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Emefiele promises stable Naira in 2016

Central Bank of Nigeria (CBN) Governor Godwin Emefiele said at the weekend that the apex bank is evolving additional measures to boost the economy and stabilise the naira.

Emefiele spoke during an Interactive Session with some editors in Abuja. He declined to give details of the measures and modalities for their implementation.

“Don’t ask me because I will not disclose our strategy for now’’, adding that doing so would be counter-productive and pre-emptive.

The CBN boss explained that the Nigerian economy was not as bad as being portrayed when compared with other economies in Africa.

‘’If we are able to reduce importation, the demand for the dollar will fall automatically.’’

Emefiele said the country should go back to the farm to produce what was needed.

“Public servants should also engage in farming because the only business public servants are allowed to engage in is farming.

‘’And you don’t need power to farm tomato, vegetables or fish’’, Emefeile said.

He blamed unscrupulous businessmen who engaged in illicit activities for exerting intense pressure on the dollar and other currencies.

According to him, the apex bank has ensured reasonable stability in the value of the naira by keeping official exchange to the dollar between N196 and N197 to the dollar.

Emefeile advised Nigerians to always approach their banks for their request for foreign exchange at the official rate as against patronising the black market operators.

‘’CBN does not have plenty dollars to sustain the bureau de change’’, he stressed.

The CBN boss, however, insisted that the 22 per cent depreciation of the naira was reasonable when compared with other emerging economies adversely affected by global economic recession.

‘’Zambia, for example, has depreciated its currency by about 48 per cent, Angola by 25 per cent while Brazil depreciated its currency by about 48 per cent from October last year till now.

‘’Our situation is not as bad as people think. When you devalue, there must be a structural adjustment. We have never followed up with structural adjustment.

‘’So, the approach we are adopting at the moment is that, having done a 22-per cent adjustment in the currency, let us structurally adjust our position.

‘’Let us say, look, stop importing rice; stop importing toothpick; stop importing tomato from South Africa; stop importing 20 million eggs daily from Africa.

‘’That’s the gist of what we are saying. We are saying Nigeria can do without these items. And the truth is that the reserves are no longer there.’’

Emefeile said CBN had created the enabling environment to encourage the growth of small scale businesses through the grant of soft loans to small business operators.

He said only N60 billion of the more than N200 billion soft loans meant for SMEs had been accessed so far.

He urged Nigerians to be patient with the Buhari administration in its efforts at easing the sufferings of Nigerians.

‘’Savings from the Treasury Single Account has also hit over N2 trillion,’’ Emefeile added.

December 21, 2015
Emefiele defends CBN’s policies despite criticisms

AMIDST rising criticisms that Central Bank of Nigeria (CBN’s) policies are anti-people and the economy, the Governor, Godwin Emefiele, said they are bitter pills with long-term benefits.

Speaking at the 49th Annual Bankers’ Dinner hosted by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos, he said while it is too soon to articulate the benefits, the economy is headed in the right direction. He insisted that the CBN will always act in good faith in pursuing price and financial system stability.

The CBN had instituted many polices, including the Treasury Single Account (TSA), restrictions of foreign exchange (forex) for the importation of some 41 items, financial bailout for some states and capital controls.

The CBN under Emefiele has also insisted that the naira will not be further devalued and has been implementing fixed exchange rate regime instead of flexible exchange rate.

Such policies have come under heavy criticisms, including from former CBN Governor, Charles Soludo, who believes CBN’s forex policies under Emefiele are not in the best interest of the economy.

Soludo said politics of naira devaluation and CBN’s promotion of fixed exchange rate do not promote economic growth. “The economy has always done worse in fixed exchange rate regime. Capital will fly out. Such policies do more harm than good. Capital flight in a country that is in dire need of capital is bad. Private capital is on the run,” Soludo said at the third anniversary lecture of Realnews Magazine held in Lagos.

He believes forex restrictions on the import of 41 items by the apex bank is a mismatch and is causing the economy to go down.

“What is going on in the capital market is not an accident. SMEs suffer the most. No economy has succeeded with overvalued exchange rate,” he insisted.

But Emefiele told bankers on Friday night that CBN’s policies under his watch are meant to promote the development of productive sectors of the economy and expand the country’s aggregate supply capacity. The bank chief said the regulator had been targeting specific productive sectors in the economy that have the capacity to create jobs on a mass scale, reduce the country’s dependence on foreign goods and significantly reduce its huge import bills.

He regretted that for the first nine months of this year, Nigeria’s import bill stood at N917 billion, and is expected to hit N1.2 trillion by year-end.

Emefiele said Nigerians must understand the difficulties and headwinds being faced by the country today. “I am not interested in the short-term pains of the policies. We need to diversify from oil and create jobs for the unemployed youths,” he said.

