 1 million if you had a property worth 20 million. They are making money principally from short cuts.
This is the end of the funfair which theyâ€™re having. Itâ€™s like the telecommunications companies which are making more profits than transportation. Thereâ€™s no reason why telecommunications should be costing someone like me 30,000 naira a month. It becomes the largest factor in the overheads of most entrepreneurs. Pensioners and small scale industries would have lost their money if Sanusi had not intervened and they would not have minded. Plc means that the assets of the company, not its owners will be lost.
Is that not similar to what happened in America?
They were overlending money, over fuelling the economy especially in the mortgage sector. When you buy a house on mortgage, at 2% and it changes to 3% it means you can not pay when you thought. It means the credit costs you more. More cash is declared but it has not added to the quantum of housing in the United States and they indulge in it so much that money was getting easier to get by and donâ€™t forget the rate ois eve low by our own standard. Finally it went to almost 0. Now itâ€™s 1% so as to encourage money to fuel the economy
But Sanusi has said that he cannot pre-empt that.
As I said they do it all by theory. Even in those countries where the government donâ€™t fix rates the banking consortium_ in Nigeria we have the Institute of bankers, the Manufacturers association and others. These could meet and insist that they do what they want to allow credit to flow in a way that will allow profits. Even in Great Britain itâ€™s not as if itâ€™s the banks that say; bring the inteterest rates down. Here some bureaucrats think they can manage the economy ithout the Nigerian Labour Congress, small scale and medium scale manufacturers. There are so many big players here too which could be encouraged to be friends of policy.
Given that, would you agree that the scare in the industry now can discourage entrepreneurship and investment?
I donâ€™t believe so.
How about the low to medium scale industry?
Itâ€™s not because of Sanusi or Soludo. The rates are abnormally too high. How do you charge 22%. The gap can never be bridged. The bulk of production in Nigeria is by the informal sector.Â So that is why we have not been so much aback by the global meltdown. I donâ€™t think there are bad repercussions as a result of the global meltdown. There are ingrained problems in the Nigerian economy.
There are agitations for a new minimum wage of N52, 000. Can government afford this?
In the United States economy the president is becoming alarmed that the rates of unemployment is going to 10% . They want it to be below 5% and they take positive steps to make sure that people are back to work and they are the ones saying no interference in the economy and we buy that hook line and sinker.
Even in the old days there were pirates that were managing the economy of the world. How then do you say no interference when you see the American president pumping money single handedly into general motors because the motor industry is the crux of the American industry, pumping money to banks so that money would be available for credit? And a backwards country like this, a neo colonial economy, cannot take steps to ensure solid mineral is developed. 20million people will be employed. The minimum wage cannot be paidÂ from the budget if you spend 35%Â on administration, salaries of legislators and allowancesÂ Look at the cost of construction in Nigeria. Itâ€™s higher than what it is in Ghana or Tanzania where you have bitumen.
Look at the London housing market. There are houses of 200million, 500million, 1 billion in Lagos and some of the mountains. A mismanaged economy cannot generate income, employment or minimum wage necessary. It does mean the money is not available but is pocketed by the economy.
The machinery is useless without Labour. If your turnover was 1million a year and you were giving Labour 100,000, you now know you have to give 30%
Does that mean you have to make your operations more efficient?
When you pay your shareholders, itâ€™s too high. You buy shares and you want the money to return to you in three years, you build a house and you want in 10 years to have recovered the cost.
What is government supposed to do? Are they supposed to get rid of administrative costs?
In Nigeria legislators earn more than industrialists. Labour has been shrinking. Our share of the outcome of production is too low.
What of the oil importersÂ Â complaining that they are no having access to funding hence fuel scarcity?
The fuel prices they are offering in Nigeria are not refinery costs. What they say it costs is far above what it is in other countries. I challenge the fuel importers: they are holding the country by the balls. They triple the cost, hold the government to ransom..
We know that in England fuel price is 1 pound for 1 litre but 90% is tax. Government says weâ€™re going to tax you, weâ€™ll use the money to finance healthcare. Weâ€™ll tax tobacco to finance cancer. The EFCC should investigate them.