Three members of the CBN’s Monetary Policy Committee proposed a rate hike citing several factors including Nigeria’s galloping inflation rate. Their decisions contradict those held by other members of the committee who voted for a continuation of the current monetary policy rate of 11.5%.

This was contained in the personal statement of members of the  Monetary Policy Committee (MPC) in the meeting held on the 22nd and 23rd of March 2021. The decision to hold the rate steady was not unanimous as three out of the nine members voted to increase rates. These disconnects from the majority took their stand as a result of inflationary concern facing the Nigerian economy.

According to the Central Bank of Nigeria Communiqué No. 135 Of The Monetary Policy Committee Meeting, the members who were in support of hiking rates are namely; OBADAN, MIKE IDIAHI; SHONUBI, FOLASHODUN A.; and ADENIKINJU, ADEOLA FESTUS. The prime reason was the risk of high inflation on the economy.

Despite the slight push back, the MPC decided to hold the rates, owing to the supply factor and the weak economic recovery of Nigeria. The CBN governor Godwin I. Emefiele and five others were in support of maintaining rate despite unstable inflation postulating that supply factor is fundamental to healthy recovery especially as a result of the pandemic.

Emefiele said: “Supply constraints remain the key driver of both the inflationary pressure and the weak growth that we observe today. The weak GDP recovery provides an argument for further policy ease to support growth, but rising inflationary expectations justify a tightening. My inclination today is for a more balanced and cautious approach to monetary impulses.”

Even though Emefiele admitted that inflation rate could rise in the near term, he feared that an adjustment of the MPR could worsen Nigeria’s “conditions” especially with the tepid recovery we are still experiencing.

“I reiterate the imperatives of targeted lending to productive sectors to sustain growth without undermining our core objective of price stability. Based on the near-term inflation expectations and growth outlook, my position is to maintain the current stance of monetary policy and intensify our interventions. An adjustment today could in my view, destabilize the fragile recovery and worsen domestic conditions.”

However, some members who did not share the view and speculation about higher inflation may affirm this stand OBADAN, MIKE IDIAHI postulated that the CBN should put more pressure on deposit money banks to comply with the LDR scheme, according to him.

OBADAN stated that, “We are faced with the dilemma of low and fragile growth that needs to be reversed, accelerating inflation also needs to be tamed because it is Classified as Confidential and has a negative impact on people’s welfare and macroeconomic stability which is required for enhanced investment and production. Orthodox policy instruments available to the Bank are not capable of achieving the desired goals of strong growth and inflation control simultaneously without sacrificing one for the other. Stability needs to be brought to bear on the policy-induced drivers of the current inflation acceleration, while the MPR can be raised marginally with three objectives in mind: to signal the sensitivity of the Bank to address any possible monetary influence on inflation.”

A skeptical and more hawkish Obadan also suggested that the recent inflation rate was also due to monetary policy reasons such as increased lending due to CBN’s LDR Policy, depreciation of the naira and a lower interest rate environment which drives people into assets that provide a hedge against the naira.  He also suggested that more efforts should be geared towards attracting foreign portfolio inflows.

“The factor of monetary influence on inflation cannot be ruled out completely. It interacts with other factors to drive inflation, perhaps, in a limited role. Against the backdrop of the Loan-to Deposit Ratio (LDR) policy, I do not expect the MPR adjustment to adversely affect the volume of lending significantly. To this end, we should put more pressure on the deposit money banks to comply with the LDR policy. Marginal upward adjustment of the MPR can also signal the desire of the Bank to tackle the phenomenon of negative real interest rate. Finally, in the short term, it could be a signal to foreign private investors while we implement measures to ensure stable sources of external reserves accretion in the medium term. Yes, foreign portfolio investment flows are indeed hot monies that tend to be very volatile. However, under conditions of improving growth, such flows could play a stabilising role in the economy. So, my vote is: raise MPR by 50 basis points and leave the other parameters as they are.”

