Fresh perspective has emerged from Mr. Godwin Emefiele, the governor of Central Bank of Nigeria on financial and fiscal policies of Nigeria since the inception of the Muhammadu Buhari administration. At the just-concluded annual meetings of the International Monetary Fund (IMF) and the World Bank in Lima, Peru, where he represented Nigeria, he spoke extensively to the media on critical issues affecting the Nigerian economy – power, agriculture, foreign exchange management, and the outcome of his meeting with other stakeholders or participant from other part of world. Below is an excerpt of his conversation.
Lessons from 2015 annual meetings of IMF/World Bank
We held several statutory meetings with the Board of Governors of the World Bank and IMF as well as with the Finance Ministers and Central Bank Governors of over 180 member countries that attended this year’s meetings.
The Nigerian delegation also met with some potential foreign investors who have shown tremendous interest in our country’s economy. We held meetings with some international banks and some rating agencies who are seeking to develop their relationship with Nigeria, the central bank as well as the Federal Ministry of Finance to provide them some insight about the Nigerian economy and what we are doing to support and grow our economy.
Basically, what we can say to be the main issues affecting the economy is that the world finance leaders as well as the Governors of central banks came to the conclusion where the global growth parameter was further revised downward.
When the spring meetings were held in April 2015, global growth was projected at 3.8 per cent but at this meeting, it was revised downward to 3.1 per cent. For African economies, growth was projected at 5 per cent in April when we held the meeting but at this meeting, it has been revised downward to 3.75 per cent and for 2016, growth for Africa has been projected at about 4.25 per cent.
What that tells us is that the slowdown arising from the drop in commodity prices or the end of the quantitative easing is affecting many economies to the extent that the US is already contemplating raising rates through sale of assets. Similarly, it also clearly suggests that the geo-political tensions in parts of Middle East and the rest of the world have affected very many economies to the extent that they are slowing down while in other cases, some of the economies have gone into recession.
The meetings equally concentrated on what can be done to reverse the trend and what kind of specific options and solutions that can be provided for the different economies in order to turn their situations around.
Basically, for those economies that are really affected by drop in commodity prices and in this case, Nigeria, the key solutions and suggestions that came up were that there is a need for us to diversify our economy away from oil and commodity prices.
That we are already doing. Again, we seize this opportunity to thank Mr. President for his support for our various intervention programmes to diversify the economy away from oil and commodity prices. That also lends credence to what we are doing in our various attempts to catalyse the Nigerian economy by making intervention funds available to support agriculture, Micro Small and Medium Enterprises (MSMEs) and in other sectors that we have put in place to support the growth of the Nigerian economy.
Another advice that came up was that countries that are affected by commodity prices and other external shocks, should adopt country specific options that they think would help in addressing their problems.
That resolution equally validates the specific options we had taken regarding our decision not to continue to adopt an indeterminate depreciation of the Nigerian currency. So we will continue to monitor the situation as I have always said, and to ensure we refocus our mind and do everything we can to conserve our reserves and achieve some level of stability in exchange rate.
Impact of reform efforts on Nigeria’s economy
Yes, in Nigeria we have been adopting reforms over the past two years or much earlier than that. But the prime issue from the fiscal side has been the fact that we have tried to expand our tax-base to improve on revenue. You will all recall that last year, the Federal Ministry of Finance engaged with Mckinsey & Co, – the firm handling Federal Government’s tax reforms. And for 2014, it was able to raise almost N75 billion as incremental revenue. For 2015, they have been given the target to raise it to a minimum of N150 billion as a way of increasing our revenue base to see how we can shore up our finances and rely less on oil.
Exclusion of 41 items from foreign exchange window
Let me repeat here that we did not ban the importation of any item into the country. What we arrived at was to exclude some items from accessing foreign exchange from the CBN and that was for items we think can be produced locally in the country.
In the past, these items have been produced in the country in large quantities and we think that because of the challenges we’re having with the drop in commodity prices and revenue accruing to the nation from crude oil, there is need for us to begin to produce those items in the country once again. That position still stands.
I must have been quoted out of context if anybody said I am reconsidering that position. What I can only say is that the exclusion stands and I have even mentioned in different fora, list of different items which should even be excluded, which some manufacturing companies think can be produced within the country but we have said no, we need to properly digest these 41 items that have been excluded from the foreign exchange window.
The basic issue is this, there is a slowdown. It is a fact that revenue has dropped as a result of the fall in commodity prices. If that has happened, we need to prioritise, just like Mr. President said. We need to prioritise to make sure that foreign exchange is made available only to those who are importing essential raw materials and products we know cannot be produced within the country. That is the only way we can conserve our foreign exchange and reduce the demand for foreign exchange for the importation of some of these products we are saying can be produced in the country. And we will continue to plead and crave everybody’s indulgence, to give us the support, as we are convinced that these items can be produced here in the country.
