Economic Meltdown in Nigeria: Without Toxic Assets?

Written by Paul I. Adujie

New York, United States

The world partied during the years of global economic boom and Nigeria did not join or was not invited; now, we are told that Nigeria is engaged in the heavy-lifting of cleaning-up the global meltdown? First of all, the multiple variables of the global economic boom and burst did not apply to Nigeria’s situation and circumstances and the bills which arose from a mostly western world splurge, should not affect Nigeria now.

Nigeria’s economy is insular, isolate and therefore insulated. How so? Why? When crude oil sold for more than $100 per barrel cost of transportation went up in Nigeria, even though we produce petroleum, and Nigerians did not fare any better, oil is now slightly above $70 a barrel, the price of plantain and a loaf of bread remained the same, high. Nigeria’s public infrastructures still decrepit worst.

 If the world’s economic players were students in a class, Nigeria was absent from that class, how then can an absentee student be punished alongside or with other students who were actually engaged in the noisy unruly disruptive behavior, (securitization of mortgages, toxic assets)Nigeria was not the class at all!

If the world’s economic players were drivers being sanctioned for over-speeding, Nigeria abandoned her car at home and so, no sanctions for over-speeding would apply to Nigeria in this instance; Nigeria did not partake in the drinking, how come then, we are being told that Nigeria will suffer massive hangover over other peoples’ drunkenness?

The current global economic meltdown was precipitated by over-leveraging and over securitization of mortgage instruments, principally in America. These leverages and over-securitizations were snapped up by banks, investment houses and sundry financial institutions in Europe and Asia. Not Nigeria.

Singapore for instance, is a known hub of financial and business transactions, among others, a major mid-shipping point. It is understandable that Singapore will feel the impact of the lull in shipping and other global transactions usually routed through Singapore.

China is a major manufacturer and exporter of goods to the world, it therefore logical for China to feel the pangs of the global slowdown in demand, as economies are recession globally

India has publicly stated that the effects of the global economic meltdown will be mild or tepid because she does not export a lot and besides, India more than Nigeria is a recipient of foreign direct investment

Conversely, the economy of Nigeria is managed fitfully, if at all, and in an ad hoc manner. Nigeria’s economy might as well be on another planet! Nigeria’s economy is not dependent on manufacturing and it similarly does not have an export base.

Legitimate questions may then be asked, including the following; How many banks, investments houses and other financial institutions in Nigeria invested or purchased securitized mortgages? How many Nigerian individuals were participants in the global gluttony which transpired during the last decade in America, Europe or Asia?

How many banks in Nigeria actually practice mortgage banking in sizeable quantity? Nigerian banks unlike their American counterparts, do not invest sufficiently in housing or student loans for education, why should Nigerian banks suffer from a shock that may arise from investment specialty not practiced be Nigerian banks and from which Nigerian individuals do not and have not derived benefits?

How many mortgages did Nigerian banks write in the preceding ten years? How many student loans?

Nigerian banks for the most part, specialize in buying and selling the dollar! Hence they make huge profits year after year, while they have no investment in mortgages, no investment in agriculture, commerce or industry, and or student loans. Nigerian banks for decades, have not invested in the productive sectors of the Nigerian economy; they specialize in speculation on the daily fluctuations of Naira against the dollar! This ensures the impossibility of Naira dollar parity during the past twenty years!

It is also common knowledge that there were no influx and infusion of sizeable foreign direct investment, outside of the much vaunted GSM telephony. In view of these evidences, what then will be foreign direct investments leaving Nigeria or what foreign direct investment will drying up? None! We never had them in the first place!

The Nigerian Stock Exchange is not known to be a global player. In fact, it might just be safe to say, that the NSE is not known at all, globally. The Nigerian economy is and has been in isolation. The value of the Naira, our national currency, has been in downward spiral since September, 1986.

It is not an overstatement to say that the Nigerian economy and economic “managers” do not respond to usual economic factors, parameters and indices. It is therefore a complete surprise to learn that an isolated economy is reacting to, and is affected by the topsy-turvy of modern economies.

Nigeria is not a major export of anything other than crude oil petroleum. Nigeria is not a manufacturer of anything. Other economies are affected by low demands for their manufactured goods and their exports. None of these are applicable to our monolithic crude oil based economy! Why then should Nigerians gird for the cataclysmic effect of a global economic meltdown?

There were, already in Nigeria, hyperinflation and high rate of unemployment. There were already slowed pace construction of new public infrastructures or a nonexistent of expansion or rehabilitations of old ones. Our national car, metaphorically speaking, was already in the parking lot. We were not on the road driving like everyone else. Speeding! How can we join those who have been driving and who are now out of gas? As it is, it is the case that Nigerians and Nigeria did not participate in the boom, in the pleasure of the drive while it lasted!

How is it then that, when others now complain of the fatigue of their overdrive, we too are complaining? We never left the garage or parking lot with our car, let alone to have engaged in overdrive and it’s after effects! How is it possible for Nigeria to be seeking treatment for the securitization virus, when Nigeria was never infected in the first place?

Nigeria of course operates within the global market and financial system. It is understandable to expect some shocks and after shocks from the global meltdown, reverberating in Nigeria. But we are not manufacturers facing low demand for our products from overseas consumers. And Nigeria is not an exporter which faces low export volume due to lowered consumer confidences in a downturn.

Why the talk in Nigeria about the likelihood of a severe economic meltdown? Economic meltdown in Nigeria as a result of what Pension Plans or Health Insurance or Mortgage and overvalued housing market, from what bad investments or toxic assets anyway?

The ostentatious talk of economic meltdown in Nigeria is just galling. I am quite astonished!

