Let’s Talk About Higher Education

Last time, I stated how much I disliked writing rejoinders, but ignored the benefit that comes with such work sometimes. Sometimes, you get the author whose work is disputed to raise the stakes. I think that’s happened in this case, since the writer of that article deemed it fit to do another post. It’s bound to get boring if I keep responding to rants and facts about ASUU, so let’s broaden the discussion while selectively showing flaws in my friend’s arguments.

1.University Autonomy – For the last decade or more, the union has been firm in its call for autonomy of Nigeria public universities. Since this a fact based response, read this and Wale Babalakin’s suggestion to confirm I didn’t make it up. There is very little that can be done to improve higher education if 84% of revenues come from government subventions and the unwieldy Nigerian Universities Commission (NUC) continues to regulate universities. In a competitive market, universities should self-regulate and the market will pay for value. It also eliminates the NUC’s ability to regulate the curriculum and appointments within universities. Today, public universities are still not allowed to charge tuition fees for undergraduate programs, which is the foundation of the funding shortfall. The solution to this would be something similar to how the government solved the issues around power sector pricing using the Multi Year Tariff Order (MYTO). Both parties should develop a five year plan where the government systematically reduces funding to universities, while allowing for schools to charge tuition fees. While this is happening, government must cede more control to the universities to decide appointments, curriculum and other operational matters. This sets the context for a lot of what I’m going to propose in this post. I’ll leave you with the obvious question. Why will a government that complains of a rising wage bill and expenditure profile refuse to provide university autonomy? Anyone who can answer this will get a copy of Paying the Professoriate.

Hint: The only place government and ASUU seem to agree is that university education should be free, especially when debates occur close to elections. The writer himself alludes to this point with the example about Ekiti State University, and the unsuccessful attempt to raise fees.

2.Financial Aid: Every time the debate on autonomy starts, it is clear education is treated as a social benefit. It also suggests we are unaware that public funding of higher education is now a race to the bottom. In the United States (FY 2009), federal and private loans to students totaled $96 billion, exceeding public state appropriations to higher education ($78 billion). There is no way Nigeria can operate differently, and a more efficient use of government’s budget might be to focus on funding the students, allowing the universities to fund themselves.

3.Journals and Research Publications – I agree with the writer here, albeit with a caveat. Nigerian lecturers need to publish a lot more internationally; it is stupid to say otherwise. The current practice of limiting writing to in-house journals is clearly lazy, but there is a need to present both sides of the story. Academia is divided into two clear but interwoven activities: teaching and research; but it remains a zero sum game. Therefore, universities need better organized schedules to ensure both activities are balanced. I worked as a research assistant to a foreign professor in a Nigerian university for two years, and the experience was awesome. It was a daily learning exercise, but I also know the amount of work I put in to support his case writing and publishing. Today, most university professors (not to mention more junior members of staff) don’t have research assistants, even if they are shared by the faculty. Also, it is a lot easier to focus on research if you don’t teach four times every week.

Note: Claude Ake, whose soul I hope continues to enjoy a peaceful rest, built the Centre for Advanced Social Science to bridge this gap. Sadly, his death in the 1996 ADC plane crash derailed what was already looking like a fantastic research platform. The best thing that can come out of this discourse is to see a few distinguished academics take the lead on this.

4.Overpopulation – The writer makes a good case of saying the faculty/student ratio in Nigeria is not remarkably different to ‘developing’ countries, but like most of statistics, we should be concerned about what the data is silent on. Firstly, faculty/student ratios don’t include the use of adjunct/part-time lecturers, which skew the ratios. India, for example, has used part-time lecturers to ease the burden on the staff with mixed results. If you need to amuse yourself about development in India, you might enjoy this. There is more proof that we are comparing omelets with sausages, with this article that suggests 70% of lecturers in Latin America are part time as are 50% of those in the United States. A quick solution could be the use of adjunct lecturers with industry experience, who will most likely teach a few hours every month for a small salary. I wrote a post about this and other foolish matters almost two years ago.

Secondly, a deeper problem is not the faculty/student ratio but the composition of the curriculum. For example, a teacher in South Africa has a faculty ratio of 1/53 but has to take one class, twice a week. In Nigeria, with a slightly lower faculty/student ratio, the same lecturer has to take four classes per week. I’ve always thought the units needed to graduate in a Nigerian university were too much, and we can do with a review of the curriculum. Everyone should be happy with this – students get better learning schedules and focus on the important stuff, lecturers get more time for research, quality goes up on the y-axis as quantity drops on the x-axis. Why has this not happened?

