Yemi Cardoso, the recently appointed governor of the Central Bank of Nigeria, must deal with the country’s lack of foreign currency and the double-digit interest rate that harms enterprises. According to SAMI OLATUNJI, he also faces the Herculean job of controlling the rising inflation rate.
Market participants were ecstatic to hear that Yemi Cardoso had been nominated to be the new governor of the Central Bank of Nigeria. Cardoso is not just one of them; if confirmed by the Senate, he would become the 11th governor of the CBN. His ability to oversee the nation’s monetary policy is unquestionable.
Godwin Emefiele, whose abrupt departure and suspension still pose legal concerns, will be succeeded by him. The debate over whether bankers or economists make better central bank governors will resurface in light of the 66-year-old banker’s candidacy. A former chairman of Citibank Nigeria, Cardoso is a banker. The most well-known CBN governors in Nigeria, though, have been economists.
The foreign exchange crisis, the double-digit interest rate, slowing the rate of inflation increase, and outstanding intervention loans are the primary concerns for Nigeria’s new CBN governor.
Emefiele’s difficulties
The CBN has performed poorly in controlling inflation over the past six years, with last month’s figures reaching an 18-year high. Emefiele proposed that opportunistic middlemen were to blame for the high cost of goods. During his tenure as governor, the Federal Government received more loans, the CBN financed agricultural programs, and exchange rates were artificially fixed.
The independence of the bank was called into question by the fact that many of Emefiele’s decisions as governor appeared to have the approval of former President Muhammadu Buhari. Emefiele received criticism for his brief attempt to run for president when he was governor of the Central Bank of Nigeria. Similar worries have been raised regarding Cardoso, his replacement.
Longtime Tinubu associate, the incoming CBN governor. He was named Lagos State’s Commissioner for Budget and Economic Planning in 1999, however due to winning the Michael Romer Memorial Scholarship, he did not serve out the remainder of his term. According to some political analysts, had Cardoso declined the scholarship, he might have been chosen to replace Senator Bucknor Akerele as deputy governor of Lagos. Femi Pedro took over as vice governor instead.
Cardoso’s successful career with Citibank and Citizens International Bank, along with his academic and professional achievements, may raise some hope that he might make a fine CBN governor despite concerns about partisanship. But he might have to fight off accusations that his nomination is a continuation of Tinubu’s emerging trend of putting his old pals in strategic teams, similar to what Wale Edun had to do when he was named finance minister.
In addition, Tinubu gave his approval to the appointment of four new deputy governors of the top bank, each of whom will hold office for a comparable initial term of five years, subject to Senate confirmation.
Emem Usoro, Muhammad Abdullahi-Dattijo, Philip Ikeazor, and Bala Bello are the nominees. Mrs. Usoro, on the other hand, has over twenty years of banking expertise encompassing retail, commercial, corporate, and public sector banking, covering all of the nation’s regions. She oversaw both the Strategic Business Group and the Group General Manager. She has received numerous honors at the annual UBA CEO honors and served as the regional head of Lagos Bank 2. She graduated from both Lagos Business School and Harvard Business School.
Abdullahi-Dattijo is a skilled development economist with more than 20 years of expertise in public finance, policy creation, and project execution. He was the previous APC candidate for the Kaduna Central senatorial seat in the 2023 election. He has held a number of prominent posts, including that of policy adviser at the New York office of UN Secretary-General Ban Ki-Moon.
Over 30 years of experience in the financial services sector are possessed by Ikeazor. In particular, he served as CEO of Keystone Bank Limited, Ecobank Kenya Limited, Executive Director of Union Bank Nigeria, Director of Union Bank UK PLC, and Director of the Orient Bank Uganda, among other board roles. Additionally, he was a member of the World Bank-led Consultative Group on International Agricultural Research and the governing board of the International Crop Research Institute for the Semi-Arid Tropics in India. He graduated from the University of Buckingham in the UK with a BSc in Economics, and he also completed the Wharton-CEIBS-IESE Global CEO Programme and executive education at the Harvard Business School and Wharton School of Business.
Bello is a prominent businessman from Taraba State. His work experience includes pension fund management, financial markets, and banking. He is a well-known accountant and a highly respected governmental official. Former President Muhammadu Buhari’s appointment of Bello as the Executive Director of Corporate Services at the Nigerian Export-Import Bank took place in April 2017.
