Leveraging Nigeria’s recovery momentum

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Signs pointing towards Nigeria’s imminent recovery from the recession it plunged into in the second quarter of last year started showing in the first quarter of this year. The National Bureau of Statistics (NBS) reported that the economic contraction had slowed down from its high of -2.24 percent in the third quarter of 2016 to -0.52 in Q1 2017.

Hope soared when inflation (headline) rate, which accelerated in about the same period from 9.6 percent in January 2016 to a high of 15.6 percent by year-end, remained much the same in the early months of this year before dipping slightly to about 16 percent by mid-year.
The economy finally turned the corner in the third quarter of the year, causing the statistics bureau to announce a modest 0.55 percent growth. The announcement signaled that the worst was over and Nigeria was ready to start the slow climb back into positive economic growth for sustainable development.

Eme with Buhari

Return of stability in the forex market
Without a shadow of doubt, the return of stability and liquidity in the foreign exchange market since the early months of the year was one of the most plausible reasons for the turnaround in the nation’s economy. The Central Bank of Nigeria (CBN) has since the unfortunate contraction launched a series of policy measures and interventions in the economy and in the foreign exchange market to restore confidence. The Bank is being helped by the recovery in the global oil market, which is enabling the federal government to earn more foreign exchange resources (dollars). This significantly increased foreign exchange reserves from which the CBN funds the FX market and makes strategic interventions in the economy. Lastly, the recession was also eventually checked by measured fiscal authorities’ policy responses that positively impacted the economy and continue to have salutary effects in the foreign exchange market as well.

Bold measures
The CBN launched a series of bold steps to quell the quake in the market early in the year. The objective was to increase liquidity, thereby easing the difficulties encountered by Nigerians seeking funds for foreign exchange transactions. It started by increasing the volume of funding it customarily provided in the market to meet the needs for personal and business travel, medical expenses in foreign countries and school fees for the teeming Nigerian students who have opted to get their education abroad. The Bank instructed that the rates charged for such retail transactions must not exceed 20 percent on top of the interbank rate.

Travel allowances
The CBN started out by clearing a historic backlog of matured letters of credit at the inception of the current new flexible exchange rate system. It began to provide foreign exchange to all commercial banks to meet the needs of both personal travel allowances (PTA) and business travel allowances (BTA) for onward sale to customers. All banks now receive from the apex bank, amounts commensurate with their demands per week, after meeting basic documentary requirements.

School and medical fees
The Bank is also meeting the needs of parents, guardians and sponsors who are making payments of school and educational fees for their children and wards. Such payments are made by commercial banks directly to the institutions specified by the customers. The same applies to people who are making payments in foreign exchange for medical bills. The funds are paid directly to foreign hospitals or medical establishments. This strategy has curbed the antics of those using these services as pretext for diverting the funds to the lucrative parallel market.

Forward sales tenor
Furthermore, the CBN is easing access to other foreign exchange (forex) end-users, with the policy of a reduction in the tenor of its forward sales from the old untenable current maximum cycle of 180 days to no more than 60 days from transaction date.

Forex sales at major airports
Travellers are also enjoying the benefits of the new forex regime. The Bank approved and directed all commercial banks to open retail outlets at major airports countrywide. Hitherto, travellers leaving or entering the country had to patronize unscrupulous parallel market dealers for foreign exchange transactions at unfair rates that made life difficult for the unwary.

Increased efficiency of the forex market
Keen to sustain the growing confidence in the new forex regime, the CBN is committed to a raft of reform measures:

• It is assiduously implementing programmes designed to clear all unfilled orders in the interbank foreign exchange market.

• The Bank is going all out to meet orders, especially from the manufacturing sector which it considers strategic and capable of driving the economy and boosting employment. The CBN is also softening its approach to encourage compliance by relaxing its allocation/utilization rule on commercial banks.

• The CBN is strengthening its intervention programme in the inter-bank market to ensure adequate liquidity necessary for an efficient foreign exchange market.

• For total transparency in the market, the Bank has asked the Financial Markets Dealers’ Quotation (FMDQ) to activate its FX Order-Book systems and accelerate the on-boarding of FX clients on the FX Relationship Systems.

Liberal as the CBN may seem with the new directives, Bank brass caution market participants on the regulator’s resolve to keep watch over the entire market to maintain its integrity. The Bank frequently communicates its readiness to punish unscrupulous actions and offenders, including its own staff, when found wanting.

Interventions in the economy
Limiting central bank’s functions to the execution and implementation of monetary policy alone is démodé. Since the global financial markets debacle that rocked the world, the CBN has been crossing the fine line that separates monetary and fiscal policies. The Bank engages in activities that ordinarily belong in the fiscal arena, where government’s revenues and public spending are tailored to develop the economy.

Simply put, the central bank today goes beyond its primary mandate of price and financial stability to complement the fiscal authorities’ job of growing the economy, creating jobs and generally lifting as many Nigerians as possible out of poverty. This objective has seen the Bank dabble directly into the affairs of all sectors of the economy, with the most weight placed on the priority sectors of agriculture, energy and manufacturing, the so-called real or productive sector.

