Building a people centred central bank
When Mr. Godwin Emefiele was appointed as the governor of the Central Bank of Nigeria, he did not mince words about the kind of central bank he wanted to create. Ever since then, he has kept faith with the vision. Unfolding his 10-point agenda at his maiden address to the Nigerian business community in 2004, Emefiele had said among other things that his vision would be a people-centred central bank. By this he meant, the vision of the CBN under his watch would be a model Central Bank delivering price and financial system stability and promoting sustainable economic development.
“This vision draws inspiration from our understanding of the multiple mandate of the Bank to pursue both price and financial system stability as well as provide complementary developmental functions by creating an environment for Nigerians to live better and more fulfilled lives. Rather than being competing goals, as some may argue, these mandates are truly complementary,” Emefiele had said. He added that, “In fact, price stability can rarely be adjudged a goal in itself except cast against the ultimate objective of improvement in the quality of life. Price stability, therefore, remains a cardinal contribution, indeed a cornerstone, to the ultimate goal of economic development.”
For him reasonably stable prices provide a catalyst for rational consumption and investment decisions and for orderly economic progress, remarking that is why throughout most of economic history, periods of price and financial system stability have coincided with economic growth and development. According to him in order to realize the CBN’s vision, therefore, I believe we must start with championing policies that promote the sustainability of our hard-earned macroeconomic stability: These policies include macroeconomic stability, oil and gas sector, contribution to policy development, support for refineries and pipeline construction as well as policy that will enhance the contribution of the health sector to the national economy.
Under macroeconomic stability, the CBN through its monetary policies: exchange rate and financial system stability among others have been able to achieve stable financial system. Also, in a bid to preserve the dwindling foreign reserves against the backdrop of the ongoing fall in the price of crude oil and other commodities in the international market, the CBN has closed the weekly auction of foreign exchange in the Dutch Auction System (DAS), banned 41 items from the forex allocation in order to enhance local production in the manufacturing sector and also to make locally produced goods very competitive.
Also, in this regard, the CBN early this month banned the sale of foreign exchange to Bureaux de Change (BDCs) and in apparent response to public outcry allow banks to accept foreign currencies into domiciliary accounts, a move which has been commended by economic stakeholders. One of such stakeholders, Civil Liberties Organization (CLO), recently threw its weight behind the decision of the Central Bank of Nigeria (CBN) to the stop the sale of foreign exchange, forex, to Bureaux de Change, BDCs, as part of measures to reduce the pressure on the nation’s foreign reserves. President of the CLO, Comrade Igho Akeregha, who addressed the media explained that the BDCs were a framework designed and re-engineered to facilitate and ease corruption in Nigeria, especially as a potential vehicle for laundering the proceeds of corrupt funds into foreign currencies.
According to him, an economy that encourages a BDC operator to obtain publicly earned funds at N190/U$ and then turns around to sell it at N270/U$ is an economy that is determined to remain backward. This huge window creates a huge disincentive to seek other avenues for sourcing FX by the operators and allows them to make humongous profits at the expense of Nigeria and Nigerians. The Monetary Policy Committee (MPC) at its 104th meeting in November 2015, reduced the Cash Reserve Requirement (CRR) by 500 basis points from 25 percent to 20 percent with a view to channeling the liquidity arising from the initiative to the real sector of the economy The reduction was part of the apex bank’s initiative towards stimulating output growth, expanding the industrial base, diversifying the economy and increasing the accretion to foreign reserves.
To give effect to this policy thrust, the CBN has introduced measures to ensure that funds realised from the reduction in CRR were applied to qualifying projects. Under the policy direction, deposit money banks were required to appraise their customers’ loan request relating to the agricultural value chain, manufacturing and solid minerals, infrastructure and other real sector-related projects and forward same to the CBN for final approval and disbursement. The CBN also in November 2015 reviewed the Micro, Small and Medium Enterprises Development Fund (MSMEDF) to enhance liquidity to the real sector of the economy.
As part of its developmental role and mandate of promoting a sound financial system, the Central Bank of Nigeria (CBN) launched the MSMEDF on August 15, 2013. This was in recognition of the significant contributions of the Micro, Small and Medium Enterprises (MSME) sub-sector to the economy. The sub-sector is characterized by huge financing gap which hinders the development of MSMEs. Section 6.10 of the Revised Microfinance Policy, Regulatory and Supervisory Framework for Nigeria, stipulates that ‘a Microfinance Development Fund shall be set up, primarily to provide for the wholesale funding requirements of MFBs/MFIs’.
In a bid to fulfill the provisions of Section 4.2 (iv) of the Policy, which stipulates that women’s access to financial services to increase by at least 15 per cent annually to eliminate gender disparity, 60 per cent of the fund has been earmarked for providing financial services to women. This informed the decision of the Central Bank of Nigeria to establish the Micro, Small and Medium Enterprises Development Fund (MSMEDF). The fund prescribes 50:50 ratio for on-lending to micro enterprises and SMEs respectively by Participating Financial Institutions (PFIs). In the area of oil and gas, and especially support for refineries and pipeline construction, Emefiele recently showed strong support for the on-going Dangote Refinery.
Emefiele during a recent tour of the refinery said the CBN would assist the Dangote Group to access foreign exchange to facilitate its $14 billion refinery project which is projected to refine 650,000 barrels of crude oil per day. The CBN governor said the support was to ease the importation of equipment needed to bring the Dangote refinery to reality. “Your on-going 14 billion dollar refinery investment will enjoy our support, no doubt. “Your on-going 14 billion dollar refinery investment will enjoy our support, no doubt. “We are doing this to fast- track the importation of equipment you need for a speedy completion of that project and to encourage other Nigerians to follow your lead,” Mr. Emefiele said, adding that the tour is necessary to lend our support to this laudable project that will transform Nigeria’s downstream oil sector.
The CBN under Emefiele has also been able to successfully implement the Bank Verification Number (BVN) policy both within and in the Diaspora. There has been reasonable stability in the price of goods in the economy despite devaluation of the national currency from about N150 to the dollar while inflation rate is about 9.6 percent as at December. Although, the Nigerian stock market is presently experiencing a slump, the development could be traceable to what is happening in the Chinese economy Analysts at Meristem Securities Limited noted recently that the current sell-off especially by foreign investors was a reaction of global portfolio managers to perceived emerging market vulnerabilities given the developments in the Chinese economy, which is the benchmark for Emerging Market Economies (EMEs). However, when this accelerated drop in the market is put in recent historical perspective, it adds another variable to the equation as it begs a question
– Is another tacit devaluation in the offing?
From the narrative we can say that Emefiele has continued to live up to its mandate of building a model central bank that will delivering price and financial system stability and promoting sustainable economic development.
