Transcript Export Financing: the manufacturers plight

NNECEA 2011
Paper Delivered by :
Bashir M. Borodo
President,
Federation of West African Manufacturers
Federation des Associations des Industriels de L`Afrique de L`Ouest
(FEWAMA)
Sheraton Hotel , Abuja
November 3, 2011
START UP, GROWTH AND DEVELOPMENT IN ECONOMIC
ACTIVITIES DEPENDS ON ACCESS TO FINANCE. THIS COULD BE
IN THE FORM OF EQUITY OR BORROWING.
EQUITY IS ALWAYS A CATALYST IN EXPORT START UPS,
FOLLOWED BY FINANCIAL FACILITIES FOR THE GROWTH OF
THE COMPANY
THE NIGERIAN ECONOMY IS EXPORT ORIENTED, IN THE PAST
AND MORESO TODAY.
IN THE EARLY STAGES OF OUR DEVELOPMENT; EXPORTS
PROVIDED THE REVENUES TO FUND GOVERNMENT, THE BASIC
INFRASTRUCTURE, AND THE IMPORTATION OF THE BASIC
GOODS NECESSARY FOR A MODERN SOCIETY.
NATURALLY, THE EXPORT SECTOR RECEIVED MOST OF THE
PRIVATE EQUITY AND CREDITS FROM THE FINANCIAL SECTOR.
IT IS INDEED SAD THAT WE HAVE NEGLECTED THIS
CASH COW TO BECOME A MONO ECONOMY BASED ON
OIL.
APART FROM THE INHERENT RISK OF RELYING ON
ONE SOURCE, THE DEVASTATING EFFECT ON
EMPLOYMENT IS ENORMOUS.
SEVERAL COUNTRIES IN OUR POSITION WITH OIL
RESOURCES LIKE MALAYSIA AND INDONESIA HAVE
DIVERSIFIED TO THE EXTENT THAT NON OIL EXPORTS
IS THE NO 1 SECTOR .
IN THE BEGINNING
IN THE BEGINNING: FUNDING FOR THE NON OIL SECTOR WAS A KEY
ISSUE IN MONETARY POLICY. THE MARKETING BOARDS PROVIDED
BANK GUARANTEES TO ALL LICENSED BUYING AGENTS (LBAs)
THE GUARANTEE ENABLED BANKS TO OFFER PRODUCE PURCHASING
CREDITS TO ALL LBAs. IN EFFECT THE LBA PROVIDES SECURITY TO
THE MARKETING BOARD; THEY IN TURN GAVE HIM ACCESS TO
FUNDING FROM THE BANKING SECTOR. THIS ARRANGEMENT
WORKED WELL FOR MANY YEARS WITH NO HITCHES .BETWEEN
1950-1960,TOTAL EXPORT CREDITS FROM BANKS TO THE EXPORT
SECTOR AVERAGED $5BILLION ANNUALLY (IN TODAYS PRICES). IT
WAS WHAT WE CALL TODAY ONE STOP SHOP.
THE MARKETING BOARD PROVIDES THE BANK GUARANTEE TO THE
LICENSED BUYING AGENT (LBA). BASED ON PERFORMANCE AND
SECURITY. THE BANK PROVIDES THE CREDIT AND ALL PAYMENTS
FROM THE BOARD TO THE LBA GO THROUGH THE BANK.
THE SYSTEM WAS SUCCESSFUL BECAUSE:
THE BANKS WERE COMFORTABLE WITH THE QUALITY OF THE
GUARANTEE (GOVT,). THE TRANSACTION DYNAMICS ARE CLEAR
AND NOT CUMBERSOME. REIMBURSEMENT TO THE LBA THROUGH
THE BANKS ARE DONE WITHIN THIRTY DAYS OF DELIVERY OF GOODS
TO THE PORT
THE PRODUCTS COVERED WERE LIMITED: GROUNDNUTS, COTTON,
COCOA, PALM KERNEL.THE MARKETING BOARDS HAD THEIR
AGENTS TO CERTIFY THE QUALITY OF THE PRODUCE BEFORE
TRANSPORTATION TO THE PORT.
THE ULTIMATE DESTINATION AND FOREIGN IMPORTERS AND INFACT
THE SHIPPERS ARE WELL KNOWN, AND OFTEN THE SAME. NO
SURPRISES, MINIMAL RISK
THE RENEWAL OF THE LBA LICENSE FOR THE FOLLOWING YEAR
DEPENDS ON
PERFORMANCE AND SETTLEMENT OF THE
GUARANTEED FUNDS.
THE RISK TO THE BANKS IS KNOWN AND MITIGATED PRIMARILY
BECAUSE THE GUARANTOR WILL NOT DEFAULT. EQUALLY THE LBA
WILL NOT.
