The Nigerian economy has been dithering, waltzing laggardly behind the economies of other otherwise contemporary nations. The malaise that plagued it, is to put it mildly, self-inflicted. It suffers because it is import-dependent and its major source of revenue, crude oil, has been on a free fall in international market value. And with the fall in crude oil price has come a catalogue of woes for crude oil-dependent economies, Nigeria inclusive. One of the manifest symptoms of this is the pressure on the naira. Recently, the Central Bank Governor, Mr. Godwin Emefiele, the man with the responsibility to monitor and protect the naira, took editors on a voyage into the trials and travails of the naira and by extension the economy. He was frank, forthright and hopeful that in spite of the storms and turbulence that currently assail the nation’s economy, there is light at the end of the tunnel. Below are details of his submissions.

On the Global Gloomy Economy

The issue purely rests on the fact that in the last one year the global economy has gone through a number of external shocks; three amongst them are: the drop in commodity prices and the massive drop in crude prices; Nigeria’s core revenue earner; the geopolitical tension in Ukraine, following the annexation of Crimea by Russia, the third is the end of the quantitative easing program which the US started in 2012, and of course the stimulus that they started in 2009 and after that they started injecting $25bn monthly into the US economy and of course, that had its own impact in other emerging markets economy.

Stopping the quantitative easing program caused its own problem in different parts of the world; either it created business tension, affected tourism, and when there’s impact on tourism and movement of people, it will have impact on business and also on the growth of that economy.

All the main issues have to do with the fact that we have to contend with the drop in crude oil prices, and because of these three major shocks in the global economy, we’ve seen a situation where practically all the economies in the world today are going through slow growth. Indeed Russia is in recession because of negative growth and so is Brazil, while South Africa is being watched now to see what will happen.

Our Actions, Expectations

In 2014, we saw a growth in our GDP by about 6.23 per cent but unfortunately for us as a result of what is happening in the world in Q1 we saw 3.9 per cent growth and we’re looking at what we can do to reverse the trend and how we can improve on growth.

One major action that we’ve taken; and hopefully if it does not reflect in September, we believe that by the end of Q4 it should reflect; that is the salary bailout. Some of you may not understand this; a situation where people go to work and don’t get paid. It is only in Nigeria that this sort of thing happens; in the US if you go to work you will be paid in two weeks and if you’re not paid you can imagine what that does to your life (your mortgages, utilities etc.) and you know what that means; it is like killing that person because they depend so much on their salary.

In our environment the reverse is the case, as people go to work and they’re not paid, they come to you and because of our way of communal living, if your brother who has not been paid comes to you for assistance, you’re bound to help him by sharing what you have. But it is not like that in the US where you can’t even go to your brother’s house without permission. Now that is the difference in our systems.

This inability to pay salaries has happened because of the drop in crude prices; it has affected our oil revenue and the impact of that drop in revenue has created a situation where what the state government receives has dropped by over 50 per cent, but I’m believing that all things being equal when they receive the money they’ll use it well and if that happens it means that if their revenues drop, naturally they won’t be able to get all their expenditures and part of the expenditures they couldn’t meet up with is payment of salaries which is quite unfortunate.

Bailout to States for Salaries

The National Executive Council came up to plead with the CBN and commercial banks for funds to provide some form of loans at conventional prices and at a certain period of time so that they can pay workers. We have raised over N300bn that will be injected into this program, even running to N400bn. What that does is that if you inject such liquidity into the system and people are collecting it and the people at the low or middle levels of the pyramid are receiving salaries, what it means is that they’re spending it and consumption is being stimulated which will have more impact on the GDP growth than any other parameter you want to use in determining the growth in GDP. We’re hoping that by October/November this year, this will result in some growth. The two economies that are going through what I’ll call fragile growth are the US and the UK; fragile because they’re just managing their in-growth, but if they don’t handle their growth prospects very well, they themselves will begin to slide.

