Post by Trade Forum on Sept 30, 2020 20:12:05 GMT 1
Agro commodities’ exporters still find it difficult to get trade finance support from banks to ensure smooth transactions to the port of their destinations, DANIEL ESSIET reports.
In recent years, the Federal Government has been encouraging the development of the agricultural sector to diversify the country’s export base. Emphasis on reviving the sector has gained further impetus with the government unveiling various programmes to boost agricultural production and enhance exports. This change has created new opportunities for exporters, jobs and export earnings.
For farmers and agro producers, selling their produce in foreign markets is becoming an ever-larger slice of their businesses.
Under the zero oil plan initiative implemented by the Nigeria Export Promotion Council (NEPC), in collaboration with the private sector, the government aims to boost the supply of foreign exchange (forex) from non-oil sectors.
NEPC Executive Director/Chief Executive Officer Mr. Olusegun Awolowo said the zero oil plan could improve foreign reserve by $150 billion over the next decade, if successfully executed.
Champions in the agro export portfolio include palm oil, cashew, cocoa, soya beans, rubber, rice, ginger, cotton, shea butter, tomato, banana and plantain.
However, agricultural producers and the rest of the developing world face some hurdles. Access to a range of financial services is a significant challenge for small agro commodities’ exporters.
An African Development Bank (AfDB) report said the continent has a high unmet demand for trade financing with an estimated yearly trade finance deficit of $91 billion.
As stakeholders see it, banks have not paid serious attention to agro commodities export expansion. One of them is the Managing Director, Thy Global Investment Limited, Ismail Abdul Azeez. He has been in business for over 10 years, exporting agricultural produce.
Though he has made his fortune off food stuff and other agro exports, Azeez said agro exporters deal with challenges when it comes to selling commodities to overseas customers. He said Nigeria has a huge potential, urging the banks to bridge the trade finance gap with customised offerings to boost the sector.
Also, the Managing Director, Niji Farms, one of the largest cassava farms in Nigeria, Mr. Lucas Adeniji, believes lack of access to trade finance is an obstacle in the industry.
He said a slowdown in agro commodities trade could be pushed up by banks which would help new exporters.
Export working capital
A financial expert, Eddie Akpan, said the agro exports sector has increased the importance of the trade finance market.
One of the common problems of aspiring exporters is working capital, Azeez noted that banks were a hard nut to crack when it came to supporting agro exports. He noted that few banks were providing working capital financing to enable new entrants export agro produce.
While domestic policies are important in determining a country’s export growth, the Regional Technical Manager, Animal Feed, Olam Group, Sarah Olabisi Fagoyinbo, said players in the sector faced many challenges, one of which was finance.
She noted: “This basically also applies to the exporters of agro commodities in Nigeria and other developing countries.’’
A former Chairman, Exports Group, Lagos Chamber of Commerce and Industry (LCCI), Dr. Obiora Madu, noted that banks were not doing enough to support agro exports.
“l cannot really say they are supporting agro exports because there is no deliberate policy from the Central Bank of Nigeria (CBN) or the banks to pay serious attention to agro exports.
“Export finance is one of the biggest challenges that agro exporters face. You find a situation where the banks, after taking lien on the commodity, will ask you for all manner of collateral on top of personal guarantee.”
Akpan stressed that helping the export sector to get access to business finance was a critical part of the ultimate economic recovery.
His words: “The persistent fall in the demand for oil globally has put us in a situation where the government is finding ways to fund economic growth.”
He said there was huge trade finance gap hindering the efforts of local agro exporters to break into the global world of trade. He urged the government to expand access to enable them spur economic growth and development.
According to Akpan, banks have a range of ways to support exporters.
Through loans and guarantees, he said banks support agro producers to realise export opportunities or to contribute to the export supply chain.
The reality, according to him, is that some agro exporters have quite complex risk profiles and financial needs.
Why banks shy away from funding agro exports
This year, at the global space, international banks such as BNP Paribas, Société Générale, Natixis, and ANZ announced their decision to exit the trade and commodity finance business.
Bloomberg, a financial newspaper, reported that banks’ revenue from commodities trade finance slid 40 per cent year-on-year to $700 million in the second quarter of the year.
Banks have suffered losses of $9 billion from the $18 trillion commerce finance enterprise.
Madu maintained that exporting was peculiar and the risks were high. He said: “So, do the banks have reason to shy away from it? Of course, yes. But the point is that exports are the mainstay of the economy.’’
