Following the conclusion of the 2019 annual meetings of the International Monetary Fund and the World Bank, the Nigerian delegation led by the Minister of Finance, Mrs. Zainab Ahmed, addresses journalists. The federal government team, which includes the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, his deputies and directors as well as a couple of heads of agencies address fiscal and monetary concerns in the economy. Kunle Aderinokun, Obinna Chima, Ndubuisi Francis, Nume Ekeghe and Nosa Alekhuogie present the excerpts
World Bank Loan
We have very productive meetings with the World Bank group, the country team on the power sector in Nigeria. The discussion was centred around the power sector recovery program wherein we received an update on the outstanding issues covering sustainable fiscal support, policy as well as regulatory environment.
We also discussed extensively the need for the sector to be more operationally efficient and also the infrastructure investment that would be required to ensure the power sector is restored to full production in a manner that is sustainable.
We identified the imperative of solving two critical problems. One, which is operational efficiency and two, revamping associated infrastructure in the power sector to ensure that the overall success of the intervention in the power sector are achieved
We made two set of requests to the bank. The first is technical assistance from the bank to implementing agencies especially the Nigeria Electricity Regulatory Commission (NERC) on the review of the performance improvement plans of the distribution networks and also two, we asked for technical assistance on business continuity regulation as well as to the Ministry of Finance in the assessment of contingent liabilities in the power sector and options of dealing with them
And most importantly, we put a request for financing of the sector at the range of $1.5 billion to $4 billion. At the end of the day, it is like we would be looking at the funding size of $3 billion that will be provided in four tranches of $750 million each.
Our plan is that the team will be able to go to the World Bank for the approval of the first tranche in April 2020.
The $3 billion that we are trying to raise from the World Bank is for financing the power sector. This financing will include right now, the gap between what is provided for in the current tariff and the cost of the businesses themselves so there is a tariff shortfall but it would also enhance our ability to pay the previous obligations that have crystalised that we have not yet been able to pay. Some portion of it will be for the transmission network and if we are able to expand the facility to $4 billion, the additional $1 billion is for the distribution network. It will help us to exit the subsidy that is now inherent in the power sector. It is supposed to be to reform the sector, to restore the distribution business side of the sector especially on a stronger footing so that they are freed up enough to go out and raise financing to invest in expanding the distribution network.
We held a number of bilateral meetings. One of the bilateral meetings was with the United Kingdom minister of state for international development. We also participated in the. UK investment summit to explore further areas of corporation. I am happy to announce the willingness of the UK authorities to support our infrastructure financing through the possible issuance of jollof bonds. Already a working committee is being set up to interface with Nigeria on this possible naira denominated bond. The CBN will be leading in this efforts we will also explore all options in this regard at the next UK investment summit that will be holding in January 2020.
We also had a discussion with the UK on the secretary, the Island of Jersey. We met with the representative of the Island of Jersey, we explored areas of mutual cooperation even the possibility of signing an agreement on the avoidance of double taxation as well as asset repatriation.
Other bilateral meetings we have included meeting with Japan international Corporation (JICA) agency as well as with Dutch Bank on existing areas of corporation on how we can attract additional investment into Nigeria.
The jollof bond, some countries call their own sala bonds. Essentially these are bonds that are issued offshore but denominated in the local currency and the importance of such a bond is that it protects the country, the issuer from exchange rate exposure. We are contemplating such a bond. There has been proposals made to us not just by the UK government but also by Deutsche Bank and today also by the World. Bank. Looking at that as another instrument to raise financing for the national budget. In the past we have issued euro bond which have done well but we are considering this option because it could be cheap and even if it is not, it will be more cost effective because we are protected from exchange rate differential risk.
In a manner of speaking, IMF supports the border closure that we've done because they understand that the closure wasn't meant to be vindictive. It was meant to be for us to restore our relationship with our neighbours prior to the commitments that we made.
Let me give you an example, the commitments that we have within these countries is that goods can come through your ports to Nigeria, but when they come, they are supposed to come in sealed containers escorted to Nigeria for the Nigerian Customs to open them for inspection as well as charges. But that is not what is happening; they allowed containers to be opened and they also allowed goods to be smuggled beyond the formal borders through several illegal borders.
But now that we have commit to the African Continental Free Trade Agreement (AfCFTA), we have to ensure that rules are obeyed otherwise local industries will be greatly affected. Businesses have been suffering due to the activities of smugglers but with the more opening up following our commitment to the AfCFTA, this will get worse unless we make sure now that everybody comes back to obey the rules as agreed.
The border closure is not permanent and there are lots of discussions going on at the technical level and at some point, it will be at the level of Presidents and then real commitments will be made and hopefully, everybody will comply to own side of the agreement.
There will be an economic impact on the side of our neigbours due to the border closure. This is something that the President (Buhari) has avoided from 2015. There were several engagements to try to get them to improve but things were getting worse. So, it was just a measure that had to be taken.
Health of Banks
The strategic health of the Nigerian banking sector remains very strong. The central bank has as a matter of policy since 2015 tried to avoid being sensational about stress-testing. Stress-testing has become part of our normal routine, in trying to check the strategic health of all the banks in the industry. So, what you would is that is that from time to time, maybe one bank failed one ratio or the other and we advise that the bank should improve on the ratio - whether it is capital adequacy ratio, liquidity ratio, or other forms of ratios that have been prescribed to the banking industry. So, the fact that you read that seven banks failed stress test does not mean that those banks are weak, what we are saying is that there areas that they are weak, we try to make sure they address them. If for instance, they fail capital adequacy ratio, we counsel them about how to resolve it. So, it has nothing to do with the weakness of any bank that would lead to any panic or systemic crisis in the industry.
