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Why Soludo is wrong on Buhari’s Economic Policy – By Odilim Enwegbara



The former CBN governor Chukwuma Charles Soludo has done it again. He has accused the Buhari administration of not having a clear economic direction. Soludo, we all know, is obsessed with attention-seeking and saying fictitious things he from time to time labels as economics. Once he feels not getting enough attention or has been forgotten by the media, he explodes; he just says anything, indeed anything so long as it draws enough public attention to him. Little wonder, he always says that he enjoys talking from the comfort of his ‘expensive’ balcony. Well, yes, Soludo, no doubt is entitled to his personal opinion. But is he equally entitled to his own facts? Of course, that is where the line should be drawn.

But before we go into the subject matter, a quick run on how Soludo ran the CBN from 2004 to 2009 is important to fully give us a clear true picture of where he’s coming from, particularly how in his attention-seeking he ran the apex bank as though an academic institution with textbook theories gussied up within the fanciful precincts of mathematical equations. Agreeing with his idealized neoliberal monetarist specifications and lax banking regulations, bankers became ‘banksters,’ who were assured of getting away with their fraudulent schemes as long as they do so massaging Soludo’s huge ego.

As a result of his Las Vegas kind of casino banking consolidation, banks dishonestly in search of quick and easy funds, did so in full violation of most banking and financial laws of the land. The most violated became Article 15 (e) and section 32 of the Investment and Security Act (ISA). Tricked with illegal margin lending, millions of unsuspecting Nigerian investors became victims of banksters who luring them into buying some carefully overvalued bank stocks thanks to insider trading, had their life-savings and pensions worth N2.5tn ended up pocketed by bankers who acted also as investment banksters. In fact, under Soludo’s watch, Intercontinental Bank fraudulently purchased over 30% of its share capital with depositors’ money. Afribank too used depositors’ funds to illegally purchase 80% of its IPO. Unbelievably too, through special purpose vehicles (SPVs), Cecilia Ibru illegally used depositors’ money to buy her 35% ownership of Oceanic Bank’s shares.

While banking and financial sector was literally on fire, Soludo shocked the entire world, when he announced in 2008 his bizarre naira redenomination policy — a year to the end of his tenure. As bizarre as this making N125 to a dollar to become N1.25 to a dollar, Soludo saw himself above the law the land, simply because he fought and got for his CBN full independence as if a sovereign entity thanks to the 2007 CBN Act. But rather than patriotism, it was the $40bn he hoped to spend in printing a new set of naira notes that drove him. Saving the country from another Soludo’s wild project, not only did President Yar’Adua call him to order, he quickly canceled this mind-boggling project.

To clean up the five years mess caused by Soludo, Sanusi Lamido Sanusi had to inject a whopping N620bn taxpayers’ money bailing out the banks now mostly in coma. Also AMCON had to spend close to N4tn taxpayers’ money purchasing banks’ nonperforming loans and the entire financial sector’s toxic assets, mostly resulting from the Soludo-led Ponzi scheme. Because Soludo walked away from all the mess caused by his neoliberal textbook central banking, he seems to be enjoying his freedom of free speech, including turning facts upside-down.

In his recent outburst he claimed that PDP during the last 16 years more than doubled the country’s GDP. The growth which he alleged was led by the non-oil sectors grew the economy by 6%-7% annually. But if PDP-led this so-called stellar performance, how come Soludo has been insisting that the party during past 16 years ran down the country’s economy? In fact, last March he accused the Jonathan-led PDP to have so mismanaged the economy that N30tn was diverted in last four years alone. Why these contradictions? Why is Soludo always speaking from both sides of his mouth? As an economist, is Soludo saying that a country that earned over $500bn from oil sales alone between May 29, 1999 and May 29, 2015 shouldn’t have easily grown its GDP to $573bn?

