Naira: Give Cardoso time for painful reforms to yield fruit

John Darlington, former managing director of the defunct Bond Bank, in this exclusive interview with Lolade Akinmurele and David Ijaseun, spoke about the CBN’s ongoing naira stability and foreign exchange reforms and why Governor Olayemi Cardoso needs all the support he can get. 

Excerpts:

We saw some very wild swings in the FX market in the past week. The naira has gone from N900 per dollar in January to N1419/$ as of yesterday. The central bank governor, Olayemi Cardoso, in an interview with Arise TV talked about some of the reforms that the apex bank has in the pipeline to halt the naira slide. What did you make of the interview?

Thank you for this opportunity and I was glad that I watched that interview myself. Let us walk back for a minute. I’ve been a player in this market for a long time. I’ve not seen a governor of the CBN subject himself to that openness. He was brilliant, calm, honest, knowledgeable and he showed that character and strength you want to see in a governor.

The governor spoke with candour and brutal honesty and demonstrated an understanding of the issues. The governor showed passion, sensitivity. The governor understood what the issues were and his communication was brilliant.

What did I pick from that interview? First, you, the media must support him to succeed. The narrative, the way you tailor your headlines and the story is fundamental.

Secondly, his constituency; the banks and bankers, it is time to show patriotism. The bankers must now live up to the responsibility of being a bank in society. The bank must even be accountable and responsible.

We all have a stake in making him succeed. Therefore, it’s time to say please, let’s understand we have only one country and the governor can only succeed if we all stakeholders; media, the banking community, the customers, the ordinary citizens because we have a government that has shown character, understanding and determination to tackle the economic issues and we shall succeed.

But if we all insist he won’t succeed, he can’t succeed. Therefore, it is time to show patriotism, it’s time to give his team hope and time for the result to start showing. I think it was a brilliant interview.

What do you say to critics of the central bank governor who say that he is moving too slowly? Yes, he does have a good understanding of what the issues are but then, the pace of his reforms have not been fast enough. They say he is not acting like we are in a crisis.

My first reaction is to say ‘calm down’. How did you come to the conclusion that he is not moving as fast as you want?

Foreign investors are not coming back as much as you’d expect, if you look at the report on the NGX, foreign investment has even declined compared to last year. Isn’t that a sign that all is not done just yet?

The foreign investors will not come until you honour your forward contracts.

And how long does it take to do this?

Your liquidity. The government does not create forex.

But don’t we have over $30 billion in external reserves?

You cannot use your external reserves that way overnight and leave the country vulnerable.

Yes, it might seem it is taking a while, but understand the rot that was in the system. It is no more news how unprofessional the last CBN governor was and how much of an embarrassment he was to most people that understand banking and that have known him for many years.

Therefore, for any incoming governor, they will understand the state and the rot in the system will take a while. Remember, the central bank is an institution. The last governor didn’t act alone in creating that rot.

I dare say most of the directors today are not unaware of it. So why do you think they will expose the rot themselves? Given that you can’t trust the authenticity of the report being generated by the current crop of staff, Why won’t the governor create a second layer of verifying before he starts forming his policies?

You heard him today, they had to engage an external party to verify the obligations we are owing, that revealed out of a $7 billion backlog of unmet dollar demand from investors and currency users, as much as $2.4 billion of the said backlog are false claims.

Therefore, sympathise with the man. The job he has to deal with is not easy. It is easy to point the finger but you have to understand what needs to be done if the issue has to be tackled. Wait a minute, for many years we’ve refused to address the issues. Now we are tackling the issue, the burden will be there. You will feel the pain.

Tell me, before the joy of having a baby comes, what is the pain of labour? We must have faith in leadership and governance again, that they are doing the right thing, that there is sincerity and I’m saying to with audacity that the governor we have today, the team, Wale Edun, that we have today in the economy, they are people of character, people, integrity, people of knowledge and they also have heart.

Therefore, I plead we give them time. Yes, it might take a while.

How much time?

If I knew the answer, I would be a billionaire but I will speculate. From the sincerity, strategy and the beautiful communication with the Governor today, give them six months to nine months, It will turn around and the beauty and the joy would come and we’ll be grateful that God gave us a team that had the courage, the knowledge to deal with the fundamentals that will make tomorrow better.

