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Introduction

Financing the Transport Value-Chain


Transport Infrastructure Fleet/Equipment Finance Logistics framework

NEXIMs Funding intervention in the Transport

Sector Concluding Remarks

The Transportation sector is very important to economic

development and contributes between 6-12 % of GDP in many developing countries Studies have shown that about 50% of global trade takes place between locations of more than 3,000km apart A well developed transport sector is therefore important to the development and growth of International Trade Transportation could be through air, water, road or rail as well as multi-modal In terms of volume, the maritime sector handles 90% of global trade.

Road transport is the most important form of transportation

within the West African region and facilitates trade, particularly with the land lock countries of Mali, Niger and Bukina Faso. According to a report by the Trade Hub, the region has 40,000km of interstate roads and tens of thousands of Trucks Reports also indicates that the region has the highest transportation and logistics cost in the world This is due to absence of efficient and frequent alternative modes as well as very high transport infrastructure funding gap

Finance for the transport value chain could be sourced in several ways: Equity Capital Government/ Tax Revenues Debt/Equity Finance through the capital market Commercial Banks /Leasing Companies Development/ EXIM Banks (LOCs, Suppliers/ Buyers Credit) Multilateral Agencies/ OECD lines of Credit However, the capital intensive nature and long payback period has led

to various financing arrangements, which are discussed under three broad classifications:

Transport Infrastructure Fleet/Equipment finance Logistics Framework

Transport Infrastructure consists of fixed installations and terminals

necessary for transportation such as:

Roads, Railways,Airways,Waterways, Airports, Rail stations, Ports, Inland Container Terminals, etc.

Most often, transport infrastructure are regarded as natural

monopoly and public goods and are funded by governments through budgetary allocations and tax revenues

They could also be financed through long term loans from multilateral institutions such as World Bank/ Regional Development Banks Also long term funds could be raised in the Bond Market, under sovereign guarantee

However the limitations of government funds and need for rapid

development has led to funding arrangements involving the private sector such as:

Public Private Partnership (PPP) BOT (Build Operate and Transfer)

Where the private sector is involved in financing transport

infrastructure, usage fee is usually imposed:

Access fee Tolling Tax

Fleet/ Equipment include Automobiles (Cars, Trucks, Buses),


Aircrafts, Trains, Ships, barges, ferries, etc Logistics infrastructure : Cargo handling equipment, conditioning facilities, warehousing / storage facilities, Tracking devices Finance for fleet/ Logistics infrastructure could be availed through:

Bank loans: Commercial/ Development Banks Lease finance (Operating / Finance/ wet Lease)

Tenor of loans are usually medium long term varying from 3-5

years in the case of Automobiles and up to 15 years for Aircraft & ships
For heavy equipment (Aircrafts/ Ships), Asset finance cash flow

lending model are used due to capital intensive nature Sometimes many banks could come together under a syndicate financing, especially in aircrafts & ships Syndication and co-financing arrangements are usually undertaken to share risks

Some of the considerations to access Equipment/ Fleet

Finance are as follows:


Right of way Operational licence where applicable Concession Certification(s) of equipment Possession of a viable business plans / feasibility study Existence of a valid contract, where applicable Technical management/maintainance contract This could be covered by taking comprehensive (cargo & equipment) insurance

A major risk in vehicle finance is the mobile collateral risk

ROLE OF NEXIM IN FINANCING THE TRANSPORT VALUE CHAIN

NEXIM WAS ESTABLISHED IN 1991 AS AN EXPORT CREDