Nigeria’s Economic Diversification: A Plan Delayed


The economic diversification agenda of the federal government from oil to agriculture may have suffered a setback, not only due to the belief in some quarters that government lacks a clear-cut policy on funding the plan, but also because the banks appear not willing to support the agenda with adequate funding. Bamidele Famoofo reports

Though banks don’t have the privilege to formulate economic policies as that is the prerogative of the executive arm of government, they have the power, to a very large extent, to determine if such policies will fly or not because they control the funds.

Meanwhile, the mission to diversify the economy from oil and gas by developing other viable sectors like manufacturing, mining & quarrying and especially agriculture as proposed by the government may not have enjoyed the full compliments of banks through funding.

Private Sector Credit

Analysis of credit from bank to private sector, according to data provided by the Central Bank of Nigeria through the National Bureau of Statistics in the third quarter of 2018, revealed that the oil and gas sector of the economy, which remains the mainstay of the economy with over 90 per cent revenue generation, still accounts for the bulk of credit allocation from banks.

The sector accounted for 23.08 per cent total credit to private sector by banks in Q3, 2018, which in value terms amounted to about N3.59 trillion out of N15.59 trillion loans granted to the private sector in the review period. Agriculture and Mining & Quarrying which are the two key sectors, which government planned to use to diversify the economy enjoyed a paltry funding in the review period.

“In terms of credit to private sector, the total value of credit allocated by the bank stood at N15.59trillion as at Q3 2018. Oil & Gas and Manufacturing sectors got credit allocation of N3.59trillion and N2.15trillion to record the highest credit allocation as at the period under review”, the NBS report disclosed.

Agriculture, the third quarter figures showed, got only 3.80 percent of total credit from the banking sector, which comes to about N591.78billion, a little above half of a trillion naira. The aggregate of funding to Mining & Quarrying, Manufacturing and Power & Energy, all in the Industry sector was less than what was allocated to only Oil and Gas. The three major economic drivers (Mining and Quarrying, Manufacturing and Power and Energy) received a total of 16.54 percent of total loans to the private sector in third quarter, which amounts to about N2.57 trillion. Breakdown of fund allocation to the three sub-sectors showed that Mining and Quarrying received the least attention from banks with only N6.20billion representing 0.04 per cent of total loans given out to the private sector in third quarter. Power and Energy, which is the bedrock of economic growth got less than half a trillion naira funding at N422.78billion or 2.71 per cent of total credit in the review period. Manufacturing also trailed Oil and Gas with its credit allocation of about N2.15 trillion representing 13.79 percent of total credit.

Alternative Funding

Not even the intervention of the CBN Governor, Mr. Godwin Emefiele, to create affordable funding for agriculture, manufacturing and other sectors with the potential to stimulate employment and growth seem to have made a noticeable difference considering the outcome of lending by banks in third quarter 2018.

It would be recalled that the CBN in July 2018, arising from its bi-monthly Monetary Policy Committee (MPC) issued a guideline to banks to lend to critical sectors of the economy at a predetermined interest rate of nine percent (9 per cent).

“The new credit policy called Guidelines for Accessing Real Sector Support Facility (RSSF) through CRR and Corporate Bonds marks a big departure from the excruciating interest rate regime of 25-30 per cent that has been blamed for stifling enterprises in the country,” the CBN acting Director, Corporate Communications, Isaac Okorafor, enthused in a statement.

Okorafor said the directive was aimed at increasing the flow of credit to the real sector, agriculture and manufacturing. He further revealed that the plan of the CBN was to incentivise Deposit Money Banks (DMBs) to direct affordable, long-term bank credit to the manufacturing, agriculture, as well as other sectors considered by the bank as employment and growth stimulating.

Okorafor noted that the bank had put in place another programme under the Differentiated Cash Reserves Requirement (DCRR) Regime whereby banks that are interested in providing credit financing to new and expansion projects in the real sector could request for the release of funds from their Cash Reserve Ratio (CRR) to finance the projects.

The CBN spokesman added that the tenor for the Differentiated CRR would be a minimum of seven years with a two-year moratorium. The maximum facility available to interested organisations seeking funding through the CBN’s special intervention would be N10 billion per project and facilities were to be administered at an interest rate of 9 per cent per annum.

Diversification Plan

To achieve its economic diversification agenda, the Buhari government formulated a growth plan contained in its Economic Recovery Growth Plan (ERGP), being directly supervised by the Vice President Yemi Osinbajo. ERGP, according to government’s economic management team, is aimed at increasing national productivity and achieving sustainable diversification of production, to significantly grow the economy and achieve maximum welfare for the citizens, beginning with food and energy security.

Director General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, acknowledged that the ERGP was both recovery and growth plan. “The government recognises the economic challenges that Nigeria faces and the need for urgent action. This plan is a blueprint for recovery in the short term and a strategy for sustained growth and development in the long term”.

According to Yusuf, the policy objectives of the ERGP included targeted support to non-oil exports through specific incentives; removal of barriers to the local production of goods that are currently imported and support economic diversification. It also intends to improve the capital account balance by attracting foreign capital into the economy, particularly foreign direct investment (FDI), and also increase accretion to the country’s external reserves.

According to the Ministry of Budget & National Planning, ERGP focuses on six core sectors to grow the economy. Minister in charge of the ministry, Senator Udoma Udo Udoma, identified agriculture and transportation, power and gas and manufacturing and processing (including solid minerals) as the key sectors that will be developed to diversify the economy.

Deloitte, one of the world’s top four leading accounting organisations and the largest professional services network, said the ERGP appeared to be on course and remains quite robust and achievable despite some of its target metrics appearing overly ambitious. “This is however subject to constant evaluation and assessment at fora where questions such as how a 7 per cent growth can be achieved when capital expenditure is projected at 30 per cent per the plan”, it warned. Deloitte also cautioned that attention needed to be paid to ensuring that the recovery plan translated into not just growth, but development so that the gains are felt by the citizenry.

Sustainability Call

Leading private sector operators in Nigeria have pledged support for the diversification plan of government and are seen to be taking the opportunities presented by the policy.

For instance, the President of the Dangote Group, Aliko Dangote, recently disclosed that the current efforts of the federal government at diversifying the economy remained the viable solution to creating a healthy economy.

Dangote, who made the pronouncement recently in Lagos, during a meeting with some businessmen from Asia, said it was because of his belief in the government’s approach at re-energising the economy and making it export-oriented that made him to step up his investment in agriculture especially in the area of food sufficiency.

According to him, Nigeria had wasted so much foreign exchange importing foods that ordinarily should be produced locally.

“We have invested massively in rice, sugar, dairy products, and tomatoes. Our rice-out grower scheme will produce rice by next year that reduces our rice import to nearly zero because Nigeria imports more than half of the rice it consumes,” said Dangote.

“We have expanded our sugar operations with our operations in Tonga in Nasarawa in addition to Numan sugar projects, where sugarcane is cultivated, planted for raw sugar production that will be refined.

“Some months ago, we laid the foundation for the construction of ultra-modern rice processing integrated plant that will process 16 metric tonnes of paddy rice in one hour, by the time you multiply this by the number of hours and days it operates, you will understand that this is huge.

The interesting thing about investment in agriculture is that apart from food production sufficiency, the job potential is unquantifiable.”

Dangote reiterated that his company was investing massively in agribusiness, promoting industrialisation through the backward integration process to ensure Nigeria becomes self-reliant in food production in good time and save it of the much needed foreign exchange hitherto being spent on importation.