ROLE OF CENTRAL BANKS IN SUPPORTING AFRICA’S ECONOMIC DIVERSIFICATION – Nigeria is at the Center of Africa’s transformation
Africa is now the world’s second-fastest-growing continent. In this decade of seismic shifts in the global economy, Africa has defied the pessimists, accelerating its economic pulse and seeing significant improvements in its Human Development Indicators. But these positive developments have been tempered by a crisis in jobs, youth unemployment and growing inequality. These are now the challenges.
Sub-Saharan Africa, home to more than 1 billion people, half of whom will be under 25 years old by 2050, is a diverse continent offering human and natural resources that have the potential to yield inclusive growth and eradicating poverty in the region. With the world’s largest free trade area and a 1.2 billion-person market, the continent is creating an entirely new development path, harnessing the potential of its resources and people.
The region is composed of low, lower-middle, upper-middle, and high-income countries, 22 of which are fragile or conflict-affected. Africa also has 13 small states, characterised by a small population, limited human capital, and a confined land area.
In nominal terms, Nigeria is the largest economy in Africa, followed by South Africa and Egypt. These three together account for almost half of the African economy. The GDP of 3rd ranked Egypt is more than double of 4th ranked Algeria. São Tomé and Príncipe is the smallest economy in Africa.
Out of 54 economies, the GDP (nominal) of 52 economies would increase, and two economies would decrease in 2021 compared to 2020.
Nigeria ($51 bn) and Egypt ($33 bn) and South Africa ($80bn) account for one-third of the increase in the African economy.
Cyril may be add pictures of the presidents of the countries of Egypt, south Africa and Nigeria plus emefiele and the two other governors of central banks
Nigeria Economic Outlook
The Economy of Nigeria is a middle-income, mixed economy and emerging market, with expanding manufacturing, financial, service, communications, technology, and entertainment sectors. It is ranked as the 27th-largest economy in the world in terms of nominal GDP, and the 24th-largest in terms of purchasing power parity.
Nigeria’s economy entered a recession in 2020, reversing three years of recovery, due to a fall in crude oil prices on account of falling global demand and containment measures to fight the spread of COVID–19. The economic impact of the COVID-19 shock in Sub-Saharan Africa (SSA) has been severe, however economic growth in Sub-Saharan Africa is set to emerge from the 2020 recession and expand by 3.3 per cent in 2021.
East and Southern Africa, the hardest-hit region by the third wave of the coronavirus, is expected to rebound from a 3.0 per cent contraction of GDP in 2020 to a growth of 3.3 per cent in 2021 and 3.4 per cent in 2022.
Growth in South Africa is projected to rebound from -6.4 per cent in 2020 to 4.6 per cent in 2021 and following two consecutive years of recession, economic activity in Angola is projected to rebound from -5.4 per cent in 2020 to 0.4 per cent in 2021. Excluding Angola and South Africa, the sub-region is expected to grow by 3.1 per cent in 2022 and 4.3 per cent in 2024. Since emerging from its first recession in 25 years,
economic growth in Sub-Saharan Africa is estimated at 4% in 2021, up by 0.7 percentage points from the October 2021 projections, and up from -2.0% in 2020. Nigeria however remains the largest economy in Africa with a GDP amounted to 441.5 billion U.S. dollars in 2021, the highest in Africa. Growth must bring jobs and opportunities for all. That will happen if growth is sustained and leads to the structural change and economic transformation that will enable the continent to join the global value chains. It will do this by closing the infrastructure gap, speeding up economic integration, dealing with conflicts old and new and developing human capital.
Recent macroeconomics and The Role of Nigeria’s Apex Bank in financial developments
The central bank in a developing economy performs both traditional and non-traditional functions. The principal traditional functions performed by it are the monopoly of note issue, banker to the government, bankers’ bank, lender of the last resort, controller of credit and maintaining stable exchange rate.
The faltering development processes of the economy and the need for concise implementation of economic policy formulation and management justify the call for the Central bank to become actively involved in Macroeconomic matters.
Over the years, the objectives of monetary policy have remained the attainment of internal and external balance of payments. However, the emphasis on techniques/instruments to achieve those objectives have changed over the years. Reforms in the banking sector have become perennial actions in developing and emerging economies of the world, in which Nigeria as a country is not left out. The reforms in Nigeria have been directed toward financial intermediation, financial stability and confidence in the system (Central Bank of Nigeria, 2012). In Nigeria, the apex bank has the oversight role of managing financial institutions and a dynamic role in manipulating financial related factors in boosting the economy
As the monetary authority and regulatory and supervisory authority of the banking system, the CBN has actively promoted economic growth and diversification, and employment creation. Moreover, the CBN’s missions and functions have become increasingly crucial, especially in the aftermath of the recent global financial crisis.
