Maverick, visionary or just negligent? Nigeria central bank governor 'risks reputation' over currency position

Godwin Emefiele has stubbornly resisted devaluing the naira, but investors say he is neglecting his day job.

NIGERIAN central bank Governor Godwin Emefiele says he’s on a mission to transform the economy. That’s not what investors are seeking.

While the collapse of oil revenue in Africa’s biggest crude producer has limited the bank’s ability to prop up the currency, Emefiele, 54, has resisted pressure to devalue the naira. Instead, he has imposed foreign-exchange restrictions on imports, risking growth in the continent’s largest economy as retailers and manufacturers struggle to source the funds needed to run their businesses.

Emefiele has deflected criticism of his performance 14 months into the job by highlighting the central bank’s need for an expanded mandate on monetary policy. He wants the bank to play a more developmental role, including creating jobs and facilitating loans to “productive” industries. Investors say he’s neglecting his main job.

“The tragedy is that over the past few years, the Central Bank of Nigeria built up credibility for reforming, for inflation targeting, establishing itself as one of the more orthodox central banks inAfrica,” Holger Siebrecht, an associate portfolio manager at Acadian Asset Management LLC, said by phone from Boston. “Now it is at risk of gambling this reputation away.”

In a Bloomberg survey of nine economists carried out between July 30 and Aug. 4, two-thirds rated Emefiele’s record on managing the naira as either “very poor” or “poor,” and only one respondent judged his overall performance as better than “fair.”

A former chief executive officer of Zenith Bank Plc, Emefiele took office in June last year, pledging to lower interest rates and opposing calls to devalue the naira. Five months later, he raised the benchmark rate to a record 13% and lowered the naira peg by 8.4% to a midpoint of 168 per dollar. In February, he scrapped the peg.

“Continuously denies”
Since then, Nigeria has elected a new president, Muhammadu Buhari, oil prices have dropped below $50 a barrel, the government is struggling to pay its workers’ salaries and pressure is mounting for another devaluation. While the central bank is happy with the naira trading at about 199 to the dollar on the interbank market, black market dealers are selling the US currency at closer to 225.

“Governor Emefiele continuously denies that the currency is overvalued, and pushes back from devaluation, when market forces are quite clearly saying something completely different,” said Siebrecht.

Emefiele’s predecessor, Lamido Sanusi, had won acclaim from investors for cleaning up a banking industry near collapse in 2009, bringing inflation below 10% and keeping the currency stable.

Ibrahim Mu’azu, a spokesman for the central bank, denied that the currency policy is muddled, saying by phone from Abuja, the capital, that the regulator has been consistent in its “demand management” approach.

Buhari, who took office on May 29, has yet to name a finance minister or articulate his economic plan for Nigeria, where growth is forecast by the International Monetary Fund to slow to 4.8% this year from 6.3% last year.

“Emefiele seems unable or unwilling to sell the economic case for devaluation to the country’s political leaders,” Alan Cameron, an economist at Exotix Partners LLP, said by phone from London.

“He wants to portray the CBN as a source of economic stability in a time of political change, even though in reality he might be doing quite the opposite,” he said.

Narrow disciplines
Recent comments suggest Emefiele sees his job as unconfined to the narrow disciplines of traditional central banking.

“Central banks in developing countries like ours cannot sit idly by and concentrate only on price and monetary stability,” he said in a June 24 speech in Abuja.

In June, he stopped importers from using official foreign currency channels to pay for about 40 types of goods including steel products, furniture and textiles. If he had the authority, he would have banned their import outright, he said.

The naira has weakened 7.8% against the dollar on the interbank market this year, pushing inflation outside the central bank’s 6% to 9% target band for a second month in July. The currency was trading at 198.88 per dollar as of 8:14 a.m. on Friday in Lagos, the commercial capital.

Emefiele’s development goals mean very little if they distract from more pressing economic issues, said John Ashbourne, an economist at Capital Economics in London.

“If, as looks likely, inflation continues to rise, it will not be very comforting to hear about his vision of a new Nigeria,” he said in an e-mailed response to questions. “Investors are going to judge him by the here and now, which isn’t particularly impressive.” (Bloomberg)

—With assistance from Joshua Robinson in London.

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