Why CBN Won’t Bridge Official, parallel Market Exchange Rates –Utomi

One of the topical economic issues in the minds of many Nigerians is the ongoing redesign of the naira. Some have expressed mixed feelings about it, but the Central Bank of Nigeria has restated the motivation and the gains. What are your thoughts on that move?

There are many perspectives out there, but I think people need to interrogate what the goals of the CBN are. Is it to save the further slide of the naira and re-evaluate it or does it have to do with the elections? There is also the possibility of that decision affecting many people who have taken money out of circulation and stashed them away in houses to use for elections or whatever it is they do. Obviously, it could put such persons under pressure to try and change the money and then expose those doing such things. To that extent, that appears to be an advantage of the process. So, it is not all doom and gloom. However, intentions and execution clarity are two different things and that’s what I’m a bit worried about rather than the question of whether or not the Ministry of Finance, Budget and National Planning was briefed which is a big red herring because the ministry is represented on the board of the CBN. So, let’s tip the conversation away from those side issues. The key question is whether that move can help to curb inflation and that would depend on what is done by those who have the responsibility. We have to get it right and be careful with execution because the last time we tried to do this in 1984, 53 suitcases of money arrived.

Some people have capitalised on the fact that the CBN Governor, Godwin Emefiele, is a card-carrying member of the governing All Progressives Congress and that some of his decisions could have political undertone. What do you make of that perspective?

I think the reason we talk so much about the autonomy of the central bank is because it is critical for it to be able to come to conclusions without being affected by either partisan or political considerations at all. I think it is unfortunate that we are dealing with whether or not the central bank governor is politically neutral. It’s not a good thing. I believe that part of the reconstruction that must take place in Nigeria, let’s be clear in our heads, is that Nigeria has reached rock bottom. Part of what must be done as we begin to find our way back is to insulate institutions like the CBN. Somebody asked me months ago what I would do with the CBN if I were the president and I said I would hire Raghuram Rajan and the person was scandalised. Rajan, an Indian, is a Professor of Finance at the University of Chicago from where he became Chief Economist at the International Monetary Fund and from there, he went to be the governor of the Reserve Bank of India (equivalence of the central bank) but when the current Prime Minister (Narendra Modi) came, they didn’t seem to agree with him and he left the job. I believe he is back at Chicago now.

What informed your choice?

Besides the fact that I think Rajan makes a great central banker, I think it is important to inoculate the central bank from the errors of the last 20 years or thereabouts by not just getting the right person but somebody who is as neutral as a foreigner. After all, people forget that the last governor of the Bank of England was a Canadian and they actually tried to hire Rajan to replace him. So, we need to strengthen the institution and make it more professional. Right now, there are perceptions that it is not a neutral institution and cannot be trusted to act in the best interest of the overall economy and you know that sometimes perception is more important than reality. We don’t know what the real facts and the truth are, but those perceptions are enough to begin a major reconstruction of the central bank as an institution.

excessively on areas that are not its core functions, like providing agric loans?

We know that the primary duty of the central bank is to focus on managing inflation and monetary policy. It is also a champion of capital formation. How do you make capital available that it can create value and improve the quality of people’s lives? You find that one of the biggest impediments in our kind of political economy is that we have lots of assets that are not energised because we do not have what the Peruvian economist, Hernando De Soto, referred to as ‘The Mystery of Capital’. That was the title of his book. The point he made was that the poor have assets, which unfortunately become dead capital because there are no institutional frameworks that make it easy for them to be used to get a credit facility they could use to create wealth.

Are you speaking in line with the view that Nigeria has huge unlocked assets?

