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“INTERVENTION FUNDS: THE JOURNEY SO FAR”

PRESENTED BY MR. WAHEED OLAGUNJU

THE ACTING MANAGING DIRECTOR/CEO.BANK OF INDUSTRY LIMITED

AT THE FINANCIAL SERVICES GROUP’S SEMINAR

ORGANIZED BY THE LAGOS CHAMBER OF COMMERCE & INDUSTRY (LCCI)APRL 17, 2014

BACKGROUND

• Prolonged economic recession occasioned by the collapse of the world oil market from the early 1980 and the attendant sharp fall in foreign exchange earnings have adversely affected economic growth and development in Nigeria. These and other factors have resulted in fallen incomes and devalued standard of living amongst Nigerians

• Experience has shown that industrial development in any country provides the brightest hope for sustained growth, employment generation, improved savings and investments and indeed, economic development. There is no gainsaying that industrialization determines the dividing line between economically developed and the developing nations. Nigeria now ranks very low on welfare scale. We have gradually slid from a position in which Nigerians enjoyed higher standard of living in the 1960s to a position where we now compete at the lower rung of the ladder of less developed nations.

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BACKGROUND CONT’D

• The Nigerian Industrial Sector which is the primary domain of BOI, is faced by myriads of challenges and problems which have greatly affected the pace of industrialization in the country and subsequently economic growth and development.

• Based on the above, the Federal Government of Nigeria has tried to intervene over the years in certain sectors of the economy to accelerate the pace of industrialization and subsequently economic development.

• The intervention processes have been done by the Federal Government using funds, policies or generally through providing enabling environment.

• The various interventions are done through the use of its agencies such as Central Bank of Nigeria, Bank of Industry, Bank of Agriculture, NEXIM, SMEDAN amongst other MDAs. 3

THE ROLE OF BANK OF INDUSTRY

• Established in October, 2001, BOI is largely a state owned DFI charged with the responsibility of promoting the emergence of a virile industrial sector. In other words, BOI was conceived to catalyze the transformation of the real sector.

• VISION• Its vision is to be a leading self-sustaining Development Finance Institution,

operating under sound management and banking principles, that would promote the emergence and development of a virile competitive industrial sector in Nigeria.

• MISSION• BOI’s mission is to transform Nigeria’s industrial sector and integrate it into the

global economy by providing financial and business support services to existing and new industries to attain modern capabilities to produce goods that are competitive in both domestic and external markets.

• MANDATE• Providing financial assistance for establishment of large, medium and small

enterprises; as well as expansion, diversification and modernization of existing enterprises and rehabilitation of ailing industries

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BANK OF INDUSTRY AND INTERVENTION FUNDS

• The Bank of Industry Ltd is currently the Fund Manager for some

intervention funds of the Federal Government of Nigeria. The funds include:

• The N235 Billion CBN Intervention Fund for Refinancing and Restructuring of Banks’ Loans to the Manufacturing Sector.

• The N300 Billion CBN Power and Airline Intervention Fund.• The N100 Billion Cotton, Textile and Garment Fund

• The N18 Billion National Automotive Council (NAC) Fund• The N10 Billion Rice Fund• Other States’ Managed Funds/Agro-based Funds.

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CBN INTERVENTION FUNDS

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The Central Bank of Nigeria in a bid to unlock the credit market and improve operational efficiency in the Nigerian economy invested in a N535 billion Debenture Stock issued by the Bank of Industry (BOI) for on lending to the real sector. The N535 billion is made up of N300 billion for the power and aviation sectors and N235 billion for the refinancing/restructuring of banks’ existing loan portfolios to the manufacturing sector.

Fund Purpose: •Improving access to credit to manufacturers•Improving the financial position of the Participating Banks (PBs)•Increasing output•Generating employment•Diversifying the revenue base•Increasing foreign exchange earnings and•Providing inputs for the industrial sector on a sustainable basis.

