Experts have blamed the Federal Government and the Central Bank of Nigeria (CBN) for the huge cost of funds in the country. According to them, the deplorable condition of the industrial sector is essentially the function of the unrealistically high interest rates in the country.

In recent times, manufacturers have been calling on the Central Bank of Nigeria, CBN, and the government to save the industry by intervening to reduce interest rates especially with the new emphasis of the present APC government on job creation. They insist that unless there is concrete effort to revive the industrial sector, addressing the problem of unemployment would be futile.

Cover cartoon By AbdulRicho

A renowned economist and Managing Director, Cocosheen Nigeria Limited, Mr. Henry Boyo, in an exclusive interview with Business Hallmark said the apex bank and its allies should be held responsible for the very high interest rate as they created the situation where the cost of funds in the country is in the excess of 20 per cent.

According to him, it would be foolhardy to think the economy will grow and become competitive in the global economy or meet the demands of the people when the cost of funds is over 20 per cent.

“Central Bank of Nigeria and its allies are the ones creating the situation where the cost is in the excess of 20 per cent. I will dare you to name a country that has developed successfully and has made a mark industrially and has generated increased employment for its people with cost of fund as high as 20 per cent”, he said.

The Cocosheen Nigeria Limited boss argued that best practice in most economies is that when there is economic downturn and huge rate of unemployment and almost comatose real sector, the cost of fund will be as low as 2-3 per cent.

“But ours is over 20 per cent. And the media seem to be ignorant or impervious to this reality. And somehow the media canvass that there will be economic growth when fundamentally, the structure to promote that growth is completely absent. It is foolhardy to think the economy will grow and become competitive in the world or meet the demands of the people when you are conscious that the cost of funds is over 20 per cent.

And it is impossible for you to grow as an economy when you have an internal problem of excess supply of naira in the system.

“As you well know, government debts are called sovereign risk freedebts. They are supposed to attract not more than 2-3 per centinterest depending on how strong the economy is. But we with all theresources at our disposal our government is borrowing at 15 per cent.It is madness! With this kind of situation, it is a pipe dream toexpect that your economy will grow”, he said.

Mr. Ambrose Oruche, Chief Economist, Manufacturers Association of Nigeria (MAN) told BusinessHallmark that with the CBN pegging Monetary Policy Rate (MPR) at 13 per cent, there was no way commercial lenders would be able lend money at less than 20 per cent.

He noted that this is why the Organised Private Sector (OPS) has been urging the CBN to reduce the MPR so that banks would be able to give out funds at lower interest rate.

“When you go to bank to borrow money, they cannot give you below the opportunity cost. But the critical issue is that interest rate in a function of inflation and other determinants. So if cost of the banks

getting the funds is expensive, the cost of maintaining their offices is also expensive, they develop their own infrastructure, all these are built into the cost the lend funds,” he elaborated.

However, Dr.Uju Ogubunka, President, Banks Customers Association of Nigeria (BCAN) and former registrar, Chartered Institute of Bankers of Nigeria (CIBN), said it would be unfair to blame the CBN for the high cost of funds in Nigeria.

He opined that the apex bank does not arbitrarily fix MPR, saying the Monetary Policy Committee usually take into cognisance the rate of inflation in the country before fixing the interest rate.

“If inflation rate is high, you would want to invest where the rate is higher than that of inflation, otherwise, inflation would erode the value of the money you have,” he explained.

Dr.Ogubunka stated that interest rate in often determined by the performance of the economy, adding that if the economy is strong, interest rate would be low.

The CBN had retained the MPR at 13 per cent during its last MPC meeting in September despite the avalanche of calls for the reduction of interest rate by the private sector.

Experts who have also been canvassing for the downward review of MPR have reasoned that with the 13 per cent rate, inflation would always be on the rise as prices of goods and services would continue to increase.

Prof Sheriffadeen Tella of Olabisi Onabanjo University, Ago-Iwoye, said the decision of the apex bank to keep MPR at 13 per cent is having an adverse effect on the country’s economy.

Tella, who is of the Department of Economics, said that Nigerians should expect tougher times ahead because the retention of the rates would affect price of goods and services.

“I expected that the Monetary Policy Committee (MPC) will bring down the rates due to the present developments in the country, but by retaining it, the economy will tighten further,” Tella said.

He said that the retention would continue to affect the real sector as cost of borrowing would remain high. Tella also predicted that there would be movement of funds from the capital market to the money market due to high interest rate.

He said that the CBN should look for other ways of addressing liquidity in the system instead of relying on rates retention to the detriment of the poor masses.

The Managing Director, Standard Union Securities Ltd., Mr Sehinde Adenagbe, said the rates should be lowered to reduce cost of funds in the economy. Adenagbe said the economy would not experience the

desired growth without proper funding of the real sector to rejuvenate economic activities.

