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CBN building in Abuja

Godwin Emefiele, new Governor of the Central Bank of Nigeria hits the ground running with the unveiling of his vision for the nation’s apex monetary authority


It was a new beginning for the Central Bank of Nigeria (CBN) on Thursday, June 5, 2014, when its 11th governor, Godwin Emefiele, addressed his maiden press conference two days after assuming office to unveil his vision for the nation’s apex monetary authority. The new CBN governor said he intends to create a central bank that is professional, apolitical and people-focused. According to him, the CBN should spend its energies on building a resilient financial system that could serve the growth and development needs of Nigeria. These call for a re-interpretation and re-assessment of how the apex bank has implemented its core vision and mandate of being the model central bank that can deliver price and financial system stability and, at the same time, promote sustainable economic development.

The implication is that no longer would the CBN pursue the attainment of price stability at the expense of economic development. Rather, it would use its monetary instruments to ensure that money flows to critical economic sectors that have the potential to create jobs on a mass scale and significantly reduce the country’s import bill that has been a continuous source of pressure on the Naira at the foreign exchange market. These sectors are power, agriculture, micro and small medium enterprises (MSME) health and oil and gas. “Nigeria has witnessed impressive GDP growth rates over the past seven years. Yet, there is an absence of a corresponding reduction in the unemployment rate in Nigeria, which has risen to 23.9 per cent in 2012 relative to 13.9 per cent in 2000. Particularly worrisome is the rate of youth unemployment, which is too high. The Central Bank cannot afford to sit idly by and concentrate only on price and monetary stability. Additional measures would be required towards identifying productive sectors of the economy and channeling credit towards these sectors, while imposing proper monitoring and performance measures in order to ensure that the goals of increased employment and poverty reduction are attained,” Emefiele said.

He noted that this would require a review of the apex bank’s development finance programme and the roles of participatory agencies responsible for the disbursement of funds. It also calls for an improvement in the bank’s monitoring capacity and demands the development of performance targets that would be relevant for its focus on generating employment and poverty reduction. To achieve these goals, the Central Bank would seek the collaboration of the fiscal authorities. “We will work with the fiscal authorities in reducing other structural distortions to productive growth, as this will enhance access to credit, as well as stimulate growth and employment generation,” he said.

Emefiele’s vision includes a new framework for the funding of the SMEs, which hitherto has been perceived largely from a social development perspective of reducing poverty through job and wealth creation. This has left the development of the sector squarely on the government. For a change, Emefiele is proposing a business approach to funding SMEs that would require more involvement of the private sector by marrying profit motive of the private sector with the development objectives of the government.

Aside from this new collaboration with the private sector, the CBN would also design a programme for Nigerians who need as low as N50,000 loan without collaterals through registered and accredited local cooperatives. This would be accomplished by encouraging venture capital companies and business angels to fund SMEs as well as motivating the Bankers’ Committee to play more active role in supporting SMEs.

Similarly, the CBN would revisit the goals and implementation of its intervention programmes in the agricultural sector to ensure that high value addition is obtained from funds provided. Future interventions in the sector would now be driven towards improving productivity in areas with high domestic demand, where opportunities exist to improve domestic supply, such as rice, fish, wheat and sugar as well as conservation of foreign exchange. These four commodities constitute a huge proportion of Nigeria’s food import bill of N1.3 trillion annually.

Furthermore, Emefiele intends to add value in the power sector by facilitating investments in key parts of its value chain such as the supply of gas at concessionary rates to targeted investments in the power sector. The apex bank would also support investments in renewable energy in rural areas through matching funds schemes, and providing first loss guarantees.

The new CBN’s governor would use his tenure to reverse the status of Nigeria as a country that produces millions of barrels of crude oil per day and still relies on the importation of refined petroleum products for its local consumption by supporting efforts at domesticating oil and gas resources to ensure that more of these resources are produced and used in Nigeria. This would stimulate inclusive growth, create jobs and reduce the pressure on the exchange rate occasioned by demand for imports of finished petroleum products.