Hint: Run a Google search on Nigerian Universities Commission; let me know what you come up with. It makes no sense for Abuja to keep deciding how and what to teach.

5.Comparative Salaries – I love how the writer uses statistics, and he’ll do a damn good job as a propagandist for a floundering government with this skill. However, for this debate, let me provide clarity. It makes little sense to compare salaries of lecturers between countries. For example while the writer is correct that Nigerian lecturers earn more than their peers in Japan and Norway, but less than the ones in South Africa. What does this tell you? Almost nothing. In the same study, lecturers in Ethiopia earn a lot less than most of the sampled countries, but their salaries relative to GDP is very high, 23 times the country average. What this tells you is that though salaries of lecturers in Ethiopia are low compared to their peers globally, they are actually very well paid compared to other Ethiopians of similar education. Seen what I’m trying to do? That’s exactly what the writer did in that piece, quite ingenious I must say.

6.The BSc to PhD Syndrome – If President Jonathan’s degrees read: BSc (Manchester), MSc (Manchester) and PhD (Manchester), will the writer have the same problem? I don’t think internalization is as big a problem as quality assurance. It is clear the writer is not aware of the promotions, otherwise he won’t be fixated on the “getting more than one degree from the same university.” The real solution will be to ensure the external examination process works like it ought to. For appointments and promotions, let the process go through a rigorous external examination process, where each faculty’s list is examined by a panel of five external assessors, with two foreign assessors among them. This will increase operating expenses of universities, but also raise the standard.

7.Physician, Heal Thyself – ASUU is not a gathering of saints, and I need to state this. Among the members, there are claims of sexual harassment of students, plagiarism and nepotism. It is difficult to take union that protects such members serious, and it is the responsibility of the senate in each university to take a hard stance against such practices. Simply put, if the autonomy of universities is ever going to stand a chance, the trust deficit between town and gown needs to be bridged. The problem here comes back to autonomy; university senates will always cite the method of appointing the university governing councils and vice-chancellors as a major obstacle to cleaning the Augean stable.

8.Funding: Alumni, Endowments and Grants – I have never been contacted by the University of Lagos since I graduated over a decade ago; unlike my brother who receives monthly letters (and sometimes financial requests) from his alma mater in the United States. It is clear Nigerian universities have ignored a viable source of funding, their alumni. By failing to run effective alumni offices, universities not only lose funding opportunities, they also miss out on the vital networking between students and successful alumni.

Endowments and programs like this will take Nigerian universities closer to autonomy, but the trust deficit must be erased before more corporate organizations participate in higher education. While many organizations term this as social responsibility, it will soon become clear there is a clear for-profit reason to support higher education. Organizations need people to succeed, and the quality of the manpower coming out of universities correlates with the ability of businesses to unlock value.

Finally, the message on research is stark. “If you want to stay alive, you must publish.” Universities must be forced to use inventions as a veritable source of funding. There is no point branding the place as a citadel of knowledge if some of this knowledge cannot be sold, simple.

9.Online Courses: A friend of mine has spent months trying to convince the eggheads at NUC that it’s a bright idea to accredit online courses in Nigeria. Of course, it’s taken them a long time to understand the benefit of democratizing education. Apart from creating global competition for domestic universities, this approach will improve course scheduling and reduce the current pressures on physical infrastructure.

I’ve crossed the 1,500 word barrier which means it is time to shut up. The journey to improving higher education should start here. Again, I am hopeful that the current strike will not be narrated around higher wages but a concerted effort to improve higher education. As Da Vinci reminds us, “study without desire spoils the memory, and it retains nothing that it takes in.”


The Inevitable Meeting of Town and Gown

I wrote this almost two years ago, with some editing, I think it’s still relevant today.

It is interesting to examine different views on the state of Nigerian universities and the quality of graduates produced therein. The usual conclusion is our universities are underfunded, below par and produce half baked graduates. This judgment is usually delivered in a passionate and eloquent manner by employers, social commentators, and in some hilarious situations, by government officials.

