Financing Agriculture and non-oil exports
Written by the Editorial Board of The Guardian Newspaper
The Bankers Committee’s decision that all deposit money banks (DMBs) in the country should, every year, set aside and pool together five (5%) per cent of their Profit After Tax (PAT) for financing agriculture and non-oil exports is a very commendable one.
The plan is to support agricultural and import substitution policies of the government as well as the drive towards diversification of the economy.
According to reports, the banks would use the pooled funds to be kept in the Central Bank, controlled and administered by the Bankers Committee, to make equity investments and not loans in companies that operate in the agricultural and non-oil export sectors.
Banks would, therefore, not charge the companies interest but would be rewarded by sharing out of the dividends declared by the companies. A maximum period of 10 years was agreed for banks to exit from companies they financed.
The Bankers Committee would set up a Project Review Committee that would, among other things, assess applications from companies desiring to benefit from the scheme, make recommendations to a Board of Trustees of the Bankers Committee. The scheme would commence in 2017 using funds, estimated at N25 billion, from banks’ 2016 financial statements.
The scheme promises filling the huge financing gaps that exist in the target sectors of the economy, significant reduction in cost of funds for the beneficiary companies, improvement in the country’s productive and export capacities, employment creation, poverty reduction, enhanced foreign exchange earnings and foreign reserve. Overall, the scheme promises to impact positively on the economy and hence the economic and social well-being of the citizens. These benefits however, can only be expected if the recipient companies would be efficiently and effectively managed.
But it is good to remind Nigerians that the country has travelled the route the Bankers Committee plans to take it through again some 17 years ago, without any concrete and sustained benefits there-from. Given that there is not much conceptual difference between what the Bankers Committee was reported to have agreed to do and what it did in the past, stakeholders must feel concerned regarding the recent initiative.
In 1999, the same Bankers Committee agreed to finance Small and Medium Industries (SMIs) under a scheme it christened Small and Medium Industries Equity Investment Fund (SMIEIS). The scheme took off in 2001 with banks setting aside 10 per cent of their Profit Before Tax (PBT) for equity investment in small and medium industries. The objective was to assist in “stimulating economic growth, developing local technology and generating employment.” The investment focus was the real sector with emphasis on “agro-allied, information technology and telecommunications, manufacturing, educational establishments, services, tourism and leisure, solid minerals, construction and others that the Bankers Committee might determine from time to time.” While the banks were to independently find businesses to invest in, they had a minimum of three (3) years to exit from businesses they supported.
In the first three years (2001-2003) of operating SMIEIS, it was reported by Central Bank that N19.7 billion had been set aside by banks with only N7.1 billion (36.04 %) invested in 137 projects. By 2008 accumulated funds reached N42.02 billion of which N28.20 billion (67.1%) was invested in 336 projects. The unutilised balance of N13.82 billion or 32.9% was in 2009 transferred, according to CBN, as seed money for setting up a “Micro-Credit Fund” (MCF) initiative. Unfortunately, till date, the fate of MCF remains unknown but SMIEIS has become history.
For the eight (8) years (2001 to 2008) that SMIEIS was operated, the amount provided by banks for investment was never fully utilised, meaning that either the companies had enough money to undertake their operations or the Funds’ conditions were not attractive to them. CBN identified the challenges faced by the scheme as: low awareness of the scheme by SMIs, unwillingness of many SMI proprietors to dilute ownership and partner with others and general harsh investment environment. Added to these should be the yet to be verified claims that some of the banks attempted or wanted to corner for themselves some of the businesses they invested into under the scheme.
In floating SMIEIS, the Bankers Committee did robust arrangements to ensure its success. Beyond defining the projects that would qualify for the funding, it even, produced a compilation of moribund companies that could be revived via SMIEIS; provided the operational and supervision modalities; assigned responsibilities to various stakeholders (e.g. CBN, SEC, Government, Banks, Independent Fund Managers, Promoters/Proprietors of SMIs and itself); provided for what the Funds would be used for and how to treat any unutilised portion. It established two venture capital companies, an Advisory Committee and also engaged in some public enlightenment and sensitisation programmes. Going by public records, it can be claimed that the Bankers Committee planned for the success of SMIEIS.
But what did Nigeria get in spite of all that? To a majority of stakeholders, obviously including the Bankers Committee, the SMIEIS scheme failed to achieve its objectives.
Even, no one can point to any of the 336 beneficiary projects that still stand.
Therefore, the questions for the Bankers Committee, in its attempt to establish the latest bank equity participation in companies are: what has happened to SMIEIS’ unutilised N13.82 billion transferred to MCF; and has the Bankers Committee taken stock of what befell SMIEIS and provided practical and realistic mitigating strategies to ensure success and sustainability of the new scheme? If it has not, it is advisable that it conducts a thorough study to determine the immediate and remote causes for the truncation and/or failure of the earlier scheme and to develop appropriate solutions. Anything short of these, a guarantee of success will be very remote.