Besides his silence on the so-called non-oil sectors that he argued doubled the GDP, what is worrisome is that this economist does not know that what it takes to move a $275bn GDP to $550bn (doubling it) in 16 years is far lesser than what it takes to move $550bn GDP to $1.1tn (doubling it) in the next16 years. Adding $275bn in one 16 years shouldn’t be the same as adding $550bn in another 16 years. Besides, in this his GDP doubling thesis, shouldn’t there be some measurable government-led investments in the country’s infrastructure expansion and modernization, number of jobs created and number of Nigerians lifted out of poverty during the said 16 years? Even if it’s all about quantitative GDP growth, without possible trickledown effect, at least the so-called non-oil sectors that drove the growth would have been conspicuous enough.

How should this so-called non-oil-led economic growth have happened in the economy without power sector or the road infrastructure witnessing some tangible improvement? Did the GDP witness this growth while our schools and hospitals are today in such a sorry state where millions of Nigerians now troop abroad in search of a better education and healthcare? How did PDP double the GDP without attempting to fix the country’s refineries and agriculture to the extent that during the same period we spent trillions of naira importing petroleum products along with trillions of naira importing food? Of what use is doubling the GDP if rather than being accompanied with prosperity and peace, PDP left country so insecure that kidnapping and ethnic conflicts are now a commonplace? What about more than N12.06tn unproductive debt PDP also left behind?

His insistence on industrialization as key to country’s development and job creation as good as it sounds, truly said nothing new, particularly about how we’ve to go about achieving that, since what would have been news is proffering some sets of policy strategies to jumpstart the industrialization. But rather than doing that, in full recognition of the fact that the devil is in the detail, he resorted to impressive grammar speaking as if in a university class. Proposing industrial parks and farm settlements with cluster services, for example, in an effort to promoting an SME-led industrialization, definitely would have made a lot more sense.

If Soludo is aware that without drastically reducing the country’s over $350bn infrastructure deficit, which has continued to make cost of doing business in Nigeria among the highest in the world, he should have appreciated the ongoing efforts of this government to massively invest in reducing the current infrastructure gap, starting with doubling the country’s budget from N4tn in 2015 to N8tn in 2016. Or should he expect any meaningful industrialization when cheaper imports continue to make manufacturing the same goods in Nigeria more expensive? Of course, Soludo doesn’t need to be an economist to know that it is only by investing in critical infrastructure like power and roads to reduce the present high cost of doing business in the country will we begin to witness both local and foreign manufacturers setting factories in Nigeria.

Instead of appreciating government’s ongoing monetary policy overhaul, including the closure of domiciliary accounts and the rationing of forex so that only critical industrial and economic value adding inputs get forex officially, along with the ongoing efforts to cheapen the cost of money in the country by reducing the monetary policy rates, Soludo seems to prefer his usual shooting in the air. For instance, why after adding to the further flogging the already over-flogged exchange rate policy which he called ‘tried and failed de facto fixed exchange rate,’ Soludo hardly proposed practical way forward?

One would have expected that as a former CBN governor he should have suggested that rather than a list of imports to be barred from official forex window, for the judicious and prudent deployment of the country’s increasingly scarce forex, government should have itemized those imports to officially access forex, items not only add high value and jobs to the economy but also are essentially economic diversification and industrialization drivers. This would have meant that while unlisted items unofficially sourcing their forex at whatever rates, their importers should also be warned of their readiness to be subjected to customs’ forex legitimacy tests, with Nigerian customs deciding if they should be allowed into the country or be seized on the basis of importing with illicit forex.

His argument against the closure of domiciliary accounts is surprising because Soludo cannot tell us which country other than Nigeria allows domiciliary accounts. In his insistence on the legality of domiciliary account in Nigeria it would have been true if he told us the very Act of National Assembly making it lawful. But how could a former central bank chief insist on the legality of domiciliary accounts, forgetting how as idle accounts banks could neither lend the dollars in such accounts nor charge COT simply because these are contrary to the principles of fractional reserve banking? That is why qualifying it as, “de facto scrapping of domiciliary accounts established by law,” Soludo insinuates that he can legally operate a naira account outside Nigeria, a pound sterling account outside Britain, or a dollar account outside the US, etc. Is Soludo unaware that domiciliary accounts have been causing high economic dollarization in Nigeria, that Nigerians and foreigners have been using domiciliary accounts to engage in money laundering and illicit capital flight, and that by doing so they were putting undue pressure on Nigeria’s scarce foreign reserve accounts?

