• In a sign of recovery, $1bn capital inflow recorded in two months
• CBN Restates need for partial sale of oil assets to boost reserves, reflate economy
“I repeat, the worst is
over, Nigeria’s economy is on the path of recovery and growth. If you
are a bystander, you are losing… join the train now before it leaves
you.”
– CBN Governor
As Nigerians grapple with the
worst economic crisis to befall the country in more than two decades,
the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele,
has assured the public that the economic recession will soon be over,
given the strategic measures being put in place by the monetary and
fiscal authorities to turn the economy around.
Speaking in Lagos during an
interactive session with journalists at the weekend, Emefiele
emphatically stated that the “worst is over”, adding that the Nigerian
economy was already on the path of recovery.
The governor equally
reiterated his call for the federal government to partially sell some of
its oil joint venture assets, saying that the proceeds raised from the
sale would go a long way in boosting Nigeria’s foreign reserves and
reflating the economy through infrastructure projects.
Emefiele also expressed
optimism that the liberalisation of the foreign exchange (FX) market was
starting to pay off, revealing that the country had recorded $1 billion
capital inflows from foreign investors since the market took off almost
three months ago.
Low Commodity Prices to Blame
He blamed the country’s
economic crisis on the global crisis, “which has seen commodity prices
dropping in recent times as well as the geopolitical tensions all around
the world”.
This notwithstanding, the CBN
governor was optimistic that the Nigerian economy would rebound by the
fourth quarter of this year, as the monetary and fiscal authorities had
put adequate measures in place to stimulate and reflate the economy.
“We are already in the
valley, the only direction is go up to the hill and government is doing
everything possible to move up the hill as quickly as possible,” he
said.
Emefiele declared: “I’m
optimistic that with the action taken by the government, the monetary
and fiscal authorities, by the fourth quarter, you will see the evidence
that we have started to move up north, in the direction of the hill and
out of the recession.
“I repeat, the worst is over,
Nigeria’s economy is on the path of recovery and growth. If you are a
bystander, you are losing by being a bystander, join the train now
before it leaves you.”
The CBN governor, who
expressed concern over the hardship Nigerians are contending with owing
to the economic downturn, noted that aside from the collapse of
commodity prices and geopolitical tensions, some of the actions that the
US Federal Reserve Bank took, following the mortgage crisis of 2009,
have had an adverse impact on emerging and frontier markets such as
Nigeria.
“I must apologise when you
said people are suffering, I must apologise that this is happening to
our people, but I must confess that what is happening today is as a
result of a global crisis; a global crisis in the sense that we’ve seen
commodity prices dropping, we’ve seen geopolitical tensions all around
the world. Here, we are talking about political tensions between Russia,
Ukraine and the US and EU staying on one side and watching; political
tensions between Saudi Arabia and Iran, trying to play their game.
“Of course, the US Fed,
following the mortgage crisis of 2009 took a couple of actions, which
given the size of the US economy in the world, have had an impact, both
positive and negative on emerging and frontier markets which is where
Nigeria unfortunately stands today,” he said.
On how Nigeria plunged into
her worst recession in decades, Emefiele blamed this on the country’s
over-dependence on oil receipts, the desire for imported products and
the absence of a proper economic planning by successive governments.
Diversification is Key
He pointed out that prior to
the discovery of oil, agriculture was the livewire of the Nigerian
economy and expressed regrets that Nigerians abandoned agriculture.
“I think that when you want
to address the question of how did we get here (recession), it is
important to go back into the history to remind ourselves that there was
a time in this country when we survived only on revenues from
agriculture produce.
“There was a time in this
country when we survived on revenues from groundnut pyramids in the
northern part of the country. There was a time when this country
survived on revenue from cocoa that was being produced and exported to
the extent that the tallest building at the time, Cocoa House, was built
with revenues from the export of cocoa.
“There was a time when this
country survived on revenues generated from the production and export of
palm oil and palm oil products from the mid-western and south-eastern
parts of the country.
