Nigeria's Further Failing Electoral Institution

By Olu Akanmu

It is an understatement that the inconclusive Anambra gubernatorial election is a big national embarrassment.  It could not have been imagined before the election, with the overwhelming concentration of electoral resources and security on the said election that we would come this low. INEC could not conduct a controversy-free election in one state, yet it plans to do a presidential election in thirty-six states. Anambra might be the sad prelude to the coming presidential elections in the unfortunate shape of things to come. Free and fair election is the bedrock of a democratic system, where the people as the ultimate sovereign, express their will in the choice of candidates who will govern them. The people do not do this every day but every four years. The election therefore is the only instrument of people’s sovereignty in a democratic state. When elections are compromised, or when they are neither free nor fair, we cannot have “the true government of the people by the people for the people”. The only reason politicians perform and govern well is the fear of being voted out by the people if they misgovern in the next election. If we can therefore not conduct a free and fair election where the people can genuinely express their will, we can say a permanent goodbye to good governance.

While we believe that the controversial election and its outcome would be tested in the law courts, the court of public opinion is already passing its judgment on INEC. The freeness and fairness of an election is a question of justice in which reality and perception must ally. A famous legal maxim based on the principles of natural justice says that “justice must on only be done but it must be seen to have been done”. In the case of Anambra elections, no matter what Jega and INEC say, we say that elections must not only be free and fair, they must be seen to have been fair. If elections did not take place in the stronghold of certain candidates,  and even a key candidate in the elections was disenfranchised from voting because his name could not be found on the voters register, that election cannot be said to be just, free and fair.  It does not matter whether INEC wants to conduct a supplementary election. The mere inconclusiveness of the election as admitted by INEC taints the election fundamentally and no supplementary exercise would adequately make up for it.

A cornerstone of a free and fair election is the freedom to choose a candidate without any form of pressure on the polling day. I should be making my choice of the electoral candidate largely from my own freewill. Hence, the polling station is designed to give voters the privacy to make their choice without any influence. It is also the reason why elections are conducted on the same day, at the same time. It is recognized as an electoral fairness principle that the choice of candidate should not in any way be influenced by the momentum of results of the same election from somewhere else. For the voters in the areas where INEC would want to conduct a supplementary election, it is certain that their choice would be significantly influenced by the electoral momentum from the areas where INEC has announced its inconclusive results. Whatever happens at the supplementary elections on November 30, its outcome cannot therefore be said to be just, free and fair.

We should not be impressed by the attempt of INEC to speak with both sides of the mouth. On one hand, it says that “it regrets shattering the expectations of Nigerians” and that the election was far below the people’s expectations, yet at the same time it argues that a substantial part of the elections comply with the electoral act. What an ambiguity! It is like saying an election is not fair on one hand, yet fair on the other hand. INEC has substantially lost credibility and the confidence of the Nigerian people in its ability to conduct a free and fair election.

A key player in this unfolding sad saga of INEC is its Chairman, Atahiru Jega, whose strong patriotic credentials is being eroded by the day. We all know Professor Jega’s antecedents in civil society and academia. His story might however be confirming very strongly that patriotic individuals without strong institutional support for the implementation of their patriotic objectives might be consumed by the corrupt and decadent institutions they lead. Jega as an individual cannot guarantee us a free and fair election without a strong electoral institution and a system of laws and enforcement institutions that genuinely and uncompromisingly promote free and fair election.  President Jonathan and the National Assembly had chosen largely to ignore the good recommendations of the Uwais panel on electoral reforms.  These include the criminalization of electoral offences and a strong independent electoral offences commission to prosecute electoral crimes and a long ban from politics of those found guilty of election rigging. The sheer impunity with which Nigerian politicians conduct electoral crimes is because the institutional mechanisms to sanction and punish their criminal behavior are virtually non-existent. Other recommendations of the Uwais report include limits and transparency of political party funding to reduce the corrupt influence of moneybags in elections. Had we have implemented the recommendations of the Uwais electoral reform commission; we would not be having the debacle in Anambra state today. In a way, the problem in Anambra state is also due to the lack of genuine will of the part of the President Jonathan and the National Assembly to strengthen our electoral institutions and guarantee for our people the right to a free and fair election.  

The Anambra electoral debacle has exposed the institutional weakness of INEC to the core.  Its public credibility and confidence have significantly nosedived. The expectations of a free and fair election in 2015 might have been put in abeyance. Yet, we must not give up the pressure to reform. We are a nation that has many times pulled back from the falling edge of a cliff. We can still do it now if we all cry out.

Olu Akanmu is a company executive. He publishes a blog on Strategy and Public Policy on http://olusfile.blogspot.com

On Legislative Sovereignty and the National Conference

By Olu Akanmu

We note the decision of President Jonathan to send the outcome of the resolutions of the proposed national conference to the national assembly for ratification. The idea of a national conference came to being because of the imperfections of the current legislative arrangements that our legislative institution does not absolutely represent the will of the people. If it was otherwise, a separate body to discuss the will of the people outside the official legislature would not have been necessary. Political exclusion mechanisms in the electoral system through electorate poverty and the use of money to buy votes, poor internal party democracy, thuggery and violence and high cost of political party finance exclude a large portion of society from expressing their will in candidates and the political party of their choice. These political exclusion mechanisms largely limit the playing field to corrupt and overpaid politicians ensuring that we elect into parliament not those we want or trust that will represent our will but those that we are forced to choose from in an electoral pack that may not necessarily represent the breadth of our will.

The political parties, hence our so called elected representatives tend not to be fundamentally different. The opposition parties are as guilty of poor internal party democracy as the ruling party.  The opposition parties in parliament are also as un-transparent in their compensation and allowances as the ruling party. We have not seen any clear non-mainstream legislative agenda from opposition parties or a different legislative behavior that suggests that may have been scioned from a different block. The difference between the ruling political party and the opposition is largely a difference of blue-black and black –blue. Hence, if President Jonathan sends the debate of the national conference for ratification to a legislative institution that only marginally represent the will of the people, how valid for the purpose of creation of a new political arrangement that the people will own, will such legislative ratification be?  There are even fundamental questions about the nature of the federal parliament that has skewed its seats largely in favour of some regions ensuring that when the parliament votes and the legislators close ranks on the basis of their regions and nationalities, the outcome is largely predictable. Hence, the structure of parliament itself, the political arrangement inherited from the British and the military that skewed local government numbers and legislative representation disproportionately in favour of some states and regions would itself be a subject of debate in a national conference. How could a parliament whose structure and composition is in question for fair representation fairly ratify the decision of a conference of the people?

