• Market awaits Cardoso’s long-term inflation target ahead of Feb MPC meeting
• New external members of committee to be unveiled before meeting
• Import-dependent companies faltering
• FX market ‘rigged’ against us, operator cries out
President Bola Tinubu is starting to look like a poor economic manager as widespread scepticism sweeps across the economy less than a month into a year, a situation many pointed to as a turning point in the failing economy.
If the current administration fails in its promise to reverse the downward macroeconomic trend to give hope to millions of Nigeria who are struggling to pick their bills, it will be a traumatic contradiction of Tinubu’s rating at last year’s pool as a good economic manager.
In the face of daunting challenges, there seems to be too many missing links in the technical arm of economic management to articulate a cohesive policy thrust.
For one, the Central Bank of Nigeria (CBN) under Yemi Cardoso, who took the reins exactly four months ago, has carried on the task of monetary and credit policy intervention without inputs from independent members of the rate-fixing Monetary Policy Committee (MPC).
Already, the odds are rising against the national economic managers. Last week, naira, which was among the three top worst-performing currencies last year after losing 49 per cent of its value at the official market, printed its weakest value trading around N1370/$.
The local currency closed 2022 at N461.5/$1, but slipped to N907.11 against dollar at the close of last year’s business, making it the third worst-performing currency behind the Lebanese pound and Argentina peso.
The currency plunged after the long-awaited exchange rate liberalisation policy was tested but some analysts dismissed the sharp depreciation as a short-term shock.
Seven months into the new regime, naira continues to falter at both the parallel market and the newly coined Nigerian Autonomous Foreign Exchange Rate (NAFEX). J
anuary, which many analysts said could mark the beginning of a more stable naira, has set a higher moving average (MA) with the local currency consistently flirting with N1,100/$ mark. Last week, it closed at N891.04/$, a modest appreciation from the January high of N957.51/$.
The recent spot exchange rate of naira, which is far above the year’s post-reform average, raised worry among end-users and analysts.
Meanwhile, a member of the committee told The Guardian yesterday that the governor has not communicated with the external members since he assumed office, not in the least to share their experience with the new management .
The broken link may be robbing the Central Bank of the benefit of institutional memory, which may come in handy at this critical time of its task. Whereas the committee has not been officially dissolved, the CBN has assumed the old composition is gone with the embattled ex-CBN boss, Godwin Emefiele, some of whom still have three years to the end of their statutory tenure.
But a member said their appointment could not be terminated without recourse to the provisions of the CBN Act or the Senate, which endorsed their nomination.
“In line with the law, you can only terminate our appointment with the Senate approval, except where we voluntarily resign. What the new management of the CBN is doing is new to our system, and we are watching,” a member noted yesterday.
Still, another member of the team, who also confirmed that he only read on newspaper of the February meeting, said MPC is a technical team duly constituted by the President and approved by the Senate hence it could not have been dissolved alongside boards of parastatals as assumed.
The member said dissolving the committee abruptly would amount to impunity and a contradiction of the CBN Act.
However, another source close to the current CBN leadership team faulted the position of the member, arguing that MPC is a mere technical arm of the CBN that had been unduly elevated in recent years.
According to the source, who pleaded anonymity, the old MPC is considered to have been dissolved with the apex bank’s board, since it is a technical body that should gather market data, analyse and make a recommendation to the board should make decisions based on the findings and assume responsibility for the decision.
The Guardian was informed at the weekend that the apex bank has sent names of nominees who will fill the vacant seats on the committee to the president for consideration and action. The list, which could not be confirmed at the Presidency, is expected to have been sent to the Senate and approval secured before the next meeting, which is scheduled for February 26 and 27.
A recomposed MPC would trigger mass litigation from members, who have been left out of monetary policy conduct in the past four months without any communication on their status, The Guardian was informed yesterday.
Those knowledgeable about the plan of the aggrieved members said, “they are also wary of the message they will be sending to the public if they allow the government to go with the illegality”.
“The ex-managers of the CBN are facing corruption charges. But these guys were not part of the day-to-day management of the bank. If they keep quiet, they know, the public will assume that they have accepted that they were part of those who mismanaged the system,” the source said.
While a new team is yet to be announced, Cardoso seems to have been working with another team of technical experts (who are only awaiting a formal appointment) behind closed doors. A retreat, already interpreted to be an onboarding meeting, was reportedly held for members recently, leading to the new schedule.
