A couple of weeks ago, the Financial Times and other sources reported new CBN Governor, Sanusi Lamido Sanusi intends to remove the 10% cap on foreign ownership of equity in Nigerian banks.
Apparently there is no federal statute forbidding foreign majority ownership of Nigerian banks; the 10% cap exists at the discretion of the Central Bank, and the current cap was introduced only in 2007 by erstwhile CBN supremo Charles Soludo as a reaction to Standard Bank of South Africa taking over IBTC Chartered Bank of Nigeria.
The ad hoc nature of the way Soludo imposed the rule leaves me uncomfortable. Such an important rule/regulation should not be subject to nothing more than the personal whim of the CBN governor. For the record, this criticism applies just as much to Sanusi's removal of the cap.
Whatever your view of foreign investment in any sector, the rules have to be clear and consistent. You can't have one set of rules in place, then a business deal happens that a regulator does not like, and overnight he just changes the rules.
Such a situation makes it difficult to achieve policy consistency, because as easily as Soludo imposed the rule, so easily can Sanusi remove it. This adds an unnecessary element of uncertainty into the investment decisions of Nigerian and foreign entrepreneurs; presented with a new set of operating facts, they still have to ask themselves "what will the next CBN governor do?"
Under these circumstances, investment decisions are less than optimal as entrepreneurs are forced to hedge against random changes, random rule creation and random rule removals, against laws that exist but are neither enforced consistly nor ignored consistenly, and against unwritten rules that are nevertheless unofficially enforced. It is why there is so much short-term thinking in the economic sector. And it is part of the reason why there is so much obsequious brown-nosing (A.G.I.P. = "Any Government In Power"), not to mention bribery and influence-peddling, in the political sector.
In some of my earliest blog posts, I discussed the effects on Nigerian banking of the global credit crunch and the (separate, it is important you recognize it as separate) market correction in the Nigerian Stock Market. I also talked about the toxic assets being held by Nigerian banks, an issue which receives very little discourse in Nigerian politics and media (though the new Sanusi CBN is moving to compel banks to become more transparent. Charles Soludo will be remembered fondly for initiating the banks consolidation exercise which Sanusi has pledged to complete, but Soludo also bears some responsibility for the lax supervision of banks that allowed the post-consolidation banks get into such a mess; he is not alone, I suppose, as his counterparts elsewhere also turned a blind eye to wuru-wuru shenanigans, so long as stock markets surged, never mind the bubble was bound to bust sooner or later).
In those early blog posts, I wondered how the Central Bank, and the federal government were going to handle the stresses on the banks, and discussed some of the things they were doing. A recurring issue was the question of where we were going to get the funds to (for lack of a better term) dissolve the toxic asset problem. The CBN was running down our external reserves defending the value of the Naira, and the federal government was going into deficit.
It seems Sanusi (a career banker who came to the CBN from the uppermost echelon of First Bank) has decided foreign funds should fill the gap. By lifting the cap on foreign ownership of our banks, and forcing transparency and accuracy into banks' financial reporting, I believe he hopes to attract enough floating funds from the global market (likely from China and the oil-rich Gulf states) to dissolve our relatively minor toxic asset problem (minor compared to North America, Western Europe and Japan); $10 billion in capital investments should do it.
With that said, Nigerian banks are vital to our economic present and our economic future. They also represent the bulk of capitalization on the Nigerian Stock Exchange. Our banks have moved aggresively and succesfully into West and Central Africa, and are now spreading their wings to East Africa; Ecobank is in Kenya, and PHB, UBA, GTB and Ecobank are in Uganda.
Human beings, as individuals, as groups, as firms and as countries, are motivated by rational self-interest. We see the world differently. We each think of ourselves as the centre of the universe, the centre of gravity. And we use our energy and intellect to basically reshape our corners of the world to better serve our needs. We are not all equally able to bend the world to our will, but whatever little influence we have over whatever little patch of world, we use.
It matters who is making the decisions. It matters how they see the world, and what they think are priorities.
