Godwin Emefiele
The CBN governor, Mr. Godwin Emefiele

Special Report

Ayo Arowolo

At the time Emefiele took over the leadership of the Central Bank of Nigeria [CBN], he had, tossed into his hands, a complex monetary policy dilemma that required high level of creativity to tackle. As the CBN governor, there were two major diametrically conflicting objectives he needed to resolve: the need to stimulate the economy through low interest rates and the urgent necessity to attract foreign portfolio investment through high interest rates.  Choosing to go for the first would mean that companies and business owners would have access to relatively cheaper funds to carry out productive activities which ultimately would lead to more jobs. But the other end of the stick is that by voting for low interest rates, Emefiele would have shut the door against Foreign Portfolio Investment (they thrive on high interest rates for profit taking) which the country badly needed at that time.

The truth was that the economic reality on ground at the time Emefiele took over would make a focus on attracting foreign investment a compelling option. The oil price decline had begun to create internal and external imbalances that required short-term policy adjustments as well as long-term structural reforms to stimulate self reliant productive activities. That was expedient to give treatment to the economy that had been slowing down consistently since the third quarter of 2014 – from 6.23% in that quarter to 2.35% in the second quarter of 2015.

Economists and observers within and outside Nigeria were full of expectations that the new government’s promise of change centered on the policy issues of the moment in what was reckoned locally and internationally as Nigeria’s golden opportunity for socio-political and economic rising. The high hopes for the Buhari Administration  gradually faded and despair began to inch in from the back door when the government failed to deregulate the petroleum sector after several years of subsidies, and left in suspense,  macroeconomic, trade and industrial  policies requiring decisive actions.

The resulting situation left Nigeria at the middle of the road; neither taking steps to mitigate the sustaining drop in crude oil earnings nor having adequate reserves to shield the economy from the external shocks. Amid the macroeconomic policy lull, crude oil prices made steep drops to hit the lowest mark in 11 years, And this scenario immediately became double jeopardy when the Niger Delta Avengers led the assaults on oil  production,  halving  exports . And with the  normalization of Monetary Policy in the United States, many oil-exporting countries suffered several economic setbacks. In Nigeria’s case, the spillovers were compounded by the  significant  and continuing decline in oil production, reflecting unsettled issues in the Niger Delta. With lower receipts, Nigeria’s economic slowdown culminated into a recession in 2016 with five consecutive contractions between 2016q1 and 2017q1. GDP growth decelerated from 6.2 percent in 2014 to -1.6 percent in 2016 and -0.5 percent in 2017q1;

• A spike in inflation rate which moved, after a three-year period of single digit rate, from of 9.6 percent in January 2016 to 18.7 percent in January 2017 and 17.2 percent in April 2017.

• Somewhat weakened resilience of the Nigerian banking sector (though the industry remained largely robust)

• Constrained fiscal space as expenditure grew amidst shrunken revenue. The ensuing fiscal deficit has led to rising debt profile, with the debt service to revenue ratio, at about 45.3 percent as against the 25 percent threshold

• A significant deprecation of the Naira from about N200/US$1 in June 2014 over N525/US$1 around February 2017. The Buhari Administration also  refused to devalue to currency to attract what it called  hot foreign money as it reckoned that with high food imports, devaluation as being suggested by experts, would hit the poorest the hardest in an already bad economic situation. Instead it sought to grow local (food) production. And looked to Emefiele’s Central Bank for solutions.

Much as going for attracting foreign portfolio investment through high interest rates was easy and desirable, doing that exclusively through devaluation would still hurt the economy which needed to be anchored on enduring local productive activities. Foreign portfolio investments are transient activities which can evaporate at a moment’s notice once there are appearances of hostile investment environment. The challenge then for Emefiele was to come up with a policymaking masterstroke that would address the desirable but conflicting objectives.  What even compounded the matter for the governor was that his ability creates the masterstroke doesn’t reside exclusively within the realm of monetary policy. He needed the equally complimentary fiscal policy which is in another domain.

