John Maynard Keynes, famous British economist may have inadvertently had Nigeria in mind in the 1930s when he advocated increased government spending as a way out of the economic constrictions created by the Great Depression of his time.
The Keynesian school and theory that sought bigger financial injection into the British and global economy then, also called for lower taxes to stimulate demand to pull the economy out of the woods indeed, recognised government’s capacity to effectively tweak a country’s fiscal and financial policies in times of emergencies when private sector resources could have taken a hit.
Keynes’ acknowledgement of the efficacy of a combination of fiscal and monetary tools as the most potent tools governments can use to reactivate ailing economies and also fight unemployment today stands true of Nigeria’s economy under a coronavirus pandemic.
Just as the Great Depression was the longest economic recession in modern world history, beginning with US stock market crash of 1929 which continued until 1946, the COVID-19 pandemic which began in Wuhan, China, last November has triggered an unprecedented global economic and health emergencies that will take Nigeria several years to overcome.
For the nation’s manufacturers, the last six months have been hellish in the face of declining capacity, rising inventories, shortage of raw materials, and declining consumers demand following a lockdown ordered by the government.
Already, both the Organisation for Economic Co-operation and Development (OECD)and the International Monetary Fund have warned the world will take years to recover from the effects of the pandemic.
While Angel Gurría, OECD secretary general, said the economic shock was already bigger than the financial crisis of past years, the IMF in July predicted a 3.4 percent slump for Nigeria’s economy by the end of 2020. This indeed has implications for the manufacturing sector as the National Bureau of Statistics (NBS), recently said an estimated 40 million Nigerians are projected to lose their jobs by end of this year, due to lockdown and social distancing measures put in place to curb the spread of COVID-19.
But for Vice President Yemi Osinbajo, who chairs the Economic Sustainability Committee, preemptive measures can salvage the grave situation which has capacity to throw about 39.4 million Nigerians, representing some 33.6 percent of the working population into the labour market.
In addition to the potential job losses, Nigeria, a primary commodity exporter also faces the unsavoury consequences of weakening crude oil price and lower corporate / tax revenues in the years to come.
It was indeed in an attempt to stave off these unwholesome trends that the Federal Government’s intervention funding programmes particularly for the manufacturing sector were unveiled. The overriding objective was to keep the engines of manufacturing running and by so doing retain some of the jobs already at risk and sustain the limited supply chains.
From hospitality, manufacturing, aviation, banking/ finance to services industries, evidences of loss of business tempo remained too glaring to be ignored, with weak corporate earnings pointing to an economy in distress.
While the Coronavirus panic had sent world capital markets crashing, with over $5trillion worth of managed assets wiped off in the first two months, its harsh footprints on Nigerian Stock Exchange equally became a major worry for both government and investors.
Six months after its unveiling, the feeling is that the government’s intervention policy outcomes remained mixed in the real sectors thus far, as analysts believe the decision to set aside a N50 billion target credit facility for SMEs, and an additional N100 billion fund in loans to pharmaceuticals manufacturers in healthcare sub-sector to fund procurement of essential raw materials and equipment to support local drug production from its expansive N3.5trillion financial war-chest, stand as an indication of its commitment to confront the COVID-19 pandemic headlong.
The package included the rejuvenation of N220billion Micro, Small and Medium Enterprises Development Fund in which 60 percent of credit was reserved for women entrepreneurs and the N1trillion funding programmes being implemented for the Real Sector Support Fund targeted at boosting local manufacturing comprising 44 Greenfield and Brownfield projects for which about N93.2 billion has already been disbursed.
Indeed, an overview of these initiatives shows the extent they have gone in preparing the economy to absorb the COVID -19 headwinds to avert a possible recession and its attendant job losses in Africa’s biggest economy.
Giving a breakdown of how the N50 billion SMEs Targeted Credit Facility meant to cushion the impact of the COVID-19 on the economy was spent , CBN spokesman Isaac Okoroafor, said that as at end of June, 2020, the apex bank had disbursed N49 billion to businesses and households.
Mr Okoroafor who gave details of the Targeted Credit Facility on behalf of the CBN Governor Godwin Emefiele, said about 80,000 operators of micro, small and medium scale enterprises (MSMEs) and thousands of families across the country benefitted from the intervention fund.
“So far, out of the N50 billion targeted credit facility for households and small businesses, we have disbursed about N49 billion. We also have other intervention funds such as the N100 billion healthcare facility, currently bring disbursed as well,” he said
The scheme being financed from the CBN’s N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) had earmarked about N25 million for MSMEs with benefiting households being allocated up to N3 million each based on the activity, cashflow and industry/segment size of each beneficiary.
On the fiscal side, the Nigerian Electricity Regulatory Commission (NERC), a government power sector regulator, had on April 1, suspended the implementation of a new electricity tariffs earlier scheduled to commence on April 2, citing the impact of the COVID-19 pandemic among other reasons for the shift, while theNational Assembly finally postponed its effective date to first quarter of 2021 as part of strategic measures to expand the basket of incentives available to the real sector during the COVID-19 pandemic.
In another circular issued April 30, 2020 on the implementation of new fiscal policy measures to facilitate imports of medical supplies in response to the coronavirus (COVID-19) pandemic, government had indicated that “essential medical supplies” would be exempt from value added tax (VAT) and from customs import duty for a six-month period, effective 1 May 2020.
