Central Bank of Nigeria (CBN) Governor Godwin Emefiele has spared no efforts in addressing issues that confronted the economy, especially foreign exchange challenges. He has over the last five years initiated far reaching policies that have impacted manufacturing, agricbusiness and Small and Medium Enterprises, reports Group Business Editor SIMEON EBULU.
Emefiele assumed the headship of the apex bank in June 2014. Notwithstanding the circumstances that brought him into office, he was in every respect qualified for the job, having been at the headship of one of Nigeria’s leading and thriving banks-Zenith Bank Plc. He hit the ground running.
There were issues that arrested his attention on assumption of office and to which he immediately addressed his mind. Foremost amongst them was Nigeria’s staggering and undulating foreign exchange rate in relation to the naira. On the Exchange rate management, as Emefiele remarked in one of his outings, “the CBN took several actions to stabilise the exchange rate amidst escalated pressures from speculators, bettors, round-trippers and rent-seekers.”
Licensing of IMTOs
To forstall any scarcity or shortfall, the apex bank encouraged increased forex inflows from remittances by licensing International Money Transfer Organisations (IMTOs), fostered more forex sales into the interbank market and established the Investors-Exporters (I&E) Window.
Over the intervening period, these policies yielded some positive developments, Emefiele said, adding that the CBN managed to stabilise the exchange rate thereby creating certainty for both household and business decisions. “We have largely eliminated speculators and rent-seekers from the Foreign Exchange Market,” Emefiele said at a forum of the Chartered Institute of Bankers of Nigeria.
In view of the forex challenge, the CBN chief said, nine additional IMTOs were licensed. With the increased number, net-transfers through these organisations rose steadily from about $600 million in 2014 to over $1.7 billion as at end-October 2018. He said in the face of resumed capital outflows due to rising yields globally, the CBN “maintained and, where necessary, fine-tuned these policies throughout the year so as to sustain exchange rate stability.”
Naira–Renminbi Currency Swap
Another area the apex bank took a cognitive stand in favour of driving international trade, was in its introduction of the Naira–Renminbi Currency Swap.
The CBN chief explained that given the increasing level of bilateral trade between Nigeria and China and the growing importance of the renminbi in global markets, the apex bank and the People’s Bank of China reached an agreement in April 2018 to swap 15 billion Renminbi for N720 billion (equivalent to about US$2.5 billion).
This deal, he explained, created the option of renminbi denominated transactions alongside to the hitherto exclusive use of US dollars for international transactions. He said the measure is expected to circumvent the influence, or use of a third currency in trades between Nigeria and China, reduce the pressure on the naira exchange rate, and potentially boost exports to China and ease trade transactions between both countries.
The CBN’s Development Finance Initiative (DFI) in recognition of it’s role as an agent of development aimed at ensuring self-sufficiency in reducing Nigeria’s excessive dependence on imports, has become a developmental watershed of some sort
Anchor Borrower Programme
Its interventions at specific high impact sectors like agriculture, manufacturing, Micro Small and Medium Enterprises, (MSMEs), among others, come into play. In the agriculture sector, the Anchor Borrower Programme (ABP) has ensured that Nigeria is gradually emerging from being a net importer of rice to becoming a major exporter. The ABP is also being extended to other agricultural products.
As at October 2018, a total of 834,225 farmers cultivating about 835,239 hectares have so far benefited from the programme, with over two million jobs already created across the country.
These programmes under Emefiele’s leadership, are being supported by others like the Accelerated Agricultural Development Scheme (AADS) which designed to engage 10,000 youths in agricultural production across the country. The scheme seeks to promote national food security through sustained and deliberate increase in agricultural production along its value chain. The scheme is also expected to foster a collaboration between the CBN and the states, and other stakeholders to create jobs in the agricultural sector by focusing on commodities of comparative advantage.
Credit Allocation
As part of its long-term strategy for strengthening the economy, the CBN established initiatives to resolve the underlying challenges to long-term GDP growth, economic productivity, unemployment and poverty that had pervaded the economy space over in the past decades.
It established the Credit Bureau and the National Collateral Registry to improve access to credit in the domestic economy. It equally took specific measures to increase credit allocations to pivotal productive sectors of the economy with a view to stimulating increased output in these sectors, so as to create jobs on a mass scale and significantly reduce the country’s import bills.