In fact one analyst observed that the situation Emefiele faced could be likened to a plane which must function with twin engines but one of the engines has packed up but the pilot is struggling to reach his destination with just one engine.

Well ahead of time in July 2015, the CBN’s monetary policy committee alerted the nation that the economy was heading into recession and called for complimentary monetary and fiscal actions. The long delay in approving the 2016 budget clearly ignored the warning and the fiscal authorities failed to provide the complimentary fiscal stimulus. This means that the action plan that was imperative to avert the recession failed mainly for lack of timely fiscal response.

Lamenting the situation, Emefiele said the prolonged budget impasse denied the economy of the timely intervention. Consequently, CBN’s effort to keep the economy afloat was insufficient to avert economic contraction. The conditions that led to the contraction in the first quarter remained largely unresolved by the end of the second, he said.
The Masterstrokes

In spite of the poor fiscal policy end of the equation, Emefiele has been able to introduce some master strokes that have brought stability to the economy especially by stemming the volatility in the naira exchange rates movement.
External Reserves: As of June 2015 when Emefiele assumed office, Nigeria’s Reserves had fallen from a peak of US$62 billion in 2008 to only US$37 billion (see the chart below). But following the sharp drop in crude oil prices, the Reserves fell to below $20 billion as  CBN’s monthly foreign earnings, plummeted from as high as US$3.2 – 4 billion a month to current levels of as low as US$700 million monthly. To avoid further depletion in the reserves, the CBN took a number of countervailing actions including the prioritization of the most critical needs for foreign exchange. In this regard, and in order of priority, the CBN decided to provide the available but highly limited foreign exchange to meet the following needs to stop the depletion and re-build reserves:

a. Matured Letters of Credit from Commercial Banks
b. Importation of Petroleum Products
c. Importation of critical Raw Materials, Plants, and Equipment, and
d. Payments for School Fees, BTA, PTA, and related expenses

Exchange Rate: Over the intervening period, it is delightful to note that these policies yielded some positive developments. In particular, the CBN managed to stabilize the exchange rate since February 2017 when it began to use the reserves it had re-built, thereby creating certainty for both household and business decisions. It has largely eliminated speculators and rent-seekers from the Foreign Exchange Market. The country’s reserves, despite having fallen, are still robust and are able to cover about 5 months of Nigeria’s imports as against the international benchmark of 3 months. And domestic production of items prohibited from the FX market is picking up nationwide, thereby creating more jobs for many more Nigerians.

Credit Allocation: As part of its long-term strategy for strengthening the Nigerian economy, the Bank established initiatives to resolve the underlying factors goading challenges to long-term GDP growth, economic productivity, unemployment and poverty that had pervaded the economy over the past decades. Hence, the CBN took measures to increase credit allocations to pivotal productive sectors of the economy. This is with a view to stimulating increased output in these sectors, creating jobs on a mass scale and significantly reducing import bills. So far, the bank’s targeted interventions have impacted on the following sectors:

The goals of increased employment and poverty reduction that he has given priority under his regime deserve all the attention. Taking new steps towards channeling credit to productive sectors of the economy represent effective strategies in attaining the defined goals.

That however isn’t the end of the road to his effort to prop up domestic production. He is making some headway through an effective engagement of CBN’s development banking capacity. In his inaugural speech, the governor promised to review the development finance programme of the bank, strengthen the participatory agencies responsible for the disbursement of funds, develop performance targets and improve monitoring operations.

So far, CBN has taken steps to match action with words in the governor’s development financing drive. Putting in place policies aimed at supporting the non-oil sectors of the economy represents a way forward for an economy that can be said to have come to the end of the oil-paved road. CBN’s development finance interventions across the country are valued at about N1.36 trillion, definitely large enough to make a big impact if well managed.

Emefiele is assuring of the bank’s determination to build capacity in the real sector big enough to stimulate the production-consumption-employment multiplier chain. That will be an effective route to boost foreign direct investments and rebuild external reserve through non-oil exports.

