EXPORT FINANCING IN NIGERIA, PROBLEMS AND PROSPECTS … CUKWUDI EMEKA.… · credit terms on non-oil export in Nigeria; examine the impact of Total banking export credit on non-oil

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EXPORT FINANCING IN NIGERIA, PROBLEMS AND PROSPECTS

BY

UMEH CHUKWUDI EMEKA PG/MBA/09/53686

A PROJECT SUBMITTED TO THE DEPARTMENT OF BANKING

AND FINANCE IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTER IN BUSINESS

ADMINISTRATION DEGREE (MBA)

UNIVERSITY OF NIGERIA ENUGU CAMPUS

MAY, 2011.

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TITLE PAGE

EXPORT FINANCING IN NIGERIA,

PROBLEMS AND PROSPECTS.

BY

UMEH CHUKWUDI EMEKA PG/MBA/09/53686

A PROJECT SUBMITTED

TO THE DEPARTMENT OF BANKING AND FINANCE FACULTY OF BUSINESS ADMINISTRATION

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTER IN BUSINESS ADMINISTRATION

DEGREE (MBA).

UNIVERSITY OF NIGERIA ENUGU CAMPUS

SUPERVISOR: PROF. C.UCHE

MAY, 2011.

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DEDICATION

To God Almighty for the wisdom bestowed on me, and his endless

inspiration.

Also to my mother, Mrs., Susan Umeh and my brothers and

sisters for their moral and financial support and care, throughout

my academic pursuits.

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CERTIFICATION

This is to certify that this MBA project written by UMEH

CHUKWUDI EMEKA (PG/MBA/09/53686) presented to the

department of Banking and Finance, University of Nigeria, Enugu

Campus, is original and has not been submitted for the award of

any degree or diploma either in this or any other tertiary institution.

-------------------------------- -------------------------

Umeh Chukwudi Emeka. Date (PG/MBA/09/53686)

This is to certify that this project written by Umeh Chukwudi

Emeka (PG/MBA/09/53686), presented to the Department of

Banking and Finance, University of Nigeria, Enugu Campus, meets

the department requirement and was submitted in partial

fulfillment of the requirement for the award of MBA degree in

Banking and Finance.

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------------------------------- -------------------------

Prof. C. C Uche Date (Project Supervisor) ------------------------------- ------------------------- Dr. J.U.J. Onwumere Date (Head of Department)

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ACKNOWLEDGMENT

It is my pleasure to use this medium to express my profound

gratitude to all who were instrumental to the successful completion

of this work.

My profound gratitude goes to my family members – first to my

parents Mrs. Susan Umeh, Secondly to my brothers and sisters,

especially, Mr. and Mrs. Sunday, Mr. and Mrs. Chidozie , Miss

Uchenna , Mr. Ekene and Miss Ifeyinwa Umeh(s) for their prayers ,

moral, financial support and care.

I am indebted to my supervisor, Professor C. C. Uche for

directing, supervising and creating time despite of baize schedule to

read through the manuscript at each stage of work.

Moreover, I wish to share the credits with persons who have

contributed in different capacities especially, Dr. A. Ujunwa and my

love (Chioma –Emeka).

Above all, my sincere gratitude goes to the Author and

Finisher of my life, the Omniscient and the giver of knowledge - the

Almighty God who made it possible for this research work to be

completed.

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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.

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TABLE OF CONTENTS

Title page - - - - - - - - - i

Certification - - - - - - - - ii

Dedication - - - - - - - - iii

Acknowledgement - - - - - - - iv

Abstract - - - - - - - - - v

Table of contents - - - - - - - vi

CHAPTER ONE: INTRODUCTION 1.1 Background of the Study - - - - - 1

1.2 Statement of the Problem - - - - - 4

1.3 Objectives of the Study - - - - - 5

1.4 Research Questions - - - - - - 5

1.5 Research Hypotheses - - - - - 6

1.6 Scope of the Study - - - - - - 6

1.7 Limitation of the Study - - - - - 6

1.8 Significant of the Research -- - - - 7

1.9 Definition of Terms - - - - - - 8

References - - - - - - - 11

CHAPTER TWO: REVIEW OF RELATED LITERATURE 2.1 Policy formulations for Exports Financing - - 12

2.2 Import and Export Finance by Nigeria Banks - 17

2.3 Increasing Non-Oil Exports in Nigeria - - 28

2.4 Export Financing through Export Processing Zones 34

References - - - - - - - 41-43

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CHAPTER THRE: RESEARCH METHODOLOGY 3.1 Research Design - - - - - - 44

3.2 Nature and Sources of Data - - - - 44

3.3 Population, Sample Sizes/Techniques - - 45

3.4 Model Specification - - - - - - 45

3.5 Technique for Analysis -- - - - - 46

References - - - - - - - 48

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS 4.0 Introduction - - - - - - - 49

4.1 Presentation of Relevant Data - - - - 49

4.2 Test of Hypotheses - - - - - - 50

4.2.1 Test of Hypothesis One - - - - - 50

4.2.2 Test of Hypothesis Two - - - - - 51

4.2.3 Test of Hypothesis Three - - - - - 52

CHAPTER FIVE: 5.0 Summary of Findings , Conclusion and

Recommendation - - - - -- - 54

5.1 Summary of Findings -- - - - - 54

5.2 Conclusion - -- - - - - - 55

5.3 Recommendations - - - - - - 57

Bibliography - - - - - - 58-61

Appendix - - - - - - - - 62-66

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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).

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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

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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

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(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.

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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?

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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.

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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

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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

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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.

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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.

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References

Chartered Institute of Banks of Nigeria,(2010), “Monetization of Export Trade in Nigeria” An Address Presented on Export Financing Conference in Nigeria at Nicon-Nuga Hotels, Abuja. September, 19.

International Development Agency, (2010) “Fund Supply for Export”

An Address Presented on Export Financing Conference at Green Tree Motel, New York, November, 20.

International Monetary Fund, (2007), “Towards Balance of Trade

Position in Developing Countries” An Address delivered at an International Conference on Trade and Development (UNCTAD) at International Conference Center Zurich, October, 18.

McJones, B.C. (2010), Export Financing in America Now York:

McGraw Hill Books Inc. Nigerian Export – Import Bank, (2008), “Export Promotion” A

Guideline on Investment Finance given at a Conference Center on Export Financing at International Conference Center Abuja, January, 25

Nigerian Export Promotion Council, (2009), “Building Clientele in

Export Trade” Conference On Trade Development in Developing Countries at International Conference Center Abuja, October, 18.

Soludo, C. (2009) “Export Financing in Nigeria: The place of Export

Processing Zones” An Address presented at the Living Spring Free Zone, Ogun State, March, 24.

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CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.0 Policy Formulations for Export Financing

2.1 Nigerian Export Promotion Council Decree and Mandate

The Nigerian Export Promotion Council (NEPC) was established

through Nigerian Export Promotion Decree No 26 of 1976 with the

followings:

Mandate 1. To promote the development and diversification of Nigeria’s

export trade.

2. To assist in promoting the development of export-related

industries in Nigeria.

3. To spearhead the creation of appropriate export incentives.

4. To achieve articulate and promote the implementation of

export policies and programmes of the Nigerian Government.

It implements its mandate under for key tasks, namely:

1. Export development

2. Export financing and incentives

3. Human resources training and development

4. Coordination and cooperation with multilateral institutions.

2.2 Export Developments The focus is to diversify the basket of exportable products from

Nigeria. In doing so, the Council undertakes supply base studies to

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identify potential products for development for export. Other

activities include:

(a) Advising manufacturers on packaging, product design and

adaptation” advising exporters on appropriate strategy to

adoption.

(b) Advising companies on quality standards;

(c) Advising exporters on appropriate strategy to adopt to

penetrate target markets

(d) Advising on pricing and costing for export;

(e) Assisting companies to undertake adequate publicity in target

markets;

(f) Assisting companies financially to undertake market research

and other export related activities;

(g) Planning and organization of Nigerian participation in

international fairs and exhibitions.

