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Friday, February 23, 2024

Mission critical: The can-do, Nigerian spirit of Dr. Cardoso

The CBN will now refocus on its core mandate: the management of the nation’s monetary policy

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By Dr. Israel Ovirih

It is no longer news that Dr. Olayemi Cardoso, obviously one of the very few reserved institutionalists in Nigeria’s banking sector (and his cohorts), has taken charge at the Central Bank of Nigeria (CBN). To demonstrate the team’s seriousness and commitment, the media reported that the team had resumed at the apex bank, even before the appointees were confirmed by the Senate. If you ask me, that was a sign of zealousness and seriousness at their peak.

The essence of Cardoso’s new mission is not only about some gallant salvage (of the disorienting turn Nigeria’s fiscal and monetary policies have taken in recent times), but it is also critical and very clear. I believe the marching orders from President Tinubu to Dr. Cardoso and the CBN deputy governors must have been something like “Go ye to the CBN and revive confidence in our almost-crippling economy; rescue the Naira; slow down the rate of inflation; save the CBN (from itself and from ‘hijackers’ and ‘kidnappers’) and fully re-focus the economy on the path of economic growth and development”.

No doubt, the Nigerian economy has huge potential and the capacity to explode to over $2.0 trillion annually under the Tinubu administration, all things being equal. Truth be told, our economy should be five times its current run rate of $550.0 billion (based on 2022 GDP figures) if only we unlock the inherent opportunities across various sectors, especially by providing productivity loans and consumer credit to Nigerians. Many economists like myself, pundits as well as policymakers alike, know that the Nigerian economy is highly underappreciated and heavily undervalued. Sadly, the World Bank, IMF, and international investors most often and erroneously misunderstand the workings of our economy, as it has been severally mismanaged by political elites (who often end up hijacking the CBN).

The facts are obvious: the combative approaches to monetary policy in Emefiele’s era culminated in a near-collapsed economy. Even with President Tinubu’s unfolding reforms, including the unification of the exchange rate, I am worried if we still have room for maneuvering.

In the year 2022 alone, debt servicing gulped about 90 percent of Nigeria’s total revenue, and the country’s access to the global debt market became limited. Now, the yields are in double digits, and our credit rating is six notches into junk bond territory. Indeed, Dr. Cardoso needs a big heart, the can-do spirit, and that dogged resilience for which Nigeria is known.

Anyways, recent statements from the CBN in the past three weeks have been somehow heartwarming, and in tandem with the Chika C. Mbonu school of thought, the apex bank is not a commercial bank, nor is it a development bank. Thus, the role of the CBN must be divorced from direct development and finance interventions. Henceforth, and as expected, the CBN will now refocus on its core mandate: the management of the nation’s monetary policy. With this present shift, the CBN will become more and more of an advisor to the government to guarantee sustainable economic growth. To put it more explicitly, henceforth, the ‘new’ CBN will maintain price stability, promote financial stability, and ensure the soundness and integrity of Nigeria’s banking system.

In the coming months, the new leadership will have to shore up the bank’s foreign exchange reserves, which stand at about $34.0 million, stabilize the naira exchange rate, raise its MPR and

drain the market of naira liquidity. One should not be far from the truth that the various direct lending and interventions under Mr. Godwin Emefiele (including, of course, over N1.3 trillion in cash inflow into the Anchor Borrowers Program without corresponding output in the agricultural value chain) have helped to fuel and widen disparities in the official and black market dollar rates to almost N900 in 2022/23.

We welcome Dr. Cardoso’s intentions to properly democratize CBN’s advisory role by using its knowledge of the financial sector and its understanding of the broader economy to support the decision-making processes of government and the private sector, as these will naturally deliver economic growth. In the detailed plan of the new leadership, we note the CBN’s interest in becoming a knowledge center, convener, catalyst, and facilitator of opportunities, bringing together local, multilateral, and international stakeholders to trigger governmental and private sector initiatives.

