Nigeria: Analysts Foresee Stability As Buhari Reappoints Emefiele

President Muhammadu Buhari and the Central Bank Governor, Godwin Emefiele (file photo).
10 May 2019

The reappointment of Governor of Central Bank of Nigeria, Mr. Godwin Emefiele, for a final term of five years by President Muhammadu Buhari, would bring stability to the nation's financial system, analysts told THISDAY last night, saying it is a positive development for the economy and good politics.

By choosing a South-South/Niger Delta person in his first action, Buhari had sent a signal of inclusiveness, political leaders tell THISDAY.

The markets responded positively to the news of Emefiele's appointment.

First in London, at a Standard Chartered Conference where the governor was addressing investors as well as in the Foreign Exchange I&E Window which saw increase inflows and a Naira gain yesterday afternoon after the announcement.

The I&E Window began trading yesterday at N362 to a dollar and ended N360.7 to a dollar at the close of business last night.

Bringing the I&E Window in parity with the parallel market.

First appointed in 2014 by President Goodluck Jonathan, Emefiele got a historic second term yesterday when Buhari forwarded his name to the Senate for confirmation.

He would be the first governor of the apex bank to be so reappointed in 20 years.

The president, in a letter dated May 8, 2019 and titled 'Renewal of the appointment of Godwin I. Emefiele as Governor of the Central Bank of Nigeria,' read at plenary yesterday by Senate President, Dr. Bukola Saraki, requested the upper chamber of the National Assembly to confirm the re-appointment for another term of five years.

The letter read: "In view of his expiration of the first tenure of the current Governor of the Central Bank of Nigeria (CBN) on June 2, 2019, and in pursuant to the provisions of Section 81 (2) of the Central Bank of Nigeria Act 2007, I hereby present for confirmation by the Senate, Mr. Godwin I Emefiele for re-appointment as Governor of the Central Bank of Nigeria (CBN) for a final term of five years.

"It is my hope that this distinguished Senate will consider and confirm the nominee in the usual expeditious manner.

"Please accept, Mr. Senate President, the assurances of my highest consideration."

With the reading of the letter at Thursday's plenary, the Senate at its next legislative sitting on Tuesday may fix a particular date to screen and possibly confirm Emefiele.

Speaking in a chat with THISDAY, an analyst at Ecobank Nigeria Limited, Mr. Kunle Ezun, said the reappointment will be positive for the financial system.

According to him, "For the naira, I do not expect a major shift. The possibility of devaluation is nil as I don't think there will be devaluation in his second term if approved by the Senate.

"But what I see that the central bank will continue to do is to be intervening in the market to keep the naira around N360/$ and hopefully there would be the capacity to have a single exchange rate, instead of the multiple exchange rate regime we have presently.

"On interest rate, I don't think there will be any major shift in the monetary policy direction. In the last Monetary Policy Committee, we saw a 50 basis cut. Do I expect a further cut? Yes, but how soon? I can't say so soon, but we expect that there would be a gradual drop in interest rate, which would be further tied to the fiscal outlook.

"Also, we expect to see more of Anchor Borrowers' Programme and intervention to the real sector."

Also, the Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Chapter, Prof. Uche Uwaleke, described the re-nomination of Emefiele as a good omen for the capital market.

Uwaleke, who is the Head of Banking and Finance Department, Nasarawa State University, added: "It is one development that speaks to policy consistency and will further consolidate macroeconomic stability especially with respect to exchange rate and inflation.

"Investors, both domestic and foreign can have some degree of confidence in the direction of monetary policy, which is positive for the capital market. One thing is now certain: that the interventions by the CBN in critical sectors of the economy especially agriculture and non-agric-based SMEs will continue.

"These will rub off positively on economic recovery efforts especially now that the CBN under Emefiele has signaled an accommodative monetary policy stance. It is equally positive for financial systems stability.

"So, I expect a positive reaction going forward, I would like to see an intensification and effective monitoring of the interventions in particular the Anchor Borrower programme.

"Emefiele should also focus on ensuring increased access to credit by SMEs and generally fostering a low interest rate environment with the support of fiscal authorities."

To analysts at Lagos-based CSL Stockbrokers Limited, one of the successes of Emefiele's first term as governor of the CBN was the opening of the Investors' and Exporters' (I&E) window and the defence of the currency.

They said: "We believe that the risk of an entirely new approach is quite low following his re-nomination.