2.3 Export Financing and Incentives Here, the main activity is to ensure the effective administration and

prompt payment of incentives to qualified exporters. It also reviews

existing incentive and articulate new ones in the light of prevailing

circumstance.

2.4 Human Resources Training and Development - Council organizes general seminars/workshops to enlighten

exporters on new development in the sector.

- Organizes Export For discuss latest development in the sector.

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- It undertakes enterprise level training for the staff of

organizations that request for such packages.

- Liaises with other training institutions (both locally and

internationally) on training matters generally.

2.5 Co-Ordination and Co-Operation with Multilateral

Institutions Council co-operates with trade promotion organizations of other

countries. Liaises with multilateral trade organizations such as

ITC< CFTC, UNDP, CBI, IMPOD, TFOC> World Bank, etc for the

purpose of maximizing the benefits accruable to exporters in

Nigeria.

2.6 The Nigerian Export-Import Bank (NEXIM) Decree and Mandate

The Nigerian Export-Import Bank (NEXIM) was established by Act

38 of 1991 as an Export Credit Agency (ECA) with a share capital of

N500,000,000 (five Hundred Million Naira) held equally by the

Federal Government of Nigeria and the Central Bank of Nigeria. The

Bank which replaced the Nigerian Export Credit Guarantee &

corporation earlier set up under Act 15 of 1988, has the following

main statutory functions:-

Mandate

Provision of export credit guarantee and export credit

insurance facilities to its clients.

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Provision of credit in local currency to its clients in support of

exports.

Establishment and management of funds connected with

exports

Maintenance o a foreign exchange revolving fund for lending to

exports who need to import foreign inputs to facilitate export

production.

Maintenance of a trade information system in support of

export business.

Provision of domestic credit insurance where such a facility is

likely to assist exports. The Bank presently provides short and

medium term loans to Nigerian exporters. It also provides

short-term guarantee for loans granted by Nigerian Banks to

exporters as well as credit insurance against political ad

commercial risks in the event of non-payment by foreign

buyers. The bank is also the government’s National

Guarantor under the ECOWAS inter-state Road Transit

programme. The bank‘s authorized capital as at December 31

2004 was N10.0 billion with a fully paid-up portion amounting

to N6.44 billion.

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2.7 Export Processing Zones (Epzs) (Free Zones at a Glance) S/n Name Location Status Ownership

1 Calabar Free Trade

Zone (CFTZ)

CRS Operational Fed. Govt.

2 Kano Free Trade Zone Kano State Operational Fed. Govt.

3 Onne Oil & Gas Free

Zone

River Stater Operational Fed. Govt./Private

4 Lagos Free Zone Lagos State Under Cons. Private

5 Tinapa Free Zone &

Tourism Resort

CRS Under Cons. Private/Public

6 Olokola Free Zone Ondo &

Ogun

Under Cons. States/Public

7 Snake Island Integrated Lagos Operational Private

8 Maigatari Border Free

Zone

Jigawa State Operational State

9 Banki Border Free Zone Borno State Declaration State

10 Ladol Logisitics Free

Zone

Lagos Operational Private

11 Ibom Science & Tech.

Park Free Zone

Akwa Ibom Under Cons. Public/Private

12 Living Spring Free Zone Osun State Under Cons. State

13 Airline Services Export

Proc. Zone

Lagos State Operational Private

14 Lekki Free Zone Lagos State Under Cons. State/Private

15 Egbeda Free Zone Oyo State Declaration State

16 OILSS Logistics Free

Zone

Lagos Declaration Private

17 Brass LNG Free Zone Bayelsa Under Cons. Public/Private

18 Abuja Technological

Village

Abuja Under Cons. Public/Private

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19 Specialized Railway

Industrial FTZ – Kajola

Ogun State Under Cons. Public/Private

20 Imo Guongdong FTZ Imo State Under Cons. Public/Private

21 ALSCON FPZ Akwa Ibom Operational Private

22 Ogun Guandong Free

Trade Zone

Ogun State Operational Public/Private

23 Sebore Farms Adamawa

State

Operational Private

24 Calabar Free Port Cross River Operational Fed. Govt.

Source: Chartered Institute of Bankers fo Nigeria (CIBN) 2008:25, Abuja

2.8 Import and Export Financing by Nigerian Banks They truism that import and export financing holds the ace in

economic development and growth of any nation may have

accentuated the importance of this business portfolio, especially in

the financing sector. Indeed, a much available financing of export

and import by the appropriate institutions will have great impact on

the economy of that country.

Kravis (2007:116) observes that international trade could also make

it possible for a country to specialize by the Chartered Institute of

Banking of Nigeria (CIBN), Lagos branch; the participants discussed

exchange control regulations in Nigeria in the context of rules and

regulations of International Trade. One of them, Nwagu (2009:12)

argues the aspect of import and export transactions ranging from

the means of financing of these transactions, to the role of

multilateral agencies as well as aspects of regulations and banks

compliance. In his paper titled: “Balance of Payments (BOP) and

27

Foreign Exchange Management. The Nigerian Experience,” Moran

(2003:18) observes that the external sector of every economy is

quite vital in the contemporary world where nations and individuals

are interdependent. Moran says that nations specialized to

maximize their competencies and natural endowments, which

informs international trade. As well, he says, certain nations are

more successful than others in the course of economic activities,

and thus end up stronger in international trade.

Mwega (2006:23) notes that Balance of Payment and foreign

exchange management are closely related because the position of

one impacts the other and vice. Mwega explains that poorly

managed foreign exchange that results in over-valued or under-

valued currency can produce BoP dis-equilibrium. Concerning the

structure of Balance Payment, Adedipe said that in order to ensure

comparability of BoP statements, the international Monetary Fund

(IMF) sets the standards, which inform its components across

nations. Mwega observes that Balance of Payment and foreign

exchange management in Nigeria have been quite challenging

because the Nigerian economy is a net importer of non-oil goods.

Taylor (2003:44) explains that the reference to non-oil exports

derived from the experience of most oil exporting countries, whose

oil revenue have distorted their macro economy and Balance of

Payments. “This puts pressure on foreign exchange and the

exchange value of the naira, which has resulted in the persistent

depreciation of the naira vis-à-vis its trading currencies over the

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years. (Sundararajan and Thakur, 2004:62). They, however, state

that Nigeria has indeed improved tremendously his BOP

management capacity through rigorous training of staff of the

Central Bank of Nigeria (CBN), especially, those having

responsibility for reserves management, trade and exchange while

there has been improvement in the active trading of the external

reserves, within well-defined risk-bands.

Otanka (2006:34) notes that from 1999 to 2005, except in 2003 of

those years, Nigeria had current account surplus, which grew

stronger in 2004 and 2005 and while the trend was sustained in

2006, the surplus, was stronger still at $35 billion. For each of

those years, movements in capital and financial account tended to

smoothen the current position, the exception again being 2002,

when both account had deficit balance, while the remaining four

years recorded surpluses. The management expert expressed that

with the figures for 2006 showing another strong surplus, the

concern should be how that would be addressed. This, however,

was not unexpected, given the sustained trend with crude oil prices

and the prudent fiscal management, especially since 2004,” (Moha,

2007:80). Moha says further that the trend with market prices vis-

à-vis the budget assumption over the period from 1999 to end

December 2007 is as in the following slide, showing that oil prices

have been favourable to Nigeria over that period.

29

The oil prices trend strengthened accretion to external reserve from

the oil revenue windfall, and took the reserves to $42.9 billion in

December 2006 and $61 billion in May 2008. As well, the oil

windfall helped Nigeria to repay the bank of her external debt

stock,” (Nwagu, 2009:62).

Nwagu enumerates the advantages of free trade in contrast to the

issue of protectionism. Referring to David Recardo in his “Principles

of Political Economy (1817). Nwagu says is mutually beneficial for

countries if they specialize in the production of goods they can

produce more efficiently and trade those goods among themselves.

