CBN’s pragmatic policy on forex control

Godwin Emefiele, CBN Governor

Godwin Emefiele, CBN Governor

THE exclusion of 40 items from the interbank foreign exchange market by the Central Bank of Nigeria (CBN) is pragmatic and should be applauded by well-meaning Nigerians and friends of Nigeria. Pragmatism is to think about solving a problem in a practical and sensible way rather than by having fixed ideas, theories and ideologies. It is about adjusting to unfolding realities in a dynamic and changing world.

The excluded items include toothpick, palm kernel/ palm oil products, margarine, cement, rice, private jets, among others. With the policy, importers of the items would have to source foreign exchange from private sources. It was necessitated by the need to preserve our foreign reserves and encourage local production. Since January this year, CBN has spent about US$5billion defending the naira which has been under pressure, with an average of N1.3 trillion spent on imports annually, including items that could be produced locally. A total of N100 billion was expended on the importation of toothpicks, milk and furniture in the first quarter of 2015.

The CBN policy is interventionist and in line with global best practices which have witnessed Central banks extend their scope of operation beyond price and monetary stability to address critical developments in the economy. In U.S., UK and France, Central banks support selected economic sectors using “direct methods’’ of intervention. Virtually all central banks, including the Bank of England (BOE) and the U.S. Federal Reserve (the Fed) have used direct means to support economic sectors. In his maiden address, CBN Governor, Godwin Emefiele noted that “the vision of the Central Bank of Nigeria is to be a model Central Bank delivering price and financial stability and promoting sustainable development’’, adding “this vision draws inspiration from our understanding of the multiple mandate of the Bank to pursue both price and financial system stability as well as provide complimentary developmental functions by creating an environment for Nigerians to live better and more fulfilled lives’’.

The new policy aligns with the infant industry argument, which, if sustained, will lead to increase in domestic employment, all things being equal. The rate of unemployment is worrisome. The reason Nigeria is still enjoying relative peace despite the growing army of unemployed youths is because, sociologically, we are an overly optimistic people. As such are not “short-circuited’’ and do not have the propensity for revolution despite the pauperisation and subjugation occasioned by bad leadership. But this should not be taken for granted as we may not be able to determine the threshold. All hands need to be on deck to arrest the monster of unemployment. The Federal Government should compliment and synergise with CBN through the evolution of an Economic Action Plan that will favour local production, employment, be protective of the poor and weak in the society and generally be responsive to citizens’ need. Nigeria is expected to be among the top 20 economies in the world with a minimum GDP of N144 trillion (US$900billion) and a GDP per capita income of no less than N640,000 (US$4,000) per annum by 2020. The priority areas to achieve this target include real sector development, infrastructure, human capital development and governance.

Although the CBN policy has elicited diverse reactions and drew flaks from some quarters, including the once upon a time influential magazine: “The Economist’’ of UK, it should be seen in its proper perspective of the targeted objectives vis-a vis the structure and anomaly of the Nigerian economy. The structure of the economy is faulty because it is heavily import-dependent just as it is characterised by an anomalous growth pattern. For seven years, GDP grew consistently at the rate of seven per cent but unemployment rose to 23.9 per cent in 2012 relative to 13.9 per cent in 2000. The anomalous growth pattern is distressful to the economy. It stunts both the emergence of the middle class, the operating dynamo of the economy and inter-generational mobility just as it poses a threat to political stability and national security. The best economic policies for Nigeria are those that will encourage entrepreneurship and local production, increase employment, stimulate investment in securities, promote economic development, reduce the misery index to engender a virtuous cycle of prosperity.

There could be some latent functions or unintended consequences of the CBN policy such as have been suggested by some analysts, but it is believed the policy will be subjected to evaluation, and strategic adjustments if need be. As Emefiele had noted, “CBN will impose proper monitoring and performance measures of its policies in order to ensure that the goals of increased employment and poverty reduction are attained.’’ The governor has communicated a resolve to make a change for the better and thus far, he is on course. CBN, has in the past 10 years consistently evolved policy measures that engendered financial system and macroeconomic stability and initiatives that support small and medium scale enterprises – the engines of economic growth.

•  Nwobu is a financial journalist and public policy analyst.

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