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Emiefele: Stimulating economy via focused agric, real sector financing

As the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, turns 60 today, TONY CHUKWUNYEM writes on the policies that the apex bank under his leadership has spearheaded to enable the country break from its oil dependency

Given that before his appointment as Governor of the Central Bank of Nigeria (CBN) in June 2014, Mr. Godwin Emefiele had gained over 18 years of banking experience, including serving as Chief Executive Officer and Group Managing Director of Zenith Bank Plc, one of the country’s biggest lenders, he must, like most financial experts, had identified the key reason for the nation’s perennial economic growth and developmental challenges – its oil dependence.

Oil dependence

Before the advent of the oil boom years of the 1970s, Nigeria was a strong agricultural economy, as the sector contributed about 65 per cent to the Gross Domestic Product (GDP) and accounted for 70 per cent of total exports, thereby providing the scarce foreign exchange needed for the importation of raw materials, machine spare-parts and other capital goods required for key industries. It also employed a lot of Nigerians, thus enabling them to learn valuable skills and become useful members of society. However, during the oil boom years, many farmers abandoned their farms and migrated to the towns and cities in search of white collar jobs. The result was that the agriculture sector was so terribly neglected that Nigeria could barely feed its population. Since then, the country seems to have been at the mercy of oil price volatility. Thus, whenever there is sharp drop in the price of oil (the commodity that accounts for the bulk of Nigeria’s revenue, especially 90 per cent of its export earnings) the nation is immediately embroiled in an economic crisis. Despite previous administrations pledging to address the problem by developing the nonoil sector, especially agriculture, it was still a major issue when Emefiele assumed office as CBN governor in 2014.

First term

Clearly showing that he had given the matter a lot of thought, Emefiele, at his maiden press conference, unveiled a 10-point agenda, which, he said, would guide the apex bank under his watch in deploying its resources to build a resilient financial system that will serve the growth and development needs of the country. Specifically, he announced that CBN would introduce a broad spectrum of financial instruments to boost specific enter-prise areas in agriculture, manufacturing, health and oil and gas. True to his pledge, the CBN, between late 2014 and 2019, vigorously pursued intervention schemes such as the Agricultural Credit Guarantee Scheme (ACGS), Commercial Agriculture Credit Scheme (CACS), the N220 billion Micro, Small and Medium Enterprise Development Fund (MSMEDF), Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), the Anchor Borrowers’ Programme (ABP) and the Power and Airline Intervention Fund (PAIF), among others. Furthermore, in line with his vision, the CBN, on June 24, 2015, barred importers of 41 goods (later increased to 43) and services from accessing foreign exchange at the official foreign exchange markets in order to encourage local production of those items. According to analysts and industry stakeholders, it was the boldness of the CBN’s programmes, as well as the positive impact they had on the economy, that made President Muhammadu Buhari reappoint Emefiele for a second and final five year-term in May 2019. He thus became the first CBN governor to serve for a second term since Nigeria’s return to democracy in 1999. Following his reappointment, Emefiele began his second term, like he did in 2014, by unveiling another agenda, containing measures, which, he said, the CBN, working closely with the fiscal authorities, would implement between 2019 and 2024 to help insulate the nation’s economy from potential shocks in the global economy.

LDR policy

Thus less than two months into his second term, the CBN announced a Loan to Deposit Ratio (LDR) policy, which it said was aimed at ramping up growth in the Nigerian economy through investment in the real sector. The policy stipulated that all lenders were required to maintain a minimum LDR of 60 per cent by September 30, 2019. As the apex bank explained: “This ratio shall be subject to quarterly review. To encourage SMEs, retail, mortgage and consumer lending, these sectors shall be assigned a weight of 150 per cent in computing the LDR for this purpose. The CBN shall provide a framework for classification of enterprises/businesses that fall under these categories. Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50 per cent of the lending shortfall of the target LDR.” It later reviewed the minimum LDR requirements from 60 per cent to 65 per cent, which the lenders had to meet by December 31, 2019.

Shielding the economy

Although, at the time he was unveiling the agenda for his second term, the CBN governor had predicted that if the measures he announced were implemented, they would insulate the economy from potential shocks in the global economy, he clearly had no inkling that Nigeria would face an external shock as devastating as COVID-19.

Still, he ensured that the monetary authorities responded swiftly to the challenge when the crisis led to oil prices crashing to record lows in the first half of last year. For instance, as early as March last year, the regulator had rolled out initiatives aimed at reducing the devastating impact of the pandemic on the nation’s economy. The CBN’s measures included an extension of the moratorium on the apex bank’s various intervention programmes, interest rate reduction, creation of a N50 billion (later increased to N300 billion) Targeted Credit Facility (TCF), that would be disbursed to eligible households and small and medium sized enterprises (SMEs) through the NIRSAL Microfinance Bank and credit support for the healthcare industry.

