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In this exclusive interview, Abba Bello, Managing Director/CEO, Nigerian Export-Import Bank (NEXIM Bank), provides an update on how the implementation of the bank's financing interventions and other key programmes are supporting businesses during the COVID-19 pandemic and driving Nigeria’s nonoil export development in line with the government's economic diversification plan. He was interviewed by Jide Akintunde, Managing Editor, Financial Nigeria Magazine – Africa’s premier development and finance journal.

Jide Akintunde (JA): The COVID-19 pandemic has been described as “a crisis like no other” by the International Monetary Fund. How resilient has NEXIM Bank been to the massive disruptions that have been caused by the pandemic?

Abba Bello (AB): The COVID-19 pandemic is about the most significant global health emergency since the 1918 Spanish Flu and has caused a major economic crisis, arising mainly from measures put in place by governments to curb the spread of the disease. The lockdowns and social distancing measures have led to disruptions in global supply chains and slowdown in economic activities.

We have seen the negative impact of this on the volatilities in the financial markets and prices of commodities, including oil, which at some point fell below $20/barrel before recovering to about $40/barrel currently. Although the lockdowns are now being eased across the globe, the International Monetary Fund (IMF) has projected that the global economy would shrink by 4.9% this year, while Nigeria’s economy is expected to contract by 5.4%.

For us at NEXIM, the pandemic presents some threats, particularly against the background of our mandate as an export development bank. International trade has been most impacted by travel restrictions, while the drop in economic activities has affected demand for exports. As you are aware, most factories in Europe and Asia, Nigeria’s main export destinations, were shut down at the peak of the pandemic a few months ago. Some are only now gradually returning to operation, while others may not even return in the immediate period after the reopening of their economies. All these will affect the ability of our customers who are exporters to repay their loans.

However, given our enterprise risk management architecture, we have put strategies in place to minimize the impact on our loan portfolios. We have restructured some of our loans to give our customers some respite, in line with the regulatory forbearance given to banks by the Central Bank of Nigeria (CBN).

Notwithstanding, we must remain financially sound and safeguard our prudential ratios. For this reason, we have taken steps to leverage some funds from foreign development banks and Export Credit Agencies, and this is producing good results. I can confirm to you that we are coping quite well.

JA: NEXIM Bank is one of the development finance institutions that are implementing the financial responses of both the federal government and CBN to the pandemic. What do these interventions entail?

AB: Yes, you are quite right. The Federal Government has asked that we give three (3) months moratoriums to loan beneficiaries under intervention funds. The CBN has also reduced the interest rate for intervention funds from 9% per annum (p.a.) to 5% p.a., while beneficiaries of such funds have been granted additional one-year moratorium, with effect from March 1, 2020. These measures are expected to ease the negative consequences of the pandemic on Nigerian businesses and we have fully complied with these policy directives.

JA: For businesses that are not already clients of NEXIM Bank, how can they be part of the beneficiaries of the financing interventions?

AB: As a development finance institution (DFI), our objective is to facilitate business growth by providing funding for the achievement of various socio-economic benefits, which in our case include jobs creation and foreign exchange earnings from non-oil exports. So, export-oriented businesses that are not already our clients are encouraged to present their applications for consideration and once they meet the basic eligibility criteria, they will be offered financing under favourable terms and conditions.

We are currently working with our stakeholders to increase the size of the existing intervention funds and to also consider creating new ones in light of the enormous opportunities in the non-oil export sector.

JA: As a proposition, Nigerian DFIs in general, and specifically NEXIM Bank -- an institution specially mandated to finance Nigeria’s nonoil export development -- are more relevant now to the country’s economic diversification plan. Do you share this assertion?

AB: The role of DFIs, and specifically NEXIM, in promoting economic diversification has become more important now than ever before. As you are aware, the structure of the Nigerian economy has changed over time with the agricultural sector, which used to contribute over 40% of the Gross Domestic Product (GDP), now accounting for just about 25%, while the services sector is contributing over 50%.  Nonetheless, the oil and gas sector, which accounts for less than 10% of the national output, remains the mainstay of our economy, contributing over 90% of foreign exchange earnings and 70% of government revenues.

