Notorious Missteps of Cardoso’s CBN

Notorious Missteps of Cardoso’s CBN

Femi Akintunde-Johnson

When you want unvarnished truth, served with profound elan, brutal elucidation, and delivered with missile-guided robustness, the man you need is Marcel Okeke. He comes heavily credentialed with loads of experience and expertise in the world of economic theories, practice and reporting – in well over 30 years. From 1987, and many years in the 90s, Okeke was the Business Reporter or Editor for some of Nigeria’s biggest newspapers – The Guardian, The Punch, Business Concord and Champion.

  He served the Zenith Bank group diligently for 13 years (2004 – 2017) in various capacities: Chief Economist, Chief Sustainability Officer and Divisional Head of Research & Economic Intelligence Group (REIG); Coordinator of the bank’s Corporate Social Responsibility (CSR) and Health, Safety and Environment (HSE) portfolios; while he entered as the first and only Senior Economic Strategist. 

Thus, when we need to see clear daylight in our understanding of the numerous economic actions and policies of the Nigerian state, we would invite Okeke to our issues-based weekend programme on TopRadio 90.9 FM called ‘The Vintage Talkshow…with the FAJ’. One of such few occasions happened last Saturday, 16 March, 2024 when Okeke was invited to speak on the topic: ‘Status Update – Post MPC Meet: Where is the CBN Going?’. And the man delivered, with his usual brutal clarity and frank disposition.

The first question is paraphrased thus: After the flurry of actions and directives coming out of the Yemi Cardoso-led CBN’s Monetary Policy Committee (MPC) of 26 February, 2024 – are we likely to see light at the end of the tunnel? In a layman’s term, are we making progress?

Okeke’s response: “Unfortunately, we are not making progress. If you look at the indicators, the MPC came up with the monetary policy rate (MPR) of 22.75(%)…for the very first time in living memory, we raised the MP by 400 basic points… from 18.75 to 22.75! They say it’s in an effort to tame inflationary rate…that is soaring away. What that means…because MPR is called an indicative rate… It is indicative to the commercial banks that they can now go up with their own rate. 

  It means that if you want to borrow money from any of the banks now, the interest rate must be in the region of 30 or 33% …because the CBN has moved its own indicative rate to 22.75(%). So, the banks will add their own margin, their costs and all that, you can call it 30-something percent. So you can now ask yourself, which kind of business will survive, taking a loan of 30-33% interest rate? You have to be criminals…who are doing all kinds of underground illegal business that can make it at that rate. And let me even say, assuming a genuine business, a manufacturer, for example, takes that kind of loan…whatever they manufacture, they are going to factor the cost of money into their cost of production. That means the price they are going to sell to you and I will now go up! And that again is the inflation the CBN say they want to fight. That is called cost-push inflation. So the cost would be built into the activities of whoever manages to borrow at that rate; and now be selling to you and I… that means cost-push inflation would be at work. Many companies that would not be able to borrow at that rate are now crowded out. So, it’s either they reduce their capacity, or they fold up…because of lack of funds or because of the high cost of funds. 

 And then the other one that is called CRR – Cash Reserve Ratio – they moved it from 32.5 to 45%… What that means is that if you deposit ₦1,000 in the bank, for example, the bank has to take ₦450 of it to keep at CBN (vaults); and the bank will be left with ₦550. In other words, it deliberately tries to constrain the ability of the banks to create credit…to lend money to the public. All in the wrong impression that there is so much money chasing a few goods in the system. So the CBN wants to drain the banks of cash…and the banks are now handicapped in terms of credit creation…. These are the implications of what they are doing. So, at the end of the day, it’ll be causing more problems than solving any. 

Let me now tell you, FAJ… after doing that, they now rushed to what is called OMO – Open Market Operation – through selling Treasury Bills. They contacted what is called Foreign Portfolio Investors…after the Monetary Policy meeting, they met with prospective Foreign Portfolio Investors, and discussed with them to patronize the government Treasury they were about to sell in order to mop liquidity from the system, and also use it to bring in foreign exchange. After that transaction – auction – the Foreign Portfolio Investors took 79% of the bills. FAJ, what that means is that the $530 million they brought in…it’s called Hot Money…   

  Portfolio investment is not what Nigeria needs now. They are getting that as a temporary phenomenon, because of the high interest rate they are offering the investors from outside. At 20-something percent of that auction, you cannot get it in any other environment, so the foreign  portfolio investors can be attracted with just that interest rate…but it’s a very temporary phenomenon…it’s called Hot Money…because such money keeps jumping around from one domain to another…from one jurisdiction to another…looking for where to make the highest profits. 

  But the challenge we have been having is that many companies…many portfolio investors cannot even cash out because of our dollar scarcity. 

  What this economy needs is foreign direct investment, not foreign portfolio investment. It is in foreign direct investment that money comes in to stay; to engage in productive activities. This one – portfolio investment – is money that is floating globally, if you like…  that’s called Hot Money…because it stays for a short while and goes out… and the CBN knows that the economy is in serious crisis, they are ready to offer any kind of conditions in order to get that. But the more they get that, the more they expose our economy to all kinds of headwinds… So, the economy remains terribly challenged.

And if I must mention, part of the things the current leadership of the CBN condemned seriously has been interventions of the Central Bank in agriculture…industries…with CBN itself doling out so-so money in this and that. But we just heard a few days ago that the current CBN took ₦100 billion and handed it over to the Federal Ministry of Agriculture for the procurement of fertilisers for farmers. Where do you place that one? And you say it is an effort to fight inflation…because of food inflation. How do you explain that? Is it money you’ve just printed? Or produced from where? That kind of investment is under what? Where is it captured in the budget? Really, I pity them…I don’t know what to say.”

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