About five months ago, you are aware that there is a drive for us to deepen financial inclusion in Nigeria. I had made my commitments to Bill Gates Foundation as well Queen Maxima that we would deepen financial inclusion that by 2020, the rate of financial inclusion would have accelerated to about 80 percent. At this time, we are close to about 65 percent which we moved from about 42 percent to 65 percent in about 18 months and we believe that we can achieve this 80 percent if everybody that is the bank and telecoms company corporate with us.
About five months ago, I held a meeting with some telecoms companies and leading banks in Nigeria at the CBN in Lagos and the issue of the cost of USSD came up. I hear it is N1500 per minute and at that time, we came to a conclusion that the use of USSD is a sunk cost, meaning that it is not an additional cost on the infrastructure of the telecoms companies.
But the telecoms companies disagreed with us and said it was an additional investment in infrastructure and that for that reason, they needed to impose it. I appealed to them to please review this downwards and they refused.
I understand that about 3 to 4 weeks ago, rather than reduce it, they went ahead to increase from N1500 to N4500 that is a 300 percent increase. I opposed it and I have told the banks that we would not allow this to happen. The banks are the people who give these businesses to the telecoms companies and I leave the banks and the telecoms companies to engage. And I have told the banks that they have to move their business and move their traffic to a telecoms company that is ready to provide it at the lowest possible and if not at zero cost and there is where we stand and we must achieve it.
He said that CBN restriction of FX on things that can be produced locally, I say that is false. If you feel that we are restricting access to foreign exchange, for the importation of items that can be produced in Nigeria.
If you are a foreign direct investor that is interested in doing business in Nigeria I will say instead of you facilitating the import of these items into Nigeria, we want you to come and produce it in Nigeria.
Nigeria is a market of over 200 million people, so you do not have a choice than to come, bring your investment plans and equipment, come and produce that item in Nigeria so that Nigerians can consume it, you will make your profit and take your dividend out of the country.
So, I disagree with that position.
Loan to Deposit Ratio
It is clear to everybody that access to credit is something that has to be tackled and the central bank and the bankers committee has used various means, moral suasion, begging, cajoling to get the banks to really do more in the area of access to credit but the penultimate monetary policy committee reviewed the average LDR in the industry and came up with the conclusion that the LDR has been at best flat. In most case, the ratios were dropping so at the July meeting where the average industry LDR was found to be 57 per cent, we had to impose a three per cent increase from 57 to 60 per cent. And luckily the banks have done marvelous work trying to embrace this. Most of them have actually worked with us and we saw loans rising from about N15.3 trillion in the banking industry in July to, as at the last time we held the meeting to about N16.3 trillion which is a remarkable and phenomenal increase and these loans are being channeled not only to agric, to manufacturing to SMEs, to consumer credit.
And the fact that we are saying that the banks should place more emphasis on the private sector rather than just buying securities which is zero risk instruments and the rest of them. We are happy that they are complying and it is such that moving it from 60 to 65 is another push towards making sure that we achieve this objective. We have been talking about the GDP rate being about 2 per cent or 1.9 per cent, but we think that doing this makes it easy for the people to raise loans from banks which will help to spur consumer demand, will help to spur manufacturing output, which will itself positively impact on output and GDP. And that is the reason we are calling on everybody, the banks to participate and am sure that all of you here know that the banks are living up to expectation. And all we can do is to thank them for doing what we expect them to do so as to continue to encourage them to do what we expect them to do.
Trade Tension and Border Closure
Just as the minister said, it really doesn't have any relationship, Nigeria is a country that has its own policy, and we have a responsibility to put in place policies that will help growth in our country, policies that will help grow our own agricultural and manufacturing sector and to that extent we have heard since 2015, Mr. President saying that there is a need for us to eat what we grow and grow what we eat. Nigeria cannot allow a situation where while the president of Nigeria says we must grow what we eat or produce what we eat that then another country allows this same policy to be undermined because they allowed the smuggling of this same goods that Mr. President said we should produce, they allowed these products to be smuggled through their borders into Nigeria and I repeat since 2015 the president and government of Nigeria has been engaging this countries about the need for them to control the influx of some of these smuggled goods into Nigeria but I can tell you nothing happened. Two weeks to the closure of the border, I was called by rice millers, not less than five rice milers were complaining that each of them had nothing less than 30, 000 metric tonnes of milled rice in their ware houses that they couldn't sell as a result of smuggling. I was called by some of the poultry farmers that we were also financing through our intervention that they couldn't sell their eggs and poultry item s.
a week after border closure, the rice millers called back to say, government thank you very much, we don't know what happened, we don't know if it was you that spoke to the president, with this border closure, we have exhausted all our rice in our warehouses, people are coming.
There is need and by making sure that Nigeria produced rice is purchased, it also means that we are creating jobs for the mills, for workers in the mills, for rice farmers. By closing the border, where our poultry items are now being purchased, it means we are creating jobs for poultry farmers and those that are into the poultry business. That is the only way we can create jobs for our people and see to the emancipation of our country.
The honourable minister said its temporary but I would not disagree that it is, I would caution and appeal that before it is open, some firm decisions and agreement must be reached where protocols must be obeyed, when we say we want this to stop, other countries must respect what we want because it is also meant for the growth and the good for our country.