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A game of halves, a cliché among football commentators, is a good description of what to expect as Godwin Emefiele, Governor of the Central Bank of Nigeria, is re-appointed for another five years. Will his second-term be markedly different from the first term? Can his second-half be expected to be a game changer?
His re-appointment has been called a vote of confidence and guarantees stability. Is it also a signal of the economic agenda to expect from President Buhari? No doubt the President approves of the other interventionist policies of the CBN. Policies Emefiele has pursued to keep the naira stable. An achievement to his credit. But at what cost?
The re-appointment of Emefiele will calm the nerves of bondholders who have piled $6 billion into government bonds since February. It guarantees that the exchange rate will be stable as the CBN will continue to intervene in the Investors’ and Exporters’ foreign exchange window, which Emefiele established in 2017.
Maintaining multiple foreign exchange rates preserves the myth of a stable currency. An artificially strong currency favours the government; it undervalues the ball0oning debt it has incurred mostly to fund recurrent budget expenses such as salaries, and much less on human capital development and physical infrastructure.
Confidence, stability and continuity are good, but not the tenuous variety. Multiple exchange rates continue to distort economic decision making. It makes financing expensive for those who continue to invest and limits competition as only a few can get dollars at the official rate. Many companies have shut-down and thousands of jobs lost simply because of this.
Consequently, economic growth is slow, a good job is hard to find, consumer spending weak and credit tight as banks lend less these days, and, if they do at all it’s at outrageous rates. In addition, the stock market, whilst just a gauge of a hugely informal economy, has slowed. Few companies want to list or raise new shares. They are wary of the risk of multiple rates.
Investment and capital into the country remains timid as local businesses and foreign investors weigh their options, scale down their ambitions despite the potential of the market and reserve as much cash as possible in case of another downturn or a sudden plunge in oil prices, the mainstay of government revenues and source of money for many of the interventions of the CBN.
The CBN has also veered into development finance, in addition to its primary roles of price stability and regulation of the banking system. Through interventions such as the Anchor Borrowers Programme for farmers, multiple funds and facilities for small-scale entrepreneurs, manufacturers, the creative and electricity industries it has made billions of naira available for lending at single-digit interest rates. Initiatives that stable prices and well regulated banks coupled with rigorous fiscal policies and structural reforms can catalyse. Undertaking these responsibilities stretches the attention and capacity of the CBN to focus on its duties.
At the tail end of the first half of Emefiele’s tenure, stability of the naira has come at huge cost and the interventionist policies of the CBN can’t and won’t fix them all; they aren’t a cure-all for the multitude of economic problems we face. The beginning of the second half of Emefiele’s re-appointment is looking good for bondholders and their major client, the federal government of Nigeria but bad for the larger economy. To be fair to the CBN governor though, the lack of vigorous fiscal policies has made him bear too much of the weight of the economic problems.