Home Feature Declining oil revenues: CBN’s intervention funds to the rescue

Declining oil revenues: CBN’s intervention funds to the rescue

CBN debunk fire outbreak at head office

COMFORT EKELEME

The Nigerian economy, no doubt is passing through trying times following the continuous slid in the price of crude oil at the international market. This has resulted in the call for diversification of the nation’s economy if only to save the nation from mind boggling depression.
Besides, there have been calls from key stakeholders in the economy on the need for injection of credit facilities into the system to stimulate growth and ensure less dependence on imported products.
It was against the believe that Central Bank of Nigeria (CBN) was taking over the role of Deposit Money Banks (DMBs) by injecting credit into various sectors that prompted the apex bank to come up with the explanation that its desire to stimulate credit injection to the real sector does not represent an attempt to “crowd out” the DMBs in the space of credit delivery. CBN said that it wants to provide incentives that will stimulate lending to the real sector at reasonable rates.
It is against this backdrop that the CBN, as part of its commitment to providing better understanding on its activities towards supporting and providing better understanding of the economy organized a three- day Seminar for Finance Correspondents and Business Editors in Ibadan, Oyo State.
Coming at the time when there are so much uncertainties at the international market, participants were had a better understanding of the present state of the economy and the regulators activities geared towards growing the nation’s economy, for the purpose of educating and informing the wide and diverse audiences.
The forum equally facilitated a robust interactions leading to a deeper understanding of the bank’s commitment to economic growth and development.
Nigeria has recorded a major milestone regarding increased credit to the Micro, Small and Medium Enterprises (MSMEs) in recent years.
As at August 2014, the sum of N220 Billion development fund was made available to various beneficiaries in the MSME sectors.
And as part of its role towards building a strong economy and the development of the non- oil sector to augment the depleting revenue CBN had launched several intervention funds to increase local productivity, thereby making Nigeria non-import dependent country.
The funds include the Agricultural Credit Guarantee Scheme Fund (ACGSF), the Commercial Agricultural Credit Scheme (CACS), the Agricultural Credit Support Scheme (ACSS), theN300 billion Real Sector Support Facility (RSSF), the N 220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF), the Small and Medium Enterprises Refinancing and Restructuring Facility (SMERRF), the N75 billion Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) and the N213 billion Nigeria Electricity Market Stabilization Fund.
Meanwhile, many economies around the globe are currently facing challenges as a result of the fall in the price of crude oil at the international market. But for Nigeria, rather than grieve over the dwindling oil revenue, authorities at the CBN has maintained that the present situation provides a painful but indispensable opportunity to look inwards in a bid to trigger economic growth and development.
Although the external environment has changed, oil prices have fallen sharply; global financial conditions have tightened; growth in emerging and developing economies has slowed; and geo-political tensions have increased, experts are of a strong view that all these have come at a time when Nigeria is facing an urgent need to address a massive infrastructure deficit and high levels of poverty and inequality existing in the country.
It is worthy of note that beyond the primary mandate of CBN, which is to ensure monetary, price and financial system stability, there is the development angle, while many Central Banks in emerging economies, in carrying out there primary duties, go a step further in directly supporting different sectors of the economies of their respective countries.
That no doubt is what the CBN, in the past and is currently doing to develop the economy.
According to the International Monetary Fund (IMF) Nigerians are well known for their resilience and strong belief in their ability to improve their nation and lead others by example. “I firmly believe that Nigeria will rise to the challenge and make the decisions that will propel the country to greater prosperity”, the fund noted recently.
This position of IMF further supports the apex bank’s move to reduce the rate at which Nigeria and Nigerians depend on imported items.
In his keynote address in Ibadan, Oyo State during the 21st seminar for Finance Correspondents and Business Editors, organized by the CBN, its Governor, Godwin Emefiele reinstated that with the rate of oil at below $35 underscores the harsh reality that Nigeria is left with no choice but to diversify her economy away from oil, and into agriculture, manufacturing, services and other non- oil sectors.
The theme of this year’s seminar “CBN Real Sector Financing: A Catalyst for Economic Growth and Development” Emefiele said, “has a unique appeal to me as it touches on the very core of the CBN Agenda for Development Finance, which I enunciated upon my assumption of office in 2014. The theme is apt and very well timed, coming at a period when the price of crude oil has witnessed a drop of over 70 per cent, thereby affecting accruals into our foreign reserves.
Emefiele, who was represented by the Deputy Governor, Corporate Services, Mr. Adebayo Adelabu at the seminar, maintained that many Central Banks in emerging economies, in carrying out their primary mandate, go a step further in directly supporting different sectors of the economies of their respective countries, adding that,” that is what the CBN, in the past and currently under my leadership, has been doing”.
According to him, studies have shown that Central Banks in more developed economies of the world, such as the Federal Reserves of the United States and the Bank of England, have directly intervened in boosting the fortunes of their economies. By injecting funds and subsidizing rates, they assist in growing their economies. Through relevant monetary policies, they also promote the growth of the different sectors of their economies.
