Media reports, confirmed in July 2008, that the Presidential Committee which probed the $480 million which CBN invested in Africa Finance Corporation (AFC) had completed its investigations.  The Presidency established the Committee to address government’s concern on the role played by the CBN Governor, in the formation and funding of AFC.  After what appeared to be a painstaking audit exercise, over three months, Tunde Ogunshakin, the Committee Chairman, disclosed that CBN’s equity contribution was actually $462.923m.  The panel’s report however condemned the CBN Governor, Professor Chukwuma Soludo’s appointment as “Chairman of the AFC in his personal capacity, as a clear violation of Section 9 of the CBN Act 2007 which bars principal officers of the Bank from holding any office by virtue of their respective offices”  

The erudite scholar may also have overplayed his hand in the withdrawal of the said $462million investment in November 2007 without bringing President Yar'Adua into the picture. Soludo’s defence that former President Obasanjo approved the disbursement a few days before he left office, in April 2007, certainly begs the question; the fact that six Nigerian banks also contributed about $551m as equity does not also justify the absence of due process in the establishment of AFC with public funds. Indeed, the Presidential committee alleged that Austin Ometoruwa, the AFC’s CEO was arrested for allegedly “shuffling funds around without due process”; apparently, also, liberally spent $1000 daily on his hotel accommodation for over one year. Furthermore, it is plausible that all six investor banks may also have been the same beneficiaries of CBN’s unusual placement of $7bn in 14 Nigerian banks a year earlier.

The Investigative Committee similarly condemned the apparent sourcing and use of funds by AFC, and confirmed that CBN’s equity was also funded with income from the sale of government’s treasury bills; furthermore, the committee’s report noted that all AFC funds were invested in money market instruments in Nigeria, but described the manner of operation as round-tripping at best and money laundering from a criminal perspective!

Curiously, Nigeria’s commercial banks’ have continued to post bountiful returns from the very profitable shenanigans from the risk free venture of lending to government, money that the same CBN and other government agencies earlier deposited with them.  Regrettably, the service charges for such borrowings, which sole purpose is to reduce the level of systemic excess Naira supply and hold back inflation, may exceed N800bn in 2008.  

Conversely, however, the Investigative Committee revealed that instead of sterilizing the excess funds from use, to restrain inflation, unexpectedly, part of these funds was actually, inappropriately diverted into funding the AFC.  The begging question therefore is, since AFC’s equity was denominated in dollars, how did CBN obtain the foreign exchange equivalent for the ‘stolen’ Treasury bills income? 

Invariably, CBN must have gone into the forex market with a horde of over N50bn (enough capital base for two banks) to source the dollar equivalent from Bureau De Change (BDCs)!  It is inexplicable that, CBN with it’s over $60bn reserves would resort to the ‘humble’ BDC to re-purchase dollars at parallel market rates to fund its equity in AFC!  “What is going on here?”  You might ask!  Incidentally, the CBN, against the nation’s economic interest, had prodigally sold over $5bn to BDCs between January - June 2008 to deliberately encourage treasury loot and capital flight?  Has anyone ever heard of the Bank of England or the US Federal Reserve making direct allocation of forex to BDCs on their high streets? 

So, we have an idea of how AFC funds were consolidated, but the question is for what were these funds applied and what benefits did Nigerians derive?  Well, in an open letter published in the media, Austin Ometoruwa, the recently suspended CEO of AFC, confirms that the “AFC … sought to optimize earnings … by investing part of its short term naira instruments, thereby taking advantage of higher domestic naira interest rates versus those for US dollar deposits”.  See Vanguard pg. A3 4/8/2008!    In plain language, this implies that AFC dollars purchased with Naira income from government’s Treasury bill auctions, found its way back to the black market, where, it was again converted to naira, presumably through collaborative banks and BDCs; thereafter, the resultant naira sums were then used to purchase CBN treasury bills with more profitable average yields of 10percent compared with less than 1percent paid on such risk-free instruments abroad!

With such a transaction model, the AFC with Soludo, doubling as life Chairman and CBN Governor respectively would become major beneficiaries of increasingly higher interest rate regime in Nigeria’s capital market, despite the pain from the excruciating burden of such interest rate level on employment, SMEs and the wider real sector. Consequently, it would be against the interest of Prof. Soludo’s AFC, if the problematic systemic Naira liquidity surplus can be minimized to bring down interest rates! I have maintained that the adoption of strictly dollar certificates for payment of dollar allocations to government will tame the rampaging ghost of excess liquidity and strengthen the naira, but again, such salutary results would certainly not favour the parochial interests of AFC and its partners!

If the EFCC finds nothing wrong in all this, it would have done disserve to its image as a financial crimes fighter. The indictment of United Bank for Africa, in a criminal case in the United States, as a party, to this scam of round-tripping attracted a penalty of $15m fine on the Nigerian bank and subsequently actually also compelled the follow-up investigation by the special committee set up by President Yar'Adua.”

The above is a summary of this writer’s “AFC, ROUND-TRIPPING AND EFCC”, an article published in the Vanguard Newspapers on August 8, 2008.  

In spite of the recognition of the obvious collusion between some banks and the CBN Governor in the above scam, nothing more was heard about this case.  However, revealingly, in March 2009, newspaper publications of beneficiaries of CBN’s forex sales confirmed that AFC, which the Presidential Committee identified as the brainchild of Professor Soludo made remittance of $60m in two installments of $30m. The advertised purpose of the remittances was the AFC’s repatriation of the proceeds of their investment in money market instruments; the transaction evidently corroborates the testimony of Austin Omeruwa, the erstwhile AFC CEO, who we recall, voluntarily revealed, in an open-letter published in the media, that AFC found the market for federal government bills and bonds, with its high interest rates, as the most profitable investment around!”  

Coincidentally, the CBN Governor who also doubled as AFC Chairman at the time was also responsible for determining the much higher yield on such government instruments; consequently, the adverse impact on manufacturing, employment and the increasingly oppressive debt burden on Nigerians may have been traded in for increase in profitability of AFC’s investments. I think the Igbo’s have a saying about the liberty of the man who has both the yam and the knife in his hands to slice the yam as he chooses!

Although late President Yar’adua may have without a prior conviction, inexplicably pardoned Soludo’s financial indiscretions for initially unilaterally establishing AFC, however, it would be fairer reparation if this pardon did not exclude the return of the $60m, which the corporation remitted as proceeds from deliberately round-tripping government funds.
The preceding narrative is without prejudice to the current operations of the AFC, even though with Nigeria’s significant holdings, it is arguable that Nigeria should be the prime focus of the corporation’s interventions and therefore attract at least 50percent of their loan portfolio in Africa.