Ex-President Mohammadu Buhari in his farewell speech on Sunday, May 28, 2023, after eight years of piloting Africa’s most populous nation, said, “I started this journey with a great deal of promise and expectation from you.”
Indeed, it is on record that he made 222 election campaign promises bordering on change.
He further said, “The Nigerian economy has become more resilient due to the various strategies put in place to ensure that our economy remained afloat during cases of global economic downturns.
“Our administration also provided an enabling environment for the private sector to engage in businesses for which their return on investments is guaranteed.
“I am confident that I am leaving office with Nigeria better in 2023 than in 2015.” A herd of economic and finance experts expected a scorecard that speaks to improvements in key growth and development metrics but saw none.
However, the fact that data is sacred, a look at available statistics, and key monetary and fiscal policies that characterized the last eight years will bring a lot of clarity to the claim by Mr. President that he is “leaving office with Nigeria better in 2023 than in 2015.
This is because macro-economic indices are reflections of activities in various sectors of the economy including the business and financial services sector. As it concerns financial intermediation, bankers say it has not been an easy journey and yet, the Promised Land is still far away.
Some bank executives are unanimous in their opinion that the naira redesign crisis which was like a parting gift from Buhari, was not only hinged on the shortage of cash but also the lack of manpower (due to brain drain) to handle technological equipment and services needed to drive the banking sector.
Simply put, all the signs of progress made in the past are being put to the test as the best tech hands are running away in droves.
Fiscal and Monetary Environment
The Central Bank of Nigeria (CBN) under the outgoing president has been majorly hawkish (that monetary policies should maintain high-interest rates to curb inflation).
During the administration of President Buhari, the Central Bank extended beyond its monetary policy remit, having a firm grip on fiscal policy with its outsized role.
The CBN policies increased the money supply from N18 trillion in 2015 to N55 trillion in 2023 analysts say. To the Director of the Centre for the Promotion of Private Enterprise, Muda Yusuf, the latest hike in policy rate has left investors as casualties of the Central Bank’s continued Monetary Policy Rate hikes.
To put it succinctly, President Buhari’s eight years performance in the fiscal and monetary space can be captured through taxes and loans. Under President Buhari, Nigeria’s tax receipts rose from N3.7 trillion in 2015 to N10trillion in 2022, its highest collection on record, but it is also noteworthy that this is not to be compared with a record-breaking N26 trillion borrowed from another government agency, the Central Bank of Nigeria (CBN) through Ways and Means.
This according to analysts, is a clear picture of how the fiscal and monetary environment fared in the eight years of Buhari’s administration – covering a running tap with a leaking basket.
In May 2015 when the Buhari administration came to office, the CBN’s loans to the federal government stood at N789.7 billion cumulatively. This increased to N2.5 trillion by the end of 2015; N5.21 trillion in 2016; N5.87 trillion in 2017; and N8.12 trillion in 2018.
The CBN Act 2007 allows the apex bank to grant short-term loans to Federal Government through Ways and Means. But there is an obvious difference between borrowing through Ways and Means and quantitative easing.
However, the difference thins out when the government borrows through ways and means but refuses to pay back at stipulated times thus increasing money in circulation without a corresponding increase in productivity.
Earlier this year, the Debt Management Office (DMO) said the proposed securitisation of the N22. 7 trillion CBN’s Ways and Means (loan as of Dec. 19, 2022) to the federal government would be the largest source of Nigeria’s projected N77 trillion debt stock at the end of this administration.
That notwithstanding, the Ways and Means balance as of May 2023 has risen to N26 trillion.
Section 38 of CBN Act 2007 says that the total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government and that “All advances made under this section shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the CBN to grant such further advances in any subsequent years shall not be exercisable..”
This is where the independence of the CBN remains questionable under the Buhari administration.
CBN policies that shaped the industry
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria in their communiqué of 24th March 2015 noted: “the gradual rise in headline inflation, driven mainly by exchange rate-induced high prices of imported (processed) food and output supply shocks.
