Perspective
A cacophony of decisions and experiments have visited Nigeria’s new Central Bank Governor in his bid to beat the very low acceptance that greeted his appointment after a highly contested and controversial general election, amidst an obviously shabby economy. The governor is earnestly in search of Monetary Policy Stability, but spectre is still on his sprawl!
Nigerian technocrats are deeply divided on how to describe the reactions of the new Central Bank Governor and his team to the several matters they met on ground. Some say that the governor is making smart decisions that can change the stance of the Nigeria economy. Others are saying that the governor and his team are confused because they are overwhelmed by what they met on ground, most of which they do not have any solution to. Yet, another very sentimental population is of the belief that they do not have a mind of their own, as they respond to the body language of those that appointed them to power.
In the last nine months of the new governor, there seems to have been indications that the various assumptions have become favoured based on the situations the bank and its management find themselves. When the governor made brisk moves to tame the ravaging foreign exchange challenges through a merger of exchange rate windows, it appeared he was being very smart. But when the governor turned to decide what to do with fertilizers already purchased by the immediate past administration or the return of the 43 banned goods for import, it sounded like the confusion from a weird drummer or trumpeter. And still, the current decision where the minimum capital base of banks has been changed to a crescendo, it appears like the governor has an instruction from a political master-class.
However, the entire gamut boils down to a belief that he is assiduously propounding both existing and none existing theories and hypothesis on monetary and fiscal policy management. But Olayemi Cardoso was a Citibank hot-shopper whose ideas on banking must have no bush.
Based on the anxiety that the economy must be immediately fixed, many think that Cardoso is really making smart decisions with the combination of all the ‘schools’ surrounding him, bearing in mind that he must have also been conscious of all the traps involved in making so many smart decisions.
Taking some time before coming up with official statements indicating the position of the bank on many issues was really a smart one because there were myriads of issues that had ran into murky conditions which needed to be graphically defined. One of such issues was the controversial disengagement of his predecessor which was strongly believed to have been politically motivated even though there were strong indications that non-monetary policy issues took sway during that period.
Then, the Governor was battling to balance the fallout of the President’s inaugural speech which seemed to have derailed the peace of the economy and that of the money market at large. The impact of the abrupt and shabby process of removing the controversial fuel subsidy in the economy presented more challenges to the governor than he expected. This created the first major strategic planning challenge which needed smart decisions before getting down into the real deal of monetary policy stability management. The merger of the foreign exchange regimes which was believed to be the panacea for the irredeemable slide in Naira value against other foreign currencies took the apex bank by the storm and quickly recorded the most unprecedented rate ever known in the country’s monetary policy history.
This became the most disastrous economic development in the last nine months which have been seen as the major reasons for all the downward trend every development in the country has been experiencing; ranging from unstable exchange rate, uncontrollable interest on lending, and spiraling inflation. All these culminated into the belief that the country would be battling with an inglorious food security dilemma. A panic approach by the Federal Government and the usually poor delivery process by the corrupt state governments have lend the credence that Nigerians are really hungry, a situation the existing statistics in the country have acknowledged, albeit conditionally.
However, indications are rife that some changes that could impact the rate of the Nigeria have started to emerge even though it is still far below what the situation was before the new administration came into place. With the gradual repayment of the outstanding forex due to some institutions including airlines and major clients of the government and agencies, a reprieve is coming for the Naira , to the extent that the exchange rate has come down to about N1400/$ indicating a new low, against the recorded high of about N1800/$ earlier.
This became a case as there were less or little inflow of forex into the country based on the confusing monetary and fiscal policy directions of the apex bank. Today, the difficulties over forex management persist but have whittled down based on new inflows whose sustainability has not been guaranteed based on the nature of the oil and gas market, the lull in trade and investment direction, as well as the very huge debt services demand from the country’s numerous debts.
From all indications, the false steps of the bank in addressing the predicaments in both the monetary and fiscal policy dimensions may not have been attributable to poor skills. The fact remains that the governor may have been overwhelmed by what the Nigerian economy looks like presently and the pressure from the new government to express her perceived magic which has turned so disastrous. Twice the governor made public appearances believed to alley the fears of Nigerians on the looming danger in the economy, twice he failed. From this point, thoughts began to build that the country has been given a sour grape. But the governor held on and continued to apply damage contro until such a time his conviction will be high for the application of very robust decision that could shake the money market and apparently redirect the flow of investments and confidence in the country’s economy.
Many Nigerians still think that the only deal that can save the bank’s monetary policy direction is an idea that can propound a sustainable productivity matrix. Apparently the apex bank did not want to, because it may be an acceptance of the economic policy of an opposition political party. Under his predecessor, the application of an intervention policy that hedged inflation, controlled the rate of forex and encouraged export drive looked more like an application that could be redefined and improved to remove many Nigerians from hunger, but to the establishment the bank must reinvent itself by implementing the “renewed hope agenda” which is the slogan of the ruling party that brought him to power. Nigerians do not mind what political party agenda matters provided that they have access to what is important to them. They believe that any policy that is not better than their previous experiences must be left out of any future plan.
