Central Bank of Nigeria (CBN) Governor Godwin Emefiele is thumping his chest that the restriction on 41 items from accessing foreign exchange (forex) at the official market rate is yielding dividends. The policy has boosted local production, he said at the 53rd Annual Bankers’ Dinner in Lagos. The resultant effect is the rise in foreign reserves, reports COLLINS NWEZE.
Taking bold decisions demands courage and foresight.
The Central Bank of Nigeria’s, CBN’s restriction on 41 items from accessing foreign exchange (forex) at official windows is one of such decisions.
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.
The policy implementation was part of the home-grown solutions introduced by CBN Governor Godwin 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 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.
He said with improved availability of forex, the exchange rate at the Investors & Exporters (I&E) FX window has remained stable in the past 12 months and the parallel market exchange rate premium has narrowed significantly. At the BDC segment, there was a significant appreciation of the naira from over N525/US$ in February 2017 to about N361/$ today. Rates at the I&E window also appreciated from nearly N382/$ in May 2017 to just over N360/$.
He said with regards to over-dependence in imports, the economic recession triggered mainly by the drop in crude oil prices, only strengthened the case for noving from a nation wholly dependent on consumption, to a nation that produces a large proportion of what it needs, particularly in areas where the resources needed for production are widely available across the country. This thought process, he said, shaped decision to impose the restriction on access to forex for 41 items that can be produced in Nigeria.
“There has been considerable discourse particularly on whether the restriction on access to foreign exchange for 41 items is driving local production, with some nay-sayers stating that it has constrained productivity and growth in the economy. Based on our internal research conducted at the Central Bank of Nigeria, there is strong support that the recovery of our economy from the recession may have been much weaker or even negative, without the implementation of the restriction on 41 items.”
“Our research supports the conclusion that the combination of the restriction on 41 items along with other measures imposed by the fiscal and monetary authorities has helped to promote the recovery. Any attempt to reverse the course of this action may have untold consequences on the growth trajectory of our economy particularly in our push to diversify and restructure our economy. In fact, recommendations are being made to the CBN that the list of 41 items be expanded to include other additional items that can be locally produced.”
Emefiele said many entrepreneurs were taking advantage of this policy to venture into the domestic production of the restricted items with remarkable success and great positive impact on employment. “The dramatic decline in our import bill and the increase in domestic production of these items attest to the efficacy of this policy. Noticeable declines were steadily recorded in our monthly food import bill from $665.4 million in January 2015 to $160.4 million as at October 2018; a cumulative fall of 75.9 percent and an implied savings of over $21 billion on food imports alone over that period. Most evident were the 97.3 percent cumulative reduction in monthly rice import bills, 99.6 percent in fish, 81.3 percent in milk, 63.7 percent in sugar, and 60.5 percent in wheat,” he said.
Emefiele, who spoke at the 53rd Annual Bankers’ Dinner in Lagos, with the theme: “Strengthening the economic recovery process in Nigeria”, said : “In my inaugural address after assuming office as the Governor of the Central Bank of Nigeria in June 2014, I indicated that my mandate would be to ensure that the Central Bank of Nigeria is more people focused, as its policies and programmes would be geared towards supporting job creation and fostering inclusive growth, in addition to key macro-economic concerns such as inflation and exchange rate stability. I hope to use this opportunity tonight to convey a sense of the strong commitment of the Central Bank of Nigeria towards supporting measures that would wean the nation from its dependence on imported goods, create wealth and jobs for our teeming youths, and promote a more stable and resilient financial system”.
The CBN 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”.
Road to recovery
He said the country’s over-dependence on crude oil for forex revenue meant that shocks in the oil market were transmitted entirely to the economy via the forex markets, as manufacturers and traders who required forex to purchase their inputs as well as goods, were faced with a depleting supply of forex in the country.
First, the CBN tightened money supply in order to contain inflation while improving yields in local bonds, which attracted the attention of foreign investors. Second, it analysed the import bill and encouraged manufacturers to consider local options in sourcing their raw materials, by restricting access to foreign exchange on 41 items.
