• Monday, July 22, 2024
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Nigeria’s compromised central bank

Keep up with the work, readers tell BusinessDay in face of CBN attack

In my reflections on institutions in Nigeria, I have maintained the position that Nigeria suffers from isomorphic mimicry – a situation where institutions are created and made to act in ways to make themselves “look like institutions in other places that are perceived as legitimate,” but which in reality are not. We have created various institutions of governance that are supposed to work like institutions in western countries – with elaborate laws and provisions providing for their supposed independence.

However, our presidential system ensures that regardless of the laws establishing these institutions, they ultimately operate at the whim and caprice of the president, who, if and when he chooses, can disregard the law and ride roughshod over those institutions.

Successive Nigerian presidents, even if they manipulate supposed independent state institutions, are careful, at least in public, to portray these institutions as independent – and for very good reasons. The first reason is to deny responsibility for their actions and the second is to prevent unsavoury repercussions from the international community or the international markets.

However, that fact was lost on Mr Buhari and his handlers. While hosting governors of the ruling All Progressives Congress (APC) party in his home in Daura last month, he said he ordered the Central Bank of Nigeria (CBN) to stop providing foreign exchange for importation of food into the country due to “the steady improvement in agricultural production and attainment of full food security.” Not done, his publicist, Garba Shehu – a supposed veteran journalist who should know the drills – issued a statement with the headline: “Don’t give a cent to anybody to import food into the country”.

On September 10, at a meeting of the National Food Security Council at the State House in Abuja, Mr Buhari again repeated his directive to the CBN. But this time, it wasn’t only importation of food items that are banned from obtaining forex, but also fertilizer imports. Not done, he went on twitter the next day to make the same point.

“I am restating that nobody importing food or fertilizer should be given foreign exchange from the Central Bank. We will not pay a kobo of our foreign reserves to import food or fertilizer. We will instead empower local farmers and producers.” He provided his reason: “we have a lot of able-bodied young people willing to work, and agriculture is the answer”.

Is it any wonder that the CBN has been turned into the government’s piggy bank, printing trillions of naira for the government to spend while crowding out the private sector?

Of course, following his orders, the CBN added food items and fertiliser to the list of banned items for foreign exchange. Never mind that the same federal government last month admitted that it borrowed a total of 5,000 metric tonnes of assorted grains from the food stock of the Economic Community of West African States (ECOWAS) to address the apparent hunger and deprivation in the country.

But even as the president was ordering the banning of all food imports, the CBN had to issue special emergency approval for four companies to import maize into the country to tackle scarcity.

Since Mr Buhari’s ascension to power in 2015, he has taken over the powers of the CBN and issues routine directives to the bank– thanks, in large part, to a thoroughly subservient and compromised Central Bank governor, whose only ambition is to retain his position and get a second term in office – a feat no central bank governor has been able to achieve since 1999.

In 2015, the naira was under serious pressure due to low oil price with investors suspending investment decisions to Nigeria until the currency is correctly valued. Instead of allowing the CBN to perform its statutory function, Mr Buhari jumped the gun ahead of the CBN and declared that there shall be no further devaluation of the Naira.

Expectedly, after the pronouncement and even before that, the CBN lost its independence to determine the country’s monetary policy and has relied instead on reading the ‘body language’ of the president and taking actions that will conform with that ‘body language’.

The CBN was then forced to roll out various kinds of policies – including placing some items on import prohibition list, an action the Economist derided as archaic and irrational in a July articled titled “toothpick alert” – to protect the beleaguered Naira. Despite all the efforts of the CBN, the Naira still ended at N360 to a dollar – far worse than it would have settled had the naira being floated earlier.

Even when the president was made to literally eat his words and allow for a devaluation of the naira in the face of severe forex scarcity, he still keeps making comments to show that he never liked the decision. At a gathering of business leaders in June 2016, Mr Buhari was quoted as saying:

“I don’t like the returns I get from the CBN…” “How much benefit can we derive from this ruthless devaluation of the naira? I’m not an economist neither a businessman-I fail to appreciate what is the economic explanation.”

Is it any wonder that the CBN has been turned into the government’s piggy bank, printing trillions of naira for the government to spend while crowding out the private sector? Is it any wonder that the CBN just doles out money to satisfy every of the president’s whimsical ideas and programmes in the name of development financing? Is it any wonder that the CBN continues to enrich the close associates of the president through the arbitrage opportunities in the current unsustainable foreign exchange management system? Is it any wonder then that at the slightest sign of trouble, virtually all foreign and portfolio investors have fled the country thus exacerbating forex scarcity?

Like Olu Fasan, BusinessDay’s leading columnists and political economists noted on twitter last week, “All these @MBuhari ‘asks’, ‘orders’, ‘directs’, ‘instructs’, the @cenbank to do this or that is doing enormous damage to the credibility of #Nigeria’s central bank. That the government is not even subtle about these orders shows utter disregard for the independence of the central bank”.