The Central Bank of Nigeria (CBN) is devising strategies through its various intervention programmes to rein the COVID-19 pandemic’s impact on the economy and the threat of an impending recession, reports Group Business Editor, SIMEON EBULU
In the last five to six years, a combination of a motley of developments in Nigeria’s political and economic space, have thrust on the Central Bank of Nigeria (CBN) an expanded and urgent responsibility to strive to keep the economy going and stave-off a threatened recession, or at the least minimise its impact. It is common knowledge that Nigeria has been and still going through trying times. The economy was in recession in 2016 occasioned largely by oil price drop. Oil accounts majorly for Nigeria’s foreign exchange earnings.
The insecurity manifesting in several parts of the country, especially in the Northeast, the festering carnage everywhere perpetrated by weapons wielding herdsmen, the unbridled corruption denying scarce resources from getting to areas where they are most needed for development and the huge and escalating cost of governance, coupled with the increasing national debt and the accompanying debt service provisions, have continued to drain the federal government and indeed the states of needed resources required for development of other critical sectors.
Year-after-year, Nigerians groan under the weight of abject poverty and near absence of badly needed infrastructure that make for good living. Delayed salary payments, under-employment and job losses have become the order of the day. Its been one tell-tale of woe, or another. It was in the midst of this uncertain living conditions and near hopelessness for most Nigerians that the dreaded coronavirus, codenamed COVID-19 struck and compounded an already bad situation.
Limited resources available to government meant that much could not be accomplished. The COVID-19 lockdown almost extinguished whatever hopes Nigerians had of survival. Unlike the laudable food delivery and financial provisions initiatives of its foreign counterparts, majority of Nigerians were left to fend for themselve. Whatever help came the way of Nigerians in the initial commencement days of the lockdown, was scanty and far between. There were rumours, regrettably of selective and preferential treatment in the distribution of palliatives meant to mitigate COVID-19 impact on the populace.
The sad news is that huge sums of money were said to have been expended on that exercise termed a colossal failure by many. Typical of Nigeria and its governments, you may say.
Notwithstanding the lack of finesse and equity that greeted the exercise at the center, some states like Lagos and a few others rose to the challenge. The private sector and a good number of industries, including manufacturers of food, beverages and household items, rose to the occasion. Many companies donated medicaments, ambulances, test kits and even provided fully equipped isolation centres for use of infected persons. Also, some not-for-profit organizations and worship centres, donated towards ameliorating the COVID-19 pandemic impact. They did so with food supplies, cash, medicaments and other desperately needed items.
Pre and post COVID-19, the CBN has always been there, acting in very decisive ways, including the use of monetary policy instruments, in actualising government’s policies and stridently supporting fiscal issues. The CBN’s collaborative function with fiscal authority in this regard, has led some critics to accuse the apex bank of veering into areas they claim do not belong to its core functions. How true that is, is debatable as the bank’s leadership has always insisted that whatever it does, falls under its developmental function, or role.
Averting recession
It may be too late in the day to avert another recession, only four years after the last. However the CBN Governor, Godwin Emefiele and his team are leaving no stone unturned in ensuring that when it eventually comes, its impact will not devastating. Some of the decisions reached in the last CBN Monetary Policy Committee (MPC) meeting last week are pointers to this fact.
For example, the MPC reduced the Monetary Policy Rate (MPR) by 100 basis points from 12.5 per cent to 11.5 per cent, a move largely per perceived as designed to spur borrowing at reduced interest rates and by extension, stimulate economic activities.
Emefiele said this much in his press outing last week. He said in arriving at the decision, the MPC opted to “provide cheaper credit to improve aggregate demand, stimulate production, reduce unemployment and support the recovery of output growth.” This is the second time the MPR is being reduced in four months. It was reduced from 13.5 per cent to 12.5 per cent on the 28th of May, 2020.
The Committee observed, according to the CBN chief, that with inflation trending upwards, easing of the policy stance (reducing interest rate) may exacerbate the current inflationary pressure through an increase in money supply. He however expressed optimism that the CBN’s interventions initiatives to stimulate the economy “will significantly ease the adverse impact of the COVID-19 pandemic and set the economy on a path of recovery.”
In addition to these initiatives, Emefiele said the CBN “is set to contribute over N1.8 trillion of the total sum of N2.30 trillion needed for the Federal Government’s 1-year Economic Sustainability Plan (ESP), through its various financing interventions using the channels of Participating Financial Institutions (PFIs).” To ensure buy-in and participation by other critical players, the MPC appealed to economic stakeholders to take advantage of its intervention initiatives to help support a quick rebound in growth.
Emefiele also said the bank’s policy on Loan-to-Deposit ratio has resulted in a significant growth in credit to various sectors from N15.57 trillion to N19.33 trillion between end-May 2019 and end-August 2020, representing an increase of N3.77trillion, adding that this growth in credit, “was mainly to manufacturing put at N866.27 billion, consumer credit at N527.65 billion, oil & gas, N477.65 billion, agriculture, N287.11 billion and construction, received N270.97 billion.
CBN’s interventions
The CBN, in its bid to ensure that businesses across all sectors of the economy sustain their operations in the aftermath of the COVID-19 pandemic, and even before, introduced several loan opportunities and fund interventions. They include the Agri-Business/Small and Medium Enterprise Investment Scheme (AGSMEIS), Loan For SME’S And Agricultural Businesses Without Collateral, Anchor Borrowers Programme (ABP) Intervention for Agriculture, Accelerated Agricultural Development Scheme (AADS Loan), MSMEDF Loan – Micro, Small and Medium Enterprises Development Fund, Creative Industry Financing Initiative (CIFI Loan) and the CBN Healthcare Research And Development Grants
COVID-19 funds disbursement
The CBN chief said a total disbursements from the CBN’s interventions in the wake of the COVID-19 pandemic amounted to N3.5 trillion, including Real Sector Funds -(N216.87 billion); COVID-19 Targeted Credit Facility (TCF)-(N73.69 billion); AGSMEIS-(N54.66 billion); Pharmaceutical and Health Care Support Fund-(N44.47 billion); and Creative Industry Financing Initiative-(N2.93 billion).
Under the Real Sector Funds, Emefiele said a total of 87 projects, including 53 manufacturing, 21 agriculture and 13 services projects were funded. In the Health Care sector, 41 projects which include 16 pharmaceuticals and 25 hospital and health care services were funded. He added that under the Targeted Credit Facility, 120,074 applicants have received financial support for investment capital. The Agri-Business/Small and Medium Enterprise Investment Scheme (AGSMEIS) intervention has been extended to a total of 14,638 applicants, while 250 SME businesses, predominantly the youths, have benefited from the Creative Industry Financing Initiative”.
Also the CBN’s private sector coordinated COVID-19 response initiative (CA-COVID) raised well over N32billion to help mitigate the coronavirus impact.
Anchor Borrowers Programme
The ABP is an initiative of the CBN for the agricultural sector, it is in line with its developmental function of the apex bank.The programme is targeted at smallholder farmers engaged in the production of identified commodities across the country. The farmers are expected to be in groups/cooperative(s) of between five and 20 for ease of administration. The ABP is not solely for farmers, businesses can also apply to become the Anchor (private large-scale integrated processors) and inputs suppliers.
The CBN has been focused over time in enunciating policies it considers germane and paramount to both sustaining the economy and growing its fortune. Some of these include its defence of the naira through its often criticised foreign exchange policy and the exclusion of official forex to fund imports of items it considers can be produced locally. Emefiele has continued to defend the apex bank’s policy restricting foreign exchange sales for 43 items that can be produced locally. The policy has helped protect the reserves and naira.
Emefiele said: “If you feel that our restriction of foreign exchange access for the importation of items that can be produced in Nigeria is wrong, that is not false. If you are a foreign direct investor, that is interested in doing business in Nigeria, I will say instead of you facilitating the import of these items into Nigeria, we want you to come and produce it here, saying Nigeria is a market of over 200 million people. So, you do not have a choice than to come, bring your investment plans and equipment and produce that item in Nigeria so that Nigerians can consume it. Then, you will make your profit and take your dividend out of the country. So, I disagree with that position that foreign exchange restriction is hurting investment inflow into Nigeria.”
CBN’s interventions and its pro-home grown economic policies cut across the various facets of the nation’s genre of productive activities, including infrastructural provisions. It has made inroads into power funding, health sector research and development, ICT, entertainment and hospitality, among others. The argument as to whether the apex bank’s foray into these sectors fits into its core duties, as some school of thought have postulated, is by and large mere sophistry.
Imagine a scenario where farmers , as it were lacking inputs (seedlings and machinery) don’t have access to finance, or where their harvests are allowed to waste for lack of markets, or undertakers, imagine where locally made goods can’t be sold because imported varieties override them due to price advantage, or a situation where forex is market determined resulting in naira/dollar exchange ate hitting the roof top and much more.
What would then be left for the locals to depend on? Jobs for locally engaging firms would be wiped out, we will be left with a completely import dependent economy to be serviced with the nation’s scarce and limited foreign reserves, and much more.
Like Emefiele said after the last CBN’s MPC meeting, that the implication of the issues confronting tne nation’s economy as it relates to the rising inflation and others issues, “is that traditional monetary policy instruments are not helpful in addressing the type of inflationary pressure we are currently confronted with,” saying the MPC expressed optimism that the CBN’s interventions initiatives to stimulate the economy will eventually and “significantly ease the adverse impact of the COVID-19 pandemic and set the economy on a path of recovery.”
– The Nation