The Central Bank of Nigeria (CBN) displayed a rare corporate competence when it deployed extensive policies to redeem Nigeria from the vortex of recession which the nation plunged into following the sudden decline in crude oil prices at the international market. Presiding over the economy at a very challenging time, the CBN interventions into the economy provided the needed impetus for the economy to be out of the woods, writes TELIAT SULE.
The Nigerian economy has enjoyed a steady growth since the return to democratic governance in 1999. In those intervening years, average GDP growth rate was about 7 percent. Particularly in those years when the crude oil prices were significantly high, the health of the economy was robust particularly when measured in terms of exchange rate stability, considerable external reserves build-up which was as high as $50 billion, single digit inflation and the nation’s attractiveness to the international investing community.
At this time, what most other energy dependent nations did was to plough back the excess proceeds from crude oil into the diversification of their economies through the promotion and development of the manufacturing, agro-allied and other strategic sectors, with the aim of reducing the vulnerability of their nations to external shocks.
Past administrations in Nigeria failed to utilise the opportunity that high crude oil prices offered us. The impact was that when crude oil prices began to fall steeply at the international market, there were no shock absorbers to insulate the Nigerian economy, and in a matter of months, exchange rate began to deteriorate, the three tiers of government were handicapped as revenues dwindled leading to civil workers being owed salaries for months and the development of infrastructure was completely put on hold in a country that ranks poorly in infrastructure development among emerging markets.
Consequently, foreign exchange became a scarce commodity about which time it was exchanged at N520/$. For being dependent on raw materials importation, majority of the small and medium enterprises in the country had their capacity utilisation reduced to below average as they could sparsely raise the needed funds to buy forex. Some had to shut down operations when the situation became unbearable.
In the aftermath, youth unemployment spiked leading to high rates of crimes, drug trafficking, human trafficking which caused a number of Nigerians to perish in the Mediterranean Seas. The foreign exchange market became fragmented and we had the official rate, black market rate, parallel market rate, Bureau de Change rate, among others.
How did the CBN rise to the occasion?
- Ban on 41 non-essential items
Given that Nigerians have penchant for anything imported, at the expense of local substitutes that are even better, Central Bank of Nigeria (CBN) set out to control this unbridled greed, which was causing the nation billions of dollars in foreign exchange. Thus in 2015, the CBN issued a circular:
“In the continuing effort to sustain the stability of the foreign exchange market and ensure the efficient utilisation of foreign exchange and the derivation of optimum benefits from goods and services imported into the country, it has become imperative to exclude importers of some goods and services from accessing foreign exchange at the Nigerian foreign exchange markets in order to encourage local production of these items”, the CBN Circular dated June 23, 2015 stated.
“For the avoidance of doubt, please note that the importation of these items are not banned, thus importers desirous of importing these items shall do so using their own funds without any recourse to the Nigerian foreign exchange markets”, the circular added.
The items are rice, cement, margarine, palm kernel/palm oil and vegetable oils, meat and processed meat products, poultry-chicken, eggs, turkey, private airplanes/jets, Indian incense, Tinned fish in sauce (Geisha)/Sardines, cold rolled steel sheets, galvanised steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers, enamelware, steel drums, steel pipes, wire rods, iron rods, wire mesh and steel nails.
Others are security and razor wire, wood practice boards and panels, wood fibre boards and panels, wooden doors, furniture, toothpicks, glass and glassware, kitchen utensils, tableware, tiles, textiles, woven fabrics, clothes, plastics and rubber products, cellophane wrappers, soap and cosmetics, tomatoes/tomato pastes, and Eurobond, foreign currency bond/share purchases.
Before the CBN was forced to take this step, Nigeria spent about $22 billion importing majorly four items which include rice, wheat, sugar and fish. This nation was world’s number two importer of rice estimated at about N356 billion, while N217 billion and N97 billion was expended importing sugar and fish respectively.