The obvious solution to any problem in Nigeria is to throw money at it, but in this case whose money? Since 1974, Harvard University’s endowments have been managed by Harvard Management Company, set up to support the educational and research goals of Harvard University. The Harvard Endowment is worth approximately $32 billion. To put this in context, Nigeria has external reserves of $34.7 billion, while the Ministry of Education presented a budget of N400 billion (less than $3 billion) for the 2012 fiscal year. The University of Lagos (Primus Inter Pares, as it likes to describe itself) has a budget of N10.5 billion ($70 million), with over N9 billion of this devoted to payroll. The same university has a capital expenditure budget of N450 million, the cost of the house James Ibori allegedly bought in Hampstead, in 2001. The conclusion is obvious, Nigerian universities are underfunded.

Professor Odebiyi and Dr. Aina, both of the Obafemi Awolowo University, wrote an excellent paper on the alternative modes of funding higher education in Nigeria and the implications for university governance here: http://rc.aau.org/files/odebiyi.pdf . It is clear from their argument and global trends that the onus of funding higher education has shifted from government to the private sector. It is not enough to complain about the quality of graduates without asking how much Universities charge for tuition and how much endowment has been sourced from companies like MTN, Shell or the legion of Nigerian “billionaires” to those universities. This is not about giving scholarships to students from oil producing communities or donating millions of Naira to a grandiose presidential library. It is about a concerted and sustained effort to fund higher education. If this does not happen, we will be here crying about ASUU strikes and more in 2025.

This takes me to the role of adjunct lecturers in Nigerian universities. Nigerian CEOs are not doing enough in the classroom to pass practical business knowledge to the next generation. The classrooms at HBS, Wharton and Said are littered with the best brains from Wall Street and Canary Wharf. This is where the tyre hits the track. But our brains remain at Ikoyi Club, complaining about the quality of graduates produced by Nigerian universities, over Suya and a round of golf. Afe Babalola never taught law during his years as Pro-Chancellor of the University of Lagos, instead he focused on being Nigeria’s first emeritus Pro-Chancellor. Our CEOs were taught by CEOs at Harvard and Yale, why do they ignore the classrooms in Ife and Zaria?

Now everyone is setting up a university. Last year it was Chief Ade-Ojo or Elizade, as you might know him, launching his university in Ilara-Mokin. Soon we will have one in Ogbomosho, set up by you know who. The school will focus extensively on skin pigmentation and colour separation research. At the launch of Afe Babalola’s University in Ado-Ekiti, the man Soyinka calls Daniel Elebo said “Naira has been bastardized today” after $5 million was raised at the event. Oga Afe never organized such an event during his tenure as UNILAG’s pro-chancellor. He would rather construct five buildings; call it a university and name it after himself. Supporting the existing universities is too much work.

Next time anyone rants about the state of our universities, here’s my answer, “yinmu.”

In Other News…
Osaze Osifo, the Managing Director/CEO of FBN Capital Limited died last week. The finance world is depleted by the passage of such a brilliant mind. I pray his soul finds eternal rest.

Rejoinder: We Have an ASUU Problem

I try to avoid writing rejoinders for a simple reason; they don’t require original thought. All you have to do is show the ineptitude of another person’s work to look like a genius. My good man Feyi Fawehinmi posted this article http://aguntasolo.com/2013/09/25/we-have-an-asuu-problem/. Before I go into flaws in his argument, I must declare my bias. My father teaches Law in a Nigerian university (he’s done this for 35 years), and I’m immensely proud of him. Unlike Feyi, I also treasure the education I received at the University of Lagos, for this I’m eternally grateful.

1.90% of lecturers in Nigerian universities are useless – I didn’t get the logic of making a baseless statement, and following it up with an offer to be proved wrong. The more logical method will be to declare the result after the study, and like most of the article, the cart is put before the horse. I understand the need to making shocking statements, but at least have evidence to support it. The author offers a convoluted test for lecturers, which itself betrays a lack of thought. He will set a test based on questions the lecturers themselves set for their students, and also check how much personal development they have undertaken since they themselves qualified as lecturers and general knowledge on education and academics. The pass mark is 40%, but there’s no mention of how both sections of the ‘test’ are weighted. He then ends the paragraph by saying, “I am confident that I will win because it is simply impossible for me to lose.” Anyone who can make sense out of this sentence deserves to win the author’s prize money.