Other areas his era would make a difference include the gradual reduction in interest rates to enhance financial access and lower borrower’s cost of credit by reducing the rate of Nigeria’s treasury bill, which is one of the highest in the emerging market countries. Such high rates, says Emefiele, creates a perverse incentive for commercial banks to simply buy virtually risk-free government bonds rather than lend to the real sector. He also removed penalty charges on deposit that exceed the minimum permitted under the cashless policy of the bank.

Emefiele’s micro credit drive is well thought-out. For long, observers have called for a thaw in the credit market which became frozen due to the intervention of the CBN in the banking sector following the outbreak of the global financial crisis. The financial crisis dealt a blow to the balance sheet of commercial banks which piled up huge toxic loans due to their significant exposure to the stock market and oil & gas business. Assets and investments of commercial banks running into trillions of naira were lost to the financial crisis and had to be bailed out to survive.

The breakdown in corporate governance and the need to rid the system of insider abuse, led to the intervention of the CBN, which forced the exit of hitherto leading bankers. The process also saw the takeover of some of the banks by the Assets Management Corporation of Nigeria (AMCON). Series of reforms were instituted such as restricting margin lending to 10 percent of total loans, with the intention of limiting the risk concentration of banks in the stock market. The apex bank also dispensed with the universal banking model while instituting a specialized banking one, which catered for the needs of different banks and customers. A revised prudential guideline was put in place to guide banks in their business.

The reforms, according to observers, no doubt put the financial system on a solid footing.  However, there were the unintended consequences of limiting credit especially for small players in the economy. The ‘criminalization of credit’ as spelt out in the revised prudential guidelines, according to some observers, got bankers scared and as such became circumspect in lending to small businesses.

Indeed, Emefiele’s policy direction for the CBN tallies with the thinking of some financial analysts and the organized private sector. The Lagos Chamber of Commerce and Industry (LCCI) on June 4, advised the new CBN governor to focus on the reduction in interest rates to stimulate growth and catalyze job creation. The LCCI has canvassed this over the years due to the adverse consequences of persistent credit squeeze and high interest rate on private sector performance. The chamber also called for the adoption of employment numbers as a key parameter in the determination of the direction of monetary policy as well as the deepening of the role of the CBN in development finance to boost agriculture, industry, SMEs, and the power sector. “My advice is to urge him (Emefiele) to look at ways he can bring down interest rates because for a couple of years now we have had this tight monetary policy regime, which has been affecting investors from the perspective of high cost of fund. So, we need better credit condition to drive growth and eliminate unemployment,” Muda Yussuf, director general of LCCI, said.

Boniface Chizea, managing partner, BIC Consultancy Services, Lagos, a firm of financial consultants, told TheEconomy that although the Central Bank is on a race to maintain price stability, the fight against inflation cannot be terminated, the bank under the leadership of Emefiele cannot continue to ignore the cost of borrowing in the economy. The situation whereby the Monetary Policy Rate (MPR) has remained at 12 percent after 16 MPC’s meetings is not good enough and there is even the talk of increasing it above this rate. “If monetary policy would contribute to the growth objectives of this economy by creating jobs it must also take on board the need for interest rates to come down so that institutional funds will be available to the small and medium scale enterprises which are the engine room of most economies and accounts for a sizable percentage of employment opportunities,” Chizea said.  He advised that “we must be careful with the current practice of forcefully removing public sector deposits from the banks to the Central Bank. It could be destabilizing and does not accord with best practice. Every effort must also be made to ensure that the targeted funds provided at concessionary interest rates are not encumbered be the modalities and terms surrounding their availability.”

He commended Emefiele’s  interest in pursuing policies that would create jobs in the economy and advised him to remove whatever hindrance that makes inaccessible the funds set aside for promotion of investments in the power, aviation and agriculture sectors, as well as the SMES.

