04 Jul 2009 |
|
| C.C. SOLUDO – A glance through the rear-view Olu Omoyele Men who undertake considerable things, even in a regular way, ought to give us ground to presume ability.- Edmund Burke In mid-2008, as the global financial crisis roared with increasing ferocity, an ominous storm seemed to rapidly gather up around the then Governor of the Central Bank of Nigeria (CBN). Allegations levied against him ranged from lack of respect for the law and impropriety to intellectual arrogance.1 Now that he has left the nation’s most high-profile financial office, historians will undoubtedly have many things to say about his tenure in office. This article seeks merely to contribute to that for the sake of posterity; and perhaps to make a plea for memory. On 29 May 2004, a Professor of Economics – Dr Chukwuma C. Soludo, CFR - was appointed governor of the CBN by the then president of the Federal Republic of Nigeria, General Olusegun Obasanjo. At the end of May 2009, after serving a full term of five years in office, the subsequent president, Mr Musa Yar’Adua, chose not to renew Soludo’s tenure. On 3 June 2009, Mr Lamido Sanusi was appointed as the new governor of the CBN, officially resuming office the following day. Soludo emerged at a time of the re-emergence of a semblance of civilian rule in Nigeria. It was an era difficult to characterise as democratic, but at least for all intents and purposes, it appeared substantially (though not entirely) civilian. Obasanjo put together a team of knowledgeable experts with portfolios for important segments of government. He adopted a seemingly hands-off approach to certain critical issues (though not the sensitive oil sector) which he had no expertise in, such as the economy and the type of banking sector required to power it. So, many were and still are grateful that he allowed people like Professors Soludo and Akunyili (and to a lesser extent, Dr Ngozi Okonjo-Iweala and Mrs “Oby” Ezekwesili) get on with their respective jobs in various sectors. Even those, like Messrs Ribadu and El-Rufai, whose tenures seemed to have attracted even greater political controversy nevertheless made visible, meritorious differences while occupying their respective offices. Banking sector consolidation On 6 July 2004, in a speech delivered to the Special Meeting of the Bankers’ Committee, at the CBN headquarters, Abuja, Soludo announced, amongst other things, his plan for the consolidation of the banking sector. He announced the proposal to require banks to have a minimum capitalisation of 25 billion naira, with full compliance expected before the end of 2005 (giving the banks 18 months). Other proposals included: phased withdrawal of public sector funds from banks, the establishment of an Assets Management Company (to serve as an important element of distress resolution), rehabilitation of the Mint to meet the security printing needs of Nigeria including banks, and the adoption of a risk focused/ rule-based regulatory framework, etc.2 Developments in the banking sector Put simply, the writer is of the opinion that Soludo did a commendable job in his five years in office and should be applauded abundantly. Further, he should now be employed elsewhere in the economy to carry on in a similar vein. The view that Soludo did a very good job is not because he was the only one who could do it or the only one with the intelligence to have been able to do it, but simply because when faced with the reality of an easy life, entrenched interests and powerful people on the one hand versus painful but rapid growth and taking a chance on how to progress the banking sector on the other, he had the courage and fortitude to choose the latter. It is easy now to look back and not fully appreciate the impact of Soludo because it has already happened, but we should note that in 2004 (when he was appointed), one bank in South Africa (ABSA) had an asset base that was larger than all of Nigeria’s commercial banks put together. Further, the combined share capital of the 89 banks in Nigeria was equivalent to that of the fourth largest bank in South Africa. Nigerian banks were heavily engaged in the trading of US Dollars as opposed to intermediating, which after all is the fundamental function of a bank. Banks routinely turned down small cash depositors and were wholly unable to fund businesses or even individual entrepreneurs for that matter. The “successful” banks relied heavily on government deposits and some supposedly big banks were owned in their entirety by individuals and families. However, all that changed during Soludo’s time in office. Banking reform in Nigeria under him has been lauded across the world as one of the most successful in recent decades, and perhaps the cheapest. Several Nigerian banks now feature in the top 500 in the world when there was none in the top 1000 previously. Some of the banks have suddenly developed global ambitions with offices in several continents. The one-time near-total