The Nation Newspaper

Tag: Central Bank of Nigeria (CBN)

  • $40bn drained from external reserve in 10 years, says CBN

    $40bn drained from external reserve in 10 years, says CBN

    The Central Bank of Nigeria (CBN) has cried out that about $40 billion had been depleted from the nation’s external reserves in 10 years due to the taste for imported goods by Nigerians.

    To stem the hemorrhaging of the external reserve the CBN has strongly advocated for Nigerians to begin to process raw materials so as to get more value and earn more foreign exchange.

    According to the CBN governor Mr Godwin Emefiele, “exported raw materials such as crude, wood, cocoa amongst others whose end products are later imported, are being sold cheaply and bought back at more expensive rates” He said the level of the external reserve will be significantly beefed up if fuel which takes up 20 per cent of Nigeria’s import bill is locally produced.

    Defending the decision of the CBN to support the real sector, Emefiele said the apex bank “is convinced that the sector has sufficient employment capabilities, high growth potentials, contributes significantly in accretion to foreign reserves, expands the industrial base and diversify the growth potentials of the economy.”

    Emefiele noted that Nigerians “must, by now have been tired of hearing people talk about the potentials of Nigeria, now is the time to live that dream, we can achieve our goals and give Nigerians the chance to live longer, better and more fulfilled lives.”

    To make this possible, the CBN governor appealed “to Nigerians to patronize locally made products to encourage the manufacturers to remain in business, interventions by the bank are centered around agriculture, Micro, Small and Medium Enterprises (MSMEs) and Infrastructure intervention.”

    The CBN governor also disclosed that in order to make the real sector attractive to the banking industry, the apex bank has injected over N1.3 trillion into the sector.

    Speaking at the annual finance corespondent sand business editors seminar in Ibadan yesterday, the CBN Governor Mr Godwin Emefiele said the desire to revive and stimulate credit to the real sector was what informed the bank’s efforts to pump such huge amount of financial resources into the real sector.

    Represented by the by deputy governor, Corporate Services, Adebayo Adelabu Godwin Emefiele noted that by injecting funds and subsidizing rates, and through relevant policies, the CBN has assisted in growing the economy and promoting the growth of the different sectors of their economies.

    According to Emefiele, the interventions that culminated in the over N1.3 trillion support for the real sector include “the Agricultural Credit Guarantee Scheme Fund (ACGSF),the Commercial Agricultural Credit Scheme (CACS), the Agricultural Credit Support Scheme (ACSS), the N300 billion Real Sector Support Facility (RSSF), the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF), the Small and Medium Enterprises Refinancing and Restructuring Facility (SMERRF), the N75 billion Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL), the N213 billion Nigeria Electricity Market Stabilization Fund and only recently, the Anchor Borrowers’ Programme launched by President Muhammadu Buhari.”

    The CBN is also supporting the Nigeria Export Import Bank (NEXIM) with N50 billion export refinancing and restructuring facility as well as N500 billion as non-oil export stimulation facility. “If you add all these it is in excess of N1 trillion that have been deliberately injected into the system to ensure that they are fully resuscitated and they become attractive for commercial banks” Emefiele said.

    The CBN governor however stated that credit injection to the real sector was not intended “to crowd out the financial institutions in the space of credit delivery but to provide incentives that will stimulate lending at reasonable rates by banks to the real sector.” In addition, the reduction of the CRR of DMBs he noted “has freed almost all the resources that the banks can lend to finance projects under the real sector.”

    Reacting to recent criticisms that the CBN has gone beyond its mandate, the CBN Governor responded that “many central banks in emerging economies, in carrying out their primary mandate, go a step further in directly supporting different sectors of the economies of their respective countries.”

  • FG charges bank, others with N327million fraud

    FG charges bank, others with N327million fraud

    The Federal Government has filed a criminal charge against the Nigeria International Bank Limited and 16 others at the Federal High Court in Lagos.

    The charge, filed by the Director of Public Prosecution of the Federation, Mohammed Saidu Dirim on behalf of the Attorney-General of the Federation (AGF) Abubakar Malami (SAN) is pending before Justice Ibrahim Buba.

    The accused persons will be tried on 20 counts of conspiracy to defraud, intent to defraud by means of false pretenses, conspiracy to commit fraud, falsification of document, presenting untrue documents, counterfeiting and production of forged documents.

    Others are obtaining money by false pretense, fraudulent evasion of duty, conspiracy to steal, corruptly enriching themselves, contributing to Nigeria’s economic adversity, obtaining goods by false pretence, conspiracy to commit felony and untrue declaration.

    The other defendants are Chief C. S Sankey, Emeka Emuwa, Peter Harris, Adekunle Oladosun, Okechi Egwu, Lulu Ndubuka, Kabiru Bello, J.E Eriagbon, Mrs Olusola Fagbure, Samson Ebie, Steve Obodomechine, Mikky Dons Nig. Ltd, Mark Anaele, Chief Ariyo Odunala, Peter Oriade and Obianwa Chuba.

    They were accused of conspiring to commit an offence by inducing Micmerah International Agency Limited, by means of false pretences and with intent to defraud, to deliver N250million to them.

    The money, said the prosecution, was intended to be used for offsetting a fraudulent import finance facility scheme.

