CBN’s contribution to economic diversification

It is now almost a mantra to talk of economic diversification as a solution to the current recession even as we have often argued that the economy is diversified as presently configured and that what has been the problem and what is in urgent need of fixing is the unhealthy dependency on the extractive sector for unsustainable portion of foreign exchange earnings for a country so badly exposed to the external sector. In uncomplicated terms what is really needed is the promotion of the non-oil export sector for this sector to contribute substantially to the foreign exchange earnings of the country and for the country to deliberately embark on import substitution strategy to grow domestic capacity, increase employment opportunity, enhance purchasing power, conserve scarce foreign exchange and generally facilitate economic recovery.

And the fact of the matter is that the Central Bank of Nigeria that is often vilified and castigated for a high interest rate environment and cascading exchange rates considering its strategic position has been contributing massively to the promotion of national efforts for economic growth and development and particularly for the diversification of the national economy as would be made explicit in this contribution.

A keen follower of national discourse would often find otherwise knowledgeable compatriots who would argue that the Central Bank is going beyond its core mandate of maintenance of price and exchange rate stability as it proceeds to provide targeted funds for selected sectors of the economy in order to boost activities in such sectors. C002D5556 But those who crafted the Central Bank Act mindful of the need to ensure that it plays a development role considering the level of national development and the urgency to catalyze rapid development deliberately included as part of the mandate of the Central Bank the role of the provision of developmental finance which it would often execute using the development finance institutions in the country as vehicles to achieve this goal particularly the Bank of Industry.

When recently the Central Bank, following its Monetary Policy Committee Meeting, increased the benchmark interest rate since the nation had been officially certified as being in the throes of recession, there was so much outcry regarding lack of apparent complementarity between the monetary and fiscal policies. This outcry persisted even against the best efforts of the Bank in trying to explain that it tended on the occasion to pay more attention to the pressure of managing the exchange rate as it prioritized the enthronement of conditions that would continue to sustain the attractiveness of local monetary instruments through guaranteed competitive returns to encourage foreign investors.

But of course in these matters often memory is short as not many people recall that following the July, 2015 meeting of MPC that the Cash Reserve Ratio (CRR) was deliberately reduced from 30.5 per cent to 25 per cent to inject about one billion Naira liquidity into the economy to encourage the Domestic Money Banks (DMBs) to do more real sector lending to boost activities in the economy and underwrite growth. But the result was that instead the banks proceeded to extend credits for the construction of hotels and hospitals and were intent to capitalize on this opportunity to refinance some of their outstanding bad loans. And following the subsequent MPC meeting in September, 2015 the CRR was again reduced from 25 per cent to 20 per cent  but this time based on the previous experience the Central Bank asked the banks to identify real sector projects for funding before the monies would be released and therefore the Central Bank under Emiefele has attempted to keep fidelity to what he espoused in the agenda he unfolded during his assumption of office in 2014 that the Central Bank under his watch would embrace aggressively its developmental function to contribute to the sustenance of employment levels in the country and to guide in this regard the Governor promised that it would be tracking unemployment figures as an essential input for the bi-monthly MPC meetings. And when some states in the federation found themselves in a position whereby they were not able to pay salaries the Central Bank stepped into the breach by providing bailout funds for such states. It is on record that under this scheme that the Central Bank disbursed 400 billion as bailout funds while providing in addition 10 billion Naira to each state with the Federal Capital Territory for the support for the funding of infrastructural projects. We shall review some of the development projects which the Central Bank has so far embarked upon particularly the Anchor Borrowers’ Program which seems very close to the heart of Mr. President and has been receiving many rave reviews for the growing of rice production aimed at making the country self-sufficient by the year 2017 to reduce the humongous amount hitherto spent on rice importation thereby reducing the pressure on exchange rates. It was recently reported that under this scheme that at least 14,000 farmers in Niger state alone had benefited from the scheme within the last one year, with about 2 trillion Naira already disbursed. This scheme which was launched on November 17, 2015 by the President at Kebbi State has so far been extended to 25 states in the federation with the target to cover the entire country in the not distant future. The Central Bank also provides guarantees for Domestic Money Banks (DMBs) exposure to agriculture through a special purpose vehicle the Nigerian Incentive Based Risk sharing System for Agricultural lending (NIRSAL) in furtherance to the erstwhile Nigerian Agricultural Credit Guarantee Scheme to share the risk borne my DMBs in booking credit for Agriculture value chain and thereby encourage the banks to be more aggressive with the booking of Agric. Credit.

