How CBN has Supported Growth and Development in the Economy

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The Central Bank Governor, Mr Godwin Emefiele is facing the worst economic crisis in nearly 20 year. The economic recession, exchange rate volatility, falling investor confidence have seen the country lose its status as a premier destination for foreign investors. In this impromptu interview, Emefiele tells THISDAY about measures the apex bank  has taken  to help turn the economy around

What has the CBN done in the last one year to support growth and development in the economy, especially as it relates to diversification which is the new mantra?
Well, thank you very much. The truth is that the CBN first hinted about the need for monetary and fiscal policy coordination at the July 2015 Monetary Policy Committee (MPC) meeting because we were already beginning to see a deceleration in GDP growth. And what we said at that time was that there was need for us to expand infrastructure spending and stimulate household consumption. So, what we did from the monetary side was that the MPC took a decision to reduce the cash reserve requirements (CRR) from 30.5 percent to 25 percent. By that reduction alone, it meant that almost about N1 billion was injected into the Nigeria economy, through the banks. During that July meeting, we told the banks that what they needed to do was that the almost N1 billion that was injected through the reduction of the CRR, should be injected into the real sector of the economy. But it turned out that instead of lending this money to the real sector, most of that money may have been eventually round-tripped into the foreign exchange market and it put a lot of pressure on the forex reserves. When we now met again in September, because we didn’t see the injection of liquidity to support the real sector of the economy, we decided that we were going to reduce the CRR again from 25 percent to 20 percent. But we said that through the reduction in CRR, that banks should identify specific projects in agriculture, manufacturing, etc, that we would release whatever amount they needed to support this. Unfortunately, what we found was that instead of the banks sending us projects that were meant for the real sector and for agriculture, what they did was that they sent us projects meant to finance hotels, projects meant to finance hospitals, and others that we didn’t consider to be real sector projects. Those of them that brought projects in the manufacturing sector just brought projects that they were refinancing in their balance sheets and we felt that was not right. But you will find that in due course, and I mean in the next couple of weeks, some disbursements would be made to core agriculture projects. That is those who are financing large scale production of rice, tomatoes, diary, wheat and maize. These financing would represent our own attempt to ensure that we grant loans to companies that are serious about agriculture and core manufacturing. So, these were direct attempts that we used through the banks.
Now, when you talk about what we also did to stimulate expenditure, around July and August 2015, many of the states could not pay salaries. We came up with the idea of a Workers’ Salary Assistance Programme for affected States. Under this scheme, the central bank disbursed about N400 billion. Aside from that, the Central Bank also disbursed N10 billion to almost all of the 36 States to fund their infrastructural projects. Under that scheme, the CBN also did intervention to the tune of almost N340 billion. The total of both intervention is close to N800 billion, that was injected to support the sub-national governments either for them to pay salaries, or for them to support their infrastructural development in their states. These are some of the actions that were done.
Aside from that, the CBN also disburses money through the Commercial Agricultural Credit Scheme (CACS), the Power and Aviation Intervention Fund (PAIF), and the refinancing facilities. Under each of the scheme, as I speak to you, the Central Bank has outstanding of nothing less than N1 trillion that has been disbursed by way of intervention in line with our development finance objectives to support the real sector as well as the entire economy. So, those are some of the things we have done. But I can assure you that we would continue to do so.

All these funds disbursed to States, are you sure they were utilised for the purposes they were meant?
To the best of my knowledge, I believe the funds were used to pay salaries as envisaged. I can assure you that a substantial number of the states actually disbursed the loans. So, the monetary authorities would continue to see that we contribute to growth. Nigeria belongs to us, we are Nigerians, we are concerned about the situation, which I must confess is not just a Nigerian phenomenon. We were at the IMF/World Bank meetings and growth for Africa was revised downward to about 1.6 per cent, from about 3.4 per cent. The downward review in the growth for Africa was caused mainly by commodity exporting countries like South Africa,  Nigeria and Angola. Those countries in Africa that are still enjoying growth are the non-commodity exporting countries. These are countries that depend on themselves and have managed to diversify their economies away from depending on export of commodities. These are countries that produce what they consume. That is why the president has been at the vanguard that we should all produce what we consume. Unfortunately, Nigeria is heavily dependent on imports and there is a need for us to have a paradigm shift from an import-dependent economy to an economy that is well diversified and has less reliance on revenue from export of commodities.

