Practitioner viewpoint: Practical insights for resolving African central bank board independence challenges

Central banks have underperformed in recent times (BIS Bulletin, 2023), and this situation is severe in most emerging economies (Brekumi et al., 2023; Olawoye and Erediauwa, 2023). This is revealed in overspending and losses incurred in financial reports (International Monetary Fund, 2023). This suggests an extensive malfunction in financial discipline and casts doubt on the stability of the banking industry and the market as a whole (BBC News, 2023), and it fails to advance Sustainable Development Goal 8 of the United Nations, which aims to encourage sustainable, inclusive and sustained economic growth, productive and full employment and decent work for everyone (United Nations, 2015).This underperformance undeniably emanates from corporate governance lapses, especially how board members are appointed (Andoh et al., 2023). It appears that the boards of central banks in Africa have impaired independence, as they are 100% government-owned (International Monetary Fund, 2023; Bank of Ghana, 2023). Such banks are said to have a concentrated ownership model (Arora and Singh, 2023). The situation is not the same for those in developed nations like Japan, where ownership is dispersed between public and private actors.We argue that political interference in solely public-owned central banks is assured, and this impairs the independence of board members, such that they will not champion the interests of all stakeholders but those with majority or full ownership, as seen in the case of Ghana (Bank of Ghana, 2023). Yet, an independent board is a requirement for good governance (Agyemang Badu and Nyarko Assabil, 2022), and the lack of it lowers their commitment or psychological attachment towards the central bank (Wang et al., 2023; Pavon Mediano, 2020). This eventually undermines performance because decisions taken are not succinct (Doku et al., 2023).To solve this problem, there is a need to encourage a dispersed or diffused ownership structure where both the government and private entities have a reasonably fair stake in the banks (Boachie, 2023). However, first of all, there is inadequate practitioner information on how board independence impacts the adaptive performance of central banks, although the work of central banks involves adapting to external shocks (Stasielowicz, 2022) from exchange rate volatility, currency depreciation and wars in import countries. Adaptive firms have the ability to cope with uncertain shocks from the environment (Tabiu et al., 2020), but the inadequate information in this area blurs policy and practical directions.Secondly, practitioner information regarding how the organisational commitment of board members may expedite board independence’s impact on adaptive performance is inadequate in the corporate governance space. In this context, we argue that an independent central bank board becomes more committed to the interests of the bank and all its stakeholders, and this act eventually fosters adaptive performance. An independent central bank board becomes more concerned about the interests of the whole than the part, with the whole encompassing citizens, commercial banks, investors, the government and the like. Thirdly, there is a paucity of practitioner information on how ownership structure can be conditioned to encourage good governance to positively impact the board independence–organisational commitment connection. Finally, most corporate governance information in the banking sector of Africa has concentrated on universal banks (Andoh et al., 2023; Boachie, 2023), with less focus on central banks.Yet, central banks oversee or regulate the activities of banking sectors within which universal banks operate, and several studies have affirmed the crucial role of central bank board independence, a principle underscored by the Basel core principles that advocate for operational independence for the “banking supervisor” (Bodea and Garriga, 2023; Zhao et al., 2023; Cozby, 2023; Kim, 2023). Proper regulatory oversight can be ensured if central banks are well run and do well. In this piece, we discuss central bank board independence and adaptive performance in Africa. Coupled with research suggestions, we provide policy and/or actionable solutions for tackling this current and contentious matter prevalent in most developing economies.Central bank board independence and adaptive performance are critical factors in shaping the economic landscape of African countries. As practitioners in this field, we recognise the multifaceted nature of these elements and their profound impact on economic stability, monetary policy effectiveness and overall development. Firstly, central bank board independence is pivotal in ensuring that monetary policy decisions are made autonomously, free from political interference or short-term populist agendas. An independent central bank can effectively pursue long-term economic objectives, such as price stability, economic growth and employment, without succumbing to pressures that might prioritise immediate political gains over sustainable economic outcomes.In the African context, achieving and maintaining central bank independence has been a difficult journey. Political dynamics, historical legacies and governance structures often influence the extent of autonomy granted to central banks. Some countries have made commendable progress in establishing legal frameworks that guarantee central bank independence, but in many cases, the practical implementation and safeguarding of this independence remain a concern.Furthermore, adaptive performance is crucial for central banks in Africa