“However, the Committee was of the view that the prevailing tight monetary policy stance and some of the recent administrative measures would among others help to lock in inflation expectations and further stabilise the naira exchange rate.” In the light of the above considerations, “The Committee decided as follows: Retain the MPR at 13.0 percent; Maintain a symmetric corridor of 200 basis points around the MPR: Retain the liquidity ratio at 30.0 percent, and harmonize the public and private sector CRR at a single rate of 31 percent.
A member of the committee, Adelabu Adebayo in his statement at that time observed that “the IMF has downgraded GDP growth to 4.8 per cent in 2015, the lowest in the last five years.”
He further said, “It is a little bit comforting that all measures of inflation remained within the single-digit band by end-February 2015.”
Fast forward to 2023, the same Monetary Policy Committee (MPC) met on the 23rd and 24th of May 2023 with inflation at over 22%.
The Committee in its Communique “noted the persisting uptick in inflation, as headline inflation (year-on-year) rose to 22.22 per cent in April 2023 from 22.04 per cent in the previous month.”
The MPC observed that the economy continued to be weighed down by high import bills (part of the reason for restricting 41 items) leading to pressure on foreign exchange and resultant increase in the general price level.
Also, the International Monetary Fund (IMF), in its April 2023 World Economic Outlook further downgraded the output growth forecast for 2023 to 2.8 per cent (4.8 per cent in 2015) compared with its January forecast of 2.9 per cent. The National Bureau of Statistics (NBS), said real Gross Domestic Product (GDP) grew by 2.31per cent (year-on-year) in the first quarter of 2023.
Furthermore, in 2015, the Central Bank classified 41 items as “Not Valid for Foreign Exchange”, because they could easily be produced in Nigeria, rather than spend the country’s reserves to import. It banned importers from accessing the official Nigerian Foreign Exchange Market. This was another hard-line position taken by the CBN to keep the demand for the dollar low. Most manufacturers cried foul that a lot of items in that list constitute raw materials to them. From June 2015 to date, manufacturers are still battling with dollar shortages.
The CBN had on 18th February 2015 given specific directives on the effective monitoring and repatriation of both oil and non-oil export proceeds. The same repatriation challenges, in February 2022, gave birth to the RT200 FX programme to boost non-oil foreign exchange earnings in the country. It is targeted at raising $200 billion in Foreign Exchange (FX) earnings from Non-oil Proceeds for the country over the next three to five years.
Three weeks ago, the CBN Governor, Godwin Emefiele, disclosed that the repatriation programme (RT200) boosted repatriation of funds into the country by 40 per cent in 2022.
Also, Emefiele disclosed that in the first quarter of 2023, the country recorded $1.7 billion in inflows due to the non-oil export initiative. The policy is a follow-up to the March 2021 policy of N5 for every $1 received as a remittance inflow. Therefore, for $1 million sent home, the sender gets N5 million in return. $100 million weekly remittance attracts N500 million while N1 billion in two weeks attracts a reward of N2 billion in a month.
Assessing the impact of the policy, an economist and non-Executive Director/Member, Monetary Policy Committee, CBN Prof. Mike Obadan said the “Naira-4-Dollar’’has recorded a 1,566.6 per cent increase in Diaspora remittances.
In another development, it is expected that eight years after, the gross foreign exchange reserves which dropped to $34.91 billion in April 2023, from $35.14 billion in end-March 2023, would have been much higher than $34.49 billion which it opened on January 5, 2015, before closing at $29.309billion by December 23 of same year.
Another remarkable policy of the CBN under Buhari is the Anchor Borrower Program (ABP) which is said to have registered 4.2 million farmers, with participation limited to only one hectare of farmland per farmer.
During the launch of ABP in 2015, President Buhari was particularly hopeful that it would accelerate local rice and wheat production. Yes, proponents of the program agreed that there has been an unprecedented increase in the production of rice and massive development along the rice value chain with about 50 new large-scale milling factories established across the country. Some analysts believe that the country has benefited from sufficiency in rice, employment, and income for many tens of thousands through the value chain.
However, the programme has failed to show any impact on local wheat production. Instead of reducing the price of rice, the price of the staple food remained high.
