During the just concluded annual IMF/World Bank meetings held in Washington, the Nigerian delegation, led by the Minister of Finance, Mrs. Kemi Adeosun and the Governor, Central Bank of Nigeria, Mr. Godwin Emefiele held meetings with several multilateral groups and members of the international investment community to intimate them on the various measures being pursued by the federal government to facilitate recovery of the Nigerian economy. Highlights and achievements from these meetings were presented during an interactive session with Nigerian media representatives at the meetings. Excerpts of the session are presented below
Adeosun: At the various meetings the outlook that was presented was that the global economy will remain subdued and that it has some implications for us in Africa generally but in Nigeria specifically. There is therefore the need to apply the full combination of monetary, fiscal and structural tools to ensure that we are able to return to growth.
We had validation of our economic strategy, that is our strategy to transform Nigeria from consumption driven to an export driven model and whilst in the short term, there has been some pains and dislocation, the long term economic outlook for Nigeria remains bright.
One of our key objectives coming out here was to see how Nigeria could better take advantage of its relationships with the multilateral agencies and with friends and supporters in the ministries of finance and treasury departments of the various countries in attendance.
We had a number of specific bilateral meetings with United Kingdom Department for International Development, the US treasury and other partners.
Based on the commitment of all to reverse the trend of illicit financial flows which has seen significant money flow out of Nigeria, we have reached some high level agreement on a number of initiatives which we believe can bring significant repatriation of money back to the Nigerian economy, particularly money that has flown out as a result of tax evasion. And we would be briefing Mr. President on specifics and I would be able to provide you with more detailed information when I have Mr. President’s final and formal approval.
Agreement with World Bank
The key attainments from this trip – we met with the World Bank and the country team as a group and one of the discussions was that there was an unacceptable low level of disbursement of funds on Nigerian projects. Indeed, the rate is 13 per cent at the moment which is unacceptably low. We agreed on a number of measures to reverse this, and these include:
i) We would review process of originating projects, project designs and implementation issues to understand why certain projects are performing at such a low rate; ii) We would consider restructuring, reallocating or even canceling irredeemable project components; iii) We would strengthen our implementation capacity including our capacity for monitoring and evaluation. iv)We would have regular monthly meetings now with the World Bank Group and there would be regular briefings of Federal Executive Council and the National Economic Council on the performance of Nigeria’s portfolios. And that’s because some of these projects are at state governments’ level.
So it’s very important to bring to the attention of the governors failing World Bank projects in their states so that we can actually access this money which of course is concessional and is aligned to our development goals. We believe it’s unacceptable that Nigeria should be drawing down at such a low rate especially at time like this when we really need these investments.
On specific issues, agreement was reached to progress the following projects: The $500million Irrigation Projects covering Bakolori, Kano River and Hadejia Valey. This is irrigation schemes which had been delayed due to counterpart funding of $4 million. The Ministry of Water Resources has confirmed that the counterpart payment has been made as part of the recent releases of funds by the federal government. This will enable immediate take off of the project.
Agreement was reached to expedite action for the take off of the $500 million North East Social safety net project. Agreement was also reached on the final step for the take off of the Development Bank of Nigeria which had been stopped due to some issues, we have resolved all those issues, the recruitment process has now been finalised with management team put in place and this will release $1.3 billion which is aimed at supporting SMEs and MSMEs. They are part of the engine that will spur the growth of our economy, SME lending at low rates will now be facilitated through the DBN and we are ready to resolve the outstanding issues.
We also had high level discussion on the challenges in the power sector, these challenges were seen to be financial challenges therefore agreement was reached that there will be a workshop in Abuja in November that will be attended by the World Bank Group, IFC, MIGA which provided partial risk guarantees, the Ministry of Power, the Ministry of Finance, the CBN, NNPC for the gas perspective, the GENCOs, DISCOs, all the stakeholders in the power sector and the World Bank are bringing their specialist power finance team to see how they can proffer financial solutions to the challenges of power in Nigeria.
We also met with JICA, the Japan International Cooperation Agency and we secured their commitment to facilitate trade and investment in Nigeria, specifically they have agreed to make investments in agriculture, fisheries sector and we have made progress on the Jebba hydro projects which is also a power project.
With respect to our constituency which represents South Africa, Nigeria and Angola, we had a meeting here and we reviewed the fact that the allocation to our constituency are among the poorest particularly from the IFC is unacceptably low. So what we have agreed to do is that we will be hosting a meeting in Abuja in March for the three finance ministers and the idea is that we will benchmark and scale up our technical capacity to ensure that we are able to get more of what is available for the three countries. We also secured commitments from the Canadian ministry of finance to support us in the PPP platform for roads. They have successfully developed a PPP platform for road investment and they have offered to support us on the technical front in that regard
Family Home Fund
The delegation also presented the Family Home Fund, which is our affordable housing project, to a number of prospective investors and development partners including the World Bank, IFC, MIGA and the Islamic Development Bank. We’ve already received indicative interest and we’ll be coming back to tie up those funding commitments.