In fact, the CBN subsequently announced a fresh N1.1 trillion intervention fund to support critical sectors of the economy, explaining that about N1 trillion of the amount would be used to support the local manufacturing sector as well as boost import substitution, while the balance of N100 billion would be used to support the health authorities to ensure laboratories, researchers and innovators work with global scientists to patent and produce vaccines and test kits in the country.

Furthermore, the CBN announced a regulatory forbearance for Deposit Money Banks (DMBs) to help preserve financial stability in the face of the ravaging coronavirus. Explaining the decision at the time, Emefiele said the regulator would immediately grant all DMBs leave to consider temporary and time-limited restructuring of the tenor and loan terms for businesses and households most affected by the outbreak of COVID- 19, particularly oil and gas, agriculture and manufacturing.

Short recession

Although the COVID-19 crisis resulted in the country slipping into recession in Q3’20, analysts believe that it was the measures introduced by CBN that led to the country quickly exiting the recession with economic growth of 0.11 per cent in Q4’20.

MPC’s endorsement

Indeed, despite the country continuing to grapple with low economic growth, members of CBN’s Monetary Policy Committee (MPC) have consistently supported the apex bank’s intervention programmes, which they believe are responsible for the steady growth in aggregate credit since last year. For instance, according to the communiqué issued at the end of their meeting last month, “aggregate credit at end-May 2021 stood at N24.23 trillion, compared with N22.68 trillion at end-December 2020. This represents a year-todate increase of N1.55 trillion.

“Under the bank’s development finance initiatives, the bank granted N756.51 billion to 3,734,938 small holder farmers cultivating 4.6 million hectares of land, of which N120.24 billion was extended for the 2021 Wet Season to 627,051 farmers for 847,484 hectares of land, under the Anchor Borrowers’ Programme (ABP); for the Agribusiness/ Small and Medium Enterprise Investment Scheme (AGSMEIS), the sum of N121.57 billion was disbursed to 32,617 beneficiaries; and for the Targeted Credit Facility (TCF), N318.17 billion was released to 679,422 beneficiaries, comprising 572,189 households and 107,233 small and medium scale enterprises (SMEs).

“Under the National Youth Investment Fund (NYIF), the bank released N3.0 billion to 7,057 beneficiaries, of which 4,411 were individuals and 2,646 SMEs. Under the Creative Industry Financing Initiative (CIFI), N3.22 billion was disbursed to 356 beneficiaries across movie production, movie distribution, software development, fashion and IT verticals. Under the N1.0 trillion Real Sector Facility, the bank released N923.41 billion to 251 real sector projects, of which 87 were in light manufacturing, 40 in agro-based industry, 32 in services and 11 in mining.

“On the N100 billion Healthcare Sector Intervention Facility (HSIF), N98.41 billion was disbursed for 103 health care projects, of which 26 are pharmaceuticals and 77 are in the hospital services. Similarly, the sum of N232.54 million was disbursed to five beneficiaries under the CBN Healthcare Sector Research and Development Intervention (Grant) Scheme (HSRDIS) for the development of testing kits and devices for COVID-19 and Lassa Fever. On the National Mass Metering Programme (NMMP), N36.04 billion was disbursed to 17 Meter Asset Providers, to nine (9) DisCos, for the procurement and installation of 657,562 electricity meters.

On the Nigerian Electricity Market Stabilization Facility – 2 (NEMSF-2), the CBN released N120.29 billion to 11 DisCos to provide liquidity support and stimulate critical infrastructure investment needed to improve service delivery and collection efficiency.”

Conclusion

While the Nigerian economy may not be completely out of the woods yet, there is no doubt that the CBN’s policies under Emefiele’s leadership have kept growth on steady path ries across movie production, movie distribution, software development, fashion and IT verticals. Under the N1.0 trillion Real Sector Facility, the bank released N923.41 billion to 251 real sector projects, of which 87 were in light manufacturing, 40 in agro-based industry, 32 in services and 11 in mining. “On the N100 billion Healthcare Sector Intervention Facility (HSIF), N98.41 billion was disbursed for 103 health care projects, of which 26 are pharmaceuticals and 77 are in the hospital services.

Similarly, the sum of N232.54 million was disbursed to five beneficiaries under the CBN Healthcare Sector Research and Development Intervention (Grant) Scheme (HSRDIS) for the development of testing kits and devices for COVID-19 and Lassa Fever. On the National Mass Metering Programme (NMMP), N36.04 billion was disbursed to 17 Meter Asset Providers, to nine (9) DisCos, for the procurement and installation of 657,562 electricity meters. On the Nigerian Electricity Market Stabilization Facility – 2 (NEMSF-2), the CBN released N120.29 billion to 11 DisCos to provide liquidity support and stimulate critical infrastructure investment needed to improve service delivery and collection efficiency.”

Conclusion

While the Nigerian economy may not be completely out of the woods yet, there is no doubt that the CBN’s policies under Emefiele’s leadership have kept growth on steady path.

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