Emefiele: Import Bills Falling, External Reserves Climbing, Monetary Easing Coming

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By Obinna Chima

The dogged implementation of the foreign exchange (FX) restriction on certain items has led to a 65 per cent drop in the country’s monthly import bill, from an average of $5.5 billion to $1.9 billion as of half year 2017, Central Bank of Nigeria Governor, Mr. Godwin Emefiele, has disclosed. 

Emefiele, who said this in a keynote address he delivered at the 2017 annual dinner of the Chartered Institute of Bankers of Nigeria (CIBN) that took place in Lagos Friday  night, also noted the accretion of the nation’s foreign reserves  and hinted on the coming of monetary easing .

The governor expressed optimism that with the aggressive development finance interventions by the CBN, the nation’s import bill would reduce further.

The Central Bank had, in June 2015, classified 41 items as “Not Valid for Foreign Exchange”, on grounds that they could be produced in Nigeria, rather than deplete the country’s reserves on their importation. Some of the affected items include rice, cement, margarine, palm kernel, palm oil products, vegetable oils, meat and processed meat products, vegetables and process vegetable products, poultry, tomatoes/tomato paste, soap and cosmetics and clothes. Other items include Indian incense, tinned fish in sauce, cold rolled steel sheets, galvanised steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes/containers, enamelware, steel drums and pipes, wire mesh, steel nails, wood particle boards and panels.

In 2016, the first year of implentation of the forex restriction, the country’s import bill fell to $2.1 billion.

 In his address titled “Policy Options for Sustaining Nigeria’s Economic Upturn”, Emefiele said the FX restriction had also resulted in spectacular improvement in domestic production of most of the items that were barred from accessing the greenback.

He pointed out that local manufacturers in the country have continued to report major boosts in their revenue and profit due to the central bank’s policy. 

The CBN governor added: “This policy (FX restriction) has even freed Nigeria from a perennially embarrassing import: toothpicks. Baton Nigeria has also taken advantage of the policy and is now producing high quality, competitive toothpicks that is 25 percent cheaper than their Chinese competition. 

“As most of you may know, Unilever moved its blue band production facility to Ghana some years ago, which means that we must import this product from that country, with scarce FX. 

“But as part of the gains from our policy and in line with an agreement we reached with Unilever, the company will be commissioning a new Blue Band Factory in Agbara, Ogun State early next month. 

“We have also seen a sharp drop in imports of rice from several countries. To give one example, data from the Thailand’s Rice Exporters Association indicate that in 2012, about 1.2 million Metric Tonnes of rice was exported to Nigeria. 

“However, in 2016, which was the first full year of implementation of our policy, rice exports to Nigeria had fallen by 99 percent to only 784 metric tonnes.”

“This significant reduction in imports of rice from Thailand, according to him, represented a saving of over US$600 million to Nigeria in 2016 alone. 

“It is heart-warming to note that this fall in imports have been largely filled by a boost in local rice production. For example, employees at Labana Rice Mills in Kebbi State are trying to keep pace with demand, processing 320 tonnes of a rice a day, a 250 per cent increase from the previous year. 

“From Kano, UMZA rice has expanded its milling capacity substantially to the extent that with the recent bumper paddy harvest, the company today takes delivery of over 100 trucks of paddy rice daily. 

“These are clearly verifiable successes of government’s attempts to create jobs locally, improve the wealth of our rural population, improve industrial capacities and ultimately attain economic growth in Nigeria,” he added.

After five quarters of continuous contraction of its Gross Domestic Product (GDP), the Nigerian economy recorded a positive growth of 0.55 percent in the second quarter of 2017.

Also, from a peak of 18.72 percent in January 2017, headline inflation recorded eight straight months of disinflation, with the rate declining to 15.98 in September. 

In the same vein, the nation has recorded significant appreciation of the naira from over N500 to a dollar, to about N360 to a dollar. 

“We, as resilient people and responsible organisation, have collectively surmounted the worst and have hurdled the unwelcome recession” Emefiele said, adding, “we are delighted that the economy has turned a corner with our worst days clearly behind us”.

The CBN governor also pointed out that since the establishment of the Investors’ and Exporters’ (I&E) FX Window, the country has recorded about US$10 billion in autonomous inflows through the window alone. This, he said reflected the effect of the increased transparency which that window accorded the FX market and its benign impact of improving investor confidence and business sentiments.

“Our reserves have recovered significantly from a low of just over US$23 billion in October 2016 to over US$34.3 billion as of November 3, 2017.

“The accretion in reserves does not only reflect increased inflow but also our shrewd FX demand management strategy.  

“When we introduced a policy restricting 41 items from our FX markets, we were called all manners of names. Today, among the benefit of that policy is the considerable decline in our import bills,” he enthused. 

Commenting on his outlook for interest rate, Emefiele disclosed that the central bank’s Monetary Policy Committee (MPC) which holds it last meeting for the year next week, may begin to see strong justification for easing of monetary policy. This, he stressed might further accelerate Nigeria’s economic recovery process. 

According to the CBN governor: “Monetary policy stance could change when the underlying fundamentals become supportive.”

 While stating that over the last 12 months Nigeria’s FX reserves has grown by over $11 billion, from about $23 billion in October 2016 to $34.112 billion as of last Thursday, Emefiele also expressed belief “that, if we remain resolute with our efforts, policies and actions we can attain an FX reserve position of about US$40 billion by end 2018.”

He anticipated a return to very low double digit or high single digit inflation levels next year. 

He, however warned policymakers in the country not to become complacent nor over-confident, stressing the need for all to continue to work to improve and sustain the pace of recovery. 

“For one, our import bill may have fallen but our manufacturing and agriculture sectors still have a long way to go if we must attain self-sufficiency in those sectors. 

“We must not be quick to discard the restrictive measures which aided our recovery simply because the metrics have improved,” he said.

He said the central bank would continue to fine-tune its policies and strategies based on its understanding of evolving developments and supported by in-house technical analysis and simulations. 

According to him, the central bank would remain proactive in ensuring that the welfare of Nigerians is optimised at any point in time. 

“As the sentiments improve in the macroeconomy and supported by proactive monetary, trade, industrial and fiscal policies, I expect a continued uptick in GDP growth with a positive spill-over to improved unemployment rate. 

“As policies to strengthen the agricultural and industrial sectors become more emergent, growth in these sectors will rise, further bolstering overall economy.

“As we entrench and sustain the transparency in the FX market, as FX reserves accretion continues, and market confidence and improved sentiments remain, I expect that the exchange rate will not only be stable but would begin to appreciate against major currencies. 

“The adverse competitiveness outcome which such appreciation may entail would be adequately mitigated by proactive policies to ensure that our balance of payments position is not undermined.” 

He stressed the need for a re-doubling of the strong policy coordination, collaboration and cooperation between the monetary and fiscal authorities, which according to him, “flourished during the very difficult times.”

 “To sustain our recovery the need is greater now than ever for a robust policy coordination between the key aspects of economic policymaking space. 

“In Nigeria, this would include fiscal, monetary, exchange, and trade policies, which must be targeted at protecting farmers to boost agricultural outputs, support local companies and enhance manufacturing and industrial capacities, with a view to diversifying the economy away from oil and fossil fuels. 

“While we still have much work to do, I am delighted that some of the pains that were associated with some of the CBN’s policies have become major gains in our economy. 

“We have seen many manufacturers bounce back from near comatose to running shifts. 

“We have seen many farmers smiling to the bank and going back to their farmlands in due seasons.”