The Centre for the Promotion of Private Enterprise (CPPE) says Nigeria’s real sector has a financing gap of over N50 trillion and called for a fundamental reform of the country’s development-finance architecture.

 

CPPE in a policy brief signed by its Chief Executive Officer, Dr Muda Yusuf, and made available to the media on Sunday said the reform will address the severe financing constraints facing manufacturing, agriculture, agribusiness, MSMEs and export-oriented enterprises.

 

Over the years, Nigeria’s real sector has faced a structural financing deficit characterised by prohibitive interest rates, short loan tenors, stringent collateral requirements, limited risk appetite and inadequate patient capital resulting in suboptimal performance of the sector.

 

The centre said the problems are not

 

merely liquidity problems, but reflect deep-seated market failures in the financial system, including maturity mismatches, information asymmetry, sovereign crowding-out and the inability of private lenders to capture the wider economic benefits of real sector investments.

 

According to CPPE, the financing mismatch is particularly evident in agriculture. “The sector contributes more than one-fifth of GDP, yet historically receives less than 5 per cent of banking-sector credit”, it said, adding that manufacturing similarly requires substantial medium- and long-term funding for machinery, factory expansion, technology, energy infrastructure, automation, backward integration and export development.

 

“Such investments cannot be sustainably financed through short-tenor commercial bank credit at prohibitively high interest rates. Their long gestation periods and capital-intensive nature require patient, long-term financing at affordable rates, underscoring the critical role of development finance institutions and appropriately structured intervention funds”, the document said.

 

It said with the Monetary Policy Rate at 26.5 per cent and the Cash Reserve Requirement for deposit money banks at 45 per cent, commercial lending rates are generally incompatible with the expected returns on many productive investments.

 

“CPPE recognises the imperative of monetary and price stability and acknowledges the CBN’s commitment to restoring monetary policy credibility”, it said.

 

“The sustained monetary tightening has yielded some positive outcomes, particularly in strengthening policy credibility, supporting exchange-rate stability and moderating inflationary pressures. These gains are important and should be preserved.

 

“However, monetary stability should ultimately serve the broader objectives of investment, productivity, employment and sustainable economic growth. The challenge, therefore, is to achieve an appropriate balance between price stability and the financing needs of the productive sectors of the economy.”

 

The centre also warned that excessive fixation on conventional monetary orthodoxy risks underestimating the structural financing constraints confronting Nigeria’s productive sectors. It noted that price stability and development finance should not be treated as mutually exclusive objectives, insisting that in an economy characterised by deep financing gaps, market failures and severe supply-side constraints, monetary stability must be complemented by carefully targeted, transparently governed and non-inflationary development finance interventions to support manufacturing, agriculture, agribusiness and other strategic productive sectors.

 

“Nigeria faces an important policy challenge: monetary conditions may need to remain sufficiently restrictive to contain inflation, while the productive economy simultaneously requires affordable, long-tenor capital to expand investment, output and employment.

 

“The answer is not indiscriminate monetary expansion. It is a carefully designed development-finance framework targeted at identifiable market failures and structured to preserve monetary-policy credibility.