Sanusi rocks the boat
… calls for reduction in debt service, cautions against China
By Okey Onyenweaku
With the economy spiralling into what seems to be an unstoppable recession, the first in over twenty years, two central bank chiefs, one a former head of the institution and the other the serving boss have gone into combat mode, as both express divergent opinions on how to pull the economy back from the brink of tragedy.
Sanusi Lamido Sanusi, the present Emir Kano and erstwhile central bank of Nigeria (CBN) chief executive and Godwin Emefiele the banks current boss has expressed divergent views on monetary policy management and the efforts by the CBN to halt the country’s economic slump.
While Sanusi has insisted that the CBN has worsened the country’s economic condition by its twin policies of controlled foreign exchange rate (otherwise known as a dirty float) and capital controls, Emefiele has countered by asserting that the bank’s intervention in the foreign exchange market has been justified by its regular mop up of excess money supply and its commitment to containing domestic inflation which rose from a mild 8.8% in January this year to a staggering 18.3% by November.
Emefiele has insistently argued that the CBN monetary policy rate (MPR) of 14% has been set to ensure the cooling off of spending pressure on the domestic economy and to relieve the foreign exchange market of a torrent of demand from importers.
Sanusi, however, has demurred. The Emir of Kano has insisted that the combination of slack fiscal policy by the federal authorities and high domestic interest rates have prodded the economy into an avoidable downturn caused by tight monetary policy which has served to squeeze private businesses out of existence and devastated local employment with domestic unemployment rate now sitting at a dangerous 36% (up from 7.7% at the beginning of 2015). The current tiff between the two governors is baffling.
Only two years ago, Sanusi Lamido Sanusi was one of the most visible supporters of a President Muhammadu Buhari Presidency. A supposed high profile whistle blower on the alleged crass corruption that occurred during the Goodluck Jonathan administration in 2014, especially the alleged disappearance of about USD$20billion, Sanusi was seen as a man on an anti-corruption mission. This settled well with the perceived frugality of an incoming President Mohammadu Buhari who was also (albeit debatably) seen as a man of Spartan means and noble intentions; creating the erroneous impression of a marriage made in heaven.
It has not taken too much time to show the frailty of the admiration the former CBN boss has for the President and his administration as he has in recent weeks been blistering in his attack on the administrations fiscal and monetary policies. The short-lived love affair between both parties was perhaps not totally unexpected.
While serving as CBN governor in the Goodluck Jonathan administration Sanusi was both fiery and voluble, personality traits that pitted him against his counterparts in the administration several times. He was astonishingly quick to take on socio-economic issues without reference to the national assembly (in relation to appropriation) or even the President himself (in respect of policy direction). Indeed, Sanusi was a freewheeling economic agent with independent monetary and fiscal fiat. He spent money when and where he felt it was needed as he increasingly took on the role of chief economic coordinator (a role officially assigned to Dr Ngozi Okonjo-Iweala who at the time was the Minister of Finance and Coordinating Minister for the Economy).
It was not out of character for the new Emir of Kano as erstwhile CBN boss to spend money on economic issues he felt strongly about, resulting in a floodgate of ‘special intervention’ accounts at the Bank ranging from funds for manufacturing to funds for aviation and then funds for special issues such as rehabilitation of victims of terrorist attacks. Sanusi’s social consciousness has never stopped him from using public money to address public issues, who decides those issues is another matter entirely. This, inevitably, would set the tone for his current anger with managers of the economy and the hardship these policies seem to be inflicting on the local population.
Sanusi who was suspected to have strongly supported the Buhari Presidency in 2015 has found it difficult to remain on the side-lines of debate over the direction of the economy and the society. The slowness in executive decision making and policy implementation has drained the private sector of its vitality. Over three million jobs have been lost between 2015 and 2016 as companies fall into bankruptcy or operational unsustainability one after the other. Only recently Erisoco Industries suspended production and put the livelihoods of over 1,500 workers in jeopardy as the company had found it impossible to fend of the consequences of a conflicting foreign currency policy where the CBN was alleged to favour the allocation of foreign exchange to importers of finished tomato paste products rather than to local manufacturers of the good. Even Aliko Dangote, Nigeria’s foremost industrialist, has recently had to cave in to pressures to lay off workers as production at his plants have sunk on the back of lower consumer demand.
Both rich and poor are beginning to express anger, anxiety and hopelessness about the worsening economy. Hunger is exacerbating by the day. The country’s Gross Domestic Product (GDP) has plunged from -2.1 per cent in the second quarter 2016 to -2.24 per cent in the third quarter 2016.
Sadly, the foreign exchange rate has reeled off the track as Naira exchanges for the dollar at N 475/$1, inflation has hit the roof at over 18 per cent and lending rates still hover at a scary 30%.
Feeling strongly that the managers of the economy have derailed, Sanusi has not only advised, but has also warned in strong terms that government should do the right things to refocus the economy.
The Emir of Kano and former CBN Governor has condemned plans by President Muhammadu Buhari to borrow $29,960 billion for the country. He doubted the possibility of any country or international organisation lending Nigeria such a huge amount of money given that her economy is not stable and predictable and has five exchange rates.
