When NESG and CBN Trade Tackle on the Economy

BUSINESS /ECONOMY PAGE

Last week saw a ‘gunslinging’ duel between the Nigerian Economic Summit Group and the Central Bank of Nigeria over the latter’s interventionist role and policies and their impact on the economy. Nosa James-Igbinadolor looks at the issues involved

The Nigerian Economic Summit Group, NESG last week issued a 15-point statement on the state of nation’s economy covering key sectors of the country’s socio-political economy. In a release signed by the Chairman of the Board of the Group, Mr. Asue Ighodalo and its CEO, Mr. Laoye Jaiyeola, the NESG, the nation’s leading private sector-led think-tank that seeks to promote and champion the reform of the Nigerian economy into an open, inclusive, sustainable and globally competitive economy, assessed several policy steps and reforms carried out by the current administration and also tendered solutions to some of the socio-economic challenges in the country.

In its statement, the NESG noted with concern, “the high level of insecurity across the country and its impact on the business environment and investment flows,” which it noted, had “contributed massively to the current food crisis, unemployment, poverty, increasing community clashes, rising bloodshed and the absence of peace and tranquility in the land”. “Therefore”, the Group announced, “we again join the call by all well-meaning Nigerians, for government to critically re-evaluate our security architecture and take all necessary actions to assure and safeguard the safety of all Nigerian citizens and residents”.

It was perhaps this and the NESG’s vigorous assessment of the role and activities of the Central Bank of Nigeria that got the apex bank more than irritated and necessitated a ‘balance of terror’ response from the bank.

Reviewing the domestic and global economic, financial and social environments, the NESG observed that, “since the inception of this administration, agriculture and the need to ensure Zero Hunger for Nigerians has received considerable attention. However, despite the budgetary allocations and huge sums of money disbursed by the Central Bank of Nigeria (CBN) through the Anchor Borrowers’ Programme, a huge gap remains in meeting the food requirements, which has resulted in increasing hunger among the Nigerian populace. Evidently, the issues are beyond money and therefore, require a complete overhaul of the management of, and support for the agriculture sector and all related sectors – with a view to getting more value for our investments.”

While acknowledging the evolving developmental roles of central banks around the world especially as it concerns resource allocations, the economic think tank warned that “such allocative roles must be undertaken in a very open, transparent and fair manner. The Group expresses serious concerns about how the Central Bank of Nigeria (CBN) has carried on the business of foreign exchange transactions, loan disbursements (intervention funds) and price fixings without appropriate policy clarity. This can be subject to abuses, manipulations and significant market disruptions, reflective of a policy akin to crony capitalism. We therefore respectfully request the appropriate authorities to properly review this policy to restore credibility into our financial sector.”

The group further expressed “severe concerns” about “certain provisions of the ‘repealed and re-enacted’ Bank and Other Financial Institutions Act 2020, recently passed by both houses of the National Assembly, and in the process of being transmitted to the President for assent. The Bill contains certain provisions which breach the provisions of the Nigerian Constitution, confers immunity on CBN officials and exempts actions by the CBN from judicial review. These are draconian, totalitarian and inimical to the development of a stable and transparently regulated financial sector. We respectfully request that the President should please withhold his assent until the Bill is properly reviewed, amended and is made fit for purpose. We also most respectfully request that our legislative houses should subject all Bills, in particular, such crucial bills, to the most efficient scrutiny necessary to assure compliance with the Nigerian Constitution, transparency, good governance and the best interest of the people of Nigeria.

“The NESG observes with concern some distortions in the liquidity and interest rate management of our financial system which has resulted in rate distortions causing grave disadvantage to domestic investors and pensioners. This will occasion major disincentives to savings and investments and thereby, be a disadvantage to Nigerian pensioners and long term savers. This is inimical to this administration’s concern for the elderly, the weak, the infirm and those who had served this Country meritoriously in their prime. It must be stressed that our country needs to mobilise domestic savings and investments even as we seek to attract foreign investment and we should be careful not to initiate policies that appear to discriminate against or discourage domestic savings and investors. Policies making average Nigerians poorer by the day should not be encouraged.”

