The unprecedented credit expansion and the resulting boost to spending on agriculture and consumption on the back of targeted credit facilities by the monetary authorities played a key role in Nigeria’s exit from economic recession which came earlier than had been forecasted, economists said at the weekend.
Access to funds at below market rate to hundreds of thou- sands of Nigerian households and almost 40,000 SMEs played a major role in catalysing consumption identified as being key to reflating the economy.
According to a report by the Economic Intelligence Unit, EIU which was released at the weekend, investment in agriculture ballooned from N3bn to near N50bn in 2019 and the results are now beginning to show for Nigeria
Said EIU of Nigeria’s earlier than expected exit from recession, “an important positive for the agriculture sector has been subsidised bank credit under a loan-guarantee scheme run by the government and the Central Bank of Nigeria—share capital for which was enlarged from N3bn (US$7.9bn) to N50bn in mid-2019. Lending to agriculture has since taken-off at unprecedented speed, with bank claims up by an average of 36% year on year in 2020.”
But other sectors also benefited from the credit expansion.
“The access to better priced funds really helped Nigerian firms, especially the small businesses which were able to access intervention funds introduced by the central bank,” said Phillip Agbani, an economist and small business owner in Lagos.
“And this was not limited to the SMEs as data suggest that corporate debt issuance in 2020 rose astronomically to N1.114 trillion. So, there was significant cash helping to oil the non-oil economy in Nigeria which definitely helped to mitigate the negative impact of the pandemic inflicted economic slowdown,” according to Agbani.
Nigeria limped out of its second economic contraction in five years despite a poor show- ing of the oil sector, which has traditionally been the bulwark of the continent’s largest economy.
Nigeria had an average daily oil production of 1.56 million barrels per day (mbpd) in the fourth quarter and this was lower than the daily average production of 2mbpd recorded in the same quarter of 2019.
But there was growth of 1.69 percent in real terms in the non- oil sector in the fourth quarter of 2020, slower than the 2.26 percent recorded in the cor- responding quarter of 2019, but better than the negative 2.51 per- cent growth rate recorded in the preceding quarter, the NBS said.
Data seem to suggest the coming of age of Nigeria’s non-oil sector in a country where oil exploration remains the obsession.
Boniface Chizea, who for many years was the chief econo mist of UBA, said, “Certainly, all the palliatives by the monetary authorities were geared towards this end. A lot of money was injected into the economy to get productivity going again and it is such a pleasant surprise that we have seen the result this early.”
According to a senior official of the Central Bank of Nigeria, “The main reason for exiting the recession so fast is that we were very aggressive in boosting consumption for households.
“MSMEs, and companies adversely impacted by the COV- ID-19 benefitted from our target- ed credit facilities to hundreds of thousands of households and almost 40,000 SMEs through our AGSMEIS loans. This in the view of the bank, helped to boost consumption expenditure which also positivelee impacted output and GDP.”
Central Bank Governor Godwin Emefiele had ventured at the January MPC meeting to say he expected Nigeria to be out of recession by the fourth quarter of last year and his forecast was dis- missed by many because it was so different from the projection of the IMF and the World Bank.
At that meeting last month, he said, “Given everything we have done both by the monetary and fiscal authorities, we should come out of recession by the fourth quarter. But if we don’t, thenweshouldinthefirstquarter.
“So, I was cautiously optimis- tic that Nigeria’s fourth quarter GDP will be positive, thereby taking Nigeria out of recession. I am praying, I am praying very seriously that my prayer will be heardbecauseIknowthatpeople are waiting to put my neck on the chopping board so they can say that I do not know my work.
In its report the EIU says it expects telecommunications to continue to deliver splendid growth on the back of deepening smartphone penetration and that this could potentially compliment recovery in trade which comprises a significant 14% of GDP.
But it also sounded a note of caution. EIU said a range of factors were to blame for the below par performance of trade, including import controls and the closure of Nigeria’s land borders. In addition, it expects “chronic instability in key agriculture growing areas in central Nigeria to continue to hold agricultural productivity well below potential.”
The EIU said, “Industry contracted by 7.3% year on year in the fourth quarter. Oil production fell by almost a fifth on the back of low world oil prices and OPEC+ output quotas and manufacturing declined by 1.5%, partly reflecting foreign-exchange scarcity in late 2020.
“This is an ongoing hindrance, with an industry body identifying hard-currency shortages as the primary challenge facing manufacturers in early 2021. We expect a return to manufacturing growth, but low foreign-exchange availability means a low-growth trajectory for 2021 (we expect growth of just 1.4%).”
