The Nation Newspaper

Category: Export Digest

  • Know your customers

    Know your customer, popularly known as KYC, applies both to the exporter and the bank. It safeguards both of them from being implicated in aiding and abetting trade-based money laundering. The exporter needs to know the buyer abroad well enough-what is their business focus, for how long have they been in business, do they have other business interest etc, before it will approach the bank for funding.

    The bank, on the other hand, is expected to know the customer-exporter, well enough before going ahead to process their trade transactions. The more a bank knows its customers and understands the basis of its commercial relationship with them, the less likely it is to be associated with a firm that will attempt to present trade-based money laundering transactions.

    Those seeking to conduct criminal activity will usually not wish to have their operations, management, credit history or transactional record known thoroughly by that institution. KYC and Customers Due Diligence (CDD) requirements are broadly based on core principles including natural personalities, corporate details such as place of incorporation and registered trading address, account information, changes in customer information, monitoring of the account and material changes in ownership.

  • Handling critical 5Ps of export business success -Part 5: Payment

    Not all exporters are eligible for export financing and that is why the next question is, who are those that are eligible to access export finance products? Before an exporter can be considered to be eligible for export financing, the exporter will need to provide the following information with documentary evidence.

    History of performance – from the Bill of lading records. Export volume per year- from the Commercial Invoice and the Bill of lading records. Frequency of shipment- from the Bill of lading records. Payment Methods- from the Sales Contract. Terms of Payment- from the Sales Contract. Product sourcing strategy and risk mitigants- from the business plan/ Proposal. Availability of the products-from the business plan Proposal and investigation. Product destination- from the Sales Contract.

    Transaction cycle- from the date of Sales contract to the date of receipt of export proceeds for previous shipments. Buyer’s payment History- from the exporter’s Statement of Account. Making these information and documents available to able gives the credibility that will make them to consider your loan application for export business.

    The next and the fifth question states, why are some payment methods not attractive to banks and is there a way to make them acceptable? The two payment methods that can make a bank to decline funding an export transaction include Open Account (Cash against documents) and Bill for Collection.

    However, if an open account transaction can be backed by either a standby letter of credit or payment guarantee, it still retains its simplicity but also becomes attractive for banks to fund. On the other hand, if a buyer’s bank under a Bill for collection transaction availises (guarantees) the accepted Bill of Exchange, this makes the transaction to become attractive to banks for funding.

    The second to the last question states that, which instruments can give banks comfort when financing local supply? In Nigeria, where most of the exportable items are hard and soft commodities, in an environment that is largely unstructured, banks need comfort in order to be involve in pre-export financing.

    This, therefore, means that any exporter that wants the bank to finance the procurement of the commodities from their local supplier must be ready to work with people that will secure the bank’s funds through Advance Payment Guarantee (if they need the bank to advance funds ahead of delivery).

    On the other hand, if the supplier have the goods but needs assurance of payment, a payment guarantee from the bank will ensure that he only gets paid after the goods have delivered and the quality and quantity ascertained.

    The last question that is also most important for an exporter is: how can an exporter mitigate the risk of non-payment? This is a major risk for all exporters around the world. The first mitigant that comes to mind is the use of letter of credit and confirmed letter of credit.

    However, where this is not possible, standby letter of credit and availisation can help to secure payment under Open account and Bill for collection. If these mitigants cannot be obtained, then a representative in form of an export agent or export management company at the destination country will be necessary to secure payment. The representative can follow up on payment, monitor delivery and inspection and source for another buyer if the initial one fails to pay.

    In conclusion, I will like to say that if anyone intending to go into export business can take time to research and get more information about the questions addressed in these series of articles, he would have successfully created a viable business plan that will make the export business a success.

     

     

  • Nearly half of exporters are dormant, says NEPC

    Nearly half of Nigerian exporters are inactive, according to the Nigerian Export Promotion Council (NEPC).

    Established in 1976, the NEPC is charged with the promotion of non-oil exports. Non-oil exporters are required to register with the NEPC, which maintains a list of such registered exporters. It tracks exporters and their activities.

    The Export Directories of the NEPC, which contain the lists of registered exporters and performing exporters, show that while there are 1,040 registered exporters in Nigeria, only 529, about 50.9 per cent, are active.

    A source, however, said there exists a large informal export market as several exporters usually bypass the formal channels to conceal their transactions from the government.

    “A lot of people have been exporting with their NXP-Nigeria export proceeds, processed through the bank to conceal their transactions from government and sell the foreign exchange (forex) in the parallel market in order to make more profit,” the source stated.

    Registration with the NEPC costs between N7, 500 and N36, 000, depending on the type and process of registration. Registering with the NEPC allows the agency to confirm the status of an exporter on any enquiry, refer exporters to buyers on inquiries and facilitate global partnerships.

    The “list of performing exporters” contains some 1,000 registered products for exports. Several agricultural products featured prominently on the list, including cocoa, cashew nuts, sesame seeds, Shea nut, cotton, rubber, palm oil kernel, processed woods, ginger, green coffee beans, yam, hibiscus flowers, gum Arabic and cassava, among others.

    However, the list indicated that several Nigeria’s top-notch companies might be engaging in the export of other products besides their known branded products. For instance, Nigerian Breweries registered for exportation of roofing sheets in addition to exportation of its known beer and non alcoholic products such as Maltina, Star and Gulder. Oando has processed wood in addition to its known lubricant and lube products.

    Friesland Campina Wamco Nigeria Plc, which produces the popular “peak” milk brand, also registered to export yam tubers and yam flour. GlaxoSmithKline Consumer Nigeria has another export line of finished leathers in addition to its healthcare products.

    Johnson Wax Nigeria Limited, a producer of insecticides, registered for exportation of charcoal. Literamed Publications, publishers of Lantern books, has processed goat skin as its additional export line.

