Written by Ola Kazeem Monday, 19 October 2009 22:42
Like a thief in the night, crisis in Nigerian financial sector entered when Nigerian bourgeois think-thanks least expected it. When the crisis first showed its naked faces, it was fiercely denied, being extremely superstitious set of people, the bourgeois economists refused to acknowledge and talked about it. They simply rejected it in Jesus name!
Unfortunately, truth is a stubborn thing; whether you acknowledge it or not, the truth will always catch up with you. Suddenly, Central Bank of Nigeria Governor, (Lamido Sanusi) publicly lamented the imminent collapse of the entire Financial Sector, immediately 420 Billion Naira was coughed out within seconds to bail-out five of the threatened banks, not long after, another 220 Billion Naira dolled out for another three banks. Recently, another $2 Billion (Over 300 Billion Naira) was injected to re-inflate the economy. Close to a trillion Naira already dropped, but instead of the situation improving, it is rather deteriorating. All the Bank directors and executives of the affected banks have been severally harassed and legally challenged, all the debtors prosecuted, but is this crisis caused by the misdeed of some individuals as its been advertised or it is a crisis of Capitalism? Is this crisis avoidable under capitalism or it is inevitable outcome of this barbaric, blood sucking, all for profit systems called Capitalism? These are few of the issues look into by this article.
Is it just the reckless activities of very few individuals that triggered this crisis?
Though, an average capitalist is not just reckless, he is heartless. He thinks of nothing but making money, he values dead over living. The recklessness of the capitalist class played a role in this crisis, but this crisis is majorly a consequence of crisis of Capitalism. This is a global crisis of capitalism; what concerned Akingbola( Intercontinental Bank MD) with financial crisis in Germany or Iceland? This crisis spread from US to UK and all over the capitalist economy around the world, Nigerian ruling class just needed to pick some scapegoats, so as to hide the truth behind this crisis, so that this blood-thirsty system can be protected from the wrath of the workers who significantly bear the burden of this crisis. Close to a Trillion Naira of tax payers money already dashed out to rescue banks would have met with the resistance of the Working class if the truth were known. The truth must be said; it is Capitalism that is here on trial not Banks MDs and debtors.
Is bail out necessary in our collective interest?
It is necessary to debunk the lie that the bail-out is very necessary in the interest of all. Less than 20% of African households own bank accounts or have access to financial services. Nigeria has a highly unequal income distribution profile: about 8% of those that have access to financial services own about 90% of the available deposits (Soludo 2008). This means that you and I, who constituted the 92% of those who have access to financial services only own 10% of available deposits. Therefore, the bail out is obviously for an extremely few financial hawks who dominate Nigerian wealth. Ask yourself; why is it difficult to make available less than 1 Billion Naira to savage the Nigerian education, despite the fact that Nigeria is among the last 10 in Human Development Index in the world? Just 7 Billion Naira will completely revive the ailing textile industry which was once the second largest employer of labour; agriculture needs less than 5 Billion Naira to turn it around and reverse the present trend where Nigeria is net importer of food. To truly bail-out the overwhelming majority of Nigerians; the banks should be taken over in the interest of the people and the real economy. Living wages should be paid to Nigerian workers. Sound, free and qualitative Health and Educations at all levels will make Nigerian workers better off and set them on the path of real financial bail-out.
How it all did happen?
In 2008, Oceanic bank declared a profit of 33Billion Naira, less than 35Billion Naira declared by UBA. Huge figures were being announced without any sign that the sector was actually at the verge of a major financial crisis in the history of the sector. Fiche rating placed 7 Nigerian Banks among the first 1000 Banks in the world with Intercontinental Bank leading others at position 350 in the world. The then CBN Governor affirmed these rosy records, by asserting that Nigeria now has about 11 banks with over $1 billion in Tier 1 capital, by end February, 2008.(Soludo 2008).
But, contrary to the claim that the rosy pictures we had then was as a result of a forced merger imposed on the banks by the former Governor of CBN(Soludo); these growths were largely virtual rather than real. Soludo said in 2008 Governor address that the total asset of all Nigerian Banks put together is not up to the asset of Standard Bank of South Africa(Just one bank in South Africa).
Therefore, despite the mergers, Nigerian banks remain underdeveloped. As the following figures revealed; the growth was as a result of unproductive manipulations of money. It was based on erroneous thought that money can be made out of money. That without labour, wealth can be created. The sector grew 277% between 2003 and 2007. This coincided with a period when crude oil rose to all time high of $147/Barrel and at exactly the same time, share of Banks in NSE most capitalized companies rose substantially – 30% (2003); 65% (2007) and NSE stock rose to 13trn Naira. Therefore, it becomes self evident, that this growth in the banking sector was resting on chicken leg. They were giving loans to their friends to go to stock market and buy their own shares so as to push up the share prices.
Suffice to say, equally important to state is that behind these interesting figures are blatant lies and doctoring of financial reports; In May 2008, JP Morgan issued a report which warned that the top seven banks, with a combined market capital of over $40bn, might be overvalued by as much as 56%. Wema Bank has not presented audited accounts since 2007 and Unity Bank has not even released its 2007 accounts. Nigerian banks make most of their profits in the final quarter, even though banking is not a seasonal activity like agriculture. In a pattern repeated across the industry, Intercontinental Bank made 92% of its profits after tax in the last quarter of its 2008 year. Prior to that, the record was held by Access Bank, which made 88% of its profit in the fourth quarter of its 2007 year.
