Onwuchekwa: FG Should Implement Leasing Act to Attract FDI

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In this interview with Eromosele Abiodun, Chairman, Equipment Leasing Association of Nigeria, Mr. Chuka Onwuchekwa called on the federal government to urgently implement the Equipment Leasing Act recently passed into law. He also spoke on other developments in the Nigerian economy. Excerpts:

The economic situation in the country is having a negative impact on businesses. I will like to start by asking you to take a look at the economy in the last one year and tell us how what is happening has affected the leasing industry.

I am happy that you are bringing up this issue because everybody knows what has been happening in the economy from the price of crude oil, which everybody is very much aware because of our dependent on that. We all know the effect in terms of the purchasing power of people and the effect on our own industry in the sense that even the people that we provide our services to you are finding things hard. As you know, The Equipment Leasing Association of Nigeria (ELAN), as a body, is an association that was established since 1982. It is an organisation that is in charge of all the operators in the industry. Not just the leasing companies but we also have vendors, banks and even professional bodies as members of the association. So for members of the association, what has been happening in the economy has affected our business. Depending on how you look at it. In terms of purchasing power, people don’t have the resources that help our customers in terms of meeting

As you know, The Equipment Leasing Association of Nigeria (ELAN), as a body, is an association that was established since 1982. It is an organisation that is in charge of all the operators in the industry. Not just the leasing companies but we also have vendors, banks and even professional bodies as members of the association. So for members of the association, what has been happening in the economy has affected our business. Depending on how you look at it.

In terms of purchasing power, people don’t have the resources that help our customers in terms of meeting obligation and paying their rentals. On the other side of it, it also creates opportunity because when people don’t have the cash to acquire assets like what we are used to in this part of the world they begin to look at opportunity to lease.

So, depending on how you are looking at. It creates opportunity but the issue is that even when they lease, is the economy buoyant enough for them to be able to meet their obligation? And because of what is happening, it also affected all the players in the banks. The implication is that funding is scares because funding is the major implement for leasing companies to do their business and because of the way our economy is we don’t have long term funding and leasing is supposed to be long term financing instruments. So when you look at it, it is really affecting the industry. If you want to bring it down, there are some of our members in the past who have been able to attract foreign direct investment from development financing institution, abroad. Those development financing institution, who brought in funds to fund

If you want to bring it down, there are some of our members in the past who have been able to attract foreign direct investment from development financing institution, abroad. Those development financing institution, who brought in funds to fund in the leasing companies, were finding it very difficult to get their money out because of scarcity of foreign exchange. The way it works is that the development financing institution that

The way it works is that the development financing institution that are giving money to the leasing company sometime depending on the structure, the money usually hedged. Hedging means that the local company that is taking the funds is not carrying foreign exchange risk. The implication is that when the money matures for repayment, because it is hedge, there is what they call certificate of capital importation which is issued through Central Bank of Nigeria (CBN). It is at the central bank that it was issued and because the money came through CBN, the CBN is supposed to provide the funding for repatriation. Some of our members are finding it very difficult to get those funds and it has also affected the ability of the development financing institutions to bring in more money. You can see it affects the issue of capital flow. I believe that looking at it that way, like every other player in the economy, what is happening has affected the operations of our business.

It is at the central bank that it was issued and because the money came through CBN, the CBN is supposed to provide the funding for repatriation. Some of our members are finding it very difficult to get those funds and it has also affected the ability of the development financing institutions to bring in more money. You can see it affects the issue of capital flow. I believe that looking at it that way, like every other player in the economy, what is happening has affected the operations of our business.

You talked about scarcity of foreign exchange, now that we a floating exchange market or the flexible foreign exchange regime are your members still finding it difficult to attract the development financing you talked about?

