Since the act establishing the Central Bank of Nigeria (CBN) was implemented in July 1959, only two Governors have been privileged to return for a second term. Godwin Emefiele only last week became the third.
Following a letter sent to the senate by President Muhammadu Buhari, nominating him for a second consecutive term of five years, Godwin Emefiele, 57, became the first Governor of the CBN to be asked back to his position since the start of the fourth republic in 1999. The reappointment, pending Senate approval, finally lays to rest questions about Emefiele’s future and that of the country’s apex bank which he heads.
Originally appointed by President Goodluck Jonathan in 2014 as the 10th indigenous governor of the bank after the previous occupant, Sanusi Lamido Sanusi (now Emir Muhammadu Sanusi II) was suspended from office following accusations of financial irregularities, the former Zenith Bank boss was immediately thrust in the line of fire. Emefiele had inherited an economy with a relatively stable exchange rate and inflation rate at a six year low of 7.9%. None of this was to last though and for most of his first term, Emefiele’s mettle would constantly be put to the test.
For years, analysts and industry experts had warned about Nigeria’s spending cycles. Influenced by global events, Nigeria went through cycles of oil wealth and oil decline that led to economic boons and recessions so common they could be set to a calendar. Oil prices, the building block of Nigeria’s economy had started another round of gradual decline from the profitable highs of the height of the Iraqi war. This was attributed to a mix of factors that included lower demand from China, Russia and India, increased production efforts from the United States and Canada, and Saudi Arabia’s refusal to cut production.
This perfect storm was bad news for Nigeria. The sharp collapse of oil prices that began in 2014 continued all through 2015 and well into 2016. This adversely impacted fiscal revenue, foreign exchange reserves, and exchange rate stability. Meanwhile the change in government which could have given a jolt to the economy turned out to be useless as for half of his first year in office, President Buhari saw no need for appointing ministers or constituting an economic team to respond to the crisis at hand.
All of these put immense pressure on the economy, impacting GDP growth, more than doubling Inflation. A recession was inevitable.
Mr (In) Dependent
Emefiele’s CBN responded to the situation by implementing a series of measures to boost economic activity, all of them heavily criticized by economic watchers. But if there is anything that has eroded confidence in Emefiele and the CBN that he heads the most, it has been his apparent surrender of major monetary policy autonomy to the presidency.
If Buhari has any strengths at all, economic literacy isn’t one of them- indeed the last time Nigeria entered a recession was also under a Buhari regime- but as the value of the Naira went into a freefall against the dollar, Buhari consistently ruled out a devaluation that would “kill” the Naira and challenged economists to convince him otherwise, all the while insisting it was in his place to make such decisions.
In a bid to keep the presidency happy, Emefiele floated a couple of measures. One of them was an attempt at conserving foreign exchange (FX) by restricting access to forex for the importation of select goods that could be produced domestically. The grand idea was to tightly regulate FX demand while seeking to enhance FX supply at the same time.
The CBN listed 41 items- including soaps, detergents and medicines- banned from being imported into the country in a well-meaning but perhaps ineffectual intention of growing the economy by stimulating local production. Doubling down on this decision, Emefiele at an investment conference in November last year put forward the rationale, ‘’Isn’t it a shame that a country like Nigeria, that is endowed with the resources to produce what we eat, imports toothpick from outside? What is the tech behind making toothpick? Toothpick is made from bamboo tree. The size of the factory that makes toothpick is just one of the partitions in this room.’’
Not everyone was convinced by this argument though. The Lagos Chamber of Commerce and Industry (LCCI) responded thus, “It however appears as if the formulation of the policy has suffered from CBN’s limited understanding of the manufacturing process of many of the sectors affected by this policy. Many of the restricted items are irreplaceable raw materials in the manufacturing process of many industries, and this policy will cause significant damage to the Nigerian manufacturing sector and economy.” the LCCI had stated.
One of the apex bank’s primary responsibilities is exchange rate stability and preserving the value of the currency. Emefiele has obsessively taken this charge to heart, even at the expense of scaring off investors and setting the economy on a slow and tortuous part to recovery. As the Naira continued its landslide against the US Dollar, Emefiele chose to focus CBN efforts on battling inflation and maintaining exchange rate stability. This has meant dipping generously into FX reserves to defend the Naira and keep it at a government determined acceptable rate next to the dollar and other foreign currencies.
The CBN tried to eliminate speculators and round-trippers by restricting access to FX in the market and creating a more flexible FX market. Perhaps most effective of all these (and much less criticized) was the establishment of an Investors and Exporters (I&E) forex window in 2017 to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions. Under this window, exchange rates are determined based on prevailing market circumstances.
Through it all, Emefiele was adamant in echoing the presidency’s directive of not leaving the Naira directly to the dictates of market forces, at least until Nigeria is able to have a production-based economy. “The Monetary Policy Commitee reviewed it (floating currency) and concluded that it would be wrong. It is as good as saying that we should go back to the era of Structural Adjustment Programme (SAP) in Nigeria,” Emefiele claimed earlier this year.
Instead, the CBN held on to a fixed exchange rate for a while before succumbing to a ‘’managed float’’ system of multiple rates in which the Naira’s official price is pegged at 305 per dollar while investors trade in a separate window at around 360. Emefiele’s managed float is largely possible through CBN’s interference, supported heavily by various helpings to the FX reserves, and against the advice of the International Monetary Fund (IMF) economists who lament the policy’s opacity and tendency to create an uneven environment where companies close to government access FX at cheaper rates than others.
