The Nation Newspaper

Tag: Economy

  • Taxation: The Swivel of the economy (1)

    In 1651, Thomas Hobbes during Britain’s Civil War, published a legal theory based on the ‘social contract’. According to him, prior the to social contract, man lived in a state of nature – man’s state of nature was one of a chaotic condition of constant fear and life in the state of nature was solitary, poor, nasty, brutish and short. To overcome these hardships, man entered into two agreements:

    • Pactum unionis
    • Pactum subjectionis

    Under the pact of unionis, men sought protection of their lives and properties. This resulted in the formation of a society where people undertook to respect each other and live in peace and harmony. With the second pact of subjectionis, people united together and pledged to obey an authority and surrendered the whole or part of their freedom and rights to an authority in exchange for a guarantee of protection of life, property, social amenities and to a certain extent, liberty. Thus, the authority of the government or the sovereign or sate came into being. This authority also includes making policies, one of which is the fiscal policy.

    Fiscal policy describes two actions by the government. The first is taxation- by levying taxes the government receives revenue from the populace. Taxation is a transfer of assets from the people to the government.The second action is government spending. This is in fulfilment of pactum subjectionis and may take the form of wages to government employees, social amenities, security, roads, free or discounted health care, education, transportation or electricity.When the government spends, it transfers assets from itself to the public. Since taxation and government spending represents reversed asset flows, it is nearly given that taxation is the swivel for a sustainable, efficient and effective economy.

     

    History and Principles of Taxation in Nigeria

    The history of taxation in Nigeria goes back to pre-colonial rule. There was a system of taxation in existence in the form of contribution of compulsory service, money, farm produce, goods and labour, which were essentially meant to support the various monarchies. Mainly, these taxes were levied in the form of ground rent, palm fruit tax, farm produce tax, cattle ownership tax, etc.

    The modern tax system in Nigeria was first introduced in the year 1904 by Lord Lugard as community tax in the then Northern Nigeria. He later made changes, which resulted, to the Native Revenue Ordinance of 1917 in Northern Nigeria. The ordinance was extended to the eastern part of Nigeria in 1929. During colonial rule, taxes were imposed on individuals and corporate entities through a series of promulgations by the colonial power. In 1940, two major legislations were passed; these were the Direct Taxation Ordinance No. 4 of 1940 and the Income Tax Ordinance No. 3 of 1940. The Direct Taxation Ordinance of 1940 applied to all citizens except those in Lagos Township. The Income Tax Ordinance No. 3 of 1940 applied to expatriates and to Nigerians living in Lagos.

    The Income Tax Ordinance was passed in 1943 repealing the 1940 Ordinance. The 1943 Ordinance together with the Direct Taxation (Amendment) Ordinance 1943 continued to apply until 1956. In 1956,the Eastern Region passed the Finance Law No. 1 of 1956. The basis of computation of tax provided in the Finance Law No. 1 of 1956 was basically the same as in the Ordinance of 1943. In 1956 tax allowances were provided for married taxpayers, and additional allowances for families with up to a maximum of three children. It also introduced the Pay-As-Your-Earn (PAYE) system of taxation. The Eastern Region Finance Law number 1 became operative in the region on April 1 1956, thus abrogatingthe application of Direct Taxation Ordinance in the Region. Another law was passed in 1962 repealing the 1956 Law. The Western Region departed from the Direct Taxation Ordinance by passing the Income Tax Law in 1957. The PAYE system was introduced in the region by the Income Tax (Amendment) Law 1961.

    To ensure uniformity in both the application and incidence of taxation on individuals throughout Nigeria, the Income Tax Management Act (ITMA) was enacted in 1961, thus repealing all previous laws applicable to individuals, and making the main provisions applicable to all individuals throughout Nigeria. In the same vein, the Companies Income Tax Act (CITA) of 1961 was also promulgated. Subsequently, ITMA 1961 was repealed and replaced by Personal Income Tax Act (PITA) 1993, which came into being through Decree No. 104 of 1993, while the CITA of 1961 was repealed by the enactment of the CITA of 1979. The tax Acts which went through series of amendments, reassessments and reviews, are now included in the Laws of the Federation of Nigeria, 2004. Thus, codifying them as PITA CAP P8 LFN 2004 and CITA CAP C21 LFN 2004.

    Principles of Taxation

    These are the rules, qualities, conditions, standards or yardsticks by which the quality of a tax system is measured and by which a good tax policy can be formulated. Adams Smith was noted to have been the first person to mention the principles of taxation, which he called the canons of taxation in his book “The Wealth of Nations” in 1776. Although Adams Smith mentioned only four principles, scholars that came after him made some generally accepted additions. Some of these principles include the following:

     

    Principle of Equity: This principle states that a good tax system should be as just as possible by ensuring that all persons who ought to pay the tax are covered by the tax and that each taxpayer pays exactly what is just and equitable considering his circumstance and ability. There are two types of equity i.e. vertical and horizontal equity. Vertical equity is the unequal treatment of taxable persons with varied taxable income. While horizontal equity is the equal treatment of taxpayers with the same taxable income.

    Principle of Economy: This principle states that the cost of collecting tax should not be too high so as to outweigh the benefits derivable from the imposition of tax. For example if it costs a government N9 million to collect tax revenue of N10million, the tax system is said to lack economy.

    Principle of Certainty: This principle states that the amount to collect as tax, the time of payment, the mode of payment and the place of payment must be made clear to the taxpayer, so that the taxpayer is not left at the whims and caprices of the tax authorities. In other words, the taxpayer should be fully informed about taxes to be able to arrive at a conclusion as to the amount of tax payable by him with reference to the provision of the tax law, as well as, to prevent him from being subjected to cheating by unscrupulous people and dishonest tax officials.

    Principle of Convenience: This principle states that tax should be imposed at a time, in a manner and at a place that the taxpayer is in position to pay, so that collection of tax would be easy for the tax administrators.  For example, a salary earner should be asked to pay tax when he receives his salary and not at the middle or the end of the month when the salary may have been exhausted.  This is why PAYE is deducted at source, because it is more convenient than requiring the taxpayer to pay after collection of salary. A farmer should be asked to pay tax when he harvests his crops and not when he is doing the planting or clearing the farm.

     

    Principle of Simplicity: This principle states that a good tax system and the tax law should be as simple as possible, both in interpretation and application. This requirement is particularly important in developing economies where the rate of illiteracy is high and where the culture of record keeping has not been imbibed by most small scale entrepreneurs.

     

    Principle of Neutrality: This principle states that a good tax system should neither distort the consumption habits nor the production decisions of a taxpayer. In other words, a good tax system should not interfere with people’s willingness to work, produce, consume, save and invest.

     

    Principle of Efficiency: This principle states that a good tax system should make it difficult for tax evasion (i.e. should make it difficult for non-payment of tax or illegal reduction of one’s tax liability).

     

    Principle of Flexibility: This principle states that a good tax system and tax law should be such that it can be easily amended when the need arises, without unnecessary protocol.

     

     

     

     

     

  • Transforming the economy: NEXIM bank example

    Transforming the economy: NEXIM bank example

    The President Goodluck Jonathan Transformation Agenda which has become a household name is intended to permeate a wide spectrum of the nation’s everyday life, ranging from housing, industry, energy, entertainment to the whole gamut of every facet of our social life. The present government is credited for the turnaround being experienced in many of the country’s productive sectors.

    “Perhaps, the Government of President Goodluck Jonathan has done more than previous Administrations to ensure that various Development Finance Institutions (DFIs) are empowered to effectively contribute to the national transformation agenda. The injection of billions of naira into the Bank of Industry, Nigerian Export-Import Bank, Bank of Agriculture and the Federal Mortgage Bank and others are pointers to this,” a policy analyst, Yusuf, said.

    Laudable as the Transformation Agenda may seem, it would have remained comatose and a mere wish-list without the requisite funding needed to translate it to reality. What is of note is that all of the benefits that the transformation programme advocates,, require huge financial outlay. Besides, the programme requires long-term sustainable funding which the commercial banks are not enabled to provide, given the short-term nature of their credit portfolio. The good news is- NEXIM Bank has risen to bridge the gaps.

    In no other sector is the role of NEXIM in driving the Transformation Agenda of the President Goodluck Ebele Jonathan administration’s agenda more pronounced than in encouraging the manufacturing, mining and the agric sectors in producing non-oil goods for export. This way, the volume of external trade is being gradually shifted away from crude oil (upon which the nation largely depends), to non-oil items that are abundant and widespread in the country, but which have largely suffered neglect due to a multiplicity of factors, chief of which is funding.

    The Managing Director/CEO, Nigerian Export-Import Bank, Robert Orya, is upbeat about the success so far recorded in the Jonathan Transformation Agenda of which NEXIM Bank has played a pivotal role.

    “It is evident that the important story of Nigeria’s advancement from where we are would not be told by earnings from our hydrocarbon reserves. Our success would be driven by a robust manufacturing industry; self-sufficiency in agriculture for food and processing so that excess yields could tap export markets; world-class service sector to serve domestic industries, global outsourcing and export markets, and commercial access to wider range of mineral deposits that dot every nook and cranny of our country,” Orya declared.

