HOW TO ACCESS FUNDS FOR AUTOMOTIVE COMPONENT MANUFACTURING IN NIGERIA

1. HOW TO ACCESS FUNDS FOR AUTOMOTIVE COMPONENT MANUFACTURING IN NIGERIA Presented on behalf of the Managing Director, Bank of Industry Limited

2. INTRODUCTION Role of the Auto Sector in the World Economy • Automobiles are a liberating technology for people around the world. The personal automobile allows people to live, work and play in ways that were unimaginable a century ago. • Nearly every car trip ends with either an economic transaction or some other benefit to our quality of life. • Automobile production is the largest manufacturing sector in the world –a key activity in leading industrial nations and of increasing significance elsewhere. • It draws on a range of supplier industries, from raw materials (such as steel, aluminium, plastics and chemicals) through to sophisticated component assemblies, design, tooling and engineering services. Moreover, as an intensive developer and user of advanced technologies, the automotive industry is typically viewed as generating significant ‘spill over’ benefits for other activities. As well as undertaking product and process development relevant to other manufacturing activities, the industry is seen as contributing to skill development in areas such as production, design, engineering, computer programming, software development and management systems. • It is estimated that each direct auto job supports at least another 5 indirect jobs in the community, resulting in more than 50 million jobs owed to the auto industry. Many people are employed in related manufacturing and services. Autos are built using the goods of many industries, including steel, iron, aluminum, glass, plastics, glass, carpeting, textiles, computer chips, rubber and more.

3. The Automotive Industrial Development Programme • The introduction of the Automotive Industrial Development Programme by the Federal Government of Nigeria through the Ministry of Trade and Investment is aimed at promoting local automobile production and reducing the importation of used cars. Prior to this, the National Automotive Council (NAC) had established a Fund at BOI for financing of auto assembly and component manufacturing. • The new automotive policy will revive the metal, steel and tyre manufacturing sectors, which will in turn result in the creation of more jobs and growth of the Nigeria economy. • We have already started reaping the benefit of this policy as made in Nigeria cars are springing up due to the setting up of assembly plants by major and local car manufacturers. • This development undoubtedly creates opportunities for local automotive component manufacturers.

4. ACCESSING FUNDS FOR AUTOMOTIVE COMPONENT MANUFACTURING • The main source of funding for any business is through investible funds. • Investible funds literarily means a pool of financial resources available for deployment and/ (or) investment. • The primary source of investible fund is savings.

5. ACCESSING FUNDS FOR AUTOMOTIVE COMPONENT MANUFACTURING (CONTD) • SOURCES OF INVESTIBLE FUNDS: • Equity • Commercial Banks loans • Government (Federal, State and Local) • Multilateral Institutions (IMF, World Bank) • Donations/ Grants (Foreign or Local) • Development Finance Institutions (DFIs) • Venture Capital Funds

6. ACCESSING FUNDS FOR AUTOMOTIVE COMPONENT MANUFACTURING (CONTD) COMMERCIAL BANKS • Commercial banks as financial intermediators are and could fund some of the requirements of automotive component manufacturers. This role is becoming increasingly pertinent after the banking sector consolidation exercises which has made the banks bigger and better capitalised by virtue of the minimum shareholders fund of N25billion. • Regrettably, because of the short term nature of funds available to banks, which is mainly from deposit takings, they are unable to lend long term which is the gestation of funds suitable for and required by manufacturers. • The commercial banks though have been working hard to overcome this short coming through leveraging on off-shore resources of other institutional lenders.

7. ACCESSING FUNDS FOR AUTOMOTIVE COMPONENT MANUFACTURING (CONTD) GOVERNMENT • Governments at all tiers have been either directly or indirectly involved somehow in the provision of funding to sectors considered as having overriding national/public interest or security. Though this source is becoming increasingly unpopular because of the pressure to allow market forces to determine the allocation of State resources as wellas the increasing tendency towards a private sector led economy. Some examples of Federal Government funding include NAC Fund, the recent N100 billion intervention funds in the Cotton, Textile and Garment (CTG) sector, the N250 Billion CBN Refinancing and Power and Aviation fund, as well as the recently launched N220 Billion MSME Fund.

8. ACCESSING FUNDS FOR AUTOMOTIVE COMPONENT MANUFACTURING (CONTD) FOREIGN DIRECT INVESTMENT • Foreign Direct Investment (FDI) is defined as a long-term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the foreign direct investor is based. The FDI relationship, consists of a parent enterprise and a foreign affiliate which together form a transnational corporation (TNC). • There are two forms of FDI, these are Horizontal Foreign Direct Investment and vertical foreign direct investment

9. ACCESSING FUNDS FOR AUTOMOTIVE COMPONENT MANUFACTURING (CONTD) INTERNATIONAL FINANCE INSTITUTIONS • The World Bank and the International Finance Corporation (the investment arm of the IMF) also make available long term financial resources if they are convinced the fundamentals are right, especially for the IMF window, while the World Bank have shown increasing support for huge projects with great developmental impact like roads, health care delivery system, housing and shelter to mention but a few.

10. ACCESSING FUNDS FOR AUTOMOTIVE COMPONENT MANUFACTURING (CONTD) GRANTS/DONATIONS • Grants/donations from both foreign and local sources also do come handy except that this source is very unpredictable and therefore, unreliable. VENTURE CAPITAL • Venture capitalists are typically very selective in deciding what to invest in; as a rule of thumb, a fund may invest in as few as one in four hundred opportunities presented to it. Funds are mostly interested in ventures with exceptionally high growth potential, as only such opportunities are likely capable of providing the financial returns and successful exit event within the required timeframe (typically 3-7 years) venture capitalists expect.

