Nigerian financial crisis: Any way out?

Initially Nigerian so-called economic experts were denying the world crisis would affect Nigeria. Then reality hit them with a bang! There had been a frenzy of speculation, as the investors believed they could money from money, without actually producing anything. Now the financial mess is clear to all, and the only answer the ruling class has is to throw more money at the speculators, while squeezing the Nigerian masses.

Like a thief in the night, the crisis in the Nigerian financial sector crept in when the Nigerian bourgeois think-tanks least expected it. When the crisis first showed its naked face, it was fiercely denied, and being an extremely superstitious set of people, the bourgeois economists refused to acknowledge or even talk 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, and immediately 420 billion Naira was coughed up within seconds to bail out five of the threatened banks; not long after, another 220 billion Naira were doled out for another three banks.

Recently, another $2 billion (over 300 billion Naira) were injected to reflate the economy. Close to a trillion Naira have already been dropped, but instead of the situation improving, it is rather deteriorating. All the Bank directors and executives of the affected banks have been severely harassed and legally challenged, and all the debtors prosecuted, but is this crisis caused by the misdeeds of some individuals, as its been advertised, or is it a crisis of Capitalism? Is this crisis avoidable under capitalism or is it the inevitable outcome of this barbaric, blood sucking, all for profit system called Capitalism? These are a few of the questions looked into by this article.

Is it just the reckless activities of very few individuals that triggered this crisis?

Although an average capitalist is not just reckless, he is heartless. He thinks of nothing but making money, he values dead labour over living. The recklessness of the capitalist class played a role in this crisis, but this crisis is majorly a consequence of the crisis of Capitalism. This is a global crisis of capitalism; what concern did Akingbola (Intercontinental Bank MD) have with the financial crisis in Germany or Iceland? This crisis spread from the US to the UK and all over the world capitalist economy. The Nigerian ruling class just needed to pick some scapegoats, so as to hide the truth behind this crisis, so that this blood-thirsty system could 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 the banks would have met with the resistance of the working class if the truth were known. The truth must be stated clearly: it is Capitalism a system that is on trial here not individual Bank MDs or debtors.

Is the bail-out necessary in our collective interest?

It is necessary to debunk the lie that the bail-out is very necessary and in the interest of all. Less than 20% of African households hold bank accounts or have access to any 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 those of us who constitute the other 92% of those who have access to financial services only own 10% of the available deposits. Therefore, the bail-out is obviously for an extremely few financial hawks who dominate Nigerian wealth.

Ask yourself why it is so difficult to make available less than one billion Naira to salvage the Nigerian education system, despite the fact that Nigeria is among the last 10 in the Human Development Index in the world. Just 7 billion Naira would 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 a 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 Education at all levels would make Nigerian workers better off and set them on the path of a real financial bail-out.

How did it all happen?

In 2008, the Oceanic Bank declared a profit of 33billion Naira, less than 35 billion Naira declared by UBA. Huge figures were being announced without any sign that the sector was actually on 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 the Intercontinental Bank leading others at position 350 in the world. The then CBN Governor affirmed these rosy records, by asserting that Nigeria now had about 11 banks with over $1 billion in Tier 1 capital, by the end of February, 2008.(Soludo 2008).

However, contrary to the claim that the rosy picture we had then was the result of a forced merger imposed on the banks by the former Governor of CBN (Soludo), this growth was largely virtual rather than real. Soludo said in his 2008 Governor address that the total assets of all Nigerian banks put together are not up to the assets of Standard Bank of South Africa (just one bank in South Africa).

Therefore, despite the mergers, Nigerian banks remain underdeveloped. As the following figures reveal, the growth was the result of unproductive manipulation of money. It was based on the erroneous concept that “money can be made out of money”, that without labour power being involved, wealth can be created. The sector grew by 277% between 2003 and 2007. This coincided with a period when crude oil rose to an all time high of $147/barrel and at exactly the same time the share of Banks in the NSE’s most capitalized companies rose substantially – 30% (2003), 65% (2007) ‑ and NSE stock rose to 13trillion Naira. Therefore, it is self evident, that this growth in the banking sector was resting on chicken legs. They were giving loans to their friends to go on the stock market and buy their own shares so as to push up the share prices.

