Govt is doing all it can to get Nigeria out of recession, says Emefiele

Worsening economic woes occasioned by recession forced the self-styled introvert Central Bank of Nigeria (CBN) Governor, Godwin Emefiele out of his shell on Saturday, to tell Nigerians what the Federal Government and apex bank are doing to turn the country’s fortunes around in an interactive session with publishers and media managers at the Lagos office of the CBN, as captured by The Guardian.

Mr. Governor, Nigeria is in recession, the first in two decades; things are bad, people are suffering, Mr. Governor, how did we get here?
Thank you very much for that question, first, I must apologise when you said people are suffering, I must apologise that this is happening to our people. But I must confess that what is happening today is as a result of a world global crisis. Global crisis in the sense that we’ve seen commodity prices dropping, we’ve seen geopolitical tensions all around the world. Here, we are talking about political tension between Russia, Ukraine and the U.S. and E.U. staying on one side, and watching, political tensions between Iran and Saudi Arabia trying to play their game, as usual.

Of course, the U.S. FED, following the mortgage crisis of 2009, had taken a couple of actions, which given the size of the U.S. economy in the world, some of the actions that the US economy had to take had adverse impact, both positive and negative on emerging markets and frontier markets, where Nigeria unfortunately stands today.

But I think that when you want to address the issue of how did we get here, it is important to go back into history; to remind ourselves that there was a time when this country survived only on revenues from agriculture produce; we survived with revenues from groundnut pyramids in the northern part of the country. This country survived with revenue from the western part, I’m talking about cocoa that was being produced and exported, to the extent that the tallest building at that time, the cocoa house, was built with revenue from export of cocoa.

There was a time when this country survived with revenue generated from the production and export of palm oil, and palm oil products from the Midwestern and Southeastern parts of the country. At that time, I’m talking about the 50s and the 60s; Nigeria was the largest producer and exporter of palm produce in the world. Unfortunately, we abandoned it because we found oil.

I wish what we did at that time was to ensure that we held strong to our potential in the agricultural sector. If we had held strong to our potential in agricultural sector, and in the same vein, held strong to the potential that we have because we found oil in Nigeria, or story will be different today. Unfortunately, what happened was that because we found oil, we let our guards down on the agricultural sector. I will give you an example; this for me is an example of a country that didn’t plan properly.

Example is Norway, a country with a population of less than five million people. Norway produces agricultural produce particularly fish. They produce and export fish today; it also produces crude oil to the extent that today, Norway is a country that has one of the highest investments in Sovereign Wealth Fund (SWF). Norway indeed has $873 billion in its SWF, and notwithstanding having this amount in its SWF; it also takes very seriously, the produce from fish production to the extent that the country survives on what I call on its annual basis from revenues it generates from the export of fish. What does the country do with revenues from crude? It invests it and at any point the country wants to make use of the fund, it only uses it for infrastructural development. That is a country that has planned for its people; but unfortunately, we didn’t plan this way for our people, and that is why we are where we are today.

I will give you a few examples, in September, 2008, Nigeria’s FX reserves stood at $62billion. What did we do with $62billion at a time crude price was almost $120 per barrel?
What we could have done was to save the money, if we couldn’t save the money, invest it in infrastructure and in industry that will grow productivity and wealth of our people.

In CBN at that time, the Central Bank went about licensing Class A, Class B and Class C Bureau de Change. For Class A Bureau de Change (BDC), Central Bank was allocating $1million per week; for Class B, Central Bank was allocating $750, 000 per week, and for class C BDC. The central bank was allocating $500,000 per week to each BDC to the extent that in 2005, the CBN was amongst a few central banks in the world allocating dollar cash for Bureau de Change operations. And when it was stopped in January 2016, the CBN had disbursed $66billion to fund cash operations of BDC in Nigeria.  What that meant was that in 11 years, we spent $66billion of CBN money funding operations of BDC, which came to an average of $6billion in a year.

If we had thought of other ways to utilise our reserves in 2008, when it was as high as $62billion, certainly, we will not be where we are today. That was what we did with part of $62billion.

