X

This is not a paywall.

Register for free to continue reading.

The news sucks. But your reading experience doesn't have to. Help us improve that for you by registering for free.



Please create a password or click to receive a login link.


Please enter your password or get a login link if you’ve forgotten


Open Sesame! Thanks for registering.

First Thing, Daily Maverick's flagship newsletter

Join the 230 000 South Africans who read First Thing newsletter.

We'd like our readers to start paying for Daily Maverick

More specifically, we'd like those who can afford to pay to start paying. What it comes down to is whether or not you value Daily Maverick. Think of us in terms of your daily cappuccino from your favourite coffee shop. It costs around R35. That’s R1,050 per month on frothy milk. Don’t get us wrong, we’re almost exclusively fuelled by coffee. BUT maybe R200 of that R1,050 could go to the journalism that’s fighting for the country?

We don’t dictate how much we’d like our readers to contribute. After all, how much you value our work is subjective (and frankly, every amount helps). At R200, you get it back in Uber Eats and ride vouchers every month, but that’s just a suggestion. A little less than a week’s worth of cappuccinos.

We can't survive on hope and our own determination. Our country is going to be considerably worse off if we don’t have a strong, sustainable news media. If you’re rejigging your budgets, and it comes to choosing between frothy milk and Daily Maverick, we hope you might reconsider that cappuccino.

We need your help. And we’re not ashamed to ask for it.

Our mission is to Defend Truth. Join Maverick Insider.

Support Daily Maverick→
Payment options

What to Watch as Nigeria's Divisive Central Banker Gets...

Business Maverick

Business Maverick

What to Watch as Nigeria’s Divisive Central Banker Gets New Term

By Bloomberg
14 May 2019 0

Godwin Emefiele looks set to get a second term as Nigeria’s central bank governor, which would make him the first person to do so in the 20 years since Africa’s biggest oil producer ended military rule.

The 57-year-old former banking executive Godwin Emefiele proved controversial in his first five years as monetary chief. Many analysts criticized his desire to keep a strong currency and curb imports, saying it deterred foreign investment and slowed Nigeria’s economic recovery after the 2014 crash in crude prices. But he endeared himself to President Muhammadu Buhari, who believes the central bank’s measures are the best way for Nigeria to diversify from oil and boost manufacturers and farmers.Here’s what investors need to watch if lawmakers approve Emefiele’s nomination:

The naira:

Whether or not Emefiele scraps a system of multiple exchange rates and lets market forces have more sway over the naira is a key question for foreign investors. Under Emefiele, the central bank has pegged the naira’s official price at 305 per dollar, while allowing investors to trade it in a separate window at around 360.

Investors will watch to see if Emefiele unifies the naira's rates

The International Monetary Fund has long said the absence of a single exchange rate hinders growth and makes for an opaque system. Moreover, Renaissance Capital says the currency is overvalued even in the market window — where its price has barely budged in the past 18 months, thanks in part to central bank meddling — and should be almost 20% weaker at 440 against the greenback.

There’s little sign that Emefiele or Buhari will change their stance soon. And with foreign reserves having risen 8% since November to $45 billion, the governor has the firepower to defend the currency for longer.

Carry bonanza:

Emefiele has been a godsend for carry traders this year. His policy of keeping a tight grip on the currency and yields on short-term bonds elevated has made the naira one of the juiciest bets in emerging markets. Naira bonds have returned 10% in dollar terms this year, the fourth-best performance among major developing nations, according to data compiled by Bloomberg.

High Carry

The problem for carry traders is that Emefiele may have to change tack at some stage, given that a combination of an overvalued currency and high interest rates high is hardly conducive to boosting one of Africa’s slowest-growing economies. Reflecting investors’ concerns about growth, the stock market has dropped 8.5% this year, one of the worst performances globally.

Inflation:

Can Emefiele bring the inflation rate down? It’s been above the central bank’s target of 6% to 9% — which the governor barely refers to these days — for almost four years. It’s fallen from a peak of almost 19% in early 2017, but still stands at 11.3%. It will probably average 11.5% this year, the most after Egypt and Angola among big African economies, according to a Bloomberg survey.

Prices Rising

Monetary policy rate:

Nigeria’s main interest rate, known as the monetary policy rate, has become largely irrelevant under Emefiele, given his prioritization of short-term securities and the cash-reserve ratio (currently set at 22.5% of banks’ deposits) to control liquidity. If the MPR regains its importance, that would be a sign Emefiele is returning to more orthodox monetary policies, and may perhaps even be a step toward unifying the naira’s various rates.

Rice farmers:

Emefiele has increased the central bank’s development-finance activities, which include subsidized lending to farmers and manufacturers. The governor says such measures have helped provide millions of jobs and are a way to support the economy’s industrialization. Critics, including the IMF, say the schemes are prone to corruption and distract the central bank from its core function of maintaining price stability.

Spats with foreign companies:

Emefiele unnerved investors last August when he said that South Africa’s MTN Group Ltd. had illegally repatriated $8.1 billion of dividends from Nigeria and insisted it be returned. The company was cleared of wrongdoing after four months of negotiations. But the spat dented Emefiele and the Buhari administration’s claims that they would improve the business environment for foreign firms.

Gallery

Please peer review 3 community comments before your comment can be posted