The Central Bank Governor, Godwin Emefiele is really one tough cookie.
After taking Nigeria through months of failed monetary policies he has now started doing exactly what foreign investors want him to do all along. Foreign investors have for months requested that the CBN abandon the peg it placed on the exchange rate (N197 at the time). Some called for a devaluation whilst other called for a float. The debate went on for months as we all watched the economy tank.
They also called for a removal of capital controls which the CBN had placed to stem the demand for dollars by Nigerians and business looking to either fund supplies or repatriate forex. Foreign investors also asked for a rate hike as the previous MPR of 12% was now below inflation rate (16.5%) resulting in a negative yield for Nigerian assets. No point buying our bonds or treasury bills if it meant negative real interest rates.
Foreign investors told Emefiele to address these issues if it were to ever consider returning to Nigeria. The CBN Governor refused to heed to their demand for months preferring to listen to the body language of his boss, President Buhari (everyone knew he had lost the independence expected of a CBN Governor). Emefiele and his boss believed that with time, oil prices will climb back up and reserves will start to build up again.
They thought they didn’t need foreign investors anymore, especially foreign portfolio investors. It was time for Nigerians to cut their wasteful taste for foreign products and start to look inward. Demand management was the new policy for the exchange rate, this in their minds, was the time to start to “grow the naira”.
What they however did not expect was the spate of bombing in the Niger Delta that has now hampered crude oil production. Despite a rise in the price of crude, ironically caused in part by the bombing in the Niger Delta, Nigeria faced a far dire outlook if it doesn’t face up to the obvious reality that we are forever enslaved to the green back. This economy is inexplicably tied to the dollar and how much crude oil sales could influence it.
And so the CBN Governor in a remarkable about-face got its Monetary Policy cohorts to vote in favor of a new flexible exchange rate policy that saw an eventual float of the naira. Following the initial criticisms that trailed the first few weeks that the currency was floated, the CBN eventually abandoned its hold on how high the naira could depreciate against the dollar leading price determination to market forces.
The CBN on Tuesday also announced a rate hike, raising monetary policy rate to a record 14%!! The CBN has in a matter of months met the two of the major requests that foreign investors had put forward if there were to ever consider investing in Nigeria again. But one major request remains to be done.
The Central Bank Governor, Godwin Emefiele has lost the confidence of the market and now needs to resign if foreign investors are to return to Nigeria again. The Governor had for months resisted calls for a more liberalized foreign exchange market preferring to control the monetary policy as well as the exchange rate market. In case you forgot, here is a brief recap of some of the bad policies that he has presided over.
- The CBN led Godwin Emefiele started by issuing a circular banning 41 items from accessing the forex window.
- It then issued a rash of directives limiting the amount of forex Nigerians can withdraw or spend whenever they travel abroad.
- The CBN also limited the amount of forex that can be sold in the foreign exchange market, limiting the amount that can be repatriated out of the country. This of course led to the removal of Nigeria from the JPM Emerging market bond index.
- Next up was a suspension of sale of forex to the Bureaux De Change, starving the retail end of the foreign exchange market of forex. These policies were all geared at one thing, controlling the demand for forex.
The impact of these policies more than anything else exacerbated the loss in value of the naira against the dollar leading to a spike in inflation, loss of jobs and more devastatingly driving Nigeria into an impending recession. Though not all his fault as the current and immediate past government also share a large part of the blame, his demeanor and comments have in the past one year done more harm than good. Therefore, it’s hard not see foreign investors demanding for his head as confidence in his abilities to steer monetary policies for Africa’s largest economy is clearly now in doubt.
It is time to have a credible hand in the CBN, one that stir confidence in the Nigerian economy and not afraid to confront an obstinate president with tough choices and the reasons why we have to take them. Nigerians have been through a lot already and now it’s time we have someone showing us a clear part to a stable and efficient monetary policy.