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How strategic funding can revive local manufacturing

31st May 2018
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How strategic funding can revive local manufacturing
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Uche Usim, Abuja

For decades, local industries in Nigeria have laid prostrate, having succumbed to a myriad of challenges like paucity of funds, high interest rate on loans and decayed infrastructure and a generally harsh operating environment.

Consequently, thousands of workers have been flung into the job market as some notable industries like Iwopin paper mill, ALSCON and other local companies closed shop many years ago.

The spiraling effect of this is that aside blocking our access to foreign markets via exports, Nigeria became a dumping ground for various imported goods, including fake and substandard ones. The mess continued for years unending until the country was recently hit by recession, forcing the government to look inwards and evolve homegrown developmental strategies.

Economic analysts say the descent to economic perfidy decay did not occur overnight but a long journey of aching economic misstep.

After a shift from agriculture and commerce to crude oil and gas in the 1960s, Nigeria’s economic growth has been driven by consumption expenditure and high oil prices.
Rather than run a mixed economy, successive administrations have operated a mono-economy with oil accounting for over 95 per cent of the earnings.

Worse still, the government, over the years, embraced profligacy and failed to evolve economic policies that would have insulated the country from shocks occasioned by the recent crash in crude oil prices and production.

To stem the tide however, President Mohammadu Buhari in several fora, said Nigeria must look inwards with a view to reviving the ailing industries, create jobs, conserve foreign exchange by reducing imports and grow national reserves.

To bring the President’s vision into fruition, the new management of the Nigerian Export-Import Bank (NEXIM) led by its Managing Director, Mr. Abubakar Bello recently unveiled strategies to boost the contribution of the non-oil sector to Gross Domestic Product.

Established by Act of parliament 38 of 1991 as an export credit agency, the bank is saddled with the responsibility of providing export credit guarantee, local currency, management of funds and export credit insurance facilities to exporters.

Upon assumption of office, in May last year, Bello commenced a strategic action plan to turnaround NEXIM bank with a view to  strengthening the bank’s financial capacity; re-tooling existing export financing support programs and developing new ones to expand reach and impact while driving institutional reforms to boost confidence of international partners.
Prior to the resumption of office of the current leadership of NEXIM, findings showed that the bank has not been able to effectively achieve its mandate.

For instance, there had been the challenge of near absence of a strategic action plan to guide its operations. This had led to the apparent absence of professionalism in the conduct of the bank’s business, abuse of corporate governance in the provision of loans to businesses, as well as weak risk management standards.

Economic experts insist these institutional gaps was what led to a surge in the volume of non-performing loans, a development that negatively affected the bank’s balance sheet. It was revealed that the poor operational standards and procedures also significantly eroded the confidence of critical international partners of the bank, thus negatively impacting the flow of external capital to boost lending for export promotion.

Speaking on the development, a Public Affairs Analyst, Jamilu Yusuf said the inadequate capitalization of the bank had led to paucity of operational funds which limited the bank’s ability to adequately support local export businesses.

He said, “As a catalytic financing institution set up to power local export businesses by mobilizing long term low cost funds from international development finance bodies, NEXIM bank has the unique and strategic potential to aid sustained inclusive growth by leveraging the power and industry of the private sector to create and support a robust non-oil export industry.

“This is especially so, given the urgent need to restructure the economy, which remains highly import dependent, undiversified with oil accounting for more than 95 per cent of exports and foreign earnings, while the manufacturing sector accounts for less than one per cent of total exports.”

He, however, said that with a balance sheet size of N120.4bn as at March 2018 as against N67.73bn in April last year, the bank is in a good stead to finance non-oil exports.
He said, “The current management has pushed a strategic action plan to turnaround NEXIM bank that is recording impressive results at several levels.

“Key areas of impact include strengthening the bank’s financial capacity; re-tooling existing export financing support programs and developing new ones to expand reach and impact while driving institutional reforms to boost confidence of international partners.
“The reforms have triggered a positive shift in the narrative of NEXIM bank that is refreshing and inspires hope. Not only for the professional integrity of the bank as a thriving world-class development finance institution, but for the practical crystallization of what it represents to the growth and strength of the country’s economy.”