When corporations from East Asia, Western Europe and North America invest in Africa, they generally invest to produce the things (mostly raw resources) that their economies need. Yes, Africa gains some benefits, but our national and continental economies remain stunted by the fact that the principal driving force behind the decision-making is NOT the creation of strong, integrated economies. Even our most basic infrastructure (roads and rail) are designed to evacuate raw resources to world markets. The biggest investment in Chad, and the only infrastructure of note in that country, exists because Western powers discovered something they needed -- crude oil.
Before you misunderstand, I am not blaming foreigners for Africa's problems; it is our decisions and actions (and sometimes the lack thereof) that keeps us trapped. I am supportive of foreign investment in Nigeria in general and in banking in particular, and supportive of global trade. And inasmuch as our banks are allowed to invest in West, Central and East Africa, we too should allow others (particularly fellow Africans) to invest in Nigerian banks. Finally, an infusion of relatively small amounts of foreign investment (oddly enough $10 billion is not much relative to global investment flows) could set our banks on a much more solid football going into the future.
With that said, there are so many opportunities for wealth creation in Africa, so much prospect for expanded intra-continental trade. The question is whether political, economic, social and cultural decision-making can shift from the current stagnation to the adoption of choices that would create the growth we want to see. Each country that achieved economic transformation did so in an environment where governmental and private sectors were deliberately and cooperatively chasing growth. There are entrepreneurial (and political) risks that only someone philosophically, ideologically and spritually inclined would bother to take; everyone else would go for the easy money option, which involves plugging into the current, limited system (limited for Africa anyway).
No country is an economic island; we are all integrated. But it still matters a lot who has preponderant decision-making power -- and what decisions that person or firm is likely to make. Our inability in Africa to chart a course to where we want to go is not helped by our tendency to transfer decision-making away from ourselves, to local Big Men, to global non-governmental organizations, to "development partners", to multilateral agencies, to everything and everyone except ourselves.
We have to engage the world and trade globally, but do so with strategic purpose and not just float like chaff anywhere more powerful countries sweep us. In fact the disparity in power between us and them is linked to their grasp of their interests and their focus on achieving those interests. Indeed, the Chinese, North Americans, Western Europeans, Australians, Brazilians, Russians, Indians, EVERYBODY monitors and manages (as well as promotes and seeks) foreign investment in strategic economic sectors.
I do not think a proper revised cap could be designed on an internet blog. It is the kind of thing that should spark discussion between industry bigwigs, regulators, academics, politicians and the wider citizenry. I am rather tired of important issues being treated in ad hoc ways. We need to go through a process before we impose significant rules, laws or changes to our political and business life (speaking of changes to our political life, the Joint Constitutional Review Committee remains no more than an elaborate joke).
The National Assembly needs to discuss, debate and pass clear statutes on foreign investment. These statutes should be consistent with whatever we feel is the long-term goal of cooperation in ECOWAS, the African Union (which like "Nollywood", needs a new name), as well as the UN/WTO. But it should also be consistent with our desire for rapid economic growth. Instead of removing the cap entirely, perhaps we should raise the cap? To 45% maybe? Or maybe create two classes of stock (a la China) with variable voting rights depending on what is being voted on?
Whatever it is, it needs to come from the Assembly. We can't have conflicting sets of rules drawn up by regulatory authorities based on the personal preferences of the regulatory boss (and on whether or not that boss has the personal favour of the sitting president). There is too much of a mish-mash between foreign corporations dominating strategic sectors, while dribbling around wishy-washy government policies ostensibly designed to promote Nigerian involvement (like the "local content" rules or the changes to the cabotage rules).
Oh, and it should come from an Assembly that is actually ELECTED, that actually represents the wishes of the citizenry, and only AFTER political parties have stated their platform on the issue so we have the chance of voting in legislators who will vote on these issues the way we want them to.
Since none of that is likely to happen anytime soon, I hope Sanusi is careful. Don't throw the cap away all at once. Set a timetable for lifting the cap, perhaps 10% at a time, until it reaches a certain point (45% maybe?). Let him then say that once it reaches that point (years later), it will be up to the democratic process and the Assembly to decide if it should go any further. If we can attract foreign funds sufficient to go from 10% to 45%, we will have attracted more than enough to deal with the toxic assets issue.
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