Q & A with Chief Anthony Ani - Nigerian stock exchange needs structural reformation' -

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In this interview with some Journalists in Calabar, former Minister of Finance under General Sani Abacha, Chief Etubom Anthony Ani, FCA, speaks on the on-going banking reforms, the capital market and the economy. Ernest Chinwo of Thisday newspapers was there and brings you these excerpts:
 
Q: The stock market is still bearish. What is the way out?
A: The stock exchange is a market where the buyer physically meets the seller and they strike a deal to buy or to sell stock and shares. in the Nigerian Stock Exchange, the buyer and the seller are the same person and the exchange is no more than a manipulative institution where corruption, lack of transparency and accountability in the dealings have brought misery, poverty and huge losses to the Nigerian investors. How can we conceptualise the crash of the Exchange in 2007 where the market capitalization collapsed from N15 trillion to less than N6 trillion and nobody lifted a finger. In other companies, this manipulative loss would have led to so many people serving long jail terms. The Nigerian Stock Exchange needs structural reformation in order to create a true market.
 
I was the first auditor of the Exchange in 1964. I wrote in my management letter to the Exchange the need to transform it into a vibrant market. I advised that the Exchange as then constituted where the stockbroker and the stock jobber were one and the same person, the market would explode and collapse in future. At that time, we had Prince Michael Odedina at the helm of affairs. This man was one of the most honest and transparent man you could ever meet. However, I advised that not all men/women would be as honest as the Prince and that if the situation of one-man market was not addressed, the Stock Market would collapse in future and it has collapsed.

Because of this known deficiency, corruption has permeated the stock exchange. There is price-fixing and overvaluation of shares. The Initial Public Offer (IPO) was saddled with corruption wherein at least 5 per cent of the offer must be reserved for some people who will sell at a high price, there are favourite stock broking firms, which must handle certain issues otherwise these issues will not get to the floor of the Exchange. The offer prices of certain issues were also over bloated and unrealistic.

Besides, the universal banking, which brought the banks into stock broking business did not help either as banks saw the loophole in the one-man market and went for the kill thereby destroying themselves and the market. The last straw was when the Nigerian Stock Exchange ensured that a stockbroker was appointed Director General of the Securities and Exchange Commission (SEC). The Commission is supposed to oversee the Exchange but things became the other way round and this added to the woes of the Stock Exchange. It is not surprising that the Governor of CBN, Sanusi Lamido, has referred to the Sock Exchange as a casino.  You cannot fault him.

In 1996, I set up a committee comprising of Chief Dennis Odife, Prince Lekan Fadina, the late Dr Abdullahi, the late Otunba Adedoyin Ogunde and Mrs. Lashman to look into the capital market in its entire ramification. I gave the committee 18-point terms of reference, which I personally prepared. The committee submitted its report and we at the Ministry of Finance prepared a white paper. Based on the white paper, I asked Chief Odife, Dr. Abdullahi, Prince Lekan Fadina, and Mrs. Lashman to provide the draft Investment and Security Act (ISA) under my supervision. This document was drafted and produced by these Nigerians in 1997/98 and I went through it line by line.

In the course of preparing ISA, we came to the conclusion that the Nigerian Stock Exchange, as presently structured will soon explode, and in fact, one of the members forecast 2009 as the year of collapse.
 
We decided to form the Abuja Stock Exchange (ABE). Abuja Stock Exchange was formally registered and was structured in the pattern of the Mumbai Stock Exchange. We got the building; the Central Bank financed the Exchange to the tune of $10 million. ABE was highly computerised with buyers and sellers being different entities. But Nigerian Stock Exchange killed the Abuja Stock Exchange when someone told Chief Obasanjo that Gen. Abacha set up the Abuja Stock Exchange so as to corner all the shares that were to be sold under the privatisation exercise. Of course, Obasanjo without giving thinking proscribed Abuja Stock Exchange and changed it to Commodity Exchange. If Abuja Stock Exchange was allowed to operate, the crash of the Stock market in Nigeria in 2007 will not have occurred.

Q:        As a former Minister of Finance and one who has operated in the Financial sector of the Nigerian economy for decades, can you give an assessment of the banking industry and policies introduced by the CBN governor?
A:        The financial market is in a very bad shape. About 50 per cent of the banks have failed. Each time I read balance sheets of some of the banks I wonder why they have been allowed to operate. In some case of these banks, the ratio of loans and advances to deposit is 148 per cent, which means that the bank is dead. In many cases, the cash ratio is so bad that without the assistance of CBN it will take depositors several days to cash a cheque of N5million even though he is very much in credit with the bank. Governor Sanusi performed creditably by exposing these banks and should have allowed some of them to go down.

Sanusi is basically a trained risk manager. It is known that a Risk Manager is not necessarily a banker and is definitely not a central banker.
 
