By 
By Godwin I. Emefiele, Governor of the Central Bank of Nigeria
As many people are now aware, the outbreak of the Novel Coronavirus Disease (COVID-19) in China has rapidly permeated and profoundly changed the world. While this crisis is first and foremost a public health issue, which has claimed the lives of over 123,600 people worldwide, and counting, the economic damages are unprecedented on several fronts: crude oil prices have declined dramatically to as low as US$17 per barrel by the end of March, even before applying the discounts many oil exporters are offering; stock valuations for the NSE-ASI, Nikkei, Dow Jones and FTSE-100 have declined by an average of 23.8 percent between January and March 2020; global airlines have lost about US$252 billion in revenues and across the broad range of industries from hospitality to services, the pain is growing. These outcomes have expectedly thrown the global economy into a recession, the depth and duration of which is currently difficult to fathom. In fact, the International Monetary Fund (IMF) predicts that the global economy would decline by 3 percent this year.
Around the world, countries have moved away from multilateralism and responded by fighting for themselves with several measures to protect their own people and economies, regardless of the spillover effects on the rest of the world. According to the World Customs Organization, a total of 32 countries and territories, adopted stringent and immediate export restrictions (https://bit.ly/34EmqxW) on critical medical supplies and drugs that were specifically meant to respond to COVID-19. As of 10 April 2020, an updated count of total export restrictions by the Global Trade Alert Team (https://bit.ly/3bd9AJh) at the University of St. Gallen, Switzerland suggest a total of 102 restrictions by 75 countries (https://bit.ly/2V7sHih).
On 4 March 2020, Germany announced an export ban that applied to all sorts of medical protection gear including breathing masks, medical gloves and protective suits. Around the same time, President Macron announced that France will requisition all face masks produced in the country, a de facto export ban. Between 8 February 2020 and 6 April 2020, India released eight (8) different export notifications banning several drugs and medical supplies including hydroxychloroquine, ventilators, personal protections masks, oxygen therapy apparatus, and breathing devices. On 3 April 2020, the Trump Administration invoked the war-era US Defense Production Act to stop major US mask manufacturer, 3M, from export of respirator masks, N95, to Canada and Latin America.
FEARS OF GLOBAL RECESSION FUELED WORRIES FOR GLOBAL FOOD INSECURITY
Fears of a long global recession have also led to worries
about unprecedented global food insecurity, with concerns that agricultural
production may be dislocated by containment measures that constrain workers
from planting, managing and harvesting critical crops. Rather than seek
cooperative and global solutions, several countries have resorted to export
restrictions of critical agricultural produce.
According to the International Food Policy Research Institute
(IFPRI), about 37 countries have enacted various forms of food export
restrictions in response to COVID-19, even in countries where average
production exceeds domestic consumption.
For example, Viet Nam, the world’s third largest exporter of
rice, suspended granting rice export certificates until the country “reviews
domestic inventories”. Russia, the world’s largest wheat exporter, announced a
ten-day ban on the export of buckwheat and rice due to concerns over panic
buying in local supermarkets.
What if these restrictions become the new normal? What if the
COVID-19 pandemic continues in a second wave or another pandemic occurs in
which all borders are shut, and food imports are significantly restricted? What
if we cannot seek medical care outside Nigeria and must rely on local hospitals
and medical professionals? For how long shall we continue to rely on the world
for anything and everything at every time?
Although these developments are troubling, they present a
clear opportunity to re-echo a persistent message the CBN has been sending for
a long time, and at this time even more urgently so: we must look inwards
as a nation and guarantee food security, high quality and affordable
healthcare, and cutting-edge education for our people.
LOCAL PRODUCTION WITH DIVERSIFIED ECONOMY IS CRITICAL
For a country of over 200 million people, and projected to be
about 450 million in a few decades, we can no longer ignore repeated warnings
about the dangers that lie ahead if we do not begin to depend largely on what
we produce locally, because the security and well-being of our nation is
contingent on building a well-diversified and inclusive productive economy.
