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The perilous art of state intervention

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It must feel good to be a farmer in Nigeria today, or textile factory owner, airlines operator, power generator or distributor, real sector operator or maybe a small business owner.

The list is endless, as at last count the Federal Government through the Central Bank of Nigeria (CBN), has at least 18 Development Finance Operations across various sectors of the Nigerian economy.

These include the Agricultural Credit Guarantee Scheme (ACGS), Interest Drawback Programme (IDP), Commercial Agriculture Credit Scheme (CACS), Paddy Aggregation Scheme (PAS), Micro, Small and Medium Enterprises Development Fund (MSMEDF), Anchor Borrowers’ Programme (ABP), Presidential Fertilizer Initiative (PFI), National Food Security Programme (NFSP), National Collateral Registry (NCR), SME Credit Guarantee Scheme (SMECGS), Small and Medium Enterprises Restructuring and Refinancing Facility (SMERRF), Real Sector Support Facility (RSSF), Textile Sector Intervention Fund (TSIF), Power and Airline Intervention Fund (PAIF), Nigeria Electricity Market Stabilisation Facility (NEMSF), Nigeria Bulk Electricity Trading Payment Assurance Facility (NBET-PAF), Non-oil Export Stimulation Facility (NESF), and Export Development Facility (EDF).

Sadly, the problem with these myriad schemes goes beyond the funny names and weird acronyms.

Here are some data from the CBN.

In the first half of 2018, a total of 10,420 loans valued at N1.75 billion were guaranteed under the ACGS, a total of 5,929 IDP rebate claims valued at N89.31 million were settled, the sum of N39.34 billion was disbursed to 16 projects for the CACS, N4.25 billion was released to three banks for disbursement to three projects under the PAS, N4.77 billion was disbursed under MSMEDF, the ABP saw disbursement of N36.37 billion to 155,732 farmers, a total of N20.0 billion was released to a single obligor under the PFI, through the Nigeria Sovereign Investment Authority (NSIA), the sum of N4.04 billion was disbursed under the NFSP, the sum of N23.91 billion was disbursed to five (5) projects under RSSF, the sum of N19.1 billion was released for two (2) projects under the TSIF, a sum of N18.74 billion was disbursed to four (4) power projects under the PAIF, the sum of N38.53 billion was disbursed to one (1) distribution company (DisCo), seventeen (17) generation companies (GenCos), six (6) gas companies (GasCos) and five (5) service providers, under NEMSF, the sum of N248.4 billion was disbursed to the NBET Plc under NBET – PAF, N19.04 billion to finance six (6) projects under NESF, and a N50.0 billion debenture under the EDF.

This all came to a tidy sum of N529 billion just in the first six months of 2018.

Beyond the stress this imposes on the CBN balance sheet and distortions to the wider economy, no one seems to be concerned about the inefficiency being encouraged as growth in most of the sectors government is pumping money into remains lacklustre.

According to the National Bureau of Statistics (NBS), in the third quarter of 2018, the agricultural sector grew by 1.91 percent (year-on-year) in real terms, a decrease by –1.16 percent points from the corresponding period of 2017, Real GDP growth in the manufacturing sector (often a target of these interventions) in Q3 2018 was 1.92 percent, Textile, Apparel and Footwear under Manufacturing sector grew by a measly 1.04 percent in Q3 2018, down from 2.73 percent in Q2 2018 and 1.85 percent in Q1 2018.

With growth in the targeted sectors still this tepid and unemployment rising, it is fair to assume that the spending has created little jobs, meaning it has been largely inefficient and unproductive.

Indeed a member of the monetary policy committee (MPC) of the CBN, Obadan, Mike Idiah, in his personal statements following the 121 MPC meeting of Nov 21-22, 2018, flagged the lacklustre growth in one of the targeted sectors, saying: “Although agriculture was one of the three major drivers of growth during the period, its contribution to growth at 0.27 percent showed highly reduced significance in relation to previous quarters. The sector thus needs to be further stimulated beyond what the Central Bank of Nigeria (CBN) is currently doing.”

Obadan also alluded to the Central Bank’s use of non-conventional monetary policy tools being ‘overburdened.’

Nigeria seems to have mastered the art of state interventions. It may be time to begin unwinding these good intention-ed but perilous outlays.

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