Cardoso, CBN and the Nigerian economy

It is not just the menace of insecurity in the land that has been in the news in Nigeria, the economy too, and indeed the latter for obvious reasons as well, with the national currency, the Naira in a very bad shape, inflation at 28.92%, widespread systemic distortions in the economy, a foreign exchange regime gone askew, resulting in a problematic business environment for investors, high unemployment rate, further misalignments between the monetary and fiscal spaces, and gross anxiety among the people for whom the Naira no longer holds as much value as it used to.

In November 2023, the National Security Adviser (NSA), Nuhu Ribadu speaking at the Defence Intelligence Annual Conference reported that the Tinubu administration inherited “a bankrupt economy which had resulted in budgetary constraints… you need to know that we have inherited a very difficult situation…” Before then, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun and Atiku Bagudu, Minister of Budget and National Planning had both said just as much. Fresh concerns have now been raised about the Nigerian economy following the exclusive interview granted to Arise News, by the Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso. The interview was conducted by seasoned Business Correspondent, Boafson Omofaye. It has been reported widely.

The timing of the interview could not have been more auspicious. The monetary space had become so busy recently, that everything was becoming confusing. The Cardoso interview offered needed clarifications on a number of issues. He was emphatic as he had been since November 2023, that the purpose of the reforms being introduced by the CBN under him is to stabilise the foreign exchange regime and the economy through proper alignments to foster economic growth. Over the weekend, there had in fact been a panicky announcement that the FG was planning to convert people’s domiciliary accounts in Deposit Money Banks (DMBs) to Naira at a government-determined rate. Cardoso promptly dismissed that as untrue. I think the source of that rumour should be traced. It was a potentially disruptive and provocative piece of fake news, to even suggest that government would take the unthinkable step of stealing people’s money! People who make up such stories that can potentially cause social and economic crises should be made to pay for their folly. The interview raised quite a number of questions.

First, what happened to all the promises made by Mr. Cardoso in his first major outing as CBN Governor when he delivered a keynote address, and an economic roadmap at the 58th Annual Dinner and 6oth Anniversary of the Chartered Institute of Bankers of Nigeria (CIBN)? On that occasion, Mr. Cardoso outlined the CBN’s priorities as

1. Achieving monetary and price stability given the real-life implications of same for the well-being of Nigerians;
2. Targeted policies, transparent market operations and coordination between monetary and fiscal authorities, to ensure a more stable exchange rate, control inflation, and create an enabling environment for businesses and individuals to thrive;
3. Adopt measures to tackle institutional deficiencies, restore corporate governance, strengthen regulations and implement prudent policies
4. Promote sustainable and inclusive economic growth.

He also announced these targets:

• Banks will be directed to recapitalize
• The extant ban on 43 items in the official foreign exchange market will be lifted to enable market forces to determine exchange rates;
• The adoption of a floating exchange rate among other policies;
• Emphasis on technology in financial services with strict regulatory compliance and
• Achieving a one-trillion-dollar economy in the next seven years, with the CBN strictly focused on its core mandate.

Good ideas, so they seem on paper. It may also be argued that the CBN has not had enough time for its ideas to be fairly assessed, but so far, there have been more anxieties about the Nigerian economy, rather than confidence. Of that, we are certain.