From my knowledge of Dr. Cardoso’s capabilities since his heyday at Citizens Bank, through his pioneering commission of the budget and planning portfolio in Lagos State and his chairmanship at Citigroup Nigeria, he has always been unwavering in his commitment to profound or far-reaching ideas and their meticulous execution or implementation. No doubt, his knack for detailed execution (execution and execution that drills down all the way) remains legendary. His public-private experiences and competencies are key, at this stage, to building much-needed confidence in Nigeria’s economy.

Having read the detailed plan of re-focusing the apex bank, especially in its advisory role, I discovered Cardoso’s intent to truly open up more possibilities across key economic sectors, albeit in creative and innovative ways. The role of the CBN as a catalyst in the propagation of specialized institutions and financial products, aimed at supporting emerging sectors of the economy, may just be the much-expected beacon of hope to unlocking opportunities in the construction, infrastructure, maritime and shipping (blue economy), mining, and natural resource sectors, as well as the natural gas space in Nigeria.

The professional firm PricewaterhouseCoopers (PWC) has consistently, since 2010–19, reported that Nigeria is underperforming and, therefore, the unlocking of dead capital or dead assets is critical to poverty reduction, economic prosperity, and the overall growth of the country. By its estimates, Nigeria has over $900.0 billion worth of dead capital in residential real estate, property holdings, and agriculture land alone. Cardoso’s proposed regulatory frameworks to unlock this huge wealth are pivotal to direct domestic investments (as opposed to foreign direct investments), and the same can create huge liquidity for our capital market. One can only imagine the multiplier effects.

Beyond the progress we have made in the past two decades, more strides are expected in the areas of financial inclusion and consumer credit (which presently remain low compared with other countries). Meanwhile, special thanks go to the Nigerian fintechs and startups that have emerged to ‘wake up the giant’ in our money deposit banks. It is estimated that the consumer credit market alone is worth N2.2 trillion annually (the global consumer credit market was $11.0 trillion in 2022). Acceleration by CBN will further increase or may even double the consumption of and overall demand for goods and services, with the concomitant salutary effects on the GDP being better imagined. Cardoso’s CBN, by accelerating access and creating the right consumer credit ecosystem, is capable of changing the face of Nigeria and Nigerians, just as the telecoms revolution in Nigeria catalyzed change after many years of ignorant bliss in the inefficient hands of the erstwhile NITEL and INTEL.

Lest I forget, the CBN also intends to de-risk instrumentation, or, better put, financial instruments, in order to increase private sector investments in industrial verticals—a move that is highly commendable. These include housing and mortgages, textiles and clothing, agriculture and the food supply chain, healthcare and pharmaceuticals, human capital, and educational supplies (especially in the emergent Tinubu era of student loan advancements). This de-risking is a game-changer, and one can only imagine the rapid industrialization expected to be unleashed on the nation’s landscape soon.

Nigerians are hard workers, and our human capital requires some rejuvenation and a better environment to unleash greater possibilities. Leveraging well-structured and de-risked financial instruments is the way to go. This should leapfrog Nigeria’s industrialization to new heights and, to my mind, is the essential spin-off of CBN repositioning.

This re-focusing plan by the apex bank is similar to the Marshall Plan (laid out by US Secretary George Marshall during his address at Harvard University in 1947) to aid the recovery of European countries devastated physically and economically at the end of World War II. By the time the Marshall Plan ended in 1951, all the countries that had received US aid saw their economies grow geometrically and fare much better in comparison to pre-war levels.

Ultimately, Nigerians should revel in a more prosperous economy and country, all things being equal, on or before May 29, 2027. This must be evidenced in a stable foreign exchange market, a stable price regime, and an industrialized and export-driven $2.0 trillion GDP economy—indeed, a prosperous nation where everyone can sleep deeply with their two eyes closed. What are your thoughts? Can’t the Nigerian economy be leapfrogged?

Dr. Israel Ovirih, an Investment Banker, is the convener of the Africa Critical Minerals Roundtable (ACMR).

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