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Economic crisis as CBN Governor double as Finance Minister

CBN Governor, EmefieleWith no cabinet in place, Nigeria’s central bank governor Godwin Emefiele finds himself

discussing policies usually reserved for a finance or economy minister.

Almost four months after President Muhammadu Buhari’s inauguration as president, the country’s economic woes have deepened. 

  • Massive drops in world oil prices have hit hard country’s key source of revenue and foreign reserves;
  • Unemployment remains high (hovering around 7.6 percent) in 15-35 median age range, where both youth and female populations clock-in at 70 million and 80 million respectively;
  • Devaluation pressures remain high on the country’s currency (naira); raising cost for private sector and daily living needs.

Emefiele seems to the only present office holder to have his grips on the economic reality Nigeria finds itself in.

The central bank has restricted access to foreign currency to import 41 categories of items to stop a slide of the naira but the Manufacturers Association of Nigeria (MAN) said this in fact amounted to about 680 individual items.

The foreign exchange bans are part of a long-term plan by President Muhammadu Buhari to encourage local manufacturing, but they run the risk of pushing the economy closer to recession after growth halved in the second quarter compared with the same period last year, said a Reuters report.

Many items on the central bank list – ranging from incense and toothpicks to plywood, glass and steel products – are not available in Nigeria in sufficient volumes.

At a news conference on Tuesday, Emefiele justified the controls – which Buhari has backed – as a way to create jobs in a country hit by poverty despite its oil wealth.

“I read an advertisement in a paper that shortly after we announced the foreign exchange exclusion for the importation of tomato paste they advertised for almost 1,000 jobs,” he said, citing the example of a tomato paste company, a sector that experts do not in fact expect to flourish now.

Emefiele has ruled out another naira devaluation but on Tuesday loosened monetary policies to inject liquidity into banks, which had been forced to transfer government revenues to a central bank account as part of an anti-corruption drive.

The slowdown in Nigeria’s economy, fuelled by the collapse in the price of crude oil and the weakening naira, has hurt consumer spending, creating a tough business environment for investors pushing into the market.

Nigerian companies making anything from soap to tomato paste could run out of raw materials and be forced to shut down as Africa’s top oil producer has effectively banned the import of almost 700 goods to prevent a currency collapse.

Selected luxury items such as make-up or brown bread imported from Europe have become scarce in some shops as the central bank denies importers dollars, seeking to stem the fallout from a crash in vital oil revenues hammering Africa’s largest economy.

MAN had told the central bank 105 items should be removed from the list, but the bank said it could not afford to do so and agreed to look into removing 44 items.

MAN also suggested 93 finished items that should be added to the list because Nigeria produces enough of them.

The economic crisis is a blow to Buhari who wants to end dependence on oil revenues but faces criticism for failing to name a cabinet four months after taking office.

“These 100 days, Buhari has been the Minister of Finance, the Minister of Petroleum, as well as the Attorney-General. He has been the Minister of Education, even though we are yet to see his school-leaving certificate. He alone has been the minister in all the ministries of the federal government.” wrote Dr. Femi Aribisala

Since the central bank unveiled its controls in June, executives have had to deal with foreign suppliers worried they won’t get paid. They also struggle to convince banks to approve dollar payments.

“It takes minimum 10 days now to get dollars, before it was 24-48 hours, and sometimes when you request like $100 000, you only get $80 000 and it’s getting worse,” said an executive at a large furniture company, asking not to be named.

It’s not clear which imports are still allowed as the central bank lists only categories. He can still bring in beds and chairs to be assembled in Nigeria, but not sofas.

Some firms have defaulted on contracts and lost credit lines. “Many companies have defaulted on fulfilling foreign obligations … even blue chip companies … for the first time,” said Muda Yusuf, director general of the Lagos Chamber of Commerce.

Nigeria stepped up import controls when Buhari led a military government in the 1980s and the economy suffered then too.

Razia Khan, Chief Economist, Africa, at Standard Chartered Bank, said there was little certainty the latest controls would boost manufacturing.

“Nigeria has had substantial experience with similar import-substitution policies in the past,” said Khan. “Rarely have they succeeded in creating a vibrant, competitive industrial sector, with the capability of creating the employment growth that Nigerian demographics otherwise demand.”

According to the Lagos Chamber of Commerce, Nigeria is short of 600,000 tonnes a year of palm oil, that is used to make soap, detergents and cosmetics that have also been restricted. Pharmaceutical firms lack bottles, and glass manufacturers do not have the glass to make them.

Companies also suffer from the central bank’s attempt to stop the dollarisation of the economy. A ban on cash deposits of foreign currency has forced firms to use informal “transfer markets”, whereby people abroad wire dollars on a company’s behalf.

Experts say in the midst of present challenges, Nigeria urgently needs a Minister of finance to chat government policy.

However, the country has to accept the present reality of the CBN governor doubling as the minister of finance.


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