Unconventional monetary policies, impacting economic diversification

Economic experts have long agreed that diversification of the economy from oil-dependent to multifaceted streams of income is the way to deepen Nigeria’s economy and preserve the naira value. Perhaps what has been lacking over the years in spite the consciousness of economic diversification is the will to act decisively.

There was also the huge challenge of fusing policies by both fiscal and monetary authorities for synergy that will impact economic growth and spur economic diversification. This previously appeared elusive over the years but that narrative has changed in the last six years. Consciously, both authorities now work to consolidate on policies. The fiscal and monetary synergy has been crystallized under Mr. Godwin Emefiele, the Central Bank of Nigeria (CBN) Governor.

The impact on economic diversification is now evident, especially in agriculture and its value chain, and industrialization.

Recall in one of the first speeches the Governor, Mr. Emefiele made in 2014 when he assumed office, he said the CBN under his watch will focus on activities that will impact the real sector of Nigeria’s economy.

He had said that the CBN will be peoplefocused where the decisions taken at the monetary policy committee (MPC) must be those that impact directly on the lives of the Nigerian people. This objective he said “was driven by some of the key challenges facing the Nigerian economy, one of which was our heavy reliance on revenues and foreign exchange earnings from the sale of crude oil.”

Speaking at the 2021 Chartered Institute of Bankers of Nigeria (CIBN) Mr. Emefiele reiterated that “60 percent of government revenues and 80 percent of our foreign exchange earnings came from the sale of crude oil, even though the petroleum sector represents less than 10 percent of our GDP. Our dependence on earnings for crude oil fueled an excessive dependence on imports, which came at the expense of constraining growth in critical sectors of our economy such as agriculture and manufacturing. It also exposed Our economy to volatilities associated with changes in the price of crude oil in global markets.”

With this consciousness, working with the fiscal authorities the CBN introduced a number of policy tools aimed at growing the real sector, diversifying the economy, creating wealth and driving down unemployment. These interventions were targeted the industrial, agricultural and SMEs space. Some of the interventions as captured in the March, 2022 Monetary Policy Committee Meeting. The scorecard show the Bank’s various interventions to stimulate productivity in manufacturing, industry, agriculture, energy, infrastructure, healthcare, and micro, small and medium enterprises (MSMEs). Between January and February 2022, the Bank disbursed N29.67 billion under the Anchor Borrowers’ Programme (ABP) for the procurement of inputs and cultivation of maize, rice, and wheat, three crops that hitherto were significant concerns of FX demand. These disbursements bring the total under the programme to over 4.52 million smallholder farmers, cultivating 21 commodities across the country, coming to a total of N975.61 billion.

The Nigeria Commodity Exchange (NCX) has also been restructured to effectively aggregate excess outputs from the Bank’s ABP-financed projects, with the objective of moderating food prices.

The Bank also released N19.15 billion to finance 5 large-scale agricultural projects under the Commercial Agriculture Credit Scheme (CACS), bringing the total disbursements under the Scheme to N735.17 billion for 671 projects in agroproduction and agro-processing.

In addition to these, the Bank disbursed the sum of N428.31 billion under the N1.0 trillion Real Sector Facility to 37 additional projects in the manufacturing, agriculture, and services sectors. The funds sourced from the Real Sector Support Facility - Differentiated Cash Reserve Requirement (RSSFDCRR), were utilized for both greenfield and brownfield (expansion) projects under the COVID-19 intervention for the Manufacturing Sector (CIMS). Cumulative disbursements under the Real Sector Facility currently stand at N1.75 trillion, disbursed to 368 projects across the country.

Under the 100 for 100 Policy on Production and Productivity (PPP), the Bank has disbursed the sum of N29.51 billion to 31 projects, comprising 16 in manufacturing, 13 in agriculture, and 2 in healthcare. As part of its effort to support the resilience of the healthcare sector, the Bank also disbursed N8.50 billion to 6 healthcare projects under the Healthcare Sector Intervention Facility (HSIF), bringing the cumulative disbursements to N116.72 billion for 124 projects, comprising 31 pharmaceuticals, 56 hospitals, and 37 other services.

