Rekindling Hope for a More Robust Economy

Nigeria’s troubled economy is a source of worry for its managers and citizens. But with the recent measures adopted by the CBN to tackle the headwinds and government’s commitment to diversifying the economy, Nigeria appears set to take a turn for the better come 2018, writes Chika Amanze-Nwachuku

The declining price of oil is perhaps the biggest energy story in the world today. Brent crude, used as an international benchmark plunged as low as $27.67 a barrel in January, the lowest since 2004, wreaking havoc on economies of oil exporting countries.

Oil is the mainstay of Nigeria’s economy, accounting for close to 90 percent of her exports, 25per cent of the Gross Domestic Product (GDP) and about 80per cent of government’s total revenue. The oil boom of the 70s prompted Nigeria to abandon other non-oil tax revenue sectors, including Agriculture, which, prior to the oil boom era, was the stronghold of Nigeria’s economy.

At its 95th meeting in Washington D.C, United States, during the lMF/the World Bank spring meetings, penultimate week, the Intergovernmental Group of twenty-four on International Monetary Affairs and Development, (G-24), noted that the sharp drop in commodity prices has negatively impacted the global economy, “as nations continue to face weaker global demand, tighter financial conditions, more volatile capital flows, and heightened security challenges.”

The meeting, which had in attendance, the Minister of Finance, Mrs. Kemi Adeosun, who was the leader of Nigeria’s delegation to the meetings, noted that these headwinds could further weaken member countries’ growth outlook and their contribution to global growth.
The member countries had resolved to continue to strengthen their fiscal and structural reforms and financial systems, based on country- specific priorities.
They also identified diversification of their economies as the surest way to enhance growth prospects and promote employment.

“We will continue to strengthen our fiscal and structural reforms and our financial systems, based on country- specific priorities, to diversify our economies and enhance our growth prospects, promote employment, competition, and productivity, while implementing macroeconomic and social policies to address inequality and alleviate poverty’’, the 24 member group, which Nigeria is a member, stated in a communique issued at the end of the meeting”.

CBN’s Interventions
To boost growth in an economy that has been hit by plummeting oil prices, the Central Bank of Nigeria (CBN), under the watch of Godwin Emefiele has adopted several measures to strengthen the Naira and return the economy to its growth part through intervention funding. Indeed, the CBN, according to available data, set up various intervention funds of N1.57trillion, out of which about N819 billion has been accessed by economic operators, according to recent checks.

For instance, the N300billion Real Sector Support Facility (RSSF) was established in 2014 to unlock the potential of the real sector, which has been identified as a key engine of growth, job creation and poverty reduction.
Specifically, the RSSF was set up to lend money to small and medium sized enterprises, and also help expand existing ones

The sectors targeted for the RSSF are manufacturing, agricultural value chain and selected service sub-sectors. The RSSF was expected to improve access to finance by the Small and Medium Enterprises (SMEs) to fast-track the development of the manufacturing, agricultural value chain and the services sub-sectors of the Nigerian economy; increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide inputs for the industrial sector on a sustainable basis.
This was aside the Small, Medium Enterprise Credit Guarantee Scheme set up by the apex bank in 2010, with its seed money to the tune of N300 billion. A recent check revealed that about N4.219 billion has been disbursed and a total 87 projects financed through the intervention fund. It was also gathered that N2.439 billion has so far been repaid.

The CBN, under Emefiele’s watch also initiated the N213billion Nigerian Electricity Market Stabilisation Facility, for the purpose of settling certain outstanding debts in the Nigerian Electricity Supply Industry (NESI).
Also, through its Commercial Agriculture Credit Scheme, a total of N337.635 billion was said to have been disbursed for funding of about 423 projects, through which millions of jobs were created for Nigerians.

At a recent Seminar for Finance Correspondents and Business Editors held in Ibadan, Oyo State capital, Emefiele, justified the massive interventions of the apex regulator in financing the real sector projects, pointing out that the current trend in global central banking has gone beyond the core functions of monetary policy management.
“At the CBN, our approach to real sector development is three-pronged. Our interventions centre around agriculture, Micro, Small and Medium Enterprises, MSMEs and Infrastructure interventions. “The interventions included the N300 billion Real Sector Support Facility RSSF; the N220 billion Micro, Small and Medium Enterprises Development Fund, MSMEDF; the N213 billion Nigeria Electricity Market Stabilisation Fund; N500 billion Non-Oil Export Stimulation Facility; and the N75 billion Nigeria Incentive Based Risk Sharing for Agricultural Lending, NIRSAL”, said Deputy Governor, Corporate Services, Mr. Adebayo Adelabu, who represented the governor at the event.