11. ACCESSING FUNDS FOR AUTOMOTIVE COMPONENT MANUFACTURING (CONTD) DEVELOPMENT FINANCE INSTITUTIONS (DFIs) • Perhaps the best platform from which to get funding for auto-component manufacturers is the window offered by the DFIs. DFIs are special purpose vehicles (SPVs) established to deliver credit to select sectors of the economy perceived to either be under serviced or of great national or public interest. They are therefore purpose built for the delivery of credit to the real sector. One of the DFIs in Nigeria charged with this mandate is the Bank of Industry Limited (BOI). Others are the Bank of Agriculture (BOA), Infrastructure Bank (IB) and the Nigerian Import Export Bank (NEXIM), serving the various sectors as the names imply.

12. BANK OF INDUSTRY (BOI) • The Bank of Industry Limited (BOI) was set up by the Federal government to address the financial needs of manufacturers and other operators within several sectors of the economy in October, 2001, following the reconstruction of the mandates of the former Nigerian Industrial Development Bank (NIDB), the National Economic Reconstruction Fund (NERFUND) and the Nigerian Bank for Commerce and Industry (NBCI). This development has made BOI the foremost DFI in the country having been in existence since 1964. • BOI is primarily a Federal government Institution with two main shareholders namely the Ministry of Finance Incorporated (MOFI) and the Central Bank of Nigeria. • The core mandate of the bank is providing financial assistance for the establishment of large, medium and small projects as well as expansion, diversification and modernisation of existing enterprises and the rehabilitation of ailing ones

13. WHO CAN BOI ASSIST? • Small, Medium and Large Enterprises • New or existing companies, seeking expansion, modernisation or diversification. • Credit worthy promoters who will be required to prove their commitment to the project by contributing at least 25% of the project cost excluding land. • Borrowers whose management capability, financial situation (including availability of collateral and guarantee), character and reputation are incontrovertible. • Clients with demonstrable ability to meet loan repayments. • Borrowers with no record of unpaid loans to erstwhile development finance institutions and other banks.

14. AVAILABLE FUNDS AT BOI • NAC Fund • Dangote-BOI Fund • Business Development Fund for Women (BUDFOW) • Cotton Textile and Garment Fund (CTG) • Power and Aviation Fund (PAIF) • CBN Intervention Fund (CBN-IF) • Cement Fund • States Matching Fund (with 19 states) • Rice Intervention Fund • Sugar Development Council Fund • Entertainment Fund

15. The NAC Fund • Date of Establishment:2003 • Amount:N18 Billion • Loans Disbursed:N7.2 Billion • Number of Projects financed: 36 • Purpose of the fund: To finance automotive assembly plants, automotive component manufacturing, automotive research development, garages and workshops.

16. How to Access BOI Facilities • You can obtain access to BOI facilities in 3 easy steps: • Writing of a formal application letter addressed to the Managing Director. • Completion of BOI’s Questionnaire. • Submission of forms, questionnaire and required documents.

17. ARE BOI’S TERMS STRINGENT? • We at BOI believe that any project that is appraised and approved by the Bank will scale any other assessment criteria in any other development finance institution in the world. • Our terms might appear stringent because we are guided by the following: • Best global practices: We aspire to be a World Class DFI that can attract funding from local and international bodies. For this reason, we benchmark our operations and performance standards against those of the best DFIs in the world. We therefore, strive to have a quality loan book derived from quality customers. • Prudential guidelines as outlined by the Central Bank of Nigeria and Basel Accords I & II of the Bank for International Settlements (BIS) requirements: We strive to bring our non-performing loans to within acceptable industry average of 5% or less. • Past experiences of other developmental institutions as a result of the attitudes of some Nigerians towards loan repayments: Unfortunately the average Nigerian sees most Government institutions like BOI as their opportunity to share in the “national cake”. But at BOI, we ensure that only serious minded industrialists access our facilities. • The purpose of our evaluation process is to ensure that money given out comes back so that others can benefit. We do not want the benefit chain to be broken.

18. Conclusion • Financing options are available from various sources though at high rates. This is essentially due to the low rate of available local investible funds. • Finally, Bank of Industry is committed to supporting the automotive sector including local automotive component manufacturers through the NAC and other funds. We are prepared to entertain request for financial support application from serious minded entrepreneurs.

19. HOW TO CONTACT US: BOI Zonal Offices: Abuja: BOI House Plot 256, Zone AO, Off Herbert Macaulay Way, Behind Unity Bank, Central Business District, Abuja. Tel No: 08073990022. Akure: BOI House, Owo Road, PMB 804, Akure, Ondo State. Tel No: 08073990023. Asaba: Plot 25, Block 111, Phase IV Okpanam Road, PMB 5099, Asaba, Delta State. Tel No: 08073990025.

20. HOW TO CONTACT US: BOI Zonal Offices: Bauchi: BOI House, Maiduguri Road, PMB 245, Bauchi, Bauchi State. Tel No: 0807399028. Enugu: BOI House, 47 Coal City Estate, Behind CBN Building, Enugu, Enugu State. Tel No: 08073990026. Kaduna: BOI House, 18 Muhammadu Buhari Way PMB 2141, Kaduna, Kaduna State. Tel No: 08073990027

21. Thank you