There may have been a slew of reforms, guidelines, directives and measures by the CBN, still, the economy has taken a dive for the worse, with the floating foreign exchange regime or managed float as they call it, resulting in massive depreciation of the Naira, at a point, the naira was losing its value every 48 hours – an chaotic situation even to non-economists. A Nigerian Professor who delivered his exaugural lecture recently disclosed that whereas in 2011, his monthly salary was worth $2,698.40, in 2024, with 20 years of service as a Professor – his salary had reduced to $291.88, both figures calculated based on Nigeria’s foreign exchange rate. He is not alone. Ordinary people have more to complain about. Persons who could walk about a year or two ago and still claim that they belonged to the Nigerian middle class have found themselves at such a pitiable level that they can no longer feed themselves. Families have had to withdraw their children from schools abroad and private schools at home and send them to Nigeria’s terrible public schools. Many employers of labour are just putting up appearances. They can’t pay staff. They can’t buy diesel. The staff themselves have nowhere to go because there are no easy alternatives. Many families have broken up because so-called breadwinners cannot win anything again. Last month, the International Monetary Fund (IMF) reviewed Nigeria’s economic growth projection downwards from 3.1% in October 2023, to 3.0% in 2024. The Nigerian government is meanwhile optimistic that it would record a GDP growth of 3.76%. How? When one policy appears to be failing, another policy is quickly introduced, or a measure or guideline is thrown into the mix, in typical Nigerian fashion: if this does not work, may be that one would work. Many Nigerians have since fled the country in the hope that life would be better elsewhere. It is called “Japa” in local parlance.

To be fair, we have seen the CBN embarking on a make-or-mar move to save the Naira which the CBN Governor said was undervalued. But what is the Naira’s real value? Nobody knows, not even the CBN Governor – at least he could not make any revelations in that regard in his Arise News interview. What has happened to the Naira is not strange, it is alarming. In December 2023, the exchange rate was N907.1/$1. By the end of January, the Naira had been devalued to about N1,455.59 – a 37.7% depreciation in one month!

In the days of yore, the Naira used to be as strong as the dollar and the pounds sterling. Today, many – citizens and investors alike -have lost faith in the country’s national currency, having failed in its original function as a store of value. This has resulted in the continuing dollarization of the Nigerian economy, a misfortune which Femi Falana SAN is currently challenging at the Federal High Court, Lagos seeking the enforcement of relevant sections of the CBN Act, 2007. Unfortunately, the courts can read out the law, but the Naira’s value is beyond the pronouncements of the judex; its real value is in the marketplace of productivity and consumption.

Cardoso’s CBN has since moved in with policies, measures and guidelines in a classical fire brigade fashion: On January 29, it issued a circular on “Financial Markets Price Transparency”. On January 31, it issued another circular on “the Harmonization of Reporting Requirements on Foreign Currency Exposure of Banks,” the effect of which was that banks should bring their excess forex stocks to the market unfailingly by the deadline of February 1, 2024. Also on January 31, the CBN further issued a circular on International Money Transfer Organisations (IMTOs). Before now, there had been a +/- 2.5% on the NAFEX rate for IMTOs. That has now been removed. Specific guidelines were further issued on International Money Transfer Services with regard to minimum capital share ($1million), non-refundable application fees (N10 million), and all exporters are required to provide details of their domiciliary accounts and NXP numbers, with export proceeds to be promptly repatriated within 90 days for oil exports and 180 days for non-oil exports. In another move, the CBN reviewed the Cash Reserve Ratio (CRR) framework. It also reviewed the exchange rate for the calculation of import duty upwards from N952 to N1, 357, with immediate effect. If policy pronouncements and circulars alone could save an economy, the CBN has put up more than enough drama in that regard in recent times. At no other time in the last decade has there been so much frantic effort to assert regulatory control, adopt measures to increase forex liquidity and insist on transparency and ensure correction. Mr. Cardoso defends these policy measures and assures the public that they would eventually stabilise the monetary space. We will see. We will see.

What is interesting in that Cardoso interview is the disclosure by him that about $2.7 billion out of the reported $7 billion outstanding foreign exchange liabilities of the Federal Government are not valid for settlement. An audit process commissioned by the CBN and conducted by Deloitte showed that those claims are fraudulent, and having been exposed as such, those who were making the claims have chosen to be quiet. However, the CBN has settled $2.3 billion valid requests, with current outstanding FX obligations standing at about $2.2 billion. The CBN Governor left much unsaid. Who are those persons or non-entities who made fraudulent claims? They need to be named, and if they had escaped with such “419 tactics” (obtaining money by false pretence) in the past, now that they have been uncovered, they should be sanctioned accordingly. It is not enough to say that their claims were rejected. What do they produce? What do they consume?

