By ARIZE NWOBU

It is good to know that the Central Bank of Nigeria, CBN, has keyed into the USD1trillion economy envisioned by President Bola Ahmed Tinubu by 2030. And the global management consulting firm, Mckinsey and Co is sanguine about the economy.

Mckinsey had projected that the economy would attain a GDP of USD1.6   trillion in 2030 and further noted that the economy would be one of the world’s top 20 economies.  Also, the World Bank in its recently published Nigeria Development Update, reported that the economy grew at its fastest by 4.6 percent year-on-year in the fourth quarter, Q4, of 2024 and projected a continued expansion at a 3.6 percent growth in 2025. Bank recapitalisation is one of the policy highlights of CBN which aims to drive the economy towards the attainment of the envisioned USD1trillion target by 2030.

In a recent press briefing, the Deputy Governor, Corporate Services, CBN, Ms Emem Usoro, said that building a USD1trillion was not an easy task.

But she highlighted the strategic importance of the bank recapitalisation towards achieving the vision.   Represented by the Acting Director, Corporate Communications, Mrs Hakama Sidi- Alli, the Deputy Governor noted that “the push for a recapitalisation of banks would no doubt improve the strength and health of the financial system, deepen financial intermediation and promote healthier competition that would strengthen our payment system.”

The bank recapitalisation policy stipulate that banks in the international category would recapitalise with a minimum share capital of N500 billion,   national banks would recapitalise with a minimum of N200 billion and regional banks, N50 billion minimum share capital.  The previous bank consolidation policy of 2004 enhanced the banking sector and enabled banks to take on big ticket transactions with value added to the economy. Prior, banks were not adequately capitalised and were unstable and resorted to CBN for bail out and which was a trigger for financial system instability.  

Financial system instability is one of the worst things that can happen in an economy because the financial system is the axle on which the economy revolves, thus financial system instability would create a domino effect on the economy. Some of the triggers of financial system instability include capital inadequacy, non- performing loans, under-regulation, liquidity mismatch,  global imbalances, contagion, complex equity markets, fall in asset prices, information asymmetries, etc.  

Experts have noted that banking crisis occurred on average once every 20-25 years and that annual probability of a crisis was 4-5 percent and that higher capital base and liquidity requirements reduced rate of bank failure.  In view, the present bank recapitalisation is a proactive and commendable policy which serves as a buffer mechanism that would reinforce financial system stability,   power businesses and drive the economy with multiplier effects towards the attainment of the envisioned USD1trillion economy in 2030.

CBN has been diligent in ensuring financial system stability and in the evolution of creative policies which engender macroeconomic stability and growth.  

Besides the bank recapitalisation, CBN is also supporting Small and Medium Scale Enterprises, SMEs, through financial inclusion, towards achieving the target USD1 trillion economy.  SMEs are engines of economic growth, job creation and poverty reduction.  

Research shows that SMEs provide 70 percent of jobs and contribute nearly 35 percent of GDP in developing countries.  

For a greater impact, Nigeria’s economy needs to be more competitive in the manufacturing sector, through enhanced investments in high skills, innovation ability, research and development and funding and putting resources in top colleges.  

Manufacturing is noted to have the highest employer multiplier effect for the domestic economy.  According to experts, USD1 worth of goods manufactured, creates another USD1.3, and that no nation could emerge as an economic power without manufacturing.  

CBN has continued to evolve policies that support manufacturing but it has been noted that manufacturing in Nigeria is dominated by the production of cement, building materials, food and beverages, fertilisers and wood. And that out of all, only three accounts for 77 percent of manufacturing output generating the greatest output.  In a recent remark, the outgoing President, African Development Bank, AfDB, Dr. Akinwunmi Adesina emphasised the need for Nigeria to invest in technology and innovation and embrace policies that would drive industrialisation and economic diversification.  

In an article titled “AfDB, African Economies, Insights and Strategies For Development” which I wrote and was published on May 6, 2017 and   prior to the 17th Annual Meetings of the African Development Bank in Ahmedebad, India, I noted the need for African economies to transform.  I emphasised the need for African economies to transit from being factor-driven economies that compete just on the basis of raw materials to efficiency-driven and innovation-driven economies that are technology driven and   where growth is based on more efficient production processes, increased product quality and product diversification.

CBN’s efforts in enhancing financial system stability and with particular emphasis on bank recapitalisation to energise and boost the economy is highly commendable because in developing countries, bank-   based financing is predominant and banks provide the major share of financial services. But the incorporation, promotion and elevation of market- based financing would create greater and maximum impact in the economy because market-based financing has been noted to catalyze industrial growth faster and enhances economic performance.  

•Nwobu, a Chartered Stockbroker and Business Journalist wrote via [email protected]