Charles Soludo, governor of the Nigerian central bank, is regarded by many as Africa’s best banker. He is seen as the new face of the economic renaissance that is sweeping across the continent, Ayo Akinfe argues.
Regarded by many as an embodiment of a new Africa in which democracy, free markets, transparency and competence is taking over from the corrupt past, Charles Soludo, the governor of the Central Bank of Nigeria (CBN) is the man of the moment. Since he took up his position in mid 2004, he has received several awards in recognition of the dramatic reforms he has pushed through.
Aged 47, Professor Charles Chukwuma Soludo was born in Nigeria on July 28, 1960 and trained as an economist, graduating from the University of Nigeria, Nsukka, in 1984 with a first class honours degree. Unlike most other central bank governors, Soludo does not have a background in commercial banking as he chose to be an academic and embarked upon a university career after graduating.
While at university, Soludo was editor of the economics department’s magazine, The Policy Maker.
Upon graduation, he won the departmental and faculty prizes for the best graduating student. Later on, these were followed by the best graduating masters degree student prize and the vice-chancellor’s prize for the university’s best graduating PhD student when he finished his doctorate at the end of the 1988-89 academic year.
Soludo then proceeded on four years of post-doctoral training in some of the world’s most prestigious institutions, including the Brookings Institution in Washington DC, Oxford University as a Rhodes scholar, Cambridge University as a Smuts research fellow and as a fellow of Wolfson College. He has also worked with the United Nations Economic Commission for Africa as a post-doctoral fellow and at the University of Warwick, UK, as a visiting scholar.
In 1998, Soludo was promoted to the rank of professor of economics at the University of Nigeria and in 1999 he was appointed visiting professor at Swarthmore College, US. He has also worked at the World Bank both as a short and long-term consultant since 1993.
However, his career as an academic came to an end in 2003 when Nigeria’s President Olusegun Obasanjo appointed him his chief economic adviser and chief executive of the National Planning Commission. He was implementing ambitious restructuring plans in this capacity and for the Federal Office of Statistics, for which he was also responsible, when he was named governor of the central bank on May 29, 2004.
In December 2004, the Institute of Directors (IOD), an umbrella body of Nigeria’s top executives and captains of industry recognised Soludo as the public sector reformer of the year 2004 by conferring on him the IOD 2004 Nigeria Enterprise Award, citing his achievements and the revolutionary reforms of the financial system.
Other key stakeholders have also recognised Soludo, as he received the 2004 Kwame Nkrumah Africa Leadership Award in Ghana, the Most Distinguished Alumnus of the University of Nigeria, Nsukka Award, The Sun newspaper 2004 Man of the Year Award and the Thisday newspaper 2004 Banker of the Year Award.
Among his greatest achievement is the consolidation of the Nigerian banking system in 2005, during which he presided over the consolidation of the country’s 89 banks into 25 as part of a drive to increase liquidity.
This has dramatically boosted the economy, ensuring that Nigeria’s commercial banks now have the asset base to fund manufacturing, agriculture, trade and the services industries.
Soludo says: “Nigeria’s banking sector consolidation programme was necessitated by the pervasive weaknesses and uncertainty of the banking system and the need to re-engineer and fast-track a system that will engender confidence and power a new economy.
So far, the grand objectives of that policy are being achieved and our consolidation programme has been adjudged about the most successful in the world.
“At the moment, the world is celebrating Nigeria’s success and over US$1bn of foreign investment has gone into the sector within the last 12 months and several hundred millions of dollars are still pouring in. Non-performing loans as a percentage of total loans have gone down from about 23% before consolidation to less than 8% currently, total deposits have almost doubled and credit to the private sector is growing astronomically, having been annualised at 72% within the first four months in 2007.
“Today, individual banks can finance big projects valued at hundreds of millions of dollars and also operate in the oil and gas sector – a feat they never could do before now.
“Interest rates are also gradually coming down.
“As of today, there are over 3,866 branches of commercial banks, up from 3,200 prior to consolidation and the total employment in the sector is far higher than prior to consolidation.”
Soludo, who is also chairman of the committee of governors of central banks in the West African Monetary Zone (WAMZ), is the frontrunner to become governor of the proposed African Central Bank (ACB). Conscious of the fact that Africa needs to pool its resources if it wants to survive in the hostile world of free trade, Soludo has been the brains behind the ACB and if all goes according to plan, the continental central bank will be launched in 2020.
He adds: “The truth is that the entire Africa needs to be one economy. Even the entire sub-Saharan Africa put together is the size of Belgium in economic terms, so Africa put together is a small economy and there is the need for all of them to come together.
“It might also interest you to know that the African Union has agreed that Nigeria should host the ACB. This is only a building block towards having an African common currency and when that happens, the ACB will be located in Abuja, I hope.”
A step too far
Eager to repeat what he has done in Nigeria across West Africa, Soludo believes that ensuring producers and industrialists have access to finance is essential if Africa is to enjoy economic growth.
Earlier this year, he had planned to re-denominate the naira, Nigeria’s currency, as part of his reform programme but had to shelve these proposals amid political opposition from the government.
Umaru Musa Yar’Adua, Nigeria’s new president, opposed the plans, which were due to take effect in August 2008 and called on the CBN to suspend them until further research was conducted into the necessity and practicalities of such a move.