There was a statement I made about funding coming into the country that is hedged. For the ones that were hedged, no problem because the exchange rate risk is already taking care of but the problem is that because during the period where the foreign exchange is scarce, you know all of us are operating in the environment and we know what has been happening in terms of availability. There

There are so many repayment that were trapped and once the payment is due and it’s not being paid, the hedging expires. That means that those of our members that have backlog to payback now will suffer a lot of huge losses because money that you were supposed to be paying back at N199/$ you are now going to be paying back at N280 to N282, based on the floating exchange rate regime that you mentioned. So it has a lot of impact. As far as what is happening is concern, it is a major challenge for the operators, currently.

The equipment leasing industry does not contribute a huge percentage to the nation’s gross domestic products (GDP) currently. What do you think the government can do to place the industry at the same level with say banking and entertainment industry?

Your observation is correct. In fact the board meeting we had recently, those were some of the things we were discussing. Sometime last year we got a leasing act passed and it became law last year and we are still grappling trying to put all the institutional frame work.

One of the things that we are supposed to put in place is the registration authority as it is in the act. The government is settling down trying to work with ELAN to bring all the stakeholders that are supposed to be members of the association authority. Once that is in place, we will begin to see some of the benefits that were envisaged by trying to put that act in place. It will put all the institutional framework in place, we will see the huge benefits.

But a lot of infrastructure must be put in place to be able to drive it. One of the benefits of leasing is that creates what I may call, “opportunities for people who don’t have the opportunity to acquire to certain assets for economy activity to have that.” When that happens, it creates employments. For example, when you are able to acquire certain machines, the assets to your productive activity, it means that you will have to employ more people. One of the things that the act is supposed to be doing is to

For example, when you are able to acquire certain machines, the assets to your productive activity, it means that you will have to employ more people. One of the things that the act is supposed to be doing is to sanitize what has been happening before now which means that a lot of people will be engaging in the business and some institution will be able to invest in the leasing because they will feel they are protected by the law. Like the DFIs I mentioned before, before now many of them were in China because they say there’s no legal frame work for that.

With what has happened one of the things we are still trying to work with government in terms of advocacy programme is for them to begin to see the need to partner ELAN to put in place some of those institutional frame work or some of the things that will help to deepen the practice of lease in Nigeria. For example, the pension funds are not allowed to invest in the activities of Lessors in providing the funding for leasing activities. But if government can look at leasing as a way of improving the economic activities in the country and as a way of creating employment, and as a way of empowering a lot of people because there are so many people in the past that ordinary wouldn’t have been able to have certain types of equipment. The Small and Medium Scale Enterprises (SMEs) and those at the lower end of the ladder who do not have access to finance will get what they want to do their business. There are people before now through leasing they have been able to get an asset as tiny as

The Small and Medium Scale Enterprises (SMEs) and those at the lower end of the ladder who do not have access to finance will get what they want to do their business. There are people before now through leasing they have been able to get an asset as tiny as small generator to power their refrigerator to sell ice blocks. If a lot of funds is made available through some of this institutional frame work that I mentioned, it will help to expand the leasing activity which also have direct effect in the terms of the economic activity.

As an organisation you have achieved something in the past, you became the president at some point. Can you tell us what you met on ground, what you have achieved and where you want to take your organisation before your term expires?

Well one thing that we can talk about or I should say the current board does not like talking about what we have achieved. It’s like a marathon and there were people who were there before who have been working, who handed over the baton to us, and now continuing and when we leave, we are also going to hand over to others. I don’t want to talk about what we have achieved this or that because some people must have made

I don’t want to talk about what we have achieved this or that because some people must have made input for which we continued. But suffix it to say that it was also during our tenure that we are able to get the leasing act passed into law. We were able to put the law in place last year and it’s also during our tenure that we are able to get government interest more than what we used to do. We are trying to partner government in so many ways and we are engaging the authorities in this regard and because of the contact some of our board members have been able to bear, we have been able to be closer to them and they are listening and we are working with them towards achieving some of the

We are trying to partner government in so many ways and we are engaging the authorities in this regard and because of the contact some of our board members have been able to bear, we have been able to be closer to them and they are listening and we are working with them towards achieving some of the objective. For example, the National Automotive Council (NAC), we are working with them directly and it is through our efforts to engage them so that we can see how we can collaborate to ensure that we support the government initiative in terms of made in Nigeria car, affordability of those from the leasing point of view. We have also been able to increase the memberships of the association, trying to make sure that we get more members. In terms of advocacy, I think we have also done very well. I believe that we still have a lot of work to do. We are still trying to work with