    It’s not for lack of ideas that the export of non-oil goods has remained at infancy, the problem, amongst others, has to do largely with the will and commitment to focus and redirect resources to the non-oil sectors and take cognitive action to actualize what is largely recognized as a cash cow.

    Although NEXIM was established to play this role, President Jonathan’s commitment to focus on these sectors in his bid to improve on the nation’s revenue profile, outside crude oil sales and determination to create employment for the nation’s educated and skilled vibrant youths, played a key role.

    “What the Administration of President Goodluck Jonathan has done, perhaps more than any previous regime, is combine commitment with practical actions in diversifying the Nigerian economy away from its sole reliance on crude oil for external revenue,” Orya said.

    The inhibitions standing in the way of operators in the identified sectors from accessing finance have to be addressed. NEXIM Bank, having identified the drawbacks, intervened to set the ball rolling in a manner that facilitated the delivery of the intended benefits of the programme. As the NEXIM Bank boss put it: “Development Finance Institutions are bearers of risks which commercial lenders would term excessive, and therefore avoid.”

    New industries, new initiatives, people without financial collaterals, projects which cannot pay commercial cost of finance, among others, have been beneficiaries of funding by Development Finance Institutions, such as NEXIM, Orya said, adding that “this way, business formation can continue, people can strive to innovate, bias against social and reputational collaterals are reduced, and projects can be incubated and nurtured to when they can attract lending from commercial banks.”

    He said that NEXIM Bank has risen to the challenge by assuming this critical role in Nigeria where banking penetration is less than 15 per cent of the population and where commercial lending rates are prohibitive, land titles are not even available to owner occupiers, but where innovators are born daily, and where we have to eradicate poverty.

    He said as a DFI, NEXIM Bank has to assume its natural function in driving the Transformation Agenda of the government, by supporting the export-prone sectors, increase foreign exchange earnings and create employment, so as to free government to focus on the provision and delivery of necessary infrastructural projects to aid implementation of programmes under the plan of structural transformation of the Nigerian economy that cannot be delivered by commercial lending.

    Loan Profile

    Orya, pointed out that NEXIM Bank is the official and sole Trade Policy Bank of the Federal Government, saying  in this regard, the bank provides financing, risk-bearing facilities, market information and value-added advisory services to businesses towards deepening export-oriented investments in the country’s non-oil sectors of manufacturing, agro-processing, solid minerals and services, for job creation and economic growth.

    He said the export-import bank has provided N12 billion in lending to Nigerian export manufacturers over the four-year period from August 2009 to April 2013, adding that it has funded agro-processing export businesses, to the tune of N6.6 billion over the same period.

    Against the Structural Adjustment Programme imposed by International Monetary Fund (IMF) in the ’80s which emphasizes the need to restructure the fabric of the Nigerian economy, what the GEJ Transformation Agenda has done, perhaps more than any previous regime, is to combine commitment with practical actions in diversifying the economy away from sole reliance on crude oil for external revenue. ” From the institutional viewpoint of Nexim Bank, I am excited at the prospects of playing a role in diversifying the Nigerian economy and harnessing the immense potentials of the sectors which had, hitherto, been neglected. Indeed, the role Nexim Bank is playing is unique as a development finance institution (DFI), “Orya stated.

    Accordingly, in the solid mineral sector, NEXIM Bank is working in partnership with industry stakeholders to take formal mining off the ground again, Orya said, adding that Nexim Bank has so far provided over N2 billion in early funding to help some commercial miners to develop their site in order to start operation and invite further funding from other sources apart from the long-term commitment of Nexim Bank to the nascent industry.

    In pursuit of its drive to impact on other segments of the economy as part of the Transformation Agenda, the bank has taken on the management of the Nigerian Creative and Entertainment Industry Stimulation Loan Scheme (NCEILS). The fund which is lent at below commercial rate is meant to fund businesses across the entertainment value-chain, including filming production, cinema operation, music recording, intellectual property development and recording studios, as a revolving fund with repayment terms.

    He said to date, Nexim Bank has disbursed over N1.4 billion for the Fund, adding that Entertainment industry project proposals under review exceed N5 billion in value. Overall, disbursements to the creative and entertainment industry, including the services sector is about N8.5 billion, covering support to transportation and hospitality industries.

     

    – Adegoroye is an Abuja- based policy analyst

  • Negative campaigns hurt the economy, says Uduaghan

    Delta State Governor Emmanuel Uduaghan has urged politicians to shun negative campaigns.

    The governor said the negative nature of the campaigns has begun to take its toll on the nation’s economy.

    He added that politicians needed to redirect the focus of the campaigns to save the nation from imminent breakdown of law and order.

    The governor spoke yesterday in Warri at a town hall meeting with professional groups and civil society organisations in the Delta Central and Delta South regions of the state.

    His words: “You will agree with me that what we are seeing now has never been seen before, the way the campaigns are heading now is very unpalatable. Campaigns ought to be about issues, but this year’s campaigns have not been so.

    “People like me and others believe the campaigns ought to be redirect. Whoever wins the election should celebrate and whoever loses should go back and wait for the next four years, which I believe is very short.

    “How can we be involved in such campaigns that turn you to life enemies? The campaigns now are so inciting that ethnic and religious views are against each other. The trend is very dangerous now and we believe it should be halted.”

    Uduaghan warned against driving Nigeria to the Rwandan situation.

     

     

     

     

     

     

  • NEXIM Bank: Transforming economy through non-oil exports’ funding

    NEXIM Bank: Transforming economy through non-oil exports’ funding

    Over the last four years, the Nigerian Export Import Bank, has taken a strategy role in helping to drive the Transformation Agenda of the government through funding of non-oil products for export, reports, SIMEON EBULU, Group Business Editor

    The future of the nation’s economy that has long been sustained by crude oil export, is gradually shifting away from the hydrocarbons to manufacturing, agriculture and the services’ sectors.

    Driving this shift, NEXIM Bank, has in the main, identified  manufacturing, mining and the agric, as sectors that can churn-out non-oil goods for export. This way, the volume of external trade is being gradually shifted away from crude oil (upon which the nation largely depends), to non-oil items that are abundant and widespread in the country, but which have largely suffered neglect due to a multiplicity of factors, chief of which is funding.

    The bank’s initiative is in tandem   with President  Goodluck Ebele Jonathan administration’s Transformation Agenda  that is intended to permeate a wide spectrum of the nation’s everyday life, ranging from housing, industry, energy, entertainment and the whole gamut of our social life.

    As laudable as the Transformation Agenda may seem, it would have remained comatose and a mere wish-list without the requisite funding needed to translate it to reality. What is of note here is that, all of the goodies that the TA is advocating, require huge financial layout. Besides, the programme will require long-term sustainable funding which the commercial banks are not enabled to provide, given the short-term nature of their credit portfolio, but NEXIM  Bank has risen to bridge the gap.

    The bank’s Managing Director/Chief Executive Officer (CEO), Robert Orya, is upbeat about the successes so far recorded in the Transformation Agenda of which NEXIM Bank has played a pivotal role.

    He said: “It is evident that the important story of Nigeria’s advancement from where we are would not be told by earnings from our hydrocarbon reserves alone. Our success would be driven by a robust manufacturing industry, self-sufficiency in agriculture for food and processing so that excess yields could tap export markets, world-class service sector to serve domestic industries, global outsourcing and export markets, and commercial access to wider range of mineral deposits that dot every nook and cranny of our country.”

    It’s not for lack of ideas that the export of non-oil goods has remained at infancy, the problem, amongst others, has to do largely with the will and commitment to focus and redirect resources to the non-oil sectors and take cognitive action to actualise what is largely recognised as a cash cow.

    Although NEXIM was established to play this role, the President’s  avowed disposition to focus on these sectors in his bid to improve on the nation’s revenue profile outside crude oil sales and create employment, played a key role.

    “What the Administration of President Goodluck Jonathan has done, perhaps more than any previous regime, is combine commitment with practical actions in diversifying the Nigerian economy away from sole reliance on crude oil for external revenue,” Orya said.

    The inhibitions standing in the way of operators in the identified sectors from accessing finance has to be addressed. NEXIM Bank, having identified the drawbacks, intervened to set the ball rolling in a manner that ensured the delivery of the intended benefits. As the NEXIM Bank boss put it,“Development Finance Institutions are bearers of risks which commercial lenders would term  excessive, and therefore avoid.

    “ New industries, new initiatives, people without financial collaterals and projects which cannot pay commercial cost of finance,  have been beneficiaries of funding by the Development Finance Institutions (DFIs).

    This way, business formations can continue, people can continue to innovate, bias against social and reputational collaterals are reduced, and projects can be incubated and nurtured to when they can attract lending from commercial banks,” Orya said.

     

    Support for Creative Arts and Entertainment Industry

    In furtherance of the government’s policy initiatives for strengthening the Creative Arts and Entertainment industry, the bank supported the industry through funding intervention with lending commitments of about N1 billion in the industry’s various value chains in the last three years. The Bank’s funding intervention in the sector is intended to address issues regarding the establishment of credible structures, attract investment in the development of content and infrastructure as well as facilitate improvement in production standards, distribution, marketing and exhibition standards.

    He explained that NEXIM Bank has assumed this critical role  in Nigeria where banking penetration is less than 15 per cent of the population, commercial lending rates are prohibitive, land titles are not even available to owner occupiers, but where innovators are born daily, and where we have to eradicate poverty.

