Shonubi, CBN and Market Reform

In this piece, James Emejo spotlights the acting Governor of the Central Bank of Nigeria as markets rallied around his appointment followed by reforms in the foreign exchange segment. 

On June 9, President Bola Tinubu appointed Mr. Folashodun Adebisi Shonubi, as the acting Governor of Central Bank. Prior to the appointment, Shonubi was Deputy Governor, Operations Directorate of the bank.

This followed the controversial suspension of the central bank, Governor Godwin Emefiele by the president, in a move largely described by analysts as more of a personal/political vendetta.

On his campaign trail, Tinubu had heavily criticised Emefiele over some of his monetary policies particularly the cashless and currency redesign programme which he claimed were aimed at him (Tinubu) – to put him at a disadvantage at the 2023 presidential polls which he eventually won. The allegation had been repeatedly refuted by Emefiele. Expectedly, Tinubu, during his inauguration address hinted at the need to introduce far-reaching reforms at the CBN especially the need for foreign exchange rate convergence.

·      Market bullish

Investors immediately received the news about the change of guard at the apex bank with a positive mindset as Nigeria’s Eurobonds became bullish as investors viewed the development as an opportunity to tweak economic policies under the new administration. 

But the positive mood was quite understandable – foreign investors had for long pressured the CBN under Emefiele to float the Naira in order to allow it find its real value – a demand that could further harm the economy that is mainly import-dependent with weak domestic output.

However, until his elevation, Shonubi, described as a banking titan, had represented Emefiele as a member of the board of the Federal Inland Revenue Service – a role he held since December 2019.

The 61-year-old has had a stellar career in Nigerian banking with a combined experience of over three decades in the banking and engineering sectors and holds three degrees, including two master’s degrees – in business administration and mechanical engineering – from the University of Lagos.

Shonubi graduated from the University of Lagos from 1978 to 1983 after obtaining a BSc. and MSc. in Mechanical Engineering, an MSc in Business Administration specializing in Finance between 1988 and 1989.

His first working experience was at Mek-ind Associates where he worked as a consultant engineer from 1984 to 1989 then later as a marketing executive at Inlaks Computers Limited.

From 1990 to 1993, Shonubi was the Head of Treasury Operations of Citibank before proceeding to First City Monument Bank as vice president and Ecobank Nigeria Limited as executive director.

From 1999 to 2007, he worked at MBC International as the deputy general manager.[2] From 2009 to 2012, he was employed by Union Bank of Nigeria Limited as an executive director, operations, technology and services.

From 2012 to his appointment as the deputy governor of CBN (Operations Directorate), he was the managing director and chief executive officer of the Nigeria Inter-Bank Settlement System Plc.

·      Early reforms

Shonubi, apparently acting Tinubu’s script – as he was part of the monetary policy committee of the apex bank under Emefiele that operated the multiple exchange regime – soon after his appointment, abolished the segmentation in the foreign exchange (FX) market and collapsed all rates into the Investors and Exporters (I&E) window – to the excitement of investors and analysts.

Among other immediate reforms, the CBN under Shonubi, also announced the cessation of the RT200 Rebate and Naira4Dollar Remittance Schemes, with effect from June 30.

Both initiatives, introduced by the suspended CBN Governor, Mr. Godwin Emefiele, were launched to boost non-oil exports and diaspora remittances to encourage foreign exchange inflows into the economy.

These initiatives had been highly commended and welcomed by analysts with early positive results since they were launched. The stoppage came as a huge surprise to many.

The central bank in a circular on the Operational Changes to the Foreign Exchange Market issued Wednesday and signed by CBN Director, Financial Markets Department, Angela Sere-Ejembi, said further guidance on the policy change would be communicated in due course.

The apex bank also alerted all authorized dealers and the public of immediate changes to operations in the Nigerian Foreign Exchange (FX) Market, of the re-introduction of the order-based two-way quotes, with bid-ask spread of N1, adding that all transactions shall be cleared by a Central Counter Party (CCP) among other alterations to the operations in the Fx market.

Essentially, the Race to $200 billion in FX Repatriation (RT200FX) initiative was established to stimulate non-oil exports with a $200 billion FX income target in the next three to five years.

The programme allowed for a rebate of N65 for every $1 of repatriated non-oil export proceeds is paid to exporters of semi-finished and finished goods, while exporters of unprocessed items enjoy a rebate of N25/$.

Similarly, the Naira 4 Dollar Scheme was introduced in March 2021 as an incentive for senders and recipients of international money transfers. The policy entailed the payment of N5 for every $1 received as a remittance inflow.

·      Reform yields 

Following the reforms in the FX market, THISDAY finding indicated that the spot rate of the naira depreciated by 40.78 per cent to close at N664.04 to a dollar on the I & E FX window on the day of the announcement, as against the N472 to a dollar it closed the previous day.

The market also depreciated to a record low of N750 to a dollar during intra-day trading.

However, on the parallel market, the naira which had been hovering around N770 to N760 to the dollar in the past week, appreciated by N5 to close yesterday at N755/$1.

·        Analysts’ perspectives/Challenges for Shonubi

Meanwhile, analysts who spoke to THISDAY separately on the emergence of Shonubi as acting CBN governor have welcomed the development, describing it as positive for the economy.

Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said the development will bolster the confidence of investors going forward.

They also said the new acting CBN governor faced an uphill task of addressing rising inflation and high Monetary Policy Rate (MPR) among other challenges confronting the economy.

He said, “The market reaction is a direct result of the unifying of the exchange rate. Investors now have more confidence investing in Nigeria and can take advantage of underpriced assets in the stock market without fear of Fx illiquidity upon exit.  

“It remains to be seen if he (Shonubi) will be given the job full time but with regards to inflation and the MPR, he will certainly have to be bold in deciding whether to continue the hawkish policies, which have had limited impact on inflation or switch to more dovish policies to encourage growth.”

Shelleng said, “There is a delicate balance that needs to be considered. Low-interest rates will deter foreign investors, who are looking for real returns given the current inflation in Nigeria.

“However, maintaining high-interest rates also makes borrowing expensive for businesses to the detriment of growth.”

Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, remained optimistic that the new CBN acting governor will successfully implement the desired reforms needed to move the economy forward.

He told THISDAY, “I sat with Mr. Shonubi before he became Acting Governor, and I could see his drive, anger, and focus. He knew many things were not where they should have been, but he was limited.

“Now that he is in charge, he can exercise his knowledge and capabilities. The difference will be obvious. What he is simply doing is to correct the wrongs to get the rights in place.”

Ekechukwu, however, cautioned that Shonubi “should not think inflation rate will always be reduced with monetary policy decisions. Some other factors extraneous to CBN are also responsible. 

“He should, therefore, not overstretch the MPR, especially so that the economy can resume its recovery trajectory and traction.”

On his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said the positive impacts currently being witnessed were primarily as a result of the ongoing policy reforms of the Tinubu government, adding that in the passage of time, these would impact positively on inflation.

Gbolade said, “The acting CBN Governor has been the deputy governor in charge of operations with a wide knowledge of the economy.  However, every deputy governor takes instructions from the incumbent CBN governor. 

“The fuel subsidy removal and FX reforms will definitely increase inflation in the short run but with effective implementation of the right government policies, inflation would be brought under control.

“The actions of the acting CBN governor are in line with the policy direction of the new government and the reforms would definitely birth a vibrant economy for the country.”