On the very topical issue of blockchain technology, digital assets, and cryptocurrencies, let me say two things. First is that there is no question that blockchain technology generally and cryptocurrencies, in particular, will in the coming years challenge traditional banking, including reserve banking, in ways that we cannot yet imagine.
I think it would be important to address the issue of growth from two perspectives. First is the immediate and pressing need to recover from the economic crisis caused by the COVID-19 pandemic. The other is to bring about increased and inclusive growth in the economy.
It is, of course, no longer news that the Nigerian economy has climbed out of its second recession in four years, with the economy growing by 0.11 per cent in the fourth quarter of 2020, after two successive quarters of negative growth. The growth rate of 0.11 per cent, though marginal, is encouraging because it is a V-shaped recovery with a growth of 3.74 percentage points from the previous quarter. Indeed, although growth for the full year 2020 was still negative at -1.92 per cent, it was far better than predicted by domestic analysts and international agencies.
We all as policymakers, lawmakers, and business leaders have cause to cheer this relatively good performance in the face of the negative impact of the COVID-19 pandemic. It shows what we can achieve as a nation if all of us work together with sincerity and a sense of purpose towards achieving a common objective.
This encouraging growth performance owes a great deal to the early actions of Mr. President, first in providing an initial stimulus and then, constituting the Economic Sustainability Committee and the Economic Sustainability Plan.
In addition, direct support and easier credit terms with the proactive support of the Central Bank of Nigeria (CBN) given to individuals, households, businesses, and some specific sectors, greatly helped.
Let me stress, however, that we cannot afford to get carried away or to let up on our efforts. For one thing, COVID-19 is still with us and even when we overcome its economic challenges, we still have our ultimate objective of achieving sustained, sustainable and inclusive growth to lift millions of Nigerians out of poverty.
We must remember that there is still the risk of a W-shaped economic recovery, where the economy slides back into negative growth, if the health outlook worsens or, indeed, if we let up in our efforts to stimulate the economy.
In terms of health, if the COVID-19 virus continues to mutate or we relax our non-pharmaceutical interventions of social distancing, face masking and hand sanitisation, then we might be faced with increasing infection rates that may call for the tightening of restrictions. Vaccinations as early as possible will, of course, help greatly in stemming the tide of the disease and its economic impact.
Moving beyond the pandemic-induced crisis, I feel that the first step in achieving lasting growth is to focus on productivity and value addition.
We simply must encourage value addition in every sector of our economy. For example, in agriculture, our focus must be on the processing of raw produce; adding value means more jobs and the value chain makes more money. Same with mining; more beneficiation. Already we have seen quite a few investments in gold refining. A lot of value that will be added to the mining of gold have multiplier effects on our economy.
Manufacturing, especially light manufacturing, is key; we can be the factory for the continent. We have been discussing the prospects of zero taxes for machinery generally. Machines mean production in one form or the other.
We must, of course, encourage investments in information and communications technologies, creative industries, tourism, amongst others.
…I fully appreciate the strong position of the CBN, the Securities Exchange Commission (SEC), and some of the anti-corruption agencies on the possible abuses of cryptocurrencies and their other well-articulated concerns. But I believe that their position should be the subject of further reflection… There is a role for regulation here.
In sum, government policy should be geared to making Nigeria a value-adding economy, especially in our areas of comparative advantage.
Talking of comparative advantage, Nigeria must leverage its trading talents. We have some of the greatest traders and entrepreneurs in the world, such that we can become a global trading hub. It is important to loosen generalised restrictions on trade.
Blanket import restrictions are a dampener on economic activity because a lot of items that might be needed in the manufacturing process might be affected, with consequent negative impact on value addition in the economy.
Importation itself is not the problem. It is what you import and what you do with it. It is value-addition that matters. This is how jobs and wealth can be created. Many countries of the world who manufacture are huge importers. And they import far more than Nigeria.
Let us take the example of garment manufacturing. Bangladesh, the world’s leading garment manufacturer, does not produce most of the cotton it uses. As a matter of fact, it only grows 2 per cent of its annual cotton requirement. In 2019, Bangladesh imported $11.8 billion dollars’ worth of textiles and apparel, while it exported $37.94 billion dollars worth of garments in the same year. There is every need for us to look at areas where we may have an advantage, and in those areas, we may need to expand our export capacity.
