Honest Assessment of CBN’s Report Card Under Emefiele

Godwin Emefiele


The Central Bank of Nigeria Governor, Mr. Godwin Emefiele can be described as the proverbial cat with nine lives considering the storms he weathered in the past five 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. In this report, Obinna Chima examines the performance of the central bank in the past five year

Mohamed El-Erian, who served as chair of President Obama’s Global Development Council in his book: “The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse,” highlighted challenges that confront central banks globally. In our local experience, it will be wrong if we fail to acknowledge the critically important role played by the CBN, more so, Emefiele who steered the apex bank to take up the gauntlet when all else seem to have failed    

According to El-Erian, central banks have been considered the only game in town because since the 2008 global financial crisis, they have been shouldering majority of the burden and could be said to have taken on the role of salvaging the global economy at the behest of their national governments. Owing to this, they have been described as ‘the only game in town.’

He further pointed out that central banks today, not by choice, but by necessity, have been venturing deeper into tricky terrain of unconventional monetary policies which have seen them heavily intervening in the functioning of markets.

He 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, just as highlighted in this synopsis, the Central Bank of Nigeria (CBN) like other central banks across the globe, had its own challenges and also resorted to unconventional tools to wade through.

In Nigeria, faced with the challenge of the slump in crude oil prices in 2014, which thereafter snowballed into a foreign exchange crisis, the CBN had to continuously adjust its policies to achieve the desired results.

In addition, the delay by President Muhammadu Buhari in forming his cabinet several months after he was inaugurated in 2015, then put the responsibility of managing the economy on the shoulders of the central bank under the leadership of Mr. Godwin Emefiele.

Even when the economy slipped into a recession, the central bank had to intensify its intervention in critical sectors of the economy, in line with its development finance mandate, which played a significant role in supporting economic growth. This saw the regulator developing home-grown policies to surmount challenges that confronted the economy.

Development Finance Function

In the continued recognition of its role as an agent of development and aimed at ensuring self-sufficiency to reduce Nigeria’s excessive dependence on imports, the CBN has the last five years, invigorated its development finance activities and has maintained a particular focus on supporting farmers, entrepreneurs as well as small and medium scale businesses, through various intervention programs. Some of these initiatives include the Anchor Borrowers Program (ABP), Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the National Collateral Registry.

Also, the CBN introduced the Real Sector Support fund; a facility meant to provide cheap funding at no more than nine per cent to new projects in the agriculture and manufacturing sectors; aimed at boosting output and creating jobs.

In the agriculture sector, ABP has ensured that Nigeria emerged from being a net importer of rice to becoming a major producer of rice. In fact, presently, over 900,000 farmers cultivating about 835,239 hectares, across 16 different commodities, had so far benefited from the ABP, which has generated over 2,7 million jobs across the country.

It was in light of the success of the ABP, with regards to cultivation of rice and maize that the Monetary Policy Committee in its meeting last November had recommended that the ABP should be applied to other areas such as palm oil, tomatoes and fisheries to mention a few.

The CBN recently disclosed that over $500 million was being spent annually on importation of palm oil, which necessitated the central bank to include the produce among items not eligible for forex.

Emefiele, had explained that efforts at supporting small scale farmers and SMEs was based on awareness of the critical role they can play in supporting our economic recovery and growth, as well as in creating job opportunities for millions of Nigerians.

“So far, the CBN has through its MSME fund disbursed over N100 billion to the MSME sector, but we still feel a lot can be done. Under the auspices of the Bankers Committee, the sum of over N60 billion has so far been set aside under the AGSMIES fund to fund micro, small and medium scale enterprise businesses in the agriculture and manufacturing sectors of our economy.

“The CBN recognises that the greatest challenge confronting MSME’s and local farmers is access to credit, and that to unlock the growth potentials in our country; these groups must access funding seamlessly.

“In response to this challenge, the CBN will in due course take action that will directly bring banking services to the rural communities through the licencing of a national microfinance bank, which will have a presence in all local governments in Nigeria, thereby supporting the channelling of credit to our rural communities.

“We will continue to explore ways, in partnering with the fiscal authorities, on how we can best provide farmers and SMES with the support they need to expand their operations,” he explained.

