Now that Recession Rain is Over

The Muhammadu Buhari Administration has just completed its third year in office and entered  its last lap before testing its popularity with the electorate. Has the President done well? His Central Bank Governor Godwin Emefiele says his Principal has done well endorsing his economic growth plan with high marks. This is going by the indices of achievements it has attained from the CBN perspective and given the fact that the next phase is one of sustainable growth.  Indeed. ‘In The Famished Land,’ Ben Okri makes an opening invocation that seemingly reflects the long expected paradise, the Nigeria of our dream: “In the beginning there was a river. The river became a road and the road branched out to the whole world…a dream can be the highest point of life.’’ For the turn-around artist on the driver’s seat at the CBN, it is time to think big and see the Nigerian dream as our highest point of expectation as citizens. For Emefiele this dream is a worthwhile assignment, it is like finding a Byzantine treasure trove deserving to be chronicled in prairie, prosaic, language. In this special report the CBN Governor tells where we are coming from, where we are and where we are headed. Excerpts by Nduka Nwosu

 

Central Bank of Nigeria Governor Godwin Emefiele combines the image of a home boy and global citizen to effect. In public fora where he seizes every opportunity to apply his dexterity as a teacher, he does not disappoint and all thanks to among other things his exposure to Stanford and Harvard where he was imbibed the art of teaching.

At the heat of the recession, which was no fault of his, many Nigerians who refused to study global trends and link them up with economic downturns back home, saw Emefiele as the culprit, the finger that was caught napping in the cookie jar. How did he re-claim his innocence? Teacher Emefiele went to town to remind all and sundry that the party was over and that it was time to clean the kitchen, take stock of the left overs and go back to the farm to work. This reporter also watched him at close range inside Blair House Washington DC in 2015 where he employed his knowledge in economics, banking and finance to impress the President’s visitors from the business community that there would be light at the end of the tunnel.

Listen to his response to the market woman on radio who taught it was all Emefiele’s fault that the naira was exchanging at nearly N400 to a dollar, the woman who thinks Jonathan was still in charge, the many Nigerians who still want to junket round the world, who unlike their President are not attracting new ventures but spending like yoyo, the naira converted to dollar and those big men who after stealing from the commonwealth want a magical wand to transform the economy: “That view pretty much echoes the sentiments expressed by many people I know and it amazes me that there are Nigerians who actually think there is some magic POLICY that can make the Naira strong in the near term. If my economics and my understanding of the way the world works are right, then that is as far from the truth as Jesus Christ is black.

“The simple fact of the matter is that apart from oil that accounts for over 90% of our revenues, we really don’t have much of an economy. We hardly produce anything; we import even toothpicks, so exactly what policy is going to be implemented that will turn Nigeria into a top exporting economy in the near term? Where are our Apples, IBMs, Disney’s, GMs, General Electrics, Coca Colas, Empire State buildings, Statues of Liberties, Lockheeds, Citibanks, JP Morgans, ExxonMobils, NBAs, Super Bowls etc? Let me bring that closer home.

“There was a time long ago when Nigeria had a truly strong economy and the naira was one to the dollar – even exchanged for higher than the USD, but that Nigeria is not this Nigeria. Sadly that Nigeria was laid by the British, and this Nigeria (if you don’t believe in the nonsensical imperialist conspiracies like me) – fueled by the DAMAGING Indigenization Decree, has been the creation of us Nigerians. Back then we had a booming economy.

We were either the top, or among the top exporters, of timbre, cocoa, groundnuts, rubber, palm oil, etc, in the world. Nigerians not only holidayed at home in their villages, at Yankari Games Reserve, at Obudu Cattle Ranch, at Oguta Lake, at Ikogosi springs, at Gurara Falls, at Mambilla Platueau, etc, we attracted international tourists who brought in loads of foreign exchange. Even Nigerian schools were foreign exchange earners because they attracted foreign students.