Between 2009 or 2010 and 2014; you remember 2009, was when we had the crisis when it started with the Leman Brothers collapse. At that time, America pumped a lot of money to stimulate its economy, and as a result of pumping that money, what we call the quantitative devising, some of those funds flowed into emerging markets like Nigeria.

At that time again, Nigeria removed all forms of capital control to encourage the flow of capital into Nigeria. So what happened during that time was that for five straight years, we saw crude prices at above $105 per barrel on the average. That period, we also saw unhindered flow of capital into emerging markets, into Nigeria; we should have at that time built our reserves. What did we do with our reserves at that time? Those were some of the actions they took at the Central Bank that resulted in the situation that we are today.

In January 2014, the country’s reserve stood at $40.6 billion; at that the reserve was $40.6billion, crude price was about $110 per barrel. Sometime about August, September 2013, the country was generating from crude oil export on a monthly basis, an average of $3.2billion dollars.
By June 2014, when I took over as governor of CBN, the reserve had plummeted to $37billion and at that time, crude price was about $108 per barrel. At that time, receipt from FX crude sales had dropped to about $1.7billion monthly.  Soon after that we saw the crisis all over again.  Between that August and September 2014 up till this moment, which is about two years, we have seen consistent drop in prices of crude to the extent that by March 2015 precisely, our reserve had dropped to $31billion. At that time crude price had dropped to $48 per barrel, and the country’s receipt from export of crude dropped to $1.3billion. At the same time, the demand for forex, and the demand for import had remained high.

You liken it to a situation where you have a man who has three children. On a monthly basis, he used to earn N10,000 when things were good and did he distribute the N10,000, he gives each of his children N2,500 and he keeps N2,500 to himself. Unfortunately when things became bad, like we are now, his salary has dropped from N10,000 to just N2,500. However, the three children still wanted to continue to collect N2,500 for their monthly stipend.

How will daddy survive and fend for his family? all he needed to do was to have a couple of options; either to work harder to earn more money, which is to increase supply, or to ask the children what were they doing with the N2,500  monthly allowance when things were good, because things are no longer good the way they were before. That is the situation we find ourselves today.

We said there was the need for an adjustment in the currency. We adjusted the currency from N155 that it was then to N168 sometime around November 2014. As if that was not enough, our friends kept saying that the currency was overvalued, and we began to ask our friends, ‘If you feel the currency was overvalued, what do you think it should be? Some said N180 will be fine, some said N190 will be fine, and by March, just to satisfy them, so the supply can come in, we adjusted again to N197.

We went back to them and we asked, ‘Is there a way you can come back and let’s begin to do business as usual? But they said: ‘well, sorry, we’re still not convinced; the fundamentals don’t look right and for that reason, we’re not coming unless you continue to adjust.’ ‘But we said we could not continue with indiscriminate adjustment of the currency. Of course, they were not happy with us, but we held on to the faith that N197 to the dollar was adequate and appropriate at that time.

After that we began to look at the items we were importing and we went into a demand management mode. We asked, for now what are the items we are consuming? I’ll give you some perspectives, in 2005, Nigeria’s import bill was only about N70 billion; by 2015, it has risen to N790billion, what were we consuming when we didn’t have the foreign currency? We had to begin to ask ourselves, can these things be produced in Nigeria today?
In the midst of this, we discovered that the importation of petroleum products was taking about 30 per cent of our import. Importation of items like rice, fish, sugar, tomatoes and tooth pick were consuming close to about 10 to 15 per cent. We said to ourselves, if we there are opportunities for us to cut the demand for these items, we should be able to see demand at a level where it will be close to supply for us to have an appropriate price for the currency. That was how we went into saying, let us begin to diversify the economy; let us grow our rice in Nigeria.

Let me also give you another example, I was on my way to an official trip abroad, I met a gentleman, whose company produces aluminum cans, and he said to me, ‘Mr. Governor, at this time, when there is no foreign exchange, we have to look at aluminum cans.’ He said there are some of our companies who import aluminum cans for beer, aluminum cans for soft drinks. He said: we can produce aluminum cans in Nigeria.

