It was basically confirmed last week that Godwin Emefiele will be the new CBN Governior come July 1 2014 when the tenure of Sanusi Lamido Sanusi expires. No one really knows much about the Zenith Bank MD about to be new CBN Governor particularly with regards his views on the economy. Is he hawkish on interest rate and inflation or is he more expansionary and would like to loosen up rates? Thisday interviewed a cross section of analyst and this is what they want and expect from the new CBN Governor.
According to Chairman, Rendeavour Group, Mr. Rotimi Oyekanmi, the outgoing managing director, Zenith Bank is a conformist who is not likely to contradict the Presidency or the Ministry of Finance.
He said, “To try to understand Godwin, one has to look at his role in Zenith Bank where he has continued with the strategy of the former Zenith Bank CEO. “In a new role where he has not been involved in the management of the CBN, what would he do? He is someone who conforms so I would not expect him to contradict or have policies that do not conform to the Federal Government or Ministry of Finance. “I would expect that one of his strongest points in the selection is his being pro-establishment (demonstrated from his career with Zenith Bank) so I would align him with the policies of the Federal Government and Ministry of Finance.
On whether he would be able to tackle all the issues he met on ground at the CBN, Oyekanmi, who is also a former Chairman, Renaissance Group (West Africa) said, “The challenges facing the financial industry and the economy are the same therefore one can easily determine the issues that would be priority for the CBN. These have not changed since the last CBN governor – stability of the banking industry, monetary stability, naira value, macroeconomic stability, policies to create enabling environment to enhance role of the manufacturing sector, creating credit for consumers and ensuring private sector leads the development of Nigeria.” To get a good understanding of his mission, Oyekanmi, a former country head, Renaissance Capital, said Emefiele’s “first statements would give an indication of his priorities, but all these need to be his focus. Also we would await how he intends to manage the challenges. Would he use CRR more? Would he provide funding through the Bank of Industry? What are his views of AMCON and how would he work with AMCON? What would his views be of Islamic Banking?” According to the financial expert, the new CBN governor has to deal with some issues immediately – especially the naira value.”
In his opinion, Chief Executive Officer, Economic Associates, Dr. Ayo Teriba,
said whatever the new regime in the CBN will do on the exchange rate would be determined by the balance of Nigeria’s gains from international trade and capital pooled out of the country. According to him, as long as Nigeria’s oil price is high enough to defend its exchange rate, there is no problem with Emefiele’s resolve to continue the defence of the naira. He argued that the current capital flow shock and the attendant strain on the foreign reserves account is a temporary shock which does not require a permanent action, because according to him, “once you determine the naira rate, then it becomes irreversible.
“If we decide to devalue naira because of low capital flow today, when the situation improves, you cannot reverse it. The same international environment giving us a favourable oil price is the same giving us swings in capital flow,” he said. Teriba pointed out that policy normalization in the US and other regions is likely to see a steady improvement in capital flow. On the issue of bank supervision, the Economic Associate’s CEO said he does not believe the central bank governor should concentrate his energy on banks at the detriment of the economy which, according to him, is supposed to be his primary responsibility. “Banks supervision is not a monetary issue. It is no longer a central bank issue. Key central banks around the world leave that to other agencies,” he explained. He said Bank of England had in late 1990s broken down the duty to other agencies, same with European central banks.
He said, “Nigeria will do well by creating a separate entity to supervise banks and a separate committee to be charged with financial supervision,” saying the economy is bigger than the banks. Teriba believed that unemployment is the most important variable in any economy, saying therefore that the CBN governor-designate should focus on policies to aid employment generation. He believed that interest rate regime since 2010 has been very unfavourable to employment. He suggested that other ways apart from higher rates could be sought to deal with the fear over foreign exchange market, arguing, “You don’t attract investment by raising interest rates. He therefore called for a systematic easing of interest rates complimented with market intervention. The new governor should adopt an interest rate stance that is favourable to employment. He does not see any problem in the area of fiscal management because he believed such responsibility should rest with the Presidency and the Senate. Teriba explained that both the CBN governor and the Minister of Finance are mere appointees while the President and the National Assembly members were elected by people to better their lots. He said, “those elected should step out and declare clear growth and economic mandate for the Ministry of Finance and CBN. You can only unite the two by common objectives.”
Raising the voice of the organised private sector is the President, Nigerian American Chamber of Commerce, Mazi Sam Ohuabunwa .He told THISDAY at the weekend that
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“The first challenge the new CBN governor has is to reframe the autonomy of the bank within the context of being an institution of the Federal Government and indeed part of the Executive arm of the government. From the look of things, the outgoing governor expanded the autonomy of the bank beyond reasonable contemplation. He tended to act as a parallel government authority that was not accountable to the President and indeed seemed to be in competition with the President. This led him to rebuff any attempt to make him accountable and he seemed to carry on as the lord of manor with the unquestionable power and discretion. “ Second, is that he also must uphold the conservative nature of bankers and especially that of a Central Bank governor. He must know when to speak and when to be quiet. He must not reveal all he knows and comment on every subject in the media. He must not overheat the system with off- cuff comments.He must restore the dignity of the central bank governor, who gets investors and market operators attention any time he speaks, because his words must be weighty. He must depoliticise the CBN.”
