The State of the Nation – A Picture of Chaos!

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The State of the Nation – A Picture of Chaos!

"Everyone understands the need for change in the abstract, but on the day-to-day level
people are creatures of habit. Too much innovation is traumatic, and will lead to revolt. If you
are new to a position of power, or an outsider trying to build a power base, make a show of
respecting the old way of doing things. If change is necessary, make it feel like a gentle
improvement on the past”. - Robert Green, 48 Laws of Power, Law 45 - Preach the need for change,
but never reform too much at Once, Penguin, September 5, 2000

Chaos typically means a state lacking order or predictability - the word is formally
used to refer to a very specific kind of unpredictability; and informally to mean a
state of confusion.

Nigeria today exhibits the characteristics precedent for a picture of chaos to fill the
mind. This state is inspired by the consistent inconsistency in mission and roles,
discordant visions of the future, disconnect between fiscal and monetary policies and
broken down linkages between key components of the economy – all indicating a
leadership that is having issues dealing with governance during economic
uncertainties.

There is no need for a long treatise on the linkages between politics, economy and
social development, neither is there any need for an evaluation of the individually
competent cast he has assembled. We have gone beyond that. This is a dialogue
with the leadership.

In order to avoid what could turn out to be a ‘conversation with the deaf’ however –
the approach will be to provide the leadership with a snapshot of key commentaries
from within his team, share a common sense understanding on the recent NNPC/MoF
saga and provide examples of the possibilities obtainable when the team is well
guided to work together.

The current situation is such that not calling it as it is; would be akin to providing
support for the ‘taking down of the economy’ by default; not just the on-going
‘talking down of the economy’ – the government and its key officials have
demonstrated enough competence and willingness to do that all by themselves.

What immediately became obvious to me early on was that the dialogue started a
long while back but we all turned a deaf ear to whatever was said, choosing
occasions to react to sensationalism and going back to the same soul destroying
attitudes, processes and strategy that has brought us to this state of chaos.

The Indicators of Chaos

Those in charge of the affairs of the state (economy and social order) have, for
months and years, been actually crying out for help and we have failed to pay
attention. For example, did we fully understand what was being said when the
1. Minister of Information, Dora Akinyuli decided to share a Federal Executive
Council (FEC) memo with the public because we have been running the country
for over 100days without a central government/leadership and had relied on ‘he
 said’-‘she said’ comments from a ‘cabal’ - after almost 3 years of a health-held-
back Presidency.
2. CBN Governor, Sanusi Lamido told us in July 2009 and later took action on
August 14, 2009 that we were existing in an economic mirage – and that the
capital market bubble had collided with the banking bubble to make a big hole in
our economic assumptions which has forced his hand to take drastic actions that
includes engaging the EFCC, Police, State Security, Judiciary and the Media in a
show of ‘seriousness’ akin to a raid on the fabled Cosa Nostra or a scene from an
epic movie depicting the force of the state fighting for a semblance of virtue in its
social order, the unintended consequences notwithstanding.
3. Banks in Nigeria – at least six of them – went to their shareholders for approval
to raise bonds to fund ‘opportunistic acquisitions’ and yet over seven months
after, no one is asking questions. Recall our article on the bond craze. These
banks know that investors will not buy their bonds, because their past financial
history has shown that they cannot service interest on the bond.
4. Minister of State for Finance, Remi Babalola drew attention to the absence of a
codified plan of action by the Central Bank of Nigeria (CBN), noting that it
appears the CBN Governor was operating public policy on the basis of an "as the
spirit leads me'' impetus. The Minister confessed publicly that the Government
had in the recent past abdicated to the CBN some crucial responsibilities in its
desire to achieve a sure-footed autonomy of the CBN.
5. EFCC Chairman, Mrs Farida Waziri told the whole country that “My initial reaction
when I heard of Ibori’s arrest was that of excitement, and surprise too. Surprise
because somebody said he had gone to Ghana. Some people also said he is still
somewhere in Delta, some say in his Village in Warri. My mind never went to
Dubai. But the Met police have a relationship with Dubai police. They told me that
if he is in Dubai they will get him that it will be easier to track him down. If he
had gone to places like China or Japan, and then it would have been difficult. I
was very excited.” We were all too carried away with the Ibori soap-opera and
did not hear her cry for help from a dependence on hearsays, petitions and third
parties to discharge her responsibilities.
6. Minister of Sport, Ibrahim Biu, said a day after the President took the ‘decision’ to
ban participation in all FIFA graded competitions that “Nigeria will do everything
possible to take the interest and sovereignty of Nigeria first and foremost and if
that is in conformity with FIFA rules, so be it, but if it is not in conformity with
FIFA rules I think the sovereignty of Nigeria and interest of the people are most
paramount… My friend, you cannot have cancer and continue to live with it
because you don’t want to spill blood, we are ready to spill blood to remove the
cancer so be it.” He still held the job after the volte-face because we seem
resolved that our sovereignty was not at stake, the cancer was a diagnosis that
turned out wrong on a second scan or the Minister got his cues wrong from the
President!
7. CBN Governor, Lamido Sanusi some weeks back disclosed that some foreign
banks were already queuing up to buy the five rescued banks being currently
superintended by CBN appointees since August 14, 2009 and days later a CBN
Deputy Governor and the Minister of Finance at two separate events said there
are many local interests seeking to take over the banks, so even if foreign
investors back out, it wouldn’t matter. They went on - “It is about the quality of
technical competence, capital and credibility.” If foreign investors back out, the
CBN Deputy Governor argued, it won’t be because the banks are unhealthy but
due to other criteria. Yesterday night, the CBN issued a press release that
communicated the outcome of a stakeholders meeting on the five banks where it
reassured them that having secured the depositors’ fund with the reform
programme, the focus of the CBN now is to salvage some value for the
shareholders. He made it clear that the CBN would not sell the banks, as it is not
the business of the banking watchdog to do that. The CBN, according to Sanusi,
only recommended some reputable financial advisers who are working with the
board and management of the banks to source and negotiate with any of such
investors.

