Ailing economy, CBN’s interventions

With the federal government’s finances not enough to meet its ever increasing obligations, the Central Bank of Nigeria (CBN) has been saddled with the responsibility of intervening in various sectors of the economy; BENJAMIN UMUTEME reports.

Established in 1958 through an Act of Parliament, which was amended in 1991, 1993,1997,1998,1999 and 2007, the Central Bank of Nigeria (CBN), charges the Bank with the overall control and administration of the monetary and financial sector policies of the federal government. 

The CBN is also to ensure monetary and price stability; issue legal tender currency in Nigeria; maintain external reserves to safeguard the international value of the legal tender currency; promote a sound financial system in Nigeria; and act as Banker and provide economic and financial advice to the federal government.

In addition to its core functions, CBN has over the years performed some major developmental functions, focused on all the key sectors of the Nigerian economy (financial, agricultural and industrial sectors). Overall, these mandates are carried out by the Bank through its various departments.

Over the years, the apex bank has been able to carry out 37 intervention programmes to boost the economy of the country. There have been interventions in agric, power, manufacturing, and SMEs. 

Some of the initiatives are the SME Credit Guarantee Scheme (SMECGS); Micro, Small and Medium Enterprises Development Fund (MSMEDF); and Youth Entrepreneurship Development Programme (YEDP).

Others are Agri-business/Small and Medium Enterprises Investment Scheme (AGSMEIS); Creative Industry Financing Initiative (CIFI); Targeted Credit Facility (TCF) and the Nigeria Youth Investment Fund (NYIF).

SMEs intervention

World over, the Small and Medium Enterprises (SMEs) account for the majority of businesses and are important contributors to job creation and global economic development. SMEs are also considered key drivers of industrialization and agents of socio-economic transformation.

They represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of Gross Domestic Product (GDP) in emerging economies.

The Organisation for Economic Co-operation and Development (OECD) reports that 98 per cent of Chinese firms are SMEs, contributing around 68 per cent to exports and a whopping 60 percent to China’s GDP, while employing 75 per cent of the Chinese workforce. The experiences of Japan, Korea, Indonesia, Philippines, Thailand, and Hong Kong are like China, with about 90 per cent of their industries classified as SMEs. In South Africa, over 90 per cent of businesses are SMEs, employing about 60 per cent of the country’s workforce and contributing about 52 per cent share of GDP.

Available surveys by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) indicate that Nigeria has over 40 million Micro, Small and Medium-scale Enterprises (MSMEs). These enterprises are distributed among five main economic sectors namely, manufacturing, wholesale and retail trade, education, agriculture, and food services. It is important to note that about 90 percent of these SMEs operate in the manufacturing sector, which influences nearly 50 percent of all industry employment.

However, despite the strides recorded by SMEs, there are still challenges that hinder them from realizing their full potential in Nigeria. Some of these challenges include lack of access to capital; poor infrastructure, weak managerial and organisational skills; low adoption of technology and innovation and poor knowledge networks. In order to address these challenges, the role of government is vital, especially in providing an enabling environment for greater growth of SMEs. 

Providing support for SMEs to thrive is a win-win situation for both government and firms has been the core agenda of developed economies. 

And this is what the CBN has done over the years. And to prove its commitment to support small businesses, the Bank expanded the scope of its intervention last year when Nigeria like the other countries was hit by the devastating effect of the Covid-19 pandemic. 

Through the Small and Medium Enterprises Development Fund (MSMEDF), was about to channel low-interest wholesale funds to the MSME segment. 

This scheme, which charges 9% interest rate, has recorded the disbursement of over ₦83.9billion to 216,704 beneficiaries at the end of 2020. The obligor limit ranges from ₦500,000 for micro enterprises to ₦50 billion for SMEs financed by DMBs/DFIs. 

“Also, the initiative offers 10% of the total loans for start-up businesses, 2% to economically active persons living with disabilities (PLWD) and 60% of the Fund’s wholesale component dedicated to women entrepreneurs or women led MSMEs in order to promote financial inclusion,” the CBN Governor, Godwin Emefiele, said. 

Agric intervention

Another critical area of intervention for the CBN is the Agri-business/SME Investment Scheme (AGSMEIS), an initiative of the Bankers’ Committee, in collaboration with the CBN was also set up to improve access to affordable and sustainable finance by agri-businesses and MSMEs. This has not only enhanced the creation of productive employment opportunities, it has also boosted the managerial capacity of agri-businesses and MSMEs. So far, a total of ₦111.7 billion has been disbursed to 29,026 beneficiaries.

“Furthermore, a ₦50 billion Targeted Credit Facility was introduced in March 2020 as a stimulus package to cushion the effects of Covid-19 pandemic on households and MSMEs across the country. So far, under AGSMEIS and our targeted credit facility, over ₦111.7billion and ₦253.4billion have been disbursed to 29,026 and 548,345 beneficiaries, respectively,” Emefiele said further. 

Creative industry interventions

In addition, the apex bank has established the Creative Industry Financing Initiatives (CIFI) aimed at improving access to long-term, low-cost financing to entrepreneurs and investors. It covers a wide range of sub sectors in the creative industries, some of which include movie and music production, fashion and ICT. Among the target opportunities is the graduate software development loan. While the disbursement is in phases, in line with the agreed milestone, a sum of ₦3.1 billion has so far been disbursed to 341 beneficiaries.

Power sector involvement

In a bid to help address the challenges in the power sector, the apex bank also had to come in to lend support to the sector. Interventions by the Central Bank of Nigeria kept the power sector from collapsing in the past seven years with over N1.3 trillion, so far released.

A look at the fourth-quarter economic report (4Q’2020) of CBN showed that the interventions include, Power and Aviation Intervention Fund about N300 billion, Nigerian Electricity Market Stabilisation Facility, NEMSF, at N213 billion, about N140 billion Solar Connection Intervention Facility, over N600 billion tariff shortfall intervention as well as a recent N120 billion intervention designed for mass metering among others.

All these have helped to stabilise a sector which was crawling as a result of funding challenges necessitated by the inability of the sector to finance itself as tariff shortfall; regulatory lapses and acute infrastructure impede the growth of the industry.