Two Years of Emefiele at CBN
By Obinna Chima
The Central Bank of Nigeria (CBN) Act of 2007 charges the Bank with the overall control and administration of the monetary and financial sector policies in the country. Although the four key objectives of the CBN include to ensure monetary and price stability; issue legal tender currency in Nigeria; maintain external reserves to safeguard the international value of the legal tender currency; promote a sound financial system in Nigeria; and act as banker and provide economic and financial advice to the federal government, the Bank has continued to perform major developmental functions, focused on all the key sectors of the economy.
Central banks in developing economies aim at the promotion and maintenance of a rising level of production, employment and real income in the country. This they do by working in alignment with the fiscal authorities for effective policy transmission.
Indeed, in his inaugural speech titled “Entrenching Macroeconomic Stability and a Engendering Economic Development in Nigeria,” the CBN Governor, Mr. Godwin Ifeanyi Emefiele, who on June 3, 2016, marked his second year on the saddle as head of the central bank, made public his intention to pay significant attention to the development finance role of the CBN by supporting efforts of the fiscal authorities.
“Additional measures would be required towards identifying productive sectors of the economy and channeling credit towards these sectors, while imposing proper monitoring and performance measures in order to ensure that the goals of increased employment and poverty reduction are attained.
“This will require a review of the Bank’s development finance programme, the participatory agencies responsible for the disbursement of funds, improving our monitoring capacity and developing performance targets relevant to our focus on generating employment and poverty reduction. To be effective, the measures taken by the Bank will not work in isolation. We will work with the fiscal authorities in reducing other structural distortions to productive growth, as this will enhance access to credit, as well as stimulate growth and employment generation,” he had said as he unfolded his agenda for the central bank.
True to his words, as part of its development finance function, the central bank has continued to pursue policies aimed at supporting critical sectors of the economy as Nigeria strives to grow its non-oil sector.
The CBN recently put the value of its development finance interventions across the country at about N1.36 trillion. Emefiele recently emphasised that the central bank’s determination to improve lending to the real sector of the economy would stimulate employment generation and boost accretion to foreign reserves through non-oil exports.
No doubt, the sharp fall in crude oil prices since June 2014, has led to a significant drop in the country’s revenue and as well as the country’s external reserves. While the central bank has continued to manage the official naira exchange rate, the naira has fallen sharply on the parallel market. This heightened the call for a devaluation of the currency.
The strategic intent of the CBN governor as espoused in his maiden remarks two years ago was to reposition the developmental financing initiatives of the Bank. The CBN under Emefiele’s leadership, is acting as a financial catalyst in specific sectors of the economy particularly agriculture, in a bold effort to create jobs on a mass scale, improve local food production, and conserve scarce foreign reserves.
For instance, it has in the past two years introduced the Youth Innovative Entrepreneurship Development Programme (YIEDP). The scheme was launched in March 2016 in furtherance of the CBN’s intervention in the real sector of the economy and job creation effort. The pilot phase of the programme targets 10,000 youths in productive activities within the next four years. Under the scheme, a credit line of up to N3 million would be made available to each eligible youth, while recipients who made good utilisation of the funds would be encouraged to migrate to other CBN intervention schemes that would enable them access more funds
Also, the Anchor Borrowers’ Programme (ABP) launched by President Muhammadu Buhari few months ago, aims at creating economic linkages between over 600,000 smallholder farmers and reputable large-scale processors with a view to increasing agricultural output and significantly improving capacity utilisation of integrated mills. Under the programme, the sum of N40 billion has been set aside from the N 220 billion micro, small and medium enterprises development fund for farmers at a single-digit interest rate of nine per cent. In addition, the central bank created a N300 Billion Real Sector Support Fund (RSSF) established as part of the efforts to unlock the potential of the real sector to engender output growth, value added productivity and job creation. N152 billion has been approved five projects under the RSSF. Similarly, the disbursement of the N213 billion Nigerian Electricity Market Stabilisation Facility is also in advanced stage.
“The far reaching objectives of the CBN in the implementation of schemes and programmes for real sector development focus on the inherent potential in the sector is-a-vis our conviction that the sector has sufficient employment capabilities, high growth potentials, contributes significantly in accretion to foreign reserves, expands the industrial base and apparently diversifies the growth potentials of the national economy,” Emefiele added.
Following the sharp decline in global oil prices and the resultant fall in the country’s foreign exchange earnings, the Bank observed a widening margin between the rates in the interbank and the Retail Dutch Auction System (RDAS) window, thus engendering undesirable practices including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents. Therefore, the CBN acted by closing the RDAS/WDAS foreign exchange window. The CBN thereafter stopped the weekly sale of forex to Bureau De Change (BDC) operators in the country. Equally, it excluded 41 items, including rice, wheat and palm oil, from accessing forex at its official window in its bid to conserve the reserves and protect the local industry and encourage exports. Nigeria’s external reserves closed at $26.373 billion as at June 2, 2016, compared with the $37 billion it was when Emefiele took over.
Banking Sector Regulation
The macroeconomic headwinds in the country is also being felt by Nigerian banks. This resulted into huge impairment charges by some of the banks in the 2015 full year results. However, the central bank has maintained that various test conducted on the financial institutions showed that they are all healthy.
The Group Managing Director/Chief Executive Officer of the United Bank for Africa (UBA) Group, Mr. Phillips Oduoza recently said the perception that the Nigerian banking sector is over-regulated was not true, adding that the industry remains strong with improved regulatory oversight.
Oduoza said: “I do not think that Nigerian banks are over-regulated. I think you need to look at other jurisdictions and look at the level of regulations we have. One of the most regulated environment is the United States. If anything at all, I think they are moderately regulated.
“So, I think the banking industry remains strong and governance is very strong compared with where we are coming from, risk management is very robust and the industry is very strong.”
Forex Management and Monetary Policy
One area that the central bank under Emefiele has been heavily criticised in the past two years is its forex management policy. To a lot of financial market analysts and commentators, the wide gap between the official exchange rate and the black market is one of the factors that have been discouraging both foreign direct investments and foreign portfolio investors in the country. They have argued consistently the margin between the official market (N197/$1) and the parallel market (about N350/$1) also continue to create arbitrage opportunity. This has been the basis for the strong call for another round of devaluation.
But a source who pleaded to remain anonymous explained that the delay in adjusting the currency was in the best interest of the economy. According to him, if the CBN had bowed to the pressure of those that had been calling for a devaluation of the naira, the recent hike in fuel price announced by the federal government might have necessitated another devaluation. In addition, although inflation rate has risen sharply in the past two years, the central bank has continued to adjust its key monetary policy tools in response to the situation in the macro economy.
Going forward, one of the factors that would shape the performance of the CBN governor is the proposed flexible exchange rate the Bank plans to introduce. It is believed that the policy would help improve efficiency of foreign exchange allocation in the economy, reduce the distortions in the forex market, and bring the economy closer to equilibrium and improve liquidity in the foreign exchange market. In addition, it is expected to reduce uncertainty, which investors have been grappling with over the last one year and boost investors’ confidence in the market. With this, all eyes are currently on the Emefiele-led CBN as the market awaits the unveiling of the flexible exchange rate policy. In addition, it is expected that the central bank under Emefiele would continue to collaborate with the fiscal authorities in the quest to reflate the economy, which is on the brink of recession and also continue to fight inflation, which presently is a big monster.