The will of the politicians or the political elites is not necessarily the will of the people. The will of the Northern political elite is not necessarily the will of the Northern people. If so, the privileges that the North elites have had in governance and government more than any other region in the last five decades should have translated to the lifting of our Northern brothers out of poverty. Yet the North remains more underdeveloped than other regions.  People do not eat politics. They want food, shelter, clothing, water, heath, education and good quality of life. Experience in our politics have shown that there is no necessary correlation between having your “son” in government and a guarantee of the improvement in the quality of life of the people. The same applies to the West where the politicians and the political elites are largely concerned about winning elections, running politics like an investment in which they sell their properties, raise cash to buy votes from our impoverished people and make the money back in over-inflated contracts and political rents when they get to government.  The same applies in the South –South. Despite massive federal allocations, we are yet to see a commensurate lifting of our South –South brothers out of poverty with the exceptions of projects whose primary purpose seem to be a channel for self-enrichment of our South-South political elites rather than their people.

We discuss the above to show that the parliament today as largely dominated by our current political elite, do not necessarily represent the will of “we the people”. It at best only does so marginally. It cannot therefore genuinely be the organ to ratify the outcome of a national conference.  It is a waste of time to have a national conference and get its resolution ratified by an institution that at best marginally represents the will of the people. We went through such time-wasting exercise before. The good recommendations of the Justice Uwais panel report on electoral reform to strengthen our democratic institution prescribing that the National Judicial Council nominates the INEC Chairman rather than a President with political interest has been ignored by parliament. The recommendation to set up electoral offences tribunal and prescription of severe jail terms for those who rig elections by the Uwais panel has also been ignored by parliament. These are the wishes and the will of the people. The will of the people that the parliament becomes transparent about is compensation and allowances and declare it publicly has also been ignored by the legislature that should carry out the will of “we the people”. 

The principle of legislative sovereignty in a representative democracy is based on the moral argument that “we the people” who are the ultimate sovereign transfer our sovereignty to a body of our elected representatives who must act or legislate in our interest. If political exclusion mechanisms limit our choices of who should represent us, delinks the parliament from the interest of the people and such elected representative body only marginally and not absolutely act in the interest of “we the people”, such legislative body on such sensitive issue as a national conference should not have absolute legislative sovereignty to ratify the decisions of a conference of “we the people”.

We therefore submit that if we must have a national conference, and it would not be a waste of our time, its decisions must be ratified not by parliament but by a referendum of the people. We support the views other patriots who have championed this position including the former NBA President, Olisa Agbakoba. The national conference must be sovereign or its sovereignty and its decisions ratified only by a people’s referendum. If not, we would be having a talk-shop to discuss all that we heard before, for which we had no structure to resolve due to the weakness of our democratic and legislative institutions.

Olu Akanmu, a company executive publishes a blog on Public Policy on www.olusfile.blogspot.com

 

The People’s Broadcast on the Nigerian Centenary

By Olu Akanmu

One hundred years of the Nigeria nation is gone. Perhaps another one hundred is ahead. The managers of the Nigerian state have called for celebrations. There will be pomp and pageantry, gala nights and award dinners, lotteries and beauty contests.  A centenary of the Nigeria nation should however call for more sober reflections of hundred years of opportunities lost, potentials unfulfilled and generations wasted. There are far many more things to be sober about on Nigeria than what we have to celebrate. Some will say that we still do have a nation united despite our history of ethnic and political schisms.  These are the politicians talking, the few who are reaping disproportionately economic benefits from the weakness or the “near-failed” nature of the Nigerian state and its weak institutions.  How many unfulfilled potentials can we count?  A state, whose people have been getting doctorate degrees in medicine and law from prestigious universities like Oxford since 1898, yet has some of the lowest quality of university education in Africa, with no Nigerian university among the top 5000 in the world.  The Nigerian state that gave Malaysia its first seeds of palm oil in the 1960s yet now has to import or smuggle palm oil from Malaysia. Groundnut pyramids of Kano are gone, cocoa is gone, and cotton is gone replaced by an oil industry largely on the sea that has done little to create employment for the mass of our youths.

The unfulfilled potential of our resources is even more illustrated by contrasting us with Dubai and the United Arab Emirates who has leveraged its oil resources to diversify and modernize its economy to match the best of the western world. Therefore resources do not necessarily have to be a cause. It could be a blessing if a nation state is blessed with the fortune of good rulers, true statesmen who govern for the common good and put the nation first. Nigeria has however had the misfortune in its hundred years of being a state with few statesmen.  Late Papa Alfred Rewane lamenting the unfulfilled potential of the Nigerian state had to say during his lifetime that “yesterday (at independence), we prayed for a better tomorrow; but today, we now pray for a better yesterday”. A centenary celebration of the Nigerian state therefore has to be more introspective than beauty contests, march pasts and award dinners. It must ask the fundamental question “Why would the next 100 years of Nigeria be different from the last hundred?” Would those who are members of this state in the next hundred years look on this generation with kindness that we laid a foundation for a better centenary or would they refer to us as another generation wasted  just like those before us?  History has a way of defining a mission for each generation depending on the turn of history to which it finds itself. Perhaps, it is not an accident that we happen to be the generation at the centenary of the Nigerian state.  If we therefore reduce a centenary celebration to gala nights, march pasts and beauty contests, we would have missed an historic opportunity to fulfill a generation mission of tilting the ship of the Nigerian state on a new course of progress.

In this essay, we highlight some of the things that must be done to make the next centenary different from the current one. We expect to provoke some sober reflections and challenge more patriots to change the current paradigm of the celebration of the Nigerian centenary.  First we must build a more inclusive society where every citizen matters, have an opportunity to make it and fulfill her God-given potential. Today, the Nigerian state is increasingly becoming an opposite of this. What is the essence of thumping our chest that we are the biggest black nation on earth when the largest majority of our people cannot fulfill their potential or are just barely existing only in number and add no serious value to society? We must deal with the social exclusion mechanisms through institutionalized political and economic  arrangement s that make it difficult to climb the social ladder or even have real choices and voice in the  way society is governed.  In a young country, where the majority of our citizens are below the age of thirty, investment in the youth and their education must be top priority to liberate the potentials of our largest majority. Access to good and quality education is one of the biggest social exclusion mechanisms in Nigeria. The education of the youth must be matched with an inclusive economic arrangement that recognize that they youth must find gainful work to fulfill their potential and add value to society.  So much has been written around this, the need for strong formal vocational and technical education system that produce young graduates that are truly employable in industry or can work as small vocational businesses supporting big businesses in their economic value chain. The German education system in a strong organic link with industry has been built around this principle. It has enabled Germany to keep it youths gainfully employed with one of the lowest unemployment rates in Europe.

