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Why we need Emefiele now more than ever

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By Dele Sobowale

Nigerian crude oil for April has been slow to sell, with offer levels providing little value compared with rival grades from the Mediterranean, North Sea and Latin America — Femi Asu, in PUNCH, March 7, 2019, p 33.


Naira down to N358.2/$ in parallel market

THAT was in the first paragraph of a report titled “Nigeria’s crude oil sales slow as competition grows”. Asu went on to quote one of the largest stakeholders in global crude sales, S&P Global Platts saying “Buyers have pulled back quite a bit and we may be in for a bit of a waiting game on the Nigerian front.”

For those who might not know what is going on and its connection with the advocacy for the extension of Mr. Emefiele’s tenure as CBN Governor, let me quickly summarise now and explain later.

The bottom line is this: The 2019 Budget is now absolutely worthless – even before the National Assembly, NASS, returns to start consideration of it and before President Buhari signs whatever is sent to Aso Rock into law. The budget has been torn into shreds by activities in the global crude oil market which are totally outside Federal Government’s control. Here are the reasons why.

First, the budget was based on export of 2.3 million barrels of crude per day for every month of the year at estimated $60 per barrel. Now, it is certain that Nigeria could not have shipped out 2.3mbpd even if we want because of an agreement within by the Organisation of Petroleum Exporting Countries, OPEC, to cut production. Each member nation was given its quota which must not be exceeded. Nigeria’s quota is 1.7mbpd or 26 per cent less than budget. That has knocked off billions of dollars from the expected revenue from crude in 2019 unless price of crude oil rises by the same percentage. Despite the occasional increase of crude price to almost $70, the revenue shortfall will still be significant.

Second, exports in January and February were less than 1.7mbpd each month; March is also unlikely to go beyond that figure. So, with the first quarter, Q1, almost ending, the unfavourable variance recorded on the crude account already points to serious trouble ahead, Certainly, there will be considerable pressure on the exchange rate very soon.

Third the factors which are now depressing the Nigerian crude sales will not end in April. An old American classmate with huge investments in oil and a good research staff when contacted last week confirmed the story about Nigerian crude running out of favour with buyers. According to him, Nigeria will be lucky to export 1.5 mbpd from now until December. One can only hope that he is wrong; because at that rate, the economy in 2019 is flirting with another recession.

Fourth, even if a recession is averted, another foreign exchange crisis might just be right around the corner and we might be fighting to keep the exchange rate from hitting N500/USS1 as we experienced two years ago. It is well-known among economists that the quickest way to destroy a country is to first of all destroy its currency. A worthless currency will sooner create more havoc than Boko Haram, herdsmen and the cattle raiders in the North because it will devastate everyone. We came close to one collapse at that time and only the measured interventions by the Central Bank, headed by Godwin Emefiele brought us back from the brink.

Apart from external factors, the elections just concluded, unlike the relatively peaceful 2015 exercise will most likely create political and social tension for at least the rest of the year. The disputed presidential election, in particular, will surely keep foreign investors away until it is resolved. Those badly needed dollars will not be arriving in Nigeria soon; now that we need them more than ever. More pressure will be mounted on the exchange rate.

Fifth, the external global economic situation is disturbing and their consequences for the Nigerian economy are uncertain. To the best of my knowledge, nobody in this government is really giving a great deal of thought to the repercussions of slowing global economy for Nigeria. Our largest trading partners all seem to be slowing down all at once. But, two events outside our shores point to the need for Nigeria to have some measure of stability in its monetary policy management.

One is BREXIT. Great Britain, unless a last minute miracle occurs is about to leave the European Common Market in a move that will de-stabilise the European economy in ways that are not clear to the Europeans themselves. One thing is certain; it will not be without problems. And when Europe, the world’s largest trading bloc, sneezes, the rest of the world must reach for nasal balms. Almost invariably such continent-wide crises result in currency crisis. With so much uncertain, experience has demonstrated that the countries which survive the global turbulence best are those which stabilise their monetary policy management. Changing the guards when trouble looms creates two sets of uncertainties – the external uncertainty and the management uncertainty.

The United States provides a good example. Mr Alan Greenspan was the Chairman of the Federal Reserve Bank for nineteen years; he served three different Presidents. The economy experienced its first major crisis during his first term in office. He rose to the challenge and was able to bring some measure of sanity to the system. He was allowed a second term to enable him consolidate on the reforms he had introduced. He was still engaged in solidifying the reforms when the global Banking Crisis erupted. But, he was also nearing the end of the second term. Instead of taking a risk with a new hand Greenspan was allowed to continue. There is one good reason.

Changes which can cause turbulence in the modern global economy take place at the speed of people sending computer messages. Information and data move just as fast. And because no country is isolated central bankers must constantly keep in touch with each other. Being well-networked has, therefore, become a vital attribute of the governor of any national bank. It is indispensable in a crisis. Emefiele, at the moment, is the person with access to the global network of central bankers. With the other uncertainties facing Nigeria, the least we can do is to remove one – don’t bring a new manager to lead the monetary policy team.

At a time like this, the “devil” that you already know is far better than the ‘saint” you might be considering. There can be only one excuse for making a change under the circumstances. The incumbent must have been an absolute disaster. In my opinion, Godwin Emefiele is actually the best performing officer in a high post in the last four years. He is not perfect. Nobody is. But, as a leader, he combines intelligence, integrity, courage and diligence in measures not observed in the office of Governor of Central Bank in a long time.

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