    Dirim said the alleged offence occurred on January 31, 2001 at 1, Idowu Taylor Street, Victoria Island, Lagos.

    The defendants also allegedly conspired with Eriagbon of the Central Bank of Nigeria (CBN) on or about January 31, 2001 to induce Micmerah International to deliver N55million to Mikky Dons Nigeria.

    The money was said to be meant for payment of Customs Duty on four Volvo luxury buses and two 40 feet containers imported by Micmerah International.

    The defendants were also accused of knowingly falsifying an affidavit purportedly sworn to by one Tiwa Ibikunle on April 11, 2003 before a Lagos High Court.

    According to the charge, the affidavit was for the purpose of fraudulently effecting the release of the buses and containers from Customs.

    They were also accused of presenting the forged document which they “knowingly” presented to enable them obtain police extracts.

    According to the prosecution, the accused forged Customs Revenue Receipts for N55million with intent that they may be acted upon as genuine in order to defraud Micmerah International and the Federal Government.

    The defendants “contributed to Nigeria’s economic adversity” by diverting money meant for payment of Customs duty to themselves, the prosecution said.

    The alleged offences contravene sections 1(1)(a) (b) and 8 (a) of the Advance Fee Fraud and other Related Offences Act 2004; sections 161 (1) (a) and 162 (a) of the Customs and Excise Management Act; Section 1 (2)(c) of the Miscellaneous Offences Act of 2004 and Section 516 of the Criminal Code Act of 2004.

    The case was fixed for arraignment yesterday but was stalled due to the absence of 16 of the defendants. When the case was called, only the first accused was represented in court.

    Mr. Gordy Uche (SAN) announced appearance for the prosecution; Mr Niyi Adegbomire (SAN) represented the accused.

    Uche said he was unable to serve the accused with the charge and prayed for a short adjournment to enable the prosecution serve the accused.

    The case, said to have been dropped in 2011 by the Goodluck Jonathan administration, was re-opened following a petition by Michael Emerah, an Onitsha-based business mogul and Chairman/Managing Director of Micmerah Group.

    He was allegedly defrauded of the money in 2001 by the defendants under the pretext of assisting him to import luxury buses and others.

    The AGF reportedly ordered the restoration of a fiat earlier granted Uche to prosecute the case on the Federal Government’s behalf.

    The last administration was said to have entered a Nolle prosequi (notice of discontinuance) in May 2011 and withdrew the fiat.

    It was learnt that President Muhammadu Buhari ordered that the case be to re-listed in the interest of justice and in line with his administration’s determination to rid the country of corruption.

    Justice Buba adjourned till February 9 for arraignment.

  • Ex-CBN chief calls for less dependence on oil

    Ex-CBN chief calls for less dependence on oil

    A retired Director of the Central Bank of Nigeria (CBN), Mr. Chris Nemedia, on Monday urged the Federal Government to be less-dependent on trading in crude oil in the international market.

    Nemedia, who made the plea in an interview with the News Agency of Nigeria (NAN) in Lagos, said that processed commodities were more profitable to trade in.

    “Emphasis should be on adding value to the primary commodities like oil before exporting them in order to get the desired yield like other nations from natural resources

    “A major achievement of this government will be to make us belong to the league of countries that trade in manufactured products.

    “By now, we ought to have improved on the processing and refining of our crude oil ,’’ the former CBN director said.

    According to Nemedia, there has been steady decline in commodity prices internationally in the last one year.

    He said the decline had been to the detriment of economies that relied solely on exporting the commodities in their crude state.

    Nemedia urged the government to give priority to the value of the nation’s primary products for export.

    “President Buhari needs to emphasise the establishment of processing plants by partnering with the private sector.

    “Former developing economies that have moved to a more advanced stage went the way of industrialisation and manufacturing to change their fortunes,’’ he said.

    Nemedia said that the hallmark of diversification of the economy should be increased industrialisation and manufacturing.

    “We have the population to sustain the consumption of locally-manufactured goods to our benefit,’’ he said.

    The National Bureau of Statistics said that till 2014, exportation of crude oil and natural gas accounted for more than 91 per cent of total exports.

  • Ban of tomato paste: Labour calls for forex policy review

    Ban of tomato paste: Labour calls for forex policy review

    The officials of Labour union in some of the local tomato processing companies have called on the presidency to prevail on Central Bank of Nigeria (CBN) to review the forex policy listing of triple concentrate tomato paste among the 41 items banned from accessing foreign exchange from the official window by the CBN as the inability of the firms to import tomato concentrate which is the main raw materials used in their production process had drastically affected them.

    This is according to the President, National Union of Food, Beverage and Tobacco Employees, Lateef Oyelekan, saying the companies involved should be given the latitude to plan for backward integration as one of the downside of the policy is that it could lead to massive job losses, as an estimated 1000 jobs are likely to be lost in the tomato process manufacturing sector.

    “The jobs of the workers are at stake unless the ban is reversed, and that the opportunity for backward integration would be lost by the affected companies.”

    According to Oyelekan, the quantity of the produce being cultivated presently in the country is not enough for local consumption and the quality is not good enough to be processed into paste.

    He pointed out that it would take years for the planting, harvesting and processing of the produce into concentrate, adding that most of the companies had run out of stock.

