New Telegraph

How CBN’s interventions pulled economy from recession

With GDP growth of 0.11 per cent in fourth quarter of 2020, the National Bureau of Statistics, last week, pronounced that the economy was out of recession. ABDULWAHAB ISA X-rays CBN’s efforts in lifting the economy out of the woods

Imbued with unusual confidence amidst drifting economy, Central Bank Governor, Mr. Godwin Emefiele, clairvoyantly predicted sometimes in 2020 of Nigeria’s economy exiting recession in the first quarter of 2021. Of course, cynical Nigerians won’t risk betting on Emefiele’s weighty declaration on the economy brightening up within a short time.

Recall that the economy had been badly hit, damaged in the early stages of 2020, courtesy of the rampaging COVID-19. The collapse of oil prices, coupled with the pandemic, expectedly, plunged the Nigerian economy into a severe recession, the worst since the 1980s. Consequently, the major revenue source, crude oil, crumbled both in price and production.

For months, Nigeria’s crude oil was left on the ships floating on the high sea. There were no buyers for them. The state of the economy got complicated. Official and private businesses were halted. Local and international travels (air and land transportation) frozen, a painful decision taken by government as part of safety measures to combat the pandemic. Reviewing the state of the economy in 2000 in the face of the pandemic, the World Bank, in a report, predicted the country faced its worst recession in four decades.

“The macroeconomic impact of the pandemic 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 50 per cent of the overall government revenue. With the drop-in oil prices, government revenues are expected to fall from an already low eight per cent of GDP in 2019 to a projected five per cent in 2020.

“This comes at a time when fiscal resources are urgently needed to contain the COVID-19 outbreak and stimulate the economy. Meanwhile, the pandemic has also led to a fall in private investment due to greater uncertainty, and is expected to reduce remittances to Nigerian households, which in recent years have been larger than the combined amount of foreign direct investment and overseas development assistance,” the global bank aptly predicted in a report last year. Accurately predicted by the World Bank/ IMF, the National Bureau of Statistics, in its GDP data released in November 2020, declared that the economy had slipped back into recession, the second in less than five years.

CBN’s interventions

Apparently, the second recession was COVID-19-induced. Most nations of the world, including the super powers, had their economy caved in to the impacts of the scourge. Three years before the advent of COVID-19, the Central Bank of Nigeria had began phased interventions in some critical sectors of the economy. The bank’s preference for agriculture support and its value chain support is legendary.

The Anchor Borrowers’ Programme (ABP) in the rice value chain, its intervention in cotton, poultry, palm oil, arts and entertainment sector; manufacturing and health services were key priorities of the bank. CBN did not only sustain these interventions, it deepened and expanded the scope during the pandemic.

In January this year, Emefiele reiterated that the recession won’t be a lasting one. He declared that given massive interventions and funds pumped into the economy to stimulate growth, recession would recede in the first quarter of 2021. He went down memory lane to recall how the bank supported the economy in the face of COVID-19. Emefiele said: “In the light of the on-going synchronised efforts by the monetary and fiscal authorities to mitigate the impact of COVID-19, the bank has committed substantial amount of money towards this objective.

Indeed, total disbursements as at January 2021 amounted to N2.0 trillion. “COVID-19 Targeted Credit Facility (TCF) meant for household and small businesses, wherein we have disbursed N192.64 billion to 426,016 beneficiaries. We have also disbursed N106.96 billion to 27,956 beneficiaries under the Agri-Business Small and Medium Enterprises Investment Scheme (AGSMEIS), while in the Health Care Support Intervention Facility, we have disbursed N72.96 billion to 73 project that comprise 26 pharmaceutical projects and 47 hospitals and healthcare services project in the country.

“To support the provision of employment opportunities for Nigerian youth, the Central Bank of Nigeria also provided financial support through the Creative Industry Financing Initiative and Nigerian Youth Investment Fund amounting to N3.12 billion with 320 beneficiaries and N268 million with 395 beneficiaries, respectively. On enhancing power supply, the bank has so far provided N18.58 billion for the procurement of 347,853 electricity reading meters to DisCos in support of the National Mass Metering Programme.”

The committee, Emefiele said, urged the bank to sustain its current drive to improve access to credit to the private sector while exploring other complementary initiatives, in collaboration with the Federal Government, to improve funding to critical sectors of the economy.

