CBN DON MISS ROAD! 11092006

Anyone who believed the promise that banking consolidation will provide the commercial banks with surplus funds for onward lending to the real sector, particularly the Small and Medium Enterprises (SME) sub-sector because of their critical importance in meaningful economic and industrial development and employment generation must today wonder why that promise is becoming increasingly difficult to fulfill.  The rightful recognition of SMEs as a pivotal engine of growth induced the CBN requirement that all commercial bank should set aside 10% of their profit before tax into a Small and Medium Industries Equity Investment Scheme (SMIEIS).  Under this scheme, banks were expected to take up equity i.e. interest-free, but profit sharing loans in SME industrial ventures.  Again, this laudable policy was in recognition of the reality that SMEs cannot thrive or remain competitive against their foreign counterparts if they borrowed at the prevailing market rates of 20-25% in addition to the burden of high production costs brought about by inadequate infrastructural support and a host of excessive federal, state and local government taxes and levies.

At the last count, over N40bn had been garnered from the banks in the SMIEIS account, but surprise, surprise, inspite of the apparent acute shortage of SME funding, only N13bn out of this reserve has so far been accessed.  The consistent excuse given by the banks for the low patronage is that SME applications lack merit in the packaging of their proposals and furthermore, SME operators are unwilling to give up control of their industrial babies!  So, the SMEIS fund remains largely unutilized and Nigeria’s economic development and increasing employment suffer in this circumstance.

We recall that several other attempts in the past to channel funds into the SME sector by the CBN have also been generally grounded!  The National Economic Reconstruction Fund (NERFUND) scheme was inaugurated with much optimism over 15 years ago, but today, the surviving enterprises which benefited from this scheme can be counted on the fingers!  The atrocious devaluation of the naira as from 1991 made it impossible for most of the loan beneficiaries to pay back and the pressure of harassment and intimidation from debt collectors probably sent a number of SME operators to early graves!

More recently, the government promised to reinvigorate the Nigerian Industrial Development Bank (NIDB) to facilitate funding of the vital SME sector by changing its name to the Bank of Industry (BOI) with a portfolio of about N50bn loanable funds with about 10% interest rate.  Well, over four years after the establishment of the BOI, probably less than N10bn has actually been made available to the BOI by the government.

In the above event, one may understand the frustration of the CBN that the huge contribution to the gross domestic product and employment that is the characteristic of SMEs in all successful economies may not be realizable here in Nigeria with the ways things currently stand!  In a desperate attempt, therefore, to salvage the pieces and ensure a meaningful and resourceful engagement to stimulate SME growth, the CBN in recent paid advertorials announced its plan to establish Entrepreneurship Development Centres (EDCs) in each of the six geopolitical zones in the country; the main aim of the EDCs according to the CBN, include development of entrepreneurial spirit, and provision of insight into the tools, techniques and framework for managing all functional areas of business enterprise.  The EDCs would also develop entrepreneurial skills for growth and also link SMEs with financial institutions for start up capital.  The EDCs are expected to simultaneously generate employment opportunities for Nigerians and make SMEs operations internationally competitive.

The above intentions appear on the surface as commendable, but wait a minute, what happened to the government’s arrowhead for such purpose; i.e. the mandate of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN)?  Certainly, the CBN cannot be unaware of the mandate of its sister government agency, unless, of course, the CBN is unimpressed by the performance and delivery of the services expected from SMEDAN.  If this be the case, then, is the creation of a duplication of another SMEDAN under the umbrella of CBN the right way out?  According to the CBN advertorial, the CBN’s EDCs would be expected to provide physical structures training materials, human resources and other facilities that would ensure internationally competitive, effective and sustainable services!  Obviously, the provision of all the above might cost a few billions if the pattern of government expenses for such projects is anything to go by.  But wait a minute, where, may we ask, did CBN provide for such ventures in its current budget?  

In contrast with its advocacy for fiscal discipline, it is worrisome that an evaluation of SMEDANs existing infrastructure and capacity have not been considered before embarking on allocating scarce resources for CBN’s EDC project; other government agencies such as the National Productivity Centre and the National Directorate of Employment may rightly be alarmed about their future existence in the light of CBN’s swashbuckling intrusion into their declared mandates.  It is alarming that in our current democracy, there appears to be a lack of cooperative spirit between government agencies set up to ameliorate our welfare; in place of cooperation, attrition, confusion and profligacy reign supreme.

In this particular scenario, we may rightly ask wetin concern the CBN for this one self? If the CBN is sincere, it will admit that its direct forage into SME support through its EDC’s is an admission of the gross failure of its monetary and economic policies, including its much acclaimed NEEDS agenda.  We are, as a country, faced with increasing unemployment, unbridled inflation, high commercial lending rate, which inhibit the real sector, particularly the SMEs which the CBN seeks to develop.  Indeed, the CBN’s overt declaration of support for SMEs smacks off hypocrisy, as it has the wand to bring down general lending rates by reducing its Minimum Rediscount or Bank Control Rate from its destructive and investment unfriendly level of 14% to 4-6% as obtains in progressive economies worldwide.  Any scheme that sustains more than say a 10% differential in interest rate payable between SMEs and other sectors of the economy will be doomed to fail as all and sundry with political and other such clout will succeed better in accessing the  cheaper loans even if they are not bona fide SMEs!

The CBN will be better advised to create a conducive macroeconomic climate that will stimulate investment, increase employment, reduce inflation and make

 life generally more bearable for over 90% of poverty-stricken Nigerians; the CBN is obviously unable to create the climate that will take our jobless youths from the streets and make garri cheaper in the market because of the fear of the dismal shadow of its self-inflicted excess liquidity, which comes about when it unilaterally converts the nation’s dollar revenue at its own predetermined rate before distribution to the three tiers of government every month.  Until the CBN puts an end to this practice, it will continue to find itself in a quandary and will make futile attempts to put a spin to the failures of its economic policies inspite of excess reserves in the kitty!