As a catalytic financing institution set up to power local export businesses by mobilizing long term low cost funds from international development finance bodies, experts said the bank has the strategic potential to ensure sustained inclusive growth by leveraging the power of the private sector to create and support a robust non-oil export industry.

A Developmental Economist, Mr Henry Kelechi said that being a major facilitator for non-oil export,  there is need for the management of NEXIM to implement policies that would support the diversification efforts of government.

He said while the bank had entered into partnership with the Central Bank of Nigeria to implement two strategic intervention schemes by supporting the non-oil export sector, it would help to address the perennial problem of poor access to funding by exporters.

Both intervention schemes, according to findings are anchored on the philosophy of “Produce, Add Value and Export.” The objective of this is to encourage exporters to advance from the export of raw materials to value added exports.

The first intervention is the N500bn Export Stimulation Facility. Although the program was initially launched in June 2016, the new management has added some strategic improvements to make it more effective and impactful.

The enhanced version was re-launched last December and is currently being implemented in a manner that would provide long term concessionary funds to support existing or new export oriented projects.

The exports stimulation facility provides term loans at a single digit interest rate, for tenors up to eight years, with moratorium of up to two years.

The second program is the N50bn Export Development Fund, which is a new scheme that the new management conceived and was approved last December for execution. It is structured as a regional/state intervention scheme, which targets mainly the Small and Medium Enterprises. Its aim is to accelerate industrialization, economic diversification and exports.

Under the EDF scheme, a minimum of N1bn is earmarked for each state towards developing one or two identified export products where the state has the highest competitive advantage.
Already about six states have keyed into this scheme and the bank is at various levels of engagements to firm up the transactions and commence disbursements.

In addition, a portion of the fund is earmarked to support industries that are major employers of women and youth under a special economic empowerment scheme for the vulnerable groups as part of NEXIM’s contribution towards meeting the targets of the Sustainable Development Goals.
Findings revealed that so far, NEXIM has processed about 56 applications worth N79bn and $4m for local export manufacturing businesses under these interventions.
Speaking on the intervention funds, the NEXIM bank boss said no fewer than six states have signed up to the lender’s N50bn Export Development Fund.

Bello said the bank has taken deliberate steps to revive ailing industries and enhance their contributions to non-oil exports in Nigeria.

He also noted that in keeping with its mandate as Nigeria’s Export Credit Agency, NEXIM is collaborating with the Central Bank of Nigeria to support the non-oil export sector, in line with the diversification strategy of the Federal Government of Nigeria as captured in the Economic Recovery and Growth Plan.

He observed that for too long, the Nigerian economy had relied almost entirely on a single commodity, crude oil, for its fiscal revenues and foreign exchange supply, which explained the country’s descent into recession following the collapse of crude oil prices in 2015.
The NEXIM bank MD noted also that besides revenue volatility, the oil sector is incapable of supporting inclusive economic growth that would provide jobs and economic opportunities for the teeming population.

He added that it was for this reason that the Central Bank of Nigeria, having noted the dearth of credit to the non-oil export sector, decided to establish the intervention schemes to redress prevailing poor access to funding by exporters.

He said, “These funding schemes include the N500bn Export Stimulation Facility, which was initially launched in June, 2016, but was repackaged and relaunched in December, 2017 and the N50bn Export Development Fund, which was newly approved in December, 2017

“The ESF is specifically designed to provide long term concessionary funds to support existing or new export oriented projects, through the provision of term loans at a single digit interest rate, for tenors up to eight years, with moratorium up to two years, or as working capital/stocking facility, while the N50bn Export Development Fund has been conceptualized as a regional/state intervention scheme targeted mainly at the Small and Medium Enterprises to accelerate industrialization, economic diversification and exports.” He said already, the bank had  visited industries in a bid to stimulate their economic contributions to economic development.
Some of them are Dutse Granite Company Limited, GB Tannery Limited, Z-Tannery Limited, Kanotan S.A. Limited and RMM Global Company Limited, amongst others.

He said NEXIM would continue to collaborate with Central Bank of Nigeria in ensuring revival of ailing industries.

Rapheal

Rapheal

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