For example, the National Automotive Council (NAC), we are working with them directly and it is through our efforts to engage them so that we can see how we can collaborate to ensure that we support the government initiative in terms of made in Nigeria car, affordability of those from the leasing point of view. We have also been able to increase the memberships of the association, trying to make sure that we get more members. In terms of advocacy, I think we have also done very well. I believe that we still have a lot of work to do. We are still trying to work with

We have also been able to increase the memberships of the association, trying to make sure that we get more members. In terms of advocacy, I think we have also done very well. I believe that we still have a lot of work to do. We are still trying to work with government with a view to engaging them for the benefit of our members. We want them to see what we are doing, the benefit of leasing and to see how we can work together for the overall interest of the economy because if there are lots of activities in the leasing subsector, it will also have direct effect In terms of the impact, job creation, and the warfare of the citizens. Our members have also contributed a lot in the terms of the taxes they pay to the government. One of the issues we are trying to deal with now is the issue of double taxation like Value Added Tax (VAT) and withholding tax issues. We are currently discussing with the Federal Inland Revenue Service (FIRS) to see how we can resolve the matter.

Our members have also contributed a lot in the terms of the taxes they pay to the government. One of the issues we are trying to deal with now is the issue of double taxation like Value Added Tax (VAT) and withholding tax issues. We are currently discussing with the Federal Inland Revenue Service (FIRS) to see how we can resolve the matter.

Developments in the interbank market show that it may be difficult to sustain liquidity to attract assets into business like yours because banks may have no other option than to increase rates for borrowers. If this happens what will be your advice to your members?

Like I said earlier, for our members, short term funding is not the way out for us. We are more interested in long term funding because leasing is a long term funding business. We have always advice to our member if possible not to go through the interbank window to borrow because it is a short term funding mechanism. We are more interested in

We are more interested in longer tenured mechanism that will help our members to do their business because a proper leasing transaction should not be less than between one to five years. That way it is easier because the longer it takes, the more it is easier for people to make instalment payments. So my advice to our members is not to begin to patronise interbank because that mechanism is meant for banks to do their business-they own the window. Leasing companies do not have a window where they can borrow from each other.

If you will agree with me, leasing companies have not effectively tapped into the opportunities available in the states. State governments complain of low revenue but spend huge sum of money buying whatever they need. What is ELAN doing to drive this segment of the market?

Good question. ELAN, as a body has a programme and one of the things that we had done in the past, which we are still doing is how to engage the state government, to beginning to be part of the programme. There was a time we wanted to do a programme in the past where we wanted all the government agencies that are managing their transporting sites to be part of one of our conferences to be part of what we are doing.

We are trying to bring them just to exposes them to what we do for them to be able to see the benefits of leasing. That does not mean that there are not some state governments that have done leasing in the past. I know some of our members who have also done a lot of equipment transaction with some state governments. The awareness is there. Even the SMEs have benefited from leasing companies. I also know one of our members that

I also know one of our members that was working with Lagos State Government in providing lease financing to almost up to 20, 000 workers partnering Lagos state government. It is not that government is not aware but like you said there is need for better awareness. One of the things we are doing through our advocacy programme is to make them to be more aware and I also believe that the press have a role to play to beginning to create more awareness and let state governments know that leasing is a better financing option for them. One of the things that I was happy recently was when I saw in the papers where the Nigerian National Petroleum Corporation (NNPC), for the first time adverted biding, asking leasing companies to bid for the provision of vehicles for their various depots all over Nigeria. When I saw it, I said wow that’s good; it means that even federal government, ministries and agencies are beginning to see the benefit of leasing. As at the time the

