Interviews - January 27, 2021

How CBN is generating extra revenue to fast-track Nigeria’s economic recovery – Emefiele


With oil revenues below the level, coupled with additional responsibilities saddled on government shoulders as a result of the impact of COVID-19 on the global economy, Central Bank of Nigeria governor, Godwin Emefiele, says the apex bank has joined other agencies to adopt policies to help generate extra revenue away from crude oil to support a faster recovery of Nigeria’s economy from recession.
He spoke at the end of meeting No. 277 of the Monetary Policy Committee in Abuja on Tuesday. BASSEY UDO, TEAM LEAD, MEDIATRACNET monitored the meeting from Abuja.

Excerpts:

Q: On Fitch’s allegation that CBN’s financing of the Federal Government to strengthen economic stability, but weakening its balance sheet.
EMEFIELE: It is unfair and very unfortunate that Fitch, known to be a first-class rating agency, would hold such views on what the CBN is doing, and from there passed a judgment on the size of credit granted to the Federal Government.
Let is be known, first and foremost, that the CBN is banker to the government.
Second, let is be known that CBN is a lender of last resort, not just to the government, but even to our banks, when they run into short-term liquidity problems.
Fitch says the financing predated COVID-19. It is true. Recall that in 2015-2016, there was a global economic crisis, which resulted in a massive drop in the price of petroleum products. Unfortunately, Nigeria is a country that celebrates when the price of crude oil is high at the international market, but sneezes when the price of crude oil goes down.
In this case under reference, the price of crude oil went down, and the country sneezed, because revenue came down, making the government to become incapable to finance all its obligations.
If the government cannot finance all its obligations, I think it will be irresponsible on the part of the CBN as a lender of last resort not to support the Federal Government.
Then COVID-19 started. Again, we are not only facing a global crisis, but a health crisis of monumental proportion never seen in the country’s lifetime. It has rendered every economy very useless. It caught every global leader pants down, without resolution.
Today, as we speak, even the vaccines that have been provided and researched and certified to be workable are not 100 percent efficacious.
People have doubts about their efficacy. Nobody knows whether the vaccines would be efficacious for the various variants of the second wave of the pandemic going through different countries.
Not only has that health crisis resulted in terrible fatalities, the same has dovetailed to global economic crisis.
The price of crude oil came down in February-April 2020 to as low as $17 per barrel. Even the country’s cost of production of oil became higher than its revenue.
Then, Fitch is saying that the CBN should not lend to the Federal Government.
In the UK, there was a time that the governor of the Bank of England came out and said the bank would not be giving support to the government.
The following day he reversed himself, because he saw the consequences of the statement he made.
Today, the Bank of England as the Treasury has granted the UK government support that is equivalent to about 56 percent of its gross domestic product (GDP) to help in stimulating the UK economy. This amounts to about $1.57trillion.
In US, about 35 percent of its GDP amounting to about $7.4trillion has already been extended to the government.
The new Biden administration in the US is already thinking about granting an additional $1.9trillion, just to give stimulus (free money) to the people who have been impacted by the pandemic.
In the Euro area, 15 percent of their GDP has been granted by their Central Banks and treasuries to support their governments, amounting to about $2.3trillion.
In India, 15 percent of its GDP has been done to support the recovery of their economy. That is to the tune of about $400billion.
South Africa provided up to 10 percent of its GDP, which amounts to about $26billion to support its economic recovery.
In Nigeria, only 4.5 percent of our GDP, amounting to about $13billion, has been provided.
So, when Fitch institution, as reputable as they are, has come out to make such sweeping remarks, passing a judgment that is supported by some newspapers, all I can say is that this is very unfair, because those statements are totally misplaced.
Some of these support measures included outright purchase of government’s debts by the Central Banks in order to improve the ability of the fiscal authorities to fund recovery efforts.
In the case of the US, we have also seen assets purchase programmes of lower grade bonds as part of the efforts to stimulate the economy.
So, the efforts of the Central Banks are not different from what is being witnessed in other climes all over the world as we all share the same objective of considerable conventional and unconventional measures that would support faster economic recovery in the light of reduced revenue challenges faced by these governments by these fiscal authorities. That’s the only thing I can say.
