The core mandate of the Central Bank of Nigeria (CBN) is price stability, an ingredient in achieving growth. The bank also has responsibility for the achievement of financial stability. But it is obvious that a leaky system like ours, close coordination between monetary and fiscal policy is imperative to minimize tension and inconsistencies in achieving optimal macroeconomic policy.
Like the global counterparts, CBN in recent years has raised its bar in a seeming “non-core” mandate through the developmental interventions. As much controversy as the strategy may have generated so far, the value propositions continue to link the core mandates. There have been the challenges of credit expansion and that of the costs. Of course, the shortage of long-term funds still remains, as the available ones cannot go through the critical segments. Indeed, the situation created the need for direct interventions, popularly called “bailout”, a term has gained ground since the global financial crisis of 2008.
So far, the direct development intervention of CBN in the nation’s real sector has been estimated at about N1.36 trillion, with the associated credit stimulation effects through incentives aimed at enthroning a regime of “reasonable rates” in banks.
The CBN Governor, Godwin Emefiele, has reiterated that the country has no choice now, given the challenges of oil prices, than to support real sector activities.
Besides the primary roles of price and financial stabilities, the challenging economic issues globally have necessitated the adoption of developmental angle in regulating the system and both the developed and emerging economies, have keyed into the strategy.
For example, the Federal Reserve Bank of the United States and Bank of England have at various times directly intervened in boosting the fortunes of their economies by injecting funds, subsidising rates and promote the growth of different sectors.
A breakdown of the apex bank’s development intervention showed that the Real Sector Support Facility (RSSF) received N300 billion; the Micro-Small and Medium Enterprises Development Fund (MSMEDF) got N220 billion; the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) got N75 billion; and the Nigeria Electricity Market Stabilization Fund received N213 billion.
Others include the Nigeria Export-Import Bank (NEXIM) support at N50 billion for the Export Refinancing and Restructuring Facility; and the Non-oil Export Stimulation Facility that received N500 billion.
Emefiele said that the far-reaching objectives of CBN’s implementation of the schemes for real sector was on the back of their inherent potentials in generating huge employment, high growth opportunities, significant accretion to foreign reserves, expansion of the industrial base and apparent diversification of the national economy.
“The real sector as you know is the engine of every economy, as it facilitates the production of raw materials, which add value to the domestic economy and consequently serves as a source of wealth creation and income generation to the productive population, the real sector also provides effective linkages among crucial sub-sectors such as agriculture, manufacturing, power, financial services among others,” he said.
The Executive Director, Finance, Standard Chartered Bank Nigeria Limited and the Regional CFO, West Africa, Yemi Owolabi, had at the Finance Correspondents’ seminar organised by CBN, in Oyo State, noted that the structure and dynamics of the financial sector impacts its ability to effectively and efficiently discharge its major role of financial intermediation. To her, a strong financial sector leads to higher savings and provides access to investment outlets, wealth creation and preservation; as well as promotes economic growth.
Speaking on the role of banks in real sector financing, she said: “The Nigerian banking sector has undergone remarkable changes over the past two decades, emerging stronger, bigger institutions with bigger capital levels achieved through mergers and acquisitions. This has enhanced the capacity of the sector to create higher amounts of risks assets to support growth.
“Deposit money banks’ valuation represents 23.8 per cent of the Nigeria capital market capitalisation, thus enabling wealth creation and preservation. Banks have been in the forefront of employment generation (74,062), about 0.4 per cent of Nigeria’s labour force.”
Did the results above create the needed funds for critical sector financing? There was a huge gap left and the situation was compounded by the cost of the finances they were able to provide. This was also an impediment to accessing the funds.
The Director of Monetary Policy Department, CBN, Moses Tule, reiterated that recent evidence of central banking, particularly since the global financial crises of 2008/2009, showed that supporting various sectors of the economy, especially the real sector through direct intervention, have become important roles of major central banks.
“Complementing the financing efforts of government further underscores the importance of the role of central banks in financing the real sector. This is even more imperative in the face of ensuing challenges such as low agricultural productivity, inadequate infrastructure, under-developed financial system, among others. This has not been a deviation from their core mandates, but an important aspect of the operations of central banks for several decades,” he said.
He noted that in recognition of the importance of this multiple mandate of central banks, CBN has over the years pursued both price and financial system stability as well as provided complementary financing assistance to the real sector.
“These efforts of the CBN are principally in the area of development financing, which dates back to the 1960s with financing of commodity boards. Over the years, it has spread to other sectors of the economy, such as aviation, power, energy, among others.
“The initiatives also focus on areas such as agricultural development, entrepreneurship training, rural development and micro, small and medium enterprises, among others,” he added.
But what has been the result? Between November 2014 and February 2015, the sum of N143.5 billion for four projects in the petrochemical and food processing sectors have been approved for funding under the Real Sector Support Finance. The projects were expected to create about 17,000 jobs.
