The massive socio-economic devastation that the coronavirus (COVID-19) pandemic is causing highlights the need for all stakeholders to collaborate with the country’s fiscal and monetary authorities to tackle the crisis, writes TONY CHUKWUNYEM
In the aftermath of the devastating impact that weak oil prices had on the Nigerian economy in the 1980s, the country’s rulers, at the time, harped on the need to end its dependence on oil exports. Despite their successors expressing similar sentiments in 2008/2009 when a sharp drop in the price of oil again plunged the nation into a severe economic crisis, Nigeria was still not able to end its dependence on the black gold, thereby leading to its economy slipping into a recession in 2016 due to the 2014/2015 oil slump.
CBN’s developmental interventions
However, given that the 2008/2009 global financial crisis triggered a banking crisis in Nigeria, the Central Bank of Nigeria (CBN) decided to go beyond its primary roles of ensuring price and financial stability, by stepping up its developmental interventions to facilitate the country’s economic growth and development. The leadership of the apex bank, at the time, reasoned that the banking system would be more protected if the country’s economy was not so vulnerable to oil price volatility. Indeed, the current Governor of CBN, Mr. Godwin Emefiele, has always responded to criticism of the CBN’s developmental interventions by pointing out that the regulator had no choice than to support real sector activities given the country’s continued dependence on oil and challenges it usually faces whenever the price of the commodity plunges. For instance, following his first appointment as CBN governor in June 2014, Emefiele unveiled a 10-point agenda that he said would see the apex bank, under his watch, using its resources to build a resilient financial system that will serve the growth and development needs of the country, adding that the bank would introduce a broad spectrum of financial instruments to boost specific enterprise areas in agriculture, manufacturing, health and oil and gas. True to his pledge, the CBN, between late 2014 and 2019, vigorously pursued intervention schemes such as the Agricultural Credit Guarantee Scheme (ACGS), Commercial Agriculture Credit Scheme (CACS), the N220billion Micro, Small and Medium Enterprise Development Fund (MSMEDF), Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), the Anchor Borrowers’ Programme (ABP) and the Power and Airline Intervention Fund (PAIF), among others.
Prepared for external shocks
Furthermore, following his reappointment in June last year, Emefiele unveiled a five-point agenda containing measures, which, he said, the CBN, under his leadership and working closely with the fiscal authorities, will implement between 2019 and 2024 to help insulate the nation’s economy from potential shocks in the global economy. Interestingly, at the time he made the aforementioned pledge, the CBN governor had no inkling that the economy would face external shock as devastating as the coronavirus pandemic. However, even before the disease began to spread rapidly in the country, the CBN boss had quickly realised that the crisis could present a good opportunity for the country to intensify its export diversification quest. Speaking with journalists during an interactive session in April, he described the coronavirus crisis as “a golden opportunity for Nigeria to reset.”
He said: “As we start a new journey towards industrialisation, as the largest economy on the continent, this is an opportunity to get our manufacturing sector to work; to get our banks to work efficiently to support economy growth and development. So that by the time the African Continental Free Trade Area (AFCFTA) comes on stream, Nigeria will be adequately prepared. “The pandemic has led to a significant drop in oil revenue. This means we have no choice but to diversify the base of our economy. It also means that dollars will not come in the size and quantum that they used to come and that we have to prioritise the allocation of the dollars that available. It also means that we must produce what we can be produced in Nigeria and that we consume what we produce.”
Significantly, in its Nigeria Development Update (NDU) report released in July, the World Bank predicted that the Nigerian economy was likely to plunge into severe economic recession this year, the worst in almost 40 years, due to the collapse of oil prices and the impact of the pandemic.
The lender said it was forecasting a 3.2 per cent contraction for the country’s economy this year on the assumption that the spread of the virus would be contained by the third quarter of 2020, adding, however, that the economy could contract further if the outbreak of the disease becomes more serious. According to the World Bank, “the macroeconomic impact of the COVID- 19 will likely be significant, even if Nigeria manages to contain the spread of the virus.
Oil represents more than 80 per cent of Nigeria’s exports, 30 per cent of its banking-sector credit, and 50per cent of the overall government revenue. With the drop in oil prices, government revenues are expected to fall from an already low 8per cent of GDP in 2019 to a projected 5per cent in 2020.’’