By repositioning the developmental financing programmes of the bank, Emefiele is taking CBN to its key role as a central monetary institution, which is to act as a financial catalyst through coordinated interventions in key sectors of the economy. In this process, agriculture is expected to assume its proper place in the economy in terms of food production and employment deliveries.

Entrepreneurship development has got a boost from the CBN through the launching of Youth Innovative Entrepreneurship Development Programme earlier this year. The pilot phase of the programme has set a target of empowering 10,000 youth in productive activities in four years. The scheme offers a credit line of up to N3 million to each participant and access to other CBN sponsored schemes that would be granted to those who successfully operate the scheme.

The sum of N40 billion has been set aside for farmers from the N220 billion micro, small and medium enterprises development fund. The fund, which is to be disbursed at an interest rate of 9% per annum, is targeted at creating economic linkages between over 600,000 smallholder farmers and reputable large-scale processors of agricultural products. This scheme could go a long way to enhance value added agricultural production, reduce seasonal scarcity of perishables and also improve capacity utilisation of integrated mills. And perhaps the most significant contribution of Emefiele’s CBN in the agriculture space is in local  rice production  where Nigeria is moving from  being a massive importer of rice to self sufficiency in the near term within 2 years – ensuring massive savings in foreign reserves.

Also the CBN’s N300 billion Real Sector Support Fund (RSSF) is a timely intervention at a time that industrial activity is facing serious difficulties. It is obvious that certain lines of business have become unviable in the present dispensation and therefore new lines of operations will have to be explored. RSSF will expectedly empower people venturing to exploit new opportunities in many areas of Nigeria’s economic potentials.

The use of intervention fund
The use of intervention funds presents an alternative course of action in the face of inability to move generally in the direction of low interest rates. Emefiele did spell it out as his good intention to use low interest rates to spur domestic production. Even that statement of intention alone was sufficient to set the foreign exchange market astir. A low interest regime would mean farewell to high return seeking foreign portfolio investors that CBN needs desperately to keep the foreign exchange market stable in the short-term.

Without doubts with the Federal Government getting its acts together through the inauguration of its economic blueprint, Emefiele would be placed in a positive pedestal where he can implement his heart’s desire of stimulating production activities in the country. But on a final note, it has been so far so encouraging!

Godwin Emefiele: From Zero to Hero?

Magnus Onyibe

At first, clawing Nigerian economy out from recession ditch was thought to be not only a Herculean task, but one that couldn’t be achieved so fast.

But at the rate at which the Naira/dollar exchange rate is converging, putting Nigerian economy back on even keel may be sooner than later.

The analogy above may seem simplistic, but Godwin Emefiele, the governor of the Central Bank of Nigeria, who is working assiduously towards the convergence of the official and the parallel markets foreign exchange rates, appears to be on track to accomplishing the feat before the end of 2017.

Why is Emefiele becoming the legendary knight in a shining armor of Nigeria’s financial sector, when his neck was literarily being put on the line for the guillotine as Naira/dollar exchange rate spiked to N500-$1 in the first few months of this year?

The reason is simple: Based on data from Nigerian Bureau of Statistics, Nigeria’s trade volume is now N5.29 trillion with export being in excess of N3.0059 trillion, while import decreased to N2.286.

So for the first time in a long while, Nigeria is selling more than she is buying from the rest of the world.
And all these good news about trade improvement is attributable mainly to the significant growth being recorded in the agricultural sector which rose by a whopping 82%.

How could improvements in agricultural output be credited to the CBN’s Godwin Emefiele, and not to Audu Ogbeh, the minister of agriculture, you may be wondering?
Allow me walk you through the long road to recovery of Nigerian economy through fiscal measures conceived and implemented by Emefiele as CBN governor and you would see exactly why. It may be recalled that in the bid to engender the positive results, the CBN under Emefiele’s watch banned 41 items from sourcing FX from the CBN for its importation – a.k.a Tooth Pick ban.

The justification for the prohibition was that most of the 41 items could be produced locally, hence they were cut off from receiving FX from the CBN with a view to encouraging importers to engage in a sort of backward integration through farming.
That policy generated a firestorm of condemnation from both local and international institutions including all the major policy wonks in Nigeria and attracted mocking comments from media outfits such as the highly influential Economist of UK and Time of USA, amongst many other critics .

