February 08, 2010 1294 VIEWS
By Abiola Makinde

Recent developments in Nigeria tempt us to look inwards in search of parallels, especially with regard to regulation in the two key industries that have most significantly hallmarked Nigeria's new democratic dispensation.

Telecommunications is one such industry. Foreigners who visited Nigeria in the pre-GSM years and who return, many years after the debut of GSM are often incredulous about what they see and experience regarding telecoms. In the same country where to make a mere successful phone call was once a grand luxury, today, people are making phone calls under umbrellas in hamlets, villages as well as big cities. Instead of the few hundreds of thousands of phone lines of yesteryears, Nigeria is now talking of tens of millions of phone lines.

In a capital-intensive industry like telecommunications, it takes massive infusion of capital for such progress to be recorded.

The massive inflow of foreign capital, which the Nigerian telecommunications landscape has witnessed in the last decade, is due principally to the tact and maturity of telecommunication industry regulation as provided by the Nigerian Communications Commission under the leadership of Mr. Ernest Ndukwe.

Beginning from the GSM auction of 2001 in which two operators paid $285 million for operating licenses to when another operator paid $200 million two years later for the second national operator license, the sector has witnessed massive inflow of capital.

Much of this capital inflow would apparently have gone into the procurement of specialised engineering installations such as mast stations, operating centers, erection of optic fiber networks among other operational matters.

However, if we use the amount of fees paid to the Nigerian government or other publicly disclosed payments as a barometer, then it becomes fairly obvious by how much the telecoms industry has helped to infuse our economy with capital. For instance, the new majority owners of Zain paid over one billion dollars to the Nigerian shareholders of the company in order to exercise majority shareholding a few years ago. Etisalat paid to the Nigerian government about $400 million some years ago for an operating license in Nigeria. Even the 3G spectrum, got the Nigerian Government $600 million a few years ago when four telecoms companies each paid $150 million for a license to operate in that spectrum.

The NCC by its own admission states that foreign direct inflow into Nigeria accountable to telecommunications is in excess of $10 billion.

For an economy like Nigeria, just emerging from military rule and with a well established reputation for policy inconsistency it is a modern day miracle that any industry has attracted such a huge inflow from abroad.

Such confidence to financiers to invest in Nigeria's emerging telecommunications industry did not happen by chance. It followed a strategic process of building confidence in the industry. First, there was the revitalisation of regulation under a leadership with deep understanding of the needs of the industry, the right temperament to engage other key stakeholders to bring development to the industry, and the right discipline to stick to the long-term goals and needs of the industry.

Despite the immense public pressures that Ernest Ndukwe must have been put through in the last 10 years since he has held sway in the NCC, it has been unheard of that he would publicly malign an operator or executive of any of the operating companies. Even at periods where poor service quality reached its peak, the gentleman is reputed to have quietly engaged with the operators to better understand the issues and proffer solutions, rather than call press conferences to insult the operators and get the public cheering.

Consequently, Ndukwe is not the most celebrated man in Nigeria today. Infact, people have openly accused him of playing a public relations role for the telecommunication operators. Such is the case of Nigeria.

Discerning observers however, realise that this man's mature navigation of Nigeria's telecommunication industry, more than anything else, has been responsible for the gains we have recorded in that industry in the last ten years. His maturity has stabilised the industry and sent a clear message of regulatory transparency and policy consistency to the outside world especially the key investing community. It is that singular quality that has continued to benefit this industry.

It may be interesting to consider what Nigeria's fortunes would have been today, had we been able to replicate the Ndukwe phenomenon in the power sector, but that is a topic for another day.

In the banking sector, Nigeria experienced a bit of a revolution with the coming of Charles Soludo as Central Bank Governor, a little over five years ago. From 89 small institutions, many of Nigeria's banks merged into larger institutions with the result that the wherewithal to finance huge projects, an ability previously lacking, became resident within Nigeria's banks.

It has been argued that Soludo may not have properly overseen this development with the result that soon, banks were awash with more money than they could adequately manage, a development that would plunge them into liquidity problems thereafter. It has also been argued that Soludo's one-size-fits- all banking in which every bank had to be a universal bank was a mistake whose negative impact is reflecting in the problems of the banking industry today.

What is clear though, is that Soludo's intervention was a major milestone that helped to strengthen Nigeria's banking industry.

Soludo's successor in office is Mr. Lamido Sanusi. Sanusi provides a basis for comparison with previous governors of the CBN as well as the regulator of another industry, Ernest Ndukwe.

Apart from Sanusi, previous CBN governors sought always to inspire public confidence in Nigeria's banking industry. Even when there were problems, they appeared to understand and appreciate that sustaining the confidence of the banking public remained critical. Sustaining public confidence did not mean that the problems would not be tackled. It only meant that in so doing, the regulator would employ tact. It meant that even if changes needed to be implemented, this could be done quietly. The guiding principle is simple: If people who have worked so hard to earn their savings have been encouraged to keep those savings in any particular bank, any careless statement pertaining to that bank especially by the regulator would only naturally drive people to withdraw their savings and look elsewhere for a safer deposit.

