‘Seun Ibukun-Oni, Abuja


Daily Courier – To insulate the economy against adverse spillovers from the Russia-Ukraine war, indications have emerged that the Central Bank of Nigeria (CBN) will deploy targeted development finance interventions that have proved to be critical safety nets in such situations. To achieve the desired impact, priority will be given to two sub-sectors that are most impacted by the ongoing conflict – agriculture and manufacturing.

These facts emerged from the views of the Monetary Policy Committee (MPC) members contained in the Communique No. 141 of the MPC meeting held in March 2022. All the 10 members present at the meeting expressed similar opinions in the document entitled “Personal Statements by the Monetary Policy Committee Members” posted on the Bank’s website last week. To underscore the severity of the circumstance, the members stated that “even if the war in Ukraine is short-lived, sanctions will not immediately go away, and so would be their impact on, and consequences for the domestic economy”.

Noting that significant recovery has been recorded from the catastrophic COVID-19 pandemic, the MPC members observed that output recovery still remains fragile, stating that the Bank’s use of the development finance interventions in selected employment generating and output-stimulating sectors would continue to support output recovery. They recommended sustaining collaborative efforts with the Federal Government on extensively focusing on interventions targeted at increasing aggregate demand, boosting domestic agricultural production, driving lending to MSMEs and investing in critical infrastructure.

On Manufacturing, the MPC expressed concern that the prices of intermediate imports would remain elevated due to the disruption in supply. It said high energy costs directly constrain manufacturing as the sector relies heavily on energy – diesel and gas – both of which are impacted globally by the war.

The Committee stated that Agriculture could also take a hit as fertilizers and other inputs are impacted. It noted that Russia and Belarus are major players in the global market for potash, urea, and other chemicals required to produce fertilizers. Both countries are on the other side of the war. “Given these scenarios, both sectors (manufacturing and agriculture) would require extra policy support to weather the storm ahead,” the members reasoned.

“CBN interventions in critical agricultural products like wheat should be sustained. Food security should be a national priority with partnerships of researchers, government, and the private sector working together to deepen the agriculture value chain. More farmers should be able to access the intervention funds across the country. Intervention should extend to the procurement of inputs, storage, and protection of farmers against price volatility”, said Adeola Festus Adenikinju, a member of the MPC.

Another member, Aishah I. Ahmad, said, “While the recent spike in domestic prices may be transitory, it is prudent to take forward-looking policy decisions to mitigate unforeseen adverse price developments and manage inflation expectations. Sustained interventions by the Central Bank of Nigeria (CBN) to improve food supply alongside fiscal efforts to contain long standing structural constraints are important considerations in that regard.”

In his view, another member, Aliyu Ahmed said, “I am of the view that the current pro-growth policies of the Federal Government should be sustained and enhanced to ensure adequate domestic production and supplies. This would insulate the economy from the looming danger of imported inflation and the associated downside risks to growth arising from the adverse fallouts of the Russian-Ukraine war.”

Already, the spillover effects of the Russia-Ukraine war have begun to impact Nigeria’s domestic economy pushing fiscal deficit, inflation and high cost of energy to unbearable levels.

An investigation revealed that the performance of Nigeria’s major manufacturing firms were severely impacted by a tough operating environment in the first quarter of the year (Q1 2022). This was compounded by spiral inflation and decline in consumer demand which combined to create a regime of high operating costs for the firms as they struggled to lift margins. Inflation rate surged to 16.82 percent in April 2022, recording the highest jump in eight months.

Nigeria’s economic woes have worsened since the year with rising energy prices, frequent petrol scarcity in major parts of the country and lingering epileptic power supply. Diesel prices have more than doubled amid the Russia-Ukraine conflict, raising energy costs for businesses that must generate their own power most of the time.

Manufacturing companies are threatening shutdown, job cuts and price increases as their operation costs soar. The immediate past Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf expressed concern that some firms may shut down if their customers can no longer afford to buy their products.

According to him, the situation calls for a lot of creativity and innovation on the part of the firms so that they can continue in business. He posited that the firms may find a means of breaking their products into smaller units that the consumer can buy or scale down their operations by reducing the size of their workers or reducing their working hours. Also, they may pass the extra cost to their consumers by increasing the price of their products.

