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Soludo’s reforms and the corporatization of Nigeria

November 25, 2009

When Professor Charles Chukwumah Soludo became Governor of the Central Bank of Nigeria, CBN, the general perception was that another Mohammed Ali of Egypt and Emperor Menelik of Ethiopia or Henrique Cardoso of Brazil had come to reform the ailing economy. In his maiden address in 2004,  Soludo  announced a 13 point reforms program for the Nigerian Banks.

The primary objective of the reforms was to guarantee an efficient and sound financial system. There was need to reposition the banking system with a view to developing the requisite flexibility to support the economic development of the nation. The reforms sought to ensure a diversified, strong and reliable banking industry where there would be safety of depositors’ money; so that banks can play active developmental roles in the Nigerian economy.

The key elements of the 13-point reform programme of Central Bank include:

•    Minimum capital base of N25billion with a deadline of 31st December, 2005
•    Consolidation of banking institution through mergers and acquisition;
•    Phased withdrawal of public sectors funds from banks, beginning from July 2004;
•    Adoption of a risk-focused and rule based regulatory framework;
•    Zero tolerance for weak corporate governance, misconduct and lack of transparency.
•    Accelerated completion of the Electronic Financial Analysis Surveillance System (e-FASS).
•    The establishment of an Assert Management Company.
•    Promotion of the enforcement of dormant laws.
•    Revision and updating of relevant laws.
•    Closer collaboration with the EFCC and the establishment of the Financial Intelligence Unit.

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Of all reforms agenda the issue if increasing stakeholders fund to N25 billion generated so much controversy especially among the stakeholders and the need to comply before 31st December 2005. Most people have expressed concern that the recapitalization has not resulted in a significant improvement in banking service delivery. While poverty eradication is one of the Millennium Development Goals (MDGs), the poverty index has worsened since the recapitalization exercise. More so, those who were laid off were not absorbed in the consolidated banks and this increased the unemployment index.

Revelations from the CBN banking sector reforms point to the fact that some commercial banks engage in unwholesome financial practices such as granting of loans without collateral security, over-budgeting, and other sharp practices such as money laundering for big businesses and politicians. Some of these ills are perpetrated with the profit motive in mind and these unethical practices negate the rules and regulations of the banking.

In spite of these unwholesome practices notwithstanding, commercial bank rating and claims of excellence by Nigerian banks has been commonplace. How could they have done these without the connivance of the CBN Governor?. Professor Chukwuma Soludo deregulated bank rating by using strange, discrete parameters and liberalized money laundering. Ideally, bank rating is to provide an opinion on the relative inherent quality of the Equity Instrument contemplated to be issued at public offer. The rating opinion is reflected by the earnings prospects, risk and financial strength, associated with the specific bank.

He assumed office as the CBN Chief and rolled out seemingly innovation action programmes, the most prominent being the banking sector reforms, privatization of government enterprises and other IMF – inspired policies ostensibly designed to reposition the tottering economy. First he hurriedly closed down most banks by raising the liquidity ratio and in one fell swoop, 64 banks submarined. Secondly he advised ex-president Obasanjo to privatize most of the government owned enterprises and a huge chunk of them were sold to their fronts and cronies. Thirdly he convinced Aso Rock of the wretched re-denominating policy and minted new currencies making Nigerian believe that the devil holding back the economy was the colour and denomination of the Naira.

Through the privatization spree, the CBN technocrats only re-stated the Marxist thesis that the bourgeois class has the tendency of concentrating, centralizing and over-accumulating capital, which is the underlying principle of imperialism. The Nigerian economy has been harassed by double-digit inflation, capacity under-utilization and unstable economic climate. Most companies that operated in Nigeria had wound-up because of the inclement business weather compounded by lack of basic infrastructure such as good roads, an efficient transport system and power supply.

