Interview: Dr Mallam Sanusi Lamido Sanusi, Governor – Bank of Nigeria
“You should be more concerned on having the right Prime Minister for Mauritius
– and be less concerned about who is the President of the United States”
* “Finance does not exist in a vacuum; you need to create the right economic policies”
Dr Mallam Sanusi Lamido Sanusi came as Governor to the Central Bank of Nigeria in mid-2009 with a background of commitment to risk management and a long career in the banking sector. Within a couple of months of his appointment and with the support of the Presidency, the Economic and Financial Crimes Commission and the Minister of Finance, he set out on a mission to clean up the stage.
He sent out soon a clear signal that recklessness in the banking sector of Nigeria will not be tolerated. A score of bank executives soon faced charges for fraud, lending to fake companies, conspiring with stockbrokers to boost share prices and lending to companies in which they had a private interest. One of his tenets was that the banking sector should contribute to the real economy. Here was a profile that contrasted sharply with that of his more aloof predecessor.
An internationally respected figure, in recognition of his strong anti-corruption attitude which saved a series of banks from disaster while also sending a couple of bankers to jail, The Banker conferred on him the title of Central Bank Governor for the year 2010 as well as Central Bank Governor of the Year for Africa. He was listed by Time in the 100 most influential people in 2011.
Mauritius Times has availed of the opportunity of his current visit at the Bank of Mauritius to search his mind on a number of regional and general issues, with particular reference to the future of Africa. The voice is loud and… clear.
Mauritius Times: When the going is getting bad on the European and American fronts, we are now turning towards Africa where, it would appear, the going is getting better. Is that indeed the case?
Dr MSL Sanusi: I am usually a very cautious person in my economic forecasts, especially when one has to deal with the levels of poverty and the situation we are in Africa. Certainly Africa’s growth story is a good one: African economies are growing, we are the third fastest growing region after Asia, and the forecast is for the middle-east and north Africa region to grow a little faster than the rest of the continent. The real challenge is how to reduce the dependence on that growth on commodity prices, how to make it more inclusive so that the benefits of growth trickle down to the poor people in Africa. I also believe that given the rate of increasing population, even an average of 5% to 6% looks to me one that we need and can improve on. There has also to be a strong focus on things like infrastructure, governance and capacity building but certainly Africa does hold potential to grow at a time when we have dark clouds on the horizon. The real challenge is how do we adopt the right policies to turn that potential into reality.
* Do you foresee Africa positioning itself enduringly in the global economy much more strongly than it has done in the past, now that the poles of economic concentration appear to be shifting globally?
If you look at the run-up to the last global financial crisis, there were already clear signs of African countries moving forward with certain policies, certain structural, market and fiscal reforms; the fiscal positions of the governments and inflation numbers were much better. The governments had more reserves that they had built up and therefore when the crisis hit, Africa was much better prepared to cope with it than in previous crises when after the crisis had hit Europe or America, African countries had to go cap in hand to those same countries looking for bail-out money for their entire peoples. So there has been a long and steady process of improvement in a number of African countries: better democracy, the absence of all these dictatorships, the collapse of military governments, the end in many countries of civil wars and ethnic conflicts. That basically means Africa has come a long way in the last decade or two, but we still have a long way to go.
* But for growth to trickle down to the poor people in Africa will prove to be the tricky part of the equation as it has proved elsewhere, isn’t it?