domination of sub-Sahara Africa’s banking sector by South African banks is no longer the case. International banking giants continue to assess Nigerian banks as potential acquisition targets. The relative merits or otherwise of such a development aside, it is an indication of growing confidence in Nigerian banks; and confidence is, of course, generally accepted as being absolutely core to a successful banking sector. More importantly, however, Nigeria’s banks are much bolder now in helping to finance rapid economic development in Nigeria. Banking services, especially retail, are becoming much more accessible to the masses with increased availability of branches, ATM machines, personal loans, home (mortgage) loans and credit cards etc (though there is still a long way to go). The resilience of the banks has also been tested in the ongoing trying climes in high finance. Consolidation, which in 2004 was not necessarily considered an attractive proposition by bank boards of directors, is now the watchword as the sector leaders have come to appreciate the merits of strong capitalisation. The banks also dominate the domestic stock market (for better or worse) and have played a significant role in stimulating that market. Of course, the decision to raise the minimum share capital required for a Nigerian bank did not automatically require issues of equity securities on the stock market. However, this was quickly identified as one of the easiest ways to do it (in addition to numerous mergers that took place between banks) and we saw the dividends also spill beyond banking with participants in many other sectors deciding to go to the suddenly-booming capital market to raise fresh capital. All of these could be traced directly to the banking regulatory policy of Soludo, whether or not capital market stimulation was indeed his intention. Some misguided commentators have tried to lay the blame for the dramatic drop in the value of the shares listed on the Nigerian Stock Exchange (NSE) in 2008 on Soludo. However, it should be clear to anyone with even an average grasp of stock market philosophy that the big drop in share value was an inevitable, and perhaps necessary, correction given previous over-valuation of many stocks during the preceding period of “irrational exuberance” (a phrase said to have been coined by the former chairman of the US Federal Reserve Board, Alan Greenspan, when referring to a period of similar over-valuation of US stocks in the 1990s). Further, the onset of the Western-originated financial crisis led to investors pulling out of risky investments preferring to hold their assets instead in assets perceived to be low-risk such as cash, government bonds and commodities. This meant that they pulled funds out of many stock markets including the NSE. However, the NSE has not collapsed as some predicted and has proved to be resilient largely because the irrational panic with which foreigners withdrew funds from the market has not been mirrored by local investors – most of whom participated in the stock market for the first time ever when Nigerian banks rushed to the NSE to raise fresh equity to meet the Soludo-instigated minimum capital entry requirement of 25 billion naira. International recognition Therefore, this recognition of Soludo’s achievements is not because he was the only one who could have done it, but because he is only one who has in fact done it. Action speaks louder than words and the sounds that came out of the CBN under his stewardship were deafening. There was international recognition of his achievements from many quarters. One recalls that, in January 2006, he was awarded the “Central Banker of the Year” and “African Central Banker of the Year” accolades by The Banker magazine (published by the Financial Times of London) for his efforts. A year later, in 2007, Soludo was named “Africa Banker of the Year” by the US-based organisers of the Africa Achievement Awards. Further, in November 2008, Soludo was appointed to a high-level task force set up by the United Nations, known as the Commission of Experts on Reforms of the International Monetary and Financial System (and chaired by renowned economist and Nobel laureate, Joseph Stiglitz), to examine possible reforms to the global financial system in the wake of the ongoing global economic turmoil. Criticisms Arguably, there could have been greater transparency in the accounting information of banking institutions (though it should be noted that there was already a plan to adopt a common year-end for all banks, to aid transparency). Some have argued, for instance, that Soludo should have forced banks to disclose their exposures to the so-called margin loans extended to borrowers to purchase equity securities on the NSE. However, the issue of margin loans is one that seems to be ill-understood by many judging by the commentary in the business press. The valuation of the collateral held against the loans is necessarily a fluid, ever-changing