Kunle Aderinokun and James Emejo aggregate analysts perspectives on the performance of the Central Bank of Nigeria in its regulatory and developmental functions – and conclude that though the apex bank had exceeded expectations particular in the role it played to sustain the economy amidst the impact of the COVID-19 pandemic last year, more strategic interventions are still required to boost the real sector and set the economy on the path of recovery and growth amidst the current recession.
There is almost a general consensus that the CBN has performed creditably well in its primary mandate of price stability as well as developmental role especially in the wake of the COVID-19 pandemic and the associated economic downturn.
The last few years had witnessed unprecedented CBN programmes in key sectors of the economy, including agriculture, manufacturing, health, entertainment and massive support for Micro Small and Medium Scale Enterprises (MSMEs) in the country.
The CBN Governor, Mr. Godwin Emefiele, had in June 2019, following a rare reappointment for a second term in office, unveiled his plan aimed at strengthening the economy by implementing policies that seek to boost the confidence of investors, encourage local production and enhance non-oil exports, price stability as well as massive job creation.
Emefiele had launched an ambitious policy direction for the CBN, targeting double-digit growth, single-digit inflation, $12 billion non-oil exports by 2023 and raising financial inclusion to 95 per cent level by 2024.
He also pledged to retain managed-float exchange rate and announced a bank recapitalisation that will see banks raise their capital base above the N25 billion minimum level that one of his predecessors, Prof. Charles Soludo, introduced in 2004, among other things.
The CBN’s huge intervention in agriculture particularly the Anchor Borrowers Programme (ABP) which had witnessed massive revolution in local rice production remained an enduring signpost of the positive impact of the apex bank’s numerous interventions.
As a result, it has become a truism that save for the incursion of the CBN into agriculture, Nigeria would have found it difficult to feed its population amidst the world-wide lockdowns put in place to curtail the spread of the pandemic – a development which shut down world economies, crashed oil price which is a major source of revenue for the country – and therefore putting a strain on foreign reserves.
The question was how and where could the country had gotten the foreign exchange to import food especially rice which is a household staple – considering that Nigeria hitherto spent billions of dollars on food import bills on annual basis prior to the CBN intervention.
However, at the onset of the pandemic, the apex bank had floated the N50 billion CBN COVID-19 Targeted Facility to douse the impact of the pandemic on vulnerable households and businesses. The intervention which has since swollen to about N300 billion had brought huge relief to Nigerians and economy in general.
Of note is also the establishment of the N100 billion health care sector fund to boost research and local production of medical equipment, as well as several other interventions in the cotton and garment sector and power among others.
Also, last year, the CBN amidst daunting odds, had managed to stimulate increased bank lending to the real sector by deploying its monetary policy tools into action.
It also reigned in the high interest rate regime and lowered the Monetary Policy Rate from 12.5 per cent to 11.5 per cent even amidst high interest rate regime – all in an effort to boost production and stimulate economic recovery from recession among others.
Analysts, who spoke in separate chats with THISDAY particularly praised the performance of the banking regulatory institution for essentially performing not only monetary, but parts of fiscal policy with its interventions in key sectors.
They opined that the bank had done so much in 2020 to manage Nigeria’s volatile economy, which still found itself in recession amidst the COVID-19 pandemic.
Analysts held that the interventions by the CBN contributed significantly to the moderation of economic contraction recorded in Q3 2020.
However, in setting an agenda for the CBN for this year, they stressed the need to focus on continuous stimulation of domestic production and growth and further stressed the need for enhance regulatory oversight on the activities of financial institutions in the country.
They stressed the need to further tweak the interest rate and forex policy regime as well as a deliberate policy intervention to drive down lending rates and discourage the banks from applying multiple charges, noting that this would constitute great disincentive for savings.
The Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said the CBN’s handling of the FX situation could be much better, adding that multiple exchange rate system provides too many avenues for arbitrage and round tripping.
According to him, a definitive, holistic policy would go a long way in providing clarity and give confidence to foreign investors.
Shelleng said, “To be fair to the CBN, they have had to handle aspects of the economy that should normally be handled by the federal ministry of finance. So they are essentially carrying not only monetary, but parts of fiscal policy with its interventions in key sectors.
“I think the intervention programmes need to be more far reaching, so perhaps utilising an agency approach to disbursing and more importantly recovering these funds is key. I would still like to see an all-round reduction in interest rates, but acknowledge that this may have its downsides in creating excess liquidity and subsequent inflation.
She said, “In terms of the regulatory aspects of financial institutions, I think more needs to be done in driving down lending rates. The reduction in deposit rates has not necessarily led to a reduction in lending rates and as such the customers are ultimately left underserved. I think from the regulatory point of view the CBN needs to provide heavier sanctions for banks that continue to exploit customers with high lending rates.
“With this also, the multiple charges levied by banks is highly insensitive given the current climate. In a time of an economic downturn, the banks need to play their part in aiding the economy out of recession. Excessive charges discourage deposits.”
Former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, commended the CBN’s programmes in the real sector particularly manufacturing as well as deposit interest rate regime but called for more efforts to slash lending rates to boost the economy.
He said, “CBN has done very well in interventions in various sectors of the economy. In the Foreign Exchange market, in agricultural value chain, in manufacturing and indeed using the monetary policy tools to stimulate the economy. Notable in their efforts is their ability to bring down deposit interest rates.
“However, the interest rate reduction has not achieved desired outcome, as lending rates are still high. Consequently, CBN needs to enforce lending rate Cap and create a minimal spread between the deposit rates and lending rates of various Deposit Money Banks.”
Also on his expectations for the CBN this year, acting Managing Director, UCML Capital Limited, Mr. Egie Akpata, further admitted that the CBN had recorded achieved historical achievements in 2020, particularly bringing down the 1 year FGN borrowing rate to near zero despite rising inflation.
