James Emejo writes on the Central Bank of Nigeria’s support for the private sector of the Nigerian economy, particularly the Dangote Refinery which promises to address some of the country’s macroeconomic challenges.
The recent inauguration of the Dangote Refinery has immense ramifications for the economy particularly in resetting the country’s wobbling macroeconomic indices including unemployment, inflation, GDP, and exchange rate among others.
One of the biggest problems confronting the economy had been its inability to produce and consume what its people need locally; importing almost everything and yet failing to produce enough for exports.
The attendant result has been the undue pressure on the nation’s external reserves and vulnerability of the local currency against major currencies around the world particularly the United States Dollar.
This further has an untold impact on living standards as jobs that should have been generated through domestic production are literarily exported to other countries, further compounding unemployment which is currently at 33.3 per cent according to official estimates by the National Bureau of Statistics (NBS).
It is in view of these challenges that the Central Bank of Nigeria (CBN) which has the statutory mandate to ensure monetary and price stability, maintain external reserves to safeguard the naira, and promote a sound financial system among others, undertook numerous interventions in the economy in order to realise its objectives.
Oftentimes, the CBN has had to play the role of the fiscal authority realising that the activity or inactivity of government could impair monetary policy objectives as witnessed in recent times.
The CBN has in recent times pumped unprecedented sums of money into the economy to help the real sector cope with eternal competition as well as increase local production and export.
· Focused implementation of monetary policy objectives
Emefiele had in his five-year policy thrust of CBN, 2019 – 2024, committed to working closely with the fiscal authorities, to among other things bring down inflation while accelerating the rate of employment; preserve domestic macroeconomic and financial stability; and improve access to credit for not only smallholder farmers and MSMEs but also consumer credit and mortgage facilities for bank customers.
The apex bank had committed to a free trade regime that is mutually beneficial but particularly aimed at supporting domestic industries and creating jobs on a mass scale for Nigerians.
The roadmap offered visible measures on supporting improved GDP growth and greater private sector investment, leveraging monetary policy tools in supporting a low inflation environment while seeking to maintain stability in the exchange rate.
Emefiele said, “We believe a low and stable inflationary environment is essential to the growth of our economy because it will help support long-term planning by individuals and businesses. It will also help to lower interest rates charged by banks to businesses thereby facilitating improved access to credit, and a corresponding growth in output and employment.”
· Funding support for Dangote refinery
The completion and commissioning of the Dangote Refinery and the funding support the project enjoyed from the apex bank demonstrated the character of Emefiele in matching words with action about the bank’s support to the real sector to help also help achieve the aim of monetary policy and better the lives of Nigeria through its avowed ‘people-centered’ policy by the bank.
According to Emefiele, the initial estimated cost of the refinery was about $9 billion, of which $3 billion was projected as equity investment by the Dangote Group and the balance financed through commercial loans.
However, due to an array of factors, the project was eventually completed with a total of $18.5 billion with funding distributed into 50 per cent equity investment and 50 per cent debt finance.
He said, “I am proud to state that the commercial loan component of the project was financed majorly by our domestic banks with the balance sourced from foreign banks.
“The Central Bank of Nigeria also partnered, as always, with the Dangote Group in ensuring the successful completion of the project by providing about N125 billion, to cover domestic currency requirements for the venture.”
Emefiele said the Dangote Group had started repaying some of the commercial loans even before the commissioning of this facility.
He said, “I am pleased to inform everyone today that, following extensive repayments, outstanding debt has dropped appreciably from over $9 billion to $3 billion. I must at this juncture appreciate all the participating local Nigerian banks, who did not only partner with the project through effective financing but were keenly aware of the importance of the project for our nation. They provided immense support and exceptional understanding, even when interest payments and principal repayment had fallen due.”
The foregoing further demonstrated the huge role the CBN has continued to play in stimulating growth and encouraging domestic output to the benefit of the overall economy.
Emefiele pointed out that the refinery was only one of the many efforts of the central bank to support President Muhammadu Buhari’s drive to diversify the economy amid several other interventions in critical segments of the real sector.