Inclusive economic arrangement also implies a more inclusive financial system where many more citizens have access to financial service and all its benefits. Financial services and the banking system are the bedrock and blood of the modern economy. If more than half of our citizens continue to be excluded from this service, they will be unlikely to fulfill their God-given potential and add their best value to society.  Banking penetration and access to credit must improve.  Brazil found its own way to democratize access to financial service and credits for its initially excluded majority and it became one of the strongest economies in the world. Brazil had similar social structures like Nigeria, a very unequal society with extreme wealth on one side of society and extreme poverty and misery on the other. However, by democratizing the financial system , public-private sector housing programs and improving access to property titles as collaterals to access financial credit for the its large majority, it liberated its people from poverty and misery.  In this centenary period, we need to introspect on the progress we have made in building a more inclusive financial system, consolidate the gains made and publicly debate what else are standing in the way to improve the pace of this critical initiative.

On the political front, we must deal with institutionalized political exclusion mechanisms that offer no real democratic choices for the people.  Weak political parties with poor internal democracies exclude the true will of the party rank and file and ultimately true democratic choices at elections.  Unless the party rank and file can freely choose their representatives and present such to the electorate in a free and fair election, we will continue to have a selectocracy rather than a democracy.  Unless the people can find their voice and choose their leaders in a free and fair electoral process, we will have to kiss good governance and responsible government a perpetual goodbye in Nigeria. This is because the only incentive for politicians to act responsibly and govern well is the fear of losing elections. At the turn of this new centenary, we must therefore strengthen our electoral process and the political institutions that will make our elections truly what they are supposed to be, with the plurality of choices that capture the diversity of patriotic ideas in the nation.  To do this, INEC and its future successors and the courts must be able to sanction the breach of internal party democracies.  Other things to be done  to strengthen the electoral process, make INEC  truly independent of the executive including special sanctions for electoral offenses are contained in the Uwais panel electoral reform report. At this historic turn of the Nigeria’s next centenary, we call on President Jonathan and the national assembly to summon the necessary courage to put our democratic process on new progressive trajectory by implementing the Uwais panel report.  

Over the next centenary, we must become a more open and transparent society. Government must become more open to citizens. This will drive accountability of the managers of state resources to the people on whose behest they are supposed to hold their jobs. A more open society also implies a Nigeria state where the people can enforce their right to know and can freely debate the actions of their government. It implies also a strong press, the modern equivalent of the classic Roman forum, where the people can debate or challenge the actions of the state and its managers. We must consolidate on the gains of our checkered history of press freedom and get the Freedom of Information Act to truly work. Currents efforts to use the Freedom of Information Act to enforce better government transparency has not been very successful suggesting that while we need good laws, we will also need strong judicial institutions to get a good law to fulfill its purpose. A more open society will also engender better trust between government and citizens rather than the cynics that citizens have become of government. A more open society is also a critical ingredient for active citizenship which is critical to building strong accountable public institutions.

A more open and accountable society also implies that the incentive to join politics will gradually change from “intent to corner public funds” to true public service.  Our electoral choices will increasingly be based on ideas and perspectives of better public service and delivery of public good. This coupled with the strengthening of judicial institutions that sanction corruption and criminal behavior in governance, will drive a better incentive for our politicians to become true statesmen who serve only for the common good. We must build a more active citizenship where the people believe in their capacity to determine how they are governed. A people who believe that their vote do not count, who live in extreme poverty and misery will probably sell their vote for a bag of rice.  This further compound their poverty and misery as their so called elected representative becomes more irresponsible knowing that it is not performance but a bag of rice that will win them the next election. And the people in this reinforcing feedback loop fall further and further into despair becoming more and more passive as citizens. We must cut this negative reinforcing feedback loop of irresponsible governance and passive citizenship by ensuring that votes begin to count in free and fair elections. That is one more reason why the recommendations of the Uwais panel on electoral reform must be implemented especially at this historic turn of another Nigeria centenary.

The plural and diverse nature of the Nigerian state, the need to build a strong unity in diversity, and the constant political rancor over presidential succession makes it imperative that we must strengthen our federalism. Current political arrangement with a near balkanization of the old regions into largely economically unviable states has turned our intended federalism upon its head to make the political centre so strong and the federating states so weak. Hence, the struggle to control the centre has become a constant do or die affair. What will be our solution to this un-intended consequence of our peculiar federalism? How would we build stronger federating states within the nation? Should the current state structure remain what they are today or would we need to reconsolidate them to more economically viable units?  All questions as such must be put on the table in a sober introspection on Nigeria’s peculiar Federalism over the last century. We must also arrest the increasing astronomical cost of governance. In a next century that will be far more competitive among nation states, where Nigeria will need to play a catch-up for the missed opportunities of the last century, we cannot afford to have governance structures whose costs will weigh down our national development.

With no Nigeria University among the top 5000 in the world at our national centenary, we must rectify this national embarrassment immediately. There are no great societies without great citadels of learning. Nigeria will not be an exception to this history. Our universities before the decay that started in the late 1980s used to boast of some of the best Professors in the world. And Professors were so much appreciated and respected. It is no longer so as our disdain for knowledge has become enthroned and we have become a nation that celebrates mediocrity. At this turn of our national centenary, we must restore the pride and honour of higher education while ensuring that they become more relevant to our national development. We must develop a public-private partnership model to fund higher education including a small taxation on foreign education remittance to fund our universities.  We must also incentivize science and technology training including related vocational education much better as they are far more critical to our national development than other disciplines of higher education.

