Central Bank of Nigeria (CBN), Governor Sanusi Lamido Sanusi, says he is confident his policies will stand the test of time even after his exit from the apex bank. The CBN chief who spoke in Washington DC, USA to a cross section of Nigerian reporters during the just-concluded International Monetary Fund/World Bank meeting, emphasised the need to strengthen our institutions, among other isues. SIMEON EBULU, Deputy Business Editor, was there. Excerpts:
Why CBN put a halt to dollar payment
You know the interesting thing about our country is that, we try to be an island in the world.
If you are in the UK and somebody transfers money to you from the US, in what currency do you get paid in London? You get pounds. If you’re in Japan, you get paid in the Japanese yen. There’s no where in the world and because you get a transfer that you insist on being paid in that currency. The Central Bank did introduce this policy of asking banks to pay in dollars, because there was a time that the banks used to cheat people and pay them in a rate that was lower than the exchange rate. Now we’ve said it very clearly that the exchange rate must be the interbank rate at the date of the exchange and the banks must display that rate in their banking halls.
I don’t see how we are going to continue with a policy that is not consistent with global practices. We can’t continue importing dollars and basically saying that we don’t have confidence in our own currency. It’s like the argument that we should disburse the Federal Accounts Allocation (FAAC) in dollars. Tell me one country in the world that basically distributes its resources in foreign currency, why should Nigeria be the only one, why are we different, why is it that if you send money to someone in Nigeria, who is going to spend it in Nigeria, he should not be paid in the local currency?
The thinking here is that it is just a small transaction of $500, $1000
Then let them tell us one country in the world that allows it. It’s like all you journalist that write we should distribute FAAC in dollars. But just tell me one country in the world that basically distributes its reserves in foreign currency. Why should Nigeria be the only one? What is the logic and why are we different? If you go to Ghana you get paid in Cedi, and in the francophone countries you get paid in cfa. So why should your uncle or aunty living in Nigeria and who would spend naira, should not be paid the naira equivalent of the currency you sent, insisting on being paid in dollars. It is not right.
On realtors that seek payment in dollars
First of all, it is illegal. Anybody that refuses to accept the naira as legal tender, is committing an offence. I don’t think anybody would want to do that. What I think they might do is index their rents in dollars and use the exchange rate and accept the naira, but anyone who says I will not accept naira for payment, saying I want to be paid in foreign currency, is committing an offence.
On Maritime operators that deal in foreign currencies
They are covered by law. The law allows them to receive their duties in foreign currency
On his exit stance
First of all, I think no particular individual should make himself indispensable. The institution is far more important than the person managing the institution. I believe that people should be able to build institutions that believe in your vision and you are comfortable enough to walk away from the job. This is because nobody will be happy to have his legacies wiped away after he has left. So if you are comfortable to walk away from the job, it means you have built the right institution that has been sufficiently influenced by the thinking and strategies you have left behind.
I think that the CBN has established itself as an institution that is strongly committed to price stability and nobody in the system would be prepared to play with that system. The Central Bank has committed itself to protecting depositors rather than shareholders and management of banks. It is committed to strong corporate governance and I also believe that the Central Bank has equally proved its credential as a bank committed to development with selective interventions. We have also proved ourselves as an institution committed to payment system transformation and financial inclusion.
These are broad strategic thrust that the Board of Directors of the bank has committed itself over the years to formulating. We have four Deputy Governors who were part of the policy formulation process who are committed to sustainability if this vision, and I do not think that the movement of the Governor would change the direction of our vision.
I also think that once you set a standard, the market expects you to sustain the policies, the depositors and other stakeholders expect you to maintain a certain standard. This is not saying it is going to be easy, but it is important you choose a Governor who would continue to defend the independence of the Central Bank.
But I don’t think the solution is for people to set up institutions that once they are not there, things will begin to go wrong. We should actually endeavour to build up systems where we can watch from a distance the foundation we have laid being built on, by our successors.
On sustainability of his policies after his exit
Institution building is an on-going process, and I will give you an example. The CBN Act of 2007, established the basis for a truly independent and an autonomous central bank, so that justifies all the regulations we’ve had, all the resolutions, including the establishment of the Asset Management Corporation of Nigeria (AMCON). AMCON is an institution for the resolution of banking crisis, and ensuring that the banks continue to play long after I’ve gone. A number of the resolutions we’ve had revolve around the code of corporate governance, transparency, these are institutional issues.
An institution is not a building, it’s a set of rules around which systems operate. But I have made the point over and again, even President Obama said it here that Africa does not need strong men, but strong institutions. No matter how strong an institution is, a weak leader will make it weak. So we need to focus on the institutions and the individuals that run the institutions.
