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CBN and the economy, going forward

By Arize Nwobu

CONSIDERING the characteristics of the Nigerian economy which had made it to be resistant to guidance and discipline and remained factor-driven for 58 years, the Central Bank of Nigeria, CBN, deserve commendation for evolving and implementing policies that tend towards reinventing the structure of the economy to improve local production, expand the country’s industrial base and create more employment, a development that needs to be sustained going forward.

CBN
Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele

Firstly, in recognition of the strategic importance of the banking industry and the need for financial system stability which is necessary for macro-economic stability, CBN emphasizes risk-based supervision with zero tolerance on factors that could undermine the health of the financial system.

It also evolved a dividend policy that would support banks to increase their capital base through retained earnings instead of using a greater proportion of their profit to pay dividend irrespective of their risk profile. The policy stipulates that banks or discount houses with non-performing loans, NPLs, above 10 per cent were not allowed to declare a dividend to their shareholders.

On the assumption of office, CBN governor, Godwin Emefiele promised to create a “people-centred’ central bank and emphasized development financing whereby CBN would act as a financial catalyst by targeting predetermined sectors to create jobs on a mass scale and significantly reduce import bills.

Development financing aims to establish proactive approaches that leverage public resources to solve the needs of businesses, industry, developers and investor with a low-interest rate which improves return on the project.

According to Emefiele, “the CBN would deploy developmental initiatives to create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development. It is important to stress here that CBN would not be targeting individual companies but rather specific sectors”.

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Some analysts   noted that Emefiele is the “most challenged” and “hardest working” CBN governor in recent years has assumed office when global imbalances destabilized government revenue projections, the foreign exchange market with dollar scarcity and retreat of foreign investors and paralyzed local production with a gale of job losses across sectors including the banking industry.

In the conundrum, CBN evolved effective policies to reduce import bills, stabilize the foreign exchange market and exchange rate and attract foreign capital inflows and kick-start production. As noted by business mogul and Africa’s richest man, Alhaji Aliko Dangote, “the policies of CBN contributed to saving the economy”. The World Bank and other notable institutions also lauded the policies especially the Investors’ and Exporters’ (I&E) FX Window which contributed to the exit of the economy from recession.

Between the options of reflating the economy with an expansionary monetary policy and controlling inflation which if left unchecked could further destabilize the economy, the Bank, against critical opinions opted to maintain a tight monetary policy as a result of which inflation rate dropped continuously and standing presently at 11.30 per cent.

To spur growth, CBN discriminatively reduced interest rate through the Real Sector Support Facility (RSSF) targeted at the manufacturing and agriculture sectors which are noted to have more linkages in the economy with high capacity for employment and income generation.

Reportedly, seven million jobs were created through the development finance interventions with a greater percentage through the Agriculture Guarantee Scheme. The exclusion of the 41 items from the Interbank foreign exchange market is also noted to have encouraged local production ad it is expected that the repackaging of microfinance banks will boost the operations of small and medium scale enterprises for more job creation and poverty reduction.

Going forward, the momentum created by CBN should be sustained even as some commentators have advocated for a tenure extension for Emefiele to further drive the policies for a maximum impact.

Nwobu, a Chartered Stockbroker and Journalist wrote via arizenwobu@yahoo.com

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