But despite these interventions, the scare of a second economic recession in four years still looms large within the country, probably because data on some of the policy outcomes are yet to be collated.
Only last week, the fear of possible COVID-19 induced recession resonated at a public sector discourse as the Minister of State for Budget and National Planning, Clem Agba, warned Nigeria could indeed slip into a second recession in four years if it fails to achieve a very strong Q3 GDP.
At a presentation to the Senate Joint Committee on Finance and Economic Planning on the 2021-2023 Medium-Term Expenditure Framework and Fiscal Strategy Paper, Agba said, “Nigeria’s Q2 GDP growth is in all likelihood negative, and unless we achieve a very strong Q3 2020 economic performance, the economy is likely to lapse into a second recession in four years with significant adverse consequences. The import of his argument centred on the need for government to jealously monitor implementation of its interventions policies to ensure they deliver right results in the period under review.
Commenting on some of the measures so far implemented, a shareholder activist who pleaded to be named commended government’s bold statement but added he expected to see a more impactful policy outcomes particularly in the SMEs sector regarded as the engine of Nigeria’s economic growth.
He said “maybe they must have done something with the N1 trillion facility in key sectors of the economy, as that appears not to be seen. But I would say that the government’s intervention is just one part of finding the solution and this too does not say much about the amount in loans being given and their effect on the economy at large.
For its part, the Lagos Chamber of Commerce and Industry (LCCI) said the total stimulus package of N3.5 trillion offered by the Central Bank of Nigeria [CBN] since the onset of the COVID-19 pandemic was unprecedented in the history of development finance intervention by the apex bank.
Its Director General, Muda Yusuf, while expressing the same view with other members of the organised private sector (OPS ) described the initiative as laudable.
However, he argued that effective targeting of the objective was important in order to achieve the desired outcomes. “Certainly, it would have positive enterprise level impact on businesses that can access the facility by impacting their liquidity and operating cost,” he said.
The LCCI boss said the health sector component of the fund was particularly laudable because the most critical issue at the moment was fixing the looming public health crisis. But Yusuf also observed there have been widespread complaints about access to these funds, noting that perhaps it was a reflection of the magnitude of funding gaps that exist in sectors of the economy being targeted.
He said it could also be an indication of the shortcomings in targeting of funds to ensure that desired beneficiaries get the interventions. As with most economic challenges, Yusuf averred that monetary intervention can only fix a fraction of the problem facing manufacturers considering there are fundamental macroeconomic issues that investors would still have to contend with.
“These are issues around the impact of the coronavirus pandemic on crude oil price, exchange rate depreciation, depletion of foreign reserves, inflationary pressures, stock market slump and general investors sentiments.
“These are critical drivers of investor confidence and unless the external sector normalises, there is very little domestic policy responses can do to fix these disruptions, especially in the light of the vulnerabilities of the Nigerian economy,” he said.
“It is therefore important to bolster purchasing power of citizens which has been decimated by the slump in economic activities. Both fiscal and monetary measures are imperative to make this happen,” he said.
Also contributing to the debate the Nigeria Employers Consultative Association (NECA) said although government’s interventions have been helpful to a great extent, they would not be adequate to forestall a possible descent into a second recession.
Director General of NECA, Timothy Olawale, for instance noted that some of interventions are by design short term or temporary in nature, government should nonetheless use the opportunity to make some long-term decisions that are necessary to improve the country’s preparedness to deal with future economic challenges.
NECA said government should use this opportunity to fully deregulate the price of petrol, adding that there have been various interventions from governments quarters (Federal and States) including adjustment to the 2020 budget, stimulus package by the CBN, reliefs announced by the FIRS and the “Emergency Economic Stimulus Bill” introduced by the National Assembly.
While acknowledging the Federal Government did well in coming up with financial interventions of N50billion to SMEs, Local Drug Manufacturers (N100bn) and N1trillion loan facility for key sectors of the economy, the NECA boss said more policies still needed to be introduced beyond the humanitarian crisis posed by the virus since the economic impact is just as important.
He said, “Ultimately, the crisis presents an opportunity for reforms which should not be wasted. To promote accountability, CBN’s financial intervention should be consolidated under a programme with clear measurable targets and timeliness.
For the Manufacturers Association of Nigeria (MAN), better relief will come to manufacturers if all regulatory agencies, especially Standards Organisation of Nigeria (SON), National Agency for Food and Drugs Administration & Control (NAFDAC) are directed to reduce by 50percent their respective Administrative charges (Pre-COVID-19 rates) payable by manufacturing concerns.
The MAN President, Mansur Ahmed, said similar directive should go to the Nigeria Customs Service, the Nigerian Ports Authority, and other related agencies of government to treat all requests from Manufacturers expeditiously with great sense of responsibility and understanding of the prevailing situation. “As a matter of urgency, Government should direct that cargoes containing manufacturing raw materials be cleared promptly and ensure compliance with additional free days from the terminal and shipping lines to clear the containers in order to avoid demureages as already announced.
We believe easing the cost of doing business will serve a greater good for manufacturers in addition to direct financing through loans,” he said.