Wednesday, November 17, 2021 / 02:03 PM / by CSLResearch /Header Image Credit: Tech Economy

Recently,the Central Bank of Nigeria (CBN) published guidelines for the implementationof its new funding initiative, 100 for 100 Policy on Production andProductivity (PPP). The initiative, which started on 1 November, is to supportthe real sector with financial flows to accelerate local production and reducethe level of the nation's dependence on imports.

Notably,the credit facility shall be funded from the CBN's Real Sector SupportFacility Differentiated Cash Reserve Requirement (RSSF-DCRR) or any otherfunding window as may be determined by the apex bank. Furthermore, the facilitywill either finance the acquisition of plant & machinery or working capitalrequirement. The maximum amount to be accessed is N5bn per obligor at not morethan 5.0% p.a (all-inclusive) up to 28 February 2022, after which the rateshall revert to 9% p.a (all-inclusive) effective from 1 March 2022. As a reliefmeasure, the apex bank gives the obligors a 2-year moratorium under the term loan(maximum tenor of 10 years).

Giventhe recent impact of the pandemic on many sectors of the economy, we believethe initiative will be helpful. There is no better time than now to boost andsustain output amidst the economic recovery. The CBN, as part of its efforts inencouraging local production, had placed a ban on access to FX for the importof many products. Also, one of the major policy mantras of President Buhari'sadministration has been the diversification of the Nigerian economy, eventhough that path has remained riddled with poor implementation and execution.More importantly, this should support the focus on driving innovation, as theAfrican Continental Free Trade Agreement (AfCFTA) presents a significantopportunity for the nation to improve output growth and boost export earnings.

Withoutdownplaying the role of funding in supporting economic growth, we think theapex bank should pay bigger attention to the factors that may affect theprogramme's viability. Each sector that stands to benefit from the creditfacility is embattled with sector-specific and general challenges which arebeyond the helm of affairs of the apex bank. The CBN, which by itsestablishment, is a monetary authority with the mandate to ensure money &price stability, manage foreign exchange, and govern the financial system, maynot be able to provide sector-specific oversight. In essence, beyond finance,initiatives by fiscal policymakers are required to solve Nigeria's criticalstructural problems.

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