Stakeholders disagree with PDP on CBN

Stakeholders in the nation’s monetary policy sector have disagreed with the opposition Peoples Democratic Party, PDP and its flag bearer, Alhaji Atiku Abubakar over their reported plan to adopt a policy of floating the naira and sack the Governor of the Central Bank of Nigeria if elected.

According to them, given the problems that the naira had suffered on account of earlier attempts at floating it, it was very necessary now to seriously interrogate the proposal of the PDP flag bearerin the overall interest of the nation and the management of the national economy.

Speaking on the subject of his proposed economic direction for the nation if elected, the Peoples Democratic Party (PDP) flag-bearer in the 2019 presidential elections, Atiku Abubakar, had in January affirmed that he would overhaul the current monetary policy regime in the country as part of his policy proposals to ‘stabilise the market and strengthen the economy.’

“I would prefer to float the naira, because I believe that will bring about a more stable exchange rate. Therefore, foreign investors are more likely to return to Nigeria and invest as much as possible,” the PDP flag-bearer had told The Africa Report.

But stakeholders and commentators are not in agreement. Responding to the proposal, notable economist, Mr. Boniface Chizea says that it would be necessary to go down memory lane to find out if this is indeed the best way to manage the Nigerian economy today.

Recalling that the first time the idea of a naira float was broached in Nigeria was during the era of the Structural Adjustment Programme, SAP in the mid-1980s, Chizea notes that if the experience of that period is indeed anything to go by, then we really need to tread very carefully on the subject.

Specifically, he recalls that one of the impacts of the float programme was an immediate spike in the rate of exchange:

‘It is on record that overnight the rate of exchange of the naira depreciated from 22 to 86 naira to the dollar. This action unleashed unimaginable levels of distortion on the economy as prices of products suddenly skyrocketed, causing runaway inflation. To compound the situation, the fact that an official window was left open at the rate of exchange before the SAP-induced devaluation and which ran at 22 naira to the dollar for official transactions, provided a rent seeking opportunity for economic agents in proxy positions to access, and with the foreign exchange management thoroughly abused, round tripping became the order of the day.’

Arguing also that fundamentally, the idea of market forces freely determining the rate of exchange of a currency was indeed an illusion in real terms, Chizea points out that this was also a major challenge that the economy faced in the first year of the Buhari administration when the rate of exchange between the naira and the dollar spiked to the N500 region.

It is in appreciation of this that since July 2016, the Central Bank of Nigeria has adopted a monetary policy regime which permits it to periodically tighten liquidity supply in the economy as a means of stabilising the exchange rate.

Specifically, some of these interventionist measures have included increasing the Cash Reserve Ratio (CRR) on public sector deposits and taking steps to equally control the monetary policy rate (MPR).

Pushed to the wall

One other aspect of the PDP position that stakeholders find to be worrisome is the declaration by Alhaji Abubakar that if elected, he would relieve Mr. Emefiele of his job as helmsman at the CBN. In their view, while it is in the ordinary order of business for incoming Presidents to choose who they want to work with, it was really not necessary to single out the incumbent CBN Governor for censure at this point given that it had not come to the point of picking the governing team. In addition, they point out that the CBN does not fit into the frame of the regular organs of government whose leadership can be so casually and politically chosen or replaced.

Sources within the apex bank confided in Business Hallmark that it is with a view to helping to put the issues in perspective that the Board of the CBN had given approval for the Governor to respond to the statements made by the PDP flag-bearer. According to them, there were indeed two things at stake: one, the policy positions that the bank had taken needed to be defended; and two, the personalization of the discussion into the arena of whether to keep or sack the Governor also needed responding to.

Indeed, not only did the matter crop up at the board level, it, and the related issue of opening up the space for goods of all types to come into the economy, also featured as an item at the January Monetary Policy Committee, MPC meeting. On the untrammeled free entry of goods into Nigerian markets, Emefiele said:

“The MPC came to a conclusion this was a wrong premise. We cannot be talking about allowing imports of items that can be produced in-country today, exporting jobs from Nigeria to foreign countries, and we say we have the interest of Nigeria at heart. We do not agree with anybody on that. It is a wrong premise to say he will allow imports to just flood the country just because he wants to please anybody. That is not in the country’s interest.”

And on the proposed free-floating of the currency market, Emefiele also reported the MPC’s opposition:

“The implication can better be imagined. It will certainly lead to capital flight, massive depreciation and devaluation of the Nigerian currency, and ultimately lead to a currency crisis in Nigeria. We should all know that it is the route to perdition to ever go in that direction.”

Time for a referendum?

But even beyond the politics of the moment, on the sidelines of the ensuing debate is the question of a referendum on the performance of the incumbent CBN Governor, whose tenure in office would come to a close in June 2019. How well has he performed  and should his tenure renewed?

Upon his emergence on June 3rd, 2014 as Governor of Nigeria’s apex bank, not much was really known about the policy dispositions of Godwin Ifeanyi Emefiele, who was stepping into the position after the era of Mallam Sanusi Lamido Sanusi had been controversially truncated by the Goodluck Jonathan presidency. Yes, he was a ‘bankers banker’ and was coming to the office from the headship of one of Nigeria’s biggest banks, but hisbelowthe radar roles at Zenithdid not give many policy buffs and analysts much to hold on to. However, his relatively quiet disposition and somewhat solid entrenchment in the nation’s banking sector helped calm the market tensions that had almost boiled over on account of the untidy management of his predecessor’s exit.

But then it is one thing to step into office and another to take the blows. With the lingering crude oil price volatility that was the lot of the Nigerian economy at this time, and a slowing growth momentum overall, it was up to Emefiele and company to do something fast!