“We had different car assembly plants – Peugeot, Volkswagen, Anamco etc. Nigerian government officials only bought vehicles assembled in Nigeria for official cars. We had a thriving sports industry. We were not Man United or Chelsea fans, we were Rangers or IICC fans. We had the Nduka Odizors, people made money from sports. We also had companies like Lennards and Bata producing school shoes in their thousands, we had the thriving Nigerian Airways and the Aviation School in the north that produced some of the best pilots in the world.

In those days if you were brilliant you were respected much more than the crass money-miss-road contractors of today. Most of the Aje Butters I knew had fathers who were university dons. Back then it meant something to ‘know book’. Our textile industry was alive and well. Just recently I watched a news report on the textile industry in Nigeria on CCTV News. Though the main focus was on the comatose status of the industry, I was stunned by the gigantic Kaduna Textile Mill built in 1957. I could go on and on.

“Today however, no thanks to our parents (and we must call them out the way Wole Soyinka did his generation) and many of us (and we should be remembered for failing our children if we continue like this), we have destroyed everything. Today for instance Nigerian football (which comes easy to me obviously) doesn’t appeal to us, we have to fly across thousands of miles to watch ‘our’ clubs play. Every year we collectively burn billions of Naira being fans of clubs that give us nothing back, but some ‘entertainment value’ – simple pleasures for which we are ready to destroy the future of our children.

“Well people, payback time is here. Even with our ta-she-re money we all want to wear designer clothes and carry designer bags, Armani, Givenchy, Louis Vuitton etc. We all want to drive jeeps with American specs, our children must now school overseas and acquire the necessary accents to come back home and bamboozle their ‘bush and crass’ contemporaries that they left behind. Who holidays in Nigeria anymore, is there Disneyland here? No one buys made-in-Nigeria school bags for their children, after all no Superman or Incredible Hulk or Cinderella on them.”

In fact the CBN Governor’s remarks could not have been the first time Nigeria was reminded its tendency to organise huge, wasteful parties was impacting negatively on its leaking purse. It happened in the 1980a when the London based Economist took a swipe on Nigeria and its leaders reminding all the party was over. That was after President Muhammadu Buhari’s first incarnation as head of state was terminated and the Babangida administration came on board with its policy of structural adjustment. The influential weekly painted a picture of a sumptuous party with choice wines and six course meals, attended by the best and brightest across the globe, after which the debtor nation-Nigeria had a huge debt overhang on his head. Naira which was hitherto stronger than the dollar nose-dived and things started going awry. It was a reprimand of the erstwhile civilian administration led by President Alhaji Shehu Shagari. What happened then compared with subsequent developments, looked like a tale out of moon light.

Teacher Emefiele  who had earlier reminded Nigerians and the OAPs that as long as they wished to be more European than the white man, the dinner table back home would be empty, has been doing this ever since and now it seems the results are turning around the economy for good. Still he warns that as Nigeria braces up for the good times again it must not allow itself to be dragged to the days eaten by the cankerworms.

The solution: stop patronising foreign made goods and buy made in Nigeria goods, go to Obudu Cattle Ranch, Yankari Games Reserve or other interesting tourist attraction centres in the country and give the demand for dollar a breathing space. That was in 2015. In 2018 he rolls out the carpet of the must dos on the shopping list of government and the governed. First before we embark on this journey of building our dream Taj Mahal, Teacher Emefiele would want to remind us how we got here and what principles were put in place by the CBN to drive us out of recession.

Fast forward the economy to 2018 just less than twelve months into President Buhari’s quest for a second term, Nigerians are asking what does the man have to show for his three years in office if he must return to Aso Rock to steer the wheel of statecraft come 2019?. From the CBN perspective it is not yet time to shout Uhuru but the economy is out of the woods and back on track to properly re-claim its position as Africa’s leading economy. When that happens we shall present to Emefiele’s principal a garland of roses and re-jig Aretha Franklin’s sweet epiphany, that ballad that sings: Roses are red to Nigeria is green.

Until then we must head back to the classroom and listen to the teacher who teaches the country what it should learn if the boat ride to prosperity will cease to be rocky from now on. First are the obstacles that worked against our stable economic growth.

