CBN’s Devt Finance and Nigeria’s Economic Recovery Journey

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Hameed Babagana
The International Monetary Fund (IMF) last week acknowledged the fact that the Nigerian economy is the path of recovery.
“Executive Directors welcomed Nigeria’s ongoing economic recovery, accompanied by reduced inflation and strengthened reserve buffers,” the IMF stated in its latest Executive Board’s 2019 Article IV Consultation with Nigeria.

It noted that real Gross Domestic Product (GDP) in the country increased by 1.9 per cent in 2018, up from 0.8 per cent in 2017, on the back of improvements in manufacturing and services, supported by spill-overs from higher oil prices, ongoing convergence in exchange rates and strides to improve the business environment.

According to the Fund, headline inflation fell to 11.4 per cent at end-2018, reflecting declining food price inflation, weak consumer demand, a relatively stable exchange rate and tight monetary policy during most of 2018, but remains outside of the central bank’s target range of 6- 9 per cent.

It is worthy to note that the improvement in manufacturing, services and agricultural activities that was pointed out by the fund has been the focus of the Central Bank of Nigeria (CBN) under Mr. Godwin Emefiele as it continues to carry out its developmental finance functions, focused on all the key sectors of the economy.

Clearly, the central bank has carrying out this responsibility in collaboration with the fiscal authorities.
In the past five years, the CBN under the leadership of Emefiele has been involved in intervening in critical sectors across Nigeria.
No doubt, the core function of the CBN is the maintenance of price stability. However, for this to be achieved, there must be monetary stability and sound financial environment with unhindered access to credit by the real sector.

The developmental role and monetary policy functions of the Bank are mutually complementary. The neglect of one would lead to under development.
To stimulate increase in the flow of long-term financial resources to critical sectors that have multiplier effect on the economy. Its focal areas include agriculture; manufacturing; micro, small and medium enterprises (MSMEs); and infrastructure.

The rationale for the intervention by the CBN includes to champion the improvement of financial inclusion level and poverty reduction; quantitative easing measure to stem the impact of the global financial crisis and improve the financial position of banks, promote agricultural value chain development, job and wealth creation and diversification of the economic base.

Indeed, central banks in developing economies aim at the promotion and maintenance of a rising level of production, employment and real income in the country. This they do by working in alignment with the fiscal authorities for effective policy transmission.
The CBN recently put the value of its development finance interventions across the country at over N1.36 trillion.

Some of these include the N373.73 billion that had been expended on the Commercial Agriculture Credit Scheme (CACS) as at the end of July 2016; the N381.99 billion that had been deployed into the SME Restructuring and Refinancing Facility (SMERRF); the N74.797 billion disbursed under the Micro, Small and Medium Enterprises Development Fund (MSMEDF); the N261 billion so far disbursed under the Power and Airline Intervention Fund (PAIF); and the Nigeria Electricity Market Stabilisation Fund (NEMSF) which received N106.64 billion as at July, 2016.

Some other interventions by the central bank included the Agriculture Credit Guarantee Scheme Fund (ACGSF) which has so far received N100.10 billion; the SME Credit Guarantee Scheme (SMECGS) whose intervention was put at N4.219 billion as well as the Anchor Borrowers’ Programme (ABP) through which N15.77 had been deployed.

The ABP launched by Emefiele, aims at creating economic linkages between over 600,000 smallholder farmers and reputable large-scale processors with a view to increasing agricultural output and significantly improving capacity utilisation of integrated mills. Under the programme, the sum of N40 billion has been set aside from the N 220 billion micro, small and medium enterprises development fund for farmers at a single-digit interest rate of nine per cent.

In addition, the central bank created a N300 Billion Real Sector Support Fund (RSSF) established as part of the efforts to unlock the potential of the real sector to engender output growth, value added productivity and job creation. N152 billion has been approved five projects under the RSSF.

