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Transformation Landscape in Nigeria Payment Infrastructure
Citi’s Online Academy | 30th April 2014
Citi | Treasury and Trade Solutions
Presented by: Foluso Ayo-Olaiya
Outline
1. Nigeria Overview
2. Emerging Trends in the Environment – Trade
3. Emerging Trends in the Environment – Cash
4. Market Response And Impact on Businesses in Nigeria
Nigeria Overview
3
Political Landscape Next general elections due in 2015: close race likely to raise tensions Ruling party (PDP) dominates all tiers of government – however
opposition has formed a unified front
Large Physical Infrastructure Deficit Power: ~4,000MW vs. 40,000MW required; privatization concluded
and could be next success story after telecoms Transportation network: poor state of roads, airports etc. Non-functioning refineries; refined oil products are imported. Dangote
announced plans to invest $9Bn in refineries Gaps to be addressed through privatization, Public Private
Partnerships and increased capital spending
Challenges Security: militancy restricted to remote northern parts; strong
government response launched AML / KYC: increasing collaboration with Financial Action Task Force
(FATF) as well as new regulations enacted to improve regime; Nigeria taken off grey list
Heightened regulatory scrutiny and focus; increased use of penalties and fines
High operating and credit risk environment; however, Citi has appropriate controls in place
Key Statistics
1.1%Fiscal Deficit (2014 Budget)
2.8%Population Growth Rate(175mm by 2015)170mm
Population
$510bn2013 GDP(Largest economy in Africa)
54mmLabour Force
24%Unemployment Rate
7.4%2013 GDP Growth Rate
BB- / Ba3 / StableCredit Rating
24%2014 Capital Expenditure(vs. 33% in 2013)
$38bnFXReserves
11%Debt to GDP
Nigeria Overview (Cont’d)Well positioned in an African and Global context
Naira has been Mostly Stable with Occasional Volatility
140
145
150
155
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170
9/1/
2010
11/1
/201
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7/1/
2011
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11/1
/201
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1/1/
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3/1/
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5/1/
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7/1/
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9/1/
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11/1
/201
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1/1/
2013
3/1/
2013
5/1/
2013
7/1/
2013
9/1/
2013
4
GDP Growth has Been Relatively Stable vs. Peers
Source: IMF
(6.0)%
(4.0)%
(2.0)%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013EBrazil UAE Nigeria Turkey
Source: Central Bank of Nigeria, World Bank
Nigeria is Attracting Increased Financial Inflows US$ in Billions
3.1 0.8 1.4 1.6 0.8
19.218.4 19.8 20.6 20.6
4.73.4 0.7 1.8 1.4
6.6
2.9 3.95.5 10.4
33.6
25.5 25.829.5
33.2
2008 2009 2010 2011 2012Loans Personal Remittances FDI FPI
Source: DMO
Debt Burden has Remained Within Manageable Levels28.6%
12.4% 11.7% 11.8%13.9%
18.0%19.2%
18.0%
11.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013Total Debt/GDP
Nigeria Overview (Cont’d)Structural shifts are indicative of higher growth trend
Recent Growth Driven by Positive Structural Factors
New Growth Drivers (Telecoms, Retail etc.
Reforms
Building of Democratic Institutions(14+ Yrs)
Waiting for PIB – Oil Production Stuck Around 2mm bpd Since Late 2012
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2009 2010 2011 2012 2013
Mill
ion
Bar
rels
per
Day
Source: International Energy Agency, Citi Research
5
Reform Programs Helping to Instill Investor Confidence
Ambitious Reform Programs
Petroleum
Power
Banking
Capital Markets
Agric.
PensionAmbitious Reform Programs
Pension
Capital Markets
Agric.
Power
PetroleumBanking
Economy Diversifying Away from Oil – 32% of GDP in 2003 vs. 14% in 2013
32.4%
12.0%
10.3%
35.0%
4.1%
6.2%
2003 2013
Oil Wholesale and Retail Services Agriculture Manufacturing Others
22.0%
16.0%
36.0%
14.4%
6.8%4.8%
Note: 2013 sectoral allocation is from rebased GDP data series
Emerging Trends in the Environment – Cash
Reduction in Cash transactions at bank branches
Cash in circulation dropped from $10.2Bn in 2012 to $9.2Bn in Sep 2013
Lower cost of cash management
Elimination of physical exchange of checks; implemented nationwide
Faster and nationwide harmonisedclearing period (T+2)
Shorter float days
Reducing reliance on bank branches
NIP – instant value platform, and E-Bills introduced
E-Form M / Single Window platform
Reduction in reliance on branches
Form M updated by client remotely on Single Window platform
Release of mobile payment framework by CBN
Few active banks
E-wallet now available
New channel for bills payment in the system
Introduction of limit and charges for cash transactions
Implemented for Lagos, Abuja, Kano, Rivers, Ogun, Abia, Anambra. Plan roll out nationwide in 2014
POS Terminals > 200K (<10K in 2011)
Macro Environment Implications
CashliteInitiatives
ChequeTruncation
Electronic Channels
Mobile Payment
Reform
Treasury & Trade Solutions – Payments System Transformation and Reforms
7
Ports
Inspection of goods at the ports and issuance of report and tariff assessment to be fully transferred to Nigerian Customs Service
Customs Service now fully in charge of clearing process
Emerging Trends in the Environment – Cash Management
Key Trend Drivers
Central Bank of Nigeria– Implementation of Cash-lite initiative in Lagos. Reduction of cash usage in the system by setting cumulative cash limits for