- Anchor Borrowers Program (ABP) launched
The essence of the ABP was to create economic linkage between small-holder farmers and reputable large scale processors with a view to increasing agricultural output and the capacity utilisation of the processor. Topmost on the list of beneficiaries are farmer cooperative groups having between five and twenty members. And the targeted crops are cereals which comprise rice, maize and wheat; roots and tubers prominent among which are cassava, potatoes, yam and ginger; tree crops like oil palm, cocoa and rubber; legumes comprising soybean, sesame seed and cowpea, tomato and livestock (fish, poultry and ruminants).
This has led to rice revolution in a number of states particularly Kebbi and Lagos; Ogun, Anambra, Kano, and Ebonyi. The rice revolution in Kebbi and Lagos led to the famous Lake rice, which is the result of partnership between the governments of Lagos and Kebbi States. In Kebbi State where the rice is grown, the provision of improved seedlings through the scheme, farm inputs and extension services have led to higher yield per hectare from 2.5 to about 10 metric tonnes. Rice production involves 16 local government areas, with over 200,000 farmers providing direct and indirect jobs to the local economies of those local government areas.
Every year, not less than 100,000 bags of Lake Rice were sold in every festive season in Lagos State, and the periodic sale has run for two consecutive years. Because of the nature of Lagos State as a melting point for all tribes and religions, there are two major festive seasons which are Ileya (Sallah) and Christmas. That means, for the two festive seasons in every year, not less than 200,000 bags of Lake Rice would be sold.
Furthermore, the last two years have seen the growth in the capacity utilisation of rice mills in the country. In Kebbi State for instance, Kamba Rice Mill in Dandi Local Government now produces 735 metric tonnes per annum. Labana Rice Mills also produces 250,000 metric tonnes per annum while Wacot Rice Mill presently produces 120,000 metric tonnes annually, but aims to expand capacity to 500,000 metric tonnes per annum.
The benefits of the ABP are immediate. Apart from creating over 88,000 millionaires along the Lake Rice value chain; there was a sharp decline in rice importation, thereby saving the nation of the much needed foreign exchange to attend to the needs of manufacturers.
The nation’s agric sector accounts for about 25 percent of the gross domestic product (GDP). Overall, it grew by 3.45 percent in 2017. But the growth varies from quarter to quarter. In the first quarter, it grew by 3.39 percent and that moderated to 3.01 percent in the second quarter. The third quarter saw the sector grow by 3.06 while in the last quarter of the year, it grew by 4.23 percent.
- Policy boosts local sourcing of raw materials
The restriction has encouraged more firms to source raw materials locally. For instance, Guinness Nigeria Plc sources 75 percent of its raw materials locally. Nestle Nigeria Plc has equally joined the fray. Nigerian Breweries Plc is to source 60 percent of its raw materials locally by 2020. Procter and Gamble Plc have started sourcing a significant amount of its raw materials from local suppliers.
This means the billions of dollars hitherto spent importing raw materials into the country is now being injected into the local economy, creating millionaires in those raw materials value chain.
Investors and Exporters (I & E) Window boosts investors’ confidence
The foreign exchange market was fragmented with several rates applicable in the market. In fact, stakeholders said if the regulatory authority did not intervene urgently, those unofficial rates would become official.
As a responsive organisation, the CBN came out with an ingenious move christened as Investors & Exporters FX Window. “The Central Bank of Nigeria, in a continuing effort to deepen the foreign exchange market and accommodate all FX obligations, hereby announces a special window for investors, exporters & end-users (hereinafter referred to as “Investors & Exporters FX Window”. The purpose of this window is to boost liquidity in the FX market and ensure timely execution and settlement for eligible transactions” the CBN said through a circular dated April 21, 2017.
As at the end of last year, transactions through the I & E window crossed $19 billion, particularly through significant inflows from the offshore investors interested in treasury bills and primary market auctions (PMA) by the Central Bank of Nigeria (CBN).
Based on the foregoing, the arbitrage opportunities to rent seekers have shrunk, as the parallel market rates converge to the official rate and volatility associated with foreign exchange transactions has slowed down.
Furthermore, as the CBN succeeded in saving scare forex on unimportant items, this has led to a boost in foreign reserves which presently stands at about $46 billion.
