PAVE as panacea to Nigeria’s forex crisis

Given that instead of being a positive development, surging oil prices seem to have brought more challenges for Nigeria’s economy, the Central Bank of Nigeria (CBN)’s Produce, Add Value, Export (PAVE) initiative is clearly the solution to one of the most pressing problems facing the country-the foreign exchange crisis, writes TONY CHUKWUNYEM

During the 9th Annual Bankers’ Committee Retreat held in Lagos in December 2017, Governor of the Central Bank of Nigeria (CBN), after a meeting with stakeholders in the nonoil export sector, announced to journalists that the apex bank and non-oil exporters had agreed on a program called, Produce, Add Value, Export (PAVE) to be used to revive and disburse the N500 billion non-oil export stimulation facility with the aim of boosting non-oil export revenues and creating jobs. Specifically, Emefiele said the initiative was targeted at boosting exports of value added products in the non-oil sector- cocoa, cashew nuts, palm produce, sesame seeds, solid minerals and rubber, adding that the apex bank would be working with the management of the Nigeria Export-Import Bank (NEXIM) as part of strategies to end the country’s dependence on oil. According to the CBN governor, PAVE would ensure that non-oil products are improved before export, not just raw materials, to earn more value and create additional job.

NESF

He said: “In this meeting, we met with the exporters and the banks. The purpose is to see to what we can do as CBN to support the activities of exporters in the country so that through this means we can see more of exports revenues from the non-oil sector to support the economy. “We have decided to bring back to the table the N500 billion Export Stimulation Facility-Non-oil Export Stimulation Facility (NESF) that we had proposed two years ago, as well as the N50 billion Direct Intervention Fund, from the Nigeria Export-Import Bank (NEXIM). We have an improved NEXIM with new management there now and they have a very excellent track record of understanding of the private sector and the credit processes. “We have also decided that we are going to have not just NEXIM, but CBN’s Development Finance Department, as well as the Governors Department’s Special Adviser on Agriculture to put a framework in place as to how the funds will be disbursed.” Although Emefiele said at the time that the Development Finance Department and NEXIM had been given a maximum period of one week to come up with the framework, he noted that with the looming season for cocoa and cashew, the CBN was already urging exporters not to wait for the framework to be unveiled before sending in request through NEXIM or directly from their banks to its Development Finance Department for the processing to begin. As he put it, “for now we are not even waiting for a detailed framework, there is already an existing one. We would just update it and make it an encompassing document that covers all areas and be sure that everything is accommodated. “But the most important thing is that we made it clear to exporters that it is an opportunity for us to create jobs and earn more export revenues, but whatever they do will be heavily monitored.”

In fact, in the communiqué it issued at the end of its last meeting of 2021 held in November, the CBN’s Monetary Policy Committee (MPC) stated: “The bank has disbursed a total of N145.99 billion under its Non-Oil Export Stimulation Facility (NESF). The CBN has revised the guidelines, working with Nigerian Export-Import Bank to improve access to the intervention and stimulate non-oil export growth in Nigeria.”

RT 200 fx program

Clearly, in order to further bolster efforts to increase non-oil export earnings, the CBN governor, on February 10 this year, announced that the regulator, in collaboration with deposit money banks (DMBs), had with immediate effect, introduced a fresh initiative aimed at reducing the nation’s exposure to volatile sources of foreign exchange and to earn more stable inflows. Emefiele said the scheme, codenamed, “Race to $200 billion in FX Repatriation (RT200 FX Programme),” consisted of a set of policies, plans and programs for non-oil exports which would help the country attain its goal of $200 billion in FX repatriation, exclusively from non-oil export transactions over the next three to five years. He explained that the new initiative would have five key anchors namely, value-adding exports facility; non-oil commodities expansion facility; non-oil FX rebate scheme; dedicated non-oil export terminal, as well as a biannual non-oil export summit. He stressed that the new drive to boost non-oil export earnings was informed by the inadequacy of FX supply and constant pressure on the exchange rate, noting that the country’s four major sources of FX inflow: Proceeds from oil exports, proceeds from non-oil exports, diaspora remittances, and foreign direct/portfolio investments had been negatively impacted by the COVID-19 crisis. Emefiele also pointed out that most of the sources of FX inflows were unreliable and perennially prone to the vicissitudes of global economic developments.

