28 August 2017

Nigeria: Despite Price Slump, Banks Prefer Oil Sector to Manufacturing, Agriculture

An analysis of sectoral allocation of banking sector credit from 2015 to date has shown that banks pump more money into oil and gas than the manufacturing and agriculture sector.

This is even as the Federal Government is intensifying efforts to diversify the economy away from oil and focus more on the non-oil sector of the economy.

Though the oil and gas sector accounts for the bulk of Nigeria's foreign exchange earnings, the sector in recent times has been beset by price slump, which reduces its contribution to the nation's GDP.

In real terms, the non-oil sector contributed 91.10 per cent to the nation's GDP, while the Oil sector contributed 8.90 per cent of total real GDP in the first quarter of 2017.

Experts are of the belief that the two key sectors of manufacturing and agriculture if well-funded, have the potential in attracting foreign exchange to the country and reducing unemployment.

However, the two sectors have been suffering from liquidity challenges, a problem which an economist, Dr. Patrick Uzodinma, blamed on high interest rates and banks' preference for the oil and gas sector that has faster investment return rate.

Despite drastic slump in international oil price, banks continued to lend to the oil and gas sector of the economy than to both the manufacturing and even agriculture sectors.

Date sourced from the National Bureau of Statistics (NBS) showed that between the first quarter of 2015 to the second quarter of 2017, banks pumped N28.67 trillion into oil and gas.

The banking sector credit to oil and gas sector surpassed the credit to manufacturing sector by N8.5 trillion during the same period.

Data showed that within the period, banking sector credit to manufacturing was N20.17 trillion while that of agriculture was N4.91 trillion.

In 2016 when Nigeria went into recession due to reduction in foreign exchange earnings from oil, the banking sector increased its credit to the oil and gas sector while the value of credits to the manufacturing sector remained almost unchanged.

For instance, banking sector credit to oil and gas sector grew from N2.23 trillion in the first quarter of 2016 to N3.37 trillion in the second quarter of the year and eventually leaped to N3.65 trillion before it saw a slight drop to N3.59 trillion in the final quarter of the year.

Comparatively, the banking sector credit to the manufacturing sector which was N1.87 trillion at the first quarter of 2016 remained stable at N2.1 trillion at the second and third quarters of 2016 before marginally increasing to N2.22 trillion.

With funding being a huge challenge in 2016, many manufacturing companies cut production volumes and staff.

Despite increased policy direction towards agriculture in 2016 as part of the Federal Government's efforts to diversify the economy and create jobs of teeming Nigerians, the banking sector credit to agriculture remained low and fluctuated throughout 2016.

For instance, data showed that banking sector credit to agriculture slumped from N485.63 billion at the first quarter of 2016 to N480.64 at the second quarter.

Though credit to the agricultural sector increased to N491.28 billion in the third quarter and N525.95 billion in the final quarter of 2016, the cumulative value throughout the year remained far below the credits to oil and gas sector and even manufacturing.

Dr. Uzodinma, who is also a development finance expert, told Daily Trust at the side-line of an event in Abuja that manufacturers must turn to development finance institutions to rescue them from the current credit conspiracy of the Central Bank of Nigeria (CBN) and commercial banks.

The economist said there seems to be muted conspiracy between commercial banks and the CBN to keep interest rates high, beyond the reach of manufacturers and farmers.

He said as it stands in Nigeria, investors that can take the credit risk in Nigeria remain investors in the oil and gas sector despite the odds.

He said while banks are reluctant to even lend to manufacturers, the manufacturers are also being careful in taking loans from them considering the state of the economy.

He called for deliberate government policy to reduce interest in commercial banks and also encourage development finance institutions like the Bank of Industry (BOI) and the Bank of Agriculture (BOA) to pump money into manufacturing and agriculture in the country.


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