The Central Governor Godwin Emefiele has cut a lonely figure at the top since he begun a spate of currency controls that have kept the divergence between the interbank market and the parallel market wider than he would have expected. His actions have brought him a fair share of ridicule and critique from those who do not support his policies and those who do not understand it. We take a look at some of the reasons why his policies are hitting lower lows.
Lost on the message
The CBN Governor has for months tried to sell the message of Nigeria’s over reliance on imports as a major reason for our currency travails. However, that message does not resonate enough with Nigerians who do not see the need to change their taste and preferences. Local substitutes are not any better and even when they are available or better it is more expensive that their foreign substitutes. The incentives are not just there for anyone to buy that rhetoric. The message is basically lost, too late and falls flat in the face of economic reality. This should have been the argument when reserves were above $40 billion. Refusing access to dollars to a list of 41 items is too little too late, the CBN should have implemented that since.
Policies not working
Another things going quite bad for Emefiele is that his policies are not working quickly enough. From restricting dollar withdrawals to capping dollar deposits his demand side management policies need ample time to work. He closed the wDas/rDas back in February and introduced a managed float of the currency all in a bid to curb speculation and weed out round tripping. All of these polices have failed to work. Though the naira gained strongly shortly after the election things went back to normal soon afterwards. The disparity between the naira and the dollar has only widened further. Also, the local producers whom he hoped to protect are also hitting back claiming that they cannot access dollars to fund their inputs. For ordinary Nigerians they are now used to irritating emails from their banks informing them of limited usage of their ATM cards for forex transactions or that they simply can’t use it at all. So even if things are going according to plan for him, the impression out there is that the policies are not working. In a world dominated by perception, no one cares about what he thinks.
Parallel market is always a gauge
Emefiele also wants the world to shift the focus from the parallel market onto the interbank market. He believes that the interbank rate is the right gauge for the value of the currency. Even if he is right, the market doesn’t believe that. Nigerians will always point to the black market to get the true price of the naira and not the interbank. To make it worse, people who use their local ATM cards to purchase items abroad are charged rates closer to the black market than they are to the interbank rates. The CBN may believe that the black market represents just 1% of the forex market but it still serves as a major supply of forex in the country.
No fiscal policy backing
The Central Bank’s policies currently lacks the complimentary fiscal policy that it needs to be effective. Some of its policies rely heavily on agencies such as the FIRS, Customs, SON etc. for it to work effectively. Unfortunately, it has no control over them and will have to hope that their inefficiencies does not get in the way. Evidence on ground suggest this is not the case. The Federal Government is also yet to implement some of the policies expected to address the current economic situation in the country. The Medium Term Expenditure Framework has only just been approved and will only get implemented with the 2016 Budget is approved next year.
Unsure of his future
Emefiele also faces a somewhat uncertain future as rumors suggesting that he will be removed refuses to go away. There has also been calls for his removal by a section of the foreign media adding to the credibility problems he is facing. Some also believe his non economic background also makes him unsuitable for the post of a CBN Governor. Whether these allegations or rumors are true or not he sure faces a major credibility problem that affects his long term position as the CBN Governor.
The CBN Governor is also not in control of the single most determinant factor for the future of the economy. He does not control the price of oil so whatever he decides to say or do will either get thwarted or supported by what happens to Brent crude and the oil markets. So long as oil price continues to slide further, Emefiele will remain in an unfair race against time. The faster oil drops the more likely it is that Nigerians will get tired of him and perhaps ask for his head.
Despite the criticisms that has come his way, his supporters will still point to the fact that some of his policies though unpopular cuts to the very heart of the quagmire that is Nigeria’s lust for foreign goods. What matters though is the end and not the means. Currently, the means are not leading to an end that is desirable. Nigerians are fed up and are losing patience.