The year 2019 witnessed gradual improvements in the domestic economy after nearly two years exit from recession in 25 years. There are key developments and personalities that kept the economy upbeat in the last 12 months and, perhaps in the New Year. COLLINS NWEZE writes that from achieving price stability, improved credit delivery, debt recovery, taxation to new moves to recapitalize commercial banks there were no dull moments in the outgoing year.
WHEN it comes to the economy, everyone is involved. From the poor, rich, private sector to public sector operators, no one is excluded from the pains of a mismanaged economy or the gains of a thriving one.
For the Nigerian economy, the feedback has not been too cheery but gradual and steady growth was recorded in the last 12 months.
Data from the National Bureau of Statistics (NBS) showed that real Gross Domestic Product (GDP) grew by 2.28 per cent in the third quarter of 2019, compared with 2.12 and 1.81 per cent in the preceding and corresponding quarters, respectively. The improved growth was driven largely by the performance of the oil sector, which grew by 6.49 per cent, while the non-oil sector grew by 1.85 per cent.
The Manufacturing and Non-Manufacturing Purchasing Managers’ Indices (PMI) also expanded for the 31st and 30th consecutive months at 58.2 index points apiece in October, 2019. Further projections indicate that real GDP in fourth quarter 2019 is expected to grow by 2.38 per cent, also driven by the non-oil sector.
The movers and shakers of the economy in the outgoing year as seen in different sectors contribute in no small measure to sustained economic growth within the year.
CBN Governor Godwin Emefiele
Top on the list of those that played prominent roles in the economy during the outgoing years is the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele.
Emefiele started the year and subsequently his second tenure of five years, canvassing for the use of home-grown heterodox policies to successfully achieve substantial macro-economic stability in 2019.
He pushed for the use of the Global Standing Instruction (GSI) to address the predatory impact of serial borrowers in the banking system, a phenomenon that reduced the level of bad loans over time.
This was followed by the Loan to Deposit Ratio (LDR) policy meant to boost credit delivery by the deposit money banks (DMBs) to the real sector, Development Finance Initiatives in agriculture, micro, small and medium enterprises (MSMEs) and other real sector activities, including restriction of patronage by local corporate and individual investors in CBN Open Market Operation bills.
The economy under Emefiele also faced some headwinds such as continued high level of unemployment, mild resurgence of anticipated inflationary pressures towards the December festive season, rising public debt, high level of insecurity, and slow pace of oil price recovery.
Also disturbing was the rise in inflation within the year (year-on-year) from 11.24 in September to 11.61 per cent in October 2019.
Despite these challenges, growth is expected to pick on the back of recent actions to boost credit to the private sector through the recent Loan-to-Deposit Ratio (LDR) and Global Standing Instruction (GSI) initiatives, sustained interventions by the CBN in selected employment and growth-enhancing sectors, as well as fiscal policy measures to support growth.
The CBN’s continued intervention in the agricultural sector is expected to improve medium-term food supply. Indeed, there has been reports of bumper harvests in some staples like rice, maize, among others. The announcement this week of a new Guide to Bank Charges which reduced many bank charges as high as 50 per cent is expected to boost bank customers’ confidence in the financial system and promote economic stability.
Finance Minister Mrs. Zainab Shamsuna Ahmed
Finance Minister, Mrs. Zainab Shamsuna Ahmed, had within the year, announced the Federal Government’s plans to borrow $3 billion from the World Bank to revive the ailing power sector. She has consistently defended the Federal Government’s plans to take more loans.
She said the World Bank and Nigerian team identified the imperative of solving operational efficiency problems in the power sector and revamping associated infrastructure to ensure that the overall success of the intervention in the sector is achieved.
Continuing, she said the $3 billion loan is for financing the power sector.
“This financing will include right now, the gap between what is provided for in the current tariff and the cost of the businesses themselves. There is a tariff shortfall but it would also enhance our ability to pay the previous obligations that have crystallised that we have not yet been able to pay.
