Many factors make these times uniquely tough. Years of wrong economic choices and ideological twists and turns reached an apogee; a build-up of economic ungovernability over the decades I should say. The quest for economic diversification has not quite materialized, no matter how hard we’ve tried to prioritize that agenda. Stakeholders here have only protected their turf, with everyone who should shift a little, and sacrifice some advantage, often digging in and maxing out.
The ‘national cake’ (call that GDP) has therefore not grown fast enough – whether to cover the healthy year-on-year population growth, or to benchmark other countries’ growth trajectory and achievements, or to build much-needed infrastructure stock, and certainly not enough to catapult the nation into true greatness through a manifestly exploded standards of living for all. Countries elsewhere since got wiser. Many are in economic unions that make their positions stronger.
The idea is to get as much as possible from the rest of the world. For in spite of all the global conventions and agreements, it’s still a dog-eat-dog game out there, with every nation angling to get a leg up over others. These times are unique and tough. It is the time that economic managers have thrown their ideologies overboard. It is the time for survival. Pragmatism reigns. Some say we are in another neo-Keynesian era; let’s say Keynesianism reloaded and on steroid. But with that comes high inflation. Still, Nigeria has a long way to go if she is to realize her manifest destiny and reposition the lives of 200 million people.
Then the COVID-19 pandemic showed up. The world had last seen this kind of phenomenon exactly 100 years before, in 1920. This one is a destiny-defining event and every economy has become hobbled. Erstwhile unimaginable lockdowns and business shutdowns in all nations was the new reality and some countries have not got out of that cycle. There was so much uncertainty but we all agreed that it was important to save lives first than to worry about which businesses will run losses, or even what will happen to the overall economy. As the pandemic recedes and economies open up more, governments and businesses are counting their costs. Many have taken a hit from which they’ll find it hard to recover. For the first time in 100 years, economies tumbled by more than half; 60 per cent drop in some instances! Never before heard of, for such to happen within months. Vulnerabilities were laid bare. Economies that were thought to be resilient in times past, were revealed to be paper tigers.
Crypto currencies also made a move to upstage fiat currencies and central banking. What was started in 2007, in response to what now looks like a smaller global crisis (subprime mortgage meltdown, a financial crisis and a global recession), had become a big issue, with a value of more than $2 trillion worldwide. But central banks around the world woke up and stepped to the plate. Most are talking about their own digital currency. Central Bank of Nigeria has declared to go live come 1st October, 2021, Nigeria’s 61st Independence Day with a digital naira. So, rather than fold up in the face of innovation, central banks around the world have taken the good elements of financial innovation and are ready to challenge any existential threats that may be posed by these new kids on the block. It’s a mortal combat. Nobody approaches such with feather dusters. The crypto guys seemed to have brought a knife to a gunfight and are presently getting worsted for it. Many cryptos are flatlining as fiat and central bank reassert themselves – of course with the backing of sovereign governments.
Nigeria has had her fair share of troubles. From the earlier-mentioned perennial mismanagement of the economy, to failure-to-launch attempts at economic diversification, galloping inflation and decreasing productivity, it’s often been tales of woe. Add to that, high interest rates by banks, and an exchange rate that we are barely managing to keep in terra firma, and you may see that the work of central banking could never be easy at the moment – indeed it has never been. People naturally have their eyes on the money. And that is the reason why the head of a central bank is addressed, usually, as The Governor. I prefer to use ‘The Guvnor’; the proper colloquial English term from decade perhaps centuries, back, used by tradesmen and latelt, hard men, to refer to the boss; the man who pays the bills. The governor of a central bank keeps the money for the entire country. He is a man of immense respect and responsibility. In Nigeria, a central bank governor is at par with anyone leading a state… only that he is a lot more liquid. He has access to endless amounts of cash (potentially). The central bank budget is often larger than what they have in many of our states.
Mr. Godwin Emefiele is soft-spoken. He has never been a rabble-rouser. Indeed, many did not expect him to last this long in that tricky position which has consumed a handful of juggernauts. But Emefiele has not only managed to secure two terms (the first governor to so do after 26 years in the times of Alhaji Abdulkadir Ahmed in 1993), he is positioned as Nigeria’s own Alan Greenspan, navigating the economy through unprecedented tough and tricky times, winning some, and losing some. As respected as Greenspan was though, by the time the subprime crisis hit hard, even he was lampooned by those who took exception to his strong but failed belief that markets could self-regulate. Emefiele, the former university lecturer and former Executive Director at one of Nigeria’s biggest banks has managed to hold his own; love him or hate him. As a fact, the work of central banking is not a popularity context. Oftentimes a central bank governor will have to take decisions that many people will detest. Working with a shipload of eggheads – economists, monetary policy specialists, statisticians, researchers, accountants and auditors of all sorts – the work of a central bank chief is to have all ten fingers and ten toes on the pulse of a nation’s finance. He will see many things that the average citizen does not. But I say it is often a thankless job. Why?
Central banking is the game of chasing trilemmas and quadrilemmas, knowing that out of three or four mice that you are trying to catch, at least one, or two, or if unlucky, all will escape. A lemma is a conundrum. A dilemma is an impossible choice between two options. Trilemmas are harder to manage. And so on. The best scenario you could manage in a trilemma, is for one of your targets to escape. Between having a fixed, stable exchange rate, having capital controls, and being able to manage your monetary policy, at least one must be given up. Now which one is good to let go? The index that people see most visibly is the exchange rate. And then inflation rates. And then lending rates… perhaps in that order. Scholars have added foreign exchange reserves to the list of the Unholy Trinity, as first propounded in what is known as the Mundell-Fleming model, therefore the trilemma is now a quadrilemma. Former Italian Minister of Finance, Tomasso Padoa-Schioppa added Free Trade to the Mundell-Fleming model – his own form of quadrilemma that central banks must chase – and NEVER be able to achieve in full. Nigeria has struggled, in these difficult times, to grow her foreign reserves, as a backstop to ensure the naira does not go into a tailspin. We also know that Nigeria is heavily import dependent. Padoa-Schioppa’s free trade perspective is the reason why our central bank has listed 43 items that it shall not support with cheap(er) exchange rates.
– Fasua is CEO, Global Analytics Consulting Ltd