Finally, Emefiele Finds His Feet



It’s been four years since Mr. Godwin Emefiele assumed the mantle of leadership at the CBN. Obinna Chima reviews his stewardship and concludes that the central bank governor has stamped his mark on the financial landscape

To a lot of analysts, Emefiele is the proverbial cat with nine lives considering the storms he has weathered in the past four years.

Typically, in Nigeria’s political scene, it is usually not easy for a public officer who was appointed by a government to be retained in office when an opposition government wins an election. But Emefiele survived all the darts thrown at him when the present government took over. This was even at a period when the country slipped into an economic recession and was confronted with a severe foreign exchange crisis.

Indeed, a number of exogenous global shocks also exposed the vulnerabilities of the Nigerian economy. Consequently, the country’s Gross Domestic Product (GDP) growth depressed, which culminated in a recession in 2016. This was followed by rising Inflation, which peaked at almost 19 per cent in January 2017. There was also persistently rising unemployment rate, significant depreciation of the exchange rate, reaching N525 to a dollar in February 2017, as well as a fast depletion of the country’s external reserves, which bottomed out at about US$23.6 billion in October 2016 from as high as US$38 billion when Emefiele took over.

But the storm appears to be over as the country has since exited recession, there have been stability in the foreign exchange; inflation has been decelerating inflation and the CBN has rolled out a number of initiatives to support micro, small and medium scale enterprises (MSMEs) and the non-oil sectors.

Price Stability

Nigeria within the last four years was faced with what has been described as one of its worse foreign exchange (forex) crisis, which also contributed to the economy going into a recession then.

The situation, which occurred between 2016 and the first four months of 2017, then saw the CBN taking various measures in its bid to save the nation’s currency and restore confidence in the economy. The naira fell to as low as N525 to a dollar and there was acute forex scarcity in the system.

But after numerous measures, which among others, included the ban of 41 items from accessing forex from the interbank market, were unable tocorrect the anomalies, the Investors’ and Exporters’ (I&E) forex window, which was created in April 2017. This latest FX window proved to be the magic wand.

One year after its creation, the impact of the I & E window on the market has been positive as it has attracted over $20 billion since it was set up.

The central bank had explained that that the purpose of the window was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.Also, within the past four years, the central bank under Emefiele stopped the bi-weekly sale of forex through the Retail Dutch Auction System (RDAS) and Wholesale Dutch Auction System (WDAS) and asked authorised dealers and members of the public to channel all demands for forex to the interbank market.

But Nigeria’s former Minister of Education, Dr. Oby Ezekwesili, argued that the forex crisis would have been averted if the policy makers had acted promptly.

“Timing is everything in economic management. A decision making that is timely determines what all the other participants in the economy will do. If you lost time, you cannot in anyway, say it didn’t matter. If the bureaucracy is all you need in order to run the economy, then why have political change through election? You don’t need that.”

 “The exchange policy regime that we have become accustomed to is transparent at all ends because it allows the market to do the adjustments,” she said on Channels TV recently.

But the Chief Executive Officer, First Bank of Nigeria Limited, Mr.Adesola Adeduntan,  pointed out that since the introduction of the I&E window, the economy has witnessed remarkable improvement in forex inflows and an upsurge in capital importation.

This, he said has also strengthened the CBN’s capacity to maintain naira exchange stability.

He also noted that prior to the introduction of the I & E forexwindow, there were concerns around multiple exchange rates, huge gap between the official exchange rate and the parallel market rates and the opaqueness in the forexmanagement system.

As the central bank continues to rebuild the external reserves, the reserves accretions which has been supported by earnings from crude oil price, inflows through the I & E window, as well as the Eurobond sales, closed at a five year-high of $47.6 billion as of the end of May 2018.

Similarly, for the 15th consecutive month since January 2017, inflation rate recorded a decline in April from 13.34 per cent in March 2018 to 12.48 per cent (year-on-year), even as food prices remained high. Last month’s drop in the Consumer Price Index (CPI) inched closer to the CBN’s target of 12 per cent of less, signposting the commencement of monetary policy easing by the central bank possibly by the second half of 2018.