Business and the private sector must play a more critical role in our national development working closely with government.  Over the next two decades, we must see the emergence of not one but at least ten Nigerian multinationals competing as strong Emerging market multinational corporations (EMNCs), first taking advantage of our strong domestic market as a launching pad into Africa and the rest of the world. This implies the need to promote and give preferences to our local businesses and local content especially where they understand and can manage investment risks better due to their local knowledge.  Just as the Asians had their Tigers in the Samsungs, Daewoos and the Tatas as private sector manifestations’ of their economic development, we must have our own Nigeria Lions competing on a global stage. To nurture Nigerian companies into true EMNCs however, we must ensure that they learn to compete fairly at home to toughen their competitive muscles and sound management practices which they will need to succeed abroad.  We must deal with cronyism which ultimately masks local business incompetence and cost society enormously in waste and corruption. Ultimately, local businesses that succeed on cronyism cannot compete abroad where they may not have their local cronyism advantage.  We must have a patriotic private sector that adopts a greater Nigeria economic development purpose as its reason for being with profits being a bye product of fulfilling this greater purpose. In financial services, telecommunications, oil and gas and manufacturing, working with government, business must support the building of a more inclusive formal economy that improves the quality of life of the majority of our people. 

We conclude our centenary reflections on the challenge of building strong national institutions. We must strengthen the institutions that will enforce the contracts, rule of law and sanction the pervasive impunity in society. At the back of our weak democratic system is the sheer impunity that elections can be rigged, electoral laws can be broken and you can get away with it with the right connections. Elite impunity is also the reason why economic crimes and corruption is committed in public and private sectors because the institutions to enforce sanctions for wrong behavior are weak or have been captured by a narrow cream of elite in their self-interest. To arrest and tame impunity in society, we will need to make the judiciary and law enforcement institutions independent of the executive and the politicians. The constitutional proposal to separate the office of Attorney General from Minister of Justice should be adopted at Federal and state levels. While the Inspector General of Police should report to the President administratively, they should be appointed independently of the executive for a fixed tenure by the National Judicial Council. The Police Service Commission should also report independently of the executive to a special arm of the judiciary.  Corruption must be purged on the bench to ensure that only men and women of honour sit in our hallowed chambers of justice. 

We must also have a stronger, truly independent and more active parliament that proactively makes good governing laws for our institutions, while holding them transparently accountable for the delivery of their social charter on behalf of the people.  All that is necessary should be done to promote active citizenship beyond the good civil society and human right organizations in the nation. They must hold elected officials accountable for their performance along with a vibrant press institutions for free, unimpeded public debate on social governance. Such active citizenship that we had during the Occupy Nigeria movement and petroleum subsidy debate must be revamped and sustained as a critical platform for public accountability and inclusive institution building. Institutional leaders must also adopt a new value system of character, honour and common good as the fiber of new institutional cultures along with the emergence of a non-partisan core of elder statesmen who will serve as moral guardians of society’s value and conscience.

A national centenary is a very serious matter especially when the history of the nation is a litany of missed opportunities and unfulfilled potentials. We need to introspect deeply and change the current paradigm of the celebration of the national centenary to capture the serious historic nature of the occasion. While there should be march pasts and gala nights, there should also be more serious active citizen debate on what we must do to ensure that Nigeria’s next centenary will more positively different and take real actions to make it happen. Then future generations would look at us with kindness that we recognized our place in history and that we fulfilled our historic mission of laying a foundation for a better next centenary.

GOD bless the Federal Republic of Nigeria.

Olu Akanmu.

Lagos. June 2013

Rewarding Bad Behaviour in the Capital Market

By Olu Akanmu

It is important to lend additional voice and question the rationale behind the federal government N22.6 billion bail-out of some capital market operators. It is tantamount to rewarding bad behavior and excessive risk-taking at public expense. For the stock broking firms that will benefit from this largesse, if their investments have been profitable and they made a kill in the capital market, they would not have shared their profit with the public. The action of government is therefore tantamount to endorsing the privatization of profits and the socialization of losses if you have the lobby and the political connection to dumb your losses on the Nigerian people. By setting this precedent, the government has further ossified the moral hazard problem in our financial system. If an investor taking an investment risk knows that he can appropriate his gains but can pass his losses to another party, he will take excessive unreasonable risk as he has nothing to lose. This moral hazard problem was at the heart of the misbehaviour of investment bankers in the recent global financial crisis, when they could made huge bonuses if their bets worked out but pass the loss to shareholders if it didn’t. This coupled with the implicit guarantee of their risk by the public especially if they were “too big to fail, essentially a public subsidy of their risk further compounded their bad behaviour. They created a tower of complex financial instruments that had little bearing to their underlying assets, played roulette and casino at public expense, made initial huge gains which they pocketed until their financial derivative instruments fell like a pack of cards.

Where these investment banking businesses shared a common capital base with retail banking as one organic financial institution, essentially leveraging public deposits in their banks to trade, they created assets that wiped off the bank’s capital and public retail deposits in their institutions. Where they were big banks, sometimes with a century of public retail deposits, the financial system was put a systemic risk of collapse and the state have had to intervene to bail them out largely to protect public deposits. This experience has fuelled calls for the full organic separation of investment and retail banking in the financial system. It is difficult to understand how this logic of bail out applies to the stock brokers who will enjoy N23 billion government largesse. A public bail out of a financial institution is justified only if they pose a systemic risk to the financial system should they fail. A systemic risk is the risk that the entire financial system will fail and collapse and it is different from the risk of financial failure of an individual or group within the financial system. The first question to ask is whether the failure of the selected stock broking firms being offered this government largesse can pull down the entire financial system or pose a systemic risk. Certainly not! These stock broking firms are not banks and their size relative to the whole financial ecosystem poses no fundamental systemic risk. What then is the rationale for the bail out?

Two fundamental conditions must exist for the public bail out of financial institutions. They must either be either be “too big to fail, the TBTF test or must be “too interconnected to fail”, the TICTF test. The TCITF test measures whether a group of institutions represent critical connected dependencies with no existing market alternative in size and function such that their failure will pull down the financial system. The   public bail out of a financial institution or a group of financial institutions must pass these two tests to justify the test of a systemic risk. It is difficult to see how the group of stock brokers who will enjoy these N23b public largesse could pass the “too big to fail” or the “too interconnected to fail” test. Their collective size does not pose significant systemic risk to the financial system. In the last three years, since these firms have had to deal with their margin loan challenges, the financial system has carried on. The capital market measured by the Nigeria Stock Exchange All Share Index has witnessed a year to date gain of more than 25 percent. This is because there are alternative market transaction agents whose collective size moderate any potential “too interconnected to fail” effect of the stock broking firms being bailed-out by government. Whither then is the logic of government action?