· Impact of refinery on monetary policy, economy
Emefiele also disclosed that with the refinery, Nigeria will cease to import petroleum products, fertiliser and petrochemical that drained over $26 billion in import bills in 2022.
He said the self-sufficiency in refined petroleum, urea, and polypropylene, which Nigeria has attained with this project is a strong testament to how leadership, dedication, focus, commitment, and resilience have helped Nigeria on its drive towards import substitution and export orientation.
The CBN governor stressed that the take-off of the refinery and petrochemical factories comes with numerous economic benefits to the country particularly in addressing macroeconomic challenges.
He said, “In the first instance, it will have enormous impact on job creation by generating thousands of direct jobs and millions of indirect jobs, with over 135,000 permanent jobs. I understand that, so far, there are nearly 4,000 Nigerian personnel on site, excluding employment by the various contractors and subcontractors at the project site.
“I am also proud to state that the project will generate up to 12,000MW of electricity. In addition, the refinery and the other ancillary projects will have significant multiplier effects on other sectors of the economy by supporting a diverse range of sectoral value chains.
“For instance, the Lagos Chamber of Commerce and Industry noted that the project could spur “further growth and development across its value-chain, including cosmetics, plastics, and textiles, while strengthening value addition in agribusiness, including the Sugar Backward Integration projects that plan to create a strong localised supply in the sugar industry, benefiting local suppliers across the sugar value-chain.”
He said, “More importantly, this project avails Nigeria with significant savings both in terms of foreign exchange and in easing the fiscal burden on the federal government. Available data at the Central Bank of Nigeria as of 2014, shows that at least 30 per cent of the foreign exchange required to meet Nigeria’s import needs went into the importation of refined petroleum products.
“It is instructive to note, distinguished guests, that according to the balance of payments statistics, the cost (including freight) of petroleum products imports into Nigeria doubled over a five-year period from about $8.4 billion in 2017 to $16.2 billion (indicating an annual average of $11.1 billion), before rising further to $23.3 billion by end-2022.
At this rate, the average annual cost of petroleum products imports to Nigeria could reach $30 billion by 2027 if we continued to rely on petroleum imports.
“These figures suggest that the refinery could engender foreign exchange savings, to the country, of between $25 billion and $30 billion annually.”
Emefiele said the project will equally provide support to the fiscal operations of the government as it could help ease budget constraints of funding the petroleum subsidy and engender fiscal savings.
According to him, available data indicate that, over a five-year period, fuel subsidy in Nigeria rose more than nine-fold from about N154 billion in 2017 to over N1.43 trillion before another three-fold rise to N4.4 trillion by the end of 2022.
“A simple straight-line projection suggests that this figure could surpass N7 trillion within the next three years if we do not tackle it effectively. Thankfully, the Dangote Refinery and Petrochemicals could spare Nigeria about N5 to N7 trillion annually in fiscal expenditure of the federal government over the next five years,” he said.
· Dangote commends Emefiele, banks for support
President/Chief Executive, Dangote Group, Alhaji Aliko Dangote, was however full of praises for Emefiele and the domestic banks for the huge funding relief over the project.
According to Africa’s richest man, “As in most mega projects, financing has been a source of many significant challenges. Governor Emefiele’s belief in and commitment to this project has been awesome.
“Without Governor Emiefele’s courageous support and backing, this project would not have stood a chance of successful completion. Governor Emiefele moved mountains to ensure the success of this project.
“Indeed, apart from the top management of the refinery itself, no one in this gathering has visited this site more times than Governor Emefiele. We are indeed very grateful.
“…I want to most especially acknowledge Access Bank Plc and Zenith Bank International Plc for going the extra mile in supporting us in this unprecedented investment.
· Analysts hail CBN’s support for economy
Analysts have however lauded the central bank under Emefiele for its unprecedented funding interventions to the real sector.
Speaking in separate interviews with THISDAY on the development, Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said Public Private Partnerships (PPP) are the way forward for major infrastructure projects as they reduce the pressure on government coffers and de-risk the project.
