EXPORT FINANCING IN NIGERIA PROBLEMS AND PROSPECTS

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Abstract

This research sought to examine the impact of Nigerian Export Import Bank credit terms on non-oil export in Nigeria; examine the impact of Total banking export credit on non-oil export in Nigeria and examine the relationship between non-oil export and Nigeria’s gross domestic product. The study adopted the ex post facto research design for the period 1990 to 2007 and data were gathered from  secondary  sources.    The  study  utilized  the  simple  linear  regression analysis where the Nigeria Export-Import Bank Credit (NEIXMC), Total Bank Export Credit (TBEC) and Non-oil Export (NOE) were used as the independent variables and Non-oil Export (NOE) and Gross domestic Product GDP      as dependent  variable  for  the  hypotheses  respectively.  The  result  of  the hypotheses  tested  revealed  that  Nigerian  Export  Import  Bank  credit  have positive significant impact on non-oil export in Nigeria; Total banking export credit have positive significant impact on non-oil export in Nigeria and Non-Oil Export have positive significant impact on Nigeria’s gross domestic product. Thus the study recommends that; Local manufacturers should be encouraged to expand production and source market globally; export policy implementation agencies should be made to improve on their strategies to boost production and Government should ensure pre and post shipment finance in local currency through rediscounting facility among others.

CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

The growth of any economy is a function of the quality and quantity of goods and services it produces. There is always a tendency to produce and market to earn a living. In  the wider society, the quality of life enjoyed very much depends on the quality of goods and services available to the citizenry. There is the development aspect of growth that enables equitable distribution. This entails getting products from one part to the other.

Production in one country could be transported to another to enhance quality of life. Developing nations have the tendency to import greater  part  of  their  goods  and  services from  developed nations. To square up with the developed nations, they have to increase production of exportable goods.

Nigerian economy has depended predominantly on crude oil since the discovering of crude oil in the early fifties. Prior to this theirs, cash  crops  like  cocoa,  palm  produce,  cotton,  groundnut  and cassava have been the mainstay of the economy. These cash crops earned so much foreign reserve of the economy.

Nigerian Bauxite and Cable are the best in the world and are sought for globally. (Soludo, 2009:20).

One would have expected a balance of payment that tilts to the favor of local     production. This, however, is not the case with Nigeria  as  imports  far  outweigh  exports.  Export  financing  is  a means of helping local producers process their products for a better market abroad. It is designed to make funds available for local producers to seek for market abroad. The essence of every productive business is to sell to a wider range of customers to reduce cost and continue in business. Oftentimes, it is propelled by the desire to increase the market share, and thus, the clientele. According to Nigerian Export Promotion Council (2009:12), export financing makes fund available for exporters to process there good for export. It notes that in Nigeria, there are many opportunities to explore for exports created by government, noting that there could be logistics that may hinder continuity. Nigerian Export –Import Bank (NEXIM, 2008:19) notes that a lot of exporters do not want to take the risk of assessing funds from NEXIM due probably to high interest rate. But it states that the risk involved in export financing is such as to secure the financier’s investment while monetizing the exporter.

According  to  Chartered  Institute  of  Bankers  of  Nigeria  –  CIBN (2008: 14), export financing enables businesses to take their products all over the world, by enabling the exporter get to many places round the globe to market his products. There are a lot of benefits to a business selling overseas, but there can be a lot of

financial risks involved as well. It is important to understand the risks and government regulations before selling overseas. According to International Monetary Fund (2007:122), export credit scheme aids export financing and boosts a country’s Balance of Payment. It notes that if done right, it can be profitable and can sometimes bring a business more profit than selling within the country. Export financing, notes Soludo (2009:15) is loan meant for shipping of products outside a country or region. If you have a product that is good, appealing to another country, and has great potential to sell, you could also consider a venture capitalist to help bring your business  where  it  needs  be.  “CBN  greatly  encourages  venture capital as export finance. There are also some creative methods of export financing. One of such methods is utilizing a factoring house overseas. Basically the factoring house will purchase the exported products at a discount below invoice value. The factor sells the products at a higher margin. This ensures that the exporter receives his  money  upfront,  which  reduces  the  risk  greatly”  (McJones,

2010:112)

According to International Development Agency (2010:13), funds are provided to developing countries to help them purchase United States goods and services. McJones (2010:13) observes that IDA services are no longer highly operational in Nigeria, but there are Export Assistance Centers, EAC, that offer technical assistance to exporters of which the Nigerian Version is Export Processing Zone

(EPZ). This research work looks at the problems, causes and prospects of export financing in Nigeria.

1.2   Statement of the Problem

Export   financing   is   the   prime   mover   of   the   economy   of industrialized nations. Goods are produced for consumption both locally and internationally. Export financing is, therefore, a key factor in any successful international trade. Exporters naturally would want to get paid as quickly as possible, while importers usually prefer to delay payment until they have received or sold the goods. Because of the intense competition for export markets, being able to offer attractive payment terms customary in trade is often necessary to make a sale. In many cases, government assistance in export financing for small and medium scale business are not easily accessed by exporters themselves.  It is either that the conditions given  to  exporters  are  too  high  for  them  from  various  finance sources or they are not willing to take risk associated with the finance sources.

There are, however, crucial points to note that pose great problems to successful export financing:

1)     The extent of competition in the product being exported.

2)     Security of credit terms. If the exporter waits for long to receive his money, the aim of export financing is defeated.

3)     Cost of alternative export financing. If the exporter assumes all or greater part of the risk of export financing, he is often discouraged.

4)     Risks associated with financing the transaction. The riskier the export transaction, the more difficult and more costly it will be to finance.

