Background
- Upon assumption of duty in public service as the Governor of the Central Bank of Nigeria, in June 2014, Godwin Emefiele inherited an economy on the cusp of crisis and imminent collapse. This is majorly due to the fundamental fragilities of the Nigerian economy and the inherence to structural imbalances that underlie its fabric. The economy was dangerously undiversified and was perilously reliant on the oil sector, which is prone to undue and sudden global shocks. Our excessive taste for imported goods did not only fritter away Nigeria’s commonwealth –by draining our FX reserves– the self-insufficiency it portends exposed us and put us at the mercy of foreign producers. We bankrolled our lavishly exotic lifestyles with petro-dollars as we inadvertently exported our jobs and imported poverty.
- Recognising the gravity of the problems beleaguering the Nigerian economy, Godwin Emefiele, upon resumption, rolled-out his medium- to long-term vision which floodlit his strategy to remedy the fundamental anomalies. Whereas many in his shoes would have deemed these structural challenges insurmountable, and thus shirk their responsibilities, Emefiele through his farsightedness and tenacity chose to confront the problem head-on, with the primal purpose of stabilising the economy, correcting its structural imbalances, improving its fundamentals, and ensuring its resilience. His overarching goal is to restructure and transform Nigeria into a productive hub away from its hitherto status quo as a centre of consumption. This was not by any measure an easy feat, as the Nigerian economy was hit by two back-to-back shocks within five years, during Emefiele’s administration.
- As we all know by now, Nigeria suffered the effects of three serious and simultaneous global shocks, which began during the third quarter of 2014 about when Godwin Emefiele resumed as the Governor of the Central Bank of Nigeria. These included:
- the over 70 percent drop in the price of crude oil, and consequent collapse of FX reserves and fiscal revenue;
- intense and unrelenting geo-political tensions along critical international trading routes; and
- normalisation of the US monetary policy which triggered rapid capital outflows from emerging market economies.
- These exogenous shocks significantly diminished the Nigerian economy and led to a deep recession in 2016. Quarterly GDP growth crashed from pre-2014 average of about 6.0 percent to 2.8 percent in 2015 followed by five consecutive quarters of negative growths, beginning from the first quarter of 2016. Inflation rate soared from 9.0 percent in January 2016 to over 18.7 percent by January 2017. The drop in export earnings compounded by unscrupulous demand increased FX market pressures and undermined exchange rate stability and reserves balances during that period.
- Rather than see a problem during that crisis, Emefiele saw an opportunity. For him, every crisis is an opportunity to get better, and correct the underlying weaknesses exposed by the disruption. Accordingly, he initiated and superintended apt countervailing measures, not just to tackle the emerging crisis but with a more long-term view of fortifying the economic fundamentals, insulating domestic businesses, and strengthening our ability to withstand foreign shocks. From the 2016 recession, Emefiele saw the undeniable and urgent need to diversify the operations and the revenue base of the country. He recognised the enormous productive potential of the economy and the need to reduce our lopsided reliance on imports.
- Following a series of swift and effective policy actions and initiatives, the country exited the 2016 recession with significant improvements in key macroeconomic metrics since 2017 and a noticeable strengthening of fundamentals. Godwin Emefiele’s approach to the structural challenges were to tackle both the demand and supply weaknesses that were inherent within the economy, but with efforts skewed more towards bolstering supply. Accordingly, he adopted both conventional and unconventional approaches that were bespoke to the specific needs of the Nigerian economy. While significant strides have been made in this course, some legacy imbalances, fragilities, and inadequacies remain.
- Following the onset of the Covid-19 pandemic in December 2019, the global economy and indeed the Nigerian economy was hit by another major shock. The second in five years. The heralded unprecedented challenges, which led to a significant blackout of the global economy, accompanied by glooms never discerned since the Great Depression of 1929. The shock due to the covid-19 pandemic impacted the Nigerian economy adversely and exploited the remaining macroeconomic imbalances. Once again, the economy ran aground and into another recession. The inflation rate began to levitate, while FX market pressures returned. Again, Godwin Emefiele saw the crisis as a continued opportunity to build a stronger and more resilient economy. To contain the downturn and drive the recovery of Nigeria’s economy, Emefiele’s and his team at the CBN deployed a series of accommodative policy measures. These measures primarily aimed to further support Nigeria’s supply base, improve domestic productivity, and ensure a swift rebound of economic fortunes. Fortunately, the CBN has continued to take proactive actions to insulate the economy and minimise the effects of current and future exogenous shocks.
Countervailing Measures and Achievements
- Under Emefiele’s leadership and based on the Bank’s understanding of unfolding developments (and medium-term outlook from exhaustive in-house macroeconomic simulations), a number of insightful actions were taken at the CBN. Though many of those policies were vigorously criticized at the time, the outcomes are ubiquitously celebrated today. These countervailing policy measures, which can be broadly classified into monetary and financial policy decisions and development finance initiatives, brought about macroeconomic stability and enhanced our fundamentals. Some of these measures and the achieved outcomes are highlighted below:
Macroeconomic Policy Outcomes
- Economic Policies and Domestic Price Dynamics: Over the intervening periods, the CBN embarked on a cycle of appropriately timed interest rate adjustments aimed at balancing the objective of price stability with the desire for long-run output stabilisation. The decisions were delicately aimed at containing expected inflationary pressures, anchor expectations, induce capital inflows, and buoy accretion to reserves, without undermining the growth or denting its long-run trajectory. The CBN’s achievements in this regard can be gleaned from the medium-term outcomes of key macroeconomic metrics.
