You have spent 100 days in office as governor of CBN, how has it been?
Well, if you ask me it has been 100 days of deep thought, 100 days of action, analysis, planning, and most importantly 100 days of acting upon our those plans. Because ultimately we have got no time to waste. The Nigerian economy cannot wait any longer. We know a lot about what is wrong with the economy. Before I assumed office as Governor of the Cental Bank, I was the President’s chief economic adviser and I was also the chief executive of the National Planning Commission and the Coordinator of both the drafting, the consultations and so on of NEEDS. Some people call us Mr NEEDs. And I have had the chance to really do a thorough diagnosis of what the problem is. And in my research and various publications, going over the world to advise other governments and institutions about economic development, I think we have had quite a lot of the analysis . But coming to the Central Bank, I have quite clear idea of the nature of problems in the sector. And then also coming in within the first few days and weeks happen to be days of deep reflections, consultations and formulation of policies. But we recognise that yes, we have had so much analysis, and analysis would continue to be an ongoing thing. But having got clear thought in our mind as to the direction the economy’s financial and the banking system needs to go, we started running from the first day. We have to hit the road from the first day. Because like I said the Nigerian economy cannot wait any longer. We have lagged behind for decades and now is the time to act.
And also what is critical in all of this is the courage to do the right thing. The courage required to do the kind of things required to move the Nigerian economy forward. The courage and the tenacity to implement those things we know that are right. And that is what we embark on from the first day. The culmination of it is the 13 point agenda which we announced on July 6th. In terms of restructuring, restrengthening and revamping the Nigerian Banking system. In the view of many commentators, people said it is a revolution that is long over due, so we announced the 13 point agenda designed to have a credible strong, sustainable and transparent banking system that will become the pillar for our economic reforms. Because without a strong banking system, we are not going to have a strong economy. And so this is a key pillar, if not the most important one to getting NEEDS to work. If you don’t have the oil that lubricate the system, you can’t have a strong economy. So in summary, I would say its been 100 days of deep thinking, deep reflection, consultations and actions in terms of trying to get things implemented because we think we have no more time to waste. I have got five years in office and each day must be accounted for.
In these 100 days in office, if you do an impact analysis, would you say you are getting the kind of result you expected?
I think the results have been phenomenal. And one has become embolden each day by the responses we have gotten. The overwhelming responses by all major stakeholders in the economy when people acknowledge that surely now, at last we can have the courage to do the right things. And so the kind of result that we have been getting, be it in terms of the banking sector reforms for which I could say, from my own assessment, we have the support at least 99 per cent of the Nigerian population. The resistance has been very localised to a small tiny group, which seems to have also dessipated. As a matter of fact because people want to recognise the greater and larger public good, Be it in the area of, as you would also recognise, within the same period we applied and got the permission or the approval of Mr President to take over the Nigerian Mint. Well we will talk about this at length at some point. But we recognise that we are the only country in the world that has a mint but spend billions of Naira importing currencies each year, and we said enough is enough and there must be a break. We have now taken over the Mint and going forward with the drafting of a Master Business plan, to restructure the Mint and soon Nigerians are going to see the work that is on going on there. The revelation that has come to us in that area is quite humourous. I see the possibilities that have been there unutilised and we have now set up a mission for ourself that our Mint will be the Mint for West Africa, and we are going to be by the time we finish implementing the Master plan that we are drafting now, which we would announce in due course, Nigerian Mint, over the next three years will be among the top ten in the world. We are moving very aggressively in the area of devising a very activist frame work for the conduct of Monetary Policy that is consistent to what is happening on the fiscal side, and that will insure ultimately price stability that the core objective of Central Bank which is price stability is accomplished. The key goal of the Central Bank is price stability anywhere in the world. We are going to do our own bit, in Nigeria price inflation is not just about money but monetary policy we are going to conduct in a way that will lead us to that. And we are already beginning to see that in the exchange rate market itself. Since we came you can look at the exchange rate, its been some people say, not just stable, but almost fixed. For almost five weeks, it remains at N132.75 at the official market, and now hovering t N132.84 and 132.83, just about seven kobo, eight kobo movement all around for more than three months now. Price stability is a key focus for us and we are getting the results. We have tested out some other instruments for this process of stabilisation and the results, by this intervention, yesterday during the meeting with the media, I told them that just announcing that we are going to withdraw public sector deposit, we saw the impact on the liquidity situation, and the consequent massive drop in the demand for foreign exchange in the market.
At the Central Bank itself, we also have a frame work geared towards fundamental restructuring of the CBN itself. Because to be able to play the kind of roles it should play in the economy, and to be able to play the kind of roles it should play in Macro-economic management you need a strong Central Bank that has the capacity to function. And so we are currently undergoing a restructuring of the bank itself. Among other things will come the creation of an economic policy department at the Central Bank. We are also going to recruit and have the very best tops rate economist, our goal is that in the next one year, the Central Bank must have the largest concentration of the beset economist that you can get in the land. To be able to shape out the process of continuing policy analysis, policy formulation and implementation. That is why we are to signal that there is a fundamental department which emphasis is on the role of the Central Bank. That is why we are creating that department. So I will say the prospects for the future are quite monumental in terms of the responses so far and the support that we have also gotten from the major stakeholders.
What is your response to the shake in public confidence in the banking industry, the panic withdrawal that precede the announcement of the reforms.
You came to think about the counter factual. When I assumed office, the very first meeting I had was that we have the option to liquidate three, five banks at a time. Can you imagine, just imagine, what would have happened if within the first months in office we liquidated five banks. Think it thorough. We just announced five banks liquidated. If we have done that, you know what would have happened . What would have happened is that there would have been stampede the next day. It would not be panic withdrawal, it would be a stampede what you find, in fact. If it happened we did that the prediction is that you will have between 30 to 40 banks collapsing.
