The Nigerian economy slipped into recession in third quarter of 2020 after a two consecutive quarterly decline in national output. This was due to the adverse impact of COVID-19 pandemic on key sectors of the economy.
The hospitality industry and aviation industry were totally shut down for months while decline in crude oil prices and reduced production capacity in manufacturing and other real sector operations held sway.
The Central Bank of Nigeria (CBN) is however exercising its development financing role to get the economy exit recession through funding support for affected sectors. The apex bank is through intervention funds and monetary policy implementation lifting manufacturing, agriculture, infrastructure development, health sector and Micro Small and Medium Enterprises (MSMEs) for the economy’s quick return to steady and sustained growth.
Nigeria, Africa’s leading economy was not spared by the Covid-19 pandemic ravaging other global economies.
A health crisis morphed into an economic crisis, the pandemic pushed Nigeria economy into recession, with the transport and hospitality industry grounded for months.
The economic impact of the pandemic was devastating. The Nigerian economy which grew by 1.87 per cent in real terms in first quarter of 2020, contracted by 6.1 per cent and 3.62 per cent in second and third quarters of 2020, respectively. The economy slipped into recession in third quarter of 2020 after a two consecutive quarterly decline in national output. This marked the country’s second recession since the 2014 commodity price shock.
The economic environment not only deteriorated as the pandemic claimed lives and kept many people out of job, but also triggered humanitarian, and some cases, security challenges.
The Covid-19 pandemic is not the only shock that the Nigeria economy had faced in decades. There were the 2008/2009 financial crisis as well as the 2015/ 2016 crisis but in all the crises, the economy came out stronger to sustain strong macro economic stability and growth.
The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele projected that Nigeria will exit its recession in the first quarter of 2021. Speaking at the 55th Chartered Institute of Bankers of Nigeria (CIBN) dinner in Lagos, he said there is no cause to panic. He said prior to the recession, Nigeria witnessed 12 consecutive quarters of economic expansion after a similar experience in 2016.
“As we are all aware, prior to the onset of the virus in December 2019, the Nigerian 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,” he said.
“We however expect that Nigeria would emerge from the recession by the first quarter of 2021, due to high frequency data that indicates continued improvements in the non-oil sector of our economy”.
“We also expect that growth in 2021 would attain two per cent. However, downside risks remain, as restoration of full economic activities, particularly in service related sectors, remains uncertain until a Covid-19 vaccine is produced and made available to millions of people across the world,” Emefiele said.
The economic recovery and subsequent growth, analysts said, would be quickened by the CBN’s strategic policy implementations promoting real sector growth through development financing.
According to the apex bank, development financing, the supply of finance to various sectors of the economy will promote the growth of the economy in a holistic manner and this, will make development, welfare improvement to proceed at a faster rate.
This involves the formulation and implementation of various policies, innovation of appropriate products and creation of enabling environment for financial institutions to deliver services in an effective, efficient and sustainable manner.
To achieve this goal, which is in line with the CBN Act, the apex bank is implementing intervention programmes to support key sectors of the economy ravaged by the pandemic.
From agriculture, manufacturing, infrastructure, health sector to Micro Small and Medium Enterprises (MSMEs) among others, the CBN has channeled funds at single interest rates to operators and is implementing positive policies that would see their operations come back to life.
In the agricultural sector, the CBN authorised commercial banks to give up to N2 billion maximum loan to youths interested in going into agriculture.
The loan, which comes under the Accelerated Agriculture Development Scheme (AADS) at five per cent interest rate per annum was created by the regulator in collaboration with state governments to engage 370,000 youths in agricultural production.
According to the loan guideline signed by CBN Director Development Finance Department, Yusuf Yila Philip, the maximum loan accessible under the scheme shall be N2 billion per obligor.
Philip said the country’s population pyramid is bulging around the youth segment, with an estimated 75 per cent of the population identified to be aged below 35 years, saying a large segment of this population would have eked out a living if adequate opportunities were harnessed in agriculture given its potential of employing over 70 per cent of the nation’s workforce.
He listed agricultural commodities eligible for consideration under the scheme as rice, maize, cassava, cotton, wheat , tomato, poultry and fish, among others.
Philip said obligors are to have a contiguous land of not less than 20 hectares provided for specified agricultural commodities cultivation. Also, there should be evidence of land ownership in form of any acceptable title including lease of a minimum of 15 years.