Sanusi has been consistent in criticising Mr. Buhari’s economic policies. First, he told Buhari that his government was drifting and would likely end up like that of President Goodluck Jonathan if he does not reverse focus.
“I can tell you for free, if the Senate today approves that we can borrow $30 billion, honestly, no one will lend us,” he said.
“It should be approved and I will like to see how you will go to the international market with an economy that has five exchange rates.
“There is one rate for petroleum marketers, there is interbank rate, there is another for money market operators such as western union, money gram, there is bureau de change rate and there is a special rate you get when you call the CBN for a transaction.
“So, who will borrow you when they don’t know your exact reserve and exchange rate? I want to see who will borrow you money when the Niger Delta bombing of oil is there when the main source of the loan repayment is oil.”
He advised Federal government to involve private sector investments, increase capital expenditure, be cautious with China who is killing Nigeria’s textile and other local industries, reduce its debt service through greater loan concession. He also asked for tax incentives and other benefits to encourage the private sector.
Recently, too, Sanusi had accused the CBN of lending to the Federal Government above the limits stipulated by the CBN Act of 2007.
He revealed that CBN’s lending to the government since President Muhammadu Buhari came to office had spiked from about N1.5 trillion to over N4.5 trillion.
“CBN claims on the FGN now tops N4.7 trillion, equal to almost 50 per cent of the FGN’s total domestic debt. This is a clear violation of the Central Bank Act of 2007 (Section 38.2), which caps advances to the FGN at five per cent of last year’s revenues. Has CBN become the government’s lender of last or first resort?”
He expressed fear that the country was already over- burdened with heavy debts, stating that out of every N1 Nigeria makes, 40 kobo goes to debt and 60 kobo is left for salaries, health, education, power, infrastructure.
He also warned the government against continuing to blame previous administrations for the nation’s woes, saying what was important was for the administration to concentrate on putting the nation back on the path of progress.
President Umaru Musa Yar’Adua nominated Sanusi as Governor of the Central Bank of Nigeria on 1 June 2009 and his appointment was confirmed by the Senate on 3 June 2009, in the middle of a global financial crisis. Analysts believed that Sanusi’s tempered mien would serve as a counterpoise to the more aloof disposition of his predecessor, Charles Chukwuma Soludo. Based on his past record, it seemed probable that as governor of the central bank he would impose stricter controls.
In August 2009, the Sanusi led the Central Bank to “rescue” Afribank, Intercontinental Bank, Union Bank, Oceanic Bank and Finbank by bailing them out with 400 billion naira of public money, and dismissed their chief executives. Some point to other factors including religious, ethnic and existing bank records and plans to say he in fact had a hidden agenda. He said “We had to move in to send a strong signal that such recklessness on the part of bank executives will no longer be tolerated.” 16 senior bank officials faced charges that included fraud, lending to fake companies, giving loans to companies they had a personal interest in and conspiring with stockbrokers to boost share prices, and today he has been appointed as the Emir of Kano by Gov. Rabi’u Musa Kwankwaso of Kano following the departure of Alh. Ado Bayero. In September 2009, he said that 15 of the current 24 Nigerian banks might survive reform in the banking sector.
In a wide-ranging interview with the Financial Times in December 2009, Sanusi the extensive reforms that he had initiated since taking office, dubbed by some as the “Sanusi tsunami”. Some believe that he had a personal vendetta against some of the bank CEOs while others point to proof of mismanagement of funds by some of the CEOs, most notably Cecelia Ibru as justification for the steps he implemented. He noted that there was no choice but to attack the many powerful and interrelated vested interests who were exploiting the financial system, and expressed his appreciation of support from the Presidency, the Economic and Financial Crimes Commission, the finance minister and others.
In January 2010, Sanusi said that banks will only want to give credit to Nigeria’s small and medium enterprises (SMEs), if the government gives adequate attention to the provision of infrastructure.
In January 2010, Sanusi admitted that since 2005 the Central Bank had not conducted routine examinations of the 14 banks allocated to it under the sharing arrangement with Nigerian Deposit Insurance Corporation (NDIC). Abubakar Nagona, president of Integrated Development and Investment Service (IDIS), a venture capital investment company urged Sanusi to “not be cowed and succumb to undue pressure from operators of the same sector he is striving to bring sanity to.” At a February 2010 conference on banking in Nigeria, Sanusi described his blueprint for reforming the Nigerian financial system. He said that it was built around four pillars of enhancing the quality of banks, establishing financial stability, enabling healthy financial sector evolution and ensuring that the financial sector contributes to the real economy. Talking later that month, Sanusi said that the crash in the capital market was due to high level of financial illiteracy on the part of Nigerian investors.
The Banker recognized him as the Central Bank Governor of the Year 2010 citing his radical anti-corruption campaign aimed at saving 24 banks on the brink of collapse and pressing for the managers
However ,the Central Bank of Nigeria is worried by the barrage of criticism and attacks it receives daily. But the criticism that appear to hurt it most is the one that comes from Godwin Emefiele’s predecessor, the new Emir of Kano, Muhammadu Sanusi II, who CBN said has a better channel through which to advise the apex Bank.