NEXIM
WITH THE DECLINE OF THE PRODUCE EXPORT SECTOR, OUR BANKS
LOST APPETITE FOR FUNDING THE EXPORT SECTOR AND OVERTIME
LOST THE KNOWLEDGE AND KNOWHOW TO PACKAGE FUNDING
FOR THE EXPORT SECTOR.
IN RECOGNITION OF THIS PROBLEM; GOVERNMENT ESTABLISHED
THE NIGERIA IMPORT EXPORT BANK WITH A MANDATE TO FINANCE
THE EXPORT SECTOR
NEXIM HAS SEVERAL PACKAGES TO SUIT THE REQUIREMENTS OF
THE EXPORTER:
DIRECT LENDING, EXPORT CREDIT GUARANTEE, FOREIGN INPUT
FACILITY, SESAME SEEDS,CASSAVA, STOCKING FACILITIES ,AND
MANY MORE CREDIT PRODUCTS.
SINCE ITS INCEPTION, NEXIM HAS DISBURSED ABOUT $332 AND
N70B TO ELIGIBLE CUSTOMERS
NO DOUBT NEXIM IS THE LEADER IN THIS SECTOR WITH AN
IMPRESSIVE RECORD
THOUGH IMPRESSIVE, IT IS FAR SHORT OF THE DEMAND BY
EXPORTERS IN PARTICULAR THE SMEs.
ACCESS TO NEXIM FACILITIES BY EXPORTERS IS SUBJECT TO:
PROVISION OF THE FOLLOWING DOCUMENTS:
• A feasibility study report/business plan;
• Certified true copies of forms CO2 and CO7;
• Certified true copies of Proforma Invoice(s) for new/used
equipment from a reputable supplier(s);
• Evidence of licence/permit from relevant agencies where
applicable;
• Evidence of export commitment or any other arrangement
acceptable to NEXIM;
• Copy of Environmental Impact Assessment Report;
. Certified true copy of Certificate of Incorporation;
• Three years audited statement of accounts or a complete set of
.
Management Report signed by two directors.
Copies of title documents that are available as security
Any other document that may be required
COMMERCIAL BANKS
COMMERCIAL BANKS HAVE NO APPETITE FOR FUNDING EXPORTS .
THE FOLLOWING CREDIT APPLICATION REQUIREMENTS WILL
CONFIRM THIS THESIS:
Audited financials in the last three years, latest management
account,
LC / copy of contract with overseas buyer showing - price,
payment terms, quality & quantity specification including
duration of the contract. Moreover statement of account from its
existing bankers, specific request that is to be financed with
underlying transaction dynamics,
Corporate profile & company's Board profile should be provided.
Details of the directors of the foreign company (Importer)
The Branch must carry out the mandatory credit enquiries from the Bank's
appointed Credit Bureaus & CBN CRMS and ensure due diligence on the
request.
Lastly the company is to provide evidence of previous exports undertaken,
clear repayment terms and collateral to support the credit.
Other information may be required as deemed necessary
YOU WILL NOTICE FROM THE REQUIREMENT; A STRONG EMPHASIS
ON RISK MANAGEMENT BY ALL MEANS
INCENTIVES
GOVERNMENT HAS INITIATED SEVERAL PROGRAMS TO
ENCOURAGE EXPORTS.
THE MAIN INCENTIVE IS THE EEG HANDLED BY NEPC.
EXPORTERS RECEIVE GRANTS IN NEGOTIABLE NOTES UP TO
A CERTAIN PERCENTAGE OF THEIR NET EXPORT PROCEEDS.
IT IS INDEED A COMFORT NET TO ENCOURAGE EXPORTS.
HOWEVER, THE PROGRAM IS PRONE TO CONSTANT
DISRUPTION, DELAYS IN PAYMENT, PROBES, AND REVIEWS.
IN ADDITION SOME GOVERNMENT DEPARTMENTS PLACE
SERIOUS OBSTACLES AGAINST THE SCHEME BECAUSE IT
REDUCES THEIR COLLECTION
ALTHOUGH A LAUDABLE SCHEME, IT MAY NOT BE A
SUBSTITUTE FOR DIRECT FUNDING FROM THE BANKS,
SIMPLY BECAUSE IT DOES NOT ADDRESS THE IMMEDIATE
NEED FOR FUNDING IN THE VARIOUS STAGES OF EXPORT.
