The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele; and the Chairman, Stanbic IBTC Bank Plc, Mr. Atedo Peterside, on Thursday disagreed over whether the flexible foreign exchange policy of the apex bank had been able to address the foreign exchange challenges in the country or not.
They both spoke in Abuja at the 14th Daily Trust Dialogue, which had as its theme: ‘Beyond recession: Towards a resilient economy’.
While Peterside claimed that the forex and interest rate policies of the apex bank had not achieved the needed impact owing to the fact that they were not market-determined, Emefiele said that the policies were not made in isolation.
The Stanbic IBTC chairman said that currently, there were 11 major steps that the government needed to take so as to address the current economic woes.
They steps, according to him, include correcting the imbalance in the foreign exchange policy, making peace with the Niger Delta militants, sale of some national assets, deregulation of the entire downstream petroleum sector, reduction of the bloated civil service, and making states economically viable.
Others are addressing deficit in infrastructure, improving the nation’s legal system, respect for rule of law by the government, restoring business confidence and appointment of directors to the boards of every regulatory agency of government.
He said, “I know that there are those who will criticise me for saying that the Federal Government’s economic policy direction remains unclear. My response to them is that the most significant economic reforms embraced so far by government came about rather reluctantly.
“The Central Bank of Nigeria should accept that its foreign exchange and demand management policies have failed. The more restrictions they have placed on forex repatriation, the less likely it has become that badly needed forex inflows from portfolio investors, foreign direct investors and Nigerians will pick up.”
He added, “The CBN has inadvertently created a siege mentality, thereby making privileged access to its forex allocations, which are reserved largely for the politically well-connected, the best investment game in town.
“Furthermore, the directive to banks to allocate 60 per cent of forex to manufacturers that account for only 10 per cent of the Gross Domestic Product has exacerbated an already bad supply situation.
“Forty per cent is too small to accommodate the rest of the economy and so all other sectors have been crippled, including the service sector, which accounts for over 50 per cent of the GDP.
“This has unleashed panic, thereby sending the parallel market to the high heavens. Forex inflows disappeared partly because of the uncertainty surrounding the ability to repatriate interest/dividends through an overly restrictive 40 per cent window.
“There is nothing magical about 60 per cent or 40 per cent. It has no scientific basis. Meanwhile, it has huge adverse distortionary implications on the supply side. The end result has been our mind-boggling and widely divergent multiple exchange rates, which have spooked investors who have taken fright and also taken flight.
“Sadly, we have effectively ‘shot ourselves in the foot’ by taking unsustainable actions that crippled both forex inflows and the service sector, whilst favouring even those manufacturers who own ‘zombie’ industries that are horribly import-dependent.”
Peterside restated his earlier position on the sale of some national assets, adding that they could generate between $15bn and $20bn in the next two years if their sale was planned carefully.
He said those advising the government to rely on debt alone to take the country out of the present low foreign exchange trap did not mean well for the nation, adding that such a move was a high risk strategy that should be rejected.
Peterside said, “Our economy is underperforming because, among other things, it is caught up in a low foreign exchange trap. Borrowing alone is not and can never be a panacea.
“Indeed, borrowing without instituting necessary and badly needed economic and structural reforms is akin to suicide. Those who are canvassing for more foreign debt simply because our debt to GDP ratio is low are overlooking the fact that our debt service ratios are already high.
“Our debt service ratios are high because our tax to GDP ratio at six per cent is exceedingly poor. Relying on debt alone to get us out of the present low foreign exchange trap is, therefore, a high risk strategy. I consider it to be ill-advised.”
Responding to the issues raised by Peterside, the CBN governor said the priority of the apex bank now was on Nigerians who wanted to import raw materials for the purpose of manufacturing.
Emefiele said, “Our priority today will be Nigerian masses, Nigerians and no other person. Within the limited resources at our disposal, we will continue to give emphasis to those who want to import raw materials.
“We will give emphasis to those who want to employ plants and equipment that will help this country. We will direct support and emphasis to those who are going into agriculture, who are importing agricultural raw materials and implements because we love our country.
“Mr. Atedo Peterside has raised 11 points, which I will say some are contestable and we disagree with some of them. But we will look at them, especially those that affect the central bank.”
The apex bank boss added, “But it is very important that when you stand and talk, it is always good for you to come from a standpoint where you ask those who have made the policies why they have made the policies.
“Policies are not made in isolation. They are made because certain things have happened and they are made because there is an objective in mind, and they are made to ensure that those objectives are achieved.”