Posted by: Bukola Afolabi
Opinions are divided as to the propriety of some of the intervention funds declared by the Federal Government in recent times, with many arguing that such funds may not have been well-thought out. Bukola Afolabi takes a look at the contending issues
WHETHER on the airwaves or newspaper pages, Nigerians are continuously assaulted with stories and reports announcing one intervention fund or the other, but the irony, however, is that people hardly stand the chance to get the carrots being dangled, a development, which leaves many wondering if the futility of the exercise is worth the trouble.
Diary of Intervention funds under Jonathan
The Federal Government, under the leadership of President Goodluck Jonathan, has spent at least N1.732trn on intervention funds in different sectors of the economy, investigation has revealed. The figure represents the sum of the amounts approved by the government as intervention funds between 2010, when Jonathan became President, and December 2012.
Some of the intervention funds include the N200bn Small and Medium Guarantee Scheme, N200bn Restructuring and Refinancing Facility Scheme and the N300bn Power and Airline Intervention Fund. Others are the N75bn Grooming Enterprise Leaders Business Intervention Fund, N32bn Entertainment Intervention Fund and N10.71bn Commercial Agriculture Credit Guarantee Scheme to six banks by the Central Bank of Nigeria.
That is not all. Also on the long list of intervention funds, are the N300bn approved for the hotel and leisure sub-sector in 2012; N200bn for indigenous pharmaceutical companies and N100bn textile industry bailout.
Also in 2010, the FG reportedly disbursed about N7.9bn to 25 companies from the National Automotive Fund. The money was for the production of vehicles, motor cycles, bicycle tyres and other accessories. An additional N3bn was earmarked for disbursement to nine companies before the end of that year.
As at July 2011, the Bank of Industry had reportedly disbursed N195bn out of the N200bn meant for the refinancing of the manufacturing sector to 518 companies across the six geo-political zones, while N83bn out of the N300bn for the power and aviation sectors had also been disbursed to companies in these sectors.
The Federal Government also disbursed N126.1bn as export expansion grant between 2010 and 2012. That same year, the FG approved N330m grants to assist 20,000 farmers in Lagos state in July while. In November, 2012, the FG, in collaboration with the Central Bank of Nigeria, disbursed a soft loan worth N9.4m to members of the Nigeria Cassava Growers Association, Nasarawa State chapter.
As part of FG’s intervention in education in 2012, it approved N95.653bn for public tertiary institutions in the country, through the Tertiary Education Trust Fund. Within the period under review, the FG disbursed several funds through the Universal Basic Education Commission. One of such was N94m disbursed to 125 communities in Bayelsa State, in September, 2011, for self-help projects.
In the agricultural sector, the CBN, through its Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), approved a take-off grant of N75bn to boost agriculture businesses.
The Head, Project Implementation of NIRSAL, CBN, Mr. Jude Uzonwanne, reportedly said N45bn from the N75bn had been set aside as loans to the farmers, while the balance would be used to train and insure them.
Furore over intervention funds
Irked by the situation in which government’s interventions have had little or no impact on the economy, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), conducted a survey and found that only six per cent of industrialists accessed the funds. NACCIMA said this at the presentation of the survey report to stakeholders in July 2012.
However NACCIMA President, Dr. Ademola Ajayi, said the intervention funds were faced with the problem of accessibility. According to Ajayi, despite the FG’s N100bn textile bailout fund, less than 25 per cent of textile manufacturers were operating above 50 per cent capacity utilisation.
Apart from inability of stakeholders to access the government’s intervention funds, there have been discrepancies in the administration of the funds. While some of the funds have been diverted to other uses, parts of the funds can no longer be accounted for.
According to Florence Seriki of Omatek Computer who is a beneficiary of CBN /BOI intervention fund let us know that the intervention fund through BOI was assessable if you follow the procedure, some people said if you don’t know them in BOI one on one you cannot get the loan but it is not true.
The names Munira Shonibare, Mr. Suren Mirchandani a foreigner, are some of those who have benefitted from past intervention fund.
Meanwhile, an anti-corruption group, Coalition against Corrupt Leaders (CACOL), said Nigerians had yet to see the impact of the funds on their lives.
The Executive Chairman, CACOL, Mr. Debo Adeniran, said, “The funds are meant to settle the boys, the political elite. It is just a palliative to hoodwink people into believing that the government is helping them.
“The solution is not to dole out funds but to make sure jobs are generated and infrastructure is developed to encourage small and medium-scale industries. There should be micro-credit facilities for entrepreneurs to increase local content. Most intervention funds are a wrong step in the right direction. The government is just chasing shadows. The funds will not make people face the reality to be creative and productive.”
Another group, Socio-Economic Rights and Accountability Project (SERAP), said it was improper for the government to approve intervention funds for private enterprises, citing the example of the aviation sector. The Executive Director, SERAP, Mr. Adetokunbo Mumuni, said, “If the government allocates funds for public institutions, provided it is properly accounted for, it is acceptable; when such funds are for private businesses, it is not acceptable. Why use the public funds to intervene in private enterprises? It is unreasonable and unjustifiable.
“Spending on private businesses sounds fraudulent. Monies have been spent without proper account for them. The government can only give financial intervention, provided funds would be spent transparently and accountably.”
Lawmakers raise red flag
The Senate Committee on Public Accounts, last year, raised the alarm over a missing N44bn from the FG’s Special Intervention Fund on Solid Minerals. The committee discovered the missing funds during an interactive session it had with officials of the Federal Ministry of Finance, the Central Bank of Nigeria and the Office of the Accountant-General of the Federation.