When I became Governor of the Central Bank in June 2014,
imports of rice, fish, wheat and sugar alone consumed about N1.3 trillion worth
of foreign exchange from the Bank. The immediate question that came to my mind
was: can we not grow these ourselves? After all, only a few decades ago,
Nigeria was one of the world’s largest producers and exporters of palm oil,
cocoa and groundnuts.
Today, we import nearly 600,000 metric tonnes of palm oil,
whilst Indonesia and Malaysia, two countries that were far behind us in this
crop, now combine to export over 90 percent of global demand. In 2017,
Indonesia earned US$12.6 billion from its oil and gas sector but US$18.4
billion in from palm oil. I believe that this pandemic and the immediate
response of many of our trading partners suggest it is now more critical than
ever that we take back control, not just control over our economy,
but also of our destiny and our future.
In line with the vision of President Muhammadu Buhari, the
CBN has indeed created several lending programmes and provided hundreds of
billions to smallholder farmers and industrial processors in several key
agricultural produce.
These policies are aimed at positioning Nigeria to become a
self-sufficient food producer, creating millions of jobs, supplying key markets
across the country and dampening the effects of exchange rate movements on
local prices.
This philosophy has been a consistent theme of the CBN’s
policies over the last couple of years. At the 2016 Annual Bankers’ Dinner, I
challenged the bankers that we needed to take decisive actions to fundamentally
transform the structure of our economy. Throughout that speech, I talked about
the damaging effects of Nigeria’s unsustainable propensity to import, and
opined that it was high time we looked inwards and stopped using hard-earned
foreign exchange (FX) to import items that we could produce locally.
This determination, therefore, formed the bedrock of the
Bank’s policy, which restricts access to FX for importers of many items. These
sentiments were re-echoed at the 2017 edition of the same Bankers’ Dinner, with
specific examples of several companies that have benefited significantly from
this policy of self-sufficiency. With President Buhari’s full support, we have
continued to refine this policy to ensure that the best interest of Nigeria is
served.
Many times, the Bank has been accused of promoting
protectionist policies. My answer has always been that leaders are first and
foremost accountable to their own citizens. And if the vagaries of international
trade threaten their wellbeing, leaders have to react by compelling some change
in patterns of trade to the greater good of their citizens.
STRENGTHENING NIGERIAN ECONOMY IN RESPONSE TO COVID-19
That is why in response to COVID-19, we are strengthening the
Nigerian economy by providing a combined stimulus package of about N3.5
trillion in targeted measures to households, businesses, manufacturers and
healthcare providers. These measures are deliberately designed to both support
the Federal Government’s immediate fight against COVID-19, but also to build a
more resilient, more self-reliant Nigerian economy.
We do not know what the world will look like after this
pandemic. Countries may continue to look inwards and globalization as we know
it today may be dead for a generation.
Therefore, as a nation, we cannot afford to continue relying
on the world for our food, education and healthcare. The time has come to fully
transform Nigeria into a modern, sophisticated and inclusive economy that is
self-sufficient, rewards the hardworking, but protects the poor and vulnerable,
and can compete internationally across a range of strategic sectors.
In order to achieve this goal, we must begin immediately to
support the Federal Government to:
1) Build a base of high quality infrastructure, including
reliable power, that can engender industrial activity;
2) Support both smallholder and large scale agriculture
production in select staple and cash crops;
3) Create an ecosystem of factories, storages, and logistics
companies that move raw materials to factories and finished goods to markets;
4) Use our 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;
5) Develop a healthcare system that is trusted to keep all
Nigerians healthy, irrespective of social class;
6) Facilitate access to cheap and long-term credit for
SMEs and large corporates;
7) Develop and strengthen pro-poor policies that bring
financial services and security to the poor and the vulnerable; and
8) Expedite the development of venture capitalists for
nurturing new ideas and engendering Nigerian businesses to compete globally.
