After two four-year terms at the helm, Prof Njuguna Ndung’u’s tenure as Central Bank of Kenya governor has finally ended.

His exit means different things to different people. His regime has been dotted with controversies that have clouded the monetary policies which, many agree, have improved economic fundamentals.

So how he walks out of his office today will depend on what critics and supporters choose as his legacy. Bankers, for instance, will applaud him as he has been very soft on them.

He was named Central Bank Governor of the Year, Sub-Saharan Africa 2014, erasing the 2011 stain when he was ranked Africa’s worst governor as interest and exchange rates and inflation went wild. Mr Nzioka Kibua, a former deputy governor at CBK, says Prof Ndung’u earns high grades for the turnaround in the banking system.

A ferocious economist

Banks grew during his tenure as financial penetration deepened, especially after he approved the launch of M-Pesa and other mobile money services and agency banking. “The gentleman did it excellently,” Mr Kibua said in a recent in interview with the Standard. “Today, no bank is under stress; banks are opening branches almost everywhere. The country has a fairly strong banking system.”

In 2008, at the height of the global financial c****s that shook European and American banks, Kenya’s financial institutions escaped with only bruises. Prof Ndung’u, being an economist, did a great job than his predecessors on monetary policy despite tough political challenges. In person and even as CBK governor, Prof Ndung’u is not known for being talkative.

Yet he displayed a whole different side, allowing himself to get caught up in a spectacular, all-too-public squabble with politicians over deteriorating economic indicators such as high inflation, weak shilling and rising interest rates. “Policy making is very challenging,” he said after weathering 2008 financial c****s. “You have to understand what the right policy is and understand what tools to use.”

He found himself between competing political interests. And that, in fact, is what will largely define his legacy. “Indeed, if there is anything that Prof Ndung’u has done well over the past few years, it has been on the monetary policy,” says Mohamed Wehliye, Senior Vice President, Financial Risk Management, Riyadh Bank, Saudi Arabia and a commentator of financial and economic issues. “Kenya did have hiccups in terms of growth, naturally, during and after the post-election v******e and s******d some effects of the global financial c****s of 2007/8, coupled with severe drought, Euro zone c****s and the Arab Spring, but the monetary policy has generally been well managed,” he says.

Prof Ndung’u, a former lecturer at the University of Nairobi, will be remembered for establishing the Monetary Policy Committee (MPC), which has maintained the pulse of the economy, stimulating various sectors to stabilise growth. Keeping interest rates low at a time of heavy government borrowing from the domestic market has been one of its greatest achievements.

Not-so-nice second term

The second term, however, was far more problematic as inflation skyrocketed. This was attributed to supply bottlenecks as well as a surge in global food and fuel prices, which were beyond the scope of the monetary policy. While inflation has dropped, thanks to a change in the way the cost of living is calculated, the impact is yet to be felt by households.

On interest rates, Prof Ndung’u failed miserably. Indeed, most Kenyans have been complaining of very low returns on deposits yet the cost of borrowing remains high. Currently, the spread – the difference between interest rate charged by banks on loans and the interest rate paid for deposits – is about 16 per cent, one of the highest in Africa.

“This problem, though thorny and lasted for long, was rarely tackled. Importantly, non-interest charges on customers, which border on c******l charges, have been conspicuous. That is why commercial banks are making huge profits,” says Dr Kibua. And perhaps why the Kenya Bankers’ Association hosted a party for him where they decorated Prof. Ndung’u.

His backers say he was let down by the same banks. While the governor created the macro-economic stability required and constantly urged the banks to improve their efficiency in order to reduce their lending rates, the banks obeyed in breach. “Although the governor’s powers are limited given the liberalised interest rates regime, there is a general perception that the governor could have worked even more closely with the commercial banks and, through moral suasion, encouraged a consensus on what constitutes reasonable lending rates,” says Mr Wehliye.

Dr Samuel Nyandemo, an economics lecturer at the University of Nairobi and a critic of Prof Ndung’u’s economic model says the governor was courting d******r and his exit gives the economy a chance to get fresh breathe. “He has been a workmate, and I look forward to teaching with him again; he’s an excellent teacher.”

It is under his tenure that s********s transactions took place at the Central Bank, in which the country lost billions of shillings. The Cockar Commission, established to investigate the sale of the Grand Regency Hotel, recommended specialised investigation in the different aspects of the transaction. The report nailed then Minister of Finance Amos Kimunya and Prof Ndung’u, stating that the governor was not truthful to other public institutions, notably the Kenya Anti-C********n Commission, the Land Commission, the Public Procurement Oversight Authority and the Prime Minister about the sale of the hotel.

The Finance ministry sold the five-star Grand Regency Hotel for Ksh2.9 billion, three times lower than its estimated value of Ksh7 billion. A s*****l in which Kenyans lost more than Ksh1.8 billion in a money printing deal with De La Rue, could be the biggest blight on Prof Ndung’u’s legacy. The CBK used Ksh10.2 billion to procure 2.6 billion bank notes from De La Rue between March 2003 and December 2011 through expensive stop gap orders.

Under Prof Ndung’u, CBK continued to enter into and awarding of irregular contracts to De La Rue Currency and Security Print Ltd on direct basis without regard for the Procurement Act. An audit contained in a report by the Public Accounts showed that the 2006 deal would have seen the currency printed from Malta at a cheaper cost.

The loss arising from using interim stop gap orders after the cancellation of the international tender for supply of 1.7 billion new generation bank notes is estimated at Sh1.83 billion.

So, what next for him?

Prof Ndung’u has left people guessing about his next station. Many speculate he could go back to class but those close to him indicate he is likely to land a bigger assignment as consultant in government or leading international organisations such as World Bank or African Development Bank.


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