Sanusi should not be bogged down with these failed banks and now should move on to articulate sound monetary policies that would move the country forward. Surely, in this enthusiasm, Sanusi has made serious mistakes. He has assumed the role of minister of finance by taking up fiscal responsibilities. Sanusi should never have created or handled bailout funds. This is the role of the Presidency, Ministry of Finance and National Assembly. Even in the United States of America whose constitution we have adopted, the Secretary of Treasury prepares the bailout plan, which was presented to the congress by President Obama. It was after this plan was approved by the congress that Obama signed it into law and cash was released. In what way was the chairman of Federal Research Board (equivalent of the CBN governor) involved? In Britain, the Finance Minister, Alistair Darling, presented the plan to the nationals and bail out of two banks to the Parliament for approval. The Governor of Bank of England was not involved. In the Euro zone, the European Central Bank was not involved in any bailout plan by member states. This was done by countries’ Ministry of Finance.
 

In our country after Governor Sanusi carried out the illegal bailout of banks by releasing over N600billion into the failed banks without any oversight supervision by the National Assembly, he has slowed down on the proposed bailout funds for airlines, industry, etc. From where do these funds come? Ways and Means? Governor Sanusi should be called to order to stop these illegalities. He should concentrate on monetary policies and stop dabbling into fiscal regime.

Q:        What is your opinion on Universal Banking?
A:        The scrapping of certain aspect of universal banking by CBN Governor is a step in the right direction. In 1996, Otunba Subomi Balogun approached me on the issue of universal banking. Our discussion centred on allowing any bank carry on the functions commercial, merchant and investment banking. While I supported the idea of universal banking as proposed, Mr. Paul Ogwuma the then Governor of CBN, expressed reservations on the introduction of universal banking system in Nigeria. I however, persuaded him to agree to the idea. I was indeed very surprised when
 
I read that universal banking includes stock broking and insurance brokerage. Some banks were even doing courier service as part of universal banking. This was never the intention. Someone just took the concept to a very ridiculous extent. I still believe the banks should do what they are known for- commercial, investment and merchant banking.

Q: The Sovereign Fund being put in place by government is seen as a novelty, how will this boost our economy?
A: This is not a new scheme and it should be encouraged. We had drafted the public enterprises( Privatisation and Commercialisation) Decree of 1998 where in we established the Nigerian Trust Fund whose membership is the current heads of state as chairman and six other members, three of whom must be former heads of state. The source of the fund was the proceeds of privatisation and 45 per cent of excess crude account (please note that excess crude account (ECA) was created during Abacha’s regime and I coined the words “excess crude” and “excess PPT”.
 
The Federal Government share in ECA was 55 per cent and we thought that the Trust Fund should be Federal Government affair as we were sure that once the Federal Government set its trust fund, the states would follow. The proceeds of the Trust Fund were to be utilised to keep the economy dynamic and self-sustaining. They were to be used for investment in education, agriculture, health and for settlement of Nigeria’s debts.

While talking about privatisation proceeds, one is bound to ask, where are the proceeds of the current privatisation exercise? The BPE has a duty to inform Nigerians of all the companies they privatized, their original cost, realised cost, the names of the buyers, and banks that the proceeds are kept. This will be very revealing.

Q: The issue of Petroleum subsidy has been a reoccurring decimal in the country’s management of its oil resources. What is the real issue behind this petroleum subsidy?
A: The concept of petroleum subsidy is a bogus, artificial financial model that lacks accountability or transparency. There is no subsidy and our petroleum products are over produced. When I read of the so-called petroleum subsidy I wonder the mistakes I made as a minister of finance when we introduced the Petroleum Trust Fund (PTF). I was giving General (Mohammed) Buhari N40 billion per annum from the sale of petroleum products and my costing was correct. It is sad that until 1999, we were giving money to PTF and as soon as the oil marketing companies were excised NNPC and sold to individuals, the issue of petroleum subsidy was brought into Government burner. The fact is that we have four refineries and domestic crude was being transferred to these refineries at the international price. The oil marketing companies were still subsidiaries of NNPC until they were privatised to few Nigerians in 2000. At that time, based on the price of $21 per barrel, the price of 1 litre of petroleum product was N9 per litre and this included refining cost, pipeline cost, excise duty, distribution cost, refining profit. We allowed all our refineries to deteriorate by giving the contract for Turn Around Maintenance (TAM) to cronies who know nothing about refineries and this further worsened the state of the refineries.
 
The domestic crude pump to our refineries is 450, 000 barrels per day and even if this is sent abroad to be refined for Nigeria, there will be no subsidy. Now we have a situation where we have sold the oil marketing companies to some individuals. We are contemplating selling our refineries (to perhaps the same individuals) then we shall be in serious trouble as the petroleum product will make that people. In any case, what is the sense of privatising the refineries when we want to build another four? I estimate that if our four refineries are working at 75 per cent capacity and we transfer 450, 000 barrels of crude oil per day at $90 per barrel and at exchange rate of N150 to the dollar, the pump price of our petroleum products cannot be more than N40 per litre. And if we consider the value of by-products, it may be as low as N32 per litre. This price will be so after taking the current distribution cost of N10 per litre. The important thing is to maintain our four refineries in top form.