Ease of doing business
A number of these CBN policies and initiatives contributed to improving the ease of doing business in Nigeria. Specifically, the establishment of the Credit Bureau and the National Collateral Registry which improved access to credit in the domestic economy, contributed significantly. Besides the introduction of the transparent I&E FX Window which increased investor’ confidence and eased market sentiments, it also boosted the nation’s ease of doing business indicator.
These efforts have yielded immense results with the economy exiting recession during the second quarter of 2017. This recovery has been sustained for five consecutive quarters, while the economy witnessed 18 straight months of disinflation to 11.1 per cent in July 2018 following a period of rising inflationary pressure which peaked at 18.7 per cent in January 2017.
Of tremendous value to growing trade and commerce in the economy is the exchange rate stability at the foreign exchange markets with evident convergence continuing across all segments. At the Bureau De Change segment, there was a significant appreciation of the Naira from over N525/US$ in February 2017 to about N359/US$ in 2018 and this stability has been maintained.
The overall Balance of Payments (BOP) account, the Emefiele said, has remained positive since the fourth quarter of 2016, driven largely by positive Current Account Balances (CAB). As a percentage of GDP, BOP increased from 3.4 per cent in the fourth quarter of 2016 to 5.7 per cent in Q2 of 2018. This reflects the oil sector driven trade balance which grew from $2.3 billion to $8.4 billion over the period. The CAB and overall balances are expected to remain positive over the short-term given the expected continuation of favourable developments in the international oil market.
To avoid further depletion in the nation’s reserves, Emefiele said the the CBN took a number of countervailing actions, including the prioritisation of the most critical needs for foreign exchange. In this regard, and in order of priority, the CBN decided to provide the available but highly limited foreign exchange to meet the Matured Letters of Credit from Commercial Banks, Importation of Petroleum Products, Importation of critical Raw Materials, Plants and Equipment, and Payments for School Fees, BTA (Bsasic Travel Allowance), PTA (Personal Travel Allowance) and related expenses
Buttressing the strides attained by the CBN under Emefiele’s leadership, the former President/Chairman of Council at Chartered Institute of Bankers of Nigeria (CIBN), Uju Ogunbunka, said the economy was not in its best shape when CBN Governor, Godwin Emefiele took over, but that a combination of sound monetary and fiscal policies made the CBN Governor, achieved good results as seen in the marginal growth in the economy. He said Emefiele’s projection that the Nigerian economy would grow by three per cent in 2019, higher than the 1.93 per cent it achieved in 2018 is plausible.
He also applauded the apex bank’s plan to continue to maintain a tight monetary policy stance to rein in inflation which was expected to rise to 12 per cent in the course of the year before moderating.
Ogunbunka, who is also President, Bank Customers Association of Nigeria (BCAN), said the economy, under Emefiele, also saw the increase in the export of locally produced goods and attained sufficiency in local food production due to the introduction of the Anchor Borrowers’ Programme. He said the policies have helped to stabilise the interest rates, exchange rates, and as well as the inflation rates.
He said the forex rate under Emefiele did not go out of control, because of some measures introduced by the regulator, including the introduction of the Investors’ and Exporters (I&E) forex window.
Ogunbunka said that Emefiele was also able to stabilise the banking sector by ensuring that no bank failed in the last five years, pointing out that the CBN’s decision to protect depositors’ funds in the defunct Skye Bank and its smooth takeover by Polaris Bank Limited, have raised bank customers’ confidence in the sector.
The defunct Skye Bank relied on CBN’s intervention to stay afloat. The takeover and injection of N786 billion into Polaris Bank have kept it running efficiently. Emefiele had assured depositors that their funds were safe in any Nigerian bank, stressing that the banking sector’s stability remained a priority for the CBN.
The regulators’ target was to save depositors’ funds and ensure the bank continued as a going concern, being a Systemically Important Bank (SIB).
“I think the bridge bank option worked very well, and sometimes, the takeover of ailing banks by stronger ones ensured that the confidence in the banking sector is maintained,” Ogunbunka said.
Forex Restrictions on 42 Items
He said the CBN’s restriction on 42 items from accessing foreign exchange (forex) impacted positively on manufacturing and real sector growth. More than two years after the policy, its objectives, such as encouraging local production of the items and boosting local industries suffocated by the importation of competing products, are being realised.