The CBN’s monetary policy supports macroeconomic stability in Nigeria which attracts a continuing inflow of foreign investment as it fosters and maintains financial system stability and development through the promotion of financial inclusion, oversight of the payments system and regulation of the banking system.
Several intervention programs backed by the CBN under the leadership of Godwin Emiefele have contributed to the efficient channelling of financial resources for capital accumulation in Nigeria overtime in the last seven years since his assumption of office as the Apex Banks Governor. The intervention schemes by the CBN have helped to stimulate growth and boost gross domestic product (GDP).
It is a strategy that reinforces the choices of the last five years, building on lessons learned and addressing the challenges of tomorrow. It is a strategy that provides a response not only to sustainable growth but also to the sustainable management of natural resources. Interestingly, the man behind this set of strategies,
Godwin Emefiele, has come under tremendous pressure to run for the office of president in 2023. This is what makes the next decade so definitive and decisive. This also makes the Central Bank’s Strategy for 2022–2030 so vital.
Eight Years Scorecard: Godwin Emiefiele, The Man and his Journey
Governance and Accountability
When Godwin Ifeanyi Emefiele assumed office as the tenth indigenous Governor of the Central Bank of Nigeria (CBN) on June 3, 2014, there was a 60 per cent decline in the price of crude oil, geo-political tensions rose and were widespread along critical global trading routes and the normalization of monetary policy by the United States Federal Reserve System led to acute capital flow reversals, especially in emerging markets such as Nigeria. During his first term, he supervised an interventionist currency policy at the behest of the presidency, propping up the Nigerian Naira by pumping billions of dollars into the foreign exchange market.
In a bold move to contain rising inflation and cushion the impact of the drop in the supply of foreign exchange to the Nigerian economy, Emefiele adopted unconventional monetary policies that he self-described as extraordinary measures needed to tackle extraordinary challenges Emefiele’s second term was approved by Nigeria’s Senate in 2019 for another five years, making it the first time that CBN Governor will serve a second term since Nigeria’s return to democracy in 1999.
Eyes on Target -Hitting the 10 Point Agenda
- Pursue a gradual reduction in key interest rates, and include the unemployment rate in monetary policy decisions
- Maintain exchange rate stability and aggressively shore up foreign exchange reserves
- Strengthen the risk-based supervision mechanism of Nigerian banks to ensure overall health and banking system stability
- Build sector-specific expertise in banking supervision to reflect the loan concentration of the banking industry.
- Due to inadequate trigger thresholds from a macro-prudential perspective, consider and announce measures to effectively address this anomaly
- Abolish fees associated with limits on deposits and reconsider ongoing practice in which all fees associated with limits on withdrawals accrue to banks alone
- Introduce a broad spectrum of financial instruments to boost specific enterprise areas in agriculture, manufacturing, health, and oil and gas
- Establish secured transaction and National Collateral Registry as well as establish a National Credit Scoring System that will improve access to information on borrowers and assist lenders to make good credit decisions
- Build resilient Financial infrastructure that serves the needs of the lower end of the market, especially those without collateral
- Renew vigorous advocacy for the creation of commercial courts for quick adjudications on loans and related offences
Focusing on results.
As part of its developmental mandate, the CBN, under Emiefele, since 2014, has also been established, single-handedly or in conjunction with the Bankers’ Committee, various other initiatives aimed at creating wealth and putting in place strong policies for creating jobs for the country’s growing youth population.
- The hugely successful Anchor Borrowers’ Programme (ABP)
- The Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL)
- The National Food Security Programme (NFSP)
- The Paddy Aggregation Scheme (PAS)
- The Agri-Business/Small and Medium Enterprises Investment Scheme (AGSMEIS)
- The Accelerated Agricultural Development Scheme (AADS)
- Youth Entrepreneurship Development Scheme (YEDP)
- The Nigeria Electricity Market Stabilisation Facility (NEMSF)
- The Non-Oil Export Stimulation Facility (NESF) and Export Development Facility (EDF)
Connecting Nigeria to Global Markets
Emefiele refers to himself as a “development central banker” and has used his position to direct vast amounts of state finance to small farming and service sector operations, building a wide-ranging constituency for his policies in the process.
Nigeria’s economy has experienced some growth during the last eight years as shown by data despite the global financial crisis. This growth has markedly lifted the living standards of the Nigerian people, with a significant reduction in the poverty rate and rising employment. However, the economy is still based on a few sectors, which mainly rely on external demand.
Therefore, there is a need, generally recognised, to further diversify its economic base to achieve sustainable growth and employment creation in the coming years.
