CBN keen on reviving agriculture, manufacturing sectors via credit policy

To consolidate and sustain economic recovery, the Central Bank of Nigeria (CBN) recently introduced single-digit interest rate loans to operators in the manufacturing and agricultural sectors of the economy. CHIMA NWOKOJI writes on stakeholders’ views and benefits of affordable, long-term bank credit to sectors considered as employment and growth stimulating.

ON resumption of office in 2014, as the new Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele set forth his agenda for economic policy and development in the long term.

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In his inaugural speech, he was emphatic that the CBN will revisit the goals and implementation of its intervention programmes in the Agricultural Sector, to ensure that high value addition is obtained from funds provided.

His words: “Interventions in the sector will 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 and conservation of foreign exchange. These four commodities constitute a huge proportion of our food import bill of N1.3 trillion annually.”

In keeping with the above agenda, the apex banking sector regulator has since then, systematically followed developmental objectives, driving growth in critical sectors of the economy.

Only recently, the CBN at its July 2018 Monetary Policy Committee (MPC) meeting emphasised the need to increase the flow of credit to the real sector of the economy to consolidate and sustain economic recovery.

To achieve this objective, the central bank had also stated that banks would henceforth be incentivised to direct affordable, long-term bank credit to the manufacturing, agriculture, as well as other sectors considered as employment and growth stimulating.

Different countries have different approaches to economic development; some focus on economic development through industrialisation while others focus on high-value agricultural production. Several factors determine which model a country should focus on in order to foster economic growth. However, to achieve growth in both urban and rural areas, it is necessary that growth-promoting strategies be emphasised in both models as development of the agricultural sector is a necessary precursor for industrialisation, and the development of the industrial sector may lead to agricultural development.

In economic growth studies, there is a general opinion that agriculture contributes to economic development and then how industry contributes towards development. Truly speaking, these two sectors are not to be viewed as competitive but are complementary to each other. In practice, the futures of agriculture and industry are closely linked with each other in the sense that expansion in agriculture depends on the supply of industrial inputs and the expansion in industry is tied up with the development of the agricultural activity. J. L. Nehru observed in 1963 that agriculture is more important than industry as industry depends on agriculture.

On interest rate, the Chief Executive Officer of Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane, has been one of the most vocal advocates for a cut in interest rates. The respected economist has consistently argued that unless the benchmark interest rate, the Monetary Policy Rate (MPR), which had been held at 14 per cent since July 2016, is reduced, the economy will continue to struggle and critical issues such as rising unemployment are unlikely to be effectively tackled

According to him, interest rates have to be reduced so that operators in key sectors of the economy such as agriculture and manufacturing, which employ a high number of people, will be able to borrow at interest rates that they can afford.

In a report released by his firm last June, he stated: “With the MPR stagnant at 14per cent, commercial bank official lending   rates range from 20-25per cent per annum while microfinance banks offer as much as 40per cent to 50per cent.

Thus, the guidelines for accessing the Real Sector Support Facility (RSSF) through Cash Reserve Requirements (CRR) and Corporate Bonds (CBs) was released recently by the CBN.

The new policy marks a great shift from the high interest rate regime of 25 to 30 per cent that was blamed for stifling agriculture, manufacturing and other ventures in the country.

The New Guidelines

In the RSSF, the CBN clearly pointed out that activities to be covered under the programme would be Greenfield (new) and expansion (Brownfield) projects in manufacturing, agriculture and other related sectors approved by the bank.

As such, prohibited operators involved in trading activities from accessing the real sector support facility and warned banks that attempt to “falsify through presentation of projects that do not meet the eligibility criteria/specified terms and conditions shall attract severe penalties”.

The facility shall have minimum tenor of seven years and two years moratorium. Also, participating financial institution (PFI) shall bear the credit risk.

But under the new guidelines, the CBN pointed out that banks interested in providing credit financing to Greenfield (new) and Brownfield (new/expansion) projects in the real sector (agriculture and manufacturing) may request the release of funds from their CRR to finance the projects, subject to the bank providing verifiable evidence that the funds shall be directed at the projects approved by the CBN.