- Inflation rate: Following the 2014 exogenous shocks inflation initially peaked at 18.7 percent in January 2017, but with the various monetary decisions was reduced to 11.0 percent in the pre-Covid period. The uptick which accompanied the Covid-19 shock (and the aftermath of huge quantitative stimulus to mitigate the pandemic impact on economic agents), has now began to moderate reflecting the, yet again, the effectiveness of CBN price stabilising policies.
- Interest rate: One of the Emefiele’s principal pronouncements in the inauguration speech of 2014, was his desire to significantly reduce the long-run trend of domestic interest rate with a view to supporting local businesses. Today, that vision is largely achieved and will continue to be pursued. For one, everyone is aware that through Emefiele’s efforts, the interest rate on Treasury Bills has considerably reduced since his inception as Governor in 2014. The rate has shed more than 10 percentage points on the average and generally stands below 5.0 percent today. This achievement has also helped fiscal policy, by reducing its costs of domestic debt service. Besides, the already concessional interest rates of all CBN interventions were further cheapened from 9.0 percent to 5.0 percent to support domestic production. More importantly, Emefiele was not only able to stabilise interest rates in the banking system, he has also managed to ensure that rates are beginning to fall. Average lending rate has declined significantly from nearly 25 percent in October 2017 to below 19 percent in January 2022. This is an exceptional feat which is good news for domestic businesses and general welfare of the Nigerian people.
Domestic Interest Rates (%)
- Exchange rate: Amidst unrelenting global shocks which continued to intensify exchange market pressures, Godwin Emefiele has battles tirelessly to protect the value of the naira. Though the long-run trend of the naira-dollar exchange has remained upward due to the structural rigidities in the economy, fundamental imbalances and unscrupulous demand, the CBN under Godwin Emefiele has slowed the pace of depreciation. Importantly, the CBN managed to stabilise the exchange rate amidst escalated pressures, thereby enhancing certainty for both household and business decisions. It is noteworthy that in 2017, Emefiele was able to reverse the rate of depreciation as he steered market exchange rate from over N525/US$ in February to about N360/US$ by end-2017. Even with the current Covid-induced pressure in the FX market, Emefiele has been able to steady the pace within a 3.0 percent depreciation margin. The exchange rate management policies of the CBN yielded positive developments as the Bank has largely constricted speculators, bettors, round-trippers, and rent-seekers from the FX market.
Among its many actions, the CBN reinvigorated FX inflows from remittances by licensing International Money Transfer Organisations and later reinforced this policy with tailored supply inducing measure –including the naira4dollar policy. With these, net remittances through IMTOs rose steadily from about US$0.6 billion in 2014 to nearly US$10 billion in the pre-pandemic period and about US$6 billion today. In June 2016, the Bank announced a further liberalization of the FX market which allowed a more flexible and market driven system of exchange rate determination. In addition to this, the CBN established Investors’ and Exporters’ Window in April 2017 in order to increase the supply of FX to the market. This enhanced transparency, stabilised rates and brought about improved sentiments in our financial markets.
- External reserves: With Emefiele’s ingenuity and pragmatism, Nigeria’s FX reserves recovered broadly from US$23.7 billion in October 2016 to about US$36.5 in May 2020 after reaching over US$47 billion as of June 2018. Regardless of the covid-shock, the CBN has been able to maintain FX average of nearly US$40 billion over the last three years. FX reserves outturn does not only reflect increased inflow but also the CBN’s shrewd FX demand management strategy. As a means of controlling the drain on reserves, the CBN complemented its supply enhancing policies with demand management strategy. The Bank restricted FX for imports of goods that can be produced in Nigeria. With this, the Bank effectively established a decisive withdrawal of the de facto subsidy for the importation of 43 non-essential commodities with a policy that empowered local producers of the identified goods.
- Trade re-balancing: The FX ban on 43 non-essential commodities aimed to tilt productive advantage of those commodities in favour of items and hence reduce the value of non-oil imports. Today, the dramatic decline in our import bill and the increase in domestic production of these items attest to the efficacy of this policy. Noticeable declines were steadily recorded in our monthly food import bill from US$665.4 million in January 2015 to US$160.4 million by October 2018; a cumulative fall of 75.9 percent and an implied savings of over US$21 billion on food imports alone over that period. The recorded discernible reductions in the imports bill for rice which dropped by about 97.3 percent, fish by 99.6 percent, milk by 81.3 percent, sugar by 63.7 percent, and wheat by 60.5 percent. Emefiele’s prowess concurrently pursued an import substitution strategy together with an export promotion initiative. Reflecting the success of these endeavour, the medium-term trend of imports showed the success as quarterly non-oil imports plummeted nearly 60 percent from US$13.4 billion as at 2014Q4 to US$7.7 billion by 2021Q3. At the same time, with the export expansion drive, quarterly non-oil exports soared almost nine folds from a mere US$0.46 billion as at 2015Q3 to nearly US$4.0 billion in 2019Q3, just before the onset of covid-19 pandemic. The accomplishments recorded so far are heartening. Accordingly, this policy is expected to continue with vigor until the underlying imbalances within the Nigerian economy have been fully resolved
- Naira–Renminbi Currency Swap: Given the increasing level of bilateral trade between Nigeria and China, and the growing importance of the renminbi in global markets, the CBN and People’s Bank of China signed an agreement in April 2018 to swap CNY15 billion for NGN720 billion (equivalent to about US$2.5 billion). With this deal, the CBN under Emefiele’s pragmatic leadership, created the option of renminbi denominated transactions alongside the hitherto exclusive use of US dollars for international settlements. The Naira–Renminbi currency swap has not only bolstered bilateral relations between Nigeria and China, it has ultimately helped to circumvent the influence of a third currency in trades between both countries. Latently, the deal helped to dampen the pressure on the naira exchange rate, potentially boost non-oil exports to China, and facilitated trade transactions between both countries.
