The Coronavirus (COVID-19) epidemic is wreaking havoc on world economies and Nigeria is not an exception. But, it has an advantage not many others enjoy. Aside the temperate climate, which makes it difficult for the virus to spread, the Central Bank of Nigeria’s (CBN’s) policies on diversification of the economy and investment in the agricultural sector are shielding the economy from the adverse impact of crude oil price fluctuation. The policies have helped in cutting Nigeria’s import bill, created more foreign exchange earnings and improved consumption of locally-produced goods, writes COLLINS NWEZE.
The world has shown enough resistance and bravery towards risks. But when it comes to Coronavirus (COVID-19) epidemic, even the bravest of men are anxious and scared. The plaque arrived when the world was least expectant, with catastrophic damages to economies.
For instance, the world financial markets have tumbled as concerns about supply-chain interruptions from China, oil price uncertainty among major producers rise. Only few countries are likely to be left unscathed by the outbreak’s financial ramifications.
The United Nation’s trade and development agency predicted that apart from the tragic human consequences of the COVID-19 epidemic, the economic uncertainty it has sparked will likely cost the global economy $1 trillion in 2020.
Although two cases of COVID-19 outbreak have been confirmed in Nigeria, and decline in crude oil prices elevated the country’s economic risks, the policies of the Central Bank of Nigeria (CBN) on economic diversification and investment in agricultural sector have helped the economy to stand firm in the midst of daunting challenges.
The CBN’s economic diversification policies are insulating the economy from crude oil price fluctuation risks. Already, the economy has witnessed reduced import bill, more foreign exchange earnings and consumption of locally produced goods by Nigerians to save foreign exchange. There has also been job creation from CBN’s initiatives in the agricultural sector created jobs for Nigerians.
The CBN Governor, Godwin Emefiele, said the impact of COVID-19 on the African economy is becoming severe, especially the declining global oil price and called for massive investment in agriculture.
Emefiele said the bank had been developing home-grown policies to surmount challenges that confronted the economy lately.
“As I have always emphasised, it is our collective duty to ensure that the potential and prospects of the economy are optimally realised. The ongoing economic recovery requires the joint efforts and wise counsel of everyone, if we must take giant strides forward. The CBN is more determined now than ever to remain at the forefront of efforts to ensure that the rebound is not overturned,” he said.
Speaking at a meeting with bankers in Lagos on the theme: ‘Strengthening the economic recovery process in Nigeria’ the CBN boss said with regards to over-dependence in imports, the economic recession triggered mainly by the drop in crude oil prices, only strengthened the case for moving from a nation wholly dependent on consumption, to a nation that produces a large proportion of what it needs, particularly in areas where the resources needed for production are widely available across the country. This thought process, he said, shaped decision to impose the restriction on access to forex for 43 items that can be produced in Nigeria.
“There has been considerable discourse particularly on whether the restriction on access to foreign exchange for 43 items is driving local production, with some nay-sayers stating that it has constrained productivity and growth in the economy. Based on our internal research conducted at the Central Bank of Nigeria, there is strong support that the recovery of our economy from the recession may have been much weaker or even negative, without the implementation of the restriction on 43 items.”
“Our research supports the conclusion that the combination of the restriction on 43 items along with other measures imposed by the fiscal and monetary authorities has helped to promote the recovery. Any attempt to reverse the course of this action may have untold consequences on the growth trajectory of our economy particularly in our push to diversify and restructure our economy. In fact, recommendations are being made to the CBN that the list of 43 items be expanded to include other additional items that can be locally produced.”
Emefiele said many entrepreneurs were taking advantage of this policy to venture into the domestic production of the restricted items with remarkable success and great positive impact on employment. “The dramatic decline in our import bill and the increase in domestic production of these items attest to the efficacy of this policy. Noticeable declines were steadily recorded in our monthly food import bill from $665.4 million in January 2015 to $160.4 million as at October 2018; a cumulative fall of 75.9 percent and an implied savings of over $21 billion on food imports alone over that period. Most evident were the 97.3 percent cumulative reduction in monthly rice import bills, 99.6 percent in fish, 81.3 percent in milk, 63.7 per cent in sugar, and 60.5 percent in wheat,” he said.
Deepening agricultural sector
Speaking at the at the African Economic Research Consortium Senior Policy Seminar XXII in partnership with CBN in Abuja, on the theme: “Agriculture and Food Policies for Better Nutrition Outcomes in Africa”, Emefiele said the outbreak of the coronavirus had dampened consumer confidence resulting to decline in private consumption and global demand slowdown.
