Emefiele: One Year of ‘Mr. Development’
As many experts and informed commentators have noted, the Central Bank of Nigeria under Godwin Emefiele has done a good job of managing the monetary fallouts of the crash in global oil prices which has significantly affected the Nigerian economy. The fact that the Naira has undergone only a 15% devaluation against a 50% decline in revenues underscores the success of the CBN’s efforts. However, the defining focus of his tenure might be his passionate promotion of development banking as a focal plank of the CBN’s mandate.
This focus is captured in Emefiele’s vision of the CBN as “the model Central Bank delivering price and financial system stability and promoting sustainable economic development” which he enunciated at his maiden media briefing. At a time the nation is facing serious economic challenges, Emefiele considers it imperative that the CBN assume a more active role as a financial catalyst, igniting growth and powering strategic economic sectors to provide jobs so as to stem the tide of unemployment, by far the most serious challenge which confronts the Nigerian economy. This is because achieving this will also have a positive impact on inflation, exchange rates and interest rates which constitute the traditional focus areas of central banking. The CBN governor’s inspiration derives from a fundamental understanding that stimulating real sector development is not a competing function but a complement to the CBN’s mandate of delivering price and financial stability.
In his words: ‘Price stability can rarely be adjudged a goal in itself except cast against the ultimate objective of improvement in the quality of life. Price stability, therefore, remains a cardinal contribution, indeed a cornerstone, to the ultimate goal of economic development. I believe that reasonably stable prices provide a catalyst for rational consumption and investment decisions and for orderly economic progress. That is why throughout most of economic history, periods of price and financial system stability have coincided with economic growth and development’.
Development financing is, of course, not a new phenomenon at the Central Bank. It has always been there, albeit as a complementary, secondary function. For instance, it would be recalled that after the global financial crisis (2008 – 2009) former CBN Governor Sanusi Lamido Sanusi in addition to bailing out distressed banks also pursued other measures to unlock credit markets and inject funds to productive sectors so as to spur development. But Emefiele has brought additional verve and intellectual rigour to development financing in the Central Bank. This can be seen in the special importance that the CBN Governor has accorded development banking at the level of policy direction and the amount of energy and resources which has been committed to it within Emefiele’s one year in office.
Within his first year as CBN Governor, Godwin Emefiele has as a ‘core principle’ positioned the CBN to act as a financial catalyst by targeting key economic sectors that can create jobs on a mass scale and significantly reduce our import bills. However, unlike previous schemes, he is doing it in an innovative manner that puts the private sector in the driving seat for proper risk assessment and funds management. This business approach combines the profit motives of the private sector and the development objectives of the government to achieve significant and sustainable economic development for the country. It proposes a structure that enables the government to leverage the project selection and credit analysis processes of private sector investors who will place more of their resources at risk in funding the SMEs.
An example: the N300 billion Real Sector Support Fund (RSSF) established to help unlock the potential of the real sector to engender output growth, value added productivity and job creation. The strategy is to provide long term, low interest financing of up to N10 billion to existing enterprises and start-ups. Key target economic sectors to benefit from this initiative are manufacturing, agricultural value chain and selected service sub-sectors. The facility is administered at an all-in interest rate of nine per cent per annum payable on a quarterly basis. Over N152 billion has been approved for five projects under scheme within the past year. This underlines the urgency with which the CBN Governor views the need to stimulate real sector growth.
Second is the N213 billion Nigerian Electricity Market Stabilization Facility (NEMSF) which is aimed at settling certain outstanding debts in the Nigerian Electricity Supply Industry (NESI). According to the plan enunciated by Emefiele, the CBN, in partnership with Deposit Money Banks (DMBs) in Nigeria, provides the facility to address shortfalls in power sector revenues caused by needed adjustments in electricity tariff basic gas debt and in the process reset the economics of the power sector. The facility is structured to be repaid in the life-time of the nest electricity tariff. This is to ensure that the power sector delivers tangible improvements in power supply for the benefit of all Nigerians and to also power the economy. So far N56.68 billion has been disbursed to five generating, five distribution companies under the scheme. It has also led to the settling of all legacy debts totaling N36.9 Billion owed to gas suppliers by the PHCN. Several top industry players have commended the scope and speed of the CBN’s intervention with some describing the Emefiele, as a “game-changer” to the power sector.
Third, the CBN is also in partnership with the Federal Government and Development Partners – including the World Bank, African Development Bank, Development Banks of Germany and France - to midwife the Development Bank of Nigeria that is envisaged to address the lack of low interest and long-term funding for Micro Small and Medium Enterprises (MSMES) in Nigeria and catalyze more job creation and economic development in order to raise the level of SME contribution to GDP from the current 46%. So far the CBN has committed $500 million to the startup of the bank which will provide loans with tenors of up to ten years and a moratorium of 18 months to small businesses.
Fourth is the CBN’s issuance of a final license to the National Mortgage and Re-financing Company (NMRC) to commence operations. This is significant because a strong housing sector is critical to strengthening the foundation of the economy. The central place of housing in the modern economy can be seen in the fact that in the developed world, the health of the housing market is directly linked to the health of the entire economy. This kind of strategic assistance to this important job-creating sector is central to Emefiele’s vision for a development oriented Central Bank.
In addition to the above, the CBN under Emefiele has also embarked on other complementary and related schemes. For instance, under existing schemes and intervention programmes, the Commercial Agricultural Credit Scheme (CACS) guidelines were reviewed to enable Deposit Money Banks access the fund at 2 percent from CBN and lend at an all-inclusive interest rate of 9 percent with a spread of 7 percent. Expiration of the scheme has been extended from 2016 to 2025. Also, disbursement of funds under the Micro, Small and Medium Enterprises Development Fund (MSMEDF was formally flagged-off in 2014. N43.57 billion has so far been disbursed, with 61.6 percent of beneficiaries being women, while N30.31 million has been accessed by 292 People Living with Disabilities (PLWD).
Incidentally, Emefiele’s passion for development as an organic part of the CBN’s mandate is in sync with a strand of current global thinking which holds that Central Banks should go beyond their traditional functions and take an active role in the development of emerging economies. This argument is well articulated in a research study titled ‘Central Banks as Agents of Economic Development’ by Gerald Epstein, a renowned Professor of Economics and Co-Director, Political Economy Research Institute (PERI), at the University of Massachusetts in the US.
Epstein argues that in the last two decades, ‘there has been a global sea change in the theory and practice of central banking. This change, he posits is against the currently dominant “best practice” approach which focuses on inflation fighting and the use of indirect methods of monetary policy as strategies for increasing economic growth and reducing unemployment.
According to Epstein, this so called “best practice” is no only unsuitable for the challenges confronting economies around the world, it is also at variance with the original roles of central banks which include “financing governments, managing exchange rates, and supporting economic sectors by using “direct methods” of intervention.”
This is one more proof that Godwin “Mr. Development Emefiele is on the right track and CBN’s direct, judicious and strategic focus on financing development under his watch is delivering for Nigeria.