According to him, the implication of Ricardo’s theory is that

liberalization of international trade will enhance the welfare of the

world’s citizens. Although the theory is not completely immune to

valid criticisms, it nevertheless produces a powerful intellectual

rationale for promoting free trade among nations. Consequently,

international trade is becoming further liberalized at both the global

and regional levels, notes Nwagu Stordel (2009:55) observes that

nations develop at different stages, which can be attributed to

various factors such as education, factor endowments (land,

capital,) entrepreneurial spirit and so on. It is these factor

endowments that necessitated international trade among nations,

notes Stordel. According to him, apart from the differences in factor

endowments that necessitated international trade, other benefits of

international trade include; voluntary economic exchange, improved

standard of living, world peace and employment opportunities.

30

However, wilson (2011:341) states some economists view that

rather than free trade, nations should adopt a protectionist policies

stressing the user to protect infant industries from undue

competition from established industries of developed countries

otherwise, they will be forced to fold up. Unrestrained importation

in relations to export will result in advance balance of payment

situation, while uncontrolled trade could lead to dumping.

Wilson also a protectionist policy will prevent importation of

damaged goods; check possibility of unemployment that could

result if local industries are forced to fold up as a result of imported

goods. In order to avoid trade war, there is general consensus

among experts that it is better for nations to adopt an outward

oriented strategy and liberal trade unencumbered by artificial

barriers and subsidies to foster economic goods in individual

countries and global prosperity, Wilson concludes.

Udo (2009:24) notes that it is the need to foster economic growth

and global prosperity that gave rise to the establishment of

international organizations concerned with promoting free trade

and development. These organizations include World Trade

Organization (WTO), United Nations Conference on Trade and

Development (UNCTAD), Organization for Economic Co-operation

and Development (OECD) and International Chamber of Commerce

(ICC). Udo mentions the rules and regulations for international

31

trade, which impacts on the financial market, in particular the

opening of letter of credit and bills for payment. According to him,

the Code of Conduct for trade policy is provided in the World Trade

Organization (WTO), which contains a set of specific legal obligation

regulating trade policies of member states. These embodied in the

General Agreement on Tariff and Trade (GATT), the General

Agreement in Trade Services (GATS) and the agreement on Trade

Related Intellectual Property Right (TRIPs) “concludes Udo.

According to Moha (2007:88), the rules and principles of the WTO

constrain the freedom of governments to use specific trade policy

instruments while they influence the balance between interest

groups seeking protection and those favouring open markets in the

domestic political market place. Another rule with WTO trade policy

is the dispute settlement and enforcement of rules. This is vital for

the smooth functioning of the trading system, concludes Moha.

2.9 Sources of Export Financing

Williams (2011:44) notes that in 2009, the government of Nigeria

received a loan to redevelop the nation’s sugar cane industry.

Zambia Consolidated Copper Mines also received a loan recently to

purchase supplies for the rehabilitation of the action’s copper

mines. Both countries received their load from the African

Development bank Group. In each case, U.S companies are eligible

to enter bids on the projects because the Unites States is one of the

76 non-African members of the Group. In fact, between Jan. 1,

1990 and May 2, 1991, 12 U.S companies received contracts worth

32

a total of over $20 million. In 1990 total disbursement to U.S

suppliers of goods and services as a result of group financing

projects was 350 percent from 1989, resulting in nearly $370

million in business for U.S companies. This figure represents only 4

percent of total disbursements resulting from loans the loans of the

Group 1990. Africa holds many unexplored opportunities for U.S

businesses. In 2010, notes Williams nations in Africa are actively

involved in democratic reforms and many are taking measures to

open their countries to outside investment. With these economic

and political reforms come new openings for U.S firms in a

continent that in the past has not had the levels of U.S investment

and business that is typical of other regions of the world. The

African Development Bank Group is becoming a principal

participant in the project-lending field in Africa. It commits in

excess of some $3 billion in new projects annually. Recipients of

these loans and related funds are normally governments and

government-owned agencies rather than private companies. Private

companies benefit through government contracts generated b the

funds disbursed by the Group. Therefore, any U.S business interest

wanting to do work in Africa should be aware of this funding

source. Otamka (2006:66) says that the Africa Development Bank

Group actually consists of these separate yet integrated financial

institutions, which work together out of the main headquarters in

Abuja, Cote d’Ivoire. Regional integration of the economies of

member countries -*realizing that the speed with which Africa

develops hinges on the progress made in the regional integration of

33

the economics of the member counties, the Group encourages and

fosters programs that emphasize the economic cooperation of

countries. Otanka notes that Group loans, with the exception of

those of the NTF, are for 50 years, with a 10-year grace period.

Each loan has a service fee of 0.75 percent, but no interest in

charged. Though the loans are not specifically tied, all purchases

must be made from AFDB Group member countries. NTF loans,

which make up a smaller percentage of Groups financing packages,

are granted for up to 25 years, with a five-year grace period. The

interest rate is 4 percent for disbursed loans and 0.75 percent for

undisburshed loans. In addition, to project loans, the Group notes

IMF (2007: 99) also provides financing for feasibility studies at a

0.75 percent commission rate for 10 years with a three-year grace

period.

The U.S. s Department of Commerce, aware of ten key roles which

current data and commercial intelligence plays in obtaining

contracts, established and additional U.S and Foreign Commercial

Service office in Abidjan, Cote d’Ivoire, solely to develop up-to-the-

minute commercial information for U.S firms on group projects. The

office personally assists U.S companies in competing for these

contracts. There is also a U.S Executive Director in Abidjan

responsible for helping U.S. businesses and representing U.S

Government interests. Nigerian Export promotion Council

(2009:101), notes that the African nations which are members of

the Group are: Algeria, Angeria, Anghola, Benin, Bostowana,

34

Burkina Faso, Burundi, Cameroon, Cape Verde, Central African

Republic, Chad, Comoros, Congo, Cote D’Ivoire, Djibouti, Egypt,

Equatorial Guinea, Ethiopia, Gabon, Gambia, Ghana, Guinea,

Guinea-Bissau, Kenya, Lesotho, Liberia, Libya, Madagascar,

Malawi, Mail, Mauritania, Mauritius, Morocco, Mozambiique,

Namibia, Niger, Nigeria, Rwanda, Sao Tome and Priciple, Pricipe,

Senegal, the Seychelles, Sierra Leone, Somalia, Sudan, Swaziland,

Togo, Tunisia, Uganda, the United Republic of Tanzania, Zaire,

Zambia, and Zimbabwe.

Pindyck (2008:81) discloses that export financing enables

businesses to bring their products all over the world. There are a

lot of benefits to a business are selling overseas, but there can also

be a lot of financial risk involved as well. It is important to fully

understand the risks and the government regulations before selling

overseas. If done right though it can be a very profitable venture,

and can sometimes bring a business more profit than selling in the

United States. Export financing is loans made for the shipping of

products outside a country or region. If you have a good product

that has is appealing to another country, and has great potential to

sell off you could also consider a venture capitalist to help bring

your business where it needs to be.

There are also some creative methods for export financing; one such

method is utilizing a factoring house overseas. Basically a factoring

house will purchase the exported products at a discount below

35

invoice value. This discount is typically 2 to 7 percent below invoice.

The factors will turn around and sell the products off to good

companies that want the products at higher mark-up. This ensures

that the exporter receives their money up front, and it reduces the

risk to a point.

As observes Nurske (2005:44), the key point is to make sure your

business has a plan that is clear for the potential lenders and

investors about the direction your company is going so they can

make an informed decision about whether to give your company the

money or not. Always know where your business can gain access to

sources of capital that is fast, easy, and free. Simply tell us a little

about your business and your financing needs, and then you’ll be

given a list of matching funding sources. Search our business

capital search engine for free today.

2.10 Financing Export Transactions Export financing is often a key factor in a successful sale. Contract

negotiation and closure are important, but at the end of the day,

your company must get paid.

