| Exporting Africa: technology, trade and industrialization in Sub-Saharan Africa |
|Part II. Country studies|
Origin and growth
Leasing as a mode of business finance began in Nigeria in the early 1960s, with the first documented transactions occurring as cross-border leases between Nigerian companies and their UK holding companies. Following the stringent exchange control measures introduced at the onset of the Nigerian civil war in 1966, this relatively low-level leasing business apparently ceased altogether. Activities resumed after the war as the massive post-war reconstruction efforts saw construction companies considering financial options in capital acquisition programmes. Growth in the industry has been particularly strong since the advent of free market reforms in late 1986. At the beginning of this period a few merchant banks such as the International Merchant Bank, Continental Merchant Bank and Nigerian Acceptances Limited, enjoyed market domination. The market has now expanded to accommodate well over 300 lessors. The Equipment Leasing Association of Nigeria (ELAN), which was formed in 1983, today represents about 85 of the most influential leasing companies (as at December 1991), including the financially powerful merchant banks. In 1986, the total assets on lease by ELAN members were worth about
N100 million. By 1991, total assets leased had risen to N895.8 million. This is, however, only about 42 per cent of the total N2 billion in outstanding leased assets in the country as at December 1991.
The tremendous growth in the industry in recent times has attracted the attention of the authorities and institutional regulation has begun. One example is the Statement on Accounting Standards (SAS 11) issued by the Nigerian Accounting Standard Board (NASB) in 1991 to guide the reporting format (information disclosure) in the industry.
Products on offer
Both finance and operating leases are offered. Virtually all registered banks and a sizeable proportion of non-bank finance houses offer finance leases. Almost any equipment can be leased under this arrangement, with the lease rentals structured to pay back the cost of equipment fully during the primary period. Operating lease arrangements are not as common and have come to be associated with specialized equipment. Apart from the big-time equipment suppliers such as Leventis, Mandillas and Rank Xerox, a few merchant banks and finance houses operate in this segment of the market. Under this arrangement, the lease rentals are usually not expected to cover the cost of equipment during the primary period.
The enormous growth between 1986 and 1991 suggests a very large domestic market for leased equipment. Total capital asset financing in the country in 1992 was over
N30 billion, yet the recorded lease portfolio was only about N5 billion (i.e. 17 per cent of the total). Participants in the market find leasing more attractive than conventional loans for a variety of reasons. On the one hand, banks find leasing relatively safer than straight credit advances and have been increasing their exposure in the market. On the other hand, the increasing cost of credit in the deregulated loan market coupled with the effect of the steep currency depreciation on the cost of imported equipment has discouraged many firms from attempting outright asset purchase. It remains difficult to guess the future growth direction in the industry. Recent government provisions have tended to reduce or eliminate altogether the incentives to lessors. For example, as of January 1991, the CBN directed that leasing should count towards banks' aggregate credit volume and almost simultaneously the NASB's SAS 11 ruled that finance leases are not leases and therefore banks as lessors should not claim capital allowances on leased equipment. The capital allowances had previously been a major incentive. However, if the recorded naira value of leased contracts for 1992 ( N5 billion, as compared to N2 billion in 1991) is anything to go by, the effects of these developments are yet to manifest themselves in reduced transaction volumes.
Funding of leased contracts is basically from own resources. Some banks offer leasing contracts in the form of concessionary financing which involves the use of funds from multilateral agencies such as USAID, KU, ADB, NERFUND (the National Economic Recovery Fund), SME (Small and Medium Enterprises) programme, or World Bank Health Programmes.
Distribution of finance
Of the ELAN member's exposure of about
N895.8 million in 1991, manufacturing accounted for 52.3 per cent, transport for 27.1 per cent, agriculture for 4.8 per cent, services for 5.1 per cent, government for 0.9 per cent and others (small equipment for the construction, mining, printing and confectionery industries) for 9.8 per cent.