The CBN’s direct involvement in agricultural policies and implementation within the last eight years is a result of the emphasis of the Buhari administration on the conservation of foreign reserves through import restriction measures – a Buharism alternative to neo-classical economics.
Thus, the roles of developmental agencies and institutions like the Bank of Agriculture, may have been usurped by the CBN’s very direct involvement in their traditional roles according to some critics. But the CBN has always defended its intervention policies by saying that it was due to the inability of such agencies to save their sectors from the near collapse that it sustained intervention programs.
Assessing the initiatives, the President of All Farmers Association of Nigeria (AFAN), Arc Kabir Ibrahim noted some irregularities in the implementation of the ABP, pointing out that, the APP (Agriculture Promotion Policy), the CBN Intervention through the Anchor Borrower Program and now NATIP(National Agricultural Technology and Innovation Policy) could have led to the attainment of Food Security in Nigeria if they were properly implemented.
His words: “Instead of advancing soft loans to the farmers to produce optimally and off-taking the produce at a guaranteed minimum price as envisioned in the scheme, they resorted to buying from the open market thereby creating unnecessary food inflation.
He concluded by saying the CBN intervention may be responsible for the perennial food inflation in the nation as shown in the Rice and Maize Anchor Borrower Program and prices of agrochemicals generally.
Under Buhari’s administration, the Infrastructure Corporation of Nigeria (InfraCorp) was established in February 2021 with the goal “to catalyse and accelerate investment into Nigeria’s infrastructure sector by originating, structuring, executing, and managing end-to-end bankable projects in that space”.
However, as of May 2023, Infracorp is yet to fully take off due to a delay by the CBN in disbursing the initial seed money of N1 trillion to the four fund managers that will manage the company’s assets.
The banking sector was resilient in the Year 2020 despite the serious economic challenges, tough macroeconomic, low-yield, and tight regulatory environment.
The industry’s gross earnings rose 2.8 per cent year on year (y/y) to ₦5 trillion in 2020, albeit at a slower pace relative
to 2019 (9.9%), supported by the CBN’s stimulus packages to critical sectors, interest rate reduction on intervention facilities and forbearance for banks to restructure term loans.
Despite all these, available records show that the total assets of deposit money banks at the end of 2015 stood at N25 trillion. This according to the CBN, has grown to N77.59 trillion as of the end of February 2023.
Challenges and outlook
Available data and forecasts for key macroeconomic indicators in the Nigerian economy suggest that the economy will continue on a moderate recovery path through 2023 as legacy headwinds such as insecurity in food-producing areas; high cost of energy and the rising cost of debt servicing linger.
Accordingly, the economy is forecast to grow in 2023 by 3.03 per cent (CBN), 3.75 per cent (FGN), and 3.29 per cent (IMF).
The outgoing administration said it is leaving Nigeria better than it met the country, but the records of the National Bureau of Statistics in February 2023, that 83 million Nigerians were in abject poverty, living below $1.9 a day, while 133 million Nigerians lived in multidimensional poverty, contradicts ex-President Buhari’s claim.
According to the NBS, about 37 per cent of qualified youth were unemployed while some estimates have shown that as many as 45 per cent of Nigerians plan to relocate to other countries as a result of hardship and hopelessness.
This is buttressed by a 2022 PEW Research Survey which says, ‘Over 12,000 Nigerians migrated to the UK alone in 2022, where at least 13,000 Nigerian health workers operate.
The dollar-to-naira exchange rate at times reached N800 naira in the parallel market. Domestic fuel prices were increased frequently at the discretion of marketers, reaching N450 (from N165 in 2015) in the last half of 2022 before coming down to N250 in the month after the elections.
Between 2015 and 2023, Nigeria’s internal and external debt rose from N12.6 trillion to over N80 trillion, with the country having a budget deficit of N47.7 trillion during Buhari’s eight years in office, rising by over 370 per cent from N2.41 trillion in 2016 to 11.34 trillion in 2023.
