The Nation Newspaper

Category: Issues

  • Microcredit for parents of children with disabilities unveiled

    Promasidor Nigeria Limited, in partnership with Children’s Development Centre (CDC), has unveiled a low-interest microcredit scheme aimed at empowering parents of children living with developmental challenges.

    The scheme tagged: ‘We Too Can Grow’ takes off with a grant from Promasidor, manufacturers of Cowbell Milk, Top Tea, Onga seasoning and other quality food products. Five groups in Lagos and Ogun states, where the programme is taking off, have already signed up for the facility being disbursed through cooperatives.

    Special Adviser to Lagos State Governor on Social Development, Mrs. Joyce Onafowokan, said the government would partner CDC and Promasidor to deepen the programme’s penetration. She com-mended Promasidor for its support to the upliftment of the living standard of the target group.

    She said: “Most people don’t know the pains parents of those children go through. Some of the parents do not have academic degrees. So, they need to be empowered and trained in skills to help them take care of their children. Medications of some of the kids are costly. That is why they need additional incomes to support their families. This is the motive of ‘We Too Can Grow.’

    ”The programme will boost the self-esteem of the parents. When you have a child with a disability and somebody steps up to say, ‘I will support you,’ the journey is easier. I feel very excited that this is coming from a corporate entity.

    “It takes a community to raise a child, and this includes individuals, corporate entities and the government. Through this initiative, Promasidor has demonstrated that it is sincerely concerned about the total development of the country.”

    Head of Legal and Corporate Communications, Promasidor Nigeria Limited, Mr. Andrew Enahoro, said the grant was motivated by the company’s desire to support the wholesome development of Nigeria and its special interest in the future of the youths.

    “At Promasidor, we believe that no segment of the society should be ignored in building a nation. ‘We Too Can Grow’ is a way of saying that we recognise that children with special needs are bona fide members of the society. They have the right to pursue their dreams like other members of the society do,” he said.

    CDC consultant and development expert, Mrs. Delphine Misan-Arenyeka said: ‘’‘We Too Can Grow’ encompassed microcredit, therapy for the children and skill acquisition. Justifying the idea, she said some guardians of children with special needs found it difficult to keep regular jobs.

    “The whole idea is to empower the under-privileged parents and guardians of such children. Some of them have sources of livelihood but they cannot expand because of the demand of care giving. Some work for only two or three hours daily but spend the remaining time taking care of their children”.

  • EFInA boosts financial inclusion with $2m FinTech Challenge Fund

    Enhancing Financial Innovation & Access (EFInA) has launched a $2 million Financial Technology (FinTech) challenge fund for FinTech firms.

    The fund is expected to boost the  usage of financial services by the low-income population in Nigeria.

    EFInA used the opportunity offered by the recent visit of the British Prime Minister Theresa May to Nigeria to introduce the fund.

    At a business networking event hosted by the British High Commissioner to Nigeria, Paul Arkwright, last Wednesday, EFInA’s Chair, Segun Akerele, introduced EFInA as a financial sector development organisation that promotes financial inclusion in Nigeria.

    The company’s mission is to make the financial sector work better for the poor. He explained further that EFInA is funded by the UK’s Department for International Development (DFID) and the Bill and Melinda Gates Foundation. DFID is a United Kingdom government department responsible for administering overseas aid.

    In launching the fund Mrs Bunmi Lawson, EFInA Board member, said: “Following our recent request for information at our FinTech Outreach Forum, it gives me great pleasure to announce the launch of a new $2 million fund for start-up and growth stage FinTech firms looking to increase access to financial products and services for the poor as well as reduce the rate of financial exclusion in the country”.

    Mrs. Lawson continued: “The aim of the fund is to stimulate and catalyse the financial technology delivery channels provided by the FinTechs. The fund, to be known as “The FinTech Challenge Fund”, will be used to pilot and support the development of innovative financial products & services through the use of digital technology. In addition, the new fund will support projects that help strengthen financial resilience in Nigeria by aligning innovation and modern technology with the needs of the target audience.

    “As we see changes happening faster and faster in our environment, we have to anticipate and step up our pace as well.

    ‘’There is immense opportunity in this market and our aim is to see to it that Nigerians are well placed to take advantage of these new opportunities and in the process reduce poverty and boost our GDP.”

    She added that the grants will cover a range of $50,000 up to $200,000 for the “FinTech Challenge 1 Grant” and a range of $200,000 to $500,000 for the Fintech Challenge 2 Grant”.

    She said more information about the grants would be made available to prospective applicants at the formal Request for Proposal event to be held by the company soon.

    The event, which held at the FMDQ Exchange Place in Victoria Island and it was attended by the British Prime Minister and various UK Government officials and a high-level delegation of UK-based CEOs and their Nigerian counterparts.

     

  • Developing maintenance capability for aircraft in Africa 

    Despite the huge market potential, aircraft maintenance in Africa is still underdeveloped. Failure on the part of a few Maintenance Repair Organisations (MROs) to pool expertise and tools is costing Africa millions of dollars in capital flight. To reverse the trend, experts say there is need for operators and investors to adopt the right business model in the running of such facilities. KELVIN OSA OKUNBOR reports.

    The global landscape for aircraft maintenance repair and overhaul (MRO) facilities has assumed dramatic dimension, as market size is projected to grow to over $52.6 billion in 10 years. Such growth, investigations reveal, is predicated on ambitious aircraft acquisition plans by global scheduled and charter airlines.

    But, Africa may not optimise the huge potential in this market. Reason:  the continent is littered with carriers with small fleet size and aircraft repair facilities that may deny it the attendant economies of scale.

    Investigations reveal that there are over 15 aircraft repair organisations carrying out both heavy and light aircraft maintenance checks in at least six airports in South Africa.

    In Kenya, there are seven MROs in at least three airports, whereas there are six such companies in Morocco. But Nigeria has a few, including Aero Contractors Airlines, One-Dot Aviation, SkyJet Aviation and newly-registered 7 Star Global Hangar.

    A directory put together by African Airlines Association lists nine internationally approved MROs on its database with seven of these owned by major carriers  on the continent carrying out base, component, line and engine checks and repairs out of 15 airports in Africa.

    With a market estimated to be worth over $2.4 billion and still growing, the goldmine remains largely untapped.

    Worried by this trend, efforts on how to enhance maintenance of African airlines’ fleet has sparked a debate among experts, players and stakeholders within the continent.

    In particular, the African Business Aircraft Association (AFBAA) and other organisations have been thinking out of the box on how to fix the challenge.

    Experts say African operators spent billions of dollars yearly ferrying their airplanes to other regions of the world to carry out major checks / repairs on their aircraft.

    Currently, African airlines MRO providers include Air Algerie Technics, EgyptAir Maintenance & Engineering, Ethiopian Airlines MRO, Kenya Airways, Royal Air Maroc, Morocco, South African Airways Technical and TunisAir Technics.

    Nigeria has joined the league of African countries with MROs, with Aero Contractor’s hangar, which carried out the first C-Check on Boeing 737 Classic.

     

    Continental Profile

    According to statistics, many aircraft manufacturers, including Airbus consider West Africa and Nigeria as a potentially big MRO market because of forecasts suggesting average annual passenger growth rate of 5.7 per cent compared to the world average of 4.8 percent.

    Another aircraft manufacturer Boeing has predicted that Africa will record passenger’s growth of 5.1 per cent between 2010 and 2030, and cargo growth of 5.2 per cent.

    Airbus forecasts that airlines in Sub-Saharan Africa will require more than 528 new passenger aircraft by 2030, valued at  $65 billion covering  traffic growth and replacement of  old  aircraft.

    On the other hand, Boeing predicts that Africa will require 800 new aircraft between 2011 and 2030, with a market value put at $100 billion.

    Other aircraft manufacturers, including: ATR, Bombardier, and Embraer, have given their bullish forecast about Africa.

     

    Expert’s View 

    Speaking in an interview, Chief Executive Officer of African Aviation Services Limited, Mr. Nick Fadugba, said for aircraft repair organisations to succeed in Africa, their managers must weigh options, including pooling of expertise, spares and equipment to have the competing edge.

    He said such move had become imperative because global aviation requirements prescribes that an aircraft  undergo periodic maintenance checks as pre- determined conditions of airworthiness for  safe  passenger and cargo operations.

    Besides pooling of spares, expertise and equipment, Fadugba said MROs in Africa should have a sound business plan and competent management to drive its process.

    He said African countries could improve their aircraft repair capability if their governments seek ways to address challenges concerning access to low interest  funding;  access to cheaper land from the airport authority;  investment in modern hangar; tooling; manpower and partnerships with established international MROs competent  in  fixing  aircraft  air frames and engines.

    Besides, the benefits of aircraft repair centres in Africa, Fadugba said such facilities may be constrained by a plethora of factors not limited to fleet size.

    According to him, many African carriers have less than 10 airplanes that will not allow them enjoy the benefits of economies of scale.

    He said: “The aircraft fleet of top three carriers in Africa, namely, Ethiopian Airlines, Kenya Airways and South African Airways combined are not enough to compared with the fleet size of Emirates fleet. If most African carriers have small fleet of aircraft, setting up an aircraft repair centre may not be lucrative if it has to repair only a few aircraft.”

     

    Nigeria as Hub

    Experts say Nigeria could be the best location to set up an aircraft repair centre, given its strategic location in West and Central Africa.

    This consideration, they say motivated Lufthansa and other investors a few years ago to consider setting up an aircraft hangar in Nigeria. But, the proposed hangar did not see materialise.

    In an interview, Chairman Airline Operators of Nigeria (AON), Captain Nogie Meggison, said Nigeria could leverage her geographical location as a hub for aircraft repair with attendant benefits for the continent.

    Besides, the foreign exchange it could earn, such facilities would generate jobs for thousands of professionals and turn Nigeria regional hub for aviation activities.

    He listed potential customers for such facility to include: Air France, Air Italy, Arik Air, ASKY, British Airways, Brussels Airlines, Cargolux Airlines International, Dana Airlines, Delta Air Lines, EgyptAir, Emirates, Ethiopian Airlines, Etihad Airways, Iberia and Kenya Airways.

    Others include:  KLM Royal Dutch Airlines, Lufthansa, Middle East Airlines, Med View Airlines, Overland Airways, Qatar Airways, RwandAir, Royal Air Maroc and South African Airways.

     

    Global trends 

    Experts say there is the tendency for global carriers, including African airlines to focus on their core business of flying passengers rather than aircraft repair.

    Fadugba said: “Most airlines are looking for cost-effective solutions to address their MRO requirements. This could be achieved through outsourcing arrangements with subsidiaries and joint ventures.

    “The implication of this is that new technology aircraft will generate fewer maintenance events, in the short-to-medium term. While new technology aircraft are more complex and reliable requiring more advanced a capabilities, new skills, knowledge, capabilities that would be required be equally required.

    “Original Equipment Manufacturers are providing options at point of new aircraft sales:  Engines and components becoming more complex and reliable.  Outsourcing of engine and components overhaul is a standard practice for most airlines. Airlines are opting for pooling contracts with reliable component suppliers.

    “The key to MRO success is clear understanding of market dynamics. African MROs may need to partner so as to increase expertise, improve systems, develop worldwide marketing coverage and generate reciprocal business with suppliers.

    “MRO business is capital intensive and requires high technology. The best way forward for Africa is co-operation, collaboration and win-win partnerships.”

     

    Aero Contractor’s example 

    It is not a dismal picture for the continent, as Nigeria’s Aero Contractors recently carried out a major maintenance check on Boeing 737 and other new general aircraft flying in Nigeria.

    Aero Contractors, Captain Ado Sanusi, said the facility will save billions of dollars spent by African carriers yearly on the offshore maintenance of their airplanes.

    Sanusi said the airline has the personnel and equipment to conduct comprehensive maintenance on Boeing 737-500 C-check.

    Describing the feat as a milestone for the industry, Sanusi said the government should create an enabling environment for MROs to thrive.

    He said the success of Aero Contractors hangar would spur other investors to consolidate on maintenance of aircraft within the continent.

    He, however, appealed to the Nigeria Customs Service to ensure easy passage and clearance of tools for the aircraft maintenance centre to save turnaround time for the facility.

    Also the National Association of Aircraft Pilots and Engineers (NAAPE) former President Isaac Balami, said airlines in the West African sub-region were spending at least $1 billion  yearly on the maintenance of aircraft in Europe and America. He said Aero’s MRO would help to curb capital flight.

     

    Govt’s intervention in MRO  

    In an interview, Minister of State, Aviation, Hadi Sirika, said the government was working hard to establish an MRO in through collaboration with private sector investors.

    Sirika said such facility when it comes on stream will not only create jobs, but earn significant foreign exchange for the country. He said Nigeria has requisite personnel and capacity to address issues bordering on maintenance of aircraft within the continent.

    Such capacity, he said, will save African carriers billions of dollars spent yearly on offshore maintenance of aircraft.

    Similarly, Nigerian Civil Aviation Authority (NCAA), Former Director General, Dr. Harold Demuren, said the sector will experience significant growth when African carriers begin to undertake serious aircraft repairs within the country.

    Besides, cost savings for the carriers, Demuren said capacity by African carriers to carry out aircraft repairs on the continent will create an opportunity for many aircraft engineers to transfer skills to the younger generation.

