News Column

High Optimism As Emefiele Resumes As CBN Governor

June 1, 2014

Obinna Chima

Bankers and operators in the financial market have continued to express high optimism as Mr. Godwin Emefiele prepares to assume the position of the Central Bank of Nigeria (CBN) Governor tomorrow.

Considering that the CBN had set for itself, the vision of becoming the "model central bank delivering price and financial system stability and promoting sustainable economic development by 2015," a lot is been expected from Emefiele who becomes the 11th governor of the CBN.

Already, the financial market has been in a 'wait and see' mode since the last monetary policy committee (MPC) meeting where members decided to leave all policy tools unchanged. Against all odds, the former university lecturer had been nominated for the job.

He is replaces Mallam Sanusi Lamido Sanusi, who was suspended over allegation of financial recklessness by the presidency in February. Since Sanusi's suspension, Dr. Sarah Alade has been the acting CBN governor.

On assumption of office, the incoming CBN governor is expected to quickly evaluate monetary conditions to determine what mix of monetary policy instruments would be required to achieve equilibrium and balance between the domestic and external sectors of the economy.

Also, while risk, both in the domestic and external economies still pervades the air, the Emefiele-led central bank would be confronted with the challenge posed by the dwindling performance of Nigeria's external reserves. In addition, there is a probability that currency pressure would continue, as political and security spending increases. Oil prices have held up expectedly and are unlikely to fall sharply in the near term.

Nevertheless, the outgoing chief executive officer of Zenith Bank Plc clearly acknowledges these challenges as he told Nigerians when he appeared before the Senate for confirmation that his team would work hard to achieve macro-economic stability in the country, such that inflation would continue to come down.

In most countries, central banker chiefs are known to be conservative and their interventions are always felt primarily in the financial system and economic segments of the country.

A good central banker, said market watchers, is he who is measured in his pronouncement because of the likely impact of his comments on the markets.

They added that he is expected to be non-partisan, makes sure that his core mandates are pursued in a responsible manner and rarely dabbles into matters outside his terrain. These, according to most analysts, are the qualities that Emefiele would be bringing to the table as the CBN governor.

Emefiele is a University of Nigeria, Nsukka-trained banker and financial strategist. Following his graduation in 1984 with Bachelor of Science degree in Banking and Finance from UNN, he obtained an MBA (Finance) from the same institution as the best graduating student of his class.

He went on to deepen his knowledge of Economics at Oxford University, United Kingdom, having attended several executive training programmes and courses in negotiations, strategy, leadership, critical thinking, delivering value/profit at Harvard University, Stanford University and University of Pennsylvania (Wharton Business School), all in the U.S.A

Emefiele, who joined Zenith Bank from inception, assumed the post of Managing Director/CEO of the bank on August 1, 2010. Prior to his appointment, he was Deputy Managing Director from 2001. He has over 23 years banking experience.

Emefiele's Monetary Policy Ideology When he appeared before the Senate, he gave a hint of the monetary policy path he may follow. In fact, his response to questions from the lawmakers showed that he may not hastily ease monetary policy. Just like his predecessors, he had also said the CBN under his watch would adopt development banking model.

While responding to questions from the lawmakers, he also promised to look into the dollarisation of the Nigerian economy.

"I think one of the core mandates of the CBN is to ensure that we maintain a legal tender and respect it and ensure that whatever is done, our naira has to be used as a legal tender.

'I will take it as a primary responsibility to ensure that the attempt to dollarise the Nigerian economy is discouraged. We should not allow it because it will create problems for the economy," he had said.

Continuing, he had said: "The core mandate of the CBN is to achieve monetary and price stability, ensure strong exchange rate and build foreign reserves. We will ensure that we have a sound financial system in Nigeria.

"We will work hard to achieve macro-economic stability in the country where inflation rate will continue to come down. We will also ensure that the interest rate will continue to come down.

"During my tenure, whatever monetary policy decisions we take will be those that will lead to the improvement in the level of employment in Nigeria because employment is very crucial to national development.

"Today we have an employment emergency in the country and we must ensure that whatever decision we take at the CBN will be those that will lead to improvement in the level of employment in Nigeria.

"We will work with the manufacturing companies to ensure that we improve on their level of production and by extension, ensure that we achieve economic growth and development in Nigeria.

He described the cashless policy as one that is very important because all nations in the world are embracing electronic banking as a channel for doing business.

Furthermore, on the devaluation of the currency, he said, "it is true that we have seen the reserves dropping, it is as a result of speculative attack on the naira because people think that there will be devaluation as a result of what is happening in the world today.

"There is no need for anybody to worry about devaluation because it is a very devastating action to be taken in the country particularly because we are an import-dependent country. Devaluation will hurt the economy." He also assured Nigerians of a cordial relationship between the central bank and the ministry of finance.