The obvious obstacles that worked against the economy

There is a popular saying among the people of Western Samoa, that from the direction of the wind, you can tell a story from the beginning. In another local parlance, where did this rain start beating us? That was more than 25 years ago that the word recession crept into our lexicon of home economics. This time around, Emefiele tells his larger Nigerian audience that a mono-economy largely dependent on oil could not have fared better when the price of crude oil went down to as low as $28 after it had helped steer a robust economy with a price peg that once averaged to $110 a barrel before the recession. Then the American experience after its Central Bank or Federal Reserve System through its Monetary Policy stopped its monthly injection of about US$85 billion into the global economy. The third factor had to do with geopolitical tensions amongst critical trading routes and partners around the world. 

These shocks have had significant adverse effects on Nigeria’s economy including: 

• Remarkable slowdown in economic growth, culminating in five consecutive quarters of GDP contraction bottoming at -2.3 percent in the third quarter of 2017, having grown by nearly 7 percent in previous years;

 • Rising Inflation, peaking at over 18 percent in Jan. 2017, from as low as 9 percent in January 2016; • Persistent increase in unemployment rate to 16.2 percent in the second quarter of 2017, from 8.2 percent at the same period of 2015;

 • Significant depreciation of the exchange rate, reaching N520:US$1 in February 2017, from as low as N155/US$1 in June 2014;

 • Depletion of FX Reserves, bottoming at about US$23.6 billion in October 2016 from as high as US$40 billion in January 2014;

 • Substantial decline in average inflows of foreign exchange into the CBN by over US$2.3 billion every month over a three-year period; 

• Strain on the financial markets with declines in key money market, capital market and foreign exchange market indicators; • Though the banking industry remained largely robust, its resilience weakened somewhat as follows: 

NPLs deteriorated in line with the difficulties of the macroeconomy; and o Banking system exposure to foreign loans threatened to undermine their health; 

• On the fiscal side, we witnessed constrained fiscal space leading to larger fiscal deficits and rising debt profile, although the debt to GDP ratio remained significantly robust and below the 30 percent threshold; • Given the sharp drop in oil prices, Federation Account Allocations to States have dropped by an average of about N2 billion monthly per State, which partly explains their inability to meet some basic recurrent expenditures including payment of workers’ salaries. 

 Why did Nigeria react so deeply to these global shocks?

 Mono-oil economy

Emefiele gave his personal prognosis: oil accounts for over 90 percent of our exports and nearly 70 percent of fiscal revenue.

  So, given a more than 60 percent decline in oil price and its attendant effects on foreign exchange and fiscal earnings it is not surprising that our economy suffered so gravely. Besides, the structural imbalance of the Nigerian economy with over reliance on imported goods added to the problem. While growth declined, the rise in inflation was inevitable as falling exchange rate and rising foreign prices passed through directly to domestic prices. 

CBN Policy measures that fought recession

Emefiele said given the problems on ground the CBN took a number of proactive measures many of which were vigorously criticised even though some of these measures or policies were anchored  “on our understanding of the developments and traverse of the future as shown by exhaustive scenarios from our in-house macroeconomic simulations and analyses. 

“These policy measures he said include  For Monetary policy, we embarked on a cycle of policy tightening to rein in inflation using increasing Monetary Policy Rate (MPR) and aggressive Open Market Operations; 

“• In external reserves management, we adopted demand management through the restriction of FX for imports of 41 items, which we believed could be produced locally;

Exchange rate management and Development Finance

“ • On exchange rate management, we took a number of actions to stabilize the exchange rate by abolishing speculators, bettors, round-trippers and rent-seekers. We also introduced the NAFEX and the Investors-Exporters FX Window to increase market transparency and FX inflows; • In Development Finance, the Bank continued its financing activities in key high-impact sectors like Power, Aviation, Education, MSME, Agriculture, including CACs, ACGS, NIRSAL, the Anchor Borrower Programme, etc. 9 8. In light of these and other policy responses, we are delighted that the economy has turned the corner with our worst days clearly behind us. 