"The naira's strength over the past year confers a degree of credibility that the governor of the CBN may wish to maintain the preservation of the currency as his top priority as such we believe his re-nomination in the face of relatively enough reserves reduces the risk of a devaluation significantly.

"Despite reduced foreign investor participation in the Nigerian economy, the foreign reserves have been resilient. This has supported a relatively stable naira exchange rate against the dollar at both the parallel market and the I & E window."

They noted that despite a 50 basis points cut in the Monetary Policy Rate (MPR) at the last MPC meeting, the CBN may not be too aggressive with loosening as concerns over portfolio flows should remain high on the CBN's priority list.

They stated: "Despite a positive outlook for 2019, the price of oil, a major source of foreign exchange to the country, remains extremely volatile.

"Oil trading at lower levels poses a threat to economic stability as it could stall the accretion of reserves and threaten exchange rate stability.

"Therefore, portfolio flows are still a go-to buffer in order to maintain a stable exchange rate and the MPR must remain attractive enough to sustain them," the investment and research firm added.

"For the equities market, we expect a neutral reaction. Though Emefiele's re-election possibly points to no devaluation, which is positive news for the market, we believe the market currently needs more than news of the CBN governor to show a positive reaction," they added.

Indeed, in the last five years, the CBN under Emefiele has played a vital role in supporting the fiscal authorities.

For instance, when the economy slipped into a recession, the central bank had to intensify its intervention in critical sectors of the economy, in line with its development finance mandate, which played a significant role in supporting economic growth. This saw the regulator developing home-grown policies to surmount challenges that confronted the economy.

In the continued recognition of its role as an agent of development and aimed at ensuring self-sufficiency to reduce Nigeria's excessive dependence on imports, the CBN in the last five years, invigorated its development finance activities and has maintained a particular focus on supporting farmers, entrepreneurs as well as small and medium scale businesses, through various intervention programmes.

Some of these initiatives include the Anchor Borrowers Programme (ABP), Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the National Collateral Registry.

Also, the CBN re-introduced the Real Sector Support fund; a facility meant to provide cheap funding at no more than nine per cent to new projects in the agriculture and manufacturing sectors, aimed at boosting output and creating jobs.

In the agriculture sector, ABP has ensured that Nigeria emerged from being a net importer of rice to becoming a major producer of rice. In fact, presently, over 900,000 farmers cultivating about 835,239 hectares, across 16 different commodities, have so far benefited from the ABP, which has generated over 2.7 million jobs across the country.

Emefiele had explained that efforts at supporting small scale farmers and SMEs was based on awareness of the critical role they can play in supporting our economic recovery and growth, as well as in creating job opportunities for millions of Nigerians.

According to him, "So far, the CBN has through its MSME fund disbursed over N100 billion to the MSME sector, but we still feel a lot can be done. Under the auspices of the Bankers Committee, the sum of over N60 billion has so far been set aside under the Agri-Business/Small and Medium Enterprises Investment Scheme (AGSMIES) fund to fund micro, small and medium scale enterprise businesses in the agriculture and manufacturing sectors of our economy.

"The CBN recognises that the greatest challenge confronting MSME's and local farmers is access to credit, and that to unlock the growth potentials in our country; these groups must access funding seamlessly.

"In response to this challenge, the CBN will in due course take action that will directly bring banking services to the rural communities through the licensing of a national microfinance bank, which will have a presence in all local governments in Nigeria, thereby supporting the channeling of credit to our rural communities.

"We will continue to explore ways, in partnering with the fiscal authorities, on how we can best provide farmers and SMES with the support they need to expand their operations," he had explained.

If the reappointment of Emefiele is approved by the lawmakers, the 57-year old policymaker will be the first Governor of the Bank since 1999 to have a second term.

But Abdulkadir Ahmed remains the longest serving CBN Governor in the history of the country as he was on the position for 11 years. Ahmed, was appointed governor of the bank in June 1982 and retired on September 30, 1993. He was in office during the Shehu Shagari regime, the interim government of Ernest Shonekan as well as the military regimes of General Muhammadu Buhari and Ibrahim Babangida.

Section 8 of the CBN Act 2007 states that the Governor and Deputy Governors of CBN shall be persons of recognised financial experience and shall be appointed by the president subject to confirmation by the Senate on such terms and conditions as may be set out in their respective letters of appointment.

Sub-section 8(2) also states that the Governor and Deputy Governors shall be appointed in the first instance for a term of five years and shall each be eligible for reappointment for another term not exceeding five years.

