Emeka Okoroanyanwu
Central Bank of Nigeria (CBN) governor, Godwin Emefiele has predicted that Nigerian may exit from recession in the shortest period, precisely in the first quarter of 2021, even as he predicted that the economy would grow by 2.0 per cent within the period.
Emefiele was convinced that if the CBN sustains the implementation of its intervention measures, the economy would be out of the woods in 2021. He was however, not sure of the restoration of full economic activities, particularly in service-related sectors, until a COVID vaccine is produced and made available to millions of people across the world.
The National Bureau of Statistics (NBS) had last week announced that the country’s economy had entered into another recession, the second since 2016.
The NBS said the economy recorded a negative gross domestic product (GDP) growth rate of -3.62 per cent (year-on-year) in real terms in the third quarter of 2020. The recession was blamed on the COVID-19 pandemic and the slump in oil prices.
According to the NBS, the performance of the economy in Q3 2020 reflected “residual effects of the restrictions to movement and economic activity implemented across the country in early Q2 in response to the COVID-19 pandemic.” It noted that when the restrictions were lifted, businesses re-opened and international travel and trading activities resumed, some economic activities returned to positive growth while others did not
NBS said growth in Q3 2020 was slower by 5.90 per cent points when compared to the third quarter of 2019 which recorded a real growth rate of 2.28 per cent year on year.
During the third quarter, aggregate GDP stood at N39,089, 460.61 million in nominal terms. This performance was 3.39 per cent higher when compared to the third quarter of 2019 which recorded an aggregate of N37,806, 924.41 million. This rate was, however, lower relative to growth recorded in the third quarter of 2019 by -9.91% points but higher than the preceding quarter by 6.19 per cent points.
But while speaking at the Annual Bankers Dinner at the weekend in Lagos, the CBN Governor said the apex banks actions in 2021 would be guided by the considerations that emerged from the Monetary Policy Committee meeting of November 23 and 24, 2020, which sought to address the major headwinds exerting downward pressure on output growth and upward pressure on domestic prices.
Emefiele narrated how the fiscal and monetary authorities took some unprecedented measures to prevent any long-term damage to the growth prospects of the economy. He said the first objective of the CBN was to restore stability to the economy by providing assistance to households and businesses that had been severely affected by the pandemic.
In addition, he said, the apex bank sought to stimulate economic activity through targeted interventions in critical sectors such as agriculture, manufacturing, electricity and construction. “Cumulatively our intervention efforts represent about 3.5 per cent of Nigeria’s GDP,” he noted.
Some of the measures aimed at stabilizing the economy, according to him, include a cumulative reduction of the monetary policy rate from 13.5 to 11.5 per cent between May and September 2020 in order to spur lending to the economy; a 1-year extension of the moratorium on principal repayments for CBN intervention facilities and regulatory forbearance granted to banks to restructure loans given to sectors that were severely affected by the pandemic.
Others include reduction of the interest rate on CBN intervention loans from 9 to 5 per cent, strengthening of the Loan to Deposit ratio policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers, total gross credit rose by over 21 per cent over the past year, from N15.5 trillion to N19.54 trillion. In addition, he said, over N738 billion has been provided as a credit to manufacturing-related activities by the banks.
Yet another is the creation of N150 billion Targeted Credit Facility (TCF) for affected households and small and medium enterprises through the NIRSAL Microfinance Bank. Emefiele noted that already, N149.21 billion has been disbursed to 316,869 beneficiaries.
Giving the resounding success of the programme and its positive impact on output growth, Emefiele said the bank has decided to double the fund to about N300 billion, so as to accommodate many more beneficiaries and boost consumer expenditure which should positively impact output growth.
The CBN, he said, also disbursed Agribusiness/Small and Medium Enterprise Investment Scheme (AGSMEIS) (N92.90 billion to 24,702 beneficiaries), Anchor Borrowers Programme (ABP) by the sum of N164.91 billion to 954,279 beneficiaries; mobilization of key stakeholders in the Nigerian economy through the Coalition against COVID19(CACOVID), which led to the provision of over N28bn in relief materials to affected households, and the set-up of 39 isolation centres across the country and creation of an NGN100 billion intervention fund in loans to pharmaceutical companies and healthcare practitioners intending to expand and strengthen the capacity of healthcare institutions.
He disclosed that so far, 60 healthcare-related projects are being funded to the tune of over N60 billion as a result of the intervention and creation of a research fund, which is designed to support the development of vaccines in Nigeria and establishment of an N1 trillion facility in loans to boost local manufacturing and production across critical sectors. He said 53 major manufacturing projects, 21 agriculture-related projects and 13 service projects are being funded to the tune of over N360 billion from the facility.
The impact of the measures, the CBN governor said, along with the removal of restrictions on movement and resumption of international travel led to an improvement in key indicators of the economy, as several economic activities returned to positive growth.
Emefiele gave a sectoral assessment of economic activities in the third quarter which indicates that the economy witnessed positive growth in key sectors such as Information and Communications Technology, agriculture, health, construction, finance and insurance and public administration. He said the agricultural sector continued to record positive growth supported by productivity gains in the sector, interventions by the government, and improved demand for local produce.
