In the final part of this column last week, I concluded that institutional failure is responsible for Nigeria’s socio-economic and political failure today. Nigeria, as a failing state, can still be redeemed if we allow our institutions to operate effectively and efficiently. In that article, I presented my opinion on some institutions in the social sector, such as education, health and legal subsectors, including the institutions dealing with corruption, namely ICPC and EFCC.
Today, opinions are offered on financial, fiscal and energy matters. These are critical areas for economic growth and development. The major institutions in the financial system are the Central Bank of Nigeria, the Securities and Exchange Commission in charge of the capital market, the Nigerian Deposit Insurance Company, and the Asset Management Corporation of Nigeria.
AMCOM was set up to acquire non-performing loans from banks and other financial institutions to recover the debts from individuals and corporate bodies through negotiations, asset sales, debt restructuring, and legal action. AMCON, as we have it, is virtually bankrupt. It acquired huge debts owed by these principal actors, but there is no record of successful debt recovery and prosecution of debtors. It was used to cover up those who defrauded the banking system and small depositors of their funds, and the NDIC was used to provide some level of succour. The performance of AMCON is anchored on its objectives, and the fact that the institution is reported to be practically bankrupt, it is a failure, scoring below 40 per cent. Actually, the establishment of the institution has emboldened more fraudulent activities in the financial system.
The NDIC’s main objective is to protect depositors by supervising banks, ensuring monetary stability and promoting an efficient payment system through competition and innovation in the banking system. There is a link between the functions of the CBN and NDIC, as they complement each other in regulatory and supervisory roles. The NDIC, however, reports to the Ministry of Finance. It has been performing well in settling depositors’ claims after due process, which sometimes could be frustrating to depositors. An A grade is appropriate for the institution in the current period.
The SEC is the regulatory body responsible for the capital market, particularly the stock exchange. The stock market is highly regulated and is a formal market that operates within a market mechanism, though some reported cases of manipulation sometimes emerge. The SEC is expected to, among other issues, regulate the timing of sales and the price of shares on offer in the primary market. It approves the time of general or annual meetings of listed companies and agrees on the dividend or payout when a company is delisted. In all these businesses, the SEC has performed largely creditably, but there are infractions that the SEC either ignores or fails to sanction concerned registrars.
For instance, recently, the shareholders of a company agreed to an exit price of N135 per share, which was lower than the market price, but the company eventually paid N118.53 per share. Even if there is a withholding tax of 10 per cent or N13.50, the exit price should come to N121.50 per share, but the SEC did not intervene on behalf of the shareholders. The various registrars of companies act outside the regulations guiding the market without penalty from the SEC. Notwithstanding some of these weaknesses, the commission scores a B grade.
CBN is the heart and soul of the monetary system in the economy. It provides a monetary policy for the entire economy. Major functions of the bank are issuing the legal tender currency, ensuring monetary and price stability, maintaining a decent value of the local currency against the world’s key currencies through management of the external reserves, and promoting a sound financial system.
Presently, the CBN monetary policy is instrumental in the high rate of inflation through high interest rates, uncontrolled money supply and inability to supply lower denominations of the naira that would have been used for transactions by most Nigerians instead of forcing them to adjust prices to the nearest available values in the ATMs which are N500 and N1000. It has not been able to maintain a reasonable value for the naira with regular devaluation, poor management of the reserves and poor intervention in the market. The bank has not been successful in substituting old, worn-out currencies with new ones after five years of the contemplated change. Since the period of Godwin Emefiele as CBN governor, the governance and performance of the bank have been declining. The weakness and consequent poor performance of CBN as a major economic and financial institution in the last 10 years has caused part of the noticeable poor performance of the economy and governance.
The major fiscal institutions are the Federal Ministry of Finance, the Ministry of Budget and Planning, and the Debt Management Office, which is a link between fiscal and monetary policy. The Ministry of Finance represents the fiscal side of the Nigerian economy. It is the matching side of the central bank. Its activities influence how an economy is managed and how governance is viewed. The ministry has been up and running in the last few years, making the budget ready in time for consideration. However, the ministry activities are largely influenced by the objective stance of the political institutions dominated by the Presidency and the legislature.
It is the heart of bureaucracy and requires strong and knowledgeable leadership that can give acceptable direction to those two political institutions. It must have the ability to coordinate the other MDAs, and that is why the minister often doubles as the coordinating minister of the economy. Over time, the ministry has shown no regard for most of the provisions in the Fiscal Responsibility Act, particularly concerning issues of debt management. To award a mark for the ministry is to score the economy itself. Remember “Nigeria jaga jaga”? We don’t need to say more.
The DMO was set up to, among others, advise the Federal Government on the management of public debts, raise funds locally and internationally, service all public debts and maintain a database of the debts. It is also to promote the domestic debt market. The DMO has been able to prove itself effective in its ability to mobilise credits or debt accumulation. How much advice the institution has been able to provide in terms of fiscal responsibility and debt management, as its opinions would largely be dominated by the Ministry of Finance and the Ministry of Budget and Planning? It is difficult to assign a grade, but it is more appropriate that the office has acted effectively within the set objectives.
On institutions in the energy sector, we can identify the Nigerian Electricity Regulatory Commission and the Nigerian National Petroleum Company Limited. These are major institutions determining whether Nigeria develops or not. A country without electricity, for example, is not expected to be industrialised and developed. It is part of why Nigeria remains underdeveloped. NERC has remained a symbol of failure. It is a weak institution that seems established to impose darkness on Nigeria. When I was much younger, over 40 years ago, it was always UP NEPA whenever electricity was switched on. Today, despite the change in name to PHCN and different DisCos, we still hear shouts of UP NEPA.
Whenever the electricity supply edges toward 7,000 megawatts, whoever is the minister would shout to high heaven that a breakthrough has been achieved. We were close to 7,000 megawatts during the time of Babatunde Fashola, and the noise was much before the megawatts; thereafter, it dropped below 5,000 megawatts. Under Adebayo Adelabu, the current minister, getting to 6,000 megawatts was being celebrated as if we had never got there before. As of today, South Africa is generating about 60,000 megawatts, and the country is still working hard for more without noise. NERC is a failed institution. It does not require reform but recalibration.
What can we say about NNPCL? Another failed institution. Can anything come out of the new management? Time will tell. Nigeria is full of weak or failed institutions, not because of the composition of the management or the structure of the institutions but largely because of inherent corruption that runs through the Nigerian economy and the weak cum corrupt political institutions that impose corruptive elements on Nigeria’s institutions.
