CBN Governor: How Nigeria wasted $62b foreign reserves

Godwin Emefiele, CBN Governor


Godwin Emefiele, the governor of Central Bank of Nigeria on Sunday explained how Nigerian frittered the foreign exchange it earned from sale of crude oil away on frivolities at a time the commodity was selling above $100 per barrel.

Emefile spoke to journalists in Lagos on steps being taken by the Federal Government and the apex bank to bring the country out of economic recession.

The Governor of CBN attributed the current challenges facing the Nigerian economy to its inability to save or invest the billions of dollars it earned from export of crude oil over the years in infrastructure like other countries have done.

Emefile told journalists, “In September 2008, Nigeria’s foreign reserve stood at $62 billion. What did we do with $62 billion? At a time the crude oil price was about N120 per barrel. What did the country do?

“What we could have done was to save the money. If we couldn’t save the money, invest it in infrastructure; invest it in industry that would grow productivity and the wealth of our people. But what did we do? The Central Bank of Nigeria (CBN) at that time went about licensing class ‘A’, class ‘B’, class ‘C’ Bureaux de Change (BDCs).

“To class ‘A’ BDCs, the CBN was allocating $1 million per week; to class ‘B’ BDCs, it was allocating $750, 000 per week and to class ‘C’ BDCs, it was allocating $500,000 per week to the extent that between 2005 when the apex bank started selling dollar cash and January 2016, when we stopped it, the CBN had sold dollar cash of up to $66 billion to BDCs. In 11 years, CBN allocated $66 billion, averaging $6 billion per year.

“If this didn’t happen, we would, comfortably, be having well over $90 billion in our reserve account today and we will not be struggling to pay our bills.

“If we had thought of other ways to utilise our reserves in 2008 when it was as high as $62 billion, perhaps certainly, we would not be where we are,” said the CBN Governor.

The CBN chief attributed the problems currently confronting the country to the drop in prices of crude oil added that Nigeria’s own situation was compounded by its over reliance of oil and failure to restructure its economy over the years.

“But I think when you want to address the issue of how we got here, it is important for us to go back into history, to  remind ourselves that there was a time in this country when this country survived only on revenues from agricultural produce.

“Unfortunately, what happened was that because we found oil, we let our guards down in the agricultural sector,” said Emefile who added that Nigeria didn’t plan properly, contrasting the situation of Nigeria with that of Norway which also produces oil.

“Norway, a country with a population of less than five million people, produces agricultural produce, particularly fish. It exports fish today. Norway also produces crude oil, to the extent that today, it has one of the highest investments in the Sovereign Wealth Funds (SWF).

“ Norway, indeed, has $873 billion in its (SWF). Notwithstanding having such a huge amount, Norway also takes very seriously the output from fish production, to the extent that the country survives on the revenue that it generates from fish export.

“What does the country do with revenue from crude? It invests it. And at every point, the country is about to use the funds from crude oil.

“It only uses it for infrastructure purposes. That is a country that has planned for its people. Soon after we introduced the foreign exchange (forex) restriction on the importation of fish, the country’s farmers  started complaining to the extent that the Parliament in Norway has met twice to see to how to ameliorate the adverse impacts of not being able to export fish to Nigeria on its farmers.

“ Indeed, the country has sent several trade delegations to Nigeria to encourage us to lift the restriction so that they can export fish to Nigeria and we in turn pay them our hard-earned dollars which we do not have at this time.

“What we should all realise is that, by allowing the import of goods that can be produced locally in Nigeria, we export wealth and jobs to those countries and import poverty in return.

“If we had thought of other ways to utilise our reserves in 2008 when it was as high as $62 billion, perhaps certainly, we would not be where we are,” he added.

The CBN Governor however said he is optimistic that Nigeria would soon come out of recession as there are signs with the inflow of Foreign Direct Investment (FDI) of almost $1 billion that have been received by the country in the past three months.

“I feel that there will be more inflow into the system and more and more people will have foreign exchange to do their businesses. That will improve the industrial capacity. The rate may be high now, but there’s high possibility that with more availability of forex, the rate will come down. I am very optimistic that a lot of positive things will happen. Now in terms of short run, I have talked about encouraging inflows to come in.

“I have talked about how the fiscal authority is trying to push in liquidity to stimulate consumption, demand consumption expenditure and of course, when consumer consumption is stimulated, demand for goods will go up and if demand goes up, the industrial capacity, then you will see the activities.

“If we maintain a steady course in the way we are going, and if all those who have forex repartriate them, more and more people will have forex to do their business.

“That will improve industrial capacity. The rates may be high now, but there is the possibility that as we receive more and more foreign exchange, the rate will come down. I am really optimistic that this will happen.

He also supported the call that government should sell off some of its strategic investments in the oil and gas sector particularly in the Nigerian National Petroleum Corporation (NNPC) and the Nigerian Liquefied Natural Gas (NLNG) to bring more foreign exchange into the economy.

Emefile who noted that he had canvassed the argument in an interview he granted even before the inception of Buhari administration, said consultants who were commissioned to do a study on the asset sale said if the country dispose between 10 per cent to 15 per cent of its holdings in the oil and gas sector,  it could realise up to $40 billion.

“Unfortunately, the markets have become soft. Now, if we choose to do that now, we could still get $10-$15 billion or maybe $20 billion. If we have that kind of liquidity, it will be easy for us to really stimulate spending and also to turn the economy around.

“That proposal is still on the table because I have also heard that some of our colleagues in the Federal Executive Council (FEC) have talked about it, and a lot of people too. If we take that option, I am optimistic that we will be able to stimulate the economy and earn foreign currency that we can really use to jumpstart and stimulate the economy.

“Don’t forget that even in the U.S., when the economic crisis started, the U.S. government stimulated the economy with about $900 billion and subsequently injected $85 billion monthly for an extended period of time.

“In Japan and Europe with low rate of inflation, in fact they have negative interest rate. Anytime they want to stimulate the economy by liquidity, if you push the inflation it will not affect prices.

“We are trying to fight inflation to remain at a point where it will not be too high and become injurious to our people,” said the CBN Governor.