He said the CBN is not only encouraging large corporations to produce locally, but is also taking steps that ensure that Small and Medium Enterprises (SMEs) become conglomerates of tomorrow.

The CBN boss said: “We want both the conglomerates and SMEs to support us at this trying time because better days are around the corner”.

Emefiele said the global economy has been facing headwinds since the third quarter of last year because of drop in oil prices.

For Nigeria, he said the country’s foreign reserves dropped from $37 billion in 2014 to $30 billion in March this year because of speculative attack on the local currency. He said the naira, has depreciated by about 23 per cent in the last one year, prompting the CBN to examine forex demand by importers.

Emefiele said the CBN has been ensuring that foreign exchange demand by importers with legitimate demand are recognised and met. He said Nigeria still imports variety of products that can be produced locally and that does not help the economy to grow. “Nigeria cannot continue on this path of importing anything and everything. That is unsustainable,” he said.

He said the introduction of Bank Verification Number (BVN) for forex purchases by Bureaux De Change (BDC) operators will further help the regulators’ drive to enhance transparency in the forex market.

“The BVN for forex buyers has allowed only genuine operators to remain in trade while speculators are out of business,” he said.

The President/Chairman of Council (CIBN), Mrs. Debola Osibogun, said the financial services sector was inspired by the focus, energy and consistency being deployed by the present administration to bring about a new Nigeria through various change initiatives.

“It is imperative to state that the role of the banking sector in achieving this economic development focus is germane although not without obvious challenges peculiar to our nation and which must be genuinely addressed,” she said.

November 22, 2015
Nigeria’s agric produce imports exceeds N630b, says Emefiele

There is urgent need for government to give priority to the agricultural sector and save over N630 billion spent in importing agricultural produce, Central Bank of Nigeria (CBN) Governor, Godwin Emefiele has said.

The CBN chief who disclosed this at a workshop on innovative agricultural insurance products, in Lagos at the weekend, said the agricultural sector provides up to 70 per cent of employment in Nigeria and accounts for about 42 per cent of the country’s Gross Domestic Product (GDP).

Emefiele, who was represented by the Acting Managing Director of Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL), Edwin Nzelu, said the large import food products include wheat, rice, flour, fish, tomato paste, textile and sugar.

“We are confronted, as a nation with a wide range of development challenges especially with the dwindling global crude oil prices and the nation’s dependence on it as its major source of revenue. There is the need to diversify the mono-cultural tendencies of the economy by developing other sectors of the economy especially agriculture,” he said.

H added that Nigeria’s formal financial system is lending about four per cent of all formal credit to the agricultural sector compared to three years ago when only about one per cent of all credit went to agriculture. He insisted that lending is still low given the lingering perception by banks that agriculture is highly risky.

Emefiele said development and expansion of the agricultural insurance sub-sector will go a long way in mitigating against natural disasters and eventually encourage banks to lend to agriculture.

“Agricultural insurance has been proven to be instrumental in transferring risks and stabilising farmers’ income, but in Nigeria, agricultural insurance is one of the less developed line of business. Therefore, there is need for insurance companies in collaboration with relevant stakeholders to develop innovative products that will carter for the needs of farmers in their provision of agricultural insurance,” he said.

He explained that over the years, only the Nigeria Agricultural Insurance Corporation (NAIC) was licensed to underwrite agriculture insurance in the country, until two years ago when NAICOM liberalised the insurance subsector for conventional insurers to underwrite.

“I urge private insurance companies to take advantage of this opportunity and consider extending insurance cover to the agricultural sector to create a competitive market which will eventually increase insurance penetration to rural areas,” he said.

Emefiele said expansion of agricultural insurance products has become imperative especially now that climatic reports have it that Nigerian farmers are prone to risks from natural disaster such as flood, draught as well as different crop and livestock diseases.

He said that NIRSAL was established to tackle both the financial and commodity agricultural value chains and that its insurance pillar was created to facilitate the expansion of the agricultural insurance products for lending by encouraging the introduction of new products such as weather index insurance, yield index insurance, multi-peril among others.

He said the workshop was organised in collaboration with Alliance for Green Revolution in Africa (AGRA) which has garnered experience over time in introducing various insurance products in some African countries and was one of the major stakeholders in designing NIRSAL.

September 21, 2015
Emefiele: A mission to rescue the naira

The job of the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, was cut out from day one. He oversees the control and administration of the monetary and financial sector policies of the Federal Government.

Emefiele assumed leadership of the apex bank at a time the economy was sorely troubled. The naira was sinking deeper and deeper against the dollar, crude oil prices and foreign exchange reserves were crumbling and foreign investors were leaving the country in droves.

