How did you survive the unpopular measures you introduced?
Mallam Sanusi Lamido Sanusi, Governor of the Central Bank of Nigeria: They are unpopular with the rent-seeking elite. They are not unpopular with the majority of people. In fact, I think that a lot of people in the country feel that too many things have been happening for too long and that it’s just about time that somebody did something about them.
For the record can you tell me exactly what you did? I know you closed down some banks and you’ve jailed some bankers. Is that about the sum of it?
We haven’t really closed down banks. We removed the management and put them on trial where we felt that laws had been broken. One of them has gone to jail, one has forfeited assets and there will be convictions, and two are awaiting trial so we think we may end up jailing at least three or four high profile bank CEOs, which has never been done in Nigeria before. We are also in the process of recovering as much of the wealth which they took away from the banks as possible.
You must have very strong legislation to allow you to do that.
In terms of having the legal and institutional arrangements, there is no problem. The laws are there. It’s just that in that kind of society, the laws don’t get applied, sometimes because those who have been charged with applying the law have been compromised. Or those who have benefited from corruption are so powerful and politically connected that people are just afraid of taking them on.
How did you manage to take them on in this case? Presumably, the people your measures targeted must have been loaded as well as politically connected.
Well there’s luck and a combination of circumstances. I enjoyed a tremendous amount of confidence and support from the president, who allowed me to do my work and prevented anyone from getting in the way. And his successor also allowed that.
Well the problem our government has been having with the bankers, and I think the Governor of the Central Bank of Mauritius alluded to that in his speech, is that they are not lending money. They are not taking enough risks. Is that your reading of the situation as well?
I think there are always two sides to everything: banks, like businesses, try to make money with as little risk as possible. Obviously, they have to take some risks because the only reason they make money is because they take some risks. But the tendency is to take the least risky options , which are short term exposures and usually linked to trade transactions and price speculations, and unless something goes seriously wrong like very large exposures to a particular asset class, then the likelihood is that you can make good money without taking maturity risks, without lending long term, not lending to small and medium enterprises. Now on the other hand, there are structures and institutional arrangements that need to be put in place to make those loans that the banks run away from less risky. For example, if you want banks to lend to agriculture, there will have to be a number of agricultural policies that will make farming itself commercially viable like supporting farmers, giving them impetus, improving the odds and giving them access to markets with guaranteed prices. If you want banks to lend to manufacturing, you’ve got to ask if you’ve got the right trade and tariff policies, if you’ve provided the right infrastructure to make manufacturing viable in Mauritius. It is one thing to say that the banks are not lending, but it’s another to really honestly say to the government, “Have you developed the industries they are not lending to enough?” In Nigeria for example, because of the lack of infrastructure and storage facilities, almost half of the tomato output perishes! The Moroccans managed to fi x the value chain, got the right yields, got the right practices, got the right storage facilities, and they export to Europe. If you don’t fix that value chain, any bank that lends to farmers will simply lose its money.
Another battle our governor has been fighting is with the exporters. They are always lobbying for a devalued rupee. Do you think devaluation is the answer? (With a cunning smile) You’ve put me in a very difficult position because a central bank governor does not usually comment on another central bank governor’s policies.
I won’t tell him.
(Laughs) It is the nature of export-led economies that they want a weak currency. Especially if their exports are not commodities. However, sometimes weak currency is not the problem. Your labour costs may be too high or you can have problems of quality. Besides, if you have an open economy and you have a significant amount of imports, then the weak currency has the risk of importing inflation.
Which way should the central bank lean then?
At the end of the day, the primary responsibility of the central bank is stability, not growth. If a central bank governor decides to compromise price stability for short-term growth, then he has basically abandoned his mandate. So first of all he has to keep inflation under control. Inflation
hurts everyone and most of all the poor. That is a major problem for policy. The choice has to be made and I have always said: “Look, if the inflation risk is not high, I will do everything to promote growth. But if by supporting growth in particular sectors or even in the GDP we run a risk of high inflation rates, I will not do it.” That’s my mandate as the central bank governor. That’s not the mandate of the finance minister and therefore you have these conflicts.
How do you reconcile them?
Everyone just does his job.
But sometimes the jobs are in conflict. What do you do in such cases?
I would tell the finance minister: “If you feel so strongly about it, why don’t you give them some subsidies?” Other countries have done it China has done it. Why should I devalue the currency? If you are really interested in promoting exports, you have to use government money to do it.
The problem of some sectors is that they are not competitive enough. Will giving them grants not make them even less competitive?
Which is why I asked the basic question - is the problem exchange rates? If you’re competing with the Chinese, maybe labour here is more expensive than Chinese labour. Or maybe it does not have
the technical skills of Chinese labour. Or maybe the infrastructure is not as good etc. So before you conclude that a weaker rupee would make you more competitive, you’ve got to compare input costs and see whether really with the devalued exchange rate you are producing more cheaply than your competitor. And if you did that then you would have a valid argument. I mean everyone can be competitive if they devalue their currency. It’s too easy.
