By Omodele Adigun
Those thinking that the embargo on the 41 items may have been lifted were proed wrong over the weekend as the Governor of the Central Bank of Nigeria(CBN), Mr Godwin Emefiele, stated that the ban is not only in force but also canvassed their support for the policy.
According to Emefiele, the policy was not just in response to the pressure on the Naira, but also as an opportunity to change the economy’s structure, resuscitate local manufacturing, and expand job creation for the citizenry.
The apex bank boss, who stated this at the weekend in Lagos while recieving Vanguard Newspaper’s Personality of the Year Award, enjoined Nigerians to support the policy as its variants have proven to be highly effective in other climes and even in the country. He stated: “This policy was basically borne out of necessity to conserve foreign exchange. I know that no policy is cast in stone, and we may have no need for it some day in this country. But, policymakers across this country need to pay attention to global trends and ensure that they reflect upon our strategy and thinking. Given the new realities of nationalist and populist sentiments sweeping across the world (Brexit in the UK, election of Donald Trump in the US, rise of Marine Le Pen in France, and Geert Wilders’ encouraging poll numbers in the Netherlands, etc), the calls from certain quarters for a reversal of this policy is quite saddening.
“For example, throughout the early days of South Korea’s economic renaissance, the government intermittently used excessively stiff tariffs, quantitative restrictions and prohibitive inland taxes to effectively ban many items with potential for high imports, and simultaneously, offered generous and subsidized loans to firms for export promotion causes. In fact, at some point, about 93 per cent of total imports into South Korea were subject to one or more such restrictions.
“And here at home, this policy have been used to achieve significant sufficiency in cement, a product whose importation could have been costing us over US$3.2 billion in foreign reserves annually.”
On the issue of foreign exchange (forex), he assured Nigerians of the apex’s bank’s willingness, determination, and capacity to meet all legitimate foreign exchange(forex) demands, threatening to make forex speculators lose their money. He stated that the CBN would not sit idly and watch faceless criminals destroy the currency.
His words: “Let me also reiterate the central bank’s willingness, determination, and capacity to continue to meet all legitimate transaction-based FX demands in the market. I obviously cannot be of help to people or businesses who are into speculative FX demand. My promise instead to this group, whether foreign or local, is that the CBN will make sure they lose money!”
The CBN boss also took time to dress down those calling on the country to emulate Egypt and allow the free float of the Naira. “I have always had one simple question for this group of persons: name me just one country in the whole world that practises a freely floating exchange rate regime? Just one.
I have heard commentators suggest we
should follow Egypt’s example and free the Naira. What they do not
tell you is that following their currency adjustments; inflation today
in Egypt is over 30 percent. Is that what we want in Nigeria?
On nation’s inflationary trend, he explained that the nation is
suffering from “cost-push inflation, exacerbated by supply shortages
in food, fuels, and FX.”
He added: ìIn view of the fact that our current episode of
inflationary pressure is coinciding with contracting
economic growth, we have to recognize that the
dilemma it poses to policymaking. This is because no single
macroeconomic policy can address rising inflation and slow growth
simultaneously, because fighting inflation may require implementing
policies that might, in the short term, be inimical to economic
growth, whereas, adopting expansionary policies to stimulate growth
usually worsen inflation. This is the reason the Monetary Policy
Committee has , rather than concede to reducing rates, decided to HOLD
its position through the adoption of tight monetary policy and this is
also the reason we have seen a deceleration in the rate of month-on-
month inflation in the last couple of months. Like all other
Nigerians, the Committee is conscious of the adverse impact of
inflation and rising prices on the lives of ordinary; hence the
posture it currently adopt.î
On high interest rate, he blamed it on cost of capital and cost of
doing business in the country. ìThis is why the CBN’s fight to bring
inflation down is strongly connected to our quest to ensure that
lending rates also come down in due course, ì he said.
Shedding more light on why interest rate is high, he said: ìFirst, I
sympathize with people
when I hear the call on the CBN to reduce interest rates. I share
their goal of a reduced
single digit interest rate regime in Nigeria. But many people do not
seem to understand that in times of high inflation, reducing interest
rates make inflationary pressures much worse, with a second round
effect of making economic growth even less possible.
It is also important to note that interest rates reflect both cost of
capital as well as cost of doing business. If we can approximate cost
of capital as the average saving interest rate, which is about 6
percent, what then accounts for lending rates at 25 or more percent?
It is cost of doing business. For example, a typical Nigerian Bank
must employ the services of policemen and other security people
deployed constantly to protect its branches. The bank must also
provide a significant amount for reliable electricity and broadband
Internet services to keep its systems running. These expenditures only
further increase costs of doing business for lenders, a cost they must
pass on to borrowers.
This is why the CBN’s fight to bring inflation down It is also important to note that interest rates reflect both cost of capital as well as cost of
doing business. If we can approximate cost of capital as the average saving interest rate, which is about 6 percent, what then accounts for lending rates at 25 or more percent? It is cost of doing business. For example, a typical Nigerian Bank must employ the services of policemen and other security people deployed constantly to protect its branches. The bank must also provide a significant amount for reliable electricity and broadband Internet services to keep its systems running. These expenditures only further increase costs of doing business for lenders, a cost they must pass on to borrowers.î