Fireside chat with Olayemi Cardoso, CBN Governor, during a dinner session at the just-ended 30th Nigerian Economic Summit

Excerpt…

When you took over as Central Bank governor, were there any surprises?

First of all, I really want to congratulate the NESG for such a major milestone of 30 years, and I’m particularly pleased and impressed that some of the founding members and even those who may not be founding members but have consistently identified with NESG are here today. And I think it speaks volumes as to the dedication that many of our people have, both in the private sector and other sectors of our economy. And it is not in my place to call them out; they know themselves.

It is also to say that I believe that the work of the NESG is required now more than any other time in the history of this country. Multi-stakeholder engagement is so critical. Sitting in one corner and feeling that I’m alright—this doesn’t concern me—is not going to get us anywhere.

“Then, of course, we had a situation where many Nigerians had lost confidence in their own currency, which of course helped to fuel and accelerate the process of the Naira losing its value.”

So I think this is a great opportunity, and dare I say that this should not be a supply-driven interaction? In other words, those in government who eventually use a lot of the outcomes from interactions like this should be demand-driven; they should actually ask for these things. And I challenge the NESG to continue to push and ensure that the ideals for which you all stand so firm and have been so resolute about all these years are accomplished. We should not out-service these events; of course, we have a lot of experience in the room, we have a lot of access to best practices, we should use them, we should hold people to account, and we should work collaboratively to ensure that eventually we get to where we really believe we should get to. And again, to commend the NESG for the work so far, I have had the privilege in the past year of interacting with the leadership, and as I said, I commend them for the work so far, and I challenge them to just continue in that regard.

Coming into the saddle of the Central Bank governor at a very challenging time, people will recall that roughly a year ago, we had a situation where inflation was in the process of taking off; we had a situation where there was a backlog in foreign currency, and the figure that was quoted at that time was, I believe, in excess of 7 billion dollars, which was a huge amount of money, and for that reason, a good number of the international companies were exiting because they were finding it very difficult to access foreign exchange.

We also had a situation where there were multiple exchange rates, and with multiple exchange rates, some were able to have access to foreign exchange and others were not. Then, of course, we had a situation where many Nigerians had lost confidence in their own currency, which of course helped to fuel and accelerate the process of the Naira losing its value.

Read also: Naira’s confidence, stability gradually returning – Cardoso

With such a situation, and of course, something that was also very important at that time, if I recall, was that the Central Bank was involved in a multiplicity of ventures, beyond just its core mandate of price stability and exchange rate management. And, really and truly, one had to make a call, and that call was to ensure that we returned the Central Bank to its core mandates, to ensure that the Central Bank focused on what was important, which was price stability and managing inflation, which was very, very critical, because to our mind, once we got that right, other things would, as a matter of course, follow.

 “The Nigerian youths have tremendous potential; it’s for us even bearing in mind that we are trying to create a future to ensure that we support them, give them the tools, and make our environment more enabling, and we give them hope.”

Months down the road, what would you say you and your team have achieved?

Let me first of all say that sometimes when you are rating your own card, you can argue that there could tend to be a bias in favour of yourself. However, if you look at the ratings of the rating agencies, you will find that over this period of time, they have changed the ratings of the country to positive. At least two out of three of them have done so.

And if you also follow the ratings of international banks and other international financial institutions, you will find that, by and large, they see the role of the Central Bank and the country as positive. And don’t forget that we are coming from a very, very, very difficult situation, where a lot of confidence had been eroded and trust had been greatly, greatly lost. So a year later, for institutions like that, who, dare I say, are not giving to emotions, they look at things for what they are; they come, they visit, they ask the right questions; they can see how these things are played out in different countries; they see difficulties in the multiplicity of different situations. And for them to feel that the Central Bank is heading in the right direction, I believe that says most of how one would evaluate the recent past. Also, I am appreciative of the fact that things, no doubt, have been very challenging, and that the impact has also been quite challenging on many people. But it is a journey.

