The Managing Director of Nigerian Export-Import Bank, Mr. Bashir Wali, spoke with some journalists in Lagos, about the new Export Stimulation Facility. ANNA OKON was there
The Nigerian Export-Import Bank was primarily established to provide loans and guarantees to exporters; how far has the bank gone in achieving this objective?
From its inception in 1991, NEXIM has provided funding support and assistance to entrepreneurs in the export sector. We have supported financially and we have also provided advisory service in terms of guarantees to Greenfield projects that have come to fruition today. One of the results is what you see in the cocoa industry with a lot of cocoa processing plants in the country.
NEXIM Bank is working on a number of other initiatives that will support Nigeria?s non-oil export growth. We have been working on the facilitation of a regional shipping company to provide direct maritime links within West and Central Africa. The sea link project will help in removing non-tariff barriers and logistical challenges that have limited trade within the regions to 10 per cent of total volume.
We are collaborating with a number of stakeholders to unlock export capacities. Working with the Solid Minerals Association of Nigeria and the Shippers Council, we want to attract private sector investments towards dredging the inland waterways to provide dry bulk cargo barges to facilitate the movement of solid minerals by sea. This will help the country to realise its annual export potential of at least one million tonnes of coal, iron ore and lead/zinc.
Together with major investors, we hope to resuscitate and commence the local production of hydrocarbon-free jute bags for packaging of exports. And to unlock further financing, NEXIM Bank is collaborating with African Export-Import Bank on the introduction of factoring as a strategic debtor financing tool or an alternative funding instrument for exporter Small and Medium-sized enterprises. In this regard, we plan to facilitate the enactment of the enabling legislation that will guide the provision of factoring services in Nigeria.
Another sector we are focused on currently is the fish trawling industry, which has been opened up with the support of NEXIM in the forefront. In terms of agro-processing, when the cassava initiative was introduced, NEXIM was at the forefront and a lot of the factories that started producing cassava starch and cassava glucose were in one way or the other beneficiaries of funding support from NEXIM.
The government recently established N500bn Export Stimulation Facility. What is this fund meant to achieve?
The ESF was introduced to redress the declining domestic credit to the export sector, averaging about 0.4 per cent of total domestic private sector loans over the last five years. This is expected to incentivise and attract new and additional investments to the non-oil export sector towards diversification of the Nigerian economy and broadening the export basket in such a way as to increase the contribution of non-oil exports to total exports from about five per cent over the last five years. The ESF is also targetted at providing export-oriented industries with concessional medium to long-term funding to boost competitiveness of Nigeria?s exports.
What is being done to make it easier for people to access the fund?
We have projected that every additional funding between N75bn and N100bn has the potential to generate export proceeds of about $1bn. This implies that we should be able to enhance non-oil export earnings by at least $5bn annually through these funds. This projection is our minimum target as we expect the provision of these funds to stimulate additional investments and create the necessary multiplier effects.
There is also the possibility that these funds could be increased by the Central Bank of Nigeria if necessary. We will undertake periodic review of their performance and present the scorecards in order to determine the funds? development impacts in terms of job creation and improvements in productivity and capacity utilisation, among other development benchmarks.
The ESF comes at a maximum interest rate of 7.5 per cent for short-tenured transactions spanning up to three years, and nine per cent for longer-term transactions that are up to 10 years.
We are on the drawing board and continually accessing and re-evaluating the process, assessing and re-evaluating the needs of the customers as seen by the changing circumstances and the economy locally and internationally, and we do this with a view to improving the effectiveness of service delivery to the customers.
Besides the generous terms of the funds, NEXIM Bank is working with other government agencies to address other critical issues such as logistics and packaging/quality standards, which have contributed significantly to the poor market access and weak competitiveness of Nigerian goods in international markets.
As a country, there is no alternative to export diversification, particularly in view of the current downturn in the global oil market, which is expected to be quite protracted. This development, coupled with the need to create jobs for our teeming youth population and promote sustainable development, has led the current administration to reaffirm its commitment towards the development of the agricultural and solid mineral sectors, where Nigeria has huge endowments.
Since the export stimulation scheme started, what has been the response?
The response in terms of inquiries and curiosity of prospective entrepreneurs has been very encouraging. One, of course, has to look at it in the context of the challenges facing our economy today and the need for everybody to look inwards to diversify avenues of improving on income-generating abilities at the individual, corporate and national levels.
Exporters still have issues with the Export Expansion Grant that was cancelled. What is the Federal Government doing to make sure that this grant is restored?
The Export Expansion Grant is one of the many incentives that the Federal Government introduced to encourage investment by entrepreneurs in the export sector. It has had its challenges and it has been under review for a while now.