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8. Don Etiebet, former minister of petroleum under the late General Sani Abacha,
confessed late last year that in his position as supervising authority of the NNPC,
he found it impossible to reconcile the corporation’s accounts.
9. Minister of Finance, Olusegun Aganga said “What you saw yesterday was just
balances arising from two types of transactions that we have made, and that was
the point they we’re trying to make yesterday. So it is incomplete, and it doesn’t
give you the complete picture. Once reconciliation is done, payment goes back
and forth, between the two entities. Payment to NNPC is done regularly” he said.
He, however, added that the imbalances will be sorted out when the forensic
audit, which is ongoing, is completed. Aganga concluded: “If you are worried
about NNPC, which is a different matter. You are aware that there is a forensic
audit that the president asked us to undertake, and that is happening now. If you
ask when it will be out, I will say that it is roughly going to be about eight
weeks.”
10. Saudaatu Sani, Chairman, House of Representatives Committee on Millennium
Development Goals (MDGS) on July 14, 2010 blamed the finance ministry and
the banks for contractor’s inability to access funds for MDGs projects and the
delay in the execution of Quick Wins projects.
11. CBN Governor, Sanusi Lamido announces on June 29, 2010 an extension for
Wema and Unity Banks a day to the expiration of the June 30, 2010 deadline it
had imposed for their recapitalisation on October 03, 2009; thus effectively
telling us all that the timelines were no longer realistic. This was on the same day
the CBN also announced that the AMCON bill’s execution timelines had been
extended by another three months. These changing timelines are a loud
commentary on decision making that goes way beyond the control of the CBN
with consequences on planning and investment decisions.
12. CBN Governor releases the prudential guidelines on June 30 with effect from July
1, 2010 which replaced the one issued in May, 2010. However, on July 15, 2010
it back-pedalled on its directive that banks should disclose executive
compensation and bonuses in their annual accounts along with changes that saw
an outright deletion of 38 subsections which were strongly opposed by the
banks. In fact, the apex bank deleted all the sections on Regulations for Auto
Financing, Regulations for Credit Cards and Regulations for Housing Finance. Also
deleted from the new prudential guidelines is the limit on credit to directors and
significant shareholders and the general provisioning of one per cent for all loans.
Just what was this ‘tsunami’ reform about then?
13. Minister of Finance, Olusegun Aganga (honorary Chairman of the Board of the
World Bank and IMF) commenting on the N16.4bn earmarked for the Golden
Jubilee said that “We just tied them to the anniversary budget to make things
faster.” He went on to say that “we are renovating Lagos and Abuja airports, for
example. But airports should measure up to international standards normally. We
are doing that and putting in place standard security systems so that the airports
will be up to standard. These are places people will visit first. There are many
other beneficial projects tied to this budget. Rather than fault the budget, people
should ask, what is the money being spent on”. Yet no one took him to task and
asked – what was the revenue of Nigeria being spent on yearly, where is it
getting new earnings from, what constitutes excess when it still has to borrow
regularly?

