Reforming CBN: Beyond public spectacle of its leaders

Leadership transition at the Central Bank of Nigeria (CBN) has not been smooth sailing in recent history and this creates a crisis of confidence that engulfs the entire economy. Charles Soludo’s proposed re-denomination of the naira in 2007 brought about a fractious relationship with the Yar’Adua Presidency in the latter stages of his tenure. The controversy was in public glare, leading to rumours about Soludo’s sack but effectively reducing his chances of another term.

The disruptive successor appointed in 2009, Sanusi Lamido Sanusi (SLS), was suspended four months before his tenure expired in Feb 2014 by President Jonathan following the controversy around missing oil export proceeds (initially $49.8bn but revised to $20bn) to the Federation Account.

At his May 29, 2023 inauguration, President Tinubu put down a marker when he declared that “monetary policy needs thorough house cleaning”. Typically, a house cleaning of such an important institution would start from the top. That removed any doubts about the President’s view of the leadership of the CBN. It was clear that Godwin Emefiele had to go.

On June 9, 2023, Emefiele was suspended by the Federal Government and later arrested by the Department for State Security (DSS) on terrorism financing charges. More than two months later, he remains in detention without bail.

Emefiele was no small fry. He was a consequential Governor of the CBN. He was the second longest serving Governor and by far the most powerful. As Governor, his reach extended to all sectors of the economy given his development financing agenda and a penchant for being “lender of last resort” for not just the Federal Government but almost any sector.

Unlike his predecessors, Emefiele was in open dalliance with the Presidency, in a manner that removed doubts about the independence of the CBN. He was invincible. However, the non synchronised nature of elections and the appointment of CBN governors, as well as the difference in tenures, means that the leadership of the CBN would be subject to political winds.

Ultimately, the final blow to Emefiele was the demonetisation agenda, which was politically motivated against the incumbent President and led to a devastating cash crunch that damaged the economy. For the first time during his stay in office, he misread the political current and has been swept away.

For the rest of the country, while his ouster was welcomed, the nature of his suspension is tragic. Emefiele’s many misadventures that terribly damaged the economy were not enough to prompt a leadership change at the CBN, but instead it was his misjudged political cause.

Under Emefiele, the economy was on its knees, growing at an average of 1.9% despite his policy agenda leaning towards growth through a rapid expansion of credit. With population growth rate at 2.7%, per capita in 2022 was below the level in 2014. There was more misery than prosperity, and over that period, the number of poor people in Nigeria climbed to 100 million, the highest in the world.

Ironically, in his pursuit of growth, inflation was left unattended. Yet according to the CBN Act (2007), monetary and price stability is the primary objective. In fact, it is practically impossible for the Central Bank to be the main driver of growth and lower inflation at the same time. Despite an inflation target of 6-9%, inflation averaged 14.5% between 2015 and 2022. Nigeria is among the 10 worst countries in Sub-Saharan Africa in terms of inflation performance.

For the everyday Nigerian, inflation destroys their purchasing power, makes them less resilient and makes them unable to fund their dreams. For businesses, higher prices, over a long-term, hurts profitability and their competitiveness in the global marketplace. For the overall economy, it means high cost of credit, high unemployment, a weakening exchange rate and poor domestic and foreign investment. The exchange rate policies destroyed Nigeria’s competitiveness, killed businesses and created room for corruption and inefficiency in the allocation of resources. With the CBN, under Emefiele, neglecting its mandate to keep inflation low and stable, the rest of the economy was destabilised.

Also tragic was that Emefiele’s misadventure into the political arena was not enough to earn him a sack. Against what is expected from a sitting CBN Governor, Emefiele had presidential ambitions and even sought the support of the courts to allow him to contest for the 2023 presidential election primaries. Similarly, he was a willing tool in the hands of politicians, meting out sanctions against people and institutions through the banking system.
The financing of fiscal deficits for the FG was also driven by an unhealthy alliance with the Presidency. As at December 2022, the CBN had granted an outstanding N23.18 trillion in advances to the FG, which was N22.9 trillion more than the limit of N252.27 billion based on the CBN Act of 2007 recommendation of a maximum of 5% of prior year’s revenues. The implication was that the FG got a disproportionate amount of credit compared to the rest of the economy.

The CBN was also very selective in allocating cheap credit to some sectors of the economy. Overtime, this area of its operations grew rapidly, and its interventions were not backed by policy papers or evidence, but by lobbying in many cases. This act of picking winners distorts the allocation of credit efficiently in the economy as those who deserve it on the basis of their productivity would not stand a chance.

These are consequential issues that indict the CBN for failing to discharge its duties appropriately. They bring to focus a need to rethink the role of the CBN, limit its overreach, especially with development financing, make the leadership of the CBN accountable and to ensure that the Bank does not go against its founding principles.

Yes, Godwin Emfiele has been suspended and arrested, but what next? Without a permanent replacement, will the economy be in limbo until next year when his term expires? Without clarity on leadership, can we embark on reforming the CBN? Is the Presidency better placed to reform the CBN than the legislature?
The lack of urgency in the area of leadership and reforms shows that we are at risk of repeating the mistakes of the past.
Akinyemi is a Lagos-based financial analyst.