DESPITE years of reforms, banks’ lending in Nigeria is still heavily skewed towards transactions at the expense of production. A report from the Nigerian Deposit Insurance Corporation shows that the oil and gas sector took the lion’s share of bank credit in 2013, leaving key productive sectors like manufacturing and agriculture gasping. The implication of this is that the prevailing structure of deposit mobilisation and lending cannot take us far, despite the optimism raised by the rebasing of the economy in April that made Nigeria’s Gross Domestic Product Africa’s largest. The trend must therefore be reversed, and very quickly too, if the twin objectives of job creation and diversification of the economy are to be achieved.
Let’s get specific. According to the NDIC, N2.43 trillion, representing 24.28 per cent of the deposit money banks’ credit in 2013, went to the oil and gas sector. In contrast, manufacturing, a sure measure of a country’s economic progress, received only 12.91 per cent of total bank credit. Pathetically, agriculture, the largest employer of labour, received a paltry 3.23 per cent of lending. The Federal Government and the Central Bank of Nigeria need therefore to re-strategise to ensure that low interest credit goes to the productive sectors such as agriculture, mining, micro, small and medium enterprises sectors.
The World Bank reports that SMEs typically account for 60 per cent of manufacturing employment in both developed and developing economies. Its affiliate, the IMF, describes SMEs as “incubators for talent, innovation and entrepreneurship.” As for agriculture, it not only still employs 60 per cent of the labour force, but contributed 26.63 per cent to real GDP in the third quarter of 2014, according to the National Bureau of Statistics. This was 27.08 per cent in the corresponding period of 2013 and 20.89 per cent in the second quarter of 2014. In contrast, oil and gas contributed only 10.45 per cent to real GDP in Q3 2014, slightly lower than the 10.76 per cent it contributed in Q2 2014 and the 11.51 per cent in Q3 2013. Mining, another job spinning sector, contributed 10.58 per cent to real GDP in Q3 2014. In Australia and South Africa, mining takes a large chunk of bank credit.
The problem is underscored by the fact that oil and gas contribution to Nigeria’s GDP is the lowest in the 12-member Organisation of Petroleum Exporting Countries. It also generates little to overall employment. Those running the economy need to churn out policies that will direct the bulk of bank credit to those sectors that generate jobs, exports and new businesses. The IMF has identified access to credit as the single biggest hurdle to agricultural and SMEs growth worldwide. It is a particularly tough nut in developing economies. In Nigeria, especially, the descent of the economy from a multi-product, agrarian economy to a mono-product, oil-dependent economy that, by 2003, relied on oil and gas for 98.3 per cent of all exports, explains the distortions in the economy. So distorted is it that, of the over N10 trillion bank credit in 2013, less than N2 trillion went to the productive sectors of mining, manufacturing and agriculture.
The bad news is that unless the macroeconomic structure is addressed, the trend may continue and keep unemployment high, even beyond the official 23.9 per cent figure. The pervasive system of rent and corruption promoted by the oil-based economy, the retention of downstream petroleum assets in state hands as well as railways, steel and the terrible mess made of the power sector privatisation, coupled with non-mechanisation of agriculture, leave so much unearned money in the hands of the state and too little with the organised private sector. The result is that the DMBs get the bulk of their deposits from the public sector.
Handicapped by short-term deposits and high interest rates on them, banks look for the easy way out – opting to fund trading, supply contracts and the corruption-driven refined fuel importation that have high returns and quick turnaround periods.
Our job creation policy has been such a notable failure. President Goodluck Jonathan, his economic team and the CBN should therefore restructure the numerous credit schemes targeting specific sectors that generate jobs and diversify exports. India has, since 1968, been retooling its credit guidelines and, since 1985, said 40 per cent of all bank credit should go to “priority sectors” – agriculture, mining, SMEs, IT and housing. By 2011, India’s 30 million SMEs provided 45 per cent of total manufacturing, 40 per cent of exports and employed 60 million persons. Malaysia too sets guidelines to channel credit to productive sectors that require low interest rates and long repayment periods. Nigeria should be organised for production, not rent-taking and corruption-fuelled transactions. Japan and China have zero and almost zero lending rates respectively for SMEs. Our problem really is not an absence of specialised funding schemes, but an abundance of corruption that has rendered them ineffective.
How do you stimulate SMEs or position them to repay loans with national electricity output at 2,900 megawatts in the Q3 of 2014? It is time to sit up as the folly of our choices, as seen in collapsing oil prices, dwindling oil revenues and currency devaluation, now confronts the country.
The government should drastically cut waste, tame corruption, privatise and liberalise the railways, steel, downstream oil and gas and reassess the power sector privatisation debacle. With a single-minded eye on jobs-led growth, it should align fiscal with monetary policies to reduce public sector dominance in bank deposits and enhance private sector influence to achieve lower lending rates and encourage savings