The Role of NEXIM Bank in Diversifying The Non-Oil Export Sector Presentation by Mr. Awami Mohammed Nigerian-Export Import Bank At the ISPON 2013 Annual Conference on “Software Strategies For Retooling The Workforce” held at Tinapa, Calabar, Cross River State October 22-23, 2013

Outline of Presentation 1.0 Introduction 2.0 Types/ Instruments of Export Finance 3.0 Sources of Export Finance 4.0 NEXIM’s Products & Services 5.0 Constraints to NEXIM’s Intervention 6.0 Concluding Remarks Presentation title in footer

1.0 Introduction Nigeria is predominantly an agrarian economy, with the Agriculture sector contributing about 40% of GDP and employing over 60% of the labour force. In spite of this, the Oil and Gas sector continues to dominate government and export revenues, accounting for about 70% and 95% of revenues, respectively. Given the challenges of oil dominance, particularly in view of decreasing demand by the United States, and discovery of oil by competing nations, the Federal Government, under the current Transformation Agenda seeks to diversify the economy through increased production and exports of non-oil products. Presentation title in footer

Introduction Cont’d Currently, Nigeria’s non-oil export revenue is insignificant. Of the total export revenue of N15.28trillion (US$97.03bn) in 2012, the oil sector accounted for about 97%, while the non-oil sector contributed a paltry 3%. The above trend, which has persisted since the post-SAP period in 1986, can be attributed to a myriad of factors, principal among which include: low investment and poor farm yield Dominance of raw agricultural commodities and insignificant amount of value-added non-oil exports Poor access to long term concessionary funds by exporters has also contributed to the observed trend Presentation title in footer

2.0 Types/Instruments of Export Finance Export finance has some peculiarities given that international trade is sensitive to Quality of product Price Delivery schedules, and Payment terms (must be flexible) While export finance takes various forms and types, its categorization may be done according to the purpose of finance, stage of export operations or tenor of loan In general, the following financing instruments are used for export transactions. Presentation title in footer

THE TRADE FINANCE TRANSACTION CHAIN Flow of Goods Producer Trader Consumer BANK Bridge Financing Pre-shipment Financing Post-shipment Financing Import Financing

TYPES/INSTRUMENTS FOR EXPORT FINANCE Pre-Shipment Financing/Packing Credit Forfaiting Buyer’s Credit Post-Shipment Financing Counter Trade Documentary Credit Structured Finance Factoring Supplier’s Credit

Type / Instruments of Export Finance Pre-Shipment Financing/ Packaging Credit This is a financing arrangement preparatory to shipment, which is usually short term in nature Post-Shipment Financing This is essentially financing for the period after shipment Supplier’s Credit Here an exporter extends credit to the buyer in the importing country to finance the buyer’s purchases. Documentary Credit Here a bank, (Usually in the importer’s country) undertakes to pay for shipment, provided the exporter submits the required documents (such as clean bill of lading, certificate of insurance, certificate of origin) within a specified period Presentation title in footer

Types / Instruments of Export Finance Buyer’s Credit This is a financial variant whereby a financial institution in the exporting country extends a loan directly or indirectly to a foreign buyer to finance the purchase of goods and services from the exporting country Forfaiting The exporter surrenders, without recourse to him, his rights to claim payments for goods delivered to an importer, in return for an immediate cash payment from a forfeiter, thus converting a credit sale to cash sale Presentation title in footer

Type / Instruments of Export Finance Structured Finance This technique essentially transfers risks in trade financing from parties less able to bear those risks to those more equipped to bear them in a manner that ensures automatic reimbursement of advances from underlying assets. Such assets include inventory and export receivables Factoring It is a process used by some exporting companies whereby a factor (usually an international bank) purchases the debt owed to the exporting company by a foreign client (at a discount). When the client has received the goods, they then pay the money owed to the factor, rather than the original exporter Presentation title in footer

