Cardoso and Tasks ahead in CBN

Last week, the acting govenor of the Central Bank of Nigeria Dr. Olayemi Cardoso resumed duties,  alongside the four deputy governors. His major tasks, according to economic analysts, should be on how to stabilise the currency, root out corruption, defend the integrity of Nigeria’s financial system, and develop a fiscal strategy that would free up resources for investments in important sectors of the Nigerian economy, writes Festus Akanbi

For obvious reasons, the recent appointment of Mr. Olayemi Cardoso, a banker and chartered stockbroker with over 30 years of experience in private, public and not-for-profit organisations as the next governor of the Central Bank of Nigerian (CBN), has sparked interest and debates among observers of the nation’s economy.

Unlike in the past, the selection of the top bank governor was this time around accompanied by the nomination of four deputy governors of the bank, a step that analysts say will provide the new helmsman with a clean slate to start with without the baggage of the previous administration. Emem Nnana Usoro, Muhammad Sani Abdullahi Dattijo, Philip Ikeazor, and Bala Bello are the newly appointed deputy governors.

As he awaits the screening and endorsement of the National Assembly, analysts said Cardoso’s experience in the fiscal space suggests that he may be more amenable to driving policies that could speed up the realisation of set the federal government’s targets. 

Secondly, with his impressive track record in policy development and execution, given his pioneering role in the origination of the Lagos 10-point economic agenda, analysts said his experience fits the current context, with Nigeria embarking on its biggest policy reforms in decades.

Perhaps these were the expectations summed up in the charge given by the United States of America’s (USA) Deputy Secretary of the Treasury, Mr. Wally Adeyemo, in an address he delivered last week, at the Lagos Business School (LBS), which was titled ‘US-Nigeria Economic Relations: People, Entrepreneurship and Investment.’

Low Hanging Fruits

He outlined the urgent need for a stable currency, the need to root out corruption, defend the integrity of Nigeria’s financial system, and develop a fiscal strategy that would free up resources for investments in important sectors of the Nigerian economy.

To some analysts, Nigeria needs to resolve the confusion in the foreign exchange market, with Chief Economist & Head of Research, Middle East & Africa, Standard Chartered Bank, Razia  Khan saying that a more liberalised foreign exchange market will be a key priority for the governor of the CBN.

According to her, “Tackling inflation and overseeing a transition to a better-functioning, more liberalised FX regime will be the key priorities for the governor.”

She explained: “Both will likely require substantial meaningful tightening, to restore confidence. As a first step on FX, a tighter monetary policy backdrop will be needed.”

She added: “As an almost simultaneous step, all autonomous supply (including from oil companies) should be allowed on the official FX market, to create more FX liquidity where it is most needed.

 “Price-discovery on the official market – that is, more FX flexibility – will also be needed to reduce (hopefully once and for all), the importance of the parallel market,” she submitted.

 No Quick Fix

A financial analyst, who is also the Executive Director and the Head of Investment Banking at Cordros Capital Limited, Mr. Femi Ademola said Nigerians should not expect a quick fix to the nation’s economic woes, saying the responsibility of stabilising the economy is not that of the CBN alone.

“The responsibility is more with the fiscal authority. The activities of the CBN are short-term in nature and at this point, there is no quick fix to the issues at hand. 

“The most significant issues at hand are revenue shortages, inflationary pressures, and exchange rate instability. All three issues are more linked to fiscal policies than monetary at the moment since their root cause appears to be security challenges in the country. Revenue shortages are due to insecurity and oil theft while inflationary pressure is mostly due to food shortages and infrastructure deficiencies as a result of the continuous insurgency in the agrarian parts of the country. Exchange rate problem is also linked to revenue shortages due to insecurity,” he stated.

Ademola explained that what the above suggests is that the continuous use of interest rates to fight inflation may not be optimal as it continues to put pressure on costs and thus lead to more inflationary pressure. 

He added: “The use of high-interest rates to attract foreign investment may also be counterproductive as it may only succeed in attracting ‘hot monies’ rather than the needed FDIs. In addition, the high-interest environment also discourages domestic investment in the productive sector which has been sustaining the economy since foreign investments start to dwindle. It would appear that exchange rate stability will require an improved supply of foreign currency which can only be achieved through improved export of goods and resources out of the country.”

The Cordros Capital boss said the immediate priorities of the new CBN administration would be to assure the public that the country has a strong plan to meet all short-term obligations and to clear the backlog of “genuine” foreign exchange requests. 

According to him, the monetary authority would need to channel investments into the productive sectors rather than encourage trading activities only. 

MAN Calls for Closer Collaboration

From the manufacturing sector came the call for the CBN governor to pay close attention to the dynamics of the economic environment and engage critical stakeholders ahead of monetary policy incubation as well as evaluation and monitoring.

The Director-General of the Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadir, who appealed in an interview with THISDAY last week, recalled that his association sought to meet with the former CBN governor on several occasions to express their concerns over the BDCs management of the forex disbursements. He recalled such efforts were rebuffed. “But we never got a chance, neither did we get any responses to the fact-based submissions we made on manufacturers forex application and receipts. 

Other issues he raised include those of the current unimpressive forex reserves; high inflation rate; low possibility of raising market rates to more attractive levels; high debt profile and increasing debt servicing costs and public aversion to more borrowing. The manufacturers’ body therefore said better attempts should be made to ensure a strategic balance between tackling inflation and engendering economic growth through effective funding. 

The MAN President said he believes the change will create an atmosphere that is conducive to the promised reform in the financial sector of the economy. He expressed anticipation for more transparency and effective management of the exchange rate and; quite importantly, a regime of production-supportive interest rates and robust initiatives to engender price stability. “We are anxious to have a restoration of confidence in the system and the possibility of economic growth in the short to medium time,” he said.

Commenting on banking supervision, the Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, said Cardoso must reverse the holding structure for banks to focus on their core businesses.

Emmanuel, who expressed his desire for a non-banker to take over the reign of leadership at the apex bank, insisted that Cardoso must take immediate steps to amend the Banks and Other Financial Institutions Act (BOFIA), especially section 3(3).

“The new CBN boss must amend the BOFIA sections 3(3) to change the authority to award banking licence, unilaterally from the office of the CBN Governor and the Chairman of the Board (that happens to be one) to a council that comprises of the CBN governor, deputies, members of the non-executive board, the Finance Minister and the Accountant General of the Federation.”

He also charged Cardoso and his team to wind down the Asset Management Corporation of Nigeria (AMCOM), which has outlived its usefulness while its functions should be fused into that of the Nigeria Deposit Insurance Corporation (NDIC).