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Socialist Democracy May 2006


Socialist Democracy

May 2006


By Bosah Chinedu

On July 6, 2004, the Central Bank of Nigeria (CBN) announced a new banking policy called consolidation or recapitalisation, which raises the minimum capital base of banks to N25 billion from N2 billion. Banks were given up till December 31, 2005 to meet this requirement. The policy has reduced the number of banks operating from 87 to 25, which were able to scale the hurdle through merger, acquisition or other means.

Naturally, some sections of the parasitic ruling elite who have lost their veritable source of making cool profit are opposed to the policy. Accordingly, 11 out of the 14 failed banks have gone to court to challenge their liquidation. This court action is what the CBN has given as reason for its inability to fulfil its promise to pay depositors their N177 billion funds trapped in the failed banks by April 16, 2006.

Charles Soludo, the Governor of CBN and some other pro-big business, pro-establishment technocrats have argued that the policy of recapitalisation, which is an integral part of the government's "economic reforms", will make our banks strong enough to finance developmental projects, attract foreign investors and consequently, move the Nigerian economy forward.

This argument of Obasanjo government for recapitalisation is baseless and only shows that the government has put cart before the horse. This is because it implies that the amount of minimum capital base of banks determines the strength of an economy. However, on the contrary, like every other sector, the strength of banking industry is dependent on the strength of the economy. For instance, the minimum capital base for banks in some countries like South Africa, 50million Rand (N1.7 billion), Ireland, £3million (N0.72billion), England £10million (N2.4billion), etc. is less than that of Nigeria. Yet, their economy is much stronger.

More importantly, rather than the banking industry, it is the non-existent or deplorable state of infrastructure arising from the neo-liberal economic reforms and characteristic corruption of Obasanjo government that has stunted the development of the economy. For instance, lack of public electricity and water has rendered the real sector of the economy comatose. This is worsened by exorbitant price of fuel used to generate alternative power. This, among other factors, has forced many factories to close shop with attendant job losses. The abysmal level of infrastructure explains why Obasanjo, despite his legendary globetrotting, has not been able to attract serious investors to Nigeria except the wheeler-dealers like Pentascope that worsened the condition of NITEL much more than it met it.

Nigerian banks cannot finance viable production because of the level of infrastructure. This is why they are weak and can hardly compete favorably in a globalized economy. Conventionally, banks make their profit primarily through giving out loans for business (production) with the aim of making interest, which serves as their profit but with the high interest rate of about 25% officially and about 35% unofficially, which in itself reflects the level of the economy, it is difficult to make profit after securing the loan because of low level of infrastructure and the purchasing power of the working people. That is the more reason why the largest percentage of banks profit is derived from government investment through foreign exchange transactions; high interest yields from government intervention through treasury bills and bonds, money laundering and racketeering of JAMB/SSCE forms and admission forms for higher institutions. The remaining profits are derived from financing importation of goods and services and a few medium scale productions. Even a large chunk of deposits in banks are public sector deposits - deposits from federal, state and local government and their parastatals.

Naturally, the banking recapitalisation has thrown up its negative effects like waste, corruption and job losses. The President of Institute of Chartered Accountants of Nigeria (ICAN), Adebayo Owoyemi, revealed, in the Guardian of July 29, 2005, the level of waste and corruption that has characterised the process of bank consolidation. According to him, "15 banks, which raised about N185billin up to March 2005 incurred N11billion expenses as demands from regulatory authorities such as CAC, SEC, NSE, while additional huge and unbudgeted cost of expensive external consultants were also incurred." Would it not have been better for this huge waste to be made available for investment in the productive sector of the economy?

On March 18, the 25 banks' Chief Executive Officers under the auspices - Association of Corporate Affairs Managers of Banks (ACAMB) spent N50 million shareholder money to organise a banquet in honour of Charles Soludo for the award given to him by the Banker Magazine, London. He never declined the invitation as he graced the occasion. This has raised serious question on the sincerity of the leading figures of Obasanjo government to the much-celebrated crusade against corruption and campaign for prudent spending and due process. The money was spent without the consent of the shareholders. Does it mean that these bank executives do not have anything tangible or productive to do with such fund other than lavishing it on Soludo? Or, is it a way of saying, thank you Soludo for allowing us stay in business and to continue the rot as usual?

As reported in the Guardian of Tuesday, February 7, 2006, 9,000 workers have lost their jobs following the death of 14 banks, which could not meet up the N25billion capital base. It is also interesting to note that the job loses are not peculiar to the distressed banks, as some of the banks that met the N25billion capitalization have thrown over 2000 workers into the labour market. Just to mention a few, the merger between Standard Trust Bank (STB) and United Bank for Africa (UBA) created 602 job losses while the merger between Access Bank, Capital and Money Bank produced 300 job losses. Even First Bank that is supposedly one of the strongest banks has sacked over 1500 workers. Some of the methods by which workers were relieved from banks include the discriminatory policy like rejection of HND certificate, forcing workers into "voluntary" retirement through ridiculous reduction of salary, etc

Was there any justification for sacking workers by these so-called capitalized banks even when they claimed to be making huge profits before capitalization? The answer is NO, but the bank recapitalisation is no exception to all other anti-people policy of this regime. The idea is to make bank workers to work more hours with lesser pay such that a worker, most likely, does the work of 4. This explains why bank workers work not less than 14 hours daily and sometimes on Saturdays.

The focus or goal of this so called bank consolidation, like every other item on reform agenda of this regime, is to build illusions in the people that reforms are going on, and that things will soon get better while the rot and corruption that is natural with capitalism, particularly in a neo-colonial economy, still goes on.

The Nigerian ruling elite cannot move this country forward economically because they are so weak and backward like their counterparts in other neo-colonial third world countries. So, the only way they could continue to exist is to remain parasitic on Nigerian economy and rely on rent taken from the plunder of the country, usually in collaboration with imperialism through multinational corporations and neo-liberal policies. A determined campaign by Labour demanding the nationalization of all the banks and the control of all movement of money going outside the country would be a blow against the ruling elite's looting so long as it took place under the democratic control of working people.

However to fundamentally turn around the Nigerian economy, the working masses must struggle to bring an end to the rule of the capitalist ruling elite with their IMF/World Bank inspired neo-liberal and anti-people policies, and nationalize the commanding heights of economy, including big banks, and place them under the democratic control and management of the workers. This will ensure planning of production and governance to meet the basic needs of the working people as against the greed and profit of a tiny few.



Socialist Democracy May 2006