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Mr. Godwin Emefiele marked three years in office on June 3rd, 2017, as the helmsman of the nation’s apex bank. Prior to his appointment, there were squabbles between the Bank and the fiscal authority, which led to the suspension of his predecessor. It was thus a troubled time to be appointed as the governor of the Bank, more so that, the economy had started showing signs of distress. But he came with a mission.
To appreciate how Emefiele has fared so far, a brief background of how we got to the present economic quagmire will suffice.
Prior to the advent of petro-dollar (oil boom) years of the 1970s, the Nigerian economy was basically agriculture based. Agriculture contributed about 65 per cent to the GDP and represented 70 per cent of total exports. The sector was marked with high labour-absorptive ratio and provided the scarce foreign exchange needed for the importation of raw materials, machine spare-parts and other capital goods required for the few available industries. This suddenly became history with the growing importance of oil. Agriculture was sidelined to the extent that Nigeria could barely feed her population. The petro-dollar era also brought with it other challenges.
Nigeria is today battling with dwindling foreign reserves owing to our huge importation bills, thereby affecting the Naira exchange value.
The scenario painted above was the situation Godwin Emefiele met when he assumed office three years ago. Giving insight into what would be his mission at the apex bank which he encapsulated this in his 10-point agenda, he said that, the CBN, under his watch, would spend its energies and resources to build a resilient financial system that would serve the growth and development needs of the country using development bank strategies as the fulcrum of his policy to drive the economy. Not only that, Emefiele committed himself to creating “a central bank that is professional, a central bank that is apolitical, and people-focused and a CBN that would pursue a gradual reduction in interest rates.
In line with this vision, the CBN, under his leadership, has pursued with added vigour intervention schemes such as Agricultural Credit Guarantee Scheme (ACGS), Commercial Agriculture Credit Scheme (CACS), the N220billion Micro, Small and Medium Enterprise Development Fund (MSMEDF), Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), and the Anchor Borrowers’ Programme (ABP) to mention but few.
Piqued by the drain of import bills on the nation’s foreign reserves due largely to collapse of global commodity prices as experienced in 2014, and particularly, the crash in crude oil prices, which went as low as $27 he was of the opinion that, Nigeria will not continue the way we were used to, thus, the CBN, on June 24, 2015, excluded importers of 41 goods and services from accessing foreign exchange at the Nigerian foreign exchange markets in order to encourage local production of those items.
The CBN hinged its reason for this bold move on the need to among other things, conserve foreign exchange; sustain foreign exchange market stability; ensure the efficient utilization of foreign exchange; ensure that optimum benefit is derived from goods and services imported into the country; and encourage local production of items on the “Not valid for Forex” list.
So far, there has been a boost in the local production of the items on the list of 41, just as substantial foreign exchange has been conserved owing to the reduction in the import bills of the country. Also, industries across various fields of production, have recorded profits in their earnings.
In addition to all these was the battle to stem the avalanche of liquidity surfeit arising from huge campaign expenses of the 2015 general elections, which is characteristic of any electioneering year and the attendant inflationary pressure. Given the transition to a new government, the CBN saw itself playing a critical role in terms of macroeconomic management holding forte for the new government to stabilize. Thus, the Bank unleashed various measures as a way to stabilize the economy. One glaring fact about Godwin Emefiele led-CBN was its stubborn disposition and ability to tame the currency speculators prying on the Naira exchange rate by introducing various measures including the ‘managed’ flexible exchange rate regime.
Although the move by the CBN MPC ensured temporary stability in the forex market, currency speculators did not lie low as speculations from this set of people continued to mount pressure on the Naira in the hope that the Naira would experience further depreciation.
The unabated onslaught of speculators and its resultant pressure on the Naira impelled the CBN to carry out another round of currency depreciation with the sole objective of restoring calm in the foreign exchange market. Accordingly, the Bank on February 18, 2015 closed the rDAS/wDAS FOREX market, leaving the interbank market as the only official market, which opened at a depreciated rate of N197/$1, but the demand pressure in the foreign exchange market continued at an increased pace, reaching unprecedented levels.
The increasing demand pressure on the foreign exchange coupled with the low accretion to the country’s reserves due to weakening global oil price, prompted the CBN to redesign a new framework for the management of foreign exchange in a period of declining supply.
Unveiling the new guidelines in June 2016, the Governor, Mr. Godwin Emefiele, disclosed that the general operational principle of this new exchange rate framework is that, foreign currency will be traded in the inter-bank foreign exchange market through the platform of the Financial Markets Derivative Quotation (FMDQ).
Other highlights of the new framework included that, the exchange rate would be purely market-driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book and that the CBN would participate in the Market through periodic interventions to either buy or sell FX as the need arises. Under the framework, the 41 items the Bank had hitherto classified as “Not Valid for Foreign Exchange” remained inadmissible in the Nigerian FX market. A novel aspect of the framework was the introduction of non-deliverable over-the-counter (OTC) Naira-settled Futures, with daily rates on the CBN-approved FMDQ Trading and Reporting System, which according to the Bank would help moderate volatility in the exchange rate by moving non-urgent FX demand from the Spot to the Futures market.