    He said as a DFI, NEXIM Bank has to assume its natural function in driving the Transformation Agenda of the government, by supporting the export-prone sectors, increase foreign exchange earnings and create employment, so as to free government to focus on the provision and delivery of necessary infrastructural projects to aid implementation of programmes under the plan of structural transformation of the Nigerian economy that cannot be delivered by commercial lending.

     

    Loan Profile

    Orya explained that NEXIM Bank is the official and sole Trade Policy Bank of the Federal Government. In this regard, it provides financing, risk-bearing facilities, market information and value-added advisory services to businesses towards deepening export-oriented investments in the country’s non-oil sectors of manufacturing, agro-processing, solid minerals and services, for job creation and economic growth.

    He said the bank has provided N12 billion in lending to export manufacturers over the four-year period from August 2009 to April 2013, adding that it has funded agro-processing export businesses to the tune of N6.6 billion over the same period.

    He said what the Jonathan Transformation Agenda has done, perhaps more than any previous regime, is to combine commitment with practical actions in diversifying the economy away from sole reliance on crude oil for external revenue.

    “From the institutional viewpoint of Nexim Bank, I am excited at the prospects of playing a role in diversifying the Nigerian economy and harnessing the immense potentials of the sectors which had, hitherto, been neglected. Indeed, the role Nexim Bank is playing is unique as a development finance institution (DFI), “ Orya stated.

     

    Exporter Enlightenment Programmes

    The bank has sustained the Exporter’s Enlightenment sessions in various geographical zones to encourage investment and entrepreneurship in exports, especially value-added exports.  In response to the feedback from the Exporter Enlightenment Programmes and to increase the reach and spread of the Bank, arrangement have been concluded to establish eight Agency Offices in Yenogoa, Benin, Aba, Akure, Makurdi, Ghashua, Gusau and Yola to complement the Head Office in Abuja and the three Area Offices in Lagos, Kano and Calabar.

    Also in the solid mineral sector, NEXIM Bank is working in partnership with industry stakeholders to take formal mining off the ground again, Orya said, adding that NEXIM Bank has so far provided over N2 billion in early funding to help some commercial miners to develop their site, so as to start operation and invite further funding from other sources apart from the long-term commitment of NEXIM Bank to the nascent industry.

    In pursuit of its drive to impact on other segments of the economy as part of the Transformation Agenda, the bank has taken on the management of the Nigerian Creative and Entertainment Industry Stimulation Loan Scheme (NCEILS).

    The fund which is lent at below commercial rate, is meant to fund businesses across the entertainment value-chain, including filming production, cinema operation, music recording, intellectual property development and recording studios, as a revolving fund with repayment terms.

    He said to date, NEXIM Bank has disbursed over N1.4 billion for the Fund, adding that Entertainment industry project proposals under review exceed N5 billion. Overall, disbursements to the creative and entertainment industry, including the services sector is  about N8.5 billion, covering support to transportation and hospitality industries.

     

    Outcome

    Increased funding intervention of over N43billion to the four target non-oil sectors –  Manufacturing, Agro – Processing, Solid Minerals & Services,which have high employment and foreign exchange generation potential leading to the creation of over 26,000 direct employment within the last five years, and foreign exchange earnings of about $353.07million yearly, over the same period

  • We need fiscal discipline to revamp the economy

    By virtue of his training in finance, Sanmi Akindipe, Chief Executive, Set Group, knows the importance of financial discipline not only for an inidividual, by for a nation. And looking into his crystal ball, Akindipe is convinced that only fiscal discipline can lead to good economy. He shares his views on the economy and other national issues with DANIEL ESSIET.

    What is your economic outlook for the next two to three years?

    The economic outlook as I see it will definitely be affected by the political situation in the next two years. Once we are able to determine where we are politically we will be able to determine our economic future. The politics and the economy are closely intertwined. If a country is not stable politically, the economy cannot prosper, or be competitive, if it cannot stand on its own feet. If the economy is not stable the labour market become stagnant, and it will become a burden for the government. That is why there is no alternative to a stable political situation. We need a stable political situation to deliver economic growth or even price stability. On the whole, political stability works with other measures, such as economic growth, innovation levels, unemployment and government expenditure to deliver good governance. Be that as it may, if we are able to sustain the momentum that we are pushing into the agric sector, we will be able revamp the economy by 2017or 2018. Particularly, since we are expecting increasing investments from people and firms showing interest in investing in our agric sector. As time goes on we are going to see people who are going to embark on agric export ventures. Apart from this,  it is on record that, from the GDP of Nigeria, agric gives about 40 per cent, that was when we didn’t pay attention to the sector. Now  that we  are  paying attention, there are positive indications  to show the growth  prospect  fired  by  activities  across the  agric  sector. I belief that the combination of government reforms in agric will bring back much of the confidence lost. I the government make technical preparations to alter the size, pace and composition of some of the measures taken so far. I belief,  however, that it has become necessary to further address risks of a too prolonged period of inflation and  high cost of living.

    Since the last decade, there has been clamour for economic transformation. What in your view is the paradigm shift needed to ensure the success of current developmental pursuit?

    Right now, the naira is becoming weaker and weaker by the day. People want this currency depreciation to continue in order to discourage import and encourage exports. While boosting export is important, I think the exchange rate is important for price stability and growth. Once naira recovery is weaker, the rate of unemployment is going to be higher than what has been the position before our currency was devalued. We have to consider domestic production levels by promoting monetary policy paths that will contribute to a stronger Naira. There is so much concern because the interest rate for bank credit has been so high and has increased in most sectors. Our monetary policy stance should be determined by long term assessment of the real sector capacity to survive. It has to be very accommodative. This also requires pragmatic macro prudential instruments. Of late, the stock prices have not increased considerably. In their search for yield, investors have obviously discovered that equity is not the way out. Investors have lost a lot of money. The ramifications of the state of the economy is still being across with   the pressures of the austerity measures, inflation, tax increases failed government policies and economic stimulus programmes. Many companies have been able to increase both their turnover and their profit in real terms. In fact Nigerians are perplexed that many economists and investors in both the government and the private sector have failed to foresee a crisis of a great magnitude following the entry of the United States into the oil market. The fact the US has come to stay in the oil market demands that the government pursue non oil exports and encourage more people to go into agriculture. What I think the government needs is expanding the perimeter of financial sector surveillance to ensure that the systemic risks posed by unregulated or less regulated financial sector segments are addressed. This is important now that the Central Bank of Nigeria is trying to close the gap between the official and parallel markets. The CBN needs  also to  ensure  it improve  surveillance  in terms of filling the information gaps, especially with regard to lightly regulated financial institutions and ‘off balance sheet’ transactions, ensuring that both supervisors and investors are provided more disclosure and a higher level of regularity in information provided. We need also to resolve the political and legal impediments to the effective regulation of cross-border institutions, develop special insolvency regimes to be used for large cross-border financial firms, and harmonise remedial action frameworks. The CBN and other regulatory agencies should enforce full transparency for financial statements. Nothing should be eliminated. The bank cannot do its job of assessing risk and systemic soundness if large parts of the financial markets are invisible to it. Our economic management programmes should be very pragmatic, taking into consideration both the power and the rich. It is so sad that we are a democracy where political leaders and private interest groups dictate our national economic policies without the interest of the common man on the streets. These groups have become so powerful that influence elections and sponsor groups to fight for the interests in the national assembly. Our policies should not address only the concerns of the few powerful individuals and organisations but all Nigerians.

    It appears as if the Nigerian government does not have answers to some of the current economic crisis?

    I don’t think so. What we need is to discourage more debt spending because it is a receipt for bankruptcy. What I think government should do is to encourage more public and private sector investments. The government has to reduce massive debt spending as well as control tax increases or currency devaluation to encourage more Nigeria to invest. We cannot experience real economic growth where the GDP recovery numbers are driven primarily by government debt-funded spending rather than by private sector productivity improvements and exports. When the government reduces spending and try to balance the budget, we see a situation where we avoid a currency crisis. We have high Debt-to-GDP ratios and this hurt the economy. As a result, there are concerns about the future growth of the economy. There is a real risk of the economy going into further crisis driven by continued deficit spending .It is worst when we use such monies to fund wrong economic policies. This will result in reduced disposable income and consumer spending. All of these issues pose a real risk for another economic and currency crisis. Our economy is the number one risk centre for Africa. Any setback in its recovery will affect the rest of the sub region and the continent. The current recovery is linked to a host of challenges, including spending for the elections, poor public finances, and the impact of fiscal tightening on growth, wrong tax policies and the negative consequences of violence after the elections. Right now, geopolitical conflicts following the outcome of the elections are the risks to watch. There is the lingering Boko Haram problem. Apart from these ones, I think the government should focus on domestic economic development, national competitiveness, addressing higher energy costs and food inflation. We need to do everything to support exporters. Clearly, we need to have strong pre-crisis macroeconomic metrics, explore our rich natural resources and identify export-based industries which have stronger recovery prospects. We should flow with strong budgets to stimulate the economy with less debt burden.