individuals and Corporate entities.– Focus on improved transparency in dealings between banks and their customers– Licensing of 16 mobile payments providers– Implementation of the Nigeria Unified Bank Account Number (NUBAN)– Drive to mandate STP for electronic payments in the system and plan to reduce maximum cheque value to N5MM– Proposed mandatory use of National Identification Number (NIN) as basis for KYC documentation for financial transactions from
2013– Proposed implementation of Treasury Single Account (TSA) for ministries, departments and agencies of government
NIBSS– Cheque clearing Infrastructure upgrade– The Nigeria Central Switch– Shared Service Infrastructure
Banks- Creative solutions for clients in response to market developments- Push for use of front end EB platforms
PSPs/Non-Bank Players– Product launch and innovation– Competition for payments mandate
Policy initiatives by regulators is driving diverse changes in the banking environment especially as they relate to the cash management business
• Cheque truncation• NIBSS Instant Pay• Central Mandate Management System• Electronic Bills Payment• Central Terminal Management System• Mobile Operator Aggregation• POS Aggregation
8
Emerging Trends in the Environment – Cash Management (contd.) Effective March 31, 2012 for Lagos and subsequently for
major commercial cities, the following daily cumulative limitson 3rd party cash lodgements and withdrawals will be applied:– Individuals – NGN500,000– Corporates – NGN3,000,000
Processing fees for lodgments above the limit are:– Individuals: 2%– Corporates: 3%
Processing fees for withdrawals above the limit are:– Individuals: 3%– Corporates: 5%
Sanctions on banks for non-compliance– First offender: 5 * fees waived– Second offender: 10 * fees waived
No encashment of third party checks over NGN150,000– Penalty for non-compliance by banks
10% of check face value or NGN100,000 whichever is higher
Effective 1 January 2012 banks ceased to offer free Cash InTransit (CIT) services to customers. The customers arerequired to engage the services of CBN-approved CITcompanies– Non-compliance by any bank attracts NGN1.0 million per cash
movement
Maximum amount payable per cheque is fixed at NGN 10Million
Available Products for Collections & Payments
Collection/Payment Products Beneficiary Gets Value
EFT – NEFT Within 24 hours
EFT – RTGS Same Day
EFT- NIBSS Instant Pay Same Day
Cheques 2 Days
Cash Same Day
ATM Transfers/Quick Teller Next Day
Mobile Payments Same Day
POS Terminals24 Hours - Nigerian Cards72 Hours – International cards
Web Pay Next Day
Citi Commercial Cards Next Day
9
Emerging Trends in the Environment – Trade
Nigeria’s Trade EnvironmentCapital Importation
Capital importation can be either equity or loan and can be in cash or kind (equipment); done via an authorized dealer(a bank) who will issue a Certificate of Capital Importation to the investor. This enables future payment of interest,dividend & repatriation of capital subject to the provision of required documentation.
Foreign ExchangeThere are two major authorized FX markets in Nigeria – CBN-controlled Wholesale Dutch Auction (WDAS) market andthe Inter-bank market. The WDAS market operates twice weekly while the Inter-bank market operates daily.
ImportsPayment for importation of goods into Nigeria is via letters of credit and Bills for Collection (Documents AgainstAcceptance).
ExportsCommodities exported out of Nigeria are mainly crude oil and non-oil products such as cocoa, rubber, cotton andleather. All export proceeds must be repatriated back to the country within 90 and 180 days for oil and non-oil productsrespectively. Exporters have free access to export proceeds repatriated into their export domiciliary account in Nigeria
11
Mode of Payment– Cash Collateralized Letters of Credit– Confirmed Letters of Credit without cash collateral available to all sectors– Unconfirmed Letters of Credit restricted to manufacturing sector– Bills for Collection– Open account not allowed
Inspection– Imports - Destination Inspection at Port of Discharge; Risk Assessment Report – Exports – Pre Shipment Inspection at Port of Shipment, liberalization– CCVO, Bill of Lading, Form M, Various statutory documents etc.
Foreign Exchange – Wholesale Dutch Auction - CBN & Banks– FX Available Everyday– Bid rate provided by customers
Documentation & Tenor– Insurance for goods in transit must be in local currency– Invisibles (Services) Payment, WHT, NOTAP approval, Demand note– Trade transaction tenor 180 days subject to one rollover
The foreign exchange market in Nigeria is regulated. Access to FX is permitted for payments for good and services imported via authorized channels and subject to presentation of required documents.
Nigerian Trade Environment – Imports, Exports. FX
12
Processing of form M automated since Dec. 2012. End-to end electronic interface between the clearing community:Importer, Bank, Customs, Terminal Operators. Process still relatively new and undergoing continuous refinement.
Pre-Arrival Inspection handled by Nigeria Customs Service
Pre-Arrival Risk Assessment Report (PAAR) and Customs Duty Payment.
Documents for Not Valid for Foreign Exchange transactions to be sent directly to the bank that opened the Form Mand applicable returns on non-submission of shipping docs after 90 days to be rendered henceforth on suchtransactions.
Oil imports subject to pre-approvals of the CBN before importation is registered through the Bank.
Unconfirmed LCs for importation of spares and machinery now permitted to buy FX from the CBN window
Dividend, Technical, Consultancy and other related services can only be externalized through the interbank market
The Central Bank of Nigeria (CBN), Federal Ministry of Finance and Nigeria Customs Service (NCS) are committed to automating the imports process end-to end. This is in line with the Nigerian Government’s objective of reducing the clearing lead time to accepted world standards.