    Oyelekan explained that the volatility factor inherent in tomato farming is often a product of seasonal variations, which is itself a function of the variables of weather, agronomy, water, seed, fertilizer, market, storage, transportation, and numerous other agro-allied business dynamics.

    “If triple concentrate tomato paste is now placed among the list of items that will not have access to the foreign exchange market overnight, that line of business has been killed because the government is working from the perspective that there are tomatoes in the environment for cultivation, processing into paste and packaging. Rather than prohibiting the items overnight, why not engage the manufacturers in discussion.”

    He expressed that the objective of the forex restriction was not a bad idea on its own, however lamented that the implementation of the policy has far-reaching implication in the short, medium and long term.

    Also speaking on the policy, President of the Lagos Chamber of Commerce and Industry (LCCI), Remi Bello, while decrying the policy, warned that most manufacturers might be forced to shut down and move their operations to neighbouring countries due to their inability to access foreign exchange for raw materials and other critical inputs.

    According to him, the government needs to first address the issue of post-harvest wastage emanating from inadequate storage and the absence of processing facilities and the development of agro-allied industry.

    “No matter how bounteous the nation’s harvest is, such productivity will count for little if the produce cannot be stored,” he said.

  • Cost of forex restrictions on triple concentrate tomato paste

    Cost of forex restrictions on triple concentrate tomato paste

    The Central Bank of Nigeria (CBN) had earlier in the year, restricted 41 items including triple concentrate tomato paste, as part of efforts to defend the naira and salvage dwindling foreign exchange earnings.

    The apex bank had explained that the move became necessary to “encourage local production of these items”, adding that the implementation of the policy will help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation.”

    Therefore, as part of a plan to conserve dwindling foreign exchange reserves, Nigeria’s central bank denied the use of foreign exchange from the local market for importers seeking to purchase certain goods, including ‘raw materials’ such as triple concentrate tomato paste.

    The Government through the policy intends to force manufacturers to develop a local supply chain. It is important to recognize triple concentrate tomato paste imports are estimated to be in range of USD50 million per annum.

    Looking at the government policy, the Federal Government may have to do more to convince Nigerians and key stakeholders that its economic policies are not crafted to sink the country’s manufacturing sector as not all stakeholders appear to be on the same page with the government as far as this is concerned.

    There are more negatives than positives. If we look at outcomes we have had in the past months, they are quite drastic on the negative side. Gross Domestic Product (GDP) is declining; underemployment and unemployment are on the increase, the general level of economic activities is getting weaker by the day and also the capital market is quite unstable.

    Considering the position the nation was able to attain after the elections, there came a heightened level of goodwill from both the local and international arena which we had all the opportunity to tap into. Unfortunately, foreign investment has stayed flat from the level we had last year.

    In using import prohibition as a major trade policy instrument, Nigeria has hoped that its balance-of-payments problems would be alleviated, and that the protection offered would induce increased output and employment of the domestic industry.

    Against these postulated positive outcomes must be set several possible negative consequences of import prohibition, including raising the domestic prices of CBN restricted products, disrupting other sectors which use the CBN restricted products as raw materials, depriving government of tariff revenue and creating vested interests among domestic producers of prohibited products and among smugglers.

    Nigeria’s balance-of-payments situation is determined primarily by developments in the world oil market; hence it has not been amenable to changes induced by import restrictions. In any case, it seems clear that protection of domestic producers is the real force behind the use of this policy instrument. But there is little evidence that it has produced the desired result here either.

    For instance, a survey of manufacturing-sector performance conducted by the Manufacturers’ Association of Nigeria does not support the view that the level of capacity utilization was positively related to the degree of local sourcing of raw materials — one of the major channels through which import prohibition was expected to promote increased output and employment.

    There appears to be recognition both within government and among producers that the CBN led import restriction policy is rendered virtually impotent by large-scale smuggling and that this has continued in spite of stiff penalties imposed on those involved with the importation, transportation, storage, display or sale of prohibited items.

    This recognition has not, however, led to the abandonment of the policy; rather, pressure has mounted to enhance its stricter implementation.

    For example, the tomato paste Industry has a total market of 150,000 MT of tomato paste per annum (GTIS 2014) as triple concentrate is not produced in Nigeria, these have to be imported as raw materials to meet the market demand.

    Presently, the total value of this imported tomato paste is 170 million USD. Out of this, the imported triple concentrate of Tomato paste which is used as raw material by the packers is around 50 million USD (as per Industry source), as there are no company as of now producing triple concentrate in the country.

    Hence this raw material is not available at all in Nigeria and there is a huge vacuum of 150, 000 MT which will take years to fill in a progressive and sustainable manner.

    The consumption of Tomato paste in Nigeria is huge and Nigerians love tomatoes! Fresh tomatoes and tomato paste form a major component in almost every Nigerian dish – from delicious red stew to spicy jollof rice/ spaghetti etc. Majority of the farmers in Nigeria specialized in the plantation of fresh pepper, tomatoes etc, face a tough time nurturing & growing this farm produce to a ready-for-consumption stage.

    However, the effort to effectively preserve the harvests while preventing colossal wastage in the absence of the triple concentrate Tomato paste poses a serious economic challenge never to be ignored. It is important to realize that this is an area where Nigeria has little or no strength in preservation of tomato without the use of concentrate.

