CBN Policies Shield Nigeria from Worst of Global Inflation Crises

From food riots in Sri-Lanka to rising commodity prices putting a strain on the global economy, there is evidence policies of the Central Bank of Nigeria (CBN) are helping to shield the Nigerian economy from the worst fallouts from a global inflation spike and uncertainty from the Russia-Ukraine war.

On Thursday protests broke out in Iran leading to at least 22 arrests, after the government cut subsidies for food, sending prices through the roof as authorities braced for more unrest in the following weeks.

In Sri Lanka, protesters angry at the soaring prices of everyday commodities including food, have burned down homes belonging to 38 politicians as the crisis-hit country plunged further into chaos, with the government ordering troops to “shoot on sight.”

The war in Ukraine has also severely disrupted shipments of grains and oilseeds from the region. Combined dry bulk shipping activity in Russia and Ukraine ports has dropped by some 50% compared to the 2021 average.

Analysts say the war is also likely to depress future production by disrupting Ukrainian spring planting of corn and sunseed and tilling of wheat. Russia and Ukraine together account for 13% and 8% of global wheat and oilseeds production, respectively.

In the Palm oil space, Indonesia President Joko Widodo last month announced the export ban of all cooking oil and palm oil products.

Widodo said during a television broadcast that the measures aimed to ensure domestic markets had ample cooking oil supplies following a dramatic increase in prices.

The spot palm oil contract on the Bursa Malaysia Derivatives Exchange was trading around 6,990 ringgit ($1,577) a tonne on Friday, up 5.2 percent from an all-time high of 6,466 ringgit some two and a half months ago on February 23.

Palm oil is of strategic importance as it is used in the production of more than half of the products sold in supermarkets globally.

Nigeria remains the top palm oil producer in Africa based on the data by the U.S Department of Agriculture USDA. lm oil exporting countries in Africa.

The Federal Government and CBN’s policies such as; 35 percent levy on imported palm oil, import ban on refined oil, the exclusion of palm oil and related products from sourcing dollars from the official FX market and the border closure since August 2019, have been supportive for the domestic oil palm sector.

Godwin Emefiele the CBN Governor has made supporting real sector companies especially in the Agriculture sector a major plank of his economic policy which is paying off today as food and commodity inflation rages across the globe.

The Manufacturing Purchasing Managers’ Index (PMI), remained above the 50-index points benchmark in February 2022, a sustained positive performance in the manufacturing PMI that reflects the resilience of the economy in light of persisting global headwinds.

Between January and February 2022, the CBN disbursed N29.67 billion under the Anchor Borrowers’ Programme (ABP) for the procurement of inputs and cultivation of maize, rice, and wheat, three crops that hitherto were significant concerns of FX demand.

These disbursements bring the total under the programme to over 4.52 million smallholder farmers, cultivating 21 commodities across the country, coming to a total of ₦975.61 billion.

The Nigeria Commodity Exchange (NCX) has also been restructured to effectively aggregate excess outputs from the Bank’s ABP-financed projects, with the objective of moderating food prices.

The Bank also released N19.15 billion to finance 5 large-scale agricultural projects under the Commercial Agriculture Credit Scheme (CACS), bringing the total disbursements under the Scheme to ₦735.17 billion for 671 projects in agro-production and agro-processing.

In addition to these, the Bank disbursed the sum of ₦428.31 billion under the ₦1.0 trillion Real Sector Facility to 37 additional projects in the manufacturing, agriculture, and services sectors.

The funds sourced from the Real Sector Support Facility – Differentiated Cash Reserve Requirement (RSSF-DCRR), were utilized for both greenfield and brownfield (expansion) projects under the COVID-19 intervention for the Manufacturing Sector (CIMS).

Cumulative disbursements under the Real Sector Facility currently stand at ₦1.75 trillion, disbursed to 368 projects across the country. Under the 100 for 100 Policy on Production and Productivity (PPP), the Bank has disbursed the sum of ₦29.51 billion to 31 projects, comprising 16 in manufacturing, 13 in agriculture, and 2 in healthcare, data from the CBN shows.

Today rice production in Nigeria has increased to over 7.5 million metric tons annually. Prior to the introduction of APB, the average production in Nigeria between 1999 to 2015 was less than four metric tons annually.

“Before this administration launched the ABP, there were only 15 standard Rice mills in Nigeria. As of today, we have over 50 Standard and integrated Rice mills creating jobs and reducing unemployment. We expect additional significant output when two new mills are started in Lagos and Katsina,’’ President Muhammadu Buhari said recently.

The CBN data shows that since 2014 when Thailand exported 1.3 million metric tons of rice to Nigeria, it has now fallen to just 58,000 metric tons at the end of 2021.

In 2021 the CBN unveiled its first maize pyramids as it flagged-off the 2021 maize wet season farming under the Maize Association of Nigeria (MAAN)-CBN Anchor Borrowers’ Programme (ABP) in Katsina State.

The CBN Governor Godwin Emefiele noted that maize pyramids are indeed rare, but the CBN has been able to achieve this through synergy amongst stakeholders and the resilience of farmers.

Maize is one of the priority crops under the Central Banks ABP. Emefiele, the Governor of the apex bank, said recently that Nigeria spends between $600 million to $1 billion to import sugar into the country annually.

Emefiele explained that the development caused the CBN to include sugar and wheat on the foreign exchange restriction list.

“We are looking at sugar and wheat. We started a programme on milk about two years ago, eventually, these products will go into our FX restriction list,” said Emefiele.

Fertilizer production is another area that the CBN policies are helping to shield Nigeria.

Speaking in March 2022 at the commissioning of the new 3 million Metric tons’ capacity per annum state-of-the-art Dangote Fertiliser Urea Plant, Governor of Central Bank of Nigeria, Godwin Emefiele said, “It is great that a Nigerian has taken advantage of the emerging huge market opportunity presented by recent global developments.”

The CBN governor described the fertiliser plant as timely considering the recent developments in the global market, where prices of wheat, fertiliser and crude oil spiked by over 20 per cent, following the start of the Russia – Ukraine war.

“In addition to the lessons we learnt from the protectionist actions of countries during the early days of COVID-19, this investment is again a glaring testament to the foresight and tireless efforts of Mr. President in encouraging domestic production of items that can be produced in Nigeria, especially agriculture. This would not only help to enable greater productivity of our agricultural sector but also help in insulating Nigeria farmers from depending on imported fertiliser,” Emefiele stated.

He recalled that prior to 2015 when President Buhari resumed office, Nigeria had a fertilizer shortfall of about 3.5 million tonnes per annum compared to the over 6 million tonnes per annum required in the country.

“Then President Buhari inaugurated the Presidential Fertiliser Initiative and charged them with resolving this problem. With sustained efforts, other indigenous companies like Indorama and Notore with a combined capacity of over 2.5 million tonnes per annum have tried to match the market demand, yet the country still faced a huge shortfall of fertiliser supply. Today, Nigeria is self-sufficient in the production of urea, and we are also the leading producer of urea in the African continent,” Emefiele added.

Mohammed El-Erian Chief Economic Advisor at Allianz, warned last week that for most countries, the Ukraine war’s immediate economic consequences include higher inflation (which erodes purchasing power), lower growth, increased inequality, and greater financial instability. The Nigerian economy looks to be in a good position to weather these storms as a result of the CBN policies.

Nigerian stocks (a leading economic indicator) which are up 24.31% so far this year is a testament to underlying strength of the economy as reflected by corporate earnings.