Bello: We Must Reduce Level of Informal Trade in Nigeria

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The Managing Director of the Nigerian Export-Import Bank (NEXIM), Mr. Abubakar Abba Bello, in this interview on the sidelines of the just concluded International Monetary Fund/World Bank Meetings in Bali, Indonesia, spoke about various initiatives by the bank to drive activities in the non-oil sector in order to enhance the country’s revenue.  Bello, also spoke about the importance of his role as the chairman of G-NEXID, a group of export, import banks and development institutions across the world. Obinna Chima presents the excerpts:

Nigeria is currently the Chairman of the Association Export-Import Banks; a position you occupy. What is the implication of this appointment?

Firstly, it is not an association, it is a group of export, import banks and development institutions. It is called G-NEXID. It was set up in 2011 and the main purpose was to facilitate trade investment within the South-south cooperation. Now what we found out was that the founding fathers, which was driven by the India-EXIM Bank and Afreximbank was that when South- south cooperation countries in organisations like the World Trade Organisation and the likes meet, we don’t have a voice. Why? That was because the size of our trade is very small compared to the developed countries. So, the group was set up to bring the south-south countries together so that they would have a bigger voice. That was the first purpose. The second one is to be able to facilitate trade between the south-south countries.

At the meeting in Bali, Afreximbank president said in the 1990s, Nigeria for instance or Africa as a whole, total trade with south-south countries was about 17 per cent of global total trade. But certain initiatives that have been taken has seen the growth rise, such that today, the south-south is the biggest trading partner of Africa and it is about 54 per cent today. Even for oil, although NEXIM Bank doesn’t deal with oil, you will notice that India is the biggest buyer of Nigeria’s oil. Of course we all know the story of China. Now, this south -south trade is even now more driven by India and China. So, the group in its little way has also facilitated trade within south-south. Who are the members of G-NEXID? The biggest economies that are in G-NEXID or EXIM banks that are in G-NEXID, China is one of us, but they hardly participate. But India, Brazil, currently Indonesia has joined us. But we have most of the other African countries as part of the G-NEXID network. Nigeria didn’t just get the presidency. The presidency was given to Nigeria even before I came. But almost immediately after the presidency was given to Nigeria, my predecessor, Mr Robert Orya, held it for just a brief period. So when he left, there was like a hiatus. We had somebody attending the meeting and so when I came in, I just took over. I probably have less than eight months left as the president. I have held it now for close to a year and a half. It is usually for a period of two years. So, that is basically what the G-NEXID does.

Can you take us through some activities in the bank since you assumed office?

In the first instance when I resumed, I did not find NEXIM in the state where I could meet the press and start making statements. We found a lot of things. I do not like saying how bad it was when we got into the bank, but we found it in a bad state. Our loan portfolio was in a state of mess. The loans were not performing. So, the first thing we did when we came in was to try and acculturise the bank. We got the staff to start seeing themselves as professional bankers and not civil service employees because NEXIM is a bank.  Aside from being a bank, it is an international organisation. We belong to so many international affiliations that professionalism becomes very key. We can’t keep relying on government to fund us. Most EXIM bank have lines between themselves. We get lines from other multilateral institutions. And one of the key keys things they look at, apart from your financials, is how professional that institution run. So, we set out a strategy, we had to go back to the drawing board, reworked our strategy and then set out deliverables for ourselves on what needs to be done. I’d say since we came in, it has been quite successful.

Another thing we found out was that the bank was almost insolvent when we came in, so we couldn’t even lend. We had two approaches to get liquidity into the bank. One was to go on a massive recovery drive. Some of the loans that were given, though the objectives were good, but a lot of them were given without proper procedures and proper collaterisation. It was like they were in a hurry to just give loans, maybe they were under pressure from government, I don’t know. So, we had to do a lot of works to recover the ones we know are not working, restructure the ones we think are noble enough and commercially viable and those that we thought had some fraudulent motives, we handed them over to a presidential panel that is called SPIB for recovery. But concurrently with that, we set out to also get funding for the bank, which was successful. We got the Central Bank of Nigeria (CBN) to re-introduce the intervention for export which is the N500 billion line and secondly, the central bank also refunded the bank with N50 billion, which is what we call the export development fund. Since then, we have been engaged because in all honesty, when we first came, we looked at the total customer, there was no significant exporter from Nigeria that was being funded by NEXIM. CBN, every quarter publishes a list of the top 100 exporters in Nigeria. We looked at our books and found out only two are Nigerians, and even the two was at the bottom of the top 100.