    He said: “Maintenance is done in dollars, while the airlines sell tickets in naira. This is killing the airlines. The success recorded by Aero with the establishment of this MRO and successful completion of a C-check must continue.”

     

    AfDB’s intervention 

    The continent’s finance interventionist, African Development Bank (AfDB) last year raised the stakes when it unveiled plans to invest over $20 billion in the aviation sector.

    Its President, Dr. Akinwumi Adesina, said part of the investment would be used to establish an MRO for Nigeria.

    “First is we are looking at how to support more investment in airport infrastructure; they are also looking at how to create aircraft maintenance, repair and also overhaul facility,” he said.

    AfDB and African Export, Import Bank (Afreximbank) have agreed to raise capital base of about $20 billion for the actualisation of federal government’s plan to establish aircraft leasing company and Maintenance, Repair and Overhaul (MRO) facility.

     

    NCAA’s new MRO approvals 

    A few weeks ago, the NCAA granted approval to an indigenous firm, 7 Star Global Hangar, to carry out line maintenance checks on Boeing 737 Classics fleet in Lagos and Abuja.

    This was the first time the regulator granted approval to an indigenous firm to carry out such a job in two locations.

    Findings at the NCAA revealed that there are over 30 registered Boeing aircraft on the fleet of Nigerian carriers, including: Air Peace; Arik Air, Aero, Azman Air, Medview Airlines and other carriers. They include Boeing 737-300; 400; 500; 600; 700 and 800 series.

    Before the approval, Nigerian carriers with Boeing 737- Classics ferry their aircraft to Morocco, South Africa, Ethiopia, Europe, Middle East, United States or South America for the mandatory 18-month C-check, which costs operators an average of $2 million per aircraft.

    Boeing Aircraft constitutes over 60 per cent of the planes in the fleet of indigenous carriers.

    7 Star Global Hangar, owned and managed by Nigerians, its promoters said, would start operations soon , following relevant approvals from the regulator to carry out the critical assignment.

    The firm will be the second, besides Aero Contractors, which was licensed to carry out major maintenance checks for registered Boeing aircraft on the fleet of domestic carriers.

    Airlines spending during major airplane repairs covers aircraft ferry, labour, spares and crew allowance and accommodation during the repairs.

    In an interview in Lagos, 7 Star Global Hangar Chief Executive Officer, Isaac Balami, an aircraft engineer, said the firm will  stock comprehensive spare parts in Lagos and Abuja that will be available to airlines in Nigeria, West and Central African regions.

    Balami, while urging operators to take advantage of the new facility, decried the high cost of maintenance in West and Central African regions, saying the hangar has come as a huge relief.

    He said with the license issued by NCAA to the firm to serve as an  “Approved Maintenance Organisation”, airlines could now save millions of dollars hitherto taken abroad for aircraft repairs.

    He said: “As we commence operations, millions of dollars will be saved for airlines greatly reducing capital flight.”

    Balami said the firm is working with Jordanian, American and European technical partners, who will pull expertise to fix Boeing Classic and new generation private jets, military and para military planes and other aircraft types.

    Balami assured that with pool of local expertise the firm parades, it would deliver a facility in Nigeria to assist African operators.

    Also, an aviation expatriate and founding Director of 7 Star Global Hangar, Dr Abiodun Asekun, said the facility is a step in the right direction.

    Asekun said as former Managing Director of American Airlines, he would bring his experience as manager of the biggest maintenance repair organisation in the world to bear on the utilisation of the facility.

    He said: “The approval of the licence by NCAA is a right step in the right direction. We hope this facility will play a major role in support of and close working partnership with the new Nigerian National carrier scheduled to commence operations, very soon.

    “This facility will be the only stand alone MRO in West and Central Africa with huge potentials. This is key because there is no parking space in the air; we have put together the best brains in the aircraft maintenance, managements, engineering, modifications, fabrications, training, design and manufacturing on the ground.’’s

    Also, 7 Global Hangar Accountable Manager, Ibrahim Nock, an aircraft engineer, said the firm could not have come at a better time than when government is planning to set up a national carrier.

    Nock said: “The national carrier fleet are encouraged to take advantage of our facility, to generate jobs for the vast number of talented but jobless engineers across the country.

    “This is also an opportunity to stretch the best aviation engineers  at home and across the Diaspora – many of whom have made up their minds to return home to support the great efforts.

  • Unlocking manufacturing, agric potential with N300b RSSF cash

    The N300 billion Real Sector Support Facility (RSSF) unveiled by the Central Bank of Nigeria (CBN) is expected to enhance the flow of credit in the private sector and lift the economy. The facility will be used to support large enterprises for start-ups and expansion financing needs of N500 million up to a maximum of N10 billion, writes COLLINS NWEZE.

    The real sector is seen as the backbone of most great economies. This explains why the Central Bank of Nigeria (CBN) has consistently shown support to the sector.

    To unlock the potential of the real sector to engender output growth, value added productivity and job creation, the apex bank recently established a N300 billion Real Sector Support Facility (RSSF).

    The facility will support large enterprises for startups and expansion financing needs of N500 million up to a maximum of N10 billion in key sectors of the economy, especially manufacturing, agriculture and services.

    According to the CBN Governor, Godwin Emefiele, the real sector   targeted  by  the  facility  are manufacturing,  agricultural  value  chain  and  select service sub-sectors.

    He said the facility is expected to improve access to Nigerian Small and Medium Enterprises (SMEs) to fast-track the development of the manufacturing, agricultural value chain and services sub-sectors of the economy.

    According to him, it is also meant to increase output, generate employment, diversify the revenue  base, increase foreign exchange earnings and provide input for the industrial sector on a sustainable basis.

    “The fund is to be managed by the Development Finance Department which shall be responsible for the day-to-day administration of the facility. The activities to be covered under the facility are new, startups and/or expansion projects in the manufacturing, agricultural value chain (non-primary product), services and trading shall not be accommodated under this facility,” the apex bank said.

    Globally, the relationship between the financial system and real sector development remains very critical for any economy to realise its potential. No economy can grow and improve the living standards of its population in the absence of credit to the real sector. That is why the real sector depends largely on the flow of funds from the banking system.

    Many economists have acknowledged that the financial system, with banks as its major component, provide linkages for the different sectors of the economy and encourage high level of specialisation, expertise, economies of scale and a conducive environment for the implementation of various economic policies of government intended to achieve non-inflationary growth, exchange rate stability, balance of payments equilibrium and high levels of employment.

    Well-functioning financial systems can mobilise household savings, allocate resources efficiently, diversify risk, enhance the flow of liquidity and reduce information asymmetry.

    However, in Nigeria, because of the high level of risk in the system, a lot of commercial banks have remained apathetic towards lending and have been criticised for this.

    That is why in addition to its core functions, the CBN has over the years performed some major development finance functions, focused on key sectors of the Nigerian economy.

    CRR refunds

    The CBN Director of Banking Supervision, Abdullahi Ahmad, explained at the last Bankers’ Committee meeting in Lagos that the apex bank would refund Cash Reserve Ratio (CRR) to banks that fund projects in agriculture and manufacturing sectors.

    He said the CBN has been very supportive to banks, adding that they should lend to companies that are doing new capital expenditures and expansions to factories, using some of their Cash Reserve Ratio (CRR) at nine per cent. These, he added, are not short-term loans, but long-term loans of seven years’, two years’ moratorium on principal.

    “It would probably be the first time in the history of this country where manufacturers would be able to take fixed interest rate loans for seven years, which means they would be able to plan. The volatility that they fear for all kinds of risks would be taken out and I think these are very laudable steps in improving and growing the economy,” Ahmad said.

    For him, the idea is to have job- creating activities in the economy and also to bring interest rates down. Although agric and manufacturing are the initial sectors that are being considered, later a bank can apply; if there is a job-creating sector that the bank is operating in, it may be considered.

    “We can refund the CRR of a bank that has engaged in lending in a new project or an existing one in the agriculture or manufacturing sector as a way of utilising the CRR. So, anytime a bank lends to manufacturing or agric at the rate the CBN has prescribed, it would have its CRR refunded up to the amount it has lend. The guidelines are coming up any moment,” he said.

    Also, First City Monument Bank (FCMB) Executive Director, Finance, Mrs. Yemisi Edun, said the CRR that is taken from banks would be positively deployed in growing the real sector as well as the agriculture sector in the economy.

    “This is very positive for the economy and the banks because we would be able to access these funds and earn on it. And because it would be coming at single digit rate, it would be positive for the economy,” she said.

    “For now, it would be channelled to agricultural sector and manufacturing, but for growth expansions to enhance creation of jobs. The focus is to ensure that the economy grows  so that we can achieved the stability we need to see a positive trend of growth and that is what we are committed to do at this time,” she said.

    The New Guidelines

    In the RSSF, the CBN clearly pointed out that activities to be covered under the programme would be Greenfield (new) and expansion (Brownfield) projects in manufacturing, agriculture and other related sectors approved by the CBN. It, however, stated that emphasis would be placed on Greenfield projects.

    It prohibited operators involved in trading from accessing its real sector support facility and warned banks that attempt to “falsify through presentation of projects that do not meet the eligibility criteria/specified terms and conditions shall attract severe penalties”.

    The facility shall have minimum tenor of seven years and two years’ moratorium. Also, participating financial institution (PFI) shall bear the credit risk.

    But under the new guidelines, the CBN pointed out that banks interested in providing credit financing to Greenfield (new) and Brownfield (new/expansion) projects in the real sector (agriculture and manufacturing) may request the release of funds from their CRR to finance the projects, subject to the bank providing verifiable evidence that the funds shall be directed at the projects approved by the CBN.

    Also, it stressed that refinancing of loans is prohibited for funding under the programme, saying that any attempt to falsify information would also attract severe sanctions.

    It stated: “This programme involves investment by the CBN and the general public in CBs issued by Corporate subject to the intensified transparency requirements for Triple A-rated entities.

    “Such requirements would include publishing through printing of an Information Memorandum spelling out the details of the projects for which the funds are required together with terms and conditions showing that these are long term projects that are employment and growth stimulating.”

    Boost for economic recovery

    Analysts at CSL Stockbrokers Limited commended the CBN’s efforts to support the sluggish recovery in the economy. They, however, noted that the fundamental structural and socio-economic issues limiting banks from increasing their risk appetite for lending to the real sector needs to be addressed.

    Also, Lagos Chamber of Commerce and Industry (LCCI) Director-General, Muda Yusuf, described the initiative as a positive development, saying it would help increase the flow of credit to the private sector.

    “It is a very good initiative by the CBN. As service sector players, we have always canvassed for low interest rate and complained about high interest rate for businesses.

    “Each time the Monetary Policy Committee met, they kept tightening the benchmark interest rate which meant that the cost of borrowing would remain high.

    ‘’So, the issue of adjusted CRR is an innovative approach, which would help to boost investment through low-cost funds and longer tenor funds as well. It is a good initiative,” he added. But Yusuf appealed to the CBN to design such intervention schemes for other sectors, which, according to him, needs support. He listed such sectors to include the service, construction, maritime, transportation, healthcare, education, entertainment and tourism.

    “All these sectors also bring value to the economy and generate employment. So, we need to look beyond the agriculture and manufacturing, because other sectors are also adding value and they also need funding.

    “The guidelines also said the funds cannot be used for refinancing, but only for greenfield and brownfield. But my appeal to the CBN also is that existing investors are as important as new investors.

    ”If anything, I think we need to get those who are already in business to be properly on their feet. We need to stabilise them and support them to be more productive, to accelerate the economic recovery process.

    “Many of the firms are under the heavy burden of debt servicing, which is very costly. So, I don’t see anything wrong in easing the pressure for them with this kind of facility. I don’t support the idea of excluding them completely from the facility,” the LCCI boss stated.

  • Will domestic airlines benefit from Single African market?

    Is Nigeria ready for the competition that will arise from the Single African Air Transport Market? Though indigenous operators are opposed to it, the government and some stakeholders believe that domestic carriers will be better positioned to reap from the market. MUYIWA LUCAS reports.

    It was the gathering of African leaders in Addis Ababa, Ethiopia for the 30th Ordinary Session of the Assembly of Heads of State and Government of the African Union (AU). Among the burning issues determined at the meeting, which held early last January, was the inauguration of the Single African Air Transport Market (SAATM).

    With one voice, the gathering launched the liberalisation of the continent’s airspace for airlines registered in Africa, thereby liberalising aviation rules and regulations among the member countries. The policy, which literarily translates to open skies operation for African airlines within the continent, was aimed at creating a free market environment for airlines registered in the continent.

    Under the AU Agenda 2063, SAATM is a flagship project targeted at establishing a single unified and liberalised air transport market on the continent. It was adopted by the AU Assembly in 2015 as a way of implementing the Yamoussoukro Decision of 1999 that provides for full liberalisation in terms of market access between African states, the free exercise of traffic rights, the elimination of restrictions on ownership and the full liberalisation of frequencies, fares and capacities.

    According to the AU, the commencement of SAATM will create opportunities among countries on the continent to promote trade and cross-border investments both in the production and service industries, tourism inclusive. By extension, it would lead to the creation of more 300,000 direct and two million indirect jobs.