It is on record that through this facility about N 65 billion loans have been extended to farmers to grow rice across many states in the Federation. The Central Bank also gives interest expense rebates direct to farmers under this scheme. This is in addition to the existing 200 billion Naira Commercial Agriculture Credit Scheme (CACS) which is disbursed to customers both Private and State Governments through the DMBs at an all-inclusive interest rate of 9 per cent. The other equally eye catching program introduced by the Central Bank in conjunction with Heritage Bank which was launched on March 15, 2016 is the Youth Entrepreneurship Development Program targeted at National Youth ServiceCorps members to be accessed during the Service year and also available for those who have not spent more than five years since the completion of the Service year.

Under this scheme which is essentially aimed at inculcating the entrepreneurial spirit amongst the youth to re-orientate them from being seekers of white collar jobs to providers of employment, beneficiaries receive individually credit of up to 3 million Naira or N10 million for groups of between 3 to 5 persons. The interest rate for the scheme is single digit 9 per cent rate with tenure of one year for working capital or three years for term loans. Other sundry targeted funds provided by the CBN include the N 500 billion Textile Sector Support Fund (RSSF) which is provided on concessionary interest rates of 7.5% for below three years tenure and at 9% if it the facility is for a longer period. There is the Small and Medium Scale Enterprises restructuring and refinance Fund of 200 billion Naira in addition to the long standing 220 billion Naira Micro, Small and Medium Scale Enterprises Development Fund which is the source for the funding of the Anchor Borrowers’ Program.

The Central Bank quite recently mandated bank customers to regularly update their Tax Identification Number (TIN) in order to continue to have access to their accounts to help facilitate compliance to the payment of taxes to grow tax revenue to terminate the unsustainable regime of borrowing to subsidize consumption. The Central Bank over and beyond its Power and Aviation sector Funds has outstanding over one billion Naira in support of Real Sector projects consistent with its Development Finance mandate. It is therefore stating the obvious to observe that the Central Bank despite the erroneously held belief has been doing its utmost in contributing to the growth and development of the national economy and also particularly for the urgent diversification of the economy

It is now almost a mantra to talk of economic diversification as a solution to the current recession even as we have often argued that the economy is diversified as presently configured and that what has been the problem and what is in urgent need of fixing is the unhealthy dependency on the extractive sector for unsustainable portion of foreign exchange earnings for a country so badly exposed to the external sector. In uncomplicated terms what is really needed is the promotion of the non-oil export sector for this sector to contribute substantially to the foreign exchange earnings of the country and for the country to deliberately embark on import substitution strategy to grow domestic capacity, increase employment opportunity, enhance purchasing power, conserve scarce foreign exchange and generally facilitate economic recovery. And the fact of the matter is that the Central Bank of Nigeria that is often vilified and castigated for a high interest rate environment and cascading exchange rates considering its strategic position has been contributing massively to the promotion of national efforts for economic growth and development and particularly for the diversification of the national economy as would be made explicit in this contribution. A keen follower of national discourse would often find otherwise knowledgeable compatriots who would argue that the Central Bank is going beyond its core mandate of maintenance of price and exchange rate stability as it proceeds to provide targeted funds for selected sectors of the economy in order to boost activities in such sectors. C002D5556 But those who crafted the Central Bank Act mindful of the need to ensure that it plays a development role considering the level of national development and the urgency to catalyze rapid development deliberately included as part of the mandate of the Central Bank the role of the provision of developmental finance which it would often execute using the development finance institutions in the country as vehicles to achieve this goal particularly the Bank of Industry. When recently the Central Bank, following its Monetary Policy Committee Meeting, increased the benchmark interest rate since the nation had been officially certified as being in the throes of recession, there was so much outcry regarding lack of apparent complementarity between the monetary and fiscal policies. This outcry persisted even against the best efforts of the Bank in trying to explain that it tended on the occasion to pay more attention to the pressure of managing the exchange rate as it prioritized the enthronement of conditions that would continue to sustain the attractiveness of local monetary instruments through guaranteed competitive returns to encourage foreign investors. But of course in these matters often memory is short as not many people recall that following the July, 2015 meeting of MPC that the Cash Reserve Ratio (CRR) was deliberately reduced from 30.5 per cent to 25 per cent ...


It is now almost a mantra to talk of economic diversification as a solution to the current recession even as we have often argued that the economy is diversified as presently configured and that what has been the problem and what is in urgent need of fixing is the unhealthy dependency on the extractive sector for unsustainable portion of foreign exchange earnings for a country so badly exposed to the external sector. In uncomplicated terms what is really needed is the promotion of the non-oil export sector for this sector to contribute substantially to the foreign exchange earnings of the ...


It is now almost a mantra to talk of economic diversification as a solution to the current recession even as we have often argued that the economy is diversified as presently configured and that what has been the problem and what is in urgent need of fixing is the unhealthy dependency on the extractive sector for unsustainable portion of foreign exchange earnings for a country so badly exposed...