FX emergency
It is impossible to overstate the value of the exchange rate as a key macroeconomic factor. Through the production and sale of goods and services, nations generate foreign exchange. The amount of foreign exchange and external reserves in a nation affect how strong its currency is.
The CBN has evolved and executed several policy alternatives over time to address the nation’s ongoing FX difficulty, which occasionally turns into a crisis situation.
A severe dollar shortage in 2016 caused the naira to drop to a low of 530 to the dollar. The CBN blamed speculators, those scrambling to smuggle unlawful riches out of the country at any cost, and those sheltering illegal funds for the development.
Over the years, the CBN has maintained a number of exchange rates, which multilateral organizations have criticized.
Godwin Emefiele, the suspended governor of the Central Bank of Nigeria, stated that the goals of the exchange rate policies he oversaw were to “preserve the value of the domestic currency and maintain a favorable external reserves position.” Emefiele stated in a press report that emerging nations, including Nigeria, where there was a significant demand for imports, needed to implement an exchange rate regime that would “safeguard capital outflow and ring-fence the external reserves”.
Mr. Folashodun Shonubi, the acting governor of the CBN, established a single, free-floating exchange rate that is set by market forces. All segmentations were eliminated, and the Importers’ and Exporters’ windows were created from all FX windows.
The World Bank backed the new exchange rate system and emphasized the need to regain macroeconomic stability. However, as a result of the new FX system, the naira fell to an all-time low of 945 to the dollar on the black market since there was a much greater demand for dollars than there was supply. The “unofficial diaspora remittances” were cited by CBN as the cause of the development rather than just market factors of supply and demand.
Shonubi observed that many remittances from the diaspora went unreported and ended up on the black or parallel market.
However, despite all of the apex bank’s efforts and policies, the FX problem continues to plague the nation.
Nigeria was recently downgraded by FTSE Russell, a division of the London Stock Exchange Group, from frontier to unclassified market category. The nation’s foreign exchange crisis led to the downgrade to unclassified market status. According to FTSE Russell, the country will be evaluated as a new market in accordance with the FTSE Equity Country Classification Process once the foreign exchange difficulties are resolved for a while.
It is anticipated that this problem will be handled by the next CBN governor and his appointees.
Double-digit
The CBN began its cycle of tightening monetary policy in May 2022, raising its benchmark interest rate from 11.5% to 18.75% in July of this year. The bank defended this by pointing out that the increase in interest rates was necessary due to the rising rate of headline inflation.
The CBN has been instructed by the International Monetary Fund to keep tightening monetary policy in order to contain inflation, which has been on the increase.
However, a number of interested parties have protested the ongoing tightening.
The increased Monetary Policy Rate, according to Mr. Wale Oyerinde, Director General of the Nigeria Employers’ Consultative Association, suggests more borrowing.
“In addition, the higher MPR implies higher borrowing rates, which would adversely affect businesses and manufacturers that rely on borrowing for survival,” he continued. As higher rates slow down productive activity, it could also result in another type of economic quagmire if left uncontrolled.
Additionally, President Bola Tinubu stated that interest rates needed to be lowered in order to boost consumer spending and investment in ways that would support the economy at a greater level.
Despite the ongoing tightening, the National Bureau of Statistics recently reported that inflation increased to 25.80% in August from 24.8% in July.
This has prompted proposals for alternatives to tightening the MPR as a means of regulating inflation.
Unpaid debt
As a form of intervention, the CBN has made a variety of loans accessible to the economy’s various sectors, particularly the agricultural one.
The Anchor Borrowers’ Program is one of these intervention programs.
Even while some locations have seen success, the initiative encountered a snag since some of the beneficiaries were unable to return the loan when it came due.
There are also claims that some of the people in charge of distributing the funds and farm inputs misappropriated them.
Since the ABP’s establishment, the CBN has paid out almost N1.1 trillion to its recipients, but only a little more than N546 billion has been reimbursed.
A presidential order was issued by President Bola Tinubu to reclaim the money because the scheme is currently mired in controversy.
With the President’s order, it is anticipated that defaulting farmers and officials who diverted the funds will pay back about N577 billion.
With the assistance of the security forces and other stakeholders, the next CBN governor is anticipated to ensure that the debts are recovered.
