By Emeka Anaeto
Just days to the announcement of the first Gross Domestic Product, GDP, report factoring in the impact of the Coronavirus (COVID-19) pandemic on the economy, the country’s fiscal and monetary policy executives are still under pressure to contain the crises.
Economy observers believe the measure of success or value for the money and efforts expended in the containment programmes should begin to show in the third quarter of 2020 going into 2021 full year.
Specifically, the fear of recession should have been tamed while noticeable recoveries across various economic levers should have been recorded by the end of the third quarter of 2020.
At the outbreak of the pandemic, world leaders swung into action with the creation of intervention funds and palliatives to ease the burden of the average citizen.
In Nigeria, asides the palliatives of foodstuff given by state and federal governments alike, drums were rolled out when the Central Bank of Nigeria disclosed its support for critical sectors of the economy.
The apex bank, first initiated a fund of N50 billion soft loan to small businesses, under the Targeted Credit Facility (TCF) to serve as a stimulus package to support households and micro, small and medium enterprises (MSMEs) whose economic activities have been significantly disrupted by the COVID-19 pandemic.
Next, it increased its intervention by another N100 billion in loans to support the health sector to ensure laboratories, researchers, and innovators work with global scientists to patent and produce vaccines and test kits in Nigeria. This would not only prepare for the possible crisis from the COVID-19 but also to create a self-reliant, strong and domesticated health sector post-COVID.
Finally, it increased its intervention in boosting local manufacturing and import substitution by another N1.1 trillion across all critical sectors of the economy.
Within the periods of the stimulus roll-outs, various segments of the society have come up with positive and negative comments on the programmes.
Specifically, some individuals have lamented the difficulty in obtaining the N50billion MSME and household support facility especially as it relates to the provision of collateral. Consequently, CBN intervened to remove the constraint.
While recognising the supportive developmental roles of the CBN towards addressing some structural issues amid COVID-19, the Bankers Committee has disclosed that the apex bank has disbursed N49.19 billion out of the N50 billion Household and SME facility to over 92,000 beneficiaries since the facility was launched in April 2020, very unprecedented in the history of government’s intervention funding of the private sector in the active poor category.
Also, there have been testimonials from the big players in the economy which the stimulus also targeted. For instance, Fidelis Ayebae, the chief executive officer of Fidson Healthcare Plc, disclosed that his company had received N2.5 billion from the CBN’s Coronavirus intervention fund.
Ayebae also heads the 180-member pharmaceutical group of Nigeria’s manufacturer’s association.
The CBN has disbursed over N300 billion to operators in the Small and Medium Enterprises space, together with the Healthcare, Agriculture, and Manufacturing sectors, among others to cushion the effects of the Coronavirus pandemic on the businesses.
Also, the apex bank disbursed over N152.9 billion to the manufacturing sector to finance 61 manufacturing projects and another N93.6 billion to the Healthcare sector, amongst many other sector-specific disbursements so far.
However, investigations by Vanguard Newspapers reveal that more salutary impacts of the intervention stimulus have been recorded, but almost unnoticed.
For instance, CBN’s interest rates on all applicable intervention facilities were reduced from 9% to 5% per annum for one year effective March 1, 2020. This measure has already significantly moderated lending rates in the commercial banks to a market average of 17%, down from 20% for prime lendings, a development that appeared impossible just last year.
Meanwhile, the apex bank also granted all deposit money banks (DMB) leave to consider temporary and time-limited restructuring of the tenor and long term loans for businesses and households most affected by the outbreak of COVID-19 particularly oil & gas, agriculture, and manufacturing. This effectively protected the businesses from immediate collapse or temporal shut down which would have worsened the unemployment situation in the country.
Speaking on this, CBN Governor, Godwin Emefiele, stated: “The CBN would work closely with DMBs to ensure that the use of this forbearance is targeted and transparent, whilst maintaining individual DMB’s financial strength and overall financial stability of the system.”
The apex bank has also strengthened and sustained its loan to deposit ratio (LDR) policy in view of the success of the policy in growing credit to the economy and reducing interest rates. The CBN intends to offer more support to industry funding levels in order to maintain DMB’s capacity to give credit to individuals, households and businesses.
In the overall, the private sector financial institutions have been brought into active funding of the economy at a lower cost.
The apex bank has been working on this goal for many years now and it appears surprising that at a difficult time like COVID-19 era, the result came into place and the SMEs are set for new growth trajectories with boost from commercial banks.
Commenting at the backdrop of this goal, Emefiele had stated: “The SMEs are seen as drivers of growth in any economy. We have used various approaches to stimulate lending to them and I must confess that we are not doing enough on that because less than half of that fund has been disbursed today. We are entering a phase where we believe that the SMEs must be the only priority for growth in our economy. I must say that the Nigerian banking sector has not played an active part in supporting the SMEs, but this is not without reasons. We had issues in the past where people took loans and didn’t pay. We hope that a new leaf is now turned.”
Still on the on-boarding of the private banks into the anti-COVID war through an increase in credit to the economy, Emefiele added that the aggregate domestic credit (net) grew by 5.16% in June 2020.
The Monetary Policy Committee of the apex bank had commended the CBN’s loan-to-deposit Ratio (LDR) initiative which was aimed at addressing the credit conundrum, as the total gross credit increased by N3.33 trillion from N15.56 trillion at end-May 2019 to N18.90 trillion at end-June 2020.
The CBN had attributed the development to manufacturing, consumer credit, general commerce, information & communication and agriculture, which are productive sectors of the economy.
Further on this development, a meeting of the Bankers Committee in April had indicated that it plans to get about N3.5 trillion injected into the economy as a stimulus.
The indication is that apart from the N1.1 trillion from the CBN to be disbursed as intervention funds the bulk of the balance N2.4 trillion is expected to come from the private banks.
Past intervention funds have been issued from the CBN’s balance sheet as part of its developmental programs. This could sometimes involve some of the quantitative easing, an economic term for the printing of money, a situation that could produce an adverse effect on the macroeconomic scale.
To this end Emefiele said the apex bank would work in collaboration with commercial banks and other financial institutions in the country, to raise the sum of N1.5 trillion in the first instance.
He stated: “Participants from the financial sector agreed to create a special purpose vehicle (SPV) working with the federal government, and key development finance agencies. The well-structured SPV, will be used to mobilise close to N1.5 trillion in funds from banks, pension funds and other financial institutions, to fund road, power, and port infrastructure. Six key road projects and the seaport projects would be identified for funding.
“The framework for this SPV is currently being worked on and will be ready for implementation by October 2020. When implemented the SPV will help to reduce the burden of government financing of infrastructure projects and enable the government to focus on funding other priority areas. It will also reduce the cost of transporting goods across the country for farmers, SMEs and manufacturers. More importantly, it will help improve our ability to attain double-digit growth rates.”
This is a good gesture from Nigeria’s financial institutions led by the CBN. The development is coming at a time when the Nigerian Government is struggling to raise enough money to finance the country’s N10.6 trillion 2020 budget, due to a drastic decline in global oil prices.
Recall that Nigeria’s Finance Minister, Zainab Ahmed, has repeatedly admitted that the country is now facing a revenue crisis at the backdrop of the COVID-19 pandemic.
The Bankers’ Committee further commended the CBN coordinated, Coalition Against COVID (CA-COVID), a private sector intervention scheme, which had mobilized over N32 billion to support the economy, lives and livelihoods.
The Committee expressed confidence that upon further drawdown of the intervention facilities, the much-needed reset and rebound of the Nigerian economy would become a reality.