A very simple example is representational systems, the Land Registry. Every plot of land in Europe or the United States is documented in the Land Registry. So, if your grandfather in Yorkshire dies and leaves you three acres of land, that land immediately has value because it is documented in the Land Registry, and it means those acres of land are fungible, meaning they can be translated into another value. You can go to a bank, use it as collateral to access a certain amount you could use to start a business that will employ people, create more value and grow. You also become richer. However, because we don’t have representational systems that work, you see that as far as our system is concerned, any land that is not in Ikoyi, Victoria Island, Maitama and Asokoro is totally of no value to the banks. That is a problem. This is the kind of area you expect the CBN to be interested in to make access to capital easier. But that is not where the energies are going. Unfortunately, the CBN has become an agricultural lender, whereas there are development banks in the country; we have Bank of Agriculture, Bank of Industry and Development Bank of Nigeria, so why will it be giving money to people to go and plant cassava or rice? That is that of the reasons why people accuse the CBN of being political because they claim that some of these monies are going to partisans and they are not easy to recover. So, our challenge today is how do we crack the mainstream of capital and does the CBN play a catalytic role in that?

In a presidential system, the buck stops with the President on many developmental issues; if the candidate of your party, the Labour Party, Mr Peter Obi, wins next year, will he execute some of  the ideas you mentioned earlier?

I think you can trust him for a variety of reasons. He would be president, but he’s not an all-knowing man. What we have adopted is a collegian leadership approach. The third force built long before he (Obi) even joined was focused on defining how Nigeria can make progress and have a people that have shared responsibility to be held accountable as a collective. That remains intact and that is why we have what we called the big tent. We have people who are not in the Labour Party that are also supporting this process. The critical thing is that we have clear commitment of service to the people. Many of the failed economic policies now are not failing because they are not good ideas; they are failing because ab initio, the nature of the traditional political parties like the All Progressives Congress and the Peoples Democratic Party is state capture for the personal aggrandisement and benefit of those who capture it. If the government is focused on the common, how is it that one man does not feel ashamed that he is using such an extraordinary part of the resources of this country to keep himself alive? Flying the presidential jet, travels to treat himself, but the rest of the country is dying and nobody is treating them, literally. Something as simple as malaria is an epidemic in Nigeria. It is killing people than any war. What it takes to cure malaria is less than $10, but most of the people are too poor to spend $10 to overcome that biggest killer. Yet, one man who runs that country spends thousands of dollars to go and treat himself. It is morally unacceptable. Ideally, state resources should be used proportionately and fairly for citizens. You can preach whatever you want, but those who run the country are of the mindset that this is our time to enjoy. It’s a pity that the way our financial system is managed is at variance with what most Nigerians desire. There is a book people should read, ‘When genius failed’ by Roger Lowenstein. It’s about the failure of a bank called Long-Term Capital Management, which was founded by top and very bright bankers. But the bank failed.

Another major concern Nigerians have at the moment is the exchange rate, especially the arbitrage between the official and the parallel market rates. Why has it been impossible to bridge that gap, because some people feel the CBN seems deliberate in retaining that model, which enriches a few individuals?

Even your own dollar that you deposited with banks, you have to line up to get it. I pray the Holy Spirit helps us that we don’t become like Lebanon and would have to use a gun to get our money from the bank (laughs). You asked why it is impossible to bring sanity into that market. It’s because of interests. People are not honest in serving the economy; they are serving private, personal interests and they placed those above the common good. I am pained about what has happened because of what it took us to build a forex market. Let me go back to history. There was a time when we had exactly what we are having now. The arbitrage was so huge that if you had connection, that was all you needed to be rich. They would supply you dollars and you could sell at twice the cost and you would live like a king for doing nothing. That was the case in this country. Then, we had block currency and the central bank allocated forex for different purposes. After inflation got worse, the system decided that what was needed was price control. So, Nigeria got what was called Productivity Prices and Incomes Board.

Did that help?

How will you feel if Peter Obi does not win?

