CPPE expresses worry over real-sector financing gap of over ₦50trn, proposes new devt-finance architecture

Centre for the Promotion of Private Enterprises, CPPE, weekend, expressed worry over current real-sector financing gap of over ₦50 trillion.

In a statement signed by the Executive Director, CPPE, Dr Muda Yusuf, asserted that Nigeria’s real sector is confronted with a structural financing deficit characterised by prohibitive interest rates, short loan tenors, stringent collateral requirements, limited risk appetite and inadequate patient capital. 

According to Yusuf, Nigeria’s real-sector financing deficit is too large and too structural to be left entirely to conventional commercial finance, saying available evidence suggests that the financing shortfall runs into tens of trillions of Naira.

He said: “The Centre for the Promotion of Private Enterprise, “CPPE, calls for a fundamental rethink of Nigeria’s development-finance architecture to address the severe financing constraints facing manufacturing, agriculture, agribusiness, MSMEs and export-oriented enterprises.

“CPPE estimates a conservative current real-sector financing gap of over ₦50 trillion when account is taken of unmet financing needs across manufacturing, agriculture, agribusiness, MSMEs, supply chains and export-oriented enterprises. 

“The financing mismatch is particularly evident in agriculture. The sector contributes more than one-fifth of GDP, yet historically receives less than five per cent of banking-sector credit. Manufacturing similarly requires substantial medium- and long-term funding for machinery, factory expansion, technology, energy infrastructure, automation, backward integration and export development. 

“Such investments cannot be sustainably financed through short-tenor commercial bank credit at prohibitively high interest rates. Their long gestation periods and capital-intensive nature require patient, long-term financing at affordable rates, underscoring the critical role of development finance institutions and appropriately structured intervention funds.”

“Monetary Tightening Exacerbates the Real-Sector Financing Gap: The prevailing monetary environment compounds the problem. With the Monetary Policy Rate at 26.5% and the Cash Reserve Requirement for deposit money banks at 45%, commercial lending rates are generally incompatible with the expected returns on many productive investments.

Meanwhile, he said CPPE recognises the imperative of monetary and price stability as he acknowledged the Central Bank of Nigeria’s commitment to restoring monetary policy credibility. 

“The sustained monetary tightening has yielded some positive outcomes, particularly in strengthening policy credibility, supporting exchange-rate stability and moderating inflationary pressures. These gains are important and should be preserved”, he added.

The CPPE boss also recommended that the government and the CBN: Reconsider the seeming retreat from development finance without returning to direct and discretionary intervention lending; Significantly recapitalize, scale and strengthen development-finance institutions, especially the Bank of Industry and Bank of Agriculture, as the principal channels for long-term productive-sector financing; Scale up partial credit guarantees and risk-sharing mechanisms for manufacturing, agriculture, agribusiness, exports and MSMEs, thereby leveraging limited public resources to crowd in substantially larger volumes of private capital.

Establish specialised long-tenor refinancing windows for manufacturing and agricultural value chains, with participating financial institutions retaining responsibility for credit appraisal and recovery; Deepen supply-chain, receivables, warehouse-receipt and cash-flow-based financing, while expanding the use of movable collateral; Improve credit information and technology-driven risk assessment to reduce information asymmetry and the perceived risk of lending to productive enterprises; Mobilise pension, insurance and capital-market resources into appropriately structured long-term productive investments.

Reduce sovereign crowding-out through stronger fiscal discipline and a more sustainable domestic borrowing strategy; and institutionalise strong governance, transparency and accountability, including independent performance evaluation, repayment discipline and measurable developmental outcomes.

“Properly designed development finance need not conflict with the CBN’s price-stability mandate. A significant component of Nigeria’s inflation is structural and supply-driven, reflecting food-supply constraints, high energy and logistics costs, inadequate storage, low agricultural productivity and dependence on imported intermediate inputs.

“Financing that expands agricultural production, manufacturing capacity, energy efficiency, storage and logistics strengthens aggregate supply and can moderate structural inflation over time.

“The critical distinction is between financing consumption, which principally expands demand, and financing productive capacity, which expands supply”, he added.