Meanwhile, Delta State Governor, Senator Ifeanyi Okowa, has congratulated Emefiele on his reappointment for another term in office.

He commended the president for finding the CBN governor worthy to be reappointed.

In a congratulatory message issued in Asaba by his Chief Press Secretary, Mr. Charles Aniagwu, Okowa extolled the leadership qualities and astute contributions of Emefiele to the economic development of Nigeria since he was appointed in 2014.

He described the CBN governor as an illustrious son of Delta State, whose remarkable contributions to the banking industry in Nigeria is legendary and worthy of emulation.

He said: "Emefiele is an illustrious son of Delta State in whom we are well pleased. His astute contributions to the development of the banking industry and the Nigerian economy is legendary and worthy of emulation."

International Reactions According to Reuters

According to Reuters, Nigeria's Central Bank Governor Godwin Emefiele has been nominated for a second five-year term, a move that could comfort bondholders keen to see the bank's policy of a stable and strong currency continue.

President Muhammadu Buhari, who has backed Emefiele's monetary policy, nominated him for another term, according to a letter read on the floor of the senate on Thursday. The upper house of parliament is expected to confirm the nomination.

Emefiele has overseen an interventionist currency policy at the behest of the presidency, propping up the local naira by pumping billions of dollars into the foreign exchange market.

He also introduced a multiple exchange rate regime to try to mask pressure on the naira and avoid a series of devaluations, a step that has kept liquidity tight in Africa's biggest economy.

The bank cut rates to 13.4 percent in March, its first rate cut since November 2015. The rate has been held at 14 percent since July 2016 to support the naira and curb inflation.

Buhari, who starts his second four-year term on May 29, has pledged to rejuvenate the Nigerian economy, sub-Saharan Africa's largest energy producer. Emefiele has offered affordable credit to boost some industries to offset curbs on access to foreign exchange for those sectors imposed to protect local producers.

A central bank spokesman said Emefiele's nomination was in recognition of his "patriotism and irrepressible commitment to the growth and development of the Nigerian economy".

Emefiele, whose first term was due to end this month, will be the first central bank governor to have his tenure extended into a second term since Nigeria's return to democracy in 1999.

"The idea of continuity might give some comfort to foreign investors who will expect a policy of naira stability to continue," said Razia Khan, head of research for Africa at Standard Chartered Bank in London.

"This lessens the risk of any near-term profit-taking."

No Shift in Policy

Emefiele's return could be supportive for bonds as investors hunt for yields on the debt market while equity players worry about slow growth, expecting sentiment to remain weak for stocks, analysts say.

More than $6 billion has flowed into the local bond market since February's presidential election as foreign investors piled into debt to lock in yields as high as 14 percent, helping to keep the currency stable.

"Governor Emefiele's nomination means that we will likely not see a major change in the conduct of monetary policy or a much-needed shift in Nigeria's diversification strategy," said Cobus de Hart, senior economist at South Africa's NKC African Economics.

Nigeria entered and exited its first recession in a quarter of a century under Emefiele's tenure as global oil prices plummeted and then gradually began to rebound.

Some economists have argued that his strong currency policy exacerbated the downturn.

Anthony Simond at Standard Aberdeen Asset Management in London said he expected a continuation of current monetary policy. "Whether it will be good for the country in the long run is a different question. But for now, high carry and stable FX will continue," he said.

Emefiele has said the bank would continue its tight monetary stance in the near term and sees inflation of 11.3 percent in February rising to 12 percent this year before moderating."

The Men before Emefiele

Roy Pentelow Fenton (24/7/1958 - 24/7/1963)

Alhaji Aliyu Mai-Bornu (25/7/1963 - 22/6/1967)

Dr. Clement Nyong Isong (15/8/1967 - 22/9/1975)

Mallam Adamu Ciroma (24/9/1975 - 28/6/1977)

Mr. Ola Vincent

(28/6/1977 - 28/6/1982)

Alhaji Abdulkadir Ahmed (28/6/1982 - 30/9/1993

Dr. Paul Ogwuma

(1/10/1993 - 29/5/1999)

Chief Joseph Sanusi (29/5/1999 - 29/5/2004)

Prof. Chukwuma Soludo (29/5/2004 - 29/5/2009)

Mallam Sanusi Lamido Sanusi (3/6/2009 - 2/6/2014)

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