The Governor of Central Bank of Nigeria, Mr. Godwin Emefiele, spoke about the banking system, exchange rate and the prospect of the economy in an interview with journalists in Lagos. OYETUNJI ABIOYE was there. Excerpts
The Nigerian economy exited recession in the second quarter after five consecutive quarters of negative growth. What hopes lies ahead?
We have just managed to exit the economic recession with a fragile growth of 0.5 per cent; we have seen inflation trending downwards; we have seen exchange rate and reserves looking stronger and firmer. But I think we are determined to continue to push further to see to it that Nigeria returns to its historical growth path. The 0.5 per cent or two per cent is not the historical growth path for Nigeria. Nigeria is a country that must grow at a rate that is at least twice the population growth rate (six per cent, seven per cent). And until we achieve that, we are not going to rest on our oars. To see that Nigerians are happy again and that we grow the country, God has bestowed us as leaders; he has given us the opportunity to serve our people.. God has put these in our hands and we do owe them the responsibility to ensure that we put policies in place that will make Nigeria good for everybody. We want to continue to join hands with our friends in the foreign investment community to do that. Nigeria has a lot of potential. The environment is good, the climate is good. That is why we make bold to say Nigeria is good for business. There are very big countries in the world you will visit today and say you want to invest, whose returns are not as high as you have in Nigeria. We are battling with unemployment in Nigeria, and that is the reason again the President called on the Federal Ministry of Agriculture, the CBN, Ministry of Employment, Labour and Productivity, and some important stakeholders including the governors together and said there was a need to start thinking about how to create jobs for our people through agriculture; that agric should not be seen as business that is meant for the poor? that you could make money from agriculture. Countries that have progressed have done so because they took the agric sector very seriously. We are determined to make agric the sector where people make money and we have decided to put in place the Anchor Borrowers Programme. Before we introduced the ABP, farmers would go into rice farming and all the yield they were getting was one to 1.5 metric tonnes per hectare. After we started the ABP, today we are beginning to see farmers getting yield as high as eight metric tonnes per hectare, reducing their costs and making it possible to make good profit in rice cultivation.
We have seen that there is a need for us to think about how to improve the wealth of our rural community. We started that journey and through rice; we have achieved that. The Nigerian government is confident that through agriculture, the wealth of our people can be boosted. And that is the journey we are embarking on. We want to invite all of you, our friends and foreign investor friends; I heard the President of the Corporate Council for Africa say that some foreign investors are interested in agriculture in Nigeria. We welcome them. Come, Nigeria will receive you.
What is your view about the effectiveness of the CBN Investor and Exporters FX window that was created to stabilise the naira?
I must say that in six months, we have seen about $10bn inflows to Nigeria as a result of the opening of that window. We are grateful to them for showing confidence in Nigeria again. But I think all this also is because President Muhammadu Buhari has always said that we had unfortunately been hit by this exogenous shocks and it had resulted in inflation and plummeting in reserves. We needed at some point to look at the items Nigeria imports into the country. Nigeria is a big market, no doubt; 180 million people growing at an average population rate of three per cent annually. It is certainly a big market. But then it is important to cast our minds back and begin to ask ourselves some questions. There was a time in Nigeria when we produced everything we were eating. We were producing rice and palm oil, among others.. Nigeria was the highest producer and exporter of palm oil in the world with over 40 per cent market share some times in the 60s and 70s. But unfortunately because we found oil, we decided to take things easy. What we are saying is that: the President said we had tasted this before, we had done it before, it is not about re-inventing it. Our climate is good; let us fold our sleeves and begin to feed ourselves again, and save our reserves for some of those items that we cannot produce as a country. And that has led us to where we are today. We are delighted we put FX restriction on 41 items. We were castigated and I was reading in the Economist magazine that what we did was to just move around the home and pick items including toothpicks. I think it is important to know what we are doing. If you go to China where they are producing the toothpicks, those things can be produced in a place that is less than a quarter of a room. How much is needed to invest in the equipment that is used in producing toothpick? We were importing toothpicks. Bamboo is what is used in producing toothpicks. As a result of our policies, people come out of school today and they are now producing toothpick, creating jobs for our people. That is what is found in the spirit of Nigerians. A couple of weeks ago, I picked up a toothpick that is being produced by a Nigerian. That toothpick is stronger than the one that is being imported from China. But I think as far as we are concerned, it is about creating jobs for our people. Nigeria is the largest producer of cassava. We were importing starch and glucose. Nigerian companies that could produce starch and glucose would go to companies in need of starch and glucose and all the companies were telling them was our stock level was high. They said they would visit them when their stock level went low. Unfortunately, their stock level did not go low until we imposed the FX restriction on these items. Their stock level went low and they started to patronise Nigerian companies that were producing starch and glucose. Today, companies that require starch and glucose for their pharmaceuticals and formulations patronise Nigerians. This has created jobs for us. That is the spirit of Nigerians. This is part of the reasons the President said we needed to patronise made-in-Nigeria and I am happy that we are doing this. But I think it is also important that we thank everybody, particularly Nigerians.
