Emefiele: Four Gone, One to Go?

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The CBN Governor’s Last Year Performance May Be More Politics Than Performance
Godwin Emefiele bounces into the last year of his five-year tenure in steady steps, not with feet of clay, because the last one year has been in a haze of awards, endorsements and back-taps, the weightiest coming from President Muhammadu Buhari, who recently acknowledged the role of the Central Bank of Nigeria in managing the most volatile foreign exchange crisis Nigeria has witnessed in the last twenty five years.
The immediate past two CBN Governors, Soludo and Sanusi, designed their own revolutions; Emefiele had revolution thrusted upon him by fate. Charles Soludo, the CBN Governor appointed in 2004 by former President Olusegun Obasanjo ran the Nigerian Banking System through a weight shedding exercise in 2004/2005 when he mandated a compulsory hike in the capital base of banks from N2 billion to N25 billion, forcing a condensation of the industry from 89 to 25 players. In 2009, Lamido Sanusi (now the Emir of Kano) latched onto the problems created by the Soludo revolution to cause another revolution when he did a stress audit of banks and declared 10 of them insolvent.
Emefiele didn’t have to look for headlines; oil price was waiting to give him a good dose of media attention. In the wake of the price crash of 2014 to 2016 when oil sold for as low as $27 per barrel, Nigeria experienced its worst economic crisis of 25 years with the depreciation of the Naira signalling its most significant effect. The Naira, which ranked as the worst performing currency in the world against the US Dollar in 2016, behind the Venezuelan Bolivar and the Surinamese Dollar moved from N160 to N520 in a space of four months.
Emefiele, a Goodluck Jonathan appointee, whose standing with the ethnic-centric Buhari, is virtually unknown, became a firefighter and laboratory man, stringing out a number of measures to save the face of the Naira while the public cried. One of the most significant reactions was to take 41 items from the official foreign exchange window. Another was to deny access to certain classes of FX users such as students, patients and tourists. This was in addition to using the hammer (though not sledge) on banks who flouted CBN’s FX regulations.
The effect of this was the cannibalization of the FX market with Nigeria having over six rates! Foreign investors voted with their feet. In Nigeria, the FX Reserves is a political metric, the size being a handy tool for federal politicians looking for achievement to parade or criticism to make. To that extent, how big it was became an important issue for Emefiele who needed to convince his new bosses (the APC led Federal Government) that he was also their man. The CBN Governor therefore had to deny critical sectors such as manufacturing and agro processing foreign exchange just to keep FX Reserves high.
Inflation became a sore point as FX scarcity took its toll on an import-reliant economy. From 9% in the middle of 2015, inflation ramped up to almost 19% providing significant disincentives to savings and investments. Though the Federal Government (through the Debt Management Office) sustained the pressure in the domestic money market by issuing treasury bills at historical alarming rates, this had no resulting effect on inflation. The consequence was stagflation, a situation of high inflation and high unemployment.
The joker in the Emefiele Administration was the introduction of the Investor and Exporter (I & E) Window in 2017. The CBN ran a substantial number of parallel market operators out of business by creating a platform for price discovery, thus bridging the supplier-user gap. Ever since then, the parallel market and the Official Markets have converged around a single rate (around N360+/-) since the third quarter of last year to restore some measure of confidence to the FX market.
The CBN Act provides a second term window for the CBN Governor. However, no President has used this window since 1999 when the current democratic dispensation began. Even Obasanjo, who had the privilege of nominating two CBN Governors, did not give Joseph Sanusi a second chance. For all the noise surrounding Soludo’s achievements (particularly from the standpoint of consolidation), President Umar Yar’Adua still denied him (Soludo) the opportunity, preferring to turn the baton to Sanusi, then CEO of First Bank and strong Northern establishment candidate. Of course, Sanusi could not have gotten a second term from Jonathan, an administration he virtually helped to bring down through series of public spats and condemnations bordering on corruption and executive recklessness. Jonathan even had to suspend Sanusi to relieve himself the burden of an insider wolf whose business was more that of an alarmist than a regulator.
Will Emefiele break the jinx? This will depend more on politics than performance; more on fate than substance. Buhari’s present tenure expires May 29, 2019; before that of Emefiele which is June 4, 2019. Constitutionally, the reappointment of Emefiele or the appointment of a new CBN Governor will be determined by a Second Term President Buhari or a newly elected President. If Emefiele wishes to push positive macroeconomic variables forward as justifications for another term, then the gods of oil market need to smile at him. At over $70 in the last few months, he has had the chance to intervene aggressively in the official FX markets while building up the FX reserves. His dream of a $50 billion FX reserves looks plausible and realistic afterall. Though unemployment is still high and bank loans are still inaccessible, Nigerians appear not too sophisticated to leave the blames for those woes at the doorstep of the CBN. And to boot, no bank has crashed even though non-performing loans are high as a result of the excess risk taking in the oil and gas sector some few years ago. Apart from Skye Bank that has had some interventions, life is still smooth for the average bank depositor.
The months ahead will test Emefiele’s savvy and sagacity. The coming elections will throw up a number of macroeconomic challenges: excess liquidity from fiscal recklessness, capital flight, inflation, overheated FX market, confidence-shaking political soundbites etc. Whatever the case, Emefiele’s return will be largely dependent on politics than professionalism. This is Nigeria where the cock crows before it is dawn.