    Eleven AU member-states, including Nigeria, championed the Declaration by signing the Solemn Commitment to actualise the Yamoussoukro Decision creating the single market. Signatories to the agreement have increased to 23 countries.

    In May 2016, the AU also sought a further commitment of signatories and wrote to states that had signed the commitment to highlight a number of measures they should take as soon as possible to initiate operationalisation of the single air transport market on the continent. Among the measures was that each country should officially publish in accordance with its national regulations or gazette that they are committed to the immediate implementation of the Yamoussoukro Decision under the terms of the Declaration of Solemn Commitment in line with the AU Agenda 2063. Nigeria was a signatory to this.

    As at the last count, 22 other member-nations have penned the document. They include Benin, Burkina Faso, Botswana, Cape Verde, Republic of Congo, Cote d’Ivoire, Egypt, Ethiopia, and Gabon. Others are Ghana, Guinea, Kenya, Liberia, Mali, Mozambique, Niger, Rwanda, Sierra Leone, South Africa, Swaziland, Togo, and Zimbabwe.

    A simple analysis of the signed up countries that have ratified the policy had a combined population of about 670 million. Besides, as at 2015, this figure amounted to a combined Gross Domestic Product (GDP) of $15 billion, which was over 65 per cent of the continent’s average $1888 per capita.

     

    Euphoria

    For the international community and critical stakeholders in the aviation industry, this presents a new dawn for air transport business in the continent. According to “Flying Doctors Nigeria,”a member of the British Safety Council that specialises in providing medical solutions such as air ambulance and medical evacuation, among others, Africa is home to 12 per cent of the world’s population, but it accounts for less than one per cent of the global air service market.

    The body, citing a World Bank study, argued that part of the reasons for Africa’s under-served status is that many African countries restrict their air services markets to protect local, state-owned air carriers. However, many of these state-owned airlines lack efficiency resulting in inflated fares, sub-optimal service and poor safety. It noted further that Air travel choices in Africa remains constrained by sub-optimal travel conditions such as long layovers, high fares, safety issues, uncertain flight schedules and poor quality of services, underscoring the challenges facing air carriers trying to attract passengers and at the same time make profits.

    For instance, Flying Doctors noted that Cape Verde is just four hours away from Lagos and holds massive potential as a destination for Nigerian holiday makers. However, in order to get to Sal, Cape Verde, a passenger must first fly to Morocco which is four to five hours from Lagos. Then, after a stopover of up to 12 hours in Casablanca, the traveller will proceed on another three hours flight to Cape Verde. But with SAATM, the cumbersomeness of trips like this will be eradicated.

    Such positivity remains the driving force for other bodies like the International Air Transport Association (IATA), whose belief in the initiative is buoyed by the multiplier effect the enhanced connectivity would stimulate. The global body is convinced that SAATM will enhance travel demand, improve the competitiveness of the African airline industry, and make air travel more accessible. In turn, IATA is hopeful that it would enable higher volumes of trade, expanded tourism and growing commerce between African nations and with the rest of the world.

    ”The SAATM has the potential for remarkable transformation that will build prosperity while connecting the African continent. Every open air service arrangement has boosted traffic, lifted economies and created jobs. And we expect no less in Africa on the back of the SAATM agreement. An IATA survey suggests that if just 12 key African countries opened their markets and increased connectivity, an extra 155,000 jobs and $1.3 billion in yearly GDP would be created in those countries. It is an important step forward. But the benefits of a connected continent will only be realised through effective implementation of SAATM—firstly, by the countries already committed, and also by the remaining 32 AUmember-nations still to come on board,”  IATA’s Vice President for Africa, Raphael Kuuchi, said.

    While Kuuchi sees SAATM as a decisive step towards greater intra-African connectivity, as greater connectivity will lead to greater prosperity of both operators and government, there is palpable fear and discontent in the domestic industry. Among many industry players, the belief is that SAATM would make it difficult for member-countries that have adopted the policy to resist the temptation to protect their own airlines, accept uniform tariff for aviation charges, and open their airspace benevolently to other airlines in Africa.

     

    Short-comings 

    For airline operators in the country, the signing up of SAATM may be noble on paper, but there is a need for the government to thread with caution, especially because of the dangers of the direct impact of the decision on the local industry, the airlines and the economy as a whole.

    Airline Operators of Nigeria (AON) Chairman, Captain Nogie Meggison, said the domestic airlines are aversed to this policy because of the timing, which it says is not right. This is because there are numerous unresolved issues and challenges being faced by Nigerian aviation that will, ultimately, undermine the perceived gains of this treaty.

    Meggison highlighted some of the problems that has put the country at a disadvantage of competing favourably in the open skies treaty to include the requirement of visas to 34 African countries from Nigerians who are supposed to be travelling within Africa under the open sky treaty require as a prerequisite; for now, only travels within West Africa are Nigerians allowed free movements with visa issued at entry points.

    Besides, he said other African airlines that would be in competition with Nigerian carriers are largely government-owned and heavily subsidised. For instance, the AON boss explained that South African Airways got, on the average, about $350 million yearly in the past decade; Kenya Airways got about $600 million in 2016, while RwandAir has never published its financial results for over a decade.

    “Nigerian airlines have a high bank interest rates of 28 per cent compared to access to cheap funds provided and guaranteed by the government of most African carriers at a maximum of two per cent,” Meggison lamented. He added that while domestic airlines pay VAT to the government, most African carriers do not pay VAT both in their various countries as well as here in Nigeria. This, he explained, was already a deficit of five per cent on a small margin industry from the start for the airlines.

    Other challenges, he noted, to include that the taxes/charges around Africa are not uniform across board. “African governments should first ensure all the taxes are uniform among countries before the implementation of the open skies treaty. For instance, when  airlines fly to some African countries they charge the operators heavy landing fees in excess of $5,000 – $6,000, whereas the same African countries subsidise their local operators who pay $200 for the same service. But when they fly into Nigeria, they pay a mere $500, the same as our local carriers,” Meggison noted.

    He warned that a full implementation of SAATM would lead to massive capital flight, huge loss of jobs for youths and a mortgaging of their future, as well as a further collapse of the already failing aviation system.

    “Nigeria is simply not ready to handle the level of unfair competition the full implementation of SAATM will bring upon the country,” Meggison submitted.

     

    A step in the right direction

    But while the AON holds this position, the policy has gained support from other stakeholders. The Managing Partner, Belujane Konzult, Mr. Chris Aligbe, said rather than the AON complaining, they should have been proactive and keyed into the policy. He revealed that the SAATM  was signed in 2014, and only being implemented this year. “Our domestic operators did not react positively to this policy. They (AON) had four years to prepare and key into it. You cannot stop a moving train,” Aligbe said.

    He advised AON to do the right thing instead of blaming the government for their misfortune. He is convinced that if domestic carriers got their acts together, SAATM can be exploited to Nigeria’s advantage. “AON should be proactive. They are kicking against everything including the planned Nigeria Air. They should act fast because it is not Nigeria Air that will fight them but airlines like Ethiopian Airline, which flies into five destinations in the country; Ghana Air, among others. Other domestic carriers should be happy that the policy benefits of Nigeria Air will rub off on them,” he said.

    Aligbe, a former Public Relations manager in the defunct Nigeria Airways, explained that SAATM will be extremely beneficial to the country and her domestic industry if “we wake up and key into it.” He said the birthing of Nigeria Air was appropriate because that is the only way Nigeria can benefit from SAATM. “If Nigeria Air is properly run as being touted, then we will benefit alot from SAATM,” he said.

    Aligbe, however, cautioned on the choice of partner for the Nigeria Air, warning that on no account should it be made to partner with Ethiopian Airline (ET). His reasons: “Look at what ET has done. In 2017, ET carried 203, 000 passengers out of Nigeria, well ahead of British Airways that lifted 123, 000 passengers and Emirates’ 103, 000. Besides, ET’s subsidiary, A-Sky operates six to seven flights into Nigeria weekly; ET has invested in Rwanda Air and Air Namibia. Very soon, ET will become an octopus taking over the market. That is why Nigeria Air must not be made to partner with the East African carrier,” Aligbe warned.

    Already, Overland Airways, a Nigerian carrier, is taking advantage of the policy. The airline recently began flight operations into Lome, Togo. Other airlines, such as Aero contractors and Medview, are expected to spread their wings to more African countries in the coming days.

    African Civil Aviation Commission (AFCAC) Secretary-General, Mrs. Iyabo Sosina, also admonished Nigerian airlines to prepare themselves to compete; otherwise, they would be overtaken by the new policy, which is projected to boost the economy of the continent. However, she said AFCAC was talking to those countries to review downwards their charges and open up their processes to allow the single market policy to work.

    Nigerian Civil Aviation Authority (NCAA) Director-General, Captain Muhtar Usman, said SAATM would create more jobs in the aviation and tourism sectors of the continent, increase member states’ yearly GDP and revolutionise interconnectivity within the continent, among others.

    The Minister of State for Aviation, Senator Hadi Sirika, speaking in an earlier interview with reporters, said Nigeria, with a market of over 173 million people, half of the size of West Africa, will be the greatest beneficiary of this treaty. He explained that at the time the country was pushing for this, Nigeria Airways was in existence, hence the country would have taken advantage of it.

    “So, I believe that we are on the right course. I believe that the national carrier, which would be driven by the private sector, once established, will become a dominant carrier in Africa. This is because Nigeria is the market. Nigeria’s centrality to Africa by its location is equidistant from the farthest point in Africa and with the population of 173 million people, we have the market in the continent, and this is coupled with the fact that Nigerians are very mobile. We are great travellers. We almost travel for nothing. So, Nigeria is in a very vantage position to benefit hugely from SAATM,” Sirika said.

    The minister revealed that the Nigerian carriers were at the forefront of the campaign to respect and to implement the Yamoussoukro Decision at the time they felt the treaty would be to their advantage.  According to him, “Nigerian airlines have refused to grow and their challenges are not caused by government. They are responsible for those challenges. I boldly invite them to come and very soon there will be stakeholders meeting where the airlines will be present. We will dialogue about their situations. My advice to them is to get their acts together to focus, to reorganise, to re-engineer and take advantage of this opportunity offered by SAATM and be futuristic rather than to sit here while the train is moving and begin to whine’’.

     

     

  • Apapa gridlock: A recurring nightmare

    Lagos, Nigeria’s commercial nerve centre, is home to two major seaports namely, Apapa and TinCan Island ports. But both ports located in the Apapa area of Lagos have become a nightmare of sort to private sector operators. The seemingly intractable gridlock in that axis is taking a heavy toll on businesses, forcing many of them to either close or relocate, while the government is losing huge revenue. The mass exodus of residents from the area adds to the sad tale of an economic gateway in need of urgent rescue. Assistant Editor OKWY IROEGBU-CHIKEZIE reports.

    The President, Lagos Chamber of Commerce and Industry (LCCI), Mr. Babatunde Ruwase, is seething. And he has been in such rage since the gridlock in the Apapa axis of Lagos State, Nigeria’s commercial hub, started taking a huge and debilitating toll on his members’ businesses.

    The LCCI chief decried the perennial gridlock along the two critical roads, Wharf Road and Apapa/Oshodi Expressway, including other access roads to the ports, has imposed unbearable costs on businesses and reduced the revenue accruable to the government.

    Ruwase’s lamentation: “The dysfunctional state of the ports and associated logistics for cargo clearing has become a nightmare. The cost to business is horrendous. This includes the astronomical increase in haulage cost, increased interest cost (borrowed fund) used for import transaction, high demurrage charges, and high insurance premium of vessels coming to Nigeria.”

    The LCCI boss added that high shipping cost, low capacity utilisation due to problem of access to raw materials from the port, as well as traffic congestion, which has extended to the metropolis from the ports, have paralysed economic activities in the Apapa axis of the metropolis. “What we are witnessing is a reflection of the several years of neglect of our ports and other infrastructure,” he fumed.

    The two critical roads, Wharf Road and Apapa/Oshodi Expressway, which lead to the nation’s major economic gateway, have become a nightmare to port operators, commuters, motorists and the public, following the gridlock on the roads. This situation has been blamed by Ruwase and indeed, other concerned stakeholders, on many years of neglect by both the Federal and Lagos State governments.

    But it wasn’t the situation in the 1990s. Before now, Apapa was a place to be. It probably boasted of the largest concentration of Europeans, Asians and others. Home to Nigeria’s two major seaports and the popular Apapa Recreation Park, Creek and Wharf road, the Apapa axis of Lagos housed major companies. It was a beehive of commercial and social activities.

    However, things have changed. No thanks to decrepit infrastructure and neglect by successive Federal and Governments. Today, Apapa is a shadow of its glorious past. The erstwhile Nigeria’s economic gateway has degenerated into a deplorable state, with its infrastructure and residents perpetually ensnared in intractable gridlock daily.

    Expectedly, the situation has left bitter taste in the mouths of businesses and residents.The economic and social dislocation caused by the endless gridlock has forced not a few private operators to either close or relocate due to low patronage, following the mass exodus of frustrated residents, who abandoned their homes and relocated due to the traffic congestion. As a result, property prices have crashed, with many to-let vacancies dotting the landscape.