What is your general assessment of the foreign exchange market?
The fundamentals that we see show that there is a lot of stability in the FX market, having come down from the high level to the level that we are now.. It is a good level compared to where we were coming from. But we think it is important to know that as reserves get stronger and the economic fundamentals get stronger, there is no doubt that the naira will get stronger and we will see more appreciation in the currency.
The IMF has said there are threats to the banking system. What is your view?
I do not think that is correct. What was said was that the Central Bank of Nigeria should focus on their banking system to ensure there is no significant distabilisation, because anything that destabilises the banking system will have adverse impact on the economy. We are keeping our eyes on the banking system to ensure there are no significant threats that will alter the strategic health of the banking system, to the point where we have to think about things that will create problems for the economy.
There is a lot of attention on the banking system to the point that we are saying there are certain banks that are too big to fail. What we are doing is to ensure that no bank will fail in Nigeria whether big or small. What we will continue to do is to see to it that we put in place strong policies that will continue to guide them. Is it capital, is it liquidity? All these will be put in place to continue to ensure that the banks remain strategically healthy to be able to perform the roles they are supposed to play in the economy so as to achieve growth and development in the economy.
What is your view about remittances into Nigeria? Some say we are targeting $36bn annually. I have been looking for this $36bn and unfortunately, I have not been able to see it. The point is that what we are trying to do is to encourage our brothers in Diaspora to keep remitting funds to daddy and mummy at home and also to invest in their country. This is because they do not have any other place they can call home but Nigeria. We will put in place policies that will continue to encourage them.
We are working on how we can actually link credit bureau arrangement to the foreign borrowing arrangement so that once there is a link between Nigeria and the foreign credit system, it will be easy for them to even borrow from Nigeria, and get some form of attachment to the credit system that they have abroad, either in the United States or the United Kingdom. It will be easy for them to access credit and begin to build their businesses, so that when they retire, they can come back to Nigeria.
What is your view on the state of our economy currently?
In the light of our policy responses, we are delighted that the economy has turned a corner with our worst days clearly behind us. For example, After five quarters of continuous contraction of the GDP, the economy recorded a positive growth of 0.55 per cent in 2017. During this period, core inflation and imported food inflation, similarly fell from 17.90 per cent and 20.95 per cent, respectively, to 12.12 percent and 14.83 per cent. Food inflation, however, rose from 17.82 per cent to 20.32 per cent.. The inertia exhibited by food prices inflation reflected, among other things, the rising prices of farm inputs and supply shortages, intermittent clashes between farmers and herdsmen, as well as the lingering problems in the
We have also seen a significant appreciation of the naira from over N500/US$1 to about N360/US$1. In addition, we have seen stability in the rate for over six months now. I am glad to note that the exchange rate is not only stable, it is also converging across various windows and segments of the market. Our reserves have recovered significantly from a low of just over $23bn in October 2016 to over $34.3bn as of November 3, 2017. The accretion in reserves does not only reflect increased inflow but also our shrewd FX demand management strategy. When we introduced a policy restricting 41 items from our FX markets, we were called all manners of names. Today ladies and gentlemen, among the benefit of that policy is the considerable decline in our import bills. From an average of about $5.5bn, our monthly import bill has fallen consistently to $2.1bn in 2016 and $1.9bn by half year 2017. This is indeed commendable. The World Bank’s ease of doing business indicator for 2018 showed that Nigeria with a score of 52.03, improved 24 places to rank 145 out of 190, standing above the regional average score of 50.43 recorded for sub-Saharan Africa. I must note that the CBN efforts reinforced the Presidential initiatives to improve ease of doing business in Nigeria. The establishment, nurturing and administration of the Credit Bureau and the National Collateral Registry contributed in no small measure at improvement of access to credit and enhancing the ease of doing business in Nigeria. In addition, the introduction of the transparent I&E FX Window which boosted investor’s confidence and eased market sentiments also buoyed our doing business indicator. Due to the dogged implementation of our FX restriction on certain items, we have recorded spectacular improvements in domestic production of most of these items. Local manufacturers are reporting major boosts to their revenue and profit due to the policy.
