The downfall of Nigeria's 'all powerful' central bank governor

Nigeria’s new President Bola Tinubu recently suspended the country’s Central Bank Governor Godwin Emefiele. The following day, Nigeria’s secret police confirmed the erstwhile top banker has been arrested and is in custody for interrogation.

The charges have not been made public, but a government press release cited “an ongoing investigation of his office and planned reforms in the financial sector of the economy” as reasons for the suspension.

This caps the fall of arguably one of the most powerful men in the Nigerian government.

Appointed in 2014 by then-President Goodluck Johnathan to head the central bank of Africa’s biggest economy, Emefiele became the second-longest-serving governor of the bank after his tenure was renewed by former President Muhammadu Buhari.

Buhari’s administration between 2015 and 2023 led Nigeria into two recessions. Inflation hit an 18-year record high of 22.22 percent, and the country’s debt profile soared to more than $150bn, also a record and more than three times the debt left by the previous government, according to the Debt Management Office.

Emefiele served under Buhari for eight years, overseeing Nigeria’s biggest economic downturn.

“He had no vision for the monetary policy of the country. He had risen to the top of his career as a yes-man to those who put him in position,” Cheta Nwanze, lead partner at SBM Intelligence, a geo-political consultancy, told Al Jazeera.

‘Emperor Meffy’

By convention, central bank governors operate in the shadows, maintaining a distance from politics. But analysts say Emefiele played an outsized role in both politics and the economy as the governor of the apex bank.

“The phrase I will use to characterise the CBN [Central Bank of Nigeria] in this period is all-powerful,” said Michael Famoroti, the head of intelligence at business and economic insights firm Stears and former chief economist at Vetiva Capital. “For the first time in Nigeria’s economic history, we have a central bank that was essentially the most powerful form of economic authority in the country … That [power] is normally between the Ministry of Finance, the budget office or the presidential economic council.”

But Nigeria’s economic fortunes would put the country on a precipice, and Emefiele’s status would become stratospheric.

In 2015, as foreign reserves took a hit, the CBN placed 41 items including staple commodities like rice, cement and clothes on foreign exchange restriction. The idea was not only to encourage local production of these products, but also to prevent the importers of these commodities from accessing the increasingly scarce United States dollars in the official market.

But the move backfired as it precipitated a black market for US dollars and multiple exchange rates, which analysts say has wrecked the naira and pushed ordinary Nigerians to buy the greenback at higher rates while the sellers enjoy the arbitrage.

“This was a critical point. There was so much pressure on the system and [the black market] started operating as a separate market with a life of its own,” said Wilson Erumebor, senior economist at Nigeria Economic Summit Group.

To arrest the slump of the naira, Emefiele took several unorthodox steps. He ordered the cutting of trees where black market vendors worked in the capital; placed a ban on cryptocurrency trading, a burgeoning alternative initiative popular among young people hedging their money against rising inflation; and banned a website that reported the value of the dollar in the black market, among several other measures.

CBN’s weekly circulars over the years became prominent among Nigerians as more items were banned or tighter restrictions were imposed on financial transactions, earning the governor the moniker “Emperor Meffy”, a corruption of his name.

“People were not sure of what the policy direction would be on the exchange rate. What is the next policy that would come out tomorrow? What will be banned tomorrow? All of those inconsistencies created panic in the market and people started moving to the unofficial market,” Erumebor said.

Inflation kept rising year after year and with the naira losing value, statistics show Nigerians became poorer. Some 133 million of the country’s 220 million people now live in multidimensional poverty – where they are not just monetarily poor, but also have less access to education and basic infrastructure services, according to a 2022 report from the National Bureau of Statistics.

External factors like the COVID-19 pandemic and the war in Ukraine have no doubt impacted the economy and contributed to inflation, but experts argue that the direction of the monetary policies from the central bank also led inflation to rise from single-digit increases (between 6 percent and 9 percent in 2014) to permanent double-digit increases of 22 percent and higher so far this year.

‘Destruction of the independence of the central bank’

Emefiele’s CBN lent the government 22.7 trillion naira ($49bn) under the Ways and Means Advances clause that can be activated only if the government has a temporary revenue deficiency. The move led local media to dub the apex bank as a “printing press” for the government.

Moreover, the CBN Act only allowed for a loan of five percent of the government’s previous year’s revenue, but the bank illegally exceeded the benchmark every year, sometimes up to 30 percent. This contributed to inflation, experts say.

At the end of President Buhari’s tenure, the country’s parliament changed the law to allow the loan to the government to be up to 15 percent and converted the loan into a 40-year bond.

“When we cut things down to the basic level, the central bank has been funding the government for the last couple of years to the point that without that central bank financing the government would not have been able to meet its liabilities,” said Stears’s Famoroti.

But Emefiele’s reputation would go beyond his monetary policies. As Nigeria’s economy hit new lows in the past six years, it became difficult to separate Emefiele from politics as he became more prominent.

When thousands of youth took to the streets to protest police brutality in October 2020, the central bank ordered the freezing of the bank accounts of select protest leaders without a court order.

But the arc of Emefiele’s ambition would lead to a squashed, unprecedented attempt for the presidency in May 2022 in contravention of the country’s constitution, which states that a central bank governor, to protect the independence of the central bank, cannot participate in partisan politics.

“I think that the real disaster of Emefiele was not necessarily in monetary policy, but in the destruction of the independence of the central bank,” said SBM Intelligence’s Nwanze. “In the foreseeable future, the office will be a political tool and that really is Emefiele’s legacy.”

His biggest undoing turned out to be a widely criticised currency redesign.

Earlier this year, the governor changed the design of the higher denominations in the build-up to the general elections, invalidating the old currency within a period of six weeks. The official reasons were to bring excess cash back into the banking system and institute a cashless system in line with the introduction of the ill-fated eNaira, its digital currency, in 2021.

“The argument was not really clear. The complaint was that too much was outside the banking system. But why should we be so worried that we have cash outside the banking system when cash in circulation against the GDP [gross domestic product] appears to be the lowest when compared with other countries that have made so much progress with cashless policies?” Erumebor asked.

With elections around the corner, the currency redesign was deemed political. Government officials said the move would void stockpiles of money believed to be in the custody of politicians to be used to sway voters.

The plan backfired and led to a naira black market. The policy was later suspended, but not before it had spurred crises within the banking system. According to an SBM report, the cashless policy had a widespread impact as people and businesses could not access cash coupled with several internet downtimes.

Prices of goods and services shot up in urban centres between December 2022, when the policy kicked in, and the time of national elections in March 2023. The consequences were especially severe in rural areas, where people without access to banks could not buy basic items.

With Emefiele suspended and an acting governor appointed in his stead, there are hopes that the apex bank charts a new course.

“I would expect that going forward in this new administration, we see things go a little bit back to normal,” Famoroti said. “I don’t expect a full reversion, but I would be surprised [if] whoever comes after [Emefiele] will wield the same sort of power and influence over the economy as he has done over the last four to six years because that was an aberration.”

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