Our sensibilities are assaulted everyday with media reports of corruption in high places, such that Nigerians now see public service as synonymous with individual pursuit of narrow self-interest.
In an article titled: AFC, Round tripping and EFCC, published in this column on August 11, 2008, we discussed one such blatant misapplication of public funds on account of self.

The indictment of United Bank for Africa, UBA, a party to the scam, for round tripping in a criminal case in the United States led to the payment of fine of about $15m by the Nigerian bank and subsequently to a follow-up investigation by a special committee set up by President Yar’Adua. In spite of the observation of collusion between UBA and our CBN Governor in the scam, nothing more has been heard about this case.

However, the publications of beneficiaries of CBN’s forex sales in March 2009 have once again reminded us of the incestuous relationship between our erudite Governor as an investor and our public treasury over which he presides.

African Finance Corporation (AFC), which the Presidential Committee recognised as the brainchild of Professor Soludo, bought and remitted $60m in two instalments of $30m in March from Central Bank. The advertised purpose of the remittances was the repatriation of investment in money market instruments.

Although the specific category of instrument was not mentioned, but we recall the testimony of Austin Omeruwa, erstwhile CEO of AFC, who claimed that AFC found the market for federal government bills and bonds, with its high interest rates as the most profitable investment around! Meanwhile, the CBN Governor who also doubled as AFC Chairman at the time was also responsible for determining the higher rate of return on government instruments, in spite of the greater debt burden on Nigerians! I think the Igbos have a saying about the freedom of the man who has both the yam and the knife in his hands to slice the yam in his own favour!

We also recall the observation of the Presidential Committee that the source of funds for AFC’s investments was the so_called ‘idle’ funds from receipts from sale of government treasury bills in the money market! By a wide stretch of the imagination, I suppose the CBN Governor may claim Nigerians stood to benefit from profits AFC made for lending to government money that were originally taken from government coffers!

We are told that AFC has since returned $460m which it ‘quietly’ took from the public treasury, but the authorities continue to remain silent on $7000m that our generous Head Banker also gave to 14 Nigerian banks about three years ago with terms which continue to be shrouded in mystery!
We do not know how much of that fund subsequently came back to Nigeria as foreign direct investment, but it is most likely these funds followed the path of ‘wisdom’ of AFC investment in treasury bills and bonds! In other words, these banks would also be purchasing and remitting their capital and interest from the Nigerian money market sooner or later and consequently contribute to what is now generally described as capital flight of foreign direct investment!

In view of these developments, permit me to take the liberty of refreshing our memories of these weird investments with the content of our article titled: AFC, Round Tripping and EFCC first published in August 2008. Please read on:

“Media reports at the end of July 2007 have lately confirmed that the Presidential Committee which probed the $480 million which the CBN invested in the African Finance Corporation (AFC) has completed its investigations.

The Presidency initiated the Committee to address unease in government with regards to the role played by the CBN Governor in formation and funding of AFC. After what appeared to be a painstaking audit exercise over three months, spanning three continents, Committee Chairman, Tunde Ogunshakin of AFC, disclosed that CBN’s equity contribution was actually $462.923 million. However, the Committee noted that a decision for such investment should have required approval of the Federal Executive Council and consequently“frowned at the enormous powers of CBN Board and recommended that CBN Act be amended to reduce them.” Daily Independent 23/7/08.

In other words, CBN Governor acted within the law by creating and funding AFC. Full text of the Committees report is yet to be formally made public; so, it is not yet clear what the Committee felt about Soludo’s headship of the AFC in his personal capacity; thus, even when a new CBN Governor succeeds the incumbent, Soludo would continue to head the AFC in his private capacity!

Concerned Nigerians are rightly of the view that if the intentions of Soludo were truly altruistic, Headship of AFC should have been reserved for whoever wears the cap of CBN Governor at anytime. One wonders if the Committee also fathomed the order of succession as enshrined in the AFC memorandum as it currently stands; that is, would Soludo choose his own successor or enthrone an offspring or sibling as in a family heritage?

The above notwithstanding, the Committee condemned the apparent sourcing and use of funds by the AFC; it confirmed that CBN funded the investment from the sale of government treasury bills! The Committee further noted that “all AFC funds were invested in money market instruments in Nigeria and described this manner of operation as round-tripping at best and money laundering if viewed from a criminal perspective!”