    For instance, a shop owner, Iya Yinka, told The Nation that she relocated to Mushin because almost all the goods she bought expired in her shop as a result of lack of patronage.

    “I live in Costain, and at a point, l was only coming to my shop to sleep. To cut my losses, l reduced my visit to my shop to only three days until l finally stopped going.

    “It was out of necessity that l closed and abandoned my shop and for 18 months, the landlord has not been able to rent the apartment out to another person. I, therefore, appeal to the government to look at the plight of the common man and address the crisis.”

     

    SMEs groan

    Owners of Small and Medium Enterprises (SMEs) are also agonising over reduced patronage. Over 10, 000 people are said to have lost their jobs as a result of the crisis in the area. Worse hit are operators in the real estate sector where many people have changed their tenancy from Apapa, with many houses remaining empty and shops emptied by their owners.

    Landlords, who are retirees, using their rentals as income are at a loss over what to do. For instance, Pa Adesina Debo, one of the landlords, said before now his rental income bridged the gap of the irregular and often delayed pension, but lamented that the gridlock has left him with no income.

    He called on the government to urgently address the situation that has led to this ugly and pitiable situation and save him from starvation.

     

    Outcry over declining productivity

    It is easy to see why Ruwase and other private sector operators are agonising and pushing for the government, working in collaboration with relevant stakeholders, to address the crises and stem the huge losses. Apapa is said to account for more than 80 per cent of all import and export in Nigeria.

    Besides, the ports, according to the LCCI Director-General, Mr. Muda Yusuf, accounts for about 70 per cent of the total revenue generation from import duties. Apapa is, therefore, seen as a major economic artery, hence, any obstacle in the magnitude of the  gridlock will result in heavy economic loses both to businesses and the government.

    Dangote Group President, Alhaji Aliko Dangote, put the situation in perspective when he lamented recently that the gridlock in Apapa was costing the government estimated N140 billion in revenue weekly. He also said the economy loses more than N20 billion daily.

    Dangote, who lamented the gridlock and its implications to the economy at a media forum, said: “Apapa is both an embarrassment to the country and a huge loss of close to N140 billion to the government weekly.

    ‘’The economy loses more than N20 billion daily, because the state of the roads affects businesses across the country. All our operations in the hinterlands such as Ilorin, Kano and other areas are operating at 40 per cent maximum capacity.”

    Yusuf also regretted that the pace of cargo evacuation is being affected by the state of the roads in and around Apapa, which has resulted in high demurrage charges, high rental costs by the terminal operators and high cost of freight. He expressed fears that with the near shutdown of the ports, the shock on the economy will be much.

    Former LCCI President Alhaji Remi Bello also lamented the collapse of transportation logistics and access to the major ports in the country – Apapa and Tin Can Island Port complexes, saying this has brought about an urgent need to relocate the tank farms to the outskirts of the city.

    Bello said getting to the ports had become an unprecedented nightmare; moving out of the ports is even a greater nightmare. He said the system had become dysfunctional and delivery of empty containers and the evacuation of cargo has become a terrifying experience.

     

    Customs Service takes the hit

     

    The Nigerian Customs Service (NCS), The Nation learnt, generated N898 billion and N1trillion as revenue for the Federal Government in 2016 and 2017. This was less than the N904 billion the NCS made in 2015.

    This reduction, according to a reliable source, was due to difficulty in accessing foreign exchange and the removal of the 41 items, which forced down the level of activities within the ports. Incidentally, the bulk of revenue generated by Customs yearly comes from the two ports in Apapa.

     

    Decline in non-oil export

    earning imminent

     

    The persistent difficulty in accessing the  major seaport is taking its toll on movement of non-oil exports and may affect the earnings for this year. The Nation gathered that on the average, 15-container load of solid minerals valued at $18,500 each is expected to be exported monthly.

    However, since the beginning of April this  year, half of the containers have been in the queue on the road to Apapa, unable to access the port.

    The situation, according to the LCCI Export Group Chairman, Mr. Bamidele Ayemibo, had affected the loading of fresh cargoes because the trucks that were supposed to pick them were in the queue waiting to enter the port and discharge the cargoes.

    Agricultural and other fragile exports are said to be faring very badly as the time spent on the queue to get into the ports does a lot of damage to the freshness and market value of the products.

    Federation of Agricultural Commodities Association of Nigeria President, Dr. Victor Iyama, lamented that the situation had been having huge and negative impact on the earnings of operators in non-oil export.

    He said goods that were supposed to spend two weeks in the country before being exported end up spending as long as seven weeks. By the time they get to the port, they cannot be exported. The value of the goods is already gone by the time they get out and buyers would not buy them.

    Asked about the volume of goods the sector targets to export this month, Iyama said the operators were not even looking at meeting any target but to just get their goods out.

    “I pray there will be a solution to the problem because it is really impacting negatively on our earnings and the costs are becoming too high for us. It is a complete setback to trading across borders and the ease of doing business.”

    National Council of Managing Directors of Licensed Customs Agents President, Mr. Lucky Amiwero, also lamented that trucks spend weeks to access and exit the ports, which resulted in delays and rejection of most of the fragile export products at the international markets.

    Amiwero said the Nigerian Ports Authority (NPA) is no more in port operation, and that the percentage collected from the seven per cent port development levy should be used for the development of the trailer parks and port access roads.

    While pointing out that the condition of the Apapa Wharf access road constitutes a challenge to the movement of people and goods to and from the ports, he expressed fears that non-oil export earnings from Nigeria may witness a sharp drop this year as a result of the situation.

    Cashew Farmers Association of Nigeria National President, Mr. Tola Faseru, was, perhaps, more specific when he lamented that exporters were losing about $10 billion yearly to the gridlock.

    Faseru, who is also a cashew exporter, added that the development was affecting export delivery time in addition to hindering exporters’ ability to fulfill commitments on time and making forwarding and shipment very expensive.

    He commended the Federal Government’s efforts in ensuring that normalcy returned to Apapa Road in Lagos, but appealed for stiffer measures to quicken the intervention.

     

    A new dawn in the offing?

    The Nation learnt that repairs of the failed and dilapidated portions of the Tin Can and Apapa Ports axis of the Apapa/Oshodi Expressway were in progress. However, the exercise, according to some residents, is being hampered by the usual traffic build-up and confusion on the road.

    But the Federal and Lagos State governments appear undeterred. For instance, Acting President Yemi Osinbajo was said to have met with private sector stakeholders and gave the Ministry of Power, Works and Housing, and the NPA  directives on clearing the traffic.

    Transportation Minister, Mr. Rotimi Amechi, has also promised that work will begin on the Apapa corridor of the Lagos-Ibadan Rail project.The Federal Government has approved N72.9 billion for the reconstruction of the road from Apapa to the Toll Gate on Lagos-Ibadan Expressway.

    Amaechi said the contractors had been directed to return to site to resume work from Apapa as part of efforts to bring about a solution to the perennial gridlock. He promised that as soon as the challenges of reaching an agreement with some communities on access on their land and a decision on whether to build or demolish some bridges are taken, the challenge of the gridlock would be over.

    Amaechi said: “The Federal Government had commenced construction of the Lagos-Ibadan railway and the focus was more on the Ibadan and Abeokuta axis because we had challenges in Lagos, which included utilities and not much with the communities.

    “I have to commend the communities that allowed us to use their land, though; we would pay compensation but not much. So, we are grateful to all the communities from Lagos to Ibadan. However, we have utility challenges with both gas pipes and water and beyond the gas pipes; we also have challenges with bridges to either build or demolish.”

    The minister stated that while the Federal Government was working hard to ensure that the rail was delivered by the end of the year, it had awarded the contract to deal with the road between Apapa and Tin Can to enable it evacuate cargos freely, which is an addition to the rail. The Lagos State Government and the Nigerian Navy have also weighed in, ordering the trucks to quit the bridges. The heavy duty vehicles have been sitting idly on top of these bridges, blocking the major road arteries of the metropolis.

    Governor Akinwunmi Ambode commended the Federal Government for approving the reconstruction of the Apapa-Oshodi Expressway as part of efforts to finding a lasting solution to the gridlock.

    He said: “We want to use this platform to thank the President and the Federal Executive Council for approving the reconstruction of the Tin Can-Apapa-Oshodi Expressway up to the Toll Gate. This is in continuation of our efforts at finding a permanent solution to gridlock in the Apapa axis.

    “We just want to reiterate our commitment to collaborate with the Federal Government to ensure that we reduce the sufferings of Lagosians. I am happy that we have emerged from this meeting with the Federal Ministry of Transport to ensure that this rail project is delivered within the next six to 12 months.” However, some observers have called for a strict implementable traffic law for the state, frowning at a situation where commercial drivers drive against traffic and park indiscriminately on the road. They also tasked the government on the need to construct and maintain roads around the metropolis, especially those leading to key infrastructure such as the ports. They frowned at a situation where private businesses are destroyed as result of failure of governance especially in infrastructural provision.

     

    OPS reacts

    Manufacturers Association of Nigeria (MAN) President, Dr. Frank Udemba Jacobs, applauded the Federal Government’s response to fix the access roads to the ports. While pointing out that the poor state of the roads requires urgent reconstruction, he called on the government to create alternative routes for traffic diversion.

    He said: “They (governments) must create alternative route; we need the road to be rebuilt because of its poor conditions; the kind of road they want to build is welcomed, it is good for the economy and manufacturing. We can’t dictate to them how long the reconstruction should last, but we feel that the shorter the duration,

    the better for all stakeholders.”

    Yusuf also commended the government for the planned reconstruction of the road. He said the LCCI wants the government to create alternative routes and even direct use of rail to drag out containers outside the ports to where they are needed. “We should avoid a total shutdown of the port; it will cripple the entire economy,” he warned.

    For Bello, fixing the problem entails an urgent need to relocate the tank farms to the outskirts of the city. “Location of the tank farms is a major factor in the huge traffic congestion. They also constitute a serious safety hazards to citizens. There is an urgent need to revive the rail system for the purpose of evacuating cargo from the Lagos ports,” he said.

    That is not all. Bello also said there is urgent need to make the refineries functional to reduce petroleum products imports, which will reduce the convergence of tankers at the various ports. Besides, he said there is need to improve the reliability, safety and integrity of pipelines across the country as a means of moving petroleum products.

    “This (pipeline) is, in fact, the most efficient and cost effective mode of transportation of petroleum products,” he pointed out, noting that the movement of petroleum products through tankers has been taking a huge toll on the private sector and the entire economy.

    Bello cited the frequent accidents resulting from fallen containers in transit because of the state of the roads and the high demurrage resulting from the slow evacuation of cargo. He said charges by haulage vehicles had increased astronomically because of the long travel time as well as turnaround time, high demurrage by terminal operators and shipping lines, resulting from the slow pace of cargo evacuation from the ports. The former LCCI boss added that the paralysis of other businesses along the axis because of reduced patronage due to reduced access by customers has left sour taste in the moths of operators.

    Bello also said the perennial gridlock has had profound adverse impact on the welfare of citizens that are resident in these locations and posed a serious risk to the many bridges and flyovers along the axis which carry heavy load of stationary vehicles, including tankers for several hours.

    Will these interventions and recommendations by stakeholders salvage the situation? While answer remains a matter of conjecture, what is clear is that unless and until the gridlock in Apapa is removed via the collaboration of the private and public sectors, the social dislocation and financial hemorrhage will continue for private operators and the government.

  • Off-grid power supply ‘ll bridge Nigeria’s energy deficit

    Nigeria is yet to find a lasting solution to her power problems, irrespective of the huge investment and several efforts by the Federal Government. An estimated 5,000 megawatts of electricity being supplied from the national grid, experts say, is insufficient to attain industrialisation. This is why stakeholders in the sector are of the opinion that off-grid supply will be a great way to lighting up the country. This option, they argued, will also spare manufacturers about 40 per cent overhead cost in production, writes EMEKA UGWUANYI.

    Efforts by the Federal Government to have stable electricity supply through conventional sources of generation – thermal and hydro, have failed to yield positive results. For over five decades, Nigeria has introduced several measures, laws and adopted different models with the last being the privatisation of the generation and distribution value chain of the power industry on November 1, 2013. However, the total generation capacity still hovers around 10,000 megawatts (Mw) with only 5,000Mw available or accessible for use.

    To underline the efforts and financial commitment to providing stable electric power in the country, Rubitec Africa (Rubitec Solar) Managing Director, Mr. Bolade Soremekun, revealed that in the last one decade, over $50 billion has been spent on ensuring stable or improved power in the country through the electricity sector reform. Sadly, this amount has resulted in providing only 1,500Mw of added capacity as only five per cent of customers have been connected to the grid.

    On this trajectory, Soremekun noted that it would take the electricity distribution companies (DisCos) 20 years and $80 billion to connect the entire nation to the grid. He also noted that the International Energy Agency (IEA) estimated that 140 million people in Africa will gain access to mini-grids in Africa, requiring installation of 4000-8000 mini-grids a year in 25 years.

    In the last three years, however, the Federal Government had expanded its focus on exploring other sources of power generation through off-grid to reduce the pressure on grid supply. Apart from irregular and unreliable supply, pressure on the national grid has led to constant system collapses. These occurrences have made entrepreneurs, those who play in the industrial sector and a chunk of residential power consumers to solely disconnect from grid supply to rely on self-generated power for their operations.