So, for us, while we want to support SMEs to grow into major exporters, we looked at it, what are the low hanging fruits? Don’t forget that we took over when the country was in recession and there was this drive to diversify sources of foreign exchange revenue. So for us, the low hanging fruit was for us to look at ways of expanding the businesses of exporters that are already in it. The risk of non-performance would have been mitigated because they know how export is done. That is majorly what we have been doing. So, we looked at the top 100 and decided to support them. But concurrently, one of the pillars of our strategy is that we should encourage processing. We still should not be taking primary products into the global market. That is why we are susceptible to international shock of prices which by the way, as producers of those raw materials, we have no control over. The President of Africa Development Bank likes saying Africa, West Africa specifically, produces 75 per cent of global cocoa, with Cote d’Ivoire, Ghana, Nigeria and Cameroon, but we only control less than two per cent of global cocoa market which is from beans and chocolate. Current global market size is about $137 billion. What it means is that Africa does less than $3 or $4 billion from that size.  How? It is because at primary production level, we have no control over price. You can have your cocoa and they will just tell you we are not buying and there is nothing you can do. It stays on the high sea for some time and starts becoming spoilt. So, we are at the mercy of global traders. So, what we have put as one of our fundamental objectives is to encourage processing.

Another one I like giving example of is shear nuts, where again, we are one of the world’s largest producers. But prior to last year, there was no processing plant in Nigeria. The only processing that was done was by micro enterprises that do it in the traditional way. But guess what happens to Nigeria’s shear, people come in from Ghana and India, buy up the shear and take it to Ghana for processing because they have three processing plants. In fact, it doesn’t register as trade in Nigeria because it is bought in little quantities. So, now we have gotten a one processing plant. That is the one at Ikene. We have done about three exports of shear butter already. There are two other plants we are working on. Niger State is the largest producer of shear nuts and there are two plants we are trying to set up in the state. We are trying to resuscitate some of the cocoa plants. Most of them have had their own issues, largely management-related. But we think a lot of them have learnt their lessons. We would get better value if we process cocoa, at least into butter in the first instance. Now, what we are doing right now is, before we get the processing plants back to life, we will finance the trade of primary products.

If you recall, when we had the meeting with the CBN governor, the governor said he would give a window of two years for those that are doing raw cocoa, raw cashew and raw sesame, to set up processing plants. If you recall, there is an acronym – PAVE – Produce, Add value and Export, and that is our focus now. Like cocoa, total processing capacity that is working in Nigeria now is like 165 tonnes and we produce between 200 and 250 tonnes. But there is installed capacity well above 65,000 tonnes only that it is not working. So, gradually, we are trying to bring them up. For instance, for Multitrex, we are working assiduously with the Asset Management Corporation of Nigeria, to see how we can revive it. That plant alone can process 65,000 tonnes. So, immediately it is revived, it would double the processing capacity of cocoa. Incidentally, most of the cocoa plants were financed by NEXIM at some point. So, a lot have been privatised, some were government owned, some owned by the south western states, but we need to upscale and retool them to get them to production. Other things we are doing that is key to diversification is the development of solid minerals.

Now, we know there are solid minerals in Nigeria, but apart from policy, there is also the problem of logistics. For instance, we are aware that Nigeria is losing somewhere between a billion dollars of trade opportunity from Ghana for our coal because Ghanaian power plants are powered by coal. Our coal is one of the best in the world, but the problem is getting it to Ghana. And if we use trucking, by the time it gets to Ghana, it will become uncompetitive. Another example is Itakpe iron ore, it has orders of close to a million tonnes of iron ore for China, but transporting it is a major problem.  Just to tell you how large that is, one million tonnes is 35,000 trailers. So, 35,000 trailers would be a major challenge. So, what are we doing in all of these? Part of our mandate as a bank is also export or trade facilitation, not necessarily financing only. So, one of the things we are doing is to create the logistics and infrastructure to get some of the solid minerals, especially to the ports. We are talking first of all, with the Inland Water Ways. In fact, we have reached agreement with them to give us the inland ports which incidentally are all near where the solid minerals for coal and iron ore are and also the railways.

You know how the current administration has resuscitated a rail lines that most of us didn’t even know existed, which is from Itakpe to Warri. Now, it is working but we need it to carry cargo. And to carry that cargo, it can’t go to Warri port because the draft of Warri port is just for meters. Now you can’t dredge it again because there are pipelines underneath. So, that railway line terminated about 23 kilometres from Warri. So, we are talking to some companies to extend it, not to Warri but to Burutu, which is a deep sea port. Now, the concessionaire is also our customer, we are working together to ensure that we can get than rail line which is about 50 kilometres, because you can only do that logistics by rail. So, we are going to do the port which will help. The River Niger is being dredged. So, it is going hand-in-hand with another initiative that we are promoting which is the sea link initiative where we are going to put vessels along West  and Central Africa ports to facilitate the intra-Africa trade.