Suffice it to say that behind these interesting figures are blatant lies and the 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 2008. Prior to that, the record was held by Access Bank, which made 88% of its profit in the fourth quarter of 2007.

No doubt, things started getting rough when the Nigerian Stock Exchange (NSE) 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 the banks’ total exposure to Capital markets as at end of January 2009 was N784 billion or 10% of total loans and at the same time, banks’ total risk assets as at the end of February 2009 was N12.78 trillion.

Rather than lending money to operators in real economy, this sector was completely neglected. The 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 live on less than $1 per day. This grossly constrains the Nigerian domestic market. The effective demand of the people is extremely low. Consequently, at the current population growth rate, and if GDP were to grow at 13% per annum, it would be in 2033 that Nigeria achieves today’s per capita income of South Africa. At the current official 6% growth rate, it will be in 2065 (Soludo 2008). The poor people in Nigeria are more than the population of Togo, Benin Republic, Ghana and Liberia all combined.

Nigeria is a giant on chicken’s legs. Nigerians have been so impoverished that the market is now so narrow that the real economy is being strangulated. Another major factor militating against the real economy in Nigeria is the state of the infrastructure. There is scarce power, bad roads, no decent housing or 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 a profit on top of this exorbitant interest rate?

Where did the money disappear to?

Substantial amounts of money rejoiced over by these financial institutions is mainly unreal, as already analysed above, with the doctoring of the financial records, irresponsible soaring up of share prices artificially, without any genuine link to the real performance of the companies owning these shares. However, 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 a spending spree.

Oceanic Bank MD, Cecilia Ibru, purchased two private jets. She ordered two more before the financial bubble burst. They built mansions in every important corner of the world. Their spiritual leaders too never had it rosier. The religious leaders started competing over the number of private jets each one has. They acquired more land and generally increased their wealth and influence. Almost all the banks increased their tithes to the Churches, apart from direct donations made during this period to the religious leaders, claiming this sudden wealth was the handiwork of the 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 set up Inspiration FM to combat the decline of moral, socio-economic, political and religious values in Nigeria.” He added that, “the situation was urgent for Nigeria to address the problem of corruption holding back the development of the oil rich nation.”

You, the readers, and I now know how empty his words are and how morally upright an average capitalist is.

How can the financial sector be genuinely rescued?

Obviously, all the previous methods employed in the past to stabilize the banking industry will always amount to nothing. 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 departed. Despite this, total assets of all the 24 banks in Nigeria are not up to capital base of Standard Bank of South Africa. This is because real wealth only comes from the real economy not from speculation or money magic.

Now that the Stock Market is no longer spinning out cheap wealth, and the oil and gas sectors are not yielding as was earlier the case, will Nigeria’s bankers now invest in the real sector of the economy? The answer is an echoing no. The real economy is suffering in Nigeria mainly because of extremely high costs of production. Lack of roads, an epileptic supply of electricity, the very poor and barbaric state of health facilities and the highly deplorable state of education, make doing business in Nigeria a hellish exercise.

As we have said several times in the past, the Nigerian 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 a mere mirage.

The bail-out funds handed out to the banks by this regime will never go into anything productive, but rather prepare a catastrophic ground for more disastrous economic woe. We are already witnessing where tax payers’ money given to the banks is going. Bankers are now using these funds for speculative purposes on foreign exchange. The recent instability of the Naira is almost directly linked with the activities of these bankers. The foreign reserve has almost been completely depleted to satisfy ever increasing foreign currency demands of these financial hawks.

Therefore, the genuine rescue of the financial sector of the economy must first start with a complete withdrawal of control over the banks from the present crop of mafia gangsters. The banks must be nationalized so as to free the funds for a more serious developmental project. The wealth presently cornered by the banks, can go a long way to significantly turning around our comatose economy. However, only the naive can expect the present crop of Nigerian ruling class to nationalise the banks. Only a government of the working class, with the active support of the market women, middle classes and Nigerian students can carry out such a measure. The only option before the present ruling class to “solve our problems” is to further impoverish the already battered Nigerians, with increases in oil prices, higher school fees, more expensive health facilities, high unemployment and lack of decent habitable houses for the generality of Nigerians.

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