Given the almost superfluous role that politics has tended to play in our national life and affairs, the fact of Emefiele coming into office even in the gathering heat of the 2015 polls, meant that the CBN under him was clearly going to be a fire-fighter. With scant control over the twin component of fiscal policy, and with the imperative of ensuring that the economy did not blow over in the frenzy of election spending, the apex bank had to push on all fours to hold down the brakes.

Rising to the challenge, the new helmsman promised to “pursue a gradual reduction in key interest rates, and include the unemployment rate in monetary policy decisions; maintain exchange rate stability and aggressively shore up foreign exchange reserves.”

Elections over, and with the new government grappling to find its feet, the burden on the CBN increased. Not helped by the reality of having to manage a mono-commodity economy in a season where prices remained most volatile, where the import bill continued to balloon and with rising inflation, it was clear to all that the managers of the apex bank clearly needed all the wits they could find. As Emefiele himself would be caught randomly saying: “it’s not easy.” And it really was not.

One sympathetic voice that has helped put the issues in better light is the respected economist, former University Vice-Chancellor and incumbent Director-General of the West African Institute for Financial and Economic Management, Prof. Akpan Ekpo. As he surmised:

“Within these periods, CBN as an institutionhas become the whipping child. Nobody is remembering the fiscal side of the economy.

“For moderate critics, he is trying and needs to do more. But at the extreme, he is the cause of the crisis, exonerating years of executive financial rascality, poor budget implementation, and poor and near absence of infrastructure and volatile oil prices.

The point is that no single economic policy has been without side effects and economists have never agreed on one single dose policy prescription. So, whose own would have worked better?

In fairness, he and his team have had so much to contend with in these years- particularly the headwinds that saw the economy plunge into a recession.”

For the well-regarded industry player and Chief Executive Officer of Cowry Securities Limited, Mr. Johnson Chukwu, the core of the matter is that the Nigerian economy is embroiled in the fundamental bind of being a hamstrung mono-product economy and as such, it has had very little elbow room within which to manoeuvre:

‘We have to look at the circumstances under which the CBN has grappled with the monetary policy. We should also consider the lacuna that has been created by the fiscal authorities. Then there is the overriding point of Nigeria being a mono product economy. The CBN has been struggling to manage an economy that is burdened with a lot of challenges. In fact, there is nothing special that the CBN could have done in a situation as the one Nigeria has found itself. Given all the variables, one could say that the CBN has done reasonably well, Chukwu told this reporter in a telephone interview.

For context, it may be necessary to throw in a few points of statistics. For example, at Mr Emefiele’s assumption of office, monthly foreign exchange inflows into the CBN was in the neighbourhood of $3.6 billion. This plummeted sharply to less than $700 million per month. At about the same time, the forex demand was about $4.8 billion monthly.

It is within this fire-fighting mode that CBN introduced the somewhat controversial policy of excluding 41 goods and services, which it assessed as capable of being produced locally, from accessing forex at the interbank market.

But when some of these measures only brought in scant relief, the CBN moved ahead to introduce new foreign exchange and currency management guidelines in June 2016. As explained by Emefiele, ‘a general operational principle of this new exchange rate framework is that forex currency will be traded in the inter-bank foreign exchange market through the platform of the Financial Markets Derivative Quotation (FMDQ).’

When speculators began to abuse this window to the extent of the naira weakening to an all-time low of about N525/$1, it was time to take out all of the gloves. Direct and aggressive intervention was needed.

In February 2017, CBN released a new policy guideline that was arrived at after a diligent study of challenge at hand, and particularly as it had to do with accessing funds for foreign exchange transactions for Personal and Business Travel, medical needs, and school fees. Categorised as the invisibles category, the idea then was to open windows to address them even while providing direct funding for the backlog of matured letters of credit at the inception of the current flexible exchange rate system.

Taking practical measures to clean up the invisibles pressure, the CBN moved to fund commercial banks to be able to meet the forex needs of personal travel allowances while also directing banks to open FX retail outlets at major airports.

Impressed by the relief introduced to the market by the apex bank under Emefiele’s leadership, the Chairman of United Bank for Africa, Tony Elumelu, has also lauded the incumbent Governor on his achievements.

Similar plaudits have come from the President of the Dangote Group, Alhaji Aliko Dangote, who affirms that the intervention of the CBN under Emefiele in particularly the agriculture and real sectors of the economy have been most impactful.

Some of these intervention schemes are the Commercial Agricultural Credit Scheme (CACS); Agricultural Credit Support Scheme (ACSS); Agricultural Credit Guarantee Scheme Fund (ACGSF); and the N213 Billion Nigerian Electricity Market Stabilisation Facility (NEMSF).

There are also the N300 Billion Real Sector Support Fund (RSSF); the Youth Entrepreneurship Development Programme (YEDP), the Micro, Small and Medium Enterprises Development Fund (MSMEDF) and perhaps the most visible of all, the Anchor Borrowers’ Programme (ABP).

Equally noteworthy is the National Collateral Registry (NCR) scheme, a financial infrastructure that allows MSMEs to leverage the greatest part of their assets (movables such as crops, vehicles and machinery) as collaterals for loans for growth. Domiciled in the CBN, the NCR is a collaborative project between the CBN and the International Finance Corporation (IFC).

Above everything else however, the final point in all of this would be that at the close of the day, Mr. Emefiele and indeed the Central Bank would be assessed in relation to their core impact on the citizenry as bankers to the nation. This is a point that is even now not lost on the incumbent helmsman at the bank:

“We (the CBN) are apolitical. We will remain apolitical. We do not want anybody to drag the Central Bank into issues that are within our realm of interest, otherwise, we will respond to it.” ‘End of discussion.’