Godwin Emefiele , governor of the Central Bank of Nigeria (CBN) on June 4, marked his fourth year in office. It has been four years of trying to stabilize a turbulent macroeconomic environment, writes HOPE MOSES-ASHIKE.
Emefiele became governor at a time when the country was running into a turbulent election which was reverberating on the economy. He assumed office on June 4, 2014, a few months before the 2015 presidential election. His appointment was announced in the midst of the storm created by the departure of Sanusi Lamido Sanusi, former governor who was suspended by President Goodluck Jonathan in February.
It was also a period when the years of high oil prices was beginning to lose steam. He therefore assumed office with the immediate task of protecting a naira coming under pressure and ensuring macroeconomic stability amidst dwindling revenues. He summarised his plans to reposition the nation’s economy in a 10-point agenda, part of which was to pursue a gradual reduction in key interest rates, and include the unemployment rate in monetary policy decisions; maintain exchange rate stability and aggressively shore up foreign exchange reserves; strengthen risk-based supervision mechanism of Nigerian banks to ensure overall health and banking system stability; build sector-specific expertise in banking supervision to reflect loan concentration of the banking industry, among others.
But then even before he settled in, the storm hit. There was an over 70 percent drop in the price of crude oil, which contributes the largest share of the country Foreign exchange earnings; global growth slowed down and geopolitical tensions along critical trading routes in the world; and normalization of Monetary Policy by the United States’ Federal Reserve.
“On the management of the CBN, I score the Godwin Emefiele above average in view of the fact that unlike many of his predecessors, he surmounted a difficult challenge of implementing monetary policy during a period characterized by stagflation, high inflation with negative growth in real GDP”, Uche Joe Uwaleke, professor of finance and Capital Markets/Chair, Banking and Finance department, Nasarawa State University, said.
Faced with dwindling oil sales, the country saw depletion of FX Reserves, bottoming at about US$23.6 billion in October 2016 from as high as US$40 billion in January 2014. Inflation also started rising peaking at over 18 percent in January 2017, from as low as 9 percent in January 2016. Then there was depressed GDP growth, which culminated in a recession with five consecutive quarters of GDP contraction bottoming at -2.3 percent in the third quarter of 2017 having grown by nearly seven percent in previous years. Not surprisingly, unemployment rate started rising peaking at 18 percent ion fourth quarter of 2017.
The banks also got hit as Non-Performing Loans (NPLs) deteriorated in line with the difficulties in the macro economy; and banking system exposure to foreign loans threatened to undermine their health.
Emefiele was forced to respond to all these challenges with little help from the fiscal side as a new government struggled to understand the rudiments of governance and budget delays became the norm.
With oil prices not looking to go up and economic diversification lagging, Emefiele had to adopt demand management strategies through the restriction of FX for imports of goods that can be produced in Nigeria and withdrawal of the de facto subsidy for the importation of 41 non-essential commodities with unfolding successes. The policy was vigorously criticised by stakeholders but has helped in reduction of import bills. From an average of about US$5.5 billion, Nigeria’s monthly import bill has fallen consistently toUS$2.1 billion in 2016 and US$1.9 billion by half year 2017.
The CBN under Emefiele’s administration embarked on a cycle of tightening to rein in inflation, with MPR hiked in July 2016 from 12 percent to the prevailing 14 percent.
As regards exchange rate management, the CBN took a number of actions to stabilize the exchange rate amidst escalated pressures from speculators, bettors, round-trippers and rent-seekers. The CBN encouraged increased FX inflows from remittances by licensing International Money Transfer Organizations (IMTOs), more FX sales into the Interbank Market as well as establishment of the Investors-Exporters Window in April 2017. The introduction of the NAFEX and the Investors-Exporters FX Window increased the transparency of market and has helped stabilise the rates.
Aimed at diversifying the economy away from over-dependence on oil revenues for financing the budget and source of FX inflows and consistent with the development agenda, the CBN under Emefiele continued its development finance activities. It came up with targeted interventions at specific high-impact sectors like agriculture, including introducing the Anchor Borrower Programme (ABP).
The total amount of money disbursed under the Anchor Borrower’s Programme (ABP) in partnership with the state government and private sector group since the commencement of the programme, stood at N55.526 billion to over 250,000 farmers.
Two years into the implementation of the Anchor Borrowers programme, the programme has contributed to the creation of an estimated 890,000 direct and 2.6 million indirect jobs.
The result of these policies and interventions revealed that presently, there has been steady decline in inflation, rebound in oil prices and increase in production level, as well as the continued stability in the foreign exchange market.
Consequently, real Gross Domestic Product (GDP) for Q4 2017 was revised upwards from 1.92 percent to 2.11 per cent, while a growth of 1.95 per cent was recorded in the first quarter of 2018, up from a contraction of 0.91 per cent in the corresponding period of 2017, according to the National Bureau of Statistics (NBS).
In his assessment of the performance of the CBN governor, Uwaleke said any objective assessment of the performance of the CBN Governor can only be done against the backdrop of the primary function of the CBN which is to maintain price stability.
“In this regard, Godwin Emefiele’s tenure has been largely successful given the downward trend in inflation rate and relative stability in exchange rate”, he said.
“The story of the country’s exit from recession cannot be complete without giving credit to the role played by the CBN in hastening the exit from a recession that many predicted would last longer than it did. The introduction of the Investors and Exporters window by the apex bank in April 2017 played a major part in improving liquidity in the forex market as well as boosting investors’ confidence in the economy”.
“The growth in the agricultural sector even during the period of economic recession is not unconnected with the CBN’s Anchor borrower programme which many agree is a success story. “Today, rice imports have dropped on the back of improved production in rice production. Generally speaking, the CBN’s interventions as part of its development function are helping to gradually diversify the economy away from oil”.
According to him, the growth in foreign reserves was not only as a result of the recovery in crude oil price and production but equally due to the innovative demand management strategies put in place by the CBN under the leadership of Godwin Emefiele. The restriction of access to official forex with respect to 41 items helped to conserve scarce foreign exchange especially during the period of economic recession. It was also a boost to the import substitution strategy of the government as many products, including toothpicks, hitherto imported are now manufactured in the country.
He said the tight monetary policy that has been in place for some time is responsible for the relative price stability the economy has enjoyed. The fact that the CBN Governor did not cave in to pressure to float the naira thereby leaving the fate of the local currency at the mercy of market forces, marks him out as a patriotic Nigerian.
“My advice is that he should also begin to consider interventions in human capital development especially education and health as a complement to government’s efforts. Also, given that the capital market is the barometer for the economy, any intervention geared towards boosting liquidity in the capital market will help maintain financial system stability”, Uwaleke added.
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