3.0 Sources of Export Finance Export Finance could be obtained from several sources which includes: Deposit Money Banks Capital Market: Offer for Subscription, Bonds, Debentures, etc Development Finance Institutions (DFIs), NEXIM, BOI, NERFUND etc Other Export Credit Agencies, for Buyers’/ Suppliers’ Credit Arrangements: Afrexim, US Exim, Export Import Bank of China, etc Equity / Angel Capital (Loans from friends, family, etc.) In Nigeria, the Banking sector, being the biggest segment of the financial system is the most significant source of funds Unfortunately however, support to the export sector by commercial banks has been limited by tenor and cost of funds Presentation title in footer

Sources of Export Finance The following schematics gleaned from the CBN Annual Report shows that about 97% of deposits in the Banking System are short term funds maturing in one year or less Source: CBN Annual Report Presentation title in footer

MATURITY STRUCTURE OF COMMERCIAL BANKS’ DEPOSITS Also, over the past 5 years, the proportion of loans to the export sector by commercial banks have been less than 2% Besides the short tenor and high cost of funds, the categorisation of export projects/ transactions as high risk could also be adduced to the above trend. Development Banks like NEXIM Bank have therefore been created to fill this gap through the provision of long term funds at concessionary rates Presentation title in footer

Source: CBN Annual Report Credit to the Core Private Sector, 2006- 2011   Share inOutstanding (per cent) 2006 2007 2008 2009 2010 2011 1. Priority Sectors 30.3 25.9 26.2 25.2 30.4 36.1 Agriculture 2.2 3.2 1.4 1.7 3.5 Solid Minerals 10.1 10.7 11.3 12.7 15.3 17.7 Exports 1.2 1 0.5 0.6 Manufacturing 16.9 10.4 12.5 10.6 12.8 14.4 2. Less Preferred Sectors 46 41.2 42 46.9 47.8 45.8 Real Estate 5.9 6.2 8.3 8.7 Public Utilities 0.9 0.8 0.7 Transp. & Comm. 7.6 6.8 7.2 17.3 Finance & Insurance 4.6 9.4 9.5 13.1 4.1 Government 4.5 3.7 1.9 4.9 Imports & Dom. Trade 22.5 14.5 16.4 11.7 10.3 3. Unclassified 23.7 32.9 31.8 27.9 21.8 18.1 Total (1+2+3) 100 Source: CBN Annual Report Presentation title in footer

4.0 NEXIM’s Products and Services in support of Exports The Nigerian Export – Import Bank was established by Act 38 of 1991 as Nigeria’s Export Credit Agency (ECA). The Bank is equally owned by the Central Bank of Nigeria (CBN) and the Federal Ministry of Finance Incorporated (MOFI). The Bank’s broad mandate is essentially to promote the diversification of the Nigerian economy and develop the external sector through the provision of the following services in support of the non-oil export sector: Credit Facilities in both local and foreign currencies, Risk-bearing facilities - Export Credit Guarantee & Export Credit Insurance Business Development and Financial Advisory Services Trade & Market Information Presentation title in footer

Role of NEXIM in Promoting Trade & Investment cont’d The Bank also complements in attracting foreign investment capital towards the development and growth of targeted industries and strategic sectors of the economy through availment of concessional lines of credit, co-financing arrangements and facilitation of buyers’ / suppliers’ credit towards the adoption and acquisition of new and clean technologies, assess to patents/intellectual properties, etc. Presentation title in footer

NEXIM’s Products & Services Rediscounting & Refinancing Facility (RRF) – This is an interbank product designed to liquefy the export credit transactions of banks through the provision of a window to rediscount export bills finance and/or refinance their export credit portfolio Foreign Input Facility (FIF) – This facility is designed to support banks / exporters with foreign currency loans to import foreign inputs e.g. plant & equipment, raw/packaging materials, spares, etc needed for production for exports. Local Input Facility (LIF) – This is the local variant of FIF Presentation title in footer

NEXIM’s Products & Services Stocking Facility (SF) – This is an interbank or direct lending facility designed to enable processors stock adequate raw materials that are seasonal in nature to keep their production at optimal levels during off-season of inputs. Direct Lending Facility (DLF) – this is a funding window purveyed directly to exporters who meet meets the Bank’s minimum eligibility criteria ECOWAS Trade Support Facility (ETSF) – This facility is developed to support intra-regional exporters as well as promote formal trade and deepen payment system within ECOWAS, thereby facilitating economic integration and cooperation under ECOWAS Trade Liberalization Scheme Presentation title in footer