Emerging Trends in the Environment – Imports
13
Presented by: Yusuf Ali Khan
Sub-Saharan Africa Trade
Citi | Treasury and Trade Solutions
Citi’s Online Academy | 30th April 2014
Table of Contents
1. Africa Trade Overview and Trends
2. Citi Trade Offering: Overview
3. Trade Finance
4. Trade Working Capital Finance
5. Commodity Trade Finance
6. Export & Agency Finance
7. Case Studies
8. Credentials
9. Contacts
1. Africa Trade Overview and Trends
4
Overview of Trade in Africa
AFRICA
LATAM
ASIAEUROPE
USA
Africa - LATAM flows• Africa Imports: $21bn• Africa Exports: $30bn
Africa - US flows• Africa Imports: $38bn• Africa Exports: $74bn
Africa - Europe flows• Africa Imports: $211bn• Africa Exports: $240bn
Africa - Asia flows• Africa Imports: $177bn• Africa Exports: $160bn
Africa - China flows• Africa Imports: $85bn
• Africa Exports: $113bn
CHINA
Africa - Total flows• Total Imports: $580bn• Total Exports: $630bn
**Based on 2012 figures from WTO
Africa has a positive trade balance with the rest of the world, with Europe maintaining it’s position as Africa’s largest regional partner. Growing South-South flows are also evident in Africa’s trade with Latin America and Asia
Intra-Africa Trade• Total Flows: $81bn
5
Trends in Africa Trade
13% 4%
36%
5%4%
8%
32%
North America
South and Central America
Europe
Commonwealth ofIndependent States (CIS)Africa
Middle East
Asia
Share of Global Trade
• African trade as a share of global trade is still low at 3.5% however, in 2012, Africa
experienced the highest regional growth in merchandise exports in volume terms,
recording 6%.
• At 11.5%, Africa also recorded the highest growth in imports globally.
• Nigeria and South Africa account for almost 30% of total African trade flows
South-South Trade Corridor
• African countries have reoriented the direction of their exports from OECD
countries to emerging markets in the Global South.
• The three fastest-growing trade corridors globally are all South-South and include
Asia. They are Asia-MENA, Asia-SSA and Asia-Latam .
• From an SSA perspective, the SSA-developing Asia corridor has been the fastest
growing regional trade corridor since 1990, followed by SSA-Latam.
Regional Share of Global Trade
70%
9%
16%
5%
Share of African Exports by Product
Fuels andminingAgriculture
Manufacturing
Commodities• Fuels and mining exports accounted for a 70% share of African exports in 2012
as Africa increased its exports of fuels and mining products by 9%.
• Driving this demand for African commodities is China which expanded its imports
of fuels and mining products by 3.4% to US$ 533 billion, overtaking the USA as
the largest importer of fuels and mining products
Growth in SSA exports by Region (1990 = 100)
6
Trends in Africa TradeLogistics Performance Index
Infrastructure
• $93 billion will be required between 2010 and 2020 to close the infrastructure gap
between Africa and other regions. About two-thirds of this sum will be for construction
and rehabilitation and one-third will be used for maintenance. This number
represents just under 15% of Africa’s GDP.
• Sub-Saharan Africa currently ranks lowest of the world’s developing regions, and
well below its peer regions such as MENA, LATAM and East Asia & Pacific regions.
• South Africa, Senegal and Uganda are notable outliers in terms of quality of logistics,
however there is plenty of opportunity for West, Central and East Africa to perform
significantly better
Trade Agreements/Intra Africa Trade• According to the World Trade Organisation (WTO), the number of Preferential
Trade Agreements (PTA) and Bilateral Investment Treaties (BIT) more than tripled
between 1990 and 2010.
• Approximately 300 PTAs are currently in operation and many more under
negotiation. Around half of these PTAs are bilateral and almost two-thirds are
between developed and developing countries
• Intra-Africa trade has grown from about 10% in 2001 to about 13% of total African
exports in 2012 but remains the 2nd smallest intra-regional trade corridor ahead of
the Middle-East (8.6%). South Africa has the largest share of intra-African trade
• Cost of trade within the various sub-regional trade blocs is still high and prohibitive
and thus, continues to stifle intra-African trade
Country Score InfrastructureLogistics Competence
South Africa 3.46 3.42 3.59Senegal 2.86 2.64 2.73Uganda 2.82 2.35 2.59
Latin America 2.74 2.46 2.62
East Asia & Pacific 2.73 2.46 2.58MENA 2.6 2.36 2.53
Nigeria 2.59 2.43 2.45
Sub-Saharan Africa 2.42 2.05 2.28
Angola 2.25 1.69 2.02
Source: World Bank Logistics Performance Index
2. Citi’s Trade Offering: Overview
8
Citi’s Trade Offering: Overview
TradeWorking Capital Finance
•Supplier Finance•Channel Finance•Distribution or Distributor Finance
Export and
Agency Finance
• Export Credit Agencies
•Multilaterals
TradeServices
• Import LCs and Bills (including bill discount)
• Import Collection• Export Collection• LC
Reimbursement• Open Account
Solutions• LC Reissuance• Export LCs and
Bills• ILOCs
5 PILLARS OF TRADE
Asset Optimization / Distribution
Commodity Finance
•Oil transactional flows
Teno
r
Short Term Short Term Longer TermShort Term Short to Medium Term
Trade Finance
• Pre-Shipment Finance
• Import/ Export Loans
• Global Accounts Receivable Finance
• Credit Insured Accounts Receivable
3. Trade Finance
10
Trade Finance – Key Trends
• High domestic interest rates in most SSA countries has contributed to an aversion for LCY trade loans hence, clients prefer FCY loans but are becoming increasingly concerned about FX volatility in SSA.
