By ex-NBA president
By Chidi Obineche
Former president of the Nigeria Bar Association, NBA and acclaimed pro-democracy activist Dr Olisa Agbakoba tells of the magic wand that will pull the country out of the economic woods by the middle of 2017. The maritime lawyer, who is also a graduate of the London School of Economics, speaks on those who caused the downturn among other economic and sundry issues. Excerpts.
What is your personal diagnosis of the nation’s slump into economic recession?
We have this complicated, endemic, malignant, metabolic economic recession. To understand that, and proffer solutions to it; the single biggest culprit in our present predicament are the banks. During the great depression in America, banks were busy speculating and trading. But, the president, Franklin Delano Roosevelt, got the Congress to pass a law – the Glass- Stegall Banking Act, directing banks not to speculate or trade, but lend. This strictly restricted what banks can do.
To what extent are the policies of government complementary to the problem? How can the nation pull out of the recession?
This morning,( Tuesday, September 7, 2016) the Special Assistant to the Central Bank governor in his policy speech on Channels Television was talking as if he is the managing director of a bank. They are investing in Agriculture; they are producing rice, they are doing this and that. I said, what is this guy talking about? The work of a commercial bank is to lend. But if you don’t regulate; even in your own profession, if you don’t regulate any profession, it will go haywire. So the problem with the Central Bank of Nigeria, CBN is that it must have more cohesion in regulation. In the UK, their own central bank; the Bank of England created a special supervision agency called the Prudential Regulatory Authority. That is all they do. You may wonder that all the money that the CBN pumps into the system – airline intervention fund, electricity intervention fund; the banks don’t lend them out to the sector that needs it and at the required rate, which is single digit. The banks lend them as ordinary commercial notes to the big cartels; the big investor cartels, therefore, starving the very people for whom the loan is intended like the SME’s (Small and Medium Scale Enterprises). So, no wonder the system is bleeding. No nation can afford not to regulate. In Kenya, the central bank there regulates the lending rates. I am not in support of that in Nigeria, but has it occurred to you that the Federal Government of Nigeria is the biggest generator of money, but it cannot control the rate at which money is lent. So they put the money in the bank, and the bank lends it right back to the government at very high rates. In order to deal with that problem, the government through the Treasury Single Account, TSA is depriving banks of liquid cash. That will not solve the problem, because the TSA funds are sitting idle in the CBN vaults. What the government should have done is to tell banks that this is our money. We are giving it you, but your lending rates must be 3%.When the British government found that it was difficult to cater for school leavers, they set aside £20 billion, and picked four banks to handle the process. They told the banks that we cannot lend. You know how to do it, but do not exceed 2%. That is how to stimulate the economy. Our biggest challenge is financial pep up. Apart from that, the second big challenge we have is that we don’t have a body of economic advisers. If you know any, you can tell me. The only body constitutionally recognized in Nigeria is the National Economic Council. They meet once in a while. That is a body that has absolutely no business in directing the affairs of the economy of the nation. Check out the composition- the Vice president, all state governors, former presidents, etc. We need to have a Council of Economic Advisers made up of doyens and experienced men in econometrics, statisticians etc. They are the ones who plan the model of the economy. The absence of this is part of the reason we have low reasoned economic policy. We also need to be in a position where the country’s monetary, fiscal and trade policies are clear. I don’t understand how the Central Bank thinks that without printing dollars they can control the exchange rates. They simply can’t. The Diaspora returns into Nigeria every year, to the tune of $20 billion, where does it go? It is round tripped, because the CBN claims that they can regulate. If you become the managing director of a bank, and I am buying forex at N200, and I see that if I go out there I can sell at N400, I will do that. The Central Bank needs to do what is called quantitative reasoning. This is easing the pressure by looking for access money, lending rates. The lending rates today should be something between 10% and 20%. And the reason for the MPR i.e. the base rate set by the Central Bank is 14%.So the Central Bank is telling the commercial banks they can go with 20%. The base lending rates by the Central Bank should not be more than 4% to 5%, so that the banks can now put money on top of it. Another point is, what is the strong reason why banks cannot regulate? It got so frustrating for President Kenyatta of Kenya that he had to get into it with legislation. Some professions carry with them a certain public trust responsibility. For instance, there is no person who owns a newspaper and thinks that he can control the entire editorial policy. Yes, he has to make money; but he is not going to make money at the cost of telling lies. A doctor cannot say to a patient, if you don’t pay I won’t treat you. So banks have that public trust responsibility to assist the government to grow the economy. But the government will not be able to do such, unless there is a rash of relevant financial services institutions and laws which I am talking about. The banks’ lending rates to the real sector is 3%. This is incredible. People have no access. forty years as a lawyer, no bank can give me a dime. Yet, I have borrowed heavily from British banks.