NEXIM’s Products & Services Export Credit Guarantees This facility is designed to protect banks in Nigeria and foreign lending institutions against the risk of non-payment for loans or advances granted to exporters to meet short term export contracts Export Credit Insurance This is designed to protect exporters in Nigeria against the risk of non-payment for goods and services exported on credit terms. Presentation title in footer

NEXIM’s Products & Services The Creative/ Entertainment Industry Loan Scheme The was designed to provide lending intervention to the creative industry in response to the ranking of Nigerian Nollywood as 2nd most prolific industry globally and 3rd in terms of revenue generation. The scheme is designed to extend loans to eligible companies in the value chain, including support for improvement of distribution infrastructure/platforms and establishment of new digital production studios. Presentation title in footer

NEXIM’S INTERVENTION – (1991-2013) NEXIM’S FUNDING INTERVENTION(1999-2013) SN YEAR NON – OIL EXPORTS FINANCED (N’000) NON – OIL EXPORTS FINANCED (USD'000) JOBS CREATED/SUSTAINED ESTIMATED FOREX EARNINGS (US$’000)  1 1991-1993 -  273,240.00 2,106 34,155 2  1991-July 2009 (excluding ADB ESL) 56,791,786.71  - 33,312 943,385 3 AUG - DEC 2009 1,001,400.00 1,362 8,408 4 2010 5,655,324.20  21,000.00 5,298 73,406 5 2011 8,000,124.00  6,300.00 5,113 71,335 6 2012 7,308,870.83 4,191 58,655  7 YTD2013 3,337,199.26 2,002 26,783 SUB TOTAL 86,216,672.00 357,240.00 51,278 1,216,127 GRAND TOTAL (N'000) = 89,722,379.73 (After conversion of the foreign currency component)   Presentation title in footer

5.0 Constraints to increased intervention by NEXIM Government ownership implies that the Bank’s Capital can only be enhanced through budgetary allocations: However, the Bank has been leveraging its balance sheet to access lines of credits The main challenge is dearth of bankable projects, particularly by SMEs who are the main focus of the Bank, being a DFI. Some of the Challenges in handling SMEs include: Higher risk associated with small scale businesses, which operate in a more competitive environment and have lower capacity to withstand adverse developments in the economy Higher transactions costs in handling SME financing Inadequate/Lack of collateral to support loan request Lack of proper business plans/Poorly conceived projects Poor managerial skills/improper record keeping In spite of the above, NEXIM has continued to build capacity through Seminars/workshop in addition to establishing an Advisory Desk to assist SMEs and improve their access to finance. Presentation title in footer

6.0 Concluding Remarks The Bank’s objective is to increase intervention in the underserved, but key sectors of the economy in line with the Federal Government’s Transformation Agenda. NEXIM is particularly interested in working with SMEs and since inception has supported over 900 SMEs, many of which currently rank among the top 100 exporters in Nigeria. We, therefore, welcome applications from bankable projects and exporters in our target sectors as identified above, including of course, members of ISPON. The Bank also invites the informal / small traders as well as large export merchants to avail themselves of the newly introduced ECOWAS Trade Support Facilitate (ETSF), which is designed to deepen and expand Nigeria’s trade in the ECOWAS sub- region, in addition to helping small exporters to expand their businesses and bring them into the formal sector. Presentation title in footer

OUR CONTACTS Head Office: Plot 975, Cadastral Zone A0, Central Business District, Abuja Website: www.neximbank.com.ng E-mail: neximabj@neximbank.com.ng Branches: Lagos Area Office, Calabar Area Office Kano Area Office 31D, Thompson Avenue, Calabar Free Trade Zone Fatima House, Off Glover Road, Cross River State Murtala Ikoyi, Lagos State Kano State neximlag@neximbank.com.ng neximcepz@neximbank.com.ng neximkao@neximbank.com.ng

Thank You For Your Kind Attention! Presentation title in footer