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Medium term fiscal framework and the capital market

There are only two families in the world, my old grandmother used to say, the Haves and the Have-nots”.

Miguel Cervantes, 1547-1616. (VANGUARD BOOK OF QUOTATIONS p 87).


Cervantes, author of one of the greatest novels the world has ever read, Don Quixote, and certainly one of the most delightful for secondary school and even university students in the last century, provides the background for today’s column mostly because life imitates art.

Long before Christ, the world had been segmented into two – the Haves and Have-nots; but it was the creator of the “man of La Mancha” the half blind, self-deluded, crusader against imaginary giants, who brought to our notice the consequences for society of perpetual gap between the wealthy and the poor.

Karl Marx, 1818-1883, the author of the Communist Manifesto, who temporarily shook the world with his dictum, “The workers have nothing to lose but their chains,” capitalised on that division to launch revolutions in Russia, China, and Cuba. But, the capitalists fought back. Today, the world is once again safe for capitalism –or is it?

One of the chief weapons capitalists used to gain the support of workers was to create a new class, neither Haves, nor Have-nots. They were called the Middle Class. On them were lavished some privileges, denied to the rank and file, in order to help whip the actual workers into line.

Among the privileges of being part of the middle class was the ability to have a small surplus over and above those needed for mere survival. Soon they were allowed to become part owners of the enterprises owned by capitalists. And that worked for a while, globally, including Nigeria.

But, since the financial meltdown of 2007/8 till today, the Middle class has relentlessly been pushed back downwards. In Nigeria, the Middle class has all but disappeared; and some of the Haves are disappearing too. The Haves are victims of a Nigerian Stock Exchange which has taken their live savings and exchanged them for shares worth less than tissue papers.

Widespread shareholding in Nigeria started with the Nigerian Enterprises Promotion Decree of 1977, “which classified all enterprises into three schedules as follows:

·Schedule I included enterprises exclusively reserved for Nigerians.

· Schedule II included enterprises in respect of which 60 per cent of the equity must be owned by Nigerians.

· Schedule III included enterprises in respect of which 40 per cent of the equity must be owned by Nigerians.

The decree forced multi-nationals operating in Nigeria to reserve 10 per cent of their shares for the staff of the company in the first instance – on a pro rata basis. Consequently, millions of Nigerian employees of these companies became shareholders and were in position to share the extra benefits of dividends declared by the firms each year.

Nigeria’s middle class expanded significantly as a result. And for decades, owning shares was almost like a licence to print small amounts of money for the investor as most shares appreciated in value and above average dividends were paid each year.

Like most phenomenon introduced into Nigeria, the Nigerian Stock Exchange started out as a honest capital market where the rules were, by and large, obeyed by all stakeholders. But, again, like most innovations ushered into this country, corrupt practices soon took over.

Imperceptible at first, the abuses of the capital market increased in tempo until the regulations were routinely flouted by cabals which seized the capital market and milked it for their own benefit.

Time and space will not permit us to engage in a lengthy discussion of the slide from an honest capital market to what I later dubbed a “gambling casino where the odds were stacked against small investors” – meaning the middle class lured into the market over the years. One short episode, however, will be remembered for a long time – consolidation, or was it con-soludo-tion?


“It is better sometimes not to follow great reformers of abuses beyond the threshold of their homes.” George Eliot, 1819-1880. (VANGUARD BOOK OF QUOTATIONS, p 210)

The Minister of Finance must surely remember Professor Chukwumah Soludo; the whiz kid from UNN who became the youngest professor in the university’s history; the Chief Economic Adviser to President Obasanjo and the chief author of the NEEDS document (now gathering dust everywhere, a victim of another promise unfulfilled by governments).

Professor Soludo became Governor of Central Bank and, in August 2004, took not only Nigerians, but the entire global financial community by surprise. He announced an audacious consolidation plan (which in the end turned out to be a con-soludo-tion exercise, which wrecked the banking sector and the capital market which will play a great and indispensable role in the success of the new Economic Team.