In fact the policy even triggered the delisting of Nigeria from the famous JP Morgan Index of emerging markets which accelerated the flight of private equity firms and their ‘hot money’ out of Nigeria leading to spike in FX rate.

Despite all the public reproach from even his colleagues in the bureaucracy, and call by local and international pundits for the pulling back of the 41 items ban policy that was dubbed ‘obnoxious’ as the Naira tumbled in value, Emefiele, apparently not wired to take the easy route, remained unyielding. Fortunately for him, his principal, president Muhamadu Buhari, stood by him by shunning vicious calls for the CBN Governor’s sack.

Another policy that has facilitated the ramping up the value of Nigeria’s export compared to her import is the special interventions in the agricultural sector by the CBN.

Since Nigeria is believed to be spending 40% of its FX on food import, it was unsurprising that Emefiele targeted the sector for funding intervention in order to cut down on the FX outflow.

Under the scheme, farmers in Kebbi State alone received over N15bn ( N300bn was set aside) to support their cropping activities and that policy is yielding bountifully as impressive harvests has been recorded. It must be stated though, that the abundant crop yield was partly lifted by federal ministry of agriculture’s new fertilizer distribution policy which puts the products directly in the hands of farmers, not middlemen which was previously the case.

The success story in Kebbi State is being replicated across the country and investments in the value chain of agricultural products is also being encouraged as evidenced by the collaboration between Kebbi and Lagos States in the production and milling of rice.

Last Christmas, made in Nigeria rice flew off the shelves as if it was on auction resulting in a scramble like the pandemonium that takes place in major retail sales outlets in the USA, UK or Dubai whenever there is massive seasons discount.

The demand for Nigerian rice is so high now that local rice farmers and millers are currently practically struggling to meet customers demand.

Arising from the public enlightenment made about locally grown rice being actually more nutritious and healthier than the imported brand, it is currently the preferred brand in my household; and my wife has been unable to meet my latest request that as part of my new year resolution, only made in Nigeria rice should be served. Owing to the scarcity of the commodity, she has been on her supplier’s waiting list in her quest to find locally grown and milled rice.

Going by agriculture and rural development minister, Audu Ogbeh’s account during the 41st National Council on Agriculture meeting held in Kano recently, Nigeria spends $20bn on food imports annually.

In 2010 alone, former Agriculture Minister, now President of African Development Bank, Dr. Akinwunmi Adesina, reported that Nigeria spent N632bn on wheat; N356bn on Rice; and N217bn on sugar and N97bn on fish.

Without further equivocation, it is understandably clear why Emefiele would choose food import which consumes 40% of our foreign exchange outflow for major intervention by the CBN through backward integration or import substitution policy.

Through that vision, he literarily challenged the hitherto held assumption that farming is not financially viable hence it scarcely attracted bank funding; and debunked the notion that Nigerians don’t like consuming made in Nigerian goods and services; as well as provide justification for president Buhari’s vision of Nigerians producing more of what they consume.
And the best part of it is that what is fast becoming a sort of agricultural renaissance in Nigeria, does not just revolve around the leap in rice production and the craving of Nigerians for the locally produced staple. But following Emefiele’s farsightedness in CBN, the cash crop, sesame seed is increasingly looking like the new crude oil.

In fact the 82% increased value of export recorded in our country according to the latest NBS statistics is owed to sesame seed that has multiple uses in the Western world and therefore in high demand.

Admittedly, when the government in authority took over the reins of power on June 3rd of 2015, Naira/dollar exchange rate was N160/$1, but today it hovers around N360/$1 and it is envisaged that it would crash further, probably until it finds equilibrium at half of today’s rate.

Given that the exchange rate had hit N500/$1 a few months back and critics of Emefiele’s policies had forecasted that it might be ramped up to the N1000/$1 level, if he did not capitulate to their policy concepts of floating the Naira freely, it has put butterflies in the stomach of most entrepreneurs that the Naira is regaining its lost value.