The Monetary Policy Committee (MPC), which is the highest policy making body of the apex bank made palpable changes in the interest rates regime which target investment interests in the economy using the monetary policy windows. Nigerians are eager to see the details of the inflows but have been informed of reduction of pressure on her external reserves. New flickers of direct investment flows are being indicated but Nigerians are still more interested in sustainability of whatever development that can give way to long term plans, knowing that short term measures do not take them far away from where they are presently.
This is why many want to refer to the new monetary policy of the apex bank as “survivalist”. This may be what suits the status quo ante, because Nigerians are eager to get moving by the day since the roads to the next days are still unpredictable.
In what is considered as railroading into a fresh monetary policy direction, the bank, few weeks ago, commenced a ‘smart decision’ matrix which is part of the search for financial stability in the industry.
The recapitalization of banks has been a twenty year old lexicon in the Nigerian banking sector which come with mixed feelings to the Nigerian economy. Mixed feelings in the sense that the two phases executed in 2005 and 2009 may have improved the capital base of Nigerian banks, but rendered many bankers unemployed as well as destroyed the capital of depositors and shareholders, most of whom have never been repaid as proposed by the Central Bank. Nobody knows if the governor has taken notice of the infringements to the rights of depositors in the past phases and has put in place proper deals to redefine his new programme. Between Soludo and Sanusi who carried out these activities, the banking institution may have gained the advantage of size but Nigerian depositors were seriously impoverished as many were never paid against the claim that the repayment would be completed within 90 days. It is almost 20 years and bank depositors are still licking their wounds.
This has created a hoard of an impoverished lot who have become the growing population of commercial motorcyclists called Okada in Nigeria’s local parlance, robbers, street and slum dwellers and a stream of the outlawed vendors of all kinds who have created markets along Nigerian roads. They form the stream of adult-road-hawkers whose markets start from where any road traffic begins and stops at the end of the traffic. They do not have any defined income.
Inside the new Central Bank of Nigeria is the desire to do a new thing that will redirect the flow of investment into the economy and grow the financial system in such a way that domestic developments could be funded by domestic banks so that the economy will not be perpetually tied to the apron strings of international lending institutions.
The reason may have been drawn from the previous recapitalization where a huge pool of investments came into the country even though not much investments were seen from them other than lending to political groups, state governments and other standing-order requirements than funding the real sector or infrastructure developments.
By implementing the new capital requirements of N500 billion, N200 billion and N50 billion for various Tiers of Banks, there will be the indication that banks will be awash with funds for strong national development needs.
This will stop state government that have genuine development interests from rushing to any lending institution abroad for loans that will be bloating the nation’s precarious debt position. But the fact remains that these funds may again find their ways into the massive estates and property sector which is known to be holding 65% of loans from financial institutions in preference to manufacturing and real sector development funding. The new capital base may not be the answer to the effort to deepen institutional lending demands. It is an effort to expand the balance sheet size of banks. But the banks still decide where there money goes because the safety nests in the economy will influence where depositors and shareholders’ funds must go.
Investors believe that there would be more opportunities for investments through new mergers and acquisitions but the apex bank must put in place standards that will create stability so that investors can plan their entry and exit periods adequately.
There may really be so many good reasons for this new development which are not in the open, but the fact remains that the apex bank must be guided by the hidden traps in making such ‘smart decisions’ because the way human brains work can really render such decisions to have been recklessly considered. There must be some realities of purpose rather than depending on conflicting development indices.
A Central Bank must first of all have an adequate and comprehensive management of the public resources considered as catalyst for other activities and not reigning all the rules on the private sector for economic revival. No matter the size of the Nigerian banking sector, not much would be expected as funding base for our various development deficits unless there is a proper alignment among the various basic income centers and proper control. Everybody expected the apex bank to make a statement on the very rowdy expenditure size of the political office holders, but what they think that is important is banking sector recapitalization.
The new Central bank must address productivity, human capital, national expenditure, national income. It is the deepening revenue crisis in the economy that is the root cause of the epidemic that grows the subterfuge in the money market.
It is very good to believe that Cardoso is building a new Central Bank. He has told Nigerians that a new forex inflow of about $1.8 billion is now easy to come in at regular intervals. He has assured that he will soon achieve financial sector and monetary policy stability. He has advised that the current capital base of banks has been eroded in dollar terms by about 100%. He also believes that the rate of inflation has rubbished banks financial assets and that will easily cause a breach on capital requirement if banks function without expanding their balance sheet size. He wants to indirectly put a stop to the gradual registration of new banks which expands the number and believes that mergers and acquisition is way to go, because 17 of the banks in the country are already of very low capital while none of the Tier one banks has up to N300 billion capital base. Nigerians believes that the governor is armed with enough data to inform him of all these postulations, because “data must be a major guide for monetary policy management”.
