Certain policies of the Central Bank of Nigeria have recently attracted public criticism; however, a member of its board, Prof. Sam Olofin, says the bank's actions are in line with its mandate. He spoke to ISAAC AIMURIE and NGOZI OBOH.
In Nigeria, the Central Bank of Nigeria (CBN)is seen as intervening in some developmental activities. Is this peculiar to Nigeria or common among other developing nations?
It is not peculiar to Nigeria, but the reality is that for most central banks in developing countries, their functions could be similar to the functions of CBN.
The problem that most people have is that when they think of the Central Bank, everybody is thinking of the Federal Reserve Bank in the United States or the similar bank in the United Kingdom.
For other developing countries, the structure that we have and scope of activities could be similar. That is one aspect.
The second aspect is that the scope of activities we are now witnessing has always been there as defined in the Act of Parliament that established the CBN in1958.
It was modified? in 1991, then in 1993,? 1997, 1991 and the most recent one the 2007 Act. So, whatever we are doing is within the scope of the 2007 Act, which says that the objective of the CBN is to?? ensure monetary and price stability, issue currency in Nigeria, maintain external reserve to safeguard international value of the currency, promote a sound financial system in Nigeria, act as a banker and provide economic advice to the government.
In addition to this role, there are other clauses within the Act that emphasize the developmental role of the Central Bank; and that is encapsulated in the mission statement put this way: ‘to be one of the most efficient and most effective of the world’s central banks in promoting and sustaining economic development.’
It is sufficiently broad to cover whatever will promote economic development and, in the mission statement, it is to be proactive in providing a stable framework for the economic development of Nigeria.
So, the key word there is promoting economic development. We wouldn’t find that as being part of the vision or mission statement of the Bank of England. They are already developed, but our primary focus of the most developing countries is for the central bank to promote economic development. But when people look at our activities, they compare us with England, US and so on.
We do share core functions of being responsible for management and formulation of monetary policy and management of the financial sector. Over and above that, there is a well defined function of the Central Bank by the Act, which? is to govern.
As far back as the very origin, the Central Bank's been involved in activities similar to what we are engaged in now, but the difference has been that until the last few years, most governors have either not been proactive in these areas or have not been as visible to the public and may not have been as active as the last governor and the current governor.
Whatever the Central Bank is doing, the central issue is promoting economic growth and all the economic activities: we go into agriculture; we support the power sector -? they are all parts of the mandate of the Central Bank. In terms of social activities which date back to? the origin of the Central Bank as far back as 1958, we have been involved in various community programmes.
We cannot afford the kind of aloofness of the typical central bank in a developed country. Monetary policy for the sake of monetary policy is meaningless. You cannot develop the financial sector to the neglect of the real sector, so, to a large extent, the mandate covers most sectors.
In fact, we are trying to increase our capacity to do more -? until the Nigerian economy becomes? a developed country. We have a target of 2020; maybe we'll become developed then.
Until then, the Central Bank? will keep focusing not only on? monetary policy, but on other activities that? promote economic development.
How effective are those interventions?
We try to be a facilitator, to serve as a catalyst in the most of the measures we have been involved in, and not as direct participant in promoting agriculture.
Sometime, in the press, we had allegation of the Central Bank being involved in poultry and things of that nature.
Essentially, the board and management promote or enhance the effectiveness of the various agencies in government who are directly responsible for te implementation of the various programmes.
So, under no circumstances would you find them taking over responsibilities or being directly involved. I am sure you are aware of the various agricultural schemes that received the attention of the central bank.
The rate of interest is low, how can we encourage banks to give loans to agricultural sector, to encourage the various? actors in the agricultural sector to finance the entire chain of agriculture, from production to transportation, to storage, to marketing, and? possibly even to export.
Now we find ourselves in a situation in which we produce tomatoes in large quantity in places like Kano, but no transportation to get it to the market where they are needed. So, we find ourselves importing tomato puree when we have tomato in Kano.
To a large extent when we say they have been effective, to the extent to which the various statistics tend to show, you might then say 'why are we not having cheap products in the market'.
The effectiveness of these various policies will depend on the effectiveness of ancillary policies and measures. If, for example, you have given loans to farmers and there are no good roads, the impact will not be felt. If you give loan to poultry farmers and you don’t have good veterinary services to ensure that they don’t lose their stock, the impact might not be felt.
That is why, for the first time, the NISAL (Nigeria Incentive-based Risk Sharing System for Agricultural Lending )programme is now aimed at ensuring greater effectiveness as well as encouraging involvement, not only in one aspect, but to follow the? entire chain.
It was launched last year – so it is too early to measure the effectiveness, but there is hope that it is going to bring major changes in agricultural chain. You find us spending billions of naira in importing rice now which should not be.
In whatever we can indirectly facilitate entrepreneurs or farmers to get involved and to have the banking sector to provide them with monetary support,that is what we need.
Is the CBN worried that the growth of the Nigeria’s economy has been described as jobless growth?