You see, communication is being used as a political expedient, allowing policymakers

to avoid painful but more effective solutions rooted in sound governance principles
and financial management traditions expected of a sovereign enterprise.

These key actors have passed out sounds of despair yet we choose to be interested
in the noise dominated by the screaming headlines and not the substance of the
issues at stake.

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When Bismark Rewane, CEO Financial Derivatives Company, an economic research
company commented on the nation’s fiscal slide, he concluded that it would come
“this time, from inefficiency and fiscal recklessness”!

There must have been a compelling reason for him to leave his comfort zone to
speak up; just as Frank Aigbogun, CEO of BusinessDay newspapers did on Channels
TV (http://www.proshareng.com/video.php), Dr. Chukwumah Biosah and this commentator has
done through the proshare platform – all drawing attention to the disconnect
between reality on ground and government actions and policies; with Bismark raising
the alarm that wide budget deficit and bailouts could slide Nigeria into fiscal danger
again, years after the country exited its debt overhang in 2005. Bismark particularly
warns that the country is fast sliding into debt again, as domestic borrowing alone is
expected to increase by 31% to N1.14 trillion. Though some fund managers appear
unperturbed by this, they equally caution on the need to streamline government
expenditure focussed less on capital expenditure.

Bismark added “concerns associated with the evident fiscal danger include huge risk
of leakages and public scandals, bailouts causing more economic challenges as easy
money could make organisations less efficient, and the destabilising effect it would
have on the currency”.

The NNPC is ‘Broke’ and not Insolvent

Linking this with the disclosures and rebuttals relating to a genuinely embarrassing
spot the government finds itself over the statements credited to his Minister of State
for Finance, Remi Babalola - the responsible official on Domestic Operations
(contradicted the next day by the senior Minister in the finance ministry and the
Minister of Information); a common sense appraisal reveals that the furore that has
erupted appears ill-informed and a ‘deaf’ response to the issues affecting the nation.

Here, as with other instances of ‘official communication’ shown above; I believe the
right questions have not been asked. The Minister of State for Finance, Mr. Remi
Babalola, made the statement to the effect that the Nigerian National Petroleum
Corporation (NNPC) was broke due to inability to pay N450 Billion owed the
Federation Account. NNPC is unable to make the payment because the Federal
Government has not reimbursed the N1.156 trillion naira (in subsidies) it has
requested from the Federal Ministry of Finance.

According to Dr. Chukwumah Biosah, CEO CEBAL USA, “let us look at the scenario
from a simple perspective - if you owe me N10 billion and I am unable to pay you N5
billion because you failed to pay the money (N10bn) you owe me? Who has the
financial problem – me or you?”

He goes on to say that “Most journalists and financial analysts have failed to identify
and separate the forest from the trees with this issue”.

“The problem, I believe is that the Federal Government is the one that has the
financial problem. It does not matter whether they blame the problem on account
reconciliation or anything else. If the Federal Government settles their
obligation to NNPC, this issue of insolvency will not arise – let us call it like
it is. Nigeria as a sovereign state is facing some financial problems like most
countries worldwide. The money that the NNPC is claiming that it is owed by the
Federal Government is less than the amount that the country recently raised from
the Sovereign Bond.