“In a worst case scenario, the firms may shut down because it is better to be on zero than to be running negative,” Dr Yusuf, who is now the CEO, Centre for the Promotion of Private Enterprise (CPPE) told a national newspaper. Experts urge the CBN to take adequate steps to insulate Nigeria from the catastrophic effects of the Russia-Ukraine conflict as it did during COVID-19.

The CBN played a key role in saving the economy from the catastrophic effects of COVID-19 pandemic. The apex bank rolled out proactive measures to sustain the economy during the terrible period by way of intervention funds directed towards the critical sectors of the real economy. Like the proverbial stitch that saves nine, the sector-specific intervention funds were a booster to the economy which was almost totally ravaged by COVID-19 pandemic. This was compounded by the impact of the 15-months land border closure that ruined many businesses and led to thousands of job losses. Then the recession.

Eminent Economist and CEO, BIC Consultancy Services, Dr Boniface Chizea, said credit must be given to the CBN for its intervention initiatives which constituted a rapid response in both assuaging the pangs of the pandemic and checking its worst impact. He noted that the interventions were not only timely but appropriate being sector-specific with clear guidelines devoid of implementation bottlenecks, and in line with the development finance policy of the CBN.

“You can imagine what would have happened to us if the CBN did not do what it did. The Bank should go ahead and do what is needed. At this time we are going to witness severe economic challenges arising from the Russia-Ukraine war”, Chizea said.

Chizea recalled that the COVID-19 restrictions had severe consequences on households’ livelihoods and business activities. The CBN introduced the N50 billion Targeted Credit Facility (TCF) as a stimulus package to support households and micro, small and medium enterprises (MSMEs) affected by the COVID-19 pandemic. The CBN has always pointed at this singular intervention for salvaging the economy at a most difficult time.

As Emefiele has indicated, it is evident that the CBN will step-up its development finance intervention schemes to strengthen recovery and insulate the economy from the spillover effects of the Russia-Ukraine crisis.

“To strengthen recovery and forestall the impact of the ongoing geopolitical conflict, we will continue to partner with the fiscal authorities to sustain support for manufacturing, agriculture, infrastructure, and MSMEs. I note that our recent actions have put GDP and inflation on satisfactory long-run trajectories.

“I acknowledge the recent unexpected rise in domestic inflation, which, though transient, could justify arguments for tightening. But, importantly, economic recovery is still fragile, while per capita income and unemployment rate are at unacceptable levels,” Emefiele said at the MPC meeting.

Monetary Policy Measures In Response To COVID-19

On 16 March, the Central Bank of Nigeria announced new measures:

A 1 year extension of a moratorium on principal repayments for CBN intervention facilities;

The reduction of the interest rate on intervention loans from 9 percent to 5 percent;

Strengthening of the Loan to Deposit ratio policy (i.e. stepped up enforcement of directive to extend more credit to the private sector)

Creation of NGN50 billion target credit facility for affected households and small and medium enterprises

Granting regulatory forbearance to banks to restructure terms of facilities in affected sectors

Improving FX supply to the CBN by directing oil companies and oil servicing companies to sell FX to the CBN rather than the Nigerian National Petroleum Corporation

Additional NGN100 billion intervention fund in healthcare loans to pharmaceutical companies and healthcare practitioners intending to expand/build capacity

Identification of few key local pharmaceutical companies that will be granted funding facilities to support the procurement of raw materials and equipment required to boost local drug production.

N1 trillion in loans to boost local manufacturing and production across critical sectors.

The CBN adopted a unified exchange rate system for Inter-Bank and parallel market rates to ease pressure on FOREX earnings as oil prices continue to plummet.

CBN adopted the official rate of NGN360 to a dollar for International Money Transfer Operators rate to banks.

For on-lending facilities, financial institutions were directed to engage International development partners and negotiate concessions to ease the pains of the borrowers.

Provision of credit assistance for the health industry to meet the potential increase in demand for health services and products “by facilitating borrowing conditions for pharmaceutical companies, hospitals and practitioners.”