An additional tranche of N14.7 million was disbursed to 5 researchers under the Healthcare Sector Research and Development (HSRD) Grant. To support households and businesses affected by the COVID-19 Pandemic, the Bank disbursed N21.66 billion to 19,685 beneficiaries, comprising 12,044 households and 7,641 small businesses under the Targeted Credit Facility (TCF) within the period. The cumulative disbursements under the TCF stood at N390.45 billion to 797,351 9 Classified as Confidential beneficiaries, comprising 660,096 households and 137,255 small businesses.

The Bank disbursed N11.11 billion to power sector players, under the Nigeria Bulk Electricity Trading Payment Assurance Facility (NBETPAF), bringing the cumulative disbursements under this facility to N1.28 trillion. The sum of N12.64 billion was also released to Distribution Companies (DisCos) under the Nigeria Electricity Market Stabilisation Facility – Phase 2 (NEMSF-2). The cumulative disbursement under the NEMSF-2 thus stood at N232.93 billion. Both interventions were designed to improve access to capital and ease the development of enabling infrastructure in the Nigeria Electricity Supply Industry.

Before these quanta of investments, the CBN had restricted forex to 42 items aimed to deepen local production of these items since Nigeria could easily produce them in commercial quantities. Some of the items include rice, maize, leather, shoes, took-pick, maize, poultry, oil palm and more. However, the CBN was open to providing forex for the import of machinery to produce those items locally.

The impact has been a massive production of farm produces locally to almost self-sufficiency level. Rice and maize are those farm produce that has almost attained local self-sufficiency. Cotton, wheat, oil palm and other crops are coming up strongly. The CBN forex restriction policy has also seen a rise in new industries and expansion of existing industries to rev up local production because of the availability of the market.

These investments have no doubt made a huge impact on the Nigerian economy, especially the agricultural subsector.

The collaborative efforts towards self-sufficiency in food production had now turned into a movement and the symbolic display of crop pyramids from various fields in the region reinforced the massive potential in Nigeria’s agricultural sector, which should encourage more private sector investment in the agricultural value chain.

Nigeria is still far from achieving its ultimate desire of self-sufficiency in food production but the growth process, which had seen several layers of control added to improve transparency and accountability among all stakeholders, reaffirmed the CBN’s belief in the potential inherent in the country’s agricultural sector.

Economic experts like prof. Uche Uwaleke, a fellow of the Chartered Institute of Bankers of Nigeria and the former Finance Commissioner in Imo State and Mr. David Akwu, a lecturer at the University of Nigeria Nsukka have advised the CBN to sustain the unconventional monetary policies to rev up economic diversification focus of the federal government.

Prof. Uwaleke had previously told our correspondent that the CBN is advised to continue its pro-growth policies, scale up its interventions, especially in the agric value chain and consider involving financially strong microfinance banks as participating financial institutions in future interventions in order to achieve greater coverage.

“I think Godwin Emefiele has done relatively well with respect to the CBN primary mandate of maintaining monetary and price stability.

“The CBN, under Godwin Emefiele, played a major role in supporting economic growth and helping the economy exit the recession of 2016 to 2017. One cannot forget in a hurry the interventions in Agriculture especially the Anchor Borrower scheme which has helped the country to achieve near selfsufficiency in rice production. As a matter of fact, majorly due to the interventions by the CBN, the Agriculture sector was recording positive real GDP growth even during the height of economic recession” Prof. Uwaleke stated.

“The CBN Governor should also be given some credit in the way the Bank has managed the country’s external reserves including through the use of measures which had a dual effect of not only conserving forex but also promoting the federal government’s import substitution policy” he said.

He noted further that in spite of COVID’19, the banking sector has remained resilient with improvements in financial soundness indicators such as Non-Performing Loans and Capital Adequacy ratios. Little wonder, the financial services sector, dominated by the banks, posted strong positive real GDP growth.

Mr. David Akwu observed that but for the sustained insecurity, the CBN policies should have achieved a huge economic impact, especially the Anchor Borrowers Programme.

He said the CBN interventions have added value to the economy adding that, without the policies, the economy might have fared worse.