Deconstructing Emefiele


By Olufunke Adesanya

In his insightful tome, “The Age of Turbulence: Adventures in a New World,” Alan Greenspan, astute economist and former Chair of the US Federal Reserve Board from 1987 to 2006, discusses among other things, economics, capitalism and other economic systems, current and future issues that face the global economy.

Greenspan, who held the second-longest tenure in that position behind William McChesney Martin, came to the Federal Reserve Board from a consulting career.  Although Greenspan was subdued in his public appearances, not unlike the Central Bank of Nigeria’s Governor Godwin Emefiele, favorable media coverage raised his profile to a point that several observers likened him to a “rock star”.

The Nigerian media has certainly not extended a similar favour to the unassuming CBN boss. Emefiele is not a ‘rock star’ and neither craves that status in a third world milieu that needs economic redemption, via proactive and circumspect regulatory governance that promote monetary stability and a sound operating  financial environment.

As the central bank and apex monetary authority of Nigeria, established by the CBN Act of 1958, which commenced operations on July 1, 1959, the major regulatory objectives of the bank as stated in the CBN Act are to: maintain the external reserves of the country, promote monetary stability and a sound financial environment and to act as a banker of last resort.

To this complex, fluid turf of apex banking, Emefiele brings over three decades of both theoretical and practical experience from top-flight academic and hands-on banking arenas. In a change regime, which approximates Greenspan’s “Age of Turbulence,” Emefiele certainly needs these governance skills forged in the stern furnace of high-octane, financial industry, to effectively drive CBN’s command-room.

Emefiele illuminated the scope of this challenge and the imperative measures deployed to rein in the nation’s economic drift in a highly volatile and often disruptive global environment, at the annual bankers’ dinner that took place in Lagos, in November 2018.

According to the CBN boss, a number of recent developments have noticeably impacted outcomes and outlooks especially in emerging markets, including Nigeria. These included rising global interest rate due to sustained monetary policy tightening stance in the United States and other advanced economies.

His words: “This has consequently heightened fragilities, imbalances and vulnerabilities in emerging markets. The Fed fund rate was raised steadily to 2.25 percent in September 2018 with a forward guidance for one more hike before the end of 2018 and three more in 2019.

“Similarly, the Bank of England raised its policy rate in August 2018 for the first time since 2008. Some emerging market economies, including India, Indonesia, Mexico and Turkey have also raised interest rates in response to that shock.”

Clearly, as a consequence of these rate hikes under reference by Emefiele, Nigeria witnessed significant outflows of capital from emerging markets, which led to immense pressures on exchange rates, FX reserves, and sharp losses in the capital markets. Even Argentina, Brazil, South Africa, Turkey and Russia have depreciated their currencies significantly due to this shock. More so, there have been uneven fluctuations in the international prices of commodities including crude oil, gold, cocoa, etc. Though crude oil prices are currently rebounding, the prices of gold and agricultural commodities are declining.

A critical dimension shaping this tumult is that the global economy has experienced profound geopolitical and trade tensions. These include strains between US and China, US and Iran, Russia and Western Powers and more. These have unquestionably impacted the dynamics of global trade. Also, these were exacerbated by rising tendencies and incidences of protectionism, nationalism and anti-globalisation – especially in the western hemisphere.

As a consequence of these developments, Nigeria’s macro-economy experienced significant impulses over the last few years which triggered the country’s GDP nosedive into a recession with inflation spiralling to nearly 19 per cent. The naira-dollar exchange rate hit peaks never seen before. Both unemployment and poverty also deteriorated. These adverse outcomes also revealed the country’s most worrying structural fault lines, namely, the persisting sole dependence on oil and the inordinate size of the nation’s imports.

For dogged Emefiele, who believes that hope is not a plan, but that a clear action was needed to be taken by the Central Bank to deal with the two identified factors that accentuated the nation’s vulnerability to these global shocks.

These included diminished total factor productivity in Nigeria due to a low and inadequate infrastructure base and Nigeria’s overdependence on imports for both capital goods and domestic consumption.

The Emefiele-led CBN deployed seven well-thought-out measures to manage the negative, inescapable vagaries of being an evolving member/player in the global village square. These included tweaking the extant monetary policy, rejigging the external reserve management, stabilising the exchange rate management, introducing the Naira-Renminbi Currency swap, given the growing importance of the Chinese currency in global markets, interventions in the development financing sector, credit allocation and heightened risk-based supervision.  

Informed analyses show that these CBN policies and initiatives are indeed yielding positives and are expected to continue until the underlying imbalances within the Nigerian economy have been fully resolved.  For example, the Ease of Doing Business profile of the country is improving, courtesy of the CBN interventions. Specifically, the establishment of the Credit Bureau and the National Collateral Registry, which improved access to credit in the domestic economy, contributed significantly.

Besides, the introduction of the transparent I&E FX Window, which increased investor confidence and eased market sentiments, also boosted Nigeria’s Ease of Doing Business indicator. According to the latest World Bank annual ratings, Nigeria is ranked 146 among 190 economies in the ease of doing business table. Though Nigeria dropped one spot vis-à-vis the 2017 ranking, this was somewhat an improvement over the ranking of 169 earned in 2016.

On the external reserve management front, over the last few years, the Emefiele-guided CBN has established and maintained the decisive withdrawal of the de facto subsidy for the importation of 41 non-essential commodities with unfolding successes. Following the strict implementation of this policy, imports (fob) fell steadily from US$15.7 billion in December 2014 to US$11.1 billion in June 2016 and US$7.2 billion in June 2018.

As it is, many entrepreneurs are taking advantage of this policy to venture into the domestic production of the restricted items with remarkable successes and great impact on employment. By tweaking the monetary policy, CBN embarked on a cycle of tightening to rein in inflation, with MPR hiked in July 2016 from 12 per cent to the prevailing 14 per cent today. It also adopted open market operations to support the tightening measures. The efforts by the CBN are yielding considerable results as seen in the trajectory of key macroeconomic indicators, the cyclical recovery of the economy since the 2016 recession, and short-term prospects. For instance, after five quarters of uninterrupted GDP contraction -beginning from 2016 first quarter- the economy exited recession during the second quarter of 2017. This recovery has been sustained for five consecutive quarters.

 Correspondingly, the Nigerian economy witnessed 18 straight months of disinflation to 11.1 percent in July 2018, following a period of rising inflationary pressure which peaked at 18.7 percent in January 2017. Slight upticks, due to rising food prices, however, raised it to 11.3 percent in September 2018. The exchange rate has remained largely stable at the FX markets with evident convergence continuing across all segments. At the BDC segment, we saw significant appreciation of the Naira from over N525/US$ in February 2017, to about N359/US$ currently.

These interventions by the CBN, in “The Age of Turbulence,” flow from total commitment and passion of a disciplined turf-player who shares the vision of the administration he serves. Clearly, strengthening the economic recovery process in Nigeria is not a picnic. It is an imperative that the project be guided by a patriot who believes in Nigeria, who has unflinching faith in the ingenuity of Nigerians and who holds dear, the promise of the nation’s shared future. Governor Godwin Emefiele, currently in the saddle, is one of such patriots.

Adesanya writes from Lagos