India is in a position to ban exports because it is producing
critical drugs and medical supplies that the rest of the world needs. It also
has companies that are global champions, and even making mergers and
acquisitions in advanced nations. Why should this be out of our reach? We have
the companies too; we have the manpower and some of the best brains in the
world from the Americas to Europe and from Asia to Africa are Nigerians;
driving global innovations in all fields. Nigerians are successful everywhere,
and are already one of the most sought after immigrant groups in the
United States.
But now is the time to seize this opportunity and create an
environment that empowers our people to thrive within our own shores.
To this end, the Central Bank has developed a Policy Response
Timeline to guide our crises management and the orderly reboot of the Nigerian
economy.
Immediate-Term Policies (0-3 Months):
In light of the fact that this crisis is an exogenous one
thrust upon us without much warning, this phase reflects the government’s
efforts at containment and mitigation. Although global cases are heading
towards two million with over 123, 600 deaths as of 14 April 2020, we now have
343 cases, of which 10 deaths and 91 recoveries have been recorded. With President
Buhari’s continuing strong leadership, Nigeria can now test 1500 persons per
day in twelve (12) Molecular Test Laboratories. We believe that this strong
leadership in travel restrictions, lockdown, social distancing, and other
measures have been greatly effective to curbing the spread of the disease. More
so, the Presidential Task Force and Nigeria Centre for Disease Control (NCDC)
have helped the country stay ahead of the curve with increased testing
capacity, provision of better-equipped isolation centres, and effective contact
tracing. Within this milieu, the CBN has responded in several ways, first by
supporting hospitals and pharmaceutical industry with low interest loans to
immediately deal with the public health crises; then by working with the
private sector Coalition Against COVID (CACOVID) to support the Presidential
Task Force across its response, while mobilizing palliatives for the
poor and vulnerable. Under this Immediate-Term Response, we have activated
the following: 1) Ensuring financial system stability by granting
regulatory forbearance to banks to restructure terms of facilities in affected
sectors; 2) Triggering banks and other financial institutions to roll-out
business continuity processes to ensure that banking services are delivered in
a safe social-distance regime for all customers and bankers; 3) Granting
additional moratorium of 1 year on CBN intervention facilities; 4) Reducing
interest rates on intervention facilities from 9 percent to 5 percent; 5)
Creation of N50 billion targeted credit facility for affected households &
SMEs; 6) Strengthening the Loan-Deposit Ratio (LDR) policy, which is
encouraging significant extra lending from banks; 7) Improving FX supply to the
CBN by directing all oil companies (international and domestic) and all related
companies (oil service) to sell FX to CBN and no longer to the NNPC; 8)
Providing additional N100b intervention in healthcare loans to pharmaceutical
companies, healthcare practitioners intending to expand/build capacity; 9) providing
N1 trillion in loans to boost local manufacturing and production across
critical sectors; and 10) Engendering financial inclusion by ensuring the poor
and vulnerable are able, by all means necessary, through banks, microfinance,
community and non-bank financial institutions, to access financial services to
meet their basic needs.
Short-Term Policy Priorities (0 – 12 months):
As soon as President Muhammadu Buhari and the
Health authorities determine our Coronavirus Transmission Curve is flattening
and many of the ongoing restrictions are eased, this will be the phase for
repositioning the Nigerian economic space. As part of the lessons from the
current pandemic, we must ensure that that our value-added sector, the
manufacturing industry is strengthened. Accordingly, the CBN will pursue the
following policies in this phase: 1) Reinvigorate our financial support for the
manufacturing sector by expanding the intervention all through its value-chain.
