| credits: Sunday Aborisade
A former minister of Finance who also served as Secretary to the Federal Military Government under President Ibrahim Babangida’s regime, Chief Olu Falae, in this interview with SUNDAY ABORISADE, explains his role in the controversial economic policies during the period among other issues

Kindly explain your roles in the economic policies of the military government when you served as minister of finance

Nigeria was in foreign exchange crisis before President Ibrahim Babangida took over power in 1985. Nigeria had accumulated a huge deficit debit on external account arising from import which it could not pay for. There was no money to pay for the goods we were importing into Nigeria. This created a problem and our debtors abroad, insisted that the International Monetary Fund must intervene so that whatever promises we made would be fulfilled by us with the IMF supervising the arrangement. That was what necessitated the call for the IMF loan and the government said it would not take the loan principally because it will compromise our sovereignty as a nation. The implication was that our financial policies would be supervised by the IMF and it could mean that the IMF would bring in somebody who will sit in the Central Bank of Nigeria and in the Ministry of Finance. That was unacceptable to the government because it would amount to returning Nigeria to the colonial status simply because we were debtors. That was how the government decided to impose on itself, its own drastic measures so as to be able to pay for the goods without compromising our sovereignty. This was what we called Structural Adjustment Programme.

The clarification I want to make is that Babangida threw the matter open for debate on radio and television for weeks in 1985. On December 18, 1985, he ended the debate by making a broadcast that the debate was over and that it was clear Nigeria did not want to surrender her sovereignty and that his government had therefore decided to adopt its own SAP- a self-imposed, belt-tightening measure that would enable us to meet our obligations to our foreign creditors without surrendering or compromising our sovereignty.

Did you sell the SAP idea to the Babangida’s government?

I was then the Managing Director of Nigerian Merchant Bank. I retired from the civil service, five years earlier as permanent secretary. On January 29, 1986, six weeks after that broadcast, President Babangida appointed me as Secretary to the Federal Government. These clarifications are very necessary because many people thought SAP was brought into the government by me, No! It was introduced and announced by Babangida on December 18, 1985 when I was not even in government. I came into government six weeks later. However, being an economist, a banker and a former director of economic planning for Nigeria and as the SFG, it was often my duty after cabinet meetings, to announce the decisions taken and to explain, where necessary and defend the decisions taken. That was how people saw me as the author of SAP. But because it was in consonance with what me, as a professional economist and banker. I had no difficulty in supporting it and explaining it to the Nigerians.

What was the policy all about?

By importing goods, machine, cars and champagnes which we could not pay for, we had behaved irresponsibly and you must not reduce your consumption to pay your debt. To enable us to earn enough foreign exchange to pay out debt, apart from the fact that what the oil was bringing was no longer sufficient, we had to encourage the production and exportation of other items and also, discourage the importation of non-essentials — that basically was the kernel of the policy and in implementing it, what was done was to put the economy in its real perspective. Before then, the public service was managing the economy and it was dictating the various prices, hence the distortion. When people have too much power, they abuse it. During the civil war for instance, the government introduced price control across the board for cement, beer and newspapers. It was government that imposed the prices which they must be sold. We just overlooked the cost of production and just fixed the price in order to please the populace during the civil war. It was not a sustainable policy. Even after the war, we continued to implement price control and so when IBB, came and SAP was introduced, we said, look, we need to end price control. For example, before the Price Control Board was scrapped, if you sold goods above the controlled price, you would be arrested and your goods would be forfeited. We felt that was an oppressive policy. So, SAP ended price control regime in Nigeria.

Also, before SAP came, the Central Bank of Nigeria fixed the exchange rates administratively. It determined the rate at which naira would be exchanged to other foreign currencies; we insisted with SAP that actual transactions must determine the demand and supply. That was what brought about the Second Tier Foreign Exchange Market.  Let those who want to buy dollars for the purpose of importing goods into Nigeria for their manufacturing industries, apply to their banks, so that both the CBN and the commercial banks would know how much foreign currency was on demand. They would then look at how much dollar we had earned from oil and compare it to the manufacturers’ demand. The interaction of the two would then determine the exchange rate. This is the most realistic, non-arbitrary way of doing things.

Another price which was being arbitrary fixed was the price of produce. To be able to pay up our foreign debts without surrendering our sovereignty, we needed to earn more forex because the marketing board controlled all produce, and their prices since 1945. What they were paying to the farmers were below market price, they were below the cost at which the farmers was producing the items, so what farmers did was to abandon their plantations. The cocoa, oil palm and rubber plantations were deserted by the farmers. They went to the towns and became labourers, messengers and security guards. Their plantations reverted to bush. The production of cocoa for example, fell from over 200, 000 tonnes to about 80, 000 tonnes. This was because it did not profit farmers to waste labour and chemicals on their crops only for the produce to be bought from them at ridiculous prices that did not meet up with the cost of production.

How did SAP come into this?

We said to be able to export more agricultural produce and earn more forex, and pay our debts, we must allow our farmers to sell their produce at any price they could get. Nobody should tell the farmers the price at which they will sell their farm produce.  Let the market determine the price. It then became necessary to scrap the marketing board and allow the farmers to sell their produce to whoever pleases them. Let me take cocoa for instance, before then, the price of cocoa was about N4, 000 per tonne in 1986 but when the marketing board was scrapped, it immediately went up to about N50, 000 per tonne and before we knew what was happening, Nigerian cocoa was being smuggled to Benin Republic because they were getting higher prices there but the smuggling stopped because the price in Nigeria became higher than that of Benin. Instead of using force and arbitrariness to stop smuggling, the  economic forces reversed it. Today, cocoa is sold at N250, 000 per tonne. Since 1986 till date, most of the villages that were hitherto deserted, are now a beehive of activities because the farmers returned when the prices of their produce went up. In those days you could not find a motorcycle owned by any farmer in the village but today, there is no village on the way to my farm that you will not have two to three cars owned by these resident farmers. These are proofs that the SAP worked positively. The policy worked.

But there was gross abuse of the forex under SAP.

Yes, I agree that there was an abuse of the forex policy. It was the gross abuse of forex that made people to demand for the scrapping of SAP without looking at how it had positively affected the farmers who are the majority. Millions of urban traders and petty traders who were being victimised and harassed by the price control board were freed and they are happier today. But because we the elite were the ones who imported cars and electronics, as the exchange rate went up, they started screaming and shouting but the silent majority in the rural areas did not say a word. From 1987 until 1990, the exchange rate did not exceed N5.50k to one America dollar. I don’t know what happened soon after I left office; it just went up from N5.50k to N12, to N22 to N36 and on and on like that. What we suspected was that guidelines were not enforced and abuses came in. For instance, the method of selling forex itself promoted the over devaluation of the naira. If a customer needed a $100,000 in a bank, he would apply for $500,000, hoping that they would end up giving him $100,000. To that extent, the amount of dollar requested was artificial. Secondly, CBN would ask the commercial bank to direct the customer to pay to CBN, the naira equivalent of $500, 000 which he requested for. After the allocation,  such a bank may be allocated $50,000. The naira which had been paid to the CBN after some time would attract interest and the interest had to be paid for. So, when the price is being given, it will not be at the regulated exchange rate, interest rate would be added to the naira equivalent which they had deposited before the allocation was made. That sharp practices further devalued the naira.

The other part was round-tripping- there were lots of people who were not really into importation business but would apply to their banks, get the dollars at may be, N10.00 to $1. They would send it abroad and bring it back as black market at the rate of N20 to a dollar. A lot of people made money through this process. The management or the administration of the exchange regime, helped devalue the naira due to corruption.



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