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As many people are now aware, the outbreak of the Novel Coronavirus
Disease (COVID-19) in China 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 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 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 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 at the University of St. Gallen, Switzerland suggest a
total of 102 restrictions by 75 countries.
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 exporting N95 respirator masks to Canada and Latin
America.
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 Central Bank of
Nigeria (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.
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.
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. My immediate question was: can we not produce these
ourselves? After all, only a few decades ago, Nigeria was one of the world's
largest producers and exporters of many agricultural products like 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 few 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 should 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. 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.
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, 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 for value-added production, 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 Small and
Medium-Scale Enterprises (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 merging with or acquiring peers
in advanced nations. Why should this be out of our reach? We have the companies
and the manpower. 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. 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 there have been 91 recoveries and sadly 10 deaths. With
President Buhari's continuing strong leadership, Nigeria can now test 1,500
persons per day in twelve (12) Molecular Test Laboratories. We believe that his
strong leadership to impose early travel restrictions, lockdown, social
distancing, and other measures have been greatly effective in curbing the
spread of the disease. More so, the Presidential Task Force on COVID-19 and the
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 on
COVID-19 across its response, while mobilizing palliatives for the poor and
vulnerable. Under this Immediate-Term Response, we have activated the
following: 1) Ensure financial system stability by granting regulatory
forbearance to banks to restructure terms of facilities in affected sectors; 2)
Trigger 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) Grant additional
moratorium of 1 year on CBN intervention facilities; 4) Reduce interest rates
on intervention facilities from 9 percent to 5 percent; 5) Create N50 billion
targeted credit facility for affected households and SMEs; 6) Strengthen the
Loan-Deposit Ratio (LDR) policy, which is encouraging significant extra lending
from banks; 7) Improve 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) Provide additional N100b intervention in
healthcare loans to pharmaceutical companies, healthcare practitioners
intending to expand/build capacity; 9) Provide N1 trillion in loans to boost
local manufacturing and production across critical sectors; and 10) Engender
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 focus our attention on 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 consider 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 these have remained major inhibiting factors 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
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