Governor of the Central Bank of Nigeria (CBN) Godwin Emefiele seized the opportunity of the annual bankers dinner to share his view on some of the key issues that the Nigerian economy has faced over the past three years and how to strengthen the economic recovery process of the country.
Several economic and financial experts continually attempt to analyse and pre-empt the policy actions of the CBN but “some of their conclusions are incongruent to ours. As I have always maintained, I am not surprised at this outcome since most of those analysts, unfortunately, rely on limited or utterly incorrect information,” Emefiele said.
However, the concern remains in some quarters that if nothing is done, the country may yet slip into another recession and that can erode the gains that have been made in the year.
The Governor however took time to explain that the country’s overdependence on crude oil for FX revenue meant that shocks in the oil market were transmitted entirely to the economy via the FX markets as manufacturers and traders who required forex to purchase their inputs as well as goods, were faced with a depleting supply of foreign exchange in the country.
The apex bank chief said the on-going global tensions, as well as the economic recession in 2016 provided the bank with some key lessons on some of the steps it needs to take to improve the wealth base of the nation.
He said: “Our understanding of the nature of Nigeria’s domestic imbalances indicates that two key factors accentuated our vulnerability to global shocks. The first is the diminished total factor productivity in Nigeria due to a low and inadequate infrastructural base. The second is our overdependence on imports for both capital goods and domestic consumption.
“With regards to the inadequate infrastructural base, I am aware of ongoing efforts being made by the fiscal authorities in constructing critical road networks such as the Second Niger Bridge, Lagos – Ibadan Highway, Abuja – Kano road network, and the rail lines between Port-Harcourt – Maiduguri, Itakpe – Ajaokuta and Lagos – Kano. These measures will go a long way in reducing the logistics cost of doing business in Nigeria, while opening up new markets for farmers, traders and manufacturers.”
He identified key areas of intervention that the apex bank is already tightening its nose around.
Development Finance
Emefiele said the CBN has maintained focus on supporting farmers, entrepreneurs as well as small and medium scale businesses, “through our various intervention programmes such as the Anchor Borrower Programme, Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the National Collateral Registry.
“The CBN recently introduced the Real Sector Support fund; a facility meant to provide cheap funding at no more than 9 percent to new projects in the agric and manufacturing sectors aimed at boosting output and creating jobs.”
In the agriculture sector, he said, the Anchor Borrower Programme (ABP) has ensured that Nigeria emerged from being a net importer of rice to becoming a major producer of rice, supplying key markets in neighbouring countries.
He noted that as at October 2018, a total number of 862,069 farmers cultivating about 835,239 hectares, across 16 different commodities, have benefited from the Anchor Borrowers Programme, which has generated 2,502,675 jobs across the country.
“It is in light of the success of the Anchor Borrowers Programme with regards to cultivation of rice and maize that the Monetary Policy Committee in its last meeting on the 21st of November, 2018 recommended that the programme be applied to other areas such as palm oil, tomato and fisheries to mention a few,” he added.
Financial Inclusion
“Cognizant of the fact that close to 40% of adult Nigerians do not have access to financial services, the bank implemented a series of steps that will help drive our efforts aimed at building a more financially inclusive society,” Emefiele said and identified some of these measures to include the Agent Banking Guidelines and the Shared Agent Network Facility (SANEF), both of which are intended to deepen penetration of agent networks in underserved locations across the country.
He said: “The recent launch of the policy on Payment Service Banks in October 2018, is an additional step aimed at leveraging on the distribution networks of non-bank entities, such as fast-moving consumer goods companies, Fintechs, and telecommunication firms, in providing financial services to under-served communities. With these schemes in place, we believe that in the next two years, over 80% of Nigerians will have access to financial services. “
Credit Allocation
As part of its long-term strategy for strengthening the Nigerian economy, the apex bank established initiatives to resolve the underlying challenges to long-term GDP growth, economic productivity, unemployment and poverty that had pervaded the economy over the past decades.
Hence, the CBN established the Credit Bureau and the National Collateral Registry to improve access to credit in the domestic economy. “We believe these measures will help to instil a stronger credit culture and unlock access to finance for deserving Nigerians, including those who may not have fixed assets to provide to banks as collateral,” he stated.
Emefiele said: “To spur bank lending to the high-impact sector, the bank, at its July 2018 MPC, pledged to refund CRR to banks under certain conditions. Banks that bring proposal for funding of new projects or expansion of existing ones in agriculture and manufacturing sectors will, accordingly, qualify for CRR refund of up to 100 percent. It is our expectation that banks would use this opportunity to expand credits to the real sector.”
Risk Based Supervision
The governor disclosed that the recent weakening of the naira, following the shift to a more flexible foreign exchange mechanism, impacted somewhat on the balance sheets of domestic banks.
To guarantee financial stability as Nigeria continues with flexible exchange rate system, the CBN took a number of steps, including:
Monitoring compliance of supervised institutions with the foreign exchange management framework issued in June 2016 through our risk-based supervision methodology, which also involved reviewing international trade and foreign exchange operations of local banks;
Monitoring the financial position and performance of supervised institutions;
Assessment of the risk profile and governance management practices of banks;
In the event of major deteriorations on any key risk indicator, we engaged with the affected banks in order to mitigate concerns and shore-up their capital base.
He stressed that “the ongoing economic recovery requires the joint efforts and wise counsel of everyone seated here, if we must make giant strides forward,” adding that the CBN is more determined now than ever to remain at the forefront of the effort to ensure that the rebound is not overturned.