Agriculture Sector Support
- Since assumption of duty as the Governor of the CBN, Godwin Emefiele has ramped up the Banks development finance and support for the agriculture. This is based on his staunch conviction of Nigeria’s capability to attain self-sufficiency in food production and feed itself and neighbours sufficiently. With Emefiele’s vigour and passion, the CBN amplified its interventions in priority sectors of the economy that could deliver economic growth, jobs creation, food and industrial raw materials self-sufficiency, export potential and economic diversification.
- Principally, the philosophy behind the various programmes and schemes has been a consistent theme of supporting government’s drive for self-sufficiency in food production by expanding finance to smallholder and large-scale production in selected staple and cash crop, as well as creating an ecosystem of domestic value adding factories, storages and logistics mechanisms that guarantee the movement of raw materials to factories and finished goods to markets. Emefiele’s strategic objectives with the various programmes and scheme in the short to medium-term include:
- Creating at least 10 million jobs every year through enhancing the cultivation and processing of the commodities;
- Reducing food import bills significantly;
- Bridging local demand gaps and facilitating food security and self-sufficiency;
- Reducing insecurity through the provision of all-year round pasture and water for local pastoralists to minimize incidences of herder-farmer clashes; and
- Improvement in the nation’s annual non-oil export receipts from $2 billion in 2018 to $12 billion by 2023.
- Emefiele recognises that the pre-eminence of the agricultural sector. As such, the CBN, under his guidance, initiated programmes and schemes to vigorously support he sector, in line with the Federal Government’s food security drive. The Bank’s interventions are designed to expand finance to the various nodes of the sector with focus on the FAO’s four dimensions of food security, including: availability (ensuring national self-sufficiency); accessibility (for households); utilization (for individual economic agents); and stability (that may be considered as a time dimension that affects all the levels). As we may be aware, these four dimensions or conditions are considered pre-requisites to the attainment of food security. The CBN’s achievements in this regard can be gleaned from key interventions in the agriculture sector, which is helping to ensure food security while creating jobs including:
- Agricultural Credit Guarantee Scheme (ACGS): This scheme has disbursed about N127.39 billion and has financed over 1.217 million beneficiaries from the balance sheet of banks. Smallholder financing has thrived under the ACGS with focus mainly on production. Innovative approaches like the Self-Help Group Linkage, Interest Drawback Programme and the Trust Fund Model have sustained the Scheme since 1977.
- The Anchor Borrowers’ Programme (ABP): The ABP was designed to create a demand-driven ecosystem that links smallholder farmers/out-growers with agro-processors through a financing framework that helps stimulate investments across the agriculture value chains. The CBN has disbursed over N948.03 billion through the ABP. This has benefited over 4.48 million smallholder farmers, who have collectively cultivated about 5.2 million hectares of 21 agricultural commodities, across Nigeria’s 36 states and the FCT. Importantly, under Godwin Emefiele’s leadership, the Anchor Borrowers’ Programme has created an estimated 12.5 million direct and indirect jobs since its introduction in November 2015. For the 2021/2022 dry season, the Bank has disbursed N75.57 billion to 465,175 smallholder farmers for rice, maize and wheat.
- Commodity Development Initiative (CDI): To consolidate the achievements of the ABP, and in line with the Federal Government’s trajectory for food self-sufficiency, Emefiele and his team the CBN introduced the Commodity Development Initiative (CDI). This was with specific objectives of developing the value chains of ten agricultural commodities, namely; rice, cassava, cotton, oil palm, poultry, fish, maize, cocoa, livestock and tomatoes. Key emphasis under the initiative included boosting agricultural productivity through the provision of improved seedlings; improving access to quality local inputs; expanding affordable credit to smallholder farmers, agro-processors, and manufacturers; and strengthening the off-take linkage between farmers, agro-processors, and manufacturers.