We plan and have agreed on technical support in the area of domestic revenue mobilisation and we’re going to make more use of the IMF’s online training in financial management, we will be incentivising our staff who are interested in taking these courses to do so.
Discussion with IFC
Finally we had a meeting with the IFC which is the private sector investing window of the World Bank Group, even though they have significant investment in Nigeria, it is limited to a number of sectors. They significantly want to scale up and we’ve agreed with them, two things, one is that we’ll host a road show to showcase Nigerian indigenous companies that could be eligible for IFC inward investment and we’ve agreed with them also that we should try to develop a pipeline of products rather than waiting for IFC to look for companies; the ministry of finance should take a proactive role in showcasing some of our eligible companies for IFC which we believe will crowd in more private sector investment and the jobs and growth that we need.
We met with the rating agencies as you know; they recently had some rating actions on Nigeria. We met with Moody, Fitch and S&P had interactive session with them and updated them on our economic plans and giving them the picture of what we are doing, overall , it was very positive engagement. We had some takeaway and we remain very confident that that the strategy we are pursuing will result in some quick recovery to the Nigerian Economy.
CBN governor; EMEFIELE
The Honorable Minister of Finance has dealt with most of the issues on the engagement that we had in the last couple of days in Washington. But I think it is important for us to underscore the importance of these meetings giving the fact that in just one single gathering, finance ministers and central bank governors of 189 countries all gathered in Washington to discuss issues about the global economy, and the economic outlooks; about where the global economy is heading to. And what are we likely to see in the immediate, short term and the long run for the global economy.
Like she said, basically global growth remains subdued at about 3.1 per cent for 2016. That is the forecast and thinking that there would in 2017, hopefully it will grow up to about 3.4 per cent. Unfortunately from the African side, growth for Africa was down graded to about 1.4 per cent from about 3.6 per cent that had been forecasted during the previous meeting here in Washington. The drag primarily came from the big countries in Africa, Nigeria, South Africa and Angola which incidentally are all commodity exporting nations. So because of the adverse impact of the commodity prices, they had what we call significant drag on the growth on Africa.
The non oil and non commodity depended economies have continue to witness good growth. What that means to us as we talked to our colleagues is that there is need for us to continue to put in place policies that will diversify and reduce the dependence on commodity as sources of livelihood into other areas that are non commodities dependent. There is also strong need for economies to look at structural reforms and that are parts of the things that the minister has address quite significantly and about infrastructure, power, roads and some of the projects that have been stalled over a period of time. What also come out was that for the emerging markets and developing countries, there is no one solution that fit all that we should all go back and think of what kind of policies that we think can be put in place to help our economies. Aside from this, we also held meetings at the sidelines with delegations from central banks from different countries to see how Central Bank of Nigeria could also collaborate with them on the bilateral currencies transactions and we are optimistic that this will yield some results but the engagements will naturally continue.
Foreign exchange policy
We held meetings with some group of foreign investors who have shown interest in coming in to Nigeria but that they had few issues with some of our policies and they want us to address them. They like the fact that we adopted the flexible exchange rate regime, but there are some areas they want us to address, but like I always said this policy is not cast on stones, we can always go back and look at it but what is most important in our minds as we are trying to look into these policies, we will make sure that they are policies that have been put in place in the interest of Nigeria as well as Nigerians because that is what is important.
So at this stage the important thing is how do we protect Nigerians? What do we do to ensure that we reduce the level of unemployment? What do we do to ensure that manufacturers continue to improve their industrial capacities? How do we make it possible for them to get foreign exchange to run their factories so that prices can be moderated at the level that the purchasing power of our people does not look totally eroded? These are some of the engagements and I am pretty much optimistic that as we continue these engagements, they would yield results.
Why is it that there seems to be a kind of disharmony between the fiscal and monetary authorities in Nigeria? For instance at the last MPC meeting, while the minister was calling for a lowering of interest rate, the MPC resolved to maintain the rate. With the fallout of the IMF/World Bank meetings, do we expect to see greater collaboration between the CBN and ministry of finance in terms of your policies?
Adeosun: When you are doing expansion, you need low interest rate and that is the general economics. If you actually listened, I said Monetary Policy Committee is independent, the members know what they are seeing on the monetary supply side. So, do I still need lower interest rate now, yes; and for as long as I am running a deficit financing, I need low interest rate. Does that mean that CBN should lower interest rate at once, no? There was never a call on my part that they should lower interest rate. They asked me what I wanted and I said I need lower interest rates. Remember that I am borrowing externally and internally, so one of the things that we have always said is that we need to come out of the Naira and borrow internationally because it is now at very low interest rate.
Many countries have even negative interest rate. So that is an opportunity for us. Just because the monetary policy committee finds themselves in a situation where they are looking at their indicators like inflation and money supply among others, they make their decisions based on that and that is always respected. I do not see a disharmony but it was blown out of proportion in the media. I am not a member of the committee and I do not see what they do. We are all working together with one objective, which is to get the economy growing. There would a times a dislocation in any economy but overtime these will work together in harmony on a number of fronts.
Emefiele: Let me join the honourable minister in saying there is no disharmony, we are all poised to see to it that we actually achieve growth in the Nigerian economy. If you read my vision statement just about three days after I assumed office, one of the core issues that I raised at that conference, was that we would try to pursue a low interest rate regime.
We feel that when people are able to access loans at low interest rates, it helps improve growth, reduce unemployment, and boost industrial capacity. Of course, I’m trying to say it is something that eventually we would have to look at, but based on the numbers that the monetary policy committee saw – based on the data that was available – the MPC felt we can pursue growth through another angle. It has nothing to do with disharmony. I feel it is important for me to also join the honourable minister to confirm that there is no disharmony, we are all working together and I believe that in due course, we would achieve the growth that we badly desire for the country.
Based on the weak outlook for growth in the global economy, what are the contingency plans to protect the Nigerian banking system?
Emefiele: Basically, what you find and from the reports of the World Economic Outlook, when you have situation where there is a weak global outlook as we have now, practically all financial market suffer same kind of issues such as weakening of balance sheets and the rest of them. But I must say that for the Nigerian banking environment, it is not as bad as people may think, given that we have strong prudential guidelines and ratios in place. I think we can only continue to strengthen the banks by putting in place strong prudential regulations that would continue to shield the banks and protect depositors.
Honourable Minister, you raised issue about illegal financial flows. We want to know actually, when are we expecting the repatriation?
Adeosun: On the illicit financial flows, we had some high level discussions with a number of countries where we have Nigerian money domiciled. When we talk about illicit financial flows there is a number of issues involved- those from corrupt practices, tax evasion, tax avoidance and those who under pay tax. But we are working hard to bring them back to the country.
With respect to the Development Bank of Nigeria what specifically will this bank be doing that is different from what the Bank of Industry is doing presently?
Adeosun: Bank of Industry is specific to industrial production. DBN is for SMEs and many of them are traders and they do not qualify for BOI, as well as services. The focus of DBN is SMEs and giving them low cost loans. We have been able to source in money to the tune of $1.3 billion, from the World Bank, African Development Bank and the European Investment Bank. We have made a lot of progress now and ready to take off. We have advertised for the management position and when appointed, that would be able to compliment the work and build synergy with CBN intervention. We need to get the money into the hands of smaller business that make 50 per cent of our GDP.
On the issue of foreign loan, what is the update on your discussion with the World Bank?
Adeosun: For the foreign loans, we are through with the AfDB, and ready to go to the Eurobond. It is just to appoint the parties. The Eurobond issue is an issue of pricing, not volume, but on the top of that and back to the issue that I talked on interest rates, we are going to look at how we can refinance some of our existing naira debt into the international market, to take advantage of the fact that there are negative interest rates in a lot of markets, and we think we can significantly lower our cost of funds.
We think that it is also important, working closely with CBN, because it takes pressure off the domestic market.
We would be borrowing less in the domestic market and then bringing in some much needed foreign exchange. We have spoken to a number of lenders because the markets are really very attractive right now. With the macroeconomics framework that we have put together and that we would continue to refine, we think we have a very credible story and we should be able to refinance some naira debts at very attractive interest rate, which of course will create more fiscal space for us to spend more on capital. We would spend less on interest and more on capital.
It is good to hear that at the meetings the flexible exchange rate regime was commended but we also heard the IMF Managing Director saying there is need to consider further depreciation of the naira. So, what else do you think they want us to do since we just adjusted our currency?
Emefiele: Like I said, the flexible exchange rate regime document that we have in place is a very sound document and truly speaking, I have not seen one person that has criticised the document. But what we only have to talk about is fine-tuning few aspects of it, in terms of the implementation of the content of that document. That is why I said we would from time to time, continue to look at it. As we are looking at it, I repeat, we would see how we would continue to fine tune it, to the extent that whatever we are putting in place would be such that would benefit Nigerians, improve their lives as well as that of the country.
We are talking about digital economy that the world is moving towards. What is Nigeria doing in that direction?
Adeosun: I think one of the things that resonate about that is that where growth is going to come from is in the digital economy. I think that is where Nigeria has an advantage, because we have a young population, and they are very agile. What we have been advised to do, and what we will try and do is to scale up our capacity in these areas, so that young Nigerians can take advantage of what the digital economy has to offer.
We can say that is where things are going, we are very talented in that area, if we get our infrastructure going, we can compete, and the beauty of the digital economy is that you can be anywhere. You can create an app anywhere in the world and you can, with technology, be selling anywhere in the world.
I think it is a key area for us, and it is got to be supported by infrastructure and that is why when we are talking about power; when we are talking about all these transactions that we are doing, that’s all to support the growth of the digital economy, which is definitely the way to go. Nigeria’s young population is actually strength, and the youth are definitely part of the solution. So we will definitely be focusing on how we scale up in that area.