Clearly, the country’s overdependence on crude oil for forex revenue means that shocks in the oil market are transmitted entirely to the economy via the forex markets. This is what has continued to influence the drive to support infant industries and domestic production as well as the ban of 43 items from accessing forex from the interbank market.

Similarly, as part of its long-term strategy for strengthening the Nigerian economy, the Bank established initiatives to resolve the underlying challenges to long-term Gross Domestic Product growth, economic productivity, unemployment and poverty that had pervaded the economy over the past decades. Part of it was the establishment of credit bureau and the National Collateral Registry to improve access to credit in the domestic economy.

Price Stability

In the last five years, the CBN has initiated far-reaching reforms in the foreign exchange market in a bid to stabilise exchange rate. For instance, in 2014, the central bank stopped the bi-weekly sale of foreign exchange through the Retail Dutch Auction System (RDAS) and Wholesale Dutch Auction System (WDAS). The central bank took the decision following findings of round tripping and other sharp practices that had provided room for speculative attacks on the Naira and arbitrage. Following the scrapping of the auctions, the central bank asked authorised dealers and members of the public to henceforth channel all demands for foreign exchange to the interbank market. Prior to the announcement then, importers of fuel products and certain categories of manufacturers were allowed to buy their foreign exchange through the CBN window. But as the margin between the official and interbank rates widened in recent months, it then was more lucrative for eligible buyers to engage in arbitrage instead of importing the goods for which they had supposedly bought their foreign exchange from the official window of the CBN.

The increasing demand pressure on the forex coupled with the low accretion to the country’s reserves due to weakening global oil price prompted the CBN to redesign a new framework for the management of foreign exchange in a period of declining supply.

Unveiling the new guidelines in June 2016, Emefiele had disclosed that the general operational principle of the exchange rate framework was that forex currency would be traded in the inter-bank foreign exchange market through the platform of the Financial Markets Derivative Quotation (FMDQ). A novel aspect of the framework was the introduction of non-deliverable over-the-counter (OTC) Naira-settled Futures, with daily rates on the CBN-approved FMDQ Trading and Reporting System, which according to the Bank would help moderate volatility in the exchange rate by moving non-urgent FX demand from the Spot to the Futures market.

The need to achieve exchange rate stability and also preserve the country’s forex reserves, also prompted the CBN to review downward the spending limit on the usage of the Naira denominated debit cards for transactions abroad, from $150,000 per person annually, to $50,000 per person annually. The daily cash withdrawal limit on the card was also fixed at $300 per person. The central bank had also urged all authorised dealers to ensure strict monitoring and compliance.

However, in spite of these measures, the activities of speculators which weakened the naira to an all-time low of around N525/$1 before the central bank started releasing its arsenals to confront them.

But the most potent instrument unleashed by the central bank was the introduction of the Investors and Exporters’ (I&E) foreign exchange in 2017, which has recorded over $50 billion transactions.

The Director, Corporate Communications at the CBN, Mr. Isaac Okorafor, who recently disclosed the inflows into the I & E window, pointed out that out the amount, the central bank purchased about $9.67 billion.

The surge in the inflows recorded on the I&E was attributed to offshore investors interest in Nigeria’s fixed income securities.

The central bank had explained that the purpose of the window was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.

It had listed eligible transactions under the new window to include invisible Emefiele transactions such as loan repayments, loan interest payments, dividends/income remittances, capital repatriation, management service and consultancy fees.

Also, on the eligible list were software subscription fees, technology transfer agreements, personal home remittances and any such other eligible transactions including ‘miscellaneous payments’ as detailed under Memorandum 15 of the CBN Foreign Exchange Manual.

While explaining that the invisible transactions under this window excludes international airlines ticket sales’ remittances, the CBN added that the window covers Bills of Collection and any other trade-related payment obligations, which are at the instance of the customer.

It is worthy of note that supply of forex to the window is through portfolio investors, exporters, authorised dealers and other parties with forex exchange to Naira.

The CBN is a market participant at the window to promote liquidity and professional market conduct.

An analyst at Ecobank, Mr. Kunle Ezun, said the central bank’s initiative helped to calm the strong volatility in the market. According to Ezun, the central bank did not take the decision in isolation of the market.

In terms of inflation, the cheering news from the National Bureau of Statistics (NBS) this month was that the Consumer Price Index (CPI), which measures inflation, further decelerated in February 2019. Specifically, the last CPI report showed that inflation decreased to 11.31 per cent (year-on-year) in February compared to 11.37 per cent in January. It is worthy to note that inflation was at 18 per cent about two years ago.

Clearly, high inflation distorts consumer behaviour. It can also destabilise markets by creating unnecessary shortages.

Similarly, high inflation which is not the desire of any economy redistributes the income of people and brings about weak purchasing power.

That is why the CBN is never comfortable with this ‘evil’ and had had adopted restrictive monetary policy as part of efforts to win the battle against double-digit inflation, just as it has intensified its intervention in the agricultural sector.

For instance, Emefiele, recently revealed that the various initiatives aimed at encouraging domestic production, had resulted in Nigeria’s monthly import bill falling significantly from $665.4 million in January 2015, to $160.4 million as of October 2018.

According to him, many entrepreneurs are now taking advantage of policies aimed at ramping local production to venture into the domestic production of the restricted items with remarkable successes and great positive impact on employment.

“The dramatic decline in our import bill and the increase in domestic production of these items attest to the efficacy of this policy.

“Most evident were the 97.3 percent cumulative reduction in monthly rice import bills, 99.6 percent in fish, 81.3 percent in milk, 63.7 per cent in sugar, and 60.5 percent in wheat.

“We are glad with the accomplishments recorded so far. Accordingly, this policy is expected to continue with vigour until the underlying imbalances within the Nigerian economy have been fully resolved.

“If we continue to support the growth of small holder farmers, as well as help to revive palm oil refineries, rice mills, cassava and tomato processing factories, you can only imagine the amount of wealth and jobs that will be created in the country.

“These could include new set of small holders farmers that will be engaged in productive activities; new logistics companies that will transport raw materials to factories, and finished goods to the market; new storage centres that will be built to store locally produced goods; additional growth for our banks and financial institutions as they will be able to provide financial services to support these new businesses; and finally, the millions of Nigerians that will be employed in factories to support processing of goods,” he had disclosed.

Also, a recent report disclosed that Nigeria has overtaken Egypt as the largest rice producer in Africa.

The Director-General, Africa Rice Center, Benin Republic, Dr Harold Roy-Macauley, who disclosed this, said Nigeria is now the largest rice producer at four million tonnes a year. Egypt was producing 4.3 tonnes annually but the country’s production had reduced by almost 40 per cent this year. Africa produces an average of 14.6 million tonnes of rough rice annually, he explained.

The feat disclosed by Roy-Macauley was the outcome of robust collaboration between the CBN and the Federal Ministry of Agriculture, that focused on areas in the agriculture sector where the country has comparative advantage.

Also, after keeping the benchmark Monetary Policy Rate (MPR) unchanged for 33 months, the Monetary Policy Committee this week caught analysts and investors off-guard as it announced a reduction in the MPR from 14 per cent to 13.5 per cent.

The CBN hinged its decision on the need to boost economic growth. The committee, however, retained the Cash Reserve Ratio (CRR) at 22.5 per cent and Liquidity Ratio at 30 per cent.

Emefiele pointed out that the rate cut does not necessarily indicate an end to the monetary tightening cycle.

He said banks would be expected to adjust to the loosening in MPR so that its positive impact could be felt by customers. He also said the reduction in MPR had a “reasonable” correlation to lending to the real sectors of the economy.

The CBN governor said: “Now, having been on this path, particularly the MPR at 14 per cent since July 2016, and with the relative stability we have seen in the macroeconomic variables over the last two and a half years, we just think that this should be the next phase where we keeping our eyes on all other parameters, let’s see whether we can signal a direction from the monetary policy, in the direction of supporting and really accelerating growth in the country.

“Accelerating growth effectively means that we have to push harder to consolidate GDP, we need to push harder to make sure we create jobs. Doing this will naturally mean that we are softening gradually. But I repeat and I shouldn’t be misunderstood, that we will continue to do what we are doing, what we have done in the past keeping inflation at moderated levels, and exchange rate stable. We will continue to do so. I think we are moving in the right direction.”

Financial Inclusion

Cognisant of the fact that close to 40 per cent of adult Nigerians do not have access to financial services, the Bank has implemented series of initiatives that would drive our efforts aimed at building a more financially inclusive society.

Some of these measures include the promotion of alternative banking channels, agent banking and the Shared Agent Network Facility (SANEF), all of which are intended to deepen penetration of agent networks in underserved locations across the country.