START UP
STARTING POINT:
IF YOU ARE IN THE EXPORT BUSINESS, YOU WILL CERTAINLY NEED
BANK FINANCE. THE FIRST STEP IS TO REGISTER WITH NEPC,CDF
MOST BANKS ARE AVERSED TO LENDING TO THE EXPORT SECTOR,
BECAUSE OF THE RISK INVOLVED. THEY NATURALLY COME UP
WITH IMPOSSIBLE CONDITIONS AS LISTED ABOVE
OFTEN IT IS NOT THE RISK THAT IS AN ISSUE, BUT IT IS SIMPLY A
NEW FRONTIER, AND THEY DON'T KNOW HOW TO DO IT AND ARE
TOO SHY TO ASK THE RIGHT QUESTIONS. IN SHORT PAUCITY OF
KNOWHOW IN THE EXPORT SECTOR
YOU START WITH YOUR BANK. DON'T GO TO A NEW ONE. MAKE
SURE YOU FINANCE YOUR FIRST SHIPMENT, NO MATTER HOW
SMALL. AS SOON AS YOU SHIP; YOU WILL BE INUNDATED WITH
LETTERS FROM THE CBN, THROUGH YOUR BANK TO REMIT THE
OFTEN THIS IS WELL BEFORE YOU ARE PAID BY THE IMPORTER.
CONGRATULATIONS!!! YOU ARE NOW A CELEBRITY.
MAKE SURE THE EXPORT PROCEEDS COME TO YOUR BANK
DIRECTLY.
TRY TO DO A SECOND SHIPMENT, THE SAME WAY. YOU ARE NOW
A MEMBER OF THE CLUB.
APPROACH YOUR BANK WHEN THE NEED ARISES TO FUND YOUR
THIRD SHIPMENT. AT THIS STAGE YOU COULD DISARM MOST OF
THEIR RISK PHOBIA.
YOUR PRACTICAL EXPERIENCE WILL HELP A GREAT DEAL AND
THE RECORDS ARE THERE WITH THEM.
THERE WILL BE NO DOUBT ABOUT THE AUTHENTICITY OF YOUR
DOCUMENTS, THE CBN IS YOUR WITNESS.
GOOD LUCK .
DONT FORGET TO COLLECT YOUR EEG, IT HELPS
NEW MODEL
IN THE BEGINNING, I EXPLAINED HOW IT WAS DONE FIFTY YEARS
BACK. SMOOTH, AND EFFICIENT. I BELIEVE THAT IS THE WAY TO
GO
BANKS SHOULD BE READY TO LEARN AND SPECIALIZE IN TWO TO
FOUR EXPORT PRODUCTS THAT THEY CAN HANDLE AND DO WELL.
IF IT IS CASSAVA, THEY WILL QUICKLY KNOW WHERE IT IS GOING
AND THE MAIN IMPORTERS, THE ROUTE AND SPECIAL SHIPPING
CONDITIONS, JUST AS OUR MARKETING BOARDS KNEW HOW TO
SHIP. HOW AND WHY THEY PACK GROUNDNUTS IN JUTE BAGS.
YOU LEARN FROM SPECIALIZING.
THOSE WHO WISH TO SPECIALIZE IN MINERALS NEED TO KNOW AT
LEAST WHAT THESE MINERALS LOOK LIKE.
A VISIT TO THE MINES WILL CONVINCE THEM THAT IT IS FOR
REAL. KNOWING THE PROMINENT TEST LABS WILL GUIDE THEM
ON QUALITY.
LETTERS OF CREDIT OPTIONS COULD ALSO BE EXPLORED BY
OUR BANKS TO PROVIDE SECURE FUNDING FOR EXPORTS. THE
VARIETIES AND TYPES OF LETERS OF CREDIT SHOULD PROVIDE
VIABLE OPTIONS. WHEN WE IMPORT, WE PROVIDE CASH OR
LETTERS OF CREDIT. WE SHOULD EXPECT SAME FROM
IMPORTERS OF NIGERIAN PRODUCTS. THOSE WHO BUY OUR OIL
PROVIDE LETTERS OF CREDIT;WHY NOT THOSE WHO BUY OUR
COCOA, CASSAVA, AND SESAME SEEDS?
A LETTER OF CREDIT COULD MITIGATE THE RISK ;OUR BANKS
WILL FEEL MORE COMFORTABLE AND WILLING TO EXTEND
CREDIT TO THE EXPORTER.
CARGO DEFENSE FUND
 THE CARGO DEFENSE FUND IS A VIRILE AND PROACTIVE
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ORGAN FOR THE PROMOTION OF FAIR INTERNATIONAL TRADE.
ITS MAIN OBJECTIVE IS TO PROTECT THE RIGHTS OF NIGERIAN
EXPORTERS AND IMPORTERS
IT HAS THE KNOWHOW TO ADVISE EXPORTERS ON THE
INTRICACIES OF THE EXPORT SECTOR, AND BEST FINANCE
OPTIONS INCLUDING PAYMENT SYSTEMS AND THEIR RISK
LADDER.
THEY CAN REVIEW YOUR BUSINESS PLAN AND ADVISE YOU. IF
YOU GET INTO TROUBLE THEY WILL STAND BY YOU. THEY ARE
THE BEST WE HAVE IN INTERNATIONAL TRADE DISPUTE
RESOLUTION
IF YOU ARE AN EXPORTER CDF IS A MUST FOR YOU.
THANK YOU