Nigeria’s Gross Domestic Product (GDP) for the second quarter of 2020 contracted by 6.1 per cent. The GDP contraction was the first negative growth recorded by the country since the first quarter of 2017.
The development was as a result of the decline in crude oil price and the implementation of lockdown and movement restrictions due to COVID19, which resulted into massive decline in global output. In fact, Nigeria only joined the list of countries such as South Korea (-3.3%), Singapore (-41.2%), US (-9.5%), Germany (-10.1%), among others, that experienced GDP contraction in the second quarter of 2020.
While some have predicted that the country would slip into an economic recession in the third quarter of 2020, when the GDP figures are released by the National Bureau of Statistics (NBS), it is believed that the Central Bank of Nigeria’s (CBN) aggressive development finance interventions into critical sectors of the economy would help moderate the recessionary pressure on the economy. It is also expected that the adoption of unconventional monetary policy tools by the central bank would contribute significantly to efforts by the fiscal authorities to jumpstart economic growth and limit the damage caused by the virus.
In fact, CBN Governor, Mr. Godwin Emefiele, recently stressed that, “If we ease the lockdown as quickly as possible, get the businesses back as quickly as possible, those, who may have suffered total disruptions in their business, we would make funds available to them, in the health sector, the SMEs, in the manufacturing sector, if we are able to make funds available to them as quickly as possible and at concessionary rates and also give those who have existing loans in the banking sector an opportunity to restructure their loans, push forward their repayments, then it would be easy for us to get businesses back alive so as to increase production and save the country from recession.”
Precisely, immediately the virus broke out in the country, as part of efforts to cushion its impact on households and SMEs, the CBN had announced an extension of the moratorium on the apex bank’s interventions programmes, creation of a N50 billion targeted credit facility and credit support for the healthcare industry, among other policy measures.
So far, over N49 billion out of N50 billion Targeted Credit Facility meant to cushion the impact of the COVID-19 on the economy has been disbursed.
CBN’s Director, Corporate Communications, Mr. Isaac Okorafor, revealed recently that over 80,000 operators of micro, small and medium scale enterprises (MSMEs) and families benefitted from the intervention fund. The fund was expected to support the federal government’s measures to stimulate economic activities as well as to help the economy avert a looming economic recession.
“So far, out of the N50 billion targeted credit facility for households and small businesses, we have disbursed about N49 billion. We also have other intervention funds such as the N100 billion healthcare facility, whose disbursement is ongoing as well,” Okorafor added.
The apex bank had earlier released guidelines for the disbursement of the special intervention fund.
The NISRAL Microfinance Bank (NMFB) served as the disbursing financial institution and the fund is meant for SMEs, households and enterprises that have verifiable evidence of livelihood and evidence of business activities adversely impacted by the pandemic.
The guidelines for the fund had listed sectors eligible for the credit facility to include agric value chain, hospitality, health, airline service providers, manufacturing/value addition, trading as well as any other income-generating activities as may be prescribed by the CBN.
The scheme was financed out of the CBN’s N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF).
Out of the fund, the CBN had earmarked a maximum facility of up to N25 million for MSMEs while households can access up to N3 million based on the activity, cashflow and industry/segment size of a beneficiary.
“Working capital shall be a maximum of 25 per cent of the average of the previous three years’ annual turnover; where the enterprise is not up to three years in operation, 25 per cent of the previous year’s turnover will suffice.
Also, as part of its Covid-19 relief package, the central bank had also unveiled a N100 billion health sector credit facility for operators in the sector. The health sector facility is to provide loans to pharmaceutical companies intending to expand/open their drug manufacturing plants in the country and would also accommodate hospital and healthcare practitioners who intend to expand/build the health facilities to first-class centres.
Also, under its healthcare grant that was introduced when the Covid-19 entered the country, the CBN recently said it has so far received over 34 applications requesting for a total of N90 billion out of its healthcare research grant.
The Director, Development Finance, Mr. Yila Yusuf, said about 90 per cent of the applications were from Nigerian universities.
He said: “What is exciting is that 90 per cent of those applications were from our universities.
“So, we are looking at how we can quickly get those proposals to the body of experts, they look at that, and then we can disburse the funds.”
Yusuf added that a body of experts to review the applications and make recommendations to the CBN has been inaugurated by the Secretary to the Government of the Federation (SGF), Mr. Boss Mustapha. The body of experts is led by the Director-General of National Agency for Food and Drug Administration (NAFDAC), Prof. Mojisola Adeyeye, and consists of independent specialists and government research institutions. It also includes the Nigeria Centre for Disease Control (NCDC), the National Pharmaceutical Research Institute, the Centre for Medical Research, are also part of the body of experts.
According to him, “Also, we have two independent research experts who are quite versatile in administering these grants. So they will administer the grants and anybody who is eligible can apply.
“The modalities are set out in the guidelines. They will look at the proposals, evaluate them and recommend to the CBN and then we would eventually disburse.”
The CBN director said the applications received were from both public and private universities, while some of the manufacturing companies in Nigeria also applied for the grant.
Also in line with desire to reflate the economy, the CBN, banks and other members of the Bankers’ Committee have unanimously agreed to also extend special facilities to Nigerian-registered airlines and the media industry to enable them adequately address the negative impact of the COVID-19 pandemic.
Addressing bank chief executives at the bi-monthly virtual meeting of the Bankers’ Committee this week, Emefiele, urged the banks to support local airlines, noting that such support is critical to helping the industry recover from the economic crisis triggered by the pandemic.
Emefiele also advised the banks to support the media to cope with the lingering pandemic in order to avoid massive job losses in the industry.
The Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson Chukwu, who confirmed that a couple of his clients had accessed some of the intervention funds, described efforts so far by the monetary authorities as a, “a drop in the ocean.”
He, however, stressed the need for the fiscal authorities to also be aggressive in managing the economic effects of Covid-19, saying the CBN’s efforts should be complemented.
“What we have seen is that the intervention in managing the pandemic has largely come from the monetary authorities. We need to see a lot of activities from the fiscal side.
“There are a couple of things that the fiscal authorities can do to moderate the depth of the recession. If you look at the Economic Sustainability Plan, they have made provisions for what they called ‘survival fund.’
The ‘survival fund’ was supposed to support the SMEs to continue to pay salaries of their employees during this economic downturn,” Chukwu explained.
MSMEs employ over 80 per cent of the country’s workforce. Therefore, the expectation is that if they are supported, the contraction in the real sector of the economy would be moderated.
Therefore, there is need for the fiscal authorities to urgently roll out measures to support the development finance efforts of the central bank so as to stimulate economic activities.