No doubt, things started getting rough when The Nigerian Stock Exchange (NSE) has lost over 65% of its value since March 2008 and an estimated N8trn ($54bn) has been wiped off bank stocks, which represent two-thirds of total market capitalisation. It is estimated that Banks total exposure to Capital market as at end January 2009 is N784 billion or 10% of total loans and at the same time, Banks total risk assets as at end of Feb. 2009 is N12.78 trillion.
Rather than loaning money to real sector of the economy, this sector was completely neglected. Real economy remains very sick in Nigeria, operating at less than 20% of installed capacity; this is so for many reasons: over 70% of Nigerians are living on less than $1 per day, this grossly constraint Nigerian domestic market. The effective demand of the people is extremely low. Consequently, at current population growth rate, and if GDP grows at 13% p.a, it will be in 2033 that Nigeria achieves today’s per capita income of SA. At current 6% growth, it will be in 2065 (Soludo 2008). The poor people in Nigeria are more than population of Togo, Benin republic, Ghana and Liberia all combined.
Nigeria is a giant on chicken legs. Nigerians have been so impoverished that market is now so narrow that real economy becomes strangulated. Another major factor militating against real economy in Nigeria is the state of infrastructures. No power, no road, no decent housing and functioning health facilities. These are necessary pre-requisites for a truly developing economy. Capping it all is the 22% interest rate charged by banks on credit. What business can you legally and judiciously undertake to make profit on top of this exorbitant interest rate?
Where did the money disappear to?
Substantial amount of money rejoicing over by these financial institutions is mainly unreal, as already analyzed above; doctoring of the financial records, irresponsible soaring up of share prices artificially, without any genuine link to the real performance of the companies owing these shares. The greed that is at the heart of capitalism did not prevent the Bankers and their cronies from spending this virtual money. It matters not to them whether it is real or not, they just simply went on spending prey. Oceanic Bank MD, Cecilia Ibru purchased two private jets. She ordered for two more before the financial burst. They built mansions at every important corners of the world. Their spiritual leaders too never had it rosier. The religious leaders started competing with number of private jets each has. They acquired more land and generally increased their wealth and influences. Almost all the banks increased their tithe to the church, apart from direct donations made during this period to the religious leaders, claiming this sudden wealth was handiwork of good God. Intercontinental Bank M.D, Erastus Akingbola, went as far as lunching a Christian radio station, which he claimed is to propagate the word of God and most importantly to give glory to God for this wonderful wealth that just landed on their palms. During the opening ceremony of the radio station, Akingbola said:
“…I setup Inspiration FM to combat the decline of moral, socio-economic, political and religious values in Nigeria. Akingbola said the situation was urgent for Nigeria to address the problem of corruption holding back the development of the oil rich nation.”
You and I now know how empty his words was and how morally upright an average capitalist is.
How can Financial Sector be genuinely rescued?
Obviously, all the previous methods employed in the past to stabilize banking industry will always amount to nothingness. Between 1990 and 2004, bank regulators increased the minimum share capital requirement for banks operating in Nigeria five times, namely in 1991, 1997, 2000, 2001 and 2004 (Aburime and Uche, 2008) and yet the crisis never depart. Despite this, total asset of all the 24 banks in Nigeria is not up to capital base of Standard Bank of South Africa, this is because real wealth only comes from real economy not speculations or money magic.
Now that Stock Market is no longer spinning a cheap wealth and oil and gas sector is not yielding as was earlier the case, will Nigeria Bankers now invest in the real sector of the economy? The answer is echoing no. Real economy is suffering in Nigeria mainly because of extremely high cost of production. No road, epileptic supply of electricity, very poor and barbaric state of health facilities and highly deplorable state of education, make doing business in Nigeria a hellish exercise. As we have said several times in the past; Nigeria ruling class is absolutely incapable of solving any of these aforementioned problems. After almost 50 years of political independence, none of these challenges has been successfully addressed; this strikingly confirms our assertions. Under capitalism economic development is secondary, what is paramount to the capitalist is profit no matter how detrimental it is to the overall economy. As long as capitalism survives in Nigeria, economic development is mere mirage.
The bail-out funds being handed out to the banks by this regime will never go into anything productive, but rather prepare a catastrophic ground for a more disastrous economic woe. We are already witnessing where tax payers money given to the banks are going. Bankers are now using this fund for speculative purposes on foreign exchange floor. The recent instabilities of Naira almost directly link with the activities of these bankers. Foreign reserve has almost been completely depleted to satisfy ever increasing foreign currency demand of these financial hawks.
Therefore, the genuine rescue of financial sector of the economy must first start with complete withdrawer of control of banks from the present crop of mafias. Banks must be nationalized so as to free the funds for a more serious developmental project. The wealth presently cornered by banks, can go a long way to significantly turn around our comatose economy. Only a naive and feeble minded Nigerians will expect the present crop of Nigerian ruling class to Nationalize banks; only the Government of working class, with active support of Market women, middle class and Nigerian Students can effect such measure. The only option before the present ruling to solve our problem is to further impoverishing the already battered Nigerians, increase in oil prices, higher school fees, more expensive health facilities, high unemployment and lack of decent habitable houses for the generality of Nigerians.