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Country Commercial Guides for FY 2000: Nigeria Report prepared by U.S. Embassy Abuja, released July 1999 Note*

VIII. TRADE AND PROJECT FINANCING

BANKING SYSTEM

Nigeria operates a fairly open banking system. There are over 90 banks in Nigeria in three categories: Commercial, Merchant, Industrial or Development Banks. Apart from these categories, there exist many finance houses, mortgage and community banks. From August 1995 to date, the number of finance houses, commercial banks, mortgage and community banks has drastically declined due to "distress" in the financial sector.

The Central Bank of Nigeria (CBN) is at the apex of the banking system. The CBN is primarily responsible for formulating and monitoring the banking system to ensure that operators comply with monetary, credit, and foreign exchange guidelines.

FOREIGN EXCHANGE CONTROLS AFFECTING TRADING

In 1995, Nigeria adopted a policy of "guided deregulation" of the foreign exchange market. Although there exists an official rate of 22 Naira to $1, available only to the government, all individuals, organizations and enterprises must source their foreign exchange needs from the Autonomous Foreign Exchange Market (AFEM). The prevailing AFEM rate is about 100 Naira to $1.

All applications for foreign exchange must be channeled through selected banks to the CBN. Applications must state total amount required, end user's name, the name of the correspondent bank, CBN intervention sales number and date. All applications must be received by the CBN within 48 hours after the intervention notice is given.

The CBN will release the forex (in theory) within three working days from the date of intervention. In practice, however, it can take up to three weeks. Banks are not permitted to charge any spread on the CBN selling rate of intervention funds, but are allowed normal transaction charges and commissions as prescribed by the bankers' tariff. All banks are required to advise, on a daily basis, their autonomous buying and selling rates to the CBN's Director of Foreign Operations.

CBN funds are not transferable and such funds cannot be used for inter-bank operations in the AFEM. Any breach of regulation will be subject to stiff penalties. CBN guidelines stipulate that forex sold to end user during intervention, which is not used within 21 days, will be returned to the CBN together with the accrued interest.

Transactions through Bureaux de Changes are permitted but are limited to $2,500 (per transaction), with a profit margin of 2.0 percent.

Repatriated non-oil export proceeds and other inflows except interbank foreign exchange deals (IFEM), must be held in Domiciliary Accounts maintained with authorized banks in Nigeria. Two types of Domiciliary Accounts exist: Non-oil Exports and Ordinary Domiciliary Accounts. Holders of Domiciliary Accounts are allowed access to them and can withdraw funds at the autonomous exchange rate, with three percent interest paid on the account. Domiciliary account holders receive funds in convertible currencies only if they wish to transfer money abroad.

GENERAL FINANCING AVAILABILITY

Local financing can be obtained through any of the commercial, merchant or industrial banks. To a limited extent, insurance companies, building and property development companies, pension funds and other institutional investments can also provide financing.

The National Economic Recovery Fund (NERFUND), established in 1989, provides loans to small and medium scale fully-owned Nigerian Enterprises engaged in manufacturing. These loans are provided at rates lower than prevailing commercial rates.

The Small Scale Enterprises Scheme (SME), established by the CBN, is another source of financing for small enterprises. Under this scheme, the CBN makes available loans, channeled through selected banks to small enterprises, such as farmers, at a rate lower than prevailing commercial rates.

HOW TO FINANCE EXPORTS/METHODS OF PAYMENT

Managed by the CBN, export loans are obtainable through licensed banks in Nigeria for the importation of raw materials, spare parts and capital equipment.

Method of Payment is either through confirmed irrevocable letters of credit, bills for collection, open account or any other internationally-accepted payment mode. Whatever the mode adopted, the proceeds must be repatriated within 90 days from the date of shipment of the consignment. U.S. exporters are advised to ship goods only on sighting confirmed and irrevocable letters of credit. The preferred method of quoting is "CIF."

U.S. firms also are advised that fraudulent business practices involving bogus financial documents through non-existent banks are common. Independent verification of the legitimacy of transactions is recommended. U.S firms should consult with their international banker for document verification. In addition, several new banks in the country have been declared "distressed" by the CBN. It is therefore necessary to approach with caution any export proposals from Nigerian banks.

Inquiries on banks channeled through Commerce Department Export Assistance Centers are encouraged.

BILATERAL, MULTILATERAL AND LOCAL EXPORT FUNDING

In the past, the U.S. Export-Import Bank (EXIM) and its insurance affiliate, The Foreign Credit Insurance Association (FCIA), financed and insured a number of projects in Nigeria.

However, in 1992 EXIM adopted a more restrictive policy toward public and private sector projects in Nigeria. Following Nigeria's decertification because of drug trafficking, no new Exim or OPIC programs are being undertaken in this country. Existing projects are being honored.

The African Development Bank (ADB) grants export stimulation loans to finance certain operations of exporting companies. The ADB channels these loans through the CBN to the Nigerian Export-Import Bank (NEXIM), NERFUND, and licensed exporting banks.

The Nigerian Export-Import Bank (NEXIM) became operational in January, 1991. NEXIM provides the following export financing facilities:

1) Rediscounting and Refinancing Facility (RRF) This facility is designed to assist banks in providing pre and post shipment finance in local currency in support of non-oil exports. RRF enables exporters to have access to the increased/expanded export portfolios of local banks at the preferential rate.

2) Foreign Input Facility (FIF)

FIF provides the export sector with immediate foreign exchange requirements needed for raw material imports, packaging materials and capital equipment (used for production of goods for export). This facility is made available and repayable in foreign currency.

3) Stock Facility This facility is made available in local currency and enables manufacturers of exportable goods to procure adequate local materials (which may be seasonal) needed to keep their production at optimal levels particularly during the periods of scarcity.

4) Export Credit Guarantee Facility (ECGF)

Export Credit Guarantee Facility is not yet operational but when functional will be operated as a guarantee given by NEXIM to banks in respect of credit given by them (the banks) to exporters.

NIGERIAN BANKS WITH CORRESPONDENT U.S. BANKING ARRANGEMENTS

Citibank
Commerce House
1, Idowu Taylor Street
Victoria Island, Lagos
P.O. Box 6391, Lagos
Tel: (234-1) 262-2000-9; 262-2024-32
Fax: (234-1) 261-8916
U.S. Affiliate: Citibank

Nigerian-American Merchant Bank Ltd.
Boston House
10/12, McCarthy Street
Onikan, Lagos
P.M.B. 12759, Lagos
Tel: (234-1) 260-0360-9; 260-1080-4
Fax: (234-1) 263-7588; 263-1712
U.S. Affiliate: Bank of Boston, U.S.A.