2.Unilag is not the Nigerian university system – By saying UNILAG is in Lagos, so the lecturers there can’t get away with murder, we should assume the same for LASU. Your guess is as good as mine on the result of this test. Location is not the biggest driver of quality; otherwise the Economics department at OAU won’t have constantly provided some of the brightest minds Nigeria has seen in this field. Instead of basing the argument on location, a more logical argument might have been to compare Federal universities with their state counterparts. I believe the sharp decline in University education started with the creation of many state universities without the human capital to fill the campuses; the result is the increase in poor quality tutors.

3.Nigerian universities have produced brilliant minds in the past – The author calls this a myth, again makes sweeping statements without evidence. Like most of the article, it is a case of his word against yours. He talks about the gap between private and public universities widening in 20 years but is ignorant that many of the same lecturers who won’t pass his test, retire from public universities to go and set up private university faculties. His post is on human capital in Nigerian universities, not the quality of facilities available. This is the reason why Babcock University might produce better computer scientists but struggle to replicate this in Law. The answer lies in the quality of facilities, clearly not human capital. Like most of his article, the premise is based on his experience at one of the worst universities in Nigeria. The ‘myth’ he talks about is not that “Nigerian universities produce brilliant lecturers” but “brilliant minds.” So it is confusing to see him use the example of nurturing a 5.00 CGPA first year student and co-opting him/her to become a lecturer to make this point. The point with quality assurance is clear; with demand outstripping supply, tertiary institutions cannot simply afford to select a more manageable number of intakes every year. The impact of overcrowded lecture theatres on the quality of intakes doesn’t need to be put through a linear regression model.

4.The Harvard Conundrum – The author suggests that poor lecturers are being subsidized by the good ones, and there is no way of weeding out really bad lecturers. The first part of the statement is false. The best lecturers usually end up as consultants, and sometimes decide to become involved in practice. This is not any different from the earning capacity of lecturers in more developed markets. For example, the some of the best law teachers are also SANs, and many of the best engineering lecturers have consulting practices to support their teaching income. So, the best teachers get the best briefs and/or speaking engagements. I know professors whose charge out rate for delivering a speech for one hour starts with six zeroes; that’s more what many of their colleagues earn in a month. The argument that the best guys don’t get special pay betrays ignorance of the reward system in academics. To support this point, the fees earned here are market based, not a result of collective bargaining that the author is very unahppy with.

5. Nigerian universities can function with half the lecturers it currently has – I’m confused about this point; at some point it sounds like the case is being about the quantity of lecturers, then later it deviates to the quality. I will focus on the title, which is blatantly false. While many universities have a teacher/student ratio of between 1/5 and 1/15, the average ratio in Nigerian universities is 1/40. The title suggests we can get away with doubling a ratio that is already 3x the capacity in developed countries. Unless there is something wrong with my arithmetic, this makes no sense. I must add here that doing a simple average of total students/total lecturers doesn’t show the true picture, because most of the Federal Universities operate above the national average.

6.The debate about education boils down to how much we pay our lecturers – This is blatantly false. I noticed throughout the post that the author never referred to the 2009 agreement between ASUU and the Federal Government, most likely because he has never seen it. The crux of this stand-off is that one party reneged on agreement it signed with another, and continues to operate with deceit and propaganda. It is disingenuous to reduce the quest for a better learning environment to a battle for better wages. Yes, there is a quest for better pay and rightly so. If a professor cannot afford to hire a research assistant from his current salary, how do you expect him to deliver the right quality and quantity of research work, combined with the duty of marking 500+ examination and test scripts. If he’s unable to pay for access to case clearing houses, how does he improve the teaching materials? The author agitates for better quality but forgets the adage, “good soup, na money kill am.”

I will do a follow up post to suggest solutions to improve tertiary education, but I’ll end this post with the words of the author’s favourite economist. “It takes considerable knowledge just to realize the extent of your own ignorance.” Thomas Sowell is a wise man.

Dinner with Atiku Abubakar

I’ve always wondered if there’s a method to political success in Nigeria; if you need a certain amount of native intelligence and/or charm to succeed, or maybe you just need to be at the right place at the right time. I hoped the invitation to dine with Atiku Abubakar could answer some of my questions, but at the end of the day, I left with more questions than answers. Anyway I took some notes during the session, let’s hope they make sense.