Fagoyinbo added: “One reason many agripreneurs do not get finance is that many of the registers are filled with data of persons who are not real time agripreneurs but just want to access funds not meant for them. It is not as if the government and necessary financial Institutions do not pump out funds at all (maybe not enough).There is the problem of a great percentage of approved funds going into the wrong hands.”
She advised: “Officials in charge need to intensify proper vetting of data and documentation of agricultural stakeholders including agro exporters in their charge. People in agriculture also need to come out more and identify with the right crowd. There is no point in working in isolation, if you do not identify with necessary associations and get counted, your name will not be found in registers and you might have difficulty accessing funds.”
Establishment of export desks
Internationally, export desk officers oversee documentation and procedures, including letter of credit, banker’s guarantee and spot discrepancies on documents, among others.
The Nation learnt that most of the banks do not have exports desk.
Madu observed: “Even the capacity of those on the desks are in question. I recalled that when l was in banking, CBN gave instructions that every bank should have an export desk and banks responded accordingly. Things got a lot better. The situation is not the same, again. If an exporter goes with a proposal to a bank and does not meet those at the front desk; then somebody cannot say go to the second or third floor. It becomes a matter of where should I go? Then you know that we are not serious. When you have a designated export desk, you can develop the capacities of those placed there. That is the starting point. For me, it is not just about CBN instructing banks to set up exports desks, but also taking the responsibility to ensure the capacities of those who manage such positions are fortified.
Fluctuating exchange rate
The Nation learnt that agro exports is prone to financial risks, especially highly volatile foreign exchange rates. A lot of money is lost when converting naira to hard currencies.
Azeez explained that lack of awareness and fluctuations in currency values could lead to unprofitable business.
He alleged that banks made a lot of money from overcharging agro commodities’ exporters by insisting on fixed rate despite swings in exchange rates.
Exporters said there were times they had to source from the black market, when they could not get it from the bank.
Azeez lamented that after transactions, the banks would want them to sell forex at the official rate when they bought it at a higher rate at the black market.
While focusing on receiving exports proceeds, he urged banks to work with exporters to ensure that transactions were profitable to keep them in business.
Weak export credit guarantee base
In spite of the high risk in export financing, banks have no fallback position. Madu noted: “Export credit guarantee scheme, which is as old as private sector exporting in Nigeria, as one of the incentives domiciled in NEXIM, has not been fully explored. The purpose of that guarantee is that banks will subscribe and use it as a fallback, if exports transaction goes wrong. That facility has not been funded for so many years, same with export credit insurance. I just read that the board of NEXIM has approved export credit insurance to help exporters. It is good if it works. What that has to do with is, if you insure your invoice, banks can give money to the extent of the surrender value of the policy you have in your hands. Of course it protects the export proceeds if you are going into high risk area. In that way, the bank that is funding you can be sure of getting a certain amount of money. They can limit their lending to the cover amount. Even with intervention funds from NEXIM, like warehouse financing and others, banks take 100 per cent of the risk. The same situation applies with export stimulation facility.’’
Stakeholders said improving the performance of the agricultural sector was critical to drive economic growth. One way to achieve this is by supporting agro exporters facing large financing gaps.
Madu said warehouse receipt financing is a lending technique that allows farmers, producers, and traders of commodities to access bank loans by pledging their warehouse receipts issued against commodities deposited in warehouses.
According to him, the system is core to the export diversification and development agenda and it has the potential to increase farmers’ incomes, and drive the economy.
Ethiopia is the most successful example of warehouse receipt financing initiative in Africa.
Madu said the Warehouse Receipt System (WRS) was an integral part of agricultural trade and financing and very important for agricultural development.
He said promoting the system would make it easy for exporters to obtain credit from banks.
To be most efficient, he noted that warehouse receipt finance required a smoothly-functioning commodity exchange as it was the backbone to most commodity exchanges.
The Executive Secretary, Institute of Export Operations and Management Nigeria, Ofon Udofia, said agriculture remained one of the key sectors that should be prioritised by the government to expand exports and promote a sustained approach to poverty reduction. He said the economy would maintain the growth driven by sound policies and expand exports. To him, Nigeria will continue to benefit from the rise in global trade and the pick up in commodity prices. He said the rise of exports in the agro-processing sector would unlock exciting opportunities for economic diversification.