“The real sector, as you know, is the engine of every economy as it facilitates the production of raw materials, which add value to the domestic economy and consequently serves as a source of wealth creation and income generation to the productive population. The sector also provides effective linkages among crucial sub-sectors such as: agriculture, manufacturing, power, financial services, among others.
“The real sector, which consists of the agricultural, industrial, building and construction sub-sectors accounted for 83.67 of the country’s GDP in 2000. The sector’s contribution, however, witnessed a decline to 76.21 per cent in 2010 and further down to 70.71per cent in 2013. The rebasing of the economy further delineated the real sector into a variety of sub-sectors with agriculture, mining and quarrying activities, manufacturing and construction jointly contributing about 43.2percent to the total GDP as at 2014.
“As I noted earlier, the Central Bank transcends its core mandate of maintaining monetary and price stability, but also covers developmental activities especially in financial intermediation and resource allocation to stimulate the development of key sectors that are drivers of growth in the economy. The developmental finance initiatives of the Bank have been hinged on this premise and concerted efforts are being made to deepen credit delivery to the real sector through a variety of interventions and schemes,” Emefiele said.
Speaking further, he maintained that the far-reaching objectives of the CBN in the implementation of schemes and programs for real sector development focuses on the “inherent potential in the sector vis-à-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”.
He however disclosed that the CBN’s desire to stimulate credit injection to the real sector does not attempt to “crowd out” the financial institutions in the space of credit delivery but to provide incentives that would stimulate lending at reasonable rates by banks to the real sector.
This, the CBN boss noted should increase the level of credit to real sector, assist the takeoff of new projects, help revamp moribund projects and also enhance the productivity of existing ones. This concerted effort would dovetail into job creation, increased accretion to foreign reserves through non-oil exports, increased contribution to GDP by the real sector and ultimately stimulate economic growth and development through improved living standards for Nigerians.
“At the CBN, our approach to real sector development is three-pronged. Our interventions center on Agriculture, Micro, Small and Medium Enterprises (MSMEs) and Infrastructure intervention. Specifically, the interventions include the Agricultural Credit Guarantee Scheme Fund (ACGSF),the Commercial Agricultural Credit Scheme (CACS), the Agricultural Credit Support Scheme (ACSS), theN300 billion Real Sector Support Facility (RSSF), the N 220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF), the Small and Medium Enterprises Refinancing and Restructuring Facility (SMERRF), the N75 billion Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) and the N213 billion Nigeria Electricity Market Stabilization Fund.
“Let me also note that the reduction in the Cash Reserve Requirement (CRR) of Deposit Money Banks from 25 per cent to 20per cent has freed up enormous resources that the banks can leverage on to finance projects under the Real Sector Support Fund. Also, the Bank is committed to stimulating accretion of foreign exchange through non-oil exports. The Bank is supporting Nigeria Export Import Bank (NEXIM) with N50 billion Export Refinancing and Restructuring Facility and also N500 billion as Non-Oil Export Stimulation facility (ESF).
In his paper titled, “Monetary Policy and Financing Real Sector Growth in Nigeria”, Director, Monetary Policy Department, Moses Tule said that recent evidence of Central Banking, particularly following the global financial crises of 2008/2009, demonstrates that supporting various sectors of the economy, especially the real sector through direct intervention, have become important roles of major Central Banks.
According to him, in recognition of the importance of this multiple mandate of Central Banks, the Central Bank of Nigeria (CBN) has over the years pursued price and financial system stability as well as provided complementary financing assistance to the real sector.
He maintained that these efforts of the CBN are principally in the area of development financing, which dates back to the 1960s with financing of commodity boards, adding that over the years, it has spread to other sectors of the economy, such as aviation, power, energy, among others.
The initiatives, he noted focus on areas such as agricultural development, entrepreneurship training, rural development and micro, small and medium enterprises, among others.
Giving the features of some of the intervention funds, Tule said CBN introduced in 2010, the Nigerian Incentive-based Risk Sharing System for Agricultural  Lending (NIRSAL)  provide farmers with affordable financial products, reduce the risk of financial institutions that grant them loans, build capacities of banks to lend to agriculture, as well as develop an incentive mechanism for Nigerian banks based on their commitment to agricultural financing, build the capacity of banks to engage and deliver loans to agriculture by providing technical assistance and reducing counterparty risks facing banks and pool the current resources under the CBN agricultural financing schemes into different components of the program.
Also, the N500 Billion Power and Airline Intervention Fund (PAIF) which was approved by the Monetary Policy Committee (MPC) in 2010 was for investments in debentures issued by the Bank of Industry (BOI) out of which the sum of N300 billion would finance power and airline projects and N200 billion for Restructuring/Refinancing of exposures of manufacturing/SME (RRF), discounted maximum rate of 7 per cent for a tenor of 10 – 15 years was created to stimulate credit to the domestic power sector and troubled airline industry.
From PAIF, a total sum of N236.353 billion had been released to BOI from inception to December 2014 and disbursed through banks to 53 projects (38 power projects received N118.926 billion while 15 airline projects had N117.427 billion), while from RRF, N235 billion was injected at 7 per cent to repair the balance sheets of troubled banks.

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