I welcome all of you to this second consultative “Going for Growth” Roundtable Session. In June 2019, the CBN participated in the first roundtable session where I had the opportunity to share my thoughts on the economy, as well as receive inputs from key private sector stakeholders in Lagos, on ways in which we could promote greater economic growth for Nigeria.
I note with delight that some of the recommendations at the 1st session have been implemented by the CBN, and these have contributed to the successes we recorded in improving access to credit for Nigerians in 2019. Following the success of the 1st session, the management of the Central Bank of Nigeria decided to convene a second session in Abuja, working in partnership with key stakeholders in the public sector. I therefore have no doubt in my mind that with the caliber of people from both the public and private sector gathered here today, we would make the desired progress in generating ideas and solutions that will enable greater growth and development of the Nigerian economy.
This session is more relevant today than ever before, given the external headwinds that the Nigerian economy faces, such as the effects of the trade and technology wars, and more importantly the recent spread of the corona virus, which has emerged as a major threat to global growth in 2020. The impact of the corona virus across over 100 countries, has affected global supply chains, as well as demand for goods and services. Commodity prices have also been affected, as crude oil prices have plummeted by over 45 percent since January 2020. Early this year, the IMF had projected that global growth would rise to 3.3 percent in 2020, up from 2.9 percent in 2019. However, with the onset of the virus, global growth is expected to decline in 2020, but the extent of the decline would depend on how the epidemic is contained over the next few months.
Central Banks in key markets across the globe have responded by reducing policy rates in order to stimulate growth, while measures are being taken by fiscal authorities to build resilient buffers to contain the spread of the virus. The CBN fortunately had already embarked on similar measures which has resulted in significant reduction in lending rates, as part of our efforts to boost growth. Working with the fiscal authorities, we will not hesitate to deploy additional measures to strengthen our buffers and insulate the Nigerian economy from the global headwinds.
- CBN Governor Godwin Emefiele
Background on the economy
In the last 3 years, the Nigerian economy had remained on a positive growth path. GDP growth has remained in positive territory for the 11th consecutive quarter, following the 2016 – 2017 economic recession. In the 4th quarter of 2019, GDP growth stood at 2.55 percent, which is the highest rate of quarterly growth attained since 2016, surpassing the expectation of several analysts, who had predicted a 2.2 percent growth. For the year 2019, GDP growth stood at 2.27 percent relative to negative 1.6 percent in 2016, highlighting the impact of fiscal and monetary policy measures that have helped support growth in critical sectors of the Nigerian economy such as Agriculture, Industry, Oil and Gas, and ICT.
One of the critical measures that helped to boost growth in 2019, was the impact of the Central Bank’s new minimum loan to deposit ratio, which was initially at 60 percent, and subsequently raised to 65 percent. We also imposed restriction on access to OMO auctions in order to encourage banks to lend to the real sector. Indeed, the Banking sector has responded positively with the rise in aggregate industry credit from N15.3 trillion May 2019 to over N17.4 trillion in January 2020. I am aware that these loans have been granted to borrowers across different sectors at considerably lower rates. Although a lot more still needs to be done; We intend to sustain these policy measures, as it will help support improved economic growth and create more employment opportunities.
Risk to growth
Notwithstanding our current measures aimed at supporting growth, our economy faces considerable challenges. GDP growth remains below our annual population growth rate at 2.6 percent. Second, our reliance on crude oil for more than 80 percent of our foreign exchange earnings and sixty percent of government revenues, means our economy is exposed to the impact of the corona virus on crude oil prices. Projected declines in revenues as occasioned by the drop-in crude oil prices constrains the government’s ability to meet its infrastructure commitments in 2020, which is vital if we are to achieve double digit growth. Given this challenge, it is imperative that this roundtable session comes up with well-structured funding models, that will mobilize funds from banks and other financial institutions to fund critical infrastructure projects, while providing attractive returns to investors. We must also use this opportunity to consider funding for infrastructure projects that improve access to markets for farmers and SMEs, while also connecting the railways to our ports, in order to increase our non-oil exports. Such schemes will support greater economic growth and help free up funds for the government to focus on other priority objectives.
Diversification of the Economy
Indeed, the current oil price shock validates some of the measures taken by the fiscal and monetary authorities on diversification of the Nigerian economy. These measures , which have focused on improving domestic production of goods and services, particularly in the agriculture and manufacturing sectors, are necessary if we are to insulate our economy from volatilities in the crude oil market. We must build on the successes of these measures and reduce our dependence on excessive imports. Credit must go to President Muhammadu Buhari who has placed considerable emphasis on diversifying our economy away from its reliance on earnings from crude oil.
Distinguished Ladies and Gentlemen, I believe we can envision a vibrant economy in Nigeria that is less dependent on crude oil. Once upon a time in the sixties, our cities and rural communities were brimming with activities, as industries sprung up in Lagos, Kano, Kaduna, Onitsha and Aba, to mention a few. Rural dwellers supported increased cultivation and exports of cash crops such as cocoa, palm oil, and cotton. These activities enabled the creation of jobs for rural and urban dwellers, while working to stem rural – urban migration. Our reliance on crude oil revenues beginning in the 70’s was the advent of our problems in Nigeria. Oil rose from 3 percent of our total exports’ earnings in 1960 to over 90 percent by 1976. Today, oil constitutes close to 80 percent of our export earnings.
Our dependence on oil exports contributed to the decline of our local industries as well as our agricultural sector, as it enabled an excessive reliance on the imports of goods and services. This reliance on imports contributed significantly to the challenges we now face in our agricultural and manufacturing sectors, but more importantly, it resulted in the loss of job opportunities for Nigerians. Our craze for imports of everything and anything supported factories, farms and the creation of jobs in other nations, while turning our industries into warehouses for these imported goods.
Today, the current leadership under President Muhammadu Buhari is working to deal with high unemployment levels, as well as the smuggling and dumping of goods in Nigeria, by putting in place policies that support increased production of goods in Nigeria. Ladies and gentlemen, If we do not deal with these issues, the challenges of kidnapping and banditry would only fester, as those involved in these nefarious activities would only resort to these activities with intensity in the absence of job opportunities.
Purpose of the Roundtable Session
Addressing domestic and external challenges to growth requires that we hear from critical stakeholders like you, who can generate great and workable ideas and solutions. We must all work together in order to harness the true potential of our nation. This one-day roundtable session will address some of the measures needed to drive double digital growth rate in Nigeria. These include, improving productivity in the agriculture and manufacturing sectors. Second, how to develop funding models that would support improvements in the quality of our energy and transport infrastructure. Third, how Nigerians operating in the creative industries space, such as ICT, can expand and capture the value of their works, while creating jobs and generating export revenues for our nation. The findings generated from the roundtable session, will be presented to the President at a dinner session later today. I encourage all of us to provide our inputs, as these will be vital in guiding the fiscal and monetary authorities on measures that could help in supporting greater growth of the Nigerian economy. We therefore look forward to a very exciting session, and I thank you once again for joining us today.
Godwin Emefiele, CON, is Nigeria’s Governor of the Central Bank.