Q: Focus of CBN in 2021 in the midst of the pandemic.
EMEFIELE: The core mandates of monetary policy authorities are price monitoring and financial system stability as well as exchange rate stability. But, given the stag-flationary environment we find ourselves today, where inflation is accelerating very faster and output growth is decelerating and contracting, the monetary policy authorities were very careful to continue its price monitoring and systems stability mandates, but at a level that would be conducive to growth, because we need to see positive growth in our economy as well as inflation must come together.
So, the CBN would be looking more in 2021 at growth. Some of the targeted policies we will be looking at aggressively will be what we can do to put in place measures that would stimulate consumers’ spending, that will ultimately lead to more facilities for manufacturing and agricultural companies to help create employment, stimulate manufacturing output, and positively impact on the country’s GDP.
On our targeted household facility, the CBN has already disbursed N192billion to 426,016 beneficiaries out of the N300billion that was earmarked. That means, there is still room, and we are willing to do more.
On the AGSMEIS (Agri-Business/Small and Medium Enterprises Investment Scheme) facility, so far, we have disbursed about N106.96billion to 27,946 beneficiaries, and we are willing to do more.
Under our Anchor Borrowers Programme, we have cumulatively disbursed about N500bilion, with close to about 3 million small-holder farmers that have benefited from our various initiatives under the programme, where we have cultivated nothing less than 21 agricultural crops in the country, providing seeds, fertilizers and other inputs needed to improve the yield of agricultural outputs in Nigeria so that prices can be low.
We have also done healthcare. So far, about N72billion has been disbursed to 73 projects. We are willing to do more. Our initial target was N100billion. As we see more optimism from companies, we will do more.
We also set aside N1trillion to support some manufacturing and agricultural companies.
So far, only about N457billion has been drawn. All we can say is that the manufacturing companies who want to expand their plants should take advantage of these low interest facilities committed for 10 years for them to be able to expand their plants, grow their manufacturing output, create jobs for Nigerians and place them in a solid and competitive environment to be able to do a good job as we move into the AfCFTA (African Continental Free Trade Agreement).
On what the CBN is doing in mass metering of customers to ensure that all homes are properly metered and get and enjoy regular electricity supply.
We have done more even for the creative industry, where we have the youth in music, theatre, fashion design or IT infrastructure we have done some work for.
We can only say that we will do more.
Q:Diaspora remittances and export sector stimulation
EMEFIELE: We will all recall that Nigeria currently, depending on the kind of priority it places, has four sources we can raise revenues to support our obligations.
One, revenues from crude oil exports. Two, support from our foreign investors, whether portfolio or direct investors. Three, diaspora remittances. Four, export sector support.
Before now, what we have been seeing was that we were giving a lot of priority to price of crude oil. When crude oil price goes up, we jubilate, when it comes down, we worry.
Secondly, we will be constantly looking at any time we need money we look at the direction of foreign direct investment and the rest of it. Whereas we pay less attention to diaspora remittances and export sector support.
What the CBN is saying is that going forward, we will give a lot more support to export sector financing at concessionary rate so that the people and companies can generate export proceeds that would come handy to fund our obligations in the investors and exporters window.
We are going to ensure that if one is an exporter, one must complete the NXP (Nigerian Export Proceeds) form, because if one wants to import any tangible item into Nigeria today, one will fill Form M. If one wants to pay for intangible item, one fills Form A.
By the CBN regulation, if one wants to export, one must fill NXP form. The CBN will no longer tolerate any situation where people want to conduct export activities without filling NXP forms. It is compulsory to fill NXP forms.
We have held several engagements with the Nigerian Customs, Shipping lines and they have committed that no export would be done without completing NXP form, which is the only way we can regulate the volume of export activities in the country.
Through NXP, the CBN will know those who have repatriated or those who have not repatriated proceeds into the country.
The CBN has been begging and cajoling through moral suasion, telling those who have exported to repatriate their export proceeds into the country.
Going forward, the CBN will not tolerate it that anyone who conducts export activities and keep dollars abroad, whereas it is mandatory by law that those proceeds must be repatriated into Nigeria.
Anyone that refuses to repatriate his or her proceeds into Nigeria, the CBN has the powers by law to prevent the person or company from conducing banking activities in the Nigerian banking industry.
