John Maynard Keynes, famous British economist may have inadvertently had Nigeria in mind in the 1930s when he advocated increased government spending as a way out of the economic constrictions created by the Great Depression of his time.
The Keynesian school and theory that sought bigger financial injection into the British and global economy then, also called for lower taxes to stimulate demand to pull the economy out of the woods indeed, recognised government’s capacity to effectively tweak a country’s fiscal and financial policies in times of emergencies when private sector resources could have taken a hit.
Keynes’ acknowledgement of the efficacy of a combination of fiscal and monetary tools as the most potent tools governments can use to reactivate ailing economies and also fight unemployment today stands true of Nigeria’s economy under a coronavirus pandemic.
Just as the Great Depression was the longest economic recession in modern world history, beginning with US stock market crash of 1929 which continued until 1946, the COVID-19 pandemic which began in Wuhan, China, last November has triggered an unprecedented global economic and health emergencies that will take Nigeria several years to overcome.
For the nation’s manufacturers, the last six months have been hellish in the face of declining capacity, rising inventories, shortage of raw materials, and declining consumers demand following a lockdown ordered by the government.
Already, both the Organisation for Economic Co-operation and Development (OECD)and the International Monetary Fund have warned the world will take years to recover from the effects of the pandemic.
While Angel Gurría, OECD secretary general, said the economic shock was already bigger than the financial crisis of past years, the IMF in July predicted a 3.4 percent slump for Nigeria’s economy by the end of 2020. This indeed has implications for the manufacturing sector as the National Bureau of Statistics (NBS), recently said an estimated 40 million Nigerians are projected to lose their jobs by end of this year, due to lockdown and social distancing measures put in place to curb the spread of COVID-19.
But for Vice President Yemi Osinbajo, who chairs the Economic Sustainability Committee, preemptive measures can salvage the grave situation which has capacity to throw about 39.4 million Nigerians, representing some 33.6 percent of the working population into the labour market.
In addition to the potential job losses, Nigeria, a primary commodity exporter also faces the unsavoury consequences of weakening crude oil price and lower corporate / tax revenues in the years to come.
It was indeed in an attempt to stave off these unwholesome trends that the Federal Government’s intervention funding programmes particularly for the manufacturing sector were unveiled. The overriding objective was to keep the engines of manufacturing running and by so doing retain some of the jobs already at risk and sustain the limited supply chains.
From hospitality, manufacturing, aviation, banking/ finance to services industries, evidences of loss of business tempo remained too glaring to be ignored, with weak corporate earnings pointing to an economy in distress.
While the Coronavirus panic had sent world capital markets crashing, with over $5trillion worth of managed assets wiped off in the first two months, its harsh footprints on Nigerian Stock Exchange equally became a major worry for both government and investors.
Six months after its unveiling, the feeling is that the government’s intervention policy outcomes remained mixed in the real sectors thus far, as analysts believe the decision to set aside a N50 billion target credit facility for SMEs, and an additional N100 billion fund in loans to pharmaceuticals manufacturers in healthcare sub-sector to fund procurement of essential raw materials and equipment to support local drug production from its expansive N3.5trillion financial war-chest, stand as an indication of its commitment to confront the COVID-19 pandemic headlong.
The package included the rejuvenation of N220billion Micro, Small and Medium Enterprises Development Fund in which 60 percent of credit was reserved for women entrepreneurs and the N1trillion funding programmes being implemented for the Real Sector Support Fund targeted at boosting local manufacturing comprising 44 Greenfield and Brownfield projects for which about N93.2 billion has already been disbursed.
Indeed, an overview of these initiatives shows the extent they have gone in preparing the economy to absorb the COVID -19 headwinds to avert a possible recession and its attendant job losses in Africa’s biggest economy.
Giving a breakdown of how the N50 billion SMEs Targeted Credit Facility meant to cushion the impact of the COVID-19 on the economy was spent , CBN spokesman Isaac Okoroafor, said that as at end of June, 2020, the apex bank had disbursed N49 billion to businesses and households.
Mr Okoroafor who gave details of the Targeted Credit Facility on behalf of the CBN Governor Godwin Emefiele, said about 80,000 operators of micro, small and medium scale enterprises (MSMEs) and thousands of families across the country benefitted from the intervention fund.
“So far, out of the N50 billion targeted credit facility for households and small businesses, we have disbursed about N49 billion. We also have other intervention funds such as the N100 billion healthcare facility, currently bring disbursed as well,” he said
The scheme being financed from the CBN’s N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) had earmarked about N25 million for MSMEs with benefiting households being allocated up to N3 million each based on the activity, cashflow and industry/segment size of each beneficiary.
