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Central Bank’s unending interventions of lean consequence 

By Geoff Iyatse (Lagos) Anthony Otaru and Joseph Chibueze (Abuja) 
13 March 2022   |   3:38 am
Among other things, the Central Bank of Nigeria (CBN) Act of 2007, saddles the bank with the overall control and administration of the monetary and financial sector policies of the Federal Government.

Agriculture. Photo; PEXELS

Among other things, the Central Bank of Nigeria (CBN) Act of 2007, saddles the bank with the overall control and administration of the monetary and financial sector policies of the Federal Government.
 
Constitutionally, the bank is charged with diverse responsibilities prominent among which is ensuring monetary and price stability; issuance of legal tender currency in the country; maintaining external reserves to safeguard the international value of the legal tender currency; promoting a sound financial system in the country, as well as act as banker and provide economic and financial advice to the Federal Government.
 
Additionally, the CBN is vested with the responsibility of administering the Banks and Other Financial Institutions (BOFI) Act (1991) as amended, with the sole aim of ensuring high standards of banking practice and financial stability through its surveillance activities, and the promotion of an efficient payment system.
 
Beyond its core functions, the CBN has, through its developmental mandate, taken major actions on all the key sectors of the Nigerian economy, and this can be gleaned from the over 40 interventions programmes all aimed at resetting and stimulating the nation’s economy.

 
The interventions are in areas like agriculture, power, textile, infrastructure development, manufacturing, entertainment, sports, pharmaceuticals and soft loans to small businesses, under the Targeted Credit Facility (TCF), which is to serve as a stimulus package to support households and micro, small and medium enterprises (MSMEs) among others.
 
As the bank continues to intervene in different areas, many are quick to point out that the failure of governance in the country has played a major role in the unending intervention in almost every sector of the economy.
 
With the country’s economy still light years away from being fully diversified despite the billions of naira spent to achieve this, some claim that the legion of interventions reflects a vote of no confidence in the capacity of the financial system to support the economy.
   
In Nigeria, like many other emerging markets, financial infrastructures are relatively undeveloped. This is why some economists are of the view that with the large volume of intervention programmes, the CBN may have just stepped in to fill the space created by inaccessible financial institutions, thus linking the emerging norm to the inefficiency of the financial market.
 
But David Adonri, a financial expert maintains that what is happening has a stronger correlation with the failure of the nation’s fiscal authority.
 
On his part, a professor of applied economics, Godwin Owoh, attributes the breakdown of economic prices in the country to the failure of the CBN to deliver on its mandate, as well as a direct outcome of its “father-Christmas” interventions.
 
However, Ken Ife, a professor of economics and a consultant to the Economic Community of West African States (ECOWAS), said that with what is happening, the CBN has simply prioritised “economic growth, diversification, empowerment and chooses the appropriate mix of monetary policies and support these owing that structural challenges and insecurity at play.”
  
Jocularly described as a “government within a government,” the CBN is sort of living up to that moniker. For instance, the bank has supported agriculture and manufacturing much more than the Federal Ministry of Agriculture and Rural Development, and the Federal Ministry of Industry, Trade and Investment have done respectively. 
 
The apex bank recently disclosed that it disbursed N864b to 4.1 million farmers cultivating 5.02 million hectares of land under its Anchor Borrowers’ Programme (ABP), its flagship agriculture intervention programme is currently sailing in troubled waters.
 
Last week, farmers under the aegis of the All Farmers Association of Nigeria (AFAN), described the ABP as faulty and not beneficial to the majority of members.
 
According to the association, there is a compelling need to embark on its full review with a view to making it more effective and sustainable.
 
The National President of AFAN, Kabir Ibrahim, who spoke during a media parley with journalists, organised by the Nigeria Agribusiness Group, in Abuja, further called on the CBN to also carry out a review of the ABP’s implementation template for the benefit of farmers.
   
“If the CBN Anchor Borrowers’ Programme is reaching out to, maybe, two million farmers, what does that mean out of 14.5 million? We told them that, of these two million that you are talking about, how did you reach them? Are they real farmers? Go and do your homework. Be sure they are real farmers through the farmers’ association. If you showcase a pyramid for everybody to see, the rice must be in your own house at a cheaper rate,” Ibrahim said.
 
He added: “What it means is that the Anchor Borrowers Programme, even though lofty and laudable, has got so many gaps that should be closed. You must be able to produce and harness such that the common man in Nigeria feels the impact of what you are doing.
 
“So, the CBN is hereby called upon to reappraise the Anchor Borrowers Programme and make it more sustainable. Maybe put it around the Federal Ministry of Agriculture.”
 
He regretted that the government had little or no consultations with the private sector before the ABP was commenced, just as the implementation pattern was not comprehensive enough to make a serious impact across the country.
 
Away from the ABP, there is also the Commercial Agriculture Credit Scheme (CACS), which targets big-ticket farmers. Through the Micro, Small and Medium Enterprises Development Fund (MSMEDF), according to the apex bank, it has funded 488 MSME projects nationwide, comprising 120 state projects and 368 private sector projects in agriculture, manufacturing, services and renewable energy.
   
