By Arize Nwobu
THUR, DECEMBER 20 2018-theG&BJournal-Economy is the lifeblood of a people and has been simply defined as ‘’the careful use of money, resources and means of production, the system of how money is made and used within a particular country or region.’’ Parameters for economic development include Gross National Product (GNP) per capita, occupational structure of the labour force, urbanization, infrastructure, social conditions, consumption per capita and population.
Nigeria’s economy is severely challenged because the population growth rate outstrip economic growth rate. The population of 180 million has been projected to be approximately 234 million by 2025 at a cumulative average growth rate of 2.5 per cent. Governor, Central Bank of Nigeria (CBN), Godwin Emefiele had noted that the economy needs to grow by at least 6 per cent. According to him, ‘’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.’’
Central banks influence economic growth by regulating liquidity in the financial system, thus the need for the right quantity of money to circulate in the system to ensure a healthy economy which has been defined as where unemployment and inflation are in balance in a ratio of 4.7 per cent – 5.8 per cent unemployment and 2.0 per cent target inflation.
As the curtains draw on 2018, it is appropriate to reflect on some major policies of CBN and their impact on the economy. Firstly, is CBN’s tight monetary policy evolved to avoid easy money and escalation of inflation with its devastating effects which can also destabilize the economy. Generally, central banks have a phobia for inflation, thus, CBN persistently retained the Monetary Policy Rate (MPR) at 14 per cent to avoid easy money and concomitant spiral inflation even as it also evolved other policies aimed at spurring growth in the real sector.
With the MPR constant at 14 per cent, inflation dropped consistently from a high of 19.0 per cent in January 2017 to 17.78 per cent in February 2017 and further to 15.37 per cent in December 2017. It further dropped to 14.33 per cent in February 2018 and 13.34 per cent in March 2018, reported to be the sharpest decline in 11 months.
Emefiele anticipated that the inflationary pressure would continue to ease to a lower double-digit or high single digit levels. ‘’I believe inflationary pressure will continue to ease. I believe that it may return to very low double digit or high single digit levels during the year.’’ But it seems that the election momentum has disrupted the expectation. Statistician General, National Bureau of Statistics, Yemi Kale, in a report, noted that ‘’all indicators suggest that inflation will come under pressure because of government spending, but it depends on what CBN does to reduce the pressure that will determine the outlook for inflation for the year.’’
Secondly, in ensuring financial system stability, CBN evolved a dividend policy targeted at banks with high non-performing loans in recognition of banks as the most important financial intermediary in the financial system especially in developing economies and that non-performing loans pose a threat to the health of financial institutions and is one of the major causes of financial system instability with its attendant devastating effects as witnessed in the 2008-2009 global financial crisis which had a domino effect across global markets.
As Emefiele noted, ‘’anything that destabilizes the banking system will have adverse impact on the economy. We are keeping our eyes on the banking system to ensure there are no significant threats that will alter the strategic health of the banking system.’’
The dividend policy stipulate that ‘’no bank shall pay dividend on shares until all its preliminary expenses, organization expenses, share selling commission, brokerage, among of losses incurred and other capitalized expenses not represented by tangible assets have been completely written off and adequate provisions have been made to the satisfaction of the bank for actual and contingency losses on the risk asset, liabilities, off balance sheet and such unearned income as are deductible therefrom.’’
The policy was widely commended by experts across sectors. Reportedly, CEO, InvestData Ltd, Ambrose Omorodion said, ‘’this is good for the banks, depositors and investors, and because in the first place, concern of every business is to give hope of better tomorrow, The banks need to be financially healthy before rewarding shareholders.’’
Thirdly, is the Investors’ and Exporters’ (I&E) FX Window which was established in April 27 2017 in response to dollar scarcity in the thick of the recession occasioned by the drastic fall in global oil price and retreat of foreign investors. Dollar scarcity led to exchange rate volatility, a drastic weakening of the naira to an all time low, and paralyzed production. But the I&E Window created a magical and powerful impact.
Within six months the Window attracted an inflow of US$10 billion and at end of December 2017 it generated a turnover of US$22.85 billion. The Window reactivated the FX market and production, reduced exchanged volatility, strengthened the naira, led to exchange convergence across various windows and segments of the market, accretion of foreign reserves.
The impact also resonated in the stock market which is a very important segment of the economy. The stock market reacted bullishly to the news of the Window. The market, formerly bearish, became bullish and wiped off the previous seven day loss and with additional traded value of N294 billion. Many stocks returned above 100 per cent and stockbrokers and investors made handsome gains.
It was reported that Africa’s richest man, Alhaji Aliko Dangote made N518 billion (US$1.6 billion) in three trading days. Share price of Dangote Cement Plc appreciated by N560 Billion in three trading days which accounted for 69 per cent of the total stock market gain while the company’s capitalization closed at N3.578 trillion and accounted for 30 per cent of the total stock market capitalization.
With I&E Window and constant pumping of dollar into the FX market, CBN won the FX battle to the greater benefit of the economy. World Bank commended the impact of the I&E Window and noted that ‘’government must sustain the regime of free flow of foreign exchange into the economy through the newly established Investors’ and Exporters’ Window which has helped to resolve the challenges of foreign exchange scarcity with flows into the economy through the Window in excess of US$7billion.’’
Fourthly, is CBN policy of intensified development financing which birthed the Anchor Borrowers Programme (ABP) among such others aimed at boosting agricultural development. ABP was introduced with the objectives of revitalizing agriculture in Nigeria, boosting local rice production and achieving self sufficiency in rice production, reducing import bill on rice and changing the wrong notion that agriculture is for the poor and creating a new generation of millionaire farmers.
Many states including Anambra, Cross River, Jigawa, Kebbi, Ebonyi, Benue, Plateau, Katsina, Kaduna and Zamfara have made remarkable progress in rice production and the yield rice farmers were getting has increased from one to 1.5 metric tons per hectare to as high as 8 metric tons per hectare. It is expected that Nigeria would record spectacular success in local rice production as was the case in Sri Lanka.
Nwobu , a Chartered Stockbroker and Business Journalist wrote via arizenwobu@yahoo.com
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