The Central Bank of Nigeria (CBN) may be reaching the limit of its monetary policy tools in stimulating the economy. This is especially so if the fiscal complements are not immediately activated, particularly, in ensuring security, facilitating the movement of agricultural produce and the seamless export of available stock of commodities.
A research by FSDH Merchant Bank Limited has shown that while the new initiatives by the apex bank is another laudable move to increased activities, credit facilitation and growth of the economy, much would be dependent on what the government is actually contributing to the general policy plans.
To achieve its key targets, the CBN had enlisted the pursuit of domestic macroeconomic and financial stability; working with the Deposit Money Banks to improve access to credit for smallholder farmers, Micro, Small and Medium Enterprises, (MSMEs) consumer credit and mortgage facilities for bank customers; growing external reserves; and supporting efforts aimed at diversifying the economy through intervention programmes in the agricultural and manufacturing sectors.
But these initiatives will require not only complementary fiscal policies, but also actions to achieve the desired objectives, particularly in improving the transportation network in the country so that goods can be moved easily from farmland to the market, which will reduce wastage and contain costs.
The bank’s research for the month of July, noted that port and land border reforms must be implemented to achieve a more efficient exportation process and to reduce smuggling activities, alongside the establishment of special court for speedy adjudication of disputes arising from commercial transactions.
Also imperative is significant improvement in security of lives and properties in the country, particularly on the farmlands, that have been ravaged by herdsmen crisis and ensuing violence claiming lives.
The report also sees the needed fiscal response to include implementations of measures to improve electricity generation, transmission and distribution in Nigeria, as it is key to reducing the costs of doing business, so that locally manufactured goods would be competitive both in local and international markets.
The Head of Research at FSDH Merchant Bank, Ayodele Akinwunmi, while presenting the monthly research, noted that if these issues are not addressed, increasing lending to the economy may lead to a rise in non-performing loans in the Nigerian financial system.
“With the implementation of these priorities, more funds will be available to finance non-oil export-led sectors. This should create new businesses, reduce import dependency, grow foreign exchange earnings, ensure stable exchange rate and possibly cause the value of the currency to remain stable to appreciate,” he said.
There is expectation of growth in non-oil exports from Nigeria and reduction in the cost of exporting goods from Nigeria, thereby making exportation more profitable than before.
This certainly, may bring about a reduction in the country’s import bill, a reduction in the cost of inputs for manufacturing companies and the development of agro-allied industries.
The implementation of the needed fiscal policy may also be a boost to the development of commodity exchange and opportunities in logistics business as a result of the growth of agriculture and related businesses.
Admitting that there may not be any major exchange rate depreciation or a devaluation as long as the external reserves remain strong, he pointed out that this will remain positive if Nigeria is able to attract more foreign exchange earnings through Foreign Direct Investments (FDIs), sales of oil and non-oil products.
“The trigger for a possible depreciation or a devaluation in the currency will be when the stock of external reserves is no longer enough to cover more than six months of imports,” said.
He also pointed out that CBN may propose moral suasion programmes and specific industry/product limit arrangements to channel bank loans towards agricultural and manufacturing sectors.
Akinwunmi also affirmed the possibility of increased lending to Micro, Small and Medium Enterprises (MSMEs) in Nigeria, which would stimulate growth and shared prosperity, reduction in smuggling and rise in local production, but reiterated urgency in fiscal policy response.