Nigerians will feel impact of exit from recession soon, says Godwin Emefiele

CBN governor


Exiting recession is not all there is right now, as the economy remains fragile even at 1.40 per cent growth in the third quarter of 2017. In this interview with The Guardian’s IGHO AKEREGHA (Abuja Bureau Chief) and CLARA NWACHUKWU (Business Editor), the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, admits that there is still a lot more work to be done to get the economy fully stabilised and cruising at the growth level where everyone will be comfortable, assuring that it will not be long.

It’s often said that the CBN is a major instrument to Nigeria’s exit from recession, how do you see that?
You will recall the whole idea of Nigeria getting into recession came about because of certain unexpected exogenous shocks, beginning from the drop in commodity prices. For Nigeria, drop in the price of crude oil was almost close to 70 per cent drop at a time price of crude was about $140 per barrel sometime in 2013. For five straight years, between 2009 and 2014; we had the price of crude averaging almost $110 per barrel. And then suddenly, from around the third quarter of 2014, we began to see the effect of drop in commodity prices. Price of crude dropped from those high levels sometime in February 2015, to as low as $30 per barrel, and that was one aspect of the shock. It affected our reserve and at the same time, our economy still remained a significantly import-dependent economy.

Another major shock was the impact of the geopolitical tensions – like you recall, Russia and Ukraine, and of course till now, you still see the issue of Saudi Arabia and Iran and all the flexing muscles in the Gulf area. These, all naturally, have the tendency to affect the flow of capital or the flow of funds along trade routes. You see funds moving, in this case from the emerging economy, while we embarked on safer havens.

The third shock was the U.S. dollar and the normalisation of the U.S. economy. At the time, the U.S. economy was pumping liquidity into the world market, but eventually it started to tapper, and now, we are in the era of gradual raising of rates. What that means is that when the U.S. economy raises rates, you will see the flow of capital again from the emerging markets back to the developed markets.
Having said all that, the Central Bank of Nigeria will not take credit for being the sole institution responsible for taking Nigeria out of recession. The government, beginning from the President will take the credit for all the roles that everybody played in getting Nigeria out of recession, and I’m happy that we are here today. Yes, we did play some roles particularly from the monetary and fiscal stand point, but my own answer to that question is that Central Bank cannot, and will not, take the sole responsibility for getting Nigeria out of recession. It is a joint effort of government complemented by the monetary, fiscal, and trade authorities.

Still on the recession, although our GDP is now at over 1.4 per cent; and for a while now, the PMI (purchasing managers’ index) has been on the increase. However, the manufacturing index is still in the negative at over -2 per cent, how do you justify these?
Well the point is this, when you start a process and that process involves many parts, you will find out that there are certain parts of that process that will react faster, while other parts will react much later. So what you are seeing is that some aspects of the policy are reacting, and we are seeing the impact faster in some areas than in others. But eventually, we would see even the manufacturing index growing.

The CBN started in February, but the latest round of interventions in February, but the intensity of our intervention started in April 2017. During the month of April in the second quarter, which ended in June, we saw the GDP numbers at 0.7 and no longer 0.55, and that’s like the beginning. If you take April, May, and June, and now, July, August, and September, as we have seen it now at 1.4, it shows that more sectors are now reacting to whatever interventions and actions that are being taken by the monetary and fiscal authorities towards seeing to it that we really get out of recession.

But the point is that everybody accepts that where we are, even at 1.4 still puts us in a very fragile situation. There is an understanding and acceptance of the fact that we need to work harder, to see to it that we really begin to attain the kind of growth level that we saw in the country in the past.

I have also heard some people say: “yes, they say we are out of recession, but our people have not started to feel it.” Yes, our people will eventually feel it as the growth numbers improve. If you recall, Nigeria at a time was growing at an average of six to seven per cent, but it receded to a point where we got to the third quarter of 2016, to -2.3 per cent. So it’s like a sick baby that is on an intravenous fluid, and so it takes time for the positive impact of the intravenous fluid to really circulate the entire body, so the baby can begin to move fast, agile and run.

