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Eliminating intervention funds disruptions to stimulate growth

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Amongst all factors of production, capital is the most critical, as well as the most difficult to come by, while under-capitalisation has been fingered as a major cause of underperformance in the country’s economy.

At various times, the Central Bank of Nigeria (CBN) has devised numerous schemes to recapitalise ailing sectors of the economy, and bridge the capital formation gap that affects key sectors of the economy.

Indeed, the capacity of the economy to form capital, appropriate in type, adequate in volume, and affordable in price, remains a tall order due to the financial sector’s inefficiency and underdevelopment.

It is against this background that the CBN rolled out various intervention programmes totaling N2.5t, and representing about 3.5 per cent of the country’s GDP to cushion the effect of COVID-19 pandemic on the agriculture sector, aviation industry, education sector, industrial sector and the creative industry, among others, to ease the average citizen’s burden.

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Most recent effort is the commencement of the National Youth Investment Fund (NYIF) by the CBN as empowerment against social upheavals like the recent #EndSARS protests, and other forms of youth restiveness in the country.

According to the CBN framework, the Nigerian Youth Employment Action Plan was developed as a built-in strategy to respond effectively to youth employment challenges in the country in Nigeria.

The CBN, in a statement by its Development Finance Department, explained that the fund, an initiative of the Ministry of Youth and Sports Development, is to be managed by NISRAL Microfinance Bank.

It stated that the plan’s major objective was to address fragmentation of youth initiatives that prevent assessment of impact.

On July 22, 2020, the Federal Executive Council (FEC) approved N75b for the establishment of NYIF from 2020 to 2023. “It will provide Nigerian youths with investment inputs required to build successful businesses that can become sustainable employers of labour, and contributors to the country’s development.

“The plan targets young people between 18 and 35 years, and details actions required to support business establishment, expansion and consequent employment creation for youths in critical economic and social sectors,” it stated.

Accordingly, the NYIF will facilitate the transition of informal enterprises owned by youth into the formal mainstream economy, where they can be supported comprehensively, build a bankable track record, and be accurately captured as active participants in economic development.

Commenting on the development, the Vice President, Highcap Securities, David Adonri, said because nature abhors vacuum, in the absence of fiscal action, monetary intervention is necessary to forestall damage to the entire economy arising from fiscal laxity.

He argued that while not discountenancing the enormous benefit that the economy can derive from the NYIF scheme, it was necessary to draw lessons from the ineffectiveness of several past intervention schemes by the CBN.

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He said: “There is no doubt that funding is a big constraint suffered by youths in their quest for economic emancipation. The initiative taken by the CBN, through this fund, can produce productive employment for youths; solve a myriad of social vices associated with youth unemployment, and will also create wealth for the economy.

“But, in spite of the enormous funds sunk by the CBN into agriculture and aviation sectors, they remain in comatose. Why has the CBN funding failed to materially lift up these sectors? This is because the economic environment is not secured, even as infrastructure are not available for maximal employment of the intervention funds that the CBN is pumping into the economy.

“If care is not taken, this youth fund can go down the drains. More so, how is the CBN going to raise such huge fund to finance this scheme? This poses serious danger in an era when the absorptive capacity of the economy is at a low.”

A former President, Chartered Institute of Bankers of Nigeria (CIBN), and a professor of economics at the Babcock University, Segun Ajibola, stressed that it is important to address headlong, other relevant issues that can affect the business environment such as power, security and infrastructure, and not just ration of funds.

The economist pointed out that the problems associated with infrastructure and insecurity plaguing the environment and clogging especially new comers to business need to be tackled to enable recipients derive full benefits from the fund.

“Nigeria is still grappling with power, infrastructure and security challenges, among others, plaguing the environment and clogging especially new comers to business,” he said, adding that, “as a country, Nigeria must continue to work on, and improve this aspect of its national life.

“Also, the intervention funds should be a temporary practice to fill a funding gap in the economy, as the CBN is not expected to deal directly with the public. Indeed, there is a school of thought that says that the CBN should hand off intervention funding and transfer it to deposit money banks,” he stated.

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Ajibola continued: “The argument is that a regulator cannot be an operator, otherwise one of the two will suffer. So, the CBN should not approbate and reprobate at the same time.

“CBN must develop a business template that ensures that beneficiaries of all forms of intervention funds have bankable proposals and that the amounts of such loans are right for the proposals.”

In addition, the CBN must put modalities in place to ensure that set targets are achieved and funds accessed by the targeted group.

Said he: “One of the major macroeconomic indicators that has dislocated the economy in recent times is unemployment. Restive youths are taking to social vices for lack of gainful jobs. Any attempt at empowering them is, therefore, a welcome development.

“If this and similar initiatives are to achieve the desired goals, the CBN’s template for assessing applicants for the fund must be fool proof. Such business proposals must be bankable, and capable of generating cash flow to sustain the business.

“Also, the CBN must be circumspect in approving the request, because if approved sum is insignificant to the business needs, the tendency is for the beneficiary to treat such amount as his/her share of the national cake. Second, the operating environment must be sufficiently conducive for the businesses and activities of the beneficiaries to thrive.”

He urged business managers to continue to hone their skills through continuous training and exposure to best practices so as to improve corporate governance, accountability and succession planning.

An independent investor, Amaechi Egbo, listed infrastructural deficit, insecurity, high level of poverty and weak purchasing power, as some of the challenges that have stunted business growth in the country.

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He explained that these challenges have constrained affected sectors from leveraging the various intervention funds to grow, noting that they must be tackled to enable beneficiaries to expand their operations.

About 40 per cent of Nigerians are reportedly living below poverty line, and millions more vulnerable to falling into poverty. Unfortunately, all efforts at poverty alleviation have essentially been impromptu over the years because poverty alleviation programmes and strategies were not crystallised, and consolidated within the nation’s overall development objectives.

Relatedly, the country’s debt profile has been a major source of concern to policymakers and development practitioners, as the most recent estimate puts the debt service-to-revenue ratio at 60 per cent.

The outbreak of the COVID-19 pandemic took the country and monetary policy authority back to the struggle for price stability and growth. Nigeria also faces a greater challenge from the pandemic than many other countries, being the largest economy in Africa, with a population of over 200 million.

Even before the Coronavirus crisis, the country had been struggling to recover from the 2016 economic recession, which was a fall out of global oil price crash, and insufficient foreign exchange earnings to meet imports.

To ensure that NYIF’s set targets are met and the funds duly accessed by targeted group, Sheriffdeen Tella, a professor of economics at Olabisi Onabanjo University, Ago-Iwoye, said the apex bank must ensure that the fund is backed with appropriate monitoring and evaluation system, stressing that the CBN’s direct funding interventions in businesses would be a welcome idea if it included strict monitoring and evaluation mechanisms.

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While insisting that appropriate management of the process of accessing NYIF must be guided by the experience of past interventions, Tella noted that there must be documentation for steps taken and outcomes for future references.

He said: “Fortunately, this is not the first time that the CBN is doing this. What has been the experience? What are the shortcomings? Were they documented and how are these being addressed in the new intervention? We have to learn from past experiences.

He continued: “I think that the CBN should carry out interventions through microfinance banks for small and medium-sized businesses, as well as the Bank of Industry and other deposit money banks because of their network, spread and expertise.

‘The CBN will then act as the supervisory institution, carrying out monitoring and evaluation of the scheme, through NGOs, or civil society groups operating in areas of project monitoring and evaluation. More importantly, however, the process should be guided by experience of past interventions.”

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