How CBN’s infrastructure fund revitalises SMEs

…It’ll lubricate businesses negatively impacted by Covid-19 – Expert 

‘…Ensure reasonable return on investment, drive economic growth’

‘…SMEs can now overcome logistics, goods transportation hiccups’

…Apex bank must address corruption, kickbacks’ challenges – Adefolarin

…It should create more attractive loans for SMEs – Spare parts dealer

Across the globe, small and medium enterprises (SMEs) have continued to be the livewire of any industry, but in Nigeria, that is not the case as the poor state of infrastructure means SMEs haven’t been able to fulfill their potential. BENJAMIN UMUTEME, in this report, examines one of the initiatives of the Central Bank of Nigeria (CBN) aimed at reversing the trend.

Nigeria’s battle with poor infrastructure is legendary. There was a time in the history of the country when its infrastructure was in top shape, but in the late 1980s, things began to go awry as the lack of maintenance meant that the country’s infrastructure began to experience a downward spiral and presently, its poor state is making life unbearable for the citizens. 

Of the lot, what has suffered most is the road infrastructure. Nigeria has a fairly extensive network of roads, railroads, airports, and communication infrastructure. The road system is by far the most important element in the country’s transportation network, carrying about 95 per cent of all the nation’s goods and passengers. However, deliberate neglect by successive administrations meant that there has been serious damage to the economy. 

Previous, current attempts

During the Goodluck Jonathan administration, the federal government attempted to fix infrastructure with the award of N927 billion in contracts between November 2011 and September 2012. However, when the Muhammadu Buhari- led All Progressive Congress (APC) administration assumed power, it set itself to fix the country’s dilapidated infrastructure. And this it has done in the six years it has been in power. As a way of matching words with action, the administration has deliberately increased allocations to capital expenditure. For instance, in the last six years, the federal government spent over N8 trillion on infrastructure and this has largely been through borrowings. In spite of the amount spent so far, infrastructure development remains grossly inadequate relative to the nation’s requirements due in part to lack of funds. 

It is estimated that Nigeria needs to spend about $3 billion annually for the next 10 years to address the huge infrastructure deficit that continues to stare the country in the face. 

CBN’s initiatives

To address this long-term challenge, the CBN established the Infrastructure Finance Office on March 01, 2010. The mandate of the Office is to, among others, evolve a sustainable financing framework to stimulate long-term financing for infrastructure development in the country. The apex bank has since undertaken some steps to improve the sector as follows: The N300-billion Power and Aviation Intervention Fund (PAIF); the bank provides N300 billion facility for investment in debentures to be issued by the Bank of Industry (BoI) in accordance with Section 31 of the CBN Act 2007, for investment in power and aviation projects. The funds are to be channelled through the BoI for on-lending to deposit money banks at a maximum interest rate of 1.0 per cent for disbursement at concessionary interest rate of not more than 7.0 per cent and a tenor of 10 – 15 years. At the same time, the African Finance Corporation (AFC) will serve as technical adviser to the Fund.

The N15trn InfraCo Fund

As part of the measures by the apex bank to further encourage banks to lend to the real sector of the economy, particularly SMEs, infrastructure and agriculture, it introduced the N15 trillion InfraCo Fund to further boost the economy. The Fund is required to support business owners such as the small and medium enterprises (SMEs), micro, small and medium enterprises (MSMEs) as well as support infrastructure investment that will have a multiplier effect on growth across critical sectors.

This is coming at a time when many businesses need funds to get their mojo back as they are hampered by the lack of access to finance, inadequate infrastructure and poor digital penetration. It will also create hundreds of thousands of new jobs and preserve existing ones, thus furthering the much-applauded ambition of the Buhari-led federal government to create 100 million jobs and drastically reduce poverty in the country. 

Speaking on the InfraCorp Fund, the CBN governor, Godwin Emefiele, said it would help to support infrastructure investment, provide reasonable return on investment and drive medium to long-term economic growth. 

He said, “InfraCorp would enable the use of mostly private capital to support infrastructure investment that will have a multiplier effect on growth across critical sectors. The purpose of the N15 trillion being raised is to address some of our infrastructure needs while providing reasonable returns to investors.

“We believe this well-structured fund can act as a catalyst for growth in the medium and the long run. The support of the banking community will be important in achieving this objective.”

Experts’ views

Financial experts have commended the apex bank’s move to give fillip to the government’s effort to drive development and growth of the economy by making the business environment conducive. According to them, the long-term effect will give businesses the much-needed boost that would finally set the economy on the path to sustainable growth. 

In a telephone chat with this reporter, an economist, Friday Efih, said with the CBN setting aside N15 trillion to be put into Infrastructure development, the long- term effect on the economy can only be imagined. 

“I commend the CBN for this initiative; it shows that, like Emefiele said, the CBN is a responsible bank that would do everything within its mandate to help to drive economic growth. If businesses take advantage of this window that is provided by the apex bank, the challenge of the lack of access to power, inability to access finance and poor infrastructure would die a natural death,” he said.

In his view, a political economist and development researcher, Olamilekan Adefolarin, noted that the infrastructure fund would lubricate businesses that have been impacted negatively by the Covid-19 pandemic. 

He said: “The CBN infrastructure fund was an expansionary policy that hinges on lubricating businesses in Nigeria, especially at the advent of Covid-19 pandemic, the after effects of recessions in the country. The funds disbursement is a laudable financial inducement to boost our SMEs and allied businesses.” 

