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Vol 63 No 8

Published 14th April 2022


How the Central Bank could win next year's election

Those backing governor Godwin Emefiele for the presidency believe eight years of cheap loans to millions of small farmers will pay dividends

Copyright © Africa Confidential 2022

The clamour among senior government officials for Central Bank governor Godwin Emefiele to vie for Nigeria's presidency has its roots in his politically oriented management of the institution and the reach of its policies over the past eight years. He refers to himself as a 'development central banker' and has used his position to direct vast amounts of state finance to small farming and service sector operations, building a wide-ranging constituency for his policies in the process.

When it comes to economic and financial strategy, Emefiele is in the driving seat and enjoys the robust support of President Muhammadu Buhari and his colleagues in the Villa at Aso Rock. The 64 trillion naira question is whether Buhari's backing for Emefiele's policies will extend to his endorsing the governor for the presidential nomination of the ruling All Progressives' Congress (APC). 

So far, Buhari has kept schtum about his preferred presidential candidate. But Emefiele sees more of Buhari than any other official, apart from Attorney General Abubakar Malami. We hear that Malami, along with some of his key allies, is a keen supporter of Emefiele. 

Starting out cautiously as bank governor in 2014 after a career in commercial banking, Emefiele has become the second most influential person in the current government, since the passing of Abba Kyari, Buhari's long-time trusted advisor, two years ago. 

As Emefiele's star has risen, so has the authority of cabinet ministers declined. He freely gives his opinion on many aspects of government policy such as industrial and tariff strategy and is not challenged by ministers with economic portfolios or otherwise. His views on exchange rate policy and command economics in general have become the leitmotif of the government.

Bank fiefdom
Within the Central Bank of Nigeria (CBN), few are willing to take on Emefiele. The director of monetary policy Hassan Mahmud was slapped down in March 2021 for suggesting that offshore investors should no longer be able to buy Treasury bills within the bank's open market operations.  

Mahmud had pointed out there were two price tiers for Treasury bills, one established at the regular auctions and one (offering better rates) available through the banks. For Emefiele, that was a price worth paying as the open market operations were bringing in substantial dollar inflows. 

Emefiele's current term runs to June 2024 and the presidential election is scheduled for February 2023. At that point several things, in no particular order of probability, could happen: the next head of state may have a different view of the CBN's development finance role and its other 'heterodox' policies and try to rein in the governor; the new president and the economic team are converted to Emefiele's central bank activism and let it run; or Emefiele himself is elected president, and will hire a central bank team in his own image. 

In the remaining year of Buhari's presidency, any change in policy direction is highly unlikely, given the close ties between the president and the governor. Their policy rigidity will be reinforced by the soaring crude oil prices due to Russia's war on Ukraine. 

Should a contender such as Vice-President Yemi Osinbajo of the ruling APC or Peter Obi of the opposition People's Democratic Party (PDP) win the presidential election next year, Emefiele's policies will be subjected to more rigorous debate at least.  

The new team might just heed the advice of the IMF and wind down Emefiele's development financing schemes. But that would be a first for Nigeria. To date, no president has ever advocated a closer relationship with the IMF. 

Under Emefiele, the CBN prides itself on its 'heterodox' policies, sometimes characterised as homegrown. Most analysis is centred on the foreign-exchange regime rather than its development finance role. Almost all sizeable oil producers in the developing world have maintained robust management of their exchange rates but few have carved out a burgeoning presence in subsidised lending to the private sector on the scale of the CBN.  

Supporters of this strategy justify it on the grounds that commercial banks (known in the jargon as deposit money banks) in Nigeria have limited risk appetite. Beyond multinationals and well-run Nigerian owned businesses, and the employees of such firms, they have a narrow client base. Small businesses tend not to get loans from the country's big banks.  

The CBN can also argue that development finance allows it to make its mark since the impact of its monetary policy is limited. One can sympathise with the monetary policy committee (MPC), which is dominated by senior CBN employees including the governor, Emefiele.  

Its favoured verdict, when it meets every two months, is a wait-and-see stance: that is hold the interest rates. It is caught between fear of holding back growth if it raises rates; or stoking inflation if it cuts them. But the pressures driving prices and growth are largely due to supply-side factors for which the CBN's committee is not to blame.  

Development bank
Development finance has grown under Emefiele but it predates him. For example, the smallish agriculture credit guarantee scheme was launched during the governorship of Ola Vincent (1977-82). The developmental role has taken off under Emefiele, first appointed in June 2014 by President Goodluck Jonathan and reappointed for a second five-year term in June 2019 by Buhari. 