He said that the development would increase the cost of borrowing thereby affecting the growth of the real sector and the economy in general.

Mr Bayo Olugbemi, President, Institute of Capital Market Registrars (ICMR), said the apex bank might be waiting to ascertain the economic policy of the Federal Government before deciding on the downward review of the rates.

“I guess the CBN is waiting for government policy direction before deciding on the rates,” he said. Olugbemi said that the current situation of the country called for caution and not hasty decisions.

It would be recalled that the CBN had in November 2014 increase the MPR by 100 basis points from 12 per cent to 13 per cent and also devalued that naira from N155 to N168 before tactically devaluing it N196 in February this year.

Mr Godwin Emefiele, CBN Governor said that apex decided to raise the MPR to 13 per cent in order to align the market towards its long-run equilibrium path.

According to him, the current challenge requires bold policy and administrative measures in the management of the nation’s stock of foreign exchange reserves After FG bailout, uncertainty over future salaries


Despite the recent bailout funds which the Federal Government extended to the states, the  states are still neck deep in huge debts. Put more directly, those who thought the bailout fund would enable the states to resolve their debt challenges may be missing the point, in that loans can sometimes constitute additional burden.

Unfortunately, the States were only given longer term FG bond which will help them solve short term challenges of salaries and other immediate recurrent expenditures.

But one sober issue is that the loan reprieve does not remove the huge debt over hang on their necks. Whereas the loans are rising by the day, the doomsday is only being shifted.

‘’We asked for a lot of money, we owe pensioners over N30 billion and putting everything together we asked for money to take care of some of the debts but what was approved for us was only a bit over N10 billion and we have to attend to the state, attend to local government, attend to the pensioners and we must realize that even that money is not free; it is money that was loaned from the banks to the states for which we are making payments and we are paying interest and the much we can give to local government councils is also a loan’’, said Governor Ifeanyi Okowa of Delta State.

If this is the sad condition of Delta state, one of the richest state governments in the country in terms statutory allocation from federation Account, then the challenge confronting less endowed states comes into stark reality. Delta reportedly owes N600 billion.

More worrisome is that the States keep increasing their debt profile by going for more loans and fully depending on hand out from FG through states allocation. Already, according to reports about 16 states of the federation have raised bonds totalling N520 billion in the last seven years.

The Debt Management Office (DMO) statistics revealed that 36 states of the Federation owed N1.6 trillion internally as at December 2014. Details show that Lagos State owes the highest with N268billion followed by Delta State with N211bn. While Cross River owes N107bn, Rivers State owes N91bn and Bayelsa N91bn. Other State that owe hugely include; AkwaIBOM N81bn, Plateau Stae N78bn among others.

The snag in the development is that these bonds are backed by Irrevocable Standing Payment Orders (ISPO) for monthly deductions from their statutory allocation into Sinking Fund Accounts (SFA) managed by trustees for the benefit of bond holders. The implication is that no amount of shortfall in a state’s allocation from the federation account can stop the repayments for the bonds before any allocation goes to the states.

For instance, filings by state governments at the Nigerian Stock Exchange (NSE) showed that as at the end of 2013, Kogi State so far has N5 billion bond while Lagos State has raised a total of N187 billion. In addition, the figures showed that Osun State had raised N30 billion including a N11.4 billion sukuk. Others include: Kwara – N17 billion, Niger – N15 billion, Kaduna – N8.5 billion, Rivers – N250 billion, Gombe – N20 billion and Edo – N25 billion. Benue, Ebonyi, Ondo, Ekiti, Bayelsa, Imo and Delta states have also raised N13 billion, N16.5 billion, N27 billion, N25 billion N50 billion, N18.5 billion and N50 billion respectively. While we could not establish the statuses of these bonds now, market observers are almost sure that some of are part of today’s debt problems of the States.

Interestingly, even with the fear that states may be plunging their finances into the red, some of them are going on another borrowing spree. This is due to current contingent liabilities inherited from the past regimes, such as pensions, contractors, salaries etc.

Edo State Governor, Adams Oshiomhole, who recently took more loan, claimed that his government was forced to take a $75 million development loan from the World Bank. Governor Nyesom Wike of Rivers state’s borrowing of N30 billion from Zenith Bank raised concerns in Rivers State.

Governor Okezie Ikpeazu’s borrowing of N30 billion from commercial banks angered APGA while Governor Samuel Ortom of Benue State told citizens of the state that his administration was borrowing N10 billion to pay workers’ salaries.

Second Republic Minister of Justice and Attorney General of the Federation, Chief Richard Akinjide (SAN) had expressed sadness at the development and accused governors of misdemeanours, “States are broke because governors are stealing money and that is why they are unable to pay salaries because they are stealing. The biggest thieves are the governors,” he had said.