On the fiscal side, the Nigerian Electricity Regulatory Commission (NERC), a government power sector regulator, had on April 1, suspended the implementation of a new electricity tariffs earlier scheduled to commence on April 2, citing the impact of the COVID-19 pandemic among other reasons for the shift, while theNational Assembly finally postponed its effective date to first quarter of 2021 as part of strategic measures to expand the basket of incentives available to the real sector during the COVID-19 pandemic.
In another circular issued April 30, 2020 on the implementation of new fiscal policy measures to facilitate imports of medical supplies in response to the coronavirus (COVID-19) pandemic, government had indicated that “essential medical supplies” would be exempt from value added tax (VAT) and from customs import duty for a six-month period, effective 1 May 2020.
But despite these interventions, the scare of a second economic recession in four years still looms large within the country, probably because data on some of the policy outcomes are yet to be collated.
Only last week, the fear of possible COVID-19 induced recession resonated at a public sector discourse as the Minister of State for Budget and National Planning, Clem Agba, warned Nigeria could indeed slip into a second recession in four years if it fails to achieve a very strong Q3 GDP.
At a presentation to the Senate Joint Committee on Finance and Economic Planning on the 2021-2023 Medium-Term Expenditure Framework and Fiscal Strategy Paper, Agba said, “Nigeria’s Q2 GDP growth is in all likelihood negative, and unless we achieve a very strong Q3 2020 economic performance, the economy is likely to lapse into a second recession in four years with significant adverse consequences. The import of his argument centred on the need for government to jealously monitor implementation of its interventions policies to ensure they deliver right results in the period under review.
Commenting on some of the measures so far implemented, a shareholder activist who pleaded to be named commended government’s bold statement but added he expected to see a more impactful policy outcomes particularly in the SMEs sector regarded as the engine of Nigeria’s economic growth.
He said “maybe they must have done something with the N1 trillion facility in key sectors of the economy, as that appears not to be seen. But I would say that the government’s intervention is just one part of finding the solution and this too does not say much about the amount in loans being given and their effect on the economy at large.
For its part, the Lagos Chamber of Commerce and Industry (LCCI) said the total stimulus package of N3.5 trillion offered by the Central Bank of Nigeria [CBN] since the onset of the COVID-19 pandemic was unprecedented in the history of development finance intervention by the apex bank.
Its Director General, Muda Yusuf, while expressing the same view with other members of the organised private sector (OPS ) described the initiative as laudable.
However, he argued that effective targeting of the objective was important in order to achieve the desired outcomes. “Certainly, it would have positive enterprise level impact on businesses that can access the facility by impacting their liquidity and operating cost,” he said.
The LCCI boss said the health sector component of the fund was particularly laudable because the most critical issue at the moment was fixing the looming public health crisis. But Yusuf also observed there have been widespread complaints about access to these funds, noting that perhaps it was a reflection of the magnitude of funding gaps that exist in sectors of the economy being targeted.
He said it could also be an indication of the shortcomings in targeting of funds to ensure that desired beneficiaries get the interventions. As with most economic challenges, Yusuf averred that monetary intervention can only fix a fraction of the problem facing manufacturers considering there are fundamental macroeconomic issues that investors would still have to contend with.
“These are issues around the impact of the coronavirus pandemic on crude oil price, exchange rate depreciation, depletion of foreign reserves, inflationary pressures, stock market slump and general investors sentiments.
“These are critical drivers of investor confidence and unless the external sector normalises, there is very little domestic policy responses can do to fix these disruptions, especially in the light of the vulnerabilities of the Nigerian economy,” he said.
“It is therefore important to bolster purchasing power of citizens which has been decimated by the slump in economic activities. Both fiscal and monetary measures are imperative to make this happen,” he said.
Also contributing to the debate the Nigeria Employers Consultative Association (NECA) said although government’s interventions have been helpful to a great extent, they would not be adequate to forestall a possible descent into a second recession.
Director General of NECA, Timothy Olawale, for instance noted that some of interventions are by design short term or temporary in nature, government should nonetheless use the opportunity to make some long-term decisions that are necessary to improve the country’s preparedness to deal with future economic challenges.
NECA said government should use this opportunity to fully deregulate the price of petrol, adding that there have been various interventions from governments quarters (Federal and States) including adjustment to the 2020 budget, stimulus package by the CBN, reliefs announced by the FIRS and the “Emergency Economic Stimulus Bill” introduced by the National Assembly.
While acknowledging the Federal Government did well in coming up with financial interventions of N50billion to SMEs, Local Drug Manufacturers (N100bn) and N1trillion loan facility for key sectors of the economy, the NECA boss said more policies still needed to be introduced beyond the humanitarian crisis posed by the virus since the economic impact is just as important.