• The size of the trade finance gap in Sub-Saharan African countries is estimated at approximately $225 billion per year. Key constraints in filling this gap include the availability, cost and tenors of facilities, vulnerability to crisis and the limited institutional capacity of local players.
• To narrow the trade finance gap, the AfDB approved a new Trade Finance Program (TFP) in February 2013. The $1 billion initiative extends credit to African financial institutions and is expected to support over $10 billion in trade volumes over four years.
• Trade is predominantly shifting to open account basis in SSA and thus a need for realignment from traditional LC offering to trade loan solutions.
• With the increasing ability of local banks to execute Trade Finance deals over the last few years, FI clients are requesting for Trade Advances in foreign currency to support their financing of imports
• Exporters abroad are facing liquidity pressures and thus requiring counterparties in SSA to shorten payment cycle.
• Both GSG and TTLC corporates in SSA are also demanding solutions which improve their own liquidity positions while meeting payment terms of exporters abroad.
Trade Loan Trends
• Use of Receivables finance has doubled from about €9.8bn in SSA
• SSA factoring/receivables financing doubled between 2007 and 2013 with South Africa accounting for the highest volumes
• Clients prefer non-recourse financing
• Reluctance of buyers to designate those who will confirm invoices before we discount
• Many local companies continue to have little bargaining leverage with their buyers, both domestic and abroad, who in turn manage their own liquidity by delaying payments
• Local companies are however demanding solutions which help to minimize their own liquidity and funding costs
Account Receivable Trends
9.812.1 13.5
21.5 21.523.9
19.5
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2007 2008 2009 2010 2011 2012 2013
SSA Factoring/Receivables Finance (€bn)
Total SSA
Source: Factor Chain International
Sub-Saharan Africa’s trade finance gap is estimated at $225bn*. Both mainstream banks and multilateraldevelopment banks are key to unlocking financing for trade in the region
*Source: African Caribbean and Pacific Group of States
Pre-Shipment Finance
Working capital financing required for the execution of a Sales Order,
covering the purchase, processing, manufacturing or packing of goods
Post-Shipment Finance
Export or Import Finance for the post shipment period, prior to realization of
the sales receivable
• Provides liquidity to meet trade needs• Typically up to 180 days• Both committed and uncommitted structures available
• Potentially additional funding beyond clean lending
• Offers an alternative to selling receivables
• Simplicity and ease of execution
• Domestic and offshore solutions available
• Available in local and foreign currencies
BenefitsStructures
4. Payment on behalf of Buyer
1. Shipment of GoodsBuyer
ImporterSeller
Exporter2. Invoicing
5. Payment @ Maturity
3. Finance Request + Docs
1. Shipment of GoodsBuyer
ImporterSeller
Exporter2. Invoicing
5. Payment @ Maturity
3. Finance Agreement
4. Payment on Behalf of Buyer
Import Financing Export Financing
1. Purchase Order Buyer
ImporterSeller
Exporter
2. Financing Request + docs
3. Pre -Shipment Loan
4. Ships Goods 5. Liquidation of Pre Shipment loan& potential booking of post shipment loan(After presentation of documents)
Pre-Shipment Financing
Trade Finance Overview: Trade Loans Simple and cost effective short term financing solutions for Corporates and Financial Institutions
11
12
Accounts Receivable Finance Structure
Trade Finance Overview: Accounts Receivable Simple and cost effective short term financing solutions for Corporates and Financial Institutions
• Sales Growth Access liquidity to support sales growth Inject liquidity into distribution channels Scalable, quickly deployable across countries
• Balance Sheet Management Improve working capital and reduce Days Sales Outstanding Manage and improve cash flow precisely and efficiently
• Risk Mitigation and bank limit utilisation Control commercial credit risk on customers Access financing without using existing credit lines
• Outsourcing of receivables management Operational efficiency in the management of Accounts Receivable Reduce overall administration and operating costs Online management and transparency including full reporting on
dilutions, payment activities and history • Reduced Administration Online, web-based solution requiring only an internet connection
and browser
• Enhancement of Liquidity and Working Capital Improves Days Payables Outstanding
• Control over Accounts Payable Receivables not being factored on the open market with corresponding
impact on purchase price
• Facilitates downstream sales Supports onward sales to end user (retailers or consumers)
• Improved information flow Online management and transparency including full reporting on dilutions,
payment activities and history Operational efficiency in managing Accounts Payable Reduce overall administration and operating costs
• Reduced Administration Online, web-based solution requiring only an internet connection and
browser
BENEFITS
Seller Buyer
4. Trade Working Capital Finance
14
Supply Chain Finance - Key Trends
Manufacturing Confidence
Risk of Default
Interest Rate
Manufacturing confidence vs. Interest Rate (bps)
SME Cost of Goods
*Bloomberg Oct 2013
Basel III Rise in SSA Sales Working capital management
Radical changes in capital rules, new liquidity and leverage ratios (additional rules for global systemically important banks)
Counterparty Credit Risk and one year floor on tenor
Anticipation of more expensive and constrained bank financing
Uncertainty in financial markets and potentially uneven playing field across countries
More expensive financing for Non-Investment grade counterparties (Suppliers and Buyers)
Shift to cheaper sources of funding: Short tenor loans / Receivables Financing
Counterparty, FX, and credit risk mitigation
Greater need for X-Border risk mitigation as sales to Emerging Market grow
Key markets: Kenya, South Africa and Nigeria
Key Sectors: FMCGs, Healthcare, Industrials and Telcos
Balance Sheet Management– Key strategic priority to improve Cash Conversion Cycle
(CCC) and reduce locked-in capital through WC management
Liquidity as a Driver– Reduced reliance on external funding to counter volatility