It’s a function of the type of economic development model that we pursue. The nature of commodity markets in African countries, whether it is oil or minerals, is that it tends to stifle economies. Once you depend on natural resources, you tend to have a very small segment that is basically not highly employment-intensive so that growth that is driven by that sector tends to favour a tiny minority. The money also tends to go straight to the State without going through the hands of citizens. This therefore lays the foundation of and the possibilities for rent seeking. As opposed to the wealth that is generated from the agricultural production, agri-business or manufacturing which then goes through the hands of citizens and is taxed. This promotes a sense of motivation and a base for greater accountability. It’s also more widespread in terms of the number of people that are employed in those sectors. If we focus on moving agriculture, for example, from the export of primary products to processing — cassava to starch, tomato to tomato paste, processing our own rice instead of importing from Asia, etc –, or moving light manufacturing from cotton to textiles, we basically create jobs, take advantage of an internal market and create income for the rural areas. That is one of the quickest ways of bringing more and more people in Africa out of poverty. Basically you’ll find that 70% of Africans are employed on the farms. And that if you can provide the infrastructure, access to markets and opportunities for improving farms’ incomes, then you have a better chance of addressing poverty with the growth of small and medium enterprises. These are the kinds of developmental policies that we have to pursue for growth to really have an impact. And if that growth came from that kind of broad-based economic activity it will be far more inclusive.
* It is since a number of decades (from the early 1980s) that Mauritius has been working with a couple of regional African groups (like the COMESA and SADC) to get off to a more meaningful regional trading association among the countries of the group(s). The result has not been impressive so far despite a lot of reduction of trade tariffs among the concerned countries. Most of our trade has continued to be with Europe and less than 10% with regional economies. What do you think is needed to give a better concrete shape to the closer economic integration sought for?
I think part of the problem in Africa today is that we try to provide answers without asking the right questions. Say you produce a good today in Tanzania and you want to transport it to Angola, the questions that arise are: Do you have direct rail links? How much will it cost? Why is it more expensive to transport goods from one part of Africa to another than to transport the same goods from China to Africa? How many shipping lines do we have that we encourage to move up and down along the African coasts? And what kind of infrastructure plans do we have to move those goods into the African hinterland? The greatest challenge facing us is that we have not built the infrastructure that would allow for easy movement of goods and services. We have not created the right environment for it to happen, and until we do that, we’ll remain saddled with a big problem. There are also policy issues like in the north of Africa, for example, with goods from Tunisia going to Algeria being blocked right now. The only way to go round this problem is to ship these goods to France or Spain from where they are shipped back to Algeria! There are also the basic issues relating to the competitiveness of the product and about creating those industries where you build comparative advantages. Nigeria, Angola and other oil-producing African countries should by now have enough refining capacity to be able to sell refined petroleum products across the continent. But if it is cheaper for an African country to import refined fuel from Europe, then that’s another big problem – either with the efficiency of the refinery or with the cost of the transportation or the infrastructure. Why does any West African country need to import refined petroleum products from Europe when you have got refineries in Nigeria and in Ghana? These are the kinds of questions we need to ask ourselves as leaders. What is the infrastructure plan – the pipelines that will move gas and petrol across borders, roads and rails, ports and airports that will open up Africa? That’s what you’ve got in any part of Europe that makes for the connectivity and the movement of people and goods amongst all the countries that form part of the continent. It’s those very basic requirements that need to be addressed.
* That however would require a coordinated effort at the level of the whole of the African continent?
Precisely. It is the kind of thing which I would say the African Union, working together with the African Development Bank could plan in order to bring about a proper continental infrastructure plan that would help to give comparative advantages to African goods and services. We’ll have to think of Africa in terms of one economy, of the African people as one people. That is a major transformation that we need to make, just as the Europeans think of themselves as Europeans. A company located in Germany already knows that its market is Europe. That is the kind of mindset you need to have to facilitate proper integration.
* Would you say that the context in Africa today allows for that sort of things to happen? When it comes to doing business with Africa, there was a serious apprehension about issues of good governance and corruption at one time. Are things changing for the better?
I think there is a lot that needs to be done even within countries as far as good governance is concerned. One of the biggest problems facing Africa is corruption, and one of the reasons as to why these things have not happened is because many governments, the politicians and their business partners do have a stake in the system – that is in the extraction of the rents. It will therefore require a fundamental paradigm shift at the level of the leadership for this to happen. Every country in the world has only made this leap when, by accident or design, it has been able to produce the leadership that had this vision – whether it’s Lee Kwan Yew in Singapore, or Dr Mahathir in Malaysia or Deng Xiaoping in China. There is always a turning point in history in which circumstances produce leaders who decide that it’s time to change. When that happens, the transformation is made.