He said the policy implementation was part of the home-grown solutions introduced by Emefiele to sustain forex market stability and ensure the efficient utilisation of available forex to grow critical segments of the economy. The policy implies that those who import these items can no longer buy forex from the official window to pay their suppliers, rather, they will have to source forex from the parallel market or Bureaux De Change (BDCs) to pay for imports.
Emefiele had said the bank had been developing home-grown policies to surmount challenges that confronted the economy lately. “As I have always emphasised, it is our collective duty to ensure that the potential and prospects of the economy are optimally realised. The ongoing economic recovery requires the joint efforts and wise counsel of everyone, if we must take giant strides forward. The CBN is more determined now than ever to remain at the forefront of efforts to ensure that the rebound is not overturned,” he said.
He said the political-economy had experienced significant challenges over the last few years, revealing its structural deficiencies, particularly with regards to its dependence on crude oil, as a major source of its revenue and foreign exchange. The 60 per cent decline in crude oil prices between 2015 and 2016 helped shape the trajectory of the economy, triggering the recession in the first quarter of 2016.
The CBN chief assured that the regulator will always act in good faith, with the best available information and in cognizance of current economic conditions, to pursue the goals of price and financial system stability.
“After a wave of scathing criticism that trailed some of our past policies, many of these measures are today widely applauded as brilliant and conscientious actions. As policymakers, our perspectives are typically different from those of the public; but our data, information and outlook remain superior. I therefore enjoin our critics to avoid being hasty in their condemnation of our policies”.
Real sector support
The N300 billion Real Sector Support Facility (RSSF) unveiled by the CBN under Emefiele is expected to enhance the flow of credit in the private sector and lift the economy. The facility will be used to support large enterprises for start-ups and expansion financing needs of N500 million and up to a maximum of N10 billion.
Emefiele listed the real sector targeted by the facility to include manufacturing, agricultural value chain and select service sub-sectors.
He said the facility is expected to improve access to Nigerian Small and Medium Enterprises (SMEs) to fast-track the development of manufacturing, the agricultural value chain, as well as the services sub-sectors of the economy. It is also meant to increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide input for the industrial sector on a sustainable basis, he said.
Emefiele explained that the fund will be managed by the Development Finance Department of the apex bank. He listed the activities to be covered under the facility as new startups and/or expansion projects in the manufacturing, agricultural value chain (non-primary product), pointing out that services and trading shall not be accommodated under this facility.
CRR refunds
The CBN under Emefiele has also boosted SMEs funding. The apex bank is pushing this by refunding Cash Reserve Ratio (CRR) to banks that fund projects in agriculture and manufacturing sectors.
The CBN is also encouraging banks to lend to companies that are doing new capital expenditures and expansions to factories, using some of their CRR at nine per cent. These are not short-term loans, but long-term loans of seven years’, with two years’ moratorium on principal.
This is about the first time in the history of this country where manufacturers would be able to take fixed interest rate loans for seven years. This will definitely give room for for long-term planning. The CBN has also made allowance for banks to apply for this facility if the objective of the intended investment for the loan is in projects that would lead to job creation.
As an additional incentive, the CBN said it can refund the CRR of a bank that has engaged in lending in a new project, or an existing one in the agriculture or manufacturing sector as a way of utilising the CRR. So, anytime a bank lends to manufacturing or agric at the rate the CBN has prescribed, it would have its CRR refunded up to the amount it has lent. The guidelines incorporating these provisions are coming up any moment, Emefiele assured.
Financial Inclusion
The CBN’s policies on financial inclusion are yielding results. According to a report released by Enhancing Financial Innovation & Access (EFInA), about 2.6 million more people have embraced financial services. Under Emefiele, CBN’s policies and processes have led to improved financial access in various states.
The apex bank’s policies on mobile money, agency banking, Know-Your-Customer (KYC), insurance, and recently, Payment Service Banks (PSBs) expected to takeoff this year have helped to bring 2.6 million new customers to the financial system.
The CBN chief has continued to take steps meant to deepen banking services in the economy, with the expectation that in Nigeria about 80 per cent financial inclusion rate could be attained by the year 2020. The outcome of the Enhancing Financial Innovation & Access (EFInA) report released last year, is almost lending credence to this.. The survey showed that 63.6 per cent of Nigeria’s adult population now has access to financial services and only 36.6 per cent are now financially excluded.