    As enormously blessed as the country Nigeria in the area of adequate fertile land bringing forth healthy agricultural produce; however, there still lies a huge gap in the area of processing the fresh produce into a finished product to meet the culinary needs of the end consumers. A typical example in the tomato paste industry is the unavailability of the triple concentrate tomato paste in Nigeria, which is the major composition essential in the production of a tomato paste asides the use of fresh tomatoes which can easily sourced locally.

    As a result of the unavailability of this major component (triple concentrate Tomato paste), manufacturers are left with no other choice than resorting to importation in order to fill the gap.

    Presently, there is not a single company in Nigeria producing triple concentrate tomato paste for use. Hence this raw material needs to be imported for reprocessing and pack for retail sales.

    This is why members of the Organised Private Sector (OPS) and the manufacturers differ with the apex bank on the classification and definition of some of the products restricted from access to forex market, stating that some of them are raw materials used in the course of production in their factories.

    The private sector operators, under the aegis of Lagos Chamber of Commerce and Industry (LCCI), raised the alarm at different occasions that many companies are on the brink of collapse because of inability to access foreign exchange for raw materials and other critical inputs. They claimed that many small businesses have moved to neighbouring countries to affect transfers to their suppliers abroad, a situation that encourages operation of offshore bank accounts to the detriment of the Nigerian economy.

    Presenting an impact assessment report on CBN forex policies, LCCI President, Remi Bello, noted that the real sector has been battling some challenges since the implementation of the forex policy as several investments are at risk, with possible job loss. According to him, the policy has negatively affected the financial services sector, manufacturing sector, tyre and rubber industry, pharmaceutical sector, the free trade zones, and furniture and foam manufacturers, among others.

    “The Lagos Chamber of Commerce and Industry (LCCI) and the business community are concerned about the consequences of the CBN approach to the management of foreign exchange market over the last few months. We appreciate the challenge of scarcity of foreign exchange. Tough choices have to be made.

    “But we have serious reservations over the policy choices of the CBN in managing the current crises. Significant disruptions, distortions and dislocations have been created in the business environment by the CBN. Nigeria is under pressure, but you cannot shut all the doors and windows”

    The total investment in tomato paste sector is about 25 Billion Naira in tomato paste packing manufacturing companies, and also more than 10 Billion Naira is  under further stages of investment with direct and indirect (in allied industries) impact on more than 80000 livelihoods. This includes those directly employed in the industry and indirect stakeholders such as suppliers, logistics, sales and distribution etc.

    Since the announcement of the new policy, a few have wondered why triple concentrate tomato paste was included in the list while many commentators have also passionately intoned on why the country continues to import concentrate when our vast quantities of tomato produced by our hardworking farmers across the belts of the country are being wasted or simply ignored.

    Nigerian farmers are working hard to meet up the consumption and raw material demands of tomatoes but the major issue is the fresh tomato yield in Nigeria. The yield presently is about 5.7 MT/Hectare which is too low compared to China’s 51 MT/Hectare and USA’s 80 MT/Hectare.

    It is pertinent to note that because of increased costs of farmer, primarily driven by low yields, costs of fresh tomatoes remain high as farmers expect better returns because of inefficiency in the farming process. This is going to remain the biggest challenge for any out-growers scheme even in a normal scenario.

    Just imagine how much increased pressure will come when there are restrictions for tomato paste in Nigeria. The shortage will increase market prices for fresh, creating further gap and upward pressure on out growers selling price. Ultimately consumers will suffer and inflation will go up.

    Of course, the Federal Government is striving to sustain the tomato industry in the country but the country needs to have a stable economy and survival in the tomato industry as the local production is currently unable to meet the quantity as well as quality requirements of the industry, which may lead to scarcity of raw materials and inflation.

    Also, the economy is feeling the impact as there is inadequate supply of tomato, and desperate food producers’ will use non qualified tomato concentrate thereby jeopardizing public health and safety. The future industrial growth is being threatened because tomato was and is one of the widely used raw materials and migration of industries and investments in Nigeria to other neighboring countries will surely affect the economy.

    Renowned Economist, Bismarck Rewane observed that the decision by the apex bank sends a signal that there is a cash flow problem adding that it could however affect the level of inflows and outflows in the country.

    Dr. Chiken Obidigbo, former chairman of the Manufacturers Association of Nigeria (MAN) in Enugu, Ebonyi and Anambra states, was of the opinion that the CBN’s measure was a mere scratch of the problems besetting the real sector of the economy.

    According to the President of Lagos Chambers of Commerce and Industry (LCCI), Alhaji Bello, expressed concern that many of the products on the list of the 41 products are intermediate goods for example triple Concentrate tomato paste which is a critical input for tomato manufacturing firms as well as other raw materials critical for other sectors of the economy.

    He revealed that the development will put several investments at risk with implications of job losses, quality of loan access in the banking system and the welfare of citizens.
    He said the list is prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for implementation.

    He said the alternative foreign exchange markets are not deep enough to meet the demand of the essential intermediate products on the exclusion list, saying the exclusion of the items from the forex market is as good as import prohibition.

    He said the policy measure will lead to a widening of exchange differentials between the interbank markets and the parallel markets, adding that the immediate consequence will be rampant round tripping of foreign exchange which the apex bank has limited capacity to nip in the bud.