“At that time, I’m talking
about the 50s and the 60s, Nigeria was the largest producer and exporter
of palm produce in the world. Unfortunately, we abandoned it because we
found oil. I wish what we did at that time was to ensure that we held
strongly to our potential in agricultural sector.
“If we had held strongly to
our potential in the agricultural sector and in the same vein, held
strongly to the potential that we have because we found oil, our story
will be different today,” he said.
Citing Norway, one country
that saved for the rain day, he said: “Norway is a country with a
population of less than five million people. It produces and exports
fish today, but it also produces crude oil to the extent that today it
has one of the highest investments in its sovereign wealth fund (SWF).”
According to him, Norway has
$873 billion in its SWF, adding: “But the country also takes very
seriously its fish production to the extent that it survives on an
annual basis from revenues it generates from the export of fish.
“What does the country do
with revenues from crude, it invests it at any given time. And when the
country wants to make use of the fund, it only uses it for
infrastructure development. That is a country that has planned for its
people. But unfortunately, we didn’t plan this way for our people, and
that is why we are where we are today.”
FX Liberalisation Yielding Results
The CBN governor added that
the liberalisation of the FX market was starting to pay off despite the
depreciation of the naira, disclosing that the new FX regime had
attracted close to $1 billion inflows into the market in almost three
months.
He said: “I must say at this
time that we are somewhat happy that it is paying off because in two and
a half months, we’ve seen at least close to $1 billion coming in as
inflows into the market.
“And the reason this has
happened over these two and a half to three months was because other
than just liberalise the market, we brought into the market the OTC
Futures market – a market that provides opportunity to reduce the
volatility in the FX market so that people will not puncture their
supply in the market on demand for FX in the spot market and so that
they could do their business without fretting over the exchange rate.
“These are some of the
actions we’ve taken and today I must say it is successful, but it is
important to also speak on how we got here.”
‘We Must Spend Our Way Out of Recession’
Responding to concerns that
some of the actions taken by the government have been insufficient to
address the current situation, Emefiele explained that during recessions
countries spend their way out of the crisis to stimulate their
economies.
“Basically, what you would do
is to spend your way out of the recession and we have not stopped
talking about the fact that we need to spend our way out of the
recession. I will tell you what has happened and what specific actions
we have taken to take us out of this situation: the budget like you know
was approved in May 2016 and of course by that time we had started to
see signs that the economy was contracting.
“Unfortunately, the
procurement process is such a long one in the public service, and you
dare not breach the rules on the procurement process. I will give you an
example, when you start a procurement process for an item, what happens
is that you first advertise in the newspapers calling for bids; that
process takes 12 weeks, which is three months.
“Imagine starting a
procurement process in say May or June, you will agree with me that by
now, you will be opening the bids, now when you open the bids and see
the numbers, you begin to negotiate prices, after that you go to the
Bureau for Public Procurement (BPP), may be after that you go to Federal
Executive Council (FEC) to get approval and that takes another six
months.
“What all this means is that
we must shorten this process, but shortening this process means that we
need to have an emergency spending bill, which I am aware is ready
before the National Assembly for approval. What that does is to remove
all the bottlenecks that are involved in the process of procurement so
that government will spend the money to stimulate the economy.
“Unfortunately, at the time
the budget was being approved, we started also to see a reduction in
revenues, we started to see the Niger Delta Avengers agitating and I
must confess to you that at this time the revenue from oil exports is
down to less than $500 million on a monthly basis from a peak of $3.5
billion sometime in 2015,” he said.
“On our side in CBN, what
have we done when we found out that there was a likelihood this was
going to happen, we started to advise that there was the need for
spending. In March, we reduced the CRR from 30 per cent to 25 per cent
and we told the banks; and this was despite the fact that inflation had
also started to rise astronomically beyond our target.
“However, we said this cash
we are giving you, about N1 trillion, we asked the banks to channel this
money to agriculture and the manufacturing sector, as the reduction in
CRR will help to moderate interest rates and also improve industrial
capacity that will moderate inflation.
