It’s illegal to collect Dollar for services rendered in Nigeria – Sanusi, CBN governor

Sanusi Lamido Sanusi (CBN Governor, Nigeria)

Anyone who refuses to collect  Naira and insists on payment in foreign currency may soon find himself or herself  on the wrong side of the law. According to the CBN Governor, Sanusi Lamido Sanusi, there is no country in the world where you get paid in the currency that is being remitted, except Nigeria.

Why? You may ask. The CBN boss blamed it on what he called “attitude of entitlement”.

He explains:  “If you are in the UK and someone transfers money to you from the US, in what currency do you get paid in London? You get Pounds. There is nowhere in the world where you go to your bank after a transfer and insist on being paid in that currency. There is nowhere. In Japan you get paid in Yen; in China you get paid in Renminbi. So there is nowhere in the world you get paid in the currency that is being remitted. You know Nigerians have this attitude of entitlement.”

Putting his feet down, he declared that it is illegal for anybody to collect Dollar for services rendered in Nigeria(again), saying “anybody that refuses to accept the Naira as a legal tender is committing an offence. In some cases, we found out that people are buying foreign currencies and going to Dubai and Saudi Arabia to do another form of BDC transactions with dollars purchased in Nigeria. We’ve got to stop that. They don’t see it as a criminal activity but it is money laundering. We sell dollar to them on the condition that it will be used to import goods and services approved by the Ministry of Finance. But if it is used for any other purpose outside what is approved by law, it is money laundering.” In this interview granted in Washington DC, USA, Sanusi bares his mind on many issues in his industry, while unveiling the plan to stop the dollarization of the economy.

Excerpts:

Dollarisation of economy

You know the interesting thing about our country is that we try to be an island in the World. If you are in the UK and someone transfers money to you from the US, in what currency do you get paid in London? You get Pounds. There is nowhere in the world where you go to your bank after a transfer and insist on being paid in that currency. There is nowhere. In Japan you get paid in Yen; in China you get paid in Renminbi. So there is nowhere in the world you get paid in the currency that is being remitted. You know Nigerians have this attitude of entitlement. The central bank did introduce this policy that people be paid in Dollars because there was a time the banks were cheating people and not paying them the actual exchange rate on the transaction date. Now, we said the exchange rate must be the inter-bank rate prevailing on the day of transaction and that banks are required to display their rates in banking halls. So I don’t see how we are going to continue with a policy that is not consistent with global best practices by importing Dollars and saying we don’t have confidence in our currency.

The thinking here is that it is just a small transaction of $500, $1000. Then let them tell us one country in the world that allows it. It’s like, all you journalists that write we should distribute FAAC (Federation Account Allocation Committee) in Dollars. But just tell me one country in the world that distributes its reserves in foreign currency. Why should Nigeria be the only one? What is the logic and why are we different? If you go to Ghana you get paid in Cedi and in the francophone countries you get paid in CFA. So why should your uncle or aunty living in Nigeria and who would spend Naira not be paid the Naira equivalent of the currency you sent but insist on being paid in dollars? It is not right.

First of all, it is illegal for anybody to collect Dollar for services rendered in Nigeria. Anybody that refuses to accept the Naira as a legal tender is committing an offence. I don’t think there is anyone that will do that. Perhaps, what they might do is to index their service in dollar and use the exchange rate and accept Naira. But anyone who refuses to collect  Naira and insists on collecting Dollar is committing an offence. The maritime agencies that collect duties in foreign currencies are covered by law. The law allows them to receive their duties in foreign currency.

Lessons from 2013 IMF/World Bank conference

I think that in the last few years that we have been having these meetings, the focus has been on the European financial crisis and financial system. This year, there is tremendous focus on what is happening in the United States: the budgetary impasse, you know the possibility if they fail to reach an agreement. And the chances of the US being forced into what is equivalent of a massive austerity programme if it defaults on its obligations. Not necessarily a default on Treasury Bills or bonds and some of its obligations, but I think there will be some prioritization. However, as things stand, I don’t see the US defaulting on treasury bills as first line of defence, even though they can default on some of their domestic obligations.

No one knows exactly how the markets are going to respond, but the real challenge for us in the frontier and emerging markets is what will be the impact on currency and capital flows of a possible non-resolution of the fiscal standoff between the US executive and legislature. The government shutdown was more of domestic issue, but the debt ceiling is the one that affects us because we hold our reserves in dollars and we have invested in US treasury bills and bonds. If there is a spike in those yields, we suffer a capital loss on the assets we are holding. Therefore, we do expect the US government to resolve the matter in the interest of the global economy.

Impact on Naira

Oh, the Naira is doing fine. Yesterday, Friday, we traded at N160.1 to the dollar so we are still within our band of N155 plus+- 3 per cent, which is a prevailing exchange rate for the whole currency turmoil of fiscal tapering. If you look at the other currencies in the emerging markets from December till now, the Indian Rupee, the Ghanaian Cedi or South African Rand or the Brazilian rea, you find that most have lost anything between 10 and 20 per cent. But the naira lost a maximum of 2.3 per cent and it’s actually backed to being within the range. So it has been stable and we have done that without losing much in terms of our reserves. We have tried to increase the rate at which banks lend money to each other and to customers but that is the price you pay to maintain stability.