And I believe that the progress that we have made as the Central Bank of Nigeria and as the entity that is given the responsibility of managing monetary policy in the country today is certainly one that has taken the country in the right direction. I believe there’s a lot more that needs to be done. There’s an enormous amount that needs to be done.

And in fact, one cannot help but be very, very vigilant, because things are changing all the time, and we cannot afford to miss any critical piece because it will have a major impact on our country. Our goal continues to be that of stabilising our economy and the macroeconomic fundamentals; that continues to be our goal.

And we will not relent in ensuring that we are able to appropriately manage inflation in a direction that certainly serves the well-being of everybody.

I take the example of the last Monetary Policy Committee meeting, where the decision was made at the time to hike interest rates, much as it may have appeared that it was going to be on the positive side. But if you see what has played out since then, it goes to give you an idea of the things that we see, and we ensure that we are able to tackle them.

We have deliberately stayed away from unorthodox monetary tools. The central bank is focused on the use of orthodox monetary tools to manage inflation. We are in a situation where excessive interventions have gone on for several years, and those contributed in no small measure to the situation that the economy found itself in. Our view is basically to focus on managing inflation and stabilise prices, focus on foreign exchange management, and leave that to the DFIs and indeed collaborate with those that we can collaborate with; that certainly is not the function of the central bank.

The second thing with respect to the focus was when I was going for my clearance at the Senate, and I mentioned it first here before I mentioned it at the senate and then at the Institute of Bankers conference.

And all I knew at the time was that there was a huge backlog and there seemed to be a problem with the finances of the central bank. I knew that, and I think that everybody else seems to know about that situation. And one could be forgiven at that time for thinking, Well, let’s push this backwards and worry about it later—that for now, we had a situation where there were pressing issues and pressing immediate demands. But I didn’t deny it. It was very clear to me that it was something that needed to be tackled immediately.

And when I say immediately, at least giving confidence to international investors and others that, as a central bank, we would meet our obligations because it was important to do so. But of course, when in the process of verifying the claims, we began to have a better understanding of the claims and their appropriateness. I know that as of now, there are still some that have been unverified; we are working on those. We’ve gone through stage one, and we’re about to go into stage two, verifying those claims, as the case may be. So for all intents and purposes, as we stand, we have taken care of the verified claims.

On building confidence, we had to ensure that we could walk the talk. Because that clearly and truly is the way to build credibility.

No point in saying you will do one thing and not do it. You have to be transparent in the way you undertake your operations. And I must say, one of the things we have done is that, after every MPC meeting, we have a question and answer session where members of the press are very free to ask questions, and they do. And some of those questions, difficult though they may be, we answer because we think it’s important to get the word out there and to ensure that people can see that we are as open and transparent as possible. And that was something that we did during the course of the verification of the claims as well. We put out the information, and we allowed people to have an idea of where we are now going and how far we expected to continue on that particular trajectory.

So that increasingly is something that we are ensuring as a central bank we are bringing out our activities more and more to people.

Our website is about to be significantly overhauled; very shortly, you will see a new website. And that’s all headed in the direction of transparency and innovation.

There are a few issues that were raised; one included trade pricing, and also FX was mentioned. In this room, there are huge expectations.

A lot of the journey so far, if you look at a lot of the policy reforms that are on the table, a lot of that comes from dialogue and listening to people and understanding the problems. If you don’t understand the problems of the people you serve, then how can you take care of them? So just to say that we will not get tired from having the dialogues that we are having, understanding the problems that people face, and seeing how we can work hard to ensure that we take away all the different impediments.

I can give you another example. The IMTOs, we had decided that this was a sector we needed to focus on. There have been limitations from other sources of foreign exchange. We took it upon ourselves to engage with the IMTOs. When I was in Washington for the spring meetings, I called the different IMTOs, and many of them flew in from different parts of the world. And we engaged them extensively, understood what their problems were, and got their buy-in into doing the things we wanted to do. When I came back, we significantly overhauled that operation to make it a lot easier for them to get their licenses and to be able to operate. And happily, we’ve seen the results of that effort. I would say that when we started, the volume that was going through the remittances from overseas was in the region of maybe about $200 million. And as of the end of last month, we were almost at $600 million.