    The government through the Ministry of Power, Works and Housing in partnership with the private sector operators, has been developing solar and wind projects to feed the population that does not have access to grid supply. The Rural Electrification Agency (REA) is another major vehicle the government is using to drive the off-grid generation project, especially in the rural areas of the country.

    To show that off-grid supply is important in making Nigeria meet her energy requirements, the World Bank and other world organisations have been making substantial donations to support the off-grid development. Off-grid supply is power supply that does not go through the national grid. They are usually low capacity generations.

     

    World Bank collaboration

    A new collaboration between the Nigerian Rural Electrification Agency (REA), the World Bank and the Rocky Mountain Institute (RMI) has found that Nigeria could unlock the nascent minigrid market in Africa. The joint analysis found that developing off-grid alternatives to complement the grid creates a $9.2 billion (about N3.2 trillion) yearly market opportunity for mini-grids and solar home systems (SHS). This option will save $4.4 million (about N1.5 billion) yearly for Nigerian homes and businesses.

    These findings were discussed at a five-day “Upscaling Minigrids for Low Cost and Timely Access to Electricity Services” summit hosted by the Nigerian Rural Electrification Agency (REA), in conjunction with the World Bank Energy Sector Management Assistance Programme (ESMAP), Climate Investment Funds (CIF), and United Kingdom Department for International Development (DFID) in Abuja, recently.

    The Abuja summit was the first time the event would hold in West Africa, an indication of the government’s commitment to supporting investment in off-grid electrification initiatives and the vast investment opportunities in Nigeria for the development of mini-grids and roll out of solar home systems, which have a combined potential market of $9.2 billion annually.

    Getting off-grid solutions to scale and commercial viability in Nigeria has the potential to unlock an enormous market opportunity in sub-Saharan Africa, across 350 million people in countries with smaller demand and/or less-robust economies. A common barrier to minigrid market growth is investors viewing the market as being too risky, therefore, gaining access to project financing is rare and the market rate debt is expensive.

    The summit, however, revealed that Nigeria is positioned well to not only address market barriers, but also showcase to other nations that mini-grids are commercially viable.

    The event, which brought together more than 600 global participants from over 50 countries cutting across governments, organisations, the private sector, academia, NGOs, media, and others to discuss ways to facilitate investment in the sector as well as accelerate the deployment of minigrid systems, aimed at interlocking with ongoing minigrids, upscaling initiatives globally as well as ongoing activities in Nigeria.

    Minister of Power, Works and Housing, Babatunde Raji Fashola (SAN), who spoke on the opportunities in off-grid power generation and supply, said: “I see only opportunities in Nigeria and not challenges and policies have been developed to help entrepreneurs fast-track energy access for underserved populations. I commended the instrumental partnership of the World Bank in developing the power sector and the Rural Electrification Agency for developing data to help private developers reach the communities they need.”

    “In Nigeria,” according to Mr. Mac Cosgrove-Davies, Global Lead Energy, Access, World Bank, “80 million people lack access to electricity and millions suffer from unreliable service. The World Bank and the Government of Nigeria are working together to make mini-grids viable solution to bridge a large share of the electrification gap in the country.” “Rural Electrification Agency will be the implementing agency for the fund,” he added.

     

    Stakeholders’ views

    Soremekun contended that Nigeria has an installed power generation capacity of about 8,600 megawatts (Mw), which is more than half of the capacity of the entire sub-region. Generation capacity actually available on the grid fluctuates between 4,000 and 5,000Mw for a demand that is escalating with the rising population and socio-economic activities

    He noted that about 80 per cent of Nigeria’s energy mix is made of electricity generated through gas-fired power plants, while 20 per cent of the mix is obtained though hydropower plants. The grid power is only available to meet the need of about 30 per cent of the population (mostly urban centres), while the rest (mostly rural dwellers, comprising about 70 per cent of the population) are left at the mercy of traditional biomass energy to meet their energy needs.

    “Poor grid power has forced most private companies to acquire and own independent self-electricity generation equipment and solutions known to be costly and highly polluting. Electrification rate stands at merely 45 per cent.

    “In 2009 and 2011, the World Bank estimated that the self-generation capacity was even higher than the power made available through the grid,” he added.

    Soremekun explained that on-grid supply comes from big power hydro and thermal power stations such as Shiroro, Kainji, Jebba, Egbin, Afam, Omtosho, Olorunsogo, Geregu and Gbarain, among others and the generated power is wheeled into the national grid for distribution to all parts of the country. The power these stations generated is evacuated into the grid and  managed by Transmission Company of Nigeria (TCN) and the Nigerian Bulk Electricity Trader (NBET) that sell to the distribution companies (DisCos).

    Off-grid supply is mainly meant for Solar Home Systems (SHS) and comes small systems of between 10watts and 500 watts (W) and mainly for rural communities while Solar Home Systems of larrger systems of between 500W – 15 kilowatts (KW) for urban and semi urban.

    He also noted that off-grid systems for SMEs and businesses are between 500KW and 1megawatt (MW) and perfectly runs under the REA energising economy, while mini grids can range from 15KW to 10MW for industries, estates, educational institutions and markets, solar agriculture, solar irrigation – small medium scale farmers.

    REA Managing Director, Damilola Ogunbiyi, assured that the Rural Electrification Agency (REA) is dedicated to increasing electricity access to rural and underserved communities in the country, and it supports off-grid development mainly through the deployment of Solar Home Systems (SHS) and Mini-grids.

    As part of the ‘Energising Education’ programme of the Federal Ministry of Power, Works and Housing, the REA is seeking to develop off-grid Independent Power Plant (IPP) projects for the generation and provision of adequate power supply to 37 Federal universities and seven university teaching hospitals across the country.

     

    Partnerships

    In April 2018, METKA Power West Africa, a subsidiary of MYTILINEOS S.A, an international EPC contractor and industrial manufacturing group, signed an agreement with the Federal Government for the first phase of the Energising Education programme, which is to help nine Federal universities and teaching hospitals get off the national grid and generate their power independently either through gas or solar sources.

    Under the agreement, METKA will provide full engineering, procurement and construction (EPC) services for power generation plants, street lighting and training centres, as well as operations and maintenance services for four universities. All the four universities will be powered by hybrid power plants, utilising renewable energy sources integrated with energy storage and diesel generation as backup.

    On the partnership, Ogunbiyi, said: “The benefits of the Energising Education Programme are immeasurable, as improving the quality of education and ensuring safe and conducive learning environments, through access to reliable power, training centres and streetlights, would result in the churning out of excellent graduates, thus the multiplier effect on all facets of society. We are looking forward to this objective being realised through our strategic partnership with METKA Power West Africa.”

    METKA Power West Africa Chief Executive Officer, Evangelos Kamaris, said: “We are very pleased to be able to support REA in the Energising Education initiative, and we are committed to supporting the energy needs of Nigeria and its people. In total, 7.5Mw of off-grid hybrid power will be installed, incorporating the Exeron technology – the most advanced hybrid off-grid system.”

    Hybrid energy systems support power grids that combine one or more sources of power generation – solar, wind, diesel generator and grid – with battery storage to deliver a consistent level of electricity and/or store unused energy in a battery or future use. The rapidly decreasing costs of renewable and battery storage have made hybrid power systems more affordable than diesel-based generation in most places around the world. METKA formally launched Exeron in Nigeria in May 2018.

    Kamaris said: “With the scalable capacity from 2kW to 65MW, Exeron is designed to derive optimum efficiency from all energy options. The Exeron technology can offer power independence for areas with limited access to the grid or bad grid connection, while providing significant cost savings. It is an efficient solution suitable for a wide range of applications, including residential, industrial, oil & gas, telecoms, defense and security.

    “The award-winning technology features stringent modular design, easy-to-maintain hot plug technology, advanced battery management as well as the increased availability, thanks to excellent system redundancy.”

    Kamaris assured that the Exeron range of off-grid power systems, developed and manufactured by IPS (International Power Supply) fulfills all the necessary requirements for effective energy management, communications and modularity, creating an optimal solution for off-grid locations.

    Exeron is designed to generate, store and provide power for remote and rural areas. The system can be installed indoors or outdoors. It is also perfectly suited to locations with limited or bad grid power. It can secure continuous uninterruptible power and operates also as an UPS system.

    The power system achieves significant electricity bill reduction; a backup power capacity for the unusual case of power outage; the best protection for the connected loads is guaranteed since the Exeron output is galvanically isolated and supplies pure sine wave voltage.

    According to Kamaris, METKA is highly responsive to clients’ needs, and aims to maximise overall value, considering the key investment factors: – investment cost – project schedule – performance – plant availability – maintenance costs – operational flexibility

    He said the global power sector operates in a rapidly changing environment, with increasing energy demands, an evolving legislative framework and a strong focus on greener technologies, hence innovative solutions are required to secure cost-effective, environmentally friendly energy supplies in the years to come.

    To him, power plants must be efficient, reliable, and increasingly flexible in operation. Effective project execution is a critical success factor for the major investments needed in new power generation infrastructure. METKA, he said, meets these challenges by providing complete power plant solutions based on state-of-the-art power generation technologies throughout Europe, the Middle East and Africa.

    “We carry out fully integrated turn-key projects with complete engineering, procurement and construction (EPC) scope, for clients ranging from traditional state-owned utilities to independent power plant developers. Our objective is to provide the optimum solution for client requirements and project needs.

    “METKA has the resources, experience and understanding of international markets, in order to meet customer’s needs effectively and to actively support the development of regional energy infrastructure.

    “It is successful because the entire organisation is highly focused on project execution. Complex projects demand excellent project management skills, combined with a wide range of functional expertise in areas such as design engineering, technical procurement, logistics, site construction, quality management, and plant commissioning.

    “Our team is our power METKA has developed its capabilities through continuous investment in Human Resources across all functions. The company has the full range of technical resources across the spectrum of EPC and commissioning activities for major power generation projects,” Kamaris said.

    Stakeholders are of the opinion that the firm’s track record in successfully delivering projects on-time and within budget constraint, has enabled it sustain efficiency in its operations. They affirm that METKA has the critical mass to successfully manage major projects, while maintaining the essential flexibility to respond quickly and effectively to unexpected events, as well as the capacity to execute multiple projects simultaneously with outstanding performance. These attributes are further buoyed by its strong collaborations and relationships with major equipment suppliers, thereby making them to deliver on the most appropriate technology for any project.

    “The company’s state-of-the-art industrial facilities and equipment provide it with significant competitive advantages, particularly in terms of reliability and compliance with the most stringent international quality standards.  As a leading international provider of turn-key high efficiency power plants and with an experience of over 50 years, METKA is a reliable partner for major international power plant investments. Above all, the company values the trust received from the customers and the fact that its reputation is built on integrity and the ability to meet the undertaken commitments,” Kehinde Sanni, an engineer, said.

    Kamaris said METKA built Korinthos Power 437MW combined cycle power plant in Greece, Pakistan’s KESC Korangi 220MW combined cycle plant, Romania Petrom Brazil 860MW combined cycle power plant, Turkey’s RWE & Turcas Güney Elektrik Uretim A.S. Denizli, 775MW combined cycle power plant and Borasco 870MW combined cycle power plant, Iraq Basra 1250MW open cycle combined power plant. Others are in Algeria, Ghana, Algeria, Nigeria, United Kingdom, Iran and Jordan.

    “We apply sophisticated 3-D modelling tools to produce highly integrated, detailed plant designs. This improves design quality, and reduces construction time for your investment. These tools also allow operations and maintenance aspects, such as equipment accessibility, to be considered during the design stage.

    Combined cycle power plants as the most efficient of the currently available thermal power generation technologies, gas turbine based combined cycle power plants are the technology of choice for flexible, utility scale power generation. Apart from the high efficiency compared to traditional steam boiler plants, combined cycle plants offer advantages in terms of their relatively low environmental impact, high level of flexibility and shorter project implementation times.

    METKA’s experience covers both single shaft and multi-shaft configurations, and a wide range of gas turbine models, including both heavy duty industrial and aero-derivative types. “Single shaft configurations, with gas turbine and steam turbine on the same axis, connected to a single generator, have an advantage in terms of the compact layout. Multi-shaft configurations may have one or more gas turbine generators, together with a single steam turbine generator. Our most recent projects are based on the latest generation “F” class gas turbine technology from the leading OEMs, including GE, Siemens, Alstom and Ansaldo, providing extremely high plant efficiency.

    “METKA combined cycle solutions use well established reference plant concepts as a basis for the design, with flexibility to meet client needs, as well as other local market and project specific requirements. We work closely with the power-train manufacturer so that proven product developments, and lessons learned from previous operating experience, can be built into the plant design,”he said.

     

    Other positions

    Giving insights on off-grid renewable energy, Head of Special Projects, Rural Electrification Agency, Mrs. Anita Otubu, quoted the World Bank as saying that 57.5 per cent of the population has access to electricity in Nigeria while 42.2 per cent of the population is without access to electricity in Nigeria

    According to her, Section 88 (13) of the Electricity Power Sector Reform Act (EPSRA) states that the REA shall support the increase in access to rural electrification. It shall promote fast and cost-effective expansion of electricity access in un-electrified rural areas, evenly, across the different geo-political zones in Nigeria. The core focus of the REA will be to support the development of the off-grid clean energy by providing an enabling environment for the sector to thrive.

