happened. 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 vault . . . because they don’t want it, the market has crashed, from about 240 to as low as 210, 208. That shows you how shallow that market is.
A lot of people say that the policies you introduced in June are actually growing the parallel market.
It’s not the policy we introduced in June or February 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 are creating this.
Did it come from the banks or more from your side?
The banks made the decision themselves after my statement [last week, on illicit financial flows in Nigeria]. They said: “Look, we are not going to take that cash.”
Also, physically, banks are full of dollars. Literally they do not have room for more dollars, is what I’ve heard – is that true?
Correct.
And you see that as a result of harmful speculation, or?
I think so. Partly.
Some say the parallel market is growing as a result of the new restrictions?
No, 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.
Is the solution to problems in Nigeria’s FX market really to close it down and dry up the dollar supplies?
No it will not. What we’re trying to say is that we need to encourage people other than the central bank who earn foreign exchange, other exporters, or people who are bringing in capital to come in and deepen the market better. Those flows will be used for eligible transactions, you cannot use them for ineligible transactions [the import of the 41 specified items]. But we are insisting that those items are ineligible because they can be produced locally and our people must focus – I mean Nigerians or foreigners who reside in country – must learn to respect our laws and our policies and do what we want, which is for them to produce locally because we know they can be produced locally and they are available locally.
So the way you are talking about this policy change, about the 41 ineligible goods, this seems to be a policy move that you would like to be permanent. This is your hope in the future, that Nigeria will not need to import any of these goods?
GE: Absolutely. That’s our view.
So this is sustainable?
It is absolutely sustainable. It was done before and can be done again.
What is your vision and strategy for monetary policy in the years to come?
We will keep monitoring the liquidity situation and based on our assessment of the situation we will either relax or tighten, but at this time we are still at a monetary tightening stance. In an attempt to achieve macroeocnomic stability, hopefully over time we will be able to overcome the challenges facing us now. We’re saying, “cut your coat according to the size of the cloth you have”, where there will be fiscal discipline and responsibility. Once we have all that, we will see a situation where we as the monetary authorities will be in a position to keep inflation under check, moderate inflation at the level we want, and we will also do our best to see how we can moderate and keep our exchange rate stable.
What is the central bank’s role going to be in supporting President Buhari’s effort to recoup stolen oil revenues which he this week said were deposited in banks?
At this time it’s still being looked at and we will be happy to play a role once we find the opportunity. Naturally as the central bank we will also assist in drilling them once we get to that stage, and we will be happy to have that money back because it will improve our reserves.
Has any money been returned yet, that you are aware of?
GE: Not from that angle, no, but there are other leakages that are being blocked that are said to improve our reserve position.
Could you specify what those leakages are?
The Treasury Single Account is a policy that was being pursued even before President Buhari came on, but this is being pursued more vigorously at this time, and what does that mean? It means that all revenue-generating agencies are compelled that once they receive the revenues, the revenues must come to the centre, and that means those revenues will come to the Central Bank of Nigeria. We had instances where some of those revenues were trapped outside the central bank. The president came on and he insisted that all revenues come to the centre and that’s what we are saying, and it’s the reason why you are seeing some improvements in the reserve position.
Do you see your role as the same as your predecessor’s role – to stem corruption wherever you find it and hold the government to account?
I try as much as possible not to discuss my predecessors. They did a very excellent job, but what I’m saying is as the central bank we have our mandate. We have our responsibilities and we will continue to work in line with what our mandate dictates. And if we find anything that is not appropriate in the course of our work we will talk about it, but the point is we will do our work.
But it seems there is confusion both in Nigeria and abroad among investors about your recent foreign exchange management policy steps.
We are closing the gap between the parallel market and the interbank rate. The gap is closing and I imagine that foreign investors should be happy that we are doing everything possible to close the gap. Based on that, they will believe us when we say that the parallel market is a shallow market, and that there is no need to use the parallel market as the benchmark for determining the real value of our currency.
The head of the Association of Bureaus de Change of Nigeria recently said that your policy was not sustainable and that the firming we have seen of the naira in recent days is only temporary and that we will see weakening again on the parallel market if your policies are not reversed.
That is his view. I am doing my work and with time we will know whether they are correct or whether I am correct. We will know with time.
So what is your philosophy in terms of the role of the market?
GE: When you talk about a free market, every country would love to have a free market, but you cannot have an entirely free market without some form of intervention to avoid a situation where you can if you are supposed to move in a direction and it’s not moving in the direction you want – you intervene to keep it in the direction you want. So the free market, which is what I also believe in, does not mean that we just allow the market to be open and allow every person to speculate and be attacking the currency to the detriment of the economy. Every free market economy, whether in the US or Europe, they have their own ways to intervene in the economy to ensure that growth or their objectives are achieved. That’s precisely what we’re doing. So we believe in free market economy as well.
But in terms of controls and restrictions . . .
There are no controls as far as I’m concerned. What we are trying to say is, if you say restrictions. What I’m trying to say is there are items that can be produced locally, and we are doing demand management and saying let’s produce them locally rather than import than. I don’t know why that is really of so much concern even when government itself will say, we will not import petroleum products. So why is it a problem we telling our people you can’t import rice – produce it in Nigeria, because it can be produced, or buy our locally made rice or buy our palm oil produced locally. I don’t see how that is a restriction.
Are electricity supplies adequate to produce even enough tomato paste, for example, to meet local demand?
There is, I would say, electricity, but it cannot be enough so our government is doing its best to improve electricity generation and distribution.
And in the meantime, you are hoping for the best, that there will not be shortages of goods?
Indeed. 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. That’s what we are saying. You find that it’s only when you are facing such type of adversity that you are compelled to look inwards and work hard to fill that gap.
So it might be bad times before good ones but it’s a shifting of the economy in a big way?
Either way, both ways, it will be bad times. Because of the drop in crude price and drop in revenues, what a sort of market friendly economist would say is, “oh, allow the currency to fall, let the currency find its value”. That will result in inflation. So that would be bad times. The option we’re adopting is, we’ve done adjustments to the level that we think is appropriate, we’re doing demand management, adopting demand management strategies to cut importation so that demand drops. It will also be bad initially but with time when we embrace the policy, the good time will come.
So you do not see yourself depreciating the currency again this year?
At this time the currency is appropriately priced.
And in a few months from now . . . ?
I don’t want to talk about that.
Do you think there’s enough liquidity in the market?
We think there is enough liquidity in the market. and those demands you find are indeed speculative demand. Substantially speculative. And with time we will prove again that these are speculative.
How?
You will find out, we are going to prove it.
How concerned are you about the strengthening of the US dollar and potential rise in US interest rates this year?
The possibility of a rise in interest rates in the United States will naturally create its own problems, not only for the Nigerian economy but for other emerging market economies that are dependent on the flows from America as well as from other areas. But that is why we are saying, we need to prepare for it, we need to prepare for a situation where the interest rate strengthens in the United States and as its strengthens there will still be outflows from Nigeria into the United States, so the possibility for even those foreign flows coming in is not even there. So why can’t we look inwards? Why can’t we continue to adopt the demand management strategies we are adopting right now, to compel people to look inwards and say, manage what we have and live with what we have. No doubt supply is constrained, you look at demand, you want to make sure you get your equilibrium prices appropriate and right. You want to tell people, look inwards, to cut demand [by producing more locally].
Source: Financial Times, London
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