I agree with you that the reforms that the CBN governor Cardoso embarked on hold long term gains for the economy. We’d rather have one exchange rate than the multiple rates that we had under the last governor. It just helps to remove that uncertainty that investors had, that also led to them staying largely on the sidelines and not wanting to have anything to do with Nigeria.

You spoke earlier of the need for us to support the Central Bank Governor on his quest to deliver the gains of these reforms. If you were still the managing director of Bond Bank today, in what way would you support the central bank governor to stabilize the naira today?

Banking is a business of character and integrity. Banking is a business of confidence. Therefore, as a CEO, the first thing you owe your stakeholders is the integrity of your license which means you must operate within the guidelines and the regulatory framework of your environment. Profits or other considerations do not surpass the integrity, and the protection of your license.

Therefore, you must be in bed with the regulators and confirm with the regulatory policies and framework. And you could see in the last few weeks, the central bank has been coming out with some set of policies.

Therefore as the CEO of character, reputation, you must create a system within your bank that conforms and operates with those guidelines and not wait for the CBN to come and police you.

And if you read them, timely on what the CBN has been pointing at or where they are going. If the banks collaborate, cooperate, and operate with integrity, you will see a major shift.

I don’t want to assume you have a CEO sit in a bank and speculate on the naira. And if I am a regulator, I will chop the fingers of that CEO and I will threaten their license.

Therefore, I am using this medium to appeal, to plead with the CEOs and with the stakeholders in the bank, don’t allow your natural human greed for profit override your responsibility, to operate responsibly within the regulatory framework, and understand there’s a bigger promo than your profit motive, and collaborate with the government and regulators to help us strengthen and rebuild this economy.

Do you think that the banks might also need some support from the central bank especially in the area of the cash reserve requirement? At 32.5% it is one of the highest in the world and this is just idle funds sitting in the CBN vaults, earning zero cash.

You heard the governor today, when he was asked point blank, why hasn’t the MPC function very well? You heard his explanation and I sympathise with him and I heard him loud and clear. If we had an MPC that didn’t have a voice that warned us about where we were with the last governor, why would any governor jump to bed with that same group of members? Because of the geopolitical play in this country, in constituting a new MPC, it would take away because of the balancing of interests.

You could see how simple the operational decision of moving some departments of the CBN to Lagos has created a whole opera. Therefore, I’m expecting the new MPC to be professional, to be men of character, men of knowledge and to be men of courage.

Within that ambit of a group of the right professionals, if there’s anything wrong in the past that is hurting the business, they will be addressed. I have implicit confidence in the character, ability and honesty in the vision of the CBN. In it, all will be well.

How would you advise the CBN governor to go about calls that market interest rates need to go up to incentivize new dollar inflows into the economy as well as getting Nigerians who are sitting on huge amounts of dollars in dom accounts to bring out their money to invest in the naira?

We know that it’s a delicate balance here because as the interest rates go up, it means that the borrowing costs for the federal government also go up as well. The CBN has been slow in addressing this.

I don’t know where this notion that the governor has been slow is coming from. It’s always better to take your time in the planning stage, preparing your architectural drawings, your site plan, and assembling the right team so that when you eventually start the project, you don’t need to make alterations; everything runs smoothly. The same principle applies to the governor’s situation. I believe that many of us, including myself and our society, underestimated the extent of the damage caused during the tenure of the previous CBN governor.

To unravel the complexities and address the issues, it takes time. It’s essential to understand that the governor’s office has access to ample resources to build the right team. Furthermore, you must consider the governor’s background and experience; he has been and continues to be a significant player.

I won’t presume to dictate what the current governor should do. I have full confidence that the governor, along with the Minister of Finance and the Prime Minister of the Economy, and their respective teams, possesses the necessary skills and capabilities. All I’m asking for is a little patience from us as citizens.

Dealing with a situation where even your local service providers like vulcanizers and carpenters are speculating on foreign exchange rates is challenging. Let’s all do our part as patriotic and committed citizens. Honestly, given the current level of inflation and our circumstances, it’s evident that exchange rates need improvement. However, I trust the governor and his team implicitly. I simply ask for some time as their policies unfold. I can already see a clear direction, sincerity, commitment, and understanding in their approach, and time will tell how it unfolds.

What’s your message to Nigerians dealing with the current pain and uncertainty? How can we find hope and a path forward amidst these challenging times?

