Godwin Emefiele understands the assignment
Why is the CBN insisting on a policy that is failing?
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“CBN will soon start a nationwide campaign to sensitise Nigerians to items excluded from importation. This is part of efforts to save more foreign exchange and stabilise the nation’s currency. The solution to the free fall of the naira is by controlling the demand for foreign currencies such as the dollar. If we are able to reduce importation, the demand for the dollar will fall automatically.”
-Godwin Emefiele (2015)
Nigeria makes everything difficult, including keeping promises. One week after I promised that Emefiele would not be a newsletter topic for another month, we’re back to talking about our CBN governor. On a televised Monthly Policy Communique, Meffy lost his cool and challenged the founder of AbokiFX, the FX rates aggregation website, to a fight. Meffy went as far as declaring AbokiFX’s founder wanted — will anyone tell him that the CBN governor doesn’t have such powers? It was a new low for Meffy, whose entire job description in the last month has been issuing threats. He has threatened BDC operators, people using fake travel documents to get FX from banks, and the banks. Now, the new holy war for the soul and spirit of Nigeria’s FX rates is with AbokiFX.
How did we get here? In the past week, everyone has become obsessed with reporting the slide in the price of the Naira against the dollar. While the Nafex rate, which the banks and the CBN use, says $1 = ₦412, the parallel market has said all week that it’s anywhere from ₦530 to ₦570. The constant chatter about the rates, highlight the failure of the CBN’s decision to stop selling $$ to bureau de change operators (BDC). When the CBN announced the BDC freeze, it was like seeing an old trick. Anyone who’s seen a magician pull a trick knows where to look to catch the sleight of hand. Yet, Meffy persisted, and here we are, with an FX exchange rate as stable as Nigeria’s electricity supply.
I don’t know Meffy enough to remark on his intelligence, but everyone now knows that the CBN freezing out BDC’s was not the right move. Yet, Meffy is sticking to his guns, and even though his house of cards is falling down all around him, he will not relent. Why is the CBN insisting on an FX policy that is clearly failing? The answer lies in examining Emefiele’s Key Performance Indicators (KPI).
Central Bank governors set monetary and regulatory policy, determine interest rates, maintain price stability, control the national money supply and the issuance of foreign exchange currency rates and gold reserves. But Meffy is not your typical CBN governor so his KPIs are different — you don’t become the first CBN governor since 1999 to get a tenure extension without knowing the demands of the job. Meffy’s true KPI and why he has kept his job are linked directly to Buhari’s economic direction. One may even argue that Meffy’s policies are Buhari’s policies.
Here’s what Buhari had to say in January 2016, after the Naira had started to fall against the dollar on the black market despite the CBN’s insistence on $1 = ₦197 (it was $1 = ₦305 on the black market):
“We don’t have the dollars to give to the BDCs (bureaux de change). Let them go and get it from wherever they can other than the central bank.”
Buhari went on to say that devaluing the Naira was like “killing it,” and in June 2016, when the CBN finally devalued to around ₦282, the Nigerian President was not pleased. He told members of the business community as much. “I don’t like the returns I get from the CBN concerning the devaluation of the Naira. In August 1985, the Naria was N1.3 to a dollar but now you need N300 or N350 to a dollar. What do we derive from that? How much benefit can we derive from this ruthless devaluation of the Naira? I’m not an economist neither a businessman, I fail to appreciate what the economic explanation is.”
In all of this, credit must go to Meffy for learning quickly. His primary job as CBN governor, as defined by Buhari, is to “defend the Naira.” Nairametrics describes Meffy’s thinking perfectly; “Emefiele has acted in virtual lockstep with the Buhari administration, using the bank’s tools to enhance government policy.” While any argument about a Central Bank Governor’s independence is purely academic, Meffy couldn’t possibly choose a worse economic thought leader — Buhari’s economic ideas are terrible, and the last person he needs as an accomplice is the CBN governor.
Understanding what Meffy’s true KPIs are mean that you now know what to say when someone inevitably asks: why does everyone but the CBN governor know what to do? Beyond that, some people have another question: “is AbokiFX the cause of the FX rate instability?” The short answer is “no.” The long answer is this brilliant article by Adedayo Bakare.
TL;DR: Buhari wants a “strong” Naira and no devaluation. He also wants a situation where $1 = ₦1, and he doesn’t give a hoot what economic laws have to give for this to happen. Sadly, he has the cooperation of the CBN governor, who will arrest anyone who reminds them that actions have consequences.
And right before you run away, here’s a heads up from my ‘sauces.’
One more Nigerian 🦄 this year?
that yet another Nigerian unicorn will be minted this year (if the announcement doesn’t get delayed). While you’ll be sure to see it first on Techcrunch, because well, everyone takes these things there, there’ll be a ton to talk about then.
In an unrelated matter, I wrote a smashing profile of Enoch Adegoke, the first Nigerian sprinter to reach the 100m finals in the Olympics in 25 years. If you’d like to see it as a Wednesday newsletter, please let me know in the comments section — 40 comments is the signal to know that you want to see it. Okay fine, 30 comments last price.
I couldn’t resist adding something I found on Twitter.
See you on Wednesday, or Friday, you decide.
Stopping FX to BDCs was the right thing to do. However, not being able to provide enough supply to meet demand is the main issue.
In the real play of things, CBN allocation is a small part of what BDCs operate with, it is just they get creamy spreads of over 100 naira.
While we must point to governments that they are wrong, we must not employ sentiments and bias.
If you can look deeply enough, you will be able to decipher that the parallel markets are being gamed and manipulated. It is such behaviour that makes floating impractical in Nigeria.
There is currently no basis for the dollar rate to be so high as;
*Reserves are rising
*Oil Price is high and we are getting our cargoes sold
*CBN has greatly increased supply to I&E window
*Bonds worth over $4 Billion have just been sold
The foregoing makes it clear that market is being gamed and manipulated. Sadly, lots of Nigeria are being emotional about this and would rather have CBN surrender to BDCs. We must stay this course. With what I know about Nigerian markets now, I cannot even suggest floating as we will just see fx rates rising for no reason.
Calm down and remain objective.
Press meffy’s neck! Ashiere ni bobo yen