Emefiele recently emphasised that the central bank’s determination to improve lending to the real sector of the economy would stimulate employment generation and boost accretion to foreign reserves through non-oil exports.
No doubt, the sharp fall in crude oil prices since June 2014, has led to a significant drop in the country’s revenue and as well as the country’s external reserves.

Also, the CBN has been acting as a financial catalyst in specific sectors of the economy particularly agriculture, in a bold effort to create jobs on a mass scale, improve local food production, and conserve scarce foreign reserves.
For instance, it had introduced the Youth Innovative Entrepreneurship Development Programme (YIEDP). The scheme was launched in furtherance of the CBN’s intervention in the real sector of the economy and job creation effort.

The pilot phase of the programme had targeted 10,000 youths in productive activities within the next four years. Under the scheme, a credit line of up to N3 million would be made available to each eligible youth, while recipients who made good utilisation of the funds would be encouraged to migrate to other CBN intervention schemes that would enable them access more funds

Emefiele, while commenting on the initiative had explained that: “The far reaching objectives of the CBN in the implementation of schemes and programmes for real sector development focus on the inherent potential in the sector is-a-vis our conviction that the sector has sufficient employment capabilities, high growth potentials, contributes significantly in accretion to foreign reserves, expands the industrial base and apparently diversifies the growth potentials of the national economy.”
In addition, as part of efforts to boost activities in the non-oil sector of the economy, the CBN recently unveiled a N500 billion low interest rate non-oil export facility.

The banking sector regulator had explained that the fund was established to support the diversification of the economy away from oil and to expedite the growth and development of the non-oil export sector. According to the guidelines for operating the fund, the CBN will invest in a N500 billion debenture to be issued by Nigerian Export-Import Bank (NEXIM) in line with section 31 of CBN Act.

It further stated that the facility was essentially designed to redress the declining export credit and reposition the sector to increase its contribution to revenue generation and economic development. It will improve export financing, increase access of exporters to low interest credit and offer additional opportunities for them to upscale and expand their businesses in addition to improving their competiveness.

The Nigerian Export – Import Bank (NEXIM) shall be the Managing Agent of the Non-Oil Export Stimulation Facility (ESF). It shall be responsible for the day-to-day administration of the Facility and rendition of periodic reports on the performance of ESF to CBN.
Beside these, the CBN and banks, under the aegis of the Bankers’ Committee, last week said they have resolved to commence the disbursement of single-digit loans to the creative industry, some targeted cash crops, as well as to intensify their support for other operators in the non-oil sector. The amount to be disbursed to operators in these sectors was put at N200 billion.

The Group Managing Director/Chief Executive of Access Bank, Herbert Wigwe, the committee revisited the entire value chain of music, movies, information technology and fashion, right from production facilities to capacity building, to ensure that whatever is produced is world-class.

“At the Bankers Committee, we got the approval to take it to the next level, which is simply to do a final presentation and share it with the market and how it’s going to happen. So by next week there will be announcement for people who want to participate in each of these segments.
“The specific amount will depend on which of the strata you fall into and what you are doing. The loans are for a maximum of 10 years, they are single-digit interest rate loans and reflective of the fact that in these industries, what you require is long term financing at single-digit; while we will ask for collateral it will be flexible,” Wigwe added.

On his part, the Managing Director of the United Bank for Africa Plc (UBA), Mr. Kennedy Uzoka, who spoke on the resolutions of the committee to enhance support for the real sector said: “The committee believes that we really haven’t made so much progress in this direction and subsequent to that, the committee set up a sub-committee and the sub-committee of members are those who have operated in continents where export have done very well. We have seen some countries that have similar products and have excelled in exporting while we have dropped.”

With the foregoing, there is clearly the need for Nigerians to support the central bank as it continues to design policies that would propel Nigeria’s economic recovery.
Also, considering Emefiele’s laudable performance in the last five years, it will not be out of place to retain him so that he can continue the good work at the central bank and ensure economic stability.

Babagana, a public affairs analyst writes from Abuja