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Reviving manufacturing sector through strategic intervention funds

Reviving manufacturing sector through strategic intervention funds

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The Federal Government in its Economic Recovery and Growth Plan identifies manufacturing as one of its main priorities. In this piece, IFEANYI ONUBA examines the extent to which the Deposit Money Banks have been able to scale up funding for manufacturers

To say that Nigeria has the potential to become a major player in the global economy by virtue of its human and natural resource endowments is stating the obvious.

However, this potential has remained relatively untapped over the years. After a shift from agriculture to crude oil and gas in the late 1960s, Nigeria’s growth had continued to be driven by consumption and high oil prices.

Previous economic policies left the country ill-prepared for the recent collapse of crude oil prices and production. The structure of the economy remains highly import dependent, consumption driven and undiversified.

Figures from the National Bureau of Statistics, for instance,  showed that oil accounts for more than 95 per cent of exports and foreign exchange earnings while the manufacturing sector accounts for less than one per cent of total exports.

Economic experts are of the view that the high growth recorded between 2011 and 2015, which averaged 4.8 per cent per annum mainly driven by higher oil prices, was largely non-inclusive.

This is because majority of Nigerians remained under the burden of poverty, inequality and unemployment.

In the same vein, general economic performance has been seriously undermined by deplorable infrastructure, corruption and mismanagement of public funds.

Similarly, decades of consumption and high oil price-driven growth had led to an economy with a positive but jobless growth trajectory.

After more than a decade of economic growth, the sharp and continuous decline in crude oil production volume and oil prices since mid-2014, along with a failure to diversify the sources of revenue and foreign exchange in the economy led to a recession in the second quarter of 2016.

The Federal Government recognises that the economy is likely to remain on a path of steady and steep decline if nothing is done to change the trajectory, which is why the focus now is economic diversification through targeted investment in key priority sectors.  One of these priority sectors as contained in the Economic Recovery and Growth Plan is manufacturing.

To achieve this, the government in its ERGP said that it would pursue manufacturing promotion policies that would enable the sector record an average annual growth rate of 8.48 per cent between 2018 and 2020.

This is expected to rise from -5.8 per cent in 2017 to 10.6 per cent by 2020.

The ERGP was expected to build on the Nigeria Industrial Revolution Plan to address the key challenges in manufacturing.

Some of these challenges are limited access to credit and financial services, poor infrastructure and unreliable power supply that forces businesses to rely on generators, thus increasing their input costs and reducing their overall competitiveness and profitability.

But despite the objectives of government to channel more funds to priority sectors of the economy as contained in the ERGP, credit to the manufacturing sector has been declining.

The total amount of credit granted by Deposit Money Banks to the manufacturing sector declined by N249bn within a one-year period covering — July 2017 to June 2018 — as shown by banking sector credit report of the NBS.

In the report which was obtained by our correspondent, credit from banks to manufacturers declined from N2.26tn to N2.01tn during the period.

Further analysis of the report showed that credit initially dropped from N2.26tn as at the end of the third quarter of 2017 to N2.17tn in the fourth quarter of 2017.

Between the fourth quarter of 2017 and the first quarter of 2018, credit to manufacturers further declined by N100bn (from N2.17tn to N2.07tn).

The decline continued in the second quarter of this year with credit dropping further from N2.07tn as at the end of March to N2.01tn.

The decline in credit to manufacturers sector is not in line with the Federal Government’s objective for the sector as contained in its ERGP.

Speaking on the credit to the manufacturing sector, the Regional Director, United Nations Industrial Development Organisation, Jean Bakole, called on DMBs to provide more funding support to entrepreneurs in the country.

Bakole said that for the country to harness the potential of the real sector, there was need for financial institutions to address some of the impediments to funding.

He identified the issue of collateral requirements by banks before loans could be offered to customers as a major limiting factor to growing the sector.

He said, “There is no doubt that Nigeria’s SME sector is the largest employer of labour in the country today.

“However, there is a major challenge that should be at the back of our minds.

“This relates to how to formalise and grow the large micro enterprises estimated to be over 37 million enterprises in 2013 according to the SMEDAN/NBS survey to small and medium scale enterprises.

“The financial institutions should think of ways to support these trained entrepreneurs to start up or expand their businesses, especially those who are able to develop a bankable business plan.

“Particular attention should be paid to the issue of collateral for youth and women to enable them access finance for start-up or expansion of their businesses.”

Bakole said that entrepreneurship was a necessary ingredient for stimulating economic growth and employment opportunities in every society.

According to him, this is imperative considering the fact that successful small businesses are the major drivers of job creation, income growth, and poverty reduction.

Also, the immediate past Director-General, Abuja Chamber of Commerce and Industry, Dr Chijioke Ekechukwu, said that the government needed to step up its diversification agenda with credit policy for manufacturers.

He said while the government had been pursuing economic diversification since the inception of this administration, the results have not been too impressive based on recent GDP report released by the NBS.

Apart from agriculture, particularly crop production, he said oil was still the leader in terms of income to Nigeria.

To simulate the economy, Ekechukwu said there was a need for more reforms to further reduce the cost of doing business as well as interest rate.

Ekechukwu said, “The country came out of recession as a result of an improved production capacity and improved international oil prices.

“These two major reasons are actually out of the control of the government and so achieving that feat cannot be said to be a better plus because if that situation had not happened, it is possible that we won’t have been out of recession.

“In the area of growing the non-oil sector, we are yet to make any significant effort that could take the country to the path of sustainable growth.”

He added, “The non-oil sector on its own has the capability to drive the economy in case the price of oil that is not within our control starts declining. So, there is need to put in more efforts in agricultural development, boosting the export market and the manufacturing sector.”

But the acting Director of Corporate Communications, Central Bank of Nigeria, Mr. Isaac Okorafor, said that the DMBs would henceforth be incentivised to direct affordable, long-term bank credit to the manufacturing and agriculture.

He said the funds would be released under the newly established Real Sector Support Facility aimed at channelling funds to the manufacturing and agricultural sectors.

Apart from the manufacturing and agriculture sectors, other sectors considered by the CBN as employment and growth stimulating would also benefit from the long term credit to be given at single digit interest rate.

Okorafor explained that based on the guidelines released by the CBN, the maximum facility would be N10bn per project, adding that facilities would be administered at an interest rate of nine per cent per annum.

He disclosed that Corporate/Triple-A rated companies would be encouraged to issue long-term Corporate Bonds under the guidelines.

He added that a Corporate Bond Funding Programme had been put in place, adding that the bond programme, involves investment by the CBN and the general public in Corporate Bonds issued by companies.

The CBN spokesman noted that this was subject to the intensified transparency requirements for participating companies.

He also explained that the requirements for the bond programme would include publishing through printing of an Information Memorandum which would spell out the details of the projects for which the funds would be required.

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