…Says CBN tames politicians not to take actions that will worsen inflation
Mr. Godwin Emefiele, Governor, Central Bank of Nigeria, speaks on the policies of the Federal Government of Nigeria and the role of the apex bank. These are inflation, job creation, credit facilities for business, border closure and others.
On border closure, he said: “I also advised government to close the borders. I am not going to pretend about that. In any case, it was not me alone. I understand that the security chiefs said arms were being smuggled into this country were all coming in through these borders. So, arms coming in also contributed to the reasons we said the borders should be shut and let’s see what will happen.”
You have been variously described by many as the unseen hand behind the Nigerian economy and somebody who directs the affairs of monetary policy in the country. Are you a man, whose career one recognises as both a central banker and former bank chief executive?
Yes, you are correct. Before I came on board, I had spent 27 years in the banking industry and my career peaked at the time I became the chief executive of Zenith Bank and I am here now for more than five years and I believe we still have a lot of work to do. However, whether you call it as an unseen hand, I think it is not really about that. It is about making Nigeria, being the largest country in Africa and the most populated in the continent, not to miss the opportunity at this time to move forward. We have a leader, President Muhammadu Buhari, who is totally committed to the development and rediscovery of Nigeria and I think he deserves all the support, particularly from people like us that he has great confidence in. What we are doing here is to say that Nigeria must make progress.
Is it CBN’s responsibility to create jobs?
It is everybody’s responsibility. Whatever policy you put in place, they must be policies that impact the lives of Nigerians.
You have mentioned President Muhammadu Buhari quite a number of times and I am wondering whether the continuous threat to central bank’s independence all over the world is not a concern to you and I am just wondering where you draw the line so as to ensure that the government does not impair the central bank’s independence?
The central bank is an entity within the larger entity called Nigeria. So, when you talk about interference, by virtue of the fact that the central bank is putting in place, policies that would help to engender growth, policies that would help to create job, there is no conflict in that and in fact, it has nothing to do with the independence of the CBN. The independence of the CBN is enshrined in the amended CBN Act of 2007, and nothing is altering or in any way, affecting the independence of the CBN. When you say your mandate as CBN is price and monetary stability, it must be price and monetary stability that is conducive to growth, conducive to creating jobs and conducive to ensuring that industries remain alive, whereas the primacy of your mandate, which is price and monetary stability remains in tack.
But the concern is always to ensure that the central bank does not serve political interest, but rather have the common good in mind?
I take you back again. Whether you are a president or a CBN governor, you have been placed in a position by God to serve your people and put in place policies that would enhance the lives of your people. So, if by that you feel that the central bank is moving out of its realm, I don’t agree with you. What is important is that we have a country and an economy that must grow, and an economy where its people must be seen to live well and that is what we are doing and it has nothing to do with any conflict or intervention.
Is part of your fear not to allow politicians take measures that would lead to inflationary pressure?
The issue is that inflation is a canker-worm that we must all fight. When you allow inflation to take over, purchasing power will go down and will be totally eroded and that will affect people’s ability to live well in Nigeria. Politicians are actors in the economy and I can tell you that the primary mandate of the CBN is to put in place policies that would control inflation. And that we will do. We are not going to put the blame on the control of inflation on anybody. If the politician likes, because he is an actor, let him do whatever he likes. But, we will do what we need to do to make it impossible for him to take certain actions that would affect the level of prices in the country. That is our job and we will do it.
At 11.6 per cent, inflation in Nigeria rose to the highest level in more than a year. What is your reaction to that?
I have read a couple of reports where some attributed the rise in inflation to the border closure and I laughed. If inflation is up as a result of border closure, it means that as a result of the border closure, supply of certain basic items have gone down, while demand has either risen or has been flat. So demand has outstripped supply and by that you are facing a demand-pull inflation. And I have to speak now as a Nigerian. If prices of goods have gone up because we closed the borders, so that jobs can be created for our people, so that our industries can come back alive again, and prices are up by 0.3 basis points in one month, for me I am not going to lose sleep. All we need to do is for us to work hard to boost supply, so that prices can come down because supply has gone up to be able to match demand. I don’t have any apology to people, who feel the border closure has resulted to price increase. The reason is because it is creating jobs. Is it rice? Is it tomatoes or poultry? Before the border closure, I received a call from the president of Rice Farmers Association. He said, ‘Governor, because President Buhari said we should all go into the production of rice for the good of our country, so that we can feed ourselves and conserve forex, you have used the banks to make intervention funds available to us and we have expanded our factories.’ After expanding their factories, before the border closure, most of them were carrying nothing less than 20,000 metric tonnes of milled rice, parboiled rice that they couldn’t sell. After that, the President of the Rice Farmers Association called again to say, ‘Governor, you gave us Anchor Borrowers’ Programme, it may be difficult for us to repay, because we have paddy that cannot be sold because the millers are not buying.’ Poultry farmers called us and said they were carrying thousands of crates of eggs that could not be sold. Do you know eggs were being smuggled into this country? Tomatoes were being smuggled into this country? So, what are we producing if we could smuggle eggs into this country? All these were killing domestic industries and making people lose their jobs.
