Emefiele and the (near) impossibility of governing a Nigerian Central Bank – 1

But rather than that being a cause for cheer, Nigeria and Nigerians, the leaders and the led, have been complaining bitterly. The nation’s savings, called Foreign Reserves, has been dwindling. Nigeria lost $11billion (23%) of that reserve in the last one year. Our currency has been under pressure of devaluation because dwindling reserves mean we may not be able to support our import-intensive appetite in the near future. Nigeria spent $26.6 billion just defending the currency in 2013 alone!
The other ‘illegal’ savings that we do – the Excess Crude Account – according to the Punch, is nearly totally wiped out – from an all-time high of $23 billion in 2007. Don’t go yet! Let me grab you by your arm and tell you some more of the bad news! In contrast to Nigeria, Angola, which until recently didn’t compare with Nigeria in crude oil production, now has more money saved up than Nigeria: $38 billion. Let us not talk about countries like Algeria ($192 billion), war-torn Libya ($120 bilion), Saudi Arabia ($733 billion). The newspaper went further to inform us that as against the $1.5billion Nigeria has in its Sovereign Wealth Fund, similar oil producing countries are light years ahead – like Qatar ($170 billion), Kuwait ($410 billion), Algeria ($77 billion) and Iran ($58.6 billion).”
I have quoted copiously from my recent article which tried to re-draw attention to the primacy of the economy in the upcoming elections. The Punch newspapers had given a lot of the background research to my perspective.  The above figures and their contexts, are important, for us to know the state of the macroeconomy, and the critical challenges facing a central bank governor in Nigeria today. Let’s hold those figures in ‘our left hand first’, like local will say.
The new CBN Governor had shown uncommon honesty in his maiden world press conference, by acknowledging, perhaps unlike most people would do, the achievements of the Central Bank he met on ground. Reading through and between the lines, getting the spirit of that maiden speech, it was clear that Emefiele was bringing to the CBN a honest, technocratic energy, much like exists in the private sector. On the other hand, he intends to embark on a few balancing acts. He showed that he was making a departure from his role as a market operator, and had already immersed himself in his new duties as a regulator.  The CBN Governor job is not meant to be a stroll in the park, so in marshaling out his vision and strategy, there were a few more ambitions that looked contradictory (balancing acts), but I will come to those in a minute.
Mr Godwin Emefiele clearly acknowledged the work his predecessor and the team he – Sanusi – left behind, had done. And the work was substantial. As an ex-MD of one Nigeria’s largest and most dynamic banks, he could tell that the CBN had done a great work with Financial Stability – resulting in minimum damage and no deposit loss in the recent financial crisis. The other achievements listed include the maintenance of low inflation rates, a remarkable degree of exchange rate stability, consistent monetary policy and the development of what has become a world-class payment system (better than many OECD countries I’ve been to).  In terms of innovation, the new Governor intends to include the measurement of employment figures as part of the CBN’s monetary policy considerations (remarkable), establish a Secured Transactions/Collateral Registry, and increase the nation’s macroprudential threshold in view of the rebasing of the economy (this one has to do with our provisioning for systemic risks).
Some writers have criticized Emefiele, chiefly on the basis of the continuous incursion of the CBN in fiscal matters (like those interventions in Agric, Power, Aviation etc).   Some have said he seems not intent on crashing interest rates to near zero “so that Nigerian entrepreneurs can be able to borrow easily”, an idea I do not subscribe to in the least, for I believe an economy like ours is not ripe for very low interest rates, cheap lending will always lead to systemic crisis in banks, and that the role of bank lending in entrepreneurship is overhyped in these parts (fix infrastructure first!).  Still, the new CBN Governor says he intends to reduce interest rates, however gradually, while resisting any pressures to devalue the currency. This is a classic dilemma, as it is natural that if interest rate levels go down, players in the country’s bond markets will exit and many will demand for foreign currency on their ways out, bringing more pressure on the Naira.  A low interest rate regime may also have serious negative impact on banks’ profitability, leading to more layoffs or even another round of financial crisis (defined as systemic crisis within a country’s banks). By and large, MrEmefiele, like his predecessor, “knows where the bodies are buried”. This time, we expect him to tinker with the operational and credit efficiency as well as the strategy of banks and their business models, going by his first speech, as against the focus on risk management, which was the forte of Emir Sanusi…
And then Emefiele ran into trouble. In trying to achieve all these ambitions, and specifically, in trying to stop the hemorrhage of the nation’s savings and maintaining stable exchange rates, some anomalies were immediately clear to the gentleman. The nation had had a proliferation of Bureaux de Change (BDC). It seemed perhaps that everyone who went to university had a license, and many people moved around with dozens of BDC licenses in their portfolio or of recent, backpacks and gymbags. Thousands of these licenses had been issued over time, since about ten years ago.  Many bankers retired into that business and the recent retrenchments in the banking sector saw many smart guys picking up these licenses. As against the view that BDCs were chiefly run by ‘Mallams’, this is not the case as most of the recent licenses are held by people from all parts of the country. In fact, the ‘Mallams’ are the lower end of the FX food chain in Nigeria, and perhaps make the lower margins. The big hitters are those who move millions of dollars per day on behalf of corrupt politicians. The running battles between the Coordinating Minister for the Economy, Dr (Mrs)NgoziOkonjo-Iweala, and before her, Senator NenadiUsman, comes to mind.  There is undoubtedly, a direct link between the release of monthly FAAC allocations, and an upsurge in the demand for foreign currencies, through the BDCs and other avenues.
Every sharp Nigerian is now a BDC operator. It is not about ‘Mallams’ on the streets at all. It is about those moving huge amounts for politicians.  The Mallam on the street has the trust of his customers and will keep doing business. But what needs to be cleaned up, is that we are tending towards 6,000 BDCs in Nigeria. That is not done anywhere in the world. Part of this is that no one wants to get their hands dirty doing work in Nigeria. Everyone wants to wear a tie and suit, and take ‘rent’, by mounting a roadblock somewhere and extracting commission. This cannot stand. More next week.