I have tried to provide evidence-based analysis of the trouble with Nigeria and where things are likely to go. It’s not a personal thing and I will be the first to tell you that most of these other candidates are my very close friends. But it is not about friendship. Having been close enough, I can tell you. I was there when they were forming the PDP. Some of us decided that we will not participate in politics in 1998 because of the role we played in fighting the military. We thought we shouldn’t be seen as doing all of that to create a space for ourselves. So, we allowed the politicians mount the stage while we stayed away from politics. I was close to people like Dr Alex Ekweume; I literally accompanied him to the meetings that resulted in the formation of the PDP. So, I was there at the foundation level. I led the policy advisory team for the presidential candidate, Olusegun Obasanjo, in 1998. Ayo Teriba and I did most of the heavy lifting in trying to prepare policies for Chief Obasanjo. So, I saw everything and I saw the slide begin. No matter what you say, Chief Obasanjo has turned out to be the strongest of the leaders in this current republic. But it has been getting worse and we felt we needed something different. When a particular newspaper set their annual lecture on the subject of political parties in 2012, I was invited to give that lecture. After I finished analysing what the problem was and the way forward, Dr Paul Unongo ran to meet me at the podium and said he wished he could lock the door and make sure nobody left until we gave them a new platform to deliver the country from the PDP. The major leaders of the opposition were there; Bola Tinubu, Chief Bisi Akande and Muhammadu Buhari were also there. I remember Uncle Sam (Amuka-Pemu), the publisher of Vanguard, who was on the high table, sat on the last chair next to the podium where I spoke, and when I finished speaking, he said, ‘Pat, I didn’t know you were this deep’ and I laughed. So, I joked with him that ‘Did you think I was shallow?’ and we laughed. That was the beginning of the founding of the APC, and we played the role we played in developing the ideas.

Would you say those ideas have been implemented?

The people who grabbed power were not interested in a new Nigeria. They were just interested in power and state capture, and we have seen how they have used state capture and where it has brought Nigeria. From very critical analysis, my conclusion therefore is that it’s not about them being good or bad people. It’s about the nature of the structure. I then used a paradigm to basically analyse what Nigeria has been going through and it is called the structure, conduct performance paradigm, which basically says industry structure influences how people behave and conduct themselves within that industrial environment and this results in outcomes. The structure of traditional Nigerian political parties leads to transactional engagement like, ‘help me snatch ballot box in your polling unit and make sure you win your ward, then I guarantee you the position of a commissioner’. That is why everybody wants to be on their campaign council, because everybody wants to play a role and be assured of a position.

By the time they do all those trade-offs, the last thing on their mind is Nigeria and its future. It’s not because they are bad people, but because the process consumes them in those transactions. I am certain that if we continue that way, there won’t be Nigeria in a few years. We will have another Somalia. What can I do if that happens? I can carry my bag and leave, and I can even move to the Somalia itself (laughs). So, these guys can’t even help themselves. All they can do is damage the country, not because they don’t like the country, but because of the process they set up for themselves.

State capture seems like a phenomenon in Africa, like the Zondo Commission in South Africa revealed in its report a few weeks ago. What do you think of that report?

The way President Cyril Ramaphosa delivered his presentation on it is interesting. I have been on the board of South African companies for years and there is no board meeting in South Africa that they don’t talk about the problem of state capture. When they say it, I laugh, that’s because there is a powerful family called the Guptas, they are talking about state capture. They should come to Nigeria and see how Indians and Lebanese hold our economy prostrate. They are in bed with Nigerian politicians ruining their country and they don’t care. Nigerian politicians are so dumb that they don’t even know what they are doing. But in South Africa where it is even much less, they are screaming about it. We need to continue to educate the political class, because if you leave them alone, there will be no Nigeria.

You once said any country where politicians are richer than business people is in trouble. Do you think politicians can allow that trend to change?

