How Nigeria was plunged into recession, by CBN
• Admits failure of some monetary, fiscal policies
• Says $66b was frittered away funding BDCs
A failure to save for the rainy day as well as poor monetary and fiscal policies were partly responsible for the country’s current recession, according to the Central Bank of Nigeria (CBN).
The CBN Governor Godwin Emefiele who disclosed this at an interactive session with media managers in Lagos at the weekend noted that a number of external factors, particularly the crash in global oil prices, also contributed to the nation’s economic woes.
“I must confess that what is happening today is a result of a global crisis in the sense that we’ve seen commodity prices dropping, we’ve seen geopolitical tensions all around the world,” he said.
Emefiele recalled that when it was very buoyant, Nigeria frittered away about $66billion or an average of $6billion per annum funding Bureau de Change (BDCs) operations over 11 years period, beginning from 2008, when the country’s foreign reserves stood at $62billion, and oil price about $120/barrel. He said such funds could have been kept for the rainy day or invested in infrastructure development that would have buoyed economic activities.
Emefiele said if the government heeded his advice to sell off some of its equities in oil and gas assets, Nigeria could make up to $20billion that could stimulate the economy and boost spending.
According to the CBN boss, efforts at jump-staring the economy are being circumvented by the banks that are flouting the policy on lending to the real sector by diverting CBN proceeds into buying treasury bills and bonds for higher yields instead of lending to businesses.
Explaining how Nigeria got into such a dire situation, the worst in 29 years, Emefiele recalled that not only did the country indulge in frivolities, including high taste for imported products, the waste in the system began much earlier dating back to the discovery of oil in commercial quantities in the mid-1950s.
“If we had held strongly to our potential in agricultural sector and in the same vein held strongly to the potential that we have because we found oil in Nigeria, our story would have been different today,” he argued.
Apart from abandoning agriculture revenues for petro-dollars, he said, successive government failed to plan with the proceeds from export sales, which compounded issues for Nigeria, unlike Norway, which invested its fishery and oil proceeds in a Sovereign Wealth Fund now worth about $873 billion.
The CBN governor said: “Unfortunately, we didn’t plan this way for our people, and that is why we are where we are today. I will give you a few examples .In September 2008, Nigeria’s FX reserves stood at $62billion. What did we do with $62billion at a time crude price was almost $120 per barrel?
“What we could have done was to save the money, if we couldn’t save the money, invest it in infrastructure and in industry that will grow productivity and wealth of our people.
“At that time, the Central Bank went about licensing Class A, Class B and Class C Bureau de Change. In 2005 the CBN was amongst a few central banks in the world allocating dollar cash for bureau de change operations, and by the time it was stopped in January 2016, the CBN had disbursed $66billion to fund cash operations of BDC in Nigeria. What that meant in 11 years is that we spent $66billion funding operations of BDC, which came to an average of $6billion in a year.
“If we had thought of other ways to utilise our reserves in 2008, when it was as high as $62billion, certainly we will not be where we are today.”
Emefiele also noted that the continued fall in the price of oil at the international market is not helping matters, with reserves on a free fall.
“Between August and September 2014 up till this moment, which is about two years, we have seen a consistent drop in prices of crude to the extent that by March 2015 precisely, our reserve had dropped to $31billion, at that time crude price had dropped to $48 per barrel. At that time too, the country’s receipt from export of crude dropped to $1.3billion. At the same time, the demand for forex, the demand for import had remained high.”
On taking proactive measures that could have checked the recession, the CBN governor hinted that Nigeria may have been misled by its foreign allies when it adjusted its currency.
The currency adjustment hiccups notwithstanding, Emefiele disclosed that the flexible exchange rate policy is yielding fruits by fetching $1billion in the last three months.
“I feel confident that if we continue the way we are going, managing the situation in a way that encourages foreign investors and all those who have foreign currencies to bring them in to support our economy, there will be more inflows of foreign exchange into the system,” he said.