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CBN/stakeholders differ on growth projections



JUST IN: Again, arraignment of Emefiele over alleged procurement fraud stalled

Growth has risen for seven consecutive quarters –Emefiele

On Monday last week, the Central Bank of Nigeria (CBN) governor, Godwin Emefiele, rolled out his vision for the next five years, projecting, among other things, double digits GDP growth by next five years. The governor had noted specifically that, “working closely with our fiscal authorities, we pledge to target a double digit growth by the next five years and at the CBN, we commit to working assiduously to bringing down inflation to single digit; while accelerating the rate of employment.”

But experts point out that such ambition is aiming much higher than what is realistically achievable given the current economic fundamentals, even as they stressed that it is contradictory to pursue growth and lower inflation rate simultaneously.

“First, I think that all the necessary foundations to move into a double digit growth rate are not there. We don’t have the foundation to leap from where we are – the anaemic 1.9 percent – to 10 percent growth rate,” notes Leo Ukpong, Professor of Financial Economics and Dean, Faculty of Business Administration, University of Uyo.

“Some of those foundations will include the insecurity, which is a big problem; lack of power – we are not able to generate the energy we need to grow our GDP at even five percent. Then there is inconsistency in terms of the leadership signal. For example, the borrowings, the debt to GDP is growing. When I look at those indices, I am very pessimistic about the projection. I think it’s more politically driven than based on real economic assumptions.”

Emefiele had, nonetheless, taken time to list the achievements of the CBN in the last five years: The economy, he said, has recovered from recession in 1st Quarter of 2017. External reserves have risen from $23bn in October 2016 to over $45billion by June 2019. Inflation has dropped from 18.72 percent in January 2017 to 11.40 percent in May 2019. The banks’ purchasing manufacturers’ index has risen for 26 consecutive months since March 2017, indicating continuous growth in the manufacturing sector on account of the banks’ implemented measures.

He added that GDP growth has risen for seven consecutive quarters following the recession in 2016. Exchange rate has appreciated from over N525/$1 in February 2017 at the BDC window to N360/$1. Capital Adequacy Ratio for the banking industry improved from 11 percent in June 2017 to over 16 percent in May 2019 and liquidity levels have also increased by over 20 percent within the same period.

He had noted further that the ratio of non-performing loans in the banking system has reduced from 15 percent in June 2017 to 9 percent in May 2019. The Anchor Borrowers Programme has improved access to finance for over one million small holder farmers and enabled agro-processors and manufacturers to source their inputs from local sources, among others achievements.

However, the CBN governor also admitted that not all he had set out to achieve in 2014 had been achieved on account of some factors, not least the volatility in the oil market even as he pointed out that the present GDP growth rate which hovers around two percent is inadequate, especially given that the population grows at 2.7 percent.

The achievements have been commendable. But it is the governor’s projection of double digits GDP growth in five years from the present two percent that has caught most attention. Also experts question the performance of the financial interventions, particularly the Anchor borrowers’ scheme which has been vitiated by the current insecurity in the country.

“Double digit GDP growth is a bit ambitious,” says Dr. Boniface Chizea, economic consultant and former banker. “We are doing 2.5/3 percent. And if you are talking double digit, you are talking of more than 10 percent. We have never attained that for a long time. Even when the going was good, the rate of growth was around 7 to 8 percent.

“So, for the foreseeable future, 10 percent is a bit too ambitious. But for me, I can’t quarrel with targets. What now matters is what you put in place to achieve those targets. I believe those targets give you something to aim for. So, that’s not an issue, but it’s ambitious, definitely.”

The President Muhammadu Buhari administration came on board on May 29th, 2015. The only year GDP has crossed the five percent threshold was the year before in 2014. Slump in oil price and combination of other factors, including, as analysts have said, poor economic policies by the administration, had ensured that the country went into a recession in 2016. Buhari had particularly failed to name his cabinet for six months. The efforts of CBN saw that it exited recession in 2017, but growth remains slow, and observers say, not much may change in the foreseeable future if nothing fundamental is done.

The year 2014 witnessed 6.31 percent GDP growth, in 2015, it plunged to 2.65 percent. With -1.62 percent in 2016, the country was officially in a recession. In 2017 it was 0.81 percent growth, which improved to 1.9 percent in 2018.

Statista, an international provider of market and consumer data with offices in Hamburg, London, New York, Paris and Singapore projects that Nigeria will grow at 2.15 percent in 2019, 2.54 percent in 2020, 2.44 percent in 2021, 2.74 percent in 2022, 2.55 percent in 2023 and 2.57 in 2024. The number could prove to be grossly inadequate given the country’s population growth rate of nearly three percent, but for Prof. Ukpong, that’s likely where the country may end up.

“Frankly, if we continue with the way we are growing, I don’t see us growing significantly beyond 3 percent in the next five years,” he says. “With serious planning, maybe 4 percent, but certainly not double digits.”


Mr. Mustafa Chike-Obi, former CEO of Asset Management Corporation of Nigeria (AMCON) also agreed in a chat with Businesshallmark that double digit GDP growth “is very ambitious.” The former AMCON boss, like many, however, accepts Emefiele’s idea of banks recapitalisation, nothing that, “Recapitalisation is necessary though.”

