Mr. Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), has said the policies adopted by the apex bank to manage exchange rate have helped in keeping the naira largely stable despite the challenges imposed by fall in crude oil prices, among others.
Emefiele who made the remark while delivering his keynote address on Thursday at the 32nd Seminar for Finance Correspondents & Business Editors held in Akure, Ondo State, noted that today, banks are able to meet the demands of their customers seeking forex for SMEs, school fees, medical and PTAs.
The CBN governor who spoke on the theme, “Exchange Rate Management And Economic Diversification In Nigeria,” noted that in Nigeria, as a developing economy, approach to monetary policy must incorporate context, saying that this is done by innovating around the use of available instruments.
The governor explained that his assumption of office in 2014 coincided with the period of plunge in crude oil prices, which put the country under stress and led to economic recession, but working with fiscal authorities, the bank was able to manage the situation.
“Being a developing economy, our approach to monetary policy must incorporate context. We do this by innovating around the use of available instruments,” Emefiele said.
“We understand that monetary policy must coordinate well with fiscal policy towards addressing the numerous developmental challenges our nation faces. Fortunately, the enabling statute envisages this and empowers us to intervene where and when necessary. Under my watch, the Bank has done this through various development finance initiatives. And with the benefit of hindsight now, we can safely say that the outcomes have so far justified our approach.
“As you may recall, by June 2014 when I assumed office, the price of crude oil had substantially softened. Geo-political tensions were widespread and discussions around policy normalization, post Global Economic and Financial Crisis (GEFC), filled the air, causing acute capital flow reversals especially in emerging markets like Nigeria. Our external reserves had fallen from a peak of US$62b in 2008 to US$37b. Also, due to the sharp drop in crude oil prices, the nation experienced a sharp drop in monthly foreign earnings from about US$3.2 billion to less than US$1.0billion.
“These adverse conditions eventually plunged the economy into a recession for the first time in about a quarter of a century. The media space was suffused with news about the depletion of the country’s foreign reserves and the depreciation of the Naira. That tough period called for bold and innovative decisions to be taken and we did not shy away from doing what we considered to be in the best interest of our beloved country.
” Let me also remind us of the commitment I made while unveiling my vision for the CBN. It is on record that I had pledged to build a Central Bank that is professional, apolitical and people focused. My mission was and still is, to bequeath a Central Bank that focuses on building a resilient financial system that can serve the growth and development needs of our beloved country, Nigeria.
“For us, the CBN was to act as a financial catalyst by targeting strategic sectors that could create jobs on a mass scale and reduce the country’s import bills. To solve the immediate and long-term economic challenges of the country, we needed to create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development.
“Towards containing inflation and cushioning the impact of the drop in the supply of foreign exchange in the economy, not only did we tighten the monetary policy stance over a period, we also introduced demand management approaches to conserve our reserves and support the domestic production of certain goods. The Bank encouraged manufacturers to consider local options in sourcing for raw materials by restricting access to FX on some items. Four of these items alone, at the time, constituted over =N=I Trillion of the country’s annual import Bills.
” In addition to these measures, the Bank also established an Investors and Exporters Window (I&E), to allow for purchase and sale of FX at prevailing market rate. Furthermore, we ensured the liberalization of the Foreign Exchange Market through the operationalization of the “Revised Guidelines for the Operation of Nigerian Inter-bank Foreign Exchange Market” in June 2016. The guidelines introduced the Naira-settled Foreign Exchange Futures Market.
“Other measures taken by the CBN include: partnership with commercial banks to go after Nigerians who falsely bought dollars under the pretense of traveling abroad and ended up roundtripping. The Central Bank of Nigeria had also sanctioned Bureau De Change (BDC) operators for illegal forex trading and discontinued the sale of forex to the Bureau operators in Nigeria. In addition, licensing of new BDCs was suspended. The CBN also introduced the ‘Naira 4 Dollar Scheme’ to encourage diaspora remittances.
“As a result of our demand management policy, the naira has remained largely stable at the I & E window, particularly since the discontinuation of FX allocation to Bureau De Change operators along with the convergence between the CBN and NAFEX rates. Banks are now able to meet the demands of their customers seeking forex for SMEs, school fees, medical and PTAs.
