A look at Nigeria’s trade balance sheet in the last few years points to the need for concerted effort by both the government and the private sector to stimulate trade, local production and export to ease the pressure on foreign exchange demand.
Basically, Nigeria is an import-dependent country. Importation requires foreign exchange and given the current forex situation, it is very difficult for the country to provide the desired of foreign exchange because of declining revenue from oil export due to falling prices. It then becomes very challenging for many import-dependent industries to source much needed raw material and machinery.
It is therefore gratifying to see that despite the prolonged economic downturn, which reached an all-time-high in 2016, made worse by the hard-hitting recession, Stanbic IBTC Bank PLC, alongside a few other Nigerian banks, were still able to provide a significant level of funding to drive and sustain growth in the real sector in critical areas like manufacturing, trade and small and medium scale enterprises (SMEs). Analysis of the released 2016 audited financial results of 13 banks, including Stanbic IBTC Bank PLC, showed that despite low productivity in the manufacturing sector in 2016, Nigerian banks, recorded about 16.1 percent increase in total credit to the real sector from the N1.8 trillion in 2015 to N2.1 trillion in 2016. This again underscores the pivotal role banks have to play in the resurgence of the economy and sustained growth of the real sector. As it is, most of the banks are now retooling their strategies to drive digitization, increase focus on real sector and diversified lending.
Trade Finance
Stanbic IBTC Bank PLC, interestingly, long before the forex squeeze actually kicked in, had the foresight not to focus on importation alone having realized that this was just one aspect of trade. Instead, it gleaned from the experiences of its parent company’s financing trade in over 20 African countries and other developed economies outside of Africa to focus on exports, which generate foreign exchange rather than requiring foreign exchange. Presently, the bank is very big on exports and continues to expand that footprint. The bank currently supports SMEs in the production and export of cocoa, sesame seeds, hides and skin, and ginger among others.
The bank supports quite a number of clients in a wide array of the export sector and that the sector is constantly expanding, which is why the scope of service and support provided by the bank goes beyond financing and advisory services, in line with what the government is trying to do in getting non-oil exports off the ground and moving.
Stanbic IBTC Bank provides support for manufacturers, big traders and general goods merchants in the markets. Asserting that part of the ways the bank is trying to fix the gaps in the forex situation is coming out with other innovative solutions and engaging with suppliers of its clients to explain the situation here in the country. These engagements he said has led to favourable terms for many of these clients and that the bank goes even further to help structure different dynamics by putting in guarantees on behalf of its clients to help them move some of the trade ahead.
Realising the peculiarity of the period we are in, which requires creativity in dealing with trade; the bank is using a lot of guarantees where it acts as an intermediary for its clients’; based on its understanding of their businesses and the importance of commerce and trade to driving the economy.
Diversification
Stanbic IBTC Bank has also been playing actively in the automobile, steel and manufacturing industries, all of which recently have embraced inwards integration and expanding capacity to produce internally. Many foreign carmakers have looked to offset the devaluation by establishing local assembly plants and production facilities in recent years, especially as the import tariffs for vehicles have increased significantly, approximately by 50 percent of cost of vehicles which has stirred local production. The bank also offers tailored solutions like Vehicle and Asset Finance (VAF) which facilitates acquisition of automobiles, trucks, machinery and other heavy equipment by both private and corporate customers. The exclusion of about 41 items from trade finance in the inter-bank market has also promoted local content and production of some items which previously were sourced abroad. To this end, some of the initiatives taken by the government are expected to encourage steel players to establish production plants in Nigeria, which will require significant funding.
Only recently, the bank expressed its commitment to supporting development of the iron and steel industry in Nigeria. It recently organised an iron and steel breakfast session in Lagos to draw attention to the huge potential for both local consumption, bearing in mind ongoing efforts in infrastructural development and for export. The event spotlighted areas where Nigeria can attract Foreign Direct Investment (FDI), opportunities for collaboration between the private and the public sectors in stimulating growth of the industry and generated useful discussions and engagements among participants and key players from within and outside of the country.
The bank used the platform to express its readiness and capability to support not only the iron and steel industry but Nigeria’s diversification effort across economic sectors like agriculture, real estate, solid minerals, power and infrastructure development. Stanbic IBTC Bank hopes to leverage on the expertise of Standard Bank Group in the area of mining and steel development where it has proven competence.
Global Experience
Stanbic IBTC Bank’s connection to Africa’s largest bank by asset, Standard Bank Group, without doubt puts it at a vantage position to support the federal government’s effort to diversify the economy and to better cater for the needs of its clients from both a continental and global perspectives. Standard Bank Group’s in-depth knowledge and connection to ICBC reinforce the bank’s expertise and experience in trade financing, especially with China’s fast growing fame as one of the biggest trade partners to many African countries, including Nigeria. Coincidentally, ICBC, the biggest bank in the world has 20% stake in Standard Bank; so by extension it means that ICBC also has a share in Stanbic IBTC. The implication of this is that Stanbic IBTC Bank by virtue of its heritage and connection can play a major role in improving the ease of trade with China as well as with other developed economies.
Last year, the Federal Government announced a currency swap deal between the Nigerian Central Bank and ICBC. Although this is yet to reach fruition, if things work out as planned, importation from and exportation to China would be better processed, expedited and seamless. So rather than invoicing in USD, and then converting to Yuan, invoices can be prepared directly in Yuan or RMB. Eliminating third currency cross as currently obtained, where Nigerian traders use naira to buy USD and then cross the USD to Yuan. Traders would be able to just take the naira to buy the Yuan. This is supposed to reduce demand pressure on dollar. However, since the announcements, there has been no further action from the CBN.
In the meantime, the nation waits patiently to see what the guidelines and modalities would look like. However, if it works out according to plan, it should ease the pressure on the dollar. Presently, 22 percent of imports into Nigeria come from China. If that 22 percent leaves the demand for USD, it should go a long way to ease the dollar crunch and might even affect the exchange rate in the long run. Stanbic IBTC Bank, being a part of ICBC, is uniquely positioned to take advantage of that when it comes fully on-stream.
Diversified Lending
In January 2016 the CBN introduced the special intervention fund which was meant to unlock the potential of the real sector to stimulate output growth, value added productivity and job creation. The Real Sector Support Facility (RSSF) was geared towards increasing credit to priority sectors of the economy.
Five commercial banks, including Stanbic IBTC Holdings PLC, invested about N245.8bn in the Facility. The banks were to contribute five percent to the total naira deposits and the Facility will be used to support large enterprises for start-ups and expansion financing needs of N500 million up to a maximum of N10 billion. Stanbic IBTC contributed N20.8 billion towards the special intervention fund in 2016 and has already signified its intention to sustain its support for the sector.
Hopefully, trade would be boosted in 2017 as the CBN continues to support the market by pumping in millions of dollars, making the banks better placed to meeting the needs of their customers. Already, reports have shown a rise in forex transactions in the last few months which is a plus for trade.
Going by recent positive outlook on fluctuating crude oil prices, the CBN forex management, Nigeria’s trade figures which has raised hopes for the ailing economy and projection that Nigeria’s balance of trade to record an improvement from negative $0.5 billion to $3.8 billion before the end of 2018 by renowned financial analyst and Chief Executive Officer, Financial Derivatives Company, Mr. Bismark Rewane, general optimism is that the economy is on the right path to recovery and growth.
BALA AUGIE