He said the CBN will bear 50 per cent of the credit risk in the event of default by the participant while repayment of the facility will be made on installment basis through the participating banks and spread over the Economics of Production (EOP) of the cultivated commodities.
Reals sector funding to the rescue
To unlock the potential of the real sector to engender output growth, value added productivity and job creation, the apex bank recently established a N300 billion Real Sector Support Facility (RSSF).
The facility is supporting large enterprises for startups and expansion financing needs of N500 million up to a maximum of N10 billion in key sectors of the economy, especially manufacturing, agriculture, agricultural value chain, and services.
The facility is also meant to increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide input for the industrial sector on a sustainable basis.
“The fund is to be managed by the Development Finance Department which shall be responsible for the day-to-day administration of the facility. The activities to be covered under the facility are new, startups and/or expansion projects in the manufacturing, agricultural value chain (non-primary product), services and trading shall not be accommodated under this facility,” the apex bank said.
Globally, the relationship between the financial system and real sector development remains very critical for any economy to achieve its potential. No economy can grow and improve the living standards of its population in the absence of credit to the real sector. That is why the real sector depends largely on the flow of funds from the banking system.
N100 billion lifeline for health sector
The CBN also approved N100 billion lifeline for the health sector. The fund was established to cushion the impact of Coronavirus (COVID-19) pandemic on the economy and to support healthcare providers.
It was also meant to ensure that the sector meets the expected rise in the demand for healthcare products and services.
The guideline, signed by CBN Director, Financial Policy Regulation Department, Kevin Amugo, said working capital loans shall be considered based on 20 per cent of the average of three years of the proposed borrower’s turnover, subject to a maximum of N500 million per obligor.
Also, where the loan is a term loan, a maximum limit of N2 billion per obligor and five per cent interest rate up till February 2021 shall apply.
Interest rate for the facility shall revert to nine per cent as from March 1, 2021.
The apex bank also set the exit date for all the facility under the scheme at December 31, 2030 and stipulated a joint monitoring of financed activities by the CBN and participating financial institutions.
“Term loan shall have a maximum tenor of not more than 10 years with a maximum of one year moratorium on repayment. In terms of construction, the tenor shall be determined by the completion date,” the guideline stated.
Operators in the Nigerian pharmaceutical industry commended the CBN for the N100 billion Health Sector Intervention fund.
Speaking with finance journalists in Lagos, President of the Pharmaceutical Society of Nigeria ( PSN) Sam Ohuabunwa said: “From the feedback we get , most of us that have accessed the loans. The beneficiaries have put the money into equipment adding that the requirements for accessing the facility are such that can be easily met”.
“Practitioners in the industry have all they can to access these funds and I am aware that many of them who applied especially those who are called the first tier has received approvals and I am aware that they have also accessed the funds through corresponding commercial banks.
“I am also aware that a couple of them have also been able to apply them to effect what they wanted to do with the money. Most of them on capacity increase expanding plants, getting new equipment, starting new processes and procedures and expanding manufacturing both in terms of the type of area and other value addition,” Ohuabunwa.
Eligible participants listed
Further analysis of the N100 billion health sector intervention fund guidelines said the eligible participants under the scheme shall include healthcare product manufacturers- pharmaceutical drug and medical equipment; healthcare service providers/medical facilities- hospitals/clinics, diagnostic centers/ laboratories, fitness and wellness centers, rehabilitation centers, dialysis centers, blood banks, among others.
Also to benefit are pharmaceutical/medical products and logistic services, and other human healthcare service providers as maybe determined by the CBN from time to time.
The CBN guideline said: “The modalities require that a corporate entity submits its application to a participating financial institution of its choice with a bankable business plan.
“The participating financial institution shall appraise and conduct due diligence on the application. Upon approval by the participating financial institution’s Credit Committee, the application shall be submitted to the CBN with relevant documents attached. The CBN will process and disburse funds to the participating financial institution for onward release to the project.”
It stipulated that indigenous pharmaceutical companies and healthcare practitioners that want to expand or build their capacities would benefit from the facility.
According to the guidelines, the scheme will be funded from the real sector support facility, with Deposit Money Banks, Development Finance Institutions named as participating financial institutions.
According to it (guideline), the fund will reduce health tourism to conserve foreign exchange, provide long-term, low cost finance for healthcare infrastructure development, and improve access to affordable credit by indigenous pharmaceutical companies.
