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Monday, March 27, 2023

Osinbajo Disavows Unorthodox Policies in Rare Rebuke of Emefiele

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Nigerian Vice President Yemi Osinbajo has in an unprecedented move disavowed a lot of the policies being spearheaded by the country’s powerful Central Bank Governor, Godwin Emefiele.

Osinbajo in a keynote speech at the Central Bank of Nigeria (CBN) Bankers committee summit held over the weekend, listed four major areas he was in disagreement with Emefiele’s heterodox policies, that analysts have blamed for slowing Nigeria’s economy down, increasing unemployment and inflation.

Heterodox economics refers to all the theories and schools of thought that are outside the mainstream, market-based approaches.

Firstly, Osinbajo argued that government policy should be geared to making Nigeria a value-adding economy, especially in areas of comparative advantage.

“Nigeria must leverage its trading talents. We have some of the greatest traders and entrepreneurs in the world such that we can become a global trading hub.  It is important to loosen generalized restrictions on trade,” Osinbajo said.

“Blanket import restrictions are a dampener on economic activity because a lot of items that might be needed in the manufacturing process might be affected with consequent negative impact on value addition in the economy.
Importation itself is not the problem. It is what you import and what you do with it. It is value-added that matters. This is how jobs and wealth can be created.  Many countries of the world who manufacture are huge importers. And they import far more than Nigeria.”

CBN Governor Emefiele has been a cheerleader of import substitution growth strategy and the banning of the notorious 42 items from getting foreign exchange (FX) from the CBN for imports.

Emefiele has also been publicly supportive of the Federal Government led by President Muhammadu Buhari’s border closure that put a chill on trade between Nigeria and its neighbors in West Africa.

Osinbajo next attacked the notion of demand management of foreign exchange by the CBN saying what needs to be done promptly, is to combine a strategy of managing limited supplies with one of aggressively expanding the supply base.

“This is particularly true of foreign exchange. We must address supply…and move towards a more market reflective exchange rate,” Osinbajo said.

This paper documented last week how the CBN Governor, Godwin Emefiele began to implement a restrictive FX regime in 2016, that effectively undermined the free trading of foreign exchange by banks, and other dealers, through two-way quotes.

Not too long afterwards Nigeria’s economy fell into recession after contracting by 2.06 percent in the second quarter (Q2), of 2016.

The CBN’s forex policy spawned black market supremacy of forex deals, and multiple FX rates with wide disparity and lack of convergence.

The shutdown of the free functioning interbank FX market by the CBN, led to a collapse in supply of dollars into the Nigerian economy as other sources of FX inflows such as remittances and foreign portfolio investors reduced.

Osinbajo next tackled the need to boost exports in order to earn foreign exchange, and the removal of barriers to exports put in place by the CBN.

“The removal of any existing export restrictions, creation of special export terminals, export promotion of non-traditional agricultural commodities such as sesame, fruits, horticulture, hibiscus, and cashews, are all crucial,” Osinbajo said.

“Of utmost importance is that we must remove restrictions on the use of export proceeds. The way to incentivize exporters is to give them the liberty to bring their export proceeds into the economy and use as they please.”

The CBN especially under Emefiele has imposed rules forcing exporters to repatriate their funds into the country at the CBNs official rate of exchange.

Last year, the CBN ordered exporters to register with it through an online portal to ensure the repatriation of proceeds.

Emefiele has also ordered banks to report exporters that fail to repatriate income earned abroad.

Osinbajo then said the government must find a way of moving the Nigerian digital economy into overdrive especially with the topical issue of block chain technology, digital assets, and cryptocurrencies.

Emefiele to the chagrin of many young Nigerians banned the sale and purchase of cryptocurrencies through the Nigerian banks or financial system, leading to a suspension of regulatory pronouncements on Bitcoins and other cryptocurrencies by the Securities Exchange Commission (SEC).

The Vice President said despite the position of the CBN, the Securities Exchange Commission, SEC, and some of the anti-corruption agencies on the possible abuses of cryptocurrencies their position should be the subject of further reflection.

“There is a role for regulation here. And it is in the place of both our monetary authorities and SEC to provide a robust regulatory regime that addresses these serious concerns without killing the goose that might lay the golden eggs,” Osinbajo said.

“It should be thoughtful and knowledge-based regulation, not prohibition in my view. The point I am making is that some of the exciting developments we see, call for prudence and care in adopting them and this has been very well articulated by our regulatory authorities, but we must act with knowledge and not fear. We must ensure that we are in a position to benefit and in a position to prevent any of the adverse side effects or even possible criminal acts that may arise as a consequence of adopting any of these options.”

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