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Emefiele and three ‘troublesome’ years at CBN


Central Bank of Nigeria’s (CBN) governor Godwin Emefiele

On June 3rd, 2014, Godwin Ifeanyi Emefiele, emerged the Central Bank of Nigeria (CBN) Governor, after Mallam Sanusi Lamido Sanusi controversially ended his tenure. His quiet disposition and manifesto helped calm the heated market as a result his predecessor’s exit.

But little did he and the community of analysts predict how long the lingering crude oil price volatility that engulfed Nigeria’s economy would last. And that was the beginning of his struggle to steer the country’s growth in the last three years.

In fact, part of Emefiele’s inaugural speech said his leadership would “pursue a gradual reduction in key interest rates, and include the unemployment rate in monetary policy decisions; maintain exchange rate stability and aggressively shore up foreign exchange reserves.”


One question that has remained unanswered in the last three years by community of experts and economists who play by the side is the exact recipe to manage a mono-commodity economy under volatility, with huge import bill and rising inflation.

Indeed, Emefiele would simply say, “it’s not easy” and many would concur, as he kept trudging in the midst of uncertainty. Like the Director-General of the West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, “within these periods, CBN as an institution, has become the weeping child. Nobody is remembering the fiscal side of the economy.

“For moderate critics, he is trying and needs to do more. But at the extreme, he is the cause of the crisis, exonerating years of executive financial rascality, poor budget implementation, and poor and near absence of infrastructure and volatile oil prices.

The point is that no single economic policy has been without side effects and economists have never agreed on one single dose policy prescription. So, whose own would have worked better?

In fairness, he and his team have had so much to contend with in these years- particularly the headwinds that saw the economy plunge into a recession.”

The sharp fall in crude oil prices since June 2014, when the CBN Governor took over led to significant revenue shortfall in Nigeria. The multiplier effect of this, as well as the frequent shut-ins and shut-down of trunk lines at various oil terminals worsened the situation for Nigeria’s ailing and mono-product economy and resulted to high inflation, exacerbated foreign exchange (forex) crisis, decline in consumer confidence, among others.

On his assumption, the monthly forex inflows into the CBN was about $3.6 billion, but in the aftermath of the sharp drop in oil price, made worse by falling production volumes in Nigeria, the monthly forex inflows fell to less than $700 million per month. Yet, the demand for forex from the market continued to be about $4.8 billion monthly.

Given this situation, the CBN dealt with the supply side of the problem by allowing commensurate depreciation of the currency several times.

Having done this, and bearing in mind the devastating effects of significant depreciations on inflation, purchasing power, government debt service, financial system stability, fuels and energy prices, it focused attention on the demand side of the market.

In order to address these identified pressures, the CBN had to revisit its foreign exchange policy with a view to positioning it to respond adequately to changing market conditions. This is foundation of the capital control.


The leadership has also tried its hands on boosting local productions as a support to dwindling foreign exchange reserves and measure to reduce import-induced pressure. But for a start, CBN excluded 41 goods and services, which it assessed as capable of being produced locally from accessing forex at the interbank market.

The move was mainly targeted at encouraging local production of the affected items, according to CBN. This was to conserve forex, and ensure stability of the forex market, efficient and transparent utilisation of forex as well for optimum benefit to be derived from goods and services imported into the country.

As part of its forex management policy, the CBN in November 2014, shifted the band of the official exchange rate from N155/$1 to N168/$1. Although the move ensured temporary stability in the forex market, currency speculators later went on the prowl with illegal activities.

But the unabated onslaught of speculators and its resultant pressure on the naira compelled the CBN to carry out another round of currency depreciation with the sole objective of restoring calm in the forex. This led to the devaluation of the naira to N197/$1 in February 2015, and also the closure of the RDAS/WDAS forex market, while the interbank market became the official market.

The increasing demand pressure on the forex coupled with the low accretion to the country’s reserves due to weakening global oil price prompted the CBN to redesign a new framework for the management of foreign exchange in a period of declining supply.

Unveiling the new guidelines in June 2016, Emefiele disclosed that the general operational principle of this new exchange rate framework is that forex currency will be traded in the inter-bank foreign exchange market through the platform of the Financial Markets Derivative Quotation (FMDQ).

A novel aspect of the framework was the introduction of non-deliverable over-the-counter (OTC) Naira-settled Futures, with daily rates on the CBN-approved FMDQ Trading and Reporting System, which according to the bank would help moderate volatility in the exchange rate by moving non-urgent FX demand from the Spot to the Futures market.