The apex regulator, also in September 2015, announced N300billion bailout for some states. The CBN lifeline was one of the three-pronged reliefs designed by the federal government to help financially troubled states meet up their obligations, particularly payment of the backlog of workers’ salaries.
The states that applied for and received various sums from the aid included Kwara, Zamfara, Osun, Niger, Bauchi, Gombe, Abia, Adamawa, Ondo, and Kebbi, Ekiti, Imo, Ebonyi, Ogun, Plateau, Nassarawa, Sokoto, Edo and Oyo which were granted their packages this week. The package has a 20-year repayment tenor for all states, except Ogun State, which opted for a 10 year tenor.

Anchor Borrowers’ Programme
The CBN- initiated Anchor Borrowers’ Programme (ABP) was part of its efforts to scale down the huge foreign exchange spent by Nigeria on importing food items.
The pilot phase of the programme commenced in Kebbi state, where it was launched late last year.
THISDAY reported that ABP is expected to be taken to 14 states namely Kebbi, Sokoto, Niger, Kaduna, Katsina, Jigawa, Kano, Zamfara, Admawa, Plateau, Lagos, Ogun, Cross-Rivers and Ebonyi for rice and wheat farmers to advance their status from small holder farmers to commercial or large growers. Under the programme, the CBN had set aside N20billion of the N220billion micro, small and medium enterprises development fund to be given to farmers at single digit interest rate of maximum nine per cent per annum, in line with government’s aspiration to achieve food security.

Speaking at the flag-off of the programme, Buhari had expressed the hopes that the scheme would lift thousands of small farmers out of poverty and generate millions of jobs for unemployed Nigerians.
He said the huge sums spent by Nigeria on the importation of food items could be produced locally, stressing that the N1 trillion spent on food importation was not sustainable.

Corroborating the president’s statement, Emefiele said the bank was concerned about the huge foreign exchange spent by Nigeria importing food items that could be produced locally.
According to him, the allocation of foreign exchange to the importation of items such as rice, wheat, milk and fish, among others, had contributed greatly to the depletion of the nation’s foreign reserves, especially in the face of low oil revenue occasioned by plummeting oil prices. A recent report by the Development Finance Department of the CBN, as at April 22, 2016, revealed that the total number of farmers engaged under the Kebbi ABP was 78,581, while total disbursements so far was put at N4,936,321,400 .

Monetary policies
The declining oil prices has affected the economies of oil producing countries, with nations that depend on oil for exports earnings, such as Nigeria being the hard hit.
In line with its statutory functions, the CBN, as the apex regulator has continued to pursue price and financial system stability through its monetary policies.
The CBN, last year, effectively suspended foreign currency funding for about 41 imported items, which Nigeria can do without. The idea was to channel the resources for the support of the real sector rather than on frivolous imports. The bank also restricted foreign currency supply, pegging the naira at N197 to N199 per dollar in the past year.

Whereas the CBN policies have elicited criticisms from some individuals and organisations within and outside the country, Emefiele, who spoke at the Annual Bankers’ Dinner in Lagos, explained that the policies were meant to promote the development of productive sectors of the economy and expand the country’s aggregate supply capacity. He said the apex regulator had been targeting specific productive sectors in the economy that have the capacity to create jobs on a mass scale, reduce the country’s dependence on foreign goods and significantly reduce its huge import bills.
Emefiele insisted that the decision was reached, taking into account Nigeria’s strategic development priorities; with the policies being designed within an environment of regularly ensuring consistency with monetary and fiscal policies.

An industry operator, who applauded the CBN’s monetary policies in a recent interview with THISDAY, said the decision to ban the 41 items from getting official foreign exchange meant that the CBN can now provide more support for the real sector.

“In my view it is a good policy. Why is it a good policy? With the collapse of the oil price, the country does not have the foreign exchange to support everyone’s demands. Banning of these items from getting official foreign exchange means that the CBN can now support the real sector. So the argument is clear, the CBN can support the real sector and not frivolous imports! This policy should be supported by all Nigerians and it should be sustained for a long time”, he said.

Buhari Backs CBN
With the backing of President Muhammadu Buhari, the CBN governor has rejected calls to devalue the naira, on reason among others that Nigeria is import – dependent, which implies that devaluation of the naira will make imports much more expensive.

Interestingly, Buhari, recently, reaffirmed his support for the CBN’s decision not to devalue the naira, insisting he was not convinced devaluation of naira is beneficial to Nigerians. According to a statement issued by his Special Adviser on Media and Publicity, Mr. Femi Adesina, last Friday, the President said that regardless of the calls for the devaluation of naira, he would stand his ground against it as he did when he was the military Head of State.