The tourism, hospitality, and entertainment sectors suffered severely as a result of the COVID-19 pandemic, but these sectors can make significant contributions to economic growth. Some of the interesting ideas coming from the Ministry of Trade and Industry involve boosting tourism by combining it with trade, such that Africans, including those in Diaspora, see Nigeria as the best destination for shopping for cosmetics, electronics, gadgets, clothes, shoes, (just like Dubai attracts people from all over the world, and in many ways, has become the shopping capital of the world).
A starting point will then be the introduction of a national shopping month, so that rather than having “Black Friday” (a day where a lot of shopping takes place), it can be a Nigeria Month for shopping tied to tourism.
Another thing that we need to do promptly and about which discussions are going on is to combine a strategy of managing limited supplies with one of aggressively expanding the supply base. This is particularly true of foreign exchange. We must address supply.
Aside from moving towards a more market reflective exchange rate, we have accepted that we need to take more dramatic steps to boost exports in order to earn foreign exchange. In this regard, there is consensus about other urgent steps required. These include the establishment and promotion of export trading houses; ensuring that companies in Special Economic Zones export most of their products; expanding and revitalising the export expansion grant scheme, (the President has approved a N50 billion export expansion facility, as part of the Economic Sustainability Plan, to provide support for exporters, particularly MSMEs).
Also, the removal of any existing export restriction; creation of special export terminals; export promotion of non-traditional agricultural commodities, such as sesame, fruits, horticulture, hibiscus, and cashews, are all crucial. Of utmost importance is that we must remove restrictions on the use of export proceeds. The way to incentivise exporters is to give them the liberty to bring their export proceeds into the economy and use them as they please.
In a similar context, it is clear to the government that we must find a way of moving the Nigerian digital economy into overdrive. Of course, the telecoms sector in Nigeria has made giant strides with its value growing almost 40 times from 1990 to date.
The point though is that we still have a lot more to do. For instance, although widespread computing started less than 30 years ago, India has already managed to build its software exports from scratch to $136 billion worth by 2019.
Take, for instance, the challenge that small businesses face in accessing credit because they lack collateral. It is clear that the way to go now is the use of solutions based on artificial intelligence and machine learning algorithms to determine the creditworthiness of people and entities for the purposes of lending to them…
Similarly, the “Big Six” technology companies – Facebook, Amazon, Apple, Alphabet, Microsoft, and now Tesla – account for up to half of the value of the NASDAQ 100 and had nearly $1 trillion in revenues in 2019.
By contrast, Nigeria’s GDP in 2019 was just about $450 billion. What this shows is that as a nation, we have to embrace technology and learn to use it for our own developmental purposes.
The banking industry demonstrated that it could do this with the introduction and deployment of the biometric verification number (BVN), but it is yet to demonstrate the same innovative spirit in relation to FinTech and mobile payments.
Take, for instance, the challenge that small businesses face in accessing credit because they lack collateral. It is clear that the way to go now is the use of solutions based on artificial intelligence and machine learning algorithms to determine the creditworthiness of people and entities for the purposes of lending to them without collateral.
We are seeing a good number of small FinTech companies in Nigeria offering this service. This principle is already in play in the mobile telephone sector where it is possible for subscribers to borrow credit on the basis of the value of their past purchases of airtime. So, there is a lot to be done in that area, especially because of the sheer number of MSMEs in Nigeria and the questions around access to credit. We simply have to make access to credit easier. Technology is offering us new opportunities and new vistas and we must take advantage of them.
On the very topical issue of blockchain technology, digital assets, and cryptocurrencies, let me say two things. First is that there is no question that blockchain technology generally and cryptocurrencies, in particular, will in the coming years challenge traditional banking, including reserve banking, in ways that we cannot yet imagine. So we need to be prepared for that seismic shift. And it may come sooner than later.
Already remittance systems are being challenged. Blockchain technology will provide far cheaper options to the kind of fees being paid today for cross-border transfers by banks.
I am sure you are all aware of the challenge that the traditional SWIFT system is facing from new systems like Ripple, which is based on the blockchain distributed ledger technology with its own crypto tokens.
There is, of course, a whole range of digital assets spawned daily from blockchain technology. Decentralised finance, using smart contracts to create financial instruments, in place of central financial intermediaries such as banks or brokerages, is set to challenge traditional finance. The likes of Nexo Finance offer instant loans using cryptocurrency as collateral. Some reserve banks are investigating issuing their own digital currencies.
