You said in June that monetary policy remains “handicapped” without fiscal guidance. Now it’s August and there is still no cabinet, no economic policymakers appointed yet. Do you still hold the same view you expressed in June?
Well let me say that the Central Bank of Nigeria as a monetary policy authority is independent and thus it carries out responsibility in line with mandate. Our mandate is very clear in the Central Bank Act of 2007. We are carrying on with our mandate and not having a cabinet team I daresay does not hamper our ability to do our work. Naturally, what you would expect is that the fiscal authorities would complement whatever we were doing – we would work together, we would collaborate. But when you talk about the fiscal authorities, you talk primarily about the ministry of finance. The ministry still has a chief accountant’s office, its permanent secretary, we have people in the budget office, in the debt management office, they are working. For me, yes, it’s important to underscore the fact that if the minister is there, yes, it’s good, but the people who are working there, we should give credit to them, they are human beings, we should give credit. So there’s nothing like, whether or not having a cabinet team hampers our ability to do our work or to collaborate with the Ministry of Finance.
But do you see it now as your role to be the sole voice to the market, in the absence of the cabinet?
No I don’t. What I’m saying is we are doing our work whether or not there’s a finance minister, we will still do and say and act the way we are acting now so not having a finance minister at this time, I repeat, does not hamper our ability to carry out our responsibility.
Many people I speak to say that the import restrictions you introduced in June to strengthen the naira are actually making matters worse by increasing inflation and hurting the poorest Nigerians the most. What evidence do you have that your measures are working to stabilise the naira and the economy?
First of all, when you talk about how it will increase prices or increase inflation, any option 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 [the central bank in June banned importers from sourcing foreign exchange for 41 key goods] 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. Looking at the demand side, is it working? 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.
Now, there are other actions that the presidency is putting in place to ensure that we reduce importation of petroleum products where the NNPC [the national oil company] will solely, almost solely be responsible for procuring refined petroleum so those who are importing petroleum products will only just need to go to the NNPC and pick up petroleum products. So in that area I would say that we are already moving in the direction of reducing the import of petroleum products. and we will achieve it. So you ask me if they are working, my answer is yes.
There are other major items on the 41-item list. We have rice, we have fish, we have textiles, we have tomato paste and we also have palm oil. What I’m saying is we have begun to get people to refocus and change their paradigm from the fact that the challenges of the dwindling reserves are making people change their paradigms. We are telling people our story and they are beginning to look inwards.
You mean manufacturers and those in industry?
Correct.
A lot of manufacturers have been quoted in the local press criticising this new policy and saying that they are not prepared for this and cannot manage scaling up production so quickly to compensate for reduced imports.
I just met this morning with the executives of the Manufacturers Association of Nigeria and after we explained everything to them, they agreed with us. Indeed they themselves commended the actions we have taken because it is favourable for the manufacturing industry.
Some analysts are saying that maybe this is straying into industrial policy and is outside the remit of the central bank.
No. I have always said that the mandate of the Central Bank of Nigeria, yes includes price and monetary stability, building reserves and achieving a strong exchange rate, but in the midst of it what is important is you want to see how you want to do whatever you can to control your inflation, to keep prices low, to stabilise prices and achieve macroeconomic stability. In an attempt to achieve macroeconomic stability, you must take action that impacts positively in the lives of your people. And any monetary or fiscal authority will do that. In the United States, everything is “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 inward. 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.
So your intention with the import restrictions is to encourage the local market to make up for that?
Absolutely. That’s the entire objective because we’ve done so before. In the 50s and 60s, Nigeria used to be the largest producer and exporter of palm oil, with 40 per cent of market share globally. Today we are an importer of palm oil. And when I met the Manufacturers’ Association of Nigeria this morning, I asked them: “All those palm trees, where are they?” They said: “They are still there.” I said: “Can we begin to go back to tap our own crude palm oil and refine our palm oil?” They agreed with us. It’s not that we are talking of something being rocket science – we’ve done [this] before.
Last month, inflation rose to 9.2, above your target band. How do you justify the bank’s recent policy moves given your mandate of price stability?
Let me explain something. If you are in our situation, you have created a band that is between 6 and 9 per cent. And you are faced with an attempt to either depreciate your currency that will lead to price increase or the alternative which you are adopting which is, we look inwards, where you’ve seen the evidence pointing to the rise in prices. Naturally, inflation will happen. But what we are doing, we are hoping and we are working very hard to say hopefully by the time productivity from this planting season begins to come up, we would be able to moderate prices and inflation, so that’s the direction. I’m not going to make any commitment to say that we are going to push inflation back to the 9 per cent high margin [the bank’s target band is 6 per cent to 9 per cent]. But we are going to work very hard to keep it at a level that people will still feel comfortable in the midst of the current challenges that we are facing.
Many analysts say that another depreciation is inevitable. Will you devalue the naira again anytime soon?
What I’ve always said is that everybody is entitled to their views. And what I’m saying is that we have adjusted our currency by 22 per cent. We are looking at the supply side. We are at this point looking at the demand management. When we come out of demand management, we are optimistic that the level of demand, by the time we look at it effectively, will match supply. And that is why we are saying at this time, the way we are, that the currency is appropriately priced. That’s where I am right now.
There is a lot of volatility in the parallel market. Last week, the dollar was going for 240 naira and now it is below 210.
I’ve always said that the parallel market is a shallow market. The parallel market constitutes just about 5 per cent of the market. It should not be a basis or a benchmark for determining the real value of Nigeria’s currency. And you see what
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