But you hurt the country in the long run.
Exactly. All economic decisions are like that and I think that is the challenge we have. The definition of economic decisions is that it is about choices. And whatever choice you make, you can always point to the cost of that choice. If the governor decides he wants a strong currency, then yes, everyone can point to the cost in terms of export prices. But if he devalued it, there would be costs in terms of inflation. So you’ve got to say what the choices are.
You mentioned something about Nigeria in your speech which is quite intriguing. You said: “We import what we have and export what we don’t have.” How does one do that?
I think it’s a principal African problem. If you go back to the histories of the economies of the world, if you go back to slavery, to colonialism, to the neo-colonial satellite states, it was always about how countries find sources of raw materials and how they find markets for exports. If you ask me, the World Trade Organisation is just 20th century colonialism. It’s just that, instead of the West coming as colonizers and forcing the markets, we, Africans, went and voluntarily signed to open up our markets to finished goods, in the name of free trade. The USA and the UK plunge in and say: “Our markets are open for you to export your raw materials. Sell us cotton and cocoa and you open up your markets to our textiles and computers. It’s fair trade.” And of course we went and signed and made short-term money.
For how long is Africa going to remain stupid?
That’s for us to decide. It’s for this generation. We can spend a lot of time talking about the mistakes of the past. In a year or two, we will all be past leaders and the next generation will be talking about us too as being stupid. It’s time to change this now.
How will you go about change? Surely Africa must get its act together.
People will have to speak up. I speak up in my country and I think the message gets through. Now of course if you’ve got a resource-rich country where people make so much money from parasiting off the system, then you have a problem, because they resist change. But we need to speak up.
Isn’t it a satisfaction that what you are doing is being recognised internationally?
It is, I think, for someone like me, given the kind of battles that I fought and that I continue to fight.
On Monday last, Forbes named you African person of the year -are you going to be modest about that too?
(Smiles) It came at a time again when we just nationalised some banks in September and today there is this whole debate in the national assembly.
Is nationalisation the right way to go?
The bottom line is that if banks have a solvency problem, they have to be recapitalised. If their shareholders can’t put in the money and they can’t because their investment has been wiped out and they don’t have the money, and the capital markets are such that it’s very difficult at this time to attract capital from other parts of the world, somebody has to do it.
“Somebody” is the government which steps in and buys off these debts?
No, part of it is actual recapitalization but also capital injection. Don’t forget that in many African banks if you go to a typical balance sheet, 80% is retail. Poor people, innocent people who have just put their money into the banks. At the end of the day, when the bank fails, it is those people who will lose their money. The moral is, it is very easy to say, “Don’t use taxpayers money to bail out banks” but when you bail out a bank, you are bailing out the depositors. And most people don’t understand that.
The reason I’m asking is because we are in the process of privatising our casinos for example. Does that make sense to you?
I think you should scrap the casino business! (Laughter) I agree with you! I wish we could! (More laughter) I hope they all go bankrupt! They cause a lot of damage and a lot of tragedy and I don’t think any government should promote casinos.
Is keeping them private the answer?
Well, it’s better than the government owning them.
But when they are privatised, you will have less control.
Not necessarily but I think the government has no business doing certain things and casinos are one.
Economically you mean? We are not talking ethics here.
Economically. The government has no business owning banks, casinos or manufacturing companies. It’s unnecessary. The private sector should do that. Even when you privatise or get out of telecom or oil and gas, those are industries that need to be regulated. What we’ve always done wrong in many African countries is that we privatise and then we don’t regulate. I mean the UK privatised many companies under Margaret Thatcher, but then the regulations were very strong.
Was she right to do that?
She had to. The UK economy was about to go bankrupt. Look where Greece is today. Everything was owned by the state and if you’re going to continue with the British welfare state, you have to get out of certain things. She got out of mines, telecoms and airlines.
She paid a heavy price for it.
Well, she was prime minister for 11 years! And there again is the lesson for African leaders. Sometimes you have to take decisions that are extremely unpopular. And Thatcher did that. If you take President Toledo of Peru, when he started his measures, his popularity went down to 8%. By the time he was through, he was at 67%. I think many African leaders just don’t have the courage to take decisions that are unpopular.
What did the decisions you took cost you?
Well, I lost a number of friends, mainly among the bankers, but also among non bankers because I published the names of companies that borrowed from the banks and didn’t pay. I have been attacked and maligned for years, for one thing after another.
Amongst others, you were accused of having caused people to lose their jobs.
Well that’s just a silly argument but the counterfactual is how many jobs would have been lost if the banks had gone? By losing money, the banks had to reduce workers, but if the banks had gone, everyone would have gone. Besides, the banking industry, by its very nature, is not labour intensive. As the banks get more modern and rely on more technology, you’re going to have fewer and fewer human beings processing transactions.
It’s not your job to create and maintain jobs anyway, is it?
No. The role of the banks is to provide finance to those industries that create jobs.