Publications

As part of its ongoing intervention to address food insecurity, the Central Bank of Nigeria (CBN) has disbursed a total of N798.09 billion to the Anchor Borrowers Programme (ABP) since its inception in November 2015.¹ The cumulative disbursement has been given to 3.9 million smallholder farmers cultivating 4.9 million hectares of land, according to the CBN’s Monetary Policy Committee. In addition, the CBN disbursed N708.39 billion to 657 large-scale agricultural projects under the Commercial Agricultural Credit Scheme (CACS), and N134.57 billion to 38,140 beneficiaries under the Agribusiness/Small and Medium Enterprise Investment Scheme (AGSMEIS). As the government continues to implement policies intended to improve agricultural productivity, it is important that the disbursement of these interventions is transparent. Hence, transparency mechanism should be developed and enforced within all agriculture related interventions to prevent diversion of funds as well as increase accountability. Furthermore, monitoring and evaluation mechanisms are necessary to ensure that the productivity of the sector is improved over time.

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) retained the Monetary Policy Rate (MPR) at 11.5 percent during its 281^st meeting ¹. Similarly, other monetary parameters were kept constant including the Cash Reserve Ratio at 27.5 percent and the Liquidity Ratio at 30 percent. The rates were retained largely as a result of the declining rate of inflation and the improvement in the growth rate of Gross Domestic Product. The continuous double digit MPR may however limit the availability of funds to the private sector, which is required to spur aggregate supply in order to achieve lower levels of inflation. This is underpinned by the fact that inflation in Nigeria is recognised to be mainly cost push rather than demand pull, and as such cannot be solely contained by monetary policy. Going forward, programmes to address structural factors that continue to exert upward pressure on prices should be integrated with ongoing monetary policy interventions.

Data on rail transportation showed that a total of 565,385 passengers travelled via the rail system in Q2 2021. This figure, when compared to 108,238 passengers recorded in Q2 2020 and 424,460 in Q1 2021, represents 422 percent year-on-year and 33 percent quarter-on-quarter growth respectively.¹ A total volume of 42,782 tons of goods/cargo also travelled through the system in Q2 2021, which is a 392 percent growth over the 8,691 tons recorded in Q2 2020, and 307 percent increase over the 10,511 tons recorded in Q1 2021. The corresponding revenue generated from passengers in the period under review was put at N1 billion as against N893 million in Q1 2021; and the revenue generated from goods/cargo was put at N72 million as against N26 million in Q1 2021. The data indicates the growing demand for rail transportation in Nigeria post COVID-19 and the government’s efforts to revive the railway industry. The convenience, affordability, and safety of railway transportation implies that expanding coverage through public and private investment and partnership will promote economic activities and growth.

 Nigeria’s merchandise trade with the rest of the world grew by 23.23 percent between Q1 2021 and Q2 2021¹. Similarly, year-on -year merchandise trade increased by 88.71 percent between Q2 2020 and Q2 2021, largely as a result of increases in oil exports. Furthermore, disaggregated data shows that the value of imports rose by 67.47 percent between Q2 2020 and Q2 2021 while exports increased by 128.29 percent within the same period. However, the export value of manufactured goods declined by 16.7 percent between Q2 2020 and Q2 2021. The growth recorded in exports signifies an improvement in the economy which should also ease the pressure on the exchange rate. However, the decline in the export value of manufactured goods implies that the efforts on economic diversification has not yielded results. Consequently, there is an urgent need to implement policies which can boost manufacturing sector output in order to avoid economic uncertainties emanating from crude oil price volatility. More specifically, policies that reduce interest rates, encourage knowledge and technology spillovers, and the adoption of mechanized processes are likely to be beneficial for manufacturing sector productivity.

In the second quarter of 2021, the country’s Gross Domestic Product (GDP) grew by 5.01 percent (year-on-year) in real terms, marking three consecutive quarters of growth after the negative growth rates recorded in the second and third quarters of 2020.¹ The rise in real GDP saw the oil sector contributing 7.42 percent while 92.58 percent was contributed by the non-oil sector. The steady recovery of the Nigerian economy since the end of 2020 is attributed to the increase in economic activities relative to pre-COVID-19 levels, and the easing of travel restrictions both locally and internationally. However, further insights show that real GDP grew at -0.79% in Q2 2021 compared to Q1 2021, reflecting slightly slower economic activities than the preceding quarter due largely to seasonality. It is important that the government adopts a multi-pronged solution to consolidate the recovery of the economy. This should include improving the ease of doing business, implementing expansionary fiscal policies to improve economic infrastructure, as well as improving security to boost aggregate supply.