Although some of these indicators are not directly under the CBN’s control, Emefiele, a man who acts more than he talks, has taken strategic steps to ensure their implications do not distort his vision for the economy and the financial sector.

His priority seems to have been to oversee a central bank that is professionally run, apolitical and people-focused. That way, the apex bank will help in reducing poverty, create jobs and ensure macroeconomic stability.

The CBN under Emefiele seeks to achieve monetary and price stability, maintain sufficient external reserves to safeguard the international value of the naira, promote sound financial system and provide financial advice to the Federal Government. It also craves for high standards of banking practice through its surveillance activities as well as the promotion of an efficient payment system.

Therefore, the apex bank is instituting a broad spectrum of financial instruments to boost specific enterprise areas in agriculture, manufacturing, health, oil and gas as well as building a Secured Transaction and National Collateral Registry that improves access to information on borrowers and assist lenders to make good credit decisions.

For the naira, there has been far reaching measures to curtail its slide. In a country stricken by 9.2 per cent inflation as at July, one of the world’s worst; and declining foreign exchange reserves now at $30.5 billion from about $42 billion a year ago, its currency must be guided jealously especially now that oil revenues are falling.

Nigeria’s dependence on crude oil (currently above 80 per cent of total foreign exchange earnings) makes economic growth susceptible to oil price shocks, directly impacting on external reserves, creating negative effect that leads to capital flight, thus depreciating the naira.

It was the need to stem it that prompted the CBN chief to look inwards in finding solutions to Nigeria’s currency and economic crises.

To achieve exchange rate stability, he banned the sale of foreign exchange by banks to importers, stating that all imports involving electronics, finished products, information technology, generators, telecommunication equipment and invisible transactions would be funded from the interbank foreign exchange market only.

The objective was to maintain stability in foreign exchange market and strengthen the various policy measures already initiated, including the regulation of the Bureau De Change (BDCs) that cut dollar supply to operators from $75,000 to $50,000 weekly.

For him, government will continue to intervene to keep the exchange rate stable because of the dire consequences of doing otherwise. Besides, allowing the local currency to find its level will not be in the interest of the economy and the larger population. Today, the naira is still exchanging at N197 to a dollar at the official market, and about N215 to a dollar at the parallel market. It was already heading towards N245 to a dollar before the CBN boss moved against FOREX speculators, promising them hell in return for the harm they were doing to the economy and the foreign reserves.

The CBN boss believes that the foreign reserves remain Nigeria’s common wealth that must be protected even as he seeks stakeholders support to protect them and prevent speculators and rent seekers from plundering them.

Hence, it was expected when the CBN banned import of 41 items, including toothpicks, private jets and rice from using official FOREX markets to fund their imports. For Emefiele, such controls would help stabilise the naira, replenish reserves and boost manufacturing, amidst criticisms that the measures are harming the economy.

But the CBN boss insisted that importers desirous of importing the affected items are free to do so using their funds without any recourse to the official FOREX market window. He wants Nigeria to produce those things it is importing today.

“We must diversify the structure of our economy from being import dependent to being an economy that produces what she consumes. We will try as much as possible not to hurt your business, but we need to be able to work together,” he told BDC operators and bank chief executive officers at a joint FOREX meeting in Lagos.

Besides exchange rate stability, the modernisation of the payment system is also Emefiele’s priority. The cash-less policy which now runs in six states and the Federal Capital Territory, Abuja was initiated against the backdrop of cash dominance in the payments system.

It was a critical part of the payment system modernisation designed to promote the use of Automated Teller Machines (ATMs), Point of Sale (PoS) terminals, web payment, online transfers and even mobile money in banking transactions instead of relying on cash.

He created more confidence in the cash-less policy by sustaining the Bank Verification Number (BVN) project initiated by his predecessor and removing three per cent charge on cash deposits above N500, 000 for individuals and N3 million for corporate customers which are the sanctions prescribed for defaulters. Today, more people are embracing cash-less banking in the overall interest of the economy.

Creating BVN

The BVN is meant to fix the rising cases of fraud in the financial sector and the need to protect customers’ transactions integrity. Emefiele said the BVN, a biometric technology driven project, involves the process of recording a person’s unique physical traits such as fingerprints and facial features. This record, he said, can then be used to correctly identify the person afterwards.

The project became exigent following increasing incidents of compromise on conventional security systems like password and Personal Identification Number (PIN) of bank customers, which has led to loss of funds. There is therefore a high demand for greater security for access to sensitive or personal information in the banking system. The BVN would make it extremely difficult for the fraud perpetrators to succeed.

Beyond banking security, the CBN under him continues to support the growth of the economy by supporting reforms in the power sector and supporting small businesses as well as agriculture.