* We have been selling the proposition – mostly to countries like India and China – that they stand to gain from using Mauritius as a springboard for enhancing their trade and economic commitment with the African continent. From what you have seen as to what obtains here, would you say there are indeed good reasons for the Asians to take the Mauritius route to Africa?
I think if the African countries that you deal with have the kind of agreements that allow goods produced in Mauritius to come in – that would make a lot of economic sense… For example, the Chinese used to sell leather goods to Ethiopia. Once the late Prime Minister of Ethiopia made it very expensive for anyone to export unprocessed leather and subsequently provided incentives for setting up leather goods industries in the country, the Chinese decided they would be better off setting up manufacturing plants in Ethiopia that would basically produce shoes and bags for export. The same thing with coffee: the Ethiopians used to export coffee beans to Latin America for processing for companies like Starbucks. They have set up a process where they now produce finished coffee that’s used by Starbucks; it goes directly from Ethiopia to the shop. So it is really about focussing on key sectors. If you focus on one key value chain after the other, you will be then able to deliver.
* I understand your speech at the Dinner for Economic Operators hosted by the Bank of Mauritius, last December, raised questions about how misdirected financial intermediation can seriously hurt countries. The same could apply in our case if we are not careful. In the light of your experience, what are your views on what exactly should be the rules of the game to be observed for a sounder contribution by our local financial institutions?
I think that there are a number of issues that we would need to look at. First, as far as financial development is concerned, one issue clearly is the question of financial sector development in general, a system in which we have commercial banks — effectively the monopoly provider of finance. It is a big problem. We need to have a functioning capital market, we need to open up the space for private equity funds, for venture capital companies, for project management specialists otherwise we will continue to pay the price of a very high rate of interest, very high spreads between the cost of funds and lending rates largely because of huge maturity transformation risks. That’s the first thing: the development of the system itself.
The second thing we need to look at is the structure of the banking system itself. We have these huge banking institutions that lend to governments and to multinational corporations. And we do not have medium-sized banks that pay attention to small and medium-sized enterprises which is where the bulk of the employment is. The questions that arise: Do we not have a banking system structure that is consistent with our level of development? Do we have financial institutions that provide access to capital for the small and medium-size enterprises? We are talking about SMEs that traditionally would count for 60-70% of employment and maybe 40-50% of revenues and exports.
Third, we have to remember that finance does not exist in a vacuum; you need to create the right economic policies. For example, if you want banks to lend to agriculture, you need to fix the agricultural value chain. The farmer needs to have access to markets; he needs to be able to transport his goods to buyers; he needs to be linked maybe to a commodity exchange, etc., before you can actually get anyone to take a commercial risk on the farmers. So we need to turn agriculture, for example, into a bankable business as opposed to a developmental charity activity. I think if we did those three things we would be able to not just have the right structure of finance but also improve financial inclusion and financial development.
* Can countries like Mauritius, which started with a heavily skewed distribution of economic power, as in several African countries, empower larger numbers of their populations into the economic mainstream? What are the tools available to do this?
It’s largely about the economic development model that you pursue – a model that creates employment opportunities. You definitely are going to find that in most countries at this stage of development, there are huge forms of income inequality. If you look at the United States you have huge income inequalities. What you find in India is that you got a small number of multi billionaires and hundreds of millions of poor people. In China there are thousands of millionaires and poor people, but certainly Chinese growth at the top is more democratic. That’s because Chinese industry tends to be largely medium-sized as opposed to the huge capital intensive auto, steel industry type that you have in India. Indian development is one that revolves around a limited number of mass production – old industrial revolution-type – companies that are owned by very rich families who are among the richest people in the world. In China, it’s more an agglomeration of production across industries and industrial clusters. Yes, their owners have become rich, but the wealth distribution effect is much better in China. The economic development model you choose would be a very important determinant, but you can of course accompany that with the right taxation models, the right social safety net policies and the right redistributive models that do not kill initiative nor discourage investment.