He said the sad development had posed great threat to the economic gains achieved across Africa in the recent past.
He emphasised the need for the countries on the continent to massively invest in agriculture.
He said: “Very much like we have seen in the past, food is often one of the immediate causalities of any catastrophe on the African continent. The reason is not far-fetched, a sizeable proportion of the population is food poor.
Emefiele said unlocking the huge potential of agriculture must therefore be at the heart of any meaningful engagement on economic and social development of the continent.
Anchor Borrowers’ Programme
The CBN has under Emefiele been giving priority to agriculture and that has started to yield positive results.
The CBN established the Anchor Borrowers’ Programme, which was launched by President Muhammadu Buhari on in 2015 with the objective of creating a linkage between anchor companies involved in the processing and smallholder farmers (SHFs) of the required key agricultural commodities.
The thrust of the ABP is the provision of inputs in kind and cash (for farm labour) to smallholder farmers with a view to boosting the production of rice, maize, poultry, sorghum, cassava, tomatoes and cotton, among others. The idea is to stabilise input supply to agro-processors and address the country’s negative balance of payments on food.
The ABP evolved from the consultations with stakeholders comprising Federal Ministry of Agriculture & Rural Development, State Governors, millers of agricultural produce, and smallholder farmers to boost agricultural production and non-oil exports in the face of unpredictable crude oil prices and its resultant effect on the revenue profile of Nigeria.
Aside the CBN, many stakeholders have called for diversification of the economy away from oil. President/Chairman of Council, Chartered Institute of Bankers’ of Nigeria (CIBN) Uche Olowu said, there was need to diversify the economy from crude oil earnings so as to boost foreign investors’ confidence in the economy.
Speaking at the Economic Outlook forum in Lagos, he disclosed that as soon as the economy is diversified, the country will see higher accretion to the foreign reserves and improved confidence in the economy.
He said opportunities in the agricultural sector should be explored to improve the country’s capacity to export agric products.
Head of Research at Coronation Merchant Bank, Guy Czartoryski said oil price crash will be a defining risk for Nigeria’s foreign exchange market. “We began this year with the view that the Naira/US dollar exchange rate could hold for most of 2020. When the coronavirus outbreak became apparent at the end of January, we still believed that a combination of monetary stimulus in developed markets and foreign portfolio investment into Nigeria would stabilise the risk outlook,” he said in an emailed report to investors.
Emefiele has continually urged Nigerians to support the drive by the bank and the fiscal authorities to ensure diversification away from crude oil.
He recalled how the CBN tackled the multiple challenge of bringing down exchange rate from a high of about N525 to $1 to N360 to $1, reducing inflation and creating jobs at the height of recession, stressing that there were structural inefficiencies in the economy that the bank had to correct.
He also listed some of the initiatives towards expanding the agricultural sector. There has been support for the textile industry, creative industry among others. In the textile industry, the CBN facilitated the signing of two memoranda of understanding (MoU) among stakeholders in the country’s Cotton, Textiles and Garments (CTG) sector.
The first MoU signed was between the National Cotton Association of Nigeria (NACOTAN) and Ginning Companies, to guarantee steady off-take and processing of cotton lint and cotton seeds; while the second was between the Nigerian Textile Manufacturers Association and the Armed Forces of Nigeria, Nigeria Police, Para-military institutions & National Youth Service Corps to facilitate long- term contracts with Textile and Garment companies to manufacture uniforms in Nigeria for use by various arms of Nigeria’s uniform services.
Speaking at the epoch-making ceremony held at the Bank’s Head Office in Abuja, the CBN Governor, Emefiele, expressed gladness that stakeholders are supporting the vision to grow and develop Nigeria’s agricultural sector and the wider economy.
On rice milling, Emefiele, has extracted commitments from the National Rice Millers Association of Nigeria (NRMAN) and Nigeria Rice Dealers and Suppliers for the supply of rice as well as ensuring its availability to merchants to ensure supply across the country.
The CBN has also approved a single-digit interest rate facility of N19.2 billion to nine cotton processing farms for retooling their factories and boosting production capacity.
The industry which deteriorated over time, had the potential to create at least two million jobs if well harnessed.
Emefiele said: We (CBN) are improving the links between cotton farmers and ginneries, by ensuring that ginneries are able to off-take the high-quality cotton produced by these farmers. The same support will be extended to the textile and garment farms. We have invested heavily in our local textile and garment factories to retool and produce assorted uniforms for our uniformed services that meet international standards, he added.