In line with an agreement we reached with Unilever, the company will be commissioning a new Blue Band Factory in Agbara, Ogun State early next month. We have also seen a sharp drop in imports of rice from several countries. To give one example, data from the Thailand’s Rice Exporters Association indicate that in 2012, about 1.2 million Metric Tonnes of rice was exported to Nigeria. However, in 2016, which was the first full year of implementation of our policy, rice exports to Nigeria had fallen by 99 percent to only 784 Metric Tonnes. This significant reduction in imports of rice from Thailand represents a saving of over $600 million to Nigeria in 2016 alone. It is heart-warming to note that this fall in imports have been largely filled by a boost in local rice production. For example, employees at Labana Rice Mills in Kebbi State are trying to keep pace with demand, processing 320 tons of a rice a day, a 250 per cent increase from the previous year. From Kano, UMZA rice has expanded its milling capacity substantially to the extent that with the recent bumper paddy harvest, the company today takes delivery of over 100 trucks of paddy rice daily. These are clearly verifiable successes of government’s attempts to create jobs locally, improve the wealth of our rural population, improve industrial capacities and ultimately attain economic growth in Nigeria.
What are your projections for the economy?
I believe inflationary pressure will continue to ease. I believe that it may return to very low double digit or high single-digit levels during the next year. Though the base effect had diminished, I expect that as the socio-economic factors that are driving food inflation are resolved, the inertia therein would dissipate and the pace of headline disinflation will grow, the FX reserves will continue to grow. Over the last 12 months, Nigeria’s FX reserves grew by over $10bn from just over $23bn in October 2016 to over $33bn in October 2017. It is my belief that if we remain resolute with our efforts, policies and actions, we can attain an FX reserve position of about $40bn by the end 2018. Economic recovery will consolidate. As the sentiments improve in the macroeconomy and supported by proactive monetary, trade, industrial and fiscal policies, I expect a continued uptick in the GDP growth with a positive spillover to improved unemployment rate. As policies to strengthen the agricultural and industrial sectors become more emergent, growth in these sectors will rise, further bolstering overall economy. Exchange rate stability will continue. As we entrench and sustain the transparency in the FX market, as the FX reserves accretion continues, and market confidence and improved sentiments remain, I expect that the exchange rate will not only be stable but will begin to appreciate against major currencies. The adverse competitiveness outcome which such appreciation may entail will be adequately mitigated by proactive policies to ensure that our balance of payments position is not undermined. Monetary policy stance could change when the underlying fundamentals become supportive. If the pace of disinflation becomes adequate and we see inflation at predicted levels, I am very optimistic that the MPC may begin to see strong justification for an easing of monetary policy, which may further accelerate the recovery process. I expect a re-doubling of strong policy coordination, collaboration and cooperation which flourished during the very difficult times. To sustain our recovery the need is greater now than ever for a robust policy coordination between the key aspects of economic policymaking space. In Nigeria, this will include fiscal, monetary, exchange, and trade policies, which must be targeted at protecting farmers to boost agricultural outputs, support local companies and enhance manufacturing and industrial capacities, with a view to diversifying the economy away from oil and fossil fuels.