“Now, let us take a closer look at what is actually happening here from a simple commonsense perspective of a rational Nigerian. First, let us look at the source of funding of AFC equity. CBN’s favourite tools for controlling the omnipresent scourge of excess liquidity every month when naira allocations are substituted for distributable dollar revenue are the ubiquitous instruments of treasury bills and federal government bonds.

Now, it is no more a secret that banks’ profits have become bloated by enormous profits they continue to make from the shenanigans of lending to government, money that CBN earlier deposited with them! Mr. President confirmed that this practice cost our country close to N400bn in 2007; indications are that servicing borrowings from treasury bills and bonds may approach N800bn in 2008. This type of government borrowing which is not tied to infrastructure or any form of human capacity development has been subsisting for years now with banks as prime beneficiaries of the juicy rewards from such risk_free investments; no wonder they pay little attention to credit support of the real sector, with its attendant deprivations!

“Until the bubble of AFC scam burst, CBN had always maintained that the funds accumulated from such reckless government borrowings were simply sterilised or in layman’s language, stored inertly in CBN vaults to keep the public and the real sector from accessing these funds if left in the hands of the banks!

“Now, we know better, as the Presidential Committee confirmed that part of these ‘idle’ funds was actually diverted into funding AFC. However, since AFC equity was in dollars, how did CBN obtain exchange equivalent? Obviously, CBN went into the forex market with hordes of naira of over N50bn (enough capital base for two banks) and sourced for the dollar equivalent from Bureau De Change (BDC)!

It is inexplicable that CBN, which currently sits on an idle pile of foreign reserves of almost $60bn resorts to the lowly bureau de change to seek its AFC dollars, at higher cost, even when BDC’s dollar source is also the same CBN! “What is going on here?” You might ask! Any wonder also that CBN has, against national interest, sold over $5bn to BDCs from January to June 2008? Has anyone ever heard of the Bank of England or the US Federal Reserve allocating forex directly to BDCs on their high streets?< br />“We now have an idea of how AFC funds were consolidated, but how were these funds applied and what benefits did Nigerians derive? Well, Austin Ometoruwa, the recently suspended Chief Operating Officer of AFC, in his open letter recently published in the media confirms that “AFC … sought to optimize earnings … by investing part of its short term naira instruments, thereby taking advantage of higher naira interest rates versus those for US dollar deposits”. Vanguard pg. A3 4/8/2008!

In simple English, this implies that AFC dollars found its way back to Nigeria, where once again, it was converted to naira, presumably through banks and BDCs and the resultant naira sums were used to purchase treasury bills which had yields of about 10% compared with less than 1% for such risk-free instruments abroad!

“In this event, AFC with Soludo, CBN Governor, as life Chairman would be major beneficiary of a high interest rate regime in Nigeria! Meanwhile, the real sector and patriotic Nigerian manufacturers continue to lament excruciating burden of high interest rates and adverse effects on production and employment.

Thus, any attempt to remove the costly burden of excess liquidity would be against the interest of AFC of which our own CBN Governor is the Life President! I have maintained that the payment of dollar allocations to the three_tiers of government will tame the rampaging ghost of excess liquidity and strengthen the naira, but again, these salutary results would not favour parochial interests of AFC!

“It would be pertinent for the Presidential Committee to be given a fresh brief to also investigate CBN’s largesse of $7bn to 14 Nigerian banks as compensation for beefing up their capital bases, notwithstanding that it has become apparent lately that these acclaimed feats were made possible by the opportunity provided by CBN for banks to lend their deposits to customers who invested the same funds in the same lending banks!

Some analysts have suggested that prompt refund of the $460m by AFC to the Nigerian government is an indication that banks and other financial institutions which had participated in the scam were forced to urgently raise over N50bn which was then converted to dollars through BDCs and remitted to AFC account abroad; in “other words, more funds were further round_tripped to save CBN Governor’s bacon with adverse consequences on current stock market capitalisation!

“If the EFCC finds nothing wrong in all this, it would have done disserve to its image as a financial crimes fighter. Reports already confirm that one of the Nigerian banks involved in this scam had been indicted in the US for money laundering, and made to pay a fine of about US$15m.”
Above article was last published 4/5/2009.

PS/ Nigeria’s quest to reduce corruption can only be taken seriously if public officers are made accountable for their actions in office; a mere slap on the wrist or presidential pardon must not preclude the outcome of appropriate criminal prosecution.
SAVE THE NAIRA, SAVE NIGERIANS!