CBN’s Timely Interventions in Manufacturing Sector

Operators in the Nigerian manufacturing sector and financial experts commend the Central Bank of Nigeria (CBN) interventions in the real sector and sued for improved access to infrastructure and foreign exchange to make the interventions more effective, writes Dike Onwuamaeze

The Governor of the CBN, Mr. Godwin Emefiele, took the podium on November 26 to deliver his seventh conservative keynote address to the annual dinner of the Chartered Institute of Bankers of Nigeria (CIBN). 

Emefiele said that the dinner was an occasion to highlight important developments in our economy and apprise stakeholders of the policy initiatives and focus of the CBN towards realising the ultimate goals of macroeconomic and financial stability. 

Among the important developments, he talked about was the more than N3.5 trillion the CBN made available to critical sectors of the Nigerian economy, especially the manufacturing sector.  

He stated that the CBN “created N1 trillion facility in loans to boost local manufacturing and production across critical sectors; of which 53 major manufacturing projects.”  

Other interventions of the CBN in the manufacturing sector included N100 billion, (which was later increased to N200 billion) intervention fund for the pharmaceutical manufacturing companies and healthcare practitioners meant to expand and strengthen the capacity of healthcare institutions.  

The interventions also included the N50 billion revival fund for the textile industry and the N10 billion intervention fund to the Kano State Government to revive industries in the state.

Emefiele said: “Our interventions particularly in the manufacturing and the agriculture sectors significantly helped to encourage continuous improvements in growth in these two key sectors of our economy. Today, we have also seen increased efforts of our local manufacturing firms to engage in backward integration efforts. Second, a visit to any major retail chain will reveal an increasing number of high qualities made in Nigeria products relative to imported goods, which is helping to increase domestic production, generate employment and wealth in our country. If these intervention efforts were not carried out by the monetary and fiscal authorities, our economy would have been in a grim state.

“We must take deliberate steps to diversify the base of the Nigerian economy. As the true African Giant, we must fold our sleeves and do everything possible to stop the incidence of importing anything and everything. Proactive steps on the part of stakeholders in the private sector in collaboration with the government in supporting the growth of sectors such as manufacturing, ICT, and infrastructure, will strengthen our ability to deal with the challenges of COVID-19, and stimulate further growth of our economy.”

Operators View

The members of the Pharmaceutical Society of Nigeria (PSN) have described the CBN’s single-digit interest rate intervention fund as a major development that significantly boosted the manufacturing capacity of firms in the industry.  

The President of the PSN, Mr. Sam Ohuabunwa, who spoke recently at the Financial Correspondent Association of Nigeria (FICAN) capacity building forum in Lagos, said that the fund would enable firms in the sector to build or complete new plants, acquire new equipment, and machinery, commence new processes of production that would expand their manufacturing and increase add on and value addition.

“The major thing,” according to Ohuabunwa, “is that the fund will lead to increased output and ensure that local production contributed more to the country’s pharmaceutical needs.

He said: “First, it is something we have prayed for. It is something that we have cried for. It is something that we have advocated and made case for many years ago that we needed special funding. We have even demanded the Pharmaceutical Industry Bank. So, we are happy that at last, thanks to COVID-19, the federal government through the CBN has eventually come to our aid. For us the N100 billion was a major response from the government through the CBN.”

He also said that many of those who applied in the first tier have received approvals and have accessed the funds through their corresponding commercial banks.

“A couple of them have started to apply them to affect what they needed it for capacity building, or building or starting new plants. Getting new equipment and starting new processes to expand their manufacturing and increasing add on and value addition. This shut in the arm from the CBN is supposed to boost that and we are eager to see it happen,” he said.

Ohuabunwa, however, appealed to the CBN to provide some of the intervention funds in foreign exchange to make them more meaningful to the industrialists.  

He said: “But feedback from those that have accessed the loans showed that they are having difficulties in converting the money into raw materials because of the shortage of foreign exchange.

“We appeal to CBN to make a special allocation to beneficiaries of this fund in foreign exchange to be able to import inputs. We have only received their verbal assurance to do something.”

A soothing balm 

Speaking in the same vein, the Chairman of the Pharmaceutical Sector of the Manufacturers Association of Nigeria, Mr. Fidelis Ayebae,  noted that the intervention came with a soothing balm because “there is no way we would be profitable by borrowing at between 25 and 30 per cent from the commercial banks.”