    Let us look at the issue of power supply

    One issue that is seen as contributing to a competitive disadvantage for manufacturers and businesses is poor electricity supply. That is why all energies should be channeled to infrastructure development to step up power supply. Today, energy influences production costs and is an increasingly important factor in determining our industries competitiveness. Just improve energy, you will resurrect a lot of dead industries and reduce unemployment. Practically, revamping the energy sector is a potential game changer likely to help manufacturers be more competitive. Right now businesses hold a pessimistic view because of high production costs linked to poor electricity supply. The industry needs certainty as regards power supply and the government and the private sector must be prepared to address the economy’s energy needs and threats.

    How is the prospect for agricultural growth?

    Nigeria has one of the best agricultural production areas in Africa. Talk about land, an abundance of water, rich soils, stable political and business environment. The prospect for agriculture is positive. Right now, it appears that agriculture has entered a bullish longer term growth phase.  Commodity prices have been good and will remain firm going forward. What the government can do to help the situation is to invest in assets, whether in the form of equipment or property. What we need is for the government to support farms to carry out primary and secondary operations differently and better. Our farmers should be provided incentives to adopt technology, mechanization, precision farming, this will go a long way towards making agriculture more efficient and more profitable. This will keep farmers on the land and ensure that farming becomes an attractive proposition. Going by present support from the government, it appears there is a resolve to build a profitable agricultural sector that will create more gainful jobs. The key to achieving this is ensuring the profitability of farming and encouraging higher productivity that can also transform the sector from a labour perspective and provide farm workers and their communities with a better living. What the government needs to do more is improve existing infrastructure such as roads, railways, ports and energy, which are essential to the food production .These will require sizable investment on upgrades and maintenance which farmers cannot afford. Farmers face infrastructure-related challenges such as high economic distances for produce which have to be transported using the least efficient transportation means. Our ports lack sufficient capacity, leading to high freight costs, delays and high port charges, which impact export competitiveness.

    Most studies have demonstrated that if governments were able to effectively spend around 20 per cent of their budgets that will probably be the minimum required to leverage agriculture to lift its populations out of poverty. Is that the way you feel about the Nigeria situation?

    So far, the situation is the agriculture sector is not uneven because of poor funding. We need to fund agriculture to support economic growth. To observers, we have seen a modest GDP growth. Worldwide, real economic recovery is measured along with a growth of employment. To achieve this we have to support the agric sector to help slow down the rate of unemployment significantly. I will advise the government to make more allocation to agriculture at least 10 percent annually. There seems to be a shift, leading to a possible increase in financing of agricultural and rural development projects. What do you think would be the impact of such a shift on the total food production volume?

    We expect first and foremost the business climate to improve with various reforms. But what the agric sector needs are energetic and inventive financial institutions with programmes targeting on the agric sector. Generally, accesses to loans are difficult across the economy for farmers. They struggle to find both short and long-term financing. The potential of agriculture and agribusiness a is immense and is a central to economic development, but only if properly and effectively harnessed.

    We need banks to support food and agribusinesses. Compared to many other countries in Africa, we   have comparative advantages in terms of land availability, soil fertility, good climatic conditions and water availability. The challenge is funding to make the sector more imperative than ever. Such investments will contribute to job creation, enhancement of food security, income generation, poverty reduction, and skills transfer. The sector is in dire need for fund access. There is a phenomenal growth in the sector and we need funding to open up more opportunities. We have so much unused cropland. Farmers and investors need the support to develop the agricultural sector and reduce unemployment. Improving funding of agriculture will help farmers meet domestic demands and this will have a significant impact on food security as well as reduce our dependence on food imports. What the government needs also to do is to encourage more farmers financially to move from subsistence to commercial farming. This way, they will be able to absorb a large percentage of the unemployed youth. In the past we use to have commodities boards. They act as buyers of last resort, guarantee in farmers that their production will be bought, thus encouraging productivity.

    Why do you think the agri-food sector is an important sector for economic and development growth?

    Taking the issue of unemployment seriously, I want to say that the sector has the potential to employ a larger percentage of the population, not only in production, but also processing, value addition, and trading due to the different needs in the respective value chains. Our food import bill is still dominated by processed foods. We need to reduce this by providing opportunities for more Nigerians to produce food.

    What is your take on small and medium enterprises?

    Small business is the life wire of a nation. Everything should be used to encourage more of it. In terms of tax holidays and easy access to raw materials, financial support and regular free international trainings. Assuming we have 50 million small businesses in Nigeria then you will discover that our economy has the capacity to kill unemployment absorb any insecurity and deliver high productivity.

    Do you think our small agro businesses are ripe for the export market?

    Yes, for instance there is no ofada rice in America in large quantity. We all know that ofada rice is healthier than the other types of rice. Now if our God showcase for instance this product to the America government and secure relevant support to export the product, this one area an average Nigeria farmer cannot handle all by himself .There is a place in Ogun State called ofada and you have all kinds of ofada rice there. Let’s do this on a large scale; we have a lot of opportunities.

    How do you view the current commercial real estate market, and where do you see it trending?

    The equity market is set to recover from all loses and give return that has never been seen before in the market.

     

     

  • ‘Lack of investor confidence affecting economy’

    ‘Lack of investor confidence affecting economy’

    Dele Sotubo is the CEO of Stanbic IBTC Stockbrokers, Nigeria’s largest stockbroking firm in value and volume of transactions handled at the Nigerian Stock Exchange. In this interview with Bukola Aroloye, Sotubo speaks on the capital market, the company’s efforts in attracting interest in the market through stakeholder engagements, provision of quality investment advisory services as well as value added services, among other issues. Excerpts:

    The exchange traded fund is a relatively new product in Nigeria, barely three years old, with only three listings including the Stanbic IBTC ETF 30.Do you think the market is sufficiently mature to appreciate this product?

    The market is growing gradually and the exchange traded fund (ETF) will help deepen our market as well as diversify investors’ portfolio and risk. ETF represents baskets of stocks and a simplified method of investment whereby investors have a stake in many companies tracked by the ETF. More awareness towards its benefit will give room for growth. The market will definitely support this product.

    There have been calls for multinational oil and gas companies and telecoms giants to list on the Nigerian Stock Exchange in order to further boost the capital market’s contribution to the GDP. What efforts are market operators like yourself making to encourage telecoms and multinational oil and gas companies to list on the Nigerian Stock Exchange? 

    The listing of these companies will help deepen the capital market. The regulators and operators are currently in discussions with the government on the best way to ensure that these companies list on The Exchange to help deepen the market.

    Beyond that, we will continue to play an active role in listing such companies on the NSE. The listing of SEPLAT, an oil and gas company, on the NSE, is a clear example of our contribution as financial services group to deepening the NSE.

    Since the 2008 market recession, investor confidence has been undermined. Reports suggest that over N793 billion was pulled out of the market by foreign investors in 2014. What needs to be in place to build the interest of local retail investors?

    Restoring confidence in the market after the global melt down will be a gradual process as activities in the equities market is cyclical. Foreign investment withdrawal from the market in 2014 was largely as a result of Macros fall in oil prices and currency devaluation and exchange rate instability.

    Improved macro-economic situation will galvanise investors’ interest and boost retail investors’ confidence in the market.

    The increase in the number of more sophisticated domestic investors such as pension and asset management and insurance companies should drive participation in the medium to longer-term. We believe that the increase in retail investment products such as ETFs will also encourage retail investors participation.

    Your bank won the NSE CEO award as the best dealing member firm, both in volume and value terms, in the capital market in 2014. What do you think inspired this award?

    The award reinforces Stanbic IBTC Stockbrokers Limited as the largest stockbroking firm in Nigeria in both volume and value of total transactions executed in 2014. Market data for the year under review showed that Stanbic IBTC Stockbrokers Limited achieved a turnover in excess of 24billion units of shares, which represented 11.42 per cent  valued at over N472 billion or 17.55 per cent to lead both the volume and value tables. Stanbic IBTC Stockbrokers was also the largest stockbroking house in Nigeria in 2013.

    We were able to provide flows and market intelligence to our clients, which helped us generate trades, coupled with our participation in major primary market transactions.

    We uphold integrity, standard operating processes and professionalism in our dealings. These continuously drive client patronage and great ethical standards.

    We also leveraged on the expertise of our research team in providing value added insights for our numerous clients.

    Lack of adherence to corporate governance remains hotly debated issue in the market. How compliant has your staff at Stanbic IBTC Stockbrokers been thus far?

    Stanbic IBTC Stockbrokers Limited is known for integrity and professionalism, which comes from strong corporate governance. We have a robust compliance and monitoring team that ensures all rules and regulations are adhered to.

    We will continue to uphold standard operating procedures, actively participate in the market without compromising our values and have every staff understand the company’s position at all times. We have zero tolerance for non-adherence to rules and regulations by staff members.

    Personal account trading rule and code of conduct are in place, which guide the activities of staff.

    The current reforms in the economy, particularly in power and agriculture, have helped to position Nigeria as an investment haven. Are investors showing strong appetite for opportunities in the aforementioned sectors?

    With the recent GDP rebasing and the reforms around the power sector, we see strong appetite from investors, perhaps not on the stock market now. However, investors have shown increased interest in partnering with Nigerians on power projects and to a large extent agricultural transformation.