Read also: Higher interest rates necessary to curb inflation, says Cardoso

Let’s take a deeper dive into understanding the problems of the people and of businesses. There is a challenge that we see here. What are those trade-offs?

So before I go into that, let me just say that, as far as I’m concerned, I see no substitute for the fundamentals of the economy. No substitute. So before we start talking about trade-offs we are making, I think we all have to agree that ultimately we have to get the fundamentals of the economy working. That is just a fact. We’ve got to ensure that the engines and the levers are running efficiently and effectively. We’ve got to ensure that the institutions are being built. And I think that’s part of the discussions that no doubt have been taking place here over the course of the past day or so. We’ve got to ensure that we are able to balance out between demand and supply. These are very critical, basic issues that need to be addressed before we even get to the point of trade-offs.

And as far as I can see, that’s all work in progress, and it’s something that definitely needs to be given all the attention that is required. We do need to go back to addressing the fundamentals of the economy. We’ve been a monolithic economy for so long.

The opportunity to diversify the economy continues to be there, and I believe there are certain things that are happening in the economy, and perhaps we need to give it more of a reality. The example I gave you of increasing remittance flows is a classic example of being resolute in wanting to succeed in a particular effort. What I say is I’m not just talking about the central bank. We need to diversify the economy, and different stakeholders need to be resolute in ensuring that that happens.

Now, with respect to the central bank, the monetary side, obviously, and that’s why I started off by talking about this, that the monetary side is there to more or less create some stability, but it does not substitute for the fundamentals. It does not.

So we have a situation where, from our perspective, taming inflation is key. And this is because if you do not, inflation has such a major throwback. It can deter investment, it significantly reduces purchasing power, and for those who are in productive engagement, they find that the people that they expect to be buying their goods are not allowed to do so.

So it is so important for us to take inflation and keep it under control. This is critical. Sometimes we expect that the trade-off between the real sector, high interest rates, and of course the whole issue of inflation could be a timing issue, and ultimately we hope because that is, as inflation begins to moderate, interest rates start to come down, and of course it’s a lot easier for the productive sector to operate.

So that is maybe the hope, and that’s the trend that we expect we will get to in the months to come.

How are you mainstreaming women into the operations of the CBN under you?

Let me first and foremost say that when I went for my senate screening, I actually made a commitment to advancing the roles of the female gender.

And the reason was because of my previous experiences. I had done a number of things that significantly empowered women in the boardroom in particular and in other spheres of life. I believe women provide a very major and significant portion of the workforce, and indeed capacity, and indeed what we see, not just in Nigeria but in many parts of Africa, is the role that women have played, quietly but effectively, is something that certainly needs to be encouraged and resources put into.

In terms of policies to the outside, we are committed to ensuring that we encourage the banking industry, and I must say that banks are at different stages of managing their own internal processes towards bridging the gender gap. I think the awareness is there, and it’s going to be a commitment towards driving in that direction; it won’t happen overnight.

A lot of these come from leadership, and I think that you can rest assured that under my watch, I will do what is necessary to ensure that we can give the necessary impetus to women entrepreneurs, for example. And I must tell you that a week or so ago the Central Bank of Nigeria signed a code for Women Entrepreneurs Financing, and we are going to implement a framework that will hopefully lead to greater financial inclusion for women within the country.

We partnered with the Development Bank of Nigeria and the Bank of Industry. So between the three of us, we are committed to advancing, and rest assured that you have reliable partners and stakeholders.

This has been an interesting time in the banking sector. From your view, what message do you have today for the sector and how you’re engaging them?