For Nigeria, the growth rate will have to be at about six per cent for you to say, yes, we are really there. And we are cruising on very strongly because if population grows at an average of three per cent, and we are growing at 0.7 in the second quarter, 1.4 in the third quarter. It means that we still have a long way to go because growth numbers, growth productivity must surpass population growth for everybody to begin to feel it, and say, yes, we are truly out. It will take time, but it will take tenacity of purpose, and focus, and aggression by all arms of the policymaking institutions to push it forward, and attain the kind of level that we are talking about.

So then why does it appear that the CBN is kind of shy to take some risks, in the sense that for over a year now, you have retained all the rates, why?
It is not about not taking risks; it is about looking at the various issues on ground. We are dealing with a regime of decelerating growth, rising unemployment, rising inflation, and rising exchange rates. Normally, when a country is in prosperity, you are supposed to see rising growth, drop in unemployment and inflation, and lower exchange rate.

But the truth is that in economics, there are certain things that you do; and think that you are solving a problem, when in fact you are creating another problem in the process. So what we are trying to do here is to tackle all the issues in the way that you adopt a very balanced approach towards resolving the problems.

A research by the Central Bank of Nigeria, showed that when inflation exceeds a threshold of about 12 per cent, there is nothing you can do to stimulate growth; growth will adversely be impacted upon. Giving the Central Bank’s primary mandate, price and stability is very important.

The only aspect where people are saying that we are not taking risk is in the aspect of reducing interest rate, and that’s the only thing that they are talking about. People are saying: “reduce interest rate,” but we have conducted our own survey twice at least, and we askeed people both manufacturers and traders: “What do you prefer at this time; we know that you would love to have a strong exchange rate, and a low interest rate. But unfortunately, interest rate and exchange rate move in inverse direction, and if you are going to make a choice between these two, which one would you prefer?” They said the one that impacts more heavily on them is exchange rate, and to be able to tackle exchange rate, you must first rein in on inflation, and this means that you needed to adopt a fairly tight monetary policy.

We took decisions. First of all, we started when the MPR was averagely substantially lower than 12 per cent, and it moved to 12 and from 12 it got to 14; those were the eras of tightening. Now, what we should have continued to do in order to rein in inflation thoroughly was to raise the policy rate. But we cannot raise the policy rate because our people don’t want to hear that policy rate must go up. So we have held it at that 14 per cent and will continue to do other things to pull inflation down.

That’s why you are seeing that we have done a lot through interventions to bring the exchange rate down from as high as N525 to a United States dollar in February 2017, to where it is today averaging about N360 to a dollar. We are in an era where we are building reserves and that is why you could see that the reserves have risen from $23billion in October 2016, to almost $35billion right now, and we are going to continue growing the reserves.

We need to be able to build reserves to the point where we can say that we are comfortable, and inflation has come down to a threshold that we feel is good. We believe we shall achieve that very soon. Once we achieve that threshold, when the exchange rate is strong, and inflation gets to the level we consider comfortable, then the easing will now start. As that easing starts, and we find anyone trying to play some games on the exchange rates, we will know that we have built enough ammunition to really fight them, so the whole system will be stabilised.

It’s a process, and if you say you want to take everything at once, it can’t work. I have given my own prognoses that I believe in the way that we are growing. With the way we are growing, exchange rate stability, and reserve build up, inflation coming down will take us to regime of easing, where interest rate will begin to drop very rapidly, and that will be in due course.

How do you measure this policy intervention against the backdrop of your consistent battle to also rein in the parallel market, particularly the black market because they are negatively impacting the economy?
The fact is the parallel market has disappeared, and there is one market now, and that is the NAFEX market, which is our investors and export window that is averaging N360 to a dollar. The parallel market is in fact trading below the NAFEX market; that market has converged substantially.

I beg to disagree because in Washington D.C., I used my naira cards because I didn’t get a chance to buy FX before I left Nigeria, and some of the banks where charging at N380.
Well I don’t know which bank is charging N380 to a dollar, but I can tell you this; I am looking at the market, you should go to the streets and tell them that you want to buy dollars, and they will tell you it’s not more than N362. Go to the bank and tell them you want to go for your business or personal travel, and that you want to buy forex, and they will sell it to you at not more than N360. That is the price anywhere, and that is the barometer that we use in measuring the NAFEX market.