Inflation as a Paradigm

On inflation, the CBN has set a target of 6 to 9 per cent, but unfortunately as a result of the depreciation in our currency, when you depreciate a currency in an import-dependent economy, what happens naturally is that prices will go up and also inflation, we have moved to 9 per cent. It went up to 9.2 per cent and it has been going up in the last 7 months; 9.3 per cent in June, and in July it stabilised at 9.2 per cent. And if in 5 of the 22 per cent of depreciation in our currency we’re seeing moderate growth in inflation it means something positive has happened somewhere in commodity prices.

Maybe again, the impact of the entire 22 per cent has not been fully felt but with time we’ll know whether it is the moderated price as a result of prices not going up too high at a commensurate rate at which depreciation has occurred. I’m hoping that harvest will be good this year and that we’ll moderate prices; keeping inflation under control.

Forex Pressure on Naira

The third aspect is the Foreign Exchange Market. I’ll like to dimension it by saying that June last year crude price was $114pb, at that time there were reserves at $37bn, by August we started seeing the drop in commodity prices and in our own case crude prices. By March this year crude prices had dropped to about $48pb, of course the CBN came out to see what we can do to continue to defend the naira and our reserves dropped from $37 billion to $28b, by May it went to $29b. Early June it has come down again to about $28/28.5b. This triggered panic among importers who speculated that CBN was going to depreciate the naira.

So what happened is that, if you’re supposed to import one bottle of water, you’ll import 10 because you’re afraid that in the next two months if you’re into import the price would have changed because of the depreciation. Of course this created its own pressure in the demand for Foreign Exchange. So we advocated a formula but people didn’t listen. We saw speculation, we know that the currency will be depreciated so we took a position. We put pressure and this fell on the interbank and it started round tripping; we saw the gap between the official rate at N155 and the interbank rate at that time which was N190/200 and at some point even above N200.

We will not allow that to continue. Before we took the decision to close the market we asked a few people; even foreign investors who are today insulting and abusing us. What do you think the exchange rate would be if we decided to depreciate the currency? But in February what did we do? When we closed the market, we moved from 155 to 197 and which is 22 per cent depreciation in the currency. Our job is to monitor the market, to stem or put the devaluation of the naira under control; if I don’t do it, I will fail.

Our Peculiar Economy

Our economy is a highly import dependent economy, where we even import tooth picks; and I ask myself, is it that there are no forests in Nigeria to produce toothpick, that we have to import it from China? Instead of importing why not import the machine and create jobs for our people and produce toothpick, and then again we get abused that we don’t know what we’re doing. That is the issue, but as far as I’m concerned it is not about popularity contest it is about doing what your conscience tells you is right.

For me when you say price, it is a factor that is played by simple demand and supply. You as a leader who has the responsibility to determine FX price you need to be bold to look at what the structure of demand and supply are, to see if there are any adjustments you can carry out in both structures to be able to manage your demand and supply to achieve a level where when you determine your pairing price, your price will be good for your country and your people; It will not be a price that will hurt your people; that is our job.

The Buhari Factor

When President Buhari came on board, we saw that there’s so much money trapped outside the country and the CBN, let’s see how we can get those monies and block the loopholes. Luckily we were able to find some but we’re still looking for some. Another good news is that the price of Nigeria’s Brent went as low as $43pb but now it has moved up again to about $48pb. Why is this? Because OPEC has said they’re now open to discussions with non-OPEC members, hopefully. And immediately that happened there was panic and price shot up. There’re so many things happening and we’ve put ourselves in a situation where we’re dependent on what they have there for us to survive. But I can tell you today as CBN governor that with the emergence of Buhari, there is a shift in the way we do things; the integrity of Buhari and the fear of Buhari has ensured that some persons who were used to cutting corners in the area of importation of goods have started to behave well. I see hope, I see happy days ahead.

