Godwin Emefiele, Governor, Central Bank of Nigeria, on Tuesday called on stakeholders in the banking and financial system to take up proactive steps in supporting growth and wealth creation of key sectors of the economy.
Emefiele made the call at the 13th Annual Banking and Finance Conference, organised by the Chartered Institute of Bankers of Nigeria in Lagos.
The conference had: “Facilitating a Sustainable Future: The role of Banking and Finance,” as its theme.
Emefiele said COVID-19 had brought on several challenges to the economy and indeed the banking sector.
He said it, however, offered a unique opportunity to build a more resilient economy that is better able to contain external shocks, whilst supporting growth and wealth creation in key sectors of the economy.
He said: “Proactive steps on the part of stakeholders in the banking and financial system in supporting the growth of sectors, such as Agriculture, ICT and Infrastructure, will strengthen our ability to deal with the challenges that have been brought on by COVID-19, and stimulate the growth of our economy.”
The CBN governor noted that from a sectoral perspective, the COVID-19 pandemic, along with the restrictions on movement, had a significant effect on a wide number of sectors.
He said the closure of schools, hotels and restrictions on movement led to contractions in the Transportation (-49%), Accommodation (-40%), Construction (-32%) and Education (-24%) sectors.
Emefiele said other sectors such as financial services and telecommunications grew by 28 and 18 per cent respectively.
He said these sectors, which have the ability to leverage on digital channels, witnessed strong growth.
This, he said, was so as Nigerians relied on these tools to communicate and to conduct business and financial transactions.
He said the Agriculture sector continued to record positive growth (1.6%), supported by productivity gains in the sector, interventions by the government and improved demand for local produce.
Emefiele also said restrictions on global travel by land and air along with the slowdown in commercial activities, led to a significant reduction in the demand for crude oil.
According to him, these factors contributed to the 65 per cent decline in crude oil prices between January and May 2020.
He said: This decline in prices, along with OPEC reduction of our production quota, led to a significant decline in our foreign exchange earnings, along with a more than 60 per cent decline in revenues due to the Federation Account.
“Today, crude oil prices have recovered from its low of $19 in April 2020, but it is yet to return to pre-pandemic levels of over $60 in January 2020.”
According to Emefiele, significant disruptions in domestic and global supply chains as a result of lockdown measures in key markets in Asia and Europe between March and May 2020, affected delivery of inputs and machinery to firms in Nigeria.
He said this contributed to a slowdown in manufacturing activities (-8.8 per cent).
Emefiele said the impact of the pandemic and the resulting slowdown in economic activity led to a significant outflow of funds from emerging market economies.
He said there were uncertainties on the scale at which the virus could spread, and the impact it could have on economic activity, in the absence of a vaccine.
This, according to him, led investors to withdraw over $100 billion worth of funds from emerging markets between February and April 2020.
Emefiele said the funds withdrawn were subsequently invested in safe haven assets such as US treasury bills and the Japanese Yen.
He noted that the drop-in flows between February and April 2020 was unprecedented and surpassed the decline in flows witnessed during the Global Financial Crisis in 2008.
According to him, Nigeria was not exempted from the drop-in flows, as capital importation into the country declined from $6 billion in Q2 of 2019 to $1.2 billion in Q2 of 2020.
The apex bank governor said the drop in crude oil earnings as well as the drop in foreign portfolio inflows significantly affected the supply of foreign exchange into Nigeria.
He said: “In order to adjust for the decrease in supply of foreign exchange, the naira depreciated at the official window from N305/$ to N360/$ and to N380/$.
“These adjustments along with increased efforts to restrict undue speculative activities, has led to a growing unification of rates across all theFX market segments.
“In addition, the band between the parallel market and the official exchange rate over the past month, has narrowed recently due to some of the measures taken by the CBN to curb illegal FX transactions.”
Emefiele said with the decline in foreign exchange earnings and subsequent adjustments in the value of the naira vis-à-vis the US dollar, the CBN had continued to implement a demand management framework.
He said the management framework was designed to support improved production of items that could be produced in Nigeria, and further conservation of its external reserves.
He said these measures had helped to prevent a significant decline in the country’s reserves.
“Our external reserves currently stand at $36 billion and are sufficient to cover eight months of import of goods and services,” he said.
Emefiele said inflationary pressure persisted in the first and second quarters of the year due to several factors.
He said this was in addition to the disruption to global and domestic supply chains as a result of COVID-19, inflation was exacerbated by the increase in VAT rate, exchange rate adjustment and seasonal food supply shocks due to the onset of the farming season and other structural bottlenecks.
According to him, inflation in July 2020 stood at 12.8 per cent.
He said, however, that inflation was expected to begin to moderate towards the end of the 4th quarter.
This, according to him, “is as we approach the harvest season, along with the phased withdrawal on the restrictions of movement and other restrictions imposed as a result of COVID-19”.
The CBN governor said that given the impact of COVID-19 on key economic variables, the fiscal and monetary authorities took unprecedented measures to prevent the economy from going into a tailspin.
He said the first objective was to restore stability to the economy by providing assistance to individuals, SMEs and businesses that had been severely affected by the pandemic, as well as by the lockdown measures.
He said the impact of these measures helped to prevent larger contraction in 2nd Quarter GDP growth as projected by analysts.
He said: “With the phased withdrawal of the lockdown measures, resumption of travel by land and air, improvements in crude oil prices from $19 in April 2020 to an average of $44 in August 2020, and continued implementation of our interventions in the agricultural and manufacturing sectors, we expect that GDP growth for the 3rd quarter will reflect a significant recovery relative to the 2nd quarter.”