(increased importance of diversified liquidity sources) – Freed up liquidity to drive sales initiatives
Financial Forecasting– Improved operational management and planning via
accurate forecasting – Cash Flow / Interest forecasting and certainty continue to
be top priorities of treasurers
While SSA trade is growing, cost of funding is also rising hence a need to efficiently manage working capital
15
Underlying Commercial
Trade
Supplier’s Bank
Supplier
Supply Chain FinanceSupply Chain Finance
Your supplier’s bank is happy with the arrangement as they
are reducing their DSO
Product Delivery Date
Standardized Payment
Days
Reduce Collection
Days (DSO)
Citi funds the working capital cycle by paying approved
invoices early
Buyer
Buyer
Supplier
Benefits for Buyer
Supply Chain Finance - Overview Extending cheaper credit to suppliers with working capital benefit to buyers
• Support its Supply Chain
By offering suppliers a new credit and liquidity source at a lower cost than
their own, client strengthens and reduces uncertainty in its own supply chain
and thus, improves its supplier relations
• Cost free and easy to implement
There are no fees or costs charged to buyer for Supply Chain Finance and
the program has only limited operational impact on buyer
• Working Capital /Margin Benefits
Buyer can negotiate extended payment terms or cost price discounts based
on the benefits to the supplier through this program thereby improving
Working Capital and/or reducing Cost of Goods Sold
• New Credit & Liquidity Source
Suppliers benefit from this program by getting access to a new credit and
liquidity source at a lower cost than their own
• Positive Balance Sheet Impact
Non recourse sale of Accounts Receivables has positive impact on balance
sheet by accelerating cash flow
• Working Capital Benefit
Accelerate cash flow by reducing Accounts Receivables and shortened
Days Sales Outstanding
• Easy Enrolment and No Upfront or Ongoing Costs
No financial statements required from the supplier to enrol
Benefits for Supplier
5. Commodity Trade Finance
17
Commodity Trade Finance – Key Trends Africa’s exports are dominated by oil and mining products while increased energy demand from the rest of theworld is driving commodity trade activity in the region
Trends
• Fuels and mining exports accounted for a 70% share of African exports in
2012 as Africa increased its exports of fuels and mining products by 9%
• Local content regulation across Sub-Saharan African economies is leading
to an emergence of local commodity traders and an increasing demand for
financing from banks within Africa.
• Traditional trading companies are strategically moving towards the upstream
oil sector in SSA by acquiring assets of international oil companies. An
example is the acquisition of some of Shell’s upstream interests by Vitol
• With increasing SSA oil production and consumption, some mid-tier
commodity traders from Europe and Asia are gradually establishing their
footprint in Africa. Notably, Chinese oil off-takers are establishing their
footprint in SSA as China’s demand for fuels and mining products overtakes
that of the USA
• Banks however continue to find difficulty in funding soft commodities due to
unknown KYC costs for small-scale producers and the absence of
aggregated or structured exporters of soft commodities like coffee.
• Cocoa trading in Africa remains focused on West and Central Africa and is
dominated by 5 commodity traders; Cargill, ADM, Olam, Barry Callebaut and
Armajaro.
• Natural gas discoveries in Africa and plans to invest in LNG infrastructure
are also indicative of new commodity financing opportunities in the medium
to long term.www.uneca.com
18
Commodity Trade Finance - Overview Commodity Trade Finance is a broad set of financing solutions covering the commodities supply chain fromproducers through to the commodity traders, processors and end-buyers
• Enhanced working capital solutions that are capital efficient for
banks resulting in competitive pricing
• Structured facilities and transactional security that extend the
available financing beyond traditional lending
• Effective balance sheet management through the reduction of
receivables, monetisation of inventory and mitigation of
counterparty risk
• Performance risk financing allows producers with a successful
production track record to borrow against the value of future
production and has proven to be a stable source of financing even
in times of financial uncertainty and market volatility
Benefits Typical short-term, secured, end-to-end financing structure
6. Export & Agency Finance
20
Export & Agency Financing – Key Trends Export and Agency Financing activity has been critical to financing the growing infrastructure needs of Africa
Trends
• African trade and investment patterns are evolving due to economic development, changes in consumption and production processes, and new global entrants (China,
India and Brazil)
• Much of the long-term financing in Africa is being driven via ECA and multilateral support with strong players such as AfDB, CEXIM, IDC South Africa, Agence Française
de Développement
• Funding demand has been particularly strong for infrastructure projects in Africa: transmission lines, generators and turbines for public sector utilities and expansion of
ports and airports
• China continues to pump money into Africa mainly via infrastructure investments and with the support of Export-Import Bank of China and China Export and Credit
Insurance Corporation
• Given some of the challenging geographies across the region, we expect ECAs and DFIs to continue play a major role supporting medium and long-term debt-
raising efforts
PECM, 25%
Government & Finance, 10%
Aviation,8%
Oil & Gas, 26%
Shipping, 12%
Telecoms, 9%
Other, 10%
Americas26%
Asia Pacific26%
EMEA49%
2013 By Region2013 By Sector
0.00
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
7,000.00
8,000.00
Ex‐Im Bank
KSURE COFACE Hermes NEXI SACE GIEK EKN KEXIM EKF
Top ECAs by 2013 Loan Guaranteed Volume ($MM)
21
Export & Agency Financing - Overview The Official Agency market covers both public and private sector with Export Credit Agencies, Multilateral Agencies and Development Finance Institutions typically guaranteeing public sector capital expenditure. Citi also has a proprietary risk sharing program with OPIC for private sector agency financing solutions.