These worked after a while and then failed, as supple and speculative challenges heightened. Of particularly concern to the bank was the fact that the currency speculators held sway in market, just as they colluded with currency traffickers in an attempt to force down CBN’s hand.

This resulted to intense pressure on the forex market as the naira weakened to an all-time low of around N525/$1 before the apex bank once more, re-strategised.

The new plan was an aggressive intervention. Determined to calm the pressure in the forex market in February 2017, CBN released a new policy guideline aimed at increasing the availability of forex in the market and to ease the difficulties encountered by Nigerians, particularly retail end-users.

The decision was after a diligent study of the market dynamics, which required that funds for foreign exchange transactions for Personal and Business Travel, medical needs, and school fees, be put under the invisibles category. But now, it is to be settled at a rate not exceeding 20 per cent above the inter-bank market rate.


Following the clearing of a backlog of matured letters of credit at the inception of the current flexible exchange rate system, the CBN promised and indeed began to provide foreign exchange to all commercial banks to meet the needs of personal travel allowances.

In order to further ease the burden of travellers and ensure that transactions are settled at much more competitive exchange rates, the CBN also directed all banks to open FX retail outlets at major airports as soon as logistics permitted them to.

In a bid to further increase the availability of foreign exchange to all end-users, the CBN equally reduced the tenor of its forward sales from the hitherto maximum cycle of 180 days to not more than 60 days from the date of transaction.

Between the period February and May 2017, the CBN has intervened in the wholesale and retail segments of the forex market with about $5 billion, just as it has re-admitted operators in the Bureau de Change (BDC) segment, which receive $40,000 each weekly for onward sale to low-end users.

Currently, the naira trades around N363-37i/$ at various parallel markets, investors and export window, a sign that it is gradually driving towards achieving convergence of all rates.

The Chairman of United Bank for Africa, Tony Elumelu, praised the CBN Governor for restoring credibility, transparency and confidence in the forex market.

Elumelu, who is also the Chairman of Heirs Holdings, pointed out that recent policy initiatives of the central bank under the watch of Emefiele had restored predictability, improved market confidence and significantly added a boost to the value of the national currency, fuelling optimism that the economy would soon rebound from recession.

In terms of development financing, the Bank has continued to act as a financial catalyst in specific sectors of the economy particularly agriculture, in its determination to create jobs on a mass scale, improve local food production, and conserve scarce foreign reserves.

The President of the Dangote Group, Aliko Dangote, in assessing Emefiele’s performance, said the intervention of the CBN under Emefiele saved the economy.
Dangote specifically highlighted the Central Bank’s intervention in the agriculture and real sectors of the economy, noting that they have been impactful.

The interventions in this regard include the Commercial Agricultural Credit Scheme (CACS); Agricultural Credit Support Scheme (ACSS); Agricultural Credit Guarantee Scheme Fund (ACGSF); the N213 Billion Nigerian Electricity Market Stabilisation Facility (NEMSF); the N300 Billion Real Sector Support Fund (RSSF). Others are the Youth Entrepreneurship Development Programme (YEDP), the Micro, Small and Medium Enterprises Development Fund (MSMEDF) and the Anchor Borrowers’ Programme (ABP), which has been widely commended as a masterstroke in the unlocking of agricultural potentials in Nigeria.

The Anchor Borrowers’ Programme (ABP) launched in November 2015 has created economic linkages between over 600,000 smallholder farmers and reputable large-scale processors with a view to increasing agricultural output and significantly improving capacity utilisation of integrated mills.
Under the programme, the sum of N40 billion has been set aside from the N220 billion Micro, Small and Medium Enterprises Development Fund for farmers at a single-digit interest rate of nine per cent.


As at March 31, 2017, a total sum of N 33.34 billion had been released through 12 Participating Financial Institutions in respect of 146,557 farmers across 21 states cultivating over 180,018 hectares of land.

It is noteworthy to mention the National Collateral Registry (NCR) scheme, designed to boost the flow of credit to Micro Small and Medium Enterprises (MSMEs) in the country.

The Collateral Registry is a financial infrastructure that allows MSMEs to leverage the greatest part of their assets (movables such as crops, vehicles and machinery) as collaterals for loans for growth. Domiciled in the CBN, the NCR is a collaborative project between the CBN and the International Finance Corporation (IFC).

Although the banking industry’s non-performing loans (NPLs) climbed to 14 per cent at the end of 2016, far above the five per cent, CBN has maintained that Nigerian banks have enough buffers to withstand shocks.

Fortunately, Moody’s Investors Service recently maintained its stable outlook on the Nigerian banking system, reflecting the rating agency’s view that acute foreign-currency shortages in the country will gradually ease.

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