* Financial institutions of Mauritius, especially the dominant ones, have favoured the concentration of wealth and economic power in the dominant economic elite decades after Independence through their credit and investment policies. What can a central bank do to change the equation? Or, would you say that a central bank has nothing to do and should let the financial institutions carry on much the same?
The central bank is a major adviser to government in relation to matters relating to economic policy, but that’s the limit to what a central bank can do. Financial institutions are private sector institutions, and it’s in the nature of financial intermediation that money goes only to where money is made. If the economic environment is such that economic policies favour the prosperity of a small group, it is only natural for banks to go and finance that small group. It’s all fine to criticize the banks or the central bank, but you must remember that banks, which basically operate as financial intermediaries, are set up by shareholders with the objective of mobilizing savings and turning them into profits for themselves.
* Wouldn’t you expect them to go beyond simply chasing private profits for themselves?
No, you can’t stop them from chasing profits, but you can make them chase profits in a socially responsible manner. The only way you can do that is to also have the right economic policies that make it possible. Agriculture remains a good example: you can always complain about banks not lending to your farmers, but it is not the banks that are supposed to provide the banks with infrastructure, or with irrigation or with agricultural extension and research or training. It’s not the banks that create the tariff policies. If you want the banks to lend to a rice farmer in Mauritius, you’ve got to make sure that you provide the rice farmer with all the right policies, support and infrastructure that enables the farmer to produce rice in a manner that allows him to compete with the imported rice from China or from Thailand, which you have agreed to come into your country as a result of your signing up to WTO agreements. So if your government goes ahead and signs an agreement with WTO that allows the importation of rice, you can’t expect the banks to lend to the farmer who cannot compete with the imported rice. That’s why I keep saying that we shouldn’t always provide answers without asking the right questions. And when we ask the right questions to fix the problems, then the answers follow.
* Media focus during this current week has centred on the presidential elections in the USA. Does it matter to you as to who wins the race? Or does it matter to Africa?
To be honest, I don’t think so. I think the Americans are totally focussed on themselves and on the interests of the United States, and that it’s just important for us as Africans to recognize that a US President, Democrat or Republican – will be focussing on US interests. In some cases there is be a very clear issue, like at certain points in history when, for example, during the days of apartheid or when we still had the colonial powers in Africa, it was very clear to all of us that the Democrats tended to be more in support of the liberation movements than the Republicans. Jimmy Carter was certainly much better for us than Gerald Ford. In these days when the big political issues are not there, and if you have a conflict in Africa, say a civil war, sometimes the Democrats tend to be quicker in responding to those disasters as we saw in Rwanda, or in Bosnia in Europe.
But you must remember that Obama has in the case of the Middle East, for example, proved may be more conservative than George Bush in terms of his positions on, say Iran or his support for Israel and so on. There is no clear distinction between the two major parties at the moment as far as foreign policy is concerned. Having said that, I think that the policies like AGOA that have been put in place to open up the US market for goods from Africa are useful. Anyone who is ideologically lenient towards the development of poor countries might give us more of a listening ear in terms of global governance, World Bank and IMF issues, support for multilateral loans, expansion of facilities for poor countries. To that extent, may be a Democrat President will be better than a Republican. But the fundamental thing that we must remember is that the problems of Africa will have to be handled by Africans, and that we can no longer depend on having the right President in the White House. We should focus on having the right President in our own State House. We should focus on having the right President for African countries, and you should be more concerned on having the right Prime Minister for Mauritius – and be less concerned about who is the president of the United States.