Jide Akintunde, Managing Editor/CEO, Financial Nigeria International Limited

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  • Fiscal Policy

Fatal debates and Ngige’s threat of withdrawal of bank licences 22 Jun 2016

How crucial would Brexit prove for a safer and more prosperous Britain and for Britons? Not very much. But then, any net positive effect would pale in significance, considering the tragic death of MP Jo Cox. She met a violent end in the hands of Thomas Mair a few days to the referendum, because she was a “remain” campaigner. Her death was too much a sacrifice for the gains of Britain that remains in the European Union. Yet, and ironically, more right-wing ideologues, resisting the perils of immigration in Britain, might gain inspiration from her killing for other savage attacks.  

Jo Cox died an avoidable death. The Brexit debate, for which her position made her a target by hate-mongering Thomas Mair, was unnecessary. The German Chancellor Angela Merkel believes the referendum was a ‘completely unnecessary’ risk Prime Minister David Cameron took to placate Eurosceptic members of the Conservative Party. It was part of Cameron’s political swagger and predilection for melodrama (exemplified by labelling some countries including Nigeria as “fantastically corrupt”) that he animated a debate he actually didn’t want to have, considering he very badly wants Britain to remain in the EU. He called for the referendum, hoping that “remain” campaigners would stroll to easy victory. Thereby, the Prime Minister would strengthen his democratic credentials and leadership. But on the contrary, this referendum has proved deeply divisive and fatal.

Not all debates are worth having, even in a democracy. As Professor Ian Buruma argued recently: “The vogue for referendums today reflects distrust of political representatives.” (Project Syndicate, The Referendum Charade, March 2016). Part of the sub-optimal nature of a referendum is that people who have limited knowledge of an issue are required to vote for or against it. In any case, Westminster politics can overrule the referendum, if the government refers the decision to the parliament – the organ that has the constitutional mandate to promote UK’s trade relations.

Needless debates can have serious economic consequences. In 2011, the government of Jacob Zuma had begun to entertain the idea of nationalising South African mines and banks. The powerful youth wing of the ruling ANC had blustered nationalisation as a policy response to growing inequality and high unemployment situation in South Africa. Rather than reject the call out of hand, the government felt it was convenient to debate it. Part of the debate entailed whether the government would pay for the equity stakes in the mines and the banks, or it would just seize them. In which case, the government did not initially settle whether the takeover can have a semblance of legitimacy, since it cannot if it was, in effect, a robbery.

The dire consequences of nationalisation are very predictable. But market analysts and South African business leaders saw the mere debate of the policy as perilous. Tim Tshabalala, CEO of Standard Bank, said: “The main ways in which persistent nationalisation talk damages the economy are through its effects on risk calculations and the cost of capital.” What is certain now is that the debate was an early sign of the deterioration of the South African policy landscape. The cumulative effect of the policy malaise that has continued is what has caused the South African sovereign bond to approach junk status. South Africa has since fallen behind in making necessary investments in power and infrastructure. Yet, inequality has heightened and youth unemployment has reached a crescendo.

The nationalisation debate, much like the Brexit referendum would ultimately prove, was a red-herring. It derailed important discussions on how to move South Africa from the effects of its past apartheid policy to a future of inclusive growth and better integration of black South Africans into the economy. As for Britain, the country is refusing to dispel fear-mongering and pejorative profiling of UK immigrants, something that was rejected with the election of Sadiq Khan as the first Muslim Mayor of London in May.  

The threat by Nigerian Minister of Labour and Productivity, Dr. Chris Ngige, that banks who continue to downsize their workforce would have their licences withdrawn by the government falls in the same mould as the South African nationalisation debate: Archaic, impractical, diversionary and counter-productive.

Nigerian banks have been grappling with a deteriorated macroeconomic environment, induced primarily by about 18 months of low oil prices. This oil price recession has been deep and much longer than the oil price shocks occasioned by the 2008 – 2009 Global Financial Market Crisis. Lower oil revenue has made some state governments to owe their workers by as much as six months’ salaries in a number of cases. Without the cover of approval of easy oil money, federal policymakers have appeared muddled and unable to implement sound fiscal policy. Their inactions and missteps have imposed significant constraints on the functioning of markets. This has gravely impacted the balance sheets of the banks in the form of lower profits, higher non-performing loans and slower business growth.

Except the banks adopt the labour inefficiency of owing workers months of salaries, the banks have little choice but to downsize in the face of grim current realities and uncertain short- to medium-term outlook. In any case, businesses have the prerogative to align their workforce with emergent realities. With regard to the banks, the government even has now much weaker power of persuasion, having withdrawn public sector funds from the banks in implementing the Treasury Single Account system. Indeed, banks are to be supervised by the regulators, and that does not include interference by the ministers.

One observes that the threat by the Honourable Minister has not died naturally because of its unreasonableness and the impracticality of seizing the licences of private sector banks. Organised labour has latched onto Ngige’s bombast, threatening to picket the banks that failed to recall recently disengaged staff and banks who downsize.

This engagement imposes additional threat to those who are still keeping their jobs in the banks. The wider ramification of Ngige’s threat of withdrawal of banking licences is that it cast a shadow on free enterprise in Nigeria. If that is the case, the implications would be the same as the South African nationalisation debate. It will heighten the perception of risk to private investment in Nigeria.

What direct negative impact Ngige’s threat would have on foreign investment in Nigeria cannot be exactly known. But the question must not be glossed over. Those who would withhold investment commitment or consideration on account of the policy risk don’t have to make any disclosure about it. We also must not dismiss a fatal outcome to Ngige’s threat. We never know what might happen should organised labour go further to implement its threat of disruption of activities at some of the banks. In the past, such events have resulted in fatalities.

The 2012 Marikana mine massacre in South Africa intensified the nationalisation debate. But the wrong-headed debate, still simmering at the time of the massacre, might have emboldened the striking workers to have the fatal encounter with the police at the Lonmin's platinum mine.

The Central Bank of Nigeria should urgently express support for the banks to freely operate without any encumbrance beyond regulatory compliance. The Federal Government also needs to make it absolutely clear that Nigeria is a jurisdiction of free enterprise, where, putting it bluntly, banks can hire and fire in the pursuit of their legitimate business.

In addressing the concerns of Nigerians who are afraid of losing their jobs, government needs to reaffirm commitments to policies that promote employment, productivity and inclusive growth. These goals are best achieved through private sector development, public investment in infrastructure, and sound social programmes. Government has made this pledge, but it needs to match words with actions.

The honourable minister might have, unsurprisingly – because of his antecedents as a malleable politician -- drawn from a badly written script of statist control of the economy by the Buhari administration. The good news is that we have begun to see a systematic roll back of the control-mania of the administration for more pragmatic, market-friendly policies. The debate we should be having is how to make the private sector perform better, with market policies increasingly aligned towards recovery from the economic downturn. Ngige and his cabinet colleagues should be looking at making public investments better targeted to deliver optimum results.