    The REA is responsible for administering and managing funds from different sources towards achieving its objective of promoting rural development, adding that the aim of the Off-Grid Electrification Strategy is to provide access to clean and sustainable electricity to millions of Nigerians

    To achieve that objective, REA has to develop a data driven off-grid model for Nigeria that will become an exemplar for Sub-Saharan Africa; utilise the funding from the Nigerian Electrification Project (NEP) as catalyst to scale up rapid implementation of off- grid solutions across Nigeria; increase gender inclusion in the Nigerian power sector; promote the use of a decentralised, multi-demographic approach to power  infrastructure delivery and develop 10,000 mini grids by 2023, which will provide power to 14 per cent of the population.

    Others are to increase economic growth in critical sectors such as agriculture; provide reliable power supply for 250,000 SMEs; provide uninterrupted power supply in federal universities and university teaching hospitals; deploy five million solar standalone systems for residential and small and medium enterprises (SMEs) by 2023; and supports the Federal Government’s climate change obligations under the Paris Agreement, with respect to promoting renewable and reducing carbon emissions.

    Civil Society Group for Good Governance (CSGGG), a non-governmental organisation also canvassed support for off-grid power supply sources. The Convener of the group, Mr Dominic Ogakwu, said off-grid power solutions like solar, wind, and other forms of renewable energy sources would address power generation, transmission, and distribution problems in the country. To him, the seemingly intractable estimated billing system commonly called “crazy billing” applied by electricity distribution companies for customers who don’t have meters exist because many Nigerians don’t have access to off-grid power.

    Ogakwu said: “Small and medium businesses are suffering due to poor power supply. We want the government to proffer solutions to that problem so that small and medium enterprises (SMEs) can thrive. Also, according to the power generation report by the Ministry of Power, Works and Housing released in April, eight out of Nigeria’s 27 power plants were shut down due to gas line and frequency management constraints at some point.”

     

    Challenges and opportunities

    Nigerian enterprises identify access to electricity as their greatest obstacle to growth. At the same time, solar power has dramatically fallen in cost.

    Solar is now a cheaper alternative for Nigerian companies. However, despite the economics, enterprises do not adopt solar due to the high upfront cost to purchase solar power assets; the technical challenge of owning and maintaining independent power production, Soremekun said. He, however, noted that there is a multi-billion dollar opportunity to bring reliable and high quality power to thousands of households in the country

    He said the development of structured and novel approaches to scaling and rolling out hundreds of mini grids in Nigeria, adding that the nation has potential for over 4,000 mini grids and over four billion Euro investment. This will stimulate significant development in this territory

    Kamaris said: “Metka is an off-grid power solutions provider. The firm combines the usage of traditional and renewable energy sources with energy storage systems, controlled and managed by intelligent power conversion technology to deliver power to individuals, communities and industries that are not supported by the grid. Through the strategic partnership with International Power Supply (IPS), the manufacturer of the award-winning Exeron power system, METKA identifies and develops customised solutions to meet the challenges of the rapidly growing hybrid and off-grid power market, serving the needs of customers around the world with an all-in-one intelligent energy management system, with modular design, that increases reliability and reduces significantly the dependence on diesel, and is suitable for a wide range of applications, such as: telecommunications infrastructure, remote power solutions for oil & gas production and pipelines, electrification of off-grid communities, industrial facilities and residential units.

    “The Exeron range of power systems fulfills all the necessary requirements for effective energy management, affordable and reliable power supply and ease of operation creating optimal, cost effective solutions for our customers.  EXERON is designed to generate, store and provide reliable power for remote and rural areas. The system can be installed indoors or outdoors.”

     

     

  • N22.7 trillion public debt: Nigeria’s ticking time bomb

    Nigeria’s domestic and foreign debts stood at N22.7 trillion in March, according to the Debt Management Office (DMO). A large part of the debt was used to fund budgets and capital projects. COLLINS NWEZE writes that rising public debts remain a concern, and borrowing should be project-based, with funds deployed to revenue generating ones for payback.

    Discussions around Nigeria’s debt profile have been loud and clear. And when the country’s public debt profile hit N22.7 trillion based on Debt Management Office (DMO) statistics, the figure is of great concern to Nigerians.

    But the Federal Government is rather positive about the figure, assuring Nigerians that there is nothing to worry, insisting that its borrowings are to provide national assets that will boost economic growth and development.

    Federal Government’s domestic debt at the end of March stood at N15.9 trillion.

    Speaking at the International Monetary Fund (IMF) Regional Economic Outlook for Africa with the theme: “Domestic Revenue Mobilisation and Private Investment,” in Lagos, DMO Director General Patience Oniha said Nigeria took loans to fund the budget and put more funds into the capital projects.

    Oniha said with the level of reserves, oil production and population, Nigeria can’t be saying the country is an oil producing nation just like Saudi Arabia which is an oil producing nation.

    She said Nigeria is miles apart from Saudi Arabia in terms of oil being a source of its revenue. “We have since realised we should not be benchmarking ourselves against these countries. We borrow because there is revenue shortfall. The National Assembly passed the budget last week and we know it was higher than what the executive presented. So, as a debt manager, what I am looking for is to see where the funding of that incremental size may come in from,” she said.

    Oniha said the government would be borrowing to make up the shortfall in budget. “All of government’s borrowings were targeted at infrastructure development. Without borrowing, we won’t be able to deliver on the budget and I think we should be clear about that and a lot of that went into capital,” she said.

    She said Nigeria should not focus on the debt to Gross Domestic Product (GDP) ratio, adding that the debt strategy is not to crowd out the private sector.

    Oniha said the decline in interest rate means that there are about N200 billion out there in the market for private sector to invest. “You will also notice that we are retiring some of the Treasury Bills as they mature. The main challenge I am giving to the private sector is that why is all these money still sitting where it shouldn’t be? Why has it not reached the private sector because that was the key objective of our strategy.”

    The IMF’s Head in Nigeria Amine Mati said Nigeria and other countries in the Sub-Saharam Africa need three to five per cent Gross Domestic Product (GDP) growth to thrive.

    “We think that for the region, there needs to be three to five per cent GDP growth is needed. How do you get there? In Nigeria, you can remove a lot of exemptions and expand income taxes. If you look at all the various forms of taxation, you can take another look of property tax, then you can have tax administration and improving compliance. You know, in Nigeria, complying with many of the taxes is still very low,” he said.

    He urged Nigeria to double tax compliance to GDP ratio from 25 per cent to 50 per cent. Such measure, he said, can make the difference in increasing revenue mobilisation.

    He said raising growth is really key for the challenges ahead in Nigeria and Sub-Saharan Africa. “For the region as a whole, we can say the average growth rate on a per capita base is low. And a third of African countries, in 2017, with Nigeria as one of them, has seen a decline per capita GDP level. And we expect some of that to continue. To really make a difference, that trend needs to be reversed. So, the growth rate really needs to surpass its population growth to make a difference”.

    He said the interesting characteristics are that non-resource countries have higher private investments. “Oil prices have gone up and this is an opportunity for these countries to really use the opportunity provided by the pick-up in oil price to initiate some reforms that would encourage more private sector investments,” he said.

    According to the DMO, the combined debt of of the federal and the state government stood at N6.75 trillion. The new Debt Management Strategy (DMS), Ms. Oniha said, has brought about the restructuring of the debt portfolio, which “has resulted in reduced debt servicing costs, lowered interest rates in the domestic market and an improved availability of credit facilities to the private sector.”

    Explaining the motive behind the recent spate of borrowings, the DMO chief said: “It (borrowing) is essentially for financing capital expenditure and stimulating the economy. The funds injected through borrowing strongly supported the implementation of the Federal Government’s budget, which helped the country to exit recession in 2017.”

    Former Executive Director in Keystone Bank Richard Obire said when it comes to debt, what is important is not the figure, but the developmental projects that the borrowed funds are used to finance.

    Obire said: “I am not concerned about the size of the debt, but do such debts have the capacity for repayment? Also important is whether the debt is cash-flow friendly and of relatively low pricing. The problem with Nigeria’s debts is that when you look around, you will be searching for what the funds were used to do.”

    Obire said that at this level of borrowing, the road and electricity infrastructure, airport infrastructure, social infrastructure, such as health and education, and even broadband infrastructure, should be visible for all to see where the funds have been channeled to.

    “The problem with this high debt is that you cannot really justify the high borrowing. We need to channel the loans to productive sectors of the economy.

    “The government has to explain where the funds had gone to. Have you seen any new university, health care centre? I have not seen something dramatic. Overall, I have nothing against borrowing, but the funds must be channeled to good uses.”

    Besides, the government saw the recession which ended last year as an opportunity to widen its borrowing plan. There were approvals to borrow from the World Bank, African Development Bank (AfDB), Japan International Cooperation Agency (JICA) and Export-Import Bank of China. The DMO has a mandate to facilitate access to the funds from the multinational agencies.

    The move came on the heels of an approval for a three-year external borrowing plan. The government’s plan was to raise about $5 billion from Eurobond market and multinational and bilateral lenders.Regarding foreign debt, the strategy is to borrow on non-concessionary terms for projects with self-paying capacity, and/or job creation potential, and on concessionary terms and grants for social sector projects.

    The Director-General of the West African Institute for Financial and Economic Management (WAIFEM), Prof. AkpanEkpo, explained that budgetary allocations alone may be inadequate to finance the infrastructure deficit with dwindling oil revenue.

    Prof. Ekpo described the borrowing option the most viable; pointing out that Nigeria’s rebased (Gross Domestic Product (GDP) economy has given it the leeway to borrow more to bridge infrastructure gap.Ekpo said the government can also borrow internally to achieve the feat, even as he disclosed that internal borrowing is always short-term while external borrowing has longer tenor.

    Ekpo said the DMO has the capacity and constitutional role to advise the government on the available choices. “The World Bank rates are cheaper with longer repayment term. The DMO can also leverage on the Nigeria Trust Fund with the AfDB to get a better deal on the loans needed to fund developmental projects”, Ekpo said.

    Nigeria has been grappling with economic crisis since crude oil prices dropped by about 43 per cent from an average of $100.35 throughout 2014 to an average of $65.20 presently.Specifically, the drastic fall in the prices of crude oil, which constitutes the largest component of the forex reserves has cut dollar earnings from about $3.2 billion monthly to about a billion dollar for the same period. Analysts believe that with the fall in crude oil prices, the government needs to borrow to support economic development, but the funds must be well utilised.

    OlakunleEzun, a currencies analyst with Ecobank Nigeria, said the DMO works closely with the government to manage the national debts. He said although funds from the domestic bond market are more expensive than the international bond market, investing in the local bond market is also in the best interest of the economy.

    The FGN Bonds, he added, helps the government in the funding of its deficits in a non-inflationary manner while providing the benchmark yield-curve for pricing other securities/bonds. It also engenders rational management of government’s fiscal and monetary operations.

    Ezun said that the debts, if well-spent, will boost liquidity in the economy and investment in key sectors like agriculture and mining, among others.

     

    Fresh $2.8b loan targeted abroad

    The Federal Government plans to raise $2.8 billion of debt offshore as part of its 2018 budget and will explore all options to lower costs,  Oniha said.

    The government has laid out plans to borrow abroad even though interest rates are rising in the United States which could see Nigeria pay a higher premium on this occasion compared with its most recent debt sale in February.

    She said the debt office has sent a request for a proposal to banks for an international bond offering, IFR reported, citing sources. “We will explore all options keeping in mind our twin objectives of extending the tenor of the debt stock and lowering costs,” Oniha told Reuters.

    The parliament needs to approve the new borrowing. Oniha in January said the DMO could tap capital markets or concessionary loans from the World Bank and would consider funding options after the 2018 budget had been approved.

    President Muhammadu Buhari last week signed a record N9.12 trillion budget for 2018 into law, aimed at fostering growth in Nigeria before elections next February, in which he will seek a second term.

    Growth rates in Nigeria have bounced back since the third quarter of 2016, when a recession, its first in 25 years, hit bottom. It exited that contraction last year, largely due to higher oil prices, with the country relying on crude sales for much of its revenue.

    However, growth slowed in the first quarter of 2018 for the first time since pulling out of recession as its non-oil sector struggled. Nigeria raised $2.5 billion through a dual-tranche Eurobond offering in February, selling a 12-year note at 7.1 per cent to raise $1.25 billion and a 20-year tranche at 7.7 percent. The February deal was the second international bond sale in less than three months, after the debt office raised $3 billion through an offering of 10- and 30- year bonds in November.

     

    Diversification to the rescue

    As worrisome as the economic indicators may be, analysts described them as temporary and surmountable setbacks when the government’s policy on diversification of the economy begins to crystalise.

    According to them, after diversification, growth would no longer be determined by the prices of crude oil even as the country has been unable to exploit up to 25 per cent of opportunities in agriculture.They said: “We need to achieve internal food security and have the opportunity to export agro-based products in processed form. Imagine the variety of food stuff from savannah to the deserts, all the various legumes, roots and others that can be grown from these environments.