In that case, how would you say that the banking sector has helped on the interventions that you are bringing on board?
The banking sector has helped tremendously because there is no way we would have achieved the level of success in exchange rate stability without the support of the banks. The banks are owned and led by Nigerians substantially. At the time we were about to embark on this, I was holding weekend meetings with bank MDs, even till now on almost every Sunday to tell them our direction, and what everybody should do and their support that led to the success of this is immeasurable. They are economic agents, who are also set up with the primary motive of making money, which you can’t fault. But if they have been able to balance their objective of being an economic agent to make money and at the same time, we have achieved the level of success we have, we must still give them credit.

If they’ve done so well, then why is it so impossible for operators to access some of these special purpose funds that have been set up?
These are two different things. If you are talking about foreign exchange, yes; but if you go into intervention in the priority sectors of the economy I’m also saying that they are doing their best. We need them because they play essential role as catalysts for economic growth. They are intermediaries, and they balance their objectives for profit motive and their objectives for economic growth. They are working on the balance to see to it that it is done.

In our various interventions, they have various relationships that they have brought to the Central Bank for intervention either supporting agriculture, or supporting some of the rail sector companies that are building plants and expanding plants, and they are playing their own little role. We are also giving our own support through back channels to ensure that we achieve the results. If interest rate is high, it’s not really of their making; it’s because of the general economic situation. Like I explained to you, in the course of time, you will see that once we take the lead, and if we decide that we have attained a level where we want to begin to ease, there is nothing the banks will do; those interest rates will come down.

For these interventions (FX or Naira), will they be temporary or will they be reviewed as time goes on?
The point is that when we started, people said it was a fluke, and that we could not sustain it. But today, they have seen that it is not a fluke; we started it, and we are still there. Like I said, it is a market where when it started; Central Bank was injecting money in the NAFEX market. We still do at the other autonomous market, but the point is that we started by injecting, and the level of injection tapered down even now that we are building reserves.

So it’s not about whether it is temporary or it is permanent, but looking at the point in time, you take a decision that this is what you need to do. We are cruising, and we are making sure that we are putting in place policies that will ensure that we will continue to cruise. Whether it is in naira or dollar intervention, we will continue to monitor it, to evaluate the progress, and say what next we can do to continue to see to it that we are cruising even faster.

But despite the success of these interventions foreign investors are keen on having the naira devalued. Why do you think that they are interested in devaluation?
It is not the decision of foreign investors whether or not naira will be devalued. It is about a position that has been taken and whether it comes down to N300 or N360, and that is policy decision. So we will do what we need to do and everybody will fall in line. The market was at some point, N500, N520, N525, and the investors were there; and now that it is N360 they are still there. The important thing is: are they achieving their own objectives for bringing in their investments? And they are. As long as they are achieving those objectives, they will remain with us.

You talked about the build-up in foreign reserves, now there is this anticipation of a sudden shock, if we go by the threats of the Niger Delta militants, and the fact that by next year, Nigeria will fall under the OPEC production cut. How will these affect the reserves, and the CBN’s intervention in the FOREX market?
Well first of all, the Niger Delta people are Nigerians, and I’m sure they are happy that things are beginning to look good. I think that all of us will continue to work together to see that things continue to look good. Their agitations I’m very sure are being met by the government, and we should just allow government to continue to do what they are doing, and so to that extent, I do not expect that any shock should come from that side. But we are at a stage where we all must work together as Nigerians, and as stakeholders to take the country out of the present situation even to better situation.

We are talking of being proactive here and what of if those shocks do come?
That is why we are building reserves. There was a time the country’s reserve was $52billion and even $40billion, so what I’m saying is this; cuts are being put in place to achieve some level of stability in crude prices. So if the cuts come, and if we get compelled, the important thing is, at the time when you were not subject to the cuts, what did you do with the money? Then what I’m saying right now is that we are building reserves, it’s like fetching water in a bucket, and waiting for the day when there is drought so that you have more water to drink when there is no water to drink.

Would you say the back and forth between the CBN and the fiscal policy managers have ended?
There is no back and forth anywhere, we are all working together. Everybody realises that we are in a very difficult environment, a very difficult situation, and we are all working together to see to it that we all get out of the problem.

So do you then think that we have the actual value of the naira as at today?
The naira is appropriately valued at the level that it is today.

