The Only Game in Town


Obinna Chima reviews the issues discussed by the Governor of the Central Bank of Nigeria, Godwin Emefiele, during a recent interview on Arise TV, a sister broadcast station of THISDAY

Credit for the title of this article is to no other person than the Chair of former president Barack Obama’s Global Development Council, Mohamed El-Erian, who in his book with the above title highlighted the challenges that confront central banks globally.

El-Erian noted that central banks had been considered the only game in town and wondered whether the very high expectations placed on them might backfire in the future.

According to him, ever since the 2008 global financial crisis, central banks had ventured, not by choice, but by necessity, ever deeper into unfamiliar and tricky terrain of unfamiliar unconventional monetary policies as well as heavily intervened in the functioning of markets. He also revealed that during the 2008 financial crisis, in the US, “a myriad of emergency funding windows were opened to enable cash to be injected into the financial system, and from virtually any and all directions.”

Indeed, central banks globally are confronted with varying degree of challenges.
In Nigeria, faced with the challenge of the slump in crude oil prices in 2014, which thereafter snowballed into a foreign exchange crisis, the Central Bank of Nigeria (CBN) had to continuously adjust its policies to achieve the desired results. In addition, the delay by President Muhammadu Buhari in forming his cabinet months after he was inaugurated in 2015 then put the responsibility of managing the economy on the shoulders of the central bank.
Since last year, policy makers have been battling to lift the economy out of a biting economic recession. Nigeria’s first quarter 2017 Gross Domestic Product (GDP) showed that the economy contracted by 0.52 per cent (year-on-year) in real terms, indicating five consecutive quarters of contractions since the Q1 2016. This was however 0.15 per cent higher than the rate recorded in the corresponding quarter of 2016 (revised to –0.67 per cent from –0.36 per cent) and higher by 1.21 percentage points from the rate recorded in the preceding quarter (revised to –1.73 per cent from –1.30 per cent)

There are predictions that the decelerating inflation and negative GDP growth, as well as increased capacity utilisation and agriculture output are all signs that the economy was on the path to recovery.
But for the CBN Governor, Mr. Godwin Emefiele, the regulator has been developing home-grown policies to surmount challenges that confronted the economy in recent times.

Speaking on Arise TV, a sister broadcast station of THISDAY, recently, Emefiele said the CBN would intensify its intervention in the foreign exchange market in order to ensure price stability.
He also disclosed that over the last 10 years, the CBN had invested over N2 trillion in funding agriculture, SMEs and other manufacturers in the agriculture value chain.

He insisted that the demand management forex measures of the CBN had worked.
Responding to a question on why the CBN did not adopt the forex model that was adopted by Egypt, Emefiele said: “What we are doing is that we are developing home-grown solutions and I truly would not like to bring down any other country because they are adopting their own solutions.

“A couple of people have said why didn’t we adopt the Egypt model and I said they should leave us to adopt our own solutions and our own Nigerian options because we have our own peculiarities.

“Inflation in Nigeria, the CBN had a target of 6-9 per cent. Unfortunately, it grew to as high as 18 per cent, until we began to reverse it downward and I am hopeful that it is going to go down further.
“Now, compare Nigeria and Egypt. October 2016, Egypt’s inflation was 13 per cent, April 2017; Egypt’s inflation had grown to 31 per cent. I can tell you that at 18 per cent, Nigerians had been complaining that what are these people (CBN) doing.

“It got to 18 per cent and we started to take certain actions to reverse it. So, that would tell you that we are adopting our own home grown solutions and you can see whether it is working or not.”
He said the bank had also done well in shoring up the national currency, explaining that it had improved from N525/$ to around N360/$.

“I am happy that we are doing our best and we are beginning to see home-grown solutions. I believe that with more hard work, Nigeria would get better,” the CBN governor told Arise TV.

He, however, stressed the need for the federal government to continue to implement policies that would help diversify the economy, from heavily relying on oil to agriculture and the real sector.

