The Central Bank of Nigeria (CBN) has released guidelines for the Non-Oil Exports Stimulation Facility (ESF). This is expected to give impetus to diversifying the economy from its over-dependence on oil. Assistant Editor CHIKODI OKEREOCHA reports.
For long, access to low interest credit remained a pain in the neck for operators in the non-oil export business. Because of declining export credit, most of them could not upscale and expand their businesses. Consequently, their competitiveness suffered. The growth of the non-oil export sector was also stunted, unable to contribute significantly to revenue generation, job creation and economic development.
The sector’s declining fortunes left a sour taste in the mouths of operators and stakeholders, as the sector was not robust enough to be the wedge for an economy severely battered by crashing oil prices. But the fortunes of the sector appear set for a major reversal. The Federal Government has moved a notch higher in its quest to reposition the sector by redressing the declining export credit that has held the sector down over the years.
Specifically, the Federal Government, through the CBN, a fortnight ago, released operating guidelines on the Non-Oil Exports Stimulation Facility (ESF). The move was part of efforts to stimulate non-oil exports and diversify the economy. Under the guidelines, the CBN said the ESF will be managed by the Nigerian Export-Import Bank (NEXIM), which shall be responsible for the day-to-day administration of the Facility and render periodic reports on its performance to CBN.
For operators in the non-oil sector, the icing on the cake of the strategic initiative was CBN’s decision to implement the facility by investing in a N500 billion debenture to be issued by NEXIM. The apex bank, according to information posted on its website and accessed by The Nation, added that eligible borrowers and beneficiaries will include only export-oriented enterprises and firms.
The eligible borrowers and beneficiaries will also have verifiable export off-take contract(s), coupled with possessing satisfactory credit reports from at least two credit bureaus. Also qualified to benefit from the facility are Eligible Bank Asset (EBA) purchased by the Asset Management Corporation of Nigeria (AMCON) that are of national economic importance and have proven potentials to export.
Apparently to encourage local content, the CBN also said eligible transactions that qualify for funding under the ESF will include export of goods wholly or partly processed or manufactured in Nigeria; export of commodities and services, which are permissible and excluded under existing export prohibition list and importation of plant & machinery, spare parts and packaging materials, required for export oriented production that cannot be produced locally.
Others include export value chain support services such as resuscitation, expansion, modernisation and technology upgrade of non-oil exports industries, transportation, warehousing and quality assurance infrastructure. Deposit Money Banks (DMBs) and Development Finance Institutions (DFIs), except NEXIM, are also eligible to participate in the scheme.
The banking industry regulator further stated that the ESF shall not exceed 70 per cent of the total cost of the project or transaction subject to a maximum of N5 billion. Also, the ESF shall have a tenor of up to 10 years and shall not exceed the 28th of December, 2025. Stocking facility shall be for a maximum tenor of one year, with the option of roll-over not exceeding twice.
However, this shall attract an additional fee of 0.25 per cent per annum of the loan amount and is subject to CBN’s approval. Working capital facility shall be for a maximum tenor of one year with the provision of roll-over not exceeding twice. However, this shall attract an additional fee of 0.25 percent per annum of the loan amount and is subject to approval of CBN.
In addition, the CBN stated that the structure of interest computation under the ESF will be as follows: “Participating Financial Institutions (PFIs) – maximum spread of six per cent per annum, NEXIM – one per cent per annum and CBN – two per cent per annum.
Why the initiative is imperative
The release of the ESF guideline followed CBN’s earlier announcement that it had designed two export financing programmes known as Export Rediscounting and Refinancing Facility (RRF) and Non-oil Export Stimulation Facility (ESF) to improve non-oil export in the country and achieve total diversification of the economy.
The new export financing programmes were unveiled in Abuja at the non-oil exports stimulation conference organised by CBN and NEXIM. At the conference themed “Strategies for Growing Nigeria’s Non-Oil Exports,” CBN Governor Godwin Emefiele explained that CBN and NEXIM came up with the initiative to encourage exporters to expand their businesses as well as provide a pool of funds for commercial banks to support exporters.
