With inflation at an all-time high, exchange rate hovering around a thousand naira to a dollar, and unexplained unemployment rates, forgive me for being cautiously optimistic about the announcement of the new leadership team at the Central Bank of Nigeria.
Our economy and people have taken a bashing in recent times and the CBN has in the past, promised us things they had no power to unilaterally deliver on
The CBN is key to sustaining and growing our economy to the point where every economic challenge is somehow tied to their action or inaction. As Bruce Lee the Hong Kong-American martial artist and actor said, a successful warrior is the average man with laser-like focus. Therefore, in all that needs to be fixed in our dear nation, this new team needs to focus on a few things for maximum (and widespread) impact.
Price stability: the current widespread worry/ fear, despair in our society is a direct result of uncertainty. Where are we going? Will I be able to pay January school fees at this rate? Are we going to two thousand naira to the dollar? Individuals and businesses need clarity to plan and subsequently stop buying dollars ‘just in case’. For most people, the fact that they don’t know the planned direction of the currency is worse than the fact that it is hovering around a thousand naira right now. Why? No one would want to buy at the current rate for a December obligation only to find the exchange rate at seven hundred and fifty naira, for example. Neither would you want to refuse to buy at the current rate and then find it at one thousand and three hundred naira, for example, in November. We need three months, six months and even up to eighteen-month target exchange rates along with the strategy to achieve stability. There is a weak vote of confidence in the Naira; once the CBN achieves these time-bound goals, everyone will begin to calm down. However, guidance and strategy must come together.
Strengthening the financial system: Nigerians witnessed an onslaught of direct financial interventions by the CBN in the tenure of their former leadership. While the intention was well-meaning to fund specific sectors and spur growth, the result was increased money supply leading to inflation and low economic impact due to inadequate monitoring of the recipients. Going forward, let the CBN return to being the lender of last resort and even then, only to banks and financial institutions as we were taught in Economics 101. If the CBN wants banks to lend at single digits, it should reflect in Cash Reserve Ratio, standing deposit rates, liquidity ratio and in the deployment of liquidity management tools in the interbank market. The CBN as a big brother should engage the executive to resolve the infrastructural bottlenecks that result in higher rates. This way, our banks and financial institutions will be financial system pillars and not CBN representative offices. The system is stronger when every part is supported, required and monitored to play their own role effectively. It won’t happen overnight, but let’s start the journey.
Financial Inclusion: the more Nigerians we have actively participating in the financial system, the more effective CBN’s policies will be. The World Bank’s global financial inclusion database 2022 states that 64.8% of Nigerians have access to at least one financial service. While this is a massive improvement from 36.8% in 2011, about 30% of the total money supply (over thirteen trillion naira) is in paper cash. This means that the impact/ efficiency of CBN policies to steer the Nigerian economic ship is capped at less than 70% at any point in time, and most likely even less. Licencing and support for financial technology solutions to deepen penetration is an urgent need to support trade and economic growth.
Our economy and people have taken a bashing in recent times and the CBN has in the past, promised us things they had no power to unilaterally deliver on. Using commercial banks as a metaphor, the CBN is like the FINCON (financial control) unit – very key to the bank but not a revenue generating team. They are to manage the reserves and not create the reserves. Their role in job creation is to create the economic environment to support businesses that will grow and then hire. If the environment is right, banks will give loans – and at affordable rates too.
Seeing that short term interventions haven’t worked, let’s try long term transformational and self-sustaining initiatives.
As the great man Steve Jobs said, focus is about saying no.
Oladele, CFA is a financial educator and CEO at OlerOladele.com