Only God knows what that would have meant. And that is the cycle gone over and over and over. In 1998 alone, we had 28 banks collapsed in one year. What happened to people’s money. In the early 90s you know how many banks that collapsed. Even as far back as 1950s, 32 banks collapsed in the first banking crisis we had. The question is when would somebody have the courage to say that enough is enough to the boom and burst cycle in the economy . If we had revoked the licences of those banks, confidence in the system was not going to go up. Confidence was not going to be shaken as you said, it would have collapsed. If you woken up one day and revoke the licenses of 11 banks, confidence would have collapsed. and those banks would have gone with it as we had in the past. Most people recognised that the system was just at the eve of collapse. Now people are going to withdraw their money, in this case they still withdraw their money, in the scenario that would have happened, they would not have had money to withdraw. At least by today, we would be talking about 30, 40 banks that collapsed. So confidence in the system was not going to go up if we have done the usual, what is the usual, you know, you find them, you liquidate them. But for over a year, many of these banks have remained comatose. And they remained in the books they were not removed. Its only a question of ttime someday has to come when somebody will have to say sorry enough it enough, we have to put a stop to this and then damn the consequences. So you must think of the counter factual, what would have happened if we did not do what we are doing. You would have had the doomsday. And then, that is when people would have risen up to say, but we have a Central Bank governor who has been all over the world and travelled all over everywhere, went about advising other countries and now how come he is not able to solve our own problem. Now people will then have turn around to slamm us, “why didn’t you take any preemptive step.
But how are we sure the dooms day has not been postponed.
Well, what we are doing now, the doomsday has not been postponed. The doomsday,with the forms that we have today, and you can take it from me, has been permanently taken away. At the end of 2005 the kind of banking system that you are going to have, the kind of banks that we would have will be relatively strong, the phenomenal of boom and burst cycle that we have been used to every few years you have about 20, 30 banks collapse then we crop up again, after another few years, You have 20, 30 collapse is over. Once we sustained this reforms into the future, and we are not going to go back again to the era of every body in the banking industry. Every body get a license and you become a banker. Once we got up to the kind of structured system that we are getting in the kind of risks that you are going to be exposed to, the kind of supervision that we are putting in place, that doomsday thing is over. What is going to happen with the current reforms, is that, after you finish the consolidation and our goal is to even provide life, a chance to banks that have no chance of living being alive. And at the end of this exercise many of the weak banks would have been absorbed in the process as part of the consolidation exercise; I can bet you this is certain. That the number of banks that would have ended up with problems will be significantly smaller than the number of banks that would have collapsed if we did the usual. This is not just preventing an imminent crises but it is also one cure for future bursts. Because what you would then have in he future is a situation may be one bank collapse and you liquidate it. Like it happened in many jurisdictions. One bank has a problem, is liquidated, it is wound up but it has no impact on the system, there is no contagious on others. But what we have been having is cycles, boom, burst, boom, burst, and we are just at the eve of another one. Then we said it is now time to set up a structure, that creates a strong base relative to the economy that you are operating.
Before what has happened is that with the plethora of banks all over the place, what then happened was that you have a lot of them under intensive care unit, most of the effort, the resources of the supervisory authorities, sparingly, and just like the hospital, you send most of your resources in the intensive care unit, if you have more people under intensive care unit perpetually, you spend most of the resources, time and effort of the medical doctors attending to them .
But announcing the policy first on July 6th, without the guideline and incentives, gives the impression of inadequate preparation, what is your response to that?
My response is to say that is far from it. We gave it our own thought, very deep thought and reflections and that take us to what we called the 13 point agenda. But don’t forget that in my speech, I still recognise that, even though Central Banks all over don’t conduct their policy through an opinion pool, No Central Bank in the world conducts its policy by an opinion pool, but we still thought that it was important to have input from relevant stakeholders. This is a democracy and we needed to have input. And so being the major stakeholder that is going to be affected by the policy we announced it at the forum of the Bankers Committee, after announcing it that day, we didn’t as at that day announce it as a policy. We treated them as thoughts as to where we are likely to go and we then invited the bankers and the general public to give us input. And we said we needed your comment and suggestions and comments before we finalise. These were my words, before we finalise. And that we are also going to announce this guideline, incentives and so on, and we wanted you also as the key player to make your own input. We had ours, but we wanted to be sure we are not missing anything let us know what you think we should add into this what should not be in it but this is the 13 point agenda as to the direction we think this sector should be going. The kind of reforms that are necessary, and opened it up to say give us your input. Which in one way, some people might say it should not really, because I mean, the section of the Banks and Other Financial Institution Act (BOFIA)recognizes that regulatory authorities all over the world should have the flexibility to change the capital base of banks from time to time with or at the shortest possible notice and therefore granted us that particular legal authority to do so. But we still thought that we needed to give people one month before we can now say this is it. And what is done, its not, I mean, announcing that, and say this is the guideline, so if we had put out the guideline and the incentives on the first day when we were announcing the proposal it would have given the sense of finality.
Bt what aspect of the guideline and incentive were product of inputs from stakeholders?
Oh! quite a significant chunk. In fact the aspect that we should have the forbearance that we have in the guideline, relating to reporting, that we should please look away from their past misreporting of information, is an input from the banks themselves. That we should consider writing down part of the bank’s exposure to the Central Banks, it was their input. And series of other things, I have a copy of the guideline here, I can show you series of aspects of it that actually came from a lot of their input. You see what happened was that after announcing it, there were two sets of reactions from the banking community. One group saw only Armageddon, in fact they couldn’t think of anything beyond the N25 billion. They couldn’t see anything beyond the N25 billion and were beclouded and that many people then failed to see, they were no longer taking cognisance of our invitation to make constructive input. And they were fixed to see how we can shoot this thing down. But some others who realised that eh! This is the way to go, concentrated much of their energy in sending us input, suggestions. Several of the banks actually sent us very thoughtful set of comments,” better careful here, think through this, I hope you have thought about this, what about this when it comes to guideline and incentives, this might be an issue, the other one and so forth, better make sure that this agency is involved the other agency is involved.”
And those comments and suggestions were very very helpful and we really took them on board. But some just saw Armageddon coming, and just focus on the N25 billion but as to whether or not it was planned like a war you know, to shoot down which was later unfortunate and many of them lost the chance to make constructive input into this,. Because we said, we announce then as policy proposals and with the proviso that we are now going to finalise and announce the policy as it were. And in the light of the various inputs that we got, during the periods, the debate that went on the various inputs we got from various stakeholders before the guidelines were released.