He said, “Government backing tends to also make it a bit easier to raise funding. I guess the hope is that the refinery, will reduce pressure on FX. Due to reduced landing costs, it should hopefully bring down the cost of petrol and help with subsidy removal.”
Also, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, justified the CBN’s funding support, noting that the refinery remained a game-changer with numerous benefits.
Ekechukwu said, “For many years, Nigerians have wished they could once again be a net exporter of Petroleum products. Dangote Refinery has come as a game changer for the country with attendant benefits. Beyond the exchange rate savings for the country, it is expected that the pressure on our foreign reserve will reduce and exchange rate may subsequently be reduced.
“Direct and indirect employment is expected to be created in large numbers. There are also myriad byproducts of petroleum refining in the form of asphalt, paraffin wax, propane, carbon black, petroleum jelly, glycerine and the like.”
According to the former director general of the Abuja Chamber of Commerce and Industry (ACCI), “I was, however, surprised that CBN could fund a private institution directly, much as it was considered an intervention in the interest of our country and a remedial imperative.
“The positive economic impact of the refinery will be felt in the short and long run. Even before production starts in July, economic activities are already springing up within and around the environment.
“Traction in estate and property sub-sector, and many related businesses. contribution of the oil sector to the GDP is expected to rise up to 20 per cent from 6.21 per cent currently.”
On his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said the apex bank’s decision to fund the refinery remained a good and strategic move adding that the federal government part ownership was also positive for the economy.
According to him, “The refinery has been projected to generate about 20 billion US dollars annually when fully operational which will in turn end scarcity of foreign exchange in the country and strengthen the Naira.
“The country will have adequate foreign exchange to fund critical import requests from manufacturing companies and this would make them more productive which will boost the economy.
“The partnership of Nigeria through the CBN with Dangote refinery will enable Nigeria access foreign exchange from the sales from the refinery on a steady basis and Nigeria will also cease from experiencing scarcity of petroleum products.”
He added that the economy will witness a positive turnaround with the commissioning of the refinery.
Nonetheless, Emefiele, at the recent meeting of the Monetary Policy Committee (MPC) said, “For us, it was history that was made through the commissioning of the Dangote refinery, it is the single biggest train refinery in the world today. And Dangote himself has committed that by the end of July or early August, we would dispense petrol from that refinery.
“For us, that is the big game-changer for Nigeria because we would no longer be importing and as I said, import bills consume close to $25 billion annually; you may contest the number but let’s not forget that some of those things are also going across the borders.
“But eventually, by the time that refinery comes onstream, it’s going to bring out PMS, diesel and the rest of them. And someone asked me, does it mean the price of fuel will come down? I said, come down? It cannot come down because it would still be at market rate, however, the price at which to be dispensed when it comes out would be lower than the price it would have been dispensed if we spent dollar to import petrol from abroad.
“One, because it is local, there would be no transportation cost. Two, no storage and so all those logistics expenses…so, we see that we would be lucky to see that may be about 20 per cent savings for refining locally compared to if we were importing from abroad.”
Continuing, he said, “But the important thing here is this; we’ve reached a point whether we like it or not that we must exit subsidy and Dangote refinery coming at this time gives us the confidence that even if we exit subsidy, that the fuel will be available and eventually, the interplay of the market will obviously moderate the prices to the level that will help the country.
“So, we are expecting that no doubt, by the time it produces for domestic consumption, the excess will be exported by the numbers that he has talked about and which we agree with, we see close to about $5 billion to $10 billion in FX that would come into the country.
“Whether it comes to our reserves is not the point – it is the fact that the dollar would be available that would be sold into the market so that customers of banks who need to import do not necessarily have to resort to the CBN for the dollar; they can go to their banks and Dangote will sell their banks few dollars and we are going to ensure that it is done at good market rate.
“Also, the central bank, the government and the country have helped Dangote to set up that refinery; he is a Nigerian – Nigerians must benefit from that venture and we are going to continue to engage and talk with him to ensure that and I am sure that being the richest man in Africa, I am sure he’s going to throw a few crumbs so that the price would be lower than you would expect normally.”