Ohuabunwa, who is also the immediate Past Chairman, Nigerian Economic Summit Group(NESG), said the new CBN governor, “must not be overbearing in determining monetary policies. He needs to consult more with the Finance Ministry and other economic managers of the economy before deploying new policies. The failed N5000 denomination project for example suffered from lack of appropriate consultations. Even in the meetings of the Monetary Policy Committee, his voice must not be over bearing. “Fourthly, he must maintain neutrality when dealing with the banks that he supervises. He must not give the impression that there are favoured or favourite banks while there are others who are not worth protecting. The outgoing governor got himself so emotionally involved in some of the bank reforms that he carried out.
“Also, he must focus his monetary policies to maintaining macro- economic stability, without imperilling economic growth and development. The current effort to liberalise credit to the SME sector, especially to agriculture must be sustained. This is one area the outgoing governor has done well in my view. “The effort to sustain the value of the naira must be backed with effort to promote productivity in the economy. Artificial propping up of the naira value will not be sustainable and may deplete our foreign reserves to dangerous levels. The CBN must support the effort of the ministry of industry, trade and investment to lift up manufacturing and promote exports. Related to this, he must resist the urge to return to undue foreign exchange controls which have not been helpful in the past. There should be free flow of foreign currencies into and out of the country, which helped to narrow the gap between official and parallel market rates in recent past.” The immediate Past President, Nigeria Employers Consultative Association(NECA), stressed that every effort must be made to keep interest rates low. The gap between lending and saving rates remain too high and discourages savings and investment in the productive sector. Today, businesses borrow at up to 25% while savings rate is still around 5%. To aid this, the CBN must drive to attract or create a pool of funds for long term borrowing to support industrial rejuvenation.”
Speaking on what to expect during the tenure of the new CBN governor, Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane, said
it was somewhat difficult to make projections into Emefiele’s tenure. On the likely macroeconomic policies he may opt for, Rewane said no one is certain about which school of thoughts Emefiele belong to. He however said his first activities will show where he belongs. On his relationship with the Presidency and Ministry of Finance, the FDC chief said he is sure Emefiele will not rock the boat. Rewane believed the new CBN governor has little or no choice on the naira exchange rates, saying naira will find its level before Emefiele assumes office in June. “He cannot bend down to defend the naira at all cost,” he said. He however believed he is not likely to encounter difficulty in the area of bank supervision because, according to him, Emefiele is an ‘orthodox’ CBN Governor.
Standard Chartered’s Head of Africa Research and a well-known commentator on African markets, Razia Khan, noted that
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the CBN governor-designate has pledged to protect the value of the naira. She however still believed there are some fundamental issues the new CBN helmsman will have to contend with as soon as he settles down in June, saying “It is good news that he favours a stable currency. But the bigger question is whether Nigerian fundamentals support this – can the oil theft be stopped? Can oil production rise rapidly in the near-term? Will there be more transparency around oil earnings? How soon will the promised strategic audit be completed?” According to her, “If market participants are not confident about all of these measures, it will be very difficult for any governor of the CBN to reassure on naira stability.”
On how he may tackle some of the macroeconomic issues he met on ground, the Standard Chartered chief explained that “There are two key issues – the extent to which oil earnings may be threatened, and the extent that spending rises because of the elections. Ahead of an election especially, countries need fiercely independent Central Bank governors to reassure on price stability. If for any reason the independence of the institution is seen to be compromised, then economic actors are not going to have reason to believe that price stability will be sustained. This might get price in to inflation expectations, and the country will likely be worse off as a result.” There were concerns that the new apex bank chief may have to assert himself as independent and that in doing so he might run into difficulties with the Presidency, to this, Khan explained that “A more independent Central Bank governor always gives more reassurance that monetary policy will focus on the delivery of price stability,” but like other commentators, she did not foresee any clash of interest between the CBN and the supervising ministry – Ministry of Finance, during Emefiele’s tenure.
She said it is difficult to determine the kind of banks’ supervision to expect under his watch, saying “It is difficult to pre-judge. We should wait to assess the first few months in office, to be fair to the new CBN governor designate.”
Another financial expert that spoke on what to expect under Emefiele’s tenure is Assistant Vice President and Head, Research & Intelligence at BGL Plc, Mr. Olufemi Ademola. He said,
“. Mr. Emefiele has made it clear that he will continue to ensure the stability of the naira as currently done by the CBN. While this might imply the aggressive defence of the naira using the external reserve, I don’t think it completely discounts adjusting the mid-point of the naira exchange rate and the widening of the policy band. However, one clear thing is that, the CBN, headed by Mr. Emefiele will continue to use all policy instruments at its disposal to ensure a stable naira, not necessarily a strong naira. “In terms of macroeconomic stability, his comment that he will promote policies that encourage employment generation is very apt, considering the current developments in the country. Since the strength of any economy should depend on its SMEs in terms of productivity and job creation, a focus on policies that help job creation will strengthen the economy through increased economic activities and improved tax revenue with huge potential for income diversification for the economy. In my opinion, achieving this objective would require increased access to affordable financing by businesses either through bank loans or the capital market. “Since the CBN has achieved more success in curbing excess liquidity through the use of OMO and other macro-prudential tools than interest rate, achieving increased access to financing could necessitate the lowering of the benchmark interest rate in the near term; a wise decision for inclusive growth and economic stability.”