“It is easy to criticise from outside but my advice is not to sit back in a garden and call press men and begin to raise criticisms that are untrue and unsubstantiated.
“We need advice of former CBN governors, there are channels they can use but not sit in their garden and call pressmen to raise criticism and say what is not true.” Said Emefiele
Sanusi who has only approved of one of the policies of the CBN recently ( Maintaining the rates, MPR at 14%, the Cash Reserve Ratio at 22.50 per cent and the Liquidity Ratio at 30 per cent) had not seen much deviation from his own policies in his days as CBN boss.
He targeted inflation , even though it was low because there was better and higher revenue from crude which enabled him defend the naira with huge funds from the reserves, he had also spent huge funds on interventions to some critical sectors without appropriation. The N100million he donated to victims of that bomb attack in Kano State raised concerns.
Sanusi also claims to have cut down on spending. ‘’In 2012, CBN spent N38billion on mint printing down from the N49billion spent in 2011. In 2013, we spent N35billion and, in my 2014 budget, my plan was to spend N30billion. So, we have been bringing down the cost of printing’’,
Responding, the Presidency said the Emir of Kano did not have the facts on the issues over which he criticised President Buhari’s administration.
The CBN governor said it was better to provide creative advice that would help the economy than sitting back criticising.
Emefiele said: “It is easy to criticise from outside but my advice is not to sit back in a garden and call press men and begin to raise criticisms that are untrue and unsubstantiated.
“We need advice of former CBN governors, there are channels they can use but not sit in their garden and call pressmen to raise criticism and say what is not true.”
The CBN governor advised Nigerians to look inwards in order to come out of the present economic predicament.
He lamented that Nigerians spend about £2 billion on their children studying abroad at the detriment of the the nation’s educational sector.
Emefiele further blamed the elite who preferred imported materials to local ones for the current crisis, and wondered why CBN is often condemned whenever it takes decisions to reposition the economy.
“When you introduce a new policy and people do not complain, then that policy is not working. But when policies are introduced and people are shouting and complaining, then the policies have reached the right place.
“It means the policy is working. We should not use our hands to destroy ourselves, we should not use our hands to kill ourselves,” he said.
Emefiele’s view on the economy reveals that Nigeria has been dealing with the effects of three serious and simultaneous global shocks, which began around the third quarter of 2014. These according to him include: ‘’The over 70 percent drop in the price of crude oil, which contributes the largest share of our Foreign Exchange Reserves and Federal Government Revenues; ▪Geopolitical tensions along critical trading routes in the world including between Russia and Western Powers, Saudi Arabia and Iran, etc.; and The end of Quantitative Easing and Normalization of Monetary Policy by the United States’ Federal Reserve Bank’’,
‘’Given the sharp drop in oil prices, Federation Account Allocations to States have dropped by an average of about N2 billion monthly per State, which partly explains their inability to meet some basic recurrent expenditures including payment of workers’ salaries. Similarly, average inﬂows of foreign exchange into the CBN have fallen by over US$2.3 billion every month over the last 26 months’’, he said
Emefiele had asked, could we have been better prepared to deal with this downturn? I guess my answer is a resounding yes! Every economy goes through phases of booms and bursts, peaks and valleys, highs and lows, prosperity and difﬁculty. Contrary to correct policy prescriptions during times of boom, we opened up our economy to “allcomers” and dropped all capital controls. At some point, we received more than US$23 billion in “hot money” FPIs in the country in a particular year. Monies that could easily evaporate at the slightest hint of an economic slowdown. Recall that in September 2008, Nigeria’s FX Reserves hit a whopping US$62 billion, even after we had spent about US$12 billion settling our external debt obligations. What did we do with the money?
‘’Let me note at this juncture that every one of these developments has a direct impact on our FX Reserves. When I assumed ofﬁce in June 2014, our FX Reserves had fallen from the 14 aforementioned high of US$62 billion in 2008 to only US$37 billion! Yet, demand for FX has reached an all-time high of over US$1.2 billion per week or US$4.8 billion per month’’, Emefiele said.
Some analysts have thrown their weight in to the debate. However, some of have said that government reserves a right to borrow money from the CBN but she must do that based on certain principles that keeps it at a reasonable minimum.
“The principle is that the CBN should be kept to their minimum. That is what IMF convention detects. And we are all members of IMF. Nigeria is a member and many other countries. And for the sake of sound public finance, they have said it should be kept to a minimum because the Central Bank of a country is not a bank of first resort. It is a bank of last resort. So, if we keep on borrowing and borrowing from the CBN, it defeats the purpose of sound fiscal management.
A very common Nigerian adage says that when two elephants fight the verdant shrubs under them tend to suffer, in the asymmetric conflict between Sanusi and Emefiele, the adage could prove wrong. The difference between the two economists may enrich and perhaps redirect policy in the broader interest of Nigerians.