Much of Emefiele’s tenure has been devoted to talk of exchange rates and foreign reserves but he has also been able to do some work outside these concerns. The Bank has delved deeper into development finance activities with programmes such as Anchors Borrowers. This initiative is engineered to provide farm input in kind and cash to small holder farmers to boost production of these commodities and address the country’s negative balance of payments on food. According to Emefiele, as at October 2018, 862,069 farmers cultivating about 835,239 hectares, across 16 different commodities, have so far benefited from the programme, generating over 2.5 million jobs across the country.
However, a Premium Times and Buharimeter investigation in five participating states – Lagos, Ekiti, Kebbi, Kaduna and Ebonyi – as well as in Benin Republic, revealed that the borrower’ programme, touted heavily as the solution to rice self-sufficiency, has failed in most places with government unable to recoup a huge part of the N55 billion loan initially disbursed.
Investments by the CBN into power (a low interest facility to discharge existing legacy gas debts,) manufacturing (a 220 billion Naira Micro, Small and Medium Enterprises Development Fund) and governance (provision of concessionary loans for states to offset salaries) have been useful but are yet to realize widespread impact. A recently announced creative industry financing initiative has already been hijacked and redesigned by the implementing commercial banks whom Mr Emefiele once accused of trading lazily in government treasury bills.
‘’Emefiele must go’’
Soft spoken and with an unassuming personality, Godwin Emefiele spent most of his first term being dismissed by Nigerians, as one of the most incompetent and obstinate officials to occupy public space. His unwillingness to move in the expected directions as Nigeria sped towards and crawled out of a financial crisis was perhaps motivated not by sound evidence driven economics, but by a resolve to avoid the fate that befell his predecessor.
Flashes of independence would show up occasionally- like when the CBN’s Monetary Policy Committee (MPC) which Emefiele chairs, held on to the monetary policy rate at 14% for more than two years despite pressure to cut from former finance minister, Kemi Adeosun. But these moments were too few, and easily overshadowed by scandals like the unlawful recruitment exercise where the CBN overshot by a wide margin, a Federal Character Commission waiver allowing for 513 persons to be employed by the bank without advertising. Top on the list of new recruits were relatives of influential citizens from the political class.
Emefiele adopted a non-combative, reactive approach to management that has made him one of the most derided officials in the Buhari administration. At the height of his infamy, calls for his resignation were common place.
Former vice president of the World Bank, Obiageli Ezekwesili cautioned that the CBN under Emefiele needs to ‘’regain its autonomy,’’ and former vice president, Atiku Abubakar in the heat of the campaign trail, outright promised to do away with Emefiele if elected President. According to Abubakar, “I don’t think he’s pursued the right policies.’’
Even former CBN governors were not left out of the free for all Emefiele bashing. While delivering a public lecture, Emir Muhammadu Sanusi II publicly criticized the CBN’s exchange rate policy, pointing out leakages and abuses. Sanusi’s predecessor, Chukwuma Charles Soludo pointedly asked Emefiele and the CBN to “stop playing politics with forex and monetary policy.’’ According to Soludo, the government’s forex policy aggravated the impact of oil shock to drive the economy into recession.
In April 2017, a coalition of concerned young Nigerians- including BudgIT founder Oluseun Onigbinde and Enough is Enough boss, ‘Yemi Adamolekun- wrote an open letter politely requesting Emefiele’s resignation. The letter listed five ‘’disastrous actions’’ taken under Emefiele’s leadership with their perceived resultant effects.
If Emefiele was impacted by any of these, he rarely showed it publicly. Taking advantage of the supportive environment from the presidency, the Lagos born, University of Nigeria trained father of two, went about applying his own unique solutions to a very delicate problem, even if not all of them made any economic sense.
As early as 2017, he was already being awarded for his efforts, emerging the Forbes 2017 Best of Africa Innovative Banking Award in recognition of his ‘’courage and determination in using monetary policy to ensure financial stability in Nigeria.’’
Perhaps he was on to something after all.
If Emefiele was merely playing a waiting game pending a rebound in oil prices, he got some respite. The economy saw a recovery in GDP growth in 2017 and reserves rose gently to over $44bn last month. Emefiele takes the credit, telling the Oxford Business Group, ‘’We have observed marked improvements in investor confidence and business sentiments, and the latest GDP figures for 2018 indicate that the service, agriculture and manufacturing sectors are all experiencing growth.’’ However inflation is yet to drop to the single digits of the Sanusi era and the economy continues to lag its emerging market peers.
The last laugh
It is entirely possible that when Emefiele’s legacy is being considered, it will be concluded that a pliant, agreeable, executive approved approach to monetary policy, coupled with Buhari’s lethargy and documented unwillingness to rock the boat, handed him a second term. But not every win has to be earned by excellence or a proven track record of delivering results.
Sometimes managing relationships excellently can make all the difference. And Emefiele is a good student of history. He appears to have taken notes on how to avoid presidential conflicts from both Sanusi and Soludo who each paid the price for running with the CBN’s constitutional independence while further alienating their bosses.
In the history books, Emefiele joins wartime CBN governor, Clement Isong who stayed in office for three more years after the expiration of his first term before his position was made untenable by the new Murtala Mohammed regime. Both Emefiele and Isong however have nothing on Abdulkadir Ahmed, the longest serving CBN governor who saw off two presidents- one was interim- and two heads of state before General Sani Abacha came around to retiring him. Every other governor since Ahmed has enjoyed only one full term.
By pulling off one of the unlikeliest of victories in economic history, Godwin Emefiele has gone from being one of the most vilified persons in government to the man with the most.
How’s that for sweet revenge?