In most cases, we will ensure that primary products sourced locally provide
essential raw material for the manufacturing sector except where they are only
available overseas; 2) With the support of the Federal Government, the CBN will
embark on a project to get banks and private equity firms to finance homegrown and
sustainable healthcare services that will help to reverse medical tourism out
of Nigeria. By offering long-term financing for the entire healthcare
value-chain (including medicine, pharmaceuticals, and critical care), banks
will work with healthcare providers to consolidate on the current efforts to
rebuild our medical facilities in order to ensure Nigeria has world class
affordable hospitals for the people of Nigeria and those wishing to visit
Nigeria for treatment; 3) The CBN will promote the establishment of InfraCo
PLC, a world class infrastructure development vehicle, wholly focused on
Nigeria, with combined debt and equity take-off capital of N15 trillion, and
managed by an independent infrastructure fund manager. This fund will be
utilized to support the Federal Government in building the
transport infrastructure required to move agriculture products to
processors, raw materials to factories, and finished goods to markets, as
envisaged at the CBN Going for Growth Roundtable in March 2020; and 4) Continue
to prioritize the provision of FX for the importation of machinery and critical
raw materials needed to drive a self-sufficient Nigerian economy.
Medium-Term Policy Priorities (0 -3 Years):
Once the world returns to some new normal having
tamed COVID-19 by a combination of vaccines and social distancing, and the
Nigerian economy reopens fully for business, we will act quickly to enable
faster recovery of the economy by targeted measures towards particular sectors
that are able to support mass employment and wealth creation in the country. We
will do so by focusing on four main areas, namely, light manufacturing,
affordable housing, renewable energy, and cutting-edge research.
In manufacturing, for example, it is pertinent to note that
Nigeria’s gross fixed capital formation is currently estimated at N24.55
trillion made up residential and non-residential properties, machinery and
equipment, transport equipment, land improvement, research and development, and
breeding stocks. Of this estimated value, machinery and equipment, which are
the main inputs into economic production, are currently valued at only N2.61
trillion. In order to pursue a substantial economic renewal, including
replacement of at least 25 percent of the existing machinery and equipment for
enhanced local production, we estimate at least N662 billion worth of
investments to acquire hi-tech machinery and equipment. Therefore, the CBN will
consider an initial intervention of N500 billion over the medium term,
specifically targeted at manufacturing firms to procure state-of-the-art
machinery and equipment and automated manufacturing models that would
fast-track local production and economic rejuvenation, as well as support
increased patronage of locally processed products such as cement, steel, iron
rods, and doors, amongst several other products. The recent private sector
investments in cement production using enhanced technology and automated
manufacturing models is a good example of the kind of economic renewal we will
be pursuing in this phase. We will develop a thorough screening process and
stringent criteria for equipment types that would qualify for funding under
this phase.
In order to boost job creation, household incomes and
economic growth, we will be focusing our attention to bridging the housing
deficit in the country, by facilitating government intervention in three
critical areas: housing development, mortgage finance, and institutional
capacity.
We will pursue the creation of a fund that will target
housing construction for developers that provide evidence of profiled
off-takers with financial capacity to repay. The current identification
framework in the banking sector using the bank verification number (BVN) will
be used to verify the information provided by the off-takers before the
developer can access the funds. We will also be considering ways to assist the
Mortgage Finance Sub-sector as well as build capacity at the State levels for
their land administration agencies to process and issue land titles promptly,
implement investment friendly foreclosure laws and reduce the cost of land
documentation, as this has remained a major inhibiting factor in the provision
of affordable housing in the country.
Over the next 3 years, we will also support the financing of
environmentally friendly energy production, as this has a tangential long-term
health benefits. We will look at efforts to drive innovation and research in
every sector, through our universities, research institutions, creative
industry initiatives, and all other media of novelty and inventions.
In conclusion, I believe we must now envision and work toward
a Nigeria with the cutting edge medical facilities to provide world class care
to the sick and vulnerable; enable our universities and research institutions
to provide the requisite education and training that is required to keep these
ecosystems functioning sustainably and efficiently; and millions of Nigerians
employed in meaningful and well-paying jobs. This is the Nigeria that we must
aspire to build.
COVID-19 may have plunged us into a crisis of unprecedented
proportions. But, as Winston Churchill once admonished, we must never let a
crisis go to waste.
– Godwin I.
Emefiele, CON is Governor of the Central Bank of Nigeria