But on the growth of foreign reserves, he wondered: “Why do we keep talking about gross reserves? We should focus on net reserves i.e. gross reserves minus forward commitments. This is especially relevant in view of increased forex debt, and forward contracts incurred in the last few years. That would give a much better picture.”

Emefiele had in his speech revealed that, “In the next five years, we intend to pursue a program of recapitalizing the Banking Industry so as to position Nigerian banks among the top 500 in the world. Banks will therefore be required to maintain higher level of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system.”

The disclosure had triggered discussions within the financial circles, with opponents and proponents taking divergent positions.

“Recapitalisation is a result of capital inadequacy. If that is the case, then that might be necessary,” says Chizea. “What is good is that he said he is going to discuss with the operators. Those are the people who wear the shoes and should be able to say. He has not specifically said he would recapitalise. We don’t have the details yet.”

But Prof Ukpong argues that the proposed recapitalisation will be a wrong move, as according to him, it’s not the solution to banks’ challenges.

“I disagree (with recapitalisation),” Ukpong says. “I think we should move from the N25billion that (Charles) Soludo did. Our problem is supervision and management of the financial institutions. Remember, recapitalisation simply means to sell more shares so that the shareholding for each bank is more.”

Ukpong further queries: “Now, what are you doing with the money when you sell the shares? You use it to support bad loans – which is what cripples the banks – you will go right back to where you were. That’s not where our problem is.

“There are excess bank charges. The rate they are charging average business people is too high. And what they are paying to attract deposit is way too low. You are charging 40 or 48 percent a year, but you are paying perhaps 8 percent in average savings. That’s the largest margin I have seen anywhere in the world. Where is the money going? We have not talked about ATM and all these other alert charges. So, the problem is management of the resources that the banks have.

“And because of political influences, they are buying Federal Government Treasury Bonds. But the bonds are not producing anything. The money is supposed to be going to the private sector where jobs will be created. Not to federal government. But that is what they are buying and holding in their portfolio.”

The idea of pursuing growth, and at the same time, reducing inflation, as proposed by the Central Bank governor, had also triggered discussions. Emefiele had emphasised that the bank intends to, “Working with other stakeholders, to bring down the cost of food items, which have considerable weight in the Consumer Price Index basket.

“Our ultimate objective is to anchor the public’s inflation expectation at single digits in the medium to long run. We believe a low and stable inflationary environment is essential to the growth of our economy because it will help support long term planning by individuals and businesses. It will also help to lower interest rates charged by banks to businesses thereby facilitating improved access to credit, and a corresponding growth in output and employment.”

Ukpong insists that growth cannot be pursued while keeping down inflation, even as he picked holes in the bank’s intervention programmes.

“It’s very contradictory,” he notes. “Right now we have inflation at almost 12 percent. To bring inflation down, you slow the economy; you cut down on expansionary monetary policy, you raise taxes. Right now we are not moving. If he wants to bring down inflation he will destroy the economy.

“There is something called inflationary growth. It takes a little inflation to grow. Support the businesses with loans so that there will be money to do things. That is how you grow. Usually, you worry about inflation when your growth rate is high. You don’t worry about inflation when you are already in the doldrums.”

However, Dr. Chizea takes a different perspective. He argues that it is possible to pursue growth while keeping inflation down, because there is cost push inflation.


“I don’t think there is contradiction there, it depends on how the growth is coming,” Chizea says. “You can have growth that is not inflationary. When you talk about inflation, you know that there is the one that is due to cost – you have inflation due to foreign exchange – and there is inflation that is due to demand. I don’t think they are mutually exclusive. You can pursue growth from enhanced productivity.”

Emefiele spoke glowingly of the success of the apex bank’s Anchor Borrowers Programme and other intervention programs geared towards supporting the growth of our agriculture and manufacturing sectors. He noted that in keeping with the recent Presidential Directives, the bank intends to:

“Boost productivity growth through the provision of improved seedlings, as well as access to finance for rural farmers in the agricultural sector, across 10 different commodities namely: Rice, Maize, Cassava, Cocoa, Tomato, Cotton, Oil-palm, Poultry, Fish, and Livestock/Dairy.”

Emefiele scored high the financial interventions, such as the Anchor borrowers’ programmes to farmers which now include seven year loan to members of the National Youth service. “Our intervention support shall also be extended to our youth population who possess entrepreneurship skills in the creative industry.”

But there have been arguments that the intervention programmes have not achieved as much as it is being credited with. And with insecurity escalating, forcing many farming communities out their farms, the programme could yet face more challenges.

“Let’s take the agric sector,” Ukpong says. “If you believe that it has potential to add to the Nigerian economy, the first thing you have to do is to plan and show us data. Right now, the problem of agriculture is insecurity. All the people in the middle belt who used to farm and produce what we eat are now being chased out of their farmland.

“Secondly, when you produce, most of what we produce are fresh products. We don’t have the facilities to preserve and package. I’m not talking about export, forget export because the only places you can export is probably in neighbouring sub-Saharan countries. All the talks about exporting to Europe is nothing. They will never allow your product into their market with the quality it has.

“That’s why I say it’s a political Central Bank. The amount of money they have amassed for North East and North West agric programmes, not even the Benue, the food basket of Nigeria, what is going to come out when desertification is there? So, this is just political money being manipulated so that some people will pull it out and move.”

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