News Column

Emefiele and the Chance to Live the Dream

June 17, 2014

Sanusi Abubakar



Not since the former Central Bank of Nigeria Governor (now Emir of Kano), Sanusi Lamido Sanusi, took on the mess in our banking system had the news been this good. It is exciting to see another CBN helmsman with his head in the right place, and a vision worth supporting. Godwin Emefiele seems off on a very good start.

To put things in perspective, the regulatory authority had largely cleared the self-serving, fraudulent, and false banking practices that almost collapsed the banking sector on our heads. It did so by pumping public funds into the banks and sweeping away the bad eggs. Some of us believe the rouge bankers got off too lightly, but that is another matter. While the "special interventions" worked fairly well in infrastructure (especially educational) in other areas it would appear that the banks cornered the funds, cleaned up their books by restructuring and refinancing the bad loans they gave, but they did not really make credit any easier to take.

In actual fact they mostly abandoned their job of intermediation. As financial intermediaries banks are supposed to take funds from people who have extra money or surplus savings (savers) and channel these (as loans) to those who do not have enough money to carry out a desired activity (borrowers) especially businesses. Aside from lending to a few large entities and making money from treasury activities and lending to governments the real sector was being effectively denied easy and affordable access to fund. They were just using their licenses to take deposits at very low interest rates and use it as they wished giving out to entities that could pay their exorbitant charges.

This is where the new CBN Governor's vision statement should be placed. In his first public statement titled "ENTRENCHING MACROECONOMIC STABILITY AND ENGENDERING ECONOMIC DEVELOPMENT IN NIGERIA" (which I would recommend to everybody) he promised, among other things, to "enhance financial access and reduced borrower cost of credit", by pursuing "a reduction in both deposit and lending rates" and reduce the excessive preference for lending to governments, pointing out that; "While a reduction in deposit rates would encourage investment attitudes in savers, a reduction in lending rates would make credit cheaper for potential investors." This is a minimum requirement if we are to encourage a genuine transformation.

Another area I am really excited about is his solid grasp of the developmental role of the modern central banker. Moving away from the ideological baggage often stated as "government has no business in business" Emefiele clearly shows his appreciation of the need to go beyond the traditional preoccupation with only managing interest rates, money supply and inflation to direct intervention in stimulating specific sectors that have the most likely beneficial impacts on our welfare and the future of our nation. Permit me to quote him extensively:

"For quite some time, the dominant school of thought regarding central banking was that focusing on low inflation will eventually lead to greater growth, increase in employment generating activities, and poverty reduction. However, early and recent evidence of central banking in places such as the United States, England, Japan, and France indicate that supporting selected economic sectors using "direct methods" of intervention have been essential tasks of their central banks. As Epstein (2005) encapsulates, "virtually all central banks, including the Bank of England (BOE) and the U.S. Federal Reserve (the Fed) have used direct means to support economic sectors. And this has not simply been a matter of historical aberration, but rather, it has been an essential aspect of their structures and behaviour for decades on end. In particular, a crucial role for both the BOE and the Fed has been to promote the financial sectors of their economies, and especially, to support the international role of their financial services industries. They have done this by using subsidized interest rates, legal restrictions, directed credit and moral suasion to promote particular markets and institutions. Moreover, at times, they have even oriented their overall monetary policy toward promoting the development of this particular economic sector".

"Nigeria has witnessed impressive GDP growth rates over the past seven years. Yet, there is an absence of a corresponding reduction in the unemployment rate in Nigeria, which has risen to 23.9 percent in 2012 relative to 13.9 percent in 2000. Particularly worrisome is the rate of youth unemployment, which is too high. With an annual addition of 1.8 million Nigerians to the labour pool, the Central Bank cannot afford to sit idly by and concentrate only on price and monetary stability."

"Additional measures would be required towards identifying productive sectors of the economy and channelling credit towards these sectors, while imposing proper monitoring and performance measures in order to ensure that the goals of increased employment and poverty reduction are attained. This will require a review of the Bank's development finance program, the participatory agencies responsible for the disbursement of funds, improving our monitoring capacity and developing performance targets relevant to our focus on generating employment and poverty reduction. To be effective, the measures taken by the Bank will not work in isolation."

A related innovation is his commendable decision to include the unemployment rate as one of the key variables considered for its Monetary Policy decisions while working with other agencies especially the fiscal authorities to reduce structural distortions to productive growth.

While a more detailed appreciation of his first statement of intents would be attempted subsequently I would end by repeating Emefiele's own closing remarks:

"We must, by now, have been tired of hearing people talk about the "potentials" of Nigeria. Now is the time to live that dream. I truly believe that working together; we can achieve our goals and give Nigerians the chance to live longer, better and more fulfilled lives."

Mr Governor, we welcome you and look forward to your actualizing these promises.


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Source: AllAfrica


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