So, you talked about inflation going up, those prices would moderate. I am so certain that they would moderate because efforts are being made to boost supply. I granted an interview recently in Benin, Edo State, where I said the borders should be kept closed even for two years or whatever is to be done to prevent dumping and smuggling, and see what would happen to Boko Haram, kidnapping and this country will blossom.
So, you also advised the government to close the borders?
I also advised government to close the borders. I am not going to pretend about that. In any case, it was not me alone. I understand that the security chiefs said arms were being smuggled into this country were all coming in through these borders. So, arms coming in also contributed to the reasons we said the borders should be shut and let’s see what will happen.
You talked about manufacturers and I can tell you that some of them have said the biggest challenge they are facing is not the border closure, but electricity, ease of doing business and multiple taxation. What do you think?
We must give credit to the government. The federal government is doing everything to make sure the ease of doing business improves. The ease of doing business is being taken very seriously. Three years ago, we moved up 24 points, just two weeks ago, we moved again. So, the ease of doing business indices is moving up in Nigeria and we are doing well. In terms of electricity, the government is doing everything to solve electricity problem. But what I am trying to say is that let’s imagine electricity is a problem. What it does is that it makes the cost of goods to become more expensive and compared to the imported alternative, it becomes more expensive. Then, those of us in position of authority have the responsibility of providing jobs for our people. So, we should keep those industries alive and also make sure that they continue to employ people. And how do you do that? Compared to the alternative of import, you raise your tariffs, you raise import duties so as to keep local industries alive. And I have always said that in Nigeria we have raised duties several times, it never worked. Why? Because of the activities of our neighboring countries that dump and smuggle these items through our borders. So, how will our policies work? How would we create jobs for our people? How would we get our industries to work in Nigeria if we allow these people to undermine our economic policies? I am a Nigerian, I have a responsibility to make sure Nigerians have jobs, I have a responsibility to make sure Nigerian industries remain alive. That is why I am here, otherwise I have no business being here.
Let me take you up once again on the issue of manufacturing, you have manufacturers that are making efforts. For example, Innoson is a car manufacturer in this country and I don’t see the government driving Innoson cars, I don’t see the president of Nigeria driving a car that is made in Nigeria. I don’t see them going across West Africa and Africa pushing the idea of Nigerian cars being sold into those countries. Why is that so?
Well, you are correct and all I can say is that we will try as much as possible as Nigerians and as people placed in position of policy to see to it that we use Nigerian made goods. We have to begin to say that we must use Nigerian goods and you could see that even at central bank, we are making an effort. We held a meeting three weeks ago with the armed forces of Nigeria, because we found out that their uniforms were contracted to Nigerians who go to China to sew them, not only to get the textiles from China, they get the textiles, sew them there and bring them back to the country. The National Youth Service Corps (NYSC) sews and bring NYSC uniforms from abroad and we are saying no, we should start by patronising our own Nigerian garment companies. Those garment companies will in turn patronise Nigerian textile industries, and with that, we create jobs in the textile industry, we create jobs for the cotton farmers, we create jobs for the fashion designers that will certainly grow our industries. And I believe we don’t have a choice, but to go in those directions. I am sure in the course of time, you will see me, appear at a function, where I will be wearing a wholly made Nigerian textile fabric that will be so elegantly prepared by our textile designer, so that we can really begin to move in this direction.
What is your reaction to the concerns that there isn’t credit available to businesses and the banks are not lending money?
If you said this before June this year, I would have agreed with you. But today, given the policies that we have put in place, the kind of regulations and prudential guidelines that we have put in place for the banking industry, I will not agree with that statement. Before June, there were different means in which the regulator can use to get the banks to catalyse the economy because they play a primary responsibility as intermediaries by taking monies from surplus to deficit sectors.