The recent unveiling of the policy on Payment Service Banks was also an additional step aimed at leveraging on the distribution networks of nonbank entities, such as Fast-Moving Consumer Goods companies, Fintechs, and Mobile Network Operators, in providing financial services to underserved communities.

“With these schemes in place, we believe that over the next two years, over 80 per cent of Nigerians will have access to financial services,” the CBN Governor said.

In line with this, the CBN this week disclosed plan to extend the cashless policy nationwide almost two years after the policy was halted.

Emefiele said all necessary structures have been put in place to improve banking services in the country. According to him, his predecessor, the Emir of Kano, Alhaji Muhammadu Sanusi II, had introduced the policy, but the CBN under his leadership was not certain about the rate of financial inclusion and penetration in the country.

Analysts’ Opinion

To the Head of Research and Strategy at FSDH Merchant Bank Limited, Mr. Ayodele Akinwunmi, Emefiele has effectively steered monetary policy on the right path.

“Look at the I&E structure for foreign exchange, in April 2017, when that policy was introduced, it changed the dynamics in the equities market and the stock market appreciated by 42 per cent in that year. “Also, in 2015, when the current president was sworn in, remember that for almost six months, we didn’t have a cabinet. The economy then was managed solely by monetary policy and they ensured that the economy was stable. And it was because of the initiatives of the CBN Governor and his team, that made us not to feel the impact.

“It was like somebody driving with one leg or a human being walking with one leg. So, the CBN Governor helped in navigating the crisis and in stabilising the economy. In addition, look at the restriction of access to forex that was placed on 42 items.

“Some people may not appreciate that, but the reality of the matter is that if a country can only support its currency, not by foreign portfolio investments, but by the quantum of foreign earnings that you can generate. So, there were a number of things we were importing that we had the capacity to produce here.”

Continuing, Akinwunmi said: “So, the forex restriction on the official and interbank market that was place on those items, made the companies abroad to come to Nigeria to start operations here.

“Rice production has increased substantially and I remember that the CBN Governor said then that a central bank in a developing country like Nigeria, must play development roles in various sectors. So, the CBN under his leadership has established a whole lot of funds to support some strategic sectors in the economy that have the capability to generate employment.

“As you are aware, one of the problems we have in Nigeria is high level of unemployment rate. If almost everything we consume in Nigeria are imported, what it then means is that you are exporting jobs and put pressure on the forex. But through the initiatives of the central bank under Emefiele, he has been able to introduce a lot of policies to ensure that some of those companies now see the need to come and establish in Nigeria.

“Few weeks ago, we saw that he (Emefiele) was at the Dangote Refinery and he pledged the central bank’s support to ensure the completion of the project. So, for me, he has done well. He has been able stabilise the exchange rate, even though we saw some depreciation few years back, which was not caused by him.

“If we have not diversified the productive base of the economy to generate income and diverse forex, oil price volatility would remain a challenge. Inflation came down consistently in 2018. In the banking industry, look at the way they are resolving the problems some banks had.

“We saw how Polaris Bank took over Skye Bank and no job was lost. He has ensured that no depositor lost his or her deposits and provided stability to ensure that the institution remains sound until they find a buyer. And the kind of engagement the central bank has with the banking industry which it regulates is something that is commendable.

“They involve the banks in major decisions and when they want to implement a policy, they get the views of the banks about some of the policies. So, for me, Emefiele has done well and if he is coming back, he is going to do better and if he is not coming back, I believe whoever takes over from him would continue the good work.”

On his  part, Ezun, urged the president not to delay his announcement on who is to be the next CBN Governor.

“For me, I expect that before the end of this month, the president should have told us if he is going to retain Emefiele and if he is not to be retain, the incoming CBN Governor should be announced early.

“All these are some of the things that build confidence in the market. Investors need to start assessing the  person and his monetary policy stance,” Ezun added.

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.”

Nevertheless, just as El-Erian highlighted, in order to avoid the residual effects of the financial crisis, there is need to ensuring robust and inclusive economic growth also through the use of fiscal and structural policies.

Also, to ensure that the economy realises sustainable economic growth, both monetary and fiscal policies must be seen always to be collaborating with the right mix of policies that can help unleash the untapped potential of entrepreneurs and businesses.