Moran (2003:48) notes that exporters naturally want to get paid as

quickly as possible, while importers usually prefer to delay payment

until they have received or resold the goods. Because of the intense

competition for export markets, being able to offer attractive

payment terms customary in the trade is often necessary to make a

36

sale. Exporters should be aware of the many financing options open

to them so that they choose the most acceptable one to both the

buyer and the seller. In many cases, government assistance in

export financing for small and medium-size businesses can increase

a firm’s options. The following factors are important to consider in

making decisions about financing:

The need for financing to make the sale. In some cases,

favorable payment terms make a product more competitive. If

the competition offers better terms and has a similar product,

a sale can be lost. In other cases, the buyer may have

preference for buying from a particular exporter, but might but

might buy your product because of shorter or more secure

credit terms.

The length of time the product is being financed. This

determines how long the exporter will have to wait before

payment is received and influences the choice of how the

transaction is financed.

The cost of different methods of financing. Interest rates

and fees vary. Where an exporter can expect to assume some

or all of the financing costs, their effect on price and profit

should be well understood before a pro forma invoice is

submitted to the buyer.

The risks associated with financing the transaction. The

riskier the transaction, the harder and more costly it will be to

fiancé. The political and economic stability of the buyer’s

country can also e a issue, to provide financing for either

37

accounts receivable or the production or purchase of the

product for sale, the lender may require the most secure

methods of payment, a letter of credit (possible confirmed) or

export credit insurance or guarantee.

The need for pre-shipment fiancé and for post-shipment

working capital. Production for an unusually large order, or for

a surge of orders, may present unexpected and severe strains

n the exporter’s working capital. Even during normal periods,

inadequate working capital may curb an exporter’s growth.

However, assistance is inadequate working capital may curb

an exporter’s growth. However, assistance is available through

public and private sector resources (Vyss, 2011:11)

Extending Credit to Foreign Buyers: Foreign buyers often

press

2.11 Increasing non Oil Exports in Nigeria As narrates Soludo (2009:118), it is not news that petroleum that

was discovered in Nigeria decades ago with the expectation of

improving the lots of the people has succeeded in making majority

of Nigerians go cap in hand begging for their share of the oil

resources. It is not news that the non-oil resources we used to

develop oil exploration now contribute less than 10% of the nation’s

foreign earnings. It is not news that oil has put the nation resources

in few hands and equally unable to generate widespread

employment for the employable hands in the country. It is surely

not news that government came to realization that only the

38

development of our non-oil exports products that can alleviate

poverty and bring development closest to the people. What probably

is news notes Soludo is the Obasanjo administration and which is a

serious approach to promoting non-oil export as a survival strategy

for the nation. The president has constituted a committee on Export

Oriented Companies, which involved export business and relevant

Government Ministries and Agencies to finding ways and means of

increasing Nigerians export earnings. What this government policy

means to serious Nigerians who are ready to take their destiny into

their hands is a window of opportunities to better their lots. To this

category of people, they need to make plans NOW and prepare the

way on how to make good fortune in the expected non-oil export

boom. Nwagu (2009:20) observes that it is not enough to remain in

one place blaming and waiting for government for everything;

instead you need to plan your life within the available resources.

Checking out to her countries cannot bring you the comfort you

desire in life. Think of becoming your own boss and tap on the

opportunities provided by this non-oil export crusade. While you are

busy waiting for your share of the oil resources a lot of Nigerians

are smiling their way to their banks with proceeds from exports of

various products such as cocoa, cashew, fried snail, gari,

gallstones, ginger, dried vegetable, cassava chips/leaves/roots,

bones, sesame seeds, pepper, honey, charcoal, spices, various

manufactured or processed products and intermediate goods etc.

international Development Agency (2010: 50) notes that the beauty

of non-oil export is that you reap from your efforts because your

39

earning come to you and not to the central (federal) purse. You

therefore need not wait for any sharing formula to dispose of your

profit. Nwagu (2009:40) notes that the Federal Government, in its

bid to change the mono-culture picture of Nigeria export earnings

and possibly firm up the value of the Naira, has projected that by

the end of 2007, export earnings from the non-oil sector would hit

the USD 5 Billion mark. The above is coming quickly at a time when

the volatility of the upstream oil sector is under very close

observation in the light of the youth receptiveness and rebellion by

Niger Delta resource control agitators. The question being asked is

how the economy would fair if crude oil export is seriously

threatened. What options are there for exporters of non-oil

products?

In the light of the present volume of non-oil export and anticipated

incentives, exporters of various products other than oil have a

bright change of increasing their takings. Otanka (2006:10) states

that with government target of netting USD 5 Billion from non-oil

export by the year 2012, there is wide chance for discerning

exporters to explore. Government realizes the accrued benefits from

non-oil exports which have since 1974 been relegated in favour of

Petro-Naira. It must be recalled that the export of non-oil products;

Cocoa, Groundnut, Palm Kernel/Oil, Rubber etc., funded the

various marketing boards, which were effectively utilized by the first

republic Regional Government in their development programmes.

The ongoing unrest in the Niger Delta makes continued reliance on

40

oil export very precarious. The volatility of the oil market does not

also make 100% reliance on Petro-Dollar a wise decision, so

government has no option than to encourage the increase in export

of non-oil products including various agricultural products earlier

enumerated to shore up foreign exchange earnings and stabilize the

Naira. A nation, wise at trade, ensures the export of products in

which it is much endowed. Nigeria is extensively endowed with

various products, which are goldmines for discerning individuals.

Take up the opportunities and earn decent income.

Huge income earning opportunity: One of the Personal

Entrepreneurial Characteristic (PEC) that makes a big difference

between a successful entrepreneur and unsuccessful one is

opportunity seeking. That is seeking, recognizing and acting on new

business opportunities. Jonah (2008:284) notes that this is the use

of contacts or networking to obtain useful information. It is in view

of the above fact that we at the consulting are introducing this

wonderful opportunity to you. This is golden opportunity that will

enable readers to create for themselves, the target and lofty goals

for huge success. Jonah further notes that in order to assist a lot of

Nigerians to tap into this highly lucrative venture of non-oil export

business, our organization, the thy consulting, has written a

manual titled how to make it in non-oil export in Nigeria, to enable

them know all the techniques and secrets involved in non-oil export

business.

41

Some of the contents of the manual include:

1. Introduction to export

2. Management issues involved in the Export Decision

3. Developing overseas markets

4. Assessing export potentials

5. Cost of exporting

6. Benefits of exporting

7. Risk of exporting

8. Pricing, quotation and terms pricing

9. Export Prerequisites

10. Myths About Exporting

11. Export Financing

12. Government Assistance Programs

13. Common Payment Terms

14. Letter of Credit

15. Export Procedures

16. The New Export Regime in Nigeria

17. Paper on Pre-Shipment Inspection of Non-oil Export from

Nigeria under the Nigeria Export Supervision Scheme

(NESS)

18. Common Export Products

19. How to Get Loan For Your Agricultural Enterprises and

many more.

Chirianya (2004:100) notes that only very few Nigerians for now

have penetrated the lucrative market of non-oil export and reaping

cool big profit without stress. The KNOW-HOW of Non-oil Export

42

secrets had been covered up and seriously guided for sometime but

now, we the present Nigerian revolutionary wealth builders have

decided to uncover the secrets and release them without reservation

to fellow aspiring Nigerians who so desire and keen in operating the

wealth building secrets.

Why embarking on this mission:

1. To contribute our quota to eradicate poverty in Nigeria

2. To share what we know, practice and have worked

successfully for us; so as to be blessed with more from

the Almighty.

3. To expose the idea of Non-Oil Export as great income

opportunity.

4. To eliminate idleness and hopelessness in our country.

5. To show people how to prosper through non-oil export

despite the economy.

6. To motivate the less privileged one to be self dependent

7. To let people know that our country is greatly blessed

with resources yet unexplored.