There is something wrong if somebody at my level cannot access cash. Who are the people accessing cash? This is because you need cash to grow business?
If we have to get out of recession, I hereby recommend what Franklin Delano Roosevelt, FDR did back in the great depression days in America. He summoned Congress and made a great proclamation, and said we have to fix this economy. I will appeal to our president not to consider this Emergency Powers Act that is being proposed for a number of reasons. You will recall that when we had this recessionary trend under ex- president Shagari, the Economic and Financial Stabilization Act was passed, which was almost the same thing as this one they are floating. It failed. It is not in an Act. It is in the policy. It is in the trade policy. If your trade policy is so ambivalent and uncertain that someone like Erisco, Africa’s largest tomato manufacturer has N6 billion worth of tomato sitting in his warehouse, because it is cheaper to import it; then there is a problem. The trade barriers are so low that, why would anyone want to manufacture tomato? You buy it from outside and sell it cheaper. And that is the problem. The CFA to the Naira has crashed. The recession that is in Nigeria has spread to Benin Republic. Benin was giving us about 75% of our vehicle import necessities. Yet we have ports. But no one wants to use Nigeria’s ports because the bribe you pay is equivalent to the cost of the car. Of course there are no roads in Apapa. If we are growing the economy of Benin Republic by contributing 25% to their economy, you can see the damage that we are suffering. To close the leakages simply requires a strong president. Another thing is, if you go to the hospital, and the doctor tells you that you are anaemic, there is only one thing you are going to do. How can the government do austerity programme? An austerity programme means pulling money from the system. Money is the oxygen. So MPR (Monetary Policy Rates) pulls money, interest rates for treasury bills that are almost 10%. Banks, therefore, prefer to buy treasury bills. They are not going to give you money, when they are not sure you can pay. It is easy. They just go and put all their money in treasury bills, Government bonds, sovereign loans, and all that. If they do all that, it means that there is nothing left for them to give to the real sector. Again, government must be clear as to what policy it wants to pursue. There is only one way out of the recession. That is a massive bounce. You have to bounce the economy. Margaret Thatcher was doing her strict monetarism (Monetarism means that you use tight money to control inflation). But the problem with that is that when you control inflation, and there is a liquidity squeeze, you have a problem. In Thatcher’s case, she had a huge budget – the capitalization budget to give the economy a bounce. In Nigeria, I hope you know that Niger Delta is crying for money. You know that the South-east is crying for money? You know that the South-south is crying for money? We have public works money to spend. We have a lot, because that was what Franklin Delano Roosevelt did. He discovered that to merely print money will not help. He required creating a productive base. He used the Tennessee Valley Authority, a depressed 640,000 square miles area in the Tennessee Valley; a huge project that employed a lot of people. We need to get everybody back to work. You will be surprised at what will happen if you have projects where Julius Berger and others are given contracts to build roads. Every contract you have, you must have 10% labourers. You will then find that the economy will begin to slowly revive. Unfortunately, I don’t see this thing happening. And if it doesn’t happen, we will be looking at a very long term. The recession period is about three years. But great economists, like the former finance minister of Greece said, we can recover by Q2 2017. But that requires us to apply the best possible measures.
What role can the emergency powers being sought by the president play in injecting discipline into the banking system which will enhance the quick recovery process of the economy?