SHONUBI, FOLASHODUN A., on the other hand, emphasized inaction was not an option considering how weak and fragile the economy currently is.

“Clearly, not doing anything will portray the Bank as abandoning its mandate of price stability. In as much as growth remains weak and fragile, we cannot afford to pull the brake to avert a more damaging reversal of the trend in output growth. Notwithstanding that the present inflationary pressure is largely attributed to non-monetary factors, its persistence, and reversal of the moderation in month-on-month growth stresses the need for the Bank to take immediate action. Whereas it may appear unfeasible to deploy the conventional monetary policy to pursue growth and tame inflation simultaneously, the Bank cannot abandon either of the objectives at this time.”

He also called for the continued intervention in key sectors of the economy postulating that this will boost economic growth.

“I believe the Bank’s interventions through the aggressive provision of credit should continue as a complement to the ongoing effort by the fiscal authority to boost economic activities. As the Government acts more decisively to discourage bad behaviour and restore orderliness, we must collectively work to overcome the insecurity challenges. At the same time, we must begin to tighten to deal with the subtle monetary component of inflationary pressure and curb spiraling inflation, without suffocating economic growth.”

Adenikinju, the last of the trio emphasized on the need for the CBN to focus on addressing higher inflationary environment. He also explained that addressing inflation will signal to economic agents that the central bank is keen on stabilizing prices thus curbing the demand for forex.

He stated that the persistently high inflation rate is cause for concern and that the CBN should begin refocusing its efforts to counter it, signaling to the wider economy that the CBN’s top priority would help to minimize foreign exchange market excesses, reduce liquidity-induced inflationary pressures on the economy, and protect fixed-income earners.

“The rising global commodity prices, plus the depreciating exchange rates and relatively high costs of shipping and clearing of goods at the Nigerian ports have all contributed to high imported inflation and reduced the extent to which imports could have mitigated the impacts of high domestic food prices in the short term. However, the weak economic growth, rising unemployment and poverty also mean that we cannot aggressively pursue strict price stability at a time we are slowly crawling out of recession. I see the CBN intervention credit as complementary and not a substitution to credit from the deposit money banks. Also given the focus of capital expenditure of the government this year, it then means that we can focus on growth and tackle inflation at the same time. However, I believe the persistently high inflation rate is concerning enough for CBN to start shifting its focus to address it. Signaling to economic agents that price stability remains the focus of the CBN will also curb some of the excesses in the foreign exchange market and reduce the liquidity induced inflationary pressures on the economy and protect fixed income earners.”

Bottom line

Whilst the trio may not have gotten their wish, we believe the CBN might raise rates to cool off the galloping inflation rate. The CBN has gradually raised rates on its short-dated securities, a clear indication that it is worried about widening the negative real interest rate emanating from rising inflation.

Some of Nigeria’s mega corporations spent about N143.7 billion in 2020 representing a 12.5% drop from the same period in 2019. This is according to data compiled by Nairalytics and sourced from the published financial statements of the companies.

According to a PWC report on entertainment and media, Nigeria’s entertainment market is poised to reach $10.8 billion (N4.4 trillion) in 2023, having reached $4.5 billion in 2018. The report stated that Nigeria’s E&M market is dominated by internet revenue, indicating a foreseeable growth in this sector in the coming years.

The report also projected Nigeria’s total advertising revenue at $483 million (N193 billion) in 2020, with the internet accounting for 20.5% of the total. The study revealed that although television advertisement will remain the ad leader in Nigeria by 2023, internet advertisement will outperform TV ad in terms of net additions.

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A similar report also revealed that most of the world’s best-performing entertainment and media consumer markets are in developing countries, with the likes of India, Nigeria, Philippines, Saudi Arabi, and Pakistan taking the lead, in that order.

The year 2020 was ravaged by the covid-19 pandemic, triggering a lockdown in some of the major economic hubs in the country. However, blue Chips still splurged heavily on advertising and marketing campaigns as they jostled to adjust to the new normal.