According to Emefiele, credit to the non-oil export sector is in decline, constituting a paltry 0.6 per cent of total domestic credit to the private sector in the past five years, while domestic credit to the economy has been on the rise. He blamed low level of export loans for being largely responsible for the decline in non-oil export revenue receipts from $10.53 billion in 2014 to $4.39 dollars in 2015.
“The impact of these developments on the country’s export growth potential is quite significant and has become instructive for stakeholders to dialogue on strategies to expand resources for export,” the CBN boss said, adding that the decline also limited the sector’s contribution to foreign reserve accretion. He said volatility in the international oil market necessitated the renewed focus on non-oil exports as panacea to the nation’s dwindling foreign reserves.
Emefiele noted that a rejuvenated non-oil export would stimulate economic growth and development, address the challenges of unemployment and target economic rebirth through the diversification of the Nigerian economy. He, therefore, pledged that CBN will continue to play a catalyst role in improving export and encouraging local production.
NEXIM Managing Director Mr. Robert Orya also said the funds would be provided to all banks that lend to the export sector and that the banks would be mandated to give loans to exporters at nine per cent maximum. “If a commercial bank gives you a loan to say that you will return it in a year, the bank will not have money to loan out until you return that money.
“But this window is such that as soon as this money is given to exporters, they will bring the credit papers and we refinance and give them the same money that the banks have given them , so the banks can give to others. As soon as the exporters receive the money from the banks, they will bring the credit papers to us again and we will be able to refinance,” he explained.
Orya emphasised that the facility is to encourage banks to lend by providing liquidity for them and to also enable them give the non oil facility at a moderated rate. He also said CBN and NEXIM would meet to finalise on the quantum of funds to be provided for the facilities and also the, modalities for the disbursement.
To experts and stakeholders in the sector, the release of the guideline by the CBN about two weeks ago was a promise kept. Their expectation is that the funding, which is coming in the heat of the crisis in the oil market, requiring urgent rejuvenation of the non-oil export sector as wedge, would, among others, aid exporters to improve on quality standards, packaging issues, export productions and operational challenges.
Failure by exporters to comply with specified standards is said to be responsible for mass rejection of non-oil exports from Nigeria at entry points in many countries in Europe. Non-oil products such as beans, sesame seeds, melon seeds, cocoa and cashew nuts are rejected in many other countries, not only in Europe, with the importing countries citing exporters’ inability to adhere to global standards and poor packaging.
Other issues usually cited by importing countries include high level of chemicals, poor labeling, insufficient information on nutritional content, and presence of high level of pesticide residue and presence of Mycotoxins.
For instance, citing the presence of dichlorvos (pesticide) in dried beans imported from Nigeria, the European Union (EU), last week, extended its ban on the importation of dried beans from Nigeria by three years.
Recall that that EU banned importation of Nigeria’s dried beans in June 2015 on ground that the produce contains high level of pesticide considered dangerous to human health. The EU hinted that it would lift the ban in June this month. Rather than do, it extended it by another three years.
The extension of the ban, according to the Coordinating Director, Nigeria Agricultural Quarantine Service (NAQS), Dr Vincent Isegbe, came when the Federal Government and its agencies were working to ensure that the June dateline to lift the ban was met.
He quoted the official journal of the EU of accusing Nigeria of not doing enough to lift the ban during the period of suspension “The continued presence of dichlorvos (pesticide) in dried beans imported from Nigeria and maximum residue levels of pesticides shows that compliance with food law requirement as regards pesticide residual cannot be achieved in the short term.
“The duration of the importation prohibition should therefore be extended for an additional period of three years to allow Nigeria implement the appropriate risk-management measure and provide required guarantees. The measures provided for in this regulation are in accordance with the opinion of the standing committee on Plants, Animals, Food and Feed,’’ Isegbe quoted the journal as saying.
He, however, said the extension should serve as opportunity for stakeholders to put their hands together to correct the mistake. The consensus of experts is that this has indeed, become imperative since the non-oil sector is fundamental to economic diversification, rapid revenue base expansion, sustainable growth and employment generation.
