Way Out Of Forex Crisis, By Entrepreneur

The foreign exchange (forex) crisis has exposed the underbelly of Nigeria’s import-driven economy. The solution, say entrepreneurs, lies in raising export to boost revenue. This is why the Central Bank of Nigeria (CBN) has been giving loans to key operators in the real sector to stimulate export. A beneficiary, Psaltry International Company Limited, speaks on the impact of the N300 billion Real Sector Support Facility (RSSF) on its operations. COLLINS NWEZE reports.

The foreign exchange (forex) crisis has made stakeholders to look inwards for solutions. To those who understand the workings of the global forex market, developing local industries can help solve the forex problem. Experts say the implementation of the Central Bank of Nigeria’s (CBN’s) N300 billion Real Sector Support Facility is key to reviving forex generation.

For Mrs. Oluyemisi Iranloye, Managing Director/CEO of Psaltry International Company Limited, which got about N850 million loan from the intervention fund, such gesture is all that is needed to enhance forex earnings. Mrs. Iranloye has also helped 64 farmers to get soft loans from the CBN.

Mrs. Iranloye said the loan has helped her company improve her product, which is used by breweries. She said the firm was able to increase the host community’s cassava output by $1.94 million last year. The firm, she added, increased its  turnover to N1 billion within the period.

She said many breweries have been using the product, instead of relying on import which has become expensive because of the forex crisis. This, she said, has led to massive reduction in forex demand by starch users.

Analysts insist that globally, the relationship between the financial system and real sector development remains very critical for any economy to realise its potential. No economy can grow and improve the living standards of its population in the absence of credit to the real sector. That is why the real sector depends on the flow of funds from the banking system.

Many economists have acknowledged that the financial system, with banks as its major component, provide linkages for the various sectors of the economy and encourage high level of specialisation, expertise, economies of scale and a conducive environment for the implementation of various economic policies of government intended to achieve non-inflationary growth, exchange rate stability, balance of payments equilibrium and high levels of employment.

CBN’s real sector financing

The CBN has put the value of its development finance interventions across the country at about N1.36 trillion. Its Governor, Mr. Godwin Emefiele, who disclosed this, emphasised that the Central Bank’s determination to improve lending to the real sector would stimulate employment and boost accretion to foreign reserves through non-oil exports.

He explained that the N300 billion RSSF was part of the CBN’s efforts to unlock the potential of the real sector to engender output growth, value added productivity and job creation.The facility, he said, would support large enterprises for start-ups and expansion of the financing needs of N500 million up to a maximum of N10 billion.

“The real sector activities targeted by the facility are manufacturing, agricultural value chain and selected service sub-sectors.  The facility is expected to improve access to finance by Nigerian Small and Medium Enterprises (SMEs) to fast-track the development of the manufacturing, agricultural value chain and services sub-sectors,” he said.

Another N213 billion Nigerian Electricity Market Stabilisation Facility is aimed at settling certain outstanding debts in the Nigerian Electricity Supply Industry (NESI). The facility covers 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). Already, over N56.68 billion disbursed to five generating companies and five distribution companies.

For Emefiele, the challenges in the power sector are interconnected with the unexpectedly large revenue shortfalls in the industry, which needed to be fixed.

The Agricultural Credit Guarantee Scheme Fund (ACGSF) was established to provide credit guarantees on facilities extended to farmers by banks up to 75 per cent of the amount in default net of any security realised.

He explained that the period under review, there has been an increase of loan limits for unsecured lending from N20,000 to N50,000. There has also been an increase of loan limits for secured lending to corporate bodies under the ACGS from N10 million to N50 million.

To boost agriculture financing, the Agricultural Credit Support Scheme (ACSS) was inaugurated to develop the agricultural sector of the economy by providing credit facilities to farmers at single digit interest rate to enable large-scale farmers exploit the untapped potential of the sector.

Statistics from the CBN showed that since June 2014, 60 per cent of the Commercial Agricultural Credit Scheme (CACS) funds have been dedicated to six focal commodities (rice, wheat, cotton, sugar, dairy products and fish), which have been utilising huge resources from the dwindling foreign reserves.

