Yemi Cardoso, new CBN Governor, to address country’s lack of foreign currency, how double-digit interest rates harm enterprises

Yemi Cardoso, the recently appointed governor of the Central Bank of Nigeria, must address the country’s lack of foreign currency and the double-digit interest rate that harms enterprises. The increasing inflation rate is another one of his Herculean tasks, according to SAMI OLATUNJI.

Market participants were ecstatic to hear that Yemi Cardoso had been nominated to become the new governor of the Central Bank of Nigeria. Cardoso is not just one of them; his ability to oversee the nation’s monetary policy is unquestionable. If confirmed by the Senate, he will become the 11th governor of the CBN.

He will succeed Godwin Emefiele, whose sudden suspension and expulsion still raises legal concerns. The debate over whether bankers or economists make better central bank governors will resurface in response to the 66-year-old banker’s appointment. Cardoso is a banker who formerly held the position of chairman of Citibank Nigeria. However, some of Nigeria’s most well-known CBN governors have been economists.

The foreign exchange crisis, the double-digit interest rate, slowing the rate of inflation increase, and outstanding intervention loans are the primary concerns for Nigeria’s next CBN governor.

 

The difficulties facing Emefiele

The CBN has had trouble containing inflation over the past six years, with last month’s figures reaching an 18-year high. Emefiele made the claim that opportunistic middlemen were to blame for the high cost of goods. During his tenure as governor, the Federal Government received more loans, the CBN supported agricultural programs, and exchange rates were artificially fixed.

The independence of the bank was called into doubt by a number of the actions Emefiele implemented while governor that appeared to have the approval of former President Muhammadu Buhari. In addition, Emefiele received criticism for his brief attempt to run for president while he was governor of the Central Bank of Nigeria. Regarding his replacement, Cardoso, observers have similar reservations.

Longtime Tinubu ally, the new CBN governor. He was named Lagos State’s Commissioner for Budget and Economic Planning in 1999, although he did not serve in that capacity until he received the Michael Romer Memorial Scholarship. According to some political experts, had Cardoso declined the scholarship, he might have been chosen to replace Senator Bucknor Akerele as deputy governor of Lagos. Femi Pedro, on the other hand, was appointed deputy governor.

Despite concerns about partisanship, Cardoso’s successful career with Citibank and Citizens International Bank as well as his academic and professional achievements may give some hope that he may make a fine CBN governor. But like Wale Edun, who was named finance minister, he might have to refute accusations that his appointment is a continuation of Tinubu’s emerging pattern of putting his old pals in strategic roles.

In addition, Tinubu gave his approval to the nomination of four new deputy governors of the top bank, each of whom will hold office for a comparable initial term of five years, subject to Senate confirmation.

Emem Usoro, Muhammad Abdullahi-Dattijo, Philip Ikeazor, and Bala Bello are the candidates. For her part, Mrs. Usoro has over twenty years of banking expertise encompassing retail, commercial, corporate, and public sector banking, covering all of the nation’s regions. She oversaw the Strategic Business Group and served as group general manager. She has received numerous honors from the annual UBA CEO Awards and served as the regional head of Lagos Bank 2. She graduated from both Harvard Business School and Lagos Business School.

Abdullahi-Dattijo is a skilled development economist with more than 20 years of expertise in public finance, policy creation, and project implementation. He was the previous APC candidate for the Kaduna Central Senate seat in the 2023 election. He has held a number of important posts, including that of policy adviser at the New York office of UN Secretary-General Ban Ki-Moon.

Ikeazor has more than 30 years of experience in the financial services sector. He has served in a number of board roles, including CEO of Keystone Bank Limited, CEO of Ecobank Kenya Limited, Executive Director of Union Bank Nigeria, Director of Union Bank UK PLC, and Director of the Orient Bank Uganda. He was also a member of the World Bank-led Consultative Group on International Agricultural Research and the governing board of the International Crop Research Institute for the Semi-Arid Tropics in India. He graduated with a BSc in Economics from the University of Buckingham in the UK, and he also completed the Wharton-CEIBS-IESE Business School Global CEO Programme and executive education courses at the Harvard Business School and Wharton School of Business.

Bello is a well-known businessman from Taraba State. His professional background includes experience in banking, capital markets, and pension fund management. He is a well-liked public figure and a well-known accountant. The Nigerian Export-Import Bank’s Executive Director of Corporate Services, Bello, was appointed by the nation’s most recent president, Muhammadu Buhari, in April 2017.

