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FG seeks $200m German support for proposed development finance institution

By BusinessNews Staff on June 15, 2014

The federal government has moved a step further to actualise its proposed wholesale development finance institution aimed at ensuring the growth of the real sector as it seeks to secure a $200 million (about N32 billion) soft loan from Germany.

The German Minister for Economic Planning and Development, Mr. Gerd Mueller, other top German officials and businessmen are already in the country for talks with the federal government on the facility as well as other areas of investment and cooperation with Nigeria.

Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, who hosted the delegation, which also included the German Ambassador to Nigeria, Janetzke Wenzel, in Abuja yesterday, said Germany boasts a very strong development bank, adding that Nigeria was fascinated by how the country built such a successful institution.

She said the quest to replicate such an institution in Nigeria that would drastically cut down interest rate in order to boost investment and ensure the growth of the real sector had inspired the federal government to seek the establishment of a wholesale development finance institution.

The minister hinted that the federal government was seeking about $200 million soft loan at concessionary rate to enable Nigeria set up a development bank similar to that country’s development bank, adding that the country was willing to benefit from the Germany’s success story through such an establishment.

Although sketchy details were available on the proposed loan, Okonjo-Iweala had earlier met behind closed doors with Mueller, the German Ambassador to Nigeria, Wenzel, as well as other officials and businessmen to discuss various areas of economic cooperation between both countries.

Signals coming from the German government during the meeting, THISDAY gathered, are positive as Okonjo-Iweala is billed for Germany soon for further discussions on the specifics and make further progress.

The federal government had last year unveiled its plan to set up a wholesale development finance institution to provide long-term, low interest finance to the real sector as part of overall efforts to stimulate growth in the economy.

Addressing the visiting German officials, Okonjo-Iweala urged German investors to cash in on the great potential available in various sectors of the Nigerian economy, including power, creative industry, agriculture and infrastructure, among others.

She noted that, for instance, the nation’s creative industry, particularly Nollywood, creates over 200,000 jobs annually and urged German investors to invest in the sector.

“ As we know, Nigeria recently rebased her gross domestic product (GDP). For 24 years, we had not known the real size of our economy; we hadn’t rebased. We are supposed to do it every five years. We finally did it and we found out that we are the largest economy in Africa now, by size—a GDP of $510 billion. But we should also modestly remember that on per capita basis, Nigeria still remains a low-middle income country with a per capita GDP of about $2658. So that makes us a low-middle income country. But it is true we are the largest economy in Africa. We have been growing at an average rate of seven per cent per year for almost a decade now. We’ve been very consistent, and I think we have done it because we carried out several reforms which are yielding benefits. We have also maintained a very stable macroeconomic framework.

“Now, in terms of prospects, we are estimating this year that Nigeria will grow by about 6.75 per cent, even after the rebasing. Of course, others may be a bit more optimistic; the IMF is projecting about 7.2 per cent and some other economic projections even put us higher than that. But we try to be a bit more modest. This growth rate takes into account the fact that we have some turbulence in the North-east of the country. So, we have already, sort of, factored in that particular problem. We maintain a very prudent macroeconomic stance. Our Debt-GDP ratio, after the rebasing of our economy is low at about 11 per cent. Our fiscal deficit is low. “

Under the old GDP numbers, it was 1.58 per cent, but now, it’s just about 1 per cent. Inflation is about 8 per cent single digit; we brought it down from 12 per cent Our current account is strong, our reserves are relatively strong, at about five months. So, I think on the macro-economic front, we are very healthy. Why is that important? That gives us the basis to now look into the sources of growth because even though we have been growing well, we have two or three difficult problems or challenges. One is the challenge of jobs, just like everywhere in the world. In Germany, not so much. You are one of the countries that are doing relatively well,” she said.

The minister noted that despite strong economic growth , Nigeria was faced with three ‘difficult’ challenges, including unemployment, inequality and inclusion.

“Inequality has increased as we have grown, which is not what we want… We also have the challenge of inclusion. Unemployment, inequality and inclusion are the three challenges. What are we doing to solve these? President Goodluck Ebele Jonathan has really focused on these problems, particularly that of jobs. He worries about job creation every single day, and so we have been looking at the sectors—to develop sectors that create jobs…” the minister pointed out.

She said the administration’s transformation agenda had continued to reform various sectors of the economy, noting that a very interesting programme on housing has been launched with the setting up of the Nigeria Mortgage Refinance Company (NMRC).
The minister noted that housing can be a very strong source of job creation as well as providing a social function of shelter to those at the bottom-end of the ladder. With the launch of NMRC, she said, an increase in the number of housing in the country was expected.

Reacting to a question on whether insurgency in some parts of the country affects the economic fortunes of Nigeria, the minister said about 95 per cent of the country was working, adding that although the problem was largely limited to a part of the country, its impact was always factored in when projections were made.

The minister said the best and objective way to assess the strength and vibrancy of the Nigerian economy was through the yields of its bonds in the international market
Okonjo-Iweala, who also briefed the Germans on the continuing efforts to free the abducted Chibok schoolgirls, said although the strategy may not be available at the public domain, the federal government was unrelenting.

She also disclosed that President Jonathan has already approved a matching fund of $10 million for the ‘Safe Schools Initiative’ being championed by Nigerian business leaders with the active involvement of a former British Prime Minister and United Nations Special Envoy on Education, Mr. Gordon Brown .

The $10 million, she said, would be released soon as it is already being processed, adding that the business leaders had earlier put down $10 million.

The minister expressed delight that the initiative was being embraced globally as Norway, United Kingdom, The African Development Bank (AfDB), and the World Bank, among others, are getting involved in the initiative, aimed at making schools in the northern part of the country safe for students

The initiative, she added, would dovetail into the North-East Development Initiative, designed to turn around the region’s development fortunes for good.

In his remarks, Mueller said Germany was looking at setting up vocational centres in Nigeria as well as research institutions and exchange programmes with Nigeria. He noted that the issue of involvement in the Safe Scholls Initiative would be discussed at the German parliament.

[This Day]

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