to navigate through dynamic economic environments and uncertain global conditions. The ability to adapt policies and strategies in response to changing economic circumstances, technological advancements, and global financial trends is essential. This adaptability ensures that central banks remain relevant and effective in achieving their mandates. African central banks face unique challenges that require adaptive performance. These challenges include managing inflationary pressures, maintaining currency stability amidst external shocks, promoting financial inclusion and supporting sustainable economic growth. The ability of central banks to swiftly adjust policies, adopt innovative tools and collaborate with stakeholders is vital for addressing these challenges.Enhancing central bank board independence and adaptive performance in Africa demands a comprehensive approach. It involves strengthening legal frameworks by developing and upholding robust legal structures that explicitly guarantee central bank independence while ensuring transparency and accountability. Continuous institutional capacity is critical. There is the need to invest more in training and development programs for central bank staff to enhance their skills in economic analysis, policy formulation and implementation strategies. Embracing technological advancements is also timely. Leveraging technology for better data collection, analysis and the implementation of efficient monetary policy tools suited to the local context is vital. Continuous engagement with stakeholders is necessary. This involves continuous collaboration with governments, financial institutions, academia and the private sector to foster dialogue and garner support for independent monetary policy decisions. In conclusion, as practitioners, we believe that central bank board independence and adaptive performance are indispensable pillars for sustainable economic development in Africa. By ensuring independence and fostering adaptability, African central banks can effectively steer monetary policies and contribute significantly to the continent’s economic stability and growth.First, as board independence is demonstrated to have a beneficial impact on adaptive performance, governments should pass legislation or regulations to strengthen central bank board independence using reforms. The reforms should include revising the ownership model for central banks. A dispersed or diffused ownership model is proposed for boards to be independent and committed, free from all forms of political meddling, which is a feature in most emerging markets.An independent board demonstrates greater commitment to banks and their stakeholders by acting in their best interests. Such a board endeavours to do well in the face of unforeseeable environmental circumstances such as currency depreciation and exchange rate volatility because the board is more concerned with the interests of all interested parties. In this context, we call for the protection of central banks’ independence from political meddling, highlighting the need for governance and regulatory reforms in Africa’s central banking sector. This may eventually resolve or improve Africa’s central bank underperformance amidst the continuous currency depreciation and exchange rate volatility bedevilling countries within this region.Second, central banks need to reassess their selection and training requirements for central board members. The management of Africa’s central banks should make it a priority to hire independent and well-trained personnel for their boards. In this context, international organisations such as the International Monetary Fund and the World Bank may be encouraged to fund capacity-building activities in developing market central banks. Third, we propose more transparency and accountability in central bank activities in Africa. This can be addressed by creating reporting procedures that hold these central banks accountable for their activities and decisions, especially in emerging countries where such processes may be missing.Fourth, we emphasise the importance of risk management and competent decision-making in central banks. In response to changing economic situations, central banks need to adopt methods and protocols to guarantee their boards make educated, adaptive choices. Central banks’ improved adaptiveness may help increase financial market stability. This, in turn, will attract foreign investment and aid in currency stabilisation, which is critical for emerging markets. Finally, we emphasise that the particular circumstances of each central bank and emerging market will determine the precise solutions of a compromised central bank board. In this context, we advise that policymakers and researchers should work together to tailor these suggestions to their own context and issues.Like other practitioner papers, this paper has suggestions for further research in the fields of corporate governance and adaptive performance. First, recognising that existing corporate governance information has overlooked how board independence influences the adaptive performance of central banks, researchers may provide further insights on this topic, particularly in the context of developing economies. Second, researchers may provide insight on how board members’ commitment expedites the impact of board independence on adaptive performance in central banks since this information is inadequate in the corporate governance space. Third, acknowledging the paucity of information on how ownership structure may be conditioned to influence good governance and board members’ commitment, researchers are required to fill this gap in the literature and contribute to the field.