He said the CBN should continue to partner the Debt Management Office (DMO) to keep the FGN borrowing rates down, noting that short and long-term rates are off their November lows and might increase marginally going forward.
He added, “But CBN is unlikely to go back to the days of paying interest rates well above inflation as this will have a catastrophic impact on FGN debt service to revenue ratio.
“The very low interest rate regime would need to be maintained by the CBN for at least one more year for it to have the impact on the real sector that is desired. Many investors are still waiting for the days of risk-free rates above inflation to return. If CBN holds rates down long enough, a very large amount of money will go into real sector investments, which would lead to more output, job creation and economic growth.
“The CBN has run out of runway with the Naira and is likely to take some more decisive steps to balance the foreign exchange market and reduce the parallel market premium. They have already allowed the I&E window trade to N410 and are likely to allow further depreciation of up to 10 per cent during the year.”
Akpata said, “Despite Naira bond rates below FGN Eurobond rates, I would expect the CBN to benefit from a very large FGN Eurobond issue. Based on the budget signed by Mr. President, over $4 billion could be raised from the Eurobond market in Q1 2021 and this will have a big impact on FX reserves and the mood in the FX market.
“But the CBN would need to find a way to raise cost effective 1-year USD to clear out the backlog of Foreign Portfolio Investors (FPI) still trapped in Nigeria.
“Nigeria credit still sells in the international market and CBN can easily raise 1-year USD at 3 per cent which can deal with the FPI backlog decisively. The COVID-19 pandemic is likely to be a factor for several more quarters so it is unlikely that the CBN would increase interest rates in 2021 despite rising inflation.
“Their logic would be that rising inflation is driven by factors outside their control – weak naira due to oil crash, 100per cent rise in electricity cost, huge increase in petrol and transport costs due to removal of fuel subsidy, break down in logistics right from the ports etc. Higher interest rates would not fix any of these issues.”
The analyst also prevailed in the CBN to regulate credit supply and interest rate based on money supply, maintaining that it is duty of the apex bank to continue to use monetary policies to control inflation.
Also in an interaction with THISDAY in expectations from the CBN in 2021, President, Capital Market Academics of Nigeria, Prof. Uche Uwaleke, said no doubt, the activities of the central bank had contributed significantly to the moderation of economic contraction recorded in Q3 2020.
He, however, observed that the forex pressure remained a challenge adding that given that the supply of forex is exogenous to the apex bank, it should continue to implement its demand management initiatives including the restrictions on forex with respect to certain items to encourage domestic consumption and conserve scarce forex while the plan to unify exchange rates should be pursued gradually.
According to the former Imo State commissioner of finance, “The remarkable performance of the stock market in 2020, despite COVID-19, is in my view, a direct product of the low interest rate environment which the CBN deliberately fostered that lowered yields in the fixed income market and made in investment in riskier asset classes such as equities attractive.
“So, I would advise the CBN to continue to strengthen its development finance initiatives including through scaling up these interventions especially in the Agriculture value chain to increase output in view of fact that the inflationary pressure is coming more from the food component.
“The CBN should also continue along the path of accommodative monetary policy till economic recovery is achieved. In 2020, the MPC reduced MPR from 13.5 per cent to 11.5 per cent.”
Besides, the Chief Executive Officer, Global Analytics Company, Mr. Tope Fasua, called for sustainable foreign exchange management regime for the country as well as increased support to boost domestic production.
He said the devaluation of the Naira would not have significantly hurt the economy if produced most of peoples’ needs were produced locally.
He said, “It often takes time and tremendous efforts to fill this gap but we must be honest and start immediately.”
Fasua said, “Perhaps a good place to consider an agenda for the CBN for 2021 is the news reaching us of a further devaluation of the Naira on the 31st of December to N410 to the US Dollar.
“The CBN has its work cut out for 2021. We cannot afford a straight line devaluation of the Naira and I have always favoured a Managed Floating regime for an economy like ours with low productivity and low economic complexity.
“The CBN should try and buy time by continuing to focus on how its intervention can grow productivity and deepen economic complexity. It will be an incredibly difficult task, but we have no choices in this matter. Inflation will go up a little bit more because of the many Keynesian type interventions we have already embarked upon, just as every other nation in the world.”
According to him, “The focus cannot therefore be on inflation targeting or reduction but how we can create jobs and improve industries. Of course we should continue to see how we can substitute imports.”
On his part Associate Professor of Agricultural Economics at University of Port Harcourt, Anthony Onoja, said the CBN had done so much in 2020 to manage Nigeria’s volatile economy, which still found itself in recession amidst the COVID-19 pandemic.
Onoja, who called for the need to regulate credit supply and interest rate based on money supply as this is the duty of the apex bank to continue to use monetary policies to control inflation- pointed out that there were aspects of the CBN “mandate that were wrongly tempered with especially the foreign exchange regulations that sometimes favoured those, who have Bureau De Change or specially favoured groups and such people could take advantage of the differences in the official exchange rate of US dollars to Naira in Nigeria to make abnormal profits.”
According to the university scholar, there should be a dispassionate narrowing of the rate of foreign exchange rate differentials in the nation’s economy to make the foreign exchange allocation pareto efficient.
“The policy of allowing foreign remittances into the domiciliary accounts of the intended beneficiaries is a laudable one which is billed to improve the value of Naira in the forex market.
“I think the central bank has a role to play too in ensuring that Nigerian traders maximise the opportunity being offered by the incoming African Continental Free Trade Area (AfCFTA) agreement whose regime has started on January 1, 2021.
“Export financing particularly those in agricultural trade and other commodity trades from Nigeria that have undergone some value addition should be encouraged by CBN. The research sector needs funding too.”