He said, “Ultimately, the crisis presents an opportunity for reforms which should not be wasted. To promote accountability, CBN’s financial intervention should be consolidated under a programme with clear measurable targets and timeliness.
For the Manufacturers Association of Nigeria (MAN), better relief will come to manufacturers if all regulatory agencies, especially Standards Organisation of Nigeria (SON), National Agency for Food and Drugs Administration & Control (NAFDAC) are directed to reduce by 50percent their respective Administrative charges (Pre-COVID-19 rates) payable by manufacturing concerns.
The MAN President, Mansur Ahmed, said similar directive should go to the Nigeria Customs Service, the Nigerian Ports Authority, and other related agencies of government to treat all requests from Manufacturers expeditiously with great sense of responsibility and understanding of the prevailing situation. “As a matter of urgency, Government should direct that cargoes containing manufacturing raw materials be cleared promptly and ensure compliance with additional free days from the terminal and shipping lines to clear the containers in order to avoid demureages as already announced.
We believe easing the cost of doing business will serve a greater good for manufacturers in addition to direct financing through loans,” he said.
CBN bans customer-to-customer forex transfer
The Central Bank of Nigeria (CBN) has banned transfer of foreign exchange (forex) from one customer to another.
According to the apex bank, forex cash lodgements into domiciliary accounts can only be done by the account owners henceforth.
An internal memo available in the media space explains that the new guidelines are necessary to review the utilisation of inflows into customers domiciliary accounts.
The circular states: “Forex inflows cannot be credited to customers until the legitimacy of funds is established.
“They can have unfettered access by telegraphic transfers up to a limit of $40,000 monthly for payment of medical bills, school fees, subscription to professional bodies subject to existing CBN guidelines.
“Transfers from one customer to another is prohibited. Transfer within related companies is allowed subject to a limit of $50,000 per month.”
It recommended that proceeds from non-oil exports should be sold to banks, used for repayment of dollar term loans, and self-utilisation for trade transactions for LC, bills and Form A. Also oil export proceeds from E&P companies are to be used to pay contractors and service providers employed by the oil companies in addition to the recommended uses for non-oil FX proceeds.
Offshore forex inflows from other Nigerian banks and internal account to forex transfers sourced from offshore inflows are to be used for trade transactions subject to eligibility for E-Form M.
“Upon confirmation of the legitimacy of the inflows, customers can have unfettered access, subject to a maximum of $50,000,” the document read.
“Utilisation for trade transactions subject to processing of eligible trade transactions using E-Form M. Payment for services must be backed with demand note from offshore beneficiary and other regulatory documents. “Related party transfers are allowed to the maximum of the inflow received. The transfer request should be backed by a signed instruction from the account holder.” Payment of government fees and levies are also allowed to the maritime, oil and gas, aviation. government parastatals and export processing zones.
Nigeria, other maritime nations lose $9tr to COVID-19 pandemic
•FG deploys revenue directors to NPA, Customs, others to boost remittances
Nigeria and other maritime nations around the world have lost about $9 trillion in Gross Domestic Product (GDP) to COVID-19 pandemic that grounded almost all sectors of the global economy.
At the peak of the pandemic between March and May, so many shipping lines, manufacturers, factories and other businesses were shutdown in order to curb the spread of the infestious disease around the world.
At a recent sensitisation workshop for stakeholders on COVID-19 in Lagos, whose theme is Maritime Industry and Emerging Trends In Global Trade, the Director General of African Centre for Supply Chain, Dr. Obiora Madu, said logistics chains are going through unusual and massive losses from the disruption caused by the pandemic.
His words: “The shutdown of factories and scarcity of manpower to de-stuff cargo, as well as drivers to operate trucks for cargo evacuation, has derailed the trade and smooth functioning of the logistics industry. The estimate is a cumulative loss of $9 trillion to the global GDP and the world trade has already witnessed a decline by about 32 per cent”.
Madu who is also the CEO of Multimix Academy, disclosed that the turnaround time at ports has been extended longer that what it was in pre-COVID-19 scenario, adding that many small companies engaged in the maritime and shipping industry have gone bankrupt due to less demand and the inability to handle the finances of the company during the period of less demand of cargoes and shipping.
“This has majorly impacted the small running businesses and resulted in the shutting down of various companies engaged in this industry. With international transport at the forefront of trade and depend on travel and human interaction, the shipping industry has been impacted materially both directly and indirectly from the outbreak of COVID-19,” he said.
