The Presidency — By Prince Emeka Obasi.
Business Hallmark September 7 – 13, 2009

It is rather interesting that Lamido Sanusi himself would be the first person to utter the dreaded “R” word, “Resign.” When I read his widely quoted remarks last week about his willingness to resign if his actions on banking rescue turn out to be wrong, I shuddered. I don’t know if Sanusi has advisers, and if he does, whether he listens to them at all. His advisers ought to have told him that it is wrong for a high public official, especially one who is very new on the job, to invoke the “R” word. It immediately portrays him as temperamental, hasty and worse of all, immature.

Then it raises serious doubts about his ability to handle the stresses and intense aggravation of his high office. The problem with such invocations is that sometimes they acquire a dynamism of their own and become self-fulfilling prophecies.

I cannot subscribe to the motion that he should resign, at least not just yet. The truth really is that it is still early days. The tasks before Mr. Sanusi are very enormous. And the motion I am inclined to second is the one calling on Nigerians to support him. And I so vote, but with a strong proviso.

There is often a tendency by some public officials to either pretend they know everything and are the repository of all knowledge or that they are more patriotic than everyone else. So they affect a superiority complex and strut around as some kind of peacock kings. The word for it is arrogance. The kind of insufferable arrogance Mr. Chukwuma Soludo and his boss, Olusegun Obasanjo, exhibited.

Now, here we are again. Before proceeding, I want it on record that I am a Sanusi supporter. On various fora, I have explained the need for someone like him at the CBN at a time like this. Without doubt, the previous regime created severe problems for the financial sector and the economy, just as Olusegun Obasanjo’s spectacular ineptitude and selfishness endangered the polity. There was clearly a need for regime change, both at the CBN and at Aso Rock, contrary to the position of the third term campaigners. I had actually called for the sack of all of Obasanjo’s economic managers immediately Yar’Adua assumed office. But then Yar’Adua had other plans.

I am not persuaded that Mr. Sanusi’s response to the banking crisis is the best approach in the circumstances. Despite the small issue of his political motives, the more substantial matter of whether he is right in sacking the CEOs and executive directors of the Boards of the five banks raises some very interesting questions.

There is a consensus of opinion that the banking industry is sick and in dire need of intervention. In the event, Sanusi has chosen to be a doctor rather than an undertaker. However, because his prescription has engendered shrill reactions, it is now pertinent to review his overall diagnoses. Soludo’s intervention in the financial sector by the vehicle of consolidation was based on his assumption that the fundamental problem of the sector was low or inadequate capitalization. But he was wrong, irredeemably so. Because of such faulty diagnosis, the subsequent treatment was equally wrong and actually created a new set of problems. Obviously, the problems in the sector were exacerbated by that wrong treatment. It is a fundamental principle of medicine that a faulty diagnosis can be calamitous.

It would appear as if we are headed that road again. History, according to Santayana, teaches that man does not learn from it. That is why history often repeats itself: “First, as tragedy and second as farce.” Mr. Sanusi is proceeding with his reform programme the wrong way. As curious as it sounds, it appears as if he does not fully understand the nature of the problems in the industry, and more worryingly, how to proceed with solving them. For avoidance of doubt, the immediate problem of the sector is liquidity pressure, meaning that most of the banks are not liquid enough to efficiently discharge their functions as financial intermediators.

But wait a minute, how could that be? After all, the main raison d’être of the banking consolidation programme was to create mega banks with very large capital base in order to make them almost distress-free. The CBN, under the previous regime, had insisted that the industry was solid. So what could have happened? How could the industry suffer such catastrophic liquidity problems that have set the whole economy on the path to collapse? These questions form the crux of the matter and their thorough understanding would supply all the missing links in the intervention conundrum. Lack of adequate or effective supervision by the CBN created a lacuna which allowed the industry to embark on a lending spree in all manners of risky and unhedged investment assets. This, coupled with the consolidation-induced pressure, led many banks to take risky positions in the market and grant highly questionable margin facilities. It was also the pressure for higher returns that drove the investment in the downstream sector of the oil and gas industry.

The problems may have been contained if the global economy had remained buoyant. But it didn’t. A catastrophic meltdown which impacted heavily on crude oil prices exposed the soft underbelly of the Nigerian economy. Perhaps, if the previous regime of the CBN had acted promptly and honestly, the problems may have been contained. It didn’t. Instead, it went into denial mode and insisted that everything was okay and “our banks healthy.” Sanusi’s mandate therefore is to comprehensively review the industry and reposition it along the path of universal best practices