 Capital market operators specifically stock broking firms operators are no banks. They are capital market transaction agents. They do not warehouse public assets or owe public liability like the banks that hold public deposits that could create a collapse of the financial system if a critical number of them fail. The stock asset that the public buy is not warehoused by the stockbroker but by the public themselves directly and the company from whom the stock was bought with a clearing system maintained by the independent Central Security Clearing System (CSCS). Stock sales are transactions between the company, the stock seller and the stock buyer with the stockbroker acting as intermediary, a broker and a transaction agent. It is the same relationship as that of a real estate agent who collects a fee brokering a deal between a house seller and a house buyer. The real estate agent just like the stock broker should ordinarily not warehouse housing-stock unless he decides to use his market knowledge for additional private gain and become an investor, acquiring his own housing stock. If we stretch the analogy further, would it be right to use state fund to bail out a group of real estate agents who took a bank loan to buy a house and kept, hoping to make a kill when the house stock appreciates, and unfortunately house prices fell?  If the state does that, should the same logic and largesse not be extended to every citizen investor who bought housing stock when house prices fell? Therefore apart from rewarding bad behaviour, the action of government also raises public equity and fairness issues.  For the ordinary retail investor who also lost money on the capital market like the stock broking firms who took margin loans, where and what will be his own bail out? What is good for the goose must also be good for the gander.

It has been argued that the action of the government is not really a bail-out but a forbearance as no cash is being passed to anyone. This is a sematic argument. The simple fact is that the firms who are benefiting from this government goodwill are simply walking away from their loans and their private financial repayment obligations at public expense. AMCON, the Nigeria public Asset Management Company, who bought the bad margin loans from the banks, is going to pick up the cost of this forbearance. Essentially, the taxpayers and the people of Nigeria have picked-up the losses of the bailed-out stock brokers. The more than N2 trillion loss declared by AMCON in its most recent financial report, essentially its purchased loans from banks that cannot be recovered, might have become the biggest subsidy of the excesses of the “rich” at the expense of the poor and the public in Nigeria. Only the rich in Nigeria borrow big time from the banks. When they do not pay back and the public treasury has to pick up the bill, it is essentially passing big time subsidies to the rich when that resource could have been used to build schools, hospitals, roads and infrastructures for the Nigerian people. The sanctions being imposed on the bailed out stock broking firms that they will not participate in future AMCON deals and transactions is nothing but a slap on the wrist. It is not and cannot be commensurate with the size of the issue and its moral and economic implications.

There have also been attempts to justify the bail out of the stock broking firms as a special intervention in the capital market as it has been done recently in aviation and agriculture. Special sector intervention funds in Nigeria have largely not delivered tangible results as they work against market logic. The art of giving public funds to firms at below market rate, below its true market price distorts market mechanisms and leads to scarce resources being allocated to firms that will not best utilize them. Have we seen yet the tangible and visible gains of the recent special intervention funds in agriculture and aviation?  Such intervention funds have largely festered a regime of cronyism capitalism with all its attendant ills, where you get access to funds below market rate if you are connected to government and can even divert them to other more profitable sectors outside the intervention fund. Crony capitalism is becoming a serious problem in Nigeria. A regime of unfair market practices favouring cronies at the expense of the Nigeria people such as the scandals that we have seen in the oil subsidy programs, the non-transparent allocation of oil prospecting licenses and now the targeted subsidy or bail-out to stock brokers who took excessive risk in the capital market. With cronyism becoming a key success factor for business in Nigeria, it is not surprising that every failed business or sector from automobiles, pharmaceuticals and even thriving Nollywood film industry is pressurizing for special intervention funds. The market punishment of bad investment decision, a return of losses for poor risk decisions and vice versa as gains for good investment risk decisions is critical to the effective functioning of markets. It implies that the market must go through a cycle of self-cleansing that we know as boom and bursts and bulls and bears.  Special intervention funds where there are no proven market failures, where it cannot be proven that markets lack the mechanism to self-correct and cleanse itself in its organic cycle of bulls and bear that ensure that resources are efficiently allocated to those who will best utilize them, can only but lead to more imperfect market outcomes.

Government has done very well by intervening and bailing out the banks whose failure truly posed a systemic risk to the financial system. It has however overreached itself in the N23 billion bail-out of selected stock broking firms. The logic and rationale of its decision fails public interest, fairness and social equity tests. If the concern of government is about the liquidity of the capital market, it cannot be addressed by rewarding excessive risk behaviour that could further jeopardize the future health of the financial system. This bail out of selected stockbrokers by government cannot be morally and economically justified. It should therefore be seriously reconsidered.

Olu Akanmu is an executive in the telecommunications industry. He was previously Managing Director, Retail and Consumer Banking at BankPHB. He publishes a blog on Strategy and Public Policy on http://olusfile.blogspot.com .

Transformational Leadership and National Institutions

By Olu Akanmu

Two days ago, on Sunday the 18th of November, 2012, Dr. Fareed Zakaria was in Nigeria to deliver a lecture at the Airtel Night of Influence titled “African Political Economy: The Challenge of Leadership”. The essence of his lecture was that the challenge of leadership in Africa, if Africa must move forward is that of building strong institutions. I had examined the same theme in a speech I gave at the African Centre for Leadership and Development (Center LSD) in Abuja on the 14th of May 2011.
http://olusfile.blogspot.com/search/label/Ledership%20Social%20Transformation%20and%20Institutions

I reached the same conclusions with Dr Zakaria but further espoused on the problem of “elite institutional capture”, that we must find ways to prevent our institutions from being captured in the self -interest of few elites if we are to build these strong social institutions. How could this be done? I developed further on my Centre LSD speech into a full Op-Ed published in the Nigeria Guardian 24th May 2011.
http://www.ngrguardiannews.com/index.php?option=com_content&view=article&id=49017:akanmu-leadership-social-transformation-and-institutions&catid=38:columnists&Itemid=615

Please, click on link above or read full Op-Ed Essay below.