It said N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) took off in 2014. CBN’s data further showed that N43.57 billion has been disbursed to state governments, participating financial institutions (PFIs), microfinance institutions and finance cooperatives. Also, 61.6 per cent of beneficiaries are women while N30.31 million has been accessed by 292 People Living with Disabilities (PLWD).

Also, a breakdown of  the disbursements shows that N300 billion had been set aside for RSSF; N220 billion had also been disbursed for the Micro-Small and Medium Enterprises Development Fund (MSMEDF); the Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) got N75 billion; while the Nigeria Electricity Market Stabilisation Fund received N213 billion. Similarly, the Nigeria Export-Import Bank (NEXIM) support is N50 billion for the Export Refinancing and Restructuring Facility; and the Non-oil Export Stimulation Facility received N500 billion.

Speaking at the 21st seminar for finance correspondents and business editors, titled: “CBN Real Sector Financing: A catalyst for economic growth and development,” in Ibadan, the Oyo State capital, Emefiele said the move became necessary because the real sector represents the “engine of every economy” which serves as source for wealth creation and income generation to the productive population.

Emefiele noted that though the real sector which consists of the agricultural, industrial, building and constructive sub-sectors accounts for 93.67 per cent of the country’s Gross Domestic Product (GDP) in 2000, its contribution declined to 76.21 per cent and 70.71 per cent in 2010 and 2013.

Represented by Mr. Adebayo Adelabu, CBN Deputy Governor, Corporate Services, Emefiele said efforts were on-going to deepen credit delivery to the real sector through several interventions and schemes.

He said: “The far reaching objectives of the CBN in the implementation of schemes and programmes for real sector development focus on the inherent potential in the sector is-a-vis our conviction that the sector has sufficient employment capabilities, high growth potential, contributes significantly in accretion to foreign reserves, expands the industrial base and apparently diversifies the growth potential of the national economy.”

He said the recent exclusion of 41 items from accessing forex from the CBN official window and stoppage of sale of forex to bureaux de change (BDC) operators were part of bold policies initiatives by the bank to resuscitate domestic industries and improve employment generation.

However, Adelabu urged Nigerians to look inwards, saying that the country with the largest population in Africa already has a big market. According to Adelabu, the appetite for imported goods would continue to distort monetary policies.

He said the Central Bank as part of its mandate would continue to act as financial catalyst in targeted sectors of the economy with humongous potential for creating jobs, reducing the country’s import bills in a very significant manner.

But the Director, Monetary Policy, CBN, Mr. Moses Tule, stressed that the monetary policy alone cannot fully achieve the objective of macro-economic development through real sector financing.

“In the post-global financial crisis era and the new regulations that were introduced by the Basel committee and several other committees, made it difficult for banks to be given out loans somehow. Therefore, they started having a very cautious approach to lending. That cautious approach to lending has continued. It is not only in Nigeria, but globally.

“But we must understand that the more we encumber the balance sheet of the central bank, the more difficult we make it for the central bank to carry out its responsibility. But then, to so something outside the core objective of the central bank, you need to encumber the balance sheet of the central bank,” he added.

The Executive Director, Finance of Standard Chartered Bank Nigeria Limited and the Regional Chief Financial Officer (CFO) of West Africa, Yemi Owolabi, noted that the structure and dynamics of the financial sector impact its ability to effectively and efficiently discharge its major role of financial intermediation.

According to her, a strong financial sector leads to higher savings and provides access to investment outlets, wealth creation/preservation; and thus promotes economic growth. Furthermore, she explained that banks play an important role in supporting economic growth.

Speaking on the role of banks in real sector financing, she said: “The banking sector has undergone remarkable changes over the past two decades, prominent among are stronger, bigger institutions with bigger capital levels achieved through mergers and acquisitions. This has enhanced the capacity of the sector to create higher amounts of risks assets to support growth.

“Deposit money banks’ valuation represents 23.8 per cent of the Nigeria capital market capitalisation thus enabling wealth creation and preservation. Banks have been in the fore front of employment generation, employs 74,062 people, about 0.4 per cent of Nigeria’s labour force.

“The contributions of financial intermediation and finance to the nation’s GDP have ranged between eight and 10 per cent in recent years. Domestic credit provided by banking sector in Nigeria was last measured at 21.65 per cent in 2014 while domestic credit to private sector in Nigeria was last measured at 14.61 per cent in 2014.”

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