For the power sector, the CBN boss linked the challenge faced by the sector to unattractive pricing of domestic gas and legacy debts that has inhibited investment in gas supply and infrastructure.

That prompted the CBN boss to institute the Nigerian Electricity Market Stabilisation Facility (NEMSF) where N213 billion has been mapped out and is being disbursed to settle legacy gas debts and shortfalls in revenue for operators to boost power supply.

Money laundering and basic travel allowance (BTA)

The CBN under him has also taken the fight against money laundering very seriously. It has read the riot act to travellers carrying more than $10,000 maximum cash or negotiable instruments across Nigeria’s borders.

The CBN under him also stopped banks from accepting foreign currency cash deposits into customers’ accounts. The policy shift is in line with CBN’s continued efforts to stop illicit financial flows in the Nigerian banking system which aligns with the anti-money laundering stance of the Federal Government.

August 15, 2015
Protect environment, maximise profit, Emefiele urges agencies

The Governor of the Central Bank of Nigeria (CBN) Godwin Emefiele, has appealed to its sister regulatory agencies in the financial service sector, to expand their areas of focus to cover environmental protection, as well as maximise profit and ensure Returns On Investments (ROI).

Emefiele, made the appeal yesterday while declaring open a workshop on sustainable finance for the Financial Sector regulatory bodies in conjunction with the United Nations financial initiatives.

The CBN helmsmam, who was represented by his Special Adviser on sustainable banking, Dr. A’isha Usman Mahmood, advised leaders of financial regulating agencies, comprising the Director –General of Securities and Exchange Commsion (SEC) Mounir Gwarzo, Managing Director, Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, Director-General PenCoM, Mrs. Chinelo Anohu-Amazu and others to adopt sustainable financial practices that will lead to economic development without negative costs to the ecosystem and future generations.

According to Emefiele, “Sustainable Development concepts pursue a balance between environmental protection, social equity and economic development (ESDN, 2012). As a result of the growing evidence on the positive nexus between Environmental and Social management and improved economic performance, an increasing number of financial institutions worldwide are adopting sustainable finance practices to ensure that economic development is not achieved at a cost to our ecosystem and our future generations”.

The Nigerian financial sector he said has “developed and adopted the Nigeria Sustainable Banking Principles, which is an industry-led initiative needed to build a more resilient, robust, environmentally and socially responsible financial sector.” This development became necessary owing to the growing evidence that environmental and social issues present growing risks to economic growth.

The CBN Governor re-echoed the United Nations Environment Program (UNEP, 2015) warning that “there is growing evidence that people are consuming far more natural resources than what the planet can sustainably provide. With the global human population projected to reach 9.6billion by 2050, we will need three planets to sustain our way of life, if the current consumption and production patterns remain unchanged”.

In her remarks, Deputy Head, UNEP finance initiative, Yuki Yusui lamented that “there is a huge funding gap. A lot of study by the United Nations and other agencies shows that we need trillions of dollars per year to invest in a green eco system and save the economy. We have a lot of people that should be out of poverty and the funding gap means that the financial sector needs to be involved to participate and channel the money from brown economy to green economy and regulators to play a bigger role.”

She challenged financial regulatory agencies all over the world to “come out and stop just worrying about financial stability, hyper- inflation and now start working with other agencies on eco system development.”

July 2, 2015
How govt can raise $75b, by CBN chief Emefiele

Some tips on funding have come for theincoming Muhammadu Buhari administration.

It should consider selling down its majority stakes in joint ventures with multinational oil companies to shore up finances and raise funding for infrastructure development, Central Bank of Nigeria (CBN) Governor Godwin Emefiele,has suggested.

CBN officials who evaluated how much could be raised if the state-owned Nigerian National Petroleum Corporation (NNPC) substantially reduced its 55 per cent equity in the joint ventures — with Royal Dutch Shell, Chevron, ExxonMobil, Total and ENI, which pump about half of Nigeria’s two million barrels a day of oil production—gave $75billion as a realistic target.

Private equity groups could be encouraged to compete with the oil companies for acquisitions to ensure the price is competitive.

Some of the proceeds could be used to rebuild macroeconomic buffers, damaged by the collapse in world oil prices and failure of outgoing President Goodluck Jonathan administration to save more when prices were high.

Emefiele said a greater portion should be invested in transport and energy developments that would “grow the economy and create jobs”.

“If you sell down a 30 per cent stake you could raise something substantial. It is an option they need to consider as a way of raising further funding,” the CBN governor told the Financial Times.

He added that he had commissioned the research and would present the idea to the president-elect when he assumes office on May 29.

“It is an option now because our revenues have dropped and we don’t need to pile on more debt. The alternative is to look for ways of releasing value from some of the government’s assets,” he said, adding that petroleum profit taxes could be adjusted upwards to compensate for the state’s reduced stake in crude oil sales.

