The Central Bank of Nigeria (CBN) has unveiled its policy direction for the next five years under the second tenure of the Governor, Godwin Emefiele. Among other things, the roadmap targets a double-digit growth for the Nigerian economy, single-digit inflation, $12 billion non-oil exports by 2023 and a 95 percent financial inclusion rate by 2024.
At a press conference in Abuja, Emefiele gave extensive details of the CBN’s priorities over the stated period, which span across a wide array of economic issues. Here is a breakdown of the CBN’s comprehensive roadmap for the journey to 2024:
On financial inclusion, Emefiele disclosed that the CBN is working to ensure that at least 95 percent of all eligible adults have access to financial services in five years time.
The bank is looking to foster the development of a robust payments system infrastructure that will increase access to finance for all Nigerians, thereby raising the financial inclusion rate in the country as well as preserving domestic macroeconomic and financial stability.
To achieve this, CBN will be working with Deposit Money Banks (DMBs) to improve access to credit for not only smallholder farmers and MSMEs but also consumer credit and mortgage facilities for bank customers.
Inflation and interest rate
The CBN governor said that monetary policy tools would be geared towards containing inflationary pressures. In addition, the apex bank will strive to sustain a positive interest rate regime, “to the delight of our important stakeholders.”
Working with other stakeholders, the bank will reduce the cost of food items, which has considerable weight on inflation.
“Our ultimate objective is to anchor the public’s inflation expectations at single-digit in the medium to long run. We believe a low and stable inflationary environment is essential to the growth of our economy,” Emefiele said, adding that 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.
All decisions by the Monetary Policy Committee on inflation and interest rates would also be dependent on insights generated from data on key economic variables.
The bank is seeking to maintain stability in exchange rate with a key emphasis on supporting improved Gross Domestic Product (GDP) growth and greater private sector investment.
Emefiele said the CBN would carry on with a managed float exchange rate regime in order to reduce the likely impact of continued volatility in the exchange rate on the economy.
Although the goals are onerous and tasking, the CBN would remain committed to fulfilling its mandated objectives of price and exchange rate stability. “We will continue to work to safeguard the stability of our financial system while supporting the development of a payment system infrastructure that will improve access to credit for all eligible Nigerians,” he added.
The bank is placing additional emphasis on supporting greater growth of the economy and in reducing unemployment through targeted interventions in the agricultural and manufacturing sectors. The CBN Governor promised to strive to grow the external reserves and support efforts at diversifying the economy through the CBN intervention programmes in both critical sectors.
In the agricultural space, the target is to boost productivity through access to finance for rural farmers and the provision of improved seedlings. The seeds will be given across 10 different commodities namely rice, maize, cassava, cocoa, tomato, cotton, oil-palm, poultry, fish and livestock/dairy.
According to Emefiele, the choice of these 10 crops is driven by the amount spent on the importation of these items into the country and the over 10 million jobs that could be created over the next five years if efforts are made to expand cultivation and processing of these items in Nigeria.
The bank has also held a series of engagements with importers and producers of these products. Most of them have committed that they would install or expand their production capacities in Nigeria.
“We are confident that when implemented, these measures will help to insulate our economy from potential shocks in the global economy,” he remarked.
The bank also believes these measures will help to boost not only domestic outputs but also improve annual non-oil exports receipts from $2 billion in 2018 to $12 billion by 2023.
More so, the intervention programmes would strengthen the linkage between farmers and agro-processors/manufacturers by ensuring that the output of farmers is purchased by agro-processors/manufacturers.
In a new development, the CBN intervention support programme would be extended to the youth population who possess entrepreneurship skills in the creative industry from now on. Within the intervening period, the bank would further encourage banks to support the education sector.
Furthermore, Emefiele announced a bank recapitalisation that will see banks increase their capital base above the N25 billion minimum level that was introduced in 2004 by ex-CBN Governor, Professor Charles Soludo. The apex bank’s goal on this is to position Nigerian banks among the top 500 in the world.
According to the Governor, when the scheme becomes effective banks will be required to maintain a higher level of capital and liquid assets to reduce the impact of an economic crisis on the financial system.
Moreover, the 2004 banking industry recapitalisation, which increased banks’ capital base from N2 billion to the current N25 billion, had weakened according to the CBN boss. “…if you relate N25 billion in 2004 exchange rate, which was about N100 to N25 billion, it is certainly only about $200 million. Today, if we relate N25 billion at N360, you can see that it is substantially even lower than $75 million,” Emefiele explained.
“What we are trying to say is that recapitalisation has weakened quite substantially,” the Governor continued, “and there is a need for us to say it is time to recapitalise Nigerian banks again. It is a policy thrust which will be discussed at the Committee of Governors’ meeting and of course, the framework for the recapitalisation of Nigerian banks will be unfolded for the whole world to know.”
The planned recapitalisation has provoked several reactions from stakeholders, some of who have endorsed the move. However, some other analysts expressed divergent views about this idea.
Trade and exports
Nigeria remains committed to a free trade regime that is mutually beneficial and particularly aimed at supporting domestic industries and creating jobs on a mass scale for Nigerians while the dynamics of global trade continues to evolve in advanced economies.
Meanwhile, the CBN would support measures to increase and diversify Nigeria’s exports base and help in shoring up reserves. “We intend to aggressively implement our N500 billion facility aimed at supporting the growth of our non-oil exports, which will help to improve non-oil export earnings,” Emefiele stated.
A very exciting point in this regard is the CBN’s planned launch of a Trade Monitoring System (TRMS) in October. TRMS is an automated system aimed at reducing the length of time required to process export documents from one week to a day.
Emphasis will also be placed on improving speed and efficiency of payment channels, while the bank will work to ensure that digital channels are safe and secure to help build confidence in the nation’s payment system.
To improve the utilisation rate, the CBN would continue to ensure that payment channels are interoperable, to enable individuals with digital devices to transact across different banks or payment modes.
Emefiele assured the public of significant improvement in the payment system during his new tenure. The CBN would further work with NIBSS, banks and Fintechs in developing a regulatory sandbox to “enable us to test financial innovations by Fintechs and banks in a controlled environment, in order to assess its impact on the growth and safety of our financial system.”