Unfortunately, our political class will not carry out the necessary reform. As soon as the immediately pressing problem (i.e. the toxic assets) is resolved (using federal government money that technically belongs to all of us citizens), the impetus for even a pretense of going through a process of reform will dissipate.
We will have the facade of change (new bosses at the CBN, SEC and NSE; new bosses and owners at the five most-bailed-out banks; the unbundling of the formal bonds between the banks and insurance and equity brokerage industries) .... but the underlying nature of the business will remain the same, because Nigeria has not changed (not politically or economically), and the financial/economic philosophy underpinning the decision-making of the "Nigerian banker" has not changed either.
When the dust settles, after Nigerians have paid up to save the industry and the government from their self-inflicted wounds, it will be back to business as usual.
Nevertheless, I maintain that the industry is important enough that we simply have to do this, and (as I have said repeatedly) we can afford the $10 billion price tag for the bailout. Not because we are rich (we aren't), and not because there is spare money in the budget (there isn't ... in fact, our three tiers of government have drained the Excess Crude Account while running deficits and running up debt), but because .... because we can afford it.
By way of comparison, take a look at the Republic of Ireland. Like the United States and many countries in Europe, the Irish have had to bail out their banks too. Their bailout will ultimately cost the Irish people a whopping $69 billion, equivalent to an even more whopping 32% of GDP at nominal rates (closer to 40% at Purchasing Power Parity)! Ireland has a population of 4.4 million, so the burden of bailout spending is close to $15,700.00 per capita.
By contrast, Nigeria's $10 billion in bailout costs is 3% of GDP at PPP (6% at nominal rates). Per capita, it comes to $80.00 per citizen (using a population estimate of 125 million, which is halfway between the official-but-hard-to-believe 150 million and an arbitrary floor of 100 million which if we haven't reached yet we soon will).
You might say that the income levels of the average Irish citizen ($41,000.00 per capita at PPP) and of the average Nigerian ($2,300.00 at PPP) are different, so the Nigerian would feel the burden more. True, but the Irish burden is 38% of per capita income (in a country whose cost of living is high enough that their PPP GDP is smaller than their nominal GDP), as compared to Nigeria's burden of 3.5% of per capita income (in a country where PPP GDP is more than twice the size of nominal GDP).
I am not saying the bailout is cheap. I am not saying Nigeria is a rich country that can afford to save wealthy bankers and wealthier banks from their own greed and stupidity by using citizens' funds to cover their losses (rather than forcing them to absorb the loss themselves). Indeed, it is a travesty that each Nigerian citizen will in effect be handing over $80.00 to the banking industry.
However, we have to do it. Sometimes in life there are things you don't want to do, things you hate doing, but things you nevertheless have to do. Unsurprisingly, such things usually involve economic issues. Lets be honest, how many of us do things we don't want to do in order (for example) to keep our jobs?
The Central Bank of Nigeria and the Federal Government both seem to believe the Asset Management Company (AMCON) will be able to get back 50% of the value of the toxic assets its buys off the banks books.
I fear the truth will be nowhere near as favourable as 50%. When all is said and done, we may lose most if not all of the $10 billion. The authorities probably know it but don't want to admit it, preferring instead to "spin" the facts; for example, as I noted in this blog post, CBN boss Sanusi Lamido Sanusi (whom I actually like)touted the Asset Management Company thus:
A state-funded 'bad bank' being formed to buy non-performing loans held by rescued Nigerian lenders will free them up to repay by mid-year the capital injected in last year's bailout, the central bank said on Thursday.
"My sense is that certainly within the second quarter of this year the AMC will have purchased these assets and the banks will have paid back the central bank," the central bank governor Lamido Sanusi told CNBC Africa television.
He was speaking in the first quarter of 2010, presumably in the hope that the AMCON would be up and running by the second quarter, but that is not important.
What he said in effect is that the AMCON would pay $8 billion to the banks (in bonds), which would allow the banks to "repay" the $4 billion in bail out funds they had already received. On the books, it would be recorded as though the banks repaid a $4 billion loan, when in fact all that will happen in practice is the CBN will ultimately reclassify $4 billion alread in its accounts as "repayment" funds received from the banks, while in practice the banks get $4 billion in additional funds (bonds that have real value, unlike the worthless toxic assets) in addition to the $4 billion already received from the CBN, which will essentially have been written off by the CBN (i.e. what was once a "loan" to be repaid would now be a "gift").
This is the sort of language that all involved (banks, CBN, federal executive, federal legislature) use to avoid bluntly telling citizens that we the people of the Federal Republic of Nigeria are about to make a $10 billion gift to the Nigerian banking industry.
In Nigeria, everything is political, and when people start discussing politics, issues of bias and prejudice are not far behind. Much of the media coverage in the last year-and-half has centred on (a) the supposed political motives of the late former President Yar'Adua in appointing Sanusi Lamido Sanusi to the CBN Governorship; (b) the alleged political motives behind Sanusi's "tsunami" on the banking industry; and (c) the hagiographic portrayal of the Obasanjo administration's economic team ... never mind the fact that Obasanjo's economic team wilfully pumped air in a giant stock market bubble, and continued doing so (without making provisions for a soft landing) long past the point where it was clear to objective observers that Nigeria was on the path to a radical "correction" of the market that would have happened even if there had been no global credit crunch or stark drop in crude oil prices (margin loans given to provide air for the stock market bubble, and loans given to petroleum importers based on an expectation of high crude prices comprise large portions of the toxic assets).
It is difficult for a citizenry to hold government and industry to account when the country in question is not a real democracy, and citizens lack the democratic levers with which to pull the reins of government and the private sector. But with or without substantive democracy, an uninformed (and at times misinformed) public is in no position to hold anybody to optimal account, or even to know what condition is optimal to begin with. Indeed, the absence of real information to work with creates a void into which people place whatever biases and/or prejudices and/or preconceptions they already had.
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