What investment portfolios and financial instruments were Nigerians holding in millions of dollars that could translate into this smorgasbord of financial ruin for individuals and institutions in Nigeria? Nigerians were not known for instance to be invested with Bernard L. Madoff, imagine now, that American investors who were duped now complaining, and a Nigerian millionaire joins them to moan the fraud of Madoff on him? Wouldn’t everyone be aghast?

If Nigerians and the Nigerian economy have been furnace-hot, I was oblivious! And the Nigerian economy now suffers hypothermia? How can there be a reversal of fortunes, if you never had fortunes?

Nigeria maintains a foreign reserve, managed by banks or financial institutions which are not in bankruptcy as at the time of writing this. What exactly seem to be the problems of those glib talkers? America has assured the Chinese government that their monies in America are safe. How are Nigeria’s monies in American banks similar or different from the China’?

Why therefore are Nigeria political charlatans-leaders and heads of banking and financial institutions claiming benefits or losses when they were no players or mere infinitesimal players or when they were not market participants at all? Why are they selling their glaring inefficiencies and ineffectiveness so loudly?

All, in order to appear concerned; (oh yeah, moving Nigeria forward)! While pretending, that they are feeling the pains like the rest of the world? This is probably another excuse to loot, plunder and pillage our patrimony off of the treasury, and then, blame the global meltdown?

Robot  # 1 | 03.07.2009 07:08

Economic Meltdown in Nigeria: Without Toxic Assets? Written by Paul I. Adujie New York, United States The world partied during the years of global economic boom and Nigeria did not join or was not invited; now, we are told that Nigeria is engaged in the heavy-lifting of cleaning-up the global meltdown? First of all, the multiple variables of the global economic boom and burst did not apply to Nigeria’s situation and circumstances and the bills which arose from a mostly western world splurge, should not affect Nigeria now. Nigeria’s economy is insular, isolate and therefore insulated. How so? Why? When crude oil sold for more than $100 per barrel cost of transportation went up in Nigeria, even though we produce petroleum, and Nigerians did not fare any better, oil is now slightly above $70 a barrel, the price of plantain and a loaf of bread remained the same, high. Nigeria’s public infrastructures still decrepit worst. If the wo...Read the full article.

Suleimana  # 2 | 04.07.2009 14:43

Sir, There was another party-one not widely spoken about. I will tell you the story of this party but due to time constraints, I will not be able to provide the data to support my points. When the decision to recapitalize our banks was made in 2004, there was a scramble. As you might expect, people did not have a trillion Naira under their mattresses but somehow they brought it out. Twice! If you are wondering who provided the famous trillion in new capital, the answer is 'nobody'. Think about it- where did the capital come from? Ok. I will let you in. First, we asked our customers to invest (the famous dancing on the street with tee shirts). They took their deposit from BANKS, filled a form and gave it back to BANKS. Magic number one (convert deposit to equity). Secondly we met our politicians and asked them to invest. Some took out of their stash abroad and sent it home - magic number two. Thirdly, we asked foreign investors (private equity, venture capital etc) to buy our dreams and some did-magic ingredient number three When we counted our cash and found that we were short- far off the professor's mark. We met people who had no money to invest and did abracadabra. This involves creating money by lending to them to invest in our shares (when your license is at risk, you become creative). Magic number four. How does this translate into a melt down? With your new capital, you set out to fund the famous developmental projects (Transcorp, Tinapa and virgin Nigeria are examples). Nigerian banks were desperate to lend in line with their newfound status as world-class banks. Many of them made global top 1000 by capital. To service this capital, they had to take risk-plenty of risks. Add this new appetite to the challenge of growing your network across the country, across many jurisdictions and many new businesses and you find yourself stretched(people went from managing N1billion to N100billion). After that, we went into a 'drinking binge' with our lending to the stockbrokers. We created billionaires by the dozens as people whose knowledge of the economy barely existed betted a trillion Naira of bank's money. Our dear Ndidi went all over the world to tell people about NSE-the best performing exchange in the world. A certain financial institution traded at 15 times its book value! And then the bubble. Among the first people to smell the coffee were the portfolio investors who did their numbers and figured that the companies could not service their market capitalization. Besides, falling oil price meant inevitable devaluation and so they started to sell. As they sold, the market collapsed and money that was waged by the super brokers become- almost nothing. As they also bought dollars and ran, our currency devalued and panic set it. Between November 2008 and February 2009, a whooping $10billion was repatriated out. This, amongst other things, led to withdrawal of N1.4trillion from the banking sector (as investors bought dollars, they paid CBN Naira) and precipitated a liquidity crisis. As 'smart' bankers, many of these activities were smartly reported and the profits continued to be declared. Sir, it is this party that is responsible for our toxic asset. I forgot to mention that the new global Nigerian banks also took to financing importation of diesel to fuel our comatose industries and our dreadful existence. When oil prices crashed, they found themselves proud owners of tank farms with $140 based fuel when market had settled at sub $50. Now, that is toxic. When you buy a trillion Naira worth of stocks and suddenly it is worth a quarter, you have toxic asset. When you bet that oil will go to $200 dollars and it opted for $40, you have toxic assets. When you lend money to people to buy your shares and the prices drops to a fifth, the loan becomes toxic. As with everything Nigerian, not everybody went crazy. Most of the banks did good business and kept their cool. The craze to be biggest (as represented by the second round of capitalization-which was a response to Profs decision to allow only banks with $1billion in capital to manage Nigeria’s reserves) spelt the beginning of this crisis. What is the size of the balance sheet of Nigeria? Why should a single bank have $10billion in balance sheet size to be considered worthy? Anyway, big meant speedy growth and nothing bubbles like that. It is time we deflate quietly and maybe blame the noise on our neighbors’ party.