1. Richie Rich – Atiku reminded us he was a millionaire in 1993 when he first ran for President. When he was asked how he created wealth, he mentioned a lucky break with an Italian partner that morphed into the company now known as INTELS. Predictably, he didn’t see a conflict of interest that a serving customs officer invested in a port and logistics business. Lesson: We must take the current when it serves or lose our ventures.

2. Image is everything – AA was honest about his motives for joining our famous micro-blog, Twitter. He needs to connect with young people and most importantly set the record straight about his time in government. Throughout the session, he only got upset when questions about corruption were asked. According to him, despite not being convicted in and out of Nigeria, it is frustrating to keep dealing with this albatross. All through the evening, he felt like a man trying to repair a damaged reputation. We wish him well as he rewrites history.

3. Baba Iyabo – I loved how he subbed the chicken farmer. AA told a story of two men that went into a shop in London; one of them carried a bag into the store while the other man strolled in empty handed. Both men left the shop with two bags each, just before the shop owner raised an alarm that someone stole a bag from his shop. He then asked us to try to figure out who stole the bag. If you get the correct answer, there’s a prize for you. Hint: Check Point (1) for clues.

4. Militancy – It’s not normal for a former high ranking government official to speak candidly about security issues like AA did. He blamed two former governors for building armies that morphed into militant groups in the Delta: the one that was rewarded with a state pardon and the custodian of perpetual injunctions. Though he doesn’t have a clear solution to the issues in the Delta, especially agitation for resource control, he got a few marks for being candid about the problem.

5. Boko Haram – Full marks to AA here. Basically, he showed how the appointment of a Fulani from the Sokoto Caliphate to solve a problem in an area dominated by Kanuris was a missed opportunity by the Federal Government. If you need more education on this matter, I suggest you read the 3rd chapter of Toyin Falola’s A History of Nigeria. Lesson: If you don’t know where you’re coming from, deciding where to go becomes a lot more difficult.

6. Political Ideology – One troublesome boy suggested that AA had no political ideology, jumping from one party to another in search of a presidential ticket. He reminded us that he never left the PDP; instead he was prevented from being registered. He joined a rival party because he believed that nobody should be prevented from exercising the right to contest for office. After plenty talk, AA cast his vote as a free market lover; but not before he confirmed that our parties are fingers of a leprous hand, God bless Bola Ige.

7. Budget Reforms – When he was asked how to ensure Nigeria’s budget drives development, his answer jolted me. He suggested oil revenues should be devoted to capital expenditure only, while other revenue sources will fund recurring expenditure. For a country that relies on oil for 70% of its revenues, AA’s suggestion will flip the budget completely. What he didn’t say was how this will be achieved, though it is clear that such a plan must involve significant cuts in the structure of government at all levels.

From the polo top, to updates bout Arsenal’s game, it was clear AA was keen to engage the audience. I’ll give him full marks for trying, but overall it was an underwhelming experience. I left the session thinking unconvinced he is the man to lead Nigeria’s transformation. He will only earn my vote because he’s the best of the pretenders to the throne, not because I think he’s capable of transformative leadership. It’s a long time till 2015, so there’s enough time to change my mind.

There, you have it.

What’s in a Name?

Last Sunday, as we prepared for church, I checked my wallet to see if I had enough money to meet the usual offertory requirements. As I counted my paltry stack of notes, my wife jocularly called me “Khashoggi.” That was her cheeky way of reminding me to contribute more of our meager earnings to the Lord’s vineyard. Ordinarily, I would have replied with a joke, but for an inexplicable reason, that name awakened the anthropologist in me. I decided to ask about thirty people, mostly born in the 80’s and 90’s, if they knew the origin of the slang, Khashoggi. They must have thought it was dumb question to ask, and all said it meant someone with a lot of money, or as one put it, “someone with a lot of cash and swagger.”

I doubt if Adnan Khashoggi knows how famous he is in Nigeria. The infamous Saudi arms dealer and businessman will surely be more intrigued to know very few Nigerians know him, or can pick him out in a photo album, yet his name is instantly recognizable. One of our colloquial descriptions for a successful and wealthy person is the surname of a man known for gun running, money laundering and bribery. At the peak of his wealth, Adnan Khashoggi was one of the richest men in the world, worth over $4 billion. A lot of that wealth was linked to various deals like the Iran-Contra arms for hostages deal, Lockheed bribery scandal and money laundering at the behest of Ferdinand and Imelda Marcos. Here we remember his yacht, Nabila, used for the James Bond movie Never Say Never Again. It is convenient to forget the yacht was later sold to Donald Trump, as a broke Khashoggi moved from one prison to another.