Most of the input were in line with our point of agenda of what we thought. Because listening to much of the discussion, it was more like there wasn’t anything substantial in terms of substantive trust of the policy that informed any change. A lot of self serving criticism, but also useful comments that have helped us in the formulation of the incentives and guidelines.
How would N25 billion capital base encourage banks to lend. Also you said you are restructuring the mint but that doesn’t seem to be in line with your intention to give the contract to print the N1000 note to some Indians . At this time do we really need the N1000 note, can we not wait till we get our mint in a place and then print ourselves?
That is very interesting, very interesting set of questions. You see N25 billion capitalisation or higher level of capitalisation cannot be seen in isolation. Its not a pill that cure all ill. We are aware of the fact that you still need a lot of complimentary reforms in the wider economy to be able to unleash the kind of momentum we need including lending to the private sector, the real sector, you need infrastructural base, you need entrepreneurs that also have ideas of where to put their money and to use the money productively. You need colateralised security, people need safety. The riskiness of the investment climate needs to be addressed. But think of it this way as well. The base of a bank is critical for all its operations. Every aspect of its operation. A bank that has a capital base of N1 billion is not the same as a bank with a capital base of N200 million. What the base simply shows is that it enhances the capacity to act. But does not necessarily mean that you act. It enhances your capacity. But lets fix the problem in sequence. Being educated and going to the university does not necessarily mean you will get a job. But lets first of all send the kid to the university, at least to have the capacity to get a job, then we worry about the fact that there are no jobs or its hard to find one. But you don’t say oh because going to the university doesn’t mean you will get a job, you don’t send people to the university. Because it doesn’t mean that if he goes to a university that he will get a job. It doesn’t work. So let us first of all enhance their capacity to act. And make no mistake about it, and like I said in many fora, N25 billion relative to the size of the economy is only 0.25 per cent. So if you are even thinking, if all the banks operate at the level of N25 billion you began to think through what, how far? If capital base is the only thing even that capacity is still small relative to the economy, but you cannot compare it to the one capitaised to N600 million and when one customer takes a loan of N200 million and doesn’t pay the bank is going under. This is the situation we have with many banks, I have cases now of banks that have become fragile because one customer, that has borrowed a few hundred of million have problem paying and then the bank is sinking. So what we are saying is that even though capitalisation is not the only thing that we require, but you need the capacity, the strong capacity that you require to do it. I mean there is no doubt that banks like First Bank and co are really shooting to have a N100 billion or more. In France a merger led to a total capitalisation of the combined bank, that would account for about 70 per cent of the GDP. That bank alone can really finance the investment that can really push the economy out towards the production possibility frontier. We have the capacity but it also depends on a number of other things, investment opportunity that will show up but while we are addressing that, we also need a banking system that has the capacity, the muscle to act. That is what the reforms, the issue of the capitalisation thing is all about. And capitalisation is not just about lending to the economy like I said, it also helps to separate the boys from the men. You see the banking industry is not like going into importation of tomatoes, it is a serious business. The issue the people really don’t face any risk as it were. You get a banking license very cheaply, then get public sector deposit, then use it and trade and so on and so forth. in the name of a bank. To the point that when you withdraw public sector deposit and it expose the fragility of the entire system, and that is not the kind of banking system you want going forward with. So my short answer is capitalisation is not the only thing. It’s not a sufficient condition for lending to the real sector but by all means it is a necessary condition. That is why you could get, banks like First bank, they can easily give credit of N7 billion, N10 billion to one firm. Because you have the buffer support. The other ones capitalised to N800 million, they just can’t match. So its intrinsically related, its necessary but not sufficient. But lets fix the very necessary condition first.
On the mint, I have said, as a Nigerians I find it unacceptable totally unacceptable, and a national shame, that as a country, we are the only country in the world that has a mint and still spent billions importing currency. And when we came, the proposal was to have a management contract that would have brought one of the foreign firms to manage the mint. But we said this is unacceptable, how can we bring in competitors to run the mint and hope that it is going to be competitive relative to, theirs, and we said no. We said we have to take it over, we are the major stakeholders of the mint. We account for over 80 per cent, 90 per cent of is businesses, we want to take it over and run it. Many things are involved, first is to prove a point, to break the jinx that Nigerians cannot manage. We want to prove or break that jinx, that out of 130 million Nigerians that we can not find competent people who can manage the mint profitably. This is unacceptable to us. We have to face that challenge and prove a point. That’s one. Two, we see the enormous potential that we have in there, we cannot be creating jobs abroad, by importation we are creating jobs abroad and not for Nigerians, the mint has the enormous capacity to grow and to add wealth creation, if you think about the backward linkages, even the banks print their cheques abroad, our electoral materials are printed abroad. And so you can imagine the billions of billions of naira being spent importing these, and we say this is not acceptable. Now like I said we are working on a business plan to get the mint to work, and we have a time frame, and have programmed our goal like I said , and I want to be held responsible for this, it is something I am itching, and like somebody said to me, you are staking everything, I say yes. if you don’t take a risk you can’t succeed. If you don’t venture there would be no success.
Now, N1000 note, I mean what I have just said underscores one thing, and that is our determination, passion, conviction that we must move the mint forward. But life is not going to stop until we get there we are not going to say because we are developing a master-plan, because we are doing this, everything has to come to a halt, until we finally get there. Printing of currency and notes will have to stop. I just visited three of the companies in Europe and I made it clear to them, listen we haven’t come to discuss importation with you, I have come to tell you, this is our plan in three years, we will not be importing currency from you again. That in three years, I want to be self-sufficient, I want our mint to be world-class, and the mint for West Africa. Not just the mint for Nigeria it should be the mint for West Africa. And we are asking them, “is there any role you want to play in it tell us”. But while this is going on, life continues there is huge demand for currency. In fact, by our index we need not less than 3.5 to four billion new notes every year. We can’t meet it because it is very expensive to print. You know it cost mor than N10 to print one N5 note. So you can understand when you see people marching on the naira at parties, when I see parties going on and people are spraying and people are matching on it, I know what is going on in my own .