The first phase of the reform agenda was the privatization exercise, which was fraught with incurably acute obstacles. The Ex-Vice-President Atiku Abubakar used the exercise to transfer the ownership of many public corporations into private hands, mostly his cronies. Those who are familiar with the stories surrounding African Petroleum, the PTDF imbroglio, the Pentascope saga and many such outfits will agree that privatization in Nigeria was a monumental failure. Rather than adopt a gradual approach, the wholesale handing over of gigantic public corporations to very few mindless, super-rich capitalists helped to further widen the gap between the rich and the poor. Thus privatization only compounded the problems of the poor and increased their misery index.
Even the Nigerian Police took advantage of the privatization exercise. The Inspector General then was so uncontrollably irked by this brazen corruption, and since the police have no tangible asset to privatize, they privatized the highways, intimidated media houses, killed opposition politicians for money and corporatized corruption in the establishment (For the avoidance of doubt, ask Uncle Tafa  Balogun, and Enhindero and later Mike Okiro. The incumbent may travel the same road.)

Soludo’s tenure was fraught with deception. Soludo told Nigerians that there were excess foreign reserves to shore-up the economy in the event of any crisis. Yet Soludo never formulated any macro-economic policies to diversify the economy hence Foreign Direct Investment (FDI) in the economy was shrinking while the CBN Chief was basking in the euphoria of his reforms.

The unpardonable “sin” Professor Soludo perpetrated against Nigeria is the manufacturing of figures based on guestimates or outright falsehood that inflating rate was single digit even when the ordinary market woman who buys tomatoes knows that inflation was spiraling. At the wake of the global economic meltdown, Soludo also assured Nigerian that the impact of the tumble- down would not be severe on the nation, but just before he gave that eloquent speech at the hallowed chambers, Peugeot Automobile Nigeria (PAN) had laid off about 600 workers, Cadbury also laid of about 335 staff and since then most parastatals, even the so called consolidated banks” have started to downsize. Sadly amidst these sordid realities, the CBN Governor was still trumpeting that the Nigerians economy was growing at a supersonic speed. When there is economic growth, there are visible indicators such as reduced inflation, the propensity of workers to save because they earn living wages, stability of the exchange rate of the currency, job creation and industrialization to mention just a few. None of these has happened since Soludo introduced the so-called reforms.

On the re-denomination propaganda, Soludo’s argued that the economic benefits for re-denomination of the Naira to include: making pricing more efficient such that under the new regime one kobo will have relative value; cultivating the habit of using coins and reinforcing the on-going currency reforms and the promoting more efficient payment system such as making ATM part of our payment culture and decongesting banking halls. Others are reducing the risks associated with carrying out physical cash as we eliminate the large denominations with very little value; discouraging currency substitution and addressing the perception that the domestic currency is weak. He also posited that the new Naira will have relatively high value and coins will dominate transactions.

Nigerians now know that all these arguments are a wretched falsity. Soludo still advanced the stale, sterile argument that re-denomination of the currency would make Nigeria realize the aspirations to become the financial hub of Africa. It is a known fact that all the 25 big banks put together are not up to the 4th largest bank in South Africa. How is that possible?

Elementary economics teaches us that it is not the denomination of a currency that makes pricing efficient; rather price is a function of the interaction between demand and supply. The second argument that cultivating the habit of using coins and reinforcing the on-going currency reforms is baseless as there is no correlation between the use of coins and economic development. Soludo’s argument that reducing the risks associated with carrying physical cash and the introduction of a coin economy will even aggravate the carrying of physical cash. It is difficult to fathom the ambivalence of the CBN chief. A coin-dominated economy will not engineer economic growth at all; it’s a giant leap backwards to the Stone Age civilization. If one may ask, how many Nigerians are using Soludo’s coins? Even the banks abhor the use of coins. Therefore, on this parameter, Soludonomics is a weeping failure. Making a Governor out of such a man would be wonderful because scores of reforms will be implemented until such a State walks into a slippery slope of failure.

Soludo is the “generalissimo” of the home grown economic strategy called New Economic Empowerment Development Strategy (NEEDS). While the objectives in NEEDS 1 have not transcended the levels of wild contemplating, the CBN technocrats crafted NEEDS 2. The resources invested in NEEDS 1 and 2 could have floated some industries to employ some persons to alleviate poverty. What is even most irksome is that in the full glare of these promises the exchange rate of the Naira has plummeted, our foreign reserves depleted and government has resorted to taking more and more loans.

