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Boosting productivity to tame inflation, grow economy

From Uche Usim, Abuja

The Nigerian economy is aching from various local and global socio-political battering and the monetary and fiscal authorities have been advised to deploy both orthodox and unorthodox strategies to tow it out of the woods. Heightened demand for goods and services has collided with global supply chain disruptions, exacerbated by the ruinous COVID-19 pandemic and ongoing Russia-Ukraine war.

With a N41.6 trillion debt overhang amid low productivity; inflation at a five-year high at 18.60%, ballooning debt servicing, unbridled corruption, high unemployment rate, weakened private sector, shrunk foreign direct investment, weak infrastructure and growing insecurity, analysts say the challenges have reached a stage where decisive steps must be taken or the economy crawls on its belly.

Inflation in Nigeria, according to analysts, is being fuelled in part by supply issues and they state that boosting productivity would help tackle this.

They also adduce that producing more goods and services in a shorter time would cut costs per unit and raise supply, putting downward pressure on prices.

Experts insist that federal and state governments need to incentivise investment to achieve this, by cutting taxes and developing strategic plans for different regions.

As a first step to tackling inflation, the Central Bank of Nigeria (CBN) Governor, Mr Godwin Emefiele, at a media briefing marking the end of the 286th meeting of the Bank’s Monetary Policy Committee (MPC) in Lagos recently announced a rise in the benchmark Monetary Policy Rate (MPR) by 100 basis points from 13 per cent to 14 per cent, citing rising inflationary pressure across the globe.

Related: MPR hike to 14%’ll hurt manufacturers –OPS

This came exactly two months after the committee had at its last meeting held in May raised the MPR by 150 basis points from the 11.5 per cent it was previously to 13 per cent.

He warned that the MPC would continue to raise benchmark interest rates as long as inflationary pressure continues.

He said: “The last data released just about a few days ago, inflation was 18.6 per cent. MPC members feel we cannot just hold or continue to watch inflation grow the way it is rising. Something must be done to rein in inflation.

“Some analysts say we should not continue to increase rates because we have increased the cost of borrowing for the borrowers and that it may also weaken manufacturing output. We agree with that postulation

“The important thing is that as long as we see inflation at the level that can retard growth, it must be dealt with while at the same time we are looking at how to use our development finance tools to do continue to push towards improved output growth.

That is what we’re doing. The MPC is very determined that if inflation continues at this rate, particularly aggressively, we will continue to tighten because that is the only thing that I can say at this time.”

Furthermore, Emefiele pointed out that: “Inflation can be a terrible scourge and what that means is that it is capable of totally obliterating the purchasing power of citizens of the country particularly the weak, vulnerable and the poor.

“By the time it weakens the purchasing power of the vulnerable, naturally it will also lead to heightened unemployment and will ultimately retard growth. We have to be very careful about the rate of acceleration of pricing or inflation, it is a very serious matter to the policy committee because as inflation continues to trend higher it would no doubt adversely begin to retard growth.”

However, during its third quarterly media briefing in 2022 on the state of the Nigerian economy, the Lagos Chamber of Commerce and Industry (LCCI) advised the Central Bank of Nigeria (CBN) to roll out more friendly supply-side policies to boost productive sectors.

The chamber said the rate hike alone would not curb inflationary pressures.

It emphasised the need for the apex bank to pay attention to boosting supply and cushioning rising production costs caused by the high cost of energy and raw materials.

Commenting on the development, Nigeria’s first Professor of the Nigerian capital markets, Prof Uche Uwaleke told Daily Sun that to tackle inflation, there was a need to first identify the major drivers.

“Gladly, the NBS has been publishing CPI data promptly which point to cost-push (as opposed to Demand-Pull) factors.

If the price pressure is coming from the rising cost of petroleum products (PMS, aviation fuel, diesel, kerosene- no thanks to the Russian-Ukrainian conflict), electricity, transport costs from weak infrastructure and food shortages due in part to insecurity and smuggling, the CBN becomes hamstrung and can do little. The reality is that the traditional monetary tools have reached their limits.

“Therefore, the solution does not lie in tightening monetary policy. Raising rates at a time the economy’s growth is still tepid and the government has mapped out plans to borrow to finance the deficit will only create distortions in the economy.

“I think the ‘fiscal theory of price level’ which concedes a greater role to the fiscal authorities in taming inflation finds application here.

“At best, the CBN should continue to improve on its development finance function especially its interventions in agriculture to ensure increased output given that the major inflation challenge is coming from rising food prices”, he explained.

On a broad analysis, the import-dependent nature of the Nigerian economy has become its greatest challenge. This defective economic structure worsened by a plethora of severe headwinds earlier listed has put a severe strain on the Central Bank of Nigeria (CBN) being the head of the monetary policy wing.

The reality is that while the current distressed economy is not the making of the CBN, the apex bank has unveiled several intervention programmes since Mr Godwin Emefiele took over the reins of CBN in 2014. Emefiele assumed duties when global oil prices were slowly receding, triggering alarm bells of a possible recession which occurred in 2016 and exited in a shaky fashion in 2017.

Prior to the recession, Emefiele had on several occasions warned of the dangers of relying solely on crude oil receipts, with its inherent volatilities, as Nigeria’s only breather, rather than diversifying the economy and boosting exports to earn foreign exchange.

He listed agriculture, mining, manufacturing, science and technology, ICT and other sectors as robust development enablers that could turn around the fortunes of Nigeria while helping it reduce its debt burden.