The CBN has a target of January 31, 2021 for everybody to comply or face the consequences.
We cannot continue to be calling on the CBN to request for the dollars for people to conduct their import operations when there is a law that says that when an export activity is conducted, the dollar must be repatriated home for others who want to import to conduct their activities.
The CBN will not allow anyone to choose to keep his or her dollars abroad.
On Diaspora remittances, since I became the CBN governor, I have been hearing about the size of diaspora remittances. Some say it is about between $20billion and $30billion per annum. I have been looking for that amount. I have not seen it.
But, the CBN has decided that it will focus to see those billions of dollars. The CBN is not even expecting $20billion. If the CBN gets up to between $10billion and $15billion, it will go a long way to help the Nigerian economy.
Today, Pakistan generates an average of $2billion monthly in diaspora remittance. This has helped to reduce the impact of COVID-19 on their economy.
Nigeria deserves it too. If statistical records show that the size of Nigerian diaspora remittances is $20billion, then Nigerians deserve to know how that $20billion is utilized. The CBN will provide the records.
That is why the CBN is insisting that if one is a licensed IMTO (international Monetary transfer operator), the proceeds of diaspora remittances must come into the country as foreign currency only through our deposit money banks, not through mortgage or FinTech institutions. Anyone found using any of those institutions, the CBN would ask the banks to close the accounts of those FinTech or mortgage institutions.
The CBN will also instruct the banks to block the person’s BVN (biometric verification number) to ensure the person in not able to conduct any business transaction in Nigeria.
It is important that people understand this. The CBN cannot accept people continuing to call it to find dollars and it will see where it is and direct that it should be brought into the country and people begin to cut corners, because they want to kill the system.
The CBN will not allow this to continue in Nigeria again.
Q: Extending concessionary interest rate of 5 percent to CBN intervention facilities.
EMEFIELE: As long as the CBN sees that there is a second wave of COVID-19 pandemic even in Nigeria while we are trying to convince the government not to adopt a wholesome lockdown, because that will be catastrophic on everybody and the economy, the CBN would again extend by 12 months the interest rate of 5 percent for CBN intervention facilities.
It will result in losses for the Bank, particularly if yields are going up. But, we will see it as CBN’s own contribution to ensure that interest rate, particularly for interventions which are targeted at either households, SMEs, agricultural and manufacturing, health and pharmaceutical sectors that would stimulate consumers’ spending.
Q: CBN’s N4trillion special Bills to banks
EMEFIELE: A lot of money has been kept in CRR (cash reserve ratio) in CBN, and it was beginning to impact the liquidity ratio of the banks. The CBN felt one way it can help to treat the balance sheet of the banks was to release the special bills. These have been released to the banks and their liquidity ratios have been cured effectively.
But, CBN will not allow the CRR, the special bills, OMO (open market operation) and others are CBN’s instruments of monetary policy by law to control money supply in the financial system.
The CBN has its own numbers that tell the average or optimal level of liquidity needed any time for the Nigerian economy to be stable and for CBN to do its work by insisting on the optimal level of liquidity. Any amount found that is above that liquidity level would be sucked up.
Q: CBN agricultural interventions to bring down food prices
EMEFIELE: The CBN has found in the market that the activities of some private commodities exchanges have not helped the country’s economy.
The CBN believes it is about time for the Nigerian Commodity Exchange to be repositioned and restructured to enable it perform the role, which by law, it has been empowered to perform.
The CBN has written to the president, and luckily the CBN has received his approval to restructure and reposition the Nigerian Commodity Exchange.
It will operate like any standard commodity exchanges one would find in any part of the world, including stabilization of food and agricultural products prices generally.
The CBN will be coming up with the agenda and framework for the restructuring and repositioning of the Nigerian Commodity Exchange in a manner that would make prices of commodities to be stable and low in Nigeria.
The CBN will not allow some self-seeking private commodity exchanges in the country to be hoarding agricultural products and creating problems to destabilize prices in the market. Price stability is the core mandate of the CBN.
