By Arize Nwobu
Nigeria’s factor-driven economy which derive more than 80 per cent of federal revenue from oil is by implication exposed to external shocks that can sometimes be drastic. The economy quakes when the global oil market shakes and creates palpable anxiety within government circles and the citizenry, a narrative which the Federal Government and the Central Bank of Nigeria, CBN, are working assiduously to change for the better through various policy combination aimed at effectively engendering diversification.
The World Bank projected that the global economy would shrink by 5.2 per cent in 2020 and that emerging markets and developing economies, EMDEs, were expected to shrink by 5.2 per cent. Nigeria’s economic activities were projected to shrink by 3.2 per cent, which is said would be the most severe contractions in four decades.
Nigeria, a middle-income, mixed economy and emerging market, is a major player in the West African region. It is ranked as the 27th largest economy in the world in terms of nominal GDP and the 22nd largest in terms of purchasing power parity. Besides the threat of over-dependence on oil for revenue generation, another major threat is population growth. Nigeria has an estimated population of 190 million and one of the largest population of youths in the world.
According to the Lead Economist, World Bank in Nigeria, Marco Hernadez, Nigeria’s population is expected to grow by as much as 35 million in the next decade and that, unless the pace of growth and job creation accelerates, the country would account for a quarter of all people living in extreme poverty. He noted that ‘’creating new opportunities for this increasingly labour force will require a new economic model based on productivity growth.”
CBN governor, Godwin Emefiele, had noted that the economy needs to grow by at least 6 per cent. ”Nigeria is a country that must grow by at least twice the population growth rate and until we achieve that, we are not going to rest on our oars,” he said. Other threats to Nigeria’s economy include the COVID-19 pandemic which has severely disrupted the global economy, insurgency in the North East region, infrastructure deficit, unemployment, farmer-herder conflicts and smuggling, among others.
Central banks in developing countries are expected to play a wider role and perform both traditional and non-traditional roles to spur growth and development. PwC had also noted that: ‘’Central banks need to be proactive. They need to not just adapt to changing conditions but anticipate the shift based on how they are going to change the playing field for monetary policy and financial stability.”
Experts have further noted that central banks would have an important role to play in facilitating the public debate over what society wants from the banking system. CBN has been proactive and evolved numerous creative policies towards repositioning the economy. And prior to the outbreak of the pandemic, the apex bank organised a Round-Table with the theme: ‘’Going for growth”, which was the second in the series after the first which held in June, 2019.
According to Emefiele, the purpose was to interact and share thoughts on the economy with key private sector stakeholders to promote greater economic growth. Towards strengthening the economy, CBN stimulated and pushed more credit to the private sector by persuading lenders to extend more credit to the manufacturing sector. They were given up to end of 2019 to increase their loan-to-deposit ratios to 65 per cent or risk being fined.
As a result, lending to manufacturing companies totalled N459.7 billion ($1.3 billion) from May – October 2019, which was said to be the most in two decades. Agriculture sector got N356.6 billion. CBN was noted to have supported about 1.5 million farmers across 36 states of the federation to cultivate about 16 different commodities over 1.4 million hectares of farm land.
Central banks across the world reduced interest rates in the wake of the pandemic to shore up their economies. Remarkably, CBN had earlier embarked on similar measure which resulted in reduction of lending rates as part of efforts to boost growth. The Bank later rolled out more comprehensive measures to checkmate the effects of the pandemic and strengthen the economy.
The measures include: facilitating access to cheap and long-term credit for SMEs and large corporates, developing and strengthening pro-poor policies that would bring financial services and security to the poor and vulnerable, supporting both smallholder and large scale agriculture production in select staple and cash crops and developing a health care system that is trusted to keep all Nigerians healthy irrespective of social class.
Other measures include, building a base of high quality infrastructure, including reliable power that can engender industrial activity; creation of an ecosystem of factories, storage and logistic companies that move raw materials to factories and finished goods to markets, use of fiscal priorities to create a robust educational system that enables critical thinking and creativity which would better prepare our children for the world of tomorrow and expediting the development of venture capitalists for nurturing new ideas and engendering Nigerian businesses to compete globally.
*Nwobu, a chartered stockbroker and business journalist, wrote via firstname.lastname@example.org