What is your take on some of the criticisms from operators in the aviation sector that they can’t access forex operations which is what is blamed for airlines shutting down?
I must say that we consider the aviation sector to be an important sector as well and we also recognise the need for us as a monetary authority to support that sector. It is in light of this conviction that the CBN launched the Power and Aviation Intervention Fund (PAIF), which has helped tremendously in stabilizing the local airline business in Nigeria.
However, it is important for me to correct the impression that airlines are closing down or airlines are moving out of the country because of inadequate access to foreign exchange. No one can deny that everyone is finding it hard to get FX these days, given the sharp drop in oil prices and FX inflows. So that may be part of the issue. But the real reason airlines are reducing their flights is a lack of passengers not just in Nigeria but all around the world. As a result of the global economic situation that we find ourselves today, there has been a serious reduction in the number of travelers in different parts of the world. The aviation sector in different parts of the world are confronted by this. I would imagine that rather than travel in a weekend to go and organise a party or go and conduct wedding in Dubai or travel to go and organise party in London, given the situation we find ourselves, people have now learnt that there is a need for them to be prudent in spending money. So, no doubt, we have seen a reduction in the number of travelers.  And because there is a reduction in the number of travelers, naturally there is a reduction in the occupancy rate for the airlines. So, that is what has happened. Now, are we giving them forex? You will recall that last week when we did some secondary market intervention through forward, we also considered the aviation sector and we gave them what they needed. We are meeting their foreign exchange needs. So, when people say they don’t have foreign exchange, I don’t really understand what they are talking about because we have taken the aviation as an important sector in the country. I have heard people speculate that the airlines are relocating to Ghana. Are they suggesting that Ghana has more FX than us? They are facing the same FX shortages like us, if not worse. And by the way, Ghana’s FX reserves are probably less than 25 percent of ours here in Nigeria. So, it cannot be correct that the airlines are relocating there.

Tell us about the Anchor Borrowers’ Programme that the CBN has put together and what it has achieved since inception?
The Anchor Borrowers’ Programme (ABP) is a programme which the CBN developed following the president’s insistence that we must diversify our economy away from heavy reliance on oil. After the president made the pronouncement, the CBN working in collaboration with the Ministry of Agriculture, put the ABP together, where we said rather than wait to be importing rice and other food items, we felt that there was a need for the CBN to play its part to help you grow that food here at home.

