Nigeria’s economy ended 2019 on a positive note with Gross Domestic Product (GDP) growing at 2.55 percent in the fourth quarter of the year. This growth has been eroded by the outbreak of Covid-19 pandemic. But monetary and fiscal policy authorities are fighting back with various intervention measures, focusing particularly on critical sectors like manufacturing in order to boost the economy, writes HOPE MOSES-ASHIKE.
Nigeria’s economy ended the year 2019 on a positive note, with Gross Domestic Product (GDP), which is the monetary value of all finished goods and services of a country at a specific period, growing at 2.55 percent in the fourth quarter of 2019.
The foreign exchange was stable across market segments, helped by policy interventions of the Central Bank of Nigeria (CBN).
The positive growth in GDP was driven by improvements in agriculture, oil and gas, manufacturing and ICT as well as the intervention programmes of the CBN, along with a sustained supply of foreign exchange and stability of the naira.
Godwin Emefiele, governor of the CBN, at the end of 2019 listed the bank’s priorities for 2020 to include support for greater economic growth, price stability, low inflation and continued tight monetary policy stance.
The regulator during the period sustained its development financing to support growth in critical sectors of the economy such as agriculture and the manufacturing sectors, through programmes such as the Anchor Borrowers’ Programme, the Commercial Agriculture Credit Scheme and the Bankers’ Committee Agri-Business/Small and Medium Enterprises Investment Scheme (AGSMEIS).
Consequently, the manufacturing sector closed the year 2019 on a faster growth with its Purchasing Managers Index (PMI) expanding at 60.8 points in December from 59.3 points in November 2019.
The expansion was driven by production level, new orders, supplier delivery time, employment level and raw materials inventories, which grew at a faster rate in December 2019.
Going into the year 2020 with a focus on strong sustainable growth for the Nigerian economy, which exited recession in the second quarter of 2017, suddenly, there was an outbreak of Coronavirus from Wuhan, China and has spread across the globe.
The outbreak of the Covid-19 has resulted in the weakening performance of global output growth since January 2020, reflected in losses in global stock values, declining primary commodity prices, disruptions to the global supply chain associated with large-scale global lockdown of mega-metropolis and whole countries; and social distancing. Also, there have been adverse shocks to global capital flows; vulnerabilities and uncertainties in major financial markets; as well as rising corporate debt in the advanced economies and public debt in some Emerging Market and Developing Economies (EMDES).
According to the International Monetary Fund (IMF), the near-term economic impact of COVID-19 is expected to be severe, while already high downside risks have increased. The Washington based Fund said even before the COVID-19 outbreak, Nigeria’s economy was facing headwinds from rising external vulnerabilities and falling per capita GDP levels. The pandemic—along with the sharp fall in oil prices—has magnified the vulnerabilities, leading to a historic decline in growth and large financing needs.
The CBN Staff projections indicate that real GDP in the first quarter (Q1) and Q2 2020 will slow because of the tepid global demand, resulting from the recent outbreak of COVID-19, depressed global aggregate demand and supply, and the oil price war which has resulted in supply glut and decline in crude oil prices. This muted outlook for the first half of the year may thus dampen overall growth prospects for 2020.
Already, there has been gradual, but persistent decline in the Manufacturing and non-Manufacturing Purchasing Manager’s Indices (PMI), below the benchmark. The Manufacturing PMI declined to 41.1 index points in June 2020 from 42.4 index points in May 2020.
Conversely, though, the nonmanufacturing PMI improved to 35.7 index points in June 2020 from 25.3 index points in May 2020.
The trend in the manufacturing and non-Manufacturing PMI was attributed, largely, to: slower growth in production levels; new domestic orders; employment rate; raw materials supply; and new export orders.
The Monetary Policy Committee (MPC) noted at the last meeting in July, the staff forecast of 1.03 per cent contraction in growth in Q2 2020, on the back of the continued adverse impact of the pandemic on the economy.
However, all hope is not lost as the fiscal and monetary authorities are on top of the game through the stimulus packages rolled out since March 2020.
Since the outbreak of the COVID-19 pandemic, the CBN has announced a number of measures to jump-start the economy, especially the industrial sector.