Q: What is the way out of the current power crisis?
A:Some time in 1997, Mobil Producing Nigeria Plc (now called ExxonMobil) approached the government with a request to generate 30 per cent of the Nation’s electricity requirement at a third (1/3) of the price, currently offered by the then National Electric Power Authority (NEPA). The cost whole project was to be borne by Mobil but the company would need some tax concessions and certain guarantees for the payment of electricity sold to NEPA.

The then Minister of Petroleum Resources, Dan Etete; Minister of Power and Steel, Alhaji Baba Gana Kingibe, and myself, met to consider Mobil’s proposal. In effect, Mobil would generate electricity from natural and associated gas. As it could be seen, the use of associated gas would have prevented the environmental hazards of air pollution caused by gas flaring. Mobil in the main wanted the same tax concessions, which we agreed to grant them. In return, Mobil will generate in the first instance a third 30 per cent of total electricity required by the country. This will gradually increase in the future. The company will sell the electricity generated at no more than 33.5 per cent of the current price sold by NEPA, Mobil will also bear 100 per cent of the cost of investment of the whole project.

We considered this offer and came to the conclusion that it was a win-win arrangement. The gas to be used for the project was currently being flared and was hazardous to the host and neighbouring communities. Its being converted to electricity would yield income tax and at the same time provide cheap electricity to the nation.

Indeed our electricity would have been the cheapest in the whole world. We also agreed that the concessions requested by Mobil was not a big deal as the consequent benefit of cheap and stable electricity would in no small way reduce cost and waste within the Nigerian economy and in turn boost the nation’s Production capacity. We decided to recommend Mobil’s request for approval at the highest level. We also recommended that apart from Mobil, we would request all other major oil producing companies to invest in electricity generation on the same terms as Mobil so that within five years at least 80% of the nation’s electricity requirement would be sourced from natural and associated gas and all fiscal advantages passed on to the consumer.

It was left to me as the then Minister of Finance to package the incentives. I did this and submitted it to the Federal Executive Council and the Provisional Ruling Council (PRC) during the 1998 budget presentation. The PRC approved it on December 31st, 1997.

The guarantee requested by Mobil was to be presented by Alhaji Kingibe and I as joint memorandum to the Head of State requesting approval for me to sign the guarantee on behalf of the Government. I went to an ADB meeting in Ivory Coast and returned on May 31st, 1998.  While we were drafting the memorandum to be submitted to General Abacha on 10th June or thereabouts, the Head of State died and Mobil’s proposal died with him. Nobody followed up and nobody even talked about the Mobil project. What we have found today is the Federal Government wasting money on electricity generation and this ought not to have been. All monies spent on electricity generation in this country from 1998 to 2007 is a waste and ought not to have been spent as the private sector would definitely have taken up the responsibility. If we had followed Mobil’s plan, all that Government would have needed to do was to think of how to transmit the electricity (Transmission). The country would have been enjoying cheap and constant electricity by now. I believe that we should go back to Mobil plan and allow private sector to generate the cheapest electricity for Nigerians.
 
Q: What advice do you have for President Goodluck Jonathan and the 2011 presidency?
A:The current topic is whether President Jonathan should run for 2011. My answer is zoning or no zoning Jonathan must run for the presidency. This is the first time that a southern minority will smell the presidency and this may be the last time as we have never been that lucky. If we miss this opportunity, the minorities may never set foot on the presidency again. Jonathan is from Niger Delta Region and as at now the most serious problem facing the very existence of Nigeria is Niger Delta. It is only a Niger Delta man that can understand and solve the problem.
 
Secondly, Niger Delta region produces 90 per cent of the nation’s revenue and for once let someone from that area preside over the country as president.
 
Third, there has been an understanding between the southern minorities and the north whereby the north is supported to retain political power. For a change, the north must support the southern minorities for presidency. For example in the 1979 elections, the southern minorities brought Shagari to power it will be recalled that during the that election Chief Awolowo swept the southwest votes, Dr. Azikwe took the southeast, Aminu Kano took the whole of the Kano state, Alhaji Waziri (politics without bitterness) swept the whole of the northeast. It was the southern minorities and the middle belt that stood solidly behind the core north and that is why Shagari came to power. Since then, the southern minorities have cooperated with the north.
 
The north must now reciprocate by supporting a southern minority candidate. I believe a dialogue with the north on the basis of the new cooperation whereby President Goodluck Jonathan can contest for the 2011 election.
 
I do not think that it will be wise for the north to leave PDP if Jonathan contests as have been canvassed by some people as the consequences will be enormous. If we cast our minds back in the Murtala Mohammed coup of July 29th 1966, the first inclination of the coup makers was to divide the company into north and south. In fact, for three days, there was no Government in Nigeria and the northerners were sending their wives and children back to the north in preparation for the partition. It was the British who advised the Northerners against the folly by preventing them of the bloodshed that followed the India-Pakistani partition. They were also told that the North on its own is not viable. That was when the move by Murtala Mohammed stopped. Again in Orkhar’s coup, this man expelled some northern states from Nigeria and this caused panic. If because Jonathan contests the 2011 Presidency the North decides to break away from the PDP then they will have severed their only link to power, which is the southern minorities.  
 
Source: Thisday, Vol. 15, No. 5605,Page 41, Friday, August 27, 2010
 
 

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