Where Bismarck Rewane Got It Wrong

Femi Akintunde-Johnson

The headline of this article may be mine, but the entire content, perspectives and insights are by a keen observer of the nation’s development strategies, and an avid reader. The catalyst for this rejoinder (in two parts) is a desire to redirect the recipients of the original presentation by respected economist, Bismarck Rewane which he delivered on 4 October, 2023 at the Lagos Business School October Breakfast Session. It is flamboyantly titled ‘New Debt Is The Way Out Of Bad Debt: You Have Nothing To Lose But Your Chains’. 

 Our guest writer, Theophilus O. Tubi, an admirer of Mr. Rewane, went through the 86-page document, prancing through the serpentine maze of economic hocus-pocus to focus on four major arrowheads of the don’s declarations; while delivering his own views on each point of contention. We have made laborious efforts to condense Tubi’s seven-page rejoinder (over 3,700 words) to manageable capsules capable of being swallowed fairly easily within two gulps, and hopefully not to the chagrin of the writer. Here we go…:

“The presentation by Bismarck J. Rewane, BJR (accessed 27th October, 2023) is a detailed piece coming from a well-known and respected source; however, it has some submissions which I objectively wish to respond to. However, my response will be brief and limited only to the aspects on Nigerian economy…    

On page 21 of 86: ‘Nigeria VS The Global Economy’. BJR stated that, “Nigeria is still a bank-based economy but transitioning to a market-based economy”, and that “puts severe limitation on the effectiveness of monetary policy to fight inflation”. 

However, I posit that this later assertion is limiting, as there are more egregious and structural fundamentals that need to be taken into consideration, as part of the primary reason for the ineffectual nature of our monetary policies and programs, as regards inflation targeting to date, namely: 

(i) a 22.1% Bank Deposit ratio; (Bismarck, 2023). 

(ii) According to CBN in October, 2022, ₦3.2trn was the total currency in circulation (Money supply) of which ₦2.7trn, that is, 85% of the said currency in circulation (CIC) was outside the Banking system, (CBN, 2022); As at September, 2023, CIC stands at ₦6.7trn. (CBN October, 2023.)

(iii) Only ₦500 billion, representing 15% of CIC, was within the Banking system. CBN, 2022

(iv) Nigeria Financial Inclusion Index is put at only 64%, meaning only 64% of Nigerians are banked, that is, about 40 million, or 36% of Nigerians remain unbanked. (CBN, 2023). 

(v) Interest rates offered on savings (up from 1.4% to 4.2%) vis-a-viz that offered on loans (24% to 30%) is abysmal and discourages Savings, which is supposed to drive Investment. That is why the savings rate in 2023 is said to be at 5.18%, and considered an all-time high. 

 Now, although it was reported that of the ₦2.7trn outside the banking system, the sum of 1.9trn had been retrieved as at January, 2023. (CBN, 2023), given that the currency swap policy has been temporarily halted, it is safe to assume the CIC situation is now back to status quo ante.   By implication, (i) to (iii) above translates to the obvious fact the effectiveness of CBN’s monetary policy is severely limited, as it has direct control over a mere 15% of CIC, which means that even if a 100% monetary-policy-implementation-success-rate is achieved, (which is nigh impossible), at any particular time, it only translates to 100% of 15% effectiveness. At most, we can extend the coverage of effectiveness to 20% due to the Bank Deposit Ratio (Savings). The implications of (iv – v), are also obvious to see. Please note points (i – v) enumerated thus far, as they shall feature as we progress, let us label it “parameter-2”. 

Therefore, given parameter-2, it is safe to assume that if we desire more effective monetary policy control, ongoing efforts must be more than doubled, and new ones initiated to, amongst other desired outcomes, bring more CIC into the Banking system, increase financial inclusion index, and encourage Savings. 

On page 24 of 86: ‘New CBN Leadership – Hard To Catch A Fallen (sic) Knife’

BJR’s “No more dumb decisions” seems to endorse the “Suspended all intervention programs” initiated by the former CBN governor; which to him is an indication to a “full shift to orthodox monetary policy”, as this is expected to “support a reduction in the total money supply”. So let us x-ray each item. 

There is no gainsaying the obvious fact that the former CBN Governor, Godwin Emiefele, had his limitations, brought about principally by his deficient background in Monetary Economics and his too-close rapport with Deposit Money Bank (DMB) CEOs, as a former one himself. His appointment and such similar appointments of Bankers, highlight the debate about appointment of career Bankers to head apex Banks, as against the ‘better option’ of seasoned monetary economists. Monetary policy coordination and execution go well beyond traditional banking roles. The two roles are almost diametrically opposed in practical terms and outlook. Too many conflict-of-interest issues between CBN and banks have torpedoed well-intentioned monetary policies in recent times. 

A seasoned monetary economist is someone who not only possesses a minimum academic qualification of B.Sc. Economics, M.Sc. Economics and PhD Economics (majoring in monetary economics at each degree level); but who has demonstrated extensive academic and other professional track records, earning him/her national and international distinctions. Attending a plethora of local and international specialised monetary policy related courses is not, and can never be, an equivalent grounding. One cannot emphasise this point enough. (The only exception would be Dr. Ngozi Okonjo-Iweala, given her extensive and deeply rich background and experience, if she is interested, or someone with a similar profile). We can check the antecedents of former CBN/Federal Reserve Governors, in Nigeria and overseas to better understand this simple point… 

It should be pretty obvious that all these (core CBN) functions, taken as a whole, demand more than what a Banker, no matter how seasoned, can deliver. I however do not discountenance the redeeming possibility of a Banker CBN Governor, aware of his/her limitations, but who is desirous of change, assembling a team of monetary economic experts to serve as personal/official advisers. This is not without drawbacks though, as you cannot give what you don’t have. This is why they have not received the required rigorous attention in recent times. 

 More tellingly, the nature of the commitment, dedication, rigor, and impartial decision-making required to bring sanity into the Banking system, is hard for a Banker CBN Governor to muster, due to long-standing relationships with most DMB CEOs and other extraneous considerations. How many career-banker-turned CBN Governors can initiate and complete the Banking sector reforms, more popularly called Bank Consolidation done during Prof. Charles Soludo era?! Again, the only exception would be a career banker-turned CBN Banker with an axe to grind with fellow Bankers. 

‘Suspend all CBN intervention programs’ (initiated by the former CBN governor): Doing this permanently will be akin to throwing away the baby with the bathwater. It is prudent to “temporarily suspend” these programs, in order to reassess them holistically and objectively, through individual impact assessment studies. The outcomes should determine how they can be better handled going forward, but outright cancellation or transferring them to DMBs or other depository corporations (ODCs) will merely end up as other similar programs, with very limited impact/success rate. A sort of reinventing the wheel. As an example, the Anchor Borrowers Program (ABP) enjoyed a 50% repayment/success rate. That is quite significant in recent times and it will be hard to see similar intervention programs managed by DMBs or other financial institutions with such a rate. (I hope to be proven wrong)….”

Tubi, O. T is a Consultant Economist and Energy Expert – tubiotesq@yahoo.co.uk

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