Anchor Borrowers’ Programme
Since the flagging off of the Bank’s Anchor Borrowers’ Programme (ABP) designed to grow the agriculture sector, over 200,000 small-holder farmers from 29 states in the country have had access to the N43.92 billion so far released. Estimates suggest that over 233,000 hectares of land have gone under cultivation with such key crops as rice, wheat, maize, cotton, soya beans, cassava and groundnut. Poultry and fish farmers also benefit.

For the economy, this is good news. The programme’s continued success is helping to reduce Nigeria’s dependence on imported food and agricultural raw materials. The effect on the country’s foreign exchange reserves is most welcome, to say nothing about the return of many people who had fled the farms in search of white collar or menial “city” jobs. The programme has pulled large investors into agriculture, which many had shunned due to the difficulty in accessing funding.

In less than two years, ABP has increased local rice production by as much as two million metric tonnes, placing the country on the path of rice-self-sufficiency in the medium term. The programme has encouraged the Bank to line up similar agriculture boosting initiatives such as the Commercial Agriculture Scheme targeted at youths. That scheme hopes to pull in about 100,000 young people into agriculture to replace the tired, ageing population that now constitute the bulk of farmers in the country.

More real sector intervention
Working to make progress in the areas identified as priority sectors in the Economic Recovery and Growth Plan, the CBN has continued to monitor and fund interventions developed in the past decade.

Hereunder, a number of these interventions are discussed, straddling energy, manufacturing, transport, and SMEs:

• Commercial Agriculture Credit Scheme (CACS)

• Agricultural Credit Guarantee Scheme Fund (ACGSF),

• Agricultural Credit Support Scheme (ACSS)

• Interest Drawback Programme (IDP)

• Microfinance Policy Financial Inclusion

• Entrepreneurship Development activities

• Power and Airline Intervention Fund (PAIF)

• Small and Medium Enterprises Credit Guarantee Scheme (SMECGS)

• SME Restructuring/Refinancing Fund (RRF).

• The Nigeria Electricity Market Stabilization Facility (NEMSF)

• Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL).

The more recent interventions are:
• Youth Entrepreneurship Development Programme (YEDP)

• Export Rediscounting and Refinancing Facility (RRF)

• Export Stimulation Facility (ESF)

• Intervention in the Textile Sector.

Commercial Agriculture Credit Scheme (CACS)
To fast track the development of the agricultural sector by providing credit facilities to commercial agricultural enterprises at a single digit interest rate, the Commercial Agriculture Credit Scheme was established by the CBN in collaboration with Federal Ministry of Agriculture in 2009.

• From inception in 2009 to mid-2017, the sum of N473 billion was released to the economy for 513 projects and 31 state governments.

• The cumulative amount released to the economy under CACS from both CACS Receivables from s and CACS Repayment Account stood at N263.025 billion to 310 private and 36 state government projects;

• Over 35,000 jobs were created; comprising about 15,000 direct and over 25,000 indirect jobs since inception.

• Five out of the 310 private projects are owned and managed by women.

Agricultural Credit Guarantee Scheme Fund (ACGSF)
The ACGSF was established by Decree 20 of 1977 to provide 75 per cent guarantee cover in respect of loans granted to the agricultural sector by Deposit Money Banks. The Scheme pledges to pay 75 per cent of any outstanding default balance to the bank after the security pledged has been realized.

Interest Drawback Programme (IDP)
The IDP was introduced in January, 2003 for loans under the ACGS to provide interest rebates to farmers that borrowed under the ACGS to reduce the cost of borrowing and burden of high interest rate and to encourage repayment, therefore reducing loan default as well as the contingent liability on the ACGS Fund. Farmers who borrowed from banks under the ACGS enjoyed interest rebate of 40 per cent on their loans provided they repaid the loans on schedule from the IDP.

N200 billion SME Credit Guarantee Scheme (SMECGS)
To encourage banks to give credit to the SME sector, the CBN launched N200 billion Small and Medium Scale Enterprises Guarantee Scheme in April 2010 to de-risk the sector and also to fast-track the development of the manufacturing and SME sub-sector by providing guarantee for banks’ credit. The guarantee covers 80 per cent of principal and interest and is valid up to the maturity date of a loan, with a maximum tenure of seven years inclusive of a two-year moratorium. Since inception, 87 projects valued at N4.219 billion has been guaranteed under the Scheme.

N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF)
This scheme was established in 2013 to enable Nigerians, particularly women and youth, to access capital at a single digit interest rate of 9 per cent. The women are expected to be granted access to 60 percent of the Micro, Small and Medium Enterprises Development Fund (MSMEDF), while persons with special abilities would have access to two percent of the Fund.

N500 billion Power and Airline Intervention Fund (PAIF)
The sum of N500 billion was approved by the Monetary Policy Committee in 2010 for investments in debentures issued by the Bank of Industry (BOI) out of which the sum of N300 billion would finance power and airline projects and N200 billion for the Restructuring and Refinancing Facility (RRF). The fund, which is aimed at refinancing existing loans, leases and working capital, was made available to various projects at a discounted maximum rate of 7 per cent for a tenor of 10 – 15 years was created to stimulate credit to the domestic power sector and troubled airline industry.