Sector Agency Mode of FinancingPublic Sector and Sovereigns
Export Credit Agencies “Tied” Financing• Financing directly linked to procurement
of goods• Provided by ECAs, hence bound by OECD Consensus• ECAs guarantee bank finance, supplier finance, and/or provide direct loans
Multilateral Agencies (MLA) “Untied” Financing• Financing linked to development or promoting FDI• NOT related to procurement of goods• Provided by DFIs or Multilaterals• MLAs and DFIs are more flexible in the types of transactions they can participate in• Focus is on national interest as opposed to production• Partial guarantees, with greater flexibility in the structuring of the underlying instrument
Development Finance Institutions (DFIs)
Private Sector
Proprietary Citi-OPIC Risk Sharing Program
“Untied” Financing
• OPIC will guarantee up to 75% of the transaction as long as Citi originates and credit approves a transaction in
accordance with its Core Credit Policies and the transaction meets OPIC Requirements. Citi participation
provides the “US Interest at Risk” necessary for OPIC
22
Export & Agency Financing – Overview With Africa’s infrastructure financing needs estimated at $93bn between 2010 and 2020, there is a growing need for ECA and multilateral support to undertake major projects in sectors such as power, transportation and telecommunications in Africa
(3) Insurance policy / Guarantee / Subsidies
(4) Goods and Services
(1) Export Contract (Direct /Indirect through the contractor)
(6) Payment for exports (2) Loan Agreement
(7) Repayment(5) Presentation of documents
Exporter Importer
ECA
Typical ECA Funding Structure
Tranche A
OPIC provides “Full Faith and Credit” guarantee of repayment
Loan (US$)
Administered by Facility Agent
Principal and Interest
US
NY / Local
Branch
Borrower
Offshore
Tranche B
OPIC Risk Sharing Program Structure
Benefits – ECA
• Long availability period
• Tenors up to 15 years
• Capacity for large ticket projects
• Less equity required
• ECA debt is exempt from withholding tax
Benefits - DFI/Multilateral Agency
• Product breadth much wider than that of ECA financing
• Useful addition in large CAPEX strategies with multi-country
sourcing
• Offers a “good story” to future lenders/stakeholders
Benefits – OPIC
• Covers both political and commercial risks
• Structured to fit within Citi’s current operating guidelines and its
standard documentation
• OPIC facilities are “untied” which means that the sourcing of any
capital goods can be from any country
7. Case Studies
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Trade Loans: Sony Corporation, South Africa (2012) World’s leading company in consumer electronics.
The Challenge
• Sony South Africa used to purchase electronic goods from their Head Office
Sony Corporation (Japan) on credit terms of 180 days.
• Sony wanted to reduce these payment terms and get timely payments earlier
than 180 days. However, the funding costs for such a facility were deemed to
be high.
Citi Solution
• Provide a Trade Loan so that Sony South Africa can pay Head Office on time
and reduce credit terms
• On presentation of invoices and bills of lading Citi to pay Sony Corporation
(Japan) the face value of invoices
• Standing Settlement Instructions set up for Sony South Africa with direct debit
payments to Citi of the principal and interest on due date
Transaction Flow
• Sony South Africa (SA) gives order to Sony Japan
• Sony (SA) shares financing request and documents proving that funding
required is trade related to Citi
• Citi finances the imports by paying directly to the Sony Japan
• Sony Japan ship the goods to Sony (SA)
• Sony (SA) repays principal and interest at time of maturity
Seller(Sony Japan)
Buyer (Sony SA)
Financing Provided by Citi
Day 0 Day 18 Day 180
Citi extends trade loan to Sony (SA)
Liquidation of the Loan by Sony (SA)
Payment DatePurchase goods Deliver goods
Citi Pays Sony (Japan) directly on presentation of invoice and Bill of lading by Sony (SA)
Transaction Highlights
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Supplier Chain Finance: Vodacom, South Africa (2012)
Company • Vodacom - One of South Africa’s Largest Mobile Network
Operator (MNO)
Client Need • Vodacom wanted to support one of their main suppliers; in
extracting early payment from a Supplier Finance
programme. Vodacom were able to negotiate extended
payment terms from the supplier and helping their own
liquidity and working capital targets.
Deal
Structure
• Vodacom provide Citi with an approved payment file. Citi
discounts these payments in advance in favour of
Vodacom’s key suppliers. This structure is supported
through the online Supplier Finance platform. The
programme is extended to key suppliers of Vodacom.
Transaction Highlights
• Leverage existing strong Trade relationships and demonstrate local
capabilities. Citi’s deep knowledge in Telecom’s as well as our superior
product offering leaves us well placed to capture more business in this sector
• Citi and Vodacom worked extensively together to provide a solution to
support Vodacom's unique processing requirements and technology needs
• Provision of a valuable financing program to suppliers
• Successful participation by suppliers and eagerness to join Citi’s program
• Provide an alternative source of attractive financing
• Enable Vodacom to extend payment terms with suppliers, without disrupting
the supply chain
• Provide suppliers additional visibility into Vodacom’s payment status
Citi provided a valuable financing program to the suppliers of Vodacom South Africa. With the Supplier Finance program, suppliers benefit from extended payment terms without disrupting the supply chain.