Nigeria is a failed State her economic adversities are a product of high-level dynamic enterprise that cannot be manipulated by prophet or pseudo- technocrats. Only war economies run by failed state that operate a “war economy” become a huge segment of the 140 millions people has been disempowered. There is also a legal vacuum and this has forced many Nigerians to adopt coping strategies of survival of the fittest. It is illicit businesses that thrive because law and order are not enforceable in our land (apologies to the apostles of the rule of law).

One unedifying quality that makes Professor Soludo eligible for immediate resignation is that sustainable economic development does not thrive on prophesies predictions and outright lies. A very important higher law in governance and management is the ability of the role incumbent to, at all times, give a true picture of what is happening. Even Adolf Hitler - the scion of the Third Reich did not hesitate to tell the Germans that they were to face extra-ordinary hardship hence he enjoined every German to protect the Third Reich by any means necessary. Obama’s America did not hide the economic adversities Americans are facing today because of eight years of Bush’s misrule and excessive war funding in Iraq and Afghanistan. On the contrary Prof. Soludo has blatantly refused to show Nigerians the true picture of the economy. Nigerians are now gaining from Sanusi Lamido what they lost in Soludo, and that is the beauty of changing leadership batons.

If the reforms are working would the World Bank have listed Nigeria as a fragile State along with Burundi, Cambodia Comoros Congo Democratic Republic Guinea Bissau and Kosovo?. Why is Soludo propagating the “catechism” that Nigeria, which occupies the 154th position, will jump to rank the 20th greatest economy in the world come 2020? Would that be a miracle? Soludo packaged the reforms to sound like gbogbolise, the famous Yoruba medicine that is believed to have the potency of curing every ailment. Sadly, in the course of implementing the reforms most of the transformers into vultures, feeding on the gangrenous carcass of the masses. This trick continued for as long as he remained as the CBN Czar.

Nigeria under Soludo has had an overdose of reforms and swallowed IMF prescribed pills yet the ailment seems to be worsening. I find it difficult to understand why Soludo has refused to explain the nuance of our pathetic situation that Nigeria economy does not fit into capitalism as conceptualized by Marx and Engel’s, or the Friedman neoliberal paradigm as far as the logic of development is concerned. The economy cannot respond to the surgical operation prescribed by the Keynesian model either because there is nowhere in the world where unfettered free market capitalism has thrived without the control.

Unemployment is on the rise, the economy remains a crude oil monoculture, hyperinflation, low capacity utilization and lack of basic infrastructure have all conspired to debase the economy. The misery index is not showing signs of abatement, the colony the disillusioned have expanded exponentially, so does the population trapped in anomie. It is becoming more and more risky to place the lives of 140 million people in the hands of an insincere reformer. 

If Professor Soludo were the Chancellor of the Exchequer, he would have been tried and jailed for gambling with the lives of 140 million people. Even Pinochet who first experimented neo-liberalism in Latin America worked in tandem with IMF prescriptions and restructured the Chilean economy according to neo-liberal economic orthodoxies.  In Nigeria Soludo’s reforms have only consolidated the existing patronage network – the same group that is feeding fat on government resources through the momenta of primitive accumulation.

At least the man angling for the coveted seat of Governor of Anambra State achieved three things. He made Nigerians to absorb the shock of hyperinflation through a well-orchestrated propaganda. He also gave technocratic backing to President OBJ to privatize the nation’s economy through the corporatization of Nigeria. This was achieved by handing over the commanding heights of the economy to the capitalist hawks. Soludo also succeeded in creating a false impression that the banking sector, which is the locomotive of the economy, was healthy. It was Sanusi’s ascendancy that showed the sincerity of his predecessor. Good governance at any level can only thrive on sincerity, but this virtue does not run in the veins of Soludo. With this pedigree, Soludo’s capacity and sincerity to govern Anambra State can better be imagined.

Idumange John (MNIM; CBA) is a University Lecturer and Activist

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