The gamut of intervention programmes created in the last seven years, the CBN Governor, Godwin Emefiele, said are aimed at creating jobs and stimulating economic growth. 
   
But realising the CBN’s willingness to make an impact in the diverse areas of needs, the dedicated ministries appear to have abdicated their responsibilities, while the government continues to heap more responsibilities on the apex bank.
 
Only recently, it handed the newly-created Infrastructure Corporation of Nigeria Plc., (Infracorp), a N15t behemoth projected to solve the country’s infrastructure needs to the firm to chair. For its takeoff, the CBN has joined the Nigerian Sovereign Investment Authority (NSIA), and the African Finance Corporation (AFC) to raise the N1t seed capital. 
  
This new task has made Emefiele more involved in discussions on addressing the country’s infrastructure needs. Disturbed by the state of roads connecting the Lagos Free Zone, and the Lekki Free Trade Zone last week, Emefiele said he would hold talks with the Lagos State government and the Federal Government on how Infracorp could bring about a turnaround and make the corridor more accessible.
 
Previously, Emefiele had disclosed that he had resolved with the Bankers’ Committee, a club of banks’ executives midwifed by the apex bank, to focus on infrastructure this year.
  
Besides the CBN showing sufficient interest and perhaps, capacity in delivering on its developmental functions in recent years, the CBN boss appears to be even more visible in programmes that promote production and economic growth than any serving minister.
  
As relevant as the apex bank’s gesture is, some see this as a burden on its monetary stability function. And as debatable as this may sound, the country has laboured under key economic prices – exchange, interest and inflation rates – in the past decades, the situation seems to have degenerated to a crisis level in recent years. 
   
For instance, the country exceeded the CBN nine per cent inflation target by over 100 per cent, last March before a gradual retreat. Today, inflation is still far above single digit. The non-prime interest rate is still in the region of 27 and 30 per cent, which the former director-general of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, said is a disincentive to local manufacturers. The exchange rate has also remained extremely volatile and unpredictable.
 
While Owoh, attributes the breakdown of economic prices to the failure of the CBN to deliver on its mandate, Emefiele argued that the inability of the naira to hold firm against other currencies (which is a major cause of inflation) is a fallout of the import-dependent nature of the economy.
 
He also added that breaking the endemic reliance on foreign economies requires massive investment in local capacity, which is a major justification of the CBN’s interventions across the board.
    
Nigeria’s propensity to import, measured by the percentage of income spent on imported items, perhaps, is among the highest globally. This has continued to reflect in the foreign trade data.
 
In the third quarter of last year, the country’s trade deficit ballooned by over 61 per cent quarter-on-quarter (QoQ), rising from N1.87t in the second quarter (Q2) to N3.02t.
 
In the same quarter, the country imported goods valued at N8.15t, while its total export was valued at N5.13t. This scenario has become a trend as opposed to being an isolated case, and experts say that the government must stop the huge import leakage if it must build a sustainable economy. 
   
The CBN sees its developmental role as a key intervention in breaking the haemorrhage while its critics think it is merely overreaching its mandate in growing the economy. There is also a concern that the interventions have become a permanent feature of the economy. 
   
The development function, which enables the CBN to intervene in sectors that support growth and create jobs became entrenched during Sanusi Lamido Sanusi’s tenure as governor. Since then, it has become a somewhat permanent feature of the country’s financing options.
  
Experts say the interventions reflect the market’s lack of capacity to address the financing needs of the economy, as well as the shrinking of the fiscal space.
 
Adonri told The Guardian: “In a well-structured economic system, the monetary authority ought not to undertake fiscal interventions. What CBN is doing now with its various direct intervention programmes is an occupation of the fiscal space (production and trade). The CBN is going beyond its core mandate. Even though the incursion of CBN into the fiscal space is a misuse of its monetary tools, which are short-term measures to facilitate price stability, the abandonment of the fiscal space by the fiscal authority makes the CBN’s actions understandable.  
  
“In a properly working financial system, the capital requirements of economic units are sourced from financial markets. Short-term funds or working capital from the banking sector and money market while long-term capital is sourced from the capital market. That this entire system is bypassed by the CBN to inject credit directly into the fiscal economy means that Nigeria’s financial system is considered inefficient by the CBN. There may be an occasional need for the monetary authority to intervene in the economy, but this is only during emergencies.
 
“I don’t think the CBN intervention facilities, as a permanent financing mechanism for targeted economic units, have been very beneficial to the economy. The disbursements are opaque. The programme appears to be politically motivated rather than a prediction of sound economic judgment.” 
   
Adonri, a long-standing critic of CBN’s interventions said that the “economy is still in the doldrums and characterised by high inflation” indicating that the intervention programmes impact on production remains infinitesimal.”
 
In stressing that the CBN has derailed from its core mandate, he added: “It has failed to organise an efficient and credible foreign exchange market that generates a single exchange rate. It has also not organised an efficient banking sector that is capable of satisfying the working capital needs of the economy. It has also oversupplied money into the economy that is not backed by the productive capacity of the economy,” he noted. 
   