While it will always be important to learn leadership theory in classrooms from Kuru to Cass, it should be emphasized that leaders are not made in the classroom. Leaders are made in the real world of action, in the world of life challenges and battles. Leaders are made in the world of conflicts and consensus and of visions and divisions. This is the real world which students of leadership will have to apply their theory to make a difference in society. Leadership is “lifelong learning in action”. It is a discipline that educators call “Action learning” or learning in practice. We however, know that there is no great practice without great theory. Leadership learning, whether formally or informally must involve a strong element of leadership theory or a set of leadership paradigms which a leader applies when called to duty. Aristotle’s theory of leadership since 350BC remains relevant in its timelessness and simplicity. That a good leader must have ethos, integrity and moral character which confers on him the credibility to ask for followership. That a good leader must have pathos or emotional connection with his followers. It will not be wrong for leaders to cry if it is genuine. And when heroes fall and followers mourn, leaders must be seen mourn with them. Good leaders must also have logos- they must be able to give solid, compelling reasons for their actions in relation to the common good, to persuade people to follow them.

A student of leadership must evolve his or her own authentic leadership style, which is a function of her leadership theory, unique personality trait and her personal moral and value system. In our quest to lead, we will, in on our life journey have to discover ourselves. We will have to discover our greater life purpose for which we have been endowed with, our personality traits and unique natural gifts. We will be confronted with making tough leadership choices based on our moral and value system. In Nigeria, the crisis of leadership is exemplified by the absence of sound moral and value system at the individual level of leadership which makes our leaders make wrong leadership choices. We need to return to the old values of “character, honour and common good”. From North to South, East and West, the most enduring periods of progress in our communities have been built on these old values.

We have had a “serial failure of leadership” since independence. We might have had occasional successes, but those successes have been small oasis in an expansive desert of leadership failure. Paraphrasing the late Pa Alfred Rewane, we prayed for a better future for Nigeria at independence; today, getting to that future, we now pray for a better yesterday. We have today, a country so blessed in natural resources that cannot translate its blessings to prosperity for its people. We have a country so blessed in human talents yet cannot educate its children. We have a country that produces oil, yet does not have oil to fuel its cars. We have a country with abundant sunshine that yet remains in darkness. The imperative of national transformation or transformational leadership cannot be over-emphasized.

Leadership in Nigeria in public and private sector has lost public trust. In our polity, the electorate believes that the elected are largely acting for themselves and in their own self interest. Our politicians are not statesmen. In the private sector, we see the betrayal of public trust by business leaders when they cook the books and produce accounting reports that do not reflect the true health of their business, making the gullible public invest in their corporations, only for those shares to become worthless in the shortest possible time. Personal and corporate integrity in leadership is low. Trust in leadership is little. How then can such a leadership that is not trusted galvanize the people and mobilize them to use their entire GOD–given potential for the progress and transformation of their society? Great societies cannot exist without strong institutions that ensure that individual, rational, economic agents have the incentives to do the right thing and act in the right way. In politics for example, a strong electoral institution, free and fair participatory democracy ensures that politicians who have acted only in their self-interest are voted out in the next electoral cycle. The judicial and law enforcement institutions also ensure that those who commit crime or steal public funds gets caught, prosecuted and punished, as an incentive or deterrent against corruption. In the private sector, our regulatory and market institutions would also ensure that our corporations are governed well for the greater good of shareholders who owned the companies and the larger society. This is unlike our recent experience where corporations have been largely governed for the good of corporation managers alone. In Nigeria, one would have to ponder “why is it that our institutions have not worked?” Why have our institutions remained perpetually weak and allow our economic players to consistently do the wrong things and keep acting with impunity? Could it be that our leaders deliberately create or weaken our institutions to allow their continuous impunity?

Leaders deliberately weaken our institutions by compromising or capturing them. They do this through appointment of lackeys who will in-turn foist a wrong value system on the institution as we see in the old INEC. Political parties, for example deliberately cultivate relationships with judges and senior police officers. And in business, as we see in the saga of the Petroleum Industry Bill, companies seek to capture the legislature and their regulators to ensure that rules of engagement do not exist, or that such rules exist only in their favour. To strengthen our institutions, we must address four key issues. These include developing the right value system for our institutions, strengthening internal process and systems to ensure delivery of institutional mandate, developing a binding rule of engagement for internal and external stakeholders; and the strengthening of public transparency and accountability of those institutions. In the case of INEC for example, there must be a purge of the old corrupt guard to ossify the right value system in the institution. While the last elections were better than the previous, they have not been totally free and fair given manifest rigging in some states. INEC staff with proven electoral malpractices must be purged and punished. INEC must also strengthen its internal system and processes to deliver the next election without postponement. INEC must see itself essentially as a project organization similar to construction companies that deliver projects within a specified time frame, at specified cost and quality. Project management competence must be ingrained from top to bottom of INEC. Our electoral laws as our binding rule of electoral engagement must be strengthened to make elections free and fair. President Jonathan might have been magnanimous by not appointing a lackey in Jega. Future Presidents may not be the same. The power to appoint INEC Chairman must be taken from the President and given to an independent National Judicial Commision as recommended by the Uwais panel, to reduce unfair incumbency advantage.

President Jonathan would be a truly transformative leader if he summons courage, despite contrary pressures from his party, to push for the full implementation of the Uwais panel report on electoral reforms. Finally, INEC, and all our public and private institutions must become internally transparent to themselves, particularly its staff and the larger public. Lack of full internal transparency is the umbrella that hides wrong value system, corruption, abuse of power and poor corporate governance. These must be combined with a mandatory accountability of these institutions to the public through the institution of a free press and an ethical strong parliament. As we build different our institutions, from the electoral system, free press, strong parliament, strong crime prosecution and judicial system, their individual strengths will become mutually reinforcing of each other. It therefore beholds that the greatest task for President Jonathan and others in leadership, if they will be truly transformative, will be to leave a legacy of strong institutions.

Olu Akanmu

24th May 2011..

Social Contradictions in South Africa

By Olu Akanmu

It has been an unprecedented season of labour strikes in South Africa in the last few months. Starting from a sit-in strike in an obscure Marikana platinum mine in which the South African state and its police acted reminiscent of the apartheid period and murdered 34 miners, strikes have spread to whole of the mining sector, the public service and the transport sectors. Strikes have spread in a virtual Mexican wave style, a new wave picking up as another one ends.  No one would have imagined in 1994 when Mandela took over as South Africa’s first democratic President, with a black majority government, that a post -apartheid South African police under a black government, will shoot down 34 black miners under whatever guise. It was like a black South African government murders its own.  The strikes are a big embarrassment to Jacob Zuma and the African National Congress (ANC) who came to power after one hundred years of struggles with a purpose to liberate the black South African majority from economic deprivation and poverty. The ANC was not just a political movement. It was an economic movement, a rallying point for the black working class and their unions such as the National Union of Miners (NUM) and the Congress of South African Trade Unions (COSATU).