EFInA is a non-governmental organisation and a financial sector development organisation funded by the Department for International Development (DFID) and Bill & Melinda Gates Foundation towards promoting financial inclusion in Nigeria. The firm conducts surveys every two years so as to determine the situation of things regarding financial inclusion in the courtly.
EFInA’s 2018 report came after a painstaking research carried out across the country, with 750 respondents in each of the 36 states and the Federal Capital Territory (FCT), and 27,470 interviews, which represents 97 per cent of the target samples of 28,380.
The survey was anchored on several indicators, including banked population, remittances, savings with a bank, payments, received income, loan with a bank, and banking agents, among others.
An increase of 1.4 per cent in the banked population from the 2016 to 2018 was found, a decrease of 2.2 per cent in remittances between in two years, and another decrease of 6.7 per cent in saving with a bank within the period. The indicators of payments, received income and banking agents all recorded increases of 3.4 per cent, 1.3 per cent and 0.6 per cent respectably, while loan with a lank remained static at 1.3 per cent.
Agriculture:
Under the CBN’s wide-ranging policies to propel the nation’s economy, certain intervention programmes have been put in place to catapult growth in given sectors of the economy. The aim is to improve domestic supply of these commodities and eventually moderate pressure on foreign reserves. The CBN’s Anchor Borrowers’ Programme which was piloted in Kebbi is about to pump one million metric tonnes of rice into the Nigerian market. This represents 20 percent of total consumption. By the time this is fully implemented nationwide, Nigeria will not only be self-sufficient in rice, but would become a major global producer of rice.
Boosting Tomato Production
The CBN believes in the need for Nigeria to attain self-sufficiency in the production and processing of tomatoes. In fact, the extant macroeconomic policy stance of the bank, is to support self-sufficiency in food production with the derivative benefits of increased job creation, poverty alleviation, economic growth and development. To boost local production and reposition Nigeria towards self-sufficiency in the country, the apex bank restricted forex access to importers of certain listed goods so they would not injure the interest of local producers of those goods.
Forex allocation to key domestic manufacturing/ agric ventures.
Ihe CBN has extended its Anchor Borrowers’ Programme to the tomato industry by supporting key players in the Industry through direct interventions and FX dispensations. Emefiele said development financing schemes have so far provided N10.7 billion in bridge financing for a number of companies in this order: Erisco Foods (N3.0 billion), Dangote Farms Limited I & II (N2.0 billion), Tropical General Investments (N1.99 billion), Savannah Integrated (N1.6 billion), Vegefresh Company (N1.5 billion), and others.
He also indicated that the Firms in this industry also qualify for the 60:40 FX concession for domestic manufacturing businesses, which allows them increased access to FX needed to import critical and domestically unavailable inputs and raw materials.
He restated the CBN’s readiness to continuing these efforts and also collaborating with relevant agencies to achieve these common objectives.
Power
With regards to power, the apex bank is acting in conjunction with stakeholders in the power sector, and has established a Special Purpose Vehicle (SPV) in the form of a low interest facility, to discharge existing legacy gas debts that had undermined gas supply to generating power plants in the country. This fund, which is about N213 billion, is aimed at improving investment and production in the power value chain.
Micro, Small and Medium-Scale Enterprises
These are recognised globally as the nucleus of sustainable growth, job creation and poverty reduction. In Nigeria, the greatest challenge confronting the 17.3 million MSMEs in operation, is constrained access to affordable financing; leading to an estimated financing gap of about N9.6 trillion. In view of this, the CBN established a N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) to provide concessionary finance to MSMEs.
Infrastructural Assistance for States
On infrastructural support, the CBN chief said the apex bank has advanced N10 billion each to all 36 states total N360 billion to finance specific infrastructural development projects in their states.
Emergency Fiscal Spending
In addition to the above, the apex bank disbursed about N350 billion to the Federal Ministry of Finance for emergency spending to boost the economy the period the economic was under recession.
Improving Foreign Exchange Supply:
In recognition of the enormous potential of Nigerians in Diaspora to adequately fund the FX market, the CBN has adopted the underlisted measures
- Transfers and remittances through IMTOs are now sold via local banks to BDCs in order to sustain FX supply to other segment of the market. Banks that do not wish to sell directly to BDCs return such monies to the CBN for transmission to the BDCs;
- Licensing of more IMTOs to ease the flow of inwards remittances and encourage much more inflows into the country;
- Adoption of Travelex, which is an internationally known BDC, as a conduit for disbursing the remittances to BDCs, a decision totally accepted by the BDCs;
- In addition to its Lagos office, Travelex will open outlets in Abuja and Kano to facilitate this role;
On this basis, we have seen a gradual but consistent appreciation of the Naira in the BDC segment of the FX market.