For Owoh, the CBN’s interventions constitute false liquidity and lack the impact of organic growth. Owoh who said that he counted up to 42 intervention programmes, also raised issues regarding the morality of the cash interventions, questioning whether they “are disbursed by angels”.
 
The professor of applied economics also wondered why such money is not captured in the country’s financial statements as a way of assessing its potential impact on the economy. He warned that the country risks hyperinflation except production is urgently scaled up to match excessive money supply.
  
“The Nigerian economy has an underlying illness caused by the virus of unguarded, ill-conceived and in most cases, illegal liquidity that is inimical to organic growth. It can only produce greater income inequality, unemployment, and diminished quality of livelihood,” he said, adding that governance failure is a major factor fueling CBN’s involvement in the fiscal space.
   
On the contrary, Prof. Ife does not believe that there are governance failures in the domestic finance intervention from the CBN perspective.

“The CBN has prioritised, and quite rightly, economic growth, diversification and employment, and chooses appropriate mix/blend of monetary policies to support these, and not the other way round, simply because of insecurity and structural factors at play. There may well be some imperfections in the downstream repayments and so forth, but there are adequate safeguards and protections of depositors’ monies. This is nothing to be compared to the inordinate risk of giving away depositors’ monies to politicians to disburse.”
 
The ECOWAS consultant said that ABP has reduced the starvation that would have killed more people in the country than COVID-19, and other health challenges, adding that the interventions have not, in any way, reduced the commitment of the apex bank to maintaining financial and price stability.    
  
Whereas some financial experts have equated the interventions with quantitative easing in the equivalent of Uganda, The Guardian was informed that much of the funds are sourced from cash reserve ratio (CRR), enabling commercial banks to earn some interest on what could have been frozen assets.
 
Also baring his mind on the intervention programmes, a former President, Association of National Accountants of Nigeria  (ANAN) Prof. Mainoma Akaro, said that the interventions have succeeded in raising a few millionaires in the economy.

 
According to Akaro: “Those that are close to the powers that be are the beneficiaries of the schemes, which would have been more impactful if they were tailored towards production, and equipment made available to those selected on the basis of open competition in the different businesses.”
 
Speaking on the failure of these programmes to contribute to the diversification of the country’s economy, Mainoma, a one-time vice-chancellor of Nasarawa State University said: “You can’t be doing the same thing and expect a different result. We are unable to diversify our economy because we are doing the same wrong things and expecting different results.  If we want to diversify the economy, we should start from areas of relative advantage.   
 
“Since we have crude oil, let us refine it; let us improve power so that small businesses can thrive. Let us improve our plastic, gas and fertiliser industries. Continually giving money to those that do not have ideas cannot work or bring about any new thing. So, we should stop creating emergency entrepreneurs that do not have ideas, but are given capital because they have contacts.”
 
While agreeing that intervening in the economy formed part of the duties of a central bank, he, however, wants the entire process to be transparent.
 
“Interventions are part of core functions of the CBN. It is not out of place for them to improve economic activities in the country, but the problem, however, is that the process should be open, and the focus should be the economy, and not to empower a few individuals.”
 
He blamed rising insecurity, poor infrastructure management, as well as poor education management for the unending intervention in what should be ordinary fiscal activities.
 
Said he: “So long as people are not secured, they can not be engaged in economic activities. Education helps in creating capacity for economic growth; the level of infrastructure helps in ensuring that people do their businesses with minimal stress. That is how to improve economic activities in the economy. The government has failed in all these areas. That is why the CBN has stepped in to fill the vacuum which is good, but the implementation is poor.” 
 
The Dean of School of Business and Entrepreneurship (SBE) and professor of financial economics at the American University of Nigeria, Prof. Leo Ukpong, on his part said for economic interventions to boost the economy, there must be targeted, timely, monitored, and measurable.
 
“Grants interventions to Small and Medium Size Enterprises (SMEs), young people, or rural women are too broad and difficult to monitor, hard to measure their impact on the economy, and they usually have a high rate of defaults,” Ukpong said.
 
He added: “The Nigerian economy largely still revolves around the crude oil industry, which is quickly shrinking in its global significance, and the market share is continuously reduced by the active participation of non-OPEC producers and new developments in alternative energy technologies.”
 
Prof Ukpong pointed out that “the major source of diversification for any growing economy is usually from the industrial production sector, and this should be driven by private sector initiatives, rather than by the public sector. The public sectors (federal and states) are never an engine of diversification or growth to any economy.”
 
Prof. Ukpong said the core mandates of the CBN are to control inflation, assist the private sector to grow the economy through pro-growth monetary policy, and stabilisation of foreign exchange rate. 
 
“CBN was not established, nor designed to function as a fiscal policy institution. Since CBN shifted their attention to managing agriculture loans, grants to SMEs, donating monies to schools, etc., the economy has fared worst, and they have completely failed in all their three cardinal mandates. The CBN should focus on what it was established to do,” Ukpong said.
 
“Most of the government ministries, departments, and agencies are not sticking to their respective roles, their focus is on how to spend their ‘bogus’ budgets before the end of the fiscal year, rather than on ensuring that projects under their departments are economically beneficial to the entire economy,” the university teacher explained.