Support for the Creative Industry
The CBN in conjunction with the Bankers’ Committee is set to support the growth of the creative industry comprised mainly of fashion, information technology, lm and music through the Creative Industries and Financing Initiative (CI-FI) with an initial N22 billion funding.
Emefiele, disclosed this while delivering his keynote address the Creative Nigeria Summit with the theme: Finance for Growth which held in Lagos.
The Creative Industry Financing Initiative (CI-FI) was introduced as a Bankers’ Committee initiative to improve access to long-term, low-cost financing to entrepreneurs and investors in the Nigerian creative and information technology (IT) sub- sectors in recognition of its significance to job creation, poverty reduction and inclusive growth.
The initiative is to be financed from the Agribusiness, Small and Medium Enterprises Investment Scheme (AGSMEIS) Fund which the Deposit Money Banks (DMBs) have set aside five per cent of their profit after tax yearly to support small and medium scale businesses.
He noted that close to 60 per cent of the nation’s population is under the age of 35, indicating a youthful population that need to be engaged. Therefore, the CI-FI is part of the banking sector’s efforts to harness the innovative and creative energy of the youth towards enabling them to create productive ventures that would support improved wealth and job creation in Nigeria.
Emefiele said that with the support of the Federal and Lagos State Governments, the National Theatre, Iganmu, Lagos, is expected to serve as the pilot scheme for the planned 40-acre Creative Industries Park, after which similar parks will be set up in Kano, Port-Harcourt and Enugu.
The CI-FI is expected to improve access to long-term, low-cost financing for entrepreneurs and investors in Nigeria. This initiative is targeted at employing 300,000 youths within the next five years. The beneficiaries could get up to N500 million at an interest rate of nine per cent. The industries to bene t from this initiative include fashion, information technology (IT), movie and music production and software engineering students loan.
The CBN had said that software engineering students could get a loan of up to N3 million, N30 million for movie production, applicants in the movie distribution business could get as much as N500 million. Loans for fashion and information technology businesses would cover rental and service fees, while loan amounts for music business would cover training fees, equipment fees and rental and service fees.
The bank had said that the period for the repayment of the loan for software engineering students is a maximum of three years. Loans for movie production and distribution, fashion, information technology (IT) and music production could be repaid in a maximum of ten years.
Currently, the CBN had received 38 applications from industry players who were interested in accessing the facility. The CBN had said that the Deposit Money Banks (DMB) had the mandate to disburse the funds to the qualified applicants.
Forex restriction on milk import
Besides, the CBN restricted importers of milk from accessing foreign exchange from official market. It limited the importation of milk and other dairy products to six firms- FrieslandCampina WAMCO Nigeria; Chi Limited; TG Arla Dairy Products Limited; Promasidor Nigeria Limited; Nestle Nigeria PLC (MSK only), and Integrated Dairies Limited.
According to the policy guideline, all Forms ‘M’ for the importation of milk and its derivatives will only be allowed for the aforementioned companies.
Managing Director, Financial Derivates Company Limited who is also a member of Economic Advisory Council, Bismarck Rewane, said the restriction on dairy products was to increase the domestic production of milk and other dairy products and conserve foreign exchange, thereby forcing manufacturing companies to look inwards and invest more in backward integration.
“The foreign exchange restriction policy will reduce the demand pressure on Nigeria’s foreign exchange earnings. Nigeria spends approximately $1.2 billion to $1.5 billion annually on milk and dairy importation, 3.21 per cent to 4.01 per cent of the current external reserves level of $37.37 billion,” he said.
Finding showed that for over 60 years, Nigerian children and indeed adults have been heavily dependent on milk imports with huge implications for national food security. It is time to change the tide and ensure the future food security of the Nigerian child and adults.
Also, the under the CACS programme (Commercial Agriculture Credit Scheme), is supporting dairy farmers, producers and companies, with credit to enable backward integration. The bank will be partnering with State Governments to acquire farmlands of up to 200 hectares for grazing reserve purposes, rehabilitation and development.
Analysts said that while it was difficult to predict how the international financial markets will react to COVID-19’s impacts “what they do suggest is a world that is extremely anxious. For them, there’s a degree of anxiety now that’s well beyond the health scares which are very serious and concerning.
But Nigeria’s economic diversification diversification agenda and CBN’s commitment to the agricultural sector will continue to insulate the economy against uncertainties.
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