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Michael NnebeSunday, February 23, 2014
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THE SANUSI SAGA AND WHAT I EXPECT FROM THE NEXT CENTRAL BANK GOVERNOR

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have refrained from joining the debate on the Sanusi issue because the conversation has generally disintegrated into a political warfare. Those who are pro Jonathan's administration argue that the president has the power to suspend Sanusi, and those who are opposed to the administration argue otherwise. For me, there are two issues; one is a question of credibility, and the other is a question of law. On the question of credibility, anyone who has followed Sanusi's utterances in the last couple of years would agree with me that the man has lost any vestige of credibility that naturally accrues to a central bank governor. A little more than a year ago Sanusi raised an alarm against our National Assembly; that their allocations and expenditures amounted to 25% of our national budget. Analysts, economists, and auditors carefully scrutinized the National Assembly numbers and all concluded that their expenses amounted to less than 5% of our budget.

I am not here to absolve our National Assembly, I have written enough to criticize their excesses and failures, but it is quite a shame that our Central Bank Governor could go public with such claims and accusations without getting his numbers right. Then came his letter to President Jonathan, alleging that 49.8 billion dollars of our money due to be remitted from the NNPC to the federation account was missing. I nearly had a heart attack when I heard this. It was quite a bombshell dropped on Nigerians and caused such a rupture across this nation. Less than two weeks after this letter was made public I saw with my own eyes the same Sanusi, sitting at a hearing in the National Assembly and acknowledged that his numbers were wrong; that it was indeed only $12 billion that was missing, and after further stipulations by Okonjo-Iweala, Sanusi then agreed that it was $10 billion, and then finally $8.9 billion. And as if this entire yoyo was not enough, Sanusi showed up at the National Assembly less than a month later to again allege that he is now very sure that the amount missing was $20 billion.

Once again, I do not wish to absolve NNPC from any failures or fraud against the Nigerian people, and if we find out that only $1 million of our money is missing at the NNPC we should by all means investigate and do everything possible to recover our money. But these exhibitions by Sanusi have really reduced him to mediocre to say the least. Even if you are a fan of Sanusi before these recent episodes, which I was, it is difficult not to see him as unstable based on his own pronouncements. A central bank governor is the number one banker in the country and at the very least should know his numbers before jumping into the public forum. Some have argued that all his moves were political; others believe that Sanusi was only trying to help this country by blowing the whistle against the cabal. Whatever you think of Sanusi, there is no denying that he has done irreparable harm to himself and persona by displaying a high degree of irresponsibility as he carelessly throws about numbers on such issues of national importance.

Now, on the issue of whether Jonathan acted within his statutory powers to suspend Sanusi, the answer is absolutely yes. Some have talked about constitutional this and constitutional that. The truth is that there is no mention of the Central Bank or the hiring and firing of its governor in the constitution. These are dealt with in the Central Bank Act, most recently amended in 2007. Even in the CBN Act 2007 there was no mention of suspension. The Act only provides for the power to hire subject to confirmation by the Senate, and the power to remove subject to approval by the Senate with a vote of not less than two third. But a careful examination of the Interpretation Act which governs everything in the substantive CBN Act, it clearly mentions in section 11 (1B) that the President has the power to remove or to suspend. And more especially, it allows for the provisions in the Interpretation Act to be interposed where the CBN Act is silent as it is with regards to the issue of suspension. In my opinion, this matter is dead as a legal issue but again this is Nigeria where anything can still happen if you pay a fringe Judge enough to grant you whatever judgment you desire.

Here is my take on the more serious issue of what I expect from the next Central Bank Governor. Soludo's legacy was in the giant steps he took to strengthen and to consolidate the fragile Nigerian banking system. Several stages of recapitalization had finally shrunk hundreds of banks, many with less than a billion naira in capitalization to now less than twenty banks. He forced them to either merge or seek more funding from the open market, and today many are now with capitalization of a few hundred billion naira. Sanusi's legacy was in sanitizing the banks, prosecuting the looters, forcing them to become more transparent, and more recently the introduction of a "cashless society", which is still more of a dream than a reality. These two governors and their predecessors have however neglected the essential role of any central bank, which includes the role of making capital available and at an affordable cost to the potential borrowers, especially those in various industries.