concept, being affected by the volatility in the prices of shares. Further, the fundamental relationship between the banks and the borrowers relates to the loan itself and the associated repayments. Collateral posted as security for such a loan is a secondary matter and the fluctuating values of such collateral (especially downwards) does not necessarily amount to the underlying loan becoming a bad or doubtful debt. In simple terms, even if the value of a portfolio of shares held by a bank as collateral were to drop to zero naira, there is no real panic unless the borrower defaults on repayments. Nonetheless, since the issue of margin loans became recurrent news, with the potential to undermine confidence in the banking sector, Soludo announced publicly the value of the loans and added that it was insignificant compared to the regulatory capital resources held by those banks. This meant that even in the highly unlikely event that all of the loans were to be defaulted, that would not undermine the capitalization, or threaten the survival, of the banking sector. Although some academic commentators also criticised Soludo’s policy making as per the banking sector (namely, the process by which the minimum share capital level was raised) and the particular policy choice of de facto forced consolidation,3 the infinitely positive impact of the reforms instigated by the former CBN governor, cannot be overemphasised. In August 2007, in a speech entitled: “Strategic Agenda for the Naira”, Soludo summed up succinctly the improvements in the banking sector during his tenure in office: “The banking system is the safest and soundest it has ever been in history. Deposits and credits have more than doubled, and non-performing loans as percentage of total loans have gone down from about 23% before consolidation to about 7% currently. Individual banks now finance big projects valued at hundreds of millions of dollars and also operate in the oil and gas sector - a feat they never could do before now. Interest rates are gradually coming down (with average lending rate at about 16.9%, down from 25%). Currently, commercial bank branches have gone up from about 3,200 before reforms to over 4,100, and total employment in the sector has gone up from about 55,000 before reforms to over 61,000 currently. The world is celebrating Nigeria’s success, and over $1.5 billion of foreign investment has gone into the sector since 2005. By end 2007, there will be about 7 or more banks with shareholders fund in excess of $1 billion and over 10 banks with market capitalization of over $2 billion each (there was none in 2004). In 2004, there was no Nigerian bank in the top 1000 banks in the world. As at the end of 2006, there were 12 banks in the top 1000, with one ranked 355th (top 500 in the world).”4 While Soludo is hardly likely to be considered objective in the task of self-assessment, the above quote contains numerous measurable metrics that are easily verifiable by any doubters. In addition to being the fastest growing banking system in Africa and one of the fastest in the world, the Nigerian banking system is evidently powering the NSE. The NSE has been around since the early 1960s but we have seen the difference in the sheer volume of activity on it and the interest in it, in the last four years purely as a result of the knock-on effect, intended or otherwise, of the consolidation stage of banking reform. Now, despite all these, if a person has spent a particular amount of time in a high-pressure job, they might run out of steam and a refreshing of ideas may be required (an exception is perhaps Manchester United Football Club’s manager, Sir Alex Ferguson who, after decades of managing at the top and dozens of trophies, remains seemingly insatiable). Therefore, if Soludo suddenly ran out of steam and needed to be replaced, then so it should be. Nigeria should appoint somebody else capable to continue the business of reform; after all, the business of leading Nigeria’s economy is not a one-man business. But it is difficult to decipher a rational argument in favour of the proposition that he did in fact run out of steam. At the time of departing the CBN, he was still brimming with bright ideas (yes bright, since there is no reason for one, or him, to apologise for his intellectual capacity – given that he did finish top of his class at BSc, MSc and PhD levels). Expertise Soludo is an expert in economics and there can be no doubt whatsoever over his scholarly acumen, particularly in the area of macroeconomics. Having obtained his three degrees, and later a professorship, at the University of Nigeria, Nsukka, he engaged in extensive research, teaching and consultancy work in some of the world’s leading research institutions, universities and multilateral financial establishments. These included: the International Monetary Fund, the World Bank, the United Nations Economic Commission for Africa, the United Nations Development