    He also said the policy has far reaching implications for investors in fabrication, construction and real sector. He said facilities granted to investors affected by the shock of this policy are also at the risk of going bad.

    In an interactive session with the media, Director, African Department of International Monetary Fund, (IMF), Ms Antoinette Sayer recently on the restriction for forex, she said: “The central bank has introduced administrative measures that limit access to foreign exchange and ban certain imports as a way of restricting the demand for foreign exchange.

    “Those are measures that are quite detrimental, we think. It has certainly led to a lot of unhappiness in the private sector, as far as we’ve been aware, and understands that private investors see this as very detrimental to their economic activities.

    “It is not something we think is sustainable or advisable. We hope that there will be an opportunity to review those restrictions and permit the exchange rate to continue to adjust.”

    Forex is required for the enhancement of the nation’s capacity to process raw materials into finished goods, such as factory production lines which help in the economic growth of the country.

    When these and many more segments of the nation’s economy need the scarce foreign exchange to acquire items and equipment that will result in value creation and a concomitant accelerated growth of the overall Nigerian economy, it is therefore foolhardy to jump to policy making without consultation.

    For importers of some raw materials needed for the production of some of the prohibited commodities, the apex bank’s decision is prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for implementation.

    Due to the resultant effect of the forex policy, Nigeria today is losing investments worth billions of naira. So as the low production and high demand for the product both domestic and industrial needs continue to generate much agitation, importation is inevitable for the sustenance of the country’s industrial image.

    For now, importation of the triple concentrate tomato paste concentrate serves, as the best alternative to the non availability of the raw material produced in the country. There should be a progressive building of local capacities to ensure a steady and robust transition to substitute importation in long term.

    This shall motivate serious and organized manufactures who have got impacted by CBN policy to survive and create more employment in times to come. Government should let tomato paste manufacturers to survive and bring about fiscal changes to motivate the industry to participate in backward industry in a structured manner.

  • Implications of CBN’s forex restrictions on CPO

    Implications of CBN’s forex restrictions on CPO

    The consumption of palm oil in Nigeria amounts to 1.0 million MT per annum. 90.0% of palm oil is consumed by food industry and the remaining 10.0% is used by the non-food industry.

    Foods like noodles, vegetable oil, biscuits, chips, margarines, shortenings, cereals, baked stuff, washing detergents and even cosmetics thrive on palm oil. Noodle industry alone consumes 72,000 MT of imported palm oil and the leading, domestic palm oil producers fail to meet this demand.

    Saddened by unavailability of sufficient oil palm in the Nigerian market, some industries have proactively announced strategic alliances to invest in oil palm plantations.

    Large estate in the palm oil plantations and output in Nigeria, which is the only category producing palm oil used by the food industry  produced 80,000tons annually, which is only 10% of local production and the overall domestic oil production was 1.35mn tones, the consumption demand was 2.25mn tones resulting in a shortfall of 900,000 tones.

    Of course, the Federal Government is striving to sustain the crude palm oil industry of the country, but the country needs to have a stable economy and survival in the palm oil industry as the Local production is currently unable to meet the quantity as well as quality requirements of the industry which is leading to scarcity of raw materials and inflation.

    Also the economy is feeling the impact as there is inadequate supply of palm oil, and desperate food producers’ will use non quality palm oil thereby jeopardizing public health and safety. The future industrial growth is being threatened because palm oil was and is one of the widely used raw materials and migration of industries and investments in Nigeria to other neighbouring countries will surely affect the economy.

    So why Forex Policy? The Central Bank of Nigeria (CBN) uses forex exchange policy to achieve certain macroeconomic goals of price stability, low unemployment, reduce inflation among other objectives. These goals are attained by manipulating the money supply and influencing credit conditions in the economy. Because money as a means of exchange is the major lubricant of the nation’s economic activities, the techniques of manipulation of forex policy are often dictated by whether the apex bank wants to pursue an expansionary or contractionary policy.

    Recently, however, the application of forex policy by the CBN has drawn the ire and criticisms of stakeholders in the manufacturing and private sector, with some describing the policy measures as emasculating. In a move to promote locally-produced goods not only to build robust foreign reserves, but also to create jobs for the teeming population, the CBN shut out Crude palm Oil with the 41 imported items from the foreign exchange (forex) window.

    Though the CBN maintained that its action was necessary for economic stability, members of the organised private sector believe the move may have been wrongly conceived without the apex bank properly appraising domestic capacity for production of some of the excluded items.

    The CBN Governor, Godwin Emefiele said, “My personal as well as the bank’s institutional analyses of the situation compelled us to believe that we needed to aggressively begin the process of feeding ourselves by ourselves and producing much of what we need in this country.

    “The huge amounts of money the country spends on importing things we can produce locally have become a significant drag on our Foreign Exchange Reserves. Most of you are aware of the often-quoted number of N1.3 trillion, which is what we spend on average importing Rice, Fish, Sugar, and Wheat every year,” he said.

    Explaining his personal frustration over the development, the bank chief queried why the country should be importing produce when vast amounts of comparable quality produced by poor hardworking local farmers across the belts of Nigeria are being wasted, ignored and depleting huge forex too.

    Since the announcement of the new policy, a few have wondered why Crude palm oil (CPO) was included in the list while many commentators have also passionately intoned on why the country continues to import CPO, when our vast quantities of palm oil produced by our hardworking farmers across the belts of the country are being wasted or simply ignored.

