CBN intensifies real sector intervention amid fiscal policy concerns

Central Bank of Nigeria

The Central Bank of Nigeria (CBN) shows no sign of scaling down its intervention in the real sector of the economy despite concerns in some quarters that this might be encouraging the fiscal authorities not to take their responsibilities as seriously as they should, writes Tony Chukwunyem.

 

In the wake of his reappointment  for a second term  in office,  Governor  of  the Central  Bank  of  Nigeria [CBN), Mr. Godwin  Emefiele,  at a press conference in June last year, unveiled his five-year policy direction for the apex bank.

Among other pledges, the CBN boss said he would work with the fiscal authorities to pursue a double digit growth rate within the next five years.

He also stated that he would support measures to diversify the country’s export base, adding that the regulator’s target was to ensure that the country earns $12billion from non-oil exports by 2023.

Furthermore, he said the apex bank would work with deposit money banks (DMBs) to improve credit to Small and Medium Enterprises (SMEs) and  farmers.

Sticking to his pledge

Clearly, if measures rolled out by the CBN since that press conference in June last year are anything to go by, Mr. Emefiele has been sticking to his pledges.

Only recently, for instance, the CBN governor led major milk producers and dairy product dealers to the Federal Capital Territory (FCT) Minister, Mr. Mohammed Musa Bello, to fine-tune arrangements on how they can acquire large areas of land to set up their factories.

The move came on the heels of the CBN announcing that it had cleared six companies: FrieslandCampina WAMCO Nigeria, Chi Limited; TG Arla Dairy Products Limited; Promasidor Nigeria Limited; Nestle Nigeria PLC (MSK only) and Integrated Dairies Limited, to continue importing milk pending when the firms’  local production fully takes off.

It also followed an announcement by the regulator last year that it was planning to bar importers of milk and dairy products like yogurt, cheese and other derivatives from accessing foreign exchange on the official forex market.

Emefiele told the FCT minister  that  the companies had operated in Nigeria for several decades and had shown sufficient willingness to invest in the country  to create jobs and help conserve foreign exchange spent on milk importation.

He said: “l am here to seek your intervention to fast track the allocation of land with titles to three companies that have requested for land to establish dairy processing plants in the FCT. These companies are FrieslandCampina WAMCO Nigeria, NESTLE and L and Z. Nestle Plc and Friesland Campina Plc have signified interest to establish milk processing factories in the FCT and the CBN is ready to work with them to actualize the deliverable of these projects.

“The various collaborative efforts by the CBN and the private sector have started yielding significant results with resultant deliberate measures by the private firms to embrace the backward integration measures and boost job creation and industrialization locally. This strategic partnership commenced with Niger State Government allocating 31,000 hectares of land to milk companies within the Bobi grazing Reserve to develop the local dairy breeds for enhanced milk collection and also integrate the local pastoralist and ultimately curb the farmers-herders crisis.”

Continuing, he said: “In furtherance to this initiative is the additional resolve by some milk producing companies to establish milk processing factories in the FCT as it offers a unique environment for industrialization and also easy access to raw materials from the entire North-Central zone of the country.

“The establishment of these companies in the FCT will drive industrialization, stimulate local production of milk and hence development of the local dairy sector, boost employment generation, facilitate linkages along with the dairy sector in Nigeria and ultimately conserve enormous foreign exchange that would be required for importation.”

In his remarks at the event, the FCT minister, while promising to make the land available to the companies, said: “Most of these lands are not accessible and CBN can help in funding for infrastructure like access roads.”

DMBs to bridge infrastructure deficit

Significantly, a few days after the meeting with the FCT minister, the Bankers’ Committee held its first meeting of 2020 in Lagos and one of the issues discussed at the gathering, according to the bankers, was a request from the Federal Government that the committee should partner with it on bridging the country’s huge infrastructure gap.

Briefing journalists at the press conference held after the meeting, the new Director of Banking Supervision at the CBN, Mr. Bello Hassan, disclosed that the committee had accepted the FG’s request.

He said: “The 348 meeting of the Bankers’ Committee ended this afternoon during which the committee discussed a number of topical issues in the industry. You recall that sometime last year, one of the key policies introduced by the CBN to increase lending to the private sector was the Loan to Deposit Ratio (LDR).  So the committee reviewed successes recorded on this LDR policy and urged the banks to continue to grow credit; they still have some room to be able to do that.

“Also, the government extended a request to the committee of banks to consider the possibility of forming a public-private partnership in bridging the infrastructural gap. And to that extent, the committee considered coming in to see how they can finance about four roads.”

