Godwin Emefiele, CBN governor


For some personal reasons, I had refrained from delving into Nigeria’s most economic headache – the value of the naira. As a financial journalist and writer, that would appear odd, self censorship and willful dereliction. Not so really! There was a reason for it. This subject is at the centre of a forthcoming book and it would amount to a dissipation of energy. But last week, my Publisher forced the matter on me and here is a sampler from what is coming very soon. The caption is his, the rider is mine…

Managing the exchange rate of the naira has been the most troublesome and intractable aspect of the economy. Since the first experiment with price modulation in 1986, the naira has been a victim of mismanagement. It has dropped in value from N1.2 in 1986 to N380 per dollar today, over 31,666 percent. The simple reason is that we have politicised it as most things here; and unable to determine what concrete objectives are paramount. Whether under military or civil rule, it has been subjected to political consideration and group interests.
So, one would easily sympathise with Mr. Godwin Emefiele, the Governor of Central Bank of Nigeria for the daunting task confronting him; although he is not the immediate cause of it, he is partly liable and responsible for his troubles. What he is going through is a consequence of others CBN governors’ actions or inactions, which have crystallized ultimately now, as life is wont to do. Both Soludo and Sanusi set the stage; but he ensured his own downfall.
In 2018 the two former CBN governors made a joint statement warning of the consequences of the continued defense of the naira against other currencies, insisting that it was not only unsustainable but a needless waste of scarce resources, particularly in foreign exchange. They were right, and it was a timely warning, but they were also guilty of the same charge as CBN governors. During their tenures, they turned a deaf ear to similar warnings from others including the IMF. Who then made the judge?
What did they know after leaving office that is new from then; or Emefiele is doing that is different from what they did during their terms? What stopped them from doing what they are asking the current governor to do, when he is merely following their footsteps? Emir Lamido Sanusi spent $36 billion defending the naira; Emefiele has also spent about $34 billion before the current crisis. So, what makes one better or different from the other?
Managing the foreign exchange rate is not as complex, complicated and inscrutable as we have made it in Nigeria. Foreign exchange trade is a market and very market is guided by a simple rule called demand and supply. It is what economics is all about, and when we try to determine and manipulate the law to our narrow purpose, we invariably distort it by introducing some subjective cum political variables, which in the end defeat our purpose.
Elementary economics teaches that when demand is higher than supply, price will go up; and when the reverse is the case, price drops. What is so difficult about this simple logic? Now, I am aware that it may sound too simplistic; and some people may ever accuse me of ignorance. Fair enough! The fact is that stripped of all the economic jargons and perplexing verbosities, economics basically is about demand and supply. How it is applied is only details of particular considerations.
Unnervingly disconcerting situation is why most economies in the world are in the throes of one crisis or the other? Why are otherwise brilliant economists like Prof. Soludo, Sanusi and Emefiele – maybe not an economist, it doesn’t matter – are unable to provide viable policies that produce sustainable economic and financial stability? Unfortunately, the answer is neither in the problem nor their intelligence; but in themselves and their humanity.
Outside of the CBN, the country has had some of the finest brains in economics handling its economic affairs, such as Prof. Tunji Aboyade, Prof. Adebayo Adedeji, Dr. Idika Kalu, Dr. Chu Okongwu, Dr. Shamsudden Usman, Dr. Ngozi Okonjo Iweala, to mention but a few, and we are still in the hole economically speaking. So, what is the problem and how can we escape this vicious cycle?
Dr. Henry Hazlitt provides some of the answers to this puzzle. He spent 38 years as a financial journalist with several U.S. newspapers, including Wall Street Journal and New York Times. In 1946, he published a book, Economics as One. His main thesis is that economics in public policy is steep in fallacies, which surprisingly defeat its common purpose. The centrality of this is what he called the fallacy of overlooking secondary consequences.
According to him, economics as a subject of public policy is haunted more by fallacies than any other subject of study known to man. This is no accident. The inherent difficulties of the subject would be great enough but they multiply a hundredfold by the specific pleading of selfish interests. While every group has certain economic interest identified with those of other groups, every group has also interests antagonistic to those other groups.
However, there is the persistent tendency of men to see only the immediate effects of a given policy or its effects only on a special or specific group; and to the neglect to inquire what the long run effects of the policy will be not only on that special group but on all the groups. It is the fallacy of overlooking secondary consequences. And this has to do with the nature of the economist, and not economics itself. This is the main problem with managing the foreign exchange – the lack of appreciation of secondary long term consequences.
“In this lies almost the whole difference between good economists and bad. The bad economist sees only what immediately strikes the eye, inflation for instance; the good economist looks beyond. The bad economist sees only the direct consequences of proposed course; the good economist looks also at the longer and indirect consequences”, e.g. privatization policy. “The bad economist sees only what the effect of a given policy has been or will be on a particular group; good economist inquires also what the effect of the policy will be on all groups”, e.g. subsidy on petroleum products.
The distinction may seem obvious. The precaution of looking for all the consequences of a given policy to everyone may seem elementary. Doesn’t everyone know, in personal life, that there are all sorts of indulgences delightful at the moment but disastrous in the end? Yet, when we enter the field of public economics, these elementary truths are ignored.
There are men regarded today as brilliant economists, who deprecates savings and recommend squandering on a national scale as the way of economic management, like continued subsidy and defending the naira; and when everyone points to what the consequences will be in the long run, the reply flippantly, as might the prodigal son of the warning of a father, “In the long run we are all dead”; which forms the basis of Keynesian or public sector economics.
But the tragedy is that on the contrary, we are already suffering the long term consequences of the policies of the recent past. Today is already tomorrow, which the bad economists of yesterday urged us to ignore – in this case, as both Soludo and Sanusi did in defending the naira..
The long term consequences of a policy may become evident in a few months or years; other may not until several years later. But in every case, those long term consequences are contained in the policies as surely as a hen was in the egg. Whether we anticipate such consequences is immaterial; the point is that they will confront us willy-nilly. And they with the castration of the naira, given dollar scarcity.
From this aspect therefore, the whole of economics can be reduced to a single lesson; and that lesson can be reduced to a sentence: “The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy. It consists in tracing the consequences of that policy not merely for one group but for all the groups”.
This is primary factor in the dismay performance of most economic policies in the world today – the preoccupation with the immediate and short term consequences of policies driven by the dictates of the electoral cycle; and possibly explains why the seemingly undemocratic countries perform better arguably economically than the so-called democratic. This is the point also made by Nigerian scholar and former Goldman Sachs’ economist, Dr. Dambisa Moyo, brilliantly in her recent book, The Age of Chaos.
The converse is also true, so both should be balanced on the basis of greater benefit to society. This has been the concrete failure in managing the exchange rate of the naira: The tyranny of the immediate effect. Most economic policies are dominated by the short term considerations. It is often said that bad economists present their economics to the public better than the good economists present their truths.
The reason is that bad economists and demagogues often present half truths. They are speaking only for the immediate effects of a proposed policy or its effects on a single group . And this tendency has its long term consequences for everybody and this is more attractive to people given our shortsightedness and self interests.
However, there is always the need to supplement the half truths with the other half. But the challenge is that finding the missing other half requires long, complicated, and dull chain of reasoning, and most audiences are often not ready or prepared for such or to wait long; and government or public officials also may not also have the luxury of time to undertake such elaborate diagnosis. In the end, we are all losers.

Next week: Why the worse is still ahead? Stay tuned! [email protected]