Specials DIVERSITY EMPLOYERS MAGAZINE Spring 2011 - Anniversary Commemorative Issue

Nigeria: Naira Re-Denomination Controversy and Legal Tuff Wars

By Obi. O. Akwani
MGV Editor

Posted September 28, 2007

Umaru Musa Yar Adua, the new president of Nigeria was, even by Nigeria's own standards, slow in setting up his government. After his swearing-in in May, he had yet to name a cabinet by July 2007. Granted that even before he had had a chance to step into the Aso Rock presidential stronghold, he was left grappling with a nation-wide labor strike due to inflationary fuel price hikes brought in at the last minute by the out-going government of President Olusegun Obasanjo; Nigerians still expected Yar Adua's pace to match that of his predecessor. But they have come to accept the fact that Yar Adua is no Obasanjo and have gratefully settled down to a more leisurely-paced government led by a deliberate president who consults widely before taking decisions or action. How good or bad the Yar Adua presidency is going to be for Nigeria will ultimately become clear, but the signs are already emerging.

President Umaru Yar Adua Deliberate Decision Maker

It would appear that the very deliberate Yar Adua is not comfortable with more decisive people or mavericks in his government. Two such people who have found themselves in some trouble with the president are the Governor of the Central Bank of Nigeria, Charles Soludo and Economic and Financial Crimes Commission (EFCC) chairman, Nuhu Ribadu. These men, appointees of the previous Obasanjo government, head two of the most independent government institutions in the country. In the past both men have been lauded for their effective leadership of their organizations and their ability to get results under difficult circumstances.

Ribadu, an assistant inspector general in the Nigerian police and a lawyer, is the chairman of a crime fighting organization unprecedented in the history of Nigeria. The EFCC was created by President Obasanjo as an independent agency empowered to fight rampant corruption in government and clean up the flood of "419" scams that became globally synonymous with Nigeria over the past decade. Ribadu has been remarkably successful with his mission in a country well-known for harboring too many untouchables among its elite. His efforts led to the dismissal and incarceration of his one-time boss, former police top brass, inspector general Tafa Balogun, who was convicted of siphoning off about N2 billion (about US$16 million) in police funds. But Ribadu's success as a crime fighter has made him a target among the elite, especially the friends of ex-governors who he has to bring to justice if found to have betrayed the public trust. Since June 2007 when those governors left office and became stripped of constitutionally-granted immunity, the EFCC has been relentless in pursuing those it believes committed financial crimes while in office. Ribadu's fearless zeal in going after these high-placed miscreants has attracted a lot of detractors for him and the EFCC.

Soludo is possibly the most active CBN governor Nigeria has ever had. He has been very bold and innovative in his interventions in the economy. His policies and actions are revolutionizing the role of the central bank in setting policy and direction for the Nigerian economy.

The success of these two men has a lot to do with their individual characters as much as the unflinching backing they received from President Obasanjo. Their ability to stay focused and act independently are key to that success. It is doubtful whether their organizations could have been effective without those character traits and presidential support. This is why it is all the more surprising that the government of President Yar Adua has taken its present tact with the CBN and EFCC.

Under the government of President Yar Adua, they have come under blistering attacks from within. In mid August 2007, Soludo announced the CBN's "Strategic Agenda for the Naira." The agenda was a new plan to re-denominate the national currency, the Naira, and bring its value up to what it used to be pre 1986 before inflation induced by a Structural Adjustment Program (SAP) introduced that year upon the insistence of the IMF ate away the value of the Naira. In february 1984, for instance, one US dollar ($1.00) was exchanged for 0.72 Naira or 72kobo. Two years later, after SAP was introduced, one US dollar could fetch 20 Naira. At its worst, in the late 1990s, the Naira had dropped in value to the point where one Naira could buy only 0.0069 dollars -- less than one US cent. After Soludo came in as CBN governor, the Naira has stabilized at about $0.008.

According to the CBN governor, the new Naira agenda would help to further strengthen the Naira and make it a benchmark or reference currency in the region. The CBN governor had set the date a year ahead to August 1, 2008 for commencement of the monetary revaluation which would bring the Naira close to par with the US dollar.
But almost immediately the Naira strategy was made public there was intense controversy surrounding it.

However, going by responses to other major CBN policy announcements in the past, especially the 2004 banks' consolidation and recapitalization, this controversy was to be expected. As in 2004, few Nigerians understood what was going on and fewer still knew what to expect. I found myself explaining to an anxious and skeptical Abuja businessman that the measure would most likely mean that the volume of cash in circulation would drop, but the purchasing power of what is left would remain the same as when there was lots of Naira currency floating about. Nigeria would have fewer millionaires but those who had lost their status as millionaires would remain as rich as they were before or their purchasing power may, in fact, improve.

Within days of the announcement, the real dung had hit the fan. The CBN governor was hauled before the Federal Executive Council and for several hours he was grilled on the meaning and implications of the new Naira agenda. As the Executive Council meeting ended, it at first seemed that Soludo and his Naira agenda were safe. It had been decided that the CBN governor should work with the Economic Monitoring Team (EMT) to iron the kinks and fine tune the Strategic Agenda for the Naira. Briefing newsmen at the end of FEC meeting, Shamsudeen Usman, the Minister of Finance said that the decision to refer the CBN Naira Agenda to the EMT was merely a tidying up effort to clarify a few technical areas that were not clear to the FEC.

"It was only a few technical issues that President Yar Adua said they should clarify with the Economic Management Team. But the point has to be made that it is absolutely within the laws of the CBN to do what it has done," the Finance Minister said.

