Goings on in international financial circles especially since the Donald Trump administration came on board is throwing the whole system into a tailspin. Rise in the United States (US) interest rate, funds flow reversals away from emerging and frontier markets, appreciation in the value of the United States dollar relative to other emerging markets’ currencies have led to a situation that between January and September, four emerging market currencies had lost well over 20 per cent in value against the US dollar. This crisis has aggravated high current account deficit in some of the emerging market countries generating, in the process, rising dollar debt and fiscal deficit as a proportion of their Gross Domestic Product, GDP. This development is not helped by the trade tensions between the United States and China which is beginning to take its toll on global trade.
From all indications, Nigeria seems relatively insulated from the crisis in emerging markets. This can be easily attributed to the reform policies of the Governor of Central Bank of Nigeria (CBN), Godwin Emefiele. Some of these policies include the exclusion of 41 items from CBN foreign exchange (forex) window, the Import and Export forex window, sale of forex to Bureaux De Change (BDCs), anchor borrowers programme, constant intervention in the forex market to ensure liquidity and ease access to forex by those in need which has given rise to stable exchange rate. For some time now, the exchange rate of the naira to the dollar has almost stabilised which in turn is encouraging long term planning by fund users and businesses.
Also, another policy that has shielded Nigeria from the uncertainties in the international financial system is that which allows businesses, especially foreign investors, to come in at will to do their business and exit when they so desire. The exclusion of 41 items from access to official foreign exchange allocation, in particular, has gone a long way to incentivise and activate local production of those items which in turn reduced stress on the foreign exchange market. The CBN believes it is time to look inwards and stop supporting the importation of items that can be produced locally. This implies that importers who may want to bring in such goods or services will have to source their Foreign Exchange outside banks or BDCs.
The most outstanding policy of the Governor of Central Bank of Nigeria (CBN), in our opinion, is his informed decision to expand his portfolio away from just monetary policy and financial services stability to developing the economy. His decision to be the arrowhead of the Muhammadu Buhari administration’s policy to radically diversify the economy has paid off handsomely. For instance, his policy foray into agrobusiness and agro-processing is playing big time in enhancing the nation’s GDP. The Anchor Borrowers’ Programme, together with other initiatives like the Commercial Agriculture Credit Scheme and other packages for Small and Medium Enterprises (SMEs), are holding on significantly in the drive to boost the economy and shield it from the perceived volatilities in the international economy that is dragging back most emerging markets.
The bank has committed close to N23 billion in the Anchor Borrowers’ Programme, with active participation across 14 states of the Federation. In Kebbi State, over 78,000 smallholders are now cultivating about 100,000 hectares of rice farms. It is worthy of note that before the policy intervention of the CBN, Nigeria was consuming about 6.1 million tonnes of annually most of it imported and was producing less than 2.5 million metric tonnes. This has been significantly reversed just as the apex bank remains committed to do more in some identified crops such as rice, maize, sorghum, tomatoes, cassava, cocoa, cotton, dairy, and groundnut. One of the reasons the CBN ventured into development banking was to minimize the effects of high interest rates on customers. The bank has intervened through various developmental programmes, all at single digit interest rates, disbursing N393 billion in 490 projects under the Commercial Agriculture Credit Scheme, N79.8billion under the Micro, Small and Medium Enterprises (MSME) Scheme, and N236.4 billion under the Power and Aviation Intervention Fund with 6.7million direct jobs and a lot more indirect jobs. The policy on agriculture is attracting private investment in the sector, converting idle land assets into valuable, tradable and exchangeable assets that are unlocking the flow of finance to the rural agricultural economy which absorbs 60-70 percent of Nigeria’s population, mostly the youth.
The CBN recently revealed its plan to introduce a single digit interest rate using the Cash Reserve Ratio (CRR) of banks for the real sector. It is important to underscore that interest rates reflect not just the cost of capital but also the cost of doing business, and so the apex bank ought to be encouraged by all stakeholders to actualise that plan because of its potentials to grow the economy and enhance the GDP.