Uhuru set to handpick CBK boss as Ndung’u term ends

Delays in enacting new Central Bank of Kenya (CBK) laws have given President Uhuru Kenyatta powers to hand pick a successor to the outgoing governor, Prof Njuguna Ndung’u, whose term expires in two months.

Proposed amendments to the CBK Act call for a competitive recruitment of the governor, as opposed to the current laws which give the president sole powers to appoint the boss of the regulatory body. The draft CBK Bill is however yet to be approved by the Cabinet and later tabled in Parliament, which is on recess till mid-February, giving President Kenyatta the leeway to appoint Prof Ndung’u’s successor.  

“I expect the Bill to be taken to the Cabinet at the next sitting and later forwarded to Parliament when the House resumes,” said Treasury secretary Henry Rotich in an interview, adding: “There is no lacuna. We will proceed with what is existing.”

The proposed laws call for competitive recruitment for a CBK governor to shield the crucial institution from political interference and ensure that only the most competent candidates are selected.

Prof Ndung’u completes his second four-year term at the helm of the lender on March 4 this year. The proposed law provides that the president will pick the governor from three candidates proposed by CBK directors.

The CBK is a key determinant of economic stability given its primary role in safeguarding the integrity of the financial system and stability of cost of goods and services. The current law – which came into force in 1966 – gives the president sweeping powers to appoint the chairman, governor, two deputy governors and eight other non-executive directors of CBK.

The CBK Bill is meant to operationalise Article 231 of the Constitution which calls for an independent Central Bank that shall not be under the direction or control of any person or authority.

While the National Assembly is scheduled to reconvene on February 10, it is likely that the new CBK law will be enacted after Prof Ndung’u’s term has lapsed, given the motions of law making and need for public participation.

The changes in the hiring of Kenya’s top banker are meant to end political patronage at CBK due to the sensitive roles played by the organ. CBK is responsible for formulating monetary policy, promoting price stability, issuing currency, licencing and supervising banks, and acts as lender of last resort to banks.

Under the new proposals, the CBK board would conduct interviews and forward three names to the president whose choice of governor would require parliamentary approval. The draft law provides that the governor shall hold office for a six-year term that is not renewable.

However, experts have suggested that this would limit the effectiveness of the office and instead called for two terms of six years each.

The proposed law lists members of the Monetary Policy Committee as the governor, two deputy governors as well as a CBK staff member heading the monetary policy docket and another four independent members recruited based on their expertise.

Parliament in 2012 reviewed the CBK Act to separate the chairperson and the governor while expanding the membership of the board to the current 11 from eight. The partial review still left the law vague on the process of appointing a new CBK chief.

“There shall be a governor who shall be appointed by the President through a transparent and competitive process and with the approval of Parliament,” reads section 13(1) of the CBK Act following the 2012 amendments.

The changes saw the governor lose powers to chair CBK’s board following the creation of an independent chairperson post. Economist Mbui Wagacha was in September last year elected as the interim chairman awaiting a formal appointment by the president.

The chairperson is appointed by the president for a four-year term renewable only once through a competitive process and approved by Parliament. Analysts reckon that the proposed boardroom structure changes are aimed at trimming the powers of the governor and boost governance at CBK.

“The spirit of the new Bill is to make the board independent by competitively sourcing directors who would then recruit the governor,” said Kariithi Murimi, a risk consultant and governance expert.

“Delays in putting the law in place will result in a crisis at the CBK which the president will exploit to appoint the governor, chairman and directors,” he said.

Currently, the CBK board is not fully constituted as it has seven members including the Dr Wagacha, Prof Ndung’u, National Treasury PS Kamau Thugge and four non-executive members including Florence Muindi, Vivienne Apopo, Otiende Ogara and John Msafari.

Prof Ndung’u, 54, is the eighth governor of CBK and becomes the first holder of the office to exit after serving two terms – having weathered strong headwinds that threatened his career at the agency. He was plucked from the world of academia by President Mwai Kibaki to succeed Dr Andrew Mullei who was hounded out of office following the collapse of Euro Bank.

Prof Ndung’u holds a PhD in economics from the University of Gothenburg, Sweden, and a Masters and undergraduate degrees in economics from the University of Nairobi.

His exit from CBK means that he will not preside over Kenya’s switch to new generation bank notes and coins set for August. The exit also means he may not have a final say on the contentious tender between De La Rue and Oberthur Fiduciaire on who will supply CBK with bank origination material and print the new bills.

His tenure at CBK has been a mixed bag – marked by great strides in Kenya’s financial sector but marred by a wobbly shilling in 2011 and repeat allegations of tendering fraud.

Prof Ndung’u defended the use of mobile money – much to the chagrin of banks – saying mobile cash would help enhance financial inclusion and deepen banking services to the rural poor and the unbanked. The 2013 FinAccess survey credits mobile money services for the more than doubling of Kenya’s banked population to 67 per cent from a low of 26.1 per cent in 2009.

The economist was in 2011 voted the worst central bank chief in Africa by Reuters after the Kenya shilling touched an all-time low of 107 units against the US dollar in October that year, sending inflation to 19.72 per cent in November.

But in 2014, Emerging Markets, a UK-based financial news agency, named him the central bank governor of the year in sub-Saharan Africa.