CBN’s forex demand management is starting to work – Emefiele

Central Bank of Nigeria, CBN.

Central Bank of Nigeria, CBN.

08 August 2015, Abuja – The Central Bank of Nigeria, CBN, Governor, Mr. Godwin Emefiele has maintained that CBN policies aimed at managing demand for foreign exchange were beginning to have the desired impact.

He also dismissed calls for the devaluation of the naira amid growing domestic and international concerns about the tough outlook facing the Nigerian economy after the collapse of oil prices last year.

Speaking in an interview with the London-based Financial Times (FT) newspaper, Emefiele said demand management of forex arising from limited supply and the exclusion of certain items from accessing forex from the official market was working, adding however that there was no ban on the importation on the said items.

The CBN last month had listed importers of 41 items and barred them from accessing forex from the interbank market, arguing that the products could be produced in the country.

Emefiele, in an attempt to shore up the naira and preserve the country’s foreign reserves, argued that the country was exporting jobs by importing items, which ordinarily could be produced locally.

However, the decision has been criticised by some analysts and the Lagos Chamber of Commerce and Industry (LCCI), who have contended that the policy was in the near-term inflationary, could negatively impact retail trade and lead to job losses.

However, Emefiele, in the interview with FT, said: “First of all, when you talk about how it will increase prices or increase inflation, any option (devaluation) or (currency curbs) you adopt will cause inflation, right?

“If we adjust our currency further, which is what I have heard people talking about, it will still lead to inflation, it will lead to an increase in prices.

“What we are saying is that those 41 items are items that can be produced in Nigeria. Having done an adjustment of the naira by almost 22 per cent, now we are also looking at the supply side, that is our reserves and our revenues. Yes, we are constrained as a result of the drop in crude prices.

“But we are blocking leakages. And we are gradually, as a result of the commitment by the president, building our reserves gradually, and we are working very hard to avoid a scenario where the reserves are badly eroded. “Now, the third part is demand, with demand management which we are also working on. So the question is, are they working? My answer is yes. The demand management arising from the exclusion [the import restrictions], are they working? Yes.

“But let me tell you, these are not import restrictions, they are foreign exchange exclusion… The president came on board and said that we will work very hard to reduce importation of petroleum products by ensuring that our refineries work.

“Our refineries are working now. Warri and Port Harcourt have started producing, they have not obtained the optimal capacity but they will. Kaduna refinery will start working this month.”

Emefiele said that given the major hit to state revenues for the continent’s top oil producer, there was no way to avoid “bad times” for now. But he insisted his policies – and not the naira devaluation traders and analysts call for – would curb inflation and bolster depleted foreign reserves.

“We have begun to get people to refocus . . . the challenges of the dwindling reserves [are] making people change their paradigms because we are telling people our story and they are beginning to look inwards,” he said.

Asked if he was worried about food shortages if local manufacturers or producers could not move quickly enough to supply adequate quantities of rice, tomato paste and other foods, such as tinned sardines, the governor replied: “We are praying that there will not be shortages. But when there is a shortage, that shortage provides business opportunity for Nigerians and foreigners to come and jump in and fill the gap.”

Emefiele also dispelled fears that the central bank was overreaching itself and getting involved in industrial policies, stating that beyond the mandate of the CBN to provide price and monetary stability and forex management, it was also the responsibility of the central bank to take actions that would achieve macroeconomic stability.

“In an attempt to achieve macroeconomic stability, you must take actions that impact positively on the lives of your people. And any monetary or fiscal authority will do that. In the United States, everything is (about) ‘jobs, jobs, jobs’.

“The Federal Reserve talks about jobs. Every month, Janet Yellen comes and talks about employment. So if you are saying that it is not within the mandate of the central bank governor to put in place policies that will increase job creation, reduce unemployment, increase economic growth and development then you are not right.

“So what we are doing is taking actions and decisions that will improve the lives of the people and that will make our people look inwards. And those things we are importing right now, we are taking action to say produce them locally, and in the process you create jobs for our people and in the process you are growing the economy.”

On the current volatility in the parallel forex market, the CBN governor maintained that informal market was shallow and should not serve as a benchmark for determining the real value of the naira.

“I’ve always said that the parallel market is a shallow market. The parallel market constitutes just about 5 per cent of the (forex) market. It should not be a basis or a benchmark for determining the real value of Nigeria’s currency.

“A situation where the bank vaults are full with cash and then banks on their own said, we don’t want the dollar cash, because we don’t know how to get real value for those dollars sitting in our vaults… because they don’t want it, then market has crashed, from about 240 to as low as 210, 208. That shows you how shallow that market is,” he said.

Emefiele also insisted the restriction placed on importers of the 41 items had not added depth to the parallel market, stating: “It’s not the policy we introduced in June that is causing it. It is because of the speculative activities, the round-tripping and rent-seeking activities of certain people in the economy that is creating this.

“The parallel market is not growing as a result of any restrictions because we’ve said that those items are excluded from foreign exchange.

“By their exclusion, you cannot get foreign exchange from the CBN, from the interbank or from the parallel market so if you have your own funds somewhere in the UK or US you can use that to import the items, we are not going to stop you. But we don’t want you to access those funds here.”

On efforts by the central bank to assist the Buhari administration in its fight to stem corruption, the CBN governor said the bank will be happy to play a role once the opportunity presented itself and will be happy to receive recovered funds as they would improve the country’s reserves, but no money has been recovered to date.
*Financial Times

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