Home Industry BOI reviving industries at high cost, seeks 3% coupon rate from DMO

BOI reviving industries at high cost, seeks 3% coupon rate from DMO

by Business News Report

The Bank of Industry has signaled that all is not well with the administration of the Federal Government’s N100 billion Cotton Textile and Garment (CTG) Industry loan to beneficiary companies as the bank is currently managing the fund at a loss under the current interest rate of six percent. This is even as majority of the Fund beneficiaries are not happy with the loan conditionality and have called for a lower interest rate of three percent instead of the current six percent in order to reduce their production cost.

An AIDE MEMOIRE prepared by the United Nations Industrial Development Organisation (UNIDO) and the Bank of Industry (BOI) made available to FINANCIAL VANGUARD, showed that while beneficiary firms include SunFlag, Adhama Textiles and Garment Industry Limited, Kano; Sam & Sarah; Nigeria Bag Manufacturing Company, BAGCO; Femi, a handbag and accessories manufacturing firm, among others, BOI is sweating profusely to manage the fund profitably.
According to the document the bank has therefore requested the Debt Management Office (DMO) to review downward its coupon rate for the fund being five percent to three percent as the bank is currently managing the fund at a loss under the current interest rate of six percent to the beneficiary firms.
It was learnt that the administrative and other ancillary costs are currently from outside the Fund and the expenses are being borne by BOI.

Findings on the administration of the fund further revealed that although most of the beneficiaries companies are satisfied with the BOI’s loan application process and loan supervision, yet they are not satisfied with the disbursement plan and the conditionality of the loan claiming that the current amount disbursed is not enough to produce at full capacity.

Hence, reduction in the interest rate was considered the most desired change to the administration and conditions of the CTG fund by beneficiary firms followed by extension of the loan duration.
About 71 percent of the firms required a loan tenure beyond seven years to 15-20 years to enable the industry stabilise and grow. But the BOI maintained that it can extend tenure of the loan to beneficiaries only if DMO extends the tenure of the fund.
In 2009, the Federal Government introduced a N100 billion intervention fund to revitalise the CTG industry, which was domiciled with BOI.

Approval and disbursement of the fund commenced effectively same year with a total of N7.195 billion disbursed to three firms. By June 2012, a total of N41.1 billion had been disbursed to 56 successful applicants by BOI.
Recently, a Validation workshop on the mid-term evaluation of Cotton, Textile and Garment (CTG) Industry was carried out by United Nations Industrial Development Organisation (UNIDO) and BOI in Abuja. The validation workshop was aimed at sharing preliminary results with stakeholders on the performance of the fund at mid-term; obtain views from stakeholders on the way forward for the CTG Fund, etc. The exercise drew stakeholders ranging from the beneficiary firms to the Central Bank of Nigeria, BDMO, Bank of Agriculture, textile, ginnery, cotton operators including Nigeria Labour Congress.

Mr. Olusegun Aganga, the Minister of Trade and Investment, who declaring the workshop opened, noted that the CTG sector was leading in the economy from the 1960s through to the 1970s and in the early 1980s when the industry had about 175 textile mills and employed over 600,000 workers, making it the second largest employer of labour next to government. “Unfortunately however, by 2008, the Textile factories still in operation had reduced to 24 textile mills and 10 ginneries employing less than 25,000 people and with exports less than US50million”, Aganga lamented.
He identified some of the factors that led to the decline in the sector to include massive influx of textiles and apparels from Asia, particularly after the Multi Fibre Agreement (MFA) expired in 2005, inadequate and epileptic energy supply and heavy reliance on self-generation of power, leading to high and uncompetitive production costs. Others, he added, were global economic challenges, massive smuggling of cheaper textiles of lower quality, changing consumer tastes and habits and huge debt burden on producers in the value chain amongst others.

The minister noted that the sector holds strong potential due to its natural cotton endowments, large market size and legacy sector knowledge, adding that Nigeria’s population of over 167 million people represents a natural market for basic textiles and apparel related goods. He stated further that the Potential to export to regional and select developed markets (such as the United States under the African growth and opportunity Act (AGOA) tariff regime) are also very attractive, just as the existing textile infrastructure and skill base provides the industry with a pool of knowledgeable workforce particularly in Northern Nigeria. These realities, the minister emphasized, make the sector too important for government to ignore.