Ademola believes, “the relationship of the CBN governor and the Presidency should be that of partners in progress and not the other way around. No matter the political leaning and ideology of the CBN governor, he is expected to work for the common purpose of achieving set objective by the administration. In addition to the general mandates of the CBN as stated in the CBN Act and BOFIA, most intermediate and specific objectives of the monetary authority should be set by the Federal Government, of which the CBN governor is part of. For example, despite the fact that the former Fed Chairman, Ben Bernanke, has a Republican leaning, he worked very cooperatively with President Obama to steer the economy through the financial crisis without a public spat (if there is any, at all). The cordial relationship with the President won him another term in office in a Democratic administration. Therefore, the relationship with the President should be that of a pseudo Principal-Agent relationship but with significant independence of actions. However, the CBN governor should be a calm, matured and highly intelligent person who will be able to operate with great independence but in cooperation with the Presidency. Mr. Emefiele appears to possess these qualities.”
On what to expect in terms of relationship between the apex bank and the Ministry of Finance, Ademola submitted that, “The fiscal and monetary authorities are part of the same government with a common objective. Although the approach to achieving the objectives may differ, they are supposed to complement each other and not contradict. Even when the two appears to be heading in different directions, it should be for a common purpose. For example, for political exigencies, fiscal policies may be expansionary, but in order to meet the target inflation which might have been set by the fiscal authority and to reduce the effect on investment/liquidity environment, the monetary policy may be non-accommodating; leading to a flat effect on liquidity. In the UK, the Chancellor of the Exchequer (Minister of Finance) appoints and set targets for the governor of the Bank of England. In the USA, the Treasury Secretary and the Fed Chairman have weekly breakfast meeting to deliberate on issues and fashion out ways to respond to them. With his calm demeanour and experience, I am sure Mr. Emefiele could also adopt this working relationship to prevent unnecessary conflict of interest.”
However, the BGL official said banks were currently being overly regulated. He said, “banks need to be allowed to be creative on their own but within strong risk management framework which I think has been put in place within the last five years. As a very conservative banker with guided exposures to high risk investment, I expect Mr. Emefiele to want to instill such conservative approach to financial inter-mediation into the banking sector; however in a subtle manner. This is because, an overly conservative approach to asset creation by banks could jeopardise his objective of job creation. Overall, while I expect a strong risk management-focused banking supervision under Emefiele’s watch, I also expect more allowance for the banks to breathe on their own within a wider band of regulatory control.
According to Managing Director/CEO, Cowry Assets Management Limited, an Investment Bank and key player in the capital market, Mr. Johnson Chukwu,
“Although the incoming CBN governor has indicated that he would like to maintain exchange rate stability, it may be difficult to sustain the current exchange rate in the medium to long term. While it is possible to defend naira at current levels for the next 12 months, primarily to avoid the inflationary impact of a devaluation and the consequent negative political fallout in an election year, the Central Bank will ultimately adjust the exchange rate to reflect the weakened position of our foreign reserve and other external factors.”
On the direction which the new apex bank governor may take on the issue of macroeconomic stability, Chukwu said, “Central Bank’s primary mandate is to maintain price stability which includes inflation rate, exchange rate and interest rate. Given Nigeria’s current macroeconomic position – declining foreign reserve, reduced crude oil production, continuing exit of foreign portfolio investors and the US Fed. quantitative easing tapering, it will be extremely difficult to maintain all elements of price stability and still grow the economy, which Godwin Emefiele said will be his focus when he assumes office as the Central Bank governor in June. To stimulate the economy, the governor may need to drive down interest rate to levels that would support real sector borrowing. A reduction in interest rate will trigger further exit of portfolio investors and exert more pressure on the exchange rate. A devaluation of the exchange rate will certainly lead to an increase in inflation rate. In effect, maintaining macroeconomic stability is a delicate balancing act. Unfortunately for the incoming CBN governor, the headroom for maneuverability is highly limited.”
The Cowry Asset chief said Emefiele’s personality is that of an establishment person unlike the outgoing CBN governor who is known to be a non-conformist. “I therefore expect that Mr. Emefiele would have a good working relationship with the Presidency when you also consider that President Jonathan is a deliberative person who would rather allow his lieutenants the latitude to express their competence. Again, the policy autonomy which the Central Bank enjoy insulates the Governor from policy interference from the Presidency as it relates to monetary policies.”
So in summary they all want to know how issues like the naira value, monetary policy rate, bank supervision, independence of the apex bank and relationship with the Presidency and the Ministry of Finance, among others will be tackled by the new CBN helmsman.