• Challenges facing Tinubu in realising 7 years target
From Uche Usim, Abuja
For a country literally surviving on ventilators, eyeing a $1 trillion economy by 2026 and growing it to $3 trillion in 10 years is no mean feat.
But that is the plan of President Bola Tinubu, which he shared with Nigerians last month at the 29th Nigerian Economic Summit in Abuja.
The Central Bank of Nigeria (CBN) Governor, Dr Yemi Cardoso, is running with the vision, though analysts are worried about the severe headwinds standing in the way of bringing the vision to fruition.
These include; weak naira, low productivity, terrorism, decrepit infrastructure, profligacy at national and sub-national levels, unbridled corruption, war in Ukraine, hyper-inflation and ballooning sovereign debt inching to N100 trillion (if national assembly approves the fresh $8.699 billion and €100 million being sought by President Tinubu).
Already, the Senate President, Godswil Akpabio and the Speaker, House of Representatives, Tajudeen Abbas, have joined many economic experts to express deep worries over the towering sovereign debt that is threatening to drown the country if productivity is not handsomely improved.
Regardless of the mentioned challenges, the CBN Governor and the Finance Minister, Mr Wale Edun, said they would pull all necessary levers to reset the country and attain a $1 trillion economy.
Cardoso’s roadmap is to clean up the foreign exchange market by dealing with speculators and traffickers.
Also on the cards are plans to hurriedly clear over $10 billion FX backlog to regain investors’ confidence, boost foreign direct investments, ensure a tranquil business environment that will help businesses flourish, bring back fleeing investors and curtail the exodus of companies to other climes.
He also plans to supervise banks recapitalisation to fortify them to service the demands of a $1 trillion economy.
He added that the hurdles before the CBN were not just about the stability of the financial system, as current assessment of the performance of the banking system has shown the CBN has already established stability; but more of mobilising sufficient capital relative to the financial system’s needs in servicing a $1 trillion economy in the near future.
While it is not clear yet what the new minimum capital threshold would be from the existing N25 billion stipulated by then Chukwuma Soludo’s management of the CBN in 2004, experts have urged the CBN not to go below N100 billion.
The Director General, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, told Sunday Sun in a telephone chat that the move by CBN to further strengthen the banks was in order in the light of the considerable loss of value amid depreciating domestic currency.
He said: “The new capital base should not be less than N100 billion. During the banking consolidation exercise of 2004, the minimum capital requirements for banks was raised from N2 billion to N25 billion.
“The revised capital requirement was an equivalent of $187 million. Today, the same N25 billion is an equivalent of just $32.5 million. What is the value of the naira today? This is a clear indication of the phenomenal erosion of the capital base of the banks.
“Recapitalisation of the banks has, therefore, become imperative. It is important to ensure that the capital base of banks can support their current exposures in the interest of the stability of the financial system”.
CBN sources said that the results of the stress tests conducted on banks are not alarming, but noted that banks are required to undergo capital fortification to enable them undertake higher portfolios.
There are 35 Deposit Money Banks (DMBs) in Nigeria as at the end of the fourth quarter of 2022. This comprises 26 commercial banks (including two non-interest banking windows), six merchant banks and three Non-Interest Banks (NIBs).
While the apex bank works on the details of the recapitalisation, Sunday Sun learnt that the jittery banks have resuscitated merger talks which began a while ago as they mooted the idea to join forces to wrestle local and global economic volatilities by becoming fewer, but stronger to undertake bigger portfolios.
Sources said that conversations around merger “will be the main agenda of DMBs in the coming weeks.
“The merger talks were already on the table long before Cardoso’s announcement, but would be deepened and firmed up in weeks ahead.”
It was further gathered that Tier 1 banks are eyeing to merge with or acquire Tier II banks outright.
According to the 2023 edition of the Proshare Bank Strength Index (PBSI), Access Bank, Guaranty Trust Company, Zenith Bank and the United Bank of Africa, UBA are maintaining their Tier 1 ranking, while Stanbic IBTC and Fidelity Bank dropped from the Tier I ranking to Tier II.