The Gains

GDP recovery and Inflationary decline

For example: § GDP recovered after five quarters of continuous contraction recording positive growths of 0.7 and 1.4 percent in quarters two and three of 2017, respectively, and signalling an exit from the recession leading to a declne Inflation declined from a peak of 18.7 percent in January 2017 to 14.3 in December 2017; expectedly Exchange Rate appreciated significantly from over N525/US$1 in February 2017 to about N360/US$1 today, tapering premium across various windows and segments of the market; § FX Supply has improved since the establishment of the I&E Window, with autonomous inflows of over US$20 billion through 10 § FX Reserves has recovered significantly from a low of just over US$23 billion in October 2016 to about US$47.37 billion as of 5 April 2018; § Improvement in the World Bank’s “doing business indicators” for 2018 as Nigeria, with the country rising 24 places to rank 145 out of 190 countries. 

This feat largely reflecting the CBN’s work on establishing the Collateral Registry and Credit Reference Bureaus, both of which increased access to finance; § Significant Boost in Local Production which is partly due to the CBN’s development finance efforts and the dogged implementation of our FX policies. Today many local manufacturers are reporting major boosts to their revenue and profit. 

How do we sustain economic growth now that recession is over? 

Vigilance

The CBN Governor who keeps expressing these views simplifies them below for the average person down the road.

He asks: “Whilst basking in the delight of these accomplishments, what then must we do to sustain them and ensure that we do not slide into another recession?”  Emefiele says the first rule in the book is to know the price of liberty is eternal vigilance. Those of us who have been entrusted with leadership and policy making responsibilities must neither become complacent nor over-confident. We must strive to improve and sustain the same policies that have gotten us this far. 

 “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. 

Do not discard the restrictive measures

“We must not be quick to discard the restrictive measures which aided our recovery simply because the metrics have improved. At the CBN we will continue to fine-tune our policies and strategies based on our understanding of evolving developments and supported by in-house technical analysis and simulations. We will remain proactive in ensuring that the welfare of Nigerians is optimised at any point in time. 

Sustain Development Finance

“ In the area of Development Finance, the Bank will continue to provide access to much-needed credit to sectors with the potential to create jobs on a mass scale. In this regard, we will explore opportunities to expand the highly-successful Anchor Borrowers’ Programme to other crops and States. In order to continue our gains in local production and help boost non-oil exports, we are in the process of finalizing the creation of a N500 billion fund with the Nigeria Export-Import Bank (NEXIM) to assist local manufacturers interested in non-oil exports. 

Keep in place tight Monetary and Exchange Rate Policies

“ In Monetary and Exchange Rate Policy, we have signalled from the last Monetary Policy Committee (MPC) that we will sustain the tight policies that have helped rein-in inflationary pressures. That is the reason we kept the Monetary Policy Rate (MPR) at 14 percent. We will also continue the transparency and evenhandedness that has attracted inflows of FX into the  country while keeping FX supply to the market adequate. 

Bullet points…

“On the basis of these policies, and barring any unforeseen shocks, we expect that: 

• Inflationary pressure will continue to ease: This may return to very low double digit or high single digit levels during the year. 

• FX Reserves will continue to grow. Following recent accretion, FX Reserves may be about US$50 billion sometime later this year;

 • Economic Recovery will consolidate. As the sentiments improve in the macro-economy and supported by proactive monetary, trade, industrial and fiscal policies, we expect a continued uptick in GDP growth with a positive spillover 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;

 • Exchange Rate stability will continue. As we entrench and sustain the transparency in the FX market, as FX reserves accretion continues, and market confidence and improved sentiments remain, we 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. 

 Strong policy coordination

 Finally, Emefiele adds, what is expected is a re-doubling of strong policy coordination, collaboration and cooperation which 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. 

“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.” 

Nelson Mandela did say Africa was waiting for Nigeria as its leader to move to the next stage in the global market of ideas. The time could not have been more auspicious for the Great Masquerade to divine the unseen from the shrine especially now that other African leaders have placed a premium on President Buhari. 

Nigeria our country must dance away from the market square leaving behind the lesser masquerades, lest the Oracle develops the feet of clay and crumbles at the heat of celebration to the amazement of the crowd of celebrants, who unmask him and realise that this masquerade from the land of the spirits, is nothing but human after all.

Emefiele’s promise: it is do-able and we are on course.