That was an opportunity; we had to put aluminum cans on the list of the 41 items when we were developing the list. You will not believe me, today, because we put FX restriction on the importation of aluminum cans for drinks, that company’s turnover has risen 10 fold.
I met another company, which said its business is the production of starch and glucose, and he said: Governor, thank you for restricting FX on starch and glucose. I said: thank you, but why are you saying this? He said: before the FX restriction, we will go to those companies that import starch and glucose to tell them that we produce starch and glucose in Nigeria”; patronise us, and they said: okay, when our stocks are down, we will patronise you. But their stocks never came down until the FX restriction.

We also met another company that produces polyethylene that we use for polyethylene bags, which also said they went to companies importing polyethylene into the country and told them: we can produce this type of bag in a range of colours, please patronise us. They said: when our stock come down, we will patronise you, but their stock never came down until there was FX restriction.

Today, I can give you the names of those companies under cover and you go and see things for yourself; those companies are employing people, their turnover has increase 10 fold. That is a good result of the actions we have taken.

[d]

In November 2015, the President said: we have put a restriction on FX for the importation of rice; let’s go to Kebbi and flag off dry season farming for rice. Fortunately at that time, the Central Bank developed the Anchor Borrowers programme. When we developed the programme, we went to Kebbi”State. Before that programme, when you enter a rice famer’s yard, the yield for rice farm was 1.5 metric tonnes per a hectare. When we got into Kebbi, and we gave them loans ranging from N50,000 to N150,000.

What did it entail? We gave them fertilizers, seedlings, and insecticides, and after four months, in April, when we went to assess the success of the scheme, we found out that the yield had risen from 1.5 metric tonnes per hectare to an average of 5.5 metric tonnes per hectare, which means it is succeeding. You can go to Kebbi state to see the success story of for the production of rice. What we decided to do is to create this opportunity nationwide. We are looking at the possibility of getting not just into only dry season rice farming but into rainy season rice farming. Those were the things we have done; that was how we got here.

You may also want to ask, what other actions did we take? Having done the adjustment in the demand, we looked at it and we were convinced it worked, we looked at it again, isn’t there any way we can deepen the supply?

The President, when he addressed the National Assembly in December 2015, said the Central Bank will be called upon to see to how to deepen the supply of foreign exchange in the country and that was how we really started thinking, how do we really increase the supply of foreign exchange? Because we have done an adjustment, we held to a peg for 16 months, we felt it was now time to go back to begin to look for how we could increase supply. The only way we could improve supply at this time is to say, those foreign portfolio investors, what do we do to make them happy to return again?

We went into a flexible exchange rate regime. We opened the market; we libralised the market, unfortunately, we’ve seen some depreciation in the currency. But I must say this, that at this time, we are somewhat happy that the result is paying off because in two and half months, we’ve seen at least close to $1billion dollars coming in as inflows into the market. The reason this has happened over this two and half to three months is because other than just libralising the market, we brought into the market the OTC (over-the-counter) Futures market. The market provides opportunity to reduce the volatility in the forex market so that people will not puncture their demand for foreign exchange in the spot market, so that they can now go do their business without disturbing themselves about the exchange rate. Those were the actions we’ve taking, and today, I must say it is successful, but it is important to say this is how we got here.

In the course of this discussion, I’ll still tell you what the Central Bank is doing and what actions the Federal Government is taking to get us out of the situation we’ve found ourselves in.

There are two areas that drew my attention, one is that some of the actions that we have taken are not deep enough; I am not taking about the Central Bank, I’m taking about the economy generally. It is just like doing a little here, doing a little there with the hope that oil price will come back and then we return to our old ways, but the fundamental restructuring that the economy needs has not happened.
The other area is that people say for instance that they are dealing with a long term problem using short term solutions. You yourself alluded to how long it had taken for us to come here. You talked about the 50s, the 60s and all the cocoa and groundnut boom and how oil came in between and virtually left the Agriculture sector comatose. How do you respond to these concerns that people who watch government policies have?

Thank you very much. But I must say it is a little bit unfair to say the actions are not deep enough that the fundamental restructuring of the economy has not taken place and that the government of the Central Bank both in monetary and fiscal policies is not looking at the restructuring of the economy.

Let me say this, naturally, when you are in a recession, basically, what you would do is to spend your way out of recession and we have not stopped talking about the fact that we need to spend our way out of the recession. I will tell us what has happened between January and now, and what specific actions we have taken to take us out of this situation.