Institution building is an on-going process and the CBN Act of 2006 actually established the basis for a truly independent Central Bank. So all the regulation and institution we have built are aimed at sustaining the achievements we have made.
The Asset Management Corporation of Nigeria (AMCON) for instance, is an institution that ensures banking crisis resolution and the Act establishing it aims at ensuring that banks will continue to meet their obligations regardless of their level of solvency. Of these we have had regulation about code of corporate governance, transparency and these are institutions we have built to stabilize our banking industry.
Remember that an institution is not a building, but a set of policies and rules around which systems operate. Even President Barrack Obama has said it that Africa does not need strongmen but strong institutions. So no matter how strong an institution is, a weak leader will make it weak, so while there is need to build strong institutions it is equally important the we focus on individuals that run the institutions so we can get the best out of the bargain.
On borrowing
I’ve heard this thing since 2009 that Sanusi has criminalised borrowing, I have not criminalised borrowing, but there’s criminal activity that can be cloned as borrowing. If I’m a bank MD and I set up a Special Purpose Vehicle without my name, and I get my staff to apply for loan, and I approve that loan, and take that money and buy a property in the UK without any intention of paying back, until after three years, somebody comes out and discovers, that was stealing money from depositors. It wasn’t a loan, it was never a loan. But if I come and borrow to do a business and the business goes bad and there’s a loss, it’s not a crime and I think people should make that distinction.
Stability of Nigerian banks
When we had a problem I came out to tell everybody, this is the level of capital, this is the level of non-performing loans, this is the level of negative capital. You know that AMCON is there and have put in a lot of money to capitalise the banks. You know that banks have excess liquidity, I’m even complaining that banks are holding too much of treasury bills and government bonds. What do you want me to say about the state of banks!
On the economy
This is how everyday, there is a story out there saying Nigeria’s economy is weak and the Finance Minister has to come out to say, Nigeria’s economy is not weak. Everyday, you force your Finance Minister to have to come out and tell the world that the economy is not weak, but you are telling the world your economy is weak. And it is not the way to analyse an economy. In fact I’ve never heard anyone say an economy is weak, in economics, it does not make sense.
You have a growth rate of over six per cent, this growth is coming from agriculture, from whole and retail trade and services. We have been growing at that rate even though in the oil sector, there’s negative growth. That is resilience.
No economy is perfect, the United States today is riddled with its debt crisis, it is 25 per cent of the world’s Gross Domestic Product (GDP). Nobody will say today that the US economy is weak. It’s on a growth trajectory, certainly not as robust as pre-crisis, but certainly better than anything they’ve seen since 2008. Yet they do have a huge deficit problem. These are challenges you discuss intelligently as an economist, but to make a blanket statement that the economy is weak, it could induce capital flight.
I don’t think policy makers should come and say we don’t have problems. Corruption, oil theft and leakages, these are problems which people should talk about, but that is not the same as saying that an economy is weak.
On the 2013 IMF/ World Bank conference.
I think in the last few years that we’ve been having these meetings, the focus has been on the European financial crisis and financial systems. This year, there is a tremendous amount of focus on what is happening in the United States, the budgetary impasse. You know the possibility if they fail to reach an agreement, and chances of the US being forced into what is equivalent of a massive austerity programme if it defaults on its obligations, not necessarily a default on treasury bills, or bonds and some of its obligations.
But I think there will be some prioritisation. But as things stand, I don’t see the US defaulting on treasury bills, but they can default on some of their domestic obligations.
No one knows exactly how the markets are going to respond, but the real challenge for us in the frontier and emerging markets is what will be the impact on currency and capital flows. The government shutdown is more of domestic issue but the debt ceiling is the one that affects us because we hold our reserves in dollars, and we have invested in US treasury bills and bonds. And if there is a spike in those yields, we suffer a capital loss on the assets that we are holding and therefore we do expect the US government to resolve the matter in the interest of the global economy. (It was resolved last week)
Impact of the US fiscal stand-off on the naira
The naira is doing fine. Last week we traded at N160 .1 to the dollar, so we are still within our band of N155 plus+- three per cent which is the prevailing exchange rate. If you look at the other currencies in the emerging markets from December till now, the Indian Rupee, the Ghanaian Cedi, or South African Rand or the Brazilian Rea, you find that most have lost anything between 10-20 per cent. But the naira lost a maximum of 2.3 per cent, and is actually backed to being within the range. So it has been stable and we have done that without losing much in terms of our reserves. We have tried to increase the rate at which banks lend to each other and to customers, but that is the price you pay to maintain stability.
Containing US fiscal tapering and China’s slowdown
Well there are a number of issues you should look at when appraising recent developments in the USA. While the development in the US might affect frontiers and emerging markets, they don’t affect all of them in exactly the same way.
