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Wednesday, November 23, 2011

KWANKWASO AND KANO LOST  ECONOMIC GLORY


       Just last week, during the lunch of newly constructed CBN Port Harcourt branch, the CBN governor (who also happen to be from Kano) was quoted to have compared the amount Rivers state got in 9 years from the federation account with that of Kano at the same span of time.  While Port Harcourt received a total of 1.5 trillion Naira, Kano with far more bigger population received about 285 billion Naira, though I have my reservations concerning the amount he attributed to Kano, it goes to show how insignificant the Kano economic stride was during the period when compared with oil rich Port Harcourt. On one of my visit to Sharada industrial estate (one of about three big industrial estates in Kano) I found the place to be a shadow of it former position, full of empty sites many of them have become home to rats and lizards, while others have been converted to ware houses. While Lagos industries, despite been unfortunate to find themselves in the same confusion called Nigerian economy, have managed to wake up from their slumber, Kano’s own are still in deep slumber. Aminu Kano international airport which is suppose to be the nerve center of Kano industrial and commercial growth, her link to the global economy (if not for the recent make over it received) have experienced a phenomenal slow down in almost all it activities. As one commentator observed, Kano groundnut pyramid has turn to pyramid of refuse; Kano used to be the nucleus of agricultural revolution not only in northern Nigeria but the whole of central Sudan, with its Dawanau grain market which happen to be the biggest grain market in Africa. Like most northern states, Kano is still ravaged by problems of unemployment and redundancy that result in abundance of jobless youth who resort to violence and thievery at the slightest provocation. No wonder last year Kano was rated as the biggest heaven of drug takers.
      Therefore, the restoration of Kano to it former glory is going to be a daunting challenge for the government of Rabiu Musa Kwankwaso. As mention at the beginning of this piece the amount that is coming to the government coffers from the federation account is insubstantial when compared to the big challenges that are on the ground.  The revenue been generated by state tax collection institutions is still meager when compared with the potentials on the ground. While the great many task on the ground are very substantial; there are many roads that need to be built, improvement in the current status of Kano own tertiary institutions, provision of affordable houses; the resources needed to execute them are not there. In an era when many states in the country are generating their own electric power, Kano is yet to have it own independent power plant. Despite the abundance of sources of generating power such as hydro dams, wind and sunlight. Despite the fact that Kano is ranked among the top states with huge irrigation potentials, irrigation in the state is still in decade long decline. A lot many dams that costs billions of Naira to construct have remained idle, in some cases were allowed to waste away. While many countries and states around the world have realized that there is power in numbers, Kano is yet to utilize its vast population of idle entrepreneurs. Despite producing the richest black man on earth, Kano’s per capita income remain one of the lowest in the country. Another interesting contrast is that despite having some of the largest population of small scale business in the country, Kano has few micro finance institutions.
    What is the way out? First, Kano state government should intensify it efforts at generating local revenue that can be later channel into the building of infrastructures. Today in Nigeria only Lagos state can boost of over four hundred billions Naira budget apart from the federal government, and most of this money comes from internally generated revenue. Then ideas, like running of companies state governors need to generate ideas that will move their state forward, in short they should think and behave as chief executive officers (CEOs) of their states.  Do not forget the saying that ideas run the world. To be an effective manager of Kano state, Kwankwaso need to have very hard working and committed middle managers to help him executed his good projects. Since its time is short (less than four years) and resources are inadequate, the present Kano state government needs to go for public private partnerships (PPP) with some zeal. I do not object to taking debt, only that those that borrow the money should be God fearing and put it into genuine uses, because of that I will advice borrowing money from Islamic development Bank to execute Kano state independent power projects. Why I emphasize on Islamic development bank is because unlike most other international financial institutions, IDB do not just hand you over their money and turn their back not caring what you do with it. In most cases they buy you the equipments you need to execute the projects or built the project and then hand it over to you. Kano state government should devise tactics of luring headquarters of major Nigeria corporations into its state capital. This will boost the state capital attraction to other investors and generate more revenues. And people should not say this is impossible because it has been done in many countries around the world including the United States; not far from Kano, recently, one of the oil giants moves its headquarters from Lagos to Rivers state capital, Port Harcourt.