Capital importation surges
The total capital importation into Nigeria in 2016 was $5.12 billion. With CBN ingenuity and confidence boosting policies and programs implemented, capital importation into Nigeria surged 139 percent to $12.23 billion by 2017 year end. In the real sector, inflows into the agric sector rose by 771 percent from $22.47 million in 2016 to $195.65 million in 2017. Fishing industry witnessed 1,557 percent increase in capital importation from $6 million in 2016 to $99.43 million in 2017. The nation’s tanning industry which was almost dead started showing signs of revival as investors injected $520,000 into the sector.
In terms of FDI, the President and Commander-in-Chief of the Armed Forces, Muhammadu Buhari, commissioned the largest integrated feed mill in Kaduna State owned by Olam Nigeria Limited. The project cost $150 million to set up. When fully operational, the mill will process 180,000 tons of corn, 75,000 tons of soybean, 360,000 tons of animal feeds annually and 1.6m day old chicks weekly. In addition, the project has the capacity to employ about 600 workers directly and 400,000 workers indirectly.
By the second quarter of 2017, the Nigerian economy responded to those ingenious moves leading to the exit from recession. In that quarter, the GDP growth was 0.72 percent. It improved to 1.40 percent at the end of the third quarter and ended the year with 1.40 percent growth in GDP.
CBN options for sustaining the growth momentum
Nigeria is blessed with large arable land of which only a small portion of it is under cultivation. Therefore, with high youth unemployment, it will not be out of place to advise Nigerians particularly the youths to take interest in agriculture. Interestingly, a lot of successful Nigerians have emerged in this sector in the last one and half years.
Here, we take a look at some of the agric and agro-allied areas where millionaires have recently emerged.
Rice Farming: This is one area the CBN has vigorously supported in the last few years. Rice is a major staple food in Nigeria, and before the new agric revolutions, Nigeria spent about $2 billion importing rice annually. We have the upland rice; rain fed low land and irrigated rice. With improved yields per hectare, a farmer could harvest between 0.7 to 1 tonne per hectare for upland rice. It is between 2 and 2.5 tonnes per hectare for upland rice while it is between 3 and 4 tonnes per hectare for rice grown through irrigated system.
Given the enormous opportunities in rice farming, the CBN introduced the Anchor Borrowers’ Program (ABP). Launched on November 17, 2015, the program is intended to create a linkage between anchor companies involved in the processing and small-holder farmers. Some of its objectives include: to increase banks’ financing to agricultural sector; reduce agricultural commodity importation and conserve external reserves; increase capacity utilisation of agricultural firms; create new generation of farmers and entrepreneurs and employment; deepen the cash-less policy and financial inclusion; reduce the level of poverty among small-holder farmers; and assist rural small-holder farmers to grow from subsistent to commercial production levels.
As at the end of 2017, over 500,000 farmers have benefited across the States of the Federation, and more farmers are going to be engaged.
Maize farming: Maize industry in Nigeria is valued at $6 billion. The produce is a must have for poultry farmers and manufacturers. Supply of maize is about 7 million metric tonnes whereas demand is 7.5 million metric tonnes. Demand for maize is consistently high due to the large poultry industry. Gestation period of maize is about three months and with new improved yields, a farmer can be sure of considerable yield per hectare.
Multinational corporations such as Nestle Plc, Nigerian Breweries Plc, Guinness Nigeria Plc, Cadbury Plc, Flour Mills Plc, etc., have started sourcing raw materials locally. Cereals happen to be one of the major raw materials for these companies. With poultry industry expanding daily while manufacturing giants such as the aforementioned companies competing for the same cereals, you can be sure that there is ready made market for maize in Nigeria. The good news is the CBN programs help farmers to get improved seedlings and finance.
Fishery: The catfish subsector of the Fishery industry in Nigeria is worth about N175 billion as the nation currently produces catfish about 370,000 metric tonnes. This is another area of agriculture unemployed youths have made millions of naira by dint of hard work. The CBN’s ABP covers it as well. In 2017, catfish farmers in Delta State were supported through a soft loan of N1.2 billion.
In addition to local consumption, catfish farmers have started exploring the international markets. According to the study sponsored by the Food and Agriculture Organisation (FAO) of the United Nations, the quantity of dried and smoked catfish, tilapia and other types of fish from the West African region to the United Kingdom was worth 500 tonnes per year estimated at about $20 million.
