•CBN governor harps on measures to insulate economy from external shocks
Festus Akanbi and Obinna Chima
The federal government yesterday disclosed that it would approach the Eurobond market next year in its effort to shore up the economy, amidst cocktails of measures being put in place to douse the effects of the Covid-19 pandemic on the economy.
On the same day, Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, while speaking at the 55th Annual Bankers Dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos, predicted a two per cent growth in the country’s Gross Domestic Product (GDP) in 2021.
Finance Minister, Zainab Ahmed, who disclosed the Eurobond plan while speaking on Bloomberg TV, explained that the decision would depend on the prevailing interest rates. She, however, did not specify the amount to be accessed from the Eurobond.
The Eurobond option is coming on the heels of the federal government’s decision to take advantage of good demand and liquidity in the domestic market to raise money
She also confirmed that the $1.5billion World Bank loan being anticipated is about to be granted by the board of the multi-lateral institution, saying Nigeria is at the final stage of closing the deal.
The loan is an economic stimulus to cushion the impact of the COVID-19 pandemic among the 36 states of the federation. The World Bank board is expected to discuss the loan package at their next meeting and possibly approve the request.
The World Bank loan, sought by Nigeria in the wake of the devastating impact of the Coronavirus pandemic, is being delayed by the Brettonwood institution due to concerns over reforms as it feels that Nigeria has not shown enough commitment towards achieving them.
Some of the reforms expected include the unification and flexibility of the exchange rate, removal of fuel subsidy, increase in electricity tariffs, amongst others.
However, it seems that with the recent deregulation of the downstream sector of the oil industry with the attendant removal of fuel subsidy and increase in electricity tariff, some of those concerns of the World Bank are gradually being sorted out.
The Minister further disclosed that Nigeria “is considering joining the G-20 debt-relief initiative” and talking to commercial lenders to secure their backing.
“We will consider joining as long as it is safe for us to do so,” Ahmed said.
She said Nigeria could not participate initially because some of the conditions were unfavourable for existing loan commitments with bilateral lenders and other international borrowings.
The minister also spoke on other issues, including the recent cut in interest rates and the widening disparity between the exchange rates at the official and parallel markets.
She explained that the central bank had cut interest rates to stimulate activity in the private sector and to reduce possible job losses as a result of the Coronavirus pandemic. She also expressed confidence that Nigeria would exit recession by the end of year.
Giving further clarifications on the rate cut, Ahmed stated: “It’s something we have had to do to stabilise business and the economy. We actually had to reduce interest rates, especially for government intervention, as much as 50 per cent and also granted regulatory forbearance extending tenors of facilities even in some cases, we had the repayment suspended for some time.
Making a case for the survival of businesses, the minister said: “We are trying to get as many businesses as possible access low cost financing in a manner that is easy so that they can reinvest in their businesses to revive the business and to ensure that we keep jobs. It was a deliberate effort and after a while we will begin to adjust.”
According to her, the government is concerned about the widening gap in the Naira’s exchange rate on the official and parallel markets.
She said: “We are very concerned. Both the fiscal and monetary authorities have been trying to take measures to close the gap. The reason why we have the gap is because of the drop in revenue from oil and gas industry. This third quarter, the oil industry growth was -13.01per cent, which is the highest we have seen in about 14 quarters, so it’s significant and as you know the oil and gas sector is still the largest source of foreign exchange in Nigeria.
“So what we have now is a situation of scarcity that we are trying to address. There is high demand and there is a very low supply and the CBN has put a process with which to meet the demand and the needs are being addressed as time goes by. We do hope we shall soon get to an even level so that the impact on the exchange rate will be moderated.”
She was confident that Nigeria would exit recession by the last quarter of the year, because of the exit plan being put in place by the government.
She said, “We just released our third quarter report and the indication is a positive one even though we reported a negative growth of -3.62, which technically showed we are in a recession but when you compare it with the second quarter report, which is -3.61, it is a significant improvement and it shows that the measures we are taking are the right ones.
“We are very hopeful that by the fourth quarter of 2020, we will exit recession, if not, we will do so by the first quarter of 2021.”
Ahmed said the positive assumption means the steps being taken by the administration of President Muhammadu Buhari “are working.”
She disclosed that the President had taken very early bold measures that are largely focused on stabilising the economy and to support the poor and the vulnerable and, “thankfully, we can see from the numbers that COVID-19 pandemic in Nigeria has been well controlled.”
Cbn Governor Harps on Measures to Insulate Economy from External Shocks
Meanwhile, Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele has predicted a two per cent growth in the country’s Gross Domestic Product (GDP) for 2021.
Emefiele, who spoke at the 55th Annual Bankers Dinner in Lagos, anticipated that with sustained implementation of the central bank’s development finance initiatives, as well as efforts from the fiscal authorities, the Nigerian economy could emerge from recession by the first quarter of 2021.
Nigeria’s real GDP contracted for the second consecutive quarter by 3.62 per cent in the third quarter of the year, compared to a growth of -6.10 per cent, which showed that the country had entered its second economic recession in five years.
But speaking yesterday, Emefiele assured his audience who were mostly bankers and investors that just like policymakers did in 2016 when the economy slipped into recession, the fiscal and monetary policy managers would join forces to address the present economic challenge.