No doubt infuriated by the NESG’s stout intervention in the national discussion on the parlous state of the nation’s social and political economy, the CBN angrily censured the think tank by accusing its current leadership of “falling short of its own standards and becoming a shadow of its old self”. In a swift statement by Isaac Okoroafor, the Director of Communications at the Central Bank of Nigeria, the apex bank snapped that, “we believe there are better ways to resuscitate the Group’s brand other than through cheap popularity and tarnished attention using ambushed press statements made up of contrived allegations. Given that the NESG should know better, we believe that these allegations are reflective of sinister motives and malicious intent”.

The bank further fulminated against the NESG, that, “in spite of the cordial and open relations between both organisations, the NESG could have raised its allegations directly with us, but never did. Instead, they chose to release a press statement, having leaked its content to a leading Business Newspaper in the country.”

Moving from its ad hominem attack, the CBN lamented that the intervention of the NESG exemplified a querulous inquisition into some of the measures taken by the CBN to support the stability of the financial system and enable faster recovery of the nation’s economy, following the negative impact of the COVID-19 pandemic, noting that, the contagion resulted in a significant downturn in the global economy of which “except China and Vietnam, advanced, emerging and frontier market economies, all experienced significant negative growth in the first half of 2020, and some are currently in a recession.”

Thus, the apex bank posited that, “the Nigerian economy is not immune from these crises given the over 65 percent drop in commodity prices; disruptions in global supply chains and the unprecedented outflow of over $100 billion of debt and equity funds from emerging markets between March and May 2020; in addition to the impact of the lockdown on economic activities. These activities resulted in an over 60 per cent reduction in revenues due to the Federation Account, a significant drop in foreign currency inflows, which led to downward adjustments in the naira/dollar exchange rate and a rise in inflation due to the exchange rate pass through effect of imported inflation.”

It further added that it took steps to increase the flow of credit to critical sectors of the economy, in order to enable faster recovery of the economy and sought to prevent the economic crisis from spilling into a major financial crisis by taking critical actions including, “a one-year extension of a moratorium on principal repayments for CBN intervention facilities; strengthening of the Loan to Deposit ratio policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers.”

Other measures the CBN said it took include: “Loans given to the private sector, have risen by over 21 per cent over the past year, creation of N50 billion target credit facility for affected households and small and medium enterprises through the NIRSAL Microfinance Bank, creation of a N100 billion intervention fund in loans to pharmaceutical companies and healthcare practitioners intending to expand and strengthen the capacity of our healthcare institutions, creation of a research fund, which is designed to support the development of vaccines in Nigeria, a N1 trillion facility in loans to boost local manufacturing and production across critical sectors, regulatory forbearance was granted to banks to restructure loans given to sectors that were severally affected by the pandemic, and the mobilisation of key stakeholders in the Nigerian economy, which led to the provision of over N23 billion in relief materials to affected households, and the setup of 39 isolation centers across the country.”

The CBN argued that the effect of these measures which included provision of palliatives to individuals affected by the pandemic, increase in access to credit to critical sectors of the economy that are either high employers of labor or have the ability to create jobs at a fast pace, “helped to contain a significant decline in GDP growth in the 2nd quarter of the year.”

The bank’s spokesman further argued that, “although the bourgeoisies atop the NESG may not feel the impact of the bank’s development finance activities, many ordinary Nigerians, including smallholder farmers, households, and medium-scale entrepreneurs across the country know better. As encapsulated in our most recent monthly economic report published on the bank’s website, a total of N38.11 billion was disbursed as loans to 44,458 beneficiaries through the NIRSAL Microfinance Bank (NMFB). This number has risen to N59.12 billion; supporting to 103,189 beneficiaries as of August 2020.

“It is important for the NESG to note that our intervention programmes in the agricultural sector were a key contributor to the resilience of the agricultural sector during the crisis, as the sector experienced positive growth of 1.6 per cent in the second quarter of the year despite the lockdown.

As the NESG may be aware, as a result of the COVID-19 pandemic, Vietnam, Cambodia, India, and Thailand placed export restrictions on the exports of critical food items, including rice and eggs. With these disruptions, the Nigerian economy could have faced a major food crisis, but for the government’s intervention programmes in the agriculture sector.

“Furthermore, by alluding to the fact that money cannot address constraints in the agriculture sector, the NESG failed to realise that access to credit is listed among the three major challenges faced by farmers and businesses in Nigeria. While the federal government is seeking to address issues such as access to electricity and logistic constraints faced by businesses, it was vital for the CBN to address an area that we had sufficient ability to impact upon, given the nature of the crisis we faced, which is improving the flow of credit to critical sectors of the economy.