Gen Buhari, who first governed Nigeria as a military ruler in the 1980s, was petroleum minister when the NNPC was created in 1977. Now 72, he became the first opposition candidate in Nigeria’s history to unseat an incumbent president at the polls, sweeping to victory last month on the back of campaign pledges to stamp out corruption, defeat Islamist insurgents and create jobs,

But the choices confronting him are stark. Africa’s biggest economy is reeling from the collapse in the world price of oil which contributes around 70 per cent of state earnings. Federal revenues are roughly half what they were a year ago, many of the 36 states in the federation are struggling to pay salaries and foreign reserves this month dipped below $30bn, or around five months of import cover.

Mr Emefiele’s suggested remedy could prompt opposition from those ideologically opposed to selling off state assets, and resistance from politicians dependent on oil resources for patronage.

But it will find sympathetic ears among the more liberal, market minded reformers in the administration in waiting. Some of them believe that the NNPC should be sold off altogether — both to eliminate associated corruption, and to help free up commercial oil firms to invest in new production.

For years Nigeria’s oil production has been stagnating at around 2m b/d because of uncertainty around stalled reforms and because of the state’s difficulties in raising its own share of development and maintenance costs.

Oil company executives argue that production could be almost doubled if the NNPC were commercialised or sold, and the companies freed up to meet the full cost of investment.

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“Our manifesto says we are going to break the NNPC up. But the ultimate answer may well be to divest the whole thing,” said an influential politician in Gen Buhari’s camp. “It is an idea that will be seriously looked at. But I don’t think it can be the immediate priority. First we need to get back to a position where revenues that belong to the people are getting into the federation account. We need to stop the leakages,” he said.

Gen Buhari, who cut his teeth in office at a time when the state was the main driver in the economy, may be harder to convince.

“We can’t just wake up overnight and sell the NNPC. First we need to see how much damage has been done and how can we stabilise the situation,” he said in a pre-election interview with the FT. However, reformers in his camp believe he may be persuaded otherwise if oil prices remain depressed given the scant alternatives to finance the ambitious changes he has promised.

April 24, 2015
Cash-less banking must grow to global standard, says Emefiele

How has cash-less banking fared three years after its introduction? It has not done well says Central Bank of Nigeria (CBN) Governor, Godwin Emefiele who has tasked stakeholders to ensure the payment system meets global standard.

Emefiele, who inaugurated members of the Payment System Strategy (PSS) Board, Payment Scheme Boards and Initiatives Working Groups of the Nigerian Payment System, meant to drive the restructured Payments System Vision 2020 (PSV2020), said despite growing the mobile payment channel by 8,400 per cent to N296.9 billion in 2014 from N3.5 billion in 2012, there are still gaps to be filled.

He said Point of Sale (PoS) transactions also rose to N312 billion last year from N48 billion in 2012, representing about 550 per cent increase; the Nigeria Interbank Settlement System (NIBSS) Instant Payment (NIP), increased by 423 per cent to 19.9 trillion last year from N3.8 trillion in 2012.

The web channel grew by 108 per cent from N31.5 billion in 2012 to N65.6 billion last year, while Nigerian Electronic Fund Transfer (NEFT), rose by 7.5 per cent to N14.6 trillion from N13.6 trillion.

“There is no doubt that we have indeed, recorded many successes along the way; however, we do not intend to rest on our oars. In that sense, looking in retrospect, and interpreting the future of our payments system in the light of the present, we see our accomplishments as a stepping stone, bearing in mind that there’s still a great deal of work to be done,” Emefiele said.

He listed agriculture, smart cities, government flows, hotels and entertainment, transport, education, health, bill payment and direct debits, as areas that need strengthening in the payment system to improve results in the years ahead.

He described the PSV2020 as part of the CBN’s efforts to transform the nation’s payment system, adding that a functional national payment system is essential for an efficient financial sector.

Emefiele listed some of the achievements made in the electronic payment to include implementation of the Nigeria Uniform Bank Account Number (NUBAN), deployment of a new Real Time Gross Settlement system (RTGS) built on the Society for Worldwide Interbank Financial Telecommunication (SWIFT), messaging standards and Introduction of the cash-less policy, among others.

He said the PSV2020, was created to make the Payments System ‘Nationally Utilised and Internationally Recognised’. “It is gratifying to note that our country is acknowledged as a major economic force within Africa, but also increasingly becoming an active player in the global economy. To participate actively, our payments system must be successfully benchmarked against the global best practices, as in most developed nations of the world. We have made some significant achievements so far in this journey, but a lot still remains to be done,” he said.

