It is trite that conventionally, the core mandate of a Central Bank in any economy is to maintain price stability which modern day economists regard as ‘inflation targeting’. Some Central Banks have overtime put figures as to what the target should be. The Federal Reserve in America, for example, has always targeted 2% as the permissible rate of inflation. Targets of other central banks in other advanced economies like the U.K, European Union, Japan have all hovered around that of the Federal Reserve. However, for emerging and developing economies like Nigeria and others, the bug of putting figures to inflation targeting has not really caught on.
Adjuncts to price stability maintenance are two other objectives any central bank should equally focus on. These are maintenance of financial stability and macro-economic stability. The former ensures the soundness of the financial ecosystem at any particular time. This objective is largely accomplished through deployment of regulatory instruments by the concerned central bank. The latter objective seeks to prompt the concerned central bank to get involved in shaping the relevant macro-economic indicators to desired ends.
It is largely in accomplishing the latter objective (ie macro-economic stability) that there seems to be division of recent amongst economists. While some favour central banks sticking to their orthodox role of inflation targeting, others forcefully argue that any central bank worth the name should go beyond mere inflation targeting and get significantly involved in the health of the economy. Metrics that will aid the growth and development of the economy must be its concern, so goes the argument!
Nowhere has the foregoing gained quiet traction recently than in Nigeria, especially with the stance of the current Central Bank of Nigeria (CBN) Governor, Mr. Olayemi Cardoso, that the CBN under his watch will focus on its core mandate which to all intents and purposes is a clear departure from the activities of the CBN under the leadership of its erstwhile Governor, Mr. Godwin Emefiele, where the second school of thought seemed to have had upper hand. Under the latter, the Nigerian economy witnessed direct CBN’s intervention in many sectors of the economy with agriculture, aviation, mining and power being the most prominent ones. Billions of naira were sunk into those sectors.
The desirability or otherwise of those interventions has continued to elicit diverse opinions. To the pros, the sectors that benefited from such interventions have the capacity to turn the fortunes of Nigeria from heavily relying on one source – oil economy – to multi sources of foreign earnings. They point to the different value chains in some of the sectors, especially agriculture, which are veritable areas of employment. Another point emanating from the pros is the food security which the intervention in agriculture particularly portents. They readily point to the success recorded in rice production which has helped to save the nation’s foreign earnings that would have otherwise gone into rice importation. The pros further contend that in a situation where other players in the economy were not forthcoming with policies amenable to the growth and development of the economy, the CBN had no option but to intervene as nature abhors vacuum.
Without depreciating any of the arguments of either side, the fact beyond contestation is that the Nigerian economy at present is in the throes.
To the cons, the CBN’s direct interventions in some sectors of the economy have been an unmitigated disaster. They point to repayment hiccups that have dogged the different programmes embarked upon by the CBN. They readily point to the anchor borrowers scheme where many beneficiaries (farmers in this instance) of the loan have simply vanished into thin air. They question the role of the CBN being seemingly transmuted from lender of last resort to lender of ‘first instance’ – a role that is the exclusive preserve of deposit money banks. To the many advertised gains of the interventions, the cons contend that they are at best largely exaggerated and at worst, non-existent at all. They are quick to point to the power and aviation sectors where the interventions are yet to yield any appreciable dividends.
Without depreciating any of the arguments of either side, the fact beyond contestation is that the Nigerian economy at present is in the throes. The indices are not encouraging: inflation is at its highest rate (presently 28.20%, according to National Bureau of Statistics – NBS) and there’s no sign of abatement; unemployment is anywhere between 35% – 40% and this is discarding reasonably the questionable unemployment figure released recently by the NBS; GDP is at a miserable 2.54% – below population growth of over 3%. The list goes on!
The grim economic situation is buoyed by scarcity of forex which is still the big elephant in the room and not the least, the cost of energy – petrol, diesel et cetera – which has been soaring, where public supply of electricity has refused to lift itself from ever comatose state. Any wonder why some multinationals have either left or contemplated leaving the shores of Nigeria? Their Nigerian counterparts that have not shut down are merely struggling with ominous consequences on jobs, revenue to government via taxes and even on prices and qualities of their commodities (traditionally representing goods and services). How many micro, small and medium enterprises (MSMEs) are still standing to be counted in the Nigerian economy today?
As a critical institution in the Nigerian economy, the CBN should not reveal itself in orthodoxy that will debar it from lending its weight in exterminating some of the ill baggage currently plaguing the economy. Every economy has its own peculiarities and must frontally address them accordingly and CBN should view its role in that light.
How to proceed? The current CBN leadership should carry out a critical evaluation of how the interventions of the immediate past leadership fared. The CBN should wean itself of the temptation of throwing away the baby with the bathwater; the positives should be taken, whilst the negatives were not amenable discarded. The CBN should be deliberate and pragmatic in the choice of sectors to intervene in and the banks that will act as intermediaries. Banks that have shown capacities in elevating certain sectors should be co-opted to partner with it in intervening in such sectors. Without mentioning names, any keen observer of the Nigerian economy knows the banks that are pro agricultural sector, those that are strong in financing MSMEs, et cetera.
Not the least, the leadership of the CBN should be more synergistic with the fiscal authorities, especially Federal Ministry of Finance, to avoid the pitfalls of its immediate predecessor.
Dr. Okolo is a chartered stockbroker and management consultant based in Lagos.