Also, it stressed that refinancing of existing loans is prohibited for funding under the programme, saying that any attempt to falsify information would also attract severe sanctions.

The guidelines stated: “This programme involves investment by the CBN and the general public in Corporate Bonds (CBs) issued by companies subject to the intensified transparency requirements for Triple A-rated entities.

“Such requirements would include publishing through printing of an Information Memorandum spelling out the details of the projects for which the funds are required together with terms and conditions showing that these are long term projects that are employment and growth stimulating.”

The new guidelines stressed that priority would be accorded projects with high local content, import substitution, foreign exchange earnings and potential for job creation.

According to the CBN, the initiative is also aimed at stimulating growth in employment-elastic sectors. Providing insights into the differentiated CRR (DCRR) system, the guidelines stated: “It shall comprise loans to Greenfield or expansion projects using CRR. Emphasis shall, however, be on new projects.”

In terms of CBs, which are financing instruments issued by corporates that meet eligibility criteria as specified by the CBN, the tenor shall be as specified in the prospectus by the issuing corporate but not below seven years. Also, the moratorium for such CBs shall be as specified in the prospectus by the issuing corporate.

It specified: “The maximum facility shall be N10 billion per project. Facilities are to be administered at an all-in interest rate/charge of 9 per cent per annum. Bank customers are encouraged to report any bank to the CBN’s Director of Banking Supervision, where such DMB may have charged interest rates above the prescribed maximum of nine percent per annum.

“Repayments shall be amortised and remitted on quarterly basis to the CBN.

“Only CRR contributing DMBs shall be eligible to participate under the DCRR. For CBs, all financial institutions and general public are eligible to participate in investing in CBs.”

Stakeholders views on policy

A herd of farmers have applauded the nine per cent interest rate credit policy  but called for prompt monitoring of the Commercial Banks to guarantee effective implementation.

National President Rice Farmers Association of Nigeria (RIFAN) Alhaji Aminu Goronyo said that rice farmers under the CBN Anchor Borrowers Programme (ABP) had been enjoying the nine per cent lending rate since 2015.

Goronyo expressed optimism that the policy would help improve production of other agriculture commodities in the sector.

He believes that as the nine per cent lending rate under the ABP facilitated the increase in rice production from between two million and 3.5 million tonnes to nine million tonnes annually, it will be replicated in other agricultural crops.

“Before the single digit interest rate by the CBN, our production annually was not more than between 2 million and 3.5 million tonnes per annum but today, we are producing almost nine million tonnes because of that intervention.

“I am sure it will be the same for other commodities that will enjoy this intervention,’’ Goronyo said.

In interviews conducted by the News Agency of Nigeria (NAN) National President, Women Agro Allied Farmers Association, Mrs Lizzy Igbine, said although the nine per cent lending rate would encourage farmers to increase production, there was need to reduce it to five per cent.

“We are asking for as low as five per cent, the CBN still has to do more.

“ It will go a long way to help us but we hope there won’t be any hidden rates or charges that farmers will pay after taking the loans,’’ she said.

National Publicity Secretary, National Fish Association of Nigeria Mr Chidike Ukoh said the expectation of farmers was for the CBN to still bring down the lending rates to about five per cent.

“When you have mass production of food, industries will have raw materials and the productivity level will bring aggregate income in the economy.

“The Gross Domestic Product (GDP) will be much in such volume of production. We are making a case for five per cent.

“If the commercial banks will comply with the single digit rate, it will be very nice. It is a development that we need to watch,’’ the publicity secretary said.

To the Nigeria Employers’ Consultative Association(NECA), the initiative would aid development of the real sector.

The Director-General of NECA, Mr Olusegun Oshinowo, applauded the scheme and said, “Though the scheme is commencing with manufacturing and agricultural sectors, it should also be extended to other sectors of the economy, especially sectors that would create jobs for the teeming unemployed youths in the country.

“We believe that the focus is to ensure the growth of the economy, especially now that we are out of recession and have achieved some stability.”

Oshinowo also said, “With transparency, proper structure and implementation, the scheme would enhance the economy’s growth, create more jobs, serve in the reduction of crimes and youth restiveness. It will also improve the ease of doing business in Nigeria.”

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