Measures to contain US fiscal tapering and China’s slow down

Well, there are a number of issues you should look at when appraising recent development in the USA. While the development in the US might affect frontiers and emerging markets, they don’t affect all of them in exactly the same way and you could see the reaction of most markets on the announcement about the fiscal tapering off.

And you could see that emerging markets were affected far more heavily than the frontier markets, so the crash in the capital markets of Brazil and Asian markets were much more deeper than, say, Africa and the rebound was even stronger. So in terms of volatility, there is a variation depending on the depth of the market.

Second, you would notice that countries that had current account deficit were affected far more than countries with current account surpluses. We do have current account surplus in Nigeria. So there is a general understanding that we were better prepared to absorb some of the shocks than most of the countries that have current account deficits today.

Even when we had pressure on the Naira, that was not coming from a major reduction in capital flows. We did have a slowdown in capital flows and you would expect that if yields go up, that will not be too good for the current rates because people will pull out of emerging markets; investors would pull out of commodities and then, there will be depreciation in oil prices and there will be reduction in capitalization. But I don’t think that, given where our rates are and given our commitment to stable currency, we are as badly hit as some of the countries we are competing with for capital.

However, we must accept that we remain vulnerable because reforms in Nigeria over the decades have not been deep and intense as they should have been. Even though we have been talking about diversification, we have not really diversified. The economy itself is diversified because oil is just about 13 per cent of GDP, but foreign exchange earnings are not yet diversified since oil still accounts for about 99 per cent of foreign exchange earnings.

Therefore anything that happens to oil price has a disproportionate consequence on reserves, exchange rate and government’s fiscal spending. I think that is what we are really worried about. We have strong growth, but our economy remains vulnerable until we put in place strong policy that can make it sustainable.

Second term as CBN governor

No, that is not how public office works. First of all, I think no individual should make himself indispensable. The institution is far more important than the person managing the institution. I believe that people should be able to build institutions that believe in their vision and should be comfortable enough to walk away from the job. This is because nobody will be happy to have his legacies wiped away after he has left. So if you are comfortable to walk away from the job, it means you have built the right institution that has been sufficiently influenced by the thinking and strategies you have left behind you.

I think the CBN has established itself as an institution that is strongly committed to price stability and nobody in the system would be prepared to play with that system. The central bank has committed itself to protecting depositors rather than shareholders and management of banks. It is committed to strong corporate governance and I also believe that the central bank has proved its credentials as a bank committed to development with selective interventions. We have also proved ourselves as an institution committed to payment system transformation and financial inclusion.

These are broad strategic thrusts that the board of directors of the bank has committed itself over the years to formulating. So we have four deputy governors who were part of the policy formulation process and are committed to sustainability of this vision and I do not think that the movement of the governor would change the direction of our vision.

I also think that all over the world, once you set a standard and the market expects you to sustain the policies, the depositors, the media and other stakeholders expect you to make and maintain a certain standard. This is not saying it is going to be easy because it is important you choose a governor who would continue to defend the independence of the central bank. But I don’t think the solution is for people to set up institutions that, once they are not there, things will begin to go wrong. We should endeavour to build up systems where we can watch from a distance the foundation we have laid being built on by our successors.

Specific monetary policy on SMEs

Institution building is an ongoing process and the Central Bank of Nigeria Act of 2006 actually established the basis for a truly independent central bank. So all the regulations and institutions we have built are aimed at sustaining the achievements we have made.

AMCON (Asset Management Corporation of Nigeria), for instance, is an institution that ensures banking crisis resolution and the Act establishing it aims at ensuring that banks will continue to meet their obligations regardless of their level of solvency. Of these, we have had regulations about code of corporate governance, transparency and these are institutions we have built to stabilise our banking industry.

Remember that an institution is not a building, but a set of policies and rules around which systems operate. Even President Barrack Obama has said it that Africa does not need strong men but strong institutions and this is a farcical debate. But no matter how strong an institution is, a weak leader will make it weak. So while there is need to build strong institutions, it is equally important the we focus on individuals that run the institutions so we can get the best out of the bargain.

On SMEs, the CBN does not lend to SMEs, but what we have done is to set up a N20 billion MSME fund premised on our recognition that the microfinance industry, which started as a scheme for the poorest people has been too commercialised that those whom the institutions are set up for are actually paying the highest rate of interest.

They are paying unacceptable rate of interest and all over the world, people who borrow from microfinance banks finally end up in debt traps which they often find difficult to exit from. So what we are doing with the fund is providing the microfinance institutions with long term low interest financing that will then enable them provide low interest lending to the poor.

So a poor man in the village who wants to borrow N150,000 does not need to pay 48 per cent interest to the lender or even the 22 per cent the banks are charging. But he can borrow at 9 per cent and by so doing you can make it more developmental because no bank can lend to you at the rate the MSME fund can lend to the poor.

