For one unprepared for battle, the booming sound of artillery fire would be enough for one to beat a retreat and surrender to the enemy, but not so Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN). As the nation’s economy continues to wobble in and out of recession, faithful managers and incurable optimists like Emefiele, continues to hold on to the elements in the expectation that eventually something will give and bring this seemingly drifting ship to safe anchorage.
The Federal Government can be excused, or passed over this time around for the parlous state of the economy as the immediate cause of the current recession and economic downturn was imposed and never anticipated, certainly not in its magnitude and devastating negative impact. The announcement by the Nigerian Bureau of Statistics (NBS) in November that the economy is again in recession, though largely expected, was received with depressed awe, portraying a situation that was going from bad to worse. The NBS announced the regression of the economy last month based on data showing that the economy dipped by -3.62 per cent in real Gross Domestic Product (GDP) in the third quarter, thus officially falling into a second recession in five years. The last was in 2016 when the economy contracted by 1.62 per cent.
The decline in the GDP for Q3 2020, is not unconnected with low business activities both at the domestic and international levels that hugely affected the economy during the quarter as a result of several lockdown measures introduced to contain the COVID-19 pandemic all over the world. The outbreak of the coronavirus which emanated from China that turned a global pandemic, bruised the fortunes of the nation’s economy which was already on a growth trajectory. Emefiele alluded to this in his speech at the last annual dinner of the Chartered Institute of Bankers of Nigeria (CIBN) in November.
“As we are all aware, prior to the onset of the virus in December 2019, the economy was on a positive growth trajectory, having made a significant recovery from the 2016-2017 recession, which was triggered by the drop-in commodity prices in 2016.
“Following the recession, we witnessed 12 consecutive quarters of economic expansion, and GDP growth in the fourth quarter of 2019 stood at 2.55 percent.
‘’Our exchange rate remained stable for over two years at N360/$ and our external reserve witnessed significant accretions from the sale of crude oil and continued inflows from foreign investors,” Emefiele stated.
However, all of that hope and expectation dipped with COVID-19, leaving the CBN with the daunted task of strategising once more to explore ways and means of pulling the economy of recession and anchoring it on yet another growth path.
Rising to the challenge
The Central Bank of Nigeria (CBN) and its leadership are well acquainted with the challenges bedevilling the nation’s economy. It’s Governor, Godwin Emefiele has, since assuming the leadership of the apex banking institution, been inundated with varied challenges bordering on the topsy-turvy movement in the economic space. These range from core monetary and interest rate issues to fiscal matters, some of which ordinarily should be handled by the fiscal authorities. However, notwithstanding the nature of the issues that pop up on the economic front, Emefiele and his team, have always risen to the challenge, proffering solutions to correct an otherwise unwanted, or unintended direction of the economy.
The current recession is a case in point. At the last CIBN dinner, Emefiele referenced the challenges facing, in his words, “our nation, taking into account the impact of COVID-19 on the global economy,” saying in Nigeria, “we had to address the public health challenge, in addition to implementing a variety of policy measures aimed at reversing the unprecedented downturn in economic activities during the first half of the year.”
Economic downturn
The COVID-19 pandemic and the various lockdowns, are the main reasons Nigeria is in recession today. According to the CBN chief, the onset of the COVID-19 pandemic in the first half of 2020 and the lockdown measures put in place to contain the spread of the virus, caused an unprecedented shock to the global economy.
Global economic downturn, which was particularly significant in the second quarter of the year, saw declines in growth in advanced and emerging market countries. Like other economies, the Nigerian economy was not immune from the COVID-19 shock in 2020, Emefiele said, saying the GDP contracted by -3.4 percent. The negative rate of growth, he said was due to a series of external factors in addition to the lockdown measures, imposed in order to curtail the spread of the virus.
Oil price
Crude oil, Nigeria’s main forex earner was negatively impacted due to travel restrictions which directly hampered fuel consumption. Emefiele said restriction on global travel by land and air; along with the slowdown in commercial activities, led to a significant reduction in the demand for crude oil, which contributed to a 65 percent decline in crude oil prices between January and May 2020.
