In the past seven years, Nigeria has seen minimal economic growth, averaging less than one percent annually. This slow growth is insufficient to keep up with the population increase, which is slightly over three percent. Furthermore, inflation is high, currently standing at 24 percent, making it one of the highest in Africa.
The Nigerian Naira has faced persistent depreciation, with a nearly 75 percent depreciation in 2023 alone. This depreciation puts pressure on local prices, particularly in light of subsidy and foreign exchange reforms, contributing to inflation.
Both businesses and individuals have suffered due to the poor economic conditions, leading to a decline in the quality of life for Nigerians. Businesses are grappling with mounting foreign exchange losses, which are eating into their profit margins. For example, Airtel Africa reported substantial losses of $151 million due to currency devaluation.
The current state of Nigeria’s economy has raised questions about the backgrounds and performances of its central bank governors, both past and present. According to research from Cambridge, 83 percent of central bank governors globally hold at least a degree in economics, with only 47 percent holding Ph.Ds in Economics. In Nigeria’s case, 50 percent of its governors have had a background in economics, either holding degrees and/or advanced degrees in the subject or having worked as economists.
Among Nigeria’s past governors, only Dr. Clem Isong and Prof. Chukwuma Soludo held Ph.Ds in Economics. They are widely regarded as having had the best performances in terms of managing key economic indicators during their tenures. Dr. Isong’s achievements were honoured with his portrait appearing on Nigeria’s N1000 currency note in 2005, three decades after his tenure.
Examining the career paths of these governors, six of them began their careers at the Central Bank of Nigeria (CBN) or spent several years working at the CBN before becoming governors. In contrast, three governors previously served as Managing Directors of banks, and only Chukwuma Soludo did not fall into either category.
Notably, over the past 19 years, none of the appointed CBN Governors who served full terms came from within the CBN system; they were all appointed from outside. This marks a departure from the historical practice, as only Joseph Sanusi, during Nigeria’s democratic dispensation starting in 1999, rose through the ranks from within the CBN.
During the tenure of CBN Governor Godwin Emefiele, Nigeria witnessed one of the most severe depreciation of the Naira against the US dollar in the official foreign exchange market since the country’s return to democratic rule.
These challenges and criticisms during Emefiele’s tenure highlight the complexities and expectations associated with leading the Central Bank of Nigeria, particularly during a period of economic volatility and currency depreciation. The appointment of a non-economist and non-central banker to such a critical role brought both scrutiny and questions about the direction and effectiveness of monetary policy during his tenure.
Critics of the past leadership at the Central Bank of Nigeria (CBN) have highlighted the absence of economists in leadership roles as a factor in some of the controversial decisions made in recent years. This is reflected in policies that have led to divergence between CBN rates, Open Market Operations (OMO) rates, and Monetary Policy Committee (MPC) rates, creating an unconventional mix compared to the norms in many countries.
The composition of the Monetary Policy Committee (MPC) is a critical aspect of central bank decision-making. The MPC typically includes the central bank governor as the chairman, the four deputy governors of the bank, two members of the bank’s board of directors, three members appointed by the president, and two members appointed by the governor.
Independent members of the committee are expected to provide a balanced perspective during votes on key policy decisions. However, in a committee where more than half of the members with voting powers are part of the central bank’s management team who often have backgrounds in commercial banking, there can be concerns about the independence and objectivity of monetary policy decisions.
Defining and measuring performance targets for the central bank governor could enhance accountability and transparency in evaluating their performance
Dr. Olayemi Cardoso’s nomination for the role of Governor of the Central Bank of Nigeria (CBN) has raised questions about his potential policy direction, given that he is not as publicly visible as some other economists. However, there are certain aspects of his background that provide insights into what his approach might be.
Dr. Cardoso has a diverse background, with experience in both the private and public sector as a former Commissioner of Budget and Economic Planning. This combination of private and public sector experience could provide him with a strong understanding of macroeconomics, making him, in a sense, an economist by experience.
In summary, the success of his tenure will likely depend on his ability to operate independently and execute policies that align with the central bank’s mandates. Additionally, defining and measuring performance targets for the central bank governor could enhance accountability and transparency in evaluating their performance.
The governor’s background as an Economist by experience can’t be seen with most of the deputy governors. Central banking is about macroeconomics, not just banking. I don’t think it’s a fluke that the periods when Nigeria’s Central Bank supported growth the most were the periods when we had 2 economists as Central Bank Governor.
It seems that in Nigeria, we have a tendency to equate commercial banking with central banking. However, this couldn’t be further from the truth. Someone does not comprehend monetary policy or the promotion of macroeconomic growth simply because he is connected enough to mobilise deposits at lower interest rates and turn these deposits into loans at higher interest rates. A commercial banker serving as CBN deputy Governor would also have the potential for divided loyalty when regulating commercial banks or his former employers.
Finally, I believe the most important task for the new CBN governor will be to resolve Nigeria’s foreign exchange (FX) harmonisation and to restore better functioning to the Investors and Exporters (I&E) window.
Nonetheless, it is essential that Nigeria does proceed with FX reforms as well as Cleaning up the CBN’s balance sheet to the extent to which it got involved in lending in the economy will also be key.
The above objective will require a Central Bank governor that has a high qualification level predominantly in economics, an insider experience associated with the prevalence of central banking, thorough understanding of monetary economics as well as work towards a better collaboration between the fiscal and monetary authorities.
Oyatogun is a Strategy & Business Planning Specialist and writes from London.