The Board, he said, shall be chaired by the CBN Governor. It has the Honourable Minister of Communications & Technology; the Accountant-General of the Federation; the four Deputy Governors of the CBN; the Chairmen of the four Payment Scheme Boards, among others as members.

“The PSV2020 initiative is intended to benchmark the existing core payments infrastructure in Nigeria against international best practices. The primary reference point was the Core Principles produced by the then Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS),” he said.

He, however, said through the implementation of the original PSV2020 initiatives by the CBN, in association with the banking community, the country has witnessed an impressive growth of electronic payments and a shift from the overwhelming dominance of cash as a means of payment.

February 4, 2015
Entrepreneur praises Emefiele on reforms

An Entrepreneur and auto dealer in Lagos, Adejare Adegbenro has commended the Governor of Central Bank of Nigeria (CBN), Godwin Emefiele for his reforms in the apex bank.

Adegbenro, who is the Managing Director/CEO of Balmoral International Limited, said in less than a month in office, the cashless policy became effective nationwide on June 30, though, spearheaded by his predecessor. He described his reforms as ‘having human face.’

The cashless policy started in January 2012, in Lagos as a pilot exercise before moving to Rivers, Kano, Ogun, Abia, and Anambra States as well as FCT, Abuja.

The businessman, who is also a grandson of the late elder statesman and frontline nationalist, Pa Alfred Rewane, was particularly happy with Emefiele’s achievements in redirecting the activities of the Bureau De Change (BDC) in line with his ongoing reforms. He said: “His record of success arguably remains unprecedented.”

The current sanity in the operations of BDC in the country, according to him, is a welcome development from the unorganised system with the attendant leakages and impunity that has become the order of the day.

He praised the CBN’s Governor’s courage and wisdom in the way he handled the initial protest and resistance that greeted his efforts at sanitising this sub-sector of the economy, adding that he supported Emefiele’s decision to block the leakages.

January 22, 2015
Defending naira hasn’t been easy, says Emefiele

The Central Bank of Nigeria (CBN) has listed some of the challenges it is facing defending the naira. CBN Governor, Godwin Emefiele said at the Annual Bankers’ Dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos that the naira/dollar exchange rate has been under pressure over the last couple of months.

He said in the days leading up to last month’s Meeting of the Monetary Policy Committee (MPC), the interbank rate closed at N173 to the dollar, and at the Bureau De Change, it was N176 to the dollar. But, he said, the CBN managed to keep the official Retail Dutch Auction System (RDAS) rate at slightly above N160 to the dollar.

In 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.”

Firstly, he said regardless of its critical nature in an import-dependent country such asNigeria, 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 U.S Federal Reserve. At the height of the programme, the Federal Reserve was supplying a total of about $85 billion into the United States (U.S) economy on a monthly basis, through asset purchases. This programme came to an end in October this year, thereby significantly reducing the supply of U.S dollars in the global economy.

The third 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 U.S Federal Reserve have led to a depreciation of most currencies in the world against the dollar.

Emefiele said an analysis of the year-on-year change in the exchange rate of 26 Emerging Market countries (including Brazil, China, India, South Africa, Turkey, Mexico, and Nigeria) indicates that their currencies have depreciated by about 8.1 per cent on average against the dollar.

Also, he said the current U.S-led sanctions against Russia for its alleged role in the ongoing Ukrainian crisis do not appear to be abating anytime soon. More also, current negotiations between Western powers and Iran could end in a deal that may open up Iranian oil supply lines to more parts of the global economy, a development that is likely to depress prices even further.

He explained that it was on the basis of these analyses and realities, the CBN reached the decision that it would be sub-optimal to indefinitely continue to deplete the country’s foreign reserves in defending the naira.

Speaking further, the CBN boss said in addition to the decision to allow some flexibility in the dollar/naira exchange rate, the bank has also taken other associated policy actions that are in line with its mandate for price and financial system stability.

“As we know, one of the bank’s major mandates is to ensure price stability and we believe that without complementary policy actions, developments in the foreign exchange market would reverse the fragile gains we have recorded recently in our fight against inflation,” he said.

Emefiele said the decision to tighten monetary policy is to moderate the expected inflationary pressures that may result from exchange rate pass through to domestic prices, and ensure that inflation expectations are well anchored.

Also, the decision to raise the Monetary Policy Rate (MPR) is expected to increase capital inflows into the country, which should improve accretion to reserves while the increase in Cash Reserve Requirement (CRR) will reduce the amount of excess liquidity available for speculative and arbitrage activities and moderate the pressure in the foreign exchange market.

He said the new value of the naira naturally provides a critical opportunity for entrepreneurs to take steps toward replacing costly imports with cheaper locally made goods and services.