Adefolarin further acknowledged its timeliness, stressing that it would do SMEs a world of good as it will increase their capital outlays and make available funds that will enable them to expand in stocks and machinery. 

“Secondly, it also provides opportunities for SMEs to increase their productions and services. Thirdly, it creates the needed liquidity for SMEs to expand their market niches and cover areas of interest as well. Fourthly, the CBN infrastructure fund is strategic to SMEs in meeting up with some of the usual challenges confronting them and as well as reducing them. What comes to mind now are the challenges of electricity power, materials, equipment, machinery, rents and recruitment of the right skills and manpower.

“Lastly, it will help SMEs to overcome logistics and transportations of goods and others.”

BPE’s disclosures

The Nigeria Bureau Statistics (NBS) data on Small and Medium Scale Enterprises (SMEs) showed that SMEs contributed about 48 per cent to the nation’s GDP in the last five years with a total number of about 17.4 million. Also, they account for about 50 per cent industrial jobs and nearly 90 per cent of the manufacturing sectors.

Experts are of the belief that while the multiplier effect of the intervention on critical sectors of the economy will be huge. 

With the country’s economic indices not looking good, improvements in infrastructure would lead to improved productivity thereby improving the quality of life which could ultimately lead to the eradication of the country’s growing poverty.

For a spare parts dealer at Dei Dei Building Material Market, Abuja, George Agaye, the CBN’s initiatives are commendable and added that the cost of borrowing for SMEs and others in the productive sector has been very high as banks do not have sufficient funds to give to investors.

According to him, “It’s been difficult for Nigeria’s SMEs to access loanable funds from the CBN.”

Agaye said to make the initiative more effective, the CBN “needs to create more attractive loans for SMEs and the productive sector to enable them contribute immensely to the Gross Domestic Product (GDP).”

A business woman, Asabe Onuwa, hailed the apex bank’s initiative, noting that given its function as a stimulator of the economy, InfraCorp will earn the current management of the bank a good rating with Nigerians. 

“The CBN should sustain those roles and the tempo of introducing new initiatives,” she said. 

In his view, a former president of the Chartered Institute of Bankers of Nigeria (CIBN), Segun Ajibola, noted that several hundreds of thousands of road network, rail lines, energy and power, water and others remain critical but sadly inadequate or dilapidated.

“Hitherto, some reliance had been placed on other sovereigns such as China, international financial institutions such as the World Bank, ADB, etc. But there is a limit to what funding Nigeria can attract from these countries and institutions because of the not-too-friendly conditionalities usually imposed on developing countries like Nigeria. 

“Looking inwards in the manner being proposed by the CBN may be helpful, but then, the framework must be right. I will recommend a private partnering via collaborative arrangements between local and foreign interests adjudged competent in providing such infrastructure,” he said.

Ajibola, therefore, urged the apex bank to introduce a framework for monitoring performance, which must be efficient and effective, adding that there must be a shift from seeing intervention funds as free public funds, and that such mentality must be tackled head-long if the infrastructure fund could achieve the desired goals.

An expert at PwC, Habeeb Jaiyeola, noted that while infrastructure funds are used across the world for the development of critical infrastructure, which guarantees constant returns on investment for investors, a critical element of the success of the funds remains adequate planning and strategic contracting. 

“It is expected that the N15 trillion fund is channelled into critical infrastructure in the country that will open up sectors and markets as infrastructure challenges have been one of the major factors hindering the growth of some critical sectors in Nigeria,” he said.

Criteria critical

For the initiative to be a success, according to experts, those in charge should be transparent and make every process explicit. 

Adefolarin told this reporter that at it stands at the moment, no amount injected through the InfraCorp is too much going by the long years of neglect of SMEs. 

“Also, the current systemic stifling of funding in both the formal and informal sectors which resulted in deficit productive progress would be replaced by consistent funding.

“Further, we are not uncritical of this initiative especially with selection processes, criteria, terms of condition and the targeted SMEs sectors. The various SMEs are segmented so it brings to fore which SMEs received more than or less. We know that the agricultural sector have been on the good book of apex bank. Other sectors like cottage industries, ICT startup, tailoring, restaurant and groceries stores, water packaging, delivery and logistics chains, traders, printing, leather production and many others. The SMEs sector is huge, so supporting them demands unlimited access and unhindered space.” 

Apex bank’s other initiatives

Some of the CBN 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).

What needs to be done

Adefolarin cautioned on the need to break away from the usual business as usual and adopt a new and effective method that would make the programme a success. 

“For us, there is a need for improvement on the challenges the disbursement of the funds may encounter. The CBN would need to systematically institutionalise this scheme to outlive every CBN or regime in power; this is because SMEs must be consistently funded.

“The CBN must address the challenges of corruption and kickbacks that are mostly associated with schemes going forward; it must ensure clarity, transparency, and responsibility.

“There is a need for greater awareness and media campaign beyond the current arrangement. A review of the policy to ensure sustenance and continuity; avoid politicisation of the policy and ensure women and youth greater inclusion:

“Explore opportunities that deposit money banks, micro-finance banks and others can be involved in this same policy across Nigeria so as to expand access to credit to SMEs. This, I believe will provide the much-needed liquidity boost to the economy.”