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PEOPLE AND POLITICS BY MOHAMMED HARUNA
Soludo’s Abracadabra
Last week for the second time since he became the Governor of the Central Bank of Nigeria three years ago, Professor Chukwuemeka Soludo decided to throw Nigerians a bombshell. This was only a little over a year after he threw them the first.
The first was in July 2004 when, out of the blues, he announced to a stunned audience of bankers that, starting from December 2005, any bank wishing to retain its license must have an equity base of 25 billion Naira. At the time the minimum equity was two billion.
When he first made the announcement, he said it was merely “preliminary thoughts” that were open to debate. Shortly afterwards he changed his mind and said it was now decree.
Predictably Soludo’s change of mind provoked a huge bankers’ uproar. One group of so-called Concerned Bankers took up pages in several newspapers in which they denounced Soludo’s decree as impractical and potentially disastrous for the country’s economy, among other dire consequences.
One leading banker, Mr. Atedo Peterside, the chief executive of the Investment Banking and Trust Company, IBTC, went further than most, if not all of, the country’s bankers; he took out four pages in The Guardian, and, while eschewing the doomsday language of his colleagues, urged Soludo in an open letter to make haste slowly in raising the banks’ equity.
In spite of the uproar, Soludo stuck to his guns apparently in the firm knowledge that his principal, President Olusegun Obasanjo, had been sold to the idea that the only way to shake up the Nigerian banks into playing their proper role of mobilizing funds for the country’s economic development is to push them into forced marriages, if that was what it took to get results.
Today, the 89 banks or so of all shapes and sizes that existed before Soludo made his merger declaration have been reduced to 25. And, in Soludo’s reckoning at least, this has been a good thing for Nigeria, never mind the fact that forced marriages hardly endure and are in any case a contradiction in terms in a country which says it is liberalizing its economy and making its market oriented.
Today, according to Soludo, the banks have employed more people than before the mergers and have established more branches. They have also, he has said, increased their presence on the global scene.
Perhaps it was this apparent success with his mergers that emboldened Soludo to throw his second bombshell at Nigerians last week. This time the governor called his policy pronouncement the “Strategic Agenda for the Naira.”
As with the first bombshell, but this time even more so, the central bank governor has provoked a huge uproar. The question is will he succeed this time as he seems to have done with his first bombshell?
I have my doubts. First and foremost, unlike the first time, the man seems to me not to even know what he is talking about, never mind explaining it to other Nigerians. If you think I am being unduly harsh on the man, listen to what he told Thisday in an exclusive interview the newspaper published on August 16.
Question: In simple terms how can you explain this re-denomination of the Naira?
Answer: We are going to avoid the term “revaluation”, because that will mean overtly committing to an appreciation of the currencies. It is like the currency that is depreciating and you want to get back the value (to be in parity with) somewhere it was in the past, which would in practice mean you are going to appreciate it. When it is market-determined rate, you have to appreciate the rate.”
Question: So in nominal terms nothing changes?
Answer: Nothing changes.
Question: Nothing changes? But in real terms they do?
Answer: No, no, no. Yes (laughs) in nominal terms everything remains the basically unchanged. We haven’t lost any value.
Question: So it means the Naira this time is of a different value?
Answer: Yes, (of) different value. It is just pari passu. The bus fair that used to be 15 Naira will now be 15 kobo.
Now, now. Here I am thinking I am as good with my English language as the next bloke, even if he speaks it as a first language. Yet after reading Thisday’s Q and A with the central bank governor several times over, I still felt completely stumped. Clarity of thought, it is said, leads to clarity of expression. If the man could not explain his highfalutin “Strategy Agenda for the Naira” in simple everyday language that the ordinary man on the street can understand, but resorts instead to such jargons as “parri pasu” and “market-determined” and even breaks into what is clearly nervous laughter when it is certainly not a laughing matter, then something is obviously wrong somewhere.
Second, the CBN governor says he has taken the decision because a number of economic fundamentals are now in place which had not been there before his banking mergers. These included the drop in inflation to a single digit and the related reduction in interest rates. It also included the stability in exchange rates in recent times and a huge foreign reserve.
All these are true but there were at least two things the governor forgot to tell us. First, he did not tell us that these fundamentals have not been due to a growth in the real sectors that have deep linkages with our economy such as agriculture and manufacturing. The improvements have come into existence essentially because of the rise and rise of oil price, something which is very volatile. In other words these seeming qualitative changes in our economic fundamentals have not become irreversible.
Second, Soludo did not say anything about what most economists, certainly those of Keynesian school, would regard as the most important economic fundamental of all, namely employment. The existing huge unemployment coupled with the country’s huge domestic debt and pensions owned Nigerians had made the improvements in Soludo’s fundamentals of little or no meaning to ordinary Nigerian workers, peasants, artisans and petty traders.
In his pronouncement, Soludo himself admitted he was taking a gamble. “Currency re-denomination and liberalization” he said in his controversial address, “are not without risks, especially for small open economies such as Nigeria”. The CBN governor had a duty to have spelled out to Nigerians what those risks were and how he intended to tackle them. Instead, he simply glossed over them in the unrealistic hope that they will not materialize. Unrealistic because, according to Soludo himself, virtually none of the countries that once re-denominated their currencies got it right the first time. Some, like Brazil, got it right - and this is even debatable – after six trials and errors.
In the light of all this it is hard not to agree with Alexander Egom, a leading Nigerian economist with a number of publications on the value of currencies to his credit, when he said in an interview in Sunday Trust of last Sunday that Soludo was merely rabble-rousing to achieve some hidden agenda.
Said Egom, “He just wants to make noise and unfortunately very bad noise… What he is talking about is black magic, there is no place for it in the fact of our economic history and our economic policy.”
Egom went on to accuse Soludo of doing the biddings of the Americans who have deliberately driven down the exchange value of their currency to make their exports cheap and imports expensive in order to help fund their reckless, costly and open-ended war in Iraq and against Islam.
What Soludo is doing, Egom says, is to try and make the Naira convertible through the backdoor with the support of the American Federal Reserve.
Said Egom “the dollar is loosing value so why should we go now and marry our currency in a fixed ratio to a currency that is disappearing from the world?”
I don’t know about the dollar disappearing from the world, but clearly Egom has a point in questioning Soludo’s motive in pegging the exchange value of our Naira to the dollar.
His motive is even more questionable when
you remember that less than a year ago he was saying the exact opposite of
re-denominating the Naira when he printed the
Soludo may have gambled with the bank mergers and arguably gotten it right but this “Strategic Agenda for the Naira” is nothing but an abracadabra that even he himself does not seem to understand.
For this reason alone, if not for any other, President Umaru Yar’adua should throw it into the waste paper basket where it belongs.
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