Monday, November 21, 2011

AFRICAN ECONOMIES AND THE GLOBAL DEBT CRISIS

         So far the current global debt crisis has cost the leaders of Greece and Italy their jobs, who will be next only time will tell. The current debt crisis is one of the most devastating since third world debt crisis of the 1980s. So far it impacts has concentrated on the developed countries of Western Europe and North America. African countries like most other developing countries have had their own share of debt crisis in the past and many are yet to recover from that almighty blow to their nascent economic growth. But this time around the blow that they will be receiving is indirect, since the debt in effect is European sovereign debt. There are various channels through which the current global turmoil can affect African economies, one of which that has already affect the continent is through trade. The bulk of African export to European countries has already been affected by way of reduction in the over all export especially that of primary products. Countries such as Kenya, Mali, Uganda, and Senegal have already seen their primary export to Europe been affected by the crisis. As austerity measures put in place in countries such as Spain, Ireland, and Portugal bit harder so shall the volume of trade between these places and their African partners. Debt crisis of this magnitude should be expected to have an effect on corresponding debts hold by African countries. Already the cost of borrowing has increased making it more difficult for poor African countries to finance their deficits. Many countries across Africa are rethinking their earlier decision to issue bonds or borrow from multinational financial corporations. But one positive way the crisis is affecting Africa is by way of directing the attention of global financial players toward Africa. In order to satisfy the demand of portfolio diversification theory many global investors are directing their money toward African debt market which is young, dynamic and diverse. 


       China with foreign reserve running into trillions of dollars has been christened by analysts as the lender of last resort in this crisis. Already china government and business community has  bought billions of dollars of western European debts, at a time when Europeans themselves are running away from these junk debts. No African country can play the role China is currently playing in this crisis, the combine foreign reserve of China is more than African economies put together. As a matter of fact no one expect Africa to play any such role, if not for the way the crisis has affected the total number of aid money coming to the poor continent. Thus, here in Africa analysts are more concern with the way and manner the crisis is affecting the total amount of aid and development money that is coming to the continent and no the other way round. But one important sector that the European debt crisis hit the most, is emigration sector. Africans now find it difficult to migrate to Europe even when they possess the most needed education and talents. The big sign on the wall as far as Europe is concern is that investors capital and high net worth individual are welcome. While for the less endowed individuals and migrant without capital you are not welcome. This is not to talk of illegal migrant who will be maltreated when ever they show their faces. As for the millions of Euro remittance money that is coming from African migrants who are working in Europe Africa should expect less of it as the crisis bite harder. This is not to talk of the thousands of Europe based African who have lost their jobs since the start of the crisis, therefore, find their way back to Africa.

 
     According to a July 2010 issue of African Development Bank market brief, North and West Africa are the regions of Africa that are most connected in trade with Europe, therefore, more vulnerable to any contagion that come from Europe. Countries in these regions face increasing prospects of declining revenue and negative balance of payment position, the brief observed. Already, the weakening in the value of Euro has affected the portion of these countries foreign reserve that is invested in Euro. In African countries, especially in the CFA zone, the crisis may affect their banking system by affecting their liquidity positions as well as credit lines that are coming from the European banks. As European banks become more involve in Greece and other crisis countries debt problems they will find it more difficult to extend their credit line to their African partners. But one positive way that the crisis is affecting Africa is by making its people and government to look inward rather than in the past usual way of setting eyes on Europe and US. We all see how Nigerian authorities are fighting day and night to attract foreign investors with capital and skill to develop the local economy. Countries such as Ghana, Angola and Uganda are increasingly been seen as African success stories who have implemented hard economic prescriptions and have steered their economies toward the path of growth. But the impact of Arab uprising on debt laden European countries is to make their condition worst. We have already seen how Libya revolution is affecting the Italian economy. The decrease in the supply of crude oil, gas, and other raw materials from these North African countries to Europe has important implication on the economies of these European countries. The same thing with the declining line of capital that is coming from North Africa to Europe.

Monday, November 7, 2011

SANUSI LAMIDO BANKING SECTOR REFORM: A REVIEW


       The last three years has become one of the most tumultuous in the history of the world financial industry. The form and structures of the global financial order has been changed because of what occured between these times. A lot of important financial institutions that were known in the financial landscape for years have disappeared from the scene. Hundred of thousands finance industry workers have lost their jobs world wide, while some few others are languishing in prison cells. Currently, the global sovereign debt market is facing one of its most challenging period with countries across the world particularly in Western Europe facing multiple defaults. The current ‘occupy wall street’ protest is one of the repercussions of the global crisis that further bring to the fore the tensions that exist between the unemployed youth and the fat-cats called Wall Street bankers and other categories of wealthy individuals like them.  It is in this situation that Sanusi Lamido initiated his banking reforms which many see as the only option for any other CBN governor holding that office, and faced with banks in unhealthy state. Let go back to the early 90s, a period when Nigerian banking sector was speedily liberalized and many previous state own banks were sold to the private sector. The speed with which the sector was liberalized and the absence of required regulatory capacity to manage the phenomenon created as a result left the sector at the verge of collapse. Many banks were given license by virtue of applying for it not because they have the necessary capital, staff strength, managerial know how, and market spread to operate a commercial bank. Banks in those periods engaged most of their time in foreign exchange dealings instead of allocating their time and capital in most important areas like quality credit creation and shoring up of their capital base. The aftermath of that tumultuous period in Nigeria banking history was the increase in the number of failed banks and subsequent runs on banks by their customers, which later eroded Nigerians trust in the banking system. The failed bank tribunal of Abacha era was one of the unforgettable consequences of that period banking turmoil.



