Emefiele… Slave of state capture or victim of personal naivety

From supermarkets to makeshift kiosks, he was, perhaps, the most mentioned Nigerian earlier this year. It was a campaign season, but he took the shine off trademark politicians. On social media, he was called out by some, mocked by others and commended by his admirer.

He embarked on an overreaching policy not that could never have been contemplated by the majority of his peers. His faith was in the electronic payment system, but the support infrastructure failed terribly. And the implementation of a strange policy he had spent over three months selling at conferences, marketplaces and meetings was chaotic and disastrous.

In the first quarter, the economy slowed to 2.3 per cent, from the yearly growth rate 3.1 per cent in 2022. Many analysts balked at the official growth figure. But if the numbers were true, the economy was, indeed, magically lucky.

A report by the Centre for the Promotion of Private Enterprise (CPPE) claimed that Nigeria had lost N20 trillion to the cash scarcity caused by the naira redesign policy. For the first time, Nigerians had to buy naira at a premium. In some communities, people parted with as much as 60 per cent of the value of withdrawal even as accessing more than N10,000, whether at automated teller machines (ATMs), banking halls or agent banks was impossible.

Serial supreme court rulings extending the validity of the old notes, which many holders destroyed as they were declared non-legal tenders, were flouted by the CBN and deposit money banks (DMBs) with the connivance of the former Attorney General of the Federation and Minister of Justice, Abubakar Malami.

A cash-stripped Nigeria struggled to conduct the recent presidential election that was won by Bola Ahmed Tinubu, who had cried out that the naira redesign was a ruse targeted at turning Nigerians against the ruling All Progressives Congress (APC), a platform he was contesting the election.

Emefiele was accused by different top chieftains of the party, including its former chairman and labour activist, Adams Oshiomhole of being used by the opposition, with ex-President Muhammadu Buhari hoodwinked, to foil the chance of Tinubu at the election. But Emefiele dismissed all accusations, saying the policy was a necessary action to wean the economy of the risk of huge black money.

Last October when the policy was announced, the currency in circulation was estimated at N3.23 trillion out of which 85 per cent was said to be held in people’s homes, with much of it to be used for election buying. The embattled governor said the huge money outside the banking system would need to be recovered to stabilise the financial system and grow the economy.

In some quarters, Emefiele’s team was accused of acting the script of the Aso Rock cabal. That was often refuted. But The Guardian gathered then, only a very few top management staffers of the apex bank heard anything about the policy until it was announced. For instance, three out of the four deputy governors, shockingly, only knew about it from the media.

It was also learnt that the policy did not go through the usual modelling, simulations and scenario testing the institution’s policies are subjected to, raising questions on the policy, which would turn out to be a disaster, got the endorsement of the relevant team.

Emefiele had boasted that the bank parades dozens of top-notch economists, hence it was staffed with the required manpower to respond timely and appropriately to technical issues. The bank’s key departments and units are manned by professionals in their prime, The Guardian understands. Yet, Prof. Godwin Owoh, an economist, said, the naira redesign was implemented in the most naïve manner expected of an institution of the status of CBN.

Much of the underground money came into the banking sector on the strength of the policy. Emefiele said 75 per cent of the N2.7 trillion held outside the banks had been returned. The rate of banditry and hostage-taking, which the security operatives could not tackle, almost stopped. But his critics said his call was financial stability and not security and that he would be more appreciated if he concentrated more on price stability.

Political misadventure
But the naira redesign was the straw that broke the camel’s back. In the primaries leading to the elections, the policy was accused of seeking to influence, Godwin Emefiele, now on suspension as the governor of the Central Bank of Nigeria (CBN) and being investigated by the Department of States Service (DSS), allegedly offered himself for nomination to run for the President of the country under the ruling APC.

There are debates on whether he indicated an interest in the top jobs. Indeed, three groups routing for his candidature – the Emefiele Support Group, Friends of Godwin Emefiele and rice farmers, who benefited lavishly from the CBN’s intervention fund under his watch — picked the form on the expression of interest and nomination form with a total cost of N100 million. The forms were turned down by the governor, who told the group he would fund the purchase with his “savings” if he intended to contest.

Political adverts, running for weeks, worth several millions of naira were placed in his name. Lawyers claiming to have represented the governor also sought a court injunction to declare Emefiele legally fit to contest the election while still overseeing the affairs of the Central Bank. Whereas the governor had not publicly declared his interest, his silence was interpreted as tacit consent to the activities of what his admirers described as political jobbers.

For Owoh, the question of whether Emefiele could contest or not alone meant the market had lost confidence in the system he oversaw and that it was just appropriate he resigned to pave the way for new confidence building. He likened the discussion to “a supreme court judge joining a political party to contest any elective position.”

If Emefiele has succeeded in exonerating himself of being partisan, the imprints of that misadventure remain. Perhaps, he will go down in history as the first CBN governor whose Wikipedia entry would carry a political party membership.

Failed price stability   
The most important responsibility of the monetary authority is price stability. Stable prices are not what individuals and businesses would count on, historically. But under Emefiele, the three key economic prices – inflation, interest and exchange rate – did not only collapse but also became more unpredictable and unreliable for planning purposes.