As Nigerians sat at home in response to the lockdown, they had more time to binge on streaming services, browse social media and engage in several other online activities. Advertisers had no choice but to keep up with the times, spending about $350 million on advertising and marketing. Whilst there was no dominant sector, the likes of Nigeria Breweries and MTN led the table as the highest spenders in the year.

Nigerian Breweries – N24.86 billion

Nigerian Breweries, the largest brewing company in Nigeria, which also exports to other parts of the West African region spent a total of N24.86 billion on advertisement and sales promotion in 2020,

This represents a decline of 13.8% compared to N28.85 billion spent in the previous year.

The brewing giant embarked on a number of endorsement and advertisement projects in 2020, some of which includes the endorsement of Grammy-winning Nigerian musician, Burna Boy as a brand ambassador for Star Lager, one of the products of the company.

In November 2020, the company also announced Erica Nlewedim of the Big Brother Naija reality tv show as a brand ambassador for the relaunch of their drinks, Legend Extra Stout and Star Radler as the brewing company aimed to improve sales of the products.

The company also sponsored the Access the Star musical talent show together with Access Bank.

This reflected in the company’s top line as it reported a 4.34% increase in revenue from N323 billion in 2019 to N337 billion in 2020.

MTN Nigeria – N15.14 billion

The telco giant incurred a total of N15.14 billion in advertisement, sponsorships and sales in 2020, representing a 13.83% decline compared to N19.84 billion recorded in 2019.

Some of the projects embarked on by MTN Nigeria in the period under review includes the launching of a campaign tagged “Turn-It-Up”, which is expected to help Nigerians turn things up and live their best. The programme generated a series of TV, radio press, and outdoor advertisements during the year.

Later in the year MTN Nigeria also unveiled a new campaign for its youth proposition, MTN Pulse which featured Nigerian music sensation as an ambassador of the campaign.

The company increased its revenue in this period by 15.1% as Nigerians increased their use of the internet and phone conversation to cope with the new reality of staying home during the lockdown.

Dangote Cement – N12.18 billion

The most capitalised company on the Nigerian Stock Exchange and a top cement producing company in the country spent a sum of N12.18 billion on advertisement and promotion in 2020.

Its advert expenses increased significantly by 41.7% from N8.6 billion recorded in the previous year to N12.18 billion in 2020.

The cement industry is not known for television advertisements as it is easier to use physical and online banner advertisements to promote the product.

Dangote Cement is one of the highly profitable companies in the Nigerian corporate space. It reported a 15.98% increase in revenue, as it hit the one trillion naira mark compared to N891.7 billion reported in the previous year.

Access Bank – N11.32 billion

Access Bank closely followed Dangote Cement, having spent N11.32 billion on advertisement and marketing expenses in 2020. This represents an 80.49% increase when compared to N6.27 billion recorded in 2019.

Access Bank together with Nigerian Breweries, sponsored the “Access the Star” musical talent show in 2020, where the winner walked home with a grand prize of N150 million along with consolation prizes for the first and second runners up.

The company also engaged in a number of television, radio and online advertisements during the year.

This translated to a 14.69% increase in revenue of Access Bank as it posted a top line of N764.72 billion during the period.

Fidelity Bank – N9.59 billion

Fidelity Bank spent N9.59 billion on marketing, communication and entertainment in 2020, an 8.02% reduction compared to N10.43 billion recorded in the previous year.

The bank created online contents and other advertisements across various channels in the year. It also worked on placing banner ads on some internet media platforms in the country.

Fidelity bank however posted a 5.42% decline in revenue from N218 billion recorded in 2019 to N206.2 billion in 2020.

It is worth noting that Fidelity Bank’s advertisement expenses, includes communication, entertainment and marketing costs.

Others that made up the list of top 10 companies with highest advert expenses in 2020 are:

International Breweries – N8.82 billion

UBA – N8.51 billion

Guinness Nigeria – N8.18 billion

FBN Holdings – N7.72 billion

Zenith Bank – N7.66 billion