Former President Olusegun Obasanjo
As the controversy over the planned restructuring of the nation’s currency rages, Governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi, Tuesday took issue with former President Olusegun Obasanjo, saying the ex-president’s opposition to the introduction of the N5,000 banknote on the grounds that it would fuel inflation was unfounded.
Sanusi, who was a keynote speaker at the 6th Banking and Finance Conference of the Chartered Institute of Bankers of Nigeria (CIBN) in Abuja, said while he respected Obasanjo as a very successful farmer, the former Nigerian leader was a bad economist.
According to him, more than any other regime, it was during the administration of the former president that the highest banknotes such as N100, N200, N500 and N1,000 notes were introduced in the country, adding that empirical evidence at the time pointed to the fact that rather than such higher denominations triggering inflation, inflation was on the downside.
“You know my uncle or my father—the former head of state, Gen Obasanjo. You know, I like him... He’s a very successful farmer, but he is a bad economist… He stands up and says this higher denomination note (N5,000) will cause inflation and bring hardship.
“General Obasanjo did N20, he did N100, N200, N500 and N1,000. He introduced more higher denominations than any head of state. He did the N100 note in 1999, did N200 in the year 2000 and N500 about two years later and N1,000.
“And in that period, inflation came down because there were very tight monetary and fiscal policies.
“How can somebody who had gone through this stand up and say introducing a higher denomination will cause inflation? I am trying to see if he was misquoted, because if he actually said that, then he must be the single most important determinant of inflation in our country, given the number of higher denominations he printed,” Sanusi said, adding that banknotes were introduced without increasing money supply.
He wondered what the correlation is between a higher denomination and inflation even as he stated that it cost the CBN N32 billion to print the entire currency notes last year, arguing that the impending restructuring may cost between N2 billion and N3 billion, and not the N40 billion being bandied by critics.
Justifying the planned restructuring, Sanusi said in the 1970s, when the N20 was introduced, N20 was the equivalent of $30, noting that by 2013, "when we will introduce N5,000, N5,000 will be an equivalent of $30.”
He noted that it would require enormous resources to continue printing lower denominations which could easily be done in higher denominations at reduced costs to the nation.
Also at the conference, the President of the African Development Bank (AfDB), Dr. Donald Kaberuka, who was represented by John Kofi, said in the past 10 years, Nigeria had recorded an average GDP growth of 7 per cent, robust fiscal and monetary policies, adding, however, that in spite of the impressive GDP growth, unemployment rate had remained at over 24 per cent, while about 60 per cent of Nigerians live below the poverty line.
The AfDB president regretted that this impressive GDP growth had not been inclusive, noting that the best way to make the growth inclusive was for the banks to drastically improve lending to the agricultural sector, which employs about 70 per cent of Nigerians.
He observed that the less than 2 per cent lending to the sector was incapable of making a significant turnaround in the fortunes of the citizenry, adding that just as Nigeria, other African countries also share in the challenge of good GDP growth that is not inclusive.
In a speech presented on his behalf by the Minister of State for Finance, Dr. Yerima Ngama, President Goodluck Jonathan regretted that the banking sector has continued to contribute less to GDP.
The president said that in spite of the fact that the banking sector was over-protected, as government continues to intervene to save the sector from collapse each time there are shocks to the system, rather than be a major catalyst for economic growth by lending to the real sector, banks prefer lending to importers.
He expressed dismay over the reluctance of banks to lend to the real sector and agriculture in spite of government’s guarantees just as he called for a sustainable effort on the part of the CBN to bring down the interest rate (lending rate), which currently stands at between 23 and 25 per cent.
According to him, in 2009, about 44 per cent of banks’ deposits were in liquid assets, stressing that presently, about 60 per cent of same are in government bonds, which they consider attractive.
He also challenged the financial institutions to reduce the enormous pressure exerted on their employees to mobilise deposits, regretting that this was having a negative effect on the banking industry as employees who mobilise higher deposits are rewarded with promotions at the expense of professional competence.
The president stated that such promotions, which are not based on sound banking practice, were having a telling effect on the banking sector and its practitioners, calling for a change of attitude.
Jonathan noted that many employees in the banking sector would quit their jobs if they had alternative jobs from other sectors with a less attractive reward system because of the enormous pressure by their employers on deposit mobilisation.