Much as it is not yet Eldorado at the prevailing rate of N360/$1, the rates are slowly but surely coming down, and that’s assuming the massive infusion of dollars can be sustained, plus the rates have also become less volatile.

Now, the real icing on the cake is Emefiele’s policy of making available every quarter, $20,000 for each and every small and medium scale enterprises (SMEs) in Nigeria to import basic inputs to keep their enterprise going. This unorthodox policy has been a massive game changer, as it has buoyed the hitherto sagging economy with a flurry of activities returning to market place.

The measure was a strategic response to the needs of the SMEs that were practically folding up in droves owing to lack of access, not only to credit, but also to FX as they were practically crowded out by the multinationals and behemoths whose insatiable appetite for FX was being met by banks at the expense of SMEs -the greatest employers of labour.

Today, spare parts dealers easily import and distribute their wares which oil the wheel of production in Nigeria factories and plants.

Prior to the CBN innovative relief, cars spare parts such as Tyres, batteries, and health care essentials like medicines plus other inputs needed in the manufacture of goods critical to human existence had become very scarce in Nigeria.
The lack of access to FX was so severe that living in Nigeria was becoming comparable to being in a Hobbesian state comparable to life in Zimbabwe when it was under global sanction after expelling white farmers and Venezuela currently suffering from resource curse.

But today, thanks to Emefiele, the story of Nigerian economy is changing fast.
Although, the prices of imported items have more or less doubled-reflecting the hyper inflation rate which is now said to be about 18% (NBS data), the shelves are no more empty even though the items are exorbitant.

Another unique approach to managing FX in Nigeria introduced by the CBN under Emefiele’s watch, is the third window (between official and black parallel market rates) from where school fees and overseas medical bills are funded. The policy has eased the discomfort hitherto suffered by parents over payments of their kids’ school fees and the infirm who were seeking medical attention abroad.

Prior to the introduction, parents that were unable to cope with the arduous task of sourcing funds from the parallel/black market, were compelled, at a point, to deprive their kids of high quality education obtainable abroad.

As the saying goes, necessity is the mother of invention, and by and large, Emefiele has been very inventive hence is his catering to all segments of the society through his very unusual, practical and effective initiatives that are now cooling the economy which had become incandescent owing to the tumble in commodity prices and voracious appetite of Nigerians for foreign made goods and services.

Arising from the accomplishments highlighted above, love him or loathe him, in a very uncanny way, Emefiele has become the accidental and unsung hero of this administration. This is because he has proven pundits wrong with his peculiar fiscal policy measures not taught in Harvard business school or London school of economics, which some of his biggest critics, The Time and The Economist magazines of New York and London respectively, espouse and which they expected him to copy and paste in Nigeria.

In appreciation of his uncommon financial management prowess, Emefiele was recently honored with the prestigious Ziks leadership award and for his special role in the effort to pull Nigeria out of recession, he has also not gone unnoticed by Africa’s richest man, Aliko Dangote ,who is also fast becoming a major farmer, through the major stakes he is taking in several food basket zones of Nigeria.

According to Dangote, “Emefiele has contributed in saving the Nigerian economy from recession” Continuing, he said “The CBN has been very transparent in its policies and we are grateful for the contributions of the Bank in helping the economy come out of recession”

All things being equal, many more accolades and garlands may be coming the way of Emefiele for his unique and efficacious economic sense in the period left of his five years tenure of which he spent the first year serving the previous government that appointed him and now two years with the present regime.

Without much ado, from zero approval level at the inception of this administration, Emefiele is fast attaining a hero’s status in a space of 24 months.

If he accomplishes his lofty agenda by the end of his tenure, would he be the CBN governor of all time? Not many public servants can boast of such a phenomenal credentials in the current dispensation. However, it’s not too late for all other public servants to do better.

•Magnus Onyibe is a development strategist, an alumnus of the Fletcher School of Law and Diplomacy, Tufts University, Massachusetts, USA and former cabinet member of Delta State Government