    Renowned Economist, Bismarck Rewane observed that the decision by the apex bank sends a signal that there is a cash flow problem adding that it could however affect the level of inflows and outflows in the country.

    Dr. Chiken Obidigbo, former chairman of the Manufacturers Association of Nigeria (MAN) in Enugu, Ebonyi and Anambra states, was of the opinion that the CBN’s measure was a mere scratch of the problems besetting the real sector of the economy.

    According to the President of Lagos Chambers of Commerce and Industry(LCCI), Alhaji Bello, expressed concern that many of the products on the list of the 41 products are intermediate goods for example Crude palm Oil which are critical input for many manufacturing firms as well as other critical sectors of the economy.

    He revealed that the development will put several investments at risk with implications of job losses, quality of loan assess in the banking system and the welfare of citizens.
    He said the list is prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for implementation.

    He said the alternative foreign exchange markets are not deep enough to meet the demand of the essential intermediate products on the exclusion list, saying the exclusion of the items from the forex market is as good as import prohibition.

    He said the policy measure will lead to widening of exchange differentials between the interbank markets and the parallel markets, adding that the immediate consequence will be rampant round tripping of foreign exchange which the apex bank has limited capacity to nip in the bud.

    He also said the policy has far reaching implications for investors in fabrication, construction and real sector. He said facilities granted to investors affected by the shock of this policy are also at the risk of going bad.

    Besides, in a  communiqué issued at the end  of an interactive session with the Central Bank of Nigeria in Lagos, the  chamber said the  new CBN policy is ambiguous as the restricted items are not well-defined and specific, plunging both manufacturers and banks into confusion regarding the intent of the apex bank.

    The chamber urged the CBN to immediately amend the policy with full product definition and specification of all restricted items, including HS Codes and excluding any items which are non-substitutable industrial raw materials from the list.

    Forex is required for the enhancement of the nation’s capacity to process raw materials into finished goods, such as factory production lines which help in the economic growth of the country.

    When these and many more segments of the nation’s economy need the scarce foreign exchange to acquire items and equipment that will result in value creation and a concomitant accelerated growth of the overall Nigerian economy, it is therefore foolhardy to jump to policy making without consultation.

    For importers of some raw materials needed for the production of some of the prohibited commodities, the apex bank’s decision is prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for implementation.

    Due to the resultant effect of the forex policy, Nigeria today is losing investments worth billions of naira. So as the low production and high demand for the product both domestic and industrial needs continue to generate much agitation, importation is inevitable for the sustenance of the little pride of the country’s industrial image.

    For Nigeria to meet the shortfall in local usage of crude palm oil and be self-sufficient, Nigeria needs a total plantation of 300, 000 hectares of land. This no doubt is huge and requires the support of government through its Ministry of Agriculture by providing suitable and adequate land for willing investors to invest in large estate plantations in the country.

    Therefore the exclusion of the items from the forex market is as good as import prohibition”, Bello added.

    Nigeria now produces a meagre 1.7 percent of total world production which is inadequate for local consumption which is put at about 2.7 percent. The road to being self-sufficient is a long one as a whopping $10billion will be required and a minimum of 20 years of palm tree planting at a very large scale.

    And for now, importation of palm oil serves, as the best alternative to the low quantity produced in the country pending the development of large estate plantations for which some of the big time stakeholders such as PZ, Dufil, Okomu and Presco have engaged themselves in expansion and recapitalisation through their various backward integration processes.

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  • CBN’s unending headache over naira, inflation

    CBN’s unending headache over naira, inflation

    Has the Central Bank of Nigeria (CBN) lost the battle for exchange rate stability? This is the question many are asking as the naira continues to fall, despite the CBN’s efforts to stabilise it. Although it closed at N197.8 to the dollar at the interbank last week, it still exchanges at N220 at the parallel market, making nonsense of the benefits of the CBN interventions, writes COLLINS NWEZE.

    Ahead of this month’s elections, increased political risk, falling oil prices and lack of interest in investors’ frontier assets have put the naira under pressure.

    At its weakest, the naira was quoted at a record low of N206.60 to the dollar last month, a decline of 20 per cent since November. The naira also dropped to N220 at the parallel market before the CBN closed the Retail Dutch Auction System (RDAS) last month.

    This has depleted foreign reserves and shot inflation up to 8.2 per cent in January. The foreign exchange reserves fell 9.04 per cent to $30.87 billion by March 4, from $33.94 billion a month earlier. The CBN has used the reserves to support the ailing naira, which has been hammered by falling global oil prices and uncertainty over the delayed presidential elections due later this month.

    Although the currency was able to stabilise at N197.8 to dollar at the interbank last week, many insist that it has indeed fallen from the Olympic heights. The interbank market is the top-level foreign exchange market where banks exchange different currencies. The banks can either deal with one another directly, or through electronic brokering platforms.

    Naira Notes newAlthough it was unclear what stabilised the naira, interventions from International Oil Companies (IOCs) cannot be ruled out.

    But the local currency suffered its biggest monthly fall in over five years last month, dealers said, citing concerns over political uncertainty and the CBN’s ability to manage a currency hammered by weak oil prices.