8. To reduce financial crisis and crime in our society.

Udo (2009:62) observes that in empowering you to build your

desired wealth with peace of mind, many are sincerely called, but

believe me or not, only few are chosen. Why only few? That is the

power of destiny working. Udo observes further that in striving to

live up to our name the consulting wanting you to be a prosperous

and wealthy Nigerian, which I believe, should be one of your goal in

43

life. Our organization has spent huge money, time and effort to

acquire valuable information through attending seminars,

conferences, surfing the internet and researches.

2.12 Export Financing through Export Processing Zones As notes chartered institute of Bankers of Nigeria (CIBN) (2008:25)

the shift from an inward to outward oriented development strategy

world over and lately, in Africa, has been accompanied by the

emergence of Export Processing Zones (EPZs) invariably called, Free

Trade Zones, Bonded Warehouses, Transshipment Zones and

Licensed Manufacturing Warehouses all which refer to a

geographical or judicially bonded areas in which free trade

including duty free import of capital and intermediate goods are

permitted provided that all or a significant share of the goods

produced within the zone are exported. (Helena, Johansson and

Lars Nilsson 1997). EPZs have become a common policy instrument

aimed at stimulating exports, manufacturing, generating scarce

foreign exchange resources, employment and economic growth.

They are also designed with the objective of luring new investments

particularly forewing investment assorted with technology diffusion

and transfer of modern technology, managerial, administrative and

exporting skills.

In order to, therefore, stimulate rapid economic growth of the

country, particularly through industrialization, the Nigeria

44

government has in recent years adopted processing scheme to

attract foreign investment and also boost local industrial initiatives.

International monetary fund (2007:99) observes that export

processing Zones (EPZs) are a recent phenomenon which allow the

creation of an “enslave” isolated from the domestic economy, within

which export-oriented manufacturing activities can freely operate

without state interference. Thus, the primary objectives of an EPZ

are to provide special areas where potential investors would find a

congenial investment climate free from cumbersome procedures.

Investment (both local and foreign) in the zones is given favoured

treatment with respect to taxation, infrastructure, import controls

and industrial regulations. In return, foreign investors on the other

hand are expected to process all intermediate imports within the

zone and to export without adversely affecting the domestic

economy. Industries can easily be relocated as production

technologies are standardized without skilled workers. This is

known as foot-loose manufacturing.

Soludo (2009:33) states that the export processing zones were

originally meant as part of a package intended to attract investment

to a strategically located economy already free of import/export

regulations. The Nigerian Export Processing Zone Scheme is part of

a shift in policies from an inward to an outward orientation. It is a

great step taken by the Nigerian government like other nations

45

towards becoming more efficiently integrated into the world

economy. In this work we shall extensively look into the activities of

the zones and the prospect for the nation’s industrial development.

Export Processing Zones (EPZs) have become rather popular trade

policy instrument since their modern revival in the late 1950s’,

while in 1970 only a handful of countries permitted a zone, a recent

OECD publication (2002), places the total number of zones at 850

located in 73 countries. From 1990 to date, many countries like

Papua New Guinea, Namibia and Nigeria, among others have

established EPZ.

Export Processing Zones (EPZs) are special industrial parks

providing duty relief to export oriented firms operating in the zones.

They are enclaves with a country where foreign and domestic goods

may enter duty free in order to be stoned, distributed, combine with

other foreign and or domestic products, or used in manufacturing

operation.

McJones (2010:88) states that many different terms have been used

to denominate the zones and some that may seem to apply to a

single phenomenon correspond in fact to different regimes and

activities. For the purpose of this research work, EPZs are

understood as geographic zones (not necessarily industrial parks)

established outside the customs territory of a particular country,

where products can be stored, processed and manufactured

46

without the payment of import duties and with the intention of

exporting most of the output. The fact that our definition limits EPZ

to geographical areas within a country implies that Singapore and

Hong Kong, where the entire territory is fundamentally an EPZ, are

excluded. Furthermore our definition limits the primary purpose of

the zone as manufacturing for export. This requirement implies that

the more than 200 free trade zones that exist in the United States

(Burns 1995), and zones likes Manans in Brazil more of an “import

processing zone” than an EPZ (ILO/UNCTC, 1988), are also

excluded. Although some may argue that this is a rather limited

definition, it does include most of the export-oriented regimes in

most African Countries like Kenya, Mauritius, and Cameroun and

most importantly Nigeria, and we consider it most appropriate for

our research.

Taylor (2003:128) observes that World Bank (1992) has based its

analysis on the promise that “an export processing zone is an

industrial estate, usually a fenced-in area of 10 to 300 hectares that

specializes in manufacturing for export. It offers firms free trade

conditions and a liberal regulatory environment.

Otanka (2006:11) sees FTZ as EPZ with free trade and other equal

footing policies, which include realistic exchange rate, inputs and

capital goods at world prices, easy access to investment licensing

and financing for the creation of export production capacities.

47

The ILO/UNCTC suggests that an EPZ is a clearly delineated

industrial estate which constitutes a free trade enclave in the

customs and trade regime of a country, and where foreign

manufacturing firms producing mainly for export benefit from a

certain number of fiscal and financial incentives.

Moha (2007:79) notes that both the World Bank and ILO/UNCTC

definitions are restrictive and exclude a large number of EPZs in

developing countries that espouse a more accommodating setup.

For instance, some firms are not geographically constrained in

industrial estates (Mauritius, China). In others, firms are allowed to

sell a percentage of their output within the domestic market

(Dominican Republic 20%, Mexico today 20-40%). Some like the

existing Manas (Brazil) EPZ and the prospective EPZ in Papua New

Guinea, are permitted unlimited sales to the domestic market.

The ILO/UNCTC report acknowledges that such “off-=shore

manufacturing facilities” represents, in terms of employment or

output, approximately half of the weight of EPZs proper. In 1986,

for instance, there were some 620,000 workers employed

throughout the developing world in offshore manufacturing facilities

other than EPZs against 1.3 million in the narrowly defined EPZs.

Aliche (2006:44) narrates that there are however, both theoretical

and practical reasons for adopting a narrow definition of export

processing zones. The ILO/UNCTC report opts for it on two

48

grounds. The first is a practical one: the qualitative and quantitive

data are better in the enclaves. The second is an analytical choice:

enclave manufacturing for export is essentially segregated from the

rest of the society. It s existence and performance raises interesting

questions regarding its contribution to the growth and development

of the host country.

This research work shall therefore be based on a more inclusive

definition than the ones used by the World Bank (1992) and

ILO/UNCTC (1988). We will include the EPFs as well as those EPZs

allowed to sell some share of their output in the domestic market.

This decision is premised on two grounds: first, adhereing to a

narrow definition of EPZ would be empirically somewhat outdated

and secondly, would strip the policy analysis of much of its breadth

and depth since many of the zones are based on or have evolved

into the more inclusive definition of EPZ. Overall, through the

analysis, we will draw examples from East Asia, Central America

and some African countries.

Nwagu (2009:33) states that in reviewing EPZ performance, it is

necessary to keep in mind the host government’s objectives in

establishing an EPZ. In general, there are five principal sources of

benefits a government may be seeking:

1. generation of employment

2. generation of foreign exchange

3. attraction of foreign capital and technology,

49

4. acquisition of superior labour and management skills;

and

5. creation of linkages between EPZ industries and domestic

firms. The zones also generate costs that can be

substantial and include infrastructure expenses,

subsidiaries in public services (e.g. electricity or access to

credit at preferential rates), and administration of the

industrial complex.

Leaving aside considerations of income distribution, perhaps the

best way to determine the net contribution of the zones is a detailed

cost/benefit analysis of the scheme. Peter Warr, whose work was

published in several articles during the 1980s, pioneered this kind

of research. Although it has strong appeal, approximations,

assumptions and rough estimates limits its practical applications.

In addition, the analysis ignores externalities and intangibles like

technological transfers and upgrading of local skills, which are very

hard to quantify (Wilson 2011:48 and Stordel 2009:51) but are

among the main objectives for establishing EPZs. Despite these

limitations Warr’s analysis does give an indication of the relative

importance of different sources of benefits and costs and thus,

uncovered key issues that host governments need to consider when

establishing EPZs.

