GO EAST, TO CHINA, YOUNG MAN
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 e looked in the direction of the west, but could see no lights, and the mist, now turning into fog, prevented us from recognizing the landmarks until darkness swallowed us up. It was a bad dream, and so is everything about Nigeria: Many false starts, many false promises, like memories of midnight that fade away at dawn. It has been said that economists are no better at predicting the future than fortune tellers. Perhaps when all the variables are in place, it is worth listening to what economists say about trends and forecasts.
Soludo, our former Central Bank Governor, had in recent years taken giant steps to strengthen and consolidate the fragile Nigerian banking system. Several stages of recapitalization had finally shrunk hundreds of banks, many with less than a billion naira in capitalization to twenty-five relatively strong banks, each with a minimum capitalization of twenty-five billion naira. Since Soludo left, most of these banks have now returned to the capital market to raise money, some have merged, and now we have less than twenty and a couple of these banks could each boast of a few hundred billion naira in capitalization. But before we get carried away in thinking that our banks have arrived, perhaps it is worth putting things in proper perspective. One bank in South Africa (Standard Bank Group) is easily worth twice as much as all the banks in Nigeria combined. And any one of these South African Banks; Absa Group, First Rand, and Nedbank Group, is worth more than all our banks combined.
Wait a minute! I hear someone screaming somewhere in Lagos or Abuja. This is unfair to Nigerian banks; it's like comparing apples and oranges. Well, not quite. South African banks when compared with big banks around the world rank very low in size when measured by sales, assets, or market value. In fact, if you draw up a list of the top fifty banks in the world using any of the three yardsticks mentioned, you won't see a single South African bank on it. Yet most South African banks dwarf our biggest banks in comparison. And we continue to call Nigeria the giant of Africa; Akuko Mongo Park! While we are talking about worldwide banking, I might as well give you some numbers to show what a really big bank looks like. HSBC, a UK bank and only the second biggest bank in the world, (behind Deutsche Bank of Germany in Assets, and Industrial & Commercial Bank of China in market cap) has assets in excess of two and half trillion dollars, and market capitalization of over two hundred billion dollars. In other words, the combined market cap. of all our banks, and everything else that trades on our stock exchange including Dangote's, Transcorp, etc, put together, is less than the market value of HSBC alone. Fellows, we have a long way to go.
I chose my title, Go East, for a reason. Since the near collapse of our banks during the last worldwide economic downturn, Sanusi, our current Central Bank Governor, has done a great job to restructure the banks. It is definitely one good place to start. However, the cost of maintaining the naira at its current levels against the dollar is one thing the Central Bank is doing that I disagree with. When Soludo began tinkering with the naira through a reverse split or what some called revaluation was where I believed he erred, and I wrote an article then in 2007 criticising him. I thought that if Soludo had read the history of many countries that attempted to artificially improve their exchange rate by such a reverse split, the result shows that the currency in question often begins to gradually slide back towards its original exchange rate. Some of these countries, like Mexico, and Ghana, were forced to revisit this strategy ten years later. Lately, I have noticed that Sanusi have been struggling to keep the naira hovering around 156 to the dollar. The truth is that it is costing Nigeria roughly five billion dollars a year just to sustain this current rate, and I believe this expenditure is quite unnecessary.
I have urged Sanusi to look east, not just east, but to China. First, the best monetary policies cannot make us a prosperous nation without the emergence of small scale manufacturing of low tech, cheap goods for the world market. I have articulated these things in an earlier write-up, MADE IN NIGERIA. To do so requires the government in partnership with local entrepreneurs with a clear vision towards an achievable goal. Please I'm not talking about political pet projects like Vision 2020. I'm talking about a committed Nigerian Government, willing to develop a strategy with individual entrepreneurs in mind, and the will to follow through, knowing that tangible and measurable results would not come for many years.