- On rice production, the Bank leveraged existing partnerships with the Rice Farmers Association of Nigeria (RIFAN), the Integrated Rice Millers (IRMs), and the Rice Millers Association of Nigeria (RIMAN) to expand the depth and reach of the ABP and ensure increased private sector participation in the cultivation of paddy. The efforts were complemented by the Paddy Aggregation Scheme (PAS), which was introduced as a short-term intervention to enable domestic integrated rice millers purchase home-grown paddy. Other programmes and schemes such as the Commercial Agriculture Credit Scheme (CACS) and the Real Sector Support Facility (RSSF) were also deployed by the Bank in financing numerous medium and large-scale investors across the rice value chains. So far, 1,029, 036 rice farmers have been approved to cultivate 990,318 hectares of farmland
- Similar efforts have been made with other commodities. For instance, the Bank’s interventions in the Cotton, Textile and Garments (CTG) sector started in 2019 with the adoption of 8,000 metric tonnes of high quality cotton seedlings for cultivation across the country. In this regard, the Bank is leveraging its partnership with the National Cotton Association of Nigeria (NACOTAN), and the Cotton Processors and Manufacturers Association of Nigeria (COPMAN) and will work with 177,017 smallholder farmers to cultivate 182,534 hectares of cotton under the Anchor Borrowers’ Programme. Similarly, Textile Sector Intervention Facility (TSIF) was setup by the CBN to support the ginneries and textile factories.
- There are also significant progresses in the cultivation and domestic production of maize, cassava, oil palm, milk, cocoa, tomato, fish and aquaculture, poultry, and livestock. Under maize for instance, despite being the largest maize producer in sub-Saharan Africa with about 11 million metric tonnes per annum, Nigeria currently has a demand deficit of 4.5 million metric tonnes, which were often bridged through importation. To address the demand gap, the Bank leveraged its partnership with the Maize Association of Nigeria (MAAN) by expanding finance to a number of smallholder farmers, as well as engaging large-scale maize processors such as Flour Mills, Olam, WACOT and various feed mills across the country to integrate backward through outgrower schemes.
- Towards consolidating on our efforts through a multi-faceted approach, the Bank has continued to support the agricultural sector under its several existing agricultural sector programmes and scheme, such as the Commercial Agriculture Credit Scheme (CACS), Paddy Aggregation Scheme (PAS), Real Sector Support Facility (DCRR OPTION) and the Agri-business/Small and Medium Enterprises Investment Scheme (AGSMEIS). All these programmes and schemes were introduced to ensure that the lofty plans of your people-oriented administration are achieved.
- The Commercial Agriculture Credit Scheme (CACS): Under the scheme the CBN has disbursed N719.32 billion to 668 large-scale (big ticket) agricultural projects for the production of 12 focus commodities in which Nigeria has comparative production advantages. Thanks to Emefiele and his team at the CBN, this initiative has, since inception created an estimated over 70,070 extra direct and indirect jobs. Notably, it has significantly contributed to the increase in the average national food output growth rate, from 9.96 percent at its introduction to 28.44 percent.
- Accelerated Agriculture Development Scheme (AADS): Through this scheme, the CBN has disbursed over N19.69 billion to 19 projects which engaged about 13,000 youth farmers in the cultivation of rice, cassava, fish, and livestock.
- Maize Aggregation Scheme (MAS): A total of N6.352 billion has been disbursed through the CBN’s Maize Aggregation Scheme. The scheme provided working capital to major feed mills and large-scale poultry farms to facilitate mop-up of maize produced by disparate farmers. It ensures increased capacity utilization of feed-mills and large poultry farms across seasons.
- Paddy Aggregation Scheme (PAS): Under this scheme, the CBN has disbursed over N100.19 billion. This is equally in the form of working capital support for millers targeted at paddy aggregation during harvest periods. The scheme has also helped to ensure increased capacity utilization of integrated rice mills and moderation of paddy prices across seasons.
- Presidential Fertilizer Initiative: Under the Presidential Fertilizer Initiative and with Emefiele’s management, the CBN intervention has disburse over N35.00 billion. The initiative facilitates bulk financing through NSIA to facilitate raw materials supply to local blending plants following a recent MoU with Morocco on local fertilizer production. It resulted in the resuscitation of about 30 indigenous fertilizer blending plants and formed the basis for the ban on importation of NPK into Nigeria.
- National Food Security Programme: The CBN has disbursed N59.09 billion through the National Food Security Programme. This involves wholesale finance that targets merchants and assist them to mop up grains for strategic reserves, which is supplied to National Emergency Management Agency. It was introduced to ensure market stabilization for grains and liquidity injection to encourage increased production by farmers and food security for the country.
- Approximately ₦9.30 billion has been disbursed through our Agriculture: Food for Jobs (ESP) initiative. The scheme released to four platform partners for 40,000 farmers cultivating 40,000 hectares of rice and maize under the Anchor Borrowers’ Programme. Under it, we worked with seven platform partners for the 2020/2021 dry season where we coordinated and supervised 100,000 farmers cultivating 100,000 hectares of heat, rice, maize and tomato.