The drop in crude prices, along with OPEC reduction of Nigeria’s production quota, Emefiele pointed out, led to a significant decline in our foreign exchange earnings, along with more than 60 per cent decline in revenues due to the Federation Account. A motley of other issues, including the over one year continuous border closure, restrictions on movement and the disruption of the global supply chain, all combined in their respective ways to stall economic growth and inadvertently pushed the economy off course. GDP growth, particularly in the manufacturing sector was significantly impacted by the restrictions on movement as many factories and businesses operated at limited capacity.
This was in addition to a decline in demand for service-related activities, which require extensive in person contact, such as transportation, hospitality and tourism.
Exchange rate and Capital flows
The pandemic also impacted capital movement resulting in significant transfer, or withdrawals of over $100 billion worth of funds from emerging markets between February and April 2020. As an oil dependent country, the decline in crude oil earnings and the exit by foreign portfolio investors significantly affected the supply of foreign exchange into Nigeria, thus compelling the CBN to adjust for the decrease in supply of foreign exchange, resulting in naira depreciation from N305/$ to N360/$.
CBN interventions
To quickly reverse the negative economic trend, the CBN has taken some unprecedented measures to prevent any long-term damage to the growth prospects of the economy. It has assisted households and businesses that have been severely affected by the pandemic. This is in addition to targeted interventions in critical sectors such as agriculture, manufacturing, electricity and construction. Emefiele said CBN’s cumulative intervention efforts represent about 3.5 per cent of Nigeria’s GDP.
Other measures outlined by Emefiele to turn the tide, include, a cumulative reduction of the Monetary Policy Rate from 13.5 per cent to 11.5 per cent between May and September 2020 in order to spur lending to the economy. In addition, a one-year extension of the moratorium on principal repayments for CBN intervention facilities is also in place.
Also, regulatory Forbearance was granted to banks to restructure loans given to sectors that were severely affected by the pandemic and reduction of the interest rate on CBN intervention loans from nine to five per cent. To aggressively support households with consumption funds, the CBN created N150 billion Targeted Credit Facility (TCF), already adjusted by 100 per cent increase to N300 billion for affected households and Small and Medium Enterprises through the NIRSAL Microfinance Bank.
ABP and CACOVID
The Anchor Borrowers Program (ABP) continues to live up to its bidding with the sum of N164.91 billion already committed impacting nearly one million beneficiaries. The CBN’s mobilisation of key stakeholders through the Coalition Against COVID- 19 (CACOVID), resulting in the provision of over N32 billion in relief materials to affected households and the establishment of a N1 trillion facility in loans to boost local manufacturing and production across critical sectors, remains a landmark intervention that the apex bank jnitiated to pull the economy back on track.
Outcome of interventions
There are emerging indications that key indicators of the economy, on many fronts are shaping up and returning to positive growth. An assessment of economic activities in the third quarter showed that the economy witnessed positive growth in key sectors, amongst which are ICT, agriculture and construction.
The Agricultural sector continued to record positive growth supported by productivity gains in the sector, interventions by the government, and improved demand for local produce. Emefiele pointed to the Manufacturing Purchasing Managers Index, in November, which stood at 50.2 points, as an indication of expansion in manufacturing activities after six months of contraction, stating that a total of 18 sectors recorded positive growth in the third quarter relative to 13 sectors in the second quarter, which reflects significant improvement in economic activity.
He said in the I & E Window, close to $150million was being traded daily as a result of CBN’s measures to sanitise activities in the foreign exchange market, adding that the Nigerian Stock Exchange All Share index rose by 65 percent between April and November 2020, which is an indication of investor confidence on the fundamentals of publicly listed companies. Emefiele was excited that as a result of these measures, GDP growth in the third quarter, improved to -3.6 percent from -6.1 percent in quarter two, even though the economy fell back into a recession.
He, however, expressed optimism that Nigeria would emerge from the recession by the first quarter of next year, due to high frequency data that indicates continued improvements in the non-oil sector of our economy.
