CBN Governor Godwin Emefiele, keynote address at the annual bankers’ dinner organized by the Chartered Institute of Bankers of Nigeria (CIBN) Nov 2016

CBN Governor Godwin Emefiele, delivered a keynote address at the annual bankers’ dinner organized by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos November 2016.

 

Excerpts:

“the CBN would be abjectly failing on one of its cardinal objectives if it cuts interest rates at this time.” Godwin Emefiele

“For those who say we need a rate cut to spur growth, we need to remind that high inflation is highly inimical to economic growth. Indeed, many empirical studies have estimated the threshold level at which inflation becomes significantly growth retarding to be 11 percent for developing countries.

“With ours at 18.3 per cent, one must question the judgment of cutting interest rates at this time. Finally, I think it is important to underscore that interest rates reflects not just the cost of capital but also the cost of doing business, and so we need to also look at interest rates from the perspective of the lender.

“Given that most banks have decided to individually provide security, power, and other infrastructure, it is not surprising that some of these costs are passed on to customers in the form of high interest rates. Notwithstanding these facts, we will continue to use moral suasion to encourage commercial banks to be more considerate in interest charges on customers,”

“Given the sharp drop in oil prices, Federation Account Allocations to states had dropped by an average of about N2 billion monthly per state, which partly explained their inability to meet some basic recurrent expenditures including payment of workers’ salaries.”

“Similarly, average inflows of foreign exchange into the CBN have fallen by over $2.3 billion every month over the last 26 months”

”Contrary to correct policy prescriptions during times of boom, we opened up our economy to “all-comers” and dropped all capital controls.” “At some point, we received more than US$23 billion in “hot money” in foreign portfolio inflows (FPIs) in the country in a particular year.”

“Monies that could easily evaporate at the slightest hint of an economic slowdown. Recall that in September 2008, Nigeria’s FX Reserves hit a whopping US$62 billion, even after we had spent about US$12 billion settling our external debt obligations. What did we do with the money?”

“We set up BDCs and started giving out FX cash to them. At some point, we even had Class A BDCs that could collect as much as US$1 million per week. On average, we sold about US$6 billion per year for frivolous reasons. Over the 11 years that we were practising this, we sold more than US$66 billion.”

“None of these monies were used to build factories or to create jobs in Nigeria. None of these were used to build hospitals or schools in Nigeria. Imagine what this money would have meant to us if we had that amount in our FX Reserves today,”

“As our manufacturing companies started closing especially for lack of power, we gladly substituted them with seemingly cheap imports while inadvertently exporting jobs and importing poverty to our country.”

“Contrary to what I have heard some commentators and “arm-chair” policy analysts assert, the size of our FX Reserves and the value of the Naira critically depend on our lifestyles and on the value and types of imports we allow into this country. Imagine for a minute that 90 percent of the things you buy in Shoprite stores across the country are imported: the eggs and avocado peers are from South Africa, the meat is from Zambia, and Moet Champagne is from France.”

“In fact, Shoprite revealed in June 2013 that it believes Nigeria has space for up to 800 Shoprite stores, and that the seven outlets it already had then sold more Moët & Chandon champagne in 2012 than its South African stores combined!,”

“in June 2014, FX Reserves had fallen from the aforementioned high of US$62 billion in 2008 to only US$37 billion!” “Yet, demand for FX has reached an all-time high of over US$1.2 billion per week or US$4.8 billion per month.”