Recall that on May 20, 2010, the Federal Government of Nigeria raised N80 billion
(US$537 million) from the sale of 20-year, 5-year and 3-year sovereign bonds at its
fifth debt auction of the year, according to a statement by Nigeria's Debt
Management Office (DMO). Successful bids were allotted at the marginal rates of 10

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percent, 9 percent and 8.25 percent respectively. The 20-year note raised a total of
N30 billion, while the five-year and three-year denominations raised 25 billion Naira
each. For 2010, Nigeria plans to sell N867.5 billion worth of bonds, just under a fifth
of the 4.6 trillion planned for budget-deficit financing according to Abraham
Nwankwo, Director General of the Debt Management Office.

So what does this tell you? The fish rots from the head. If NNPC has a problem
because of the inability of the “Federal Government of Nigeria” to pay its bills in a
timely manner, then it follows that the country has financial problems too” Dr.
Biosah concludes and we affirm.

The real c-r-i-s-e-s is not about the Remi Babalola statement is not so much about
the NNPC; but much more about the country’s’ finances itself.

We owe corporations, agencies, states and our contractors on the one hand, and
continue to spend to maintain a big government – pretending that it will sort itself
out somehow. This is a big problem, not unlike what many developed nations are
equally facing, but because we are in denial, thus refusing to take remedial actions.

A country that should be declaring austere measures is steeped in political decisions

and all the talk in the country is about whether the incumbent should contest or not,
the role of zoning in stabilising the polity, and the grab for deserved and
underserved increases in salary and benefits by workers and the legislature at a time
when the choice of pay cuts, pay freezes and reduction in the size of government are
legitimate debates to have.

This NNPC saga is however a side show, as all strategist and analyst at proshare
would know. This is misdirection – one with a positive consequence for the Federal
Government. How? The case has now been made for the removal of subsidies
through the inverse communication that is fuelling the current debate and I suspect
the arguments for retaining subsidies will be effectively thrown out to allow for either
a partial or full ‘removal’ of subsidies.

What is Further Possible

Does the leadership understand the problem we have and what it takes to tackle it? I
believe they do ironically. What is going on is a huge shame for most of these people
in government who know the game, but are too “timid” to expose it because their
campaign funds or appointments come from those who benefit from the chaos.

A country that has changed its GMD of the NNPC thrice in two years, unable to
process (refine) a product it produces, has not raised funds for further work on
alternative revenue such as Gas and wind turbines for its energy needs cannot be
taken seriously on the issue of its restricted source of revenue.

This is coming at a time when Petrobras, Brazil’s national oil company and the
equivalent to Nigeria’s NNPC, is preparing a share issue to raise an estimated $25bn
as early as next month in a crucial step for developing its “pre-salt” oil fields – so
called because they are trapped under several kilometres of sea water, rock and a
hard-to-penetrate layer of salt – that promises to make the country one of the
world’s biggest oil exporting nations. Details of Petrobras’ capital plans are still
sketchy, but an offering of that size would be the world’s biggest so far this year,
trumping Agricultural Bank of China’s planned initial public offering next month,
which looks set to raise about $20bn.

Brazil’s Senate gave the plan the go ahead last week when it approved a package
of legislation governing the pre-salt fields, which were discovered in 2007.
International oil company executives have likened them to the North Sea discoveries

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of the 1970s in their potential to transform the industry. Parts of the fields were put
out to concessions under existing rules before their potential was understood. The
government wants the rest to be subject to production sharing agreements that it
says are needed to maximise government income and increase its control over
production. Under the proposals, Petrobras would be the sole operating company in
the pre-salt area. A successful share issue of this size would also be another sign of
the ebullience of Brazil’s capital markets. Last year the São Paulo stock exchange
hosted two of the biggest initial public offerings worldwide, from credit card company
VisaNet ($4.3bn) and the local unit of Spanish bank Santander ($7bn).

On Monday, Brazil's renewable energy company Renova Energia SA said that it

raised 150m Brazilian reals ($85m) through its initial public offering of shares on the
Brazilian Stock Exchange in an offering coordinated by Banco Santander and Bank of
America Merrill Lynch. Renova is based in Bahia state and generates 41.8 megawatts
of power at its three hydroelectric plants.

