The Interview Editors
Dr. Godwin Owoh, former adviser to Charles Soludo is the executive chairman of Society for Analytical Economics, Nigeria. In this interview, Owoh offers suggestions for CBN Governor Godwin Emefiele’s second term:
The Senate has just confirmed Godwin Emefiele for a second term as CBN Governor. What are your policy expectations from the Bank?
I do not expect anything new from the governor. If somebody has been asked to do a second tenure after a first tenure, it means he should go ahead with what he has done in the first tenure.
There were some interim changes, which one would have expected to happen in the first tenure, they never happened. In every human system, nobody is perfect.
When you open up to effective evaluation or assessment of what you are doing, then at that point, you can change one or two things.
The exchange rate policy that was run in that first tenure is mysterious.
Some of us feel that the exchange rate policy which was driven and implemented by the bank is a mysterious exchange rate management system, which was supposed to have been changed. That policy was not supposed to last beyond two months.
But alas, we are almost doing five years with it. That is number one. Number two, I thought there could have been a lot more departure from the political institutions.
Rather, what we saw was a total fusion with the political authority subjecting the CBN to the whims and caprices of partisan politicians.
Politics itself is all about life, it is all about society and equitable allocation of resources. It about equalizing revenue with the cost.
But when you talk about partisanship, you are talking of where decisions, actions and politics are directed towards particular sentiment that may not be of ultimate public good.
For the economy to be sustained, you have to focus on the strength and the tensions of individual households.
That in aggregate now lifts the economy, lifts the region and lifts the world. The interventions (of the CBN), are a violation of the CBN Act
Are you referring to the interventions that the CBN made in agriculture and planning to do the same in the textile industry? Is it fair to say the CBN is taking on the role of the finance ministry with these fiscal interventions?
Apart from that, those interventions are outright violations of CBN Act, subsection 38, subsection 1 & 2.
There is a limit to which a monetary authority can intervene in fiscal expansion because of their sanctimonious position in the determination, injection, withdrawal of the singular ultimate measure of value in any economy, which is the national currency.
Because they play that role, if you play that role without limitations, without control, it becomes the Ugandan approach, where you awash the system with paper, coloured paper.
It is different from igniting, a regional intensive growth within the economy, that sustains households. For the economy to be sustained, you have to focus on the strength and the tensions of individual households.
That in aggregate now lifts the economy, lifts the region and lifts the world. The interventions (of the CBN), are a violation of the CBN Act.
But it is more or less a populist programme. People maybe clapping, but if you check the underpinnings, the structural impact of those interventions, you will wish they never happened so that we ignite real growth.
We don’t need to spoon feed anybody within the economy. We need to get people energized, let the economic agents generate resources.
The CBN is intervening as if they are giving direct liquidity to certain sectors without monitoring. The CBN cannot claim any operational expertise in any of those areas
Would you say that the interventions by the CBN has directly affected the willingness of commercial banks to lend money certain sectors like manufacturing and even textiles that the CBN is looking at?
That is my point. My worry is the channel of interventions. That is the first instance. The CBN is intervening as if they are giving direct liquidity to certain sectors without monitoring.
The CBN cannot claim any operational expertise in any of those areas. They are more or less a regulatory agency, a kind of public sector mentality.
You cannot give money to private sector, then you monitor it effectively. You don’t have the capacity. They have no capacity to monitor the disbursement.
They have no capacity to monitor the utilization of those funds. And there is systemic intelligence which the commercial banks are supposed to have regarding the viability or projections made on how those monies will turn around.
I will give you an example. If a farmer comes up to you from Borno, a violent area where there are insurgents, most of those farms are not even accessible.
Meanwhile, you have given out money to the farmers and forces beyond them have made it impossible for the farms to make any returns.
Who do you blame? CBN is not in a position to know those things but the commercial banks are. And the commercial banks are more likely to follow the liquidity in those sectors in a more commercial sense and with more private sector consciousness.
If the commercial banks are not assisting the sectors and the monetary authorities are directly assisting them, it is a misnomer.