An interesting feature of the strike movement especially the Marikana strike was that the workers took actions outside the union structure, setting up rival unions because they no longer trusted that union leaders in the NUM will genuinely support their economic struggle for better working conditions.  South African workers and its people seem to be losing faith in the ANC and the unions that have led them in the apartheid struggle. While would they not? They have grown to see union leaders and the ANC leaders co-opted by the white capitalist establishment as board members and Chairmen of Corporations under the guise of black empowerment.  Many of the old ANC leaders have become billionaires, some with obscene wealth while the living conditions of the larger number of black South Africans have not changed fundamentally from apartheid days. Yes, there has emerged a new black middle class, who have been coopted into management, riding BMWs and Mercedes in Sandton.  Soweto, Alexandria and Gugulethu however remain what they are, townships of black people with a huge youth populations that cannot get jobs. Shanties are still in place, people living in corrugated iron sheet houses as they lived under apartheid despite the fact that black brothers are now running the state house in Pretoria.  Unemployment in South Africa stands at 24 % with more than half of the children of South Africa according to a 2012 UNICEF report living in poverty.  Despite South Africa being classified as a middle income country, more than 50% of the population continue to live below the poverty line.   Eighteen years after apartheid, South Africa has become the country with highest income inequality in the world with gini index of 64% according to a Euromonitor report in June this year. 35% of the population lives below $2.5 per day. With such social misery indices, it is not surprising that South Africa has one of the highest crime and homicides rates in the world.  Nearly twenty years after apartheid, this could not have been the dream of Nelson Mandela.

South African economy must grow faster to create jobs for its people.  The problem however is that its internal social contradictions now manifested in waves of labour strikes, is a major disincentive for investment. It is estimated that the recent strikes have shaved off 8% of projected GDP growth of 2.5% in 2012.  Foreigners have also sold more than $1.3 billion of South African equities since the beginning of the labour strikes. South African labour laws, a gain of the anti-apartheid movement is extremely liberal and progressive, protecting workers right and unionization in the work place. Business however considers it too rigid and inflexible and a disincentive to investment. Given that capital has a choice of where to locate, a country with rigid and inflexible labour laws is unlikely to attract capital and investment needed for economic growth. South Africa has therefore lost out significantly to more competitive Asian economies like Vietnam for manufacturing investment.  South Africa needs to institute an urgent regime of labour market reforms. It however does not have the social consensus needed to do such given its internal social contradictions.

The widening inequality within South Africa has also fuelled calls for nationalization of its biggest corporations especially in the mining sector. Such extreme Hugo Chavez type of economic thought is driven by deep frustrations with South Africa’s social reforms and its slow pace of wealth redistribution. Jacob Zuma and the ANC leadership have outrightly ruled out nationalization of South African mining industry as an economic option. The ANC position is right as such moves will drive away much needed investment while stifling free market and its investment incentives that make business to run profitably. Zimbabwe, just across the border of South Africa has shown that expropriation of private capital and nationalization can only send an emerging economy down in a tailspin of economic abyss. The ANC leadership position is however also driven by self-interest. Many of its key leaders are now co-owners and Chairmen of the big mining corporations.  ANC leaders therefore have a moral issue on their hand even when their economic thoughts may be right given that they now preside over mining businesses whose working conditions are not really different from the same they fought in the apartheid days.

If nationalization is not an option and wealth would have to be redistributed to ease social tension, progressive taxation of the wealthy, their profits and their consumption would have to be squarely on the table.  It is economically and morally justified. Those who have been privileged as legacy white big business owners and their new black empowerment co-owners must give out more to fund investment in education, health and infrastructure that will liberate more South Africans out of poverty.  In addition there should be more social philanthropy especially from black business. Those who were prisoners just twenty years ago, who are now billionaires today because of the privilege of black empowerment have a strong moral duty and obligation to give, to donate to charity, black scholarship and entrepreneurship. The black billionaires must give not because it is compelled by law but that they recognize that they were privileged as a generation to be at the right place, at the right time, to be those who could take advantage of black empowerment opportunities in the early years of post-apartheid South Africa. .

A more fundamental issue however for South Africa in the resolution of its social contradictions is the need to reform its politics. South Africa is like a near one party state with the ANC by its legacy of anti-apartheid struggle virtually dominating its political structures. Yes, other parties exist and are protected by law even among the black population; they however do not command significant following to put the ANC on its toes.  No political party can command the credibility of the ANC among black South Africans.  The ANC is therefore comfortable that it will always win elections at least in the foreseeable future. This credibility legacy of the ANC while being well deserved might have become the greatest problem of South African democracy. ANC leaders seem to be able to get away with anything including the perceived sell-out of its poor black consistency for shares in white capitalist corporations and their use of the instrument of the state, (which they now control) to protect their business interests.  South Africa needs a credible black alternative movement that will compete with the ANC, put pressure on it and force it to reform. There have been allegations of corruption in government typical of sister African states where the people despite a democratic system seem to be unable to vote out governments that do not perform or get their hands soiled in immoral and unethical issues. Without a credible black alternative movement, there are real dangers that a complacent ANC could lead South Africa the way of the rest of Africa’s weak democracies.   

In the interim pending the reform of the ANC and an alternate credible black political party, critical political institutions in South Africa will need to be strengthened to moderate the dominating influence of the ANC. This includes the institution of free press and a strong and independent judiciary. The South African press has done a most credible job to expose corruption in government. It has provided an open space for public discourse outside the political party structures. And interestingly, the unions and organized civil society movement such as the churches will also be important in providing alternate critical and credible voices to the ANC.  South Africa needs a new generation of Desmond Tutus who will put the current ANC leaders on their toes, speaking the truth to power and challenging the moral conscience of ANC leaders.  And if labour strikes are needed to wake up the black political leaders of South Africa, perhaps there should be more until South Africa negotiates a new social consensus that does not leave majority of its people behind.