December 10, 2014
Emefiele’s move to connect finance to development

It is clear to see that Mr. Godwin Emefiele has demonstrated preparedness for his current position as Governor of Central Bank of Nigeria than what analysts may have acknowledged. During his confirmation-hearing before the Senate, Mr. Emefiele said his regime at the CBN will make banking count for development. Since assumption of office, he has made concrete policy commitments to back his assertion that finance should have strong connections to development. One can safely expect that more actions in this regard will follow in the course of his time in office.

Mr. Emefiele’s position has long been validated by the International Labour Organisation (ILO) as well as the United Nations at various times and through various pronouncements and declarations. Since 2007, long before the financial and economic crisis, the ILO has maintained its positionregarding the role of central banks in controlling inflation and promoting job creation. The point is, despite precarious levels of unemployment and underemployment in the developing world, many central banks in those regions have not seriously considered employment creation as part of their mandate. Instead, they have narrowly interpreted monetary policy to mean just stemming the tide of inflation through inflation-targeting and price stabilisation.

As has been established by development experts, it is now trite for central banks to limit monetary policy solely to price stabilization. This is notwithstanding the fact that this alone cannot guarantee that economic growth will improve since low inflation does not necessarily lead to a high income and a stable economy. Nor does a high rate of economic growth necessarily lead to a high rate of employment creation. This is especially the case in Nigeria where we have witnessed impressive GDP growth rates over the past seven years without a corresponding reduction in the unemployment rate, which rose to 23.9 per cent in 2012 relative to 13.9 per cent in 2000.

Indeed, in his presentation at his maiden press briefing, “Entrenching Macroeconomic Stability and Engendering Economic Development in Nigeria,” Mr. Emefiele disagreed with the dominant school of thought that sees the role of central banking as being limited to achieving low inflation as a policy strategy for growth, increase in employment, and poverty reduction. He audaciously stated that the CBN under his leadership would also begin to include the unemployment rate as one of the key variables considered for its Monetary Policy decisions.

To truly create a ‘people-oriented Central Bank’ as envisaged by the Governor, the issue of access to finance by Micro, Small and Medium-scale Enterprises (MSME) needs to be quickly addressed. The weak connection between banking and development in Nigeria is expressed in the remarkably low access to financing by the MSMEs; difficulties in accessing financing by women entrepreneurs; paucity of long-term funding for real sector operators; high cost of credit across the business spectrum, owing to prohibitive interest rates; general low banking penetration; and weak grassroots banking due to very limited success of microfinance banks. Without a doubt, these issues are impediments to economic growth and development. MSMEs are generally regarded as drivers of innovation. They are also reckoned as the engine of economic growth across developing and advanced economies. In China’s vibrant economy, SMEs account for 99.9% of total number of firms, and they provide 84% of total employment (World Bank, 2013). Inadequate funding for this sector in Nigeria has long been diagnosed as an impediment to innovation, employment generation and economic growth.

Another frontier of growth is women entrepreneurship. Empirical data has shown that women are increasingly getting involved in business formation. This global trend has gained even more momentum in developing countries where women, from time, have been known to be very enterprising in the agrarian economy and in trade. But notwithstanding, around the world, women still very much lag behind men in business ownership. Businesses operated by men tend to be more successful. Apart from the myriad of social forces that militate against the success of women entrepreneurs relative to men, lack of access to financing has been somewhat intractable. Primordial prejudices against women have shifted only in some little ways. Thus, disparity in access to financing based on gender is unfavourable to women.

The funding structure in the economy also calls for interventions in real sector activities. Manufacturers of different stripes turn to Nigerian Export – Import Bank (NEXIM Bank) with the same requirement. They want long-term financing at affordable, or preferably, single-digit interest rates. But the funds to supply credit under these conditions are hardly available in the market. The lending environment is defined by tight monetary stance, which has seen the Monetary Policy Rate remaining at 12% in the past two years, in order to stymie inflationary pressure. In tandem, yields on risk-free government securities are in lower double digits. Moreover, low-cost deposit mobilization by commercial banks remains aspirational due to low level of household savings and low banking penetration. (Only about 25% of the population is banked.)

As for the microfinance segment, it would be apposite to have the following hypothesis tested. One of the consequences of the rapid pace of urbanization over the years is that renewal of the economically-active population in rural and suburban settings has been impeded. As such, microfinance is being addressed to the urban poor while the rural poor are chronically underserved. But social identification which influenced traditional practice of micro lending and drove positive repayment behaviours is absent in the cities. For that reason, microfinance banks have especially struggled to make significant impact and remain in business.

