November 17, 2021/CSL Research
Recently, the Central Bank of Nigeria (CBN) published guidelines for the implementation of its new funding initiative, 100 for 100 Policy on Production and Productivity (PPP). The initiative, which started on 1 November, is to support the real sector with financial flows to accelerate local production and reduce the level of the nation’s dependence on imports. Notably, the credit facility shall be funded from the CBN’s Real Sector Support Facility— Differentiated Cash Reserve Requirement (RSSF-DCRR) or any other funding window as may be determined by the apex bank. Furthermore, the facility will either finance the acquisition of plant & machinery or working capital requirement. The maximum amount to be accessed is N5bn per obligor at not more than 5.0% p.a (all-inclusive) up to 28 February 2022, after which the rate shall revert to 9% p.a (all-inclusive) effective from 1 March 2022. As a relief measure, the apex bank gives the obligors a 2-year moratorium under the term loan (maximum tenor of 10 years).
Given the recent impact of the pandemic on many sectors of the economy, we believe the initiative will be helpful. There is no better time than now to boost and sustain output amidst the economic recovery. The CBN, as part of its efforts in encouraging local production, had placed a ban on access to FX for the import of many products. Also, one of the major policy mantras of President Buhari’s administration has been the diversification of the Nigerian economy, even though that path has remained riddled with poor implementation and execution. More importantly, this should support the focus on driving innovation, as the African Continental Free Trade Agreement (AfCFTA) presents a significant opportunity for the nation to improve output growth and boost export earnings.
Without downplaying the role of funding in supporting economic growth, we think the apex bank should pay bigger attention to the factors that may affect the programme’s viability. Each sector that stands to benefit from the credit facility is embattled with sector-specific and general challenges which are beyond the helm of affairs of the apex bank. The CBN, which by its establishment, is a monetary authority with the mandate to ensure money & price stability, manage foreign exchange, and govern the financial system, may not be able to provide sector-specific oversight. In essence, beyond finance, initiatives by fiscal policymakers are required to solve Nigeria’s critical structural problems