The Manufacturing Purchasing Managers Index, in the month of November, he said, stood at 50.2 points, indicating an expansion in manufacturing activities after six months of contraction. He said a total of 18 sectors recorded positive growth in the third quarter relative to 13 sectors in the second quarter, which reflects a significant improvement in economic activity. He said 36 out of the 46 economic activities tracked by NBS, reflected positive improvements in growth, which includes activities that recorded negative growth.
In the Investors and Exporters Window, Emefiele disclosed that close to $150m is being traded daily as a result of measures to sanitize activities in the foreign exchange market. In addition, he said, the Nigerian Stock Exchange All-Share index rose by 65 per cent between April and November 2020, reflecting improved sentiments by investors on the fundamentals of publicly listed companies. As a result of the measures, he disclosed that GDP growth in the third quarter, improved to -3.6 per cent from -6.1 per cent in quarter two, even though the economy fell back into a recession. He said he expects that Nigeria would emerge from the recession by the first quarter of 2021, due to high-frequency data that indicates continued improvements in the non-oil sector of the economy.
With the decline in economic activities, he said the CBN instituted measures in the banking system, in order to prevent an economic crisis from spilling over into a financial crisis.
According to him, “inaction on our part would have led to a wave of bankruptcies by firms along with rising unemployment, which would ultimately have a significant impact on the balance sheet of banks. As a result, we ensured that; banks made adequate capital provisions to cover for unexpected losses, even as we supported viable businesses that had been affected by the pandemic through access to our intervention funds.”
He also disclosed that the CBN enabled banks to restructure loans granted to sectors affected by the pandemic. As a result of the measures, Emefiele said NPL ratios have remained low at 5.7 per cent and the capital adequacy ratio of the banking industry at 15.5 per cent remains above the prudential requirement per cent.
In addition, he said, return on earnings in the banking sector was over 21 per cent as at October 2020. Similarly, other financial institutions (OFIs) recorded a remarkable improvement as aggregate assets grew by N582 billion, or 16.94 per cent (year-on-year), to N4.02 trillion as at end-September 2020.
While the news of the continued growth in the banking and finance sector in the third quarter of the year is encouraging, Emefiele said the ultimate strength of the country’s financial system would depend on three key factors which include ensuring that banks have adequate capital buffers to withstand similar pandemics, developing adequate internal controls that will be able to identify potential risks to banks, such as cyber threats, as well as putting in place measures to contain these risks.
Going down memory lane, Emefiele said prior to the onset of the coronavirus in December 2019, the Nigerian economy was on a positive growth trajectory, having made a significant recovery from the 2016-2017 recession which was triggered by the drop in commodity prices in 2016.
Following the first recession, Emefiele said the country witnessed 12 consecutive quarters of economic expansion, and GDP growth in the fourth quarter of 2019 stood at 2.55 per cent He said the exchange rate remained stable for over two years at N360/$ and external reserves witnessed significant accretions from the sale of crude oil and continued inflows from foreign investors.
According to him, the banking system remained strong, as key indicators reflected improvements across several areas even as the capital adequacy ratio for the banking industry was above 15 per cent, surpassing the prudential requirement. The ratio of non-performing loans, he noted, declined from 11 per cent in April 2019 to less than 6.1 per cent by January 2020 while the apex bank’s intervention efforts, he noted, in the agriculture and manufacturing sectors continued to support employment generating activities and improved local production of goods that can be produced in Nigeria.
However, he lamented, that the onset of the COVID-19 pandemic in the first half of 2020, and the lockdown measures put in place to contain the spread of the virus, caused an unprecedented shock to the global economy.
“ Global economic downturn, which was particularly significant in the second quarter of the year saw declines in growth in advanced and emerging market countries, such as the United States (-9.5 per cent), United Kingdom (-20 per cent), India (-24 per cent) and South Africa (-17 per cent). As a result, far-reaching measures were taken by fiscal and monetary authorities in advanced and emerging markets to stabilize their respective economies.
“Like other economies, the Nigerian economy was not immune from the COVID-19 shock in 2020. Nigeria’s gross domestic product (GDP) contracted by -3.4 per cent in the third quarter, a welcome improvement from the – 6.1 per cent recorded in the second quarter,” he said.
The negative rate of growth, he said, was due to a series of external factors in addition to the lockdown measures, imposed in order to curtail the spread of the virus. Some of the key constricting factors include crude oil restriction on global travel by land and air; along with the slowdown in commercial activities, led to a significant reduction in the demand for crude oil, which contributed to a 65 per cent decline in crude oil prices between January and May 2020. The drop in crude prices, along with OPEC reduction of Nigeria’s production quota led to a significant decline in our foreign exchange earnings, along with a more than 60 per cent decline in revenues due to the federation account.
Today, he said, crude oil prices have recovered from its low of US$19 per barrel in April 2020 to US$45 per barrel in November 2020; but is yet to return to pre-pandemic levels of over US$60 per barrel as at January 2020. GDP growth in the oil sector in the third quarter remained subdued due to the OPEC restrictions on oil output, he lamented.
He regretted that restriction on movement GDP growth particularly in the manufacturing sector was significantly impacted by the restrictions on movement as many factories and businesses operated at limited capacity, in addition to a decline in demand for service-related activities, which require extensive in-person contacts, such as transportation, hospitality and tourism.