On the N1000 note, I hope someday we will really have a chance to talk about this currency issue, I was reading my presentation to the private sector as to why we delay the N1,000 note. You know N1,000 is still about 7.8 dollars; we have currencies in 500 Euros, 50 Euros, 5 Euros is the smallest denomination.
We are working on what we call clean notes policy. Part of it is also currency policy. To what appropriate denomination to print getting the nature of your transactions and we are working on it. And we believe that the N1000 highest denomination is long over-due given the cost of printing them, the transaction nature, the fact that people use to move around in cash etc. When some people say that it will cause inflation, I laugh. I’m yet to see where higher currency denomination cause inflation. I know inflation in Kenya has remained below four per cent for the last one year and they have 1000 and even much higher denominations. Like I said, life is not going to stop until we get there and be rest assured that we are not giving the Indians our N1000 to print. If we have to give it out, it may be probably or we have to grudgingly do so, as for me it is painful. it is painful to me giving this contract to foreigners to do. I will rather we should get on there. Again we have got some work to do in restructuring the mint. We have got to get our machines in place. Even to order for a full set of the production line, you need about 18 months to wait because the machines for us will be customised. You place order for the item and wait. To my greatest disappointment, I thought it is something that if we find money, we can go and bring it in tomorrow by next year, I will say bye-bye to everybody, but I was told sorry, you have to place an order then we start customising and then we deliver 18 months at the earliest time. Now you begin to build the factory. You begin to put that one say for three years, but in interim I think the design of the N1000 note, the consulting issue is ongoing, the discussions around that, is ongoing and hopefully, we will say that latest by May 29 next year, we should have the N1000 note. But we will keep that in view.
In restructuring of the mint, one of the issues is the fact that the CBN has been on the board ever since and they are aware of these problems. The CBN has also not been patronising the mint enough, and that is why there are problem and the third problem has been that mint has two technical partners who have printing and minting overseas, who are sitting on the board of the mint and ensure that the mint never worked so that their companies will continue to print for Nigeria, so what is restructuring about?
For me, all old things have passed away, we now start a new. We are developing a business master plan for the mint. Management is going to be tested and Nigerians are going to run it. It is shameful that for 40 years of independence we continue to import currency. The era of such days are numbered. On CBN being on the board, we are drawing a straight line now and we are moving forward. When you are talking about patronage, I don’t think that is a fair accusation. Trading to the capacity, CBN has been the one providing the lifeline to the mint. Without the CBN’s lifeline, there would be no cash advance to it. When I came into office, one of the first thing presented to me to sign was N600m to the mint. I asked which mint and why, why should I be giving them cash advance when we don’t control it. We need to take control of the mint so that when we are putting in money there, we know why. The CBN has been the life-wire in terms of credit line. The problem has been the capacity of the mint. Even this year, it has not met anything. new what it was given to for use. It is always having shortfalls, maybe, after those they produce 1.5 million notes. But that patronage, it is the time that the capacity was there. We have excess idle capacity but we are waiting patiently with the master-plan. In the next three years, the mint will not be the same again. Our goal is that our mint should be in the top 10 in the world in the next three years.
The problems of the mint and the mint misfortunes is a reflection of the general situation of the manufacture industry, that is some of the problems be-setting the nation‚Äôs industrial sector like devaluation of the naira, high cost of production etc, are actually infringing on the operations of the real sector …
You might be right. That is why we are doing the analysis now. I will say largely in my mind that when I set out to get things done, I don’t give you obstacles, I give you opportunities. I feel the opportunities and not the obstacles. We can write from here to Jericho of the obstacles, and reasons why it would not work. Why do I say so. The mint, the technology for the currency manufacture is the same. Is the same machine all over the world, the same two companies producing the machines, Jerry and Command. You talk about ink, this is an oligopolistic market. What is different is the management, that is what we change. Whether it is the devaluation or whatever, we still import and we still have to pass through the exchange rate. So devaluation or depreciation of the currency still affects the imported one. If you are talking about the cost of production, why would people in England, Germany or in France produce at a lower cost structure with their high labour cost, if we all buy the same machine from the same place at the same cost. So technology, people operate this machine, there are human factor who fashion out this currency we operate. In terms of what we pay our own people and what they pay theirs, the cost structure, now this means they are suppose to run on their own self generated power. If you look at the cost structure as well, there is absolutely , since the technology is the same, no reason why the French company or UK company should produce at a lower cost. Because the labour cost there, which should be a significant chunk of the input into this, is much higher. That is when you import, it is being imported with the same currency depreciation. Therefore, at the heart of the problem is management, and that is where we want to get where the problem is. Once we sort it out there, the issue of financing should not be much problems. If you manage it well, the finances you generated, you also plough back and run it profitably. We are the only country in the world with a mint that imports currency. There must be something else other countries specially have that we don’t have.
What do you have against the idea of the company being privatised?
Privatisation would be part of the game plan. Part of the game plan is to restructure and revamp it and get it to a world class, so that Nigerians will buy the shares, nothing against it, except that we would realise that politically. The way people were looking at the privatisation model that was ongoing then and we knew we will have problems with Nigerians. I don’t think Nigerians would be willing to have the kind of privatisation where one foreign company will come in and buy the majority share. So the plan is that we take it over and run it after about three years, we put part of the shares to the market.
Is the CBN still planning to introduce plastic currency notes in place of paper note
We are planning or not planning is not the word. The whole issue of this currency policy is evolving including the clean note policy. That is part of the master-plan that we are planning. It links also to the design, to the restructure that we mean. The polymer technology is new, and is not being used widely around the world. People who advocated the idea do think that is the best thing that has happened those against it think it is the most horrible thing. We at the CBN are open. Open to examine our actions, but will be guided by what is in the best interest of Nigerians. For example, I want to get down to what you said about security features. Most people think that the polymer is more difficult to counterfeit than the paper, and that the major reason people are moving to the polymer is because of the security. In Chile, they launched it last week, and was the major argument that they had. People say the marks can washout because they are plastic. We are open. We are going to have presentations from the various groups. If we have any cause to change one side or the other, we will also subject it to serious scrutinising in terms of technology and compatibility with the master-plan that we are developing for the mint. The cost benefit analysis will also be considered. The major reason people call for the polymer is that it is durable, it is plastic and it can last for an average of three to nine years or more. It is also more expensive to print. For us it is going to be another cost benefit analysis and also given the technology that we have. It will cost us a lot of money to begin to redo them. We have spent quite a lot of money to do it better. In short we are open to proposals but we have to make the best decision for Nigeria.