There is a conception by the policy makers here that an emergency power means that they will jump start the economy. That very notion is wrong. Others who have dealt with recession like Thatcher didn’t pass any law like asking for emergency powers. What they did was to identify the right policies which may be monetary, fiscal, or trade. When you identify the right policies, you must have the right people who understand how to move it forward. Then, you must identify what it is you want to do as a public works programme, so that you can lift the economy and avoid a surge, because you can pump money in , and it goes out. It is very critical that the interlocking policies work well. If I were the president’s adviser, I will be pumping in about $50 trillion. You may ask, where do we get it from? The answer can be found in some of the writings of Fernando Lugo Camacho. Getting aid does not hurt anybody. The total number of housing stock in Nigeria is about $7 trillion. I have said that you must index the housing stock to capital, so that it becomes tangible. It becomes movable. When I buy a house in the UK, as I am doing so, it is already registered in the land registry. It is the land registrar that signs it, and not the prime minister. It is in the movement of cash and commodities that you see money. It bleeds my heart to know that of the four by-products in the maritime sector; i.e banking, freighting, shipping and insurance, not a single Nigerian is involved. Shell produces 10 million litres of crude, pulls up the bungee, and offloads a massive vessel that carries about 10, 000 workers. They may ship it away to Amsterdam. They can put their money in their bank, then remit to the Director of Foreign Exchange at the Central Bank. Just a two-day delay, but we are looking at massive amount of money. You know that people measure a president’s performance by the 100 days thing. It came from Roosevelt. Roosevelt passed 100 bills in 100 days. Why is it that in spite of the recession, banks are declaring billions of naira in profit? How come they are not going down? It is because they collect all our money and lend it at ridiculous rates. We need a law compelling banks to do banking work, not trading. If I go to the bank today with a government guaranteed LPO for the supply of 100,000 metric tons of Premium Motor Spirit, PMS the banks will jump at it. That is what they want. But if I go there to say I need to import machinery, they will not look at me twice. I hope you know that a couple of communications companies are thinking of leaving. It is clear that we have a problem. We should not look at the problems, but the solutions. Nigeria is consumed by politics. The whole of PDP and APC are in Benin today for governorship campaigns in spite of the recession.
Going back to the roots, when did the rain begin to beat us?
If I am driving a car and keep looking at the rear view mirror, I am going nowhere. That is an African problem. Rather than focus on the road, I am looking at somebody chasing me. I am not interested in the past. I am not interested in every dog that barks, I stop to fight it. I am interested in the problem that I am facing today. So, the rain began to beat us way back in 1914. The better option is to find out what we can do to get out of recession. And we have sufficient capacity to do it. We shouldn’t be in this position at all. We have the resources to generate business, create all kinds of things. The big problem is for the policy makers to understand that politics is secondary to governance. All I hear is the PDP and APC knocking each other. By the way, the PDP is not a party. It is dead.
The APC is made up of five or six components. Everybody knows that the APC is not functioning. In real terms, we don’t have parties. If you have parties, the machinery can create the policies that drive government. APC knows that PDP are jokers and on current form, in spite of this recession, they will return to power in 2019. So, why would they work hard?
Some people blame the Minister of Finance for our economic woes, some blame the Minister of Budget and Planning, yet others blame the CBN governor. Who do you blame?
Blame the CBN governor. The MPR at 14% is too high. The over concentration of the CBN on forex market is uncalled for. Let it fall where it belongs. It may engender hardship, but are we not in hardship already? We are already in recession. The third issue is the CBN’s directorate of banking supervision. It is grossly incapable. It is too small to supervise the banks. They should copy the examples abroad and create specialist agencies, and that is why I recommended Prudential Regulatory Authority.
If the monetary policy of the CBN is improved, it will have massive impact on the economy. If you are lending at 6%, then you can borrow money. The CBN governor, with respect to him, needs to revisit some of these policies. And then do quantitative reasoning, which is the ABC of any econometrics. It is what you use, the tool you use to correct all the imbalances in the system. In the case of the finance minister, I would like to see strong fiscal policy, which will discourage irrelevant programmes. For the budget minister, no cheers at all. We are almost at the tail end of the year, but 80% of the budget is not implemented.