Soludo: Stock Crashes Not Preventable

Former Governor of Central Bank of Nigeria (CBN), Prof Chukwuma Soludo, Tuesday admonished Nigerians to stop crying over split milk in the aftermath of the global financial meltdown and its impact on the Nigeria capital market. Instead, he said stock market crashes could not be prevented, irrespective of the amount of ‘reforms’ or ‘regulation’ injected into it.
Soludo, who made the declaration when he appeared before the House of Representatives Committee investigating the near collapse of the capital market, said: “If the essence of this public hearing is to prevent the capital market from crashing again, then this Ad hoc Committee had better be transformed to a Standing Committee because there would be another crash.
“Someone is complaining of the rain that beat him yesterday , but look at the sky and another is threatening to start,” he said.
The former CBN governor said though the global financial meltdown impacted negatively on the capital market, Nigeria did not experience an economic recession like some other countries because of the consolidation of the banking sector and the ability of the banks to absorb the worldwide shock.
He said another strong pillar which saved the Nigerian economy was the sustained growth of the country's foreign reserves before the crisis. According to him, the foreign reserves grew to $64 billion while the economy still grew positively by about six per cent even at the peak of the global financial crisis.
He said rather than looking for scapegoats over the crisis that hit the economy, Nigerians ought to get back to serious business and learn from the experience of other countries that passed through a similar problem.
“Given the frenzy in the market before the meltdown, it was clear that the market was going to correct itself one way or the other. The only thing was that no one knew when, how and by how much,” he said.
He blamed the crisis partly on the political economy of Nigeria which he said had been characterised by policy inconsistency that makes the economy take one step forward, three backwards.
“The Stock Exchange cannot be better than the systemic competitiveness of the economy. Investors are not stupid so when the market was booming, Nigeria was not rated No.14 failed state in the world. But see all the reversals of privatisations and other policies. The stock market is simply a barometer,” he said.
Soludo expressed disappointment at some of the analysis and proposals on the capital market and what may have led to its
troubles.
He said proposals presumed there was a 'target level' for the market, and that it was performing below its potentials while some have notions of achieving an ‘equilibrium’.

“How are we sure that the Market is not just reflecting the fundamentals of the economy? What kind of market do we want— a market that leads the economy or that follows the economy? Let us define our target or destination and how far we are from it before we know the appropriate vehicle to reach there!
“How come that since three years and with monthly oil price averaging $100 per barrel and over 2mbd, and with all the 'reforms' in money and capital markets (supposedly there is no more lax regulation/supervision) and despite Dangote's over N2 trillion listing which lifted the Market Cap over N8 trillion, the Market Cap is basically today at the level I left it three years ago?”
In a veiled response to criticisms trailing his regime at the apex bank, Soludo said contrary to the insinuations in some quarters that the CBN failed in its regulatory responsibilities, the bank during his tenure had zero-tolerance for infractions and was accused of over-regulation by some operators.
“Where there are lapses, I would be honest to admit but for anyone to insinuate that there was some lax in regulation, I take strong exception to it.
“There was not one conclusive evidence of wrongdoing that was brought to our knowledge that we did not take action but we made sure we followed all due process,” he said.
Soludo told the Committee that it was the zeal to resolve the then emerging challenges in the banking sector that the CBN under his stewardship proposed the establishment of the Asset Management Company of Nigeria (AMCON) in 2004.
He said when the first draft bill on AMCON was delayed by the National Assembly for years, the apex bank’s determination to restructure and strengthen the banking system did not wane as it took other measures to regulate the sector.
He said the road to the future was for the government and regulatory agencies to rebuild the confidence of investors in the market. According to him the first rule is for one to keep silent if one has nothing positive to say about the market.
Meanwhile, Minister of State for Finance, Mr. Yerima Ngama, situated the crisis which hit the capital market on insider abuses and poor regulatory framework. He also scored the Securities and Exchange Commission (SEC) low.
http://www.thisdaylive.com/articles/soludo-stock-crashes-not-preventable/115913/