Mr. Cardoso also said clearly that whereas he is not against direct interventions by the CBN in the economy provided such interventions were well thought-out but that under him the CBN would rather focus on its core mandate. He pointed out that the CBN had intervened before him through loans and advances, up to N10 trillion, the volume and mismanagement of which resulted in the same distortions and inflation now troubling the economy. Indeed, before Cardoso, the CBN was in the business of Ways and Means beyond the allowable thresholds, and the CBN even became so overstretched, it intervened in virtually every sector of the economy from agriculture to fashion and soon began to dictate fiscal policies. The caveat is that those in charge of those other sectors of the economy at the time practically had no clue. The Central Bank of Nigeria actually had a more up-to-date register of Nigerian farmers than the Federal Ministry of Agriculture! But what are the specific distortions? Who mismanaged those interventions? Cardoso has cleverly offered a veiled criticism of the CBN that he inherited. He should be more specific. He would have to go beyond innuendoes, more so as some of the measures that the CBN has now introduced amount to a complete repudiation of what existed hitherto. Who exactly did what that has brought Nigeria to this sorry economic situation?

It is also important that while trying to return the CBN to its core mandate, the CBN under Cardoso does not repeat the same errors that it seeks to correct. Take for example the decision to return the excluded 43 items to the official foreign exchange market. How has that helped? Take also the increase in exchange rate for the computation of import duty. Is import duty not a fiscal matter? Take the new Implementation Guidelines on Cash Reserve Requirement Framework – here the attempt is to correct the arbitrary practices of old, and correct bad behaviour but what exactly went wrong? The banks were also asked to offload their excess forex stock, and just like that, the improvement in forex liquidity was traced to that directive, the long-term effect of which is yet to be seen. Wait a moment, you mean the banks were sitting on $7 billion and yet they always said they had no forex to sell? To get the banks to sell Forex was an ordeal, in fact, they became so comfortable, they even told customers that there was no Naira in their vaults. Every year, the banks declared trillions of profits at the people’s expense. They were using our money to make profit at our expense! Where was the same CBN? What happened to its oversight, regulatory role? The banks can of course claim that they have not committed any crime. They also do not trust the Naira, so it was better for them to stockpile value in dollars. The banks and the CBN can shift blame from now till the end of the year, that would not make any difference. But then who pays for the bad behaviour all around within the system? I am not too sure that the CBN Governor was in any position to shed light on that. And are there mechanisms in place to sustain the regulatory control that the CBN is trying to assert?

When CBN governors speak in other jurisdictions, they base their positions on hard-core data or evidence. Nigeria’s apex bank governor did not have much data to speak with, which was why he could not make definite statements on inflation or other macroeconomic issues, or the proposed Monetary Policy Committee Meeting (MPC) now scheduled for February 26-27. For whatever it is worth, however, it was good to hear him speak with so much confidence and optimism even if we all know that it would take more than promises, social media posts, or the movement of departments from Abuja to Lagos, to rebuild this economy. It is either that Nigeria goes to the World Bank or the IMF to secure a lifeline to rescue the Naira, or we find ways, in the long run, to return to those old days when the Nigerian economy used to work. The CBN cannot also do it alone.

The long-term solution lies in making this economy productive again. The country is too import-dependent. It can’t even refine its crude oil, it has to import finished products from elsewhere. The economy is too narrow, it has to be expanded to generate better activities and opportunities beyond oil. Up till the eighties, Nigeria boasted of so many industrial estates that produced textiles foods and beverages. We produced our tyres and vehicles and food. Along the Ikeja area, the sweet smell of wheat and barley, and confectionery and beverages wafted into the air; today those old industrial units have been taken over by heavy noise pollution from the Alleluia-shouting choruses! In the Niger Delta, there is too much oil theft and pipeline vandalism. Insecurity stalks the land. The people will not eat hope or policies. We squandered the riches. We are now harvesting poverty. Sad, but true.