The real sector is the most influencer of economic growth and stability. They propel the engine of growth by providing employment and ensuring funds gets into the hands of the lower income earners that needs it for survival.
With a buoyant real Sector, manufactured produce and services that are necessities of life gets more patronage. More employment is generated in other to get more of such good and services produced. This cycle creates more jobs and has helped moved a good number of the population from lower to middle class in most economies.
Countries that has moved from underdevelopment to developing and subsequently emerged economic giants were able to achieve this status as a result of deliberate implementation of policies that helped propel the growth of the real sector.
Earlier in the week, Mr. Godwin Emefiele, the CBN Governor, while fielding questions from journalists after the Monetary Policy Committee (MPC)meeting announced that the Apex bank is ready to penalize banks and other financial institutions that are unwilling to lend money to operators in sectors of the economy that produce goods and provide services.
Mr. Emefiele also disclosed that financial institutions, which lend money to the real sector, will be rewarded.
He further said that the CBN was in the process of reaching decisions that will determine the level of reserves each bank holds. He explained that banks that reserve their liquidity and resort to trading in government securities or lend money to foreign exchange traders instead of the real sector would be penalized.
This approach by the CBN if implemented is commendable as it will force deposit money banks and other financial institutions to focus on its traditional role of intermediation between the supply and the deficit in the society.
As laudable as the CBN intention is, it must be explained that the real sector of Nigerian economy has more militating obstacles than funding, funding is perhaps at the bottom of the issues bedeviling the growth of real sector in the country.
How can real sector growth be achieved without adequate public power supply? The alternative to public power supply is beyond the reach of entrepreneurs who has cheaper imported alternative to compete with. Manufacturers in well powered economies and with single digit loans will continue to target the Nigerian market and edge local producers out until public power is available and stable.
The growth of real sector may also continue to be challenged without the adequate fiscal protection from cheaper imported substitutes. A serious economy that wants the growth of its real sector must match CBN’s prohibition of 41 items from its FX windows with the right legislative laws that will ensure goods with local substitutes are not allowed to be imported. This will empower local producer with the market incentive to produce at all cost.
Self provision of Infrastructure such as roads, water, security are also major adverse militating issues the real sectors in Nigeria is grasping with.
Provision of funding to the real sector in the country may continue to be a challenge for commercial banks and other financial institutions until the aforementioned obstacles are tackled. Banks will continue to be very cautious and not endanger their depositors fund to the real sector because the drivers of the economy does not have the political will to do what serious economic drivers did to achieve greatness.
Financial institutions will continue to cherry pick strong, viable and entrenched real sector businesses to fund at the expense of start-ups and innovators until there is deliberate political will and the right fiscal structure is put in place to aid real sector businesses.