Infrastructure Finance
- Infrastructure Corporation of Nigeria (InfraCorp): With plummeting revenues to Federal and State government due to reduced receipts from the sale of crude oil, Godwin Emefiele recognised the that alternative ways of funding infrastructure are critical if we are to ensure sustained growth of our economy. As we are all aware, the cost of logistics is often seen as a significant impediment to the growth of businesses in the country. In recognition of the role improved infrastructure could play in the development of our economy, along with the need to leverage private sector capital in funding the over N35trillion deficit, which is the estimated amount required to build an efficient infrastructure ecosystem in Nigeria, Emefiele’s CBN, working in partnership with critical stakeholders such as the Nigerian Sovereign Investment Authority (NSIA) and African Finance Corporation (AFC), set up the InfraCorp. By design, InfraCorp is expected to raise over N15 trillion to support investment in critical infrastructure in Nigeria, enhance structural re-balancing and boost the productive capacity of the Nigerian economy. So far, N1 trillion has been provided as seed funds by the promoters to support the operations of InfraCorp. The CBN recently appointed four fund managers, and a Management Team has been selected to run and manage InfraCorp. Over the next months, InfraCorp will kick-off its operations by targeting strategic infrastructure projects to catalyse and strengthen growth of our economy. InfraCorp is expected to set the standard template that will help in enabling greater private sector funding for public infrastructure projects in Nigeria.
- Nigerian International Financial Centre (NIFC): Emefiele also recognises the importance of a world-class financial infrastructure for the Nigerian economy, Accordingly, in order to mobilise international capital and support growth in key sectors, the CBN conceived the establishment of the NIFC. This will enable access to large pools of cheap investment capital. The NIFC will serve as a hub for attracting domestic and external capital to strengthen our post-covid economy and will help to strengthen investment flows, strategically, to Nigeria. It is well-known that a major challenge to supporting growth in key sectors of our economy is access to large pools of cheap investment capital. Today over $100 trillion is held by institutional investors in OECD countries, most of it invested in low yielding assets relative to high yielding opportunities in Nigeria. Working to tap into this pool of funds requires the set-up of an investment framework and world-class infrastructure that offers comfort and security to investors seeking to invest in critical sectors of our economy. In this regard, the CBN is set to establish the NIFC at the Eko Atlantic City in Lagos, that would serve as a hub for attracting domestic and external capital which is needed to strengthen our post-covid economy. The International Finance Center when fully operational, will help to position Nigeria as a key destination for investment in Africa.
Power & Energy Sector Interventions
- In conjunction with stakeholders in the power sector, the CBN under Godwin Emefiele, established a Special Purpose Vehicle, in the form of a low interest facility, to discharge existing legacy gas debts that had undermined gas supply to generating power plants in the country. This is aimed at improving investment and production in the power value chain. Over the years, and as the challenges underlying the power sector continue to unravel, Emefiele relentlessly rolled out initiatives to counter the evolving problems. Key among these are:
- Power and Airline Intervention Fund (PAIF): This is a N300 billion fund designed to stimulate and sustain private sector investment in the power and airline sectors as well as fast track development in both sectors of the economy. This fund aims to fast-track the development of electric power projects, especially in the identified industrial clusters in the country. It is also expected to support the development of the aviation sector of the Nigerian economy by improving the terms of credit to airlines. The CBN with this intervention aims to improve power supply. This will have the tangential and important benefit of boosting domestic production, generating employment, and enhancing the living standard of the citizens through consistent power supply. The Bank designed this intervention to provide leverage for additional private sector investments in the power and aviation sectors.
- Nigeria Electricity Market Stabilization Fund (NEMSF): The N213 billion market stabilization fund is aimed at providing liquidity to the Nigerian Electricity Supply Industry (NESI) by liquidating certain outstanding debts (the legacy debts) and the shortfall in revenue during the Interim Rules Period (IRP) up to end-December 2014. The exit year for this fund is 2025. Recognising the revenue leakages in the power sector the hindrance that the heavy indebtedness to gas suppliers portends for the economy, the hinderance Nigeria Electricity Market Stabilization Fund is set up to smoothen and steady all segments of the sector. Generally, it aims to settle outstanding payment obligations due to market participants, service providers and gas suppliers that accrued during the Interim Rules Period and the legacy gas debts. Over N120 billion of this facility has been disbursed for the settlement of all legacy gas debts owed to Nigeria Gas Company Limited and the gas suppliers. It also helped in settlement of Interim Rules Period (IRP) debts owed to beneficiaries.
- Nigeria Bulk Electricity Trading – Payment Assurance Facility (NBET-PAF): This is a bridging facility initiated by the CBN under Emefiele to enable NBET provide minimum payment guarantee to the GenCos for the period January 2017 to December 2018. The facility provided payment guarantee to GenCos with a view to further stabilising market and assuring suppliers and contractors of unfailing settlements for their services. The obligor in this case is the Nigerian Bulk Electricity Trading Plc (NBET), with interest rate of 5.0 percent (and 1 year moratorium on interest payment). The facility has a tenor of 10 years (not exceeding 31 December 2028) with a moratorium of 2 years after the effective date on the principal. The facilities is secured by letter of commitment from NBET (endorsed by Federal Ministry Finance, Budget and National Planning), to provide for the repayment obligation in its annual budgets until the loan is fully repaid.
- National Mass Metering Programme (NMMP): Given the revenue loss power companies on the backdrop of the deficient metering and poor revenue collection, Emefiele initiated the National Mass Metering Programme to help resolve the problems. The objective of the programme was to improve on DisCos network, reduce metering gap by increase Nigeria’s metering rate. This will help to eliminate the widespread problem of arbitrary estimated billing. It will also strengthen the local meter value-chain by increasing local meter manufacturing, assembly and deployment capacity. Overall, the initiative will support Nigeria’s economic recovery by creating jobs in the local meter value-chain, reduce collection losses, and increase financial flows to achieve 100% market remittance obligations of the DisCos. It will generally improve network monitoring capability and availability of data for market administration and investment decision making. The obligors in this facility are the electricity Distribution Companies (DisCos) and local meter manufacturers. Eligible activities for DisCos, under the NMMP, are restricted to the procurement and deployment of meters and the associated infrastructure (software and hardware) to support the metering network.