I have read and heard from people saying the central bank is preventing people from getting foreign exchange. Let me also say here that part of central bank’s role is to intervene in the foreign exchange market, and we have tried as much as possible to broaden the market so that those who earn foreign currency through export proceeds can also make their funds available to the market for everybody to share from.
So, from time to time, we will continue to do our best to provide foreign exchange in the market, to meet the import needs of our people but what is important is for people to understand the challenges facing practically all the countries of the world. There are only just few countries that we can say are insulated for now but even at that, they, including the US, know that they have to be careful in whatever action they take, otherwise, it will also affect them.
So we need everybody’s cooperation to ensure we meet those targets, we need to refocus our minds and think out the best way to diversify our economy away from excessive reliance on oil.
Exit of investors from Nigerian market
It is true that investors are pulling out their investments in most countries, including African economies. And I must tell you that in the third quarter of this year alone, I read a report that almost $48 billion capital outflows left emerging and frontier markets. So what does that mean? It means that people are pulling out funds and are beginning to look at economies like the US and other areas where they think there are opportunities, as there are fears the drop in commodity prices will ultimately affect economies that depend solely on primary products’ exports. And that is why we are saying, it is time for us to think as nationalistic Nigerians, that we have to carry our cross by ourselves; we have to solve our problems by ourselves as nobody will solve our problems for us. That is why we will continue to appeal to Nigerians to embrace and support the measures and policies we are putting in place because all these are meant to see how we can diversify our economy away from excessive reliance on oil.
What CBN and DMBs are doing to stimulate economy
I want to assure Nigerians that the central bank and the Deposit Money Banks (DMBs) are willing to give the nation’s business community all the support it needs to function optimally.
I can equally assure Nigerians that in the course of time, interest rate will begin to come down and our people will begin to enjoy the benefits of the actions we’re putting in place to diversify our economy.
Poor power generation in Nigeria
Most Nigerians are convinced today that there have been some improvement in power generation even though it is also true that the wheeling capacity in the transmission grid is limited. I am also aware that we’ve been in discussion with government about efforts being made to encourage investment in the transmission grid, so as to improve the capacity of the transmission to be able to absorb more energy generated so that more power can get to our people.
We will continue to do so and in the course of time support some actions being taken by government to improve the transmission capacity. These measures will be unveiled to all of us soon and I can assure you that some actions are being taken in this direction.
Is Nigeria sliding into recession?
Let me quickly correct that impression and tell you that Nigeria is not sliding into recession. We have had two quarters of slow growth and like I mentioned earlier, even the world economy has revised its growth outlook. So what we are saying is that because we have seen two successive quarters of slow growth, we should embrace the policies being put in place both by the monetary and fiscal authorities, so that we can see a reversal and increased growth, not slowing growth. So no one has talked about Nigeria going into recession. It also means we need to work harder to reverse the trend, so we can begin to move to positive growth, rather than slow growth.
Intervention fund to Discos for acquisition of metres
The interventions were provided to Distribution and Generating companies, as well as gas firms but not all of those funds have been disbursed, because of some issues we are trying to resolve with the Nigerian Electricity Regulatory Commission (NERC) and the Nigerian Electricity Bulk Trading Plc, and once those issues are resolved, more funds will be disbursed soon and we can start to talk about the impact of our interventions in the power sector.
Yes, it is true that those Discos are supposed to use the money to buy metres, transformers, and so on, to improve their capacity, while the Gencos are required to use the funds to acquire equipment, replace some of their obsolete machines so they can also improve on their generation capacity.
We’ve started to see the impact of this positively and by the time the remaining funds are disbursed, it will help to improve the distribution and generation capacities. That is why I told you earlier that government, realising that the transmission capacity may be hindered, is already taking steps on how to invest in transmission to improve capacity in that area.
Impending hike in electricity tariff
When you talk about inflation and exchange rate as being the model for pricing tariff and all that, you are very correct. And that is why we are doing our best to see to it that we keep inflation under check, and that is why we have been “stubborn” in adjusting the currency further. And you would have noticed that in the last eight months, we have achieved some relative stability in exchange rate and that will continue. But I also read in the papers that we are not going to continue to enjoy the tariffs that we have seen so far.
For you to have good electricity, you need to pay a little more and the truth is that, if we compare the cos t of generating our own electricity using our generators, with the cost of using the existing distribution grid, you will find out that what we spend on generators is significantly higher than the cost/kilowatt hour, using the Discos.
For example, using your generator costs as much as N80/kilowatt hour and today, using your Discos, you are paying less than N20/kilowatt hour in some cases/ areas.
What we are saying is, even if you have to pay a little more so that you can throw away your generator, pay a little more so that you can have more electricity, I think it is worth it. These are some of the policies that NERC is putting in place to support what it calls the Cost Reflective Tariff (CRT). But I can assure everybody that whatever that cost reflective tariff turns out to be, it will still be substantially lower than the N80/kilowatt hour spent today on generators.
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