The Guardian had earlier reported that the membership status was shrouded in uncertainty with Cardoso and the President considering the replacement of the old team. Delay and other possible hiccups in the consideration of the nominees were said to have been factored into the scheduling of the February MPC meeting – the first Cardoso will hold since he came to office.
MPC, which is considered the apex body responsible for monetary policy and chaired by the CBN governor, is made up of five independent members – with two statutorily nominated by the CBN governor while the President nominates three. All members of the Board of Governor (BoG) – the governor and the deputies – are among the team while another two voting members are handpicked from the board.
Relevant directors and key management staff are observers during the committee meeting.
The February rate decision meeting is crucial not only because it would help the market to decipher Cardoso’s position on inflation and growth, but how the interplay of the two negatively correlated variables advance the cause of building a prosperous economy but also because it will test the governor’s commitment to a policy switch in achieving the inflation target.
It is not farfetched to expect the governor to announce Nigeria’s long-term inflation target at the meeting.
The CBN boss, at the 2023 Bankers’ Dinner in Lagos, announced the adoption of inflation targeting as opposed to the failed monetary targeting to rein in the historically high inflation.
“I, together with my team at the Central Bank have been focused on doing so in the past two months. We have critically reviewed the effectiveness of the Central Bank’s monetary policy tools and have spent time fixing the transmission mechanism to ensure the decisions of MPC (Monetary Policy Committee) meetings actually result in desired objectives. For quite some time, there has been a dislocation of our monetary transmission mechanisms rendering the MPC meetings largely ineffective,” Cardoso told the audience.
Falling naira and rising prices are currently pushing the economy to a tailspin. Last weekend, Shoprite, a beneficiary of the absurdity in Nigeria’s economy, closed shop in Kano owing to what it classified as a poor business environment.
The retailing company may not have had a substantial impact on the Kano state’s economy but the reasons it adduced a sad reminder of how the dozens of multinational manufacturing companies such as Dunlop, Michelin and mostly recently P&G, GSK, Unliver and their likes have either exited the manufacturing sector or scaled down drastically, thus turning the country into a marketing outpost.
At the weekend, a chief executive of an indigenous manufacturing firm told The Guardian that he and many of his colleagues are “trapped” in the country and hanging on by a thread.
“Our operations are fast shrinking because proceeds of your sales can hardly buy sufficient inputs to replace the volumes you sold. The official foreign exchange market is non-existence. The parallel market cannot be used for a serious business model because the rates are not stable.
“Except you have overseas operations where you earn in dollars, it is difficult to fund imported raw materials. This is a serious challenge when you consider that most companies source over 80 per cent of inputs overseas,” the executive said.
An economist, Chiwuike Uba, a development economist, admitted yesterday that soaring inflation, as well as volatile and high FX, posed enormous challenges that would require “disruptive yet innovative policies” to address even as he described the floating of the naira as a failed attempt to arrest the free fall of the local currency.
“To reclaim economic stability, we must bolster our foreign exchange inflow through increased exports, judiciously manage and reduce imports by promoting local production and foster direct investments from Nigerians in diaspora… Until Nigerian factories operate at peak efficiency, we may continue to grapple with exchange rate challenges. Hence, targeted funding should be allocated to vital manufacturing industries, and policies promoting local patronage should be implemented to ensure stable markets and demand for domestic products.
“For instance, the revitalisation of the textile industry must be coupled with a mandate that mandates all educational institutions and government agencies to patronize textiles manufactured in Nigeria. Nigeria’s inflation is predominantly fueled by food inflation, money supply and exchange rate challenges. Thus, mitigating inflation will significantly hinge on addressing security challenges, promoting food production, and rectifying exchange rate issues,” the economist told The Guardian.
Another economist, David Adonri, hoped market reforms of last year would trigger inflation moderation this year as “market demand and supply adjust to flexible prices”. He argued that demand has been reasonably curtailed while there “closing the supply gap to satisfy pent-up demand may not be immediate”.
“The saving grace may come from the restoration of domestic refining, which will relieve the economy of excessive pressure on FX. On a sad note, however, is the deteriorating security situation, which may cause food inflation to remain high. The economy also requires fiscal impetus to drive higher domestic production to reduce imports and boost exports,” Adonri wrote in an email exchange.
Added to insecurity, divestment by the international oil companies (IOCs) could be another downside to the already burdened FX market, except the local investors jostling for the assets of the foreign companies would source funding from the international market.
Overall, the hope that 2024 could be the year of naira is waning, while national economic policies only double the speed at which this happens.