    “If we effectively exploit agriculture, if and as we are making progress in agriculture, firstly, the major consumer of our forex like agro-based raw materials, rice, fish, poultry, wheat, will be taken care of and government will save billions of dollars from these imports.”

    To them, the government’s ability to borrow from a domestic debt market also has some strategic value. Besides, domestic debt reduces the exposure of the country to exchange rate risks and the limitations of the size of foreign reserves.

    The independence, they said, lies in the country having the option to exercise the choice to borrow from internal sources, external sources, or a mixture of both.”Sovereign borrowing from the domestic debt market encourages the development of a functional bond market, with the scope to introduce different instruments, which will encourage the habit of domestic saving, intermediation and investment. Such a functional domestic bond market will be tapped by the private sector to raise long-term funds for investment in the real sector and infrastructure projects. Nigeria has developed a deep and liquid domestic bond market where funds of up to 20 years tenor can be raised,” they said.

    Borrowing guidelines

    By law, the government may borrow from the capital market, subject to National Assembly’s approval. The government at all tiers shall only borrow for capital expenditure and human development on concessional terms,” the DMO guidelines said.

    Any government, or its agencies, can only obtain external loans through the Federal Government and such loans must be supported by a Federal Government Guarantee. The guideline stipulates: “No state, local government or federal agency shall, on its own, borrow externally. State governments and their agencies wishing to obtain external loans shall obtain Federal Government’s approval-in-principle from the Federal Ministry of Finance.”

    However, the borrowing proposal must be submitted to the Ministry of Finance and the DMO for consideration. The proposal must state the purpose for which the borrowing is intended and its link to the government’s development agenda.

    It must also state the cost-benefit analysis, showing the economic and social benefits to which the intended borrowing is to be applied; cash-flow statements of the Ministries, Departments and Agencies (MDAs), to ascertain their viability and sustainability.

    There must also be copies of the state’s executive council’s approval and the resolution of the State House of Assembly.Also, all banks and financial institutions requiring lending money to the federal, state and local government areas or their agencies shall obtain the prior approval of the minister of Finance and shall state the purpose of the borrowing and its tenor.

    Govt bonds still get positive rates

    The government recently announced that it priced its offering of $2.5 billion aggregate principal amount of dual series notes under its Global Medium Term Note Programme. The notes comprise a $1.25 billion 12-year series and a $1.25 billion 20-year series. The 12-year series will bear interest at a rate of 7.143 per cent, while the 20-year series will bear interest at a rate of 7.696 per cent, and, in each case, will be repayable with a bullet repayment of the principal on maturity.

    The offer is expected to close on or about 23 February 2018, subject to the satisfaction of various customary closing conditions.The country intends to use the proceeds of the notes for the refinancing of domestic debt. The notes represent the Republic’s fifth Eurobond issuance, following issuances in 2011, 2013 and two in 2017.

    The offer has attracted significant interest from leading global institutional investors with a peak order book of over $11.5 billion.  When issued, the notes will be admitted to the official list of the UK Listing Authority and available to trade on the London Stock Exchange’s regulated market.  The Republic may apply for the notes to be eligible for trading and listed on the Nigerian FMDQ OTC Securities Exchange and the Nigerian Stock Exchange (NSE).

     

  • Wanted: Apprenticeship to bridge skills gap, tackle unemployment

    Informal apprenticeship training scheme, according to experts, is an important, cost-effective and flexible means of skills transfer in the informal economy. But the system, which was once a major contributor to youth employment, is fast disappearing from the entrepreneurial landscape, resulting in acute shortage of skilled artisans. No thanks to increasing quest for formal education, the get-rich-quick mentality and harsh business environment, among others. Assistant Editor OKWY IROEGBU-CHIKEZIE examines the implications of this development and the clamour for its return in order to create jobs, boost productivity and stem youth restiveness.

    Automacs Technologies Limited Chief Executive Officer (CEO), Mr. Obiora Ogonsiegbe, is worried. His worry stemmed from the difficulty in finding skilled artisans, such as plumbers, bricklayers, electricians, and carpenters, to handle various jobs in the construction industry.

    According to Ogonsiegbe, it is extremely difficult to get quality, skilled artisans in the country. ‘’You have to go to the neigbouring African countries, such as Togo, Ghana or Cotonou, where informal apprenticeship training system is being taken seriously,’’ he said. He regretted that these countries were out-sourcing quality artisans to Nigeria.

    He, and indeed, other experts in various sectors, believe that the informal apprenticeship scheme is, perhaps, the most important method of skills transfer in informal economy. This, according to them, is because it offers a more cost-effective and flexible means of skills transfer, which absorbs a larger number of youths than their formal and publicly financed counterparts.

    They noted that apprenticeship training occurs mostly in the private sector, where the owner of an informal enterprise takes on apprentice (s), usually for a fee, and provides training in vocational skills over three or more years. It is an important source of training, which helps to provide needed skills that are required.

    The scheme is popular in most urban centers, accounting for about 85 per cent of skills training and transfers in most parts of the country. It is also a major source of livelihood for those in various enterprises, who engage in apprenticeship schemes, such as wielding, auto-mechanics, and auto-electricians.

    Others are tailoring, generator repairing, mobile phone repairing, carpentry, furniture making, catering, manicure and pedicure, and plumbing. These trades of the informal apprenticeship scheme were recognised as means of absorbing and training unemployed youths through manpower development and economic empowerment.

    But the story has since changed. The apprenticeship system is fast disappearing. Gone are the days when a master auto-mechanic would have about five apprentices under his tutelage. Today, many youths are unwilling to sign up to learn a trade. Many, who signed up, quit and opted for either motorcycle riding or taxi driving.

    Some of them, who remained to learn the trade, would not stay long enough to acquire the necessary skills. Earlier, people were proud to undergo tutelage as mechanics, plumbers, tailors, and bricklayers, among others. Not anymore. The youth are more interested in making quick money, which is why the majority of them have taken to motorcycle riding, popularly called Okada as their source of livelihood.

    A bricklayer, Mr. Ibidemi Akinola, lamented the serious decline in apprenticeship training, noting that the situation has dire consequences for the future. He said, for instance, that gone were the days when he used to have up to seven boys as apprentices, noting that they no longer find it interesting to learn the trade.

     

    The story changer

     

    Ogonsiegbe said one of the factors responsible for Nigeria’s inability to ride on the back of a vibrant informal apprenticeship training scheme to tackle the unemployment surge and close the wide sills gap, is the widely held belief that apprenticeship is meant for people, who cannot do well in the formal education system, or those whose parents cannot afford to sponsor their education.

    He said this has made it difficult to attract young graduates and youths of school age into the system, adding that the erroneous assumption by not a few people is that those who undergo apprenticeship are ‘never do well’ people and are not respected like their counterparts in the formal school system.

    Automacs Technologies CEO also stated that the attitude of masters in most cases constitutes hindrance to the practice of apprenticeship.  His words: “This negative attitude of the masters is caused probably by the fact that they are not trained in the act of teaching. Most masters are difficult and have little skills to sustain the interest of the apprentices on the job. This makes the rate of drop-out to be high.”

    Also, the economic condition of most parents of the apprentice and the trainees in most cases, make it difficult for them to sponsor the training for the agreed period. Master craftsmen are not spared of the problem of poverty.

    The result is that in most cases, they find it difficult to equip their workshops with necessary equipment, which can improve efficiency and make them meet up with contemporary technological needs.

    That is not all. Wrong career choice by the apprentices is also said to be a constraint to the development of apprenticeship system. Due to lack of exposure, limited knowledge of psychology and career counselling, apprentices often make wrong career choices.

    In most cases, careers are forced on would-be apprentice by their parents or guardians without due consideration for apprentices’ interest, ability and capability. This has often resulted into non-completion of the apprenticeship period due to his or her inability to cope with the physical and intellectual requirements of the training.

    Govt’s failure

     

    Although, the government has articulated a number of initiatives, interventions and empowerment programmes aimed at training and retraining the youths in various vocations, such interventions appear not to have made the desired impacts.

    As far as Ogonsiegbe is concerned, the Industrial Training Fund (ITF), for instance, has not lived up to its billing. He said if the Fund had made much impact, there would have been a substantial reduction in crimes associated with youths and restiveness.

    He recalled other efforts to include the creation of National Directorate of Employment (NDE) and its skills acquisition programmes, the National Poverty Eradication Programme (NAPEP) to address poverty in the country; the SURE-P and YouWIN, among others.

    He, however, argued that the various intervention mechanisms aimed at ensuring economic growth, which is rich in job creation opportunities and apprenticeship, have not yielded the desired positive results.

    The government’s education programme such as the Universal Basic Education (UBE), which made going to school mandatory for school-age children, is also said to have drastically trimmed down the number of children going for technical apprenticeship.

    More importantly, is perhaps, the indolence and get-rich-quick mentality of the people is believed to have resulted in increased rate of school drop-out and demand for buying and selling for quick profit with limited stress, especially when there was no respect for artisans, but high respect for wealth, no matter how ill-gotten it may be.

    Nigeria’s poor business environment has not helped matters either. The harsh business environment has forced many technical workshops to close down. Many of them lacked steady electric supply and have been forced by various tiers of government to pay multiple taxations.

    Also, owners of such technical workshops have little or no incentives from the government and are shunned by banks whenever they ask for loans.

    The lack of political will by successive governments, has also been a hindrance to entrepreneurship development and reduction of unemployment in Nigeria. The neglect of vocational and technical education has robbed the nation of the potential contributions of its graduates to national growth and economic development.

    This is why there has been dearth of competent artisans such as bricklayers, carpenters, printers, auto mechanics, laboratory and pharmacy technicians, vocational nurses etc.

    The way things currently stand, youths are not motivated to choose vocational and technical education. This may be why it is common to find many legislators donating motorcycles, grinding machine, shoe shinning tools to youths in their constituencies under the name of “youth empowerment”.

    This has, again, heightened fears by operators in various sectors that in a few years’ time, Nigeria will begin to experience an acute shortage of artisans.

     

    Call for return of apprenticeship

     

    Calling for a policy on apprenticeship, Ogonsiegbe said the problem of outdated and unimplemented policies was a major problem confronting apprenticeship system practice in Nigeria.

    He said presently there seems not to be any guiding principle from the government as regulatory agency for apprenticeship system. This, he said, has made apprenticeship less attractive to youths and graduates.

    According to experts, apprenticeship is a form of education and training. Informal apprenticeship also contributes significantly to youth employment and empowerment, thereby reducing youth restiveness. It also enhances national productivity in virtually all the sectors of the economy.

    An entrepreneur and fashion designer, Mrs. Ibikun Hassan, said despite the nonchalant attitude of some youths, who want to make it fast and big, the informal economy, where many of them operate, remains Nigeria‘s powerhouse and indeed, other developing economies.

    Hassan told The Nation that more than seven apprentices have stayed with her for over four years “I earned my degree over 20 years ago, and when l felt that l was done with paid jobs, l had to go for apprenticeship to learn fashion designing for 18 months.

    “Unfortunately, people think that they can learn the same thing within three months. You can’t beat experience, which comes with apprenticeship in anything you are doing,” she said.

    According to her, apprenticeship improves skills and trade secret for those who are patient and humble enough to go through the rudiments. It also provides opportunity for one to learn how to handle his or her business when he or she graduates

    Lagos Chamber of Commerce & Industry (LCCI) Director-General, Mr. Muda Yusuf, also lent his voice to the need to encourage apprenticeship.  According to him, there is a lot of value addition in apprenticeship, as the apprentice has so much to gain in a hands-on operation and process than being a green horn.

    He advised those in apprenticeship not to be so bordered about making money in apprenticeship, but concentrate on the knowledge  passed down to them from people who  have acquired the skills over time and have more experience and skill to pass down to them.

    The LCCI chief advised youths to have passion for whatever vocation or trade they desire to do. He argued that it is wrong for them to jump into any trade because they see others doing well in it rather than the love of the trade. And to minimise the risk of failure of any enterprise, he said one needs to know how gifted he is.

    “You don’t expect that once you have an idea, banks or lenders will give you money to deliver on them.  Having a learning curve is a more sustainable strategy,”he said.

    Also on the need for apprenticeship among the youths, Landwey Investment Group Managing Director,  Mr. Olawale Ayilara, wondered why those, who studied abroad come back to the country and pick the few jobs available.

    To him, it is simply because they are better skilled, with sophisticated apprenticeship training needed for the jobs they applied for.

    A trader in textiles and cotton materials, Mr. Kalu Agbai, also underscored the importance of apprenticeship when he acknowledged that it is customary in the Southeastern part of the country to undergo apprenticeship before engaging in almost any area of business.

    He revealed that he did apprenticeship for 10 years with his ‘master’ to learn not only the rudiments and secret of the business, but to also prepare himself for the challenges of setting up his own business and making a success of it.

    The Nation learnt that the age range from apprentices to masters in the informal training system is from 11 to 60 years of age. It, however, differs from one enterprise to another.

    It was also learnt that in some parts of the country, children between the ages of 10 to 14 work as apprentices. About 49 per cent of school age children are said to be in the informal apprenticeship system in Nigeria.

    Majority of these children, if not in the informal apprenticeship, end up on the streets hawking just to make ends meet. It is in recognition of this fact that the government allowed for more young people to be apprentices in certain enterprises rather than wander around the streets.