    The naira shed 8.3 per cent to the dollar in February, which dealers said was worse than the 6.9 per cent fall in November after the CBN devalued the currency by eight per cent to save the foreign reserves.

     

    New measures

    Last week, CBN fixed the rate at which banks can buy dollars from International Oil Companies (IOCs) at not more than N2 spread to its clearing rate, dealers said. The policy is the bank’s latest attempt to prop up the naira hit by the drop in oil prices.

    The naira crashed through the psychologically important level of N200 to the dollar last month in a rout triggered by weak oil prices and escalating tension over the postponement of a presidential election.

    The CBN has pledged to stabilise the naira and has been deploying various measures. Dealers said the central bank did not issue a formal circular on the directive, but instead resorted to persuasion, adding that the total outstanding dollar demand of about $600 million was not met.

    Oil companies usually sell dollars through an auction to lenders to buy naira to fund their local operations. The naira closed at N197 to the dollar on Thursday, firmer than N199.9 its ended on Wednesday. Dealers said the bank had beefed up inspection of commercial bank’s trading books to verify utilisation of its dollar sales.

    The CBN scrapped its bi-weekly currency auctions last month and a market body said it would sell dollars only at 198 naira, a move that amounts to a de facto devaluation of the currency of Africa’s biggest economy.

    This policy, is part of the CBN Governor Godwin Emefiele promised to stabilise the currency. He listed some of the challenges he is facing defending the naira, adding that the naira/dollar exchange rate has been under pressure over the last couple of months.

    Explaining the difficulties in managing exchange rate stability, the CBN boss raised a poser: “What then can a Central Bank do to react to such a situation of falling reserves and pressurised exchange rates?

    “One course of action would be to continue to deplete the foreign exchange reserves in trying to keep the official rate at a stable level. But there are several difficulties with this option.”

    He said regardless of its critical nature in an import-dependent country such as Nigeria, the exchange rate operates like any other ‘price’ in the market.

    The dollar/naira exchange rate is simply the ‘price’ of dollars in naira. The forces of demand and supply, he said, determine its movement. “When demand rises, the price rises. When supply falls, the price also rises as well. In recent times, Nigeria has faced a perfect storm of simultaneous dwindling supply of dollars and rise in demand. Both forces have led to a rise in the price of dollars, that is, significant reduction in supply of dollars to the market, even with constant output of crude oil production,” he said.

    The other global factor, which has significantly reduced the supply of dollars in the market is related to the end of Quantitative Easing by the United States (U.S) Federal Reserve. At the height of the programme, the Federal Reserve was supplying a total of about $85 billion into the U.S economy on a monthly basis, through asset purchases. This programme came to an end in October last year, thereby significantly reducing the supply of U.S dollars in the global economy.

    Another difficulty which has contributed to the continuing depletion of Nigeria’s foreign reserves, and its capacity to defend the naira is that the combination of a fall in oil prices and the end of the Quantitative Easing programme by the US Federal Reserve have led to a depreciation of most currencies in the world against the dollar.

     

    Previous steps taken by CBN

    The CBN has directed that all importations involving electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions will henceforth be funded from the interbank foreign exchange market only.

    In a circular to all authorised dealers, CBN Director, Trade & Exchange Department, O. I. Gbadamosi told stakeholders that the policy was to maintain the existing stability in forex market and strengthen the various policy measures, already initiated by the CBN.

    On the development, Head, Africa Strategy at Standard Chartered in London, Samir Gadio, said: “The importation of electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions importations shall henceforth be limited to the interbank market only.

    “We’re seeing more foreign-exchange flexibility. Perhaps they do not want to burn FX reserves unnecessarily. It’s a risky strategy though as the market will now look for the topside of dollar-naira and also because the lower rates will reduce the incentive to hold naira fixed-income assets.”

     

    BDCs policy

    Last June 23, the CBN, among others, raised the minimum capital requirement of BDCs to N35 million from N10 million. It raised the mandatory caution deposit to N35 million from $10,000.

    Again, on July 7, the apex bank extended the deadline from July 15 to July 31, in response to appeals and intervention of Association of Bureau De Change Operators of Nigeria (ABCON)and both chambers of the National Assembly.

    In a circular, CBN’s Director, Financial Policy and Regulation, Kelvin Amugo, said interest would be paid on the mandatory caution deposit of N35 million, based on the savings account rate. The CBN, Amugo said, would, on expiration of the deadline, cease to fund any BDC that failed to comply with the fresh requirements.

     

    Naira crises complex

    The misfortune of the naira seems complex. The thinking is that massive inflow of forex from surging oil prices and the boom in the capital market were responsible for the appreciation of the naira in the past few years. Unfortunately, oil prices have nosedived and Nigeria capital market is in a shambles. The fall in the price of oil has major consequences on government revenue, aggregate output, capital formation investment, employment, trade and fiscal balance.

    The 2008 global financial meltdown also contributed to naira’s freefall.  Chief Executive Officer, Financial Derivatives Bismarck Rewane, said Nigeria was unprepared for the shock. “The Nigerian economy believed to be one of the most resilient in the world was caught unawares by the global crisis,” he said.

    Analysts said a gradual appreciation of the currency will require building confidence in the financial system and price of crude oil in international market. This is what is going to drive the exchange rate now and beyond. We cannot isolate what is happening in the global economy like the issue of diversification of energy sources.