If you have been following various communiqués on the monetary policy committee, which is one of the fora? for executing some of our primary mandate, we have always pointed that, for the measures we are taking to be effective, we need other sectors of the economy or other arms of government to be able to carry out their functions or take care of the aspect of management of the economy which is not within the scope of what the Central Bank is expected to cover.
For example, there should be adequate security in place; no investors will want to invest in a state of insecurity.
In terms of policy, we have monetary policy and fiscal policy,? which are meant to be under the management? of Ministry of Finance.? We just talked about infrastructure; there is the issue of technology which is a major missing component in our development effort.
We seem not to be as concerned as we ought to be in terms of developing the requisite technology; we want to import technology from China, but nobody gives his technology on a platter of gold.
We don’t need to reinvent the wheel, but we need to have means and ways of developing the technology by either stealing from others – if need be. One active sector at the moment is probably the agricultural sector and that of? power, but you can see that they are highly dependent on foreign technology.
So, there are several things that are missing and we need to work at all of these in their various dimensions, and not all of these are under the control of the Central Bank. The CBN can only cover those aspects over which it has responsibility.
We may have effective monetary policy; we may have intervention funds to create jobs, but if these other factors have one constraint or other that prevents them from performing their own roles effectively, we will find situations as we have at the moment.???????
Everybody is worried about growth without jobs; that in spite of growth in recent years the poverty level is high, because the necessary infrastructure that creates jobs that have forward and backward linkages is lacking and because the capacity to execute such programmes is still absent.
It is not difficult to see what kind of jobs we need. We need promotion of the manufacturing sector. It is only in the manufacturing sector that you have jobs that create jobs. Car manufacturing, for instance, if we are now determined that we want to produce our own cars, the car industry will need tyres, it will? need paint; to get the car on the road, it will need glass.
Think of the various parts. What happens in other countries is not that you have big factories that manufacture everything; most of the big manufacturing enterprises that you hear about are just assembly plants. They are receiving inputs from various small scale enterprises, so one major activity will be capable of providing a chain of jobs.
But, at the moment, even in agriculture we don’t have such linkages; we just produce raw materials, or oil in the oil industry, and we export. When it comes to petroleum products, we have to depend on imports, but it should be such that when we get down to developing our manufacturing sector, we will experience growth with development.
Here, the average growth rate is put at 7-9 per cent. The CBN has tried to make intervention in the area of manufacturing, by encouraging the provision of cheap credit to industrial clusters.
That is on at the moment but, again, it serves as a catalyst in promoting industrial growth to encourage the entrepreneur to take necessary credit and invest. We hope that, with time, there will be some synergy to ensure that the various necessary inputs are in place and the economy will then experience a take-off.? You need enterprises that demand an input from several other sectors.
Ordinarily, organisations get involved in corporate responsibility activities to get the goodwill of the public. Lately, we have seen the CBN getting involved in these kinds of activities, but it has been greeted with sharp criticisms, for example, the CBN donation to victims of Kano bombing. What is your take on this?
Again, I will go back to the Act. In establishing the bank or defining the function of the board, it? says “…carrying out of such other functions and activities as may be necessary and expedient for purposes or achieving the objective of the bank. In terms of financing, the board is empowered to make surpluses that can be utilized in two ways.
The board is empowered to define what the scope of activities should be under the law. And, as I mentioned earlier, this is not a new intervention. Our intervention in the universities is in more than 20 universities. Intervention in communities is not new. We have various social involvement programme which are not in the news every year.
There are budget lines that allow CBN management to use its discretion, under the guidelines laid down in the policy of the board, in what areas of intervention it considers expedient for the purposes of promoting the bank's? overall mandate of promoting development.
And I want to address the two issues, starting with the intervention in Kano. It is very much within the scope of what the board has approved for management. They did not go out of their mandate or mandate of the bank.
This has grabbed news because it is a very topical issue, but let me say something else: in terms of functions of management, the governor or, in his absence, the deputy governor nominated by him shall be in charge of the day-to-day management of the bank and shall be accountable to the board. So, there is no single action which the governor takes to which he is not accountable to the board.?
Members of the public seem not to understand this. So what was done recently in Kano is within our social responsibility provision that the board has made.
Out of the surplus that we generate, some of it is kept for such. We cannot exist like the bank of England or the Federal Reserve? Bank of the US; we have to seek ways of identifying with our communities.
There are places where we have made intervention for the building of primary school blocks. The provision they made was for two donations: one in Madalla and one in Kano. They were to go to visit Madalla first, but the priest was not available.
They were to go back to Madalla, but since the governor was present in Kano, it would not be proper for him not to be present in Madalla. At the moment, they are trying to ensure when the governor will be available and when the priest will be available.
The members of the board are aware that this was scheduled for Monday. Why Kano, why Madalla? We will not pray that what happened in Kano and Madalla happen in other place.
We heard about how many bombs that were exploded simultaneously. It was of such a scale that the Central Bank will not but identify with them.
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