The point of emphasis is that while the Nigerian economic structure is well diversified, the external sector is not, and continued to be dominated by crude oil export. Our non-oil export is composed mainly of a few raw and semi-processed agricultural commodities, accounting for over 70% of the total non-oil export.  Although the country is blessed with huge solid minerals resources, with over 34 solid minerals available in commercial quantity, the mining sector accounts for less than 3% of non-oil exports.  Nigeria does not have a major footprint in services export, in spite of the huge contribution of the sector to national output.  

The non-oil export sector is challenged by a myriad of problems including suboptimal production ranging from low yield in the Agricultural sector to low levels of value added production as a result of poor access to technology and infrastructure.  There are also issues of poor quality and packaging standards, which has led to rejection of our exports, in addition to high transport and logistics cost which have implications for Nigeria’s export competitiveness.  Finance for the development of the non-oil export sector is grossly low, accounting for less than 1% of total private sector credit.

Addressing all these challenges require long term development funds, which underscores the role of DFIs.  Incidentally many of our DFIs need to be supported and strengthened to effectively perform their mandate.  It is common knowledge that most exports from China to the world including, infrastructure projects executed by Chinese companies in other countries are supported by the EXIM Bank of China.  The Nigerian Export-Import Bank aspires to play similar role in Nigeria in the near future, particularly against the background of the AfCFTA framework.


Abba Bello

JA: Until the novel coronavirus infection outbreak, NEXIM Bank was doing a lot of work in preparing Nigeria for effective participation in the African Continental Free Trade Area (AfCFTA), which would have been launched this past July. Where does this Covid-19 disruption leave the preparation of Nigeria – especially the initiatives of NEXIM Bank – for the eventual take off of AfCFTA?

AB: As you rightly observed, NEXIM has embarked on a lot of initiatives to promote intra-African Trade. A few years back, the Bank launched the ECOWAS Trade Support Facility, which has been designed to support small traders operating in the regional market in furtherance of the regional protocol under the ECOWAS Trade Liberalisation Scheme (ETLS).  The objective is also to increase the level of formal trade. NEXIM is also the national guarantor under the Interstate Road Transit Scheme, which has been designed to prevent diversion of ETLS goods transported by road to other ECOWAS countries to minimise revenue leakages in member countries.

Another initiative by which the bank aims to promote intra-Africa trade is the Sealink Project. Under this initiative, NEXIM is facilitating the establishment of a regional shipping company through a Public Private Partnership (PPP) arrangement. The Sealink Project primarily aims to promote trade by mitigating the maritime transport and logistics challenges that have increased the cost of trade in the West Africa and Central Africa sub-regions. Particularly, it will provide direct maritime transportation of cargoes in these sub-regions.

With regard to removing the constraint to trade, particularly for small and medium scale enterprise (SMEs) in Nigeria, NEXIM is working to develop “factoring” as an additional financing instrument to provide quicker access to funds for international trade. SMEs typically have difficulties borrowing from the banking system for reasons of lack of collateral, amongst others. Factoring enables businesses to sell their receivables to a financing agent, called Factor, at a discount, to raise working capital pending payment from their buyers.

We are also promoting an export trading company, called NEXPORTRADE Houses Limited, in partnership with the Export Group of the Manufacturers Association of Nigeria (MANEG) and another government agency, The Nigerian Export Promotion Council (NEPC).  NEXPORTRADE provides a platform for SMEs to trade in the regional market.  The company operates warehouses in other African Countries where SMEs can display their goods and through this enhance their access to the regional market.

These are some of the initiatives NEXIM is promoting towards effective participation of Nigeria in AfCFTA.  However, while the Covid 19 pandemic has led to the postponement of the takeoff from the earlier scheduled date of July 1, 2020, we see it as an opportunity to further enhance Nigeria’s state of readiness for effective participation.  As I earlier mentioned, our value added export is still quite low and NEXIM is working to change the narrative, starting with the regional market, where we have the comparative advantage.  In this regard, we are supporting export-oriented industries that are capable of exporting within the region and assisting them to upscale their products, such that by the time AfCFTA takes off, they are ready for the market.  Of course, activities towards the launch of the Sealink and many of our projects have also continued.  

