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Why Soludo Is Wrong On Buhari’s Economic Policy By Odilim Enwegbara

December 2, 2015

The former CBN governor Chukwuma Charles Soludo has done it again. He has accused the Buhari administration of not having a clear economic direction.

The former CBN governor Chukwuma Charles Soludo has done it again. He has accused the Buhari administration of not having a clear economic direction.


Mr. Soludo, we all know, is obsessed with attention-seeking and saying fictitious things he from time to time labels as economics. Once he feels he has not received enough attention or has been forgotten by the media, he explodes; he just says anything, indeed anything so long as it draws enough public attention to him. Little wonder, he always says that he enjoys talking from the comfort of his ‘expensive’ balcony. Well, yes, Mr. Soludo, no doubt is entitled to his personal opinion. But is he equally entitled to his own facts? Of course, that is where the line should be drawn.  

But before we go into the subject matter, a quick rundown on how Mr. Soludo ran the CBN from 2004-2009 is important to give us a clear picture of where he’s coming from. In particular, we should examine how he ran the apex bank as though an academic institution with textbook theories gussied up within the fanciful precincts of mathematical equations. Agreeing with his idealized neoliberal monetarist specifications and lax banking regulations, bankers became ‘banksters,’ who were assured of getting away with their fraudulent schemes as long as they did so while massaging Mr. Soludo’s huge ego.

As a result of his Las Vegas kind of casino banking consolidation, banks dishonestly searched for quick and easy funds in full violation of most banking and financial laws of the land. The most violated became Article 15 (e) and section 32 of the Investment and Security Act (ISA). Millions of unsuspecting Nigerian investors became the victims of banksters who lured them into buying overvalued bank stocks thanks to insider trading. As a result, the life savings and pensions, worth N2.5 trillion, of these Nigerians were pocketed by these so-called bankers.

In fact, under Mr. Soludo’s watch, Intercontinental Bank fraudulently purchased over 30% of its share capital with depositors’ money. Afribank too used depositors’ funds to illegally purchase 80% of its IPO. Unbelievably too, through special purpose vehicles (SPVs), Cecilia Ibru illegally used depositors’ money to buy her 35% ownership of Oceanic Bank’s shares.  

While the banking and financial sector were literally on fire, Mr. Soludo shocked the entire world, when he announced in 2008 his bizarre naira redenomination policy — a year to the end of his tenure. Mr. Soludo saw himself above the law the land, simply because he fought and won his CBN full independence as if a sovereign entity thanks to the 2007 CBN Act. But rather than patriotism, it was the $40bn he hoped to spend in printing a new set of naira notes that drove him. Saving the country from another of Mr. Soludo’s wild projects, not only did President Yar’Adua call him to order, he quickly canceled this mind-boggling project.  

To clean up the five years mess caused by Mr. Soludo, Sanusi Lamido Sanusi had to inject a whopping N620 billion of taxpayers money to bailout the banks now mostly in a coma. Also, AMCON had to spend close to N4 trillion taxpayers money purchasing banks’ nonperforming loans and the entire financial sector’s toxic assets, mostly resulting from the Soludo-led Ponzi scheme. Because Mr. Soludo walked away from all the mess caused by his neoliberal textbook central banking, he seems to be enjoying his freedom of free speech, including turning facts upside-down.

In his recent outburst, he claimed that PDP during the last 16 years more than doubled the country’s GDP. The growth which he alleged was led by the non-oil sectors grew the economy by 6%-7% annually. But if PDP-led this so-called stellar performance, how is it  Mr. Soludo has been insisting that during the past 16 years the Party ran down the country’s economy? In fact, last March he accused the Jonathan-led PDP of having so mismanaged the economy that N30 trillion was diverted in last four years alone. Why had these contradictions? Why is Mr. Soludo always speaking from both sides of his mouth? As an economist, is Mr. Soludo saying that a country that earned over $500 billion from oil sales alone between May 29, 1999, and May 29, 2015, shouldn’t have easily grown its GDP to $573 billion?