Buhari, who stated this at a meeting with members of the Council of Retired Federal Permanent Secretaries led by Chief Christopher Tugbobo at the Presidential Villa, declared: “When I was military Head of State, the International Monetary Fund and the World Bank wanted us to devalue the naira and remove petrol subsidy but I stood my grounds for the good of Nigeria.

“The naira remained strong against the dollar and other foreign currencies until I was removed from office in August, 1985 and it was devalued.
“But how many factories were built and how many jobs were created by the devaluation? “That is why I’m still asking to be convinced today on the benefits of devaluation.” The president’s pronouncement, according to analysts, showed that the federal government sanctioned the CBN policies, knowing that they are in the best interest of the country.

China Currency Deal
During Buhari’s recent visit to Beijing, the Industrial and Commercial Bank of China Ltd (ICBC), the world’s biggest lender, and the CBN signed a deal on yuan transactions.

Director General of the African Affairs Department of China’s foreign ministry, Lin Songtian had explained that the currency deal entailed that the renminbi (yuan) is free to flow among different banks in Nigeria, and the renminbi has been included in the foreign exchange reserves of Nigeria.
The agreement was reached following a meeting between Buhari and Chinese President Xi Jinping.
Commenting on the currency deal, Emefiele expressed optimism that it will strengthen the naira and help reduce the strong demand for the US dollar in the country.

He pointed out that Nigeria was not the only country that had agreed to a currency swap with China, as several other countries – developed and emerging markets – with growing trade volumes with China had entered into similar currency swaps with the Asian country.
The CBN boss noted that as the second largest economy in the world, more and more countries are turning to China for business, as the country seeks to make its currency a convertible global currency like the US dollar, the euro, the Japanese yen and British pound sterling.

Emefiele said: “The agreement on the currency swap with China will definitely benefit Nigeria because the essence of the mandate is to ensure that Nigeria is designated as the trading hub with China in the West African sub-region for people who want the renminbi as a currency denomination.
“Also for us, we believe that using the renminbi will improve trade with China, as this will encourage importers to open L/Cs in the Chinese currency for the importation of raw materials, equipment and machinery from China, rather than other trading regions, so the agreement will encourage trade between both countries.”

Mixed Reactions Trail Deal
Expectedly, the China/Nigeria currency deal has elicited reactions from financial analysts.
For instance, the Chief Executive Officer of Financial Derivatives Company Limited, Mr. Bismarck Rewane faulted the deal, and argued that the currency swap agreement will concentrate Nigeria’s trade in the hands of another country.
“Now, Nigeria will be using the Yuan to import from China, while they (China) will use the naira to buy crude oil from Nigeria. And then they (China) will take the oil to sell in the market to get dollars. So Nigeria’s dollar income will reduce and its imports from the rest of the world would also reduce. So, Nigeria will be more dependent on China. That is all!,” Rewane told THISDAY.

He disagreed with the CBN governor on the gains of the deal, insisting that the effect on the naira would be neutral.
“It doesn’t change anything. The man who is going to import from the US, or the man who is going to import a car from Germany, will he need Yuan to buy it. We are only playing with mirror. It does not increase the actual flow of dollar flow of forex currency available to Nigeria. It only means that our trade is more concentrated in Chinese goods and the Chinese with the naira they get from Nigeria they buy oil,” Rewane added.

However, another economic expert, who would not want his name in print, welcomed the currency swap agreement, in an interview with THISDAY. According to him, in seeking foreign aid for the country, Nigeria’s policy makers over the years had allowed themselves “to be led into a blind alley by its Western masters and mentors.”
He reasoned that by widening of the circle of the country’s international friendship, and in particular by the immediate establishment of diplomatic, cultural, trade and other mutually beneficial relations with China, the country has taken the right step.

“The foreign policy of Nigeria should be independent, and should be guided by the following principles…In respect to the world in general: the promotion of economic relations with all nations of the world; co-operation with all nations of the world in so far as they respect the ideals for which we stand; respect for the sovereignty of nations and non-interference in their domestic affairs; and attraction of foreign assistance (capital, technical skills and training opportunities for Nigerians) on the most advantageous terms,” he added.

Emefiele Lists Benefits

Providing more explanations on the currency deal at a closing press briefing by the Nigerian delegation to the International Monetary Fund and the World Bank Group spring meetings in Washington, D.C., United States, penultimate week, Emefiele said the CBN has been holding discussions with the People’s Bank of China about the swap arrangements, which entails using Yuan for transactions between Nigeria and China.