CBN INTERVENTION FUNDS (Cont’d)

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Features of the Facilities•Refinancing of existing loans, leases and resuscitation of ailing industries;

•Long term loan for acquisition of plant and machinery

•Working capital

• All inclusive Interest rate of 7% per annum as against 15% or more being charged by the Commercial Banks

•Tenor of the loan is up to 15 years as against 1- 3 years by Commercial Banks. Commercial Banks loan are short termed and not suitable for financing long term assets.

• Eligible pledged securities by the PBs – TBs / Bonds, ISPO and other securities acceptable to the CBN.

The N300 Billion CBN Power and Airline Intervention Fund

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Challenges faced by Airlines and inconsistent power supply such as the under listed necessitated the bail out Fund:

Heavy debt burden of airline operators with commercial banks due to high cost of fund in the acquisition of operating assets. i.e. Fund mismatch – using short term loan to finance long term assets.

High operational costs including finance charges incurred by airline operators due to increase in various taxes and price of aviation fuel.

poor living standard of the citizens through inconsistent power supply;

Without the intervention , the aviation sector would have become comatose with obvious risk of considerable job loss and far reaching negative impact on the economy.Breakdown of Disbursement in terms of sector is as follows:.

Sector Number of projects

Amount (Million Naira)

Power 32 115,700

Airline 17 117,000

The N235 Billion CBN for Restructuring / Refinancing of Manufacturing /SME

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Challenges faced by manufacturing/SME sector such as the under listed necessitated the bail out Fund:

Heavy debt burden of manufacturers to commercial banks due to high cost of fund in the acquisition of operating assets. i.e. Fund mismatch – using short term loan to finance long term assets.

Less than 30% industrial capacity utilization resulting from lack of power supply. Dependant on high import with the associated foreign exchange risk. Inability to compete in the global market place due to high cost of production.

With the intervention, more than 500 projects benefitted from the Fund with the following status:•Projects in operation improved on their capacity utilisation by about 20% and continue to sustain their operation after the intervention.

•Uncompleted projects numbering 10 were able to get completed and commence operation thereafter.

•Five (5) stalled projects under implementation were completed and now operational.•Turnover increased from N605.7 Billion to N760.7 after the intervention.

The N100 Billion Cotton, Textile and Garment Fund

• The Federal Government, on June 10, 2009 approved and authorised the Debt Management Office (DMO) to issue a long-term low coupon rate of N100 billion Bond in tranches for the provision of funds to BOI for on-lending to businesses under the Cotton, Textile and Garment (CTG) value-chain. The loan facility was recently converted to equity by the FGN.

• The Fund is meant for resuscitating existing CTG projects as well as for new entrants in the CTG value chain.

• The interest rate is 6% per annum with a tenor of up 10 years

• As at December 31, 2013, Seventy seven (77) applications amounting to N58.603 billion have been approved, out of which N51.326 billion was disbursed to sixty (60) projects since the inception of the CTG scheme.

Breakdown of approvals in terms of sector:

Sector NumberGarment 27Textiles 32Cotton Growing & Ginning 17CTG Support Services (LPFO) 1 10

The N100 Billion Cotton, Textile and Garment Fund (Contd)

• An independent review of the implementation of the scheme was carried out by Fairways Resources Enterprises Ltd in collaboration with UNIDO and their findings are summarized below:

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No. Parameter Before Intervention

After Intervention

1 Capacity Utilization Under 40% About 61.16%

2 Job creations & saving 8,070 11,500

3 Increase in Machinery / Equipment (%)

- 68%

4 Increase in Working Capital (%) - 160%

5 Increase in Average Annual Turnover (%)

- 32.03%

6 Increase in Average Wages & Salaries

- 24%

The N18 Billion National Automotive Council (NAC) Fund

• In pursuance of its mandate and responsibilities, the National Automotive Council (NAC) set up a fund known as the “NAC-AD Fund” (or National Automotive Development Fund) vide the Managed Fund Agreement of 12 th March, 2004 with which it also appointed BOI as the Fund Manager. The NAC-AD Fund aims to achieve the development of the automotive industry sub-sector of the Nigerian economy.