Cumulatively, over N350 billion has been released to BoI from inception to date and disbursed through banks to 55 projects. In addition, N235 billion Restructuring/Refinancing of exposures of manufacturing/SME to the banking sector at 7 per cent was also injected to repair balance sheet of troubled banks and moribund industries.

Real Sector Support Facility (RSSF)
The Facility is expected to lead to improved access to finance, increase in output, job creation, diversification of the economy, increase in foreign exchange earnings and reserve. The RSSF, which was established in November 2014, replaces the SME Restructuring & Refinancing Facility (SMERRF) which has been discontinued by the CBN, with the view to refocus the its intervention on strategic new/start-up projects in the real sector (manufacturing and agricultural value chain SMEs) of the economy.

N213 billion Nigeria Electricity Market Stabilization Facility (NEMSF)
The N213 billion Nigerian Electricity Market Stabilization Facility is aimed at settling certain outstanding debts in the Nigerian Electricity Supply Industry (NESI). In specific terms, the proposed facility will cover legacy gas debts and the shortfall in revenue during the Interim Rule period (IRP). It is expected that this will guarantee the take-off of the Transitional Electricity Market (“TEM”).

The parties that signed the agreements included Gas suppliers (Shell, Chevron, Agip etc), Generating Companies (GENCOs), Distribution Companies (DISCOs). N64.755 billion was distributed to 18 NESI participants comprising of five DISCOs, seven GENCOs and six GASCOs.

The facility is expected to be repaid within a 10-year period, and it was to enable the beneficiaries to address challenges militating against electricity power generation and distribution. The funds is expected to be invested in generation plant maintenance, transmission upgrades and distribution networks including transformers and better metering for end consumers among others.

Nigerian Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL)
This programme started in 2010 to create incentives and catalyze processes to encourage the growth of formal credit (direct and indirect) for the agriculture value chain, as a mechanism for driving wealth creation among value chain participants. The Integration is driven by NIRSAL’s five pillars, particularly Risk Sharing Pillar and the Technical Assistance Pillars.

• Risk Sharing Facility – N45billion
• Insurance Facility – N4.5billion
• Technical assistance facility – N9billion
•Agriculture Bank Rating Scheme – N1.5billion
• Bank Incentive mechanism – N15billion

As at September 2017, NIRSAL had disbursed N66.36 to stakeholders in the entire value-chain in agriculture

Emerging Interventions

Youth Entrepreneurship Development Programme (YEDP)
The CBN launched the Youth Innovative Entrepreneurship Development Programme (YIEDP) on March15, 2016, in furtherance of its intervention in the real sector of the economy and job creation effort. The programme is open to youth corps members and those with not more than five years of post-NYSC experience including artisans. Each eligible youth can access a credit line of up to N3 million at single digit interest rate with opportunity to migrate to other CBN intervention schemes.

Export Rediscounting and Refinancing Facility (RRF)
The intervention is managed by NEXIM to encourage and support DMBs to provide short-term pre- and post-shipment finance in support of exports by providing a discount window to exports financing banks and therefore improving their liquidity and exporters’ access to export credit. It covers Rediscounting: (Short-term) Pre-Shipment and Post-Shipment as well as Refinancing (Long-term).

Export Stimulation Facility (ESF)
The ESF is managed by NEXIM and designed to improve access of exporters to concessionary finance at single digit interest rate to expand and diversify the non-oil export baskets; Attract new investments and encourage re-investments in value-added non-oil exports production and non-traditional exports; Shore up productivity and create more jobs within the non-oil exports value-chain of Nigeria; Support export oriented companies to upscale competitiveness and expand their export operations as well as capabilities; Diversify and increase the level of contribution of non-oil exports revenue for sustainable economic development; and Broaden the scope of export financing instruments.

Intervention in the textile sector
The Bank introduced a one-off special intervention with a seed fund of N50 billion facility to resuscitate the textile industry in Nigeria. The facility will be used to restructure existing loans and provision of additional credit to cotton, textile and garment (CTG) companies in Nigeria as part of its efforts to promote the development of the textile and garment sector. The fund is managed by BOI with single digit interest rate and a two-year moratorium. The Bank is expected to exit the fund by December 31, 2025.

Keeping up the momentum
Now that the monetary and fiscal authorities have got some respite owing to improving macroeconomic variables, the CBN believes it is time to double-down on the policies that have worked in its favour.

The monetary policy committee has been smart to keep policy rate at 14 percent, a little short of inflation rate, which is still at an uncomfortable 16 percent. Other key indices have also been retained to keep the commercial banks in check and prevent the risk of reversing the economy into the contraction mode.

More realistically, the Bank hopes that the fiscal authorities will keep the promises of continuous stimulus to keep the economy humming in the face of better oil receipts and improvements in non-oil federal incomes. All these hinge on the swift implementation of the expansionary 2017 budget with its emphasis on infrastructure development. The Bank also hopes that the relative peace in the volatile Niger Delta oil region, the North East and the simmering South East secessionist movements will endure long enough to keep government’s attention on the economy.


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