He said: “At the meeting, what we did was to sign a mandate agreement between the Central Bank of Nigeria and Industrial and Commercial Bank of China, which is the biggest in the world to act as our agent in concluding the consummation of the transactions.”
He added: “The issue are in two folds: It affords Nigeria important opportunity to open letters of credit using Chinese Yuan as a currency rather than using the dollar. As you know, in 2015, Nigeria net import between Nigeria and China is about 15 Billion Dollars. The benefit with the arrangement is that it makes it easier for you to make your transaction in Chinese currency which put less pressure on you looking for dollars to carry out your trade transactions in China.”

Furthermore, he said: “China has appointed South Africa as its trading hub for Southern Africa countries, while Kenya will represent East African Countries and the mandate we signed is for Nigeria to be appointed as the trading hub in the West African Sub-Region. In all, it put less pressure and we expect it is going to be mutually beneficial and eventually, we will be talking to China about importing some of its own items from Nigeria so that the trading balance can be reduced.
He concluded that Nigeria will benefit from it as it will put less pressure on the dollar and reserve.
On whether there are risks associated with the deal, the CBN boss said: “In everything you do in life there is risk but the important thing is you identify the risk. We would look at the issues and whoever your business partner you are dealing with in any part of the world, you must look for a way to take care of the risk.”

Economic Boom
In spite of Nigeria’s current economic woes, the CBN governor was optimistic that the country will overcome her current economic challenges.

Emefiele has predicted that Nigeria, which is going through her worst economic crisis in years, would experience a boom by the end of 2018. According to him, what the economy is currently going through is a structural reform, which is attracting a series of investments that would translate to a major recovery in about two years.
“Basically, the issue is how the country would respond to the challenges that we are facing right now. Other than the area of investment in infrastructure, one other area has to do with structural reforms which have been suggested. These reforms had worked in the South Eastern Asian countries like Malaysia, India, Indonesia, Bangladesh and that is why growth from these areas have remained fairly very strong”, he said.

Also, the Minister of Finance, who was the leader of Nigeria’s delegation to the IMF/the World Bank spring meetings, also expressed optimism that with government’s commitment to diversifying the economy and other policies in place, the country will triumph over her economic crisis.

“The country is adjusting and people are going through very tough adjustment in their personal finances and government is going through technical adjustment on how it spends her money and trying to be more efficient in spending, how revenues are coming, trying to block leakages. So we are fixing the problems ourselves.
As a country, we have the capacity, we have the will, most importantly both political and will of the people to solve our problems our own way. We are not denying the fact that we have challenges but we have everything and what it takes to solve the problems.”
She said government’s priority is to position the economy properly for growth, recovery and creation of jobs for Nigerians.

Speaking further, Emefiele noted that diversification of the economy is an issue that has been proposed as part of the structural reforms, which he said oil export countries should be looking at. “I must say here that I am glad that Nigeria is taking the issues of diversification from oil very seriously”, he enthused.
Continuing, he said: “Recently, we have seen people coming to talk about investing in agriculture in Nigeria. About two weeks ago I inspected a 16,000 hectares sugar cane farm as well as a milling and refining facilities in Niger State. We have Nigerian investors looking at investing in fertilizer. So the biggest fertilizer plant in the world will be in Nigeria. We believe that over time and hopefully around the middle of early 2018 or the end of 2018, the pressure that the demand for some from these final products, the pressure that places on reserve and CBN will be substantially reduced and I think with that we can see the green light at the end of the tunnel.”

He also spoke on the inflation rate, which is now well above the CBN’s targeted band of 6 to 9 percent and whether the CBN was looking at increasing the interest rate in view of the inflation rate that has risen to 12.4 per cent from 11.8 per cent in February.

For these, Emefiele explained, it would be difficult not to have a fairly high interest rate when inflation is rising. He however stated that the CBN would continue to intervene to ensure the effect of the high interest does not affect productivity and ultimately prices.

He said: “The inflation rate is at 12.4 per cent in the month of March and if the policy rate is at 12per cent, it is not in our economic model to pursue if the policy rate is lower than the inflation rate, that is negative real interest rate, we can do that. Inferentially, what I’m trying to say is that, it would be difficult for you to run away from a fairly high interest rate in an environment of rising inflation.

“But in any case, I had also underscored that the CBN, in line with the development finance objective will continue to provide intervention to some of the target sectors of the country, like agriculture, mining and some of the real sector of the economy that will help engender growth and improve productivity and when productivity improves, naturally, what you will find out is that prices would come down and that will positively impact on inflation, that is exactly what we are talking about. I’m optimistic that will work and eventually Nigeria will have a cause to smile.”