I have written in several articles that lack of electricity remains the number one impediment to Nigeria's industrial take-off. Our federal government remains responsible for this regardless of whether they have privatized the sector or not. I have repeatedly criticized their failures on this front, and recently gave them kudos when it appeared that they are finally beginning to get their acts together after the recent launching of a coordinated power/industrial revolution program. I have also written elsewhere that the second biggest impediment to industrial revolution in Nigeria is the lack of capital and the high cost of borrowing when banks are willing to lend. We know that capital is hard to find in Nigeria, and that the lending rate is easily 25% and higher. I know people today who are borrowing money from certain banks in Nigeria at more than 40%. It's even worse when you get to the micro level where some market women are easily paying 1% per day to source their trading money.

No matter how much a government tries with their fiscal policies, it remains the exclusive domain of the central bank to influence and indeed control availability of capital and the interest rates charged by banks. It is true that the central bank cannot force any commercial bank to charge any particular rate of interest, but central banks have a variety of tools within their open market operation mechanism to make money available, and to push the level of interest rates substantially down. Since 2008 we have seen how the Federal Reserve (US Central Bank) have managed through quantitative easing to provide capital and liquidity in the economy, and more especially how they have forced interest rates down to the lowest levels in more than fifty years, even while holding inflation down. Without this effort by the Federal Reserve, the US economy could not have made the comparatively quick recovery from the economic crisis of 2008.

I heard Sanusi say on television that he does not have the power to bring down interest rates, and that we cannot expect low inflation and low interest rates at the same time. I shuddered when I heard those words from him, and it made me wonder who vets this people before they are given the job. Sanusi was clearly wrong, and the Central Bank of Nigeria has what it takes to make liquidity available, and to drive down interest rates substantially lower. The new CBN Governor should indeed consider this a number one priority, which if coordinated with improved power supply could actually accelerate our industrial take-off. In an earlier article I posted this time last year (Go East, to China, young man) I made it clear that the $5 billion we spend annually to defend the naira is unnecessary. I argued that our currency should be allowed to depreciate in line with the open market with minimal interventions. Our exchange rate then was about 150. It has since gone up to more than 160 in the banks and now well over 170 in the black market. Meanwhile our cost of defending the naira has increased to near $7 billion in the last one year.

It is my belief that such an amount if carefully injected into our economy through some measure of targeted easing, could provide liquidity and when combined with other measures available to the CBN, can help drive interest rates down. I also know that our CBN is out there always looking for foreign borrowers of some of our reserves presumably at the international prevailing rates of about 2%. Why can't we loan some of those funds to our governments and other institutions at a slightly higher interest level of say 4%. Why should our CBN allow Jonathan to go and borrow $1.5 billion from China at 6.7% when the CBN can loan this money to our government at half than rate, and still at double what the CBN would get for the money in the international market. Common sense dictates that we do these things, but it requires a CBN that is focused on its responsibilities.

Our CBN should target domestic interest rates of no more than 10% within the next three years. I believe this is easily achievable if the CBN is serious about doing this. I have made my calculations and I'm very confident it is doable. I am not looking for job at the CBN or anywhere else, but if you have a problem on how to do this, just reach out to me and I'll render my advice free of charge on behalf of Nigeria. In the meantime, I wish the new CBN Governor the best of luck. Here is one more advice, you will occupy a very conservative post, so measure your words before you speak them, and stay out of politics. As my friend Dr. Moe Ene would say, "Everything else is embellishment."

Michael Nnebe is a former Wall Street Investment Banker and the Author of several novels, including; Every Dream Has A Price, Riverside Park, Blood Covenant, Gloomy Shadows, Passing wishes, Prime Suspect, and others.

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