- Intervention Facility for National Gas Expansion Programme (IFNGEP): The CBN under Godwin Emefiele’s leadership equally understands the need of supporting the gas value-chain in order to achieve sustainable economic growth. Accordingly, they established the Intervention Facility for National Gas Expansion Programme with the objective of improving access to finance for private sector investments in the domestic gas value-chain. The intervention also aims to stimulate investments in the enabling infrastructure to optimize the domestic gas resources for economic development. It will fast-track the adoption of CNG as the fuel of choice for transportation and power generation, as well as LPG as the fuel of choice for domestic cooking, transportation and captive power. The intervention will accelerate the development of gas-based industries particularly petrochemical (fertilizer, methanol, etc) to support large industries, such as agriculture, textile, and related industries. With this intervention, Emefiele is able to provide leverage for additional private sector investments in the domestic gas market and boost employment across the country.
- Solar Energy Adoption Financing Facility (SEAFF): Emefiele’s objectives with this facility is to improve access to finance for private sector investments in the solar photovoltaic value-chain in Nigeria. He aims to stimulate investments in the development of infrastructure in the downstream and upstream segments of the solar photovoltaic value-chain to support the provision of solar power to rural communities with little or no access to the grid. With this facility, the CBN will increase Nigeria’s stock of clean energy and enhance national energy sovereignty. The goal is to quicken the adoption of solar photovoltaic as the preferred energy source by households and businesses across the country while bolstering employment generation across the country.
Covid-19 Pandemic and CBN’s Policy Responses
- The coronavirus pandemic has led to unprecedented disruptions to global supply chains, sharp drop in global crude oil prices, turmoil in global stock and financial markets, massive cancellation of sporting and entertainment events, lockdown of large swaths movements of persons in many countries, and intercontinental travel bans/restrictions across critical air routes across the world. These outcomes have had severe consequences on households’ livelihoods and business activities, resulting from drop in global demand, declined consumer confidence and slowdown in production. Following the pandemic, many countries closed their borders and restricted movements to curtail the spread of the virus. As a result, we witnessed unprecedented supply chain disruptions accompanied by devastating loss of lives and means of livelihood. The shock also caused:
- Increased volatility of the crude oil market. From an average of US$68 per barrel in January 2020, the price of crude oil fell below zero dollar per barrel, as producers were forced to pay buyers for overwhelmed storage facilities;
- Deteriorating global financial conditions. With the pandemic-induced uncertainty in global financial conditions, investors withdrew over $120 billion in portfolio capital from emerging and frontier market countries in the 1st half of 2020.
- Supply chain disruptions. With the restrictions on movements, to curb the spread of the virus, global supply chains experienced significant disruptions. Following the recovery in global demand as restriction measures were eased, inflation rose in advanced and developing countries.
- As a result, the Nigerian economy entered a recession having recorded two consecutive quarters of contraction in the second and third quarters of 2020. In view of the above, the Bank, under Godwin Emefiele’s leadership responded to the pandemic by introducing two schemes to help cushion the impact of the pandemic and strengthen the economy. The CBN provide a combined stimulus package of about N3.5 trillion in targeted measures to households, businesses, manufacturers and healthcare providers. These measures are designed to support the Federal Government’s immediate efforts at curb the impact of the pandemic and building a more resilient and self-reliant Nigerian economy. To take advantage of the opportunities that the Covid-19 pandemic presents to the nation, the Bank developed a Policy Response Timeline to guide our crises management and the orderly reboot of the Nigerian economy.
- In the intermediate-term (0 – 3 months), the Bank’s policy priorities are essentially aimed at ensuring financial stability by granting regulatory forbearance to banks to restructure terms of facilities in affected sectors.
- Short-Term policy priorities (0 – 12 months) is principally to promote the establishment of InfraCorp Plc, as a world-class infrastructure development vehicle, wholly focused on Nigeria, with combined debt and equity take-off capital of N15 trillion;
- Policy priorities in the Medium-Term (0 – 3 years) is to focus on four main areas including light manufacturing, affordable housing, renewable energy and cutting-edge research.
- In general, the various CBN’s policy responses to the Covid-19 pandemic can be specifically summarized as follows:
- A reduction of the monetary policy rate from 13.5 percent to 11.5 percent to spur lending.
- Reduction of the interest rate on all CBN intervention loans from 9 percent to 5 percent.
- Extension of the moratorium on principal repayments for CBN intervention facility to March 2023.
- Regulatory forbearance for banks to restructure loans to sectors severely affected by the pandemic.
- Creation of a N400 billion Targeted Credit Facility for households and small and medium enterprises. Of this, nearly N370 billion has been released to over 800,000 beneficiaries.
- Introduction of a N1 trillion facility for local manufacturing and production in critical sectors. So far, 53 manufacturing, 21 agriculture-related, and 13 service projects are being funded from this facility.