The Central Bank of Nigeria has cautioned Microfinance Banks (MFBs) against engaging in foreign exchange (forex) transactions and other prohibited activities including wholesale banking.¹ According to the circular issuing this warning, the apex bank has observed the activities of some MFBs that have gone beyond the scope of their operating license. Cautioning MFBs is aimed at protecting them from the dangers of such prohibited transactions, given the banks’ relatively low capitalization. The CBN has noted that it will continue to monitor developments among MFBs and apply severe sanctions for breaches of extant regulations, including revoking the license of MFBs that fail to comply with the 2012 Revised Regulatory and Supervisory Guidelines for MFBs. Monitoring the activities of MFBs would ensure overall financial stability which is a prerequisite for sound macroeconomic policies, In particular, ensuring that all players in the banking system act within the remit of their operations enables efficiency in the transmission mechanism of monetary policy.

According to the National Bureau of Statistics, the volume of Value-Added Tax (VAT) has risen from ₦496.39 billion to ₦512.25 billion between Q1 and Q2 2021, reflecting a 3.2 percent growth. This is the highest ever quarterly VAT amount generated and reflects a year-on-year 56.56 percent growth. VAT collections have continued to peak, following the increase in VAT rate from 5 percent to 7.5 percent in January 2020 by the federal government. In Q2 2021, the manufacturing sector and professional services sector accounted for 8.76 percent and 5.72 percent of VAT collections with a sum of ₦44.89 billion and ₦29.3 billion respectively. Further disaggregation shows that ₦187.43 billion was generated as non-import local VAT and ₦207.69 billion was generated from non-import foreign VAT. Meanwhile, the balance of ₦117.13 billion was generated from the Nigerian Custom Service import VAT. In light of the economic recovery, there are potentials for increased mobilisation of financial resources through VAT. This will improve the government’s fiscal space and provide funding for critical sectors of the economy such as infrastructure, health and education. It therefore becomes necessary that the government improve its tax administration structure and strengthen its anti-corruption policies to avoid tax evasion.

Between 2015 and 2021, Nigeria’s external debt from the World Bank and the African Development Bank nearly doubled, increasing from US$7.23 billion to US$14.35 billion. ¹ About US$11.097 billion was obtained from the World Bank’s International Development Association (IDA) which provides concessional loans at lower interest rates and longer maturity and grace periods. Other sources include the World Bank’s International Fund for Agricultural Development (IFAD), with a commitment of US$410.23 million. While debt is an important source of revenue for countries, excessive debt can hinder long run economic growth. More specifically, high debt service payments crowds out investment in critical sectors such as education, health, and social protection. Consequently, debt service management strategies such as debt for development swaps – that is the provision of debt relief in exchange for investments in key development sectors – should be considered by the government. In addition, the underlying revenue shortage problem should be addressed by mobilizing domestic resources through curbing tax evasion and avoidance.

According to the National Bureau of Statistics, the total value of capital importation declined by 54 percent from US$1,905.89 million in the first quarter of 2021 to US$875.62 million in the second quarter.⁴ Portfolio investments were the largest amount of capital importation accounting for 62.97 percent of total capital import and valued at US$551.37 million. Foreign Direct Investment accounted for only 8.9 percent of capital imports and valued at US$77.97 million in Q2 2021. The substantial decline in capital importation in Nigeria stems from both endogenous and exogenous factors amid the slow global recovery from the COVID-19 pandemic. Some of these endogenous factors include exchange rate volatility and the double-digit inflation rate which has amplified economic uncertainty, thus increasing pessimism among investors. In view of this, government policies should be tailored towards the reduction in the rate of inflation and stabilising the exchange rate through aggregate supply policies which can be done via boosting local productivity. Additionally, improving security would boost investors’ confidence which should enhance capital importation.