With the Central Bank of Nigeria (CBN) intervening in various sectors of the economy, many wonder whether or not it is doing too much for its capacity. BENJAMIN UMUTEME in this report takes a look atthe apex bank’s various interventions.
Established through an Act of Parliament in 1958, and with several amendments in 1991, 1993,1997,1998,1999, which culminated in the CBN Act of 2007. Nigeria’s apex bank is responsible for the overall control and administration of the monetary and financial sector policies of the federal government. This meant that the CBN was 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.
Consequently, the bank is charged with the responsibility of administering the Banks and Other Financial Institutions Act (BOFIA), 2020, with the sole aim of ensuring high standards of banking practice and financial stability through its surveillance activities, as well as the promotion of an efficient payment system.
However, due to economic exigencies, the core mandate of the CBN has changed over the years as it has been performing some major development functions focused on all the key sectors of the nation’s economy (financial, agricultural and industrial sectors). Overall, these mandates are carried out by the bank through its various departments.
The interventions
When the global financial meltdown of 2008 erupted, it not only affected the banking sector, as entire the economy was badly hit, thus forcing the CBN under the leadership of Sanusi Lamido Sanusi to carry out a wide-reaching banking reform and also intervened in some sectors of the economy to save the country from going under.
One of the pillars of the reform was strengthening the financial sector to drive real sector growth. And in 2010, the bank came out with a N500 billion Critical Infrastructure Fund and set aside N200 billion for Refinancing/Restructuring of SME/Manufacturing. Also, N300 billion was earmarked for long-term funding of Power and Aviation. In addition, a balance of N300 billion was also approved to provide long- term funding Power (N250 billion) and Aviation Industry (N50 billion).
However, experts have argued that the apex bank is engaging on many fronts which will not allow it to effectively carry out its core mandate. But the CNB governor, Godwin Emefiele, thinks differently. According to the CBN boss, the various interventions saved the economy from going into deeper troubles.
Speaking at the 13th annual banking and finance conference, organised by the Chartered Institute of Bankers of Nigeria (CIBN) virtually last year in Abuja, Emefiele insisted that but for CBN’s interventions the economy would have experienced larger contraction.
“As a result of these measures, GDP growth in the third quarter, improved to -3.6 percent from -6.1 percent in quarter two, even though the economy fell back into a recession. With sustained implementation of our intervention measures, we do expect that the Nigerian economy could emerge from the recession by the first quarter of 2021. We also expect that growth in 2021 would attain 2.0 per cent,” he said.
Others
Other areas of intervention by the apex bank include N500 billion over the medium-term for manufacturers to procure state of the art machinery and equipment and automated manufacturing models that will fast track renewable energy, light manufacturing, affordable housing and cutting edge research; providing financial support to Nigeria’s power sector to the tune of N1.695 trillion. Furthermore, the banking sector regulator has been able to support the aviation sector and the media industry.
In the agriculture sector, the CBN’s impact has been massive. There is not a state in the country that the impact of the bank’s intervention is not visible. This has culminated in not only being a net importer of rice to almost a net producer of rice; the increase in local rice processing companies attests to that.
The CBN’s flagship, Anchor Borrowers Programme (APB), intervention in the agriculture sector has recorded huge successes. In the last five years, a total of 2,923,937 farmers cultivating 3,647,643 hectares across 21 commodities through 23 participating Financial Institutions had been financed in the 36 states of the federation and the Federal Capital Territory (FCT). This has resulted in the cultivation of 221,450 hectares in 32 states. And just this week, the bank released 50,000 metric tonnes of maize into the Nigerian market. This in itself would significantly lead to a reduction in price N200, 000 per metric tonnes to about N180, 000 per metric tonnes. It is still anticipated that the current will further reduce.
In a bid to cushion the effects of the coronavirus pandemic that devastated businesses globally, the CBN intervened to save businesses through a one-year extension of the moratorium on principal repayments for CBN intervention facilities; regulatory forbearance was granted to banks to restructure loans given to sectors that were severely affected by the pandemic; reduction of interest rate on CBN’s intervention loans from nine to five per cent and strengthening of the Loan to Deposit ratio (LDR) policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers. Loans given to the private sector have risen by over 21 per cent over the past year.
