Tuesday, 6 May 2014

Nigeria’s Incoming Central Banker Faces Growing Challenges

As it prepares to host the World Economic Forum’s annual African conference later this week, Nigeria has suffered a spate of terrorist attacks that have horrified its citizens, rattled its government, and threatened to erode its reputation as an increasingly stable and prosperous democracy. Two bombings in the capital city of Abuja and the abduction of more than 200 schoolgirls in the north of the country have brought into focus the threat that Nigeria faces from the radical Islamist group Boko Haram.
Nigeria’s future central banker, Godwin Emefiele
Amid the turmoil, the government has been trying to calm investors who are concerned that President Goodluck Jonathan’s February suspension of Nigeria’s highly respected central banker, Lamido Sanusi, pointed to growing political interference in the country’s monetary management.
Sanusi’s replacement, Godwin Emefiele, is set to take up his new role as head of the central bank in June. Scarcely known outside the top echelon of Nigeria’s commercial banking world, Emefiele’s nomination in February caught the country’s finance community off guard: his name had never come up even as a rumored candidate.

“It was a surprise but it wasn’t an unpleasant surprise,” said a top Nigerian banking executive who has worked with Emefiele but who asked not to be identified.
The well-regarded and low-key Emefiele is currently CEO of Zenith Bank, a leading homegrown Nigerian lender with roughly $18.7 billion in assets under administration. A married father of three, he is described as an avid Chelsea soccer fan and someone who wins people over through consensus building.
“You have the CEOs of big banks, they tend to want to muscle most things, but Godwin is not like that. He will go with the group. He will not stand out as wanting to pull rank,” the executive said.
Emefiele is taking the helm of the Central Bank of Nigeria (CBN) at a moment of investor uncertainty surrounding the nation’s monetary policy and political turmoil ahead of the presidential election in 2015.
Nigeria’s economy has recently been recognized as the largest in Africa, following the ‘rebasing’ of its 2013 GDP to $510 billion. However, the picture is not all rosy. Below-target oil production and flagging investor confidence have been putting pressure on the country’s currency, the naira, and foreign exchange reserves have been steadily depleted as the CBN has sold dollars in an attempt to defend the currency.
A Champion of Independence?
While Emefiele is considered a competent commercial banker, his macroeconomic leanings are unknown to many and some analysts question whether he will be able to withstand political pressure.
Recent moves by Nigeria’s legislature to make the governor of the central bank answerable to a politically appointed chairman might also spell trouble. Yvonne Mhango of Renaissance Capital, an emerging markets investment bank, says the issue is cause for concern. “When we first heard about it, it did raise questions about the independence of the central bank,” she said.
The markets responded cautiously to Emefiele’ s confirmation as it came in the wake of the suspension Sanusi, who is widely credited with bringing order to the banking sector and stabilizing the inflation rate, which stands at around 7% to 8%.
Lamido Sanusi, whose ouster took place amid mounting
concerns that central banks around the world were
coming under excessive pressure as they carry out
politically unpopular decisions.
Getty Images
Since his confirmation hearing in March, Emefiele has kept a low profile while preparing to officially step into his new role in June.
Reached by telephone in Nigeria, Emefiele declined to speak at length, citing his wish not to undermine the interim central bank management.
According to economist Bismarck J. Rewane, one of the architects of Nigeria’s move from a fixed to a market exchange rate in the 1980s, Emefiele is a an economic enigma. “I know him as an executive who has managed a bank very well. I do not know what school he belongs to. I haven’t seen any writing of his,” Rewane said.
Rewane’s sentiments are echoed by other analysts who see the incoming governor more as someone who focuses on financial operations than an economist with a clear approach to monetary policy.
His record at Zenith is as a conservative banker who was in the management team for over a decade and ran a traditional bank with a high proportion of its assets in treasury bonds and bills.
In 2007, Zenith became the first Nigerian bank in more than 20 years to be given a license to operate in the United Kingdom.
At his confirmation hearings in March, Emefiele vowed to stay the course and defend the naira. That may prove challenging. The central bank broke its budget for liquidity management operations in 2013 and as of March foreign reserves were down to $37.8 billion from $42.9 billion late last year.
Earlier this year, analysts believed a devaluation of the currency was unavoidable, even though the move could trigger a spike in inflation since Nigeria imports a lot of consumer goods. However, more recently foreign exchange reserves have stabilized and the naira rebounded moderately in April amid a wider recovery among emerging-market debt instruments.
There is no question that Emefiele has big shoes to fill. His predecessor is credited with helping Nigeria improve its image on the world stage at a time that was supremely challenging for emerging and frontier markets. “Sanusi had strength of character, he was a very independent thinker; while [Emefiele] is a quiet person and he’ll be very capable without any drama,” said Rewane. But, he added: “I think he’s going to be very cautious. His approach is very cautious.”
Source: The Wall Street Journal

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