How is your plan going to affect staff of mint because there is already fear of massive retrenchment among them?
As regard staff fears and what happens to them, I think we will cross the bridge when we get there. Let’s cross the bridge when we get there. When we get to the master-plan, it could well be that the master-plan could suggest that we employ more. There will probably be a staff audit. If we are going to produce more, there will probably be more staff. Though we don’t know but I hate to speculate.
Like you said, that most of the thing are sourced from outside. I learnt that there was proposal or a plan before now that the papers used in printing currency be set up here in Nigeria. One of the past chairman of the board had recommended it but CBN did not allow it to work?
Is your setting it up to be run by government?
I don’t think anybody would stop anyone who wants to set up I mean our paper printing is suppose to be a subsidiary of the mint. CBN is does not own the mint, so how could CBN have stopped it. CBN share of the mint is far less than or have never passed five per cent. It cannot be CBN that stopped it.
I know that in the years backs CBN took on a lot of non central banking functions and therefore, lost focus with its statutory role. Do you get that impression and are you going change focus?
You might say that may be in term of the staffing and the structure of the Central Bank itself, there might be disproportionate weight in terms of time devoted to CBN’s own internal operation relative to its services to third party. That is part of what our restructuring will be doing. Series of these services will be outsourced. Even in terms of the structure of our spending, it will also be different. Once we begin to privatise and out source, then you can devote more of your resources to human and material to what you consider to be the core function. The redirection we are getting is for the CBN to really pay a lot of attention and focus and lot of its resources to the core mandate. That is why we are creating the economic policy division, different from the research and statistic department. It is really sending a major signal and over the months and years, people will find the competent people. In the research department, we have at least 20 Ph.D holders. I would like to have such personal in the economic policy division.. In fact, we are restructuring to emphasise our core role price stability and macro-economic financial policy, supervisory function of the Central Bank. You could see we shall soon move in the area of the West African or African Financial integration. That is going to be a important, therefore, we are restructuring to get the CBN fit for the 21st century, and we are prepared to meet the challenging.
The ongoing issue of capital base of N25 billion, I find it quite interesting. I want to know how you arrived at that figure…
I tell you there is no such formula and where in the world, a mathematical model that you jungle numbers ad arrive at whether its going to be 30 or 40, or 50 or 100. I remember when we want to the house of representatives to brief them, it is very interesting and two honourable members were pushing that we should push it to N50 billion. That is should be put at N50 billion at the senate committee on banking. One of them was pushing for at least N10 billion, paid up capital. He is talking about paid up capital, which would be actually more difficult to meet than total shareholders funds. The truth of the matter is that the determination of the capital base for banks serves a number of functions. But in our own case its two key objectives, defined then raising the question, that this has to be raised to were significant relative to where it is. It became a crises solution instrument and also an instrument to ensure a stronger system. It is also a barrier instrument, in determing the bench mark, in other words, if you look at the system and you think ah, maybe you need to lower the entry barrier then, you want to flood in the system it was what happened in the past. Then you could use the capital base as an instrument. You can also use it to raise a bar, or to prevent a much early entry. But at the end of the day, what is adequate or inadequate for example, within the context which we have used it relative to the major thrust in the direction of the economy, in the context here we are still allowing the existing banks to keep two billions as paid up capital, but we insist that your total shareholders fund will be at least N25 billion. Now, like I said, its both a crises resolution instrument a barrier enacting instrument, but also one designed to, I mean when you talk of raising the barrier is that those who want to set up their total shareholders fund will constitute only part of paid up capital, they need N25 billion if they want to come in. And the whole goal is to ensure quick consolidation. That those who are unable to make it, pull them together. So that you eliminate all the fragile banks. Because what you find out is that when you go beyond the first 20 banks, the top 20, the other 69 controls less than 30 per cent of the industry. Far less than 30 per cent of the industry. So if you want to weed out many of this marginal banks, and then force a consolidation process, then you better raise the base to a level that we really (a) induce the consolidated process and ensure that it occurs (b) make sure that those who want to get into the industry are those people who have really thought through in terms of the return on investment, and then it is not a rent heaven, and people really think about the intermediation. And so in the process of thinking of what level is going to achieve this multiple objectives, debate obviously occurred some wanted multiples of what we have. People prescribing30 40 no no, you needed a strong baking system that would be support the economy. You need a banking system that will prevent current and prospective crises. And then is the issue of how much is enough and what paid-up capital do you need. And in the order not to inflict maximum stress to the system but now to insure maximum returns on investment, on equity will decided to keep the paid-up capital currently at N2 billion but then to insure that that the shareholders‚Äô funds is…………….. so the amount invariably than like I have said was a consequence of a lot of debate and discussions, about what level of capitalisation would enable us achieve these four sets of objectives. And give and taken, even enough we were almost going to settle at N32 billion, but I think at the need of the day, lets start with as low as N25 prevailed, lets start with as low as N25 billion now, shareholders funds not paid up capital. But I am pretty sure that N25 billion unimpre shareholders funds would be such that would enable us achieve this multiple objectives. Of consideration, crises resolution both today and in the future, that banks are adequately capitalised to play their development role.
You said N25 billion reforms to the shareholders funds and not paid up capital, but given that of the various competent of the shareholders funds, only the paid up capital is amendable to increase in this regard. Is the directive then not indirectly referring to the paid-up capital…
But you miss a point in that discussion, a bank that has got reserves, its paid up capital unimpaired by losses is what we meant.
Question:
Think of a bank that already has say N21 billion or N22 billion or N23 billion total capital base or total shareholders fund out of which N1.5 billion is due to paid up capital. Now, in this dispensation if you want to make it, you can still keep your reserves, you don‚Äôt have to convert them into paid up capital and thereby then thinking about the issue of returns on each share that you have. You don‚Äôt have to worry about this. You can still keep your shares and still have maybe just pump in another N2 billion and you have a total paid up capital of N1.5b + 2 billion making it N3.5 billion both in terms of returns calculations and so on for this bank making it a better deal than causing it to convert all its reserve into paid up capital. Now if you were to raise it to be say N25 billion paid up capital what you do it to now transfer, capitalise and put all of them as paid up capital which we didn‚Äôt want to. Let them make judgement as to what level of equity ………………….