Cassava: For domestic and industrial uses, cassava is one of the most consumed foodstuffs in Nigeria and sub Saharan Africa. According to the National Bureau of Statistics (NBS), expenditure on cassava amounted to 23 percent of consumption expenditure and 15 percent of the total expenditure on consumption, which is about N24 trillion. The CBN also supports farmers who show interest in cassava farming.
Cotton: Cotton used to be one of the major non-oil exports until the agricultural sector was abandoned during the oil boom, and that led to the collapse of all the textile mills in the country which then were majorly situated in Lagos and Kaduna States. The CBN is determined to bring back the good old days in the nation’s cotton industry through its intervention programs.
The Central Bank of Nigeria (CBN) is interested in this segment of the agriculture value chain because between 2014 and 2017, over N400 billion worth of textile and textile articles were imported into the country. In 2014, a total of N106.11 billion worth of textile and textile articles were imported. In 2015, the value of imported textile related materials fell to N92.17 billion. In 2016, it further rose by 24 percent to N114.7 billion and with another 24 percent increase, the value of imported textile materials rose to N141.99 billion in 2017.
On the contrary, the export of textile and textile related articles which stood at N145.41 billion in 2014 fell sharply by 97 percent to N4.20 billion in 2015 and has since remained at that level. In 2016 the export of textile related materials earned Nigerian farmers and other players in that value chain just N5.47 billion and in 2017, it was N5.86 billion. The intervention of the CBN is beginning to rekindle interest in the sector. This is so because since 2016, the sector has recorded quarter-on-quarter and year-on-year GDP growth rates.
The motive of the CBN is to get farmers interested in cotton production once gain. Success in this regard will make raw materials readily available to textile mills and the final products will be competitive. The immediate impact will be a reduction in the textile related materials import bill and a boost to exchange rate stability.
Reducing the import bill of textile related materials by 25 percent will amount to Nigeria saving about N28 billion annually, and this is what the players in the cotton value chain will make as revenue. Let us that assume an average player makes N10 million as revenue annually, and with the CBN’s move to revive the cotton industry, the effort will create at least 2,823 millionaires annually.
Source:NBS
Palm produce:
Palm oil is the most consumed vegetable oil as it accounts for 34 percent of the global vegetable oils production. Apart from crude palm oil (CPO), several other products such as palm kernel cake used in feed mill industry and other variants of vegetable oils used in soap making, food and beverages, and cosmetics industry are derived from oil palm trees. In 2016/2017 farming season, 177 million metric tonnes of vegetable oils were produced. Durfil, the maker of indomine noodles; Nestle, Cadbury, Honeywell Flourmills, Dangote Flour Mills, etc use vegetable oils a lot.
In spite of palm tree being a traditionally West African produce, Nigeria occupies the fifth position globally in CPO production after Indonesia, Malaysia, Thailand and Columbia. Meanwhile, expansion in the food and beverages, cosmetics and soap making industry has created a demand-supply gap which is being filled now by CPO producers from Indonesia and Malaysia. In fact, the largest producer in Malaysia, Sime Darby Berhad is about to set up its plantation in Nigeria. In 2016, the company cultivated 1 million hectares of land and realised $11.2 billion as revenue.
With growing population and unification of West African economies through trade treaties, more CPO will be required as investors tap the opportunities the young population presents. This is the reason the CBN is supporting the cultivation of palm oil plantation.
Soybeans:
Advancement in research has led to the development of improved varieties of soybeans in Nigeria suitable for many ecological zones. The importance of soybean cannot be overemphasized as it contains about 40 percent protein content, 20 percent edible vegetable oil and a balance of amino acid.
Apart from industrial uses, the domestic market for soybeans is so huge because most of the diets consumed in the country are deficient in protein, and consumption of soybeans provides a cheaper alternative to millions of Nigerians. The crop is harvested at most four months after planting.
This implies that with good farming practices and improved seeds, a farmer can harvest soybeans three times in a year. The market demand for soybean is estimated at N300 billion and presently a 75 percent demand gap, translating to about N225 billion exists in the market place.