Besides his silence on the so-called non-oil sectors that he argued doubled the GDP, what is worrisome is that this economist does not know that what it takes to move a $275 billion GDP to $550 billion (doubling it) in 16 years is far less impressive than what it takes to move $550 billion GDP to $1.1trillion (doubling it) in the next 16 years.

Besides, in this his GDP doubling thesis, shouldn’t there be some measurable government-led investments in the country’s infrastructure expansion and modernization, a number of jobs created and the number of Nigerians lifted out of poverty during the said 16 years? Even if it’s all about quantitative GDP growth, without possible trickle-down effect, at least the so-called non-oil sectors that drove the growth would have been conspicuous enough.   

How should this so-called non-oil-led economic growth have happened in the economy without the power sector or the road infrastructure witnessing some tangible improvement? Did the GDP witness this growth while our schools and hospitals are today in such a sorry state where millions of Nigerians now troop abroad in search of a better education and healthcare? How did PDP double the GDP without attempting to fix the country’s refineries and agriculture to the extent that during the same period we spent trillions of naira importing petroleum products along with trillions of naira importing food?

Mr. Soludo’s insistence on industrialization as key to country’s development and job creation as good as it sounds truly said nothing new. What would have been news is offering a set of policy strategies to jumpstart the industrialization. Instead, he resorted to impressive grammar speaking as if in a university class.

If Mr. Soludo is aware that without drastically reducing the country’s over $350 billion infrastructure deficit, which has continued to make cost of doing business in Nigeria among the highest in the world, he should have appreciated the ongoing efforts of this government to massively invest in reducing the current infrastructure gap, starting with doubling the country’s budget from N4 trillion in 2015 to N8 trillion in 2016. Or should he expect any meaningful industrialization when cheaper imports continue to make manufacturing the same goods in Nigeria more expensive?

Instead of appreciating the government’s ongoing monetary policy overhaul, including the closure of domiciliary accounts and the rationing of forex so that only critical industrial and economic value adding inputs get forex officially, along with the ongoing efforts to cheapen the cost of money in the country by reducing the monetary policy rates, Mr.Soludo seems to prefer his usual shooting in the air. For instance, why after adding to the further flogging the already over-flogged exchange rate policy which he called ‘tried and failed de facto fixed exchange rate,’ did Mr. Soludo not propose a practical way forward?

One would have expected that as a former CBN governor he should have suggested that rather than a list of imports to be barred from official forex window, for the judicious and prudent deployment of the country’s increasingly scarce forex, government should have itemized those imports to officially access forex, items not only add high value and jobs to the economy but also are essentially economic diversification and industrialization drivers. This would have meant that while unlisted items unofficially sourcing their forex at whatever rates, their importers should also be warned of their readiness to be subjected to customs’ forex legitimacy tests, with Nigerian customs deciding if they should be allowed into the country or be seized on the basis of importing with illicit forex.

His argument against the closure of domiciliary accounts is surprising because Mr. Soludo cannot tell us which country other than Nigeria allows domiciliary accounts.  But how could a former central bank chief insist on the legality of domiciliary accounts, forgetting how as idle accounts banks could neither lend the dollars in such accounts nor charge COT simply because these are contrary to the principles of fractional reserve banking? That is why qualifying it as, “de facto scrapping of domiciliary accounts established by law,” Mr. Soludo insinuates that he can legally operate a naira account outside Nigeria, a pound sterling account outside Britain, or a dollar account outside the US, etc. Is Mr. Soludo unaware that domiciliary accounts have been causing high economic dollarization in Nigeria, that Nigerians and foreigners have been using domiciliary accounts to engage in money laundering and illicit capital flight, and that by doing so they were putting undue pressure on Nigeria’s scarce foreign reserve accounts?  