Similarly, speaking on the issue, the Managing Director/Chief Executive Officer,  FSDH Merchant Bank, Mrs. Hamda Ambah, said: “When the request  extended to the chairman of the Bankers’ Committee, the CBN Governor, we all agreed that he understands that government  alone cannot  provide all the infrastructure in the country and that really we in the private sector, have to work hand in hand with the government  to ensure that infrastructure needs to be provided for this country to move ahead. With that in mind, what was agreed was that we create a small committee among the CEOs to work with the CBN   to identify those roads on which/where we would like to participate; come up with a framework which we will share with government as to how we intend to do that and then once we have agreed, we will be able to forge ahead.”

Analysts say  that although the CBN, pre-Emefiele, performed some major developmental functions, focused on all the key sectors of the nation’s economy, the current apex bank boss has clearly taken its interventions in the real sector to next level.

10m jobs targeted

For instance, speaking on the CBN’s development functions during a two-day customers sensitisation forum in Owerri,  last week, the Director, Corporate Communications Department, CBN, Mr. Isaac Okoroafor,  disclosed that more than 10 million jobs would be created in the country  in the next five years through the apex bank’s activities.

The jobs, he said, would be created through 10 commodity models such as cotton, cassava, palm oil, cocoa, maize, tomatoes poultry, fishery, cattle and dairy.

“We will also provide high yielding seedlings as well as extension services to the farmers. “We’ll equally provide them with the processors or off takers who will buy off their farm products immediately after harvest. This will create the best value chain for everyone.

“If we face cassava for instance in the South-east alone, we will create at least one million jobs here.

“Our intention is to bring back farm settlements across the country as it used to be in the past. That’s the easiest way of building our economy,” he stated

N1.3trn saved annually

In addition, the Deputy Governor in charge of the Corporate Services Department of the CBN, Mr. Edward Adamu, told journalists at the opening of the 28th seminar for finance correspondents and business editors in Owerri in December last year, that CBN’s interventions in agricultural and manufacturing sectors had saved the economy about N1.3 trillion annually in import bills.

Mr Adamu noted that the CBN intervened in the agriculture and manufacturing sectors through schemes like the Anchor Borrowers’ Programme, Commercial Agricultural Credit Scheme and the Real Sector Support Facility in order  to strengthen the economy.

“It is pertinent to note that at the Central Bank of Nigeria, our approach to stimulating economic development is three-pronged, centered on agriculture, micro, small and medium enterprises and infrastructure,” he said.

He stated  that the  CBN’s interventions in the real sector had helped to accelerate Federal Government’s economic diversification programme, adding that diversifying the country’s economic base, presented a more sustainable and stable option to restoring growth in the economy.

He emphasised  that the  intervention initiatives in critical sectors would continue in view of the  CBN’s conviction that focusing its developmental efforts on sectors with potential for growth, employment and accretion to foreign reserves, would enhance the  nation’s economic fortunes.

Specifically, he said that since the interventions in the agricultural sector began,  the CBN had supported more than 1.5 million farmers across all the 36 states of the federation to cultivate about 16 different commodities over 1.4 million hectares of farmland.

According to him, the intervention in the rice value chain in Kebbi and other rice-producing states across the country resulted in increased local rice production from 2.5 million tonnes in 2015 to 5.8 million tonnes in 2017.

A similar intervention in cotton production with the flag-off of input distribution to 150,000 cotton farmers resulted in the cultivation of 150,000 hectares in 23 states of the federation.

He contended that while the CBN’s interventions transcend its core mandate of maintaining monetary, price and financial system stability, the apex bank undertook the developmental initiatives with a view to spurring economic growth and job creation which should be the responsibility of the fiscal authorities.

IMF’s concerns

In fact, the International Monetary Fund (IMF) consistently opposes the CBN’s intervention in the real sector. The fund’s stance is based on the argument that frequent intervention (spending outside government’s budgetary provisions) is encouraging a lot of laxity in fiscal administration of the country thus exposing the economy to a lot of vulnerabilities.

Notably,  in a statement issued  last week at the conclusion of the IMF Article IV Consultation discussions on Nigeria, the Fund  called for a reduction in Nigeria’s huge fiscal deficits, saying that the country’s high deficits are complicating monetary policy.

The IMF stated: “Weak non-oil revenue mobilization led to further deterioration of the fiscal deficit, which was mostly financed by Central Bank of Nigeria (CBN) overdrafts. …Further tightening of monetary policy—albeit through more conventional methods—is needed to contain domestic and external pressures arising from large amounts of maturing CBN bills.

“The mission reiterated its advice on ending direct central bank interventions, securitizing overdrafts to introduce longer-term government instruments to mop up excess liquidity and moving towards a uniform and more flexible exchange rate. Removing restrictions on access to foreign exchange for the 42 categories of imported goods would be needed to encourage long-term investment.”

Conclusion

However, the opinion in financial circles at the weekend was that despite the IMF’s argument, the CBN should continue with its real sector interventions even as Nigerians wait for the  country’s fiscal authorities to take charge of their responsibilities.

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