The Crude Curse

There was a time in this country when Cocoa, groundnut, palm oil, cotton were our sources of revenue. We found oil and threw all these away and went after oil, today oil has become our core revenue earner. If when these came we held them and we also held on to oil by now the whole world; foreign investors, including international communities will hail us and everyone will want to call on us but unfortunately that’s not where we are today. For supply we’re doing our best to hold it and put it under control and that is why we’re praying that at $20b, 21 and even at $25b we believe we can still survive because there was a time in this country around 2000/2001 when crude price was still very low we survived, though we knew that the level of activities as at that time is incomparable with the level of activities right now. At least if you can keep your reserves at $20b and a little bit above $20b and you’re committed to going to build on your agriculture, looking inward and producing what you’re importing now it will help the situation. Supply is hopeful because we’re looking at where we can block loopholes. The next thing to think about should be demand; and looking at demand foremost is petroleum products, which today constitutes about 35 per cent of our import.

Boosting Local Refining

By the time you take other commodities and industries they take only about 20 per cent and we said let’s see what we can do to reduce importation of petroleum products by refining our products locally or even if we can’t do that, you all are aware that that the domestic crude is 445,000bpd for refining capacity. If government reserves 445,000bpd for domestic refining and if refining capacity is not enough and there’s an efficient swap with a share in some of those big companies and then if NNPC handles our 445,000bpd effectively what we’ll receive from our refined product as a result of the swap of 445,000b of crude oil should be enough to take care of our consumption of refined products; either through local refining or swap. If that happens then we have no business getting marketers to import, importation by petroleum marketers will drop. It also means that we’ll be saving that 35 per cent that is impacting adversely on our reserves.

Credit for Farmers

Four years ago the former Minister of Agriculture now President of the AfDB and the CBN met, at that time bank credit to the agriculture sector was less than 1 per cent and at that time Nigeria had only one rice mill. We agreed to set up integrated rice mills; we agreed to give loans to people to go into rice farming. They went into rice farming and today we have close to about 31 cultivated rice farms in Nigeria. People produced this rice and it was not being bought, why, because the imported rice is cheaper than the locally produced rice and I asked why and they said it’s because of the quota issue, the waiver issue etc.

Imported Rice Cheaper than Local Rice

Why are the imported ones cheaper? Why are we importing those rice from India that have been on their shelf for seven years, that is preserved with chemicals and kept for their pigs or dogs; that is the rice that is imported into Nigeria. What we’re saying is that we’re going to stop the importation of rice so that our people can go out there to patronise our own rice.

I was in a meeting in Abuja with rice farmers, millers and the likes and one of those that we gave loans said to me: “You’re in this room and we’re talking of how to take up the unsold stock of Paddy Rice and finished rice. You the Governor of CBN, are a friend to some of those people that got the quota, when you were in the bank you gave them loan and we know that some of your banks are still giving them loans. Don’t forget that you gave us loans to set up this integrated mill, to do rice farming and we can’t pay our loan because your friend that imported rice into the country you allowed them to continue”. That was why we made a pronouncement that they must pay. That was why the customs closed up about 31 warehouses in Lagos where they stored imported rice.

Today we’re ready to give agricultural loans to those rice millers to buy the rice off those farmers no matter the price so that those farmers will have incentives to continue to farm. What does that do? If you imagine what we call the momentary increase in the rice that we produce in this country because of the gap and some are saying I can’t close the gap, and I said let the gap be there. That gap creates the opportunity for people to go into rice farming and make money, because they know that their rice will be bought which is the reason the CBN said that rice, chicken etc. should be banned.

Call for Nationalism

It is a shame that when you go to all these mega stores what you see are mostly imported goods (chicken from South Africa, frozen beef from Zambia). What it means is that in Nigerian supermarket you see produce from other countries and not produce from Nigeria. But when you go to South Africa you’ll never see Nigeria products, so it is with India, you’ll never see imported rice from Nigeria. Shouldn’t that turn our nationalistic sense? I put it that if our external reserves were $50b, 60, 70, or $80b you people will not hear from me. I’ll just be in my office focusing on price, monetary stability and inflation; and anyone who wants to import toothpick is free to do that because reserve is good.