It was also meant to support the provision of shared services through one-stop healthcare solution to enhance competition and reduce the cost of healthcare delivery in the country.
The CBN announced the N100 billion package for the healthcare industry to strengthen the sector’s capacity to meet potential increase in the demand for healthcare and services.
The CBN said the scheme was also expected to increase private and public investment in the healthcare sector, facilitates improvement in healthcare delivery and reduce medical tourism to enhance foreign exchange conservation.
Way out by stakeholders
On what will drive performance of major sectors in 2021, ex member of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) Dr. Doyin Salami, said addressing post-harvest losses in agriculture will enhance sector prospects in the short-to medium term as well as value chain development in the longer term.
He also called for the passage of the Petroleum Industry Bill in the oil and gas sector, which said is the biggest policy dynamic in the sector.
Salami, who spoke at the Chartered Institute of Bankers of Nigeria (CIBN) virtual program in Lagos, called for reforms in the agricultural sector to drive infrastructure improvements, adding that specific sectors like pharmaceuticals may benefit from successful value chain domestication.
According to him, in there was need to resolve the right of way infrastructure issues as pertains broadband in the ICT sector.
In the economic outlook for 2021, released by Lagos Chamber of Commerce and Industry, LCCI, its Director-General, Muda Yusuf, said several governments globally provided fiscal stimulus to support households, small businesses, and their economies generally, while central banks eased monetary policy conditions through large-scale purchases of financial assets and interest rate reduction to rescue their respective economies.
He explained that back home, the Federal Government developed the Nigerian Economic Sustainability Plan (NESP) with a total stimulus package of N2.3 trillion to address liquidity concerns of small and medium-sized businesses mostly impacted by the pandemic, provide financial support to the vulnerable segment of the populace, and create jobs, among others.
Similarly, the CBN shifted its policy focus from price stability to the stimulation of economic recovery and growth in the year 2020 to complement the federal government’s fiscal stimulus in a bid to support business continuity and economic sustainability.
Yusuf said he expects the economy to return to the path of positive growth in the second quarter of 2021 and this would expectedly impact on the macroeconomic environment which may ease some of the critical economic conditions currently impeding economic growth.
“The country needs the right policies and institutions to spur productivity growth and to have this achieved requires adoption of best practices in human and physical capital development, governance, and economic openness,” he said.
Managing Director, Agriculture Holdings Nigeria Limited, Michael Martins, said government’s efforts at revitalising key sectors of the economy, such as agriculture, solid minerals and manufacturing, among others, will impact positively on the economy.
He explained that when the economy is diversified, Nigeria’s growth will not be determined by the prices of crude oil.
“This is because much revenue would be derived from taxes, loyalties and levies. For instance, through taxes, government can secure the fund to finance major developmental projects that will impact on the people’s lives. We need to achieve internal food security and have the opportunity to export agro-based products in processed form,” he said.
Martins commended the CBN’s efforts to support the recovery in the economy. Overall, he said the intervention funds would help increase the flow of credit to the private sector and revive sectors badly hit by the pandemic.
Responses from other economies
The International Monetary Fund (IMF) report on economic responses governments are taking to limit the human and economic impact of the COVID-19 pandemic showed that the United States inaugurated the US$483 billion Paycheck Protection Programme and Health Care Enhancement Act.
The legislation includes US$321 billion for additional forgivable Small Business Administration loans and guarantees to help small businesses that retain workers; US$62 billion for the Small Business Administration to provide grants and loans to assist small businesses; US$75 billion for hospitals; and US$25 billion for expanding virus testing.
For China, an estimated RMB 4.2 trillion of discretionary fiscal measures have been announced. Key measures include increased spending on epidemic prevention and control, production of medical equipment, accelerated disbursement of unemployment insurance and extension to migrant workers, tax relief and waived social security contributions.
According to the IMF, in Australia, fiscal stimulus, consisting of expenditure and revenue measures worth A$134.5 billion put in place through fiscal year 2023 to 24, with measures like sizable wage subsidies, income support to households, cash flow support to businesses, investment incentives, and targeted measures for affected regions and industries.
In Canada, government carried out key tax and spending measures worth CAD $262.6 billion, with $5.7 billion to the health system while around $171.9 billion in direct aid to households and firms, among others.