Olu Akanmu is an executive in the telecommunications industry. He was previously Managing Director/ CEO Retail and Consumer Banking at BankPHB. He publishes blog on Strategy and Public Policy on http://olusfile.blogspot.com

Barclays, Bob Diamond and Lessons

By Olu Akanmu

Bob Diamond, high profile CEO of Barclays was forced to resign last month over the manipulation by Barclays of the LIBOR. Barclays was fined nearly 300 million pounds by British and American regulators over the corporate sin. LIBOR is the London Interbank Offered Rate. It is fixed each day by an eighteen member selected panel of  banks, members of the British Bankers Association indicating the rate they would have to pay to borrow if they needed money. The top four and the last four estimates are discarded while an average is taken of the rest. The banks are expected to act with trust and transparency recognizing the implicit burden of trust that the public places on their daily estimates because the LIBOR is used as a benchmark for pricing of many financial instruments including savings rate, mortgages, commercial lending and the pricing of financial derivatives. Each bank quote into LIBOR calculation essentially is an estimate of the inherent composite risk of the bank on a daily basis. Given the wide use of LIBOR as a benchmark for the pricing of global financial instruments, it is remarkable that the process is not managed by government or a regulator but privately by the British Bankers Association. Such is the implicit public trust in the process and in the selected bank panel. British regulators uncovered evidences that Barclays traders pushed their money market desk to doctor submissions for LIBOR with the intent of gaming the process and making huge undeserved profits. There were also evidences that they might have colluded with their counterparts in other banks in gaming and manipulating the LIBOR process.

Bob Diamond had arrogantly told the British Parliament January last year, in the heat of the financial derivative crisis where banks acted irresponsibly and ruined the financial assets of investors that the “time for remorse is over”. It was a sad, insensitive comment from a CEO in an industry that the public expected would still be sober given the ruin they brought to many investors and financial system through the casino mortgage financial derivatives. Diamond was forced by the LIBOR scandal to eat his words and resign. The irresponsible behavior of the banks had cost tax payers billions of pounds used in bailing out some of British leading financial institutions. There are important leadership and regulatory lessons to learn from the Barclays LIBOR saga for us in Nigeria.  

CEOs especially those in industries with significant public interest must recognize that they have a responsibility to balance shareholder returns, their quest for huge personal bonus with the larger interest of society. Bob Diamond told the British Parliament that he loved Barclays. He also obviously loved his huge bonuses. He did not however seem to recognize that he also needed to love the society and the public that gave Barclays its charter to trade as Bank. Corporate wealth and prosperity is best sustained when society also prospers as a result of business doing its business. Business must create economic value for society. It should be its “reason for being” and its purpose. Its profit should only be a by-product of doing this. Investment Banking, where Bob Diamond was weaned seemed to have forgotten this over the years as it excessively focused on profits and the bonuses of its managers. Everything else seemed to be worthy of sacrifice to achieve the two. With such poor social ethic with which investment banking has been largely run, it is very easy for its practitioners to move from low social ethic to sheer criminality as the Barclays LIBOR scandal suggests. The Barclays LIBOR saga is another evidence that investment banking needs to be re-invented to have a social conscience. It is however not just investment banking. CEOs and corporate leaders have a responsibility to ensure that their organizations should never lose sight of society and the social purpose of their business even in their quest to create shareholder value. They must be the champion of social ethic within their organizations recognizing that sustainable shareholder wealth creation is only possible when it is balanced with the larger interest of society and its well being. While Bob Diamond may claim, though incredibly, that he is not aware of the manipulation of LIBOR by his traders, he is responsible as CEO for the culture of his organization, its values and the norms of acceptable behavior. By making public statements such as “the time for remorse is over”, Bob Diamond might have signaled to his traders that it is back to impunity, back to “business as usual” as in the old times of irresponsible casino banking.  

The Barclays LIBOR saga also illustrates the limits of self regulation. Unless sufficient safe guards are in place to protect public interest, we should not trust that business will always act responsibly. The process of setting LIBOR should no longer be left to the private British Bankers Association. It has to be taken over by an independent financial service regulator who will balance industry concerns with public interest.  Self-regulation seems to be failing in many spheres. We have seen the limitations of self-regulation in the British media with the abuse of press freedom by the Murdoch’s News of the World. While we will always be uncomfortable with tendency by governments to over-regulate and potentially make markets inefficient, the fact is that we are in an era where business seems to have adopted a maxim of “greed is good”. With increasing industry concentration where few oligopolies control many industries, corporations have emerged far more powerful than their atomized customers and the governments that should protect them. The oligopolies find clever ways to cooperate further increasing their bargaining power relative to their customers which eventually lead to market inefficiencies or even market failure. The case, therefore for strong regulation, for a new era of regulatory activism where industry interests are better balanced with societal interest have never been stronger. Regulation must promote stronger and fair competition. The principle of significant market power must be evoked in public interest industries like financial services, energy and telecommunications to ensure that no player hold so large a share of market as to stifle competition.

The Barclays LIBOR saga also raises the debate whether retail and investment banking should co-exist in the same bank. Investment banking with his inherent high risk, its casino nature where huge profits could be made overnight and the same profits and institutional capital wiped off the next day with trading losses, put retail banking customer deposits and the overall bank capital at risk. Attempts by regulators to prescribe new capital cover for investment banking assets might not have gone far enough. The experience of the last period is that governments using public taxes will still have to bail out the  banks that are “too big to fail” when investment banking fiasco happens in order to protect retail deposits and prevent a disastrous collapse of the financial system. There is therefore an implicit and inherent guarantee of investment banking risk by public taxes that if they go overboard, that governments will step in especially if the banks are too big to fail. It is argued that this in itself tend to make investment banking take excessive risks   as their profits and bonuses can be privatized while their excessive losses could be potentially socialized.  A separation of investment and retail banking will ensure that governments have no reason to intervene if a stand-alone investment bank fails and wipe off its own capital. Public deposits would not have been put at risk. This will significantly moderate excessive casino risk behavior in investment banking and its impact on the financial system. This is a raging debate internationally on the management of the financial system which we also need to have actively in Nigeria. As the Nigeria banking sector gets more consolidated with increasing concentration, and our big retail banks pursue investment banking ambitions, it is critical that our regulators put the right safe guards in place to protect public deposits and the retail business which is a critical backbone of the stability of the financial system.

Olu Akanmu is an executive in the telecommunications industry. He publishes a blog on Strategy and Public Policy on www.olusfile.blogspot.com

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