These targeted interventions have so far impacted such sectors as agriculture, power, micro, small and medium-scale enterprises (MSMEs), workers’ salary/pensions assistance fund, infrastructural assistance to states, emergency fiscal spending, and improving FX supply and financial inclusion, as well as the health sector. Foreign Direct Investment in Nigeria increased by 1563.64 USD Million in the second quarter of 2021
Two good Terms Deserves Another
It does not come as a surprise that the clamour among senior government officials for Central Bank governor Godwin Emefiele to vie for Nigeria’s presidency has its roots in his excellent management of the institution and the reach of its policies over the past eight years.
To critical industry stakeholders, this unassuming banking guru certainly deserves kudos for keeping faith and demonstrating uncommon commitment and professionalism in a particularly challenging period of the national trajectory.
Logic and reason reinforce this position. As of June 3, 2014, when Emefiele assumed office, Nigeria’s reserves had fallen from a peak of US$62b in 2008 to US$37b. But following the sharp drop in crude oil prices, the nation experienced a plummeting of the CBN’s monthly foreign earnings from as high as US$3.2 billion to as low as US$700 million monthly. To avoid further
depletion of the reserves, the CBN took many countervailing actions including the prioritisation of the most critical needs for foreign exchange. When it comes to economic and financial strategy, Emefiele is in the driving seat and enjoys the robust support of President Muhammadu Buhari and his colleagues in the Villa at Aso Rock.
The 64 trillion naira question is whether Buhari’s backing for Emefiele’s policies will extend to his endorsing the governor for the presidential nomination of the ruling All Progressives Congress (APC).
It Is important to state that Implementing multiple tools in a complex framework can be very challenging, too, and expanding the set of policy options may subject central banks to political pressures.
Forbes New York has honoured the governor of the Central Bank of Nigeria, CBN, Mr Godwin Emefiele, with the Forbes Best of Africa Lifetime Achievement Award.
In its letter of award to Emefiele and signed by the President, Customs Solutions Media for Forbes Media, Mr Mark Furlong, Forbes disclosed that it decided to honour the CBN governor on the grounds of his remarkable performance and pace-setting achievements at the apex bank.
Nigeria on the Move under Emefiele – Operationalising Strategy: An Adoptable template for Africa
A key development challenge in Nigeria revolves around economic growth, which has had a limited impact on reducing poverty and building shared prosperity. The realisation of inclusive growth is the underlying objective of the government’s economic program, the Economic Recovery and Growth Plan (ERGP).
To achieve more inclusive growth and reduce poverty, the government and people of Nigeria must meet the challenges of creating opportunities for gainful employment for the growing population and enhancing human capital to take advantage of these opportunities. This calls for private sector-led growth, combined with a more active government role in human capital investment.
Cognisant of this, the government has listed job creation and human capital development among its development priorities. To foster inclusive growth, it will need to intensify its efforts to address the sources of the country’s fragility by adopting measures to improve security, social inclusion, public service delivery, and the sustainable use of natural resources, while continuing to undertake initiatives to realise greater transparency and eliminate corruption.
A set of draft operational protocols is very much needed of scale growth in Nigeria and Pan- Africa. The Proposed structures can be reviewed and adopted and developed by other African states to boost their economies by borrowing a leaf from Nigeria Frequently referred to as the Giant of Africa
Proposed Core operational Priorities – Things hoped for: What Africa must do to realize its vision.
- Promote international monetary cooperation through a permanent institution
- Promote exchange stability and avoid competitive exchange rates depreciation
- Assist in the establishment of a multilateral system of payments in respect of current transactions between members and eliminate foreign exchange restrictions that hamper the growth of world trade.
- Review the policies around ease of doing business Intra-Africa
- Support emerging technologies in the African tech startup ecosystem.
- Breaking the oil dependency
- Building human capital
- Bridge the north-south divide
- Promote private sector-led growth
- Rebuilding social contracts
- Promote public and private sector investment activities intended to advance AU Member State regional integration
- Utilise available resources for the implementation of investment projects contributing to the strengthening of the private sector and modernisation of the rural sector activities and infrastructure
- Mobilise resources from capital markets inside and outside Africa for the financing of investment projects in African countries
- Provide technical assistance as may be needed in African countries for the study, preparation, financing and execution of investment projects.
- Review, scale and tweak all current intervention schemes in line with the times.
Africa’s development is so closely tied to nature, and economic growth is not sustainable without preserving the continent’s natural capital, land, water, marine, forests and energy resources.
To drive sustainable growth, Africa must develop and manage its vast natural resources sustainably. African countries must put in place frameworks to attract the necessary investment and expertise and to install the right governance structures. They should ensure that substantial benefits go to local populations and national economies through safeguarding the environment and providing basic social services.
If Africa does all these things, it can be the next global emerging market.