Emefiele said further that, “First the CBN is directing all deposit money banks to increase their support to the pharmaceutical and healthcare industries. In local drug manufacturing, in increased bed count in hospitals across Nigeria, in funding intensive care as well as in training, laboratory testing, equipment and R&D.
“In addition to the N50 billion soft loans to small businesses already announced, the CBN will increase its intervention by another N100 billion in loans this year to support health authorities. Secondly, given the continuing impact of the disease on global supply chains, the CBN will increase its intervention in boosting local manufacturing and import substitution by another N1tn across all critical sectors of the economy.”
Experts’ views
For Adebayo Bakare, an economist and investment researcher at Afrinvest, what the CBN is doing is like a drop of water in the ocean.
“The measures the CBN has announced are fiscal policy adjustments that the minister or ministry of finance should be taking. Their core functions are being ignored. The restrictions on FX are not addressed; the interventions are too tiny to matter,” he said.
Nothing new
In a chat with this reporter, Friday Efih noted that a wide range of interventions by the CBN in most sectors of the economy is nothing new.
According to him, “It is not out of place for the CBN to intervene in sectors that will boost economic growth. It is part of its mandate of economic stability.”
Fielding questions from journalists after the Monetary Policy Committee meeting in January, Emefiele said with revenue dwindling due to it would be irresponsible for the apex bank not to intervene in the way it is doing.
“When revenue came down the government became incapable to finance all its obligations, if the government cannot finance all its obligations, I think it will be irresponsible on the part of the CBN as a lender of last resort not to support the FG. Now covid-19 started again we are not currently facing a global crisis but it is a crisis of monumental proportions never seen in our lifetime, a health crisis that has rendered every economy very useless a health crisis that has caught every global leader pants down without resolution.
“Let me say that this crisis is of a global dimension and as a result CBN is not alone in providing support to a government. and I will give you a few examples; advanced and emerging market economies has implemented both conventional and unconventional monetary measures aimed at curtailing the spread of the virus and stimulating greater economy recovery, In the US, for instance, over $7 trillion of funds is projected to have been spent in 2020 alone. The total balance sheet of the US FED, the CS central bank, has increased from $4.1 trillion to $7.4 trillion over the past year as part of its asset purchase programme. A few more examples and I will relate them to the GDP.
“In the UK there was a time the chairman of the Bank of England came out and said “the Bank of England will not be given support to the government” and the following day he reversed himself because he saw the consequences of the statement that he made. Today, the Bank of England and the treasury has granted support that is equal to about 56% of its GDP to help stimulate the UK economy and this amounts to about $1.75 trillion. Like I said in the U.S., 35% of its GDP amounting to $7.4 trillion has already been extended. The new administration in the U.S. is already thinking about adding an additional $1.1 trillion just to give as a stimulus or just to give free money to people who have been impacted by the pandemic.
“In the Euro area, 15% of the GDP in the Euro area has been granted by various central banks and treasuries to support this amount to about 2.3 trillion, India has done 15% of its GDP to support recovery and that is about $400 billion. South Africa provided close to 10% of its GDP which amounted to close to about $26 billion to support recovery and in Nigeria just 4.5% of the GDP amounting to about $18 billion has been done. All I can say is that it is very unfair because those statements are totally misplaced.
“Some of these support measures had included outright purchase of debt by the Central banks in order to improve the ability of fiscal authorities to fund recovery efforts we have also seen in the case of the U.S. Like I said asset purchase programmes of lower grade bonds as part of the FEDS efforts to stimulate the economy. The efforts of the central bank are not different. That’s the only thing I can say from what is being witnessed in other climbs all over the world as we all share the same objective considering both conventional and unconventional measures that will support faster economic recovery in light of reduced revenue reset being faced by these fiscal recovery authorities.”