To be quite candid, may be the Minister should forget the capital market; because she would behold a disaster which started in 2008 and has not ended till today.

Perhaps Nigerians should have heeded the warnings by John Major, former British Prime Minister in 1990, when he declared that, “People with vision usually do more harm than good.” (VANGUARD BOOK OF QUOTATIONS, p264). Soludo was all vision.

By decreeing in August 2004 that banks wishing to continue to operate in Nigeria must have a minimum paid-up capital of N25 billion, he was certain he was on the way to creating domestic mega-banks capable of competing with global giants.

Out of the 83 banks in operation at the timer of the announcement of this decree, with a December 2005 deadline imposed, only three had accumulated N25 billion or more share capital. The rest were woefully short of the mark and suddenly, a banking race was on to accumulate capital or pretend to do so, through means fair and foul, in order to qualify to operate from January 1, 2006.

All entreaties to the CBN governor to vary the terms and extend the deadline were dismissed with derisive waves of the hand.

Later, the entire country and the world would come to realise how right Prime Minister Major was. “Con-soludo-tion turned out to be the biggest tragedy to hit the banking sector and the NSE at the same time; and the end of the calamity is not in sight.

We will return to the banking sector later and point to the warnings, ignored at the time, which would have saved Nigerian and foreign investors a lot of money and grief.


Over the years under review, the capital market had constituted a major source of capital for companies and had mostly served them well – until the abuses started to undermine the NSE and until the global financial melt-down of 2008/8 finally exposed the fraudulent nature of many of the transactions on the Stock Exchange.

But, before the collapse, the NSE was the envy of the world because for years, investment on the exchange yielded better than global average of returns to investors.

Domestic and global funds drifted into the Nigerian capital market fuelling a bubble which was later to prove fatal to the system. Central to this unprecedented growth in the NSE and, perhaps in Africa or even the developing world was the D-G-NSE – Dr Ndidi Okereke-Onyiuke.

She could rightly take most of the credit for the spectacular growth over ten years; she would also have to accept the blame for the mismanagement, deliberate or inadvertent, which has combined to turn the NSE into a basket case – universally. Yet, a vibrant capital market is indispensable for any country with ambition for rapid growth – especially, the quixotic quest for top 20 by the year 2020.


The year 2008 was, by all measures, our finest year. It was the year most share prices reached their peak. The banking sector was the most capitalised and based on what we later discovered were false annual reports and accounts, pointed to a brighter future for investors.

The year also represented the beginning of the end, not only for many of the banks, but for other quoted companies and shareholders. The chart below tells the gruesome story.

SHARES    APRIL 2008 PRICE           OCTOBER 2011 PRICE        % CHANGE

First Bank      N41.00                                                N9.00                                 -78

Union Bank   N36.90 — –                                          c85

Intercontintl  N45.00 — –                                          c90

Oceanic               N26.00 — –                                        c88

UBA                     N54.70                                            N3.95                                    -93

WEMA                N15.00                                            N0.72                                    -95

Zenith                   N46.99                                          N12.00                                   -74

Note: Intercontinental and Oceanic have since been swallowed by other banks; the fate of, once reliable Union Bank is in the balance. Between them, the Chief Executive Officers, CEOs, of these banks won more awards as Bankers of the Year and their banks received more encomiums than most others from “experts”; Professor Soludo also won the award as Banker of the year; but not from us at UniJankara.

We knew a great swindle was underway – long before others spotted it. In a way, that tells the whole story of Nigeria’s capital market. It became a racket organised for the benefit of a few insiders – many of them National Honours award winners. The millions who were lured into the market after consolidation are still licking their wounds – to use Soludo’s favourite expression.

To be continued….

LAST LINE: $1.76b in PTDF account was drawn down to $142.5m in a short time. More than money spent on “fuel subsidy” for the period. Who did it? No Wikileaks stuff. Read DeleLeaks. Just N5,000

8695.    BUDGET 2012

Budget 2012: War On Many Fronts…Brilliant! Many thanks for putting it all together. The greed..


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