    The challenging macro-economic environment is likely to slow down the pace of investment on that front as many players wait on the sidelines until the elections are well out of the way and the uncertainty around the fiscal operations of the government has been eased.

    Technology has continued to redefine the operations of the capital market. For instance, the Nigerian Stock Exchange has introduced the X-issuer and X-Gen, which enables remote and mobile trading, among other transformation initiatives. How far do you think technology can shape the stockbrokerage business in the coming years?

    The interesting thing about technology is that it fosters efficiency and productivity. It also drives transparency in the capital market. This can also be a mode through which retail investors can be attracted into the market.

    Many Nigerians using mobile devices can now have access to put their trades through the market. With the introduction of Direct Market Access (DMA) and other similar initiatives, we expect that this will help to improve participation of investors in the capital market.

    There seems to be a general disposition by pension fund administrators to federal government securities, about 40 per cent of PFA’s investments are skewed in that direction, followed by money market instruments. Investment in the capital market is considerably less. Which factors, in your opinion, other than regulation, determine these investment decisions?

    Apart from the perceived low risk appetite of PFAs, which is understandable when we consider the adverse effects of the 2008 stock market crash on portfolio investors, we also believe that the limited number of high quality liquid stocks reduces their options.

    Lack of depth in the Nigerian market makes the available options limited. The preference for capital preservation and guaranteed money market yields also contribute to the low risk appetite for equities.

    Part of the regulation also requires pension funds to report returns on an annual basis, which discourages them from taking the long term view on investments.

    We expect the listing of more quality companies as reforms in sectors such as the power, oil and gas, telecommunication and agriculture increase demand for capital.

    What can investors expect from the capital market in 2015?

    We expect continuous volatility in the equities market as macro concerns linked to the falling oil price and currency drive investor sentiment. The passive position of domestic investor has not helped the situation.

    Despite the bearish outlook, we expect trading opportunities to continue to emerge for short-term investors while longer-term investors take advantage of the falling prices to increase exposure in quality stocks. We also expect the political risk as we approach the general elections to weigh on investor sentiments in the short-term.

    However, we expect to continue to see investors interest in quality names.

  • Makinde: robust economy coming

    Makinde: robust economy coming

    Oyo State Social Democratic Party (SDP) governorship candidate Seyi Makinde has said he will create a robust economy in the state, if voted into office.

    The SDP candidate identified non-patronage of local contractors and irregular payment of workers salaries as factors contributing  to the poverty afflicting the people.

    Makinde said: “It is when those people affected get their money and patronise local markets that money can circulate.

    “But, unfortunately, what we have in the state today is contrary. Contractors are not based in Oyo State and they take our money to Lagos State where they are based. Workers are not regularly paid and they lack purchasing power to go to the markets, hence the low sales being recorded by our market men and women.”

    The SDP candidate spoke in Ibadan at the weekend during his market campaign led by the party state chairman, Sunday Adelaja and which took the team to Orita-Merin, Agbeni and Ogunpa markets.

    Makinde, who alighted from his vehicle at Orita-Merin Market square and trekked to Agbeni Market, stopping along the way to greet the people.

    He said the SDP administration under his leadership would ensure that the state-based contractors would be engaged to halt capital flight and that workers’ salaries would be paid on time.

    The Babaloja of Orita-Merin, Rasheed Oloola, praised the governorship candidate for his vision and focus, recalling that his good works had preceded him and would go a long way in bringing him victory.

  • NACC targets FDI in key sectors of economy

    NACC targets FDI in key sectors of economy

    The Nigerian-American Chamber of Commerce (NACC) is working on attracting Foreign Direct Investment (FDI) to the country through the key sectors of the economy like agriculture, healthcare, and construction, among others.

    The group wants to achieve this by improving bilateral trade and relations between Nigerian business interests and companies based in the United States of America (USA) in these key sectors of the economy.

    As part of activities lined up for the 2015 edition of its biennial US Trade Mission, NACC will also for the first time organise an Award/Gala Night in Atlanta, USA.

    Speaking at a press conference announcing the 2015 trade mission, the National President of the NACC, Olabintan Famutimi, said that aside providing members with opportunities of connecting with potential American partners, this year’s trade mission will also target Nigerians resident in the USA, with a view to getting them to invest in Nigeria.

    “What we have found out is that there are lots of Nigerians in Diaspora that have thriving businesses in the USA. A lot of them want to set up businesses in Nigeria, but they don’t know how to go about it, probably because of the negative publicity about our country. So anywhere we identify as having a high concentration of Nigerians who are now American nationals, we intend to educate and provide them with the necessary information they need to invest here,” he said.

  • Soludo challenges Okonjo-Iweala to debate over the economy

    Former Governor of Central Bank, Charles Soludo, has challenged Finance Minister, Mrs Ngozi Okonjo-Iweala to a debate over the nation’s economy.
    In the first of his three-part response to the Minister’s reply to his recent article titled ” Buhari vs Jonathan: Beyond the Election”, Soludo said “what is at stake is the survival and prosperity of Nigeria”
    “I feel the pain of the 180 million Nigerians whose tomorrow you have carelessly rendered bleak, and when I think of what the missing trillions could do for them, it becomes extremely urgent that we all must deepen the debate. Eagerly waiting for your response, please! ” Soludo stated.
    Full text of Soludo’s latest letter titled “Ngozi Okonjo-Iweala and the Missing Trillions (1)” is reproduced below:

    I read some of the responses to my article, “Buhari vs Jonathan: Beyond the Election”, and I want to thank everyone who has contributed to the debate. I am glad that the debate has finally taken off. I have decided, for the record, to re-enter the debate if only to set some records straight and hopefully elevate the debate further. Whom do I respond to? First, let me thank Gov Kayode Fayemi for his very mature and professional response on behalf of the APC. It forms a great basis for deepening the conversation. Pat Utomi, Oby Ezekwesili, Iyabo Obasanjo, and thousands of other patriotic Nigerians have raised the content of the debate. Femi Fani-Kayode made me laugh, as usual. The Gov. Jang faction of the Governors’ Forum played the usual politics, although I know what most of them think privately. Who else? Oh, Peter Obi. Well, since he can’t write and designated Valentine as usual to write for him (who never disputed the NBS statistics that Obi broke world record in the pauperization of Anambra people but instead focused on lies and abuses) I won’t dignify him with a response here. His third class performance in Anambra will be the subject of a comprehensive article later.

    Here, I will focus on Dr. Ngozi Okonjo-Iweala’s response (as Minister of Finance and Coordinating Minister of the Economy—CME and hence on behalf of the Federal Government). Since I have known her, out of deep respect, I have never called her by her name: I call her Madam. I must state that I have great pains seeing myself on the opposite side of the table with Madam, in this way. I respect you, Madam, and will always do. If you read my article of September 2010 (before you became Minister), the tone and elucidation were as strong as the current one. It is my honest effort to ensure that our choice of leaders is based on rigorous scrutiny of what is on offer. Part of my frustration is that five years after, everything I warned about has come to happen and we are conducting our campaigns as if we are not in crisis. As a concerned Nigerian, I have a duty to speak out again. Regrettably, you have taken it very personal.

    I am not bothered about the personal abuses: I actually expected worse. What name has the government not called President Obasanjo or any person who has dared to disagree with it of late? Anyone who disagrees with the government must either be ‘insane’ or have a ‘character’ deficiency or must be ‘looking for a job’ or ‘without honour’, or a ‘charlatan’. Yesterday, Sanusi alleged that $20 billion was missing and he was accused of gross financial mismanagement, recklessness and poor governance to the point of being the first governor of central bank to be suspended from office. Today, he is the good one; and for daring to award an “F” grade for our economic performance, Soludo has become the ‘worst’ and ‘without character’ or perhaps ‘looking for position’ (Lol!). Some days ago, a former president was called ‘a motor park tout’ and ‘un-statesmanly’ just for disagreeing. This “how dare you criticise us” mind-set of the government is dangerous for our democracy.

    In this Part One of my planned three part series, I will restrict it to the main issues you raised. I will not bother about the malicious attacks on my person. For me, it is nothing personal. In early 2011, I had a similar heated exchange with then Finance Minister Segun Aganga. But when the Nigerian economy was at stake and he invited me to a stakeholders meeting in his office (as Minister of Trade and Investment) to discuss Nigeria’s response to the ruinous EU- Economic Partnership for Africa (EPA), I flew into Nigeria for that (at my expense)— the first and only time I have been to any government office to discuss policy since I left office. It is about Nigeria. I will, as expected, remind people like you of the salient aspects of my record of public service in response to your charge; challenge your claim to debt relief, and your reason for not saving; highlight your forgery of economic statistics and the lies in your response; but most importantly re-focus our attention to the historic mismanagement of our economy which you carefully avoided. I will show that while you are introducing austerity measures and soon to immiserate the citizens, our public finance is haemorrhaging to the point that estimated over N30 trillion is missing or stolen or unaccounted for, or simply mismanaged— under your watch! We can’t go on like this, and I am convinced that an alternative future is possible. Can we have a public debate on this alternative future? The issues at stake are too grave to be trivialized through name calling. As I write, the naira exchange rate to the dollar is at N215 (from N158 a few months ago) and unless oil price recovers, this is just the beginning. For the sake of Nigeria, I won’t keep quiet anymore!