This general context to financing in Nigeria has meant that commercial banks are hardly taken to be agents of development. This perception needs to change through the implementation of policies that underpin the role of banking in the development process. It is, therefore, appropriate and also commendable that Mr. Emefiele has construed the role of the CBN as making banking particularly relevant to development. Central banks have policy tools to make this happen. The CBN governor has hinted on his intent to deploy a variety of such tools.

The MSME Fund

In August, President Goodluck Jonathan launched the Micro, Small and Medium-scale Enterprises fund. Promoted by Central Bank of Nigeria, the N220 billion fund has become the first concrete step under the regime of Mr. Godwin Emefiele to deliver on his promise that the CBN will be an agent of development. The MSME fund spared none of the issues that have been enumerated above. While the size of the Fund means that it will not meet all the needs; it can provide the basis for scaling up the interventions in one form or another.

The MSME sector comprises an estimated half a million operators. Operators in the sector collectively account for about 50% of Nigeria’s GDP, according to the Minister of Commerce, Trade and Investment, Mr. Olusegun Aganga. However, only 8% of the MSMEs in Nigeria are reckoned to have access to financing. This underscores the importance of this Fund which will lend at single-digit interest rate. With significant funding, it is imaginable that, like the data from China, MSMEs in Nigeria can contribute over 90% of the GDP.

The MSME Fund is not necessarily a novel idea in Nigeria. There have been similar initiatives in the past, which achieved little success. But here is a situation where past failures should not be a hindrance to new efforts. The stakes are higher now for the success of the MSME sector. Because of the large number of the firms, they not only constitute the engine of growth for the economy, they will also create millions of jobs and therefore alleviate poverty. To put this in context, it has been acknowledged that micro, small and medium scale enterprises tend to employ the poor including those without formal qualifications; and the enterprises are usually the only hope of employment in rural communities. Even so, most poor and unskilled people only get by through self-employment.

It is no surprise the CBN governor has worked really hard to launch the MSME fund with presidential backing and as quickly as he did. He has restated time and again his determination to link Nigeria’s economic growth to job creation. Around the world and in the country, policymakers are weary of “jobless growth” because of high unemployment rates. Instead, they are pressing for inclusive, job-oriented economic growth models. Global employment rates have raised concerns, but not merely because employment has again played the role of the laggard in recovering from the last economic downturn. Unemployment is also associated with social risks, and a move towards full employment is critical for inclusiveness and shared prosperity.

By design, 60% of the MSME Fund is allocated to women entrepreneurs. This is good news for gender advocates and those who care about inclusivity. The fund is a necessary boost for women entrepreneurship. I agree completely that women are the new frontier for finance. The women folk have long been deprived of access to credit. Whereas women are adept at business formation, mostly in order to improve the living conditions of their family, they are less successful in business. Their greater dedication to family life poses a limit to their business success. But beyond this, lack of collateral, often based on gender discrimination especially in land and property ownership, has meant that women have lesser access to financing for their businesses. However, women are proven to be better money managers. Their success is also known to have more impact on the family than when men are the bread winners. This, therefore, means that women can make more contributions to development if they are empowered with financial access.

Working through the DFIs

The decision of the CBN governor to work with development finance institutions is of particular interest to NEXIM Bank, and Nigerian exporters in the non-oil sectors. Although the development finance segment of the Nigerian finance industry is in the early stage of transformation, the DFIs have garnered some experience to help deliver development outcomes in their areas of focus. NEXIM has been working with SMEs in our sectors of focus — Manufacturing, Agro-processing, Solid minerals and Service – under what we call the MASS Agenda. Our interest has been to help nurture indigenous businesses in the MSME sector to become global players, by financing their production and export capabilities. From our experience, the “MASS” sectors are in the frontline of employment generation, and they are mostly characterized by low barriers for new entrants. This means that interventions in these sectors can quickly scale up.

It is very heartening to note that President Goodluck Jonathan has been an ardent supporter of the DFI community in Nigeria. This undoubtedly will translate to fiscal support for the agenda of the CBN Governor for intervention in the quest for development in the country. We saw this in the housing sector with the launch of Nigerian Mortgage Refinance Company earlier in January. As already noted, the MSME programme received presidential attention, with Mr. President being physically present at the launch of the fund. Also, the Coordinating Minister for the Economy and Finance Minister, Dr. Ngozi Okonjo-Iweala has already hinted last June, at the dinner organised by the African Development Bank (AFDB) to flag-off events marking its 50th anniversary that the Federal Government was fine-tuning plans to establish a Nigerian Development Bank in 2015. This is in addition to other programmes by the Administration that will restructure and strengthen development finance institutions in Nigeria to enable them scale up results and close the gaps in development financing. NEXIM Bank is very enthusiastic on these brighter prospects.

– Moghalu is Head of Corporate Communication, Nigerian Export-Import Bank (NEXIM)

November 2, 2014