Hence, in 2010, he continued, the Federal Government introduced the N100billion Cotton Textile and Garment Revival Scheme, managed by BOI to reverse the ugly trend and ensure a rapid resuscitation and upgrading of the entire CTG value-chain.

Aganga then disclosed happily: “Two years down the line, we are pleased to inform you that substantial portion of the Fund has been successfully disbursed to beneficiaries and the impact is very encouraging.
Recent figures from the Manufacturer’s Association of Nigeria (MAN) reveal that the capacity utilisation in this sector has increased tremendously from 29.14% in 2010 to 49.70% as at 2011. In addition, a number of hitherto moribund textile mills have been reopened and about 8,070 jobs have been saved while over 5,000 new jobs have been created.

He added: “The evaluation of the socio-economic impact of the Fund to the beneficiaries and the national economy at large could therefore, not have come at a better time.
Although, it is evident that the CTG Revival Fund Scheme has provided the industry players with a unique source of incentive-based long Term Fund for the financing and refinancing of capital investments and revolving working capital, based on my interactions with some of you and my findings during my visits to your factories, I am not unaware of other challenges being faced by you”.

Aganga assured the stakeholders: “We are working through the Standards Organisation of Nigeria to reduce the dumping of sub-standard goods into the country. Some of these goods include textiles and apparels. We are also exploring diplomatic channels through our Trade Ambassador at the World Trade Organisation. To ensure increase in power supply, we are working with the Ministry of Power to ensure that 10 industrial cities in the country have at least 18 hours of uninterrupted power supply by first quarter of this year (2013)”.
He stated further: “Our aspiration for the textile and apparel industry is to increase its domestic market share from its present position of 12 per cent to 25 per cent by 2020.

We also expect this sector to create over 60,000 direct jobs within this period. To achieve this, the strategic thrust requires reviving the entire value chain. This includes strengthening the base by boosting cotton production for use in the domestic sector and potential exports, supporting existing players to expand their current operations and attracting strong brands to set up local manufacturing operation in the country. This explains why we have included the sector in the Industrial Revolution Plan which is being put together by my Ministry”.
The minister was optimistic that the outcome of the workshop would significantly enhance the implementation of the scheme and provide a guide on areas requiring urgent attention by the Federal Government to incorporate in the Industrial Revolution Plan.

BOI’s Managing Director, Ms. Evelyn Oputu, who also spoke at the workshop, reiterated the bank’s commitment to the rehabilitation of ailing and moribund industrial firms, including textile, automotive and others, which have significant capacity for employment generation and export.

She disclosed that more approval and disbursement of the fund would be done to successful applicants in 2013, adding that the fund could even be fully disbursed then. Justifying the workshop, the BOI boss explained that, having implemented the funding scheme for two years, the need for an independent mid-term evaluation on the performance of the bank and beneficiaries cannot be overemphasized. This, she added, would enable stakeholders to ascertain whether the funding scheme achieved intended objectives, so as to recommend to BOI and other stakeholders how to improve its efficiency and effectiveness.

”Our desire is to save and create jobs in the CTG industry, protect the US$2 billion investment in the industry, increase the profitability of beneficiaries of the fund and strengthen the synergy between CTG sub-sectors,” said Oputu.
Also, the Vice President, Nigeria Labour Congress (NLC), Mr .Issa Aremu, said that BOI is doing a very good job.
He advocated for increased funding of BOI, specifically asking that the CTG intervention fund should be increased to N1 trillion from the N100 billion.

According to him, if banks that are rendering services and who altogether are less than 30 could benefit to the tune of trillions from the central bank of Nigeria, why won’t over 120 textile, cotton and garment firms who can employ tens of thousands of Nigerians not also enjoy funding in trillions. He also argued that the interest rate is still high at six per cent, canvassing zero per cent.

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