Among these are creation of N50 billion Target Credit Facility (TCF) for households and Small and Medium Enterprises (SMEs), N100 billion intervention funds in healthcare loans to pharmaceutical companies, especially key local pharmaceutical companies that will be granted funding facilities to support the procurement of raw materials and equipment required to boost local drug production.
Others include N1 trillion in loans to boost local manufacturing and production across critical sectors, reservation of 60 percent of the CBN’s N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) for women entrepreneurs.
Also, there was the Real Sector Support Fund to boost local manufacturing comprising 44 Greenfield and Brownfield projects for which about N93.2 billion have already been disbursed.
“The CBN has done a lot but can still complement this effort by reducing the Cash Reserve Requirement from the current 27.5% considered high by the Banking sector to enable them make more credit facilities available to the real sector,” Uche Uwaleke, a professor of capital market at Nasarawa State University Keffi, said.
The MPC recognized the supportive developmental roles of the CBN towards addressing some of these structural issues. The MPC specifically expressed optimism on the future impact of N50 billion Household and SME facility, out of which N49.195 billion has been disbursed, to over 92,000 beneficiaries.
It also noted the N100 billion healthcare and N1.0 trillion manufacturing and agricultural interventions to support the rebound in growth from the impacts of the pandemic on the economy. The Committee further commended the CBN coordinated CA-COVID – Private sector intervention scheme – which had mobilized over N32 billion to support the economy, lives and livelihoods. The Committee noted that the CBN had disbursed over N152.9 billion to the manufacturing sector to finance 61 manufacturing projects and another N93.6 billion to the Healthcare sector, amongst many other sector-specific facilities.
The Committee was hopeful that upon further drawdown of these intervention facilities, the much needed reset and rebound of the Nigerian economy will become a reality.
Aishah Ahmad, CBN deputy governor in charge of financial system stability said in her personal statement that sustained credit to the real economy – particularly for SMEs and households – will be crucial to economic recovery. “Therefore maintaining banking industry liquidity will be paramount,” she said.
Rogers Nwoke, national president of National Association of Microfinance Banks (NAMB) said N50bn was too small for the huge funding gap in Micro, Small and Medium Enterprises (MSME) working capital needs. Microfinance Banks (MFBs) he said disburse more than that in a month.
“You cannot get the needed traction by letting only one new MFB with limited spread to do these disbursements,” he said.
The CBN should make available another N50bn through qualifying MFBs and the funds will reach MSMEs in less than one month, Nwoke told BusinessDay.
Mike Obadan, member of the MPC said in his personal statement that implementation of most of the CBN policies, measures and interventions have begun. In the case of the N50.0 billion Targeted Facility, he said it has been oversubscribed by households and SMEs.
“This will need to be augmented by the Bank while implementation of all the policy measures should be vigorously pursued in order to realise the set objectives,” Obadan said.
Obiora Kingsley Isitua noted in his personal statement that 92,000 household and SME beneficiaries have received financial support to the tune of N49.2 billion and 61 manufacturing projects have been catalysed by injections of N152.9 billion, whilst the healthcare sector has been strengthened by the support of N93.6 billion.
However, he said these disbursements are rapidly approaching the limits of these respective funds. “Whilst the impact of these policies on the economy is undeniable, even more action is required to truly match the scale of effect of the pandemic,” Isitua said.
Reports of the implementation of the CBN’s COVID-19 intervention shows significant progress in disbursements, according to Sanusi Aliyu Rafindadi, member of the MPC in his personal statement. Over 152.9 billion (or 15.2%) of the N1 trillion targeted support for the Manufacturing sector has been disbursed. Out of the N100 billion Healthcare funds, N26.278 billion (or 26.3%) have been disbursed to fund 20 projects in the healthcare sector. Additional 16 applications totalling N67.413 billion were under processing. Out of the N50 billion Targeted Credit Facility for Households and MSMEs, N49.195 billion have been disbursed to 91,736 beneficiaries, and N1.5 billion was disbursed to 169 beneficiaries under the Creative Industry Financing Initiative. Under Agri-Business/Small and Medium Enterprise Investment Scheme (AGSMEIS), N41.41billion has been disbursed to 11,613 beneficiaries