When I saw it, I said wow that’s good; it means that even federal government, ministries and agencies are beginning to see the benefit of leasing. As at the time the biding closed I learnt that 115 leasing companies applied for the bid. Now they are going through the process to select the company that will do that. It may be because of the times that we are in right now where cash flow is limited every body’s eyes are beginning to open to see the benefits of leasing. They are beginning to see now that the best way to go is to begin to use leasing as a financing tool as supposed to

When I saw it, I said wow that’s good; it means that even federal government, ministries and agencies are beginning to see the benefit of leasing. As at the time the biding closed I learnt that 115 leasing companies applied for the bid. Now they are going through the process to select the company that will do that. It may be because of the times that we are in right now where cash flow is limited every body’s eyes are beginning to open to see the benefits of leasing. They are beginning to see now that the best way to go is to begin to use leasing as a financing tool as supposed to

When I saw it, I said wow that’s good; it means that even federal government, ministries and agencies are beginning to see the benefit of leasing. As at the time the biding closed I learnt that 115 leasing companies applied for the bid. Now they are going through the process to select the company that will do that. It may be because of the times that we are in right now where cash flow is limited every body’s eyes are beginning to open to see the benefits of leasing. They are beginning to see now that the best way to go is to begin to use leasing as a financing tool as supposed to

When I saw it, I said wow that’s good; it means that even federal government, ministries and agencies are beginning to see the benefit of leasing. As at the time the biding closed I learnt that 115 leasing companies applied for the bid. Now they are going through the process to select the company that will do that. It may be because of the times that we are in right now where cash flow is limited every body’s eyes are beginning to open to see the benefits of leasing. They are beginning to see now that the best way to go is to begin to use leasing as a financing tool as supposed to

When I saw it, I said wow that’s good; it means that even federal government, ministries and agencies are beginning to see the benefit of leasing. As at the time the biding closed I learnt that 115 leasing companies applied for the bid. Now they are going through the process to select the company that will do that. It may be because of the times that we are in right now where cash flow is limited every body’s eyes are beginning to open to see the benefits of leasing. They are beginning to see now that the best way to go is to begin to use leasing as a financing tool as supposed to

As at the time the biding closed I learnt that 115 leasing companies applied for the bid. Now they are going through the process to select the company that will do that. It may be because of the times that we are in right now where cash flow is limited every body’s eyes are beginning to open to see the benefits of leasing. They are beginning to see now that the best way to go is to begin to use leasing as a financing tool as supposed to outright acquisition of assets.

As at the time the biding closed I learnt that 115 leasing companies applied for the bid. Now they are going through the process to select the company that will do that. It may be because of the times that we are in right now where cash flow is limited every body’s eyes are beginning to open to see the benefits of leasing. They are beginning to see now that the best way to go is to begin to use leasing as a financing tool as supposed to outright acquisition of assets.

When I saw it, I said wow that’s good; it means that even federal government, ministries and agencies are beginning to see the benefit of leasing. As at the time the biding closed I learnt that 115 leasing companies applied for the bid. Now they are going through the process to select the company that will do that. It may be because of the times that we are in right now where cash flow is limited every body’s eyes are beginning to open to see the benefits of leasing. They are beginning to see now that the best way to go is to begin to use leasing as a financing tool as supposed to outright acquisition of assets.

Speaking of long term funding, bigger players in your sector are not listed on the capital market where they can get cheaper, long term funding. What do you have to say about this?

What our members are trying to do is to first of all structure their business in such a way that they have all the things that is required to go to the capital market. Any company that wants to go to the capital market must have good corporate governance and good accounting policies. These are some of the things as a body that we discuss with our members, to work with consultants to prepare some of them that are not yet qualified. They have to put their books or house in order to be able to get to that level.

So it is not like the association does not know what is required. We are speaking with our members to ensure that they have all the necessary structure that will enable them to go to the market. But you and I know that this is not the best time to go to the market. However, at the right time so many of them who already qualify will list on the capital market. Some of our members have been able to attract development financing institutions to invest huge sums of money in their business, which tells you that they have strong corporate governance, good management, accounting policies and structures in place. But the issue now is whether this is the right time to do that but at the right time, you will see some of our members going to capital market to access funding.