Remembering Emefiele’s 5-Point Agenda
It is barely six weeks since Godwin Emefiele announced the five-point agenda of his second term as Governor of the Central Bank of Nigeria (CBN). Yet, it is doubtful anyone can recite the five action plans. The reason is because a five-point reform agenda, or intervention, by a central bank governor is superfluous.
Emefiele’s agenda is even broader than five points. By examining the areas covered by his agenda, one could distil at least 10 points. His first point seeks to ‘preserve domestic macroeconomic stability’ and ‘financial stability.’ The second aims to ‘foster the development of a robust payments system infrastructure’ and ‘increase access to finance for all Nigerians, thereby raising the financial inclusion rate in the country.’
The most unwieldy, the third point, aims to ‘continue to work with the deposit money banks (DMBs) to improve access to credit for not only smallholder farmers and MSMEs’; it will also ‘improve consumer credit and mortgage facilities for bank customers’; ‘extend intervention to the youth population who possess entrepreneurship skills in the creative industry’; and ‘encourage DMBs to direct more focus on supporting the education sector.’
The fourth aims to ‘grow our external reserves.’ And the fifth will ‘support efforts at diversifying the economy through intervention programmes in the agriculture and manufacturing sectors.’
But the governor’s agenda is broader still. He also plans to ‘pursue a programme of recapitalizing the banking industry so as to position Nigerian banks among the top 500 in the world.’
There is no one way to understand this multipronged reform agenda. Some of the points suggest Emefiele would pursue the normal policies of the central bank. In which case, there would be no need to present macroeconomic and financial stability, and management of the foreign reserves, in a new policy agenda.
His multitudinous programmes also suggest the CBN, in his second term, wants to pursue a populist agenda, by offering something specific – as opposed to one or two policy thrusts – to as many demographics as possible. This may not be entirely unreasonable, since public approval of his reappointment at the beginning of June, was low. But central banks are validated by the fulfilment of their core mandates, rather than by enacting policies to directly ingratiate themselves to the public.
And, a CBN agenda that is all over the place, signals blurred vision of its leadership.
This reading of Emefiele’s policy agenda is not unreasonable. By presenting the business as usual of the bank as a new agenda, the governor is both propagandizing and underestimating the importance of simply focusing on the core mandates of the bank. Given his new agenda, we may as well ask what he was doing during his first term?
One must also point out that the payment industry reform had gained traction under Emefiele’s predecessor. Since then, the implementation of the reform has not faltered. The banks, and the financial technology (fintech) firms, have continued to invest in innovative solutions for payment, remittance and money transfer. These solutions are the arena for disruption of traditional banking services and the levers for competition. The requirement of the CBN is hardly more than regulate these activities, to ensure the transactions are safe and secure, while not stifling innovation.
However, Emefiele’s agenda portends a prescriptive approach that can only stifle innovation. He wants to foster the development of payment infrastructure that will increase access to finance for “all Nigerians.” In the next five years, the Nigerian payment industry has a lot to catch up with in innovative payment solutions in other climes, although the country and SubSaharan Africa in general lead the world in mobile money accounts per capita, mobile money outlets, and volume of mobile money transactions. The private investors must be able to decide what to invest in. Also, to achieve universal Nigerian financial access, if it were possible, would require massive investment in basic literacy and economic prosperity of Nigerians. There is nothing that suggests these will be achieved in the next five years.
The problematics of Emefiele’s populist posturing has started to manifest. He has broadened the capital controls he introduced about four years ago to include restriction of access to foreign exchange for importers of dairy products. With the country currently only able to produce 40 per cent of its demand for dairy products, the new CBN forex restriction will directly be responsible for product scarcity and higher prices.
Yet, this does not completely highlight the indiscretion of the forex restriction. The policy has been announced for an industry that is currently embroiled in political turmoil. Nigerians, and the international community, have been in apprehension as cattle herders invade farming communities, destroy farmlands and kill their owners with impunity. More recently, the Federal Ministry of Agriculture and Rural Development announced a programme for grazing livestock that would create, willynilly, rural grazing areas across the country, including communities where suspected Fulani herdsmen have been killing and kidnapping Nigerians with impunity.
Emefiele’s CBN forex restriction on importation of dairy products is arguably a policy leverage for those who currently use their political influence to kill, maim and kidnap Nigerians. The forex restriction is a “Ruganisation” policy.
Emefiele is also signalling disregard for the sentiments of local and foreign investors. CBN’s capital controls introduced in 2015 and its multiple foreign exchange regime have been often cited as impediments for FDI flows into Nigeria. According to the IMF, continued foreign exchange restrictions are among factors that are dampening long-term foreign and domestic investment in the country.
The new forex restrictions will inevitably affect multinational dairy producers and marketers in Nigeria, such as Cadbury, Nestle, and FrieslandCampina WAMCO – which, last year, announced plans to invest €23 million in its evaporated milk and readyto-drink factory in the country. But while further dampening investor confidence, the CBN is also planning to instigate a massive banking industry recapitalisation programme.
On the whole, the CBN has been riding on the crest of accretion of the foreign reserves in the last 24 months. This is based, gratuitously, on the relatively high oil prices and government’s external borrowing. But oil prices swing, and the government has certainly reached the limits for sustainable borrowing, given that the cost of debt service to government revenue is already above 60 percent.
These cyclical factors are a warning against the current CBN policy. The bank should, therefore, align policy to longer-term financial sustainability and rid itself of its current hubris. Emefiele should also realise that CBN interventions – as many as they may be – cannot replace the role of fiscal policy to spur economic growth.