He said the central bank would continue to support operators in the agriculture, SMEs and manufacturing enterprises through its development finance initiatives, with a view to complementing the federal government’s efforts at diversifying the economy and ensuring that the nation is self-sufficient in food production.

He added: “We have opened the forex market up for more and more people who are interested. That was why we introduced the I & E window. We said if you want forex you can go to that market and buy it once it fits the pricing structure of the goods or whatever you want to do.

“And that has helped to some extent in complementing the flow of forex into the market and has resulted in the appreciation that we have seen. It is the market that determines the direction of the exchange rate.”
He urged policymakers and others in leadership positions to be focused on nation-building as well as improving the well-being of those placed under their care.

He reiterated that with the improvement seen in Gross Domestic Product (GDP), barring any other shocks within and outside the economy, it would record improved growth before the end of this year.

Looking Inward
The Chief Executive Officer of Global Analytics Consulting Limited, Mr. Tope Fasua, reckoned what the governor meant by his statement that the central bank adopted home-grown policies to confront the economic crisis that hit the country was that the CBN did not follow the International Monetary Fund (IMF) and World Bank recommendations like Egypt.

Fasua argued that the IMF and World Bank are too fixated on liberalisation of the forex market. This, he said does not work in all economies.
“And in my view, when they (IMF and World Bank) are coming into the country and you are only advising us about what to do with the forex, it becomes suspicious. What the CBN is saying is that naturally, it is going to take a set of policies to come out of the crisis and not a one-track approach.

“I think what they did was right because you have to look at your system in order to come out with what would work for you and not necessarily off the shelf policies. Off the shelf policies have never worked and would never work,” he added.

He, however, pointed out that the central bank has been walking on a tight rope, in view of the economic situation.
On his part, the CEO of Economic Associates, Dr. Ayodele Teriba, noted the build-up of investor confidence in the economy.

He, however, urged the federal government to implement policies that would insulate the economy from the volatility in crude oil prices.

Teriba said: “It is good news that whereas the first half of 2016 witnessed severe cyclical downturn, the first half of 2017 has seen an upturn which is lifting both investors and consumers confidence.

“Yes, the central bank and other policy agencies have cause to be happy that the measures they have put in place have contributed in part to these improvements that you have seen.”

Nevertheless, he pointed out that the main source of concern about the Nigerian economy happens to be the price of crude, saying much of the Nigerian story revolves around that single variable.

“The deterioration we saw last year was as a result of the collapse in the price of crude oil. Much of the improvement we have seen in the first half of this year was as a result of oil price moving in the opposite direction.

“The key question is now that the oil price is higher than it was last year, is it going to remain high for Nigeria’s recovery to garner the required momentum?
“So, we need policies that would help to insulate the economy from crude oil price movement,” Teriba said.
However, a report by Lagos-based Financial Derivatives Company Limited (FDC), a financial advisory and research firm, noted that despite the fact that the Nigerian economy is on the path of growth, its weak per capita income is not growing as fast because of its population growth rate. The report pointed out that as the economy slowly crawls out of a recession, there are evidence to show that Nigeria is afflicted by general poverty, but abject poverty in the North-eastern part of the country. This it attributed to the concentration of insurgency in the region.

The report noted that Nigerian politicians in recent times seem obsessed with the lexicon “restructuring,” but do not know that “you cannot restructure poverty.”
It added: “The Nigerian economy is growing again. Income per capita not growing fast enough. Population growth higher than GDP growth.”

It revealed that the country’s Gini Coefficient as at 2016, at 48 was below the benchmark of 50.
Nevertheless, there is need to stress that monetary policy is not ultimately a very effective tool in solving economic issues, but must be complemented with fiscal policies. Both monetary and fiscal policies must be seen always to be collaborating in order to steer the economy to progress and help unleash the untapped potentials of its citizens.