The CBN cannot shy away from the responsibility. Luckily, the CBN owns 60 percent of the Nigerian Commodities Exchange. The CBN will take control of the Exchange and run it the commodity exchanges are supposed to be run in any part of the world. That’s one way the CBN is going to stabilize prices in the country.
Q: CBN’s optimism on Nigeria’s positive GDP growth
EMEFIELE: My comments during the November 2020 MPC meeting that I was cautiously optimistic about the economy achieving positive GDP in Q4 2020 and aggressively optimistic that by Q1 2021 we will achieve positive GDP was based on the data we have seen.
The recession as a result of the global health crisis from the COVID-19 pandemic we have seen in different countries and their recovery processes has established a V-shaped curve.
What this means is that it came down with a big shock, hit the ground and before going up. That is what the CBN has seen. With what the monetary and fiscal authorities are doing towards economic recovery, the CBN does not think Nigeria will be an exception not to have a positive GDP in the first quarter of 2021.
For instance, Nigeria started growing in GDP, with output growing positively gradually, albeit low, because output was lower than population growth, until the pandemic struck around February 2020.
Nigeria’s first quarter GDP was pleasantly positive, whereas those of other economies were negative.
So, Nigeria’s GDP was positive in Q1, while US, UK, Europe were negative. They were also negative in Q2. Nigeria hit the first contraction in Q2. In Q3, those economies moved up into positive territory. But, Nigeria moved further down to the negative territory in Q3.
The CBN is also saying in the same direction, if these economies came out after two quarters into recovery, the CBN believes that all things being equal, given everything that we have done, both by monetary and fiscal authorities, the country’s economy should also come out at least the fourth quarter of 2020. But, if we don’t, then we should manage to come out in the first quarter of 2021.
Q: Stability in the FX market
EMEFIELE: The CBN wants to see how it can diversity the country’s foreign exchange sources into the economy away from the four I spoke about earlier, to boost foreign exchange supply.
The CBN has already adjusted the country’s currency. We think that we cannot continue the spiral adjustment of the exchange rate, because it has very serious, dire and devastating consequences on prices and the country’s economy.
So, the adjustment of the exchange rate will be the last option. The CBN wants to explore other options where we can achieve so more positives in foreign exchange revenue generation.
CACOVID involvement in COVOD-19 vaccines acquisition
In 2020, CACOVID provided a lot of support to the government. CACOVID was able to raise about N40billion to build isolation centres in the 36 states of the federation and Abuja.
CACOVID spent almost N26billion buying foods and palliatives that were distributed all over the country. These are all contributions that came from responsible private sector companies we appreciate so much.
But, at this time, when we are able to have access to those vaccines as soon as possible, the CBN will try to work with CACOVID, despite funding fatigue, to see how we can task ourselves again and spend money to procure vaccines.
We are working with various international and the relevant federal government agencies to procure vaccines.
It is going to be a government-to-government negotiation for those vaccines.
We have also reached out to some of our friends currently engaged in the international financial and health community to see how they can help us.
If they do, CACOVID will fund within the limits of available financial resources to procure vaccines. CACOVID stands to support the process as it did in 2020.
Q: Presidential approval for the establishment of INFRACO and rehabilitation of the National Arts Theatre, Iganmu.
EMEFIELE: Yes, the president gave those approvals, for the establishment of INFRACO to raise about N15trillion to support not only government, but also important private sector effort to develop the Nigerian development infrastructure.
What we have done since July last year is trying to put the structures in place.
In 2021, we believe that INFRACO will play a very active role in funding major infrastructural projects in Nigeria to ease government the stress of looking for money to fund major infrastructure development like roads, railways and others.
With that the government can focus on its job and people will stop accusing the CBN of always lending to the government, and the government cab also focus on rural roads development. That’s the approach.
The same goes for the National Arts Theatre. All approvals have been made. We are moving.
In the next couple of weeks, the contract would be awarded. The National Arts Theatre will wear a new look.
Today, a structure commissioned in 1977 for the Festival of Arts and Culture (FESTAC), is totally dilapidated, but the structure still stands.
It can compete with any convention centre in any part of the world. Given the approval by the President, the Bankers Committee will use its own money to renovate the place and build four new structures to support the creative activities of the youth in Nigeria.
In the next two years before 2023, a new improved National Arts Theatre will be commissioned.

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