Could it be higher or lower?
There are various parameters that I use from time to time to know what the value is, but don’t worry, at the appropriate time, you will see. The important thing is, we will not allow the currency of the country to be so badly battered to a point where it becomes a pain to our people. The responsibility we have as leaders is to manage, in this case, the country, the economy, the naira, and everything in the way that it is good for Nigeria and for Nigerians.

All of these interventions have worked well so far. Yet why were they so delayed?
You see, it is not about delaying. It’s about looking for the right time to go for the intervention. We got to a point that our reserves dropped to $23billion, and those were the weakest points, and then we began a process of what strategy do we put in place. We were able to build some ammunition on the basis of where we started, and that is why we have been able to take over the market at this time.

The Anchor Borrowers’ programme so far has achieved significant success; we all agree on that. However, we are still importing a lot of our food, and even the little that we get to export are being turned back at the destination markets. Is CBN doing anything by way of investing in silos and storage facilities, because these are parts of the major challenges farmers face?
I think the credit goes to the President for saying that we should intervene and by giving us all the support that we need. Things are not as good as they were before, and we need to start producing what we eat or eat what we produce, particularly because we can produce them. It’s not as if we are inventing anything; we were producing and feeding in these goods before now, but because we found oil, we lowered our guard, and allowed most of these things to be imported into the country. But luckily, we are on the journey towards ensuring that there is food sufficiency in the country, and we have started the journey. I’m happy the Anchor Borrowers’ programme has been a huge success, and we will continue to work to make it more successful.

We are working together with the Federal Government to make sure we have what we call all-year farming through irrigations. Some of our dams are just being deseeded, and we are now having more private sector companies creating irrigation to make sure there could be all-year farming, and those are all the things being done.

You talked about silos, I’m aware that the Federal Ministry of Agriculture and Rural Development has several silos across the country, and they have begun the process of handing over the silos, not only to the state governments, but also to private sector operators, who are interested in running those silos. Those are all we are doing now so that when we have excess supply of food, those silos can be used to store them in order to keep the prices of food low when there is scarcity.

For a long time, people have been expecting the CBN to review the 41 items. How soon will this happen, if at all?
The issue concerning the 41 items should be: these items, can they really be produced in this country? Why should we import what we can produce? I can tell you that it has been hugely successful because you are talking of not creating jobs to the level of unemployment in the country. We were producing rice and companies closed down, and took their mills abroad, and began to produce abroad. What that meant was that we lost jobs to other countries, and gave our people poverty. We used to have the second largest textile industry, and those industries have closed and gone abroad. We are now saying: in order for us to create jobs for our people, we need to resuscitate and go back to those things that we can do produce locally. Let us produce what we can produce locally and feed our people with it.

Today, you can see that testimonies abound, as we can now see that Nigeria makes toothpicks, which we were importing from abroad as simple as it is. Today, there are so many young graduates, who come out and import small equipment for making toothpicks, and they are now producing toothpicks, and our toothpicks are of better quality than those being imported and it’s also cheaper. There were many companies, which were importing glucose and starch, whereas Nigeria is the highest producer of cassava; but until this policy came about, these companies were importing starch and glucose from abroad. Since this policy came, these companies started visiting the Nigerian companies that were producing glucose and starch. By visiting them, what has happened is that they have created jobs for Nigerians, and that is what we are talking about. We must be nationalistic and think about our country and Nigerians. It’s either to create opportunities for them to get jobs or to do business, and the only way to do this is to embrace local productions of those goods that we can produce.

There is this fear that the FINTECH institutions are going to take over the banks’ job. How real is this fear?
The point is that the world is going digital; there is nothing like taking over, it is about improving banking and improving financial services business by going digital.

Finally, this is about The Guardian; we are running a project on, Financing the Economy. Based on the brief you have on it, how would
you rate The Guardian’s call for the banking sector players to explain their support in financing the economy in terms of services offered?
I think I must also thank and congratulate The Guardian for creating opportunities that can spur discussions about the role everybody is playing to see to it that the economy grows, and the country comes out of recession. We must find out what role everyone is playing, because even those who are not playing any role when you begin to ask them questions, they will know that everyone is becoming conscious. So we all must contribute to work hard to see to it that this country comes out of recession in spite the present situation.

In this article:
Godwin Emefiele


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