More than the principle of the central bank running a developmental finance strategy, there is the scale and cost of the strategy which looks, in Nigeria's case, to be high risk for indeterminate returns. 

The message is that Nigeria should be able to feed itself. This can be traced back to the presidency of Olusegun Obasanjo (in military uniform) in the late 1970s. But the country is little nearer its objective. Many of the productivity and marketing problems can be traced to insurgents or bandits attacking farming areas and the transport routes leading to them. And development finance is meant to be a positive response to the sense of marginalisation in more remote communities. Yet without a coordinated political and social strategy, its results have been disappointing. 

Federal government officials have stopped trumpeting trends in rice production and must now confront soaring grain prices due to the war in Ukraine. In the staff report within its 2021 Article IV Consultation, the IMF calls on the CBN to phase out its development finance activities. The wording is cautious, given the prickliness of Nigeria's government over matters of national sovereignty. 

Yet its comments about efficiency costs and market distortions indicate that the IMF considers the CBN to have strayed far out of its remit and with an impact that falls well short of the funding disbursed. Another remark in the staff report about the need to resume the publication of full annual financial statements including all the auditor's notes shows the depth of the Fund's concerns around the bank's balance sheet. The most recent full financial statement dates from 2017. 

Farming votes
Rather than phase out such activities, the CBN is expanding them. The driver is less cronyism and more the consolidation of political power: the ABP, for example, has benefited 4.5 million farmers, who had no political clout. Most of these farmers can presumably now be counted as loyal supporters of the APC government, if not Emefiele personally. 


Officials at the Central Bank of Nigeria are reluctant to discuss the costs, let alone the risks, of its development finance strategy. Some commercial banks suspect that many of the subsidised loans have not been subjected to adequate or any due diligence. There are few accurate figures about the sums committed and the performance of the beneficiaries. 

The skeletal statements of assets and liabilities on the CBN website show that other assets, which are presumably its subsidised loans to the real economy both direct and through the commercial banks, soared from 1.8 trillion naira in April 2016 to N7.33trn in April 2021 (currently US$17.6 billion). This was about 22% of the bank's total assets although the share will have since increased. For an 'orthodox' central bank such as South Africa's, the proportion for all loans and advances stands at about 1%.  

The Bank's MPC communiqués are most revealing for the detailed listings of disbursements made under its various sector interventions. From the communiqué last month, we read the CBN has disbursed to date N5.3trn under its six largest programmes (and there are at least 12 in operation). The expansion of the role has accelerated in the Covid-19 years. The International Monetary Fund estimates the CBN's interventions have represented 45% of credit growth during the pandemic, compared with about 12% in the years leading up to it. 

Just as the treasuries in several western countries used quantitive easing to disburse what came to be known as 'free money', Emefiele was using the CBN to expand Nigeria's variation on the theme. 

It does not operate in isolation because the federal government has set up several development banks to cover the role that the commercial banks have shunned. The best known is the Bank of Industry, which has raised about $3bn in two syndicated loans and one Eurobond issue in less than four years.  

The Bank of Agriculture and the Development Bank of Nigeria, set up in 2016 with two non-Nigerian shareholders (the African Development Bank and the European Investment Bank), work alongside the Bank of Industry. During his campaign for re-election in 2019, President Muhammadu Buhari pushed for the establishment of another state development vehicle, the Entrepreneur Bank. The idea was dropped, it appears, when advisors pointed to the duplication of roles. Lending to micro, small and medium enterprises (MSMEs) was not an original idea.    

The CBN and its state-owned partners are substantive players, accounting for a combined loan book of up to N11trn. At end-2021, total lending by the commercial banks to the private sector amounted to N24.4trn, compared with loans to the private sector from all parties including the CBN and state-owned institutions of N35.2trn. 

In some sectors, the state leads the way: in December loans from the commercial banks to agriculture totalled N1.5trn while disbursements by just two of the CBN's vehicles – the anchor borrowers' programme (ABP) created by Emefiele and the commercial agriculture credit scheme – together reached N1.7trn.  

This support could have transformed agriculture. Yet the sector's performance has been underwhelming, averaging just 2.1% year-on-year over the past eight quarters. The CBN's credit interventions should be viewed together with its ban on 43 named imports and the federal government's concessions on tariffs for selected leading producers.

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