At the other end of the world and from a country set to dominate our oil refinery,
agricultural, roads and trading sectors; the Agricultural Bank of China Ltd is
raising at least $20 billion in what may become the world’s biggest initial public
offering. Set up in 1951 by Mao Zedong to finance rural cooperatives, Agricultural
Bank was the first Chinese commercial lender established during Communist rule. It
was the last major state bank to go through restructuring, receiving a bailout valued
at about $139 billion in 2008. Agricultural Bank, with 320 million customers and
23,624 outlets in China, made a record 1 trillion yuan of new loans last year, more
than the gross domestic product of New Zealand. The company’s overall non-
performing loan ratio stood at 2.91 percent as of Dec. 31, the highest among China’s
largest lenders. Of loans to property developers, 3.47 percent were listed as
delinquent at the end of last year.

So what plans do Aganga, Sanusi, Babalola and the economic advisers to the
President have for specific areas of the economy apart from football which witnessed
the most responsive reaction to a national malaise ever?

While we ponder on this, can the President humbly address the picture of chaos
emerging by considering excusing himself from the dual role of minister of power?
This should allow him concentrate on the key task of his office as president with less
than a year to go – that of holding people accountable to goals he set based on the
mandate he got from the electorate (and on this point we are reminded that our
president was not elected but appointed by default).

The presidency we can glean is inundated with unbelievable pressures – from

bridging the years of our absence from the international scene due to a situation
under the former president; to dealing with routine courtesies and administrative
responsibilities. He has added a few of his own deployed through a smoke and
mirrors approach – such as the increasing travels with an entourage that ridicules
our financial reality and need for financial restraint and the clogging up of his diary
with appointments considered as priority because of a ‘distracting’ subject of an
unconfirmed presidential ambition in 2011.

If the President can extricate himself from the self-imposed chains around the
presidency distracting his attention, he can re-connect with the well meaning publics
who now have their deaf ears opened and eager to learn about the key performance
indicators (KPI’s) he had set for his team of ministers. And while at it, he can publish
a manifesto or measurable plan for his administration (a recent example was
provided by his contemporary, David Cameron of the United Kingdom) on his fast
growing facebook page for all to glean and use as a rallying cry for all to key into.

That would be a fair template to energise Nigerians and set the bar for future
presidents who would now need to be well prepared with solutions, ideas and plans

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on every aspect of our national life (not just the problems) should they desire to
seek office.

Those in charge of the economy need to work off a common and interlinked plan –
one that provides the linkage between monetary and fiscal policies; open to the
rigour of debate and consensus. Nigeria does not need a ‘business as usual’ team of
strange bed fellows with differing ideological positions on where the economy is
headed – this should not be difficult to do!

Olufemi AWOYEMI, FCA

CEO Proshare Limited

ADDITIONAL REFERENCES:
1. Nigerian Banks Still High Risk - S&P - 290610
http://www.proshareng.com/news/singleNews.php?id=11152

2. Nigeria rescued bank profits mask underlying weakness - 300610

http://www.proshareng.com/news/singleNews.php?id=11208

3. The CBN and Economic Growth - Consistent Inconsistency 300610

http://www.proshareng.com/articles/singleNews.php?id=2097

4. The Central Bank and an inadequate blueprint 100310

http://www.proshareng.com/articles/singleNews.php?id=2046

5. The Monthly NCM Report for H1 2010 020710

http://www.proshareng.com/articles/singleNews.php?id=2101

6. Nigerian Banks were Gambling Centres, hence reforms – Sanusi 100710

http://www.proshareng.com/news/11316.

7. Re-Nigerian Banks Are Gambling Houses - 100710

http://www.proshareng.com/news/11318

8. NNPC is broke - Minister – Proshare 130710

http://www.proshareng.com/news/singleNews.php?id=11365

9. Why Investors Shun Equities Mkt - 140710

http://www.proshareng.com/news/singleNews.php?id=11368

10. Fiscal danger is real, say economists - 140710

http://www.proshareng.com/news/11379

11. UK Treasury alerts institutions on weak AML controls in Nigeria and other countries - 140710
http://www.proshareng.com/news/11380

12. CBN makes U-turn on new guidelines - 150710

http://www.proshareng.com/news/singlenews.php?id=11390

13. 100 days after Report - Proshare 251109

http://www.proshareng.com/admin/upload/reports/100_days_after_Report_-_Proshare_251109.pdf

14. The Bull in the China Shop

www.proshareng.com/reports/view.php?id=2016

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