Without the development of our manufacturing sector, tinkering with or trying to support the naira at an artificially high level is a waste of effort and resources. In this endeavour, however, I urge Sanusi and Nigeria to look towards the East. Beyond Japan, beyond the Asian tigers, but specifically at China. China seems to have finally got it all right, doing what no other country has ever done before. No country in history has sustained such a blistering rate of growth over four decades. Since 1978 it has grown by an average of almost 10% a year?more than Japan or the Asian tigers achieved over similar periods when their economies took off.
A close examination reveals that China is doing something remarkably different from Japan and others to allow for an extended period of their economic expansion. In the face of overvalued real estate, fraudulent bank practices, and lack of labour force to sustain such high rate of growth indefinitely, it would be naive to assume that monetary policies alone was responsible for Japan's eventual slump. But it is not far from the truth. Japan's growth averaged 9.5% in the two decades to 1970, but slowed to 4.7% in the 1970s and to only 1% by the 1990s. In the last decade, however, it had remained stagnant, drifting back and forth into recession. In many ways China today looks ominously similar to Japan before the bubble burst at the start of the 1990s. As the Japanese economy grew at record levels for two decades straight, the west mounted pressure on Japan to allow its currency to appreciate. After the Plaza accord between the big industrial countries in 1985, the Japanese yen rose by 80% against the dollar in three years. A couple of years later Japan experienced its bubble burst at the start of the 1990s, resulting in a decade of stagnation. Other factors notwithstanding, it is quite certain that the appreciation of the yen was largely to blame. Even today, their stock market remains at below 50% of its level before the bubble now more than twenty years. Taiwan, like Japan, saw a big rise in its exchange rate, by 60% in the four years to 1989. In 1990-91 the Taipei stock market slumped by 75%, and that was the end of Taiwan's double digit growth. Like Japan and Taiwan before, China is once again under pressure from the west to allow its currency to appreciate. But they studied the past events in Japan and Taiwan, and knew this was a setup. Consequently China has resisted all calls, allowing only about 15% appreciation in their currency since 2005.
It is no secret that a weak exchange rate promotes export while a strong one stifles it. China apparently knew this and wants to keep their currency weak for as long as possible. Even the United States has recorded significant growth in its export since the weakening of the dollar in the past ten years. Why must Nigeria and Sanusi/Okonjo Iweala look towards China for solution? First, to develop sustainable small scale manufacturing bases across the nation, and two, to allow the naira to remain weak if we expect to offer the world cheap products. After all, our main export for the moment, oil, is priced in dollars. And unlike China we have not come under any pressure to allow the naira to appreciate. If anything, the IMF and the World Bank have both advised Nigeria to allow the naira further 10 to 20% devaluation. Their advice came because they understand that it is not in the interest of Nigeria to keep spending over $5 billion dollars annually just to sustain the naira at an artificial exchange rate. Under Abacha, the naira was supported at an official exchange rate of 21 at an unsustainable cost to our economy. After Abacha, the so called official exchange rate was abolished and hell did not freeze over as everybody now buys money in the open market. I also suspect that hell will not freeze over if the naira is allowed to find its natural level against the dollar, which in my opinion is probably somewhere north of 180.
It is said that a child often crawls before he walks. To keep the naira artificially high amounts to sabotaging the potential export benefits that would come if we do the right things that would allow us into the global village market. If we become a player in the world economy and enjoy its benefits for twenty or thirty years, we could, like Japan and Taiwan, succumb to international pressure one day to allow the naira to appreciate. Until then, while I encourage Sanusi's efforts to strengthen our banking system, I think that sustaining the naira at an artificially high level amounts to attempting to walk before we can even crawl. Perhaps we need to look towards the east?to China.
 Michael Nnebe is a former Wall Street Investment Banker and the Author of several novels, including; Every Dream Has A Price, Riverside Park, Blood Covenant, Gloomy Shadows, Passing wishes, Prime Suspect, and others.
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