     

     Policy makers speak

    Sub-Saharan Africa Economist at Renaissance Capital and co-Author of the Fastest Billion Yvonne Mhango said the CBN has shown absolute commitment to dealing with dwindling fortune of the naira.

    The official devaluation of the naira, she said, allows the Retail Dutch Auction System (RDAS) to move within the range that straddles the interbank foreign exchange rate. “While the market reaction to the RDAS move in the near-term will be important, we think that these measures deal as comprehensively as possible with the challenges facing Nigeria.

    “While Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability,” she said.

    Head, Equities Market at FBN Capital Olubunmi Ashaolu said the CBN has by the policy, set clear cut objective on its monetary policy direction. He said the stock exchange positive reaction was an indication that local and foreign investors now understand where the naira is heading. “As long as there is clarity and good investment climate, the equities market will benefit,” he said.

    He advised government to improve infrastructure, noting that such action would make Nigeria’s investment climate more attractive for foreign investors.

     

  • MTN backs bank-led mobile money services

    MTN backs bank-led mobile money services

    MTN Nigeria is supporting the Central Bank of Nigeria (CBN’s) bank- led mobile money model.

    The CBN recently licensed some financial institutions to carry out mobile money services with the objective of providing easy money transfer services, using mobile phones and enhancing financial inclusion, particularly in rural areas.

    MTN’s Corporate Services Executive Akinwale Goodluck, said the CBN bank-led model has many merits and that it is full implementation would achieve the CBN’s stated objective to extend money transfer services to millions of Nigerians who are currently underserved.

    “We are supportive of any initiative that brings financial inclusion to the masses and the Central Bank’s efforts in this regard are highly commendable,” Goodluck who spoke at a capcity building forum in Lagos said at the weekend, adding that the partnership between licensed organizations and telecommunications companies is a win-win combination.

    He said, “The current partnership between banks and telcos in the mobile money space leverages available cutting edge ICT technology offered by telcos and best practice payment protocols and expertise supervised by the CBN.”

    During the seminar, participants gained a better understanding of the details of the CBN guidelines and discussed various ways in which MTN could offer tangible backbone and logistical support to licensed organizations.

    In his closing remarks, Goodluck remarked that as the leading ICT company, MTN’s greatest responsibility to its customers and to Nigeria is to provide world class quality of service in order to support a multitude of products and services. He observed that MTN Nigeria had already built the largest and most sophisticated network in Africa.

    “The world today is heavily dependent on ICT. Our future success as a company depends on how well we support services like mobile money,” he said.

  • Banking sector credit slides to N13 trillion

    Banking sector credit slides to N13 trillion

    The aggregate banking system credit to the domestic economy stood at N13.09 trillion in July 31, the Central Bank of Nigeria (CBN) Economic Report, obtained by The Nation, has shown.

    The data depicted a decline of 1.6 per cent, on month-on-month basis, in contrast to the increase of 0.5 per cent at the end of the preceding month.

    Also, banking system’s credit to the Federal Government, on month-on-month basis, fell by 26.5 per cent to negative N1.7 trillion, compared with the decline of 13.1 per cent at the end of the preceding month.

    The development was attributed, largely, to the decline in banking system’s holding of Federal Government securities.

    As at December 2011, aggregate banking system’s claims on the Federal Government fell significantly by 251.5 per cent.

    The Federal Government, however, remained a net lender to the banking system at the end of the review month.The report said banking system’s credit to the private sector rose by 1.0 per cent to N14.8 trillion, compared with 1.5 per cent recorded at the end of the preceding month, but in contrast with a decline of 0.2 in the corresponding period of 2011.

    The report said the banking system’s claims on the core private sector rose by one per cent to N14.2 trillion, above the level in the preceding month, compared with the growth of 1.5 per cent at the end of the preceding month.

    The development reflected, a 1.9 per cent rise in DMBs’ claims on the sector. Relative to the level at the end to December 2011, banking system’s credit to the private sector rose by 4.7 per cent.

    At N7.8 trillion, foreign assets of the banking system rose by 3.9 per cent at end to July 2012, in contrast to the decline of 5.8 per cent at the end of the preceding month.

    The development was attributed to the 4.5 and 1.1 per cent increase in the CBN and banks’ holdings, respectively.

    The value of money market assets outstanding at end–July 2012 was N5,950.25 billion, showing an increase of 4.5 per cent, over the level at end-June 2012. The development was attributed to the increase of 9.4 and 2.0 per cent in the value of NTBs and FGN Bonds outstanding, respectively.

    Activities on the Nigerian Stock Exchange (NSE) in July 2012 were mixed.The report said gross federally-collected revenue in July 2012 was estimated at N985.80 billion, showing an increase of 28.6 and 22.1 per cent above the receipts in the preceding month and the 2012 provisional monthly budget estimate, respectively.

    At N632.58 billion, gross oil receipts exceeded both the receipts in the preceding month and the provisional monthly budget estimate.

    This was attributed largely to the rise in receipts from royalties.Also, non-oil receipts, at N353.22 billion (35.8 per cent of the gross federally collected revenue), was 89.2 and 38.7 per cent higher than the receipts in the preceding month and the provisional monthly budget estimates, respectively.