“But I must confess
unfortunately, this didn’t happen and because it didn’t happen, during
the subsequent MPC meetings we said okay, we will reduce CRR again and
by reducing CRR, what we want the banks to do is that we will not give
them cash, but asked them to find primary agriculture projects or new
manufacturing project, and send them to us in CBN, so we will disburse
those funds to the banks and they in turn can loan this money at nine
per cent to the relevant sector.
“Again, I must confess that
till date, the result has not been very encouraging. That is the reason
the CBN continues to remain determined to ensuring that its
intervention funds go directly to agriculture, either for its Anchor
Borrowers’ Programme or its intervention to the micro, small and medium
enterprises (MSME) some of the N220 billion would kick in a more
aggressive manner to ensure that there is injection of liquidity that
will help spur industrial and agricultural capacity.
“Part of what has been
projected in 2016 is that one million market women will benefit from
loans at subsidised rates, which will come from micro small and medium
enterprise loans.”
Emefiele further revealed
that the CBN was also in discussions with the fiscal authorities,
especially the Office of the Vice-President that handles social
spending, to see to it that “we put this in place as soon as possible so
that market women across the country can get this loan at subsidised
prices”.
“These are some of the
actions we have taken and I’m optimistic that going forward, you are
going to see more action that will stimulate the economy and turn around
the country again,” he stressed.
Partial Sale of Oil Assets
Emefiele stressed that the
monetary and fiscal authorities were working round the clock to reflate
the economy, but reiterated his stance over a year ago that the federal
government should consider selling some of its interests in the joint
venture oil assets in order to grow reserves and invest in
infrastructure.
He said: “We need more
revenue, we need more money to come in not just in naira, but we also
need more money in dollars and you will recall that in April 2015, even
before this government came on board at the end of May 2015, I had in an
interview with Financial Times of London, recommended that there was
the need for the government to consider the sale of some of its
investment in the oil and gas sector, particularly in NNPC and NLNG at
that time.
“At that time close to around
May, the price of oil was between $70 and $75 per barrel and I had
actually consulted some experts, and they told me that if we sold
between 15 and 20 per cent of our holdings in the oil and gas sector, we
could have realised between $30 billion and $40 billion.
“Unfortunately, the market
has gotten soft now, but I’m still optimistic that we could get between
$10 billion and $15 billion, and if we get that kind of liquidity, it
will help to stimulate and assist in turning the country’s economy
around.
“That proposal is still on
the table, because after I made that recommendation, a couple of
colleagues in the cabinet continue to talk about it that if we take that
option, we will realise some inflow of foreign currency that we can
really use to kick start or stimulate the economy.”
Between Growth and Curbing Inflation
On the implication of
increased spending given the current inflation rate of 17.6 per cent,
Emefiele explained that the central bank would exercise caution so that
excessive spending does not result in skyrocketing inflation.
“You can imagine that in
December, the inflation rate was just above 9 per cent but below 10 per
cent. However, between March and now, it has risen to 17.6 per cent.
“That is the reason the CBN
considers its mandate of price stability as a core function, and that
was why at the last monetary policy committee meeting, the MPC members
were trying to weigh the balance between growth and inflation and we
said if we allow inflation to grow at a rate that is astronomical and
uncontrollable, it could be a problem and that was why we decided at
that meeting to adjust the rate a little.
“But by the primary reason
why we altered the rate in an upward direction was to see to whether we
could see an increase in foreign investor flows.
“We did that to achieve a
higher yield for growth and we adjusted it to encourage foreign
investors and that is why I’m saying that I’m happy that the flows have
started to come and we would try to see how to maintain the balance by
seeing to it that the flows continue to come because when they come, you
will get the dollars that we need to fund manufacturing and agriculture
activities which in turn will help to moderate inflation.
“However we’ve heard a lot of
criticism, and many have asked why should the MPC be pushing up the
rate when it is supposed to pursue growth. But the objective we are very
keen to achieve, and we trying as much as possible to achieve some
balance, is whereby we attain growth and avoid a situation whereby you
have too much money chasing too few goods, then you push up inflation.