So, from different angles, despite the limited resources we have, we are trying to make an impact on Nigerian trade of non-oil commodities. And so far so good, I think sea link before the end of the year we would achieve that. We keep shifting the date, our target was before the end of third quarter but we have shifted it to end of year. We have signed all the papers, we have the vessel owns, so, the major problem with sea link in the past was that we tried to run it as a company where shareholders will invest. But there has been some inertia because there is nothing on ground. You are inviting people to come and invest in nothing, that they cannot see physically. So, when we came in, we knew that a lot of vessels were idle. So, we advised that th vessel owners bring their vessels into sea link. We are going to run it as a pilot in the gulf of Guinea between Nigeria, Cameroon and the other smaller countries. Let investors see it working. We need badges for inland water ways. So, we already have interest where twelve badges have been committed. We have three or four different vessel owners who have indicated interest in bringing their vessels.

If you remember, another problem that caused Eko Marine’s failure was that there was no cargo to do West Africa. Now, what we have done in conjunction with the Manufacturers Association of Nigeria’s export group, was that we set up special purpose vehicle called Nexport trade, where Nexport trade will be the importer of Nigerian products. Nexport trade will be like a ware house that exists in Nigeria, Ghana, Togo, Liberia and so on. So, the Nexport trade from those countries will be making direct orders for Nigerian goods. They too, their problem was that there was no logistics arrangement.  For example, in Liberia, Indomie is one of their best foods. So, Nexport did a sample trade of Indomie to Liberia. The number of containers were about four.

As they opened the containers, because of the huge demand, it got finished. Now, to restock will take six weeks. Why? Because you have to tranship to Europe and bring it back to Liberia, simply because there is no route. So, same for close-up. If you go to Ouagadougou, you will see close-up, but not the original close-up. They say they make it in China. Why because those are the luxury products for them. PZ does not have the capacity to supply those markets. But when it is done formally, PZ, Flour Mills, even Dangote can take advantage of that opportunity. We had a meeting with Dangote about one month ago about ceiling. They can’t wait for us to start. Now, cargo has been secured through Nexport trade. Infact, Afeximbank heard about Nexport trade and they have almost taken it from us because they are trying to drive intra-Africa trade and they have seen it as a model that they want to replicate across Africa.

First thing we need to do is to reduce informal trade. Nigeria’s informal trade is about three to six times depending on the statistics you take, more than the formal trade. Some put the figure at $18 bilion, some are saying  about $12 billion. Nigeria’s non-oil export hovers around $3 to $4 billion. So, once you are able to formalise that trade, we get the benefit for it as a country and even as individuals that engage and companies that engage in that trade and of course foreign currency will immediately shoot out. Then, the final one I think is very key is that the Economic Recovery and Growth Plan (ERGP) has identified its strategic plot for diversification. Between NEXIM, the Nigeria Export Promotion Council and the Nigeria Incentive-based Risk Sharing System for Lending (NIRSAL),  we’ve taken the liberty to expand it to 12 because we brought in other commodities that we think have the capacity to contribute significantly. These include ginger, leather products and so on. So, the NEPC has under the zero-oil plan an initiative they call one state, one product. It is a fantastic initiative. But what was missing was finance.

So under our export development fund, we have dedicated N1 billion per state to drive the one-state, one-product initiative. We are working closely with NEPC to actualise that initiative. When we got the fuding, the farming season for this season that just came in had already passed. Now, we are working with NIRSAL, NEPC and the state government. Not directly the state government. What we want the state governments to do is things like land, agric extension and clustering farmers under a cooperative association. Typically, it is just to replicate the Anchor Borrowers’ Programm, but specifically for export commodities. And we are trying to encourage also, that states that fall under the same climatic belt, should choose same commodity. If we have seven north-west states for instance all growing sesame which grows around that area, we have N7 billion for sesame. With N7 billion, we can put processing centres around. As you produce, you process and we would have an aggregator that would now take the export. Essentially, what we are doing is that in the drive to create employment, get MSMEs  integrated into formal economy, we are going down to the micro level which is the farmers, to start production, the SMSEs take over in processing and also the traditional  exporters will take over from there. Of course the farmer will get better value for his products because there would be an agreed price that would be taken, not what speculators do. We will guarantee price and off-take. Even for the states, the activities it will create helps both the economy, reduces unemployment. We have seen the effect that Anchor Borrowers Programme has on Kebbi state for instance. There are more people going for Hajj which tells you that they have money. So, poverty alleviation at the same time and then create employment. We are hoping that we can start with the dry season for some states. We have reached agreement with several states like Katsina, Kaduna, Kano, Edo, Ondo, Cross River, Delta and a couple of others. We haven’t gotten to the point of signing MoUs but discussions have gone very far.