Similarly, in its revised World Economic Outlook (WEO) report released on June 25, the International Monetary Fund (IMF) said that the Nigerian economy would witness a deeper contraction of 5.4per cent this year compared with the 3.4per cent contraction it projected for the country in April 2020. The fund said its forecast was influenced by the larger than expected storms to global value chains due to the coronavirus pandemic, affecting global demand for goods and services.
Q2’20 GDP report In fact, Q2’20 Gross Domestic Product (GDP) report released by the National Bureau of Statistics (NBS) last month showed that Nigeria’s GDP declined by 6.10 per cent (year-on-year) in Q2’20, thereby ending the three-year trend of low but positive real growth rates recorded since the 2016/17 recession. According to the NBS, the 6.10 per cent decline in GDP was largely attributable to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the COVID-19. Specifically, the GDP numbers indicated that Nigeria’s biggest revenue earner, the oil sector, recorded 6.63 per cent (year-on-year) contraction in Q2’20, representing a decline of –13.80 per cent points relative to the rate recorded in the corresponding quarter of 2019. Also, having posted positive growth numbers since Q3’17, the non-oil sector declined by 6.05 per cent in Q2’20, according to the NBS report.
COVID-19 crisis response But as the CBN pointed out in a recent statement, the Q2 GDP numbers could perhaps have been more depressing if not for the several measures and policies rolled out by the country’s fiscal and monetary authorities to address the impact of the pandemic. Such measures include the one-year extension of a moratorium on principal repayments for CBN intervention facilities; strengthening of the apex bank’s Loan to Deposit Ratio (LDR) policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers (Loans given to the private sector, have risen by over 21 per cent over the past year); creation of N 50 billion target credit facility for affected households and small and medium enterprises through the NIRSAL Microfinance Bank; creation of a N100 billion intervention fund in loans to pharmaceutical companies and healthcare practitioners intending to expand and strengthen the capacity of healthcare institutions and creation of a research fund, which is designed to support the development of vaccines in Nigeria and a N1 trillion facility in loans to boost local manufacturing and production across critical sectors.
In addition, the CBN granted regulatory forbearance to banks to restructure loans given to sectors that were severally affected by the pandemic and it also mobilized key stakeholders in the economy, which led to the provision of over N23billion in relief materials to affected households, and the setting up of 39 isolation centers across the country. According to the regulator, “the effect of these measures, which included provision of palliatives to individuals affected by the pandemic, increase in access to credit to critical sectors of the economy that are either high employers of labor or have the ability to create jobs at a fast pace, helped to contain a significant decline in GDP growth in the 2nd quarter of the year.
“Analysts expected GDP growth to decline by 7.4 per cent but the impact of the measures by the monetary and fiscal authorities helped to reduce this decline to 6.1 per cent. This decline was less severe than the decline experienced in other economies such as the United States, South Africa, and India which saw significant declines in growth by 32 per cent, 52 per cent and 23 per cent respectively.
“We do expect that with the phase out of the lockdown measures, GDP growth in the 3rd quarter will be much better than that of the 2nd quarter, due to the impact of the measures being implemented by the monetary and fiscal authorities.” Clearly, few analysts would doubt that the relatively positive performance of the agricultural sector in the second quarter of this year, despite the COVID-19 crisis, is primarily the result of intervention programmes established by the CBN, over the last few years, especially since Mr. Emefiele assumed office.
For instance, giving an update on its intervention programmes in the agricultural sector in the earlier cited statement, the CBN disclosed that a total of N38.11 billion had been disbursed as loans to 44,458 beneficiaries through the NIRSAL Microfinance Bank (NMFB), adding that: “This number has risen to N59.12 billion; supporting to 103,189 beneficiaries as of August 2020.”
The apex bank also pointed out that its intervention programmes in the agricultural sector “were a key contributor to the resilience of the agricultural sector during the crisis, as the sector experienced positive growth of 1.6 per cent in the second quarter of the year despite the lockdown.” It noted that but for government’s intervention programmes in the agriculture sector, the Nigerian economy could have faced a major food crisis due to disruptions caused by pandemic- induced export restrictions placed on the exports of critical food items, including rice and eggs, by counties such as Vietnam, Cambodia, India, and Thailand.
It is noteworthy that the CBN issued the aforementioned statement in response to questions raised in some quarters about its COVID-19 response measures. The consensus in industry circles at the weekend, however, was that with the entire world still grappling with the pandemic, it is critical that all stakeholders rally round the regulator to ensure that Nigerians seize the opportunity presented by the crisis to bring about the much desired transformation of the nation’s economy.