And you could see that emerging markets were affected far more heavily than the frontier markets, so the crash in the capital markets of Brazil and Asian markets was much more deeper than say, Africa and the rebound was even stronger. So in terms of volatility, there is a variation depending on the depth of the market.
Secondly you would notice that countries that had current account deficit were affected far more than countries with current account surpluses. We do have current account surplus in Nigeria so there is a general understanding that we were better prepared to absorb some of the shocks than most of the countries that have current account deficits today.
Even when we had pressure on the naira, that was not coming from a major reduction in capital flows . We did have a slowdown in capital flows and you would expect that if yields go up, that will not be too good for the current rates, because people will pull out of emerging markets, investors will pullout of commodities and then there will be depreciation in oil prices and there will be reduction in capitalisation. But I don’t think that given where our rates are and given our commitment to stable currency, we are as badly hit as some of the countries we are competing with for capital.
We have strong growth but it remains vulnerable until we put in place strong measures that can make it sustainable
SMEs
The CBN does not lend to SMEs, but what we have done is to set up a N20billion MSMEs fund, and that fund is premised on our recognition that the micro finance industry which started as a scheme for the poorest people, has been too commercialised that those for whom the institutions are set up, are actually paying the highest rate of interest.
They are actually paying unacceptable rate of interest and all over the world, people who borrow from microfinance banks finally end up in debt traps they often find difficult to exit from. So what we are doing with the fund is providing the micro finance institutions with long-term low interest financing that will enable them provide low interest lending to the poor.
So, a poor man in the village who wants to borrow N150,000, does not need to pay 48 per cent interest to the lender or even the 22 per cent that the banks are charging. But he can borrow at nine per cent and by so doing, you can make it more developmental because no bank can lend to you at the rate the the MSMEs’ fund can lend to the poor people.
In doing this, we have tried to bring the state governments into the picture so that they will know that if the CBN is giving money to an institution at between three-five per cent, it is not giving them money to lend to the poor at exorbitant rates. So it becomes possible for the agencies of that state government to monitor the interest being charged borrowers by on-lending institutions.
What we have realised in the CBN is that if you bring enough of the interested parties in lending to the poor, especially agriculture, you achieve results. We, therefore, tried to bring in the ministries, the farmers, bankers, the SMEs and all other stakeholders to a common platform to share knowledge and avoid duplication of responsibility, and you find out you will be making a lot of progress.
Financial Inclusion
First of all, I would like to say that Nigeria was a founding member of the Alliance for Financial Inclusion and therefore we were always part of the international collaboration on this effort. We are the one that forced Mexico, and a member of the G24 to make sure the financial inclusion became a priority in the agenda of G24. From there it became a major element of global governance, so we have directly or indirectly played a role in bringing this to global limelight as far as financial inclusion is concerned.
Locally too, we have been playing major roles in promoting financial inclusion because one key aspect of financial inclusion is financial literacy, working on the capability of people to act in enlightened manner as far as financial decisions are concerned. We have launched a financial inclusion strategy in Nigeria, we have also launched a Financial Literacy Document Steering Committee which has me (Sanusi) as chairman, with the CEOs of other regulatory agencies, including the Securities and Exchange Commission (SEC), Pension Commission (PENCOM),National Insurance Commission (NAICOM), Nigerian Deposit Insurance Corporation (NDIC) and also representatives of the Ministries of Information, Finance, Education and Communications, as members.
The whole essence of that is to ensure that we build financial literacy in our education and enlightenment curriculum so that people have enough literacy to protect them.
You have seen what we have done with cashless Nigeria which is still part of financial inclusion. The Micro Finance Fund is part of financial inclusion. Our focus on women empowerment is still part of financial inclusion. So we are far ahead of many countries even though we are not presently where Kenya is, as a country. But I can say that many countries are far behind us in the area of financial inclusion
Relaxing the Monetary Policy Rate (MPR)
I will only relax monetary policy rate anytime we feel the conditions are right to do so.
If you look at the CBN Act, our objectives are very clear. We were given responsibility for price stability, protecting external value of the currency which is exchange rate stability, maintaining the reserves of the country and for financial system stability.
It is very easy to call the shots from the sidelines. Supposing today I decide to lower the interest rate, which means printing more money and a number of things will go wrong. May be the interest rate goes up and naira gets weak. When a portfolio investor suspects he is going to lose money as a result of weak naira, he will quickly pullout his investment.
We have stability we often take for granted. In 2009 when I became Governor of the CBN, the stock market had lost 70 per cent of its value, many of the banks were about to collapse, the official exchange rate was N145, and at the Bureau De Change (BDC), it was being sold at N190. It is very easy when you have established stability for people to start screaming that you are holding exchange rate too tight.
People want a stable exchange rate, low inflation, low interest rate. but I am not a magician.