50

References

Aliche, U. (2006) “Savings in sub-Saharan Africa: A comparative analysis”. African Economic Research Consortium, Nairobi, May.

Chirianya, A. (2004) “Export Financing and Economic Growth:

Some Evidence” Economic Development and Cultural Change, Vol.32:607-614,

Clement, A. (2005) “Balanced and Unbalanced Growth. In R.

Nurske, G. Huberler and R.M. Stern, Eds, Equilibrium and Growth in the World Economic”, Harvard Economic Studies, Vol. 118:241-278

Gabriel, O. and Thakur, V. (2004) “Public investment, Crowding out

Growth: A dynamic model applied to India and Japan”. IMF Staff Papers, Vol. 10:814-855

Iroanya, U. (2005) “fluctuations in export earnings and economic

patterns of Asian Countries” Economic Development and Cultural Change, Vol. 21:629-41

Johnson, C. (2003) “Export Fluctuations and Economic Growth”.

Journal of Development Economic, Vol. 12:195-218 Jonah, M. (2008) “Irreversible investment, capacity choice, and the

value of the firm”. American Economic Studies, vol. 118:241-278 Kravis I. B. (2007) “Trade as a handmaiden of growth: similarities

between the nineteenth and twentieth centuries”. Economic Journal, vol. 80:850

Moha, O. (2007) “Trade Growth and Power: Similarities between the

ninetheenth and twentieth Centuries”. Economic Journal, vol. 80:850

Morah, C. (2003) “Export fluctuations and economic growth”.

Journal of Development Economic, vol. 12:195-218

51

Mwega, F. M. (2006) “Savings in sub-Saharan Africa: A comparative analysis”. African Economic Research Consortium, Nairobbi, May

Naya, S. (2006) “Fluctuations in export earnings and economic

patterns of Asian Countries” Economic Development and Cultural Change, vol. 21:629-41

Nurske, R. (20O5) “Balanced and Unbalanced Growth. In R.

Nurske, G. Huberler and R.M. Stern, eds, Equilibrium and Growth in the World Economic”, Harvard Economic Studies, vol. 118:241-278

Nwagu, P. (2009) “Financing Export in Nigeria” Economic Review,

vol. 12, No. 411 Otanka, I. (2006) Revamping Nigeria’s Economic with Export

Financing, Okpuala Ngwa: Calvary Publishers. Pindyck, R. (2008) “Irreversible investment, capacity choice, and the

value of the firm”. American Economic Studies, vol. 118:969-985 Savvides, A. (2004) “Export instability and economic growth: Some

evidence” Economic Development and Cultural Changes, vol. 32:607-614

Stordel, H. (2009) “Export income risk and determinants of capital

formation in developing countries”. Review of World Economics, Weltwirtschaftsliche Archiv, Band 126, Heft 2:346-68.

Sundararajan, V. and S. Thakur (2004) “Public investment,

crowding out growth: A dynamic model applied to India and Korea”. IMF Staff Papers, vol. 27:814-855

Taylor, Mark P. (2003) “Modelling the demand for U.K. broad

money, 1871-1913” Review of Economic and Statistics, vol. Ixxv (Feb), no. 1:112-117

52

Udo, C. (2009) “Export income Analysis and determinants of capital formation in developing countries”. Review of world economics, Weltwritshcaftliche Archiv, Band 126, Heft 2:112-113

Vyess, A. (2011) “Export Financing” Nigerian Economic Review, vol.

18, No.115.

53

CHAPTER THREE

Research Methodology

3.1 Research Design

According to Onwumere (2005), a research design is a kind of

blueprint that guides the researcher in his or her investigation and

analyses. The research design that was adopted for this research is

the ex-post facto research design. The intended adoption of this

research design hinges on two reasons. Ex-post facto research

design as described by Kerlinger (1970), the ex-post facto research

design also called causal comparative research is used when the

researcher intends to determine cause-effect relationship between

the independent and dependent variables with a view to

establishing a causal link between them; the study is an impact

study thus the adoption of the ex-post facto research design.

3.2 Nature and Sources of Data

The nature of data for this research was of secondary nature.

Secondary data are data which have been processed, collated and

existed in published form (see Onwumere, 2005). The secondary

data sources that were used in this study are extracted from

Central Bank of Nigeria statistical bulletin and the Nigerian Export-

Import Bank annual statement and accounts. The relevant data

include, Non-oil Export in volume, Gross domestic Product in

volume, Nigeria Export-Import Bank Credit and Total Bank Export

Credit in volume for the period under study.

54

3.3 Population, Sample Size/Techniques The idea of sampling or determining sample size is to obtain a part

of the population from which some information about the entire

population can be inferred. In line with the nature of this type of

research, the population of the study is all credit granted for since

the establishment of NEIXM and Banks in Nigeria. This will also

constitute the total sample size for this research. However, the

study is time series analysis thus we examined the impact of Export

credit on non-oil export in Nigeria from 1990 to 2007. Therefore the

sampling Techniques were the Non Probability Convenience

sampling method. This is justified on the availability of data.

3.4 Model Specification The simple regression equation is stated thus;

Y = B1 + B2X2 + u ................................................................. (1)

Where, Y =dependent variable; X =explanatory variable; B1

=intercept of Y; B2 =slope coefficients; U =stochastic variables

(Gujarati, 1995).

Therefore, in writing the model equation, the following proxies and

symbols will be used in this research.

Non-oil Export = NOE Gross domestic Product = GDP Nigeria Export-Import Bank Credit = NEIXMC Total Bank Export Credit = TBEC

a = Equation intercept b = Equation coefficient μ = error term

55

Equation (1) will be re-written to suit the study along the three

hypotheses.

Thus, for hypothesis one which states that Nigerian Export Import

Bank credit does not have positive significant impact on non-oil

export in Nigeria, it is represented as:

NOE = a + b NEIXMC + μ ………….................................. (2)

For hypothesis two, which states that Total banking export credit

does not have positive significant impact on non-oil export in

Nigeria, it is represented as;

NOE = a + b TBEC + μ ………................................. (3)

For hypothesis three, which states that Non-Oil Export does not

have positive significant impact on Nigeria’s gross domestic product it

is represented as;

GDP = a + b NOE+ μ.................................................. (4) 3.5 Technique for Analysis The hypotheses stated in chapter one will be tested using the

Ordinary Least Square (OLS) Regression model. The justification

for adopting this analytical technique is based on the following

premise; the ordinary least square is assumed to be the best linear

unbiased estimator (Gujarati, 1995); it has minimum variance

(Onwumere, 2005), and similar work (Usman and Salami, 2009)

adopted this technique in their study.

56

References

Gujarati, D.N. (1995), Basic Econometrics, Singapore: Mcgraw- Hill Book Co

Kerlinger, F.N. (1973), Foundations of Behavioural Research

Techniques in Business and Economics Eleventh Edition, Boston; McGraw Hill Irwin

Onwumere, J.U.J (2005), Business and Economic Research Method,

Lagos; Don-Vinton Limited Usman, O. A and Salami, A. O (2009), The contribution of Nigerian Export-Import (NEXIM) Bank Towards Export (Non-Oil) Growth in Nigeria [1990- 2005] African Economic and Business Review Vol. 7, No. 1, Spring

57

CHAPTER FOUR

Data Presentation and Analysis

4.0 Introduction

Data is analyzed by the means of secondary data by regression

analysis through SPSS package, which is used to run out the three

hypotheses.

4.1 Presentation of Relevant Data

The tables below show the data as collected from the secondary

sources.

