We are engaged in Development Central Banking – Godwin Emefiele

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Godwin Emefiele, Governor, Central Bank of Nigeria, could go down in the institution’s history as the “great survivor”. He took the mantle of office when the fortunes of the Bank and the economy were on the decline over the precipitous crash of oil prices. His brave attempt at uncommon monetary policy formulation drew brickbats at home and abroad when he excluded businesses importing a range of items from the official foreign exchange market.

Calls for his sack echoed in the media and virtually all international financial circles, berating relentless leaching of foreign exchange from Nigeria’s fragile market as unworkable and naive. Unfazed and sure of himself, Emefiele struck to his guns, arguing that the nation’s foreign exchange stock could not be wasted on frivolous imports, especially items the country could source locally.

Fortunately for the Bank chief, his boss, President Muhammadu Buhari thought so too. The President had even made up his mind to let Emefiele prove his worth, suggesting a vote of confidence in the former Zenith Bank Managing Director.

EmefieleThree years into his tenure as the apex bank chief and several tough policy initiatives later, Emefiele has proved to be smarter than his detractors. Nigeria was able to pull out of a recession in record time thanks to Emefiele’s firmness and management of the CBN as a monetary policy agency with fingers deeply on the fiscal side of the economy. The CBN’s intervention in the foreign exchange market, once, lampooned by critics soon became masterful policy activism lauded by all including the International Monetary Fund which initially wrote them off as unworkable.

In this special interview, Emefiele, divulges the solid reasoning behind his unconventional yet effective measures, many of which run to date and are helping Nigeria find the way back on the path of sustainable economic development. Excerpts:

How would you describe Central Bank’s development interventions in the Nigerian economy in the last three years?
The Central Bank’s development interventions have strengthened the intermediation role of the Nigerian financial sector, engendered a stronger, more diversified, post-oil economy with strong impetus for growth, particularly in the agricultural sector, generating higher employment, while reducing expenditure on food imports. It also promises to make the exports more competitive and deliver a more diversified economy. The rationale for the Bank’s development interventions especially after the 2007/2008 Crisis was largely two-fold. The first rationale is strengthening the financial system. This entails addressing tight credit conditions and the under-performance of key monetary aggregates. It also involves the restructuring/ refinancing of deposit money banks’ (DMBs) exposures to the manufacturing sector and small and medium-sized enterprises (SMEs) to ensure smooth flow of credit to the real sector of the economy.

The second rationale for the Bank’s development interventions is to provide direct support to enterprises that have high job-creating capacity and other economic values.

Against this background, the Bank has been fast-tracking the development and access to credit facilities by large commercial agricultural enterprises to increase output and create jobs.

The Bank equally facilitates access to affordable credit by micro and small businesses, particularly women enterprises. In addition, the Bank promotes investment in the power sector to achieve sustainable growth.

To what extent would you say these interventions have helped the economy exit recession and to promote the current growth being recorded?
The Bank has been playing a key role in improving access to finance for entrepreneurship development and real sector growth in the country. The various development finance intervention programmes, which include the Anchor Borrowers’ Programme (ABP), Bailout, and supportive monetary policy, have succeeded in promoting value chain development and market linkages in various sectors, particularly agriculture and industry. In addition, the CBN’s increased interventions and targeted FX supplies to priority sectors have ensured exchange rate stability, which is necessary for growth. Overall, some of the things the Bank has achieved through the interventions include increased inclusive growth, enhanced investment, diversified revenue base and increased accretion to foreign exchange reserves. Through the interventions, the CBN has also been able to promote employment and improve financial inclusion.

For firms in the country, interventions have helped to enhance competition, bring about greater innovation, more products/ service varieties, improve access to finance and enhance capacity utilization. Additionally, the interventions have led to increased output of goods and services, increased foreign exchange earnings and created job opportunities.