    May & Baker Nigeria, which produces Mimee Noodles, registered to export rubber while in addition to its foam products, Vitafoam Nigeria also registered for exportation of cashew nuts.

     

     

  • Handling critical 5Ps of export business success -Part 5: Payment

    The purpose of a business is to solve problems and, thereby, create value while the goal of a business is to make a profit. This, therefore, makes this last factor very critical to the success of any export business. The payment factor in this series focuses on how to source for funds from banks to pay for products or raw materials procured from the local suppliers and how to get payment for the exported goods from the buyers abroad.

    The business plan of a new exporter should answer the following questions about payment, both to local supplier and the receipt of inflow from the buyers abroad. These questions include the following: What are the payment methods available in export trade? Where is the place of valid export contract in export financing? When is ordinary letter of credit not reliable as a payment security? Who are those that are eligible to access export finance products? Why are some payment methods not attractive to banks and is there a way to make them acceptable? Which instrument can give banks comfort when financing local supply? How can an exporter mitigate the risk of non-payment?

    The first question states that, what are the payment methods available in export trade? This is a very crucial question that is also grossly misunderstood by many exporters and sometimes bankers. The payment methods in an export trade transaction include Open Account (Cash against documents); Bill for Collection, Letter of Credit, Advance Payment and recently, a new one was developed called the Bank Payment Obligations.

    Under open account transactions, the exporter  ships the goods and sends documents directly to the buyer who then clears the goods and pay the exporter at a later date like 60 days or 90 days after shipment. Bill for collection is another payment method and it involves the transmission of documents through both buyer and seller’s banks and collection of payment through the same channel.

    The banks do not have obligations to pay in this arrangement. The importer can pay at the sight of document or at a later. If the importer fails the pay, the exporter will be at a loss. Letter of credit will be treated under the third question. Advance payment is the most secured method for the exporter because Payment is made before shipment is done. A bank payment obligation is not yet in operation in Nigeria. It is a technologically driven payment method that combines the simplicity of Open Account and the security of Letter of Credit.

    The next question states that, where is the place of valid export contract in export financing? A bank needs to see and review the export contract before financing an export transaction. This is because the contract forms the premise for the loan request. It helps the banker to know when the preparation for the production and sourcing of products for shipment should commence. It helps the bank to monitor the planning of the shipment with the shipping line. It shows the bank what, where, when, who and how the payment on shipment will be made. It informs the financiers the agreed price of sales for the goods. It also helps the banker to know how best to package the loan facility. Through the contract, the bank is also able to know the liabilities and responsibilities of the exporters. It helps the banker to envisage the likely challenges of the transaction and put in place the mitigants.

    The third question is very pivotal and it states that, when is ordinary letter of credit not reliable as a payment security? First of all let me define letter of credit. This is the undertaken of the buyer’s bank (issuing bank) to the exporter to make payment when the shipment is made and all the documents that complies with the terms of the letter of credit are presented.

    However, if the letter of credit is coming from a bank in a jurisdiction that is facing a sovereign risk (political and economic risk) or if the issuing bank ranking by rating agencies is very low, then an exporter might need another bank in another country to give an additional undertaken. This concept is called confirmed letter of credit. So, an ordinary letter of credit is the unconfirmed letter of credit. Even though it has the force of a bank’s undertaken to pay however, it becomes unreliable for payment when the issuing bank is exposed to sovereign risks.

  • Brexit to hurt Nigerian- EU exports

    The decision of the United Kingdom (UK) to leave the 28-nation European Union (EU), popularly known as Brexit, is expected to further weaken the declining Nigerian-EU trades. The UK, the gateway to large part of Nigerian-EU exports, is now facing prospects of duty and other charges in trade relations with the other EU countries.

    The UK is one of the major entry points of Nigerian products to the EU. Duty is collected only at the port of entry into the EU, which means that movement of Nigerian goods from UK to the EU has been duty-free. With Brexit, Nigerian products entering EU through UK will now have to be subjected to duty payment and other charges which will increase the price of Nigerian products and make them to become less competitive. This also means that the sale of Nigerian products to the EU is likely going to drop.

    The 28-member countries of the EU include Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

    The EU-Nigeria trade statistics over the years have shown a negative trend. Data provided by the European Commission’s Directorate General  for Trade indicated that Nigeria ranked 27th as EU total-imports and exports, trade partner in 2015. Nigeria’s share in EU imports and exports was 1.1 per cent and 0.6 per cent respectively in 2015. Annual growth rate for EU-Nigeria imports and exports was negative at -34.6 per cent and -7.4 per cent respectively in 2015. A five-year review between 2011 and 2015 indicated negative annual average growth rate of -6.8 per cent for imports and -4.7 per cent for exports.

    Nigeria had two weeks ago rounded off a week-long trade mission to the UK as part of efforts to boost exports to the UK, and by extension, the EU. One of the highlights of the week-long mission was the launch of the Export Nigeria Club (ENC) in the UK. The ENC was devoted to promoting Nigerian exports, especially non-oil exports.

    A report by the National Bureau of Statistics (NBS) showed that Nigeria mainly exported goods to Europe and Asia. The report for the third quarter 2015, released recently, showed that the value of Nigeria’s merchandise exports totaled N2.33 trillion, with Europe and Asia accounting for N925 billion or 39.6 per cent and N682.5 billion or 29.2 per cent.

    The report showed that Nigerian exports were mainly to India, Netherlands, Spain, United Kingdom and Brazil, which accounted for N408.2 billion or 17.5 per cent, N245.1 billion or 10.5 per cent, N211.4 billion or 9.1 per cent, N192.2 billion or 8.2 per cent and N169.4 billion or 7.3 per cent of total export value.