    According to experts, apprenticeship has over the years proven to be a tool for employment generation and poverty reduction at low investment cost as well as improving the wellbeing of individuals engaged in it. Unfortunately, the scheme has not been adequately harnessed in tackling the unemployment surge among the youths in Nigeria.

    The consensus is that successive governments have not given reasonable attention to alternative empowerment schemes, especially apprenticeship to galvanise the youths for national development.

    But for the neglect of the scheme, such skill acquisitions training within the confines of apprenticeship would have afforded the youths means to be relevant along the line of a particular profession such as fashion designing, furniture making, carpentry, shoe making, plumbing, electrical repairs, auto mechanic, retail trading and other related endeavors.

    This must have prompted the call by some Nigerians on the need for the government to introduce incentives for youths, who want to engage in apprenticeship as career path in alleviating poverty. They also called on the government and policy makers to encourage apprenticeship and technical training to fill the yearning skills gap in the productive sector.

  • How commodity exchange can boost agric

    Without a functional commodity exchange to protect farmers from price fluctuations and wastage, the Federal Government may have put the wrong foot forward in its ongoing economic diversification agenda anchored on the agric sector. Operators and experts lament that lack of a commodity exchange where agro produce can be traded, and an efficient warehouse receipt system are hurting efforts to reposition the sector. They are calling for the strengthening of the commodity exchange system which they believe will push immense possibilities into farmers’ hands, generate more revenue and create jobs, reports DANIEL ESSIET.

    From his vantage position as a farmer and Lagos State Chairman, All Farmers Association of Nigeria (AFAN), Otunba Femi Oke, knows what is required to reposition the agric sector to deliver immense benefits to various stakeholders. To him, a functional commodity exchange is one sure way to enhance the efficiency and competitiveness of agro commodity marketing in Nigeria.

    For a start, Oke said a vibrant commodity exchange would help stabilise agro commodity prices and protect farmers from price fluctuations and losses arising from storage wastages. This, according to him, has become imperative in view of the need to give more impetus to the Federal Government’s ongoing economic diversification campaign anchored on the agric sector.

    A commodity exchange works like the stock exchange market, providing the much-needed platform for commodity marketing. It is the platform where sellers and buyers of agricultural commodities meet and transact business. It also acts as a source of market information.

    A commodity exchange is designed to help mitigate farmers’ risks and ensure that payments are made through reliable financial service providers. The exchange involves the use of warehouses with modern facilities where farmers and traders can take their produce to minimise wastages and exploitation by middlemen.

    Farmers deposit their agro commodities in certified warehouses and are issued receipts, which are recognised by financial institutions in the country. A farmer can use the receipt as collateral to procure loans or other financial services.

    That is not all. Farmers can also sell the receipt on the commodity exchange market without transferring their agro commodities from the warehouse. With this, farmers need not worry about price fluctuations and they can keep their commodities in the warehouse until prices stabilise.

    But without a full-fledged commodity exchange, farmers cannot transact business on their agro products using the receipts, let alone approach banks for facilities. And this is why operators and experts including Oke are clamouring for the exchange to be in place.

    The AFAN Chairman put the desirability of a functional commodity exchange for Nigeria in context when he said at this time when the economy’s exit from recession remains fragile, requiring strategic policy options to put it on a sustainable basis, Nigeria can no longer ignore the need for a commodity exchange.

    He maintained that it will help to stabilise prices and assist farmers who are often hit by constant price fluctuations both in the local and the international export markets. He added that with agric still underdeveloped, requiring efforts to transform it from the subsistence level to a modern, commercial business, a commodity exchange is certainly a win-win for all stakeholders.

    The obvious benefits of putting in place a functional commodity exchange for Nigeria is also not lost on Agri-business Specialist with the United Nations Development Programme (UNDP), Dr. Nelson Abila. He said, for instance, that a commodity exchange will encourage increased productivity in the agric sector.

    He also said farmers and consumer will be in a better position to concentrate their efforts on managing production risks associated with variables such as weather conditions.

     

    State of commodity marketing

    in Nigeria

    According to an expert, Nigeria has the potential to achieve self-sufficiency in food production and consumption. The country holds the record of one of largest agricultural land areas in West Africa.

    With about 180 million inhabitants, Nigeria is also one of the most populous countries in the world. Around 85 per cent of its population live in rural areas that boast of expansive land mass for agric.

    Sadly, however, agricultural productivity has remained low, due partly to inability of the authorities in the sector to empower farmers to produce more food.

    Factors such as worsening environmental degradation, low technology usage, farmers’ lack of access to credit, and more importantly, an underdeveloped marketing system, among others, have continued to raise the risk of food shortage.

    This must have been why the Federal Government, in collaboration with some development partners,  commenced the review of the performance and developments in the agric sector between 2010 and 2016.

    This, according to Minister of Agriculture and Rural Development, Audu Ogbeh, was  to assess the progress made in the area of policy implementation in the sector.

    Ogbeh, who spoke in Abuja, through the Ministry’s Director, Planning and Policy Coordination, Mr. Auwal Mai-Dabino, explained that the assessment was geared toward highlighting the successes and challenges faced in the sector over the years, with a view to tackling them to sustain the current growth rate in the sector.

    According to Ogbeh, the review will help to reposition the sector for better performance. In line with the review, Chief Ogbe said the Federal Government had articulated 10 key areas to double productivity and improve access to export markets in line with the Economic Recovery and Growth Plan (ERGP).

    He listed some of the key priority areas to include comprehensive livestock development, input transformation, produce and commodity storage systems, expansion support project and nutrition among others.

    “This will help in sectoral planning process to achieve national goals and targets, assess how well state and non-state actors have implemented pledges and commitments for overall development of the sector,’’ Ogbeh said.

    While the review and subsequent identification of priority areas was seen by not a few operators and stakeholders in the agric sector as a welcome development, Prof. Olomola Aderibigbe from the Nigerian Institute of Social and Economic Research (NISER), emphasised the need to transform the agric marketing system.

    Aderibigbe, who identified poor market strategy as a major challenge in the agric sector, noted that the sector experienced slow growth within the period under review.

    He said: “As much as we put emphasis on boosting production and promoting export and investment in agriculture, we should not lose sight of the marketing aspect. There is need for transformation in agric marketing so that we can have better prosperity to share for the farmers.”

    Prof. Aderibigbe insisted that at present, farmers find it difficult to sell their produce. He added: “Nigeria has been lagging behind in the area of marketing and without market transformation, growth in the sector will not be sustained.’’

     

    Clamour for commodity

    exchange takes centre stage

    Former Vice-Chancellor, Federal University of Technology, Akure, Ondo State, Prof. Adebiyi Daramola, recalled that in the 80s, commodities production and distribution was done by farmers, Commodity Boards were responsible for inspecting and buying smallholders’commodities.

    The existence of such boards, according to him, provided the mechanism for money to flow down the value chain to smallholders. He said at that time, farmers knew they will receive a specified price for their produce. “This incentivises quality production and gives farmers a stable, predictable and timely income,” he said.

    Daramola also said the arrangement enabled farmers to increase production, improve yield and the overall country’s cocoa production growth particularly. He, therefore, said it has become imperative to establish a functional commodity exchange to empower farmers and boost their productivity.

     

    Why warehouses are key

    to a stronger commodity exchange

    As the clamour for a commodity exchange gathers momentum, the African Centre for Supply Chain (ACSC) Director-General, Dr. Obiora Madu, said warehouses and logistics are key factors for the success of a commodity exchange.

    According to him, a combination of trading platform, warehouses and logistics with high credit reputation would strengthen the commodity exchange.

    He said the Ethiopian Commodity Exchange (ECX) was a success story because of a functional warehouse structure that improves its accessibility for farmers across the country, particularly around major agricultural hubs.

    Madu added that a trade can only take place on an exchange if both parties (buyer and seller) are confident of the availability of the commodity in a warehouse at a particular place and time.

    Indeed, according to experts, certified and regulated warehouses are key to the success of the entire trading process, as they ensure that the commodity’s quantity and quality are guaranteed and maintained in the storage until delivery takes place.

    Apart from ensuring the integrity of the commodity, certified and regulated warehouses ensure that commodities are stored according to specific conditions required for export such as temperature and humidity.

    To achieve this, Obiora said the warehouse must be run by capable, certified, and insured warehouse service providers.

    Madu said commodity exchanges have proven to be effective institutional mechanisms for enhancing the efficiency and competitiveness of agricultural markets.

    The expert wondered why a country like Ethiopia will run an efficient and successful   commodity exchange and Nigeria was yet to do same, despite boasting large human and natural resources.

     

    How warehouse receipt works

    Under a warehouse receipt system, farmers or traders who subscribe to the platform are granted a receipt covering their goods after depositing them at the various warehouses set up by the exchange. The receipt can then be presented to banks to serve as collateral in the event that holders want to access loans.

    With warehouse receipt finance, a farmer or trader delivers his produce to a warehouse that has been approved by a bank or other lenders. The warehouse or collateral management company in charge of it then issues a receipt vouching for the quantity and quality of produce being stored.

    The bank then takes the receipt and provides financing to the farmer or trader – typically up to 70 per cent of its current market value – against it. The receipt acts as collateral for the bank, giving it the right to take ownership of the stored produce if the loan is not repaid.

    Because of this, efficient warehouse receipt system is seen as a key mechanism in translating agriculture into tangible benefits for farmers. Madu argued that the creation of warehouse-receipt system and commodity exchange will improve the performance of the nation’s agricultural sector.

    The consensus is that a commodity exchange, complemented by an electronic or e-warehouse receipt system, allows farmers to easily access finance. The commodity exchange will come with an e-warehousing registry that can manage warehouse receipts issued across the country just as equities traded in the stock market.

    According to experts, an e-registry, which provides transparency and tracking of commodities in every single warehouse in the country, will go a long way in giving comfort to the banks, and this could be the game changer for the industry.

    The registry will keep record of goods deposited with the warehouse and removed from the warehouse. Banks will finance farmers against warehouse receipts of agricultural commodities issued by certified warehouses and collateral managers.

     

    Challenges

    The joy of commodity exchanges, just like stock exchanges for securities, is that they give confidence to those buying produce that  actually exists, and that it belongs to the person selling it. They also ensure that the produce to be traded meets specified standards.

    However, for a commodity exchange and its complementary warehousing receipt system to work, experts say they must be founded on solid legal and institutional framework. Besides, there must be high level of awareness among stakeholders.

    But at the moment, the framework establishing the commodity exchange in Nigeria is weak and inadequate to sustain the operations of a modern warehousing receipt system.

    Madu said  the sector needs a mechanism for certification of warehouses and a regulatory and institutional framework. Other requirements, he said, are standards for a warehouse receipt and a central registry where users can confirm the validity of issued receipts.

    Experts, however, say the system cannot work if the framework doesn’t provide for the negotiation and transfer of receipts, rights and obligations of transferors and transferees, among others.

     

    Private sector intervention

    A private sector operator, Integrated Produce City Limited, based in Benin, Edo State, is said to have established an agricultural commodity exchange for cocoa growers, palm oil, rubber and cassava.

    The firm said the concept of exchange market was to enable the farmer to fully dispose of his produce instead of losing 80 per cent of his output that rots before it reaches the market.

    The firm, it was learnt, will have storage facilities, including refrigerated warehouses and host processing plants on its 100-hectare (247-acre) site in the state’s Ugbokun village when it starts operating by the end of this year.

    The firm said the company has invested abourt 20 per cent of the required $135 million for the project and was in talks with lenders and investors from South Africa, China and Australia for additional capital.

    According to the firm, the company plans to offer daily auctions as well as an industrial park for manufacturers.

     

    Fed Govt also involved

    The National Sovereign Investment Authority (NSIA) has also moved to revitalise the Nigeria Commodity Exchange (NCX) in Abuja.

    NCX, formerly known as the Abuja Commodities and Securities Exchange, was originally incorporated as a Stock Exchange on June 17, 1998. It commenced electronic trading in securities in May 2001 and was converted to a commodity exchange on August 8, 2001.

    The conversion was premised on the need for an alternative institutional arrangement that would manage the effects of price fluctuations in the marketing of agricultural produce, which adversely affect farmers’ earnings since the abolishment of Commodity Boards in 1986.

    However, its Managing Director/CEO, Mr. Uche Orji, said in Lagos, recently, that his organisation was holding discussions with the Bureau of Public Enterprises (BPE), Ministry of Finance and the Central Bank of Nigeria (CBN) for possible takeover of the exchange.

    He said the on-going negotiation for the takeover of the exchange, when concluded, hopefully before Q4 2018, would position it to create an agric sector that would guarantee optimum earnings for farmers. “We have conveyed our proposal. I’m hoping that we will receive necessary approval,” he said.

    According to him, the authority will  invest in   NCX to  enable it develop the infrastructure to carry out its business effectively in facilitating trade and developing settlement instruments and platforms in agricultural produce and basic minerals.

    He expressed hope that the commodity exchange will be able to improve farmers’ access to markets and   improve their earnings. But its success, according to Orji and other stakeholders, is hinged on effective regulation that will clearly spell out the roles of the private and public sectors.