Now, when I announced the recapitalisation at the Chartered Institutes of Bankers event, in actual fact, I’d spoken about it loosely before. I signalled to the banks that this is where we are going, and I didn’t give a figure, but I felt it was important to let them know that we consider it necessary to go in that direction. And I recall that at that time, a lot of banks felt that they didn’t need that much capital. However, between October and November of the previous year and about March and April of the following year, devaluation has hit more than half of banks’ balance sheets, and I don’t think anybody anticipated that it would go so quickly in that direction.

And so when I now finally gave the figure, I think it became abundantly clear to the banks that there was a need to actually increase their capital, to create buffers, and to ensure that they have a strong, resilient banking system that will take us to the one trillion dollar GDP that is projected by the president. It’s important to state here because hopefully this will give you flavour as to the way we’ve been interacting with the banks, that we have given enough time from the time that we announced it, as I said even before then, as far back as five to six months, and from the time we announced it, we gave them another two years.

And in addition to that, we have given the banks the option to choose a category of licences that they want to stay with. We have not made it a duly difficult regulation. We are convinced that it’s important to work with the banks to understand their issues and problems and work with them to solve them.

And, from what I have seen so far, the road towards recapitalisation seems to be going in the proper direction. Those who are still out there raising money, so far so good, and I am confident that it will work out well. We’ve given the options.

We also understand and appreciate that our role as regulators is important for us to be ahead of the game, and it is for that reason that we are putting an awful amount of effort into strengthening our capacity. Our banking supervision capabilities are being strengthened to ensure that as the banks themselves are navigating through the challenging terrain, we are there to ensure that things are done in the rightful manner.

Over a period of time, of course, where certain aspects and policies need to be revamped, they will be. As a matter of fact, they have, and I believe the banking industry is strong, really resilient, and able to withstand any potential shocks.

As a central bank governor, what would success mean to you?

I think that the central bank needs to evolve into being an institution that works efficiently. I believe we have to build capacity within the bank, give responsibility within the bank, and we have to ensure that we attract the best people and train them to be ahead of anybody else. We need to ensure that the central bank is one that will be the envy of the industry, not only the banking industry but central banks worldwide.

And I must tell you that over the recent months I’ve been very privileged to interact with a lot of central bankers all over the world. And I can see that over a period of time, a lot of the strengths that we have had have been diluted, and one needs to ensure to build that back up, ensure they operate very ethically, that our constituents can do things in a manner that does not need to come in and know people, and that you do not need to know the central bank governor or deputy governor to get things done.

That will enable the central bank to operate in a way that is open and transparent. The idea is to transform the central bank into the ideal model. And certainly at my level, I will commit to getting less and less involved in the routine issues but devote more time to policy development. We’ve seen that already, but we want to ensure that it gets entrenched within the bank so that the bank and the outside public understand that the interface with the central bank is one where it’s open and transparent, you get things done, and you don’t have to know anybody.

What message do you have for young Nigerians?

One thing that we all have got to be very conscious of now is that Nigerians and Africans in general have a youth surge, and we’ve got to be ready for the youths because if we don’t, then we have ourselves to blame.

And what this means is that we have a lot of youths who are coming out into the job market, going to the university, getting trained, and looking for opportunities to take.

I believe that our youths are extremely illustrious and have tremendous capacity, and we can see from what has been done from Nollywood, for example, the music industry, and so on.

The Nigerian youths have tremendous potential; it’s for us even bearing in mind that we are trying to create a future to ensure that we support them, give them the tools, and make our environment more enabling, and we give them hope.

I know that in the recent past and the crisis we are in now, and by the way, the crisis that Nigeria is in is not peculiar to Nigeria, but you know sometimes we tend to feel like it’s just us, but it isn’t. It’s a global thing, and looking back to the COVID era and reactions from various countries, we’ve heard of various economic disrepair. And you can see what happened with the United States. For example, if interest rates went up for so long and it took them time to come down, England, many parts of Europe, it’s exactly the same.

Ours looks peculiar because perhaps we didn’t do certain things right, but it’s never too late.