• The seed money originated from the two percent levy on all imported vehicles, auto-components, spare parts and raw materials brought in for the automotive sub- sector.

• Since inception of the Fund, a sum of N18,097,696,875.87 has been received from NAC and the size of the portfolio of projects currently being managed by BOI is about N8,513,756,270.55 (revolving).

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The N18 Billion National Automotive Council (NAC) Fund Cont’d

• NAC in conjunction with BOI has also embarked on the establishment of six (6) proto-type Mechatronics Centers which have been equipped by NAC from the NAC-ADFund for capacity building of Auto-technicians in order to improve their skills in handling modern diagnostic equipment to carry out routine servicing and maintenance of new generation vehicles.

• The centers are Lagos State Polytechnic, Ikorodu; Rivers State Polytechnic, Bori; Kaduna Polytechnic, Kaduna; Metallurgical Training Institute, Onitsha; Federal College of Education, Gombe and Federal Science and Technical College, Orozo, Abuja.

• Collaboration is also in place with reputable MFBs for on-lending to auto –technicians to enable them acquire simple modern tools while a portion of the loan is being deployed through DMB/ Other financial institutions for procurement of locally assembled vehicles.

• NAC facility is currently being provided at 7.50% interest rate for term loan and 10% for working capital loan. 13

The N18 Billion National Automotive Council (NAC) Fund Cont’d

Break-down of Approvals in terms of Sector:

Sector Number

Vehicle assembly 8

Cycle/ two/three wheelers 12

Components manufacture 24

No of participating MFBs for On-lending to Auto-technicians 17

No of participating DMBs for Vehicle Purchase Scheme 8

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The N10 Billion Rice Fund

• The Federal Executive Council (FEC) formally approved the setting up of a Ten Billion Naira (N10 Billion) Rice Processing Intervention Fund in May 2009.

• The Fund was designed as a credit scheme to ten initially pre-qualified companies to set up 17 Model Rice Processing Mills in the country. The estimated cost of each mill is N1.4 billion, which is to be financed 40% by the Federal Government’s Rice Fund credit facility and 60% by the beneficiary companies/commercial banks.

• The credit facility, which is mainly to finance plant and machinery and associated costs, is for a tenor of twenty (20) years with five (5) years moratorium at an interest rate of 4% per annum.

• Six out of the ten applications that were able to meet the FGN / BOI requirement have been approved by BOI for a total sum of N5.040 billion.

• Recently, however, the Federal Government came up with a new initiative in this industry by setting up 100 Rice Mills to be located in the 36 States of the Federation. Interested entrepreneurs/investors will thereafter be encouraged to take over these mills in a PPP arrangement.

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Economic Development Focus of BOI:

Agribusiness

• Nigeria’s agro-economic transformation requires shift from:-– Primary to manufactured products– Traditional technologies to modern technologies

and innovation– Comparative advantage to competitiveness– Production to market orientation

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Support for FGN’s Strategy for Transformation by BOI

• Create an enabling business environment – Infrastructure and Energy– Finance and services– Technical assistance

• Promote and facilitate PPP

• Strengthen innovations system and commercialize research findings

• Acquire and adapt new technologies

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Support for FGN’s Strategy for Transformation by BOI

• For BOI, the value chain finance model is being employed for the major crops covered by the Bank (namely cotton and rice).

• To align with the FGN initiatives, the Bank is also participating in developing value chains in the cassava, cattle, tomatoes and palm oil.

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Case Studies & Experiences: Cotton, Textile And Garment

(CTG) Fund

• Loan granted to National Cotton Association of Nigeria (NACOTAN), South West Zone, for which 3,000 members benefitted, for cultivation and reactivation of an existing Ginnery at Ibara-Orile, Abeokuta, Ogun State.

• The ginnery was leased by NACOTAN South West Zone Nigeria Limited and being managed by the association’s executive composed of State Chapter Executives.