Clearly, the future of money and finance, especially for traditional banking in Nigeria, must be as exciting as it is frightening. But as we have seen in many other sectors, disruption makes room for efficiency and progress.
Secondly, I fully appreciate the strong position of the CBN, the Securities Exchange Commission (SEC), and some of the anti-corruption agencies on the possible abuses of cryptocurrencies and their other well-articulated concerns. But I believe that their position should be the subject of further reflection.
There is a role for regulation here. And it is in the place of both our monetary authorities and SEC to provide a robust regulatory regime that addresses these serious concerns without killing the goose that might lay the golden eggs.
…the banking sector has a crucial part to play in promoting increased and inclusive growth in Nigeria and I take this opportunity to commend, first, CBN for the forward-looking support for growth-related initiatives, especially under the Economic Sustainability Plan. The banks also for their patriotic contribution to sustaining growth in the country by creatively accommodating their clients…
It should be thoughtful and knowledge-based regulation, not prohibition, in my view. The point I am making is that some of the exciting developments we see call for prudence and care in adopting them and this has been very well articulated by our regulatory authorities, but we must act with knowledge and not fear. We must ensure that we are in a position to benefit and in a position to prevent any of the adverse side effects or even possible criminal acts that may arise as a consequence of adopting any of these options.
Infrastructure is, of course, critical for increasing growth and productivity and the Buhari administration has a track record of building roads, rail, and power projects across the country. In spite of this commitment, we are still very far away from meeting the full infrastructural needs of the economy. This is one reason why we have resorted to public-private partnerships for the provision of infrastructure.
In addition to the Road Infrastructure Tax Credit Scheme, through which private sector companies are allowed to recoup the costs of building roads from their tax payment obligations, the President has now approved the establishment of InfraCo, which will be a public-private partnership chaired by the CBN governor to overcome our infrastructural deficits. I expect that this is a project that will excite the interest of financiers and bankers and I encourage you all to lend support to make it a success.
As we increase investment in all these areas, we must also pay attention to skills. The CEO of Apple Corporation, several years ago, pointed out that the reason his company makes iPhones in China is not because of the cheap labour there, but rather because of the concentration of high-level skills in that country.
At the time he made the statement, there were over two million app developers in China. Undoubtedly human capital development underpins growth beyond the benefits that accrue from having a well-educated populace.
Before concluding, let me emphasise that in order to engender sustained economic growth, we must think in terms of scale. I am quite concerned when I hear that national interventions are classified as pilots involving, sometimes, no more than 1000 people or such small-scale interventions.
Given the size of our population, we cannot afford the luxury of pilot projects. We should design our interventions very carefully and then go big. This is the way our financial institutions must also think in terms of supporting government projects.
It was quite puzzling to me when people said that our plan to build 300,000 houses in Nigeria under the Economic Sustainability Plan (ESP) was too ambitious a target. After all, when you look at it, this just amounts to 400 houses per local government, yet many of our local governments are larger than some African countries that would not consider building 400 houses in one year as an onerous task. I do appreciate the reason why 300,000 houses may be considered daunting, obviously there are capacity issues and also issues around absorbing some of the implications of building in that way.
The truth is that the task of national development requires that we fire on all cylinders. We simply have to think big and ensure that we develop the capacity to implement the big things and projects on scale. After all, at one stage, China was building 1.9 million housing units per year over a number of years.
Let me end by restating the obvious, that the banking sector has a crucial part to play in promoting increased and inclusive growth in Nigeria and I take this opportunity to commend, first, CBN for the forward-looking support for growth-related initiatives, especially under the Economic Sustainability Plan. The banks also for their patriotic contribution to sustaining growth in the country by creatively accommodating their clients, especially those that faced difficulty at the height of the pandemic.
You should nevertheless go further to deepen the provision of patient or long-term capital that would allow businesses to grow over the long term.
Some of you have shown this spirit with regard to providing finance for programmes in the Economic Sustainability Plan, but we can certainly do a lot more in this regard. I know that you are in business to make profit, but I’m sure you don’t need anyone to tell you that you will make a lot more if the financing of investment promotes growth.
Yemi Osinbajo (SAN) is Vice President of the Federal Republic of Nigeria.
This is the text of a keynote address delivered by the Vice President at the CBN Bankers’ Committee Summit On the Economy, today, February 26.
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