SAFE HANDS

Nigeria 2016 | FINANCE | INTERVIEW

TBY talks to Mustafa Chike-Obi, Managing Director of AMCON, on stabilizing the banks, selling assets, and plans for the coming year.

Mustafa Chike-Obİ

Amcon was founded five years ago in order to save the financial system after the 2008 crisis. What about the structure of Amcon makes it different from the way that other countries approached the financial crisis?

Amcon was set up to stabilize, rather than bail out the financial system. There are four major stakeholders in each bank, namely the shareholders, the management, the staff, and the depositors. Those bailed out were the depositors and the staff. The depositors got all of their money back and most of the staff were retained. Management was completely wiped out, so they were not bailed out, and all of the existing management was removed. The shareholders lost, in many cases, over 90% of their investment, and so they were not bailed out. They were left with a nominal amount. By buying both non-performing loans and re-capitalizing, the bulk of the money was spent on recapitalizing these banks. The non-performing loans probably represented some 30 to 40% of Amcon expenditure, and we are fairly certain that, by the time we were done, we would have recovered close to 100% of the money that we invested in that area. The money we invested in recapitalization is gone, and that is the reason for the sinking fund that the banks are contributing to.

You have been successful in selling off some of the assets that you acquired. You closed a landmark sale earlier this year of Mainstreet Bank to Skye Bank, and before that Enterprise Bank to Heritage Bank. What do those sales indicate to you about the program and also about the sales that are still to happen with Wema Bank, Unity, and Keystone?

There were three banks that were bridged in 2011, although it was never part of the plan to bridge those banks when AMCON came into existence. Even though we had a mandate to recapitalize institutions, we never expected recapitalizing to 100%. Those three banks came about because they could not find any buyers at the time, and we knew that we had to divest as soon as was practical, then stabilize and recapitalize the bank; doing so made it divestible. We thought that we would recover 20% of our investment in those banks, but we ended up recovering close to 30%, so we did better than we expected.

What are your expectations for the year ahead?

Nigeria needs economic debate. One of the most damaging fallacies is that a weak naira is bad for Nigeria. In fact, a weak Naira is good for Nigeria as a country. It may be temporarily bad for the elite, who consume the bulk of foreign goods, but in the long run it is good for Nigeria because it will create employment and encourage manufacturing if it is implemented in conjunction with other policies. It will stop people from buying Range Rovers, and it will encourage people to start manufacturing. Nigeria must clarify what exchange rate is optimal, in conjunction with interest rates. Interest rates now are at about 27% plus three points, which is about 30%. This is not sustainable, as nobody can manufacture or run a small business under these circumstances. Also, we are subsidizing foreign exchange and we want to see low interest rates for specific industries. It is almost like we are moving toward a central economy, which does not work. The cost of this dynamic is inflation, but it is better to have jobs and face 20% inflation than high unemployment at 5% inflation. It is important to establish tolerable inflation levels. The third matter that we need to address as a country is tolerable debt levels. We have debt to GDP of 11%, which is well below countries like the US. We have government guarantees to GDP of 1%, while the US is at 90%. Debt service to GDP in Nigeria is at 0.8%, while in the UK it is 2.3% and interest rates are at almost zero. We must have GDP growth of 12% per year at a minimum for the next 10 years, otherwise we are going nowhere. These are the discussions we must have, and until we have them and establish a clear national economic direction, the situation will only get worse economically, because oil prices are not going anywhere anytime soon.