Economic Confidential, June, 2009

FEATURES

AFC, YarÁdua and the Rule of Law

By Les Leba

It is not unusual for a loyal and productive employee to receive a reward on retirement or withdrawal of service as an expression of gratitude from an employer; such gesture also serves to motivate serving employees to be dedicated and focused on their duties.  President Yar'Adua’s letter to the outgoing Central Bank Governor on the issue of alleged illegal diversion of federal funds into the clandestinely established African Finance Corporation seems to be in keeping with the standing tradition of a golden handshake for departing worthy employees! 

However, before we examine the implications of Yar'Adua’s thank you letter, it may be appropriate to quickly evaluate the content of Soludo’s service as his brief on assumption of office was the same as the job description of Central Bank Governors everywhere in the world, which is to evolve policies and strategies that would regulate the financial system so that the greatest good can be enjoyed by the greatest number of citizens!  In other words, the product of good governance by the Chief Executive Officer of a Central Bank would be a burgeoning industrial landscape that would promote job creation, which in turn would provide income for more and more people and thereby stimulate demand and further investment in the provision of consumer and capital needs of the people with a relatively stable purchasing power for their incomes! 

However, it may be insincere for anyone in the critical mass of our people to claim that there is a positive upliftment in their social welfare.  More people have now joined the job market, such that government itself estimates that 70m (50% of population) are currently unemployed; only 10% of the 4 million youths seeking employment every year actually find jobs; the purchasing power of meager incomes has been grossly deflated by raging inflation. Our industrial landscape continues to contract progressively and the Small and Medium Enterprises subsector is lying comatose, particularly as a result of the high cost of borrowing (over 22%) and the abject state of public power supply!  The best of our youths are sucked by the brain drain syndrome to ‘greener pastures’ abroad and the failure of banking regulation has fuelled the ravaging flame of corruption.  In what in retrospect was a colossal waste of public funds, the outgoing CBN Governor committed public resources to printing and promoting the patronage of new currencies including the N1000 note and an array of coins purported to improve portability and improve cash handling; today, regrettably, the notes possibly commands less than 50% of their values when introduced about three years ago and the coins have been rejected in spite of CBN’s efforts to force their adoption on the banks and the populace.

Banking consolidation which ‘decreed’ larger banks into existence, created amalgams of strange bedfellows and the promises of an energized banking sector that would stimulate economic growth and investments have been largely unfulfilled, such that only the banks seem to be dancing magnificently well, but, on the carcass of the real sector!  Small banks which were out of fashion at the time of consolidation have suddenly transmuted to microfinance banks laden with expectations to stimulate the Small and Medium Enterprises subsector with an interest rate burden of over 60% per annum when bigger investors have found an interest burden of 22% unbearable!

In spite of the above failures of the impact and direction of monetary policies, Nigerians will recall the N50m gift to law makers to facilitate their oversight functions of the same CBN, and also the $7bn distributed among 14 Nigerian banks as reward for successful consolidation at a time that the government was itself in search of foreign loans for infrastructural development!  It did not matter that most of the $7bn were round tripped to Nigeria where the government again borrowed most of these funds when banks bought government’s treasury bills and bonds at mouthwatering interest rates!  Neither does it matter that CBN’s monetary framework continued to distort money supply in the system by its unilateral capture of our dollar revenue and the substitution of increasingly worthless naira! 

The cost of such monetary framework is a whooping N300bn interest burden to Nigerians every year for a threefold increase in national debt without positive social impact!  Indeed, our poor position in the world’s poverty ratings within the past three years, a time we earned more revenue than all earnings in the previous 50 years put together, is ample evidence of the failure of the CBN’s policies!  Even if all the above failures in spite of the hardship inflicted on our people are not within the scope of criminal negligence, the outgoing Central Bank Governor’s creation of the African Finance Corporation has been condemned locally and internationally at best, as round tripping and potentially criminal.  A United States court had indicted United Bank for Africa (UBA) for financial impropriety with regard to the movement of federal government funds into UBA’s United States affiliate account and UBA had already paid a fine of US $15m for this crime! 

President Yar'Adua quickly constituted a committee headed by no less a figure than the Director of Operations of the Economic and Financial Crimes Commission (EFCC) to investigate the matter.  The Committee’s report after visit to the US was clear and unambiguous and noted that though the approval given by Obasanjo for the establishment of AFC was guided by good patriotic intentions, but the execution violated the rules and described Soludo as “the Chief Visioner and active directing mind” of the AFC initiative and further indicted Soludo on the grounds that his  investment of government funds was “hasty, procedurally wrong and legally flawed”.

The EFCC led committee concluded that the CBN Board has no mandate “to approve investment in an organisation that is not approved by government!  …and that Soludo should be held responsible for the recklessness of the CBN Board in making the investment…. The committee therefore recommended that  “the government should take appropriate action against the CBN Board and soludo for this ILLEGAL investment.”  It also held that “Soludo’s chairmanship of the AFC Board in his personal capacity contravenes Section 9 of the CBN Act 2007 which forbids its Governor from holding any such position by virtue of his position as CBN Governor” (D.Independent 3/6/2009).

However, in spite of these indictments,  Mr. President as a way of saying thank you for the ‘excellent services’ rendered (certainly not to the people of Nigeria) has poured effusive adulation on the outgoing Governor and publicly confirmed in a letter to Soludo as reported in several media that  “Mr. President has approved that the conclusions and recommendations in the (AFC investigative) Committee’s report be set aside” and surprisingly the President’s letter went on to direct the CBN to “rectify identified lapses and now subscribe up to 10% of the equity of the AFC on condition that the investment would serve as a catalyst for other private sector investors”  (Punch 3/6/2009).  Two issues arise from Mr. President’s position; the first is whether or not Mr. President has the right to determine EFCC investigations and ultimate prosecutions, as this appears to be in contravention of his penchant for the rule of law and doctrine of separation of powers!  The second issue is why such funding now approved (albeit without legislative consent) was not provided for domestic infrastructural development through the existing Bank for Industry, or the National Investment Promotion Council, or Federal Mortgage Institutions, etc, etc!

But then, who cares?  This is Nigeria where everything goes!  Soludo can now go and sin some more as possibly the ‘defacto’ CEO of the AFC!

SAVE THE NAIRA, SAVE NIGERIANS!