After congratulating the president on his successful implementation of TSA, he turns around to oppose the same TSA policy. Maybe Mr. Soludo is unaware that TSA has been in existence in Nigeria since 1954, before independence, and was only abandoned by Gowon during the civil war; that even the 1999 constitution and the Fiscal Responsibility Act of 2007 insisted on government’s treasury single account.

That Mr. Soludo is against government’s money being kept in government’s bank makes one wonder which country in the world that allows its public money be kept in private banks, banks that could go bankrupt anytime! Or is Mr. Soludo comfortable with government borrowing at as high as 13% its own money kept in private banks at zero interest rate?

Doesn’t Mr. Soludo recognize that watching him continue to advise this government to follow the failed neoliberal economic pathway as the way to grow our economy, only makes Nigerians see him as an economic hit man the same way they see neoliberals like Okonjo-Iweala as economic hit women? By stating that the ‘former socialist/communist regimes of China and Russia are making tremendous progress on the move to competitive market economies [and also] fast learners…trying to beat everyone [in] the ‘game,’ makes one to wonder if at all he understands that China from onset never practiced shareholder/laissez-faire capitalism, not to mention practicing neoliberal economy.

One thing that is clear is that China, since 1979, practiced state-guided economic development, otherwise known as socialist market capitalism/communitarian capitalism or simply sinonomics. Little wonder during the last 35 years China’s provincial economy has grown averagely at 8% to have become the world’s second largest economy, and expectedly the world’s largest economy before 2025.

In fact, unlike western shareholder/laissez faire capitalism, an economic system built purely on short-term profit maximization, Chinese socialist market capitalist system by always emphasizing overall national prosperity and job-creation is an organic economic system ensuring government’s fiscal and monetary policy socialist coordination. Here, the People’s Bank of China (China’s central bank), fully controlled by the central government, working together with core commercial banks also controlled by the central government, always channells investments not to where they are needed for long-term economic growth, job creation, and infrastructure growth.

It is not surprising then, that the Chinese economy emerged from the 2008 global financial crisis with a 42.2% growth rate. The Buhari administration would be committing a fatal economic suicide should it ever listen to neoliberal economists like Mr Soludo whose intentions for insisting on the neoliberal economic pathway are not different from what western economic hit multilateral organizations like the International Monetary Fund, World Trade Organization, Bank for International Settlement, and the World Bank, have always suggested if not imposed on countries like Nigeria.   

That Mr. Soludo should disagree with this government’s efforts to promote agriculture on the ground of calling it “primary commodity” and as a result “won’t deliver much in terms of jobs over the medium term” makes one wonder if Mr. Soludo is practicing 20th century economics because as far back as the early 1970s, western economies recognized agriculture and food supply as the 21st century’s game changer. In fact, it was in full recognition of this that in 1975 the then US National Security Adviser, Henry Kissinger rolled out America’s strategic national policy on agriculture and food in his secret national security memo — the NSSM200 — in which Kissinger warned that those who controlled oil in the 20th century only controlled nations around the world but those who will control food in the 21st century will definitely control the entire people of the world.

Mr. Soludo’s failure to understand the critical role agriculture is already playing this century and has always played in every country’s industrialization explains his calling it a mere commodity that hardly creates jobs. First, there’s no nation that has ever achieved sustainable industrialization without first fully developing its agriculture. Second, there’s no way agriculture from mere peasant farming to agribusiness — including food processing, packaging, storage, transportation/logistics, distribution, and marketing — with a $5 trillion annual turnover and millions of jobs created annually, not to mention its huge contributions to the pharmaceutical and drug and energy sectors can be called a mere commodity.

Let’s commend President Buhari for avoiding the same fatal mistake made by his predecessors — Jonathan, Yar’Adua, and Obasanjo — who filling their cabinets with neoliberal and textbook economists like Okonjo-Iweala and Soludo were unable to move the country in the right economic direction. Buhari’s boldness in surrounding himself with gifted commonsense men and women means that Nigeria too will soon begin to witness marvelous economic transformation and industrialization.

Odilim Enwegbara is a development economist writes from Abuja