The ABP is one of the CBN’s policy initiatives to pursue our development objectives, namely the creation of jobs, reduction in food imports, and diversification of our economy. The Programme aims at creating economic linkages between over 600,000 smallholder farmers and reputable large-scale processors with a view to increasing agricultural output and significantly improving capacity utilization of local integrated mills. Invariably, this would close the gap between the levels of local rice production and domestic consumption as well as complement the Growth Enhancement Support (GES) Scheme of the Federal Ministry of Agriculture by graduating GES farmers from subsistence farming to commercial production.
If you consider our food import bill, after the importation of petrol which consumes close to about 30 per cent of our import, the importation of food such as rice, tomatoes, millet, milk, constitute close to about 15 per cent of our import bill. And because of the pressure that this has put on our reserves, we think that there is the need for us to support the effort of government to see that we stopped the importation of food that we know can be grown in Nigeria. Based on that, we decided that there is the need for us to set a financing mechanism for small holder farmers through, not just our CACS, but also through our MSME development fund, where we got the state governments to put together a number of farmers. We conducted a feasibility study where we determined how many bags of seedlings are needed, for instance, for a farmer to cultivate one hectare of rice, how many bags of fertilizers are required, what quantity of pesticide is required, etc. And after calculating that, we found that for instance in a state like Kebbi, that a farmer did not need more than N200,000 to cultivate one hectare of rice. Before the president took us to Kebbi in November 2015, if a typical farmer in Kebbi cultivates one hectare of rice, his yield was just about two metric tonnes per hectare. And this was because they went through harrowing experience not supported by the rice seedlings, not supported by fertilizer in achieving two metric tonnes. So, what we did under the ABP was that if for instance a farmer needed N200,000 to cultivate one hectare of rice, we determine how many bags of rice seedlings that he needs to plant, we determine the quantity of fertilizer that he needs, we determine the quantity of pesticide that he need. So, what we did was that we got those inputs and gave the directly to the farmers to go and plant. And because we gave them the right seedlings, faro 44 or faro 45, the output came out to an average 5.5 metric tonnes per hectare. That was the first pilot that we did in November. And in April, when we went to see the outcome, we were very impressed and we decided that during this rainy season we should carry the programme throughout the country. So far we have almost close to 20 to 25 states that have embraced the cultivation of rice all over the country, not just thought the ABP, but some have decided to even do it by themselves.
All these have shown that the message has really gone round the country and what myself, the minister of Agriculture as well as the Kebbi State Governor, who was appointed by the president as the chairman for the State Governors to work on the ABP are doing is that we are conducting an assessment all through the country to see the outcome. The truth is that the result we have seen so far is looking good and we are beginning to say we need to have a price stabilization mechanism. We need to set up our silos so that in case we have harvest bumper reserve should be able to store them in silos, so that during the period of scarcity, the paddy stored can now be released to ensure that prices are stabilized. That is what we are doing. But I can assure you that the programme is gaining ground and at this stage what we are doing is having now taken the ABP to the states where we are talking about supporting individual local rice farmers, we are beginning to think of how to encourage private sector participation. We are talking about large private sector companies to be involved in cultivating rice, tomatoes, wheat, etc. That is the only option for us at this time. We don’t really have an option because there is no foreign exchange to continue to support the importation of these items. Let’s not forget that by 2020, it is projected that Nigeria’s population would be about 220 million. Nigeria is one country in the world with a population of over 100 million people where food security is not assured and we need to begin that process at this time. It is projected that by 2050, Nigeria’s population would be half a million people, which would place the country as the third most populated country in the world. So, we need to begin to prepare for this.

What has been your disbursement to this programme so far?
Under the Kebbi programme, we disbursed about N12 billion. But as we started the rainy season, we have done between N20 and N25 billion. But because it is a programme that would continue, I can assure that disbursements, not just to rice, but millet, tomatoes, diary, would increase. I can assure you that under the Real Sector Support Facility that we are setting up in due course, you will find out that nothing less than N150 billion would be disbursed to primarily food and the agriculture sector. Aside from agric, we have also said if you have interest in going into core real sector projects, that we would give you support. We would not want you to come with a refinanced project. We want new projects in the real sector. If you are going manufacturing of glass for instance, we would give you support. If you are going into tiles production, we would give you support. For instance, what does it take to produce glass? Eighty per cent of the raw materials needed to produce glass is sand and 20 per cent soda ash. So, if you are going into that, we would support you.  You won’t believe it, in Nigeria, we can’t produce glass sheet! That is the reason we are beginning to say there is a need to restrict people who are importing items that we can produce in the country from accessing foreign exchange. Let us reserve these forex for core manufacturers that need core raw materials that they need to sustain jobs.

Are you not looking at the NYSC  members since they constitute a ready army of unemployed?
The Central Bank also has a programme for them. About six months ago, we collaborated with the NYSC and Heritage Bank to set up the Youth Empowerment Programme. That is a programme set aside for NYSC members. Only last week, the sum of N930 million was disbursed to about 105 NYSC graduates, for them to go into different projects. About N3 million was disbursed to each of them. So, we are working to create jobs, not just for farmers or manufacturers, but also young school leavers that have entrepreneurial skills.