Like Khashoggi, Francis Arthur Nzeribe was a notorious arms dealer.  He was known for his willingness to replicate real life version of the computer game, Call of Duty, in several African countries. In Nigeria, he is best remembered for the bloodless coup against democracy in 1993. The story of how Bassey Ikpeme wrote her judgment at midnight in Clement Akpamgbo’s chambers has been repeated over several hectoliters of beer, so it is befuddling how Arthur Nzeribe can still walk the streets of Oguta without a false moustache. To rub salt into our collective wounds, he was “elected” into the National Assembly as a Senator, representing Orlu constituency, and served two terms. Thankfully, Osita Izunaso spared us more agony, and defeated the self-acclaimed democrat in 2007.

Let’s move forward to a few weeks ago where I heard two former governors in the South West hailed as messiahs by the popular Yoruba musician, Yinka Ayefele. I doubt if Mahatma Ghandi or Lee Kuan Yew were ever praised with such eloquence. These men, who should be listening to the sonorous voices of mosquitoes in prison, sat pretty among the crème of the society. My biggest concern was an incumbent governor who witnessed, with a smirk, how his fraudulent predecessors were “ostracized” by society. No doubt, he is a wiser man after that experience; he won’t dare steal a penny from the public purse.

It is similar to how our Universities dish out honorary degrees, and traditional rulers fall over themselves to give chieftaincy titles, all to individuals who should be behind bars. We abhor corruption on the pages of the newspapers, yet we honour and accommodate corrupt family members and associates. Our monuments and streets are named after criminals, yet we want generations unborn to wipe the slate clean.

If you need proof the joke is firmly on us, look no further than the location of the EFCC’s Lagos office. For those who are yet to be invited, it is somewhere in Ikoyi on a street named after Festus Okotie-Eboh. But then again, what’s in a name?

The Punishment for Treason is Death

I originally encountered Max Siollun  when I read Oil, Politics and Violence (OPV), his excellent book on the history of Nigeria between 1966 and 1976, a period dominated by military coups and a bloody civil war. Soldiers of Fortune is a deserving sequel to such a powerful book. Siollun does an excellent job of curating the power tussles and resulting coups that dominated the 80’s, and traces the transition of Nigeria’s military from an ideological group to one intent on shedding blood and seizing power as a means of self-preservation. The book is a unque peek into the subterfuge and paranoia that defined Nigeria’s leadership between 1985 and 1993; and how a small group of professional coup plotters played a deadly game of musical chairs with the Nigerian polity.
There are three key themes from this book. Firstly, it reminds the reader of how military coups need a complicit populace to succeed. The term “coup baiting” explains the deliberate attempt by civilian interests to form public opinion against a sitting government, setting the tone for a military takeover. This explains the false dawn that accompanied coups, and the unearned legitimacy the populace gave to succesive military regimes. Despite questionable economic policies and laughable diplomatic gaffes, the militarry managed to rule Nigeria for 16 years without interruption. This is a lesson to Nigeria’s political class, and a reminder that the mistakes of the 80’s and 90’s can re-occur easily. Secondly, the Orkar coup demonstrates how coup plotting was driven by ethnic allegiances and perceived victimisation of particular tribes/people. The perceived exploitation of the Niger-Delta was a key theme of this coup, and it was not coincidental that the key actors were mostly from that region. The suppression of ethnic protestations by successive military government explains today’s instability where several parts of the country are under siege from regional warlords. Finally, we are reminded of how unprepared Nigeria’s leaders have been. It is arguable that apart from Babanginda and perhaps Abacha, Nigeria has been ruled by accidental leaders. Soldiers of Fortune is a reminder of how the country’s growth was stunted by a mix of leaders who were unwilling and/or unable to develop a clear roadmap for growth and development.
My most poignant chapter of the book is the portion devoted to the trial and execution of Major-General Mamman Vatsa and nine others. I remember reading about this coup in the papers, and watching footage of the trial on television. It was difficult not to shed a tear for General Vatsa, shackled in leg chains with handcuffs occupying his wrists beside an expensive wrist watch. He looked out of place, but maintained a resolute and dignified posture while men around him crumbled. In the end, the soldier and poet was killed to satisfy his childhood friend’s paranoia despite pleas from different pressure groups. It is ironic that General Bali remains the highest ranking officer to publicly question Vatsa’s guilt, when the same man delivered the terse nationwide broadcast that announced Vatsa’s execution. Siollun reminds the reader of those terse words, “in the military, the punishment for treason is death.” It is the biggest indication of the game of Russian Roulette that defined my childhood. A time when the mantra was first self preservation, before the common good.