Market Expectations According to analysts at the Financial Derivatives Company Limited (FDC), while Emefiele would take comfort in the fact that headline inflation is not too high (currently at 7.9 per cent), he would need to see the big difference between anticipated inflation and historical price levels.

"He will also have to determine, if he would prefer to use monetary policy instruments as a strategic tool for economic management or alternatively to react to the illusion of a false sense of economic patriotism.

"The conflicting trends of core and headline inflation since January 2014 will have to be put in perspective as well as the concerns over the eroding fiscal buffers," the Lagos-based financial advisory and research firm added. Emefiele's tenure, according to other analysts, would be a departure from the controversy-prone era that characterised Sanusi's tenure.

Responding to questions from THISDAY, London-based Economist at CSL Stockbrokers, a subsidiary of the First City Monument Bank Group, Mr. Alan Cameron anticipated that Emefiele would pursue a policy of broad continuity with the Sanusi era.

This, according to him, means a tight monetary stance, a stable forex rate and open approach to foreign investors, given the role they continue to play in stabilising the naira.

However, Cameron advised that the incoming CBN governor should not approach the regulation of domestic banks the way Sanusi did, suggesting that he should "slow down the implementation of measures that have cut into their non-interest income."

He added: "Overall, though, we think that the CBN under Emefiele's watch will be similar to its existing form: independent, accountable, and generally investor friendly.

"We are also of the view that the CBN has a strong institutional foundation and skilled leadership that should guide whoever occupies the position of the CBN governor."

To the Head of Investment Research, Afrinvest Securities Limited, Mr. Ayodeji Ebo, considering the level of success achieved with the hawkish stance of the outgoing CBN governor and the likely political and economic headwinds, Emefiele may choose to sustain policies that would ensure that the gains are maintained.

In view of the 2015 campaign spending, Ebo anticipated further liquidity tightening by an additional increase in the cash reserve requirement on public sector deposit to 100 per cent before the end of 2014 and a subsequent reduction post the 2015 election. "In addition, the gradual depletion of the reserves (from $49bn in May 2013 to $37.3bn as at May 2014), which also constitutes approximately $10 billion in "hot money" questions the viability of the continued intervention of the CBN at the foreign exchange market.

On her part, the Director, Sub-saharan Africa Economist at Renaissance Capital, Yvonne Mhango urged the incoming governor to sustain a firm monetary stance.

"Given our projection of a continued decline in forex reserves until the elections, which is negative for the naira, and Emefiele's aversion to devaluation, we think the MPC may be compelled to further tighten monetary policy in second half of 2014," she predicted.

Commenting on his expectations from the incoming governor, the Managing Director/Chief Executive Officer, Citibank Nigeria Limited, Mr. Omar Hafeez believes that because Nigeria is more than ever connected to the world, no action should be taken by the central bank without weighing the implication both in the domestic and international markets.

"I think it is important that Nigeria should be looked at as a place where there is consistency of policy and I think if that can be maintained, it would be good for the market.

"Traditionally, the central bank has maintained a policy of maintaining prices and that has benefited investors tremendously because they feel safe when they come into Nigeria.

I think maintaining consistency is probably the most important thing and I think immediately when the suspended governor left, the message that came out from the central bank was exactly they would continue the policies," the Citibank Nigeria boss added. To the Deputy Managing Director, Diamond Bank Plc, Mr. Uzoma Dozie, Emefiele should ensure that he pursues his mandates in ways that would contribute to the growth of the economy.

"I believe one of the key roles of a central bank is to provide an enabling environment in which financial institutions offer intermediation services to support economic growth.

"So, a central bank governor is not just expected to ensure that the banking system is stable and that corporate governance is adhered, he is also expected to initiate policies to support the economy.

"He must make sure that monetary policies stimulates growth and reduces volatility in the industry. Central banks globally focus on inflation, price stability, exchange rate stability and employment," Uzoma advised. The Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, advised Emefiele to be focused on stimulating economic growth when he assumes office.

He also advised him to ensure that he continues the transformation of the payment system by enforcing the cashless policy and maintains the risk management policy of current central bank leadership.

Many financial industry watchers believe Emefiele must ensure that he runs a transparent system. Specifically, issues around the CBN 'Intervention Fund' must be implemented transparently so that it would not be an issue in the future.

Also, from the foregoing, they said he must always weigh the implication(s) of his utterances on the market before commenting on issues.

Clearly for Emefiele to succeed, he has to maintain a cordial relationship with the deputy CBN governors as well as the directors and address the capacity in the bank, which is said to be a major issue now.

He must ensure that the professionalism, good customer service, quality manpower and cutting edge technology, which Zenith Bank, where he is coming is widely known for, are enforced at the central bank.

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Source: AllAfrica

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