He reiterated his call for analysts to always give out accurate figures and indicators on the economy so as not to cause panic or mislead potential investors.
“We also expect that growth in 2021 would attain two per cent. However, downside risks remain, as restoration of full economic activities, particularly in service-related sectors, remains uncertain until a COVID-19 vaccine is produced and made available to millions of people across the world.
“Second, with the significant rise in cases in advanced markets and the imposition of lockdowns in parts of Europe, concerns remain on the impact this could have on growth in advanced economies, commodity prices and the financial markets.
“We must therefore find ways to insulate our economy from the impact of these shocks through our diversification efforts, while also working to ensure that we adhere to safety protocols in order to prevent a surge in COVID-19 related cases, as this could further cripple economic activities,” he explained.
According to Emefiele, actions by the CBN in 2021 would be guided by considerations that emerged from the Monetary Policy Committee meeting held last week, which sought to address the major headwinds exerting downward pressure on output growth and upward pressure on domestic prices.
He noted that given the fact that the rise in inflation was not due to monetary factors but rather the prevalence of structural rigidities and supply shocks, traditional tools of monetary policy may not be helpful in addressing current inflationary pressures. Rather, he said a more useful policy would be the supply-side measures implemented by the Bank.
Owing to this, Emefiele said emphasis would be placed on strengthening the development finance initiatives of the CBN in order to stimulate greater production and reduce unemployment.
“We intend to increase our support for measures that will improve cultivation of local produce in Nigeria, with particular emphasis on improving our yield levels, as food inflation continues to remain the key driver of inflationary trends.
“The banking sector therefore has a significant role to play as a facilitator of growth in the agriculture sector, through its intermediation function.
“Some of the opportunities in the agriculture sector that banks should explore include ways to address some of the existing gaps in the agriculture value chains, such as storage centres, transport logistics, and technology platforms, that can enable rural farmers to sell their produce directly to the markets.
“These measures would help to improve productivity of farmers, reduce post-harvest losses, increase access to finance for farmers and improve sourcing of local raw materials for processing by manufacturing and industrial firms.
“It will also aid improved production of local goods, enable the creation of jobs, while supporting the growth of other sectors of our economy such as manufacturing, and transportation,” Emefiele said.
He stressed that the information communication technology (ICT) remains one sector which has emerged as a significant source of resilience in mitigating the impact of COVID-19 on the economy.
He pointed out that in the third quarter of 2020, the ICT sector made contributions of over 17.8 per cent to GDP growth, 47 per cent higher than its contributions a year earlier.
The growth of start-ups in the fintech and health care space rose in response to the pandemic.
“It is important that we leverage ICT as an enabler for growth in key sectors of the economy. ICT start-ups are emerging to support SMEs, farmers, and in providing quality learning to students.
“It is important that the banking sector consider viable IT firms in these areas that have the potential to not only serve the needs of the local market but are also able to export ICT related services to countries across the world.
“India for example exports close to a $100 billion worth of ICT related services every year and I believe that our ICT industry can make significant contributions to our export earnings,” Emefiele added.
According to him, the central bank recently issued payment service bank licences to three firms as part of efforts to drive financial inclusion and ensure that majority of Nigerian citizens are banked.
Emefiele said the payment service banks, along with mobile money operators and banks are expected to leverage ICT channels in improving penetration of digital financial services and products to Nigerians. He pointed out that driving sustainable growth in the economy would require that the banking industry support growth of ICT firms that are inclined to improve productivity across key sectors in the economy.
Another critical area that the banking sector ought to consider for stable growth of our economy is infrastructure finance, the CBN Governor said.
According to Emefiele, with the decline in revenues due to federal and state government as a result of the drop in crude oil prices, alternative ways of funding infrastructure are critical in generating sustained growth of in the economy.
“A well-built infrastructure system, comprising hard infrastructure such as roads and ports, and soft infrastructure such as broadband penetration, can have a multiplier effect on growth by enabling the expansion of business activities in the country.
“We believe that a well-structured infrastructure fund can act as a catalyst for growth in the medium and the long run. The support of the banking community will be important in achieving this objective.
“Let me add that while COVID-19 has brought on several challenges to our economy and indeed the banking sector, it offers a unique opportunity for us to build a more resilient economy that is better able to contain external shocks, whilst supporting growth and wealth creation in key sectors of our economy,” he added.
In his remarks, the Governor of Lagos State, Mr. Babajide Sanwo-Olu, assured business operators in the state of the safety of their investments.
He said the state learnt a lot from the recent #ENDSARs protest, even as he thanked banks for supporting the state during the COVID-19 lockdown.
Speaking about the recent protest, Sanwo-Olu said: “Unfortunately, a protest that we supported turned out to cause a great havoc on our land as Lagos became the epicenter.
“But it is important for me to say while some of your businesses were also affected, we want to say to you that security of lives and properties would continue to be a deliverable that we would not shy away from.
“We would be hard on it and we would ensure that we protect your investment. We do not pray for a repeat of what saw last month. We have learnt our lessons and we would continue to engage to come out stronger.”