He said: “I believe that the lessons we have learned from our policies on remittances can be applied in improving some aspects of FX inflow into the country. For example, we have all been witnesses to the ever-changing fortunes of oilexporting countries. Even those that have been reputed to manage their oil proceeds well also suffer from major shocks once oil prices plummet. “In order to avoid these sudden adjustments to our economic life, we need to focus on strategies that can help us earn more stable and sustainable inflows of foreign exchange. We would need to follow the best practices of other countries and ensure that we protect ourselves a little bit from factors that are beyond our immediate control.” On the value-adding export facility of scheme, he said CBN would provide concessionary and longterm funding for business people who are interested in expanding existing plants or building brand new ones for the sole purpose of adding significant value to non-oil commodities before exporting the same. “This is important because the export of primary unprocessed commodities does not yield much in foreign exchange. In Nigeria today, we produce about 770,000 metric tons of sesame, cashew and cocoa. Of this number, about 12,000 metric tons are consumed locally and 758,000 metric tons are exported. “The unfortunate thing though is that out of the 758,000 metric tons that is exported annually, only 16.8 per cent is processed. The rest are exported as raw sesame, raw cashew, and raw cocoa, thereby giving Nigerian farmers an infinitesimal part of the value chain in these products,” Emefiele said. In addition, he explained that the non-oil commodities expansion facility, which is also a concessionary facility designed to significantly boost local production of exportable commodities, was aimed at ensuring that expanded and new factories that are financed by the value-adding facility are not starved of inputs of raw commodities in their production cycle.

FICAN-workshop

Having launched the RT 200 FX program only a few weeks to the start of this year’s annual workshop for Finance Correspondents and Business Editors, the CBN governor’s key note address to the seminar, expectedly, dwelt on why the apex bank was taking steps to boost the country’s earnings from non-oil exports. Indeed, Emefiele, who was represented at the event by the Deputy Governor, Corporate Services Directorate at the apex bank, Mr. Edward Adamu, commended the management of the Corporate Communications department of the bank for choosing, “Exchange rate management and economic diversification in Nigeria: The ‘PAVE’ option,” as the theme of the seminar. He said the PAVE initiative was akin to south-east Asia’s much referenced export-led industrialization policy, which changed the economic fortunes of countries such as South Korea, Taiwan, Malaysia and Singapore. He noted that when he assumed office in June 2014, the post-Global Economic and Financial Crisis triggered acute capital flow reversals especially in emerging markets like Nigeria, leading to the country’s external reserves falling from a peak of $62 billion in 2008 to $37 billion, while the sharp drop in crude oil prices, resulted in the nation experiencing a significant drop in monthly foreign earnings from about $3.2 billion to less than $1.0 billion. He said: “These adverse conditions eventually plunged the economy into a recession for the first time in about a quarter of a century. The media space was suffused with news about the depletion of the country’s foreign reserves and the depreciation of the naira. That tough period called for bold and innovative decisions to be taken and we did not shy away from doing what we considered to be in the best interest of our beloved country.” According to the CBN governor, the apex bank’s foreign exchange (FX) demand management policy had stabilized the naira at the Investors and Exporters (I&E) Window. Emefiele also said the three-year bilateral currency swap agreement of $2.5 billion, equivalent to ¥15.0 billion or N720.0 billion between the CBN and the Peoples Bank of China (PBoC) was already yielding positive results, and has helped to address supply gaps in forex administration. He stated: “It is heartening to note that these policies are yielding positive results in terms of meeting genuine demand for foreign exchange and exchange rate stability.”

Conclusion

In fact, analysts who back the CBN governor’s stance, point out that naira has remained stable against dollar on the official market despite the economic crisis triggered by Russia’s invasion of Ukraine.

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