In terms of monetary policy, the CBN in the last four years has majorly operated a tight monetary policy regime.

Its last meeting for May 2018, made it the 11th consecutive time it retained the Monetary Policy Rate (MPR) at 14 per cent, Cash Reserve Ratio (CRR) at 22.5 per cent, Liquidity Ratio (LR) at 30 per cent, and the asymmetric corridor at +200-500 basis points around the MPR, which has been criticised by some financial market analysts.

But Emefiele had explained that the MPC decided not to lower the MPR for now as a pre-emptive measure to guard against possible inflationary pressures that the late implementation of the 2018 budget and election expenses might exert on the economy.

Support for MSMEs

When Emefiele resumed as governor, part of his vision statements was to ensure improved access to credit to MSMEs. As part of efforts to achieve that since 2014, the CBN had been working with the International Finance Corporation (IFC), an arm of the World Bank, to sponsor the bill on the Collateral Registry.

That was why Emefiele was excited when the Secured Transactions in Movable Assets Act (otherwise known as National Collateral Registry Act) and the Credit Reporting Actwere recently signed into law, saying they would help to expand access to financing by MSMEs in the country.

 “I am delighted that, that bill has been passed into law and has also been assented to by the acting president. What that does is that it provides a legal framework under which banks can lend money to the SMEs.

“Banks would naturally not lend without taking collateral because of the perceived risk of either non-performance arising from business failure.

“So, because the banks are in business not to lend their own money, but depositors’ money, they would want to be sure that whatever money that they lend to any person or corporate entity, is secured,” he had explained.

Beside the N220 billion MSME Development Fund, the central bank has also deployed part of the Agri-business, SME Investment Scheme Fund (AGSMEIS) to the vulnerable sectors.

Agric Intervention

The intervention schemes in the agriculture sector by the CBN such as the Agriculture Credit Guarantee Scheme (ACGS), the Commercial Agriculture Credit Scheme (CACS), the Nigeria Incentive-based Risk Sharing for Agricultural Lending (NIRSAL) and the Anchor Borrowers’ Programme (ABP), were aimed at improving domestic supply of commodities and eventually moderating pressure on the forex reserves.

The objective is also to stimulate lending by banks to the agricultural sector by providing guarantee cover for their exposures to agricultural activities.

Prominently, the ABP, which was designed to create an ecosystem that links smallholder farmers to local processors; improve productivity in identified commodities with high domestic production potential; and also build capacity of the farmers has recorded a lot of success. The ABP which was basically designed to efficiently organise, has created a unique funding platform for financing small holder farmers in Nigeria under a value chain approach that guarantees the supply of quality inputs at the right price and time to suit production cycle and provide a guaranteed market through anchors/aggregators that serve as off-takers to the farmers.

Presently, domestic rice production has increased significantly, while rice importation has dropped.

Analysts’ Opinion

To the Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu believes “Emefiele has won a good fight so far.”

He added: “At some point, there was a fiscal vacuum and then he was basically the one who was trying to restore the economy. If you recall, on a number of time, the MPC urged the federal government to improve the fiscal space.

“Basically, one can say that a lot of the recoveries that we witnessed so far can be attributed to his efforts as the CBN Governor. For instance, look at the I & E window, it was the major boost to achieving forex stability and growing the reserves to what it is today.”

On his part, the Chief Executive Officer of Global Analytical Consulting Limited, Mr. Tope Fasua, who commended the CBN Governor, said a lot of Nigerians “misunderstood him at the beginning.”

Fasua added: “The position of a Central Bank Governor is not just a technical position, it is also a political position, anywhere in the world, but more so in Nigeria. So, you have to navigate a lot of things.

“In terms of navigating the challenges, he has done well. We can see that from a monetary policy perspective, he seems to have scored some points. Inflation is dropping and the naira has stabilised.

“And the value that the naira lost at the beginning was as a result of political decisions. But I would advise him to look at some of the cultural issues within the CBN to ensure that when his tenure is over, the CBN would be left on a very positive cultural footing.”