After congratulating the president on his successful implementation of TSA, he turns around to oppose to the same TSA policy. This, he did when he said, “we don’t have to return to the past of having every penny of government largely redundant in the central bank.’’ Maybe Soludo is unaware that TSA has been in existence in Nigeria since 1954, before independence, and was only abandoned by Gowon during the civil war; that even the 1999 constitution and the Fiscal Responsibility Act of 2007 insisted on government’s treasury single account; and that we’re all applauding Buhari not for initiating TSA policy but for having the political will to fully implement and enforce this policy, which Jonathan failed to implement because of lacking the leadership to insist on its implementation.

That Soludo is against government’s money being kept in government’s bank makes one to wonder which country in the world that allows its public money be kept in private banks, banks that could go bankrupt anytime! Or is Soludo comfortable with government borrowing at as high as 13% its own money kept in private banks at zero interest rate? Is he also happy that as a result of keeping government money in commercial banks salaries and capital projects meant for the money are either postponed or completely abandoned? Is he unaware that the CBN spends billions of naira annually in mopping excess and redundant liquidity in the system simply because money supposed to be quarantined is injected into the system? What about the high arbitrage and economic financialization it caused the economy?

Doesn’t Soludo recognize that seeing him to still be advising this government to follow the failed neoliberal economic pathway as the way to grow our economy, only makes Nigerians see him as an economic hit man the same way they see neoliberals like Okonjo-Iweala as economic hit women? By stating that the ‘former socialist/communist regimes of China and Russia are making tremendous progress on the move to competitive market economies [and also] fast learners…trying to beat everyone [in] the ‘game,’ makes one to wonder if at all he understands that China from onset never practiced shareholder/laissez faire capitalism, not to mention practicing neoliberal economy. So, from where does Soludo get his so-called China as a fast learner, trying to beat everyone else in their game?

While we wait to hear his source, one thing to be made clear here is that China has since 1979 practiced state-guided economic development, otherwise known as socialist market capitalism/communitarian capitalism or simply sinonomics. Little wonder during the last 35 years China’s provincial economy has grown averagely at 8% to have become the world’s second largest economy, and expectedly the world’s largest economy before 2025.

In fact, unlike western shareholder/laissez faire capitalism, an economic system built purely on short-term profit maximization, Chinese socialist market capitalist system by always emphasizing overall national prosperity and job-creation is an organic economic system ensuring government’s fiscal and monetary policy socialist coordination. Here, the People’s Bank of China (China’s central bank) fully controlled by the central government, working together with core commercial banks equally controlled by the central government, always channels investments not to where they attract the highest returns in the shortest possible time, but investments where they are more needed for long-term economic growth and job creation along with infrastructure expansion and modernization in ways promoting scientific and technological advancement and leapfrogging.

Little wonder, while as a result of the 2008 global financial crisis the entire western shareholder capitalist economies came to a halt to the extent that between 2008 and 2012 they’re so badly bruised that the EU economy was growing at -0.3%, whereas US’s sluggishly grew at 0.5%. Surprisingly, China’s socialist market capitalist economy skyrocketed, cruising at unheard-of 42.2% the period. The simply reason being that unlike western shareholder/laissez faire market capitalist economies weakened by private sector firms withholding investments, which halted all forms of economic activities, to continue to keep its economy on the high growth track, China’s strong state sector firms without bordering themselves with returns on investment, quickly step up their investments, along with the central government rolling out trillions of dollars in infrastructure expansion while the core commercial banks armed with cheap liquidity, flooded millions of Chinese SMEs with so much cheap and long-term loans.