    Let me start with Madam’s rather comical, wild judgment on my tenure of office which I believe to be totally false and baseless. I apologise upfront that in the process of making a ‘personal defence’, it is difficult to avoid a rather uncomfortable emphasis on “I”. I did not want that but since Madam has dragged us this low, I have little choice but to do so in the next few paragraphs—just to keep the record straight!

    In my view, there are three criteria for evaluating a public officer’s stewardship: the evaluation by his employer; the satisfaction of the public he served; and the hard facts of performance. As I will show on these three counts, I am convinced that I left a world record of public service, and a thousand Okonjo-Iwealas cannot re-write that history. I served Nigeria under two presidents (Obasanjo and Yar’Adua) and as my immediate bosses, below are their written testimonials of my record.

    Said President Obasanjo (December 2004):
    “Charles Soludo is a true Nigerian. He is the sort of Nigerian that we all know we can rely on. Among his numerous virtues is COURAGE. I have found in him a man who can take tough and realistic decisions, stand his ground, educate others on the salience of his decision, and work very hard to ensure that the decision is efficiently and effectively implemented. His dedication to duty is first rate. His leadership qualities are admirable and his willingness to listen and learn is simply infectious. Professor Soludo has within a short time emerged as one of the leading lights of our nation. Not because he has a godfather but by sheer hard work, loyalty, dedication to duty, commitment to the nation, creativity, and undiluted association with the reform agenda….”

    President Yar’Adua (May 2009) had the following to say about the Central Bank of Nigeria under my leadership:
    “… the CBN has performed creditably well in delivering on its core mandates. This is especially even more so in the last five years. Most people would agree that without the successful banking consolidation and effective management of our foreign reserves, the current global crisis would have shaken the financial system and our national economy to their foundations with calamitous consequences”.

    In the President’s special letter of commendation after the completion of my tenure of office, President Yar’Adua (June 2009) had the following to say to me:

    “As your tenure as Governor of the Central Bank of Nigeria comes to a glorious end, I write on behalf of the Government and people of Nigeria to place on record our debt of gratitude to you for your dedicated service and uncommon sense of duty over the past five years. 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. As I wish you even more astounding successes in the years ahead, it is my fervent hope that you will readily avail us of your distinguished service when the need arises in the future”.

    To the best of my knowledge, President Obasanjo has not changed those views even after ten years. The views of my two bosses, not the emotional outburst of an angry person desperate to get even, are what count.

    How did Nigerians evaluate my public service? Unfortunately, we do not have scientific opinion polls on job approval ratings for individual public officers. But if the public opinions of individuals and organized groups (labour, employers, depositors, borrowers, stakeholders of the financial institutions, newspaper editorials, investors, etc) as expressed in thousands of newspaper/magazine clips during and after my tenure are anything to go by, then 82% of the public largely agree with the sentiments expressed by my two bosses. Your views belong to the other 18% which is okay, after all, no one is perfect. Five Nigerian newspapers and magazines simultaneously named us “man of the year” in one year— unprecedented in Nigeria’s history. I do not talk about hundreds of awards and recognitions by various segments of our society (during and even after service) for “excellent public service”. I was particularly touched by the historic award by the staff union of the Central Bank and the tears in the eyes of many as thousands of the staff gave me a standing ovation as I walked the aisle after my brief farewell speech.

    Certainly, the international community (investors, bankers, scholars, donors, media, etc) took serious notice of the revolution in Nigeria’s monetary and financial system. I am recipient of five international awards as global and African central bank governor of the year, not to mention dozens of other recognitions (even after leaving office). The London Financial Times described us as “a great reformer”. Even as the global economic and financial crisis raged in 2008, the United Nations General Assembly appointed me to serve on the Commission of Experts to reform the international monetary and financial system. You don’t appoint someone who has ‘mismanaged’ his national financial system to reform the global system. For 8 years until 2012, I served on the chief economist advisory council (CEAC) of the World Bank, and together with two Nobel Prize winners in economics and other experts we met periodically and advised two presidents and two chief economists of the World Bank, and in 2011, I served on the External Advisory Group of the IMF. Again, these are not positions for ‘mis-managers’. Since I left office, I have been advising countries and central banks; and there is hardly any two months I don’t consult/advise on banking/financial and monetary policy. I have given these illustrations to make the point that for every one Okonjo-Iweala’s attempt to rewrite history, there are thousands who disagree.

    Now, to some skeletal facts of our stewardship! I will be brief as I have a whole book to tell my story. As chief economic adviser, I had advised that our banking system could not support the private sector-led economy envisioned under NEEDS. When I assumed office at CBN, I inherited 89 rickety, mostly family banks (all of which put together were not up to the size of number four bank in South Africa). Many were insolvent, with depositors’ money trapped, and 20 more about to collapse. To get a credit of $300 million probably required all the banks to syndicate it. For me, there was a national emergency. I drafted a 13-point reform agenda, discussed and agreed all the specifics with the President, and his VP; as well as my management team at the CBN, and we swung into action. President Obasanjo promised 100% support and actually delivered 1000%— which was decisive. I apologize to you Madam because I did not brief or inform you about it. We just wanted to keep it confidential given the sensitivity of the announcement. It is on record that you never supported it.

    It was both a revolution and a war and most people thought it was “impossible”, but thank God we succeeded. For the first time in Nigeria’s history a policy of that magnitude was announced and deadline kept with precision. We were courageous to revoke the licenses of 14 banks, including those of my friends, in one day. The FT-Banker concluded that the scale, precision, and cost of the transformation were unprecedented in the world. Before then, Malaysia had the least cost of banking consolidation at 5% of Malaysian GDP. It did not cost Nigerian taxpayers one penny. Twenty-five new, stronger banks emerged but the powerful idea behind consolidation ignited something even more powerful—‘the race to the top’. Banks raised more capital, and even banks like First Bank, Zenith, GTB, etc that did not merge with others went on capital raising several times. The consequence was higher levels of capitalization and within two years, 14 Nigerian banks were in the top 1000 banks in the world and two in the top 300 (no Nigerian bank was in the top 1000 before I came). Even after I left office, still 9 banks were in the top 1000. Our vision was to have a Nigerian bank in the top 100 banks within 10 years. As I see the new Access bank; Zenith, GTB, Fidelity, Diamond, UBA, FBN, FCMB, Skye, Stanbic IBTC, Union, Ecobank, etc, I cannot but feel that we have taken giant steps forward.

    Deposits and credit soared (from barely N1.2 trillion to over N7 trillion); new technologies (ATM and e-banking) boomed, and banks had 57,000 new jobs; mega businesses emerged (ask any major operator in the Nigerian economy their experience with banking and credit before and after Soludo —the Dangotes, Arik, MM2, oil and gas operators; etc); capital market boomed and dominated by the banking sector. It was a new dawn for Nigerian private sector. I have heard Dangote twice say that he would not be near as big as he is today without the banking consolidation. Many other stakeholders still say it today. FDI and portfolio inflows flooded into Nigeria. The world celebrated, and one single transformative idea has changed the face of the private sector and economy forever. Banks became Nigeria’s first transnational corporations with about 37 branches outside of Nigeria.

    Nigeria survived the global crisis because of this, and it is the banking sector that has largely been powering the economic growth you claim (compare banks trillions of naira credit for investments in the productive sector with your government’s miserable expenditure on critical infrastructure and investment; much of your borrowing – bonds – is from the banks). Your privatization of power sector, several PPP projects on infrastructure, etc, are now possible because of the mega banks. Today, Nigerian banks syndicate multi-billion dollar loans— unthinkable before. Madam, if the consolidation was ‘mismanaged’, there would not have been any bank to start with in the aftermath of the global crisis— as President Yar’adua correctly pointed out. Even you, during a recent presentation at the Banquet Hall in Abuja advertised consolidation as a historic achievement. How can you recognize a ‘mis-managed’ project as an outstanding achievement? As we say in Igbo, you can’t cover the moon with your palms.

    Let me be clear: the quantum size of the new banks following consolidation presented challenges of risk management and supervision. We deployed all we had and overworked the CBN staff. The carry-over of bad loans from the consolidated banks was quickly cleaned up. To the best of my knowledge, we instituted stringent regulatory and supervisory regime (consistent with best practices at the time). We even had resident examiners in the banks and required bank MDs to personally sign their reports to CBN. I recall that the former MD of GTB complained of “regulatory intrusiveness”. To our credit, non-performing loans (NPL) came down from 22% in 2003 and 2004 to 6% as at 2008. Anywhere in the world, a central bank that brought NPL from 22% to 6% over a four year period does not look like one with a loose supervisory regime. Name other developing countries that performed better, Madam. So, on point of fact, Madam lied. Yours was a reckless assertion without basis by a Finance Minister.