For those of them who want to make this by pumping in new money, yes you raise your paid up capital. But for those who just want to it by consolidation and we have …………………………… so, if you look at some of the prospects people are making asking for aid up capital of ……………………… that would have been much much better. We had wanted to make it easier for people to meet while still accomplishing our objectives. Do you not what? we keep our eyes clearly on the objectives. The key objectives that we have we want to remain focused on these objectives and to be sure that we are able to accomplish them we have not decided to punish anybody but we want force consolidation and to have a banking sector that is strong and you don‚Äôt need to bring in an extra penny into the market. You don‚Äôt need it. You just accomplish it by coming together.
Some people have argued that the re-structuring ought to have started from the CBN itself are we going to see a CBN that is going to focus more on economic management as well as banking supervision?
This is the debate that goes on everywhere. In the US the debate is still going and I think some people in the Federal reserve think it was a mistake. In other 97, 98 per cent of developing countries both functions reside in the Central Bank. In the few industrialised economies where you have the circulation there is still ongoing debate about the rationale for this. In Nigeria I think we are doing well. under the West African Monetary Union when it finally come son board WAFSA will be residing in Nigeria and then the Central Bank in Accra. But the Governor of Central Bank is still the Chairman of WAFSA and the governors of the branches in the respective countries are the members of the board, so invariably it is still the Central Bank that will be in charge of the supervisory authority. In our restructuring to answer your questions more directly the Central Bank the goal is to strike appropriate balance that will reflect the core mandate of the Central Bank. The core mandate is to ensure price stability being the financial economic adviser to government. We banker to government, we are in charge of currency management which is the very core function of the Central Bank and we want ensure that we have a structure that is very strengthened and adequately positioned to meet the basic requirement and demands of the Central Bank. And so you will now see increasingly that economic policy coordination particularly momentary policy will feature very very prominently in the affairs of the Central Bank. Supervision is not going to be underplayed. This is a developing economy and you need a strong banking system, a strong financial system for your monetary and general economic policies to work well. So unless we also ensure that we have a strong banking and financial system, the monetary policy will not be transmitted effectively and that is why the two functions are very very critical. It‚Äôs not an ‚Äúeither or‚Äù scenario but the restructuring is geared at realignment of the use of Central Bank resources, away from the mundane and ordinary, it‚Äôs a realignment, a channel for implementing and coordinating monetary policies. A channel more even also for banking supervision because that sector also needs to be strengthened and restructured so that we can have very very effective supervision. The fact that we have a thousand and thirty six (1,036) fraud cases in the banking last year is not anything to smile about so we want these to go and that is what effective supervision will as well help us to stop. So its not an either or, its maintaining an appropriate balance. Now back to yu8r question on the political will, I wouldn‚Äôt want to comments on my predecessor, I think if I have any comment to make I think it would be that he did a good job in the context that he operated. In the sense that we would have to bear in mind the nature of the system when he came in, the challenges, the issue of restoring integrity to the system and so on and so fort, he did quite a lot in several areas. Government is a continuing process, you come in and you just have to carry on from where others stopped, and the challenge in all efforts of chancing government is so that you could take it up to some other pedestrian society will not be making progress if successive governments don‚Äôt aspire to to much higher. And so what we are simply saying is that the Central Bank should play a more active role today and tomorrow and we like to reorganise and restructure to be able to get it through. I think sooner or latter we will be announcing some of those restructuring plans and it does not necessarily mean loss of jobs, it does mean that people always eq7ate restructuring to mean downsizing. That is not what it means and that is not what we intended it to be. Now we are adding and creating a new development, economic power. We are going to advertise very soon and we are going to recruit people, so I am just making a point that it does not necessarily mean loss of jobs. The major thing we want to do as part of our efforts is to offer people, a choice. We might offer redundancy severance package to people and to say if you are interes5ted in taking an early retirement here is a package that will be too good for you to resist. That is a possibility. We are not going to say you ‚ÄòX‚Äô or Mr ‚ÄòY‚Äô you are in> I don‚Äôt think that is in the spirit of our restructuring. We want to have an orderly restructuring and that is why we are not in a terrific haste about it. And let me say this, you can start off restructuring Central Bank from now till next year putting all the square pegs in square holes and of all that. My grand mother in the village doesn‚Äôt know what is in that thing for her. So if you ask in terms of sequencing, what should come first, you were on the verge of a major financial crisis, the banks were on the verge of a collapse and you would e talking about who should man corporate affairs. That will be too much of a luxury. We have to deal with what we considered to be first things first and those first things meaning we need a banking system that stands and in the process that is why whet we are doing now is another of creating a technical committee, you bring in whatever skills within and outside to tackle these emergencies as it were and while they are ongoing you can now take time off to now look inwards to say hey! I think on a more sustained basis, you are better off, maybe you should be there, maybe we can change here and so on and so forth. But when you a4re already like in a football match you are already two goals down and there is fifteen minutes to go, you know people forget their wings, and scoring is what is uppermost in the mind so that is the stage in which we find ourselves, so talking about whether you are left fool back or right winger seems not the issue. It is when you equalise and there is extra time then you come back to man y9our wings so we needed to get off to the emergency before we stat again about who is playing what wing and make no mistakes about it, you see, life is a stage and that is my attitude to this public office. You get called once in y9our life time to serve your people, limited ….. to leave a legacy behind especially if you are driven by the need to serve. That happen to be the kind of consideration I had to give before I accepted to join government. I would think that government did not occur in my horizon in the next five years and having accepted to serve I don‚Äôt do anything half way, am either in or am out. And once you are in your work 24 hours and get things done. I am driven by the need to define a focus, 1,2,3,4 pillars you want t live behind work 24 hours and live them behind. Are you playing your own role and you get out land life continues. I have four years plus to spend and if one is blessed to live to that period to begin to worry about things and for those who say if you do this you die, if you do that you die my life is not in the life of any one.
