The governor of the Central Bank of West African States (BCEAO) focuses his efforts on “serving the region’s economies” and is unmoved by controversy. In the first part of our series on the governors running the Central Banks of Africa during a time of crisis, we take a look at Tiémoko Meyliet Koné.
This is part 4 of a series.
According to European Central Bank president Christine Lagarde, the primary role of every central bank is to guarantee price stability. Over the years, that role has expanded to also take part in economic and financial planning. But, economists and policy-makers regularly argue that monetary policy cannot achieve all goals.
But in Nigeria, the CBN led by economist Godwin Emefiele has been accused of stepping outside of its remit while not taking ownership of the core responsibilities at the apex bank. In theory, the CBN is supposed to be an independent body working to stabilise general price levels, but Emefiele’s CBN has been seen to take orders from the executive while also rehashing old and failed policies from the 1980s when Nigeria’s president was the military head of state.
The CBN has been trying to play the role of economic support but does not have the capacity or knowledge to follow through on everything it has proposed. A regular route for the CBN has been to provide interventions to sectors like the agricultural sector, but these sectors are not delivering impact. The agricultural sector is still struggling while the funds and the policies the CBN has been looking to provide are not good or enough.
But there is a much bigger problem with the CBN and indeed this Nigerian administration. The communication on policy, especially for the stakeholders involved, has been very abysmal. Nigeria’s vice-president Yemi Osinbajo has been in charge of the economic recovery and his policy suggestions have a stark contrast to what other people are doing. There is a lack of consistency from the top and this has meant there has hardly been any buy-in from other government agencies and the private sector.
“The CBN policies do not support fighting inflation despite inflation being one of the biggest problems Nigeria has had. For example, we have a CBN that is giving money to the federal government and farmers to spend. Theoretically, the CBN should be looking to tighten liquidity. By lending to the federal government and farmers, the policy is inconsistent and very performative. But also betrays its own policy goals,” Adedayo Bakare, a Lagos-based economist with Afrinvest tells The Africa Report.
Inflation targets missed
Nigeria has seen a steady rise in inflation over the past few years. A particularly large driver of inflation in Nigeria is food. The average spending on food by individuals and households is more than 50% of income. And by restricting foreign exchange for the importation of food – in a country does not produce enough to fulfil local demand – the government is exacerbating the problem.
“By the important metrics tied to what the central bank is supposed to accomplish, Emefiele has failed. The CBN has an inflation target of between 6% to 9%, but since 2015, inflation has been consistently above 9%. There is a failure of leadership at the CBN and it is why today, the CBN governor can’t boast of meeting any of his targets on inflation or economic growth,” Bakare explains.
Nigeria’s CBN has been taking on some of the responsibilities of the ministry of finance. The ministry is supposed to be in charge of creating strategy. In the last government of Nigeria headed by Goodluck Jonathan, there was a gap discovered and quickly plugged by a coordinating minister of economy working from the ministry of finance. This role gave expanded powers to Ngozi Okonjo-Iweala, with an additional responsibility of coordinating the economic activities of other ministries. But politically, this faced a lot of backlash as politicians.
Crisis of coordination
Vice-president Osinbajo asserted that there would be no ‘coordinating minister for the economy’ in President Muhammadu Buhari’s administration. And the lack of cohesion between the federal ministries has seen the economy tank.
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In a crisis, the question of how well the government responds to adversity determines how quickly the country is able to recover. The IMF has forecast that the Nigerian economy will shrink by at least 3.4%, but local experts predict that it will be far worse.
The CBN announced three intervention funds to deal with the fall-out from the Covid-19 pandemic, but the funds have been small and the disbursements have been slow.
“If SMEs employ most of the people in the economy and are a big contributor to the GDP, why create a small N50bn ($130.9m) fund? The manufacturing grant of N1trn was created in March, but at this point, less than 30% has been disbursed,” Bakare explains.
Policy experts argue that the CBN has missed policy opportunities that could have stabilised the economy. According to some, the CBN should have devalued the currency. But at the moment and despite a refusal to make a big devaluation, the value of the naira keeps going down, especially in the black market. The economy is not faring any better. The lack of clarity in the CBNs position counts as a colossal failure in the CBN’s handling of an economy headed towards a major recession.
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