The adversary that confronts us today is what has brought us to where we are now. In our own structure of demand we begged that we need to diversify our economy away from oil, reduce the demand because that’s where my selfish interest lies. I want to see importation of petroleum products add to our import bill.

Retracing our Steps

In the 50s Nigeria used to be the largest producer and exporter of palm oil in the world; we used to have market share of 40 per cent in the 50s/60s. In those years we had the palm trees and palm plantations and then what happened? In the early 50s Malaysia took our palm seeds, gave their people soft loans and they began to produce palm oil and then began to bring it down here and our government turned blind eyes and this killed our palm industry that should have been flourishing and from where we should be getting FX. In my days in the bank, textile industries used to be the largest employers of labour in Nigeria where several Northern states were producing cotton. In Lagos, President Clothing that was in Iganmu used to produce the best Guinea brocade in Nigeria and between Oshodi and Mile 2, we had lots of textile industries but those industries today have been turned into warehouses and churches. A friend of mine whose family is into the textile business said that they sold the land and now the occupants of the land have a warehouse where they stock rice, palm oil etc.

Afprint has been converted to a warehouse for cars etc. It is also where one of the shopping malls in Nigeria store their imported chickens and eggs from South Africa; this is the situation we’ve created for ourselves, while our own young graduates that should have been employed in these industries after graduation, become tricycle or motorbike riders. It is not only the fact that these Indians and Chinese export their textiles into Nigeria but if you go to some big markets in Lagos like Balogun and the likes, you find China Town and they’re the ones selling textiles there while our own people will be doing menial jobs. This is because our leaders have failed to provide the needed employment opportunities for potential entrepreneurs.

Too Much Dollar in Bank Vaults

People have said that I’m insane for saying no FX for imported products. Are these things supposed to affect dollar cash? How? They’re supposed to take what their operation can carry. We have a situation where the buyer is afraid that the CBN will depreciate the currency so he goes to the bank, collects his naira and takes it to the market to buy dollar a day the price of dollar goes up or he goes to the bank and takes a loan because he’s afraid that the rate will go up. Some banks have plenty of dollars in their vault and they come to us to give them naira; some have even up to $250 million cash in the bank vault. What are we supposed to do with that cash? The only business I know how to do is naira business; you give me plenty naira and I credit your account in naira. As we speak we have over $1bn in bank vaults. In the meeting of bank leaders we discussed that these banks are disturbing us to give dollar and if we give them wired dollar it will deplete our reserves unless we’re able to carry the dollar cash on our head and take it to America.

And We Took Action…

So to teach them a lesson we decided at one of our meetings that next time they will not be collecting dollar cash, we ask you to bring your $100 and we discount it and wire only $80 to you, so if you suffer 20 per cent loss, next time you’ll not take dollar and we wrote a letter to about four banks and one of the banks leaked that letter to the international press and I received a confidential email stating that they heard that the CBN is in the process to start receiving dollar cash and that we want to do that with a fee. Because of this we told them that we won’t take their dollar cash again.

And one of the banks sent messages to their customers that due to the huge dollar deposits they have in their vaults they’ll no longer accept dollar deposits; this move crashed the price of dollar in the black market, from N245 to N205 and we said this is working. We said let us stop taking dollar cash and with that we would stop speculation and money laundering. It is illegal for you to keep your money in dollar in a Nigerian bank. If you go to an American bank where their currency is in dollar, you cannot give them naira there so it is with other countries. You store your value in your country’s currency. What we’re saying is that if you want FX to import heavy duty machines then we’ll give it to you but we won’t give you to import finished products especially those we have the capacity to produce locally.