The committee said despite the fact that the fund was created by the FG as a special intervention fund to develop the non-oil sector of the nation’s economy, no project had been accomplished in the sector.
According to the Senator Ahmad Lawan-led committee, the records of the Federal Ministry of Finance and that of the CBN could not properly account for about N44bn, out of the total figure of N873bn, between 2002 and May 31, 2012.The committee also found that part of the funds had been used to finance projects in other sectors.
Defence
The Director, Development Finance of Central Bank of Nigeria, Mr Paul Eluhaiwe, has said that the intervention fund for real and power sectors to the Bank of Industry (BOI) is being utilised properly by the companies. Speaking during the CBN and the BOI joint monitoring visit to Western Metal Products Company (WEMPCO GROUP) and Aero Contractors in Lagos recently Eluhaiwe said that the intervention fund for Western Metal was used to build a 52 mega watts power plant to power factories of different production lines.
The Director noted that the visit to the factory had given them insight into how the fund has been utilised and its benefit to the company. According to him, about 1000 Nigerians are employed at Western Metal whose products include tile rod steel, flat sheets, nails and ceramic tiles.
“The CBN-BOI intervention has helped in the employment of about 1000 Nigerians in this place alone. The fund is to help in the industrialization of Nigeria and if we can have three or four of this kind of project we could be producing automobiles in the country as the flat sheets produced here can be used to manufacture cars and some of the components,” he said.
For Paul Ofu, BOI General Manager, Risk Management Division, the intervention fund was provided at single digit interest rate with long tenure. According to him, the joint monitoring team is happy with the power plant by Western Metal which can power all their factories in 24 hours.
Reality check
A recent survey conducted by NACCIMA in collaboration with Enhancing Nigerian Advocacy for a Better Business Environment (ENABLE) showed that of the 358 respondents, 62 businesses, representing 17 percent, attempted to access the funds, but only six percent succeeded. The survey revealed that the top three reasons for unsuccessful applications were cumbersome application processes, inability to meet requirements, and financial constraints.
It also showed that 24 percent of respondents perceived the entire process as difficult, while 57 percent claimed that it was very difficult to access the funds.
Analysts say a combination of factors is responsible for the minimal impact of the intervention funds which often include a flawed design for the funds, market failure, fraud and a lack of creativity by deposit money banks, which are often the transmission channel for such funds.
“A big issue that holds banks back from developing more innovative products is the lack of the specialised skill set that can structure in a risk appropriate way for these sort of products,” Kayode Akindele, Partner at 46 Parallel, a Lagos based investment firm, said.
“There is a lack of human capital with the requisite credit and risk management skills required. Banks that try and develop these products without the right staff or risk systems to monitor them properly are putting the financial standing of their institutions at risk.”
CBN’s volt face
The CBN has in the past said that Nigerian banks do not have the necessary skill sets for agriculture lending, yet the same banks are the CBN’s partners in its Agriculture Intervention Fund. Nigeria’s private-sector credit growth is up a meager 2.99 percent this year, to N15.12 trillion in October, from N14.68 trillion in January.
About 80 percent of Nigeria’s private credit goes to sectors of the economy that account for only 23 percent of real GDP growth, according to data from the CBN and National Bureau of Statistics (NBS).Agriculture for example, is responsible for almost 30 percent of real GDP growth; however, only 2 percent of credit extended goes to the agriculture sector. Two other important drivers of growth, trade and communications (and transport), which are responsible for 26 percent and 22 percent of growth, respectively, also receive relatively low shares of private credit – 11 percent and 10 percent, respectively.
The Joint Senate and House of Representatives Committee investigating the crash of Dana and Allied Airlines aircraft in July 2012 alleged that the N300 billion Aviation Intervention Fund, was diverted by the industry’s operators.
Some major intervention funds made available by the FG and CBN to increase access to credit for private sector businesses include the N200 billion Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), which was launched in April 2010.
The N200 billion Restructuring and Refinancing Facility (REF) scheme, approved by the CBN in 2010, aimed at fast-tracking the development of the manufacturing sector of the Nigerian economy. The Nigerian Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) was also launched in 2011 with a view to providing farmers with affordable financial products and reducing the risks of such loans to the benefitting farmers.
The Commercial Agriculture Credit Guarantee Scheme (CACS), established in 2009, in collaboration between the CBN and the Federal Ministry of Agriculture and Water Resources, aimed at supporting finance for the agricultural value chain (production, processing, storage and marketing).The scheme is financed through a N200 billion ($ 1.25 million) 7 year bond raised by the Debt Management Office (DMO).There is also the Power and Airline Intervention Fund (PAIF), introduced in September 2010.
Rather than address critical national needs, intervention funds in Nigeria have become facilities meant for political associates and their cronies.
Given the peculiarities of our country, it thus looks like the solution is really not to dole out funds under the guise of special intervention. What Nigeria really need is for the government to put in place structures that would lead to job creation, by providing infrastructure that will encourage small and medium-scale industries to thrive.
Besides the fact that most intervention funds are misdirected, there is the tendency that the funds will make people less creative and productive, the situation which the country can rarely afford at this critical time.
In the view of analysts, what the country needs is a well structured and properly managed micro-credit facility for entrepreneurs to increase local content and not one bogus intervention fund that will ultimately end up in the pockets of the few greedy Nigerians.