The responsible government agency supervising the EEG is the Nigerian Export Promotion Council. They have been working on the drawing board and making recommendations to the government with a view to revamping the entire scheme. I am sure they will release the outcome of their work very soon.
Interest rate has always been an issue of contention with loan facilities; how friendly is the interest rate on the ESF?
The export stimulation facility is at a single digit interest rate. This is an incentive provided by the government to encourage the sector. If you look at the structure, there is an interest rate of nine per cent for a loan with tenure of three to 10 years. We cannot get that type of long-term funding from commercial banks.
The reason is that the deposit commercial banks take from customers is for a short tenure of one year, maximum of two years. So if you are talking of lending for tenure of 10 years, there is a mismatch and they have to make up for that. This is why the CBN is providing this window for start-up projects to allow companies and entrepreneurs to level up and have life.
At an interest rate of nine per cent, when you consider the commercial bank rate which is between 25 and 27 per cent today, it is a give-away and for a longer tenure. It is at single digit so that businesses can be established and can stabilise and take root.
While airing their opinion about the ESF, some exporters said that the government already owed them over N300bn in EEG. According to them, the government should pay the exporters being owed first; then give the balance to those who are interested in borrowing.
I laugh because everybody wants ?free things.? When a person gets into business as an entrepreneur, he considers all the pros and cons. An export expansion grant is nothing more than just an incentive, something that should encourage you to remain in business. That is not the reason why entrepreneurs are in business; it is just a value addition.
One cannot go into a venture that will not make profit without the EEG. Somebody put that; it is a grant and that grant can be withdrawn at any point in time and whatever you are doing in terms of your projection, you should discount it. You have already made your projections and you are determined that you will make a margin without it.
If it is there, it is supposed to make you more comfortable and provide an enabling environment; if it is not there, you are only competing against market forces devoid of any protection.
Now, that protection is only there for a set period to allow your business to stabilise and it does not become routine. In any case, the keyword is integrity, credibility, honesty and determination. If you have these, you will succeed; expansion grant or no expansion grant. If the EEG is there, it will increase your margin and you will declare a bonus. If it is not there, you are still making profit and you are doing good business.
That is my approach and it is the approach I will recommend to entrepreneurs because in any situation where you have to have overdependence on a given set of factors, then you have a problem. That is why we are in problem today because of overdependence on oil revenue.
Obviously, there were problems with the EEG and now we have another facility; what is the guarantee that this new one is not going to be surrounded with the same type of problems?
I think we have gone through the learning curve and we have learnt from our mistakes. Both entrepreneurs, the administrators of the EEG and the government and with all that we have gone through, we are in a position to re-evaluate and determine what the best approach will be that will bring maximum benefit to all.
What additional advice will you give on the promotion of non-oil export?
Nigeria is currently at a stage where it must redouble its steps to diversify its export base. In spite of our rich non-oil endowments, economic performance continue to be highly correlated with oil revenue volatility so much so that the recent oil price collapse has triggered recessionary pressures in the country. There is, therefore, the need for concerted efforts to redress this trend.
Besides the issue of funding, which is now being addressed, due attention should also be given to other constraints such as the challenges of quality standards, production issues as well as infrastructure/logistical issues, which have been the bane of our non-oil export sector.
Our agricultural products are being rejected in the EU owing to high level of contamination of some shipments and failure to use acceptable packaging materials such as new hydrocarbon free jute bags. Non-adherence to quality/labelling standards is one of the main reasons why Nigerian exporters have not been able to take advantage of the opportunities under AGOA (African Growth and Opportunity Act).
Regarding production, Nigeria has lost its leading position as world producer of major commodities owing to lack of investments over the years. Cocoa used to be our number one non-oil export, but the industry is ailing owing to ageing plantations, which have not been replanted over time. Where is the Kano pyramid of old?
We have over 34 solid minerals in commercial quantities, but lack the transport infrastructure to convey bulk products from mine sites to encourage investment and production.
All these challenges need to be addressed for us to fully achieve the goal of economic diversification and promotion of non-oil exports.
The good news however is that a lot of these issues are now being addressed. The administration of President Muhammadu Buhari has affirmed its commitment to the diversification objective by promoting investments in the agricultural and solid minerals sectors. There is an ongoing initiative to enhance investment in the cocoa sector and other key sectors.
I am aware that besides the efforts at the federal level, many state governments are also taking some steps to unleash the potential in their areas. And come to think of it, there is no state in Nigeria that does not have at least one or two products of significant economic importance. All that is left is for us to sustain the ongoing tempo, even if the oil market recovers.