One immutable and most distinguishing function of money is a store of value, from which flows John Keynes’ popular quote: “The best way to destroy the capitalist system is to debauch the currency”. Sadly, naira faced much-untold debauchery in the past nine years under Emefiele as it became more of an article of trade and speculation than it was a store of value.

From the N162/$ exchange rate inherited by the governor, naira currently trades about N462/$, meaning that the currency has about 65 per cent of its value against the greenback in less than a decade. Official and black markets were trading at par in a pre-Emefiele era, which kept round-tripping and other anti-market tendencies in check.

At the height of dollarised party primaries last year, the market arbitrage rose to 100 per cent as against five per cent red flag set by the International Monetary Fund (IMF). The huge arbitrage has fueled all manner of official manipulation and acted as a major distortion to the economy.

With the parallel market trading at N765/$ as of yesterday, the local currency has suffered a depreciation of close to 80 per cent at the parallel market. Whereas Emefiele has dismissed the black market as extremely speculative, which should not be used as a reference for determining the value of naira, it has become a benchmark for price setting across the board.

The suspended governor would be remembered for replacing what used to be called the CBN official exchange rate with the Investors’ and Exporters’ (I & E) window. But for lack of depth and liquidity, most end-users of foreign exchange, including overseas students and medical tourists, bear the huge cost of a parallel market.

Today, there are still different exchanges besides I & E, including interbank and other discounted windows the CBN uses for special users. In 2020, when Emefiele promised his commitment to prosing convergence around the I & E window, The Guardian reported that the plan was being threatened by political exigencies. Three years after the promise, the different rates still exist side-by-side, leaving investors in a dilemma.

Many sectors, including manufacturers, have been compelled to source FX from the black market while industries that are banned from patronising alternative sources are in limbo with huge stranded funds threatening their operations.

Last week, it was reported that the foreign airliners’ trapped funds had reached $812 million, which Dr. Muda Yusuf, Director-General of CPPE, described during a television show yesterday as embarrassing.

The rigid exchange rate market and indirect capital control have severe consequences for the economy and investment. In 2014, foreign participation in the Nigerian equity market was about 58 per cent, but dipped to 10.13 per cent in the first quarter of this year. In 2022, dollar inflow was $72.4 billion, a 27 per cent drop from the 2021 level. In 2014, the figure was almost $160 billion.

Emefiele has attempted different policy options to stabilise the naira. Two years ago, a desperate CBN stopped the weekly funding of the Bureau de Change (BDC) as it grappled with the stern reality of a steadily-dipping local currency. What did that achieve? More sliding and increasing volatility.

Nigeria has also seen the most disturbing inflation figures in the past nine years in terms of momentum and prevalence. For the first time, high inflation became an entrenched issue, making it difficult for economic agents, particularly investors, to plan.

In June 2014 when Emefiele assumed office, headline inflation was 8.1 per cent. It remained at a single-digit rate until January 2016 and lost it thereafter. Today, the inflation rate is consolidating at a higher double-digit rate of over 22 per cent.

The monetary policy recently went aggressive with monetary tightening, raising the interest rate at 18.5 per cent. Yet, inflation remains stubbornly high. Inflation concern, in recent years, is a global concern. But Nigeria’s elevated inflation predated the trigger of global inflation – COVID-19. Global inflation was caused by the expanded public expenditure that followed COVID-19 and turbocharged by the Russia-Ukraine war.

But while inflation is easing elsewhere, such as the United States where it has dropped to a two-year low, Nigeria’s month-on-month inflation change, which measures the current strength of price increase, is still trending upward at about two per cent. The decoupling of Nigeria’s inflation rate with the global trend speaks to the true character of the country’s price crisis. That it has little to do with the global shock but more to do with local structural challenges, including inefficient power, poor infrastructure, policy inconsistency and unaffordable cost of funds.

The fiscal crack Emefiele attempted to patch
The rising inflation and interest rates are a double whamming for the economy. Businesses cannot afford the cost of a fund just as their investments and savings are being wiped away by runaway inflation. In fairness to Emefiele, there have been debates on whether inflation in Nigeria is still a monetary phenomenon, with the level of loose money in the corridor of power and glitches in the supply side economy, such as inefficient power, insecurity, poor infrastructure and poor fiscal supports that have made it increasingly more difficult and expensive to produce in the country.

The challenges, Emefiele said, also compelled the apex bank into more aggressive development financing. Its flagship agriculture-funding scheme, the Anchor Borrower Programme (ABP) has benefited over N1 trillion since its inception. As at June last year, the CBN had, through its different intervention programmes, pumped N4.47 trillion into different critical sectors of the economy apart from overdrafts totaling N23.72 trillion advanced to the Federal Government, which the National Assembly said saved the economy from total collapse.

When the IMF and World Bank raised eyebrows over the intervention and demanded a wind-down of the windows, Emefiele said it would be irresponsible of the institution to turn down a request from the executive largely believed to be reckless and on a perpetual search for easy money, much of which was used to pursue state capture agenda of the government.

As Emefiele faces the DSS scrutiny and experts review his tenure, the time begs question of whether he is just doing a yeoman job to the horrifying leadership Nigerians have witnessed in the past eight years and whether also did well in exploring his ingenuity as a professional.