“Contrary to the NESG’s allegation that our lending process is devoid of a proper framework, it is important to note that recipients of intervention funds from CBN go through an expansive due diligence process through participating financial institutions (PFI), following which an additional assessment process is embarked upon by the CBN before disbursements are provided. The PFIs expend extensive due diligence on these intervention loans as the risk of default lies with them.”

While the CBN felt compelled to respond in a rather livid and heated manner to the NESG’s critique of the enfeebling state of the nation’s economy perhaps more out of the need to defend its policies, quality of decision making and hence its leadership, the bank’s steaming response did little to address the critical issues raised by the summit group.

That the CBN threw monies at the challenge of food production through the Anchor Borrowers’ Programme, does not negate the fact that a mammoth fissure remains in meeting the nation’s food requirements, which has resulted in increasing hunger among the Nigerian populace. Earlier this month, it was revealed that the CBN granted approval to four agro-processing companies to import 262,000 tons of maize and corn in the bid to complement an anticipated shortfall of the commodity in the country. The country also imported its second-largest volume of maize in a decade in 2019, maintaining the same level it recorded the previous year, despite calls by farmers for a restriction on the importation of the cereal, importing 400,000 tons of maize in 2019, as it did in 2018, which is the second-highest volume imported by the country since 2009.

In 2015, Nigeria’s central bank banned the use of its foreign exchange to pay for rice imports and has backed loans of at least 40 billion naira ($130 million) to help small-holders boost output. It also banned rice imports across land borders and kept hefty 70 per cent tariffs on imports coming through ports. In August last year, Nigeria went a step further and closed its land borders altogether to stamp out smuggling, often from neighboring Benin, with rice being one of the main targets.

According to Gro Intelligence, an agricultural data specialist, the country’s total output in 2019 was 4.9 million tonnes which is below the country’s annual rice consumption of 7 million tonnes. The U.S. Department of Agriculture, meanwhile, expects Nigeria’s 2020 rice imports to rise 9 per cent to 2.4 million tonnes, in part due to the high cost of unprocessed Nigerian paddy rice and elevated operating costs at mills.

As noted by Abuja based Daily Trust in a report last Friday on the impact of high food prices on Nigerians, “At Ojodu mini-market in Lagos, the business hub of Nigeria, a bag of rice, which was hitherto sold for N18, 000 is now N22, 000 while a bag of foreign rice, which has been banned, but still being smuggled in is sold at N30, 000. Vegetable oil, which was sold for N11, 000 is now N14, 000. Also, a 4-litre paint bucket of garri goes for between N700 and N1000. A 4-litre paint bucket of beans rose from N1, 500 to N1, 700.

“Similarly, bread makers under the aegis of the Premium Bread-makers Association of Nigeria (PBAN), said on Thursday that the price of flour, a major ingredient for bread, increased from N10, 500 per 50kg bag to N13, 500 per bag, sugar increased from N13,500 per bag to N29,000 and down to N19,000”.

The NESG’s concerns about how the CBN has unhealthily carried on the business of foreign exchange transactions, and price fixings without appropriate policy clarity was largely left unanswered by the CBN. The bank’s FX policies and strategies have long been subjects of global criticisms. Economists, businessmen and international institutions have long been more than consistent in their opposition to the CBN’s usage of multiple exchange rates as a result of the distortions and manipulations that have characterised the policy. In April, the Deputy Managing Director of the International Monetary Fund, Mitsuhiro Furusawa, urged that, “steps taken towards a more unified and flexible exchange rate are also important and unification of the exchange rate should be expedited”.

This was after the CBN Governor, Godwin Emefiele, and Finance Minister, Zainab Ahmed, on behalf of the federal government committed at the advice of the fund to, “maintaining this more unified and flexible exchange rate regime, which will operate in a market-determined manner and be allowed to respond to shocks, with Central Bank of Nigeria only intervening to smooth large FX fluctuations.”

Across board, it must be clear to the government including the Central Bank that its interventions in the agricultural, pharmaceutical and manufacturing sectors are yet to yield impactful outcomes. Statistics show that Nigeria’s manufacturing capacity remains fatigued and the country is not producing as much as it needs to, despite CBN’s intervention and indeed food prices are soaring beyond the reach of increasing number of Nigerians.

It behoves government, its institutions and its leadership to listen to the loud and soft voices of experts who are not encumbered by the impaired vision that characterises political and institutional power in Nigeria.