Strengthening Economic Recovery Process in Nigeria
Godwin Emefiele
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 programs would be geared towards supporting job creation and fostering inclusive growth, in addition to key macroeconomic 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.
Several economic and financial experts continually attempt to analyse and pre-empt the policy actions of the CBN. To the extent that these endeavours are based on rational expectations, we wholly welcome the effort. Notably, some of their conclusions are incongruent to ours.
As I have always maintained, I am not surprised at this outcome since most of those analysts, unfortunately, rely on limited or utterly incorrect information. Let me reiterate that the CBN will always act in good faith, with the best available information and in cognisance of current economic conditions, to pursue the goals of price and financial system stability, as well as in supporting job creation on a massive scale and inclusive growth in the country.
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 critiques to avoid being hasty in their condemnation of our policies.
Given the structure of our economy, CBN’s attention is primary focused on three factors, including;
and China could taper global growth, and by extension demand for commodities such as crude oil
is insulated from the adverse consequences facing emerging and frontier markets, due to rising rates
which currently stands at 11.7 million barrels per day and is likely to rise to over 14 million barrels in two years?
Road to Recovery
The country’s overdependence on crude oil for FX revenue meant that shocks in the oil market were transmitted entirely to the economy via the FX markets as manufacturers and traders who required forex to purchase their inputs as well as goods, were faced with a depleting supply of foreign exchange in the country.
The impact of this decline on our reserves was relative to the naira; and a rise in the Consumer Price Index due to the increase in the cost of imported inputs and goods. In a bid to contain rising inflation and to cushion the impact of the drop in FX supply on the Nigerian economy, the Bank took three bold steps;
First, The CBN tightened money supply in order contain inflation while improving yields in local bonds, which attracted the attention of foreign investors. Second, we analysed our 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 Investors and Exporters FX(I&E) window was introduced, which allowed investors and exporters to purchase and sell foreign exchange at the prevailing market rate.
The impact of these three measures led to an increase in foreign exchange inflows into the country; Transactions in the I&E FX window reached $24 billion ($6 billion net inflows) in 2017 and Nigeria’s foreign exchange reserves rose to over $48billion at the end of May 2018 from $23
With improved availability of foreign exchange, the exchange rate at the I&E FX window has remained stable over the past 12 months and the parallel market exchange rate premium has narrowed significantly.
appreciation of the Naira from over NGN525/ today. Rates at the I&E window also appreciated
The measures taken by the CBN also had an impact on inflation. Following a period of rising inflationary pressure which peaked at 18.7 per cent in January 2017, the Nigerian economy witnessed eighteen straight months of disinflation, as inflation dropped to 11.1 per cent in July 2018.
A slight uptick to 11.25 per cent was, however,
Activities in the manufacturing sector also witnessed significant improvement between August 2016 and August 2018, as the Primary Manufacturing Index rose from a low of 42 per cent in August 2016 to 57 per cent in August 2018. This development was attributed to sustained supply of foreign exchange and stability of the naira.
We were also aware that in order to ensure sustainable growth, efforts must be made to address factors that constrained the growth of businesses in Nigeria. This led to the set-up of the enabling business committee PEBEC, chaired by His Excellency the Vice President. PEBEC was mandated to unlock bureaucratic constraints to doing business in Nigeria. The CBN and PEBEC worked together to improve access to credit for underserved Nigerians, through the set-up of a National Collateral Registry and the passage of the Credit Bureau Act. As a result of these initiatives in addition to other reforms, Nigeria moved up by 24 points in the World Bank’s 2017
Key Takeaways
The ongoing global tensions as well as the economic recession in 2016 provided us with some key lessons on some of the steps we need to take if we intend to improve the wealth base of the nation.
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 overdependence 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.
With regards to our overdependence of imports, the economic recession triggered mainly by the drop in crude oil prices, only strengthened the case for the need to move 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 or inputs needed for production are widely available across the country. This thought process shaped our 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. 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 actions 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.
Second, many entrepreneurs are taking advantage of this policy to venture into the domestic production of the restricted items with remarkable successes 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 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. We are glad with the accomplishments recorded so far. Accordingly, this policy is expected to continue with vigour until the underlying imbalances within the Nigerian economy have been fully resolved.
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 sector, the Anchor Borrower Programme (ABP) has ensured that Nigeria emerged from being a net importer of rice to becoming a major producer of rice, supplying key markets total number of 862,069 farmers cultivating about 835,239 hectares, across 16 different commodities, have so far benefited from the Anchor Borrowers programme, which has generated 2,502,675 jobs across the country.
It is in light of the success of the Anchor Borrowers Program with regards to cultivation of rice and maize that the Monetary Policy Committee in its last meeting on the 21st of November, 2018 recommended that the Anchor Borrowers program be applied to other areas such as palm oil, tomatoes and fisheries to mention a few.
and SMEs is based on our awareness of the critical role they can play in supporting our economic recovery and growth, as well as in creating job opportunities for millions of Nigerians. So far, the CBN has through its MSME fund disbursed over N100 billion to the MSME sector, but we still Bankers Committee, the sum of over N60 billion has so far been set aside under the AGSMIES fund to fund Micro Small and Medium enterprise businesses in the Agriculture and Manufacturing sectors of our economy. The CBN recognises that the greatest challenge confronting the MSMES and local farmers is access to credit, and that to unlock the growth potentials in our country; these group must access funding seamlessly. In response to this challenge, the CBN will in due course take action that will directly bring banking services to the rural communities through licencing of a national microfinance bank to be located in all local governments in Nigeria, through which credit can be channelled to our rural communities. We will continue to explore ways, in partnering with the fiscal authorities, on how we can best provide farmers and SMES with the support they need to expand their operations.
The other day when I visited an unnamed popular supermarket in Lagos, there was a big contrast between my visit to the shop 5 years ago, and my visit in November. What was apparent was the huge increase in the number of made in Nigerian processed goods that were being sold in this store; from locally produced rice to well packaged ready to use tomato stew, dried fruits and also cassava chips. As I walked round the shop I could see the huge potential of Nigerian entrepreneurs, as they developed products which could compete with their peers in other climes. I could also imagine the number of people who are being employed by these entrepreneurs to support production of these goods. For us to grow as a nation, we must continue to encourage these businesses as they do more than just provide goods, they help to sustain the vitality of the communities in which they live and work.
Financial Inclusion – Cognizant of the fact that close to 40% of adult Nigerians do not have access to financial services, the bank implemented a series of steps that will help drive our efforts aimed at building a more financially inclusive society. Some of these measures include the Agent Banking Guidelines and the Shared Agent Network Facility (SANEF), both of which are intended to deepen penetration of agent networks in underserved locations across the country. The recent launch of 2018, is an additional step aimed at leveraging on the distribution networks of non-bank entities, such as Fast-Moving Consumer Good companies, Fintechs, and Telecommunication firms, in providing financial services to under-served communities. With these schemes in place, we believe that in the next 2 years, over 80% of Nigerians will have access to financial services.
Credit Allocation:
As part of its long-term strategy for strengthening the Nigerian economy, the Bank established initiatives to resolve the underlying productivity, unemployment and poverty that had pervaded the economy over the past decades. Hence, the CBN established the Credit Bureau and the National Collateral Registry to improve access to credit in the domestic economy. We believe these measures will help to instil a stronger credit culture and unlock access to finance for deserving Nigerians, including those who may not have fixed assets to provide to banks as collateral.
Furthermore, to spur bank lending to high-impact sector, the Bank, at its July 2018 MPC, pledged to refund CRR to banks under certain conditions. Banks