These are not the best of times for the Governor of the Central Bank of Nigeria, Godwin Emefiele. The global oil industry’s deepest downturn since the 1990s or even earlier; chaotic foreign exchange regime; rising inflation amid red flags on foreign investment; and wobbling executive economic direction have all combined to put Emefiele’s sound understanding of macroeconomics to the test.
It was a different ballgame when he was serving under former President Goodluck Jonathan. It was, at that time, clear to the discerning that the economy was sinking in an ocean of unrestrained looting; but the drivers then seemed to be clever people who could fan the wounds and bury the pains for as long as they needed to do so.
While the career politicans were attending to dirty political demands, the strong team of technocrats, with their wealth of international experience and the confidence the international community had in them, were able to stabilise the macro-economic environment even when all indices pointed at a looming recession. They sustained the confidence of foreign investors in the thick of the Boko Haram crisis by painting rosy pictures of the Nigerian economy beyond the danger zones. These, and some other abracadabras in the previous administration suppressed the negative effects of the oil and other shocks and shielded Emefiele from public knocks.
Now that the cards are open for all to see and those who are currently at the helm of Nigerian affairs are not in the business of cosmetics, the apex bank boss is at the mercy of his intellect. Here is where the problem lies.
With over 26 years banking experience, and having served successfully as Group Managing Director of one of the top three banks in Nigeria, it would be misleading to call Emefiele a dullard as far as banking matters are concerned. But it may be in order to suggest that his many macroeconomic policy goofs in these unusual times reflect a shallow understanding of the subject economics. And this can be excused to some extent.
All his life, Emefiele had been somewhat confined to finance boundaries, moving from corporate banking to treasury and financial control units of the banking system. He might therefore only have been able to weather this peculiar economic storm, now that there is no hiding place, with the help of bold, competent and professionally exposed technocrats in relevant cabinet positions. Unfortunately, the CBN boss and those who should provide this balancing role have been wandering, some say helplessly, in the lingering cloud of economic uncertainty.
When the CBN decided to raise the Monetary Policy Rate (the rate at which the apex bank lends to commercial banks) from 12 per cent to 14 per cent about two weeks ago, I thought it was the joke of the century. At a time everyone, including deep pocket entrepreneurs, are singing ‘no money’; the private and public sector cannot even meet routine obligations; and financial stress-induced death is on the rise, tightening money supply further should spell nothing other than financial disaster. The heat on the stock market will be intense; corporate failures will increase and the level of unemployment will head further north.While briefing the public on the outcome of the last Monetary Policy Committee meeting, Emefiele had explained that the apex bank took the decision to ensure price stability. “The Committee, in its assessment of relevant internal and external indices, came to the conclusion that the balance of risks is tilted against price stability…The MPC, therefore, voted to tighten the stance of monetary policy,” he said.
This explanation or policy action, in a normal situation, could have gone unchallenged, since inflation, which is a sustained increase in the general level of prices for goods and services, is more often given the demand-pull (too much money chasing too few goods) explanation. Liquidity tightening would therefore be the first choice of many policy drivers in taming inflation. Besides, Emefiele and his team also pointed at the need to encourage capital inflows through price stability (in a bid to deepen the forex supply base) as a key reason for their action. They may be right to a school of thought, but those who appreciate the prevailing level of pain in Nigeria would call this bullshit.
The inflation in Nigeria today is the cost-push type, triggered by rising production costs. With unemployment level hitting record highs, the persistent high inflation amid stagnant demand in the economy is even more a case of dangerous stagflation. So, these are unusual times, Mr. CBN Governor, and unusual times call for unusual actions.
During the global recession of 2008-2009, central banks were aware of the danger of inflation, but voted in favour of spurring spending than fighting inflation.
For instance, the United States Federal Reserve, amid criticisms, held interest rate at two per cent for a long time in 2008, after seven straight cuts in seven months. It was an abnormal situation and the focus was on the most pressing need – economic stimulus.
That the Nigerian economy is now in recession is no more in doubt; the policy makers have, themselves, declared this. Instead of attaching undue importance to reducing cost-push inflation and pushing the productive sector into utter chaos, the MPR should, at least, have been left unchanged if it could not be cut.
In economics, the ceteris paribus (all other things remaining constant) clause is to guide in decision making based on tested economic rules. In our case today, all other variables are definitely not constant, hence the need for unusual but logical steps.
Things had not degenerated to this pitiable level when Vice- President Yemi Osinbajo said in an October 2015 Bloomberg Television interview that “the way out of what some have described as an impending recession, is actually to spend rather than to cut back in any way.”
On this premise, I would say that there is no better time to go back to the drawing board than this sober period when the nation’s ego seems to have been bruised economically, with the latest news of South Africa displacing Nigeria as the biggest economy in Africa.
I have always insisted that sustainable change is never quick; we also cannot surmount all our challenges as a country in one presidency. But we must urgently shun sentiments and political vendetta in favour of bold but constructive measures to get out of this quagmire. Emefiele, the Minister of Finance, Kemi Adeosun, and other key players should create the room for extra help. Nigerians love President Buhari, but not at the expense of their economic well-being.