Meanwhile, challenged by dwindling revenue and crippling debt amid the pandemic, the Office of the Accountant-General of the Federation (OAGF) on Tuesday began a training programme for treasury officers who will be deployed to strategic Federal Government Owned Enterprises (FGOEs) as revenue directors to help swell government’s purse.
The move also tackles the perennial challenge of low remittance which the revenue-generating agencies were accused of.
In the pilot phase, 10 federal agencies have been penciled down where revenue directors from OAGF will be posted to.
The agencies are; Nigerian Communications Commission (NCC), Federal Airports Authority of Nigeria (FAAN), Federal Inland Revenue Service (FIRS), Nigerian National Petroleum Corporation (NNPC), Nigerian Ports Authority (NPA), Nigeria Customs Service (NCS), Directorate of Petroleum Resources (DPR), Nigeria Shippers’ Council (NSC), Nigeria Maritime Administration and Safety Agency (NIMASA) and Corporate Affairs Commission (CAC).
Speaking at the commencement of a three-day training programme, the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, said the government has been compelled to improve revenue generation, especially in the non-oil sector, to fund the nation’s huge expenditure.
Ahmed charged the Directors of Revenue to remain above board as they would be involved in the revenue operations of the FGOEs.
She urged them to learn fast and have an understanding of the business processes and operations of the FGOEs to realise improved transparency and accountability in revenue reporting by the FGOEs.
CBN prepares for recession, reduces benchmark lending rate to 11.5%
The Central Bank of Nigeria on Tuesday reduced the Monetary Policy Rate by 100 basis points from 12. 5 per cent to 11 . 5 per cent after its two- day Monetary Policy Committee meeting in Abuja.
The 10 members of the committee who were in attendance voted to retain the Cash Reserve Ratio and Liquidity Ratio at 27 .5 per cent and 30 per cent respectively .
The MPC adjusted the asymmetric corridor from +200 /- 500 basis points to +100 /- 700 basis points around the MPR .
The Central Bank Governor , Godwin Emefiele , disclosed these while presenting the communiqué after the meeting.
He said , “ At present , fiscal policy is constrained and so cannot , on its own, lift the economy out of contraction or recession given the paucity of funds arising from weak revenue base , current low crude oil prices , lack of fiscal buffers and high burden of debt services . ”
He said the committee expressed deep concern on the continued uptick in inflation for the twelfth consecutive month as headline inflation ( year – on – year ) rose to 13 . 22 per cent in August from 12 .82 per cent in July 2020.
“ The increase in headline inflation was largely driven by the persistent increase in the food component, which rose to 16 per cent in August 2020 from 15 .48 per cent in July 2020, ” he said .
Emefiele said the committee stressed the urgent need for a combination of broad – based monetary and fiscal policy measures to curb the rise in inflation and contraction in output growth .
Explaining further , he said , “ In the light of this , reducing MPR will signal to the Deposit Money Banks to lend more to stimulate growth , increase aggregate supply , which should dampen prices in the immediate term .”
Emefiele said , “ The MPC was, at this meeting , confronted by policy dilemma .
“ Whereas MPC believes in the primacy of its price and monetary stability mandate, it nevertheless was confronted with what policy direction to focus on, given the contraction in output growth during the second quarter of 2020, which may lead to a recession, if the third quarter of 2020 output growth numbers further show a contraction .
“ It is , therefore , of the view that , if a recession occurs in Q3 , the committee would be confronted with proposing policy options in a period of stagflation . ”
“ The committee also noted the rising public debt profile and urged the fiscal authority to strengthen its debt management strategy , explore other sources of revenue , as well as enhance efficiency in public expenditure ,” he added.
Financial experts, however, differ on the reduction in the MPR .
The Director – General , Lagos Chamber of Commerce and Industry , Dr Muda Yusuf , said , “ The adjustment of the MPR by 100 basis points from 12 .5 per cent to 11. 5 per cent by the MPC was a surprise .
“ My expectation was that the status quo would be maintained.
“ Rates were already generally low in the money market . In fact , concerns were being expressed about the fact the real savings and deposits rate were negative.
“ But , I do not believe it would have any material impact on lending rates .”
A former President , Association of National Accountants of Nigeria , Dr Sam Nzekwe , praised the CBN for the reduction in the lending rate.
He said , “ That is a good development and it shows they are beginning to listen to what we are saying because some of us have always said the interest rates should come down. ”
Professor of capital market , Nasarawa State University , Prof . Uche Uwaleke , said , “ I expected the MPC to maintain the status quo , to hold the rates because of the spike in inflation that we witnessed last month .”
He added that the inflationary pressure and the pump price of fuel which was recently increased would exert more pressure on inflation .
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