According to Proshare, Ecobank Transnational Incorporated, joined the Tier 1 ranking for the 2023 PBSI from the Tier II ranking in 2021/2022.
From industry records, the total assets of leading deposit money banks operating in Nigeria rose to N87.25 trillion in the first quarter ended March 31, 2023, up by 17.8 per cent from N74.07 trillion in the corresponding period in 2022.
The banks are Zenith Bank Plc, Access Holdings Plc, United Bank for Africa (UBA) Plc, Guaranty Trust Holding Company (GTCo) Plc, FBN Holdings Plc, Fidelity Bank Plc, Unity Bank Plc and Union Bank of Nigeria (UBN) Plc. Others are Stanbic IBTC Holdings Plc, Ecobank Transnational Incorporated (ETI) Plc, FCMB Group and Wema Bank Plc.
Findings show that Tier-1 banks have maintained a significant lead in terms of asset size, but analysts are of the view that they should grow far beyond the current level to shoulder the financial burden of a trillion dollar economy.
There are also concerns over naira devaluation which has triggered a loss of about $193 billion in the country’s gross domestic product (GDP) when converted from naira to dollar.
Analysis by nairametrics showed that from the fourth quarter of 2022 to the third quarter of 2023, Nigeria’s total GDP stood at N224.54 trillion. When converted to US dollars at the exchange rate on the website of the CBN at the end of September 2023 (N768.76/$1), Nigeria’s GDP stands at approximately $292.08 billion.
However, using the exchange rate before the FX unification policy of about $462.88/$, Nigeria’s GDP would have been at approximately $485.09 billion.
The naira devaluation of 39.79 per cent also triggered a loss of value in the GDP in dollar terms at the same rate.
Although there was a decline in dollar terms, an increase was observed in the quarterly naira value of the country’s GDP.
It hit a high of N62.05 trillion in Q3 2023, which is higher than the value in Q2 2023 (N52.76 trillion) and Q1 2023 (N51.95 trillion), and even Q3 2022 (N53.18 trillion).
Despite the growth in naira terms, Nigeria has witnessed a depreciation of up to 40 per cent in its currency’s value for the current year, based on official exchange rates, which means that the country is plagued by currency volatility.
In a final analysis, Nigeria still leads the African economy followed by South Africa that is yet to release its GDP numbers for Q3 2023.
In his recent overview of the Nigerian economy, David Greene, the chargé d’affaires, United States Embassy, Abuja, said that his country was ready to support Nigeria’s efforts to grow its vast economic potential.
He added that with the right macroeconomic framework, a sound fiscal strategy, and a strong commitment to rooting out corruption, it can become a preferred destination for foreign direct investment.
“Collaborative efforts in agriculture further underscore our commitment. For example, the U.S. Department of Agriculture recently dedicated $22 million to strengthen Nigeria’s cocoa value chain, supporting more than 60,000 cocoa farmers, processors, marketers, and other agribusiness service providers in what is Nigeria’s number two foreign exchange-earning export. From tech to agriculture, these steps go beyond statistics. They translate into tangible outcomes: good jobs, seed money for new ventures, and higher-value agricultural exports.
“We have joined forces to accelerate Nigeria’s digital transformation, with investments from U.S. tech giants such as Microsoft, Cisco, Meta, Google, and Starlink. This partnership has built a platform to train unemployed and underemployed women and youth. Moreover, it has been a catalyst for quality investment, accounting for more than a quarter of all venture capital flowing into Africa”, he stated.
The CBN has said that it would junk all the intervention programmes embarked by the apex bank under Emefiele, saying it distracted it from achieving its core objectives.
“Instead of direct interventions, we will collaborate with stakeholders and formulate policies that create an enabling environment for sustained economic growth and development. Our catalytic role will support increased investment and private sector participation in the economy, improve access to finance for MSMEs, and enhance financial services for the underbanked”, the apex bank said.