Table 4.1 Presentation of Data

Years Non-0il Export

GDP at Factor cost (N,000)

NEIXM Credit (N,000)

Total Bank Export Credit (N,000)

1990 3,259.6 267,550.0 418.6 1215.7 1991 4,677.3 265,379.1 942.5 1449.2 1992 4,227.8 271,365.5 1457.0 1682.6 1993 4,991.3 274,833.3 1574.0 1727.1 1994 5,349.0 275,450.6 2,639.8 1956.8 1995 23,096.1 281,407.4 2,033.4 4,580.0 1996 23,327.5 293,745.4 2,978.3 7,557.0 1997 29,163.3 302,022.5 5,300.0 10,528.2 1998 34,070.2 310,890.1 8,790.3 9,409.3 1999 19,492.9 312,183.5 10,138.4 8,841.7 2000 24,822.9 329,178.7 4,570.9 14,293.5 2001 28,008.6 356,994.3 6,866.3 14,293.5 2002 94,731.8 433,203.5 21,767.3 21,767.2 2003 94,776.4 477,533.0 3,035.8 15,189.8 2004 113,309.4 527,576.0 7,036.6 32,556.1 2005 105,955.9 561,931.4 5,883.7 78,556.1 2006 133,594.9 595,821.6 7,089.4 83,621.8 2007 169,709.7 634,251.1 8,945.2 102,342.7 Source: CBN Statistical Bulletin and NEIXM Annual Statement and Accounts (Various)

58

4.2 Test of Hypotheses

The hypotheses stated in Chapter One was tested using three steps,

Step one is the restatement of the hypotheses in null and alternate

forms, step two is the analyses of the result and step three is the

decision.

4.2.1 Test of Hypothesis One

Step One: Restatement of Hypothesis in Null and Alternate Form

Ho1: Nigerian Export Import Bank credit does not have positive

significant impact on non-oil export in Nigeria

Ha1: Nigerian Export Import Bank credit have positive significant

impact on non-oil export in Nigeria

Step Two: Analysis of Result Model R R Square Adjusted R Square Beta T-value Durbin Watson

1 .486a .236 .188 .486 2.224 .355

Source: Appendix 1

Model Equation NOE = 22202 + 5.094NEIXMC

The t–value of 2.224 shows that it is significant and from the model

equation, the coefficient of Nigeria export-Import Bank credit for

export is 5.094, thus there is a positive significant impact of Nigeria

export-Import Bank credit for export on Non-oil Export in Nigeria.

The correlation coefficient (R) is O.486 and the beta indicates that it

has a positive correlation which means an increase in Nigeria

export-Import Bank credit for export will lead to a increase in Non-

59

oil Export in Nigeria. The explained variable for this particular

change in Nigeria export-Import Bank credit for export is 23.6% as

indicated by the coefficient of determination (R2). The d-test statistic

value is 0.355.

Decision From the above, the null hypothesis is rejected while the alternate

hypothesis which states that Nigerian Export Import Bank credit

have positive significant impact on non-oil export in Nigeria is

accepted

4.2.2 Test of Hypothesis Two


Ho2: Total banking export credit does not have positive significant

impact on non-oil export in Nigeria

Ha2: Total banking export credit have positive significant impact on

non-oil export in Nigeria

Step Two: Analysis of Result Model R R Square Adjusted R Square Beta T-value Durbin Watson

1 .890a .792 .779 .890 7.796 1.014

Source: Appendix 2

Model Equation NOE = 16871.973 + 1.489TBEC

The t–value of 7.796 shows that it is significant and from the model

equation, the coefficient of Total Bank credit for export is1.489,

60

thus there is a positive significant impact of Total Bank credit for

export on Non-oil Export in Nigeria. The correlation coefficient (R) is

O.890 and the beta indicates that it has a positive correlation which

means an increase in Total Bank credit for export will lead to a

increase in Non-oil Export in Nigeria. The explained variable for

this particular change in Total Bank credit for export is 79.2% as

indicated by the coefficient of determination (R2). This is quite high

and the implication is that the model succinctly captures the

variations observed. The d-test statistic value is 1.014.


hypothesis which states that Total banking export credit have

positive significant impact on non-oil export in Nigeria is accepted

4.2.3 Test of Hypothesis Three


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

Nigeria’s gross domestic product Ha3:Non-Oil Export have positive significant impact on Nigeria’s

gross domestic product Step Two: Analysis of Result Model R R Square Adjusted R Square Beta T-value Durbin Watson

1 .981(a) .962 .960 .981 20.134 1.717

Source: Appendix 3

61

Model Equation GDP = 255673.104 + 2.367NOE

The t–value of 20.134 shows that it is significant and from the

model equation, the coefficient of Non-oil export is 2.367, thus there

is a positive significant impact of Non-oil export on Gross domestic

product in Nigeria. The correlation coefficient (R) is 0.981 and the

beta indicates that it has a positive correlation which means an

increase in Non-oil export will lead to a increase in Gross domestic

product in Nigeria. The explained variable for this particular


indicated by the coefficient of determination (R2). This is high and

the implication is that the model succinctly captures the variations

observed from the model. The d-test statistic value is 1.717.


hypothesis which states that Non-Oil Export have positive

significant impact on Nigeria’s gross domestic product is accepted

62

CHAPTER FIVE

5.0 Summary of Findings, Conclusion and Recommendations

5.1 Summary of Findings

After the testing the hypotheses, the findings of the study were as

follows;

First, there is a positive significant impact of Nigeria export-Import

Bank credit for export on Non-oil Export in Nigeria as t–value was

2.224 and the coefficient of Nigeria export-Import Bank credit for

export was 5.094. The correlation coefficient (R) is O.486 and the

beta indicates that it has a positive correlation which means an

increase in Nigeria export-Import Bank credit for export will lead to

a increase in Non-oil Export in Nigeria. The explained variable for

this particular change in Nigeria export-Import Bank credit for

export is 23.6% as indicated by the coefficient of determination (R2).

The d-test statistic value is 0.355.

Secondly, there is a positive significant impact of Total Bank credit

for export on Non-oil Export in Nigeria. The t–value of 7.796 shows

that it is significant and from the model equation, the coefficient of

Total Bank credit for export is 1.489. The correlation coefficient (R)

is O.890 and the beta indicates that it has a positive correlation

which means an increase in Total Bank credit for export will lead to

a increase in Non-oil Export in Nigeria. The explained variable for

this particular change in Total Bank credit for export is 79.2% as

63

indicated by the coefficient of determination (R2). This is quite high

and the implication is that the model succinctly captures the

variations observed. The d-test statistic value is 1.014.

Lastly, there is a positive significant impact of Non-oil export on

Gross domestic product in Nigeria. The t–value of 20.134 shows

that it is significant and from the model equation, the coefficient of

Non-oil export is 2.367. The correlation coefficient (R) is 0.981 and

the beta indicates that it has a positive correlation which means an

increase in Non-oil export will lead to a increase in Gross domestic

product in Nigeria. The explained variable for this particular


indicated by the coefficient of determination (R2). This is high and

the implication is that the model succinctly captures the variations

observed from the model. The d-test statistic value is 1.717.

5.2 Conclusion

Export financing is an aspect of financing that looks into exportable

goods that earn foreign exchange for the nation. It is a technique of

diversifying the resource base of the country. Presently, Nigeria over

depends on oil proceeds. Action has to be taken adequately to

increase the earnings from none oil export. According to Abubakar

(2011:23), Export Expansion Grant (EEG) is designed to increase

earnings of government from non-oil through renowned agro-allied

products such as cocoa, leather, rubber, cotton-textiles, shrimps,

sesame seeds and gum Arabic. Abubakar notes that the main

64

objective of EEG is to compensate local manufacturers who export.

For rising operational expenses traceable to harsh operating

environment thereby enhancing their products competitiveness

outside the country, he notes that the policy has succeeded to the

point that Nigerian’s non-oil exports have been growing consistently

at a double-digit rate in the last five years. Implementation

challenges of EEG, notes Mohammad (2011:36) ranges from the

corruptive and manipulative activities of a few local manufacturers

to alleged institutional hindrances on the part of Federal

Government implementation agencies. In increasing export

financing, government has to take measures to monetize local

production.