- Creation of a N200 billion Healthcare intervention fund for pharmaceutical companies and healthcare practitioners to expand and strengthen the capacity of our healthcare institutions.
- Mobilization of key stakeholders in the Nigerian economy, under the Private Sector Coalition Against Covid-19 (CACOVID) team that raised N39.65 billion to tackle the scourge.
- These initiatives helped to spur and support the recovery of our economy and re-align general macroeconomic conditions. Owing to these policy actions, Nigeria exited the recession in the 4th quarter of 2020 with a growth rate of 0.11 percent, which improved to 3.98 percent by the 4th quarter of 2021, supported by accommodative monetary policy stance.
Banking System Stability
- Since 2014, when Emefiele assumed his position as the Central Bank Governor, he had ensured that the Nigerian banking is not only robust but continued to strengthen. Nigeria’s financial system is in a much stronger position following the 2016 crisis, as capital buffers and liquidity in the banking system have continued to improve. Under his watch, no Nigerian bank has gone burst. Even the hitherto weak ones were nurtured back to health through his administrative expertise and managerial sagacity. Today, the Nigerian banking sector remains comprehensively resilient, robust and sound. The industry has expansively continued to consolidate its strength since the 2015 recession and has remained on a long-run path of progress. Although fragilities exist in a few banks, following the recent adverse shocks of the pandemic, there is no risk of failure in the affected banks, even as these banks generally constituted negligible risks to the system and do not significantly undermine industry averages. The continued health of the Nigerian banking sector is buttressed by the following:
- Non-performing Loans (NPL). The resilience of the industry is gleaned from the continued improvement in the NPL ratio. From 14.9 percent at at December 2017, industry NPLs declined steadily to 11.7 percent in December 2018, 6.1 percent in December 2019, and 5.7 percent in October 2020. Today, it continues to fall and as at December 2021 has dropped to 4.94 percent, below the in-house CBN regulatory threshold of 5 percent. Though current NPL is just below the in-house target, the downward long-run trend is satisfying and indicates that NPLs will drop further, following prudent regulatory guidance of Godwin Emefiele. Going forward, and barring unexpected adverse shocks, Emefiele’s policies is guaranteed to maintain industry NPL within desired corridor. CBN strategies to manage NPLs, chiefly for the few outlying banks includes:
- a case by case review of Covid-19 forebearance to allow increased manoeuvreability to banks in their loan administration;
- implementation of the GSI policy to link borrowers’ accounts in every bank and permit banks to net-out outstanding obligations from erring obligors in any bank within the country;
- strengthening of risk management practices within the industry (including an effective use of the CRMS, BVN policy, etc)
- Capital Adequacy Ratio (CAR). Under Godwin Emefiele, banking industry CAR continued to strengthen over the last few years for the Nigerian banking system. From 12.08 percent at end-June 2018, industry CAR improved to 15.1 percent at November 2019, and 16.1 percent in March 2021. As at September 2021, current CAR stands at 15.0 percent for the entire industry compared with an in-house regulatory threshold of 15.0 percent and relative to the international benchmark of 8.0 percent. A breakdown shows that:
- for banks with international authorisation, average CAR stands robustly at 18.7 percent in September 2021, over the 15.0 percent minimum threshold;
- average CAR for banks with national authorisation in September 2021 was 6.5 percent, reflecting the fragilities in a few banks;
- in computing overall industry CAR, total qualifying capital increased by 10.9 percent, from N3.74 trillion at end-September 2020 to N4.15 trillion at end-September 2021;
- total risk weighted assets increased by N3.40 trillion or 14.0 percent, from N24.30 trillion at end-September 2020 to N27.71 trillion at end-September 2021;
- the significant growth in total risk weighted assets outweighed the increase in total qualifying capital, resulting in the decline in the CAR.
- Liquidity Ratio (LR). Industry LR has remained historically sturdily and above the regulatory minimum of 30 percent. As at end-December 2021, LR stood at 41.3 percent, a 6.43 percentage points improvement from 34.9 percent recorded as at end-November 2020. Notably:
- liquidity ratio rose to 44.5 percent in December 2020 due to the CBN decision to convert N4.1 trillion of CRR to CBN-issued Special Bills;
- it has however decreased from 44.5 percent at end-December 2020 to 42.0 percent at end-September 2021;
- regulatory minimum remained at 30 percent for commercial banks and 20 percent for merchant banks;
- N9.92 trillion was held in CRR as at September 30, 2021;
- the industry was significantly exposed to financial assets and liabilities mismatch as financial liabilities were mostly short-term in nature vis-à-vis longer termed contractual assets.