The CBN Governor has urged all restive youths to drop their arms and embrace the ABP, as it is capable of solving the food insufficiency and unemployment nightmares, which are two main factors fuelling insecurity.

With a fiscal wing constantly finding comfort in rising crude oil receipts, Emefiele constantly nudged it to reality by relentlessly singing the diversification tunes anchored on a broad implementation template.

The Bank, under the Anchor Borrowers’ Programme (ABP), has disbursed N1.01 trillion to over 4.2 million smallholder farmers farming 21 commodities across the country as of May 2022.

The Bank added that between April and May 2022, it released the sum of N57.91 billion under the Anchor Borrowers’ Programme (ABP) to 185,972 new projects.

The apex bank’s credit is in line with its mandate to give the real sector easy access to credit in order to ensure economic stability has suffered from a recession during the COVID-19 pandemic.

The CBN also loaned a total of N21.23 billion under the Accelerated Agriculture Development Scheme (AADS) for 10 state-led and three (3) private sector-led projects.

It said “The Bank further disbursed the sum of N1.50 billion, under the Accelerated Agriculture Development Scheme (AADS), to one (1) new youth-led project, piloted and funded through the Government of Ondo State for the acquisition of assets for oil-palm cultivation and the establishment of poultry farms. This brings the total disbursement under the Scheme to N21.23 billion for 10 state-led and three (3) private sector-led projects.”

Under the Commercial Agriculture Credit Scheme, the Bank issued N21.73 billion to support seven large-scale agricultural projects (CACS). The CBN has also agreed to leave interest rates for its development finance actives or intervention funds at 5% per annum until March 2023.

In the healthcare sector, the CBN disbursed N17.70 billion to four healthcare projects under the Healthcare Sector Intervention Facility (HSIF), bringing the cumulative disbursements to N130.49 billion for 126 projects, comprising 58 hospitals, 31 pharmaceuticals, and 37 other healthcare services.

Under the Micro, Small, and Medium Enterprises Development Fund (MSMEDF), the Bank disbursed N2.79 billion to support youths engaged at various nodes of the agricultural value chain, bringing the total disbursement under this intervention to N98.88 billion to 749 MSME projects across the country.

In energy/infrastructure, the Bank released N15.71 billion to power sector players including generation companies (GenCos) and gas companies (GasCos), under the Nigeria Bulk Electricity Trading Plc – Payment Assurance Facility (NBETPAF), bringing the cumulative disbursement under the facility to N1.30 trillion.

The sum of N22.67 billion was also released to Distribution Companies (DisCos) for their Operational Expenditure (OpEx) and Capital Expenditure (CapEx), under the Nigeria Electricity Market Stabilisation Facility – Phase 2 (NEMSF-2). Cumulative disbursement under the NEMSF-2 currently stands at N251.93 billion. Additionally, under the National Mass Metering Programme (NMMP), the Bank has disbursed N0.19 billion to DisCos for the procurement of electricity meters, bringing the cumulative disbursement for the procurement and installation of 865,956 meters across the country to N47.82 billion.

Some of the commodities captured under ABP are cassava, cotton, fish, groundnut, maize, poultry, rice, soya beans, wheat, cattle, sorghum, ginger, castor seed, sesame, tomato, cocoa, yellow pepper, oil palm, cowpea and onion. All intervention loans attract only 5% interest and some moratoriums.

In furtherance of its intervention in the energy sector, the Bank has disbursed N39.20 billion to six beneficiaries to improve gas-based infrastructure to support the Federal Government’s Auto-Gas Conversion Programme. The Bank has also encouraged Deposit Money Banks (DMBs) to participate in the Solar Connection Facility (SCF) to improve energy access in rural areas.

To promote entrepreneurship development among Nigerian youth, the Bank recently approved the implementation of the Tertiary Institutions Entrepreneurship Scheme (TIES). The Scheme is designed to promote entrepreneurial activities and foster job creation among Nigerian youths.

On the fiscal wing, the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed noted that the government will continue to promote manufacturing and local production at all levels and advocate the use of made-in-Nigeria goods and services as well as creating job opportunities

“Achieving self-sufficiency in critical sectors of our economy and curbing unnecessary demand for foreign exchange which put pressure on the exchange rate.

“Extending protection to the very poor and vulnerable including women, persons living with disabilities through proper spending” she stated.

Economic watchers have hailed the apex bank for readily injecting a cocktail of conventional and unconventional economic stimulation strategies to get things back on track as it did in the 2016 and 2020 recession seasons.

The Vice President and Head of the National Economic Council, Prof Yemi Osinbajo, at a recent forum emphasized that the government was committed to working in synergy with the private sector to foster equitable growth and boost national development.

Also appreciating the apex bank for its interventions, the Presidents of the Rice Farmers Association of Nigeria (RIFAN)- Alhaji Alhaji Aminu Goronyo; National Cotton Association of Nigeria (NACOTAN) – Mr Anibe Achimugu; Maize Association of Nigeria (MAN); Maize Association of Nigeria (MAAN) – Alhaji Bello Abubakar; and the Maize Growers, Processors, and Marketers Association of Nigeria (MAGPMAN) – Dr Edwin Uche attested to the success of the CBN ABP, which they noted had enhanced the value chains of their respective commodities.

Related: CSJ slams rise in MPR, wants gov’t to curb insecurity

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