JA: Would you like to elaborate more on the progress of the Sealink Project, despite the COVID-19 disruption?

AB: As earlier mentioned, the Sealink Project is one of our PPP initiatives being promoted to boost regional trade. The overall objective is to bridge the maritime infrastructure gap, thereby improving trade connectivity for coastal and hinterland trade. This is expected to boost access for Nigerian manufactured exports within the regional market, and solid minerals export globally.

Having made significant progress over the years, preparatory activities for the Sealink Project have reached an advanced stage. The project has consummated a consortium partnership with some private sector maritime operators who have agreed to deploy about 20 vessels, after issuance of ‘Notice of Readiness’ by the Sealink Project.
 
As part of the indication of the project’s readiness, we have obtained approval for inland waterways right of way from the National Inland Waterways Authority (NIWA) as approved by the Federal Ministry of Transportation. The Federal Ministry of Mines and Steel Development has also given us approval for the take-over of one of the river ports adjacent to Ajaokuta Steel Complex in Kogi State. We are also collaborating with the Nigerian Navy to do a survey on, and provide a navigational chart for the lower River Niger, as well as the use of the Naval Dockyard for vessel maintenance and in-country building of barges, in addition to provision of security along the channels.

These are all part of efforts for the smooth takeoff of the Sealink Project, initially scheduled for the third quarter of 2020. But despite the disruption caused by the pandemic, we hope that the delay in the takeoff of the project will not last for too long.  


Abba Bello

JA: The Nigerian fiscal authorities, the World Bank and African Development Bank have provided best- and worst-case scenarios for the Nigerian economy given the impact of Covid-19. How can the trade sector contribute to any best-case scenario for Nigeria’s economy during and after the pandemic?

AB: There is a general consensus amongst development partners and the fiscal authority in Nigeria that the economy is quite fragile at this time in view of COVID-19. In fact, the Nigerian Economic Sustainability Committee headed by the Vice President, Prof. Yemi Osinbajo, has projected a GDP contraction of between 4.4% and 8.91% for Nigeria in 2020, which is less optimistic than the IMF’s projection of 5.4% contraction for the country. This disturbing scenario has been blamed on Nigeria’s dependence on oil for government revenues and foreign exchange. The need to diversify and boost our export trade cannot, therefore, be overemphasized.

According to World Bank data, Nigeria’s trade-to-GDP ratio was 33% in 2018, which is below the global average of 59.81%. But even more worrisome is the export-to-GDP ratio, estimated at 15.49% in Nigeria as against a global average of 44.7% and an average of 26% for sub-Saharan Africa. Trade promotion is, therefore, a necessity, not only as a COVID-19 recovery strategy but also as a sustainable development agenda for the country.

JA: What’s your outlook of the Nigerian economy for 2020 - 2021?

AB: Nigeria, just like other countries of the world, will face a challenging economic environment in 2020 through to 2021. We have already mentioned the likelihood that economic output would shrink beginning from the second quarter of this year in light of the impact of COVID-19. Nonetheless, the Federal Government has announced the Nigeria Economic Sustainability Plan, with a proposed spending package of N2.3 trillion, which together with other intervention programmes announced by the CBN, is expected to mitigate the adverse impact of the economic crisis.

The Nigerian economy is, however, expected to come out from the current economic crisis stronger. This optimism is based on the on-going reforms in key sectors to enhance efficiency in the allocation of national resources. For instance, the deregulation of the downstream oil sector will help to eliminate the leakages and other challenges associated with the erstwhile fuel subsidy regime. This will free up resources, which can be used more judiciously in other sectors.

In general, improvement in the Naira exchange rate management and general macroeconomic stability is also expected to become increasingly more supportive in achieving the twin objectives of import substitution and export promotion.