26
Commodity Trade Finance: Key Deals Citi has executed various innovative commodity financing transactions for strategic public sector institutions inSub-Saharan Africa
CompanySociété des hydrocarbures du Tchad (SHT) State oil company of Chad.
SONARA -Sole refinery of crude oil in Cameroon
Ghana Cocobod State cocoa company
Client Need
• The Government of Chad receives its oil royalties in kind from major oil companies operating in the country. Products have been sold on open account to various offtakers
• To ensure that reimbursements of loans and payments to transporters are secured. SHT engaged Citibank to structure and execute a facility that would accommodate their oil export flows under LCs
• SONARA is the sole refinery of crude oil inCameroon. The company has a refinery capacity of 1million barrels of crude oil per month
• 80% of crude oil refined is sourced from Internationaltraders (GLENCORE, TRAFIGURA, SAHARAENERGY, HELL, SOCAP etc.)
• Refine product are sold locally to downstream oilplayers 70% of the production and the balance isexported, using the same international traders.
• Issuance and confirmation of import LC’s to purchase crude oil each from the International Traders
• Funding for the procurement of Cocoa for export to international offtakers
• Refinancing of maturing debt obligations
• General working capital needs.
Deal Structure
• Citi structured a Facility of $30 million that would enable confirmation and issuance of their Oil LCs issued by Citi. The structure entails issuance of several concurrent LCs which are discountable in favour of the beneficiary to facilitate the management of working capital
• The process flow of the transaction has been tailored to ensure convenience for SHT and swift execution. The transaction was structured to enable documentation flows through Citi Cameroon and Citi Europe Plc
• Citi Cameroon structured and executed a Facility which entails:
• LC issuance and discounting to enable timely delivery of crude oil to the refinery.
• Part prepayment obligations on Sonara
• Assignment of receivables.
• The Cocobod transaction is structured as a prepayment facility
• 2011 Facility size $2.0 Billion the largest size for the Cocobod to date
• 2012 Facility size $1.5 Billion was fully subscribed led by 14 banks prior to general syndication and finally attracted 17 other banks including local and regional banks
Roles
• Confirming bank • Issuing and Confirming Bank • 2011 Facility - Mandated Lead Arranger and Bookrunner working with Ghana International Bank, HSBC, Natixis, Nedbank Capital, Rabobank, Standard Chartered
• 2012 Facility – Mandated Lead Arranger and Bookrunner working with Barclays, BTMU, Ghana International Bank, HSBC, ICBC, Natixis, Nedbank Capital, Rabobank, First Rand Bank, Socgen
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Transaction Highlights• The project financed is Phase IV of the Self Help Electrification Programme (SHEP) that was
introduced as a complementary activity to the National Electrification Programme led by theGovernment of Ghana (GOG).
• The financing is in connection with the export contract signed between the Ministry of Energy(MOE), and Thengashep Ghana (Pty) Ltd for the supply and installation of electricalequipment and accessories for 532 towns in the Upper East Region of Ghana.
• This transaction was a 15-year, $101.3 million term facility, 100%-guaranteed by ECIC(Export Credit Insurance Corporation of South Africa).
• The main benefits of SHEP for the Ghanaian rural population are: poverty reduction;increased people’s standard of living; creation of small-to medium-scale industries; jobcreation in the rural areas and thus reducing the rate of rural to urban migration.
• Under the export contract, it is estimated that there will be job creation in both South Africaand Ghana. In South Africa, 46 new jobs will be created in both the manufacturing andservices sectors, while in Ghana, 216 new jobs will be created in the manufacturing sector.
• This deal raised strong appetite for ECA financing in the South African bank market.
Innovation• The transaction is the 1st ECIC-backed financing in the power sector in Ghana and the first
one where Citi is a Sole MLA for an ECIC-backed deal.• The financing package was able to provide an innovative structure that meets the IMF’s
concessionality criteria.• The lender secured a very attractive Interest Make-Up (IMU), which is payable by ECIC
under their 2009 IMU scheme, and enables the lender to provide competitive pricing to theBorrower.
• The project financed will contribute to poverty alleviation through empowerment, job creation,development of small to medium size enterprises and generally uplifting the ruralcommunities.
• A testament to Citi’s support of inter-Africa trade where we supported a South Africanexporter by providing them with access to a key client in Ghana, i.e.. MoF Ghana, and byutilizing ECIC support allowing the Borrower to benefit from a very competitive financingstructure in terms of pricing and tenor. This deal brings to light the benefits of our long-standing relationships with importers, exporters, agencies and all the parties involved.
Borrower • Ministry of Finance, Government of Ghana
Guarantor • Export Credit Insurance Corporation of South Africa (ECIC)
Facility • US$101.3 million 15 year tranche
Deal Size • Total facility: US$101.3 million
Purpose
• To finance the export contract betweenThengashep, South Africa and the Ministry of Energy, Government of Ghana
EPC Contractor
• Procurement, supply and installation of transmission lines in the Eastern Province of Ghana
Closing Date • March 2012
Citi Roles
• Mandated Lead Arranger• Structuring Bank• Facility Agent• Account Bank
Legal Counsel • White & Case, Johannesburg• Oxford & Beaumont, Ghana
EAF (ECA): Government of Ghana, Ministry of Finance – US$101.3 millionCiti, acting as a Sole Mandated Lead Arranger, closed the first ECIC (South Africa) guaranteed transaction in Ghana by arranging a financing of a project related to the rural electrification program lead by the Gov’t of Ghana.