       The most controversial chapter in the Sanusi banking reform is his sacking of Managing Directors of five banks and their replacement with CBN appointed managers. Many people thought that was the end of Sanusi, because these were very rich and powerful people and nobody mess with them especially some body not well known like Sanusi at that period. Sanusi later followed that episode with the publication of the name of major bank debtors in the country who CBN claim owed those banks money. The list included the who’s who of the Nigerian wealthy and capitalist class. Some commentators still hold the opinion that the manner that Sanusi deal with the situation was too autocratic and it smell of communist era method of silencing those opposing a regime. The uniform year ending is one Sanusi reform that hit the nail on the head, before him Soludo had promised to unify banks financial year end to a single period. But up till the time he left office, he could not delivered on it. The uniform year end undertaking was credited with reducing the rate of dubious financial reporting by banks in the country whereby banks borrow deposit from each other to shore up their total deposit base on the final balance sheet. Banks unlike other private sector companies are very sensitive institutions that are critical to the health of any economy, because of that their activities are supposed to be monitored 100%. But when banks activities are shrouded in secrecy and the CBN itself who should know better aided in the process, people are bound to loss confidence in the system and develop cold feet at any sign of weakness from these institutions. Sanusi and his co travelers believed that CBN in the past two and a half years have been able to turn the tide against secrecy, and were able to increase the flood of information that is coming from both the CBN and banks it regulate.



     Ben Bernanke, the chairman of American Federal Reserve, is one Central Bank governor who is known world wide for his tactical manipulation of monetary information releases that many observers believe that our CBN got something to learn from. But despite there differences, Bernanke has things in common with Sanusi which is that they both happen to be crisis era governors. And, while Bernanke is tactical and gradual in his reforms approaches Sanusi is radical and revolutionary. Both were able to restore normalcy into their respective financial sectors, albeit using different approaches. Sanusi effort to improve corporate governance standards in the Nigerian banking sector is commendable, today the tenure of bank CEOs has been limited to two terms of five years. While heavy restriction has been placed on family ownership of banks and CBN power to monitor appointments into executive directorship positions of banks has been increased. Though banks did not totally abandon the earlier fatal competition for deposits that saw them undermining each other and sending their staffs on unethical quest for deposit, it has been contained a bit. Another area that Sanusi should be given a pass mark is his dogmatic insistence that no Nigeria bank will be allowed to fail or depositors to lost their money during the period of the crisis which we can all testify to that he has stick to that so far. But not so in the area of CBN overseeing of microfinance banks, many analysts still believe that CBN has done poorly in that respect. Microfinance sector that suppose to assist the poor and lower middle-class with their financial needs is being slowed by lack of quality and absence of deepness, and so far CBN is not doing anything concrete to help the situation. 



      The plan reversal away from universal banking model back to the less complex commercial banking model was viewed differently by the Nigerian public. Though this is a process that can be observed happening worldwide. Nigeria is not the only country that is reversing back to commercial banking model, others in both developed and emerging markets have also embarked on the same process. From what we have seen around the world during the global financial crisis where banks engaged in all sort of businesses with no time to concentrate on their core banking job, this reversal is a good policy. Under the universal banking arrangement, banks engaged in activities such as insurance, pension business, investment banking, foreign exchange dealings, mortgage business, hedge fund, and other capital market dealings. Money that is mean for safe keeping in the retail baking department of a bank will find it ways into the highly risky investment banking department where they are used to fund risky businesses. This is a risky activity that the new separation of commercial from investment banking has done away with. Despite numerous promises to bring down the cost of interest Nigerian interest rate is one of the highest in the world. Likewise other transaction costs such as charges for using ATM machine, withdrawal or transfer of cash. Sanusi also could not made much impact on his other interventions such as the Billions he allocated for lending to manufacturing and agriculture. Despite such huge allocations farmers and manufacturers still complain of lack of credit to support their businesses. The introduction of specialize banks like the non interest Islamic banking should be commended, because it has the potential to increase overall financial deepening in the economy by reducing the percentage of unbanked people. Despite the recent set backs, Sanusi has shown to the world that he is  an inflation fighter. But, the continuous weakening in the value of Naira will remain a big obstacle in the foreseeable future.