Incoming government and banking industry
Nigeria’s President Muhammadu Buhari, on 31 December 2020, signed the Finance Bill 2020 (the Finance Act or the Act) into law with an effective date of 1 January 2021. The Finance Act introduced over 80 amendments to the existing tax and regulatory legislations in Nigeria, including the Capital Gains Tax Act, Companies Income Tax Act, Personal Income Tax Act, Value Added Tax Act, Nigeria Export Processing Zone Act, Oil and Gas Export Free Zone Act, Federal Inland Revenue Service (Establishment) Act, and Customs and Excise Duties Act, among others.
To the new administration, enforcement is key. As it is expected that as these taxes are being collected, banks’ deposits Commission on turnover, and Net Interest Income among others will invariably receive a boost.
Also, Section 11 (2) of the CITA was amended by replacing “agricultural trade or business” with “primary agricultural production.” The amendment narrows the application of the tax exemption on bank loan interest for loans granted to “primary agricultural production,” unlike the broad exemption that was previously applicable to bank loans to mostly all agricultural businesses. The exemption is now narrowed to the production of crops, livestock, forestry, and fishing. With this, banks can now charge interest on production at the intermediate/by-products or derivatives levels.
The Act deleted electronic bank transfers as transactions liable to stamp duty and introduced an electronic money transfer levy of N50 on the electronic transfer of money deposited in any bank or financial institution for sums of N10,000 or more. Some bankers believe that the industry should be considered in the sharing formula, rather than sharing the revenue based on a derivation of 15 per cent to FG and the FCT and 85 per cent to states.
In the current digital economic arena, it is surprising that bank customers continue to experience transaction hitches.
Therefore, the incoming government should not turn a blind eye to Intellectual Property (IP) laws. Grants should be made by relevant government authorities within Nigeria to protect new inventions or improvements to encourage more startups that are willing to collaborate with the banking community to make transactions seamless. Patents and other forms of IP protection play an important role in encouraging innovation and creativity.
The new government should think of innovative ways to take the yoke of the Assets Management Corporation (AMCON) levy off the shoulders of Nigerian banks. For example, as reported in the unaudited financial statements of Access Holdings, FCMB Group, Guaranty Trust Holdings, Stanbic IBTC Holdings, Union Bank of Nigeria, Wema Bank, and Zenith Bank for the period ended March 31, 2023, seven commercial banks paid a total of N95.68 billion in the first as a levy to AMCON. These are 0.5 per cent AMCON charges on banks’ preceding year’s total assets and contingent exposures.
Some have also argued that insurance premiums paid by banks to the Nigeria Deposit Insurance Corporation (NDIC) are a drag on banks’ books.
While the NDIC has adopted the differentiated premium assessment system, banks still pay between 0.35 per cent and 0.5 per cent of insured deposits as premium, hence explaining the huge cost to Nigerian banks, as NDIC premium represents between 5 per cent and 7 per cent of an average Nigerian bank’s operating expenses.
As it did in 2015, when it reduced the premium paid by banks by ₦9.09 billion following the reduction of the premium base rate from 40 basis points to 35 for each Deposit Money Bank/Non-Interest Bank (DMB/NIB) under the Differential Premium Assessment System (DPAS), the NDIC could deepen this gesture.
The incoming government can revisit the laws establishing these.
In the same vein, debt recovery laws should be reviewed in Nigeria. Most debtors are fond of hiding under loopholes in commercial law to delay re-payment. Despite the precautions taken by the commercial banks they still encounter a series of problems in loan recovery from their customers.
Among them are non-repayment of loans, unwillingness to repay, and asymmetric information. For example, investigations show that 10 leading banks in the country reported N811.7 billion Non-Performing Loans (NPL) by value out of the N21.87 trillion gross loans granted to customers and other financial institutions in 2022.
The level of frustration of the banking public from failed electronic transactions in the first quarter of 2023, is evident that the level of infrastructure investment (circa N100bn) in the banking industry is still minimal.
The incoming administration can grant tax forbearance, for a period to enable struggling Deposit Money Banks to apply the proceeds to digital infrastructure investment.
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