“That is why we are trying to
boost industrial capacity. In Nigeria today, one major item that can
boost industrial capacity is availability of FX and the only way you can
ensure availability of FX is to take the action that we took to improve
yields, since we have adjusted the currency so as to bring the foreign
investors in.
“But we will see, going
forward we will look at ways to allow some liquidity in the system in
order to moderate interest rates and improve lending. Those are the kind
of activities you will see going forward,” he said.
The TSA was Necessary
On suggestion that the
government should have a rethink on the Treasury Single Account (TSA) to
reflate the economy, the CBN boss said the TSA was a programme that
several governments in the past had attempted, but lacked the will to
fully implement it.
He praised President
Muhammadu Buhari for implementing the TSA to stem what he described as
“colossal waste” of government funds.
He clarified: “It is for the
government to give its agencies its money to put in the banks and those
banks do not pay anything in interest to the government; at best if they
paid may be at one or two per cent.
“But at the same time, when
government wants to borrow money by selling treasury bills, government
still goes to these banks and they pass this same liquidity to
government at 12, 13 and 14 per cent. That is a colossal waste of
resources on the part of the government.
“So when people say the TSA
is sitting in the CBN and that is what is causing the crunch, it is not
true because when the government wanted to withdraw the TSA, the CBN
looked for its own way to release some funds into the system. For
instance the CRR was reduced, so I do not agree that the TSA is a major
issue here.”
Structural Adjustments Not Delayed
Reacting to concerns over the
delay by the federal government on making the necessary structural
adjustments that might have warded off the recession in the country,
Emefiele said it was unfair to blame the current economic situation on
the delay in taking the necessary actions.
“It is also unfair to blame
this government for not taking decisions on the necessary structural
adjustments. And I will tell you this, normally when there is an
adjustment worldwide those adjustments would be followed by structural
reforms.
“In 1984, there was a
government that said everybody should go to the farm, but you know crude
prices went up and everyone abandoned the Green Revolution, everybody
abandoned this and that is why we are saying now, yes the adjustments
are going on – the adjustment in currency market is going on – but there
is also the need for us to ensure we follow through on structural
reforms that will lead to the diversification of the economy.
“For instance, we have
somebody who has decided to invest in a refinery, 650,00 barrel per day
refinery; we are lucky that the same person has decided to invest in
petrochemicals, we are lucky that this same person is investing in
fertiliser, and these three projects alone are gulping not less than $11
billion.
“And I repeat, these three
projects will take not less than 35 per cent of our import bill.
However, by 2018 when the projects start production, we will stop the
importation of these products and we will be able to conserve our
reserves because the demand for these will reduce,” he said.
On the issue of the peg on
the price of petrol, which the governor was reminded that the government
was again failing to address adequately and could lead to fuel queues
that trigger higher prices and further impoverish Nigerians, he
acknowledged that the pricing of petrol was something that the
government and the citizens are very passionate about.
“We found out that because
(oil) marketers could not access FX, they stopped importing petroleum
products and NNPC was saddled with the responsibility of importing
products, then of course, it became so bad that we began to see queues
and it was embarrassing to our citizens.
“Rather than buy fuel at N86,
people were buying fuel at different prices, some of them were buying
at N150, some were buying at N200 in different parts of the country and
people began to agitate, and that was why the government approved the
increase of the pump price from N86 to N145, because the marketers said
if it were possible for them to get FX at N280 to a dollar they would
import,” he recalled.
Emefiele added that at the
moment, oil marketers had reached an agreement with international oil
companies and NNPC to buy FX at between N300 and N305 to the dollar,
noting that the marketers’ margin in the pricing template of petrol was
sufficient for any FX adjustment within the range agreed with marketers
of petroleum products.
On the gap between the
official FX rate and the parallel market rate, he said the monetary
policy committee, which is in charge of exchange rate management, would
not look at the rate at the parallel market as a basis to determine the
exchange rate of the naira.
He also warned that it was illegal to patronise the parallel market, insisting it amounted to encouraging capital flight.
Culled from Thisday