    The banks in Nigeria were supervised by the CBN and NDIC, but other institutions— international firms which audited them, international rating agencies which also examined their books, capital market operators since most were listed companies — all had oversight. I put on record that there was never any information/report of infractions by any bank which was brought to my attention and which we did not act upon decisively during my tenure. I heard the comment that some of the bank MDs were my friends. Well, my response is that perhaps as CME you should kill all your friends operating in the economy or become their enemies. For the record, my successor audited all the banks and none of my so-called friends was indicted. It speaks volumes. Indeed, it is also a fact that the alleged personal criminal infractions (including lapses in corporate governance Madam alluded to) by some bank CEOs were found out, only AFTER they had been removed from office. My successor told me that the comprehensive audit of the banks did not reveal such infractions. Of course, you must be God or have a special tip-off from inside to get to such information while the MDs are in office. Unfortunately, all over the world, no financial system has succeeded in routing out all criminal behaviours by the operators. So, Madam, I challenge you to provide one shred of evidence that ‘there was no separation between regulators and regulated’ or be honourable enough to retract your reckless statement.

    What happened? The unanticipated and unprecedented crisis of 2008/09 hit the world. More than 40 US and European banks either collapsed or were shaken badly (remember the Lehman Brothers, Fannie Mae and Freddie Mac, Wachovia, HSBC, Lloyds TSB, Citibank, Goldman Sachs, even UBS, etc) and hundreds of billions of dollars were spent to bail them out. The contagion effects spread like a wild fire, destroying national stock markets and banks. The nascent (big) banks in Nigeria faced sudden multiple shocks— liquidity, exchange rate, oil price, capital market, etc. As oil prices collapsed, loans to oil and gas became non-performing overnight; loans to the capital market became non-performing overnight; etc. Our first priority was to save the entire banking system and the economy from systemic collapse. I assured Nigerians that no bank would be allowed to fail, and not many people know what it took to achieve it. Once we had navigated through the unexpected /unprecedented turbulence, we laid out a comprehensive plan to clean up the debris which we presented to stakeholders in Lagos (March 2009). I had pleaded with the Senate to pass the AMCON bill which we sent to them in 2004. But I had a comprehensive plan to finish the clean-up with or without AMCON by the end of 2009, including second round consolidation and a N500 billion fund (my book will detail all these). I left behind an 11-volume document of the Financial System Strategy 2020 (FSS2020) which has remained the policy roadmap for the CBN/financial sector since I left office.

    I have two analogies for our experience. Ours was really like an airplane that was cruising and suddenly meets an unexpected and unprecedented turbulence. After the pilots and the crew succeed in navigating through the potential crash and probably land the airplane, people look in and start blaming the crew for the broken tea cups, chairs, and drinks that fell during the turbulence as evidence that the crew never kept the airplane clean or serviced it. My second analogy is that of a sudden earthquake in a region it was never expected and some houses collapsed. All of a sudden, the housing authority is to blame for not requiring earthquake-proof foundations for the houses. Well, my legal experts call it force majeure, an act of nature!

    To be fair, after every crisis, there are lessons (and my book will detail what, with benefit of that experience, we should have done differently). Risk management— which has always been there— now took a new centre stage all over the world following the crisis. But for anyone to suggest that CBN under me, for one minute, took its eyes off the ball is, to say the least, ludicrous. The US financial system literally crippled the world costing America hundreds of billions of dollars but no one has suggested that Alan Greenspan is no longer the great maestro!

    AMCON is a big topic (which I will address at a later date) but her claims show either ignorance or mischief. She claims that N5.7 trillion of AMCON funds was used to rescue banks and the ‘bond issued’ as ‘cost to taxpayers’. Really? I will deal with the AMCON I envisaged and the AMCON under you later but let me state that even if 100% of the banks’ NPL was offloaded on AMCON, it would not be up to N5.7 trillion. Enough said for now. The fact is that the Federal Government has not put a penny in the AMCON fund: the banking system is financing itself, and together with the sinking fund by banks, AMCON surely can’t default (thanks to consolidation that the banks are now big enough to cough out such funds to solve the system’s problem). Did you intend to deceive the readers by refusing to tell them that much of the AMCON fund is ‘investment’ and not ‘expense’. Am sure you heard the IMF’s alarm about moral hazard? If you want, we can have a focused debate on AMCON.

    Next, let me briefly respond to a few outlandish claims. She brags about ‘single-digit’ inflation rate ‘now’ and alleges that when I left office, inflation was above 13%. I just laughed at this one. In Nigeria’s history, no governor of the Central Bank has delivered 24 consecutive months of single digit inflation as I did until the advent of the unprecedented global crisis in 2008. It was not for nothing that the world cheered us as monetary policy czar, Madam! Perhaps you are also not aware that we broke a world record by having a depreciated real effective exchange rate during a time of export boom and this was at the heart of our reserve accumulation and the portfolio/FDI inflows. I resisted the IMF advice to deplete reserves for liquidity management, and Nigeria had enough self-insurance to survive the global crisis. The opposite has happened under you Madam, and the Nigerian economy is in trouble. Naira exchange rate appreciated under me from N133 to N117 before the global crisis; and reserves grew to all time high of $62 billion. For the first time since 1986, the official, interbank and parallel market exchange rates converged under me. You can’t match these records!

    I hereby challenge your attempt to blame others for not saving for the rainy day. It is not a virtue when you are quick to appropriate all the credit when things are going well, but shift the blame when they go wrong. You blame the state governors— who, according to you, have taken the Federal Government to the Supreme Court—not that a Supreme Court judgment forced your hands. For your information, the governors have never agreed to savings and always threatened court action even under Obasanjo. Why did we save under Obasanjo but not under Jonathan? Two keywords explain it: leadership and integrity. Governor Amaechi said the governors insisted on sharing the funds because they found out that you were illegally fiddling with the savings. So, as Nigerians still wonder, if billions of dollars are now ‘missing’ under your nose, why should governors trust you to keep their money? Do the states that have taken the federal government to the Supreme Court and refused to save also include the PDP governors—who are in the majority? If so, then it is fatal: even governors of your own party, PDP, do not trust you to keep their money! Furthermore, did the governors also stop the Federal Government from saving part of its share? If you ran a surplus budget at the Federal level, you would have had credibility to blame others or to say they did not listen to your advice. The key point is that since you were running huge deficits yourself, it was also in your own interest to share the ECA. You did not show leadership or credibility, full stop!

    Next, Madam, I was really embarrassed for you to read that one of the reasons for declining forex reserves is ‘oil theft’. Under you as Minister of Finance and coordinator of the economy, the basket of our national treasury is leaking profusely from all sides. Just a few illustrations! First, you admit that ‘oil theft’ has reduced oil output from the average 2.3 – 2.4 million barrels per day (mpd) to 1.95mpd (meaning that at least 350,000 to 450,000 barrels per day are being ‘stolen’. On the average of 400,000 per day and the oil prices over the past four years, it comes to about $60 billion ‘stolen’ in just four years. In today’s exchange rate, that is about N12.6 trillion. This is at a time of cessation of crisis in the Niger Delta and amnesty programme. Can you tell Nigerians how much the amnesty programme costs, and also the annual cost for ‘protecting’ the pipelines and security of oil wells? And the ‘thieves’ are spirits? Come on, Madam!

    Second, my earlier article stated that the minimum forex reserves should have been at least $90 billion by now and you did not challenge it. Rather it is about $30 billion, meaning that gross mismanagement has denied the country some $60 billion or another N12.6 trillion.

    Now add the ‘missing’ $20 billion from the NNPC. You promised a forensic audit report ‘soon’, and more than a year later the Report itself is still ‘missing’. This is over N4 trillion, and we don’t know how much more has ‘missed’ since Sanusi cried out. How many trillions of naira were paid for oil subsidy (unappropriated?). How many trillions (in actual fact) have been ‘lost’ through customs duty waivers over the last four years? As coordinator of the economy, can you tell Nigerians why the price of automotive gas oil (AGO), popularly called diesel, has still not come down despite the crash in global crude oil prices, and how much is being appropriated by friends in the process? Be honest: do you really know (as coordinator and minister of finance) how many trillions of Naira, self- financing government agencies earn and spend? I have a long list but let me wait for now. I do not want to talk about other ‘black pots’ that impinge on national security. My estimate, Madam, is that probably more than N30 trillion has either been stolen or lost or unaccounted for or simply mismanaged under your watchful eyes in the past four years. Since you claim to be in charge, Nigerians are right to ask you to account. Think about what this amount could mean for the 112 million poor Nigerians or for our schools, hospitals, roads, etc. Soon, you will start asking the citizens to pay this or that tax, while some faceless “thieves” were pocketing over $40 million per day from oil alone.

    You alluded to debt relief in your response and tried to take credit. Well, your CV is honest enough to admit that your two achievements in office as Finance minister under Obasanjo were that “you led the Nigerian team that struck a deal with the Paris Club” and that you “introduced the practice of publishing each state’s monthly financial allocation in the newspapers”. You are right about the two achievements. Let me put on record that Nigeria would have secured debt relief under anyone as Minister of Finance. President Obasanjo secured debt relief for Nigeria. Much of his first term was used to get Nigeria back into the international community and to campaign for debt relief. Before you were sworn in as Minister of Finance, President Bush visited Nigeria and both of us accompanied President Obasanjo during the meeting. There, Mr. Bush promised to support Nigeria with debt relief and asked our president to ensure that he met the conditions of the Paris Club. Obasanjo mobilized the global political support and coordinated all of us to ensure that the government met the check-list of ‘conditionalities’ as required. I spent five weeks in the hotel with my team (as coordinator/chairman for drafting the National Economic Empowerment and Development Strategy, NEEDS).