5)     Excessive  protocol  at  export  finance  firms.  If  the  exporter passes through too much protocol, which leads to spoilage of his products before they are shipped, the tendency will be to disembark from seeking that finance.

1.3  Objectives of the Study

Based on the identified problems above, the following objectives are formulated by the study:

1      To examine the impact of Nigerian Export Import Bank credit terms on non-oil export in Nigeria

2      To examine the impact of Total banking export credit on non- oil export in Nigeria?

3      To  examine  the  relationship  between  non-oil  export  and

Nigeria’s gross domestic product?

1.4  Research Questions

Based on the objectives the following research questions are raised by the research:

1   To what extent do Nigerian Export Import Bank credit has a positive significant impact on non-oil export in Nigeria?

2   To what extent do Total banking export credit has a positive significant impact on non-oil export in Nigeria? and

3   What is the relationship between non-oil export and Nigeria’s gross domestic product?

1.5  Research Hypotheses

Based on the research questions the following research hypotheses are formulated by the research.

Ho1: Nigerian Export Import Bank credit does not have positive significant impact on non-oil export in Nigeria.

Ho2: Total banking export credit does not have positive significant impact on non-oil export in Nigeria.

Ho3:  Non-Oil Export does not have positive significant impact on

Nigeria’s  gross domestic product.

1.6  Scope of the Study

The study covers the period 1990 to 2007 and also looks at causes, problems and prospects of export financing in Nigeria. Data is got from various sources including: Nigerian Import and Export Bank, Federal Ministry of Finance, Central Bank, and US Embassy and Foreign Affairs library. Foreign Affairs and US Embassy meant that the researcher traveled to Abuja, which made visitation of other relevant sources very easier. Besides, their Internet sites were visited.

1.7  Limitations of the Study

To get relevant information from the sources was very difficult. Federal Ministry of External Affairs helped only after fours consecutive days of trials. Central Bank Abuja could only give data after a week. All these engulfed much time and prolonged the time marked for the completion of this work.

1.8  Significance of the Study

The study is significant in a number of ways as follows:

1.      To policy makers and regulators of the export financing, it will  present  a  schema,  through  its  analysis  that  could assist them in enunciating policies and reforms that will positively impact on the performance of the stock market in the light of globalization.

2.    To  economic  watchers  and  the  interested  public,  it  will provide some insight into the performance of export business.

3.    To  investors  in  general,  it  will  expose  the  relationship existing between relevant variable used in the study.

4.    To students, the research will assist   those who which to take a career   in economics   banking and finance to advance their understanding   of the    concept and mechanism of export financing  and it’s  inter-relationship with the financial markets of nations of the world.

5.      Finally, the research work will serve as a reference material for future researchers on similar topic by providing them

with some index of and the Nigerian sources of business finance, export finance.

1.9  Definition of Terms

Rediscounting and Refinancing Facility (RRF): The RRF  is  a facility designed to assist exporters and banks to provide pre- and post-shipment finance in local currency. The RRF is made available in  two  ways.  Namely;  Rediscounting  Facility  and  Refinancing Facility. The facility is available for a maximum tenor of 180 days. Stocking Facility (SF): This facility, given in local currency, is to enable   manufacturers  of   exportable  goods   procure  adequate quantities of local raw materials (which may be seasonal in nature) needed  to  keep  production  at  optimal  levels  during  periods  of scarcity. The duration of this facility is 12 months.

Direct Lending Facility (DLF/SDLF): In an attempt to create a wiser means of  accessing NEXIM facilities and reduce observed lapsed in the on-lending arrangement, the Bank in the third quarter of year 2002 introduced both the Short-term (SDLF) and long –term Direct Lending Facilities (DLF) for exporters. The SDLF is available for the financing of commodity and value added exports. The DLF, on the other hand, is available for a maximum duration of 180 days and 365 days respectively.

Local Input Facility (LIF): The Local Input Facility is a medium/long-term facility disbursed in local currency for the purpose of asset acquisition/modernization, and/or expansion of existing of existing production units for exports. The facility is also

made available for the acquisition, rehabilitation and/or expansion of   plantations/farms   for   the   production   and   processing   of exportable products.

Export Credit Guarantee Facility (ECGF): This facility is operated as a  guarantee provided to banks in  respect of  credit given to exporters  in  support  of  the  export  of  goods  and  services  from Nigeria. The facility is the usual guarantee, which a lender received from a suitable party as security to protect it against a borrower’s default. It is hoped that this facility will encourage banks to provide credit to exporters.

Export  Credit  Insurance  Facility  (ECIF): This  facility  insures exporters  against  risk  of  non-payment  by  buyers  where  such default is ascribable to commercial causes. Payment defaults due to political reasons are covered separately by NEXIM for the account of the Federal Government of Nigeria.

ECOWAS Inter-State Road Transit Scheme (ISRT): in line with ECOWAS protocol on free movement of persons, goods and services, NEXIM was appointed the National Guarantor under the ECOWAS Inter-state  Road  Transit  Scheme  to  guarantee  goods  transiting Nigeria to other ECOWAS countries. The scheme, which is designed to  promote  free  flow  of  goods  among  members  state,  seeks  to eliminate the time wasting escort system and diversion of goods consigned to specific destinations in the ECOWAS sub-region Structure is it an Export Credit Agency (ECA): owned by the Federal Government of Nigeria to finance export.

Product Offerings the Banks has in its portfolio a total of 8 products and services that meet the customers various export needs:

a.     Competitive interest rates.

b.     Flexible tenors, which meet shot, medium and long-term credit needs to our export customers

c.     Underwriting    services    which    cover    commercial    and country/political risks

Confirming – A financial service in which an independent company continues an export order in the seller’s country and makes payment for the goods in the currency of that country.



This material content is developed to serve as a GUIDE for students to conduct academic research


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