And honestly, I just want to encourage the youths to take what we have done. I will continue to refer to this, the whole issue of IMTOs and foreign remittances; it almost seemed like an impossibility a year ago, but by sheer strength of determination, we are now at a stage where, as I said last month, to $600 million from that segment alone. So these things can be done. And with the strength of character that Nigerians are known to have and support that we as older people, people who have access to institution building and support the structures, we must ensure they achieve their goal.

You are committed to inflation targeting and orthodox monetary policy, but clearly, the policies so far are not working and are not supporting growth.

Let me bring in some context. Coming into the central bank, we found a lot of intervention projects, and the total figure was in excess of ten trillion naira. Quite frankly, there’s a need to bring some order into that. Ten trillion is a lot of money. The budget size of Lagos is just over 2 trillion, I think 2.7 or 2.5, just to give you an idea of the quantity that we are talking about here. And we said we are not involving ourselves in interventions; I just want to bring some clarity. And that is that some elements of interventions would need to be completed, so that will require resources and time. The pool of intervention money is not infinite, to the extent that there is already some work in progress, and that work in progress needs to be run off first before you can begin anything else, and even those need to be properly fixed without distorting your economy.

To answer your question, that now gives time to help onboard some of the development banks to create the capacity that we are talking about. That gives time to do it.

You don’t expect to see some of these changes happen over night. It’s unfortunate that, as I said, the quantum is so large that a certain element of orderliness needs to be reined in there, and of course we need to get back some of the intervention funds that are out there and need to be gotten back.

But we are committed; we’ve said it; we’ll work collaboratively and regularly have conversations about investments with BOI. And I spoke about what we signed for women entrepreneurs recently involving BOI and DBN, so definitely it’s something that we are very keen on doing, and with time we will find the appropriate model that will ensure that we do this thing in a reasonable manner that will not get us into trouble.

Can one take his investments abroad, and can we accelerate instead of waiting for ten to fifteen years for things to get better? Can it happen earlier?

In investing, I think for now I will say charity begins at home. We need all the support that we can get, and to be candid, I can’t say the answer is no, but I think what we need now is to ensure that investments are here because they are needed.

Take, for example, now it may seem that because the exchange rate has come down so low, it is a threat. But at the same time it’s an opportunity to earn more from exports because you become a lot more competitive. I just want to encourage people that the opportunities are here; things are recalibrating in a particular direction—not perfect, but definitely it’s an opportunity for people to invest and earn more from export. And I see it happening; others are doing it.

On the comment of the World Bank chief economist, I wasn’t here, but my interpretation and understanding weren’t as it is being reported. My understanding of what he said was that the policies of the central bank are putting Nigeria on the right path. And frankly, I didn’t mention the World Bank when I mentioned earlier that the rating agencies and international financial institutions are all saying the same thing, and I doubt they are all wrong. I know that we are in a situation where many are very cynical, perhaps because of the way things have turned out over a period of time. But I personally told people that cynicism shouldn’t be the order of the day; we should accept that there have been a lot of mistakes over a long period of time, and we should accept that we’ve missed the opportunity to diversify the economy. We should accept that we are in a monolithic economy. We should accept that any movement and shocks in a monolithic economy are bound to cause more pain. I think that’s just it, and we should accept it.

And clearly, the way out to having a buoyant economy and being able to diversify and create different revenue streams cannot be something we expect we will succumb to within a short term. I think we should be realistic about it. I don’t think we need the chief economist of the World Bank or others to come and tell us. I think the point is that we need to focus on ensuring that we do the right things and put our focus on the ball, and then in the not too distant future, you’ll be head and shoulders above others.

If Nigeria can do those things, and we did a long time ago, I think nobody can match us. That does not mean that it will take 10 to 15 years; I don’t think that’s the issue if they are all saying that we are on the right track, and I believe that we are. I do know that if we continue the way we are, we will find that life will be much more bearable, and that if we continue beyond the short term, certainly Nigeria will be the envy of many countries.