28
Transaction Highlights
• CHI is a leading member of the Nigerian food and beverage industry. Operating forover 28 years, it has diversified into different agro-allied products
• In 2010, CHI launched 10 new products which boosted the brand presence.However, the company’s existing capacity can no longer accommodate itsexpansionary plans
• Citi is the MLA of a US$ 40 million term loan facility, 75% guaranteed by OPICunder the Global Framework to enable CHI to expand its manufacturing plants
• The facility provides for a US$ 30 million 100% OPIC-guaranteed and a US$ 10million clean tranche funded by Citi Nigeria
• The financing is for the capital expenditure project envisaged by CHI for theexpansion and modernization of their existing production by acquiring and installing:a new bakery with additional capacity of 10,000 tons; and fruit juice and yogurtplants with an additional capacity of 102 million liters per year
Innovations
• This is the first OPIC transaction in Nigeria in the Food & Beverages space
• The transaction arranged by Citi and structured with an OPIC-guarantee will raisethe presence of CHI in the international marketplace, improving its future access toother Development Finance Institutions, international investors and lenders
• Citi, acting as MLA and direct lender for this facility, provided a highly competitivepricing compared to the prevailing market conditions
Borrower • CHI Limited (“CHI”), Nigeria
Guarantor • Overseas Private Investment Corporation (“OPIC”)
Facility • US$ 40 million
Deal Size • US$ 40 million term loan facility, 75% guaranteed by OPIC under the Global Framework
Tenor • Up to 5 years (1.5 years availability period + 3.5 years repayment period)
Purpose • To finance expansion, installation and commissioning of new machines for bakery, fruit juice and yogurt plants
Closing Date • August 2012
Citi’s Role • Mandated Lead Arranger, Sole Lender and Facility Agent
EAF (OPIC): CHI Limited – US$ 40 million (2012)Citi acted as Mandated Lead Arranger for a US$ 40 million facility in favour of CHI Limited, a leading manufacturer and marketer of food and beverage products in Nigeria.
Credentials
8. Credentials
30
SSA Trade Credentials
Telkom SA South Africa
USD 127 millionSinosure
Mandated Lead Co-Arranger
2010
Ethiopian AirlinesEthiopia
USD 635 millionUS Ex-Im
Sole Mandated Lead Arranger
2010
Exxaro Resources South Africa
ZAR 560 millionDFI-backed Facility
Mandated Lead Arranger
2012
Ministry of FinanceGhana
USD 101.3 millionECIC
Mandated Lead Arrangerand Structuring Bank
2012
Kenya Power & Lighting Corporation Ltd.
KenyaUSD 45 million
World Bank – IDASole Arranger and
Issuing Bank
2012
FCMBNigeria
USD 20 millionOPIC
Mandated Lead Arranger
2012
CHI LimitedNigeria
USD 40 millionOPIC
Mandated Lead Arranger
2012
Ministry of FinanceGhana
USD 192 millionECGD
Co-Mandated Lead Arranger
2012
Government of Cote d’Ivoire
USD 60 millionWorld Bank – IDASole Arranger and
Issuing Bank
2013
Tunis AirTunisia
USD 92 millionCOFACE
Mandated Lead Arranger
2013
Attijariwafa BankMorocco
USD 40 millionOPIC
Mandated Lead Arranger
2013
SIRCote d’Ivoire
USD 50 millionMandated Lead Arranger
Commodity Trade Financing
2014
SHTChad
USD 30 millionMandated Lead
ArrangerCommodity Trade
Financing
2014
SONARACameroon
USD 76 millionMandated Lead
ArrangerCommodity Trade
Financing
2014
Best foreign investment bank in Africa Best bank in Algeria Best foreign investment bank in Ghana Best foreign bank in Nigeria
Best foreign investment bank in Nigeria Best investment bank in Rwanda Best foreign bank in South Africa Best investment bank in Zambia
“Citi’s full service commitment to clients allows the bank to support customers in ways that the majority of banks operating in Africa are simply unable and unprepared to do.”
AFRICA BANKING AWARDS 2013Precision Air
Tanzania
USD 129 millionSACE
Lead Arranger and Bookrunner
2008
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Contacts
Segun Adaramola Nigeria Head, Treasury &Trade SolutionsTel: +234 1 463 8413Email: [email protected]
Emmanuel UmukoroNigeria Head, Cash Management Tel: +234 1 463 8567Email: [email protected]
Foluso Ayo-OlaiyaNigeria Head, Client Sales ManagementTel: +234 1 463 8563Email: [email protected]
Chidinma OdibeliNigeria Head, Client DeliveryTel: +234 1 463 8543Email: [email protected]
Yusuf Ali KhanTTS Trade Head, SSATel: +27 (11) 944-0422 Email: [email protected]
Carl Kachale ChriwaTTS Trade FinanceTel: +254 20 275 4120Email: [email protected]
Stewart MakuraTTS Commodity Trade FinanceTel:+27 (11) 944-0697Email: [email protected]
Desi RadevaTTS Export and Agency FinanceTel: +254 20 275 4042Email: [email protected]
Nnenna AguTTS Export and Agency FinanceTel: +234 127 98744Email: [email protected]
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