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EDITORIAL: Unearthing the Cogent Lessons In the NESG-CBN Economic Policy Imbroglio


The open disagreement between the Nigerian Economic Summit Group (NESG) and the Central Bank of Nigeria (CBN) about both the policy thrust and trajectory of the Nigerian economy has laid bare the conundrum in Nigeria’s economic policy management since the Buhari administration came to power in 2015.

The goal of economic policy is to improve the lives of the majority of the citizenry, and NESG rightly observed that poverty, unemployment and underemployment are rising in the country. Indeed, the livelihood survey conducted by the National Bureau of Statistics (NBS) in 2019 indicates that 41 per cent of the population (or 89 million people) live in abject poverty, with the impact of COVID-19 expected to worsen this. The severity of poverty is much worse across the country than in the past, with many states, especially in the north, reporting poverty rates of over 87 per cent of the population.

Given that the administration is in its sixth year in office, it can be easily concluded that on the score of improving the lives and livelihoods of citizens, the Buhari government has performed poorly, as the NESG has correctly stated. NESG’s concern, as well as that of other well-meaning groups is therefore appropriate. Indeed, if policies remain unchanged, the economy could, if it grows at all, do so at a rate significantly lower than the population growth rate, thus ensuring that poverty and unemployment increases over time.

But how did we get to where we are? The problem dates back to 2014, when oil prices came down from their dizzying highs of the early 2010s, sending Nigeria into a recession in 2016. It was generally recognised by analysts that Nigeria, like all commodity exporting countries, found itself in recession due to “external developments”, with the severity of the recession being magnified by domestic policy responses. The size of Nigeria’s recession was one of the worst of oil exporting countries because the policy response was inadequate.

In 2020 again, Nigeria is entering a second recession in the life of the same administration, and while it has also been triggered by external developments – the COVID-19 pandemic, oil price slump – the previous tepid recovery, and the lack of clear economic policy direction in the preceding years appear to have been magnifying factors.

The issues raised by NESG have been articulated in several reports, reviews and analyses of the Nigerian economy, both foreign and domestic. CBN’s developmental role, especially in terms of a long list of intervention funds, its conflicting policies in the financial market, and border closure, are some of the policies that may have been introduced with the best of intentions. But the overall outcome has left the country economically worse off, with growth rates of less than 3 per cent in the pre-COVID period. The deficiency in the country’s security architecture, poor infrastructure, port congestion, excessive government borrowing, lack of any credible plan towards the diversification of the economy, merely complicate the picture. To the extent that CBN has played crucial roles on the major economic issues of the day, the organisation deserves to take responsibility for the outcomes – positive or negative.

Any critique of the Buhari government’s economic policy is likely to come across as a critique of CBN, given the role it has taken in shaping economic policy and implementation in the recent past. The tragedy of economic management since 2015 is that CBN conducts both monetary policy, for which it has a clear constitutional mandate, and fiscal and real sector policies, which it does not. In so doing, the mandates of many ministries, agencies and even private sector organisations have been taken over, all because CBN has a monopoly over the power to “create money from thin air,” rather than through normal economic growth, which is more sustainable.

Much as CBN can lay claim to the amount of money it has channeled to support different sectors, it should also be magnanimous enough to accept that when economic progress is measured in terms of policy outcome, and not the money or financing created, the heterodox policies have resulted in, or contributed to, increasing poverty and macroeconomic instability in the country. For example, notwithstanding its intervention scheme, the agriculture sector, which CBN touts as its poster achievement, has grown at more or less the same rate in the past six years, even significantly below the rate of growth in the pre-Buhari era, when CBN financing was only through established schemes and not “heterodox policies”.

While we are of the view that the economy runs best when agencies stick to their mandates, we recognise that there are instances when unconventional policies may temporarily be necessary. Under such circumstances, we concur with the NESG’s recommendation that allocative roles must be undertaken in a very open, transparent and fair manner. NESG’s concern that the possible abuses, manipulations and significant market disruptions could encourage crony capitalism, is an understatement, as the country is fast descending into pirate capitalism.

The Buhari government has departed substantially from the economic management model it inherited, without much to show for the new heterodox/statist framework. In the pre-2015 era, the economic paradigm was one focused on increasing the productive powers of the economy by strengthening private sector supply responses, reducing the size of governance and creating a competitive economy.

The model appears to have been completely abandoned for one based on heterodox response to uncertain economic conditions, in which the CBN provides financing for any conceivable project. The problem with this approach is that it prevents the economy from making the adjustments required for it to grow, create jobs in a sustainable manner, and develop the capacity to adjust to both positive and negative shocks. The lack of a clear economic vision on where the government wants to take the country, and almost total absence of an economic management team to execute the vision, partly explains why CBN came to fill the vacuum.

However, as it is with economies all over the world, and supported by theory, central banks cannot intervene in the economy forever, as they are likely to create distortions. The strong growth outcomes of the early post-military era were achieved without turning the CBN into a printing press. The challenges of the economy predates COVID-19, and tactical or knee jerk reactions or throwing money at problems will only be band-aid, when a surgical operation is required. It is time for the government to step up to its responsibilities and take the issues raised by NESG seriously.

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The clash between the NESG’s pro-market understanding of the reforms needed to set the economy right, and the statist interpretation of the Central Bank of Nigeria, provides a unique opportunity for the government to go back to the drawing board and set its house in order. About a year ago, the government constituted an Economic Advisory Council made up of distinguished economists to serve as the President’s Think Tank. While not much has been shared with the public about the Council’s policy recommendations, at least based on the state of the economy, it can be deduced that the President is either not making enough use of his think tank, or is hampered by the lack of an effective implementation team, or both. We strongly encourage the government to press the reset button and spend the remaining years of its administration to achieve durable improvements in the lives of the citizenry. While many of CBN’s policies may be well intentioned, they are producing perverse results, and it is time to bring new ideas to the table.

Other issues raised by NESG merit attention and swift response.

On CAMA: We see a lot of positive outcomes from its implementation, but we recognise that there are constituencies that are aggrieved about certain provisions. We note that many of the provisions are consistent with those in operation in other parts of the world, including in the U.K., and many Nigerian churches subject themselves to the provisions in those countries. Aggrieved parties should follow due process, including working towards amendments through their National Assembly and Senate representatives.

On BOFI Act (2020): The specific provisions on immunity in the Bank and Other Financial Institutions Act 2020 are already contained in the preceding laws, and they are not new, so the current management of CBN should not be blamed for those specific provisions on immunity. Nonetheless, we see value in not only protecting CBN officials for acts relating to the discharge of their duty, but also strengthening provisions to forestall acts of impunity in office. This could ensure that CBN does not overstep its mandate. In addition, the resignation of some members of the board of the NESG, all bank Managing Directors, all subject to central bank oversight, and the circumstance of their resignations, reinforce concern about a CBN that is too feared but little respected. A central reform requirement for the modernisation of the Nigerian state requires that we be able to hold public officials to account. The recent resignations from the NESG only underscore how difficult this will be.

On Border Closure: We concur with NESG that closed borders have a negative impact on trade and employment. A closed economy is unlikely to take advantage of trade opportunities that could spur job creation, economic growth and wealth creation. It is time for the Buhari administration to rethink its decision in this regard and re-open Nigeria’s borders, while putting in place a more robust security system that would address its concerns.


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