Programme, the University of Cambridge, the University of Oxford, the Brookings Institution, the University of Warwick and and Swarthmore College (USA). He is also a member of the British Department for International Development’s International Advisory Group. In addition, he published widely in his areas of competence. The much publicised “Master Plan” (e.g. Vision 2020) is in place largely because of the theoretical prowess of smart people including Soludo himself. Also, Soludo coordinated the drafting and consultation process for the NEEDS agenda while he was Economic Adviser to former President Obasanjo. So, as for the allegation of arrogance, one will gladly suffer justifiable intellectual arrogance, over any other, especially in a land where stupid people prance around, armed with crude power, destroying all before them for personal gain - to applause from an army of sycophants. Of course! Notwithstanding the above, controversy dogged Soludo throughout his stay in office, from those who predicted the failure of the banking consolidation exercise when it was first announced to those who differed with many of his substantive initiatives. The controversy spread to the political arena, where ultimate power lay of course. As a result, part of the CBN reform programme (consolidation was part of what Soludo termed “Phase One” of a 13-point agenda) was left unfulfilled. Somehow, Soludo lost the full public backing of the Presidency as the storm raged on around issues such as the creation of the Africa Finance Corporation and the proposed redenomination of the Nigerian currency, the Naira. Africa Finance Corporation (AFC) The AFC was an African solution to serious developmental needs across the continent. It was conceived by Soludo to help facilitate private-sector driven solutions to capital-raising for infrastructural purposes. Although participation at its inception was dominated by Nigerian institutions, it was intended to be a pan-African solution. He invested part of Nigeria’s foreign reserves in it merely to kick-start it. In addition, investments were sought from the private sector, especially banks, as well as African governments. Several African nations (including, for example, Liberia, The Gambia and Sierra Leone etc) have since formally joined the AFC. Should this initiative become successful, and there can be no guarantees of course, it would help remove the reliance on condition-laden agreements that African nations habitually conclude with supranational organisations such as the International Finance Corporation (IFC), the World Bank and the International Monetary Fund (IMF). One hopes that most Nigerians, as well as Africans generally, agree on the need to break with the slavery-like bonds that we have with these organisations and that even if we are to deal with them in future, it must be on a more equal footing. But surely, we should first attempt to do it without them, especially since those organisations have proven in the past to be little more than agents of foreign, domineering governments who, predictably, do not have our interests at heart. Since we, as Africans, presumably have our own interests at heart, we must work hard to protect them, which is where initiatives such as the AFC come into play. Some have even tried to attack the probity of Soludo in respect of the AFC as though it were a personal organisation. This is despite the fact that it is a supranational organisation and the AFC’s website clearly states that membership of the AFC is open to independent African states represented by their respective central banks, African regional and sub-regional financial institutions, African public and private banks, financial institutions and private investors, and international private investors. Yet, controversy over the AFC raged for months especially on the issue of the Nigerian government’s investment in it. It was further alleged that Soludo did not obtain authorisation from the current president even though he apparently already had such authorisation from the previous president. It is difficult for any outsider to be able to ascertain what the proper authorisation process should have been, and whether it was in fact adhered to, or not. In defence of himself, Soludo testified before the House of Representatives Committee on Banking and Currency, where he explained that the process for setting up the AFC started in January 2006 and that the final agreement was signed about 17 months later, after following all the legal processes. He further mentioned some of the projects to be carried out in Nigeria via the AFC: a $4 billion power project to add 3,600 mega watts of electricity to the national grid; construction of Ring Roads in Port Harcourt to the tune of about N700 million; construction of fourth Mainland Bridge in Lagos; and a coal fired plant in Kogi State.5 More recently, the AFC has invested as part of the equity financing deal for the $240 million African-led submarine Main-One