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Emefiele and the 2015 economic graph (2)  


Godwin Emefiele, CBN Governor

Godwin Emefiele, CBN Governor

SO far the foreign exchange ban has led to some improvement in the local production of the items. It is also helping to create jobs for Nigerians, according to a recent study conducted by an analyst. Several local manufacturers of the affected goods are reporting improvements in their sales volumes and increasing demand for their goods. Some foreign companies which had for decades specialised in exporting some of those goods into the country are exploring setting up local manufacturing plants in Nigeria while some local importers are seeking ways of raising funds to invest locally in their areas of their trade. Some of the companies include Erisco Foods Limited, Obasanjo Farms, a Chinese steel manufacturing company, Hongxing Steel Company Limited, Presco Oil Palm Plc and Dangote Foods Nigeria Limited amongst several others. For instance, it is reported that the Managing Director, Erisco Foods Limited, manufacturers of tomato paste, Eric Umeofia had to increase production capacity and staff strength from 500 to 1,500 to cope with increasing demand for their products.

Consolidating the gains: N750 billion boost for the real sector

The Emefiele’s style blends strategic focus with practical impact. A good example is the recent decision of Central Bank to reduce the benchmark interest rate for lending to commercial banks from 13 per cent to 11 per cent. The objective is to achieve something that has been talked about so much yet which has seen little action: increase bank lending to the real sector. It is designed to free up over N750 billion for employment generating sectors such as manufacturing, agriculture, infrastructure and solid minerals. The action has led to an immediate capital market rebound with the All Share Index rising by 0.5 per cent with investors gaining over 52.3 billion. It also led to the increase in market capitalisation increasing to 9.5 trillion, according to a market report by Afinvest, increasing investor confidence and raising economic outlook for the year 2016.

The Criticisms

Emefiele has received knocks from local and international critics. For instance, the Lagos Chamber of Commerce and Industry has said that the policies are making it difficult for local manufacturing companies to obtain critical inputs abroad to continue production. Also, JP Morgan cited the capital controls as reason for de-listing Nigeria from its Global Bond Index. Emefiele has also faced criticisms from two of his predecessors, Charles Soludo and Emir Sanusi who have asked that he allowed market forces to determine the value of the naira.

Textbook economists are uncomfortable with Emefiele’s preference for practical solutions and out of the box approaches. The frustration of portfolio investors, waiting to profit from Naira devaluation is also understandable. So are the political attacks by persons who want their own candidate to replace the CBN governor. However, it’s also true that many business people and other Nigerians have been inconvenienced by the forex measures. The CBN has made some effort to reduce the inconvenience but more needs to be done.

It could have been worse

However, in spite of the criticisms, it is clear that without the robust response of Emefiele’s CBN, the Nigeria economy would have been in a much worse position today. Nigeria is in a far better position than many other oil or commodity dependent economies who have allowed full devaluation of their currencies in response to the global crisis.

Even more developed economies are facing tough times. In Russia, for instance, the ruble has suffered a steep devaluation, stock-market prices have fallen, the Central Bank’s reserves are shrinking, capital is fleeing the country, export revenues are down, and foreign investment has practically dried up. The country is edging towards a recession.

Kazakhstan, the region’s second largest crude oil producer after Russia, which has switched to a free-floating exchange rate to contend with the falling prices for its main exports, is not faring any better. The World Bank estimates that the Kazakh economy will bottom out in 2015, growing only 1.3 per cent.

Other commodity dependent economies like Ghana and Zambia who have also allowed the value of their currencies to fall by 27 per cent and 45 per cent respectively are facing serious economic crisis and are likely to fall into recession soon.  In fact, Ghana’s latest growth rate is less than one per cent while in Zambia things have gone so bad that the government had to declare a National Day of Prayer.

Nigeria, in spite of challenges, is in a relatively better position. Hopefully with the appointment of a minister of finance and other cabinet members, the fiscal side that has been in limbo for the past six months will move to complement the CBN’s monetary initiatives and boost the economy. Emefiele deserves credit for the courage and creativity he demonstrated while keeping the fort during a turbulent time.


• Adeleke is a public policy analyst

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