I was actually quoting a Ghanaian highlife musician, who said any country where the politicians are richer than the musicians is about to fall off the cliff. That is what has happened in Nigeria. The richest people are politicians. It is tragic for the country and they don’t understand it. They don’t know the import. Hopefully, it won’t be too late before we come to realisation. In most countries, successful politicians are middle class people; they are not the rich people. In fact, in the early history of our country, many of the good politicians were not the rich people. I keep giving the example of Onyeka Onwenu’s father, who was a member of the Federal Parliament from Port Harcourt. He was a teacher and he continued his job as a teacher while he was in the Federal Parliament. He was a citizen legislator and he would come back and borrow money from her mother, a trader. He rode around in his bicycle whenever he came back home. Compare that to today; National Assembly members have the most luxury vehicles as official cars and so they spend a disproportionate part of the resources of this country on themselves. Why will the country not fail? Of course, it will fail.

But of course, citizens are the ones who left them alone. Many people are not educated to their rights and duties as citizens. Quite frankly, oil did not help matters. In the 1960s when I was growing up, one of the most interesting places to be was around Lagos University Teaching Hospital because that was the border between Western Region and the Federal Capital Territory in Lagos. The federal capital started around Mushin. They used to chase people who did not pay tax in the Western Region and they would run into Lagos through Mushin. So, people knew their duty to pay tax; they knew the consequences of not paying tax; they knew government would use that tax well and that was the social contract between the people and the government. When the military took over and oil money came, the military thought ‘let’s not bother these people, we have the money to spend anyway’ and they began to spend the money on themselves. The people said since they were not disturbing us for tax, it wasn’t our money. Let them do whatever they like. This is why a group of economists began to argue that there was a need to make citizens realise that mineral resource wealth was their money.

You think they are not aware?

Two Columbia University economists at the time, Xavier Sala-i-martin and Arvind Subramanian, wrote an IMF working paper and it was published in 2003, that Nigeria would be better off if it didn’t have a government. It wasn’t a joke. They said the citizens would be better off if the government shares oil money according to the number of citizens by mailing them the cheques. The naked truth however is that many oil producing places do a bit of that. If you go to Alberta in Canada and Alaska in the United States, depending on oil prices at a certain time of the year, the government will put cheques in a mail to the citizens, which is a share of the oil money that came in, because the belief is that the government will not spend the money as responsibly like the citizens will spend it on themselves. This is redistribution of mineral revenues.

A Norwegian economist, Martin Sambou, then at Harvard, who is now an Editor with Financial Times – I once invited him to Nigeria and he appeared on Patito’s Gang about 15 years ago – proffered a thesis that the Subramanian and Martin thesis was too extreme. He said government should calculate what it earned from oil, divide it by the number of citizens and that is what individuals would get. He then said government should write people and notify them of what is due to them but that the government should tax the money at the rate of 99.8 per cent. He said people will disagree with the tax rate, but that this will create an endowment effect. It means people will know it is their money and this will make them to hold the government accountable. What is happening now is that people don’t know it’s their money these politicians are spending. So, they also don’t care. If Nigerians know that it is their money the National Assembly is using to buy vehicles when people cannot eat, there will be a difference.

The economy seems to be on its knees, and ahead of the elections, parties have released very beautiful manifestos with lofty projections. What do you think should inform people’s choice?

There was a time South Korea’s democracy was like Nigeria’s, with godfathers and moneybags, and the Korean Electoral Commission felt very frustrated and introduced a very simple thing; that from that moment onwards, democracy must be by debates. That was what saved South Korea’s democracy. The candidate would debate in the classroom, marketplace and on television. By the time the candidates have had 12 debates; people will know who is able to deliver what each candidate is saying. Moneybags ran away from South Korea’s politics. I challenged my friend, Prof Attahiru Jega, about this in a lecture he deliveredat the Nigerian Institute of International Affairs when he was the chairman of INEC. I raised it and he agreed, but said his tenure was coming to an end. So, INEC is part of the problem. If it does not force candidates for public office to have debates, then it is not ready to better nurture this democracy.

But INEC does not have the legal authority to compel the candidates to attend debate?

They don’t need to be empowered, they have enough powers. They could insist that parties must go through debates. These manifestos are not enough to reach a decision; a candidate could get academics to prepare one for them. Didn’t we write one for Buhari; did he believe in it?

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