Some portions of it will be for the transmission network and if we are able to expand the facility to $4 billion, the additional $1 billion is for the distribution network. It will help us to exit the subsidy that is now inherent in the power sector.
It is supposed to be to reform the sector, to restore the distribution business side of the sector, especially on a stronger footing so that they are freed up enough to go out and raise financing to invest in expanding the distribution network,” she stated.
Mrs. Ahmed also disclosed the Federal Government’s plan to issue Naira- denominated jolly Bond, which will come with the support of the United Kingdom authorities to support Nigeria’s infrastructure financing.
She said a working committee is being set up to interface with Nigeria on this possible naira denominated bond. “The CBN will be leading in this efforts we will also explore all options in this regard at the next UK investment summit that will be holding in January 2020. She said the Jolly Bond will be issued offshore but denominated in the local currency and the importance of such a bond is that it protects the country, the issuer from exchange rate exposure.
On the border closure, she said the exercise was not meant to be vindictive. She said that since Nigeria was committed to the African Continental Free Trade Agreement (AfCFTA), there was need to ensure that rules are obeyed, otherwise local industries will be greatly affected. “Businesses have been suffering due to the activities of smugglers but with the more opening up following our commitment to the AfCFTA, this will get worse unless we make sure now that everybody comes back to obey the rules as agreed”.
The minister said the border closure was not permanent, adding that there are lots of discussions going on at the technical level and at some point, it will be at the level of presidents and then real commitments will be made and hopefully, everybody will comply to own side of the agreement.
Ex-FIRS boss Tunde Fowler
The immediate past Executive Chairman of the Federal Inland Revenue Service (FIRS), Tunde Fowler, this month quit at the expiration of his five-year term.
The former FIRS boss had within his tenure raised tax collection from N3. 3 trillion in 2015 to N5.32 Trillion in 2018.
Although petitions alleging under-performance were written against the administration of Fowler but the tax expert fired back with facts and statistics to show the level of improvement he brought to the tax body.
Fowler helped in the implementation of the Tax Amnesty Programme(VAIDS), increased the number of taxpayers nationwide to over 20 million and began placing lien on the account of taxpayers.
He also fostered collaboration among the states through the Joint Tax Board and called for more tax payment by multinational technology companies.
He believed that taxing mult-inational companies like Google, Apple, Twitter, Amazon, Facebook, Uber, eBay and banking software manufacturers will require new tax laws that capture their mode of operations.
He said these firms deploy the Base Erosion and Profit Shifting (BEPS) rule to shift profits from the spots where economic activity and value creation occur into low or no-tax locations. The BEPS practice and absence of suitable tax laws have constrained the Nigerian tax authorities from taxing the digital economy.
To reverse this trend, the FIRS under Fowler began engaging the National Assembly to amend the tax laws to align with changing technological advancement and halt tax revenue leakages from the digital space.
AMCON CEO Ahmed Kuru
The Asset Management Corporation of Nigeria (AMCON), Managing Director/CEO, Ahmed Kuru, consistently pushed for the recovery of N5.4 trillion debts owed the corporation by obligors, mainly billionaires, before its sunset period.
Unfortunately, after eight years into its operation, and ahead of 2021 sunset period, AMCON has only recovered N1 trillion through assets seizure, forfeiture or outright cash payment.
Data from AMCON showed that of the recovered funds, cash assets account for 60 per cent and non-cash assets, such as properties and equity securities, account for the balance of 40 per cent.
The recovered sum represents 18.51 per cent of the total sum. Financial pundits have, therefore, expressed doubts on the possibility of the corporation recovering a substantial part of the debts in the next three years, even as the interest accrued to the existing debts has continued to rise, bringing the total obligation back to N5.4 trillion despite the N1 trillion recovered.
The big question is, what happens to the outstanding debts owed the corporation and who inherits them after the sunset period? It was such a question that made many debtors adopt a wait-and-see plan, hoping that their debts will be forgiven when the corporation’s 10-year timeline ends.
