Nigeria central bank chief’s reputation at risk
The tragedy is that… the central bank had built up credibility for reforming, for inflation targeting…
NIGERIAN central bank governor Godwin Emefiele says he is on a mission to transform the economy. That is not what investors are seeking.
While the collapse of oil revenue in Africa’s biggest crude producer has limited the bank’s ability to prop up the currency, Emefiele, 54, has resisted pressure to devalue the naira. Instead, he has imposed foreign exchange restrictions on imports, risking growth in the continent’s largest economy as retailers and manufacturers struggle to source the funds needed to run their businesses.
Emefiele has deflected criticism of his performance 14 months into the job by highlighting the central bank’s need for an expanded mandate on monetary policy.
He wants the bank to play a more developmental role, including creating jobs and facilitating loans to “productive” industries. Investors say he is neglecting his main job.
“The tragedy is that over the past few years, the Central Bank of Nigeria built up credibility for reforming, for inflation targeting, establishing itself as one of the more orthodox central banks in Africa,” Holger Siebrecht, an associate portfolio manager at Acadian Asset Management, said. “Now it is at risk of gambling this reputation away.”
In a survey of nine economists carried out between July 30 and August 4, twothirds rated Emefiele’s record on managing the naira as either ‘very poor’ or ‘poor’, and only one respondent judged his overall performance as better than ‘fair’.
Oil slump
A former chief executive of Zenith Bank, Emefiele took office in June last year, pledging to lower interest rates and opposing calls to devalue the naira. Five months later, he raised the benchmark rate to a record 13 percent and lowered the naira peg by 8.4 percent to a midpoint of 168 (about R11) per dollar. In February, he scrapped the peg.
Since then, Nigeria has elected a new president, Muhammadu Buhari, oil prices have dropped below $50 (R640) a barrel, the government is struggling to pay its workers’ salaries and pressure is mounting for another devaluation. While the central bank is happy with the naira trading at about 199 to the dollar on the interbank market, black market dealers are selling the US currency at closer to 225.
“Emefiele continuously denies that the currency is overvalued, and pushes back from devaluation, when market forces are quite clearly saying something completely different,” Siebrecht said.
Emefiele’s predecessor, Lamido Sanusi, had won acclaim from investors for cleaning up a banking industry near collapse in 2009, bringing inflation below 10 percent and keeping the currency stable.
Ibrahim Mu’azu, a spokesman for the bank, denied the currency policy was muddled, saying that the regulator had been consistent in its “demand management” approach.
Buhari, who took office on May 29, has yet to name a finance minister or articulate his economic plan for Nigeria, where growth is forecast by the International Monetary Fund to slow to 4.8 percent this year from 6.3 percent last year.
“Emefiele seems unable or unwilling to sell the economic case for devaluation to the country’s political leaders,” Alan Cameron, an economist at Exotix Partners, said.
“He wants to portray the CBN as a source of economic stability in a time of political change, even though in reality he might be doing quite the opposite,” he said.
Emefiele’s development goals would mean very little if they distracted from more pressing economic issues, said John Ashbourne, an economist at Capital Economics.
“Investors are going to judge him by the here and now, which isn’t particularly impressive.” – Bloomberg