The proxies used to test the hypothesis stated indicates that export

financing has a positive significant impact on non-oil export in

Nigeria and the impact of non-oil export in Nigeria on the Gross

domestic product in Nigeria was positive and highly significant.

Thus measures should be taken by policy makers in Nigeria to

increase export grant, as this will enhance the growth of the

Nigerian economy.

65

5.3 Recommendations Based on the findings of the study, the researcher

recommends as follows:

1. Local manufacturers should be encouraged to expand

production and source market globally. This will increase their

earnings and expand exports.

2. Export policy implementation agencies should be made to

improve on their strategies to boost production

3. Government should ensure pre and post shipment finance in

local currency through rediscounting facility

4. Direct lending facility should be improved upon so that export

– import bank reduced unnecessary protocol that deter

borrowing by manufacturers

5. The entire banking industry should be encouraged to lend to

local manufactures to beef up local production

6. Export credit insurance facility should reduce bottlenecks in

risk management for exporters

7. External affairs ministry should help in marketing Nigerian

exports abroad for increased clientele and resource base

8. Standard organization of Nigeria should ensure always, strict

adherence to standards by local manufacturers to ensure

international standard for Nigerian goods.

9. Government should improve on quality of infrastructures

especially electricity to reduce overhead costs of production

66

10. Government should be periodically conducting seminars and

conferences for local manufacturers to educate them on

internationally accepted standards for products.

67

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Chartered Institute of Banks of Nigeria,(2010), “Monetization of

Export Trade in Nigeria” An Address Presented on Export Financing Conference in Nigeria at Nicon-Nuga Hotels, Abuja. September, 19.

Chirianya, A. (2004) “Export Financing and Economic Growth:

Some Evidence” Economic Development and Cultural Change, Vol.32:607-614,

Clement, A. (2005) “Balanced and Unbalanced Growth. In R.

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Gabriel, O. and Thakur, V. (2004) “Public investment, Crowding out

Growth: A dynamic model applied to India and Japan”. IMF Staff Papers, Vol. 10:814-855

Gujarati, D.N. (1995), Basic Econometrics, Singapore: Mcgraw- Hill Book Co International Development Agency, (2010) “Fund Supply for Export”

An Address Presented on Export Financing Conference at Green Tree Motel, New York, November, 20.

International Monetary Fund, (2007), “Towards Balance of Trade

Position in Developing Countries” An Address delivered at an International Conference on Trade and Development (UNCTAD) at International Conference Center Zurich, October, 18.

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Iroanya, U. (2005) “fluctuations in export earnings and economic patterns of Asian Countries” Economic Development and Cultural Change, Vol. 21:629-41

Johnson, C. (2003) “Export Fluctuations and Economic Growth”.

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Kravis I. B. (2007) “Trade as a handmaiden of growth: similarities

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McJones, B.C. (2010), Export Financing in America Now York:

McGraw Hill Books Inc. Moha, O. (2007) “Trade Growth and Power: Similarities between the

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Morah, C. (2003) “Export fluctuations and economic growth”.

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Nigerian Export – Import Bank, (2008), “Export Promotion” A

Guideline on Investment Finance given at a Conference Center on Export Financing at International Conference Center Abuja, January, 25

69

Nigerian Export Promotion Council, (2009), “Building Clientele in

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71

APPENDIX 1

HYPOTHESIS ONE

Variables Entered/Removed(b)

Model Variables Entered Variables Removed Method 1 NEIXMC(a) . Enter

a All requested variables entered. b Dependent Variable: NOE Model Summary Model R R Square R Square

Adjusted Std Error of Estimate

Durbin Watson

1 .486a .236 .188 47357.5013 .355 a Predictors: (Constant), NEIXMC b Dependent Variable: NOE ANOVA(b)

Model Sum of Squares df Mean Square F Sig. 1 Regression 11089313048.506 1 11089313048.506 4.945 .041(a)

Residual 35883726839.938 16 2242732927.496 Total 46973039888.444 17

a Predictors: (Constant), NEIXMC b Dependent Variable: NOE Coefficients(a)

Model Unstandardized Coefficients Standardized Coefficients

t Sig.

B Std. Error Beta 1 (Constant) 22202.556 17070.065 1.301 .212 NEIXMC 5.094 2.291 .486 2.224 .041

a Dependent Variable: NOE Residuals Statistics(a) Minimum Maximum Mean Std. Deviation N Predicted Value 24335.082 133094.438 50920.256 25540.4098 18 Residual -54358.9766 101936.4922 .0000 45943.5247 18 Std. Predicted Value -1.041 3.217 .000 1.000 18 Std. Residual -1.148 2.152 .000 .970 18

a Dependent Variable: NOE

72

APPENDIX 2

HYPOTHESIS TWO

Descriptive Statistics

Mean Std. Deviation N NOE 50920.256 52565.3878 18 TBEC 22864.906 31407.3170 18

Correlations NOE TBEC Pearson Correlation NOE 1.000 .890 TBEC .890 1.000 Sig. (1-tailed) NOE . .000 TBEC .000 . N NOE 18 18 TBEC 18 18

Model Summary Model R R Square R Square

Adjusted Std Error of Estimate

Durbin Watson

1 .890a .792 .779 24734.2365 1.014 a Predictors: (Constant), TBEC b Dependent Variable: NOE ANOVA(b)

Model Sum of Squares df Mean Square F Sig. 1 Regression 37184520601.827 1 37184520601.827 60.781 .000(a

) Residual 9788519286.617 16 611782455.414 Total 46973039888.444 17

a Predictors: (Constant), TBEC b Dependent Variable: NOE Coefficients(a)

Model Unstandardized Coefficients Standardized Coefficients t Sig.

B Std. Error Beta 1 (Constant) 16871.973 7284.311 2.316 .034 TBEC 1.489 .191 .890 7.796 .000


73

Residuals Statistics(a) Minimum Maximum Mean Std. Deviation N Predicted Value 18682.279 169271.172 50920.25

6 46768.8437 18

Residual -27894.4824 55285.1953 .0000 23995.7340 18 Std. Predicted Value -.689 2.531 .000 1.000 18 Std. Residual -1.128 2.235 .000 .970 18


74

APPENDIX 3

HYPOTHESIS THREE

Descriptive Statistics Mean Std. Deviation N GDP 376184.27

8 126835.8615 18

NOE 50920.256 52565.3878 18 Correlations GDP NOE Pearson Correlation GDP 1.000 .981

NOE .981 1.000 Sig. (1-tailed) GDP . .000

NOE .000 . N GDP 18 18

NOE 18 18 Model Summary(b)

Model R R Square

Sig. F Change

Durbin-Watson Adjusted R Square

Std. Error of the Estimate

1 .981(a) .962 .960 25475.3785 .962 1.717 a Predictors: (Constant), NOE b Dependent Variable: GDP ANOVA(b)

Model Sum of

Squares df Mean Square F Sig. 1 Regression 263100789

302.610 1 263100789302.610 405.397 .000(a)

Residual 10383918563.901 16 648994910.24

4

Total 273484707866.511 17

a Predictors: (Constant), NOE b Dependent Variable: GDP

75

Coefficients(a)

Model Unstandardized Coefficients Standardized Coefficients t Sig.

B Std. Error Beta 1 (Constant) 255673.10

4 8478.163 30.157 .000

NOE 2.367 .118 .981 20.134 .000 a Dependent Variable: GDP Residuals Statistics(a)

Minimum Maximum Mean Std.

Deviation N Predicted Value 263387.469 657319.063 376184.27

8 124404.6503 18

Residual -46668.0156 55496.2031 .0000 24714.7474 18 Std. Predicted Value -.907 2.260 .000 1.000 18 Std. Residual -1.832 2.178 .000 .970 18

a Dependent Variable: GDP

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EXPORT FINANCING IN NIGERIA, PROBLEMS AND PROSPECTS … CUKWUDI EMEKA.… · credit terms on non-oil export in Nigeria; examine the impact of Total banking export credit on non-oil