What has been NEXIM’s intervention in the maritime sector since you assumed office?

In Maritime sector, I told you about the sea link project. Again, aside from that, there is a discussion we are having with NIMASA together with some ship owners, being led by NIMASA.

But I am aware there have been talks about special facility for that sector?

They actually went to the central bank to get an intervention specifically for maritime, but the central bank now directed them to us. So, we are already in discussions with them. Vessel finance, for me, is not what I would ordinarily do. Honestly, that is because in Nigeria we do not have the expertise for vessel financing. It is totally a new area for us. Now, I won’t discount that we won’t do it, but if the prospect is big and commercially viable, from our own layman’s analysis, there is nothing that says we cannot get that expertise on today. Because it is very key for  us to have Nigerian flag-flying vessels. When I gave you the example of coco where we have less than three per cent of global cocoa trade, it involves even the price of freight. As soon as they deliver cocoa to the port here, we are out. Freight is done by foreign vessels, processing is done by foreign companies, marketing, trade, we are nowhere. And I am happy some other initiative is happening on commodities exchange for Nigeria, which is also very key because that is where the trading of these commodities happens. We need to put our acts together and tie up all loose ends to get more value for all we are doing.

When you said that earlier, when you came in, you realised that most of the exporters NEXIM was financing, the indigenous exporters were just two, can you shed more light on that?

What was driving the previous administration was the processing aspect. They focused more on processing than trade. By objective, as we were set up by the Act, we are just a trading bank. So, what should happen is that producers of exportable goods of Nigeria produce, maybe through the Bank of Industry or commercial banks, then  we now finance the trading internationally. By objective, that is our mandate. But even the mandate of the bank supports it because if you are facilitating export, it means everything. So, given that some of our producers are not getting the kind of financing they should get to move from primary production to processing, we now had to align our strategy to ensure that we also finance processing for export. They tried to do that, but for me, maybe it was lack of expertise or carelessness. Like I told you with maritime, project finance expertise is different from normal lending.  If you don’t have it, what would normally happen sometimes is that you will go into a project that due to cost over run or time extension, you start getting into trouble. Both the promoter and the bank don’t have that expertise. So, for us, what we meant was that there were lots of investment or lending into processing to the detriment of trade.

In fact, when we looked at our books, almost 90 per cent of our lending was project finanacing which in banking is like suicide. We met the bank insolvent. If you put money in five year loans, nothing comes back until after five year. If you put all your money in processing and project finance, you run into trouble with liquidity. So that was the situation we found the bank in. Again, we touched a lot of things in the strategy. One of the things is that we now had limits, sectoral limits, loan type limits, that would make us at least liquid at any given time. Infact, we made it that at any given time, 10 per cent of our total liquidity or portfolio must be in liquid form.  We can just put it in treasury bills for instance. We are a development bank, not like commercial banks that must keep cash reserve requirement (CRR) of 22.5 per cent. We now said 10 per cent, run our operations, ensure that we are liquid at any given time. Again, because we want to do processing and the hazards of processing, not as bad debts, but investing in long-term projects, we have now opened discussions with other EXIM banks especially in Afreximbank, that has already given us an in-principle offer of $150 million.

Largely, $100 million is for project finance and $50 million for trade. You see, the platform of G-NEXID, also gives us the opportunity to now talk to others. The recent one that we did in Bali, was that we had already signed an MoU withIndonesia EXIM  sometimes like six months ago but it was not operationalised. One of the immediate objective of Indonesia is to expand their trade into Africa and they are doing several things to do that. First investments into Africa into certain sectors that they are strong in and even in support of their MSMEs, they are trying to put Indonesia on Jumia, so that you can click and just buy stuff from Indonesia, all in a bid to just expand their market in Africa. But what we are discussing with them right now is investment into solid minerals and manufacturing which Indonesia EXIM has indicated interest to finance through us in Nigeria. In fact, at this meeting, I was introducedto some of the promoters already in Nigeria actually. I will expand the discussion when I get back to Nigeria. Saudi has also in principle, given us an offer through Saudi Export Promotion. So, we are opening up NEXIM for international financing, largely to support our industries and production in Nigeria. So, things are happening, of course it will take a while for it to start manifesting.