He said: “The window that CBN gave is nine months for people to access this fund. I have accessed it as the managing director and promoter of the Fidson Plc and I am sure that over time everybody that applied will access it given that the fund is real and that the CBN is indeed eager to assist the Nigerian industry to contribute their quota to nation-building.” 

The CBN, through the Bank of Industry (BOI) also provided N235 billion intervention fund for re-financing and restructuring of banks’ loans to the manufacturing sector. The objectives of the fund, among other items, included how to “fast-track the development of the manufacturing sector of the Nigerian economy by improving access to credit to manufacturers.”

The CBN also announced N50 billion special mechanism funds to revive the ailing textiles industry. The fund would be administered by the BOI at 4.5 per cent interest rate. It could be used as the CBN-approved non-interest financing instruments for refinancing of projects, long-term financing for the acquisition of plant and machinery, and working capital for the beneficiaries. 

According to the apex bank, “the seed fund, which is a one-off intervention, will terminate by December 31, 2025, with the maximum financial amount pegged at N2 billion for a single obligor for new facilities and N1 billion for refinancing.”

The CBN explained that the plan to turn around the textile sector was perfected at a meeting between its governor and textile mill owners.

Speaking to THISDAY on the textile fund, the President of the Nigerian Textile Manufacturers Association, Mr. Folorunsho Daniyan, said: “The intervention fund, as far as we can see, has been helpful to a large extent. The CBN is trying in its own way and has done quite a lot.  Sometimes ago, the CBN intervened and gave us facilities; it is like refinancing our debts. Yes, the CBN gave us loans and we have more money to do some things. 

“But these interventions will come to naught if we do not correct the anomalies in the Nigerian markets, especially smuggling and infrastructure.  However, this is not enough to take away the fact that CBN Governor, Mr. Godwin Emefiele, has been doing a lot for us. He has a passion for the survival of the Nigerian textile industry. I will give him that credit.”

The President of NECA, Mr. Taiwo Adeniyi, told THISDAY about the dramatic turnaround that happened in the BOI since 2016. The story, according to him, was about a company that approached the BOI for N750 million loan in 2010 but could not get the financing it needed for business expansion as the BOI insisted that it must produce a commercial bank’s guarantee. 

However, in 2016, the same organisation went back to the BOI. This time around the BOI did not waste time to guide the manufacturer to prepare its documents and instead of N750 million, the organisation smiled back to its office with N4 billion.

Adeniyi said: “The organisation is better for it today. I know a number of organisations that have benefitted from the BOI.”

Experts Applauds Development  

On his part, a Professor of Banking and Finance at Chukwuemeka Odumegwu Ojukwu University, Awka, Professor Jackson Ikeora, told THISDAY that the CBN’s intervention in the manufacturing sector should be seen for what it is: to encourage that sector which is part of the real sector, the sector for growth. 

Ikeora said: “I regard the CBN’s intervention as a Daniel come to judgment. Its interest rate is always reasonable. It will enable the manufacturing sector to plan properly and invest. Look at the multiplier effect of their investments: the higher their investment the higher the number of people they employ. 

“It will do something to reduce unemployment and at the same time increase productivity in the economy. There is also a forward and backward linkage that will help to boom the economy. It grows the economy, increases productivity, and grows aggregate demand and consumption. It will increase aggregate supply and finally economic growth will be achieved. 

“Therefore, the CBN’s intervention in the manufacturing and real sector wins my kudos for Emefiele. It is one of those measures that enabled the country to survive COVID-19 and the recessions.”

Ikeora, who was the former chief economist of the African Continental Bank, said that the intervention funds were in line with the broad objectives of the CBN, which included ensuring growth in the economy. “Those loans are to boost manufacturing capacity. The interest rate is so high that manufacturers cannot afford the loan if they are to go through commercial banks. What kind of business will a manufacturer do in Nigeria to repay a loan with 30 per cent interest on it? How are they to survive? The banks want areas to make maximum profits in the shortest possible time. They cannot give long-term loans.”  

However, a retired Professor of Finance at the University of Lagos, Professor Winifred Iyiegbuniwe, told THISDAY that the federal government should introduce complementary measures that would strengthen the good intentions of the CBN’s interventions in the country’s real sector of the economy.  

“We need infrastructure like electricity and rail connecting the east and west section of the country that have a lot of economic activities. Government policies need to be harmonised to complement each other. Money is just one part of the production curve, cost of raw materials and the cost of distribution are all part of it,” he said.