Recognizing the stellar performance of the Chinese economy, the entire western economies have since embraced socialist market capitalism each modifying it to meet their needs. The recent phenomenal economic growth being witnessed in the US to the extent of increasingly regaining its lost grounds to China is way millions of manufacturing, agricultural and service industry jobs are springing up under Obama’s watch. The Buhari administration should be committing a fatal economic suicide should it ever listen to neoliberal economists like Soludo whose intentions for insisting on the neoliberal economic pathway are not different from what western economic hit multilateral organizations like the International Monetary Fund, World Trade Organization, Bank for International Settlement, and the World Bank, have always suggested if not imposed on countries likes Nigeria.

That Soludo should disagree with this government’s efforts to promote agriculture on the ground of calling it “primary commodity” and as a result “won’t deliver much in terms of jobs over the medium term” makes one wonder if Soludo is practicing 20th century economics because as far back as the early 1970s, western economies recognized agriculture and food supply as the 21st century’s game changer. In fact, it was in full recognition of this that in 1975 the then US National Security Adviser, Henry Kissinger rolled out America’s strategic national policy on agriculture and food in his secret national security memo — the NSSM200 — in which Kissinger warned that those who controlled oil in the 20th century only controlled nations around the world but those who will control food in the 21st century will definitely control the entire people of the world.

Soludo’s failure to understand the critical role agriculture is already playing this century and has always played in every country’s industrialization explains his calling it a mere commodity that hardly creates jobs. First, there’s no nation that has ever achieved sustainable industrialization without first fully developing its agriculture. So, agriculture remains Nigeria’s foundation for industrialization takeoff. Second, there’s no way agriculture from mere peasant farming to agribusiness — including food processing, packaging, storage, transportation/logistics, distribution, and marketing — with a $5tn annual turnover and millions of jobs created annually, not to mention its huge contributions to the pharmaceutical and drug and energy sectors be called a mere commodity, especially in countries like ours where millions of jobs could be created in agriculture simply by government investing massively in the modernization and expansion of agriculture and food supply. Unlike oil which made us mere rent collectors while western oil companies made the real money and created the real jobs for their nations, agriculture, fully in our hands, will besides generating over $200bn annually, generate over 50 million jobs in the next ten years especially given the volcanic soil nature of most northern states, making ours among the most fertile in the world.

Soludo’s present mistake about agriculture isn’t different from the mistake made by Thomas Malthus in 1798 (I’m not comparing Soludo and Malthus), who ignoring the huge potential scientific and technological contributions was about bringing to agricultural output and food supply, naively said, “Because food supply increases in a slow arithmetical ratio; man himself increases in a quick geometrical ratio, unless war and vice stop him, human population will eventually outstrip food supply.’’

Let’s commend President Buhari for avoiding the same fatal mistake made by his predecessors — Jonathan, Yar’Adua, and Obasanjo — who filling their cabinets with neoliberal and textbook economists like Okonjo-Iweala and Soludo were unable to move the country in the right economic direction. President Franklin Roosevelt determined in 1933 to transform the US economy from its early 1930s Great Depression bruises to the world’s ever largest and advanced industrial economy, decided that rather than surrounding himself with some highly certificated liberal economists, fully aware that he wanted practical solutions, boldly went for commonsense men and women like Mariner Eccles (secondary certificate holder) as Federal Reserve Chairman and Henry Morgenthau (a second year university dropout from architecture) as Treasury Secretary. Deng Xiaoping inheriting a completely rundown economy in 1979 from Chairman Mao also decided to go for commonsense Chinese politicians, who their defense he warned, “It doesn’t matter if the cat is black or white so long as it catches mice it is a good cat.” Buhari’s boldness in surrounding himself with gifted commonsense men and women means that Nigeria too will soon begin to witness marvelous economic transformation and industrialization.

Enwegbara, a development economist writes from Abuja