Recession: The Worst is Over, Says Emefiele

 • In a sign of recovery, $1bn capital inflow recorded in two months 

• CBN Restates need for partial sale of oil assets to boost reserves, reflate economy

“I repeat, the worst is over, Nigeria’s economy is on the path of recovery and growth. If you are a bystander, you are losing… join the train now before it leaves you.” 

– CBN Governor

By Chika Amanze-Nwachuku   

As Nigerians grapple with the worst economic crisis to befall the country in more than two decades, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has assured the public that the economic recession will soon be over, given the strategic measures being put in place by the monetary and fiscal authorities to turn the economy around.

Speaking in Lagos during an interactive session with journalists at the weekend, Emefiele emphatically stated that the “worst is over”, adding that the Nigerian economy was already on the path of recovery.

The governor equally reiterated his call for the federal government to partially sell some of its oil joint venture assets, saying that the proceeds raised from the sale would go a long way in boosting Nigeria’s foreign reserves and reflating the economy through infrastructure projects.

Emefiele also expressed optimism that the liberalisation of the foreign exchange (FX) market was starting to pay off, revealing that the country had recorded $1 billion capital inflows from foreign investors since the market took off almost three months ago.

Low Commodity Prices to Blame

He blamed the country’s economic crisis on the global crisis, “which has seen commodity prices dropping in recent times as well as the geopolitical tensions all around the world”.

This notwithstanding, the CBN governor was optimistic that the Nigerian economy would rebound by the fourth quarter of this year, as the monetary and fiscal authorities had put adequate measures in place to stimulate and reflate the economy.

“We are already in the valley, the only direction is go up to the hill and government is doing everything possible to move up the hill as quickly as possible,” he said.

Emefiele declared: “I’m optimistic that with the action taken by the government, the monetary and fiscal authorities, by the fourth quarter, you will see the evidence that we have started to move up north, in the direction of the hill and out of the recession.

“I repeat, the worst is over, Nigeria’s economy is on the path of recovery and growth. If you are a bystander, you are losing by being a bystander, join the train now before it leaves you.”

The CBN governor, who expressed concern over the hardship Nigerians are contending with owing to the economic downturn, noted that aside from the collapse of commodity prices and geopolitical tensions, some of the actions that the US Federal Reserve Bank took, following the mortgage crisis of 2009, have had an adverse impact on emerging and frontier markets such as Nigeria.

“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 global crisis; a 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 tensions between Russia, Ukraine and the US and EU staying on one side and watching; political tensions between Saudi Arabia and Iran, trying to play their game.

“Of course, the US Fed, following the mortgage crisis of 2009 took a couple of actions, which given the size of the US economy in the world, have had an impact, both positive and negative on emerging and frontier markets which is where Nigeria unfortunately stands today,” he said.

On how Nigeria plunged into her worst recession in decades, Emefiele blamed this on the country’s over-dependence on oil receipts, the desire for imported products and the absence of a proper economic planning by successive governments.

Diversification is Key

He pointed out that prior to the discovery of oil, agriculture was the livewire of the Nigerian economy and expressed regrets that Nigerians abandoned agriculture.

“I think that when you want to address the question of how did we get here (recession), it is important to go back into the history to remind ourselves that there was a time in this country when we survived only on revenues from agriculture produce.

“There was a time in this country when we survived on revenues from groundnut pyramids in the northern part of the country. There was a time when this country survived on revenue from cocoa that was being produced and exported to the extent that the tallest building at the time, Cocoa House, was built with revenues from the export of cocoa.

“There was a time when this country survived on revenues generated from the production and export of palm oil and palm oil products from the mid-western and south-eastern 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 strongly to our potential in agricultural sector.

“If we had held strongly to our potential in the agricultural sector and in the same vein, held strongly to the potential that we have because we found oil, our story will be different today,” he said.

Citing Norway, one country that saved for the rain day, he said: “Norway is a country with a population of less than five million people. It produces and exports fish today, but it also produces crude oil to the extent that today it has one of the highest investments in its sovereign wealth fund (SWF).”

According to him, Norway has $873 billion in its SWF, adding: “But the country also takes very seriously its fish production to the extent that it survives on an annual basis from revenues it generates from the export of fish.

“What does the country do with revenues from crude, it invests it at any given time. And when the country wants to make use of the fund, it only uses it for infrastructure 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.”

FX Liberalisation Yielding Results

The CBN governor added that the liberalisation of the FX market was starting to pay off despite the depreciation of the naira, disclosing that the new FX regime had attracted close to $1 billion inflows into the market in almost three months.

He said: “I must say at this time that we are somewhat happy that it is paying off because in two and a half months, we’ve seen at least close to $1 billion coming in as inflows into the market.

“And the reason this has happened over these two and a half to three months was because other than just liberalise the market, we brought into the market the OTC Futures market – a market that provides opportunity to reduce the volatility in the FX market so that people will not puncture their supply in the market on demand for FX in the spot market and so that they could do their business without fretting over the exchange rate.