First on the retrenched staff, I have seen some of their memos to me in the newspapers. Memos to Soludo (1), memo to Soludo (2) and so on. Very interesting and the first thing that struck me is that these people were sacked in 1996 and ‘98. That was before my predecessor came into office. The ones sacked in 1996 that is about 8 to 9 years ago. I have asked for briefing on this, and I have gotten quite sufficient materials. I think one will certainly look at these and also respond appropriately. There are several couple of issues involved. I understand my predecessor also waded into the issue and that they were even offered seem compensation. But now the letters I get are that they want to come right back. But seriously speaking I have called for a briefing on the matter, we will definitely take a look at it and then respond appropriately. They are Nigerians and having petitioned to us they also have the right to a response and we would respond to them as appropriate.
The end goal is to focus on the big …….. which is Nigeria, doing what is best to the Central Bank and what is best to Nigeria. That is where I think people should make the difference. The difference between what is I and the collective good because that which is best for me might not be the beset for Nigerians and to claim that in 2001 about 2,000 plus staff left so I‚Äôm sure the CBN that they left is not the CBN that exists and by the time we finish this restructuring many of them if they were to visit it may not recognise it as the same Central Bank that they left. On skill thing professionalism will be at the heart of the restructuring. I am sure last year there was this graduate officer recruitment programme, and we also want to have a strong training programme to also offer people opportunity to grow along the bank, but professionalism will be at the heart of the restructuring.
I told you over the last few weeks that I have been in office, look at the exchange rate, it remains very very stable and this is the key price that we need to control that we have impact on inflation. This year also the growth of money supply has even on annual basis been less than half of what was projected. But we also recognise that inflation in developing economies like Nigeria is not just a monetary phenomenon. Inflation is caused by both monetary and all structural factors. There are also side issues to inflation. Because of petroleum products for example, globally, because of the high prices and for most of our economies we happen also to be dependent on imported petroleum products into the economy and so the higher the price the higher the inflation. Talk about food and agriculture also which consists about 50, 53 per cent of the total consume price index and so if you don’t have a bumper harvest it shows up in the cost of Gari, yam and so on and those constitute the bulk of what determines your inflation. At the Central Bank we are linking u0p to our billing in terms of controlling the key micro economic aggregate. Like I said money supply at the locally exchange rate, we have done superlatively well on those two counts. If you look at most of her currencies that have depreciated by several percentages, in
Africa here several of the depreciated 20, 20, 40, 50 per cent. The exchange rate if you think of the value as at end of December when it was about N137 it has actually appreciated. At the Central Bank the monetary authorities are doing everything possible to live up to their own billing. But inflation is caused by a multiplicity of other factors including external factors including even the clemency of weather. Including of course the other cost structure in the economy, the cost of energy, cost of transportation, cost of production and all of that will stretch exchange rate. The other key elements is interest rate which we hope over time will also be brought down as inflation declines. So we are doing our own best our fiscal policy has also been prudent this year that these other structural factors are there. It is also function of how many people even if you have a clement whether how many people have cultivated paying system. Because if there is a boomed in agriculture food prices will come crashing. So, I am only trying to summerise, we are doing our own best at the Central Bank and that is why you are getting this kind of result.
You will never remove speculative in demands even for currency, even for money, people have speculative, you never eliminate all of those. There are also demand for these things when you the cash to pay for it. That is also why the management of the liquidity solution is very critical. And so when the demand for projects will have to be funded by the bank and when the banks run short of their liquidity some of them open letters for credit. Its really like a credit facility they are given to their customers when they themselves are scampering for liquidity to meet their basic liquidity re1uiremente. They don‚Äôt have the ……….. to be able to provide those short term credit to the people who might need them. That‚Äôs one arm of it. The other arm of it is that for those who were coming out to the market to speculation so to speak, I mean trying to borrow money at short term basis in order to do some speculative things. There was no money available from the banks. But for those speculation and even for those who are genuinely wanting to buy but who have to rely on those kinds of loose credits, or even for the banks themselves who have maybe excess liquidity and they want to use up foreign exchange there was no room to manouver anymore, there was no open position left. It just exposed the high level fragility in that particular sector and that again reinforces our original motivation for this
When I said if you can but say how right we were. Just withdraw N10 billion and the whole place will crumble. Then it tells you something else must be happening.
Let me be clear on one thing, the Central Bank of any country cannot bear everything. The Central Bank of any country is about something. Its about something and not others. The Central bank is about compelling price stability begin a banker to government, bankers bank, its about ensuring the currency is management and a financial adviser to government. The Central Bank is not Ministry of Works, not Ministry of Education, not Ministry of Water Resources, not Ministry of Environment, not Ministry of agriculture, the Central Bank is neither of these. I just want to narrow down the disburse because what you just said strikes me and I get this kind of questions all the time. Seriously speaking, Central Bank cannot be everything. Secondly, is that I acknowledge and it is acknowledged in the Ministry of Finance that if indeed there was no poverty, there was no employment or under developments in the economy there would have been no need for NEED. It is precisely because you have poverty, you have employment and so on that is way we have NEEDS and that is why NEEDS is targeting the creation of about 7 million new jobs and that is why NEEDS is targeting about reducing poverty over time. These are the targets. But how do you impact on poverty, you need to develop infrastructure, you need to look ate the spending corresponding to power — just getting power to work, enables the vulcanizer along the street to work more hours and earn more income, that is what enables the kindred in that village to be able to up some work that is
the factories all over the to be able to power and run multiple people shifts and when they run multiple shift they can also employ three sets of workers to run three shifts a day. And these are he things that create jobs reduce poverty and create wealth. Where does Central Bank fit in all of this, we are a financial adviser to government that’s he role of Central Bank, and on the advisory role we would continue and that’s why we are setting up economic policy revision. We continue to provide as much advisory service as we can possibly provide. Again in that we also contribute by striving to main price stability, price stability is good for the poor. The poor person situation worsen when you don’t have price stability. If price inflation starts going up by about 50% this year 90 per cent the other year and 10 percent the next year, the value of the income of the poor which is many cases is sick in the nominal terms goes down and the purchasing of the poor is diminish.
