Godwin Emefiele's complex legacy

It took only eight years for Emefiele to go from banking professional to professional scapegoat

Today’s Notadeepdive is 815 words and is the first in a two-part series that will be concluded on Sunday.

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“Any undermining of the CBN’s independence may hurt the economy. If anyone tampers with it, the markets would punish the economy.” - Sanusi Lamido Sanusi

It’s tempting to start today’s newsletter in Pete Edochie-seque fashion, or say something semi-wise like, “One day the cock of the walk, the next day a feather duster.” But Godwin Emefiele’s removal as CBN governor–the legality of which is still being debated–demands something original. After two terms as CBN chief, Meffy, as most Nigerians call him, has been ousted. Judgment in the court of public opinion has been swift and merciless, but it is not without reason. Even a toddler can recite Meffy’s many shortcomings offhand, but let’s run through some of them for good measure: failure to control inflation, questionable FX policy, reducing transparency at the bank, and being an accomplice as Buhari borrowed the country into a pit.

Yet, Emefiele wasn’t always the caricature he has now become in the public eye. When he was appointed in February 2014, many newspapers published his impressive profile. Part of his profile read, “Emefiele has over twenty-six (26) years banking experience and holds a B.Sc and an MBA in Finance both from the University of Nigeria Nsukka. Before commencing his banking career, he lectured Finance, Bank Management, and Insurance at the University of Nigeria and University of Port Harcourt respectively.” On his appointment, Meffy talked up his 15-point agenda, and said he would “strive to create an environment that would enable Nigerians live better and more fulfilled lives.” Meffy started out seeming like he could not be taken for a fool. 

One year into his appointment, there were signs that he would assert his independence as CBN chief. In September 2015, there were several reports that he was considering resigning his appointment over the “approach of President Buhari to fiscal and monetary issues.” Here’s a quote from one publication about his rumoured resignation,  “There are possibilities of Emefiele leaving the post because of the state of the economy. But the one that unsettles him the most is an order by the president to change the colour of Naira notes,” our source said. Buhari’s directive is a reminder of his anti-corruption measures as military Head of State between 1884 and 1985. ‘Buharinomics’, as called, was stringently implemented to revive the slumbering banking industry and curb local currency hoarding.”

In the end, not only did Emefiele not resign, eight years later, he would, on Buhari’s orders, attempt a chaotic Naira redesign that took the Nigerian economy to pandemic levels. In a twist no one could have predicted, Emefiele’s relationship with Buhari only improved over the years. With that improved relationship also came a stubborn stance on FX policy that he would hold on to until his exit, creating multiple real and imaginary enemies. 

The many battles to devalue the Naira 

Months into his first term as CBN governor, Emefiele–at a monetary policy committee meeting–announced a devaluation of the Naira from ₦155 to a dollar to ₦168. With global oil declining, the CBN said the move was to strengthen the economy. At that meeting, the committee advised the FG to take advantage of the low oil prices to remove subsidy. In another world where Buhari heeded that advice, things may very well have turned out differently for Meffy. 

Instead, global oil prices continued to slide and Nigeria’s foreign reserves declined by 5.3%.  It was clear that despite Meffy’s insistence that the Naira was “appropriately priced,” $1=₦168 did not reflect the true value. Over a two-day period in February 2015, the CBN spent $380 million propping up this “appropriate” price. The markets, stubborn as they are, did not budge and insisted that the Naira was somewhere around ₦203. So two days later, the CBN decided that the problem was illegitimate foreign exchange demand. This became a pattern in CBN’s FX policy under Meffy. 

Ultimately, the CBN decided that it would no longer sell FX to Bureau De Change operators. Instead, everyone had to get FX from the banks. At the time, a CBN spokesperson was quoted as saying, “To check the activities of these illegal elements, and close the gap, it became imperative that appropriate actions be taken to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves.”

The CBN’s thinking was simple: since it could not supply the FX the market wanted, it could control demand instead. If it insisted that $1=₦168, all it needed to do was supply FX at that rate to people who “genuinely needed it.” Anyone could have predicted what would happen next. Once CBN’s discounted FX hit the banks, people simply found a way to get it out and sell it on the black market at ₦203. Repeat after me ladies and gentlemen, A is for Arbitrage. 

Part 2 of this series will be published on Sunday.