“These are some of the actions we’ve taken and today I must say it is successful, but it is important to also speak on how we got here.”

‘We Must Spend Our Way Out of Recession’

Responding to concerns that some of the actions taken by the government have been insufficient to address the current situation, Emefiele explained that during recessions countries spend their way out of the crisis to stimulate their economies.

“Basically, what you would do is to spend your way out of the recession and we have not stopped talking about the fact that we need to spend our way out of the recession. I will tell you what has happened and what specific actions we have taken to take us out of this situation: the budget like you know was approved in May 2016 and of course by that time we had started to see signs that the economy was contracting.

“Unfortunately, the procurement process is such a long one in the public service, and you dare not breach the rules on the procurement process. I will give you an example, when you start a procurement process for an item, what happens is that you first advertise in the newspapers calling for bids; that process takes 12 weeks, which is three months.

“Imagine starting a procurement process in say May or June, you will agree with me that by now, you will be opening the bids, now when you open the bids and see the numbers, you begin to negotiate prices, after that you go to the Bureau for Public Procurement (BPP), may be after that you go to Federal Executive Council (FEC) to get approval and that takes another six months.

“What all this means is that we must shorten this process, but shortening this process means that we need to have an emergency spending bill, which I am aware is ready before the National Assembly for approval. What that does is to remove all the bottlenecks that are involved in the process of procurement so that government will spend the money to stimulate the economy.

“Unfortunately, at the time the budget was being approved, we started also to see a reduction in revenues, we started to see the Niger Delta Avengers agitating and I must confess to you that at this time the revenue from oil exports is down to less than $500 million on a monthly basis from a peak of $3.5 billion sometime in 2015,” he said.

“On our side in CBN, what have we done when we found out that there was a likelihood this was going to happen, we started to advise that there was the need for spending. In March, we reduced the CRR from 30 per cent to 25 per cent and we told the banks; and this was despite the fact that inflation had also started to rise astronomically beyond our target.

“However, we said this cash we are giving you, about N1 trillion, we asked the banks to channel this money to agriculture and the manufacturing sector, as the reduction in CRR will help to moderate interest rates and also improve industrial capacity that will moderate inflation.

“But I must confess unfortunately, this didn’t happen and because it didn’t happen, during the subsequent MPC meetings we said okay, we will reduce CRR again and by reducing CRR, what we want the banks to do is that we will not give them cash, but asked them to find primary agriculture projects or new manufacturing project, and send them to us in CBN, so we will disburse those funds to the banks and they in turn can loan this money at nine per cent to the relevant sector.

“Again, I must confess that till date, the result has not been very encouraging.  That is the reason the CBN continues to remain determined to ensuring that its intervention funds go directly to agriculture, either for its Anchor Borrowers’ Programme or its intervention to the micro, small and medium enterprises (MSME) some of the N220 billion would kick in a more aggressive manner to ensure that there is injection of liquidity that will help spur industrial and agricultural capacity.

“Part of what has been projected in 2016 is that one million market women will benefit from loans at subsidised rates, which will come from micro small and medium enterprise loans.”

Emefiele further revealed that the CBN was also in discussions with the fiscal authorities, especially the Office of the Vice-President that handles social spending, to see to it that “we put this in place as soon as possible so that market women across the country can get this loan at subsidised prices”.

“These are some of the actions we have taken and I’m optimistic that going forward, you are going to see more action that will stimulate the economy and turn around the country again,” he stressed.

Partial Sale of Oil Assets

Emefiele stressed that the monetary and fiscal authorities were working round the clock to reflate the economy, but reiterated his stance over a year ago that the federal government should consider selling some of its interests in the joint venture oil assets in order to grow reserves and invest in infrastructure.

He said: “We need more revenue, we need more money to come in not just in naira, but we also need more money in dollars and you will recall that in April 2015, even before this government came on board at the end of May 2015, I had in an interview with Financial Times of London, recommended that there was the need for the government to consider the sale of some of its investment in the oil and gas sector, particularly in NNPC and NLNG at that time.

“At that time close to around May, the price of oil was between $70 and $75 per barrel and I had actually consulted some experts, and they told me that if we sold between 15 and 20 per cent of our holdings in the oil and gas sector, we could have realised between $30 billion and $40 billion.

“Unfortunately, the market has gotten soft now, but I’m still optimistic that we could get between $10 billion and $15 billion, and if we get that kind of liquidity, it will help to stimulate and assist in turning the country’s economy around.

“That proposal is still on the table, because after I made that recommendation, a couple of colleagues in the cabinet continue to talk about it that if we take that option, we will realise some inflow of foreign currency that we can really use to kick start or stimulate the economy.”

Between Growth and Curbing Inflation

On the implication of increased spending given the current inflation rate of 17.6 per cent, Emefiele explained that the central bank would exercise caution so that excessive spending does not result in skyrocketing inflation.

