Who the market expects as CBN governor
As the race for CBN governorship position intensifies one thing that keeps coming up in the minds of financial market operators is whether Nigeria needs a banker, an economist or person of both backgrounds as the head of its apex bank. The CBN, under the leadership of Sanusi Lamido Sanusi, built its blueprint for reforming Nigeria’s financial system on four pillars: enhancing quality of banks, establishing financial stability, enabling healthy financial sector evolution, and ensuring the sector contributes to the real economy.
As the market tries to arrive at whom they need, one thing is clear to them: that the CBN under the leadership of Sanusi Lamido Sanusi built its blueprint for reforming Nigeria’s financial system on four pillars: enhancing quality of banks, establishing financial stability, enabling healthy financial sector evolution, and ensuring the sector contributes to the real economy.
In establishing financial stability and enabling a healthy financial sector, the apex bank has maintained the credibility of the financial system. A stable banking system (money market), a resilient naira (a predictable exchange rate in the forex market), declining inflation (which has remained at a single digit) are some of the high points of the present CBN. All these are important factors in today’s thriving bond and equities market.
Without a doubt, the person of Sanusi as CBN governor and his approach to the aforementioned issues attracted many local and foreign investors. The various categories of awards and recognitions, within the nation and abroad, are evidence of a very high level of respect. A couple of economists have said the outgoing CBN governor is a hard act to follow.
Though in line with his one-term agenda, many in the markets will be sorry to see him leave office after a single tenure. Charlie Robertson, global chief economist, Renaissance Capital, told BusinessDay that the key way to reassure markets is to announce a credible successor, admitting the fact that for now the macro backdrop (falling inflation, low public debt, current account surplus) helps to protect Nigeria.
“Ideally you’d have someone well versed in developmental economics – perhaps with international experience at the World Bank, International Monetary Fund (IMF) or international banking – but also someone who understands the local banking system and can ensure it works to support Nigeria’s growth in coming years,” Robertson, who is also co-author of ‘The Fastest Billion’, added.
Femi Ademola, head, research and intelligence, BGL plc, said that “it doesn’t matter whether the successor to Sanusi is a banker or an economist but his focus should be on the economy as whole rather than the banking sector”.
“Since Nigeria’s return to democracy in 1999, we have had two bankers and an economist as CBN governors. During the period, we have had more focus on the banking sector to the detriment of the whole economy. Between 1999 and 2004, banks’ minimum capital base was increased twice (first from N500 million to N1 billion and later to N2 billion),” he said.
“We also saw the revocation of the license of Savannah Bank plc with its consequential job loss and the regulatory treatment of issues at some banks with their effect on the banking sector. The period between 2004 and 2009 saw the consolidation of the banks as the central focus while 2009 to 2014 also focused more on the reforms of banks,” he added.
Ademola further said that in his thinking, Nigeria has had enough of attention on banks and should now concentrate on how to grow the economy through other sectors.
“The most important growth and development target should be increased productivity and job creation, which will require bringing down interest rate. Because we have had an economist before who also focused more on the banks than other economic issues, it means that it doesn’t matter whether the CBN governor is a banker or an economist. However, my conclusion is that we need a CBN governor with strong practical economic and financial background and a good understanding of the banking sector. He can be a banker with strong economic experience but we don’t need any more disruptions to the banking sector for now,” he said.
On the kind of CBN governor the market needs, Abiola Rasaq, an analyst at UBA Capital, simply stressed that the three qualities of a CBN governor – a banker, an economist, or both – are important, adding: “The CBN governor may not necessarily have all, but the gap should be adequately filled by the deputies.”
He went further to say that the market expects the first CBN governor with a strong background in applied economics, political economics, finance and public policy administration.
“In-depth knowledge of economics is crucial for macro policy formation and administration, given the increasing complexity of economies, especially as Nigeria further integrates with the rest of the world. A deep knowledge of both internal and external macro variables as well as their cause-effect relationships is important for effective policy formulation that will ensure financial and macroeconomic stability. The knowledge of finance is crucial for the secondary role of the CBN, which is banking sector supervision as well as being the banker and chief economic adviser to the government. The latter also deserves a good knowledge of public policy, especially as it relates to the interaction of fiscal and monetary policies for effective functioning of government and businesses, which has implications for the micro economic units (i.e. households),” he said.
Rasaq also noted that the market expects a CBN governor with a fulfilling career in finance, academia and public administration. According to him, “To be effective, the governor should understand and have the experience of the thin line between applied and theoretical economics/finance. The supervision of banks may also be more effective, if the CBN governor has the practical knowledge of banking, as this may minimise likely regulatory arbitrage of banks. Being a sensitive leadership role, with strong influence on the economic and social life of the 173 million Nigerians, the governor should demonstrate a good track record of public administration.”
In addition, he thinks the personality of the governor is perhaps more important. “Notably, every single word and even body language of the CBN has implications for the economy. Thus, the CBN governor should be firm, decisive, non-covetous, balanced in his/her views, analytical and practical. Whilst it is important to stress the independence of the CBN and the need to toe hard lines when necessary for the medium- to long-term good of the economy and its people, it may as well be crucial that the CBN governor is moderate in deserving situations. This balance is imperative for a developing economy like Nigeria, with complex structural rigidities, most of which are outside the influence of monetary policies,” he told BusinessDay.
Accordingly, he noted that recent global trend favours academics and policy administrators with strong economic background, especially as the performance of these people have been impressive.
“[It’s] interesting to note that the last Federal Reserve chairman with no strong economic background was Grease Williams, who left office in 1979, with less encouraging record of historic-high inflation and pockets of disequilibrium in the economy. That said, there are a few exemptions with less economic background but outstanding performance, such as the governor of Reserve Bank of India, Raghuram Rajan. Albeit it is worthy to note that whilst Rajan has no degree in economics, he has a good knowledge of macroeconomics, having served as IMF chief economist,” he pointed out.
Overall, Rasaq believes the personality is very important and whilst there may be a compromise of either of the other two qualities highlighted above, “the governor should have a bearable minimum trait of both”.
“To me, a minimum level of these three qualities must be apparent in the DNA of the CBN governor, and deputies must be able to adequately fill the gaps, especially as the deputies are expected to be specialists in respective desks,” he added.
By: Iheanyi Nwachukwu