The decision by the Central Bank of Nigeria (CBN) to increase credit facility to agriculture and manufacturing sectors is a commendable measure that can boost the nation’s economy. Under the new policy, the CBN pegged the maximum credit facility to agriculture and manufacturing sectors at N10bn per project at an interest rate of 9 percent per annum.
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The new policy was one of the resolutions of the Monetary Policy Committee (MPC) meeting held in July. The plan will be implemented through Cash Reserve Requirements (CRR) and Corporate Bonds (CBs).
The CBN will provide the necessary incentives to Deposit Money Banks (DMBs) to grant affordable, long-term bank credits to the manufacturing and agriculture sectors, as well as other sectors of the economy capable of stimulating employment and growth.
Banks interested in providing credit financing to Greenfield (new) and expansion (Brownfield) projects in manufacturing, agriculture and other related sectors approved by the CBN, should apply for release of funds from their CRR.
We are optimistic that the new lending policy will significantly boost the agricultural and manufacturing sectors. Apart from oil and gas sector which accounts for over 70 percent of Nigeria’s revenue, agriculture is another sector that contributes significantly to economic growth.
Without doubt, the new credit policy will boost farming. We recall that under the CBN’s Anchor Borrowers Programme, farmers were given loans at an interest rate of 9 percent since 2015.
But, figures from the National Bureau of Statistics (NBS) showed that in 2016, the manufacturing sector recorded a decline of N80bn in its contribution to the Gross Domestic Product (GDP). The Purchasing Managers Index (PMI), which measures the performance of the manufacturing sector, also declined in the year 2016.
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While the apex regulator has been doing well, on the monetary side, to ensure that the financial system regains lost ground, the same cannot be said of the fiscal authorities, that is, the Federal Government. In the past three years, for instance, unfavorable business climate led to economic recession and shut down of many manufacturing companies, while others relocated to countries in the West African sub- region.
According to the Manufacturers Association of Nigeria (MAN), a total of 272 firms closed shop as a result of the last economic recession. Out of this number, 220 Small and Medium Enterprises (SMEs) shut down completely, erasing over 2million jobs and financial losses estimated at N62.184bn.
MAN also blamed the problems of the sector on high interest rates charged by banks and the high cost of power supply. Therefore, it is obvious that agriculture and manufacturing sectors need more loans even at a rate below 9 percent.
We hope that with the new credit facility to agriculture and manufacturing sectors, investors in both sectors will have access to the funds at reasonable interest rate. But transparent implementation of the new policy is crucial. Monitoring how the banks implement the credit facility is vital to its success. A more robust agric/manufacturing sector will ensure that some of the imported goods are produced locally. And when these items are made locally, prices will come down and Nigeria’s foreign reserve will improve considerably.
It is unfortunate that the discovery of oil came with the neglect of agriculture and local manufacturing. Sadly, no less than 61 percent of Nigerians are living in abject poverty, according to the NBS.
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Nigeria also spent a whopping $11bn on the importation of rice, fish and sugar between 2011 and 2014. This can be reversed within the next few years if more investments are channeled to agriculture and manufacturing.