And it will cost you and become cancerous. Remember, in medical science, cancer takes 10 to 15 years to manifest.
I see these injections as something that will ultimately precipitate cancer because as your question pointed to, all the active operational monetary institutions that are suppose to be granting these funds, checking the viability are withdrawing because somebody is making direct injections. It has become a regulator and operator at the same time.
The very first major achievement is that he had a trade off. He has operated the most stable central banking environment in terms of relationship with the political authorities, by implication, the Presidency
What would you say has been Emefiele’s biggest success in his five years as CBN governor?
That is a good question. We are all human beings.
The very first major achievement is that he had a trade off. He has operated the most stable central banking environment in terms of relationship with the political authorities, by implication, the Presidency.
Since the bank started, he was able to and it is on record that his is the most stable. But then it comes at a very huge cost to the economy.
Then of course, even the plastic exchange rate was stable against the dollar. But why that is a problem is that nobody was able to project that the stability could last for the three to four years it has lasted.
So it is as good as it never happened. If everyday, you are thinking it will go up beyond control, down beyond control and it ended up being stable for four years, it does not mean stability ultimately.
Inflation targeting is necessary so that people can use it for planning. What I mean by that is at the beginning of every fiscal year, you should be able to tell us that inflation rate you are targeting per quarter is XYZ
What changes would you like to see in the way the CBN has been managing policy over the next five years?
The first thing is that the human capacity there is lopsided and they know.
It should undergo a serious, copious study and get in our real first class graduates into that place through a competitive system instead of the current backyard means of recruitment.
When you recruit somebody from the backyard, he gives you a backyard service. So the process of building up human capital in that place should change.
Then, most drastically than ever before, to be able to ‘severe’ relationship with political authorities. That is highly required. We are not expecting very transparent accounting and reporting system, which now negative.
As I am talking to you now, I cannot lay my hands on any financial report, balance sheet and all that to analyze and use for economic projection.
I cannot lay my hands on anyone. It is not available anywhere. They should get a critical team; Nigerians have the resources, human capital, to engage and open a dialogue forum to review policies before it is implemented.
Not the other way round. Not you throw out a policy, some people have information that it is coming, then you now have to start managing the effect by getting some social support to appear to represent the voice of the economic agents.
That is not the way. You know the regulatory system, the banking sector is very loose. We are expecting a much more vigorous regulation.
Then most importantly, they should make inflation targets. They should set targets for the rates in advance and take the punishment they are ready to absorb if they fail to achieve it, and the corresponding reward they should get if they meet up the target.
Inflation targeting is necessary so that people can use it for planning. What I mean by that is at the beginning of every fiscal year, you should be able to tell us that inflation rate you are targeting per quarter is XYZ.
The exchange rate regime you are targeting in the four quarters of the year are ABCD.
The interest rate rising we are working towards is so and so.
That way, your programming can make sense, your econometric analysis can make sense, your yield analysis, bond yield and all that will have meaning.
So, we want a very quantitative approach to the management of the three prices. That can only be achieved if the adopt inflation target approach.
Then the last one, they should not be averse to criticisms at all. They should know that this country belongs to everybody and whoever has gotten into that institution by chance should not think that he is better than every other person.
Therefore, seek out continued, genuine what the best alternatives should be and you take a decision.
Once the political authorities understand that you are actually professional and the things you are doing are guided by it, they key in; otherwise we are going to be running into more difficult holes as time goes on.
Remember this thing will now dovetail into a fact. We shouldn’t have two types of information.
While the international community, the international monetary authority, analytical networks outside the country have a different view of your economy, you are saying a totally different thing. And you are making the government to say a totally different thing.
That subjects the entire economy to ridicule. And you will not know the impact until you want to move into any contraction, extraterritorial entity.
So they shouldn’t see any opinion as confrontational or personal, it is not. They should open up the political system and let them get the best from Nigerians because they have the instruments to do that.
Most importantly, I would suggest that they withdraw entirely from all these interventions. We are trying to see interventions in textile, what does that mean? Where is their money coming from?
