Economy to benefit as CBN implements 100 for 100 policy

NIGERIA’S economy stands to benefit from the 100 for 100 Policy on Production and Productivity (PPP) of the Central Bank of Nigeria (CBN).

This will be in terms of contribution to GDP and exports, sustainable jobs created, local content development, production output, and capacity utilisation and integration into the global value chain.

Data from the National Bureau of Statistics (NBS) show that the unemployment rate increased to 33.3 in March 2021 from 27.1 in December 2020.

At the launch of the Central Bank Digital Currency (CBDC), known as the eNaira on October 25, 2021 in Abuja, Godwin Emefiele, governor of the Central Bank announced the introduction of the 100 for 100 PPP.

It is a financing scheme designed to provide targeted funding (in Naira) under existing CBN’s intervention programmes to 100 high-impact companies and projects every 100 days.

The headwinds confronting businesses in the country extend beyond funding. “We opine that the harsh business environment induced by policy inconsistencies, high insecurity, poor infrastructure, multiple taxation, and overregulation, threaten the prospect of any meaningful take off in terms of productivity in the short-to-medium term. We therefore recommend that the fiscal authority complement the efforts by the CBN in addressing the inherent risks affecting businesses,” analysts at Afrinvest Securities Limited said.

Over the last half-decade, the industrial base has weakened at a faster pace than the broader economy, hampering the country’s potential to leverage a solid manufacturing base to structurally transform and improve productivity-driven activities, according to Afrinvest.

Precisely, between 2016 and 2020 the domestic economy grew at compound annual growth rate (CAGR) of 0.6 percent, while Industry recorded a flattish CAGR of 0.05 percent, with manufacturing (about 42.0% of Industry) contracting by 0.03 percent.

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In 2020, the Industry GDP sharply fell by 5.9 percent relative to a downturn of 1.9 percent for the broader economy. Hence, channelling of efforts to enhance the productive capacity of the economy would reverse the negative trend of high unemployment rate (33.3% in Q1:2021), boost output, and reduce import bills.

In an effort to stimulate the flow of credit to the real sector of the economy in order to reverse the nation’s over-reliance on imports, the CBN established the 100 for 100 Policy for Production and Productivity (100 for 100 PPP), said Philip Yila Yusuf, director, development finance department.

Consequently, the apex Bank issued the guidelines for implementation by eligible private companies with potential to immediately transform and catalyse the productive base of the economy.

Companies that are going to participate in the 100 for 100 policy initiative of the CBN will access a maximum loan limit of N5 billion per obligor, the banking sector regulator said in the guidelines released on Friday.

Interest rate under the intervention according to the guidelines shall be at not more than 5.0 percent per annum, (all inclusive) up to 28th February 2022, thereafter, interest on the facility shall revert to 9 percent p.a. (all inclusive) effective from 1st March 2022.

The initiative is a long-term loan for acquisition of plant and machinery and working capital. The 100 for 100 Policy on Production and Productivity (PPP) initiative shall be funded from the CBN’s Real Sector Support Facility – Differentiated Cash Reserve Requirement (RSSF-DCRR) window or any other funding window as may be determined by the CBN.

Only Cash Reserve Ratio (CRR) contributing Deposit Money Banks (DMBs) are eligible to participate under the initiative.

The collateral acceptable under the intervention facility shall be as may be acceptable by the PFI under the RSSF-DCRR. The guidelines stated that monthly interests on the facility shall be amortised and transferred quarterly with principal repayments to the CBN.

The initiative, 100 for 100 PPP, is a financial instrument designed to create the flow of finance and investments to enterprises with potential to catalyse sustainable economic growth trajectory, accelerate structural transformation, promote diversification, and improve productivity.

Quarterly, starting from November 1, 2021, the initiative shall select 100 private sector companies with projects that have potential to significantly increase domestic production and productivity, reduce imports, increase non-oil exports, and overall improvements in the foreign exchange generating capacity of the Nigerian economy.

The initiative, which shall be bank-led, will be rolled over every 100 days (that is, quarterly) with a new set of companies selected for financing under the initiative. The initiative shall be implemented in collaboration with relevant stakeholders with focus on micro and macroeconomic impacts, in terms of contribution to GDP and exports, sustainable jobs created, local content development, production output, and capacity utilisation and integration into the global value chain.

On the exit date, the CBN said the initiative shall be operated in the first instance for a period not exceeding 31st December 2031 depending on the complexity of the project.

“The infractions and sanctions, stipulated in the RSSF guidelines, shall be applicable under this intervention facility,” the guidelines stated.

On the last day of October 2021, the CBN announced the commencement of selecting high-impact companies and projects under its 100 for 100 Policy on Production and Productivity.

An advertorial statement by the banking sector regulator stated that the selection criteria for participation under the CBN’s 100 for 100 PPP shall be premised on immediate contribution to economic growth, jobs creation, and social impact.

In selecting the companies and projects, the CBN outlined certain evidence -based, transparent and measurable criteria to be deployed.

One of such criteria is that 50 percent of raw material input should be sourced locally (15 >80 percent of jobs created should be for Nigerians (10)

The CBN Intervention under the 100 for 100 PPP Instrument shall provide Naira intervention funding under existing CBN Intervention Processes; complete FX funding for new machinery;

This instrument is for only new projects; will not cover any refinance of existing facilities and will be subject to independent evaluation by international Audit firms.

All intervention under this project will be made public and published in national dailies.

The CBN said it will work with fiscal authorities to facilitate power sector, port and export reforms as well as ease of doing business to improve competitiveness in Nigeria so as to complement and propel this initiative.

“Candidate companies with satisfactory performance are invited to apply through their banks effective, today November 01, 2021, to the CBN Department of Development Finance, Office Of The Governor, Central Bank of Nigeria, Central Business District, Abuja with complete documentation,” the statement said.

The broad objective of this new CBN’s 100 for 100 PPP financial instruments is to reverse the nation’s over-reliance on imports, by creating a platform that targets and supports the right companies and projects with potential to immediately transform and jumpstart the productive base of the economy.

Under the initiative, projects that must catalyse sustainable employment-led economic growth through increased domestic production and productivity in the near term. The projects for consideration shall be new projects in existing companies requiring new machinery and other support and must have the greatest potential to achieve significant scale in their in-country production and for domestic consumption and exports.

The guideline stated that the focal activities covered under the initiative shall be existing businesses and projects (brownfield) with potential to immediately transform and catalyse the productive base of the economy. New projects (greenfield) with equal potential may be considered under the initiative, subject to CBN management’s approval.

A comprehensive, regular monitoring of specific benchmarks and key performance indicators (KPIs) under the initiative shall be undertaken regularly, the CBN said in the guidelines.

The KPIs (specific and relevant) include percentage increase in production output of financed companies; percentage increase in capacity utilisation; percentage increase in export volume; percentage increase in export value; percentage decrease in import volume of industrial raw materials; percentage decrease in import value of industrial raw materials; increase in number of jobs created.

As part of its responsibility, the CBN will have to screen and finance eligible private sector companies in 100 days, and rolling over every 100 days; conduct internal review of the applications received from the PFIs to ensure compliance with the stipulated requirements for participation under the initiative; and rank and select for financing, 100 private sector companies per quarter with potential to immediately transform and catalyse the productive base of the economy, among others.

For the PFIs, they will have the responsibility of receiving applications submitted for selection and financing under the initiative from private sector companies; carry out due diligence on application and ensure that all conditions precedent are met; and among others ensure compliance with PFI’s credit policy.