Shamsudeen Usman, only a few months away from his former position as a deputy governor of the Central Bank, was defending the actions of his former boss before the media. But even before the EMT had met to iron out the kinks, the president suddenly announced the removal of the CBN governor from the EMT. That seemed a clear signal that Soludo was about to be axed from his CBN governor's post.

What is quite clear is that the pressure was beginning to pile on the president. There were a lot of vested interests that did not want to see the Strategic Agenda for the Naira implemented. One story, printed on the editorial page of the Sun newspaper (Saturday, August 25, 2007, page 6), speculates that these vested interests included a cabal from the northern part of the country whose banking interests were dashed with Soludo's reforms; some former bank directors who were forced out by the CBN governor; local currency dealers backed by retired military generals whose business were threatened by the proposed agenda. But the biggest of the Soludo foes, the story says, are the well organized crude oil exporters who have emerged in the last eight years through government liberalization and deregulation policies to control the lucrative crude oil exports and the importation of refined fuel products into the country. A low Naira benefits these groups immensely and they would do anything to prevent anyone from revaluing the Naira upward.

On August 24, President Yar Adua met with his legal team comprising the Attorney General and Minister for Justice, Michael Aaondoakaa and the State House Counsel, Jalal Arabi to seek a legal way out of the situation for the president. What they came up with ultimately was a decision to fault the CBN governor on technical legal grounds and to suspend the implementation of the Strategic Agenda for the Naira. The attorney general emerged from their meeting with the president to announce to the press that "I, as the chief law officer of the federation hereby stop all action on the redenomination of the Naira..." The reason he gave was that Soludo, in going public with the new Naira agenda before getting the president's written consent, had violated sections of the CBN Act (2007).

The CBN governor, who had earlier told the nation that he had the president's approval for the new measure, retreated into silence.

Justice Minister Aaondoakaa is also at the center of another controversy involving the corruption-fighting Economic and Financial Crimes Commission (EFCC). On September 5, 2007 the EFCC lawyer prosecuting the agency's 107 count corruption and money laundering case against former Governor Orji Uzo Kalu of Abia State arose in the Abuja Federal High Court and found himself standing shoulder to shoulder with a lawyer from the office of the Attorney General of the Federation. Both men claimed to be representing the government's side in an application filed by Kalu seeking to restrain the government from arresting or prosecuting him until an earlier court order preventing the EFCC from arresting or prosecuting him had expired.

That earlier order which was obtained by Kalu on May 31 through the Abia State High Court just before he left office as governor of the state has never been respected by the EFCC or its lawyers who describe it as a convenient, politically motivated kangaroo court order.

What motivated the Attorney General's office to intervene in the case and fight for tuff with the EFCC was a letter sent to the president and the attorney general by Livy Uzoukwu, lawyer for Kalu, claiming that the EFCC's continued prosecution of his client in the face of the Abia High Court order was contrary to the rule of law.

Based on this contention and Section 174 of the Constitution (1999), the AGF sought to get the President to order the EFCC to bring itself under the AGF's control.

President Yar Adua may have made a mistake in authorizing his point man and adviser, attorney general, Michael Aaondoakaa, to attempt to rein-in two of the most effective agencies in the history of the Nigerian government. Mr. Aaondoakaa features prominently in both the CBN and EFCC affairs. Many Nigerians who watched as he announced the suspension of Soludo's Naira agenda did not fail to notice the almost gleeful way the attorney general went about it.

Some legal experts have called for the removal of Mr. Aaondoakaa as the Minister of Justice and Attorney General. Well-known Nigerian human and political rights lawyers, Gani Fawehinmi and Femi Falana are of the opinion that the Attorney General's intervention in the EFCC case against former governor Orji Uzo Kalu was wrong and unconstitutional and against the public interest. Therefore they want to see him removed from office. But the Justice Minister's supporters, who are many, include former Ondo State Attorney General, Wole Olanipekun. They defend Mr. Aaondoakaa's actions on the basis that he is championing the rule of law.

The Attorney General is certainly wading into pools he should better have avoided. Organizations like the CBN and the EFCC, by law and necessity, are given a measure of autonomy in decision making and actions. Under President Obasanjo, that autonomy was unmistakable for both organizations. This was what enabled the CBN to successfully carry through profound reforms in the banking industry though they were every bit as vehemently opposed by some industry stakeholders then as seem to have now succeeded now in stymieing the CBN under President Yar Adua. The CBN's successes and autonomy under Obasanjo contributed in no small measure to boosting confidence in Nigeria's financial sector and economy. The EFCC's war against corruption in high and low places in this country have been largely successful despite vehement political criticisms from detractors. The EFCC's efforts have helped restore hope among Nigerians that corruption can actually be defeated here. It has also helped boost the country's image abroad.

The Attorney General's intervention in both organizations is seen as an attempt to take away their constitutionally granted autonomy and blunt their effectiveness in their respective areas.

The CBN's power to make autonomous monetary decisions is critical to the economic health of the nation. The measures it has taken over the past six or seven years have helped hold down inflation and improve conditions in the financial sector. Naira redenomination would further reduce inflation by forcing the use of smaller denominations in market transactions. As it stands, blunting the effectiveness of the CBN in regulating and anticipating the direction of the economy may yet see this country slip into a state of hyperinflation when the action of one arm of the government negates or cancels out the effect intended by another. We saw this type of thing happen during the Shehu Shagari presidency where the government took a policy position to ban the importation of rice in order to encourage local production, only to see that effort dashed when some powerful members of the government decided that the austerity introduced by the import ban should be negated.

By acceding to pressure from a powerful, secretive minority of vested interests, in this CBN case, the president and his attorney general have injected politics into an area where politics does not belong. Monetary decisions are not matters for overly wide consultations. They require expert decisions and actions based on fundamental understandings to be taken in the public interest.