Mike I. Obadan, professor of Economics, University of Benin, agreed that the prevailing tight monetary policy stance of the CBN is hurting the real sector of the economy as lending rates range between 20 and 35 percent. He said that if the tight monetary policy stance is to be maintained, then the Central Bank must find innovative ways of making credit available to the real sector, especially the SMEs operators.  “Under the circumstances, the Central Bank can put in place special schemes which enable SMEs to access credit at reasonable interest rates and without all the encumbrances to access. By empowering the SMEs and even the large-scale businesses the Central Bank would be contributing to employment generation, poverty reduction and increased growth in the country,” Obadan said.

He advised Emefiele to thread cautiously in his interpretation of the CBN autonomy and desist from following the footsteps of his predecessor in giving it a wide interpretation. According to him, Emefiele has three lessons to learn from the suspension of Lamido Sanusi from office by President Goodluck Jonathan. The first is the need for the apex bank to focus on achieving monetary and price stability including exchange rate stability. Secondly, the new CBN governor must see himself as a professional and not as a politician seeking limelight and publicity in the context of a hidden political agenda. The third is the need for the governor to talk less in public as is the case of disciplined governors of central banks in the advanced countries. According to Obadan, “a talkative governor unwittingly distabilises the markets, and generates unwarranted controversies which are unhealthy for the economy. Often, he becomes the issue rather than the economic and monetary policies.”

In the same vein, Chizea said that the lesson from the suspension of the former CBN governor includes the need to avoid dragging the CBN into politics. “This is very important if the operational independence of the Bank is to be sustained. By the time Sanusi started telling the National Assembly that it accounts for 25 percent of the overheads expenditure of the country, he was really courting for trouble and that trouble came fast and thick. The Governor of the CBN is a revered personality and everything must be done to protect this image by the Governor restricting himself closely to his remit and avoid dabbling into other sensitive matters that really pertain to the Fiscal Authority,” Chizea said.

Mr. Abraham Okoli of Abjane Petrochemicals believes that it is a noble idea. “If truly implemented it will go a long way to alleviate the poverty in the country,” he said. He, however, added that the governor will do more good if he can implore the Bankers’ Committee to streamline their loan processes.

Favour Izuchukwu, a Lagos-based importer of electronics also lauded the initiative saying “it shows the CBN governor has the interest of the masses at heart”. To him, the banks rake in huge profits without actual lending that can lift the economy. In 2013 the combined (pretax) profit of the top 10 Nigeria was about N515 billion; more than the 2014 budget of Lagos State (N489.69billion).

Even as stakeholders applaud the CBN’s new drive, some analysts doubt the success of such initiative. To them, poor SME financing has more to do with poor coordination as several efforts of government to boost SME development have failed due to poor implementation. “Government can boost SME financing if there is transparency and coordination,” Timothy Imasuen, a financial analyst said. Most government programmes, according to him, are not properly implemented nor accounted for. In 2011 the Bank of Industry (BOI) and the Nigeria Export-Import Bank (NEXIMBANK) secured $700million from the African Development Bank (AfDB) for the development of SMEs in the country especially in the agriculture value chain. However, the loans arrived late because the National Assembly did not approve it in time. “This is a sovereign-guaranteed credit line which must be approved by the parliament,” Dr. Dore Ousmane, the AfDB Country Representative said last year.

However, some farmers are not impressed saying most agric loans never got to them. Critics have dismissed the CBN-administered agric loans as a failure because the intended beneficiaries never got the money. Indeed, the apex bank has sanctioned some banks – to the tune of N1.2billion since inception in 2009 to May 2014 – for various infractions on the agric credit scheme including giving out the loans at more than the 7 percent stipulated interest rate and poor monitoring of projects by some participating banks. Sources say some of the loans were utilized by fraudulent bank officials using cronies and masked them as agric loans.


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