Les Leba
16 June 2008
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Lagos — THE Manufacturers Association of Nigeria (MAN) recently convened an 'interactive' Session with Prof. Soludo, Governor of the Central Bank of Nigeria, to explain perceived inconsistencies in monetary policy and industrial growth expectations.
The Governor breezed into MAN Headquarters in Ikeja, in a siren-led convoy about an hour after the scheduled commencement of the presentation with a full complement of CBN support staff and the CEOs of three leading Commercial Banks in tow!
In keeping with security protocol for VIPs Soludo took his seat after a security detail had preceded him into the hall apparently to check the comfort and the safety of the chair reserved for his ward!
It is not clear why it took so long into Soludo's tenure as CBN Governor to step down to the ground level of the battered industrial entrepreneurial class to engage in any form of dialogue!
The short notice notwithstanding, a good number of MAN's membership turned up to hear what good tidings may be in the offing to save their businesses.
The almost 90 minutes presentation was laden with copious graphs, tables and charts which regrettably for the speaker could not be presented in a more impressive PowerPoint format.
It is not hard to see how such elaborate but basically porous presentations would have bamboozled Obasanjo and encouraged his support of policies and frameworks that made our people poor in the face of rising national income.
I recall the demand by Obasanjo that Key Ministries and Agencies should present plans to grow the economy by at least 10% within 12 months in 2006!
Rather than tell Mr. President the truth that economies cannot be grown by fiat nor in the absence of critical fundamentals particular infrastructure and an enabling climate of appropriate monetary and fiscal policies, the Finance Ministry and the CBN Governor led the pack with copious dazzling presentations that gave Mr. President immediate comfort but expectedly failed to achieve desired goals.
The consternation of MAN at the recent increase of the Monetary Policy Rate (MPR i.e. the CBN Commercial Bank Control Rate) from 10% to 10.25% against rational expectation seems to have instigated the interactive Session.
The other motivating issue was also the scrapping of the Small & Medium Enterprises Equity Schedule, an arrangement which was touted five years ago as a potential growth engine for the real sector and which mandated banks to allocate 10% of their profits into equity participation in Small & Medium Entreprises.
Soludo agreed that an increase in the CBN's MPR would normally be expected to lead to higher commercial lending rates to industrialists by the commercial banks, but maintained that the greatest constraint to industry was not high interest rates as generally supposed, but that other factors such as inflation and infrastructure were equally, if not more important than the cost and availability of funds!
Soludo, however, recognized that even the problem of inadequate infrastructure could be better addressed in a climate of low interest rate as this would encourage private participation in the provision of such facilities.
In an unsuccessful attempt to shift the responsibility for high interest rates from his doorstep, the Governor maintained that high interest rates were predominantly caused by inflation (i.e. too much money chasing too few goods) and also depositors' demand for higher returns, since one would not consciously accept to lend money at a rate below the rate of inflation, as this would mean a collateral depletion of income every year.
So, if inflation is fuelled by too much money in the system, the obvious question is who pumps this avalanche of money into the system?
Soludo ingeniously absolves the CBN of this malfeasance and instead points a finger at the budget and spending patterns of the public sector.
He warned that if Nigerians want low interest rates, then it must curb inflation by encouraging public sector agencies to reduce their annual budgets!
In other words, the less the spending of the public sector, the more funds will become available for savings and by extension, investment at low interest levels.
Prof. Soludo canvassed his credentials in the discipline of economics to support the sanctity of above analysis, but a layman would rightly wonder at the wisdom of any expert who advises him to forego the repair of his leaking roof, and the appropriate nutrition and health needs of his family or the choice of good schools for his children in place of increasing his savings in the bank!
Our layman would be further confounded if the expert insists that it made more sense to borrow whatever he needed for such family welfare improvements from a bank at a cost rather than dipping into his idle or low interest yielding savings deposit with the same bank!
Indeed, our layman may suspect that the bank and his so-called expert adviser are in cahoots against his interest; but in reality, this was the thrust of Soludo's presentation to the assembly of MAN!
I recall that someone noted behind me at the interactive session that the eminent Professor should be more properly designated the GMD or Group Managing Director of Nigerian Banks Plc.
In an awkward attempt to self adulate and endorse his claim of improved lending to the manufacturing sector, Soludo berated MAN members for having very little to show for the growth of credit to the manufacturing sector from N293bn in 2003 to $487bn in 2007; which is, about 2.5 times the total available credit to the private sector!
Of course, MAN members quickly demanded a sectoral breakdown of the credit allocations to see where the money actually went! Other industrialists argued that such credit value to the sector may be minimal when compared with the actual requirement!
In a subtle attempt to berate MAN for ingratitude, Soludo reminded MAN that current lending rates of around 20% was a major climb down from the 30% average of six years ago.
In order to show how lucky Nigerians were, he circulated copies of a recent Ghanaian publication which displayed interest rates ranging between 25-33% paid by the industrial, agricultural and the commercial subsectors in Ghana as against our own 'paltry' 20% in Nigeria!
However, MAN again reminded the guest speaker that the numerous hidden charges, Nigerian borrowers pay would bring our rate to the level obtainable in Ghana .
To his credit, Prof. Soludo suggested that such bank charges should in future be clearly stated upfront, and in any event should not exceed 2% per annum. Whether or not this is mere lip service remains to be seen.
But honestly, what bothers me is why Soludo chose the Ghanaian economy for comparison, especially in view of the objective of becoming one of the top 20 countries in the year 2020! It is odd that one who aspires to be an eagle continues to compare his speed and agility to super chickens!
At the end of the Session, majority of MAN members were left in a quandary as to the bleak future that awaits the real sector, as they could see that there was something fundamentally wrong in a framework that impedes industrial growth with increasing revenue and high interest rates, but, however timidly deferred to the acclaimed educational credentials of the CBN Governor.
Save the Naira, Save Nigeria !!
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