Sanusi's major pronouncements since assuming office have been well-publicised in the media. When after the first round of bank examinations, Sanusi decided that he needed to relieve key executives of five banks of their appointments, he called a press conference. Without pre-informing either the managements or the boards of affected banks or even his erstwhile colleagues, he proceeded to issue them with sack letters in the market square. But if sacking them was the only issue perhaps the damage may still have been manageable. He proceeded to publicly accuse them of fraud, criminals who had through numerous infractions brought their respective banks to their knees.

The Economic and Financial Crimes Commission (EFCC) soon swung into action and began prosecution of the bank chiefs in court. The EFCC unfortunately had in recent months come under intense criticism including from visiting U.S. Secretary of State, Hillary Clinton over what is perceived as a slowdown from the action days of erstwhile head of the commission, Nuhu Ribadu, in the prosecution of corrupt public officials. The bank saga and the publicity cue provided by Sanusi provided the EFCC with the impetus it needed to kick-start its own intervention. It quickly, in dramatic fashion hounded the affected officials into jails while court hearings, featuring former bank executives in handcuffs were naturally vigorously lapped up by the media.

Furthermore, names of companies said to be indebted to banks, together with their key directors were published in the newspapers. In the apparent rush to do this unfortunately, many names were wrongly published while a handful of performing loans were labeled as non-performing.

Meanwhile, Sanusi runs a very visible governorship. He is in the papers daily as special guest at one function or the other that it is pertinent to wonder what time he has to clearly think through the policies with which he regularly inflicts the banking industry and by extension, the Nigerian economy. Secondly, he appears to have jettisoned the time-held principle of sobriety by governors of central banks, as apparently being rather loquacious he appears to speak without having properly thought through what he plans to say.

At a function in 2009, he was widely reported to have sworn that the gravity of offences committed by the sacked bank chiefs was such that they deserved to be shot. This is in 21st century Nigeria, and after the respective cases had all been charged to court.

The result is that while the banks may have had problems prior to Sanusi's "reforms" Sanusi's intervention may have created even worse problems for these institutions.

Today, even though the CBN may have injected lifelines at its own behest to these institutions, they are all gasping for breath. The reason is not far-fetched. Having by its actions and unguided utterances, seriously impaired public confidence in these institutions, the banking public has since fled these institutions with their precious deposits to banks they consider safer. This is the underlying cause of the nose-dive of the fortunes of the affected banks in Nigeria. The result has been that to remain afloat in the CBN-inflicted circumstances, they have had to cut costs in various ways. One of these has been to sack thousands of workers.

In addition, banks have in the face of difficult circumstances occasioned by waning public confidence and uncertainty of regulation, practically stopped lending. From Katsina to Calabar, Port Harcourt to Potiskum; from Abagana to Abuja, Lagos to Lafia, intractable fuel queues have become the new tourist attraction. Saddled with a micro-managing regulator who has made lending a crime, banks are no longer willing to fund fuel importation.

Banks are also closing down branches right, left and center. For the so-called troubled banks, work has long ceased on ongoing construction of new branches while those situated in many rural areas are now under lock and key.

Not too long after sacking the first round of bank executives, Sanusi proceeded quickly to London on a roadshow. He emphasised before a global audience that he sacked these executives because of corruption and poor corporate governance practices, making it clear that Nigeria is not averse to foreign ownership of banks. Unwittingly, in the process, Sanusi reinforced the widely held belief among foreigners that Nigeria is a haven of corruption. He also reinforced the fear of policy inconsistency which foreign investors must always contend with in underdeveloped economies like Nigeria's. The prospective investor is likely to ask himself: If after Sanusi goes, a regulator with a different approach comes in, what happens to my investment?

It is not surprising therefore, that after the millions of naira in tax payers' money spent on hurriedly organised foreign roadshows, the only foreign banks interested in being part of the Sanusi "revolution" are South African banks which had since the Soludo era conducted their due diligence and found Nigeria a good place to invest. Sanusi's roadshows have only further discredited the labored "rebranding" exercise of Mrs. Dora Akunyili, the information minister.

The show continues. The latest development is the setting of tenures by Sanusi for bank MDs. This duty is ordinarily outside of the scope of the CBN and resides squarely in the powers of the shareholders and the boards of the respective banks. But this is Nigeria, and this is a new regime. Don't be surprised if in typical Nigerian style, the policy is reversed when Sanusi departs from the CBN.

Only time will tell, how much damage Sanusi's approach to regulation will inflict not only on Nigeria's banking sector but on the entire economy in the long run. It will pay him and the Nigerian economy to understudy regulators in other parts of the world and their approach to regulation, or closer home the NCC's Ernest Ndukwe. 

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