Therefore, by maintaining macro-economic stability the Central Bank contributes to poverty reduction. But much more fundamental is reducing poverty tackling unemployment and creating wealth is the on of all the agencies in government. It’s the job of all the private sector, it’s the job of the international community, the civil society, it’s job of all the people that is the economy. Not even government alone can do it. Government can provide enabling environment but unless you and I also take the first step to take advantage of those it won’t happen. The sugarcane farm in Adamawa State alone employs 11,000 workers. You need more people who will say hey! the environment is good enough let me go and set up a farm and employ 11,000 people and that’s how poverty will be reduced in this land and that’s what I mean by saying its not a job by government alone. It is a job by all the stakeholders, public sector, private sector but the role of Central Bank in all these is advisory and then implementing control of price stability which is invariably good for growth its good for the poor. That’s where the Central Bank comes in.
I hope we have time enough to dwell on this issue with all due respect I think that kind of ….. and attitude towards our moving forward is the kind that cannot move the country forward with that ind of graduates are the type that do not support the productive base of the economy. When government will employ people and pay them income that do not emanate from the productive base of the economy and that‚Äôs why ones there was a shock the entire thing crumbles. Once a shock came everything crumbled.
We quickly realised hat the civil service could not pay wages and that the income cannot support it. I have people who have left here from Nigeria. I know one who left with a master in architecture. Of course, then in the University of Nigeria you couldn’t stop a 1st degree, you must go for your master in architecture. He was working in a construction firm here. Finally, he got through somebody in Canada and migrated to the USA. What was he doing? Of course, he had three jobs.
Even in the richest country in the world, America, only very few graduates.
The average income for a graduate fresh from school starts from about $18,000, $24,000. But there that amount of money can hardly pay for rent for you. That’s okay because you have to factor into it the standard of living. There, that graduate cannot afford a house. He has to share a house, he has to share an apartment with somebody.
You see when you said people graduated into middle class and I said that’s why the era when people were deceiving us and that is why we never moved forward with that system. And that’s why the system came crumbling. If that system was sustainable, then it should have gone on.
That one shock alone was not enough then to run our country into bankruptcy. It just tells you, people were just living, you just go and pluck …….you pay salary, a young graduate very quickly gets a car. That system has simply not sustainable and that was why it collapsed. Let‚Äôs look at numbers. We came to where we are, your analysis must have to come from where we are coming from. People bemoan the days when people come to universities to place adverts for jobs and we don‚Äôt have that anymore. But I ask people how many graduates did we have then, actually graduating from the system in relations to the population and the available jobs? And how many graduates come out of the respective villages? But look at the number today. Amendment of the CBN Act will take its full course. The CBN would bring it own input, the legislature will have their own, the executives as well as I think all Nigerians are invited to make their own input about the kind of Central Bank that will eventually emerge. And that Central Bank that will emerge will also have to be consistent with the Central Bank that are likely to emerge in the concept of Africa regional integration. Because there is a larger one that is also coming. So I will like to say that the dialogue will be done at the appropriate time and I hope that a consensus will emerge about the kind of CBN that we would have today and tomorrow.
There exist a large chunk of money outside the banking system, and I believe this must worry you, how do you think this can be addressed?
Now that is a medium to long term issue. That has to do with the payment system that we have, that has to do with the structure of the economy, the large size of the informal sector, whether we have under bank or well bank, how many banks …. thousand, in term of branches. And there is other thing about confidence in the banking system. It tells, which is part of hat this reforms is geared towards resolving. But effectively many of the issue the reason why you have a large chunk of cash outside the banking system are issues which would have to be resolved over the medium to longer term. The payment system the banks, availability, confidence in the system, the informal nature of most of the transactions and people need to have confidence in the checking system. When you write a cheque you honour it. So we need also to implement the dud cheque act.
At the end of this consolidation what numbers of banks do you expect to exist in the system?
There is no number. And there shouldn’t be a number, because no number is optimal. For you to think of number means that there is a particular number that is optimal. There is no such number we would see what happens. I mean it will be good news if we have 89 of the banks. If we have 29 of team raised to N25 billion who are we to say no. But we know it won’t happen relative to the size of he economy of team will not be able to raise N25 billion. And therefore, that is why you have consolidation. Many are going to come together. Many are also devising as strategy to first raise their capital base to some minimum, to some level they think will give them some bargaining power they go in consolidation discussion.
At the end of the day some are going to solo. Zenith bank has made it solo, but it would hopefully take on one or two other banks. Some banks are already their. But at the end of the day whatever number we get, the number that is able to make it would be the number. So it‚Äôs not as it we set out with X number of banks, but you cannot do some permutations and say assuming there is no new resources, assuming there is no new money in the system you will have a drastically lower number of banks than yo have today. If everybody now want foreign banks to buy equity into them own, some want this, then you probably end up with a much larger number of \banks. But we know it won‚Äôt be 89, it won‚Äôt be, it could be anything much less, 89 ……. X, where X is lower than X.
Life is a stage and you play your own role. Let me say if you start bothering worrying about what will happen after you, I will say in life, you will really do a lot. Because everything is possible. It could end after you, your children scatter everything nothing stands. But you can‚Äôt because of that stop making investment into the future and thinking through. It s a reality of life. I mean we have had history of reversals, I mean people not following through and not having people who share the vision of where Nigeria would be. But I am also confident and ……………….. by one thing. That only that it is a pleasure over all and get out. But also I am convinced that when it is good and people can see and feel it, only a mad man would want to look at this house and then and you come and poll it down who I have not seen from where it would come. That is why building a wider support in the society is very critical, getting the political class to buy into was very critical, because they are the same class when we went to the House of Representatives and they said we pledge 100 support, this is long over due. The signal we have been getting, such that vast majority of Nigerians feel that this is a revolution that is long overdue. And the man in the street I think it was Guardian that conducted an opinion poll. And everywhere we get the same thing. That people now even talk about it in the churches. Preach about it. It gives you the confidence that this is one revolution, usually revolutions are not very popular. This is one revolution you get a large chunk of society saying this is something we have always known should have happened since but we didn‚Äôt have the courage to say so.
File name Interview with Soludo.wpd September 11, 2004
