Nigeria: Godwin Emefiele - We Must Reopen the Economy to Save Livelihoods

31 May 2020

The Governor, Central Bank of Nigeria, Mr. Godwin Emefiele, while responding to questions from journalists at the end of the Monetary Policy Committee meeting in Abuja on Thursday made a case for the reopening of the economy in order to save livelihoods, stimulate economic activities as well as prevent the economy from steep recession. Obinna Chima brings the excerpts:

What is your assessment of the fear of a global recession and how will this impact the Nigerian economy?

It is important for us to know that today, the global economy is faced with the unfortunate drop in the price of crude oil and the COVID-19 pandemic that has resulted to almost five million infections all over the world. This is a very unfortunate situation that has led to a health crisis of unprecedented proportion and indeed, co-mingling with economic crisis as never seen before in global economic history. If you all notice, all economies are today affected by this pandemic. The United States, Europe, developed economies, developing economies and frontier markets, are all affected by this, to the extent that in some economies, such as the United States, first quarter growth was negative by almost 4.9 per cent. The EU, also had first quarter growth that was negative by almost 3.9 per cent; China suffered massive drop from double-digit growth to very low single-digit growth. All other economies that the International Monetary Fund (IMF) had at the meeting last October, had predicted would help in accelerating global growth in 2020, have suffered unprecedented decline in output growth. Luckily, and this was a pleasant surprise, Nigeria's first quarter growth came down from 2.5 per cent during the fourth quarter of 2019, to 1.87 per cent during the first quarter of 2020. Nigeria is part of the global economy and naturally the economy would be impacted. But what is important is the extent we are able to manage this situation. There have been predictions of recession, but we think that as we ease the lockdown and begin to take actions to ensure that we move very fast out of the situation, get businesses back again, get the health sector back again, get our farmers to get back to the farm to conduct their planting and farming activities, we would be able to escape a recession.

We have read some reports that Nigeria's GDP will contract by about eight per cent, what is your view about this and what is the CBN doing to ameliorate the impact on Nigerians?

Like I said earlier, yes, there are predictions that just like the global economy, Nigeria would slide into recession. But if we ease the lockdown as quickly as possible, get the businesses back as quickly as possible, those, who may have suffered total disruptions in their business, we would make funds available to them, in the health sector, the SMEs, in the manufacturing sector, if we are able to make funds available to them as quickly as possible and at concessionary rates and also give those who have existing loans in the banking sector an opportunity to restructure their loans, push forward their repayments, then it would be easy for us to get businesses back alive so as to increase production and save the country from recession. So, like you all know, the CBN has put in the market a N50 billion household and SMEs' funds, out of which almost about N5 billion has so far been disbursed to almost 7,000 people. We also have a N100 billion health and pharmaceutical sector facility, out of which more than N10 billion has been disbursed and we are hoping that more people would take advantage of these facilities.

How is the CBN meeting forex demand of manufacturers as they are complaining of dollar scarcity and how they can raise Letters of Credit (LCs) to import?

We have heard people talking about opening of new LCs and the rest, whereas we do not want to engage with them as to whether or not this is feasible, but our view is that at a time of lockdown, we wonder what fresh LCs are being opened at this time. That is why sometimes, we question the veracity in some of the information about people coming to us to say they are opening new LCs. But if you are talking about maturing LCs, or matured LCs or maturing forex obligations, the central bank has made itself to fund these obligations. There is no truth in anybody saying there is forex scarcity to meet their maturing obligation. Even some of the so called fresh LCs that people are opening, which we frown upon at this time, because I am not going to pretend that I do not see it. But I am saying it clearly that I do not see the rationale in fresh LCs at this time when the global manufacturing chains have shut down.

There have been calls that the government should re-open the economy, what is the view of the CBN about this, given that the number of infections are still rising in Nigeria and when is the supply of forex to BDCs likely to resume?

We do understand and appreciate that government must do what it must do because government has the responsibility to fend and be attentive to the needs of the people. So, as a result of this crisis and to prevent it from spreading wildly, government had to take the decision to lockdown the economy. But we are happy that the Presidential Task Force has advised government and the government has started a phased easing of the lockdown. But we are trying to say that we must be aggressive at this time, notwithstanding the fact that the trend is still rising. So, while we are trying to save lives, we must also save livelihoods. One way to save livelihood is that we must reopen the economy. We must get our farmers to get back to the farms, we must get the manufacturing plants back again and we must begin to see the fumes coming out from the rooftops of the manufacturing companies.

If we don't, the unprecedented unemployment that would face us resulting from factories and manufacturing plants' shutdown would be so unprecedented that we would have hurt livelihoods that we were protecting as a result of the lockdown. But we must take the protocols from our health experts. Now for the BDCs, you would all recall that at the beginning of the lockdown in March, the Association of Bureau De Change Operators wrote to the CBN to say, because they could not guarantee observing social distancing and because they were afraid that there could be infections as a result of the processes put in place and more importantly because of the fact that they were convinced that they were no more travels because almost all nations had shut their borders, there requested that the CBN should halt the sale of forex to BDCs.

The CBN promptly complied and stopped. So, as soon as the lockdown is eased to the extent that travels have resumed, borders have now been re-opened for travels to happen, certainly the BDCs would resume. We not some nefarious activities in the market, but we just smile because we know that anybody purchasing forex in the market today we begin to wonder the motive behind it. Why? If the BDCs are meant to meet the forex needs of travelers and there are no travels because of the lockdown, then you and I can guess those involved in nefarious activities by buying dollars, because they found some naira somewhere.

How effective are the stimulus that the monetary authority has put in place?

Like in read in the course of this presentation, we have provided a couple of stimulus packages. Companies and households have started to access them. We would admit that the rate of accessing the fund is low at this time and we believe it is because of the lockdown. But as the lockdown is being eased, certainly, more and more people would apply for this facilities and we would be able to make this funds available so that their businesses can aggressively take-off.

With the COVID-19, it is clear that Nigeria must now focus on diversification, how is the CBN supporting the government to achieve this goal?

First let me say that Nigeria has been talking about diversification for almost 50 years or more. We do not have any time more potent than now to do so. There is a saying that when an animal in the bush begins to run seriously, if you are a hunter, for you to kill that animal, you must shoot it very aggressively, otherwise you would not be able to shoot it down. What am I saying? There is no other time but now, for us to follow through the implementation of our policies on diversifying the economy. This is the best time to reset the Nigerian economy. We must all work together to ensure that we do so. As a result of this pandemic, over 40 countries have banned the export of either drugs or goods out of their country.

Nigeria is lucky that four years ago, the President supported the CBN to launch a rice programme. Today, Nigeria is almost self-sufficient in rice production. Countries where rice were being exported have banned the export of rice out of their country, to the extent that the price of rice in those countries have risen by as high as 70 per cent to 80 per cent, because they are running out of supply because their farmers are all lockdown in their respective homes. So, what am I saying? Nigeria is a country with 200 million people. Nigerians are very brilliant, smart and endowed people. I think the time is now. We should not just be talking about diversifying the economy, but we must follow through to ensure that we implement all policies that the monetary and fiscal authorities have put in place to diversify the base of this economy.

How strong are the banks now, following huge exposure to the oil industry, which has lost significant revenues during this pandemic and are we expecting huge NPLs because of this situation?

We are not expecting huge NPLs. As you have seen, NPLs have come down from over 12 per cent last year to 6.58 per cent as at today. Loans are being restructured, interest concessions are being granted and I am so optimistic that the kind of support that have been provided, not only to banks, but also borrowers, by the CBN, it would keep businesses alive to be able to work and pay back their loans as events unfold.

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