• FDI increased by 30% over previous quarter
• Emefiele explains limits of monetary policy during recession

Ndubuisi Francis in Abuja and Obinna Chima in Abuja

The total value of capital imported into Nigeria in the second quarter (Q2) of 2017 has been put at $1.792 billion, indicating a $884.1 million increase over the figure recorded in Q1 2017 and a growing appetite by portfolio investors in Nigerian securities.

This represented a 95.02 per cent growth, even as Foreign Direct Investment (FDI) also increased by 29.8 per cent over the previous quarter, the National Bureau of Statistics (NBS) has said.
Analysing the capital importation figure in its report for the second quarter of the year, the NBS stated that year-on-year was an increase of 43.6 per cent from the $1.042 billion recorded in Q2 of 2016.

On the month-on-month analysis of capital importation in the second quarter, the month of May recorded the highest capital importation of $616.5 million, followed by June with $612.6 million and May with $563.3 million.

According to the NBS, the main driver of the quarterly growth in capital importation in the second quarter was portfolio investments, which increased by 145.7 per cent, followed by other investments, which grew by 95.02 per cent, and Foreign Direct Investment (FDI), which increased by 29.8 per cent over the previous quarter.

Capital importation can be divided into three main investment types: Foreign Direct Investment (FDI), portfolio investments and other investments, each comprising various sub-categories.

Meanwhile, the Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, Tuesday confessed that the CBN’s monetary policy has its limitations when dealing with the challenges that confront a nation during recession.

According to him, one of the major lessons learnt from the global financial crises of 2008-2009 was the need to develop an adequate framework and appropriate tools for managing financial stability, particularly macro-prudential and micro-prudential policies and crisis management continuum.

In this regard, he said the Financial Services Regulation Coordinating Committee led by the CBN, was putting together a robust framework that would adequately promote stability of the Nigeria’s financial system.

Emefiele, who said this in a keynote address he delivered at the 2017 Annual General Conference of the Nigerian Bar Association (NBA) in Lagos, took his audience through some of the factors that made the Nigerian economy slide into recession.

He pointed out that a casual look at the problems that hit the economy two to three years ago, “even for the untrained eye, will reveal that these are daunting challenges in their individual rights”.
“Yet, the problem that we had to confront was that these developments occurred simultaneously and needed to be dealt with over a short period of time.

“Yet, the real dilemma we faced was that there were significant trade-offs in the outcomes of these economic variables, regardless of what specific monetary policy you implemented.
“For example, one would expect that given the Bank’s core mandate to pursue low inflation, the central bank would implement policies geared towards that.

“In order to tackle high inflation, the correct monetary policy would be to tighten money supply either by increasing the Cash Reserve Requirement (CRR) of banks, mopping up money through increased open market operations, or raising the liquidity ratio of banks.

“Doing any or a combination of these would help to moderate inflationary. Yet, if a central bank in our position were to abandon its pursuit of low inflation and decide to implement an expansionary monetary policy in order to engender rapid economic growth, the outcome for inflation would be much worse.
“This is because an expansionary monetary policy would require reducing the CRR and liquidity ratios and increasing money supply. Obviously, with much more money in circulation, inflation would be worse.
“In view of the dilemma of tackling these problems simultaneously, the optimal solution would be to prioritise and address them sequentially.

“Given our core mandate, and the pervasive effect of high inflation and exchange rate volatility, we chose to tackle these two head-on. It is important to highlight that high inflation is a significant inhibitor of economic growth,” he explained.

According to the CBN governor, high inflation was not only harmful to growth in the long run, but discourages saving and inhibits planning and investment, as people become more sceptical over the direction of prices of goods and services.

As a result, achieving low inflation, he said, remains a major priority for the CBN, saying that if the central bank had chosen to reduce interest rates and increase money supply under the circumstances, it would have further deepened the recession while foreign investment outflows would have worsened foreign exchange reserves accretion.

Emefiele said in order to contain the challenges, the CBN took a number of countervailing policy actions both at the management level and at its MPC, such as to maintain a tight monetary stance in order to contain rising inflation and encourage FX inflows into the country.

“More importantly, however, in order to further extricate the lingering bottlenecks, increase transparency and boost supply in the FX market the CBN, in April 2017, introduced the special Investors’ and Exporters’ (I&E) FX window. The establishment of that special (I&E) window has tremendously facilitated market-driven transactions

“If you carefully look at the size and structure of our import bills, taking cognisance of the fact that imports result in leakages in every economy, it is apparent that we as a people cannot continue to depend on other countries for things that can easily be produced locally.
“How do we justify the importation of items like eggs from South Africa, beef from Zambia and toothpicks from China if we are serious about jumpstarting economic growth in Nigerian and creating sustainable jobs for our people?” he asked.

In order to achieve sustainable economic growth in the country, the CBN governor said there was need to rebuild the ailing infrastructure in rural areas, adding that investing in basic infrastructure including roads, bridges, airports, railways, and information technology was not only good in terms of immediate job creation, but would serve as a catalyst for the movement of goods and services nationwide.

He said there was need to jumpstart agriculture and agribusinesses, citing the achievements of the CBN’s Anchor Borrowers’ Programme, together with other initiatives like the Commercial Agriculture Credit Scheme and NIRSAL.

He urged members of the NBA to partner with the CBN, particularly in ensuring legislative advocacy to ensure quick promulgation of robust legislations in support of the chosen policy options and called for vigorous support for the establishment of commercial courts in Nigeria to facilitate speedy resolution of commercial disputes.

In addition, he said there was need to make provisions for constructive inputs for the development of robust financial sector legislative bills and other regulations, and in order to checkmate the unbridled recourse to the use of interlocutory applications to frustrate legitimate expectations in commercial and financial disputes.