February 1, 2022/CSL Research
Based on news reports, following the recent unveiling of the 100 for 100 policy for production and productivity (PPP), the Central Bank of Nigeria (CBN) has disbursed a sum of N23.2bn to the first set of 28 beneficiaries, comprising 14 in the manufacturing sector, 12 in the agricultural sector and 2 in the healthcare sector. The initiative, which shall be bank-led, will be rolled over every 100 days (that is, quarterly) with new set of companies selected for financing under the initiative. The initiative shall select 100 private sector companies with projects that have potential to significantly increase domestic production and productivity, reduce imports, increase non-oil exports, and overall improvements in the foreign exchange generating capacity of the Nigerian economy. Furthermore, the CBN governor, Godwin Emefiele, disclosed that the apex bank would soon introduce a new foreign exchange (FX) bidding regime, in response to addressing the agelong FX issues being echoed by the manufacturers.
We recall the CBN published guidelines for implementing its new funding initiative, 100 for 100 PPP, in November 2021. The initiative, which started on 1 November 2021, 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 is to 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. In addition, the facility will either finance the acquisition of plant & machinery or working capital requirements. The maximum amount to be accessed is N5bn per obligor at not more than 5.0% p.a (allinclusive) 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).
While we laud all efforts aimed at improving domestic production, we reiterate that the realisation of the objective highly depends on the extent to which productivity can be improved upon, as factors that limit productivity go beyond inadequate funding. Poor electricity supply, logistics issues, and decrepit infrastructure remain huge constraints on productivity. Each sector that stands to benefit from the credit facility is embattled with sector-specific and general structural challenges. However, manufacturers will benefit to a great extent from any efforts by the CBN to improve availability of FX, which to a large extent, will go a long way in reducing the cost of operations, as many have resorted to getting FX from unofficial sources at a higher cost. However, a significant downside risk we are concerned about is the continuity of the intervention if a new administration comes in place in less than 18 months.