To what extent would you say the Commercial Agriculture Credit Scheme (CACS), in particular has contributed to the boost in output being experienced in the agricultural sector?
CACS has contributed positively to a large extent to boost output in the agricultural sector. As at April 2018, a total of N557.413 billion had been disbursed towards 552 projects and this has created about 1,134,722 jobs. Increases in output were recorded and operating capacity stood at 980,424 metric tons of rice.

Why was the Agricultural Credit Guarantee Scheme Fund (ACGSF) set up, and what is the status of its implementation so far?
The Scheme was established to encourage commercial banks to lend to agricultural enterprises by providing a guarantee cover on agricultural loans of up to 75 per cent, thereby minimizing credit risk. The ACGSF provides an effective credit risk management tool for loans extended to farmers by banks. In addition, the fund was set up to stimulate small farmers’ productivity across the agriculture value chain. By the end of April, 2018, N110.970 billion had been disbursed to 1,107,670 beneficiaries and 5,045,900 jobs have been created.

The apex bank intervened in the power and aviation sectors through the Power and Airline Intervention Fund (PAIF). How would you appraise the impact of this project so far?
The PAIF was introduced to provide leverage and stimulate private sector involvement in the power and airline sectors. From available data, 44 power and 16 airline projects worth N294.072 billion had been funded as at April, 2018. In addition, 120 kilometres of gas pipeline have been constructed and 840MW of electricity generated. In terms of overall performance, the PAIF has facilitated access to capital and promoted investment in both sectors to achieve sustainable growth as well as increased output and job creation.

Analysts say that the Micro Small and Medium Enterprises Development Facility (MSMEDF) has contributed to economic empowerment of many Nigerians, but more still needs to be done in this area. What is your take on this?
The MSMEDF was introduced to provide long-term affordable finance for the Microfinance sub-sector of the country. As at the end of April, 2018, the Fund had created about 139,156 jobs and funded over 408 projects through Participating Financial Institutions (PFIs). The Bank would continue to strengthen and modify the Facility to meet its objectives. However, the success of these initiatives depends, among others, on effective collaboration with other arms and agencies of government.

The multi-pronged financing under the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL), which includes risk sharing, insurance, and technical assistance has made impact on the economy. Is there room to expand this facility?
The Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL) launched in 2011 and incorporated in 2013 as an initiative of the Central Bank of Nigeria (CBN), the Bankers Committee and the Federal Ministry of Agriculture & Rural Development (FM&RD), is an innovative mechanism targeted at de-risking lending to the agricultural sector. NIRSAL is able to de-risk the agriculture value chain by putting in place transparent mechanisms to identify, define, measure, price and share agribusiness credit risk with banks by providing guarantees for agriculture loans to finance projects that are verified to be feasible, viable and potentially impactful.

NIRSAL has five key objectives that it hopes to achieve using its dynamic and holistic approach to tackling the challenges in the agricultural and financial value chains. They are: Firstly, to fix agricultural value chains to provide a reliable platform for de-risking agricultural lending.

Secondly, to mobilize financing for Nigerian agribusiness by using credit guarantees to address the risk of default. Thirdly, to provide technical assistance through capacity building across the value chains. Fourthly, to reduce the cost of borrowing by agricultural producers from commercial banks and finally, to provide technical advice to agribusinesses.

NIRSAL has benefitted the Nigerian economy in four major areas, including, strengthening the financial sector, boosting agricultural production, enhancing food security and facilitating higher productivity as well as fundamentally transforming the Nigerian economy. In terms of coverage, there are no current plans to expand this facility in view of other complementary programmes and strategies by the CBN to support the agricultural sector.

Are the apex bank’s economic development interventions temporary just to leapfrog the economy or an on-going process with a longer lifespan?
Most central banks, since after the 2007/2008 Global Financial Crisis, have continued to place emphasis on the promotion of economic development. This is a shift from conventional central banking with focus/mandate on price stability and of safeguarding financial stability. For the CBN, this policy shift is part of a broader framework of promoting sustainable development as stated in the Bank’s mandate (Section 31 of the CBN Act 2007) with the strategic theme of “Promoting inclusive growth and sustainable development”.


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July 2018