“Our current account deficit has narrowed significantly due to a surplus position in the goods account. The surplus position in the goods account is occasioned by a reduction in imports, increase in crude oil and gas export receipts, and improvement in remittances. Remittance inflows has been supported by our ‘Naira for Dollar’ scheme, and we have seen a surge in remittance inflows. In our sustained effort to reduce foreign exchange demand pressure and facilitate investment, the CBN, on April 27, 2018, signed a 3-year bilateral currency swap agreement of US$2.5 billion, equivalent to ¥15.0 billion or N720.0 billion with the Peoples Bank of China (PBoC.) It is heartening to note that these policies are yielding positive results in terms of meeting genuine demand for foreign exchange and exchange rate stability.
“Furthermore, as part of its long-term strategy for strengthening the Nigerian economy, the Central Bank established specific initiatives to resolve the underlying factors acting as challenges to long-term GDP growth and economic productivity. Measures were deployed to increase credit allocations to pivotal productive sectors of the economy at reasonable interest rates. This is with a view to diversifying the base of the economy, stimulating output, creating jobs and significantly reducing import bills.
“Further to our conviction that the banking sector must pay attention to providing long-term finance for infrastructure development in the country, InfraCorp has been established by the Central Bank of Nigeria in partnership with African Finance Corporation and the Nigerian Sovereign Investment Authority. InfraCorp would enable the use of mostly private capital to support infrastructure investment that will have a multiplier effect on growth across critical sectors.
“Within the CBN, our methods (especially in the management of financial system liquidity, FX market and development financing initiatives) have been able to optimally balance the delicate objectives of price stability and real output growth. In our desire to create jobs and diversify the economy away from crude oil, we have established numerous intervention programmes, such as Anchor Borrowers Programmes (ABP), Commercial Agricultural Credit Scheme (CACS), Creative Industry Financing Initiative (CIFI), MSMEDF, CBN Agribusiness, Small and Medium Enterprises Investment Scheme (AgSMEIS) and the Real Sector Support Facility (RSSF), among others with remarkable success in accelerating growth of the economy and reducing poverty across the country.
“Only recently, in consultation with the Banking Community, the CBN announced the Bankers’ Committee “RT200 FX Programme”, which stands for the “Race to US$200 billion in FX Repatriation”. The RT200 FX Programme is a set of policies, plans and programmes for non-oil exports that will enable us to attain our lofty yet attainable goal of US$200 billion in FX repatriation, exclusively from non-oil exports, over the next 3-5 years. The RT200 FX Programme has the following five (5) key anchors:
▪ Value-Adding Exports Facility
▪ Non-Oil Commodities Expansion Facility
▪ Non-Oil FX Rebate Scheme
▪ Dedicated Non-Oil Export Terminal
▪ Biannual Non-Oil Export Summit
“PAVE – Produce, Add Value and Export (PAVE), is expected to make Nigerians consume what they produce, add value to it, and even export the surplus. It is an initiative akin to South-East Asia’s much referenced export-led industrialization policy which changed the economic fortunes of countries such as South Korea, Taiwan, Malaysia and Singapore. PAVE is designed to be the key for fast-tracking a bucket of substitutes to Crude oil export. It encourages backward integration for the local production of select items.
“Covid-19 pandemic is one of the biggest crises that has faced mankind in recent history. The pandemic impacted economies, and disrupted business activities globally. Expectedly, Nigeria like most commodity-dependent countries was not spared the deleterious impact of the pandemic, given our dependence on crude oil export as a major source of revenue and foreign exchange. It is to mitigate against future severe consequences of shocks beyond our control that we must all join hands to ensure the success of PAVE. It is a clarion call to patriotism.
“Despite the headwinds associated with the pandemic, the Central Bank has worked very hard to ensure that Nigeria remains a vibrant economy with a diversified mix of opportunities across sectors such as ICT, Manufacturing, Solid Minerals, Trade and Agriculture. Notwithstanding these modest achievements, we cannot afford to rest on our oars as the work is far from over.”