Currency crisis

It is impossible to overstate the significance of the exchange rate as a key macroeconomic factor. Producing and exporting goods and services generates foreign exchange for nations. The amount of foreign currency and external reserves in a nation affect how strong its currency is.

The CBN has evolved and implemented many policy alternatives to address the nation’s ongoing FX difficulty, which occasionally turns into a crisis scenario, throughout the years.

A severe dollar shortage in 2016 caused the naira to decline to a low of 530 to the dollar. The CBN blamed the incident on individuals sheltering illicit funds, those scrambling to smuggle illicit riches out of the nation at any cost, and speculators.

Over the years, the CBN has maintained various exchange rates, which global organizations have criticized.

Godwin Emefiele, the suspended CBN Governor, stated that the goals of the exchange rate regimes he oversaw were to “preserve the value of the domestic currency and maintain a favorable external reserves position.” According to a press source, Emefiele stated that emerging nations, such as Nigeria, where there was a significant demand for imports, needed to implement a regime for their currency exchange that would “safeguard capital outflow and ring-fence the external reserves.”

Mr. Folashodun Shonubi, the acting governor of the Central Bank of Nigeria, established a single, free-floating currency rate that is set by market forces. He eliminated all segmentations and combined all FX windows into the Importers’ and Exporters’ windows.

The World Bank endorsed the new exchange rate system and highlighted that it was essential to reestablish macroeconomic stability. But as a result of the new FX policy, the naira fell to an all-time low of 945/$1 on the black market as demand for the dollar significantly outpaced supply. The “unofficial diaspora remittances” were credited by CBN for the trend, which they highlighted was not just the result of supply and demand in the market.

Shonubi stated that many remittances from the diaspora went unreported and ended up on the black market or parallel market.

The country continues to suffer with the FX problem, despite all of the apex bank’s efforts and measures.

Nigeria was recently downgraded from frontier to unclassified market category by FTSE Russell, a division of the London Stock Exchange Group. The country’s foreign exchange crisis led to the downgrade to unclassified market status. Nigeria would be evaluated as a new market in accordance with the FTSE Equity Country Classification Process once the foreign exchange issues have been resolved for a while, according to FTSE Russell, who stated that they would continue to monitor Nigeria.

It is anticipated that the new CBN governor and his appointees would have to deal with this situation.

Double-digit

The CBN began its cycle of tightening monetary policy in May 2022, raising its benchmark interest rate from 11.5 to 18.75 percent in July of this year. The bank defended this by pointing out that the increase in interest rates was required due to the rising rate of headline inflation.

The CBN has been instructed by the International Monetary Fund to keep tightening monetary policy in order to contain the inflation that had been on the increase.

However, a number of parties involved have protested the ongoing tightening.

The increased Monetary Policy Rate, according to Mr. Wale Oyerinde, Director General of the Nigeria Employers’ Consultative Association, means higher borrowing.

“Furthermore, the increased MPR implies higher borrowing rates, which would adversely affect companies and manufacturers that borrow capital for their survival,” he continued. As higher rates impede down productive activity, it could also result in another kind of economic morass if left uncontrolled.

Additionally, President Bola Tinubu stated that interest rates needed to be lowered in order to boost consumer spending and investment in ways that would sustain the economy at a higher level.

According to new data released from the National Bureau of Statistics, inflation increased despite the ongoing tightening, rising to 25.80% in August from 24.08% in July.

This has prompted proposals for other approaches to tightening the MPR in order to manage inflation.

Defaulted loans

As a form of intervention, the CBN has made a variety of loans accessible to the economy’s various sectors, particularly the agricultural sector.

The Anchor Borrowers’ Programme is one of these intervention programs.

Although some locations have seen success, the initiative encountered a snag since some of the beneficiaries were unable to return the loan when it came due.

There are also suspicions that some of the people in charge of distributing the funds and farm inputs misappropriated them.

Since the ABP’s establishment, the CBN has paid out over N1.1 trillion to its recipients, but only a little over N546 billion has been reimbursed.

The initiative is currently mired in controversy, which caused President Bola Tinubu to issue an executive order for the repayment of the debt.

With the President’s decision, it is anticipated that defaulting farmers and authorities who misappropriated the funds will pay back about N577 billion.

With the assistance of the security forces and other stakeholders, the incoming CBN governor is anticipated to ensure that the loans are repaid.