Menu

Mr. Bashir Wali, Ag Managing Director/CEO, Nigerian Export-Import Bank (NEXIM Bank), speaks with Jide Akintunde, Managing Editor, Financial Nigeria magazine, on the innovative export financing facilities newly-introduced by the Central Bank of Nigeria and are being managed by NEXIM Bank to boost non-oil export revenue.

Jide Akintunde: The Central Bank of Nigeria (CBN) recently provided two intervention funds for NEXIM Bank to manage to stimulate non-oil exports. In specific terms, what are the objectives the CBN wants to accomplish with the funds, within the broader canvass of the economic policy of the Federal Government?

Bashir Wali: The Funds were introduced as part of the efforts of Government to address the persistent overdependence of the Nigerian economy on revenue from crude oil exports. With the rebasing of Nigeria's Gross Domestic Product (GDP) in 2014, it became clear that the economy has become well diversified with the services sector contributing 54.8% of the GDP. The contribution of agriculture, which used to be about 35% of GDP prior to rebasing, has been diluted to 22%; while the oil and gas sector accounted for only about 14%.
    
In spite of this changing dynamics, however, the oil and gas sector continued to account for about 70% of government revenues and 95% of export earnings. This is due to the non-diversification of our external sector and the poor competitiveness of Nigeria's non-oil exports.
    
Our non-oil export sector has continued to be challenged by a myriad of problems. Prominent amongst these problems is low investment and poor access to credit. Over the last five years, credit flow to the export sector has not only been low, but it has also declined, accounting for an average of 0.6% of total domestic credit to the private sector. High risk aversion and dearth of long-term funds at competitive interest rates in the commercial banking system are largely responsible for the low access to credit.
    
It is against this background that the CBN has introduced these intervention schemes, with the objective of redressing the declining trend in domestic export credit. The main objective of these facilities is to boost the level of non-oil export earnings, which has stagnated at about 5% of total export earnings over the years.
    
The Funds are also expected to attract and incentivize new and additional investments to the non-oil export sector, in addition to providing export-oriented projects with concessional medium- to long-term funds to mitigate some of the observed challenges and enhance their competitiveness.

JA: The Export Stimulation Facility (ESF) is a huge fund at N500 billion. Who can access this fund and what are the modalities for accessing it?

BW: The N500 billion Export Stimulation Facility is a long-term facility with a tenor of up to 10 years. It is available to all operators in the export value chain, including start-ups and existing export-oriented companies wishing to expand. It is also available as working capital/stocking facility or for acquisition of plant and machinery for processing and packaging of goods for export.
    
All applications under the intervention schemes are expected to be submitted to NEXIM Bank through participating financial institutions (PFIs), which could be a commercial bank or other development finance institutions (DFIs). After a satisfactory review of the applications in line with the eligibility criteria provided in the CBN guidelines, the PFIs will then forward such applications to NEXIM Bank. The Bank will in turn do a further review of the applications within a period of time not exceeding 20 working days before forwarding the applications to the Central Bank of Nigeria for approval and funding.  
    
After the funds have been released by the CBN, the PFIs have a maximum of three working days to disburse the money to the borrowers.

JA: The Export Credit Rediscounting and Refinancing Facility (RRF), though smaller, at N50 billion, is more upscale in terms of its target. Why is this fund necessary and what are the operational modalities for the fund?

BW: The N50 billion Export Rediscounting and Refinancing Facility is an enhancement of the existing N1.225 billion RRF, operated by NEXIM Bank since its inception in 1991. The RRF is essentially an interbank facility aimed at encouraging and supporting Deposit Money Banks (DMBs) to provide short-term pre- and post-shipment financing in support of exports. The facility provides a discount window to support export-financing banks, thereby improving their liquidity and providing incentives for them to expand their export portfolio. The facility also moderates the cost of export finance with the aim to enhance export competitiveness.
    
Under the scheme, the participating banks are required to apply directly to NEXIM Bank, in a prescribed format and approvals are granted on the basis of individual export transactions. Export bills/transactions are discounted/ refinanced at an all-in rate of a maximum of 6% per annum (p.a.) with NEXIM Bank allowed a maximum spread of 3% p.a.

JA: In terms of impacts, what are NEXIM Bank's projections for these funds, and what is the plan for periodic presentation of the scorecard for the funds?