- In general, the banking system remains safe, sound and stable. Key FSIs, especially the CAR and LR, continued to outperform prudential limits while industry indicators, including credit and deposits, maintained positive trajectories over the last few years. This equally reflected the adoption of risk-based supervision under Godwin Emefiele. Essentially, the various adjustments of the naira exchange rate since 2015, following the shift to a more flexible foreign exchange mechanism, impacted somewhat on the balance sheets of domestic banks. To guarantee financial stability as Nigeria continues with flexible exchange rate system, the CBN (with the adoption of risk-based supervisory framework) took a number of steps, including:
- Monitoring compliance of supervised institutions with the foreign exchange management framework issued in June 2016 through our risk-based supervision methodology, which also involved reviewing international trade and foreign exchange operations of local banks;
- Monitoring the financial position and performance of supervised institutions;
- Assessment of the risk profile and governance management practices of banks
- In the event of major deteriorations on any key risk indicator, we engaged with the affected bank in order to mitigate concerns and shore-up their capital base
- Credit conditions in the banking system have improved due to the novel policy measure announced by Godwin Emefiele in June 2019, that mandated banks to maintain a minimum of 65 percent loan-to-deposit ratio. With this policy, the Emefiele’s CBN devised a way to ensure that the banking system lends no-less-than 65 percent of their deposits to the domestic private sector. This was aimed at ensuring that the real sectors have the needed credits to fund their businesses, enhance their domestic factor productivity, further job creation, and generally bolster the potential and actual output of the economy. Besides, under Emefiele, the CBN also embarked on strategies to continually de-risk lending to productive sectors without hampering the health of the banks. The CBN rolled out the Global Standing Instruction policy to deter unscrupulous borrowers from the system. Thus, banks are now able to recover delinquent loans from a customer’s accounts in other banks. These measures have placed our banks in a much better position towards supporting a stronger economic recovery.
Supporting the Growth of the Digital Economy
- A key focus of the Central Bank of Nigeria under Emefiels’s leadership has been enabling the buildout of a robust payment system in Nigeria, that will provide cheap, efficient, and faster means of conducting payments for most Nigerians. With the growing pace of digitization globally, Emefiele recognises the importance of leveraging digital channels in fulfilling his payments system objective. Total transaction volumes using digital channels more than doubled between 2018 and 2020, as volumes rose from 1.3 billion to over 3.3 billion financial transactions in 2020. Nigeria’s robust payment system has continued to evolve towards meeting the needs of households and businesses in the economy. Reflective of the confidence in the payment system, between 2015 and September 2021, about $700 million has been invested in firms run by Nigerian founders. Notwithstanding these gains close to 36 percent of adult Nigerians do not have access to financial services. Improving access to finance for individuals and businesses through digital channels will help to improve financial inclusion, lower the cost of transactions, and increase the flow of credit to households and businesses.
- The eNaira: It is in this vein that the Central Bank of Nigeria recently deployed the first central bank digital currency in Africa, the eNaira, which will help in attaining our goals of fostering greater inclusion using digital channels, supporting cross border payments for businesses and firms, and providing a reliable channel for remittances inflows into the country. The eNaira will ensure that Nigerians in remote areas can conduct financial activities using their digital devices at little or no cost. In less than 4 weeks since its launch almost 600,000 downloads of the eNaira application have taken place. Efforts are ongoing to encourage faster adoption of the eNaira by Nigerians who do not have smartphones. The support of the financial industry will be critical in the ongoing deployment of the eNaira and efforts are on-going to encourage continued partnership between the CBN and stakeholders in the financial industry.
- Payments System Management: The Bank took a number of measures ensure a more inclusive financial system that will support economic growth through robust digital tools. Key among these is the creation of the Payments System Management Department within the CBN that will license, regulate, supervise the activities of all Payments Service Providers (PSPs). To promote greater use of digital finance tools, the department is required to develop a robust payment infrastructure that support financial transactions at lower cost, safely and securely. In addition to this, the CBN implemented several initiatives to improved access to finance and credit through digital channels. Some of these initiatives include:
- Issuance of the regulatory framework for agent banking and agent banking relationships in Nigeria;
- Introduction of the super-agent license;
- Creation of NISRAL MicroFinance Bank in all NIPOST outlets nationwide to enable individuals in underserved locations access financial services at a reasonable cost;
- Establishment of mobile money platforms to address the observed absence of a wide-spread agent network, and concentration of agents in the urban areas;
- Introduction of the Shared Agent Network Expansion Facility (SANEF) of the Central Bank of Nigeria (CBN) and the Bankers’ Committee; and
- Issuance of a regulatory framework for the use of Unstructured Supplementary Service Data (USSD) in the Nigerian financial system.
Conclusion
- Godwin Emefiele’s thirst for success knows no bound as are his accomplishments. He has no limits to the heights he thinks Nigeria can attain, as he staunchly believes that Nigeria has all it takes to be a leader in the comity of nations. His zeal and passion for the country glows intensely and unquenchably in his heart. At the Central Bank of Nigeria, Emefiele is resolutely dedicated to balancing the objectives of price stability with desire for long-run output stabilisation, in order to enhance the socio-economic wellbeing of every Nigerian, eradicate poverty, and eliminate social vices. He understands the important role a full-fledged diversification of the economy will play in ensuring that the long-run path of inflation, GDP growth, and exchange rate achieve their respective equilibrium level. As such, the Bank under his visionary leadership has continued to take measures that will diversify Nigeria’s revenue base, reduce our dependence on crude oil, and accomplish self-sufficiency in the domestic production of critical commodities, especially food, for which Nigeria has considerable comparative advantage. Godwin Emefiele is not deterred by the fragile short-term outlook due to the Covid-19 pandemic and its impact on output forecasts and inflation expectation. Accordingly, under his watch, the Bank’s monetary (and financial) policy actions as well as development finance initiatives will aim to mitigate the depth and severity of any unfavourable outturns, while strengthening macroeconomic fundamentals.