Kuru said the corporation had taken strategic steps to ensure more debts are recovered through negotiations and resolutions, using cash recoveries, asset forfeitures and capital restructuring for short to mid-term exits, including deploying Joint Venture arrangements for asset operations and land development.
He said AMCON has done enough of negotiations with its obligors who have remained not just difficult but recalcitrant in the last eight years.
The AMCON boss also disclosed that Ernst & Young, (multinational financial advisory firm), the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC) are pushing to end the operation of corporation.
He said: “AMCON is working with the three institutions to ‘tinker things a little’ and then at certain point in time liaising with the National Assembly to draw a line”.
NDIC MD Umaru Ibrahim
The Nigeria Deposit Insurance Corporation (NDIC), within the year, approved a new rule that allowed the corporation to provide deposit insurance coverage of N500,000 maximum limit to subscribers of Mobile Money Operators (MMOs).
Ibrahim said one of the most significant achievements of the corporation is the provision of the deposit insurance coverage to subscribers of mobile money operators to the maximum limit of N500,000 through the pass-through deposit insurance framework. “As it stands, the number of licensed MMOs by the Central Bank of Nigeria is 23, with eight being bank-led and the remaining non-bank-led. As of 30th June 2019, the number of subscribers to the MMOs stood at 9,249,265,” he said.
Ibrahim said following the issuance of the “framework for the Licensing and Regulation of Payment Service banks (PSBs) by the CBN, which stipulated the extension of Deposit Insurance Coverage to the depositors, the corporation has designed an appropriate Differential Premium Assessment System (DPAS) Matrix for Premium computation/payment as well as set an Insurable Limit to the Depositors in the event of failure”.
He said the “corporation is taking these measures so as to engender confidence in the system and to discourage bank customers from keeping cash at homes, shops and other places outside the banks. “Money kept outside the banks are not insured by the corporation and are susceptible to loss through robbery, theft or fire outbreak.”
“As provided for in the NDIC Act 2006, when insured financial institutions fail, depositors of deposit money banks (DMBs), non-interest banks (NIB) and primary mortgage banks (PMBs) are reimbursed up to a maximum limit of N500,000, while the maximum insured coverage for depositors of Microfinance bank (MFBs) is N200,000.
“However, the insured limits are periodically reviewed by the board of the corporation to ensure that the majority of depositors are covered.”
According to Ibrahim, the corporation received 35 petitions and complaints from bank customers on issues such as the ATM frauds, un-authorised fund transfers, and cheque related issues.
DMO D-G Ms. Patience Oniha
Director-General of Debt Management Office (DMO), Ms. Patience Oniha, within the year also introduced a 30-year FGN Bond.
The bond was a design to increase the tenor of bonds available in the market and help create securities that would suit investors’ activities.
The 30-year bond was issued in April as the usual FGN bond auction.
Oniha said part of the considerations for the introduction was that while it borrows on behalf of the government subject to necessary approvals, the government, through its borrowing activities, also supports market developments trying to create securities that investors want to invest in to match their activities.
“We introduced the 30-year bond to increase the tenor of bonds available in the market. The longest tenure we have had before now was the 20-year FGN bonds.
The 30-year bond benefits government in two ways; one, it extends the tenor for proper management of our maturity so that debt service is easier and smoother.
“But more importantly it’s actually the best form of money to use to finance infrastructure which the government is focused on to support the recovery that we have achieved, managing liabilities and financing infrastructure,” she said.
Findings showed that investors have shown a stronger demand for Nigeria’s 30-year Bond with subscription of over N100 billion as against the N30 billion offered in the May, 2019 FGN bond auction.
Outlook for the economy
Overall, the medium-term outlook for the domestic economy continues to be clouded with uncertainties, associated with the persisting trade wars between the US and its major trading partners, financial vulnerabilities, rising levels of public and corporate debts, pockets of geo-political tensions and weakening global output.
However, the reforms underway in the domestic economy, aimed at diversification away from oil over the last three years, have provided adequate shock absorber to withstand the headwinds.
But financial experts insist on the need for the fiscal authorities to invest massively in public works programme and improve fiscal buffers to complement these efforts.