Fibre Optical Cable System, which is expected to provide much needed telecommunications capacity in West Africa. While some have suggested that investing in the AFC was beyond Soludo’s remit as CBN governor, others have affirmed that the new CBN Act actually endowed him with such powers.6 Further, one commentator opined that there be no slavish attachment to specialisations and even called for Soludo’s intervention in the nation’s decaying university sector.7 Naira redenomination On 14 August 2007, the then CBN governor announced his intention to redenominate the Naira. He explained that he intended to restructure the entire currency by dropping two zeroes (i.e. moving two decimal points to the left) from the currency, and issuing more coin denominations. He said that the plan would entail a total currency exchange and phasing-out of all the existing denominations from 1 August 2008. At the exchange rate of the time, the policy, if implemented, would have meant that the Naira/US dollar exchange rate would be around N1.25 to US$1 then.8 Some feared that redenomination would result in higher inflation, as a result of vendors deciding to increase prices before consumers had the opportunity to adjust to the new rates. However, redenomination took place in Ghana relatively recently, where there did not appear to have been any great impact on prices.9 In any event, the current state of the Naira was initiated initially with the devaluation of the currency as part of the Structural Adjustment Programe (SAP) under the regime of General Ibrahim Babangida. Given the woeful failure of SAP as a developmental tool (or its incredible success as a destabilising and poverty-creating tool), there can be no objective policy aim to be served by not redenominating the Naira at some point in the future. However, the new CBN governor, Sanusi, appeared to have indicated his opposition to redenomination. It is hoped that, in the near future, and once the worst of the financial crisis is over, he would strongly reconsider whether or not redenomination is desirable in light of the state of the Nigerian ecnonomy at that time. Conclusion In hindsight, it has been said time and time again that the consolidation exercise saved Nigeria’s banks following the onset of the global financial crisis which began in late 2007 – one they have been able to withstand and survive admirably. The new CBN governor has himself commended his predecessor for fiscal decisions taken to strenghten the naira and the temporary foreign exchange measures vis-à-vis the US dollar in the midst of the global crisis. For these and many other reasons as elucidated above, a sound argument could be made for the retention of Soludo by giving him a second term in office. But that was a decision for the president to make and he has indeed made his choice, one that we must all respect. Given the finiteness of all things, and the need for periodic renewal of ideas, the term of Chukwuma Soludo has come indeed to an end. Given the furore over Soludo, since 2008 in particular, it was perhaps inevitable that his days at the helm of the CBN were numbered. It is quite possible that Yar’Adua had made up his mind at the time of the AFC and naira redenomination controversies that he would replace Soludo. Perhaps, Yar’Adua, at the same time, appreciated the risks that were inherent in unceremoniously removing Soludo from office. It is probable, therefore, that he decided not to terminate Soludo’s contract of employment early as some had called for,10 and instead chose to let him leave with richly-deserved dignity after completing his full term in office. A new governor, a banking risk management expert, and former Group Managing Director of First Bank Nigeria Plc, Mr Lamido Sanusi has taken over the baton of directing the very important task of rebuilding the country’s economy. It is one’s wish that he should be given the freedom and political support to help steer Nigeria into the higher echelons of global economic power. On a final note, the impact of Soludo on the Nigerian economic landscape is hard to exaggerate. An extract from Yar’Adua’s letter of commendation to Soludo stated: “I am confident that your worthy antecedents in the CBN and in prior appointments in the service of our nation remain sources of inspiration to an entire generation.” Yes, history will remember Soludo as having been an awesome inspiration to this generation. For better or worse, he has engraved his name boldly in the history of Nigeria and has helped shape the foundations of an economy that, if managed properly, has all of the hallmarks of becoming one of the world’s largest. The author is an expert in financial law and regulation. He writes from London, UK.
|
||||||||||||||||||||||||||||||||||||
# 
Your Comments
Please make The Square an enjoyable experience for everyone by refraining from gratuitous ad-hominem contributions, defamatory comments and off-topic posting. Such posts will be removed.