The Director-General, Africa Rice Center, Benin Republic, Dr. Harold Roy-Macauley has said Nigeria has overtaken Egypt as the largest rice producer in Africa, thereby lifting Nigeria as the largest rice producer at 4 million tonnes a year.
The latest development is testament to the Federal Government and the Central Bank of Nigeria’s (CBN’s) efforts to vastly improve the production of rice in the country.
The Central Bank of Nigeria (CBN) Anchor Borrowers’ Programme, a financing model for small-holder farmers, is part of the Federal government’s efforts to boost the nation’s rice production, supply, distribution and consumption value chain.
According to Roy-Macauley, Egypt was producing 4.3 tonnes annually but production has reduced by almost 40 per cent this year, attributing it to the Egyptian government decision to limit cultivated to preserve water resources.
Egypt’s rice cultivation requires about 1.8 billion metres of water in evaporation, transpiration and irrigation each year.
While Africa produces an average of 14.6 million tonnes of rough rice annually, Roy-Macauley said there were efforts to increase overall rice production in Africa but expressed doubts that it will curb rice importation as population has increased across the continent.
He said consumers are looking for rice that is safe and certified.
Roy-Macauley said, to meet expectations, his centre is ready to partner with Nigeria and other governments in Africa to train farmers, extension officers and exporters on best practice’s in cultivation and post- harvest care and to understand market requirements.
He stressed the African rice value chain needs to be better integrated and be capable of competing with imported rice in terms of quality.
The Director-General added that the goal to achieving rice self sufficiency is not just about on farm assistance but also involves introducing rice varieties that fit the diverse African agro-ecologies, improve irrigation facilities and disseminate rice growing techniques to farmers.
Anchor Borrowers Program (APB); an initiative of the nation’s apex bank, has empowered thousands of rice farmers in the country, while working hand-in-hand with the Rice Farmers Association of Nigeria (RIFAN) to reach the farmers.
The Central Bank of Nigeria (CBN) in January 2018 said it is determined to make Nigeria one of the largest rice producers and exporters in the world, making her less dependent on petroleum money.
Speaking with journalists in Abia state, the apex bank’s Acting Director, Corporate Communication, Issac Okoroafor, underlined the preparedness of the CBN to make the dream come true, saying the country’s apex bank is determined to make Nigeria join other countries in the production and exportation of rice, so that there will be food security and more jobs for the teeming youths.
He said: “This year, we are expecting that we will be self- sufficient in rice production, Nigeria will become a net exporter of rice because we have seen that most families now eat made-in-Nigeria rice.
“We now eat rice grown fresh in Nigeria, not the rice we used to import from India, Vietnam, and Thailand, rice that was between seven to nine years old. Now we are eating farm fresh rice, grown, milled and packaged in Nigeria. You see, we are very proud of Nigerians because they responded to this.”
Okoroafor said the Anchor Borrowers programme has been one of the most successful programs in this country, adding that it goes to show that, “when our people think well and we invest well, we can achieve a revolution, which is what Anchor Borrowers programme has achieved. We are continuing with it, we are expanding it.”
Nigeria’s FX market is at its most liquid in four years
…As foreign investors flood into bond market after Buhari victory…I & E window trades climb 120% to $4bn in one week
Last updated Mar 10, 2019
There are reasons to suggest that Nigeria’s foreign exchange market is at its most liquid since 2015.
FX trading activity between Nigerian banks and their clients rose to a four-year high in February, as foreign investors pile into the bond market after a somewhat successful presidential election that saw President Muhammadu Buhari secure a second term in office.
Total foreign exchange transactions in the month of February settled at a record $8.15 billion, implying a daily turnover of $407.38 million, according to figures released by FMDQ OTC, a securities trading platform.
That’s about the most liquid the fx market has been since 2016 when acute foreign exchange shortages sent foreign investors fleeing and contributed to the country’s first economic contraction in a quarter of a century. The situation has been much better since then, and on the evidence of the recent fx activity, investor confidence is probably at its best since then.