No doubt, there is widespread suffering in the nation. As someone who hails from a village and has spent considerable time in my hometown of Ubiaja, located in Edo State, I can empathize with this suffering. However, it’s essential to distinguish between the suffering experienced by the genuinely impoverished members of our society and what we often hear. The pain we are currently witnessing is predominantly that of the elite, who have historically been the primary beneficiaries of economic subsidies, as the voiceless poor have had no say in the matter. Nevertheless, I completely concur with your assertion that suffering exists across the country. The necessary reforms that we must undertake will undoubtedly entail a period of hardship before we can reap the benefits. After all, how could we continue subsidizing petroleum products indefinitely?

Is it not back now?

No, it is not back. The recent relocation of it to its current position represented a significant leap. So, if we were to further analyze this, wouldn’t you consider it as insensitivity? Therefore, it’s important to understand that the current government genuinely cares about the people. These are necessary steps we must take to build a better nation for the future.

Where else in the world do you witness a 100% disparity between the parallel market and the official exchange rate? You can see the fraud that has been perpetuated, and the few individuals who have hoarded liquidity. This government has indeed addressed some critical issues.

Admittedly, there is pain, but addressing these issues was bound to lead to inflation. Now, what steps are they taking to alleviate this pain and elevate us to a better situation? I join you in saying, “Mr. President, there’s urgency, pressure, and pain. Rally your best team, keep them focused, work diligently, and bring prosperity back. However, maintain hope, be patient, fulfill your duties as a responsible citizen, and don’t lose hope. I believe sooner or later, you will witness the government’s efforts in education, healthcare, agriculture, infrastructure, and more. It takes time for the benefits, beauty, and results to manifest.

Don’t allow negative voices to divide us as a nation. You’ve seen the baseless claims that emerged over the weekend, such as the government converting domiciliary accounts to naira. Who would believe such rumors? Does that align with the well-being of our society? Refrain from lending your support to such voices. Things will get better, and I have confidence in the current team; they will lead us to a brighter future.

What are your thoughts on Nigerians speculating against their own currency?

If you don’t need dollars, why are you buying them? The marketplace operates on the principles of supply and demand. If everyone rushes to buy more tomatoes than they actually need, what will happen to the price of tomatoes? It will inevitably skyrocket.

Similarly, if all of us go to the market today and try to purchase enough yams to last us for an entire year, what will be the result? Let’s purchase what we need as we need it, and this will help alleviate the pressure. We should not treat the dollar as a store of value; if it becomes one, we’ll continue to face these challenges.

Many people believe that attracting significant foreign exchange inflows into the economy is not a rocket science. If we consider the primary sources of dollar inflows – such as oil receipts, diaspora remittances, foreign investments, and loans – one often overlooked area is diaspora remittances. With over $20 billion in annual diaspora remittances last year, how can the Central Bank optimize these inflows, especially given the preference for black market exchanges over official channels? Additionally, what other strategies can the central bank explore to increase the flow of dollars into the economy?

I appreciate this question’s importance. It has triggered a broader issue, which is security. Is security a significant concern? Absolutely, it is.

However, are we effectively managing information and communication? I don’t believe so. The insecurity in the country is a major problem, and it’s time for an alarm to be raised. Something must be done.

The responsibility falls on the security chiefs, and citizens must feel safe in their homes, whether in urban or rural areas. We need to ensure that people can sleep peacefully. Therefore, I pray and hope that the government will take drastic steps to address this issue. Moreover, as citizens, we must provide information to assist the government because some criminals, bandits, and herders live within our communities. Security must protect those who come forward with information.

A safe environment is crucial for economic growth. You mentioned various sources of inflows, and the government’s efforts to promote transparency and accountability regarding revenue from our primary assets, crude oil, were discussed by the governor today.

Diaspora remittances are another significant source. We should look forward to the central bank’s policy to eliminate arbitrage and bottlenecks, as discussed by the governor, which will lead to a smoother market with enhanced security. You will be able to conduct transactions at the bank without hassle or the need for personal connections, unlike the current situation where street transactions lack protection.

This is about supply and demand. We must also monitor our consumption habits. If we consume dollars excessively without generating them, we’ll remain trapped in this cycle. We must identify our comparative advantages, invest in areas where we can grow the influx of dollars, and manage our lifestyle according to our means.

Everyone must contribute to overcoming these challenges. We need to support production, manufacturers, and explore new markets and avenues for our products and skills to boost dollar inflow. This will ultimately lower exchange rates and improve our quality of life.