•Unifying exchange rate would trigger inflation, says CBN
Vice President Yemi Osinbajo has said the African Continental Free Trade Agreement (AfCFTA) will make Nigeria an investment hub for Africa, spur growth in the economy and increase exports by eight per cent.
According to him, despite signing the agreement late, the federal government is earnestly addressing issues that could hamper Nigeria’s growth, adding that the agreement will enhance export of semi and fully finished goods.
Osinbajo who was represented by the Senior Special Assistant to the President on Industry, Trade and Investment, Dr. Jumoke Oduwole, spoke Monday in Lagos at the Financial Derivative Company (FDC) stakeholders’ meeting, where industry heads gathered to discuss how to make the AfCFTA a catalyst for investment and GDP growth in Nigeria.
His statement came just as the Central Bank of Nigeria (CBN) said unifying the exchange rates could trigger another spike in inflation and called for structural reforms.
Osinbajo said: “The AfCFTA can transform Nigeria from a target economy to the gateway economy by boosting job creation through increased intra African trade and spurring growth through enhanced economic welfare with an estimated eight per cent increase of Nigeria’s total export.
“In spite of the fact that Nigeria only just signed the AfCFTA, in terms of readiness, we are not at ground zero. At $35.45billion, Nigeria’s manufacturing value-added, a measure of a productive capacity to produce and export semi and fully finished goods, is about seven times more than the current average for the top 20 African countries. This suggests Nigeria’s productive capacity is at a higher level than that of most African countries. However, as an administration, we are well aware that there remains a lot to be done.
“The concerns raised by some Nigerian stakeholders about the risks with the AfCFTA are not without merit. Even prior to the agreement, the policy thrust of this administration had identified and focused on many of these priority areas in the competitiveness pillar of the Economic Recovery and Growth Plan (ERGP 2017-2020) directly speaks to the hard infrastructure challenges as well as the reforms required to deliver an enabling business environment for businesses operating in Nigeria to thrive under its competitiveness pillar initiatives since 2016.”
He added that the provision of adequate, stable and uninterrupted power for businesses is central to Nigeria’s AfCFTA readiness just as the country is moving in the right direction with the implementation of the Power Sector Recovery Plan (PSRP).
“Only last week, Mr. President signed a power agreement with Siemens that will significantly ramp up Nigeria’s power generation to 25,000MW by 2025. As this is being accelerated, we are intensifying efforts towards positioning the private sector to utilise 2,000MW of stranded power under the eligible customer (willing buyer-willing seller) declaration.
“Our energising economies’ initiative is also supporting the rapid deployment of off-grid electricity solutions to MSMEs in economic clusters such as markets across the country – Ariaria in Aba and Sabon Gida in Kano to mention a few- shopping complexes and agricultural and industrial clusters.
“In addition to power, other infrastructure gaps in the areas of sea and airports, railways and broadband are being accelerated.
“The completion of the various transport infrastructure projects will continue to receive adequate priority from this administration. For example, the Lagos-Ibadan section of the Lagos-Kano standard gauge line is nearing completion; the Abuja-Kaduna section has been in operation for the last two years.
“We are committed to the construction and rehabilitation of the Lakaji and the Port Harcourt to Ngala corridors, as well as their connecting and feeder roads. We have also taken steps to revitalise the decades old Inter State Road Transit Scheme (ISRTS) by releasing some of the required counterpart funding to Nigerian Export-Import (NEXIM) Bank in 2017.
“Our ports must, as a matter of urgency and necessity, become more efficient in expectation of increasing trade volume. With the National Trading Platform, we are implementing a single window portal and installing scanners at the seaports in a view to limiting physical examination of containers that has lengthened cargo clearance time.
“Consistent efforts are also being made to unlock traffic congestion around Lagos port facilities, as well as implementing the NIMASA’s Deep Blue Project for improved maritime security,” he stated.
On dumping, he said the problem was being addressed through “the use of trade remedies anti-dumping and countervailing measures that allow governments to take actions against injurious trade practices by foreign countries and companies. To adequately tackle this threat will require collective support at the highest level of ECOWAS and the Africa Union and Nigeria is looking forward to this cooperation, particularly from our neighboring countries.”
According to him, the Presidential Enabling Business Environment Council (PEBEC), inaugurated in 2016, has set up “a strategy of implementing various reforms in the efficiency and transparency of public service delivery, regulatory, legislative and judicial reforms at both federal and subnational levels. Our four National Action Plans since 2017 have delivered tangible reforms and impactful results particularly for SMEs.
“Our fiscal policy is also being fine-tuned to placate for AfCFTA’s potential impact on government revenues as we review our tax laws and administration strategies. In addition, the concern of unintended consequences of regional trade integration such as income inequality and distribution are being resolved through trade openness and improved infrastructure across the board so that rural areas can gain a higher income from exports of agricultural goods.”
Also at the event, CBN Director, Monetary Policy, Moses Tule, said unifying the exchange rates could trigger another spike in inflation and called for structural reforms.
He said the policies of the apex bank had helped calm inflation from over 18 per cent, which it was a couple of years back.
He said advanced economies had in the past administered a stream of incentives to critical sectors of the economy in form of subsidies, adding that there is need to put in place requisites infrastructure and make things correct before removing multiple currency practices.
“What is wrong if we give preferential treatment to the importers of oil so that they get oil at a certain exchange rate N305, and then deliver it to Nigeria at a certain price so that it does not extend or transmit into inflation?
“We had the shock on inflation in 2016 and it was not driven by monetary forces, it was triggered by three key factors. There was a change in the oil price; there was repricing of electricity tariff and there was the depreciation of the currency.
“All these fed the inflation. So, if we had inflation rising up to 18 per cent it was not driven by monetary factors but was driven by reform factors, which were necessary for the economy.
“If we have a temporary exchange rate regime that seeks to achieve the long-term target of inflation, it can solve current problems because monetary policy solves the current problem and in the long run we expect that fiscal policy will address the structural issues.
“IMF tells us that because of multiple currencies practices there is trade deficit, there is high inflation and slow growth. It means slow growth comes as a result of exchange rate misalignments; it means inflation is because of exchange rates misalignments it means structural deficits is because of exchange rate misalignments.
“In 2012, the IMF said in the midst of the global financial crisis the IMF agreed that going forward there is a need to look at countries relative to the condition in which those countries are, but now that we are out of the crisis, the IMF have gone back to the textbook economics.
“How long ago did the Fund when we introduced the 41 items say this is not acceptable and we had a running battle with the IMF but eventually they had a recourse and said ok we have agreed that you have made some major and we agreed and said we can do better and we are working towards doing much better,” Tule added.