We’re Developing Policy to Guide Banks to Lend to Grow the Economy, Says Emefiele

Godwin Emefiele
CBN Governor, Mr. Godwin Emefiele

Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, fielded questions from reporters at the end of a two-day meeting of the Monetary Policy Committee (MPC) in Abuja. He spoke on a wide range of issues, including restricting forex allocations to milk importers and getting banks to lend to the real sector. James Emejo was there:

Mr. Governor, could you give clarification on recent reports quoting you to have been signalling the possibility of restricting forex for the importation of milk?

Yes there are reports. The reports either quoting me or quoting somebody in central bank saying that there are attempts to restrict FX on the importation of milk into the country is correct. It is very correct because we believe that milk is one of those products that can be produced in Nigeria today. And you all must have heard me at different fora ask question that we have seenthe importation of milk in Nigeria before many of us were born, precisely over 60 years. West African Milk, Frieslandcampina, that I know as the foremost importer of milk has been doing it for over 60 years.

If you Google West African Milk or Frieslandcampina today, even on the website, they say they have been importing milk or that they have been in Nigeria for over 60 years.

For over 60 years, Nigeria has been importing milk. Today, the importation of milk annually stands at between $1.2 billion and $1.5 billion and that is a very high import product into the country, given that it is a product that we are convinced that can be produced in the country. And let’s ask ourselves the question. What really does it take to produce milk? Get the cow and give the cow plenty of water to drink and let the cow eat a lot of grass and the cow positioned in a place without roaming around, that cow gets fat and you can take milk out of it.

The reason some say our cows are not producing much milk is because our cows roam around. They don’t have water to drink. Under the pastoralist arrangement, you find out that during raining season, they are somewhere and when season recedes and dry and hot seasons come, they begin to move from where they are and as they move just as they are cows and not human beings, they consume whatever they find on their ways. But unfortunately in that process, they create destruction to farm products and farm produce in the country.

About three-and-a-half years ago when the policy on restriction of forex started, we considered including milk on the list of items that should be restricted from forex, but we conjectured that based on the kind of sentiments people would show, that we should be very careful.

We called in the management of the oldest milk importing company into Nigeria, WAMCO, into central bank in Lagos. We held at least three meetings with them. Their managing director came with one of the ladies and we held those meetings.
We told them this would have happened but we decided not to allow it to happen that we are trying to use the opportunity to appeal to them to backward integrate. Integrate backward and begin the process of development and producing your milk in Nigeria.
There are obviously two schemes, either the West African Milk or the milk importers acquire land and begin to graze their own cows and fatten them and take the milk, and of course, they can also be complemented by the pastoralist who own their own smallholder livestock farming arrangement- they can also get milk from them.

Indeed, they could also be seen to be supporting the pastoralists by getting them concentrated in a place instead of moving around and provide them facilities like water or hospitals or schools; I mean, if you are in a community and you want to enjoy the proceeds of that community there is nothing wrong in providing certain facilities to make those communities to blossom- provided with grass. Even if you sell the grass to them and the proceeds of what you get in return will be your milk to recoup your investments.
Those are the kinds of things that we expect companies that are importing milk into Nigeria to do. Unfortunately, after three-and-a-half years, nothing has happened.

Some of them said they started pastoralist arrangement and all that.
I was also in a meeting three weeks ago and we said we needed to take stock of what you guys are doing because we can no longer continue to spend close to $1.2 billion to $1.5 billion importing milk into the country- an item that we can produce. And to some extent, you should help us also to reduce the rate of the herder-farmer conflict.

Perhaps, if you had started this journey about three to three-and-a-half years ago with us, by now, the herder-farmer conflict that we see today in Nigeria would not have been as intense as it is at this time.
We would need your help at this time because we can no longer wait for you to continue to be importing this product into Nigeria because we are convinced it can be produced in Nigeria. That is our story.

But, of course, before we knew it, I hinted at that meeting which was the last meeting in Lagos last week Friday that we are not going to continue to allow this process to continue where they prefer to import into the country rather than backward integration.

Of course, certainly, what you would expect is that they went under their association and went to the manufacturers association and Lagos Chamber of Commerce and began to lobby. And I had heard even Muda Yusuf also commenting about milk importation.
I keep saying this: Nigeria belongs to us, when we have policy, we want people to respect the policy of this country. We are saying that how much we spend importing milk is too high, we need to reduce it.

We are saying that by doing backward integration, it helps to limit or reduce the herder-farmer conflict in Nigeria and we are determined to make milk production in Nigeria a viable economic proposition and we would need to support that.

We are saying if we restrict it or by the time we do so, if you need a loan to acquire land, we would give you loan; if you need a loan to do artificial insemination of your cows or you need a loan to grow your grass, in fact, you need a loan to even produce water, we would give you loan.

But that you will continue to import milk into the country, I think we are getting to the end of the road and that is basically what we discussed. I will say and I repeat that we are really getting to the end of the road and the era of restriction of foreign exchange for the importation of milk is really coming and would come very sooner than they expect.

Lastly, in that meeting, WAMCO came and said they would join this initiative for dairy production and not only dairy production by the company but to support the activities of pastoralists.

And after a week again, we called for another meeting: West African Milk has changed its position because they have spoken to their bosses and principals wherever they are and those ones too told them ‘we would not change policy’. If they would not change their policy, we would not change our policy. We want people to produce milk in Nigeria and that is our position on that.