The Devaluation of the Naira and Other Stories

It was Claude Ake who described Nigeria as a disarticulated economy, that produces what it does not consume, and consumes what it does not produce. This description summarizes the dilemma that faces Sanusi Lamido Sanusi and his team at the Central Bank of Nigeria (CBN).

It is no news that what we suspected is eventually happening. The Naira is under significant pressure, and the CBN has emptied its artillery to protect our beloved currency. In various official publications on the exchange rate, the CBN has indicated target exchange rate corridor of NGN150: US$1 ± 3% corridor (i.e. NGN 145.5 – NGN154.4). At the close of business yesterday, depending on who you talked to, the Naira closed at NGN165 – NGN168. At best this is 11 Naira above the CBN’s target.

At an “expected” emergency meeting of the CBN’s Monetary Policy Committee (MPC), three drastic measures were announced. The most celebrated was the 275 basis point increase in the Monetary Policy Rate (MPR) from 9.25% to 12%. This is the rate at which the CBN gives loans to banks, and is the nominal interest rate anchor. This means interest rates will go up in a bid to encourage savings in the Naira, as interest rates, for once, will provide real returns (after adjustment for inflation). This will reduce the supply of Naira in the market, thereby reducing demand for the US Dollar. The downside of this is a resulting increase in lending rates, and a re-pricing of existing loans, priced using a floating rate (usually the prime lending rate of the lender).

But this does not tell the full story. The apex bank also increased the Cash Reserve Ratio (CRR) from 4% to 8%. This is the proportion of bank deposits held in cash by the CBN; therefore this huge increase in CRR means a sharp reduction on the amount banks are able to lend to the real sector. If we assume an industry balance sheet size of N9 trillion, that is N360 billion that could have gone to private sector loans, taken out of the industry.

By reducing the Net Open Position (NOP) of banks from 5% to 1%, the CBN has effectively reduced the amount of foreign exchange a bank can hold at any time. The Net Open Position is simply the difference between assets and liabilities of a bank held in a foreign currency, usually measured as a percentage of the shareholder’s funds of a bank. This reduction will significantly reduce the volume of foreign exchange deals on the inter-bank market and autonomous purchase of foreign exchange, because of this reduction of the amount of foreign exchange banks can hold for mainly speculative reasons. This might mean a reduction in the short term profits of banks, as the treasury function, impaired by this rule, is usually one of the most profitable businesses of Nigerian banks.

The MPC is a team of nine, and the vote to increase the NOP was unanimous. The vote on increasing the MPR was 8-1, while that for the CRR increase was 7-2 (2 members voted for 200bp increase). The unity in the voting patterns suggests a room of worried policy makers. The CBN has blinked, and the result could be harsh.

We know lending rates will go up significantly, and supply of credit will reduce. If you are an existing or intending borrower, this is the time to say a prayer. It will be harder and more expensive to get a loan now, like it wasn’t already very difficult. Government is the biggest borrower in the economy, therefore its borrowing costs will increase, as government securities will be priced higher to accommodate for this MPR increase. The effect on the bond market could be interesting. An increase in the risk-free rate (the rate at which the FGN borrows) will mean states yet to issue sub-sovereign bonds might be forced into offering a higher coupon rate. The same will apply to corporate debt.

As always, unpredictability is an investor’s worst nightmare. This sharp depreciation will affect investor confidence, at least in the short term. So, it is safe to assume a few wrinkles were added to the face of a certain Mr. Aganga at the Ministry of Trade and Investment last night.

How does this affect us, the ordinary Nigerians? Our taste for imported goods from Brazilian weaves to Rich Tea Biscuits will come at a higher cost. . That is the price we pay for being so dependent on imported goods. The road ahead is cloudy; we have not been in a similar position since the rocky days of 2008/9. It is never good to be a harbinger of bad news, but it is time to tighten our belts and build up healthy cash reserves. One principle that never changes in difficult times is the well known mantra “CASH IS KING.”