In doing this, we have tried to bring the state governments into the picture so that they will know that if the CBN is giving money to an institution at 3 to 5 per cent it is not giving them money to lend to the poor at exorbitant rates. So it becomes possible for the agencies of that state government to monitor the interest being charged borrowers by on- lending institutions.

What we have realised in the CBN is that if you bring enough of the interested parties in lending to the poor, especially agriculture, you achieve results. We therefore tried to bring in the ministries, the farmers, bankers, the SMEs and all other stakeholders to a common platform to share knowledge and avoid duplication of responsibility and you find out you will be making a lot of progress.

Financial inclusion

First of all, I would like to say that Nigeria was a founding member of the Alliance for Financial Inclusion and therefore, we were always part of the international collaboration on this effort. We were the one that forced Mexico, our member and a member of the G24, to make sure that financial inclusion became a priority on the agenda of G24. From there, it became a major element of global governance. So we have directly or indirectly played a role in bringing this to global limelight as far as financial inclusion is concerned.

Locally too, we have been playing major roles in promoting financial inclusion because one key aspect of financial inclusion is financial literacy, working on the capability of people to act in enlightened manner as far as financial decisions are concerned. We have launched a financial inclusion strategy in Nigeria. We have also launched a financial literacy document steering committee which has myself as chairman, with the CEOs of other regulatory agencies including SEC, PENCOM, NAICOM, NDIC and also representatives of the Ministries of Information, Finance, Education and Communications as members.

The whole essence of that is to ensure that we build financial literacy into our education and enlightenment curriculum so that people have enough literacy to protect themselves.

You have seen what we have done with cashless Nigeria, which is still part of financial inclusion. The microfinance fund is part of financial inclusion; our focus on women empowerment is still part of financial inclusion. So we are far ahead of many countries even though we are not presently where Kenya is as a country. But I can say that many countries are far behind us in the area of financial inclusion.

Relaxing monetary policy rate

I will only relax monetary policy rate anytime we feel the conditions are right to do so.

If you look at the CBN Act, our objectives are very clear. We were given responsibility for price stability, protecting external value of the currency, which is exchange rate stability for maintaining the reserves of the country and for financial system stability. It is very easy to call the shots from the sidelines. Supposing, today, I decide to lower the interest rate, which means printing more money and a number of things would go wrong. Maybe the interest rate goes up and naira gets weak. When a portfolio investor suspects he is going to lose money as a result of weak naira, he will quickly pull out his investment. Remember he brought in dollar and everybody runs out of the country and the naira crashes to N180 or N190 and the stock market crashes and the people holding shares default on the loans and banks get into trouble.

You know, we have stability we often take for granted. In 2009 when I became governor of the CBN, the stock market had lost 70 per cent of its value, many of the banks were about to collapse, the official exchange rate was N145 and at BDC it was being sold at N190. It is very easy when you have established stability for people to start screaming that you are holding exchange rate too tight.

But remember you have had exchange rate stability for two years now, an inflation rate that fell from 15.6 per cent  in 2009 to 8.2 per cent in December 2012. The stock market has risen 30 per cent between December and now and people are complaining. You need low interest rate, tell me, where do you want the naira, N180 or N190? Where do you want inflation, 13 or 14 per cent? I can deliver interest rate of 7 per cent today if you want. The Fed of America has delivered zero. I can push the button and print more money and interest rate crashes. But where do you want your naira? People want a stable exchange rate, they want low inflation, low interest rate. But I am not a magician.

Mortgage intervention

First of all, we need to do away with this idea that the central bank will set up an intervention fund for everything, for housing, health and aviation. That is not how it works. In the case of housing, it is a priority for the Finance Minister. You remember the collaboration with the World Bank, the IFC and the CBN. The Ministry of Finance has set up a mortgage re-financing fund. The shareholders will be the World Bank, the Ministry of Finance, the CBN and the commercial banks. And that is the fund that will play the role for refinancing the mortgage sector. You must remember that like in the case of agriculture, it is not just money that is necessary to deliver mortgage.

You need to ask the question, how much does it cost to build a three-bedroom bungalow in Nigeria? It’s too expensive. So we must look at the cost of getting low cost houses, including cost of raw materials, land and even getting title to the land.

By the time you put all the cost into consideration, you then ask yourself the rational question of how many people in the low to middle income bracket can borrow say N5 million at even nine per cent and repay over 10 years. It’s one thing to provide finance but much more important is that the governors should do something to lower cost of land title. They need to review the cost of Certificate of Occupancy (C of O) and standardise housing construction. If I am building a house, I will be doing so in consideration of the number of wives and children I have. So if any other person wants to build a house, he probably will not want to build the same structure of house that I did because he may not have the number of children or wives I have. If you go to certain places in London you probably see 30 to 40 houses that look exactly the same and the difference is just minimal. So without even going into the house, by merely looking at the structure you already know what is inside.