After the oil boom of early 2010 that supported strong growth in the Nigerian economy, there was an oversupply of oil from the US shale industry that crashed prices in mid-2010 and upset oil producers.
This development altered activities in the international oil market. It was no longer business as usual and oil-dependent economies like Nigeria were presented with an opportunity for reform. The kind of reforms that should improve the economy’s resilience to shocks from the oil market.
It was under this context that Godwin Emefiele was appointed as the Governor of the Central Bank of Nigeria (CBN).
Unlike his predecessors Charles Soludo and Sanusi Lamido Sanusi, who both had the legacy of cleaning up the banking industry and making it more resilient after years of military rule and a global financial crisis, Emefiele’s task and legacy were going to be focused on managing Nigeria’s economic transition away from oil dependence.
Godwin Emefiele was presented with an opportunity to make an impact. Nine years later, he is rated as the most consequential Governor of the Central Bank of Nigeria. He has the rare privilege of leading the Central Bank for two consecutive terms and he is now in the last year of his 10-year tenure.
However, from evaluation of available facts, one can conclude that Godwin Emefiele will be leaving the Central Bank and the Nigerian economy in a worse shape than he met it.
While the notion of the independence of the CBN was put to test with the removal of Sanusi Lamido Sanusi in 2014, the Godwin Emefiele-led CBN never pretended that such statutory independence was necessary to carry out his duties.
The Central Bank, like other institutions such as the Judiciary and the Independent National Electoral Commission (INEC) is protected from external influence and political pressure. This is because political pressure will create conflicts of interests, compromise its mandate and make it act against public interest.
In the past nine years, the wall separating and protecting the CBN and political interest has been broken, thus exposing the CBN Governor to the tunes of officials in the Presidency and State governors, especially on matters of exchange rate policy, monetary financing and lending. In fact, the CBN governor admitted that he had no choice but to lend to the States in the face of political pressure in 2016.
The lack of independence was clear in the matters of exchange rate management. The CBN Governor adopted the President’s preference for an unsustainable rate rather than quick adjustments to restore economic stability.
The past nine years have been the most challenging since the late‘80s with regard to stability of the exchange rate, a mandate that the CBN has been vested with. Since 2014, the Naira has depreciated by over 15% every year; the worst since the late ‘80s, excluding the 1999 adjustment. Between 2020 and 2022, the depreciation has been 21.9% annually, the worst of any three year period between 1999-2001.
The CBN’s management of the currency has created room for arbitrage and corruption, with the parallel market premium averaging N65.8/$ over the official rate between 2015 and 2021, much higher than the N5.1/$ premium between 2004 and 2014.
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While the CBN has stopped tracking parallel market data to discredit the segment, it remains important in assessing the dysfunctional FX market as the exchange rate currently trades at a N310/$ premium. There remains no clarity on when the FX crisis will end and investors have turned their back on Nigeria as a result.
Today, Nigerians do not want to hold unto the Naira for store of value because it only makes them poorer. With an inflation target of 6-9 percent and a mandate to ensure price stability in the economy, there was no full year that the CBN achieved this target under Godwin Emefiele.
Between June 2014 and April 2023, inflation averaged a distressing 14.1 percent in Nigeria. The consequence is widespread cost of living crisis for Nigerians as a results of widespread low purchasing power. The CBN’s aggressive expansion of the money supply has contributed to the persistently high inflation. Unfortunately, there is no growth to show for it as the economy grew only 1.4 oercent between 2015 and 2022, much below the historical rate of 7.0 percent n the preceding decade.
All things considered, the most damaging impact of the CBN’s lack of independence can be seen in the most aggressive financing of the government in Nigeria’s history. Without revenue to support its huge spending programmes and against the CBN’s Act, the Federal Government has turned the CBN to its piggy bank, borrowing over N22.8tn since June 2015; almost doubling Nigeria public debt of Nigeria at N12.1tn as at June 2015.
The consequence has been that the FG’s fiscal finances are in the worst shape in recent history, with debt servicing accounting for 96% of revenue. This has led to credit rating downgrades that has affected the ability of Nigeria’s institutions to tap international financing.
Godwin Emefiele also stretched the limit of his powers as the Central Bank Governor, with far reaching policies that touched almost all segments of the Nigerian economy from agriculture to manufacturing and healthcare. There was no restraint as the CBN almost assumed the role of commercial banks in directing credit to the economy. Its intervention programmes, designed poorly and without accountability, cut across the real sector and ran into trillions, even while the financing of government deficits was aggressive. Many of these loans are yet to be repaid, posing great threat to the overall economy.
With much power, there has been little accompanying accountability at the CBN. The audited financial statements of the CBN have not been published since 2015, in violation of the provisions of the CBN Act of 2007. The supervision of AMCON, which was created to clean up bad credit in the banking system, has been shambolic. There has been no proper accountability to the public on the terms of rescue and the eventual sale of banks by AMCON.
Godwin Emefiele will go down in history as Nigeria’s most powerful CBN Governor, who missed the opportunity for reform but will bequeath a huge mess to his successor in office. That would be his legacy.
The CBN must untether the attachment to the Presidency, restore price and exchange rate stability, make monetary policy resilient to the commodity markets, put development financing on the backfoot, be more serious with the regulation of financial institutions and obey the laws guiding the CBN’s activities.
For the Nigerian public and for posterity, Godwin Emefiele should be a cautionary tale on how not to run a Central Bank or any institution of national importance.
.Ndubuisi, an economist, wrote in from Lagos