Widely regarded as the biggest blot in his copybook, Soludo was forced to make a humiliating climbdown after this presidential ticking-off and even wrote to Yar’Adua pledging his loyalty to the new government, which took office in May.
Widely criticised for the move because he did it without consulting the government, Nigerian economic and political commentators described Soludo’s unilateral plans to re-denominate the naira as an attempt to undermine the presidency.
Many even called for his resignation, saying that it was a sign that he was growing too big for his boots, as all the recent praise showered upon him appeared to be going to his head.
Almost as soon as the re-denomination plan was announced, Soludo was summoned to face Nigeria’s Federal Executive Council and within hours the government suspended the naira agenda. Shortly afterwards the CBN quickly followed this up by formally announcing that it had shelved the proposals.
Soludo says: “President Yar’Adua has spoken on the policy issue of the re-denomination of the naira for the good of the country. The CBN board accepts the suspension of the policy, having recognised and re-affirmed President Yar’Adua’s approving authority, especially as it relates to the re-denomination, forms and design of the currency in line with the Section 19 of the CBN Act 2007.”
Yar’Adua stopped the exercise stating that Soludo did not comply with Section 19 of the CBN Act, which vests the president with the power of approval on currency policies.
According to political commentators, the CBN gave Yar’Adua the original impression that the policy did not need presidential approval because of the autonomy granted to the bank under the CBN Act but the president checked this out with his attorney general and found out that it did.
Acknowledging his gaffe, Soludo adds: “The CBN remains committed to President Umaru Musa Yar’Adua and his avowed goal of making Nigeria one of the 20 largest economies in the world by the year 2020. To this effect, the CBN is committed and ready to do all that is within its mandate and powers to accelerate Mr President’s agenda for a stronger Nigerian economy.”
Soludo’s re-denomination of the naira would have involved the dropping of two zeroes or moving two decimal points to the left and issuing more coins. In practice, the move would in nominal terms shrink all naira-denominated assets, prices, transactions and contracts.
It was designed to result in US$1 exchanging for approximately N1.25. Soludo says the new policy was aimed at making the naira the reference currency against other currencies, especially those of other African nations.
He stresses that following re-denomination, the naira could be benchmarked, adding that under his plans, from September 2007 part of the federation account allocation to the federal and state governments would be paid to recipients in US dollars, although local governments would be excluded from this phase.
As a result, the federal and state governments will be required to open special domiciliary accounts with commercial banks of their choice but the proceeds in them would only be accessible if they are monetised into naira.
In other words, both tiers of government would not be able to withdraw their monthly allocations in dollars and would have to do so in naira.
They would, however, be able to use the proceeds in their domiciliary accounts for the settlement of external obligations such as the opening of letters of credit.
Soludo claims that when operational, the new currency structure would have phased out all denominations above N20. He adds that with this measure, the bank’s plan would effectively restore the value of the naira in the short term close to what it was before the commencement of the Structural Adjustment Programme in 1986.
His policy, however, generated controversy as soon as it was announced as some prominent economists stated that it was a needless measure. Those opposed to the policy added that it was only necessary in a hyper-inflationary situation, which was not the case in Nigeria, although some economists supported the move, stating that it had worked in some other developing economies.Not for sale
Having put this blip behind him, Soludo is soldiering on with his reform programme and in September this year announced a fresh set of proposals designed to boost the banking sector. Referred to as the foreign ownership guidelines, his latest measures are designed to limit foreign ownership of Nigeria’s top 10 banks, thus forcing investors to focus on the rest of the sector.
At the moment, Nigeria’s leading 10 banks account for 71% of the industry, which has raised fears that they will be the only ones which appeal to foreign investors. To prevent any such creaming off of the elite echelon of the sector, Soludo has ring-fenced them, ensuring that any new foreign direct investment goes to the smaller banks.
He adds: “By end 2007, there will be about seven or more banks with shareholders’s funds in excess of US$1bn and over 10 banks with a market capitalisation of over US$2bn each, compared with none in 2004. Today, Nigeria has the fastest growing banking system in Africa and one of the fastest in the world.
“As seasoned commentators have observed, it has taken Nigeria less than three years to achieve what it took South Africa 20 years to achieve in the area of banking. To put it succinctly, a new banking system has emerged and will only get stronger for the benefit of the Nigerian economy. We firmly believe that with the sustenance of the reforms as the CBN is determined to the best is yet to come.”
He stresses that the reform of the banking sector will continue, pointing out that there will also be constant monitoring of the programme to ensure nobody breaks the laid down rules to which they agreed to adhere.
Soludo adds: “At the conclusion of the recapitalisation exercise in early 2006, I announced that the CBN would undertake post-consolidation re-verification of capital.
“This was in a clear understanding that there was a possibility that some people may have manipulated their capital during the last days of the recapitalisation exercise. Fortunately, the re-verification exercise did not throw up major surprises.”
With Nigeria continuing to enjoy economic growth, the role of the banking industry is going to be crucial over the coming years. As smallholder farmers, small and medium enterprises and manufacturers are being encouraged to raise capital privately to fund their ventures, they are being wooed by commercial banks, who are now better equipped to provide for their needs.
Soludo is certain to be key to Nigeria’s fiscal reforms over the next few years and how well he performs will be central to the success of the economy.
For now, he remains the fulcrum around which the banking system operates and as long as he keeps getting it right, Nigeria looks poised to continue to enjoy economic growth.