    Some of the reform targets in NEEDS became the ‘conditionalities’ Nigeria was required to fulfil to merit debt relief. You and I signed the various MoU with the IMF on behalf of Nigeria (the policy support instrument). We had a great team at work and each member of the economic team had specific aspects of the conditionalities to deliver: Bode Agusto was in-charge of the budget; Oby Ezekwesili held sway at Bureau of Public Procurement and later Minister of Solid Mineral, and Education (but specifically tasked with delivering on EITI and procurement reforms); Nuhu Ribadu was at the EFCC fighting corruption; I was at the Central Bank delivering on monetary policy and banking reforms; Steve Oronsaye worked hard to delist Nigeria from the FATF; Nenadi Usman was in-charge of the parastatals; El-Rufai held forth at FCT and in charge of public sector reforms; privatization programme went on, etc. Did you know that the IMF wrote President Obasanjo threatening that there would be no debt relief if the CBN did not meet some monetary targets, and do you know the magic we performed to meet them? Can you tell Nigerians which of the ‘conditionalities’ that you personally implemented? With the groundswell of political support and Nigeria meeting all the ‘conditionalities’, debt relief was assured.

    Your major role as stated in your CV was to lead the team to negotiate the specific terms of the relief, having fulfilled the conditions. I still believe that Nigeria should have gotten far better terms than you negotiated. Of course, with your eyes on returning to the World Bank after office, I did not expect you to boldly stand up to the donor community in defence of Nigeria. Was there a conflict of interest on your part?

    By the way, can you tell Nigerians why you were eased out as Finance Minister and you cried like a baby begging OBJ to still allow you remain in the Economic Management team—- barely few weeks after the debt relief? Why were you eventually also removed from the economic management team if you were so important? Ironically, President Jonathan has recycled you, with a bigger title and greater responsibilities. But the difference is that the team that did the actual work is no longer there, and the world has seen that the king is naked.

    You are brilliant Madam, but you need serious help. Having spent all your life in the World Bank bureaucracy largely in administration/operations, no one will blame you if your economics has become a bit rusty. There are firebrand Nigerians all over the world to draft to service. It is certainly embarrassing to Nigeria for you to be bothering World Bank economists to help you with most basic economic analysis.

    Your response on the poverty issue is deeply troubling. You accuse me of using “2011 statistics on poverty by the NBS to support his argument, while ignoring more recent figures”. At least you did not refute the NBS figure as valid. In the next sentence, Madam went ahead to note that “as stated in the Nigeria Economic Report 2014 by the World Bank, poverty in Nigeria has dropped from 35.2 percent of population in 2010/2011 to 33.1 percent in 2012/2013”. Did you notice that you have quoted two figures for poverty for the same year as being equally correct? So, for 2011, was poverty 71% (according to NBS) or 35% according to the World Bank? To the best of my knowledge, the last published household survey by NBS was in 2011. The World Bank does not conduct household surveys in member states to determine poverty incidence. So, when and by whom was the survey that gave the World Bank figures?

    What worries me is that this government is the first in our history to attempt to manipulate our national statistics under Okonjo-Iweala. When NBS published the poverty figures in 2011, she felt indicted and incensed. She called upon the World Bank to come and examine the ‘methodology’ and get NBS to ‘review’ its numbers. Oby Ezekwesili (as VP Africa Region rejected the call to try to tamper with a country’s statistics). Once Oby left, the ‘World Bank’ started talking about ‘new figures’, without conducting any new surveys. I was told about it by a World Bank economist, and I cautioned that it was a dangerous gamble that would damage the credibility of the NBS. If you want to ‘review methodology’, you conduct another survey but you can’t change ‘methodology’ because you don’t like the published figures. No government in our history has tried it: even Sani Abacha allowed a poverty survey that put poverty at 67% under his regime. At this rate, who will believe statistics coming from the Nigerian government again? Is it now the World Bank that sits in Washington and allocates poverty numbers to Nigeria? Something smells here!

    Madam alleges that the NBS—as a parastatal under the National Planning Commission (under me) departed from the ‘international standard method of poverty measurement’. How and when, Madam? I was in office at National Planning for 11 months from July 2003 to May 2004. A poverty survey was conducted in 2004 and the results computed and published in 2005/2006— more than a year after I had gone to the Central Bank. Or perhaps, it was a clever way to divert attention from your manipulation of published economic statistics. The NBS published its poverty data in 2006 when you were Minister of Finance, and you did not question the ‘methodology’ because the figures looked good. In 2011, the poverty numbers (using the same methodology as in 2005/2006) indicted the government and suddenly, the ‘methodology’ is wrong. Interesting times!

    Now that you decide which economic statistics published by NBS to accept and which ones to ‘change the methodology’ to give favourable figures, you can keep feeding your manipulated figures to your international media circus for the vain glorious awards to sustain an empty hype, while Nigerians groan under hardship. We can actually ask Nigerians whether they are getting better off now contrary to your bogus figures.

    Many of Madam’s responses were comical, but this one is classic. According to her, the chief economic adviser and NBS “worked hard to determine how many jobs we need to create in a year”, and went on to ask, “why didn’t Soludo do this when he was CEA?” (Lol!). Madam, any good economist needs less than 10 minutes to compute this figure, not the (months? of) ‘hard work’ by your team. My calculation is that the number of jobs Nigeria needs to create each year to significantly reduce unemployment rate to sustainable levels in the next few years is at least 3 million, and not the 1.8 million by your team. We are talking about the Nigerian economy, please.

    Your magic wand for mass housing is the Mortgage Refinance Corporation with 23,000 mortgage offers—for a country with 17 million housing deficit! Then, there is the pedestrian proposal of a new development bank— financed with loans from the World Bank, etc? A World Bank loan to set up another ‘development bank’ where we already have Bank of Industry, Bank of Agriculture, NEXIM, Federal Mortgage Bank, etc? People have totally run out of ideas and can’t see anything for Nigeria without through the prism of the World Bank. I will offer you free consultancy on how to set up a development bank without a World Bank loan but we don’t need another one now. I actually gave President Yar’adua a two page note for a N3 trillion development fund then, and if we plug your leaking pipes, it could actually be a N10 trillion Fund. I envisioned and set up the Africa Finance Corporation (AFC)—Africa’s premier infrastructure bank!

    Frankly, I don’t understand why you seem highly troubled that the Soludo you thought had “disappeared from the political space” seems to be still around. Well, let me assure you that I will only ‘disappear’ in God’s own time. I gave credit to two past presidents who laid the foundation of the market economy we operate today. You did not contest or contradict any of my points. Rather, what you see is that Soludo must be ‘looking for a position’. Pity! If I am looking for a position, I would be running around one of the candidates now just as you are busy dancing Atilogwu dance at TAN and PDP rallies, struggling to keep your job. How Yar’adua drafted me to contest for governor in Anambra and APGA leadership as well and how I was “stopped” on both occasions are in the public domain. But I am not deterred for one minute. Chinua Achebe said that on leadership, Nigeria is a country that goes for a football match with its 10th Eleven. I am proud and happy to have offered to serve my people, and for the service of Nigeria, I will do it again and again. How many times did Abraham Lincoln, Obama, Reagan, etc contest before they got there? I actually encourage everyone who believes he/she has something to offer to get involved or stop complaining. I am happy seeing the increasing critical mass of professionals (like you) now getting involved. It is good for Nigeria!

    What is at stake is the survival and prosperity of Nigeria. Next elections are critical, and for me the key is the ECONOMY. We must offer Nigerians clarity on the choices before them. Can I propose a three-way debate with you (representing PDP/Federal Government), nominee of APC (Utomi or Fayemi? or any other), and myself (as independent citizen— I don’t belong to any of the two). Let us have two bouts of debate between now and 12th February, 2015 focusing on: CBN/AMCON and the financial system (if you want); our economy and its outlook, and agenda/alternative paths to sustainable prosperity post elections. Choose the dates and times, and for the sake of Nigeria, I will fly in. You can invite any of your international media friends as moderators. I feel the pain of the 180 million Nigerians whose tomorrow you have carelessly rendered bleak, and when I think of what the missing trillions could do for them, it becomes extremely urgent that we all must deepen the debate. Eagerly waiting for your response, please!

  • ‘Global economy on ‘sink or swim’ path’

    Let’s be blunt: The central banks have done all they can, and now it’s ‘sink or swim’ time for the global economy.

    This week the European Central Bank (ECB) unveiled a massive stimulus programme — worth $1.3 trillion — to lift the region out of its economic malaise.

    It was the latest in a long line of stimulus measures from central banks around the world. But it will only work if everybody else follows through.

    European politicians and policy makers must now make decisive moves to increase productivity, investment and growth, which can involve reforming labor market rules, promoting entrepreneurship and tweaking tax codes.

    “We all have a job to do,” said ECB member Benoit Coeure during a panel discussion at the World Economic Forum (WEF) in Davos. “We have done our part. Others have to do their part.”

    The stimulus certainly buys more time for European governments to press ahead with economic reforms.

    But they had better move quickly! The head of the International Monetary Fund (IMF), Christine Lagarde, told CNN that “inaction” is the biggest global risk.

    But as the ECB money starts sloshing around the financial system and flowing into other parts of the world, concerns have been raised about reckless risk taking and financial instability.