Godwin Emefiele’s re-nomination for a second five-year term and swift confirmation as Governor of the Central Bank of Nigeria perhaps reflect President Muhammadu Buhari and the Senate’s confidence in his stewardship. He is the first CBN governor to secure reappointment since the return to civilian rule in 1999 and also becomes the first known key player in Buhari’s incoming second term economic team. The last five years have been bumpy for the economy and traumatic for business and the larger population, requiring Emefiele to do better with his fresh mandate by taming inflation, interest and exchange rates and stimulating critical economic sectors.
While the President, who was uncharacteristically prompt in re-appointing him, and the Senate appear to have scored him well in his first term, opinions are divided among other stakeholders. Undeniable, however, is that some measure of stability has pervaded the financial sector despite a recession, contraction in businesses, foreign investment and draining of substantial government cash from the deposit money banks through the Treasury Single Account. More crucial now is the way forward for a disarticulated economy, featuring a weakened financial system, indebtedness, depressed productive sectors, import-dependency and depletion of foreign reserves to protect the national currency from a free fall. He has also stood firm in his ban on direct forex sales for 41 import items and on multiple forex windows despite strident protests.
The past five years have been marked, until recently, by tumbling oil prices and reserves, fiscal brigandage by the then government that mercifully bowed out in mid-2015, borrowing, a recession and exchange and interest rate volatility. At a stage, $1 dollar exchanged for N520, while reserves fell precariously to just above $20 billion from the $32 billion he had inherited in June 2014, forcing many businesses into distress. Interest rates, once dipping to between 15 and 22 per cent, spiked again to high double digits and have remained stubbornly so. A summary of prevailing lending rates the CBN published last week revealed how credits to productive sectors still reach 29.5 per cent for agriculture, 30 per cent for mining, 29.5 per cent for manufacturing, real estate 35 per cent and construction over 30 per cent. An economy where banks charge 36 per cent interest for power and energy business cannot soar, or drag the 91 million wretchedly deprived among us out of poverty.
To Emefiele’s credit, the CBN was able to stabilise the naira exchange rate, though at the expense of our reserves, from which it drew over $1 billion in the 12 days to February 9, 2015 and almost $11 billion in the first 10 months of 2018, to protect the currency, a continuing trend in the face of reliance on volatile oil prices and a weak export base. Despite criticism of its multiple exchange rate windows, convergence of official and inter-bank rates have been maintained, while inflation, which rose from 11.25 per cent in March to 11.37 per cent in April, could have been worse.
One blight on his watch is the laxity of regulation and rule enforcement. Nigerian banks, once tamed by his predecessor, have once more become predatory, breaking rules with impunity. Even when senior bank officials have been caught or have confessed to brazen violation of money laundering laws, punishment has been lax or never more than a mere slap on the wrist. Elsewhere, regulators come down hard on malfeasance. Last week, the European Commission hit five global banks with a combined $1.2 billion in fines for forex malpractices; in South Africa, a $1.04 million fine on HSBC was followed with the prosecution of Standard Chartered Bank for currency manipulation. Non- or late remittance of revenue collected on behalf of the government, forex round tripping, arbitrary charges on customers’ deposits and routine flouting of money laundering laws perfuse the banking sector with the CBN appearing helpless or unwilling to invoke appropriate sanctions.
With his renewed mandate, Emefiele should set to work immediately to achieve the five-year plan he unfurled, among which is to “aggressively” pursue policies to diversify the economy. First, he should be very jealous of the autonomy the law has granted the CBN; while he needs to cooperate very closely with the Executive that controls fiscal policy, to steer the economy to growth, he should insulate the bank from crass political influence. He should faithfully complement his solemn promise to come down hard this time on economic saboteurs and rule breakers.
The primary mandates of a central bank are to control money supply – managing interest rates and inflation, foreign exchange and reserves. As the formulator and implementer of monetary policy, he should step up creative efforts to protect the naira from free fall, sanitise the banks and impose maximum penalties on errant operators and bankers. He should instil better risk management practices into the CBN intervention funds like the Anchor Borrowers Programme credited with the rice production revolution, to ensure they are not diverted or un-repaid. More; all those who collected funds in the past should be made to repay, the scandal of the N5.4 trillion unpaid credit on the books of the Asset Management Company of Nigeria, the “bad bank” that has recovered only N1 trillion from recalcitrant debtors, should be corrected.
The CBN should enforce its writ; the DMBs and other financial institutions should be made to comply with the rules. Instead of warnings not backed with sanctions, it should be prompt, impartial and professional in punishing offenders like Chinese regulators who in 2017 imposed fines and confiscated illegal income from 13 financial institutions for malpractices.
To succeed, an emerging economy has to direct low interest rates to the productive sectors, tame inflation and fashion an efficient financial system. Given the notorious profligacy of Nigeria’s federal and state governments, incompetent and erratic policymaking, the task is daunting. Emefiele, however, can still make a difference by reforming the CBN into a nimbler, professional and technology-driven institution that can leverage its independence to fulfil its mandate.