For a central bank that is conscientiously committed to freeing the economy from the tight grip of recession, Emefiele punctured a suggestion of locking up economic activities as a means to curbing the pandemic’s second wave as suggested by some officials of government. Emefiele said the bank was not favourably disposed to locking down the economy in the face of the second wave, saying the impact would be catastrophic. “Yes, there is a second wave. In Nigeria, we are trying to convince government not to conduct a wholesome lockdown because that is catastrophic on everybody and the economy,” he declared. Emefiele is not only against lockdown, he affirmed that in the event of the pandemic persisting, CBN may decide to extend five per cent reduction in interest rate by 12 months across all its interventions.

Exiting recession

True to CBN’s prediction, the economy recorded positive growth of 0.11 per cent in the fourth quarter of 2020. The bank’s stimulus interventions in the economy spurred the growth. A Gross Domestic Product (GDP) report of the National Bureau of Statistics aptly affirmed the economy recorded positive growth in the fourth quarter of 2020.

This came after three consecutive GDP declines. In real terms, GDP fourth quarter growth translates to N19.55 trillion and a normal GDP value of N43.56 trillion. Subdued and weak GDP growth though, the report cited agriculture, which grew by 3.42 per cent (year-on-year) real terms, an increase by 1.11 per cent points from the corresponding period of 2019, and an increase of 2.03 per cent points from the preceding quarter as economy being the major driver of growth recorded. Agriculture was complemented by growth in other non-oil sectors.

CBN’s investment and intervention in the agriculture value chain has been massive in recent years. The report cited agriculture, which grew by 3.42 per cent (yearon- year) real terms, an increase by 1.11 per cent points from the corresponding period of 2019, and an increase of 2.03 per cent points from the preceding quarter as economy’s major driver.

Experts’ views

Unanimously, experts have lauded the economic growth, describing it as a sign of positive trajectory. Professor Uche Uwaleke of Nasarawa State University, said: “It may be just a number, but the 0.11 per cent positive growth in real GDP year-on-year recorded in the fourth quarter of 2020 has an information content.

“It is without doubt an upside surprise that sends a positive message to the international community, especially the multilateral institutions, rating services and investment banks, that the Nigerian economy is resilient and has capacity to withstand shocks. “This development will certainly enhance the country’s credit standing internationally. I won’t be surprised if it triggers an upward revision in growth forecasts for Nigeria in 2021 by the IMF and the Fitch, which had projected weak growth rates of 1.5 per cent and 1.7 per cent respectively. It is instructive to note that favorable news about any economy can influence increased flow of foreign investments,” he affirmed. According to him, government heeding the advice of many, including CBN, not to impose another lockdown in the wake of the rising COVID-19 cases in Q4’20 helped economic recovery.

“The NBS report has a number of lessons: The first is that the Nigerian economy can actually survive without the oil sector. The growth rate in Q4’20 was powered by the non-oil sector, which recorded a positive growth of 1.69 per cent despite a deep contraction in the oil sector by as much as over 19 per cent. On his part, the Executive Director, Nigeria Export Promotion Council, Segun Awolowo, described as the biggest surprise the swift way Nigeria’s economy recovered from recession.

He said: “To say 2020 was a year of surprises would be an understatement – the world is still counting the devastating effects such as the loss of $3.7 trillion of economic output, 225 million jobs and over two million lives. The biggest surprise was Nigeria’s swift recovery from recession in Q4 of 2020.

We woke up to the good news yesterday (Thursday).” In its reaction, Lagos Chamber of Commerce and Industry (LCCI) and stakeholders in the private sector expressed surprise at Nigerian economy’s exit from recession amid unending negative trajectories that marred the end of the year performances. They expressed delight over the development and challenged government to tackle insecurity as well advising the Central Bank of Nigeria (CBN) to do more in defending the naira.

Last line

CBN’s consistent intervention in key sectors of the economy, agriculture and its value chain, manufacturing and lately COVID-19 Targeted Credit Facility (TCF) meant for household and small businesses, was the magic wand.

Read Previous

Making Internet safe for children

Read Next

Setting the pace for malaria burden reduction

Leave a Reply

Your email address will not be published. Required fields are marked *