BW: These funds are expected to immediately redress the declining trend in the flow of credit to the non-oil export sector. We have observed that credit to the sector declined from an average of about N525 billion annually over the previous five years to about N125 billion in 2014. This has been a major factor in the declining contribution of the non-oil export sector to total export revenue.
    
We have projected that every additional funding of between N75 billion and N100 billion has the potential to generate additional export proceeds of about US$1 billion. This implies that we should be able to enhance non-oil export earnings by at least $5 billion annually through these funds. However, it is pertinent to mention that 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 CBN if necessary. We will undertake periodic review of the performance of these funds 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.

JA: What is the risk management framework for the funds, given that the level of Non-Performing Loans in the banking sector is already above the regulatory limit, as Nigeria's economy remains fragile due to price and quantity shocks in the oil economy?

BW: It is true that one of the major challenges confronting the banking industry today is the high level of non-performing loans in the industry. This problem could be partly attributed to the prevailing macro-economic environment, which has had implications for business competitiveness. However, the CBN intervention funds being managed by NEXIM Bank have been designed to mitigate some of these risks.
    
The ESF comes at a maximum interest rate of 7.5% for short-tenored transactions spanning up to three years, and 9% for longer term transactions that are up to 10 years. The RRF on the other hand comes at a maximum all-in cost, interest rate of 6%. These should help to lower the cost of operations, in addition to addressing the problem of mismatch, whereby long-term assets are funded with short-term facilities, which is why many viable projects have ended up with the Asset Management Company (AMCON).
    
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 competiveness of Nigerian goods in international markets.

JA: Nigeria has made too slow progress with the export diversification agenda. What would be the basis of optimism that we are about to make a significant leap in non-oil export growth?

BW: 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 the teeming youth and promote sustainable development, has led the current administration of President Muhammadu Buhari to reaffirm its commitment towards the development of the agricultural and solid mineral sectors, where Nigeria has huge endowments. You may recall that the country once derived substantial revenue from exporting agricultural commodities.   
    
In addition to the intervention funds by the CBN, several initiatives are being undertaken by various government agencies including the Federal Ministry of Industry, Trade & Investment (FMITI) and Nigerian Export Promotion Council (NEPC), aimed at creating the required environment to boost investment in the non-oil export sector and develop a sustainable industrial value chain. It is expected that with all these efforts, coupled with NEXIM Bank's initiatives, we should begin to see positive results very soon. We are very optimistic.

JA: What are your plans in transforming Nigerian Export-Import Bank?

BW: The transformation roadmap embraced by NEXIM Bank since 2009 has yielded positive results and we are working to sustain and improve on it.  Already, we have a major task of managing the CBN intervention funds.
    
We are working on a number of other initiatives.  We have been working towards boosting intra-regional trade within West and Central Africa. The current low level of trade within the regions, estimated at 10% of total trade volume, is attributed to poor road transport infrastructure, high cost of transhipment via Europe and the extended time it takes to ship goods from one country to the other within the regions. NEXIM Bank is facilitating the Sealink project to address these non-tariff barriers and logistical challenges being faced in movement of goods and persons. The shipping company being facilitated will provide direct maritime links within the West and Central African regions.  
    
This project has been on-going over the past 3-4 years, but arrangements are currently being finalized with our partners to commence a pilot scheme by October this year. We are also working with the Solid Minerals Association of Nigeria and the Shippers Council to attract private sector investments towards dredging the inland water ways to provide dry bulk cargo barges to facilitate the movement of solid minerals by sea. This will help the country to realize its annual export potentials of at least one million tonnes of coal, iron ore and lead/zinc.
    
We are also working to minimize the high incidence of rejection faced by Nigeria's agricultural exports to European and other markets. Together with major investors, we hope to resuscitate and commence the production of hydrocarbon-free jute bags in the country for packaging of exports.
    
We are also collaborating on a number of initiatives with the African Export-Import Bank (Afreximbank). One of such initiatives is the introduction of factoring as a strategic debtor financing tool or an alternative funding instrument for exporter SMEs. In this regard, we plan to facilitate the enactment of the enabling legislation that will guide the provision of factoring services in Nigeria. Afreximbank has sponsored the production of a draft Factoring law for Africa and NEXIM Bank is working with CBN's FSS (Financial System Strategy) 2020 and other stakeholders to develop a draft legislation for Nigeria, which will be presented to the National Assembly for consideration and passage into law.