Last weekend, there were reports that you have restricted banks from the treasury bills market, could you clarify the situation as this has caused some anxiety in the market?
You will recall that at the last MPC meeting in May 2019, MPC Committee mandated management that given that we observed at the meeting that there was a flat position in lending from DMBs to the industry; that there was need for management to look into how the banks can be refocused to do more of the lending to the private sector in order to grow the economy.
Like you all know, the only set of institutions or persons by law that can conduct financial intermediation from a surplus sector to a deficit sector are banks.

If they cannot provide that responsibility, then we are having problems. We will love to see the banks as financial mediators to play this role because that is one way they can be seen from the monetary policy side to catalyse growth in the Nigerian economy.

And in an attempt to do that, two weeks ago, we released a guideline that prescribes the minimum lending ratio for banks because we said we would no longer allow a situation where banks collect deposits from customers and all they do is bring the money to the CBN or to government to invest in instruments and after 90 days, 180 days, one year, they come to CBN and we cut them a cheque and they put it as income in their balance sheets and then they declare billions of naira; I am a banker myself. It is part of their roles but the core role that is required and desired from the banks today is that they should act as financial intermediators to provide credit to the private sector of the economy.

And in that guideline, we said we would give them certain carrots or incentives that when they lend to the consumer credit, mortgage credit, to SMEs, that we will grant them certain dispensations that they will be happy about but that if they do not do it, then we would apply certain sanctions that would lead to taking at least 50 per cent of the unlend portion of their loans into the CRR.
The deadline is September 30 and after that day, we are going to begin a month-by-month monitoring and prescription of loan deposit ratio to the banks.

It is because we all must work together as Nigerians to do everything that is possible to grow this economy and the CBN in conjunction with the DMBs who are at the monetary side of policy of this country must be seen to play this role and if we don’t play this role, then we have failed in our responsibility.

So, what did we do? In an attempt to begin to make them understand that we are serious, last week, we did an auction for two reasons; one, signal that yes, we are still on the tightening mood because we are not going to go with the fiscal in terms of trending so aggressively downwards in rate, so we signalled close to about 12.25 per cent to above 12.5 per cent in the rate in the market but also insisted that we do not want propriety auction from the banks, in which case, it should only be auction demand from their customers, either by local or foreign investors, just that they must know that that is where we want them to invest the money. We don’t want them to invest their money in treasury bills.

It doesn’t mean that the banks are barred. It was meant to be a special auction and I am sure general auctions will continue but at some point from time to time, we can introduce special auctions to provide special signal to provide certain signals and really direct the focus of actors in the money market or financial market about where we want them to go. So, the story that maybe there are plans to bar banks from treasury bills and OMO is wrong. But we need everybody’s support to work with us in this attempt to achieve growth in Nigeria.

And it is important that we say this that when the MPC raised the concern that had a flat loan deposit ratio, when we computed it, it was just about 57 per cent. Whereas, in other climes, loan deposit ratio in some cases is even more than 100 per cent; and I give you example. In Brazil, loan deposit ratio as at today is about 70 per cent. In United States, 75 per cent; China 71.2 per cent; India 75 per cent; South Africa 91 per cent; Kenya 76 per cent and Japan over 70 per cent. Nigeria at 57 per cent is too low and we need to get the banks to play their roles of financial intermediation and hence the reason we would continue to prescribed these ratios and let banks know our direction on this policy.

Governor, you mentioned that core inflation as at June was 8.8 per cent and CPI 11.22 per cent. Now if we have this for a long period of time, are we likely to see a 50 basis points reduction in MPR to around 13 per cent?

Like we said, we will like to see inflation trend into single digit territory. That the CBN itself has set an inflation target of six to nine per cent and because we are still above that threshold, we will only do so cautiously, either through signaling; but we are not going to be in a hurry to moderate or to bring down the MPR.

However, we are saying without necessarily altering or adjusting the MPR that we can take other measures like the measure that we adopted about prescribing minimum loan deposit ratio to the banks. That will help in a drive to increase the loan deposit and indeed, because banks themselves know that if they do not do what we want, as raised in the guidelines, we would take the money that they have and put them in CRR and because they know that it is a big challenge for them, that is why the rates are beginning to trend. In fact, there is a price war going on now; so if you are a bank customer, you borrow. If bank A comes to you, you need to begin to price your loans because they will certainly come down, which is the direction we want on lending in Nigeria.

How do you intend to get banks to do more of CRR-based lending in order to access the over N4 trillion and boost the $23 billion of Diaspora remittances and return Nigeria’s foreign deposits?

It is important for us to know that the CRR facility is the faculty that we are offering as our own intervention facility. When you release money from the CRR to fund those interventions, it is also policy that blunts the efficacy of tightening policy. And we have said that those who would benefit from the CRR funding would be those who are truly into core agriculture and expanding importing plants and machinery to expand their manufacturing capacities. So, we would only continue to say that if you are into core agriculture or you want to expand your plant and machinery, of course, if you approach your banks, we do expect that they would present your facility to us for us to approve and disburse the money.

And for Diaspora funds, there have always been issues if whether truly it is $21 billion or $23 billion but our numbers don’t say so and we have asked our guys to conduct some research to find out how we can really track those funds and begin to say that whatever incentives they need for them to be attracted into the official or formal window, that we would do so.