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Promoting non-oil exports for fiscal sustainability and growth

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James Emejo writes that with appropriate financial support, the non-oil export segment could significantly improve the federal government’s fiscal profile and facilitate the current momentum toward economic diversification and sustainability

Amid the ongoing efforts of the current administration to diversify the base of the Nigerian economy from the perils of oil, the need to provide adequate funding and attention to the non-oil export sector cannot be overstated.

Analysts have argued that most of the economic challenges besetting the country could simply be solved by boosting local production and boosting its non-oil export potential.

They argued that the current challenges regarding the depreciation of the local currency, the naira, as well as the relentless foreign exchange crisis could be resolved with the improvement of non-oil export activities, which, in turn, would increase the flow of dollars into the economy. .

Furthermore, a vibrant non-tradable sector has the potential to solve much of the country’s unemployment problems by providing millions of direct and indirect job opportunities.

Strengthening the appropriate non-oil export facilitation institutions to live up to their mandate of providing short, medium and long-term finance to the private sector will not only boost government tax revenue, thereby budget in the context of the current revenue challenges, but also benefit the economy in several ways.

Contribution to the economy

According to the National Bureau of Statistics (NBS), the annual contribution of the non-oil sector increased from 91.84% in 2020 to 92.76% in 2021.

Nevertheless, the country’s exports are still dependent on oil, as crude oil exports stood at N4.26 trillion and accounted for 74.04% of total exports, according to trade statistics for the fourth quarter of 2021.

Non-crude oil contributed N1,490 billion or 25.96% to total exports, of which non-oil products amounted to N810.88 billion, or 14.06% of total exports during the quarter.

Challenges in the non-oil export segment

Stakeholders under the umbrella of the Nigeria Non-Petroleum Exporters Network (NPNEN) recently urged the Federal Government to embark on an aggressive campaign to boost intra-regional trade in Africa to effectively diversify the economy.

Exporters further argued that to improve trade and boost gross domestic product (GDP), investment in non-oil export activities must be taken seriously.

Furthermore, the sector had suffered from the devastating impact of the COVID-19 pandemic which further affected its viability and led to increased funding constraints.

Sector credit facilitation

It was part of the government’s commitment to address financing shortfalls in the non-oil export space that the Nigerian Export-Import Bank (NEXIM) was established by Act 38 of 1991 as an agency Export Credit Company (ECA) with a registered capital of N50 billion held equally by the Federal Ministry of Finance Incorporated and the Central Bank of Nigeria (CBN).

The bank is responsible for providing export credit guarantees and export credit insurance facilities to its customers; provision of credit in local currency to its customers to support exports; establishment and management of export-related funds; maintaining a foreign currency working capital to lend to exporters who need to import foreign inputs to facilitate production for export; and the provision of domestic credit insurance where such a facility is likely to assist exports.

The bank also provides short and medium term loans to Nigerian exporters, including short term guarantees for loans made by Nigerian banks to exporters as well as credit insurance against political and commercial risks in the event of non-compliance. payment of foreign buyers, among others.

Mandate update

Since the entry into office of the Managing Director / Head of NEXIM Bank, Mr. Abba Bello, on May 2, 2017, the new management has developed a new strategic plan (2018 – 2022) articulated around the improvement of operational performance , the fulfillment of the bank’s mandates and contributing to the achievement of the federal government’s objectives under the Economic Recovery and Growth Plan.

Now in its fifth year of operation, the plan has contributed to the significant turnaround in the bank’s operational performance while efforts to clean up the balance sheet as well as improved risk management practices have ensured the performance of new loans. granted from 2018. 100%, which is a major change from the huge non-performing loans of the past.

Loan recovery campaign

Bello said the introduction of aggressive debt collection and proactive lending measures increased recoveries from 200 million naira in December 2016 to 10.2 billion naira and $3.25 million between January 2017 and February. 2022, adding that the loan recovery campaign had led to the seizure of assets. worth around 7 billion naira which are currently on sale.

He told THISDAY: “Contrary to the past trend, the bank has also engaged significantly with stakeholders, with improved relationships, manifested in collaborative efforts for policy intervention and increased focus on the non-oil export sector.

“Improved operating model through the restructuring of the bank’s regional offices to maintain a presence in each geopolitical zone of the country for better market penetration and national coverage.”

Intervention projects

The bank’s Export Development Fund (EDF) had led to the processing of 442 applications worth N461 billion and $43.69 million, of which N214.65 billion had been approved while 153 .03 billion naira had been disbursed to 101 beneficiaries, along with approvals totaling 55.85 billion naira which were subject to the pre-disbursement process.

Bello said that so far, $492.97 million and €1.17 million or N196.32 billion have been received as export proceeds from projects that have repatriated their income, while others have yet to close the circle of transactions, adding that many institutions supported by the bank are now included in the list of top 100 exporters published annually by the Central Bank of Nigeria (CBN).

According to him, over the past three years, the bank had operated under the philosophy of Produce, Add Value and Export (PAVE) to change the current narrative of the dominance of primary commodities in its export basket.

In addition, in the support for start-up projects, more emphasis has been placed on providing working capital to revive many industrial projects, which are so far moribund or operating below capacity, in order to stimulate value-added exports and enhance job creation.

Operational performance

Nonetheless, he said the bank had increased its balance sheet from 67.73 billion naira in April 2017 to 202.03 billion naira in February 2022, adding that with continued positive performance, increased strategic partnerships for credit lines credit and the push for the recapitalization of the bank. , the aim is to achieve a significant increase in the size of the balance sheet in line with growing export opportunities, particularly given the African Continental Free Trade Agreement (AfCFTA).

The bank further recorded a profit of N1.09 billion in 2018, N2.13 billion in 2019, N1.28 billion in 2020 and N4.10 billion in 2021, after a loss of N567. million naira in 2017 and a larger loss of 8 naira. 03 billion in 2016.

It also suggests that if properly funded, the development finance institution could increase government revenue with its impact on the economy.

The CEO explained that the drop in profits in 2020 was due to the impact of the COVID-19 pandemic on businesses, which necessitated the interest subsidy and the extension of the moratorium granted by the bank to its customers.

• Stimulation of non-oil exports after COVID-19

According to the MD, the bank is also working with the CBN to manage the N500 billion Non-Oil Export Stimulus Facility, which was introduced to provide long-term funds to export-oriented projects to increase value-added exports.

In this regard, under the Pandemic Trade Impact Mitigation Facility (PATIMFA) programme, NEXIM Bank secured $25 million from AFRIEXIM Bank to mitigate the economic and trade impact of the COVID-19 pandemic on Nigerian businesses. .

He said: “The facility is available for continued financing for exporters, particularly SMEs, many of whom have been impacted by global value chain disruptions and other fallout from the COVID-19 pandemic.

According to him, “the bank’s objective is to strengthen its intervention in the different geopolitical zones of the country. As part of its strategy to increase intervention in small and medium-sized enterprises (SMEs), the Bank is also working with various state governments and has signed memorandums of understanding with about ten states under the National Export Development Program.

“This program is expected to facilitate industrialization and economic development at the regional level under the One State One Product program, in which each state of the Federation is expected to identify and develop at least one commodity to be exported under the zero plan federal government oil. ”

• Response to global supply disruptions

NEXIM Bank is further taking steps to position Nigerian exporters to benefit from the opportunities presented by the AfCFTA, following Britain’s recent exit from the European Union and prospects in other regions.

The bank is therefore taking steps to increase its financing capacity to strengthen lending support, thereby increasing the country’s foreign exchange earnings and facilitating job creation.