Export Financing: the manufacturers plight

1. 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

2. 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.

3. 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 .

4. 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: IN THE BEGINNING

5. 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.

6. 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.

7. 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:

8. • 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 .

9. 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)

10. 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

11. 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.

12. 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 EXPORT PROCEEDS.

13. 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

14. 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.

15. 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.

16. CARGO DEFENSE FUND • THE CARGO DEFENSE FUND IS A VIRILE AND PROACTIVE 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