Industry stakeholders suspect that the Governor of the Central Bank of Nigeria, who packaged the restructuring of the loans owed by the state governments observed that most States took short term loans for long term projects and servicing their monthly obligations to the banks, hampered cash flows, thereby restricting them from payment of salaries. After advising recipients of the CBN loans, to prioritize salary payment as its first line charge, before meeting other obligations, there is huge suspicion that they have not learnt any lessons, as the issue of owing salaries are still causing problems in some States.

The more fearful thing is that as the States continue to ramp up their debt profile, their revenues continue to shrink, especially given that the major revenue earning sector for the Nigerian economy crude oil which price has plunged by more than 60% from $114 per barrel since June last year to hover between $ 45 and $50 bpd now.

Financial experts have expressed fear that at the rate the state governments are ramping up debts, some of them may grind to a halt sooner or later.

Former Managing Director of the defunct A C B International, Mazi Emma Nwosu said the earlier the managers of the finances of the state governments realise that there is no quick fix for the shrinking revenues given the plunge in oil prices, the better for the nation.

Nwosu explained that given that the fixed cost of these states cannot come down overnight while revenues which they receive from the Federal Government keeps shrinking, they will continue to borrow to survive. “It is sad’’, he said.

According to him, the states are no longer viable and they have depended so much on the allocation from the federal government to survive over the years.

Nwosu however, advised the state governments to change their life style and cut salaries and wages, reduce head counts, reduce remunerations of political heads and look inwards to find creative ways of improving their internally generated revenues.

‘’It is obvious that the states would now have to be ingenious with augmenting internally generated revenue through not necessarily increasing the tax rates but by cleverly bringing more people into the tax net who are not there for now. There will the need to borrow as included in the FRA for investments not for payment of salary or for mere consumption using sources which would provide long term funding at concessionary rates of interest. There is no state that does not enjoy some comparative advantage with regard to some mineral resources and it is time to aggressively begin to explore such resources to generate income to be able to run the states. If there are any impediments such as the provision in the Constitution it is time to remove such to give the states a free hand.

The pressing challenge now is that the income from the monthly FAAC for most states can no longer carry their wage bill. I heard Ayodele Fayose of Ekiti State lament that the FAAC allocation this month is slightly above one billion Naira while his monthly wage bill is over 2 billion Naira! So the issue is how the states will survive in the interim.

It is also time to revisit some of the extant practices we have. We should revert back to former derivation principles whereby states would keep income accruing to them and pay tax to the Federal Government. If we did that the states will begin to compete amongst themselves instead of the current stance whereby each sub national unit is struggling for greater share of the proceeds from oil. We certainly live in interesting times!’’, said Boniface Chizea ,MD/CEO at BIC Consultancy Services.

An economy that is seen as the largest in Africa at $540 billion GDP, there are doubts of its sustainability with all the challenges of Budget deficit, depreciating naira, rising debt and rising inflation currently at 9.5 per cent.

‘’This time, the debt is not necessarily to foreign creditor institutions/governments which are organized under the Paris club but largely to private agents which is even more volatile. We call it domestic debt. But if one carefully unpacks the bond portfolio, what percentage of it is held by foreign private agents?

And I understand the Government had removed the speed bumps we kept to slow the speed of capital flight, and someone is sweating to explain the gyrations in foreign reserves’’, former CBN governor, Prof. Chukwuma Soludo had said in an article recently.


Lagos State Government recorded a total of N1.08 trillion in internally generated revenue (IGR) between 2010 and 2014.

The state also recorded the highest IGR of N276.16 billion in 2014 alone, according to data posted on the NBS website. Rivers State is the second with an IGR of N89.11 billion in 2014 and a cumulative total of N345.64 billion within the five-year period.

Trailing that is Delta State with N42.81 billion in 2014, also collected a total of N199.43 billion in IGR between 2010 and 2014.

Interestingly, other states included Abia, Adamawa and Borno States, which respectively recorded N12.73 billion, N4.99 billion and N2.76 billion as IGR in 2014.

Others were Cross River, Ebonyi and Edo, which generated N15.73 billion, N11.03 billion and N17.02 billion respectively, while Gombe, Jigawa, Kano, Kwara, Ondo, Taraba and Yobe recorded N5.19 billion, N6.27 billion, N13.66 billion, N12.46 billion, N11.71 billion, N3.79 billion and N3.07 billion respectively for 2014 alone.

According to the NBS, N401.43 billion was recorded by all the states in 2010 as IGR; N487.45 billion in 2011; N584.39 billion in 2012; N662.04 billion in 2013 and N707.85 billion in 2014, generating a total of N2.84 quadrillion within the five-year review period.