“You can imagine that in December, the inflation rate was just above 9 per cent but below 10 per cent. However, between March and now, it has risen to 17.6 per cent.

“That is the reason the CBN considers its mandate of price stability as a core function, and that was why at the last monetary policy committee meeting, the MPC members were trying to weigh the balance between growth and inflation and we said if we allow inflation to grow at a rate that is astronomical and uncontrollable, it could be a problem and that was why we decided at that meeting to adjust the rate a little.

“But by the primary reason why we altered the rate in an upward direction was to see to whether we could see an increase in foreign investor flows.

“We did that to achieve a higher yield for growth and we adjusted it to encourage foreign investors and that is why I’m saying that I’m happy that the flows have started to come and we would try to see how to maintain the balance by seeing to it that the flows continue to come because when they come, you will get the dollars that we need to fund manufacturing and agriculture activities which in turn will help to moderate inflation.

“However we’ve heard a lot of criticism, and many have asked why should the MPC be pushing up the rate when it is supposed to pursue growth. But the objective we are very keen to achieve, and we trying as much as possible to achieve some balance, is whereby we attain growth and avoid a situation whereby you have too much money chasing too few goods, then you push up inflation.

“That is why we are trying to boost industrial capacity. In Nigeria today, one major item that can boost industrial capacity is availability of FX and the only way you can ensure availability of FX is to take the action that we took to improve yields, since we have adjusted the currency so as to bring the foreign investors in.

“But we will see, going forward we will look at ways to allow some liquidity in the system in order to moderate interest rates and improve lending. Those are the kind of activities you will see going forward,” he said.

The TSA was Necessary

On suggestion that the government should have a rethink on the Treasury Single Account (TSA) to reflate the economy, the CBN boss said the TSA was a programme that several governments in the past had attempted, but lacked the will to fully implement it.

He praised President Muhammadu Buhari for implementing the TSA to stem what he described as “colossal waste” of government funds.

He clarified: “It is for the government to give its agencies its money to put in the banks and those banks do not pay anything in interest to the government; at best if they paid may be at one or two per cent.

“But at the same time, when government wants to borrow money by selling treasury bills, government still goes to these banks and they pass this same liquidity to government at 12, 13 and 14 per cent. That is a colossal waste of resources on the part of the government.

“So when people say the TSA is sitting in the CBN and that is what is causing the crunch, it is not true because when the government wanted to withdraw the TSA, the CBN looked for its own way to release some funds into the system. For instance the CRR was reduced, so I do not agree that the TSA is a major issue here.”

Structural Adjustments Not Delayed

Reacting to concerns over the delay by the federal government on making the necessary structural adjustments that might have warded off the recession in the country, Emefiele said it was unfair to blame the current economic situation on the delay in taking the necessary actions.

“It is also unfair to blame this government for not taking decisions on the necessary structural adjustments. And I will tell you this, normally when there is an adjustment worldwide those adjustments would be followed by structural reforms.

“In 1984, there was a government that said everybody should go to the farm, but you know crude prices went up and everyone abandoned the Green Revolution, everybody abandoned this and that is why we are saying now, yes the adjustments are going on – the adjustment in currency market is going on – but there is also the need for us to ensure we follow through on structural reforms that will lead to the diversification of the economy.

“For instance, we have somebody who has decided to invest in a refinery, 650,00 barrel per day refinery; we are lucky that the same person has decided to invest in petrochemicals, we are lucky that this same person is investing in fertiliser, and these three projects alone are gulping not less than $11 billion.

“And I repeat, these three projects will take not less than 35 per cent of our import bill. However, by 2018 when the projects start production, we will stop the importation of these products and we will be able to conserve our reserves because the demand for these will reduce,” he said.

On the issue of the peg on the price of petrol, which the governor was reminded that the government was again failing to address adequately and could lead to fuel queues that trigger higher prices and further impoverish Nigerians, he acknowledged that the pricing of petrol was something that the government and the citizens are very passionate about.

“We found out that because (oil) marketers could not access FX, they stopped importing petroleum products and NNPC was saddled with the responsibility of importing products, then of course, it became so bad that we began to see queues and it was embarrassing to our citizens.

“Rather than buy fuel at N86, people were buying fuel at different prices, some of them were buying at N150, some were buying at N200 in different parts of the country and people began to agitate, and that was why the government approved the increase of the pump price from N86 to N145, because the marketers said if it were possible for them to get FX at N280 to a dollar they would import,” he recalled.

Emefiele added that at the moment, oil marketers had reached an agreement with international oil companies and NNPC to buy FX at between N300 and N305 to the dollar, noting that the marketers’ margin in the pricing template of petrol was sufficient for any FX adjustment within the range agreed with marketers of petroleum products.

On the gap between the official FX rate and the parallel market rate, he said the monetary policy committee, which is in charge of exchange rate management, would not look at the rate at the parallel market as a basis to determine the exchange rate of the naira.

He also warned that it was illegal to patronise the parallel market, insisting it amounted to encouraging capital flight.