• Sprintex Ikorodu is the off-taker of the Ginnery products.

• The off-taker is providing fabric for the players in the Garmenting Sub-sector• Collaboration with NACOTAN, North West Zone, Gusau, Zamfara State in Capacity

Building for Cotton Stakeholders and extension of cooperative micro credits for cotton cultivation.

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Case Studies & Experiences: RICE INITIATIVE

BOI supported a mega rice plant with a capacity to do 24,000 tonnes of rice /annum,

under the Rice Intervention Fund in Ebonyi State.

There are also numerous small scale rice millers within the state.

Also in collaboration with the Ebonyi State Government, the rice millers and UNIDO, BOI is

supporting the establishment of Abakaliki Power Plant Limited with the following initiatives:

Intends to use rice husks from three (3) rice milling clusters in the state for bio-fuel production.

The current rice husk availability is estimated at more than 48,000 tonnes for the generation of 5MW of power.

Long term loan to be obtained through UBA under the CBN Intervention Fund while the State Govt, Rice Millers and BOI are providing equity. UNIDO is assisting in providing the Business Model and technology.

The business model and technology have been tested in Asia and the 5MW project is a pilot , which will be replicated in other Rice Clusters across the Federation.

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Case Studies & Experiences: CBN INTERVENTION FUND

CENTRAL PACKAGING CO. LTD.

The company recently commissioned an Ultra Modern Hi-tech Packaging factory which

was hitherto a Federal Government Enterprise, managed by Nigeria Paper Mill.

In 2006, it was slated for privatization as a result of the near collapse of the enterprise.

Gobesh (West Africa) Ltd was declared the preferred bidder for 100% net asset acquisition

after a keenly contested bidding.

With the Intervention fund through the support of CBN, BOI and Oceanic Bank (now Ecobank), the company was turned around from its moribund status and it is now one of the largest in the industry.

The plant output is 120 metric tons on two shifts per day producing 600,000 cartons per day.

The company currently engages about 600 workers (skilled and unskilled).

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Case Studies & Experiences: NAC FUND

INNOSONS NIGERIA LIMITED

Engaged in motorcycle and vehicles assembly

Started with production of most of the components locally

Actively involved in local assembly and sale of motor vehicle (staff buses, mass transit business)

BOI worked with NAC to provide term loan for acquisition of modern equipment and working capital for importing vehicle components not produced locally.

BOI is also providing vehicle purchase soft loans through DMBs to facilitate adequate market for locally assembled vehicles which Innosons is also a beneficiary.

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Value Chain Finance model being utilized by BOI – Appendix 1

InputDealers

Producers/ Association

Processors/Traders

Associations

Traders Exporters

Market/ Consumers

Demand for financial services

Different financial requirements and services

TERM • Medium• Long

Financial Products and TA• Venture Capital• Credit lines• Export finance• Ware house receipt• Insurance• Etc. 23

Cotton Value Chain-Appendix 2

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Rice value chain -Appendix 3

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Cassava Value Chain – Appendix 4

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Cattle value chain- Appendix 5

Inputs ProductionProcessing

DistributionMarketing

FeedsCompounds

Breeding

Veterinary Services

Calf to Cow

Fattening

Milk, Beef,Butter, Cheese

Leather &Products

Packaging

Supermarkets

Restaurants

Export27

Tomatoes Value chain –Appendix 6

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Palm Oil value chain- Appendix 7

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Palm Oil Value Chain

Farming Non-food uses

Cooking

Margarines and spread

Deep Frying oil

Bakery fat (Shortening)

Cocoa butter alternative fats

Confectionary fat

Ice cream fats

Infants nutrition fats

Other food applications

Cosmetics and personal care

Candles

Lubricants and grease

Pharmaceuticals

Surfactants

Industrial Chemicals

Agrochemicals

Coatings

Paints and lacquers

Electronics Leather

Biodiesel

THANK YOU

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