Third, the (I&E) FX window was introduced and it allowed investors and exporters to purchase and sell forex at the prevailing market rate.
Emefiele said the impact of these measures led to an increase in forex inflows into the country; transactions in the I&E FX window reached $24 billion ($6 billion net inflows) in 2017 and the foreign reserves rose to over $48billion at the end of May 2018 from $23 billion in October 2016.
Key takeaways
The CBN boss said the ongoing global tensions as well as the 2016 recession charted the way to take to improve the wealth base of the nation.
“Our understanding of the nature of Nigeria’s domestic imbalances indicates that two key factors accentuated our vulnerability to global shocks. The first is the diminished total factor productivity in Nigeria due to a low and inadequate infrastructural base. The second is our over-dependence on imports for both capital goods and domestic consumption.
“With regards to the inadequate infrastructural base, I am aware of ongoing efforts being made by the fiscal authorities in constructing critical roads networks such as the 2nd Niger Bridge, Lagos – Ibadan Highway, Abuja – Kano road network, and the rail lines between Port-Harcourt – Maiduguri, Itakpe – Ajaokuta and Lagos – Kano. These measures will go a long way in reducing the logistics cost of doing business in Nigeria, while opening up new markets for farmers, traders and manufacturers,” he said.
On development finance, Emefiele said: “In continued recognition of our role as an agent of development and aimed at ensuring self-sufficiency to reduce Nigeria’s excessive dependence on imports, the CBN invigorated its development finance activities. We have maintained a particular focus on supporting farmers, entrepreneurs as well as small and medium scale businesses, through our various intervention programs such as the Anchor Borrowers Program, Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the National Collateral Registry. The CBN recently introduced the Real Sector Support fund; a facility meant to provide cheap funding at no more than 9 percent to new projects in the agriculture and manufacturing sectors; aimed at boosting output and creating jobs.
In the agriculture sectors, he said the ABP has ensured that Nigeria emerged from being a net importer of rice to becoming a major producer of rice, supplying key markets in neighbouring countries.
As at October 2018, a total number of 862,069 farmers cultivating about 835,239 hectares, across 16 different commodities, have so far benefited from the ABP, which has generated 2,502,675 jobs across the country.
It is in light of the success of the ABP with regards to cultivation of rice and maize that the Monetary Policy Committee in its last meeting on November 21, recommended that the ABP be applied to other areas such as palm oil, tomatoes and fisheries to mention a few.
Chartered Institute of Bankers of Nigeria (CIBN) President, Uche Olowu said the institute would continue to foster ethical conduct in the banking industry because bankers have a fiduciary duty to protect the integrity and reputation of the sector, underwrite continuing public trust and boost confidence in the financial system.
“To ensure this, we will continue to work with the Sub-Committee on Competency and Industry Standards of the Bankers Committee to make the Ethics Compliance Certificate a reality in the first quarter of next year. This is consistent with our belief that a high standard of professionalism with strong ethical values and integrity is the prerequisite for the creation of a new generation of bankers,” he said.
On capacity building, he said: “We are investing substantially in equipping our members with the required skills sets and knowledge needed to compete, think and innovate. We are currently developing content for the new structure of the syllabus of banking professional examinations which our governing council approved in September 2018. The syllabus has been aligned to the needs of the banking industry in order to better meet the expectations of the more discerning customers and market place. To arrive at the Structure, a Practice Analysis Survey was conducted to ascertain the skills sets the employers of labour expect the Chartered Bankers to possess. The new Syllabus will be in operation from April 2020,” he said.
Olowu said the CIBN has commenced discussion with the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) to run a Certification on Agriculture Finance to equip the various actors along the value chain with comprehensive knowledge of full range of activities required to expand their portfolios. By extension, it is expected that this will aid Government in its economic diversification efforts. o “We have continued with our role as the conscience of the industry by paying more attention to constructive stakeholders’ engagements for the benefit of our corporate and individual members. In view of this, we organised, through our USA Branch a Conference with theme Investing at Home (Imploring Nigerian in Diapora), Atlanta to encourage Nigerians abroad to invest more in the Country’s economy for the good of the greater number of the populace,” he said.
