Recollections of an Economic Advisor: Prof Njuguna Ndung'u

Updated: Apr 2

Prof Njuguna Ndung'u, Former Central Bank Governor of Kenya


CEoG initiated a program of writing support to African economic policymakers who have played senior advisory roles at the heart of governments in sub-Saharan Africa. The goal is to gather recollections of key economic events during their tenure as economic advisors. CEoG helps contributing policymakers transcribe and edit their recollections into at least one chapter that will form part of a ‘Handbook for Chief Economic Advisors to Government’.


These chapters will be organized around key economic events and the roles of that the senior economic advisors played in navigating their countries through the events. The chapters will document successes and mistakes, elaborating the practical challenges associated with bridging economic evidence to effective policy making. They will provide a vivid account of what it takes to be an effective advisor to political leaders. At their discretion, contributing authors will be encouraged to share practical lessons and tips for how to organize advisory functions.


This post is part of our new blog series on recollections of Chief Economic Advisors.


Click here to read Part 1 of the interview with Prof Ndung'u on his recollections of policy responses during the 2007-9 financial crisis in Kenya.



Part 2: How to be a successful economic advisor.


Q: Do you think there's anything a technical person in a political context can do to steer the policy debate in a productive direction?


I do believe that we have room to influence policy. Intellectual or knowledge capacity allows an advisor to explain the policy, its implementation, and its positive impact from the very beginning. When, at the beginning of my tenure, I ringfenced M-Pesa as a retail electronic payments platform, in what now is being described as a regulatory sandbox, I realized that the situation was tense with the big banks fighting this financial innovation, as well as the then Ministry of Finance[1].


In a press conference on the global financial crisis in 2008, acting Finance Minister John Michuki turned to me and said: “I want you to audit M-Pesa. I have been advised that it will not go well.” And then I realized, oh, this is where we are in the fight with the big banks. You can imagine the tension when the Minister of Finance directs the Governor of the Central Bank at a press conference. Later in the day, I advised the Minister that he cannot direct the Central Bank Governor, he is independent in terms of policy. But he did not listen. Everybody was calling me; the market was at a standstill.


Two lessons from the political economy of policymaking in Africa is that first, you must stand your ground and show how a particular policy will generate strong and positive economic benefits to the country. Second, give politicians what they ask for, but in your own way and style. I worked until the morning on an ‘audit’ report that explained the functioning, risk parameters, and the Central Bank’s supervisory approach to M-Pesa. In other words, I stood my ground. And I found support for this innovative policy in President Mwai Kibaki and his display of great capacity and knowledge.


I decided to call the banks that were fighting me and M-Pesa to have some policy discussions. One of the global CEOs came and told me in my office that Kenya would go into a financial crisis. I asked him from where? He said liquidity was moving from all banks to one bank through the M-Pesa platform. I responded that his bank would be the one that would be in crisis because they were forcing their customers to make two trips, one to the bank to withdraw cash and the next one to M-Pesa agents to store money in their SIM cards. I advised that integrating with M-Pesa would be earning his bank ledger fees 24/7. This conversation marked the end of the fight with the big commercial banks in Kenya[2].


In a presentation to the National Economic and Social Council, I made it clear that if a policy is not understood, more information should be requested. It was wrong to criticize a policy that one does not understand. Instead, request for more information so that the issue or policy is understood. I stood firm. And in fact, when I made that presentation, the President asked for a briefing later and we had a discussion. He concluded that M-Pesa may be the best inclusive financial policy to happen to Kenya. It was in front of the Minister of Finance.


Q: What does an economist bring to the policy world that others don't?


Economic policy decisions are key for development– be it the allocation of expenditures, the choice of public investments, government revenue, trade, or monetary policy. Economists help organize a set of coordinated policy options with logical development outcomes. More importantly, an economist’s framework signals to the market that there is policy clarity in the government.


Q: How did your personality affect your style and approach as a policymaker?


Well, I have not thought about my personality as such, but being an academic and researcher has two advantages: First, the analytical capacity. Second, I carried my staff at the Central Bank with me. I recall the silent arguments in the corridors of the Central Bank that we do not need a professor for Governor. When members of the Research Department were presenting their work, there was an underlying statement that they do not need theory in monetary policy making.

When it came to question time, I asked how they conducted monetary policy without relying on theory. The answer was that they fight inflation by controlling base money. My follow up question was to ask them to explain the relationship between inflation and base money. I did not get an answer. My reaction was that capacity was required to understand the drivers of inflation, and the instruments for monetary policy. In a nutshell, I was supported by the knowledge of research, and the capacity to generate results that have a logical explanation both in theory and practice. The Staff at the Central Bank of Kenya must have then realized that it was necessary to have a professor as the Team Leader.


I understood very early that my job was not to design and push for the implementation of a policy, but to explain and discuss how to implement it. The best approach was to make sure the concerned group understood the policy. When the target group understands the policy drive, they understand the logic, they become important agents of implementation.


And of course, being a professor, you also need to have patience. Patience means that you let the ideas sink, and then highlight the logical consequences. This is a lesson for policymakers and leaders in African economies: explain a policy, make sure it is understood, have patience. And at the end of the day, the target group will help you in terms of implementation. This explains why ‘good policy proposals’ in the eyes of the designers remain unimplemented in most of our economies.

[1] It should be recalled that it was the Minister for Finance Amos Kimunya who approved the launch of M-Pesa in 2007 and practically demonstrated how it worked by sending money to one of his constituents 200 kilometers away from Nairobi. [2] Read about Prof. Ndung’u’s pivotal role in enabling M-Pesa in a new case study: Ndung’u (2021) A Digital Financial Services Revolution in Kenya



This post is part of our new blog series on recollections of Chief Economic Advisors.


Click here to read Part 1 of the interview with Prof Ndung'u on his recollections of policy responses during the 2007-9 financial crisis in Kenya.

Click here to read Prof Benno Ndulu's recollections of the 2007-9 financial crisis in Tanzania

Click here to read Sen Narrainen's recollections of the 2007-09 financial crisis in Mauritius.

Click here to read Dr. Sen Narrainen's thoughts on how to be a successful advisor

Click here to read Prof Ndulu's thoughts on how to be a successful economic advisor


Interested in the work we do? Contact us at network@africaceog.org

204 views0 comments