In spite of the proactivity of the CBN in safeguarding the international value of the Naira, the activities of speculators and some noticeable failures in the market mechanism led to further depreciation of the Naira. Of particular concern to the Bank, and indeed the economy, was the fact that the currency speculators held sway across various social strata and held on to huge dollar deposits, in anticipation that the Naira would further decline in the face of scarcity of the ‘greenback’.
Determined not to budge in the face of threats from speculators, local and international financial analysts, the CBN went aggressively into the inter-bank forex market, ensuring access, boosting liquidity in all segments of the forex market and forcing down the exchange rate.
In February 2017, the CBN emerged with a new policy aimed at increasing the availability of Foreign Exchange in the market and to ease the difficulties encountered by Nigerians, particularly retail end-users, in obtaining funds for foreign exchange transactions for Personal and Business Travel, Medical needs, and School fees, all of which fall under the invisibles category. It also directed that all retail transactions are to be settled at a rate not exceeding 20 percent above the inter-bank market rate.
Following the clearing of a backlog of matured letters of credit at the inception of the current flexible exchange rate system, the CBN promised and indeed began to provide foreign exchange to all commercial banks to meet the needs of both personal travel allowances (PTA) and business travel allowances (BTA) for onward sale to customers. Under the arrangement, all banks received amounts commensurate with their demand per week, which were thereafter sold to customers who meet usual basic documentary requirements.
In order to further ease the burden of travelers and ensure that transactions are settled at much more competitive exchange rates, the CBN also directed all banks to open FX retail outlets at major airports as soon as logistics permitted them. In its bid to further increase the availability of foreign exchange to all end-users, the CBN equally reduced the tenor of its forward sales from the hitherto maximum cycle of 180 days to not more than 60 days from the date of transaction.
Between February and June 2017, the CBN has intervened in the wholesale and retail segments of the forex market with over $5 billion, just as it has re-admitted operators in the Bureau de Change (BDC) segment, which receives $20,000 each for onward sale to low-end users.
Just recently, the CBN also introduced two new FOREX windows: a special forex window for Small and Medium Enterprises (SMEs) to enable SMEs import eligible finished and semi-finished items, and another Forex widow for investors and exporters tagged: “Investors’ & Exporters’ FX Window” and has recorded about $1b deals in the last six weeks.
The CBN main objective of creating these windows is to boost liquidity in the forex market and to ensure timely execution and settlement of eligible transactions. Ultimately, CBN aims to achieve the convergence of rates between the inter-bank and Bureau de Change (BDC) segments, which we have begun to witness in the past few days.
The Governor, Godwin Emefiele had maintained that the Bank has enough dollar power to defend the Naira and as such will not relent in the attainment of the goals of liquidity and stability.
How well the Bank has done can be assessed by how stable the forex market has been in recent times. At present, this strategy is yielding immense results as both the futures and spot prices are stabilizing.
Analysts and industrialists including the Manufacturers Association of Nigeria (MAN), are now of the view that the CBN is headed in the right direction, while currency speculators have got their fingers burnt. Not minding the current challenges, the CBN had promised to act in good faith with the best available information and in cognizance of current economic conditions pursue the goals of price and financial system stability, as well as catalyze job creation and inclusive growth.
The Bank, in addition to its monetary policy goal within the last three years, has continued the implementation of its development finance initiatives as well as its payments system viz: the cash-less policy, Bank Verification Number (BVN) and Internet Banking, all of which are targeted at ensuring Financial Inclusion. The CBN has also continued to vigorously protect customers of Deposit Money Bank (DMBs) through its Consumer Protection Department.
In terms of development financing, the Bank under Emefiele’s watch has continued to act as a financial catalyst in specific sectors of the economy particularly agriculture, in its determination to create jobs on a mass scale, improve local food production, and conserve scarce foreign reserves.
The thrust of Emefiele’s philosophy is ‘produce, add value and export’ (PAVE) in which he has been admonishing Nigerians to return to the farm, produce and buy what is produced in Nigeria as a more sustainable way to ensure economic stability and minimize dependence on oil. What is urgently required as complimentary is a handshake by the fiscal authority to come up with policies to ensure a more enduring and sustainable economic management since monetary policy alone is not enough to sustain macroeconomic development for a long period of time.
In his wisdom, Emefiele believes that this is a more sustainable way of stemming the hemorrhage in our foreign reserves. If we faithfully keep to the tenets of PAVE, it would ensure increased domestic production to the point of having excess for export which will earn us foreign exchange. It will also stem our taste for foreign goods and help us conserve foreign reserves. In essence, PAVE is synonymous to economic diversification. It is believed that PAVE remains a more sustainable way of not only diversifying the Nigerian productive base away from oil, but more importantly realigning the perception and taste of Nigerians.
Oyetunji Isiaka, is an Abuja based journalist