So, what the central bank used to do before June was moral suasion. We used moral suasion and it didn’t work. We went into Monetary Policy Committee (MPC) in May and we were looking at the industry loans and we found out that most of the times when we analysed industry loans, it was at best flat and in fact, in some cases industry loans were dropping. And the MPC said we must do something to see credit grow. Given that we have used moral persuasion and all sort of cajoling and it didn’t work, we had to put in prudential. In June, when we looked at the numbers the industry loans to deposit ratio (LDR) was 57 per cent and we said the banks must lend. In this case, using prudential measure meant that we had to insist that LDR must be minimum ratio of 60 per cent by September 30th, which was a three per cent increase and this translated to almost N1.6 trillion. And we said by September ending, in any bank we find any shortfall, we will take the money from the bank and lock it up in a zero interest asset where you are not going to make any money. By June 2019, industry loan was N15.4 trillion and by September 30th when we looked at it, it had risen to N16.4 trillion. Today, you can see that the capital market is back alive again, you can see that banks are lending money, and we are trying to say that we all have shared responsibility to help grow the economy.
So, when you say banks are not lending, that is not true. I just felt I should debunk that and let you know what had been done to grow industry credit.
And you are absolutely convinced that the effects of these policies are having impact on the real economy in Nigeria?
It will because we are testing it on a daily basis. Our banking supervision department looks at the numbers on a bank-to-bank basis and sometimes ask for details in cases where the loans have gone up. We are convinced because we believe that by doing this, consumer credit will be back again, mortgage credit will be back alive again, not just the industries and not just corporates.
But most of the bank lending goes to the government.
What I am trying to say is this, we have begun to see a shift in lending from investing in treasury bills to more funds being channeled to the private sector and with time, it will improve further. I want to believe that as we get into December and the first quarter of next year, it will reflect positively on the Gross Domestic Product (GDP), because consumer demand would have been stimulated, which will ultimately help to stimulate growth.
But a lot people are of the view that the central bank appears to be driving towards welfarism, considering some of its policies, such as its programme for poor farmers. What’s your take?
You just said the big issue is access to credit, and we are saying that every Nigerian with a good idea to do a business should be entitled to credit, it should be easy for him as long as it is not a bad credit, he should be able to raise credit. We initiated the Anchor Borrowers’ Programme where we, directly through the banks and through our participating financial institutions, make loans available to farmers so that they can go into farming and we are helping to positively impact the lives of those in rural communities. Nigeria is not all about our urban centres, close to 65 per cent of our population, conservatively, are in the rural areas. And if you say you want to grow and change the lives of some people, you must have at the back of your mind that we have about 65 per cent population in the rural areas that we need to improve their lives. And that is why you would see that some of our policies have been to improve lives. Development and growth of Nigeria should not be centred around urban centres. So, where we really do need a lot of attention is in the rural areas, because by doing so, we improve wealth in our rural communities and by doing that, we improve wealth in Nigeria.
Part of CBN’s role is to advise the government. Many people have argued that government’s borrowing has been on the rise. What do you think?
Let me say this, government has a responsibility to care for the people. The government is like a father in the house, the responsibility of that father is to fend for that family and the children. By the way, our debt to GDP ratio today is about 20 per cent and it is among the lowest you can find in any part of the world. So, when people say government should not borrow, the only other option that government will have is to raise revenue. Government says it will raise revenue and people say we don’t want to pay taxes. Okay, you don’t want to pay taxes, you don’t want government to raise revenue, yet you want government to build hospitals, build your roads, you want government to take electricity and infrastructure to your community. It can’t work, government must do either of the two – either it raises revenue or take loans. But I am telling you that this government is mindful of the size of its debt. And I repeat, our debt to GDP is low, but the big issue is revenue and debt service is high because revenue is low. Debt service to revenue is at its ultimate high and that is why we should work together to see what we cannot only to broaden the revenue base, but also in some cases raise revenue. People must pay their taxes so that government can fend for everybody.
I think the main concern is that often times, you have governments that believe the way to make the country prosper is to borrow and spend and that I think is where your advice as an expert comes in…
It depends on what government wants to do. Government can either raise revenue and spend or borrow to spend. But where is government spending on? To what extent has that spending been impacting positively the lives of the people?
The government appears to be doing so much, because it appears that most of the things the government is trying to achieve are things the private sector ought to be doing?
You are correct, government has no business being in business. We all learnt that in business schools. But what is government doing? It is not as if government is in business, government is providing infrastructure, road, making sure that community hospitals are alive again. Then, the private sector has a lot of role to play. Yes, building roads and tolling roads, and you can see government has listened to the advice that they must toll roads, give it to credible private sector who will build the roads, collect the revenue and run an enterprise that is in their area of specialisation.
You talked about hospitals, they are all under-equipped; you talked about the roads, that are all in bad state in Nigeria and electricity has not worked and is not working…
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