At the time this programme started we were told that they could procure forex at not more than N280 to the dollar and the price should not be more than N145 per litre. In working out the effective price of N145 the template provided for nothing less than N30 per litre margin for the marketer. You can quote me on this.
That template is available. By making N30 per litre available to the marketer what this does is that even if the marketer does not find the product at N280 to the dollar and he finds it at a price close to N300 to the dollar or N305 or even N310, that marketer will still make a profit even though it could be at reduced margin.
That is the template that is currently in place and I am optimistic that it will work. Based on this arrangement between CBN and NNPC, we will see to it that IOCS are not compelled to sell at a fixed rate, we will see to it that they sell at the average of the interbank rate of the previous day which means where the marginal rate is N305, and some are selling at N310 or N315 the rate will then be between N305 and N310. If the marketer procures Forex at an average of N305 and N310, they will still make a profit and sell that petroleum product at not more than N145 per litre.
I want to know what you are looking at in the short term and on the bridge funding arrangement to stimulate the economy? Again you once talked about the need to sell some assets in the oil industry and just yesterday, Alh. Aliko Dangote also spoke to CNBC about selling some of the assets the government is holding onto in order to raise money. But the impression one is getting is that Government is not looking at that advice.
What I am saying is this. Government can stimulate demand by spending to fund it’s budget and we as the monetary authority have told the fiscal side that if the need arises to the point where they need a bridge fund we will provide that. We are not there yet and I would imagine that that should not bother you at this time. Government is working to stimulate the economy by spending. That’s why as you heard the minister of finance talking about , the fact that N420bn and another N370bn to N400bn is being made available this week, is certainly an attempt to stimulate the economy through spending . The most important thing now is that we need to stimulate the economy and the fiscal authority is alive to its responsibilities in achieving this objective.
On the sale of assets in oil industry, you will recall that April 2015 I granted an interview to Fianancial Times of London where I suggested that in order to raise money to fund its capital expenditure , government needed to sell between 10% to 15% of its oil and Gas assets. At that time oil price was about N50/N55 per barrel, and our consultants did the numbers and told us that we could raise between $25 to $35 billion . I would imagine that that option is still on the table because more people even in the cabinet have made the same suggestion and if it happens, that will be fine, including the option to buy back the assets at some premium if contemplates buying back when the crude prices move up and the assets value also move up. You know that in government there are those against and those in favour. The argument in favour of selling the assets has gained a lot of credence recently.
I notice the inconsistency of CBN in the resumption of sale of forex to BDCs after you stopped that in January this year. Secondly, some of the $1bn you said have started flowing in, don’t you think these are hot money which may be dangerous for the economy?
CBN is not inconsistent. And I will tell you how. As at January 2016, CBN was the only central bank in the world that was selling forex cash to BDCs and we felt that because of the haemorrhage on our reserves we needed to stop. At the time we said that we were stopping, go and read the speech, we said that, the CBN would seek to open other windows where the BDCs could continue to do their business. By this current arrangement, we are saying that the diaspora funds coming in through money transfer operators should form a substantial part of what should go to fund the BDC market. This is not a reversal. It is certainly not a reversal. It only took us about six months to eventually say let’s look at this window as a way to channel the funds coming. In any case we are being told that over $20bn comes in annually in diaspora money. If some portion of this diaspora money comes in, we might as well channel a little of it towards meeting the needs of citizens who need retail cash who want $5,000 and below. It is by no means a reversal but in consonant with what had been said at the time we contemplated that the CBN was no longer going to put cash into the market.
Now the question of whether the inflow of about $1bn is not hot money, you see the template that we designed for the new flexible forex market regime is the template where we said that we will introduce not just spot but also futures. What futures does is that it encourages more and more importers to push their FX demand into the futures with varying maturity profiles. . What I mean is that we are in the valley now and we have put in place a document that provides for a single exchange rate determination mechanism, we put in place a system that reduces the level of volatility where it pushes demand that would have been stuck in the spot market into the future.
Because that system is seen to be a credible system, they are coming at a time when you are in the valley I don’t think it can be worse than where it is right now. So what am I saying? You will find a situation where naturally there would be maturity of these investments. As many are coming in others are going out and if the net effect is a negative we dip into our reserves to plug in. If the net effect is positive it goes to boost the reserves. That’s the way it is supposed to work. If while we are in the valley they are encouraged by the system we have put in place to come in then all we can expect is that as more and more the FPIs come in, we will naturally move northwards and up the hill.
What we know of getting countries out of recession is government’s fraternity with the private sector. During the President’s visit to the US we were told that he was not favourably disposed that they were on the trip. Secondly when you introduced the flexible exchange rate it was supposed to close the gap between the official and black market rates, but that is not happening yet.
That report was untrue. It is false that the President was unhappy with the private sector people who attended that event albeit as you used the word ‘uninvited’. It is untrue and I want to use this opportunity to correct the impression and to put it bluntly that Mr. President was cracking a joke and if you watch that video after he cracked that joke everybody laughed.
Again I am aware that President Buhari has been meeting with private sector leaders to encourage them to work with government to get us out of this situation and that is being done. Only last week the economic management team met leaders of the private sector to talk about what role the private sector would play. On Monday, the day after tomorrow, the economic management team is going to meet with the private sector in Abuja. That is not a government that does not want to fraternise with the private sector.
Secondly, the flexible forex system is supposed to close the gap. But don’t forget that we are coming from a very wide gap situation. I am aware that there are two rates in the market. The CBN rate and the inter-bank rate. I am also aware that some people are operating in the parallel /Free funds market ; which by Nigeria’s Foreign exchange laws is an illegal market. That market is very shallow and we often stress that the rate in that market should not be used as a barometer for determining the value of our currency. Now ,talking about the inter-bank rate which today varies between 305 and the other rate at about 320,
I am optimistic about it and I am saying this for the records that as more flows come in , the market rate will close . Again, on the Parallel market. It is unfair to use the shallow market as a basis for determining the value of our currency. No one uses the Travelex rate at Heathrow to determine the exchange rate for the pound in the United Kingdom. So it is unfair to use that to determine the value of our Currency. . Those who are dealing in the market are doing so illegally. We should not be encouraging the tendencies of those people who are involved in capital flight’, or those who want to conduct foreign exchange business without providing necessary documentation..
But Mr. Governor that illegal market is the one that controls the prices that you at CBN are trying to moderate.
And I repeat to you sir. The monetary policy committee that has responsibility for looking at the exchange rate management will not look at this as the basis for determining the value of the naira.
You said with respect to the recession that we have bottomed out. Now, when do you think this recession will be over?
Let me repeat myself, we are already in the valley, the only direction is to go up the hill and the government is doing everything possible to ensure that we move up the hill. I am optimistic that based on the actions being taken by Government, based on the pronouncements of President Buhari that we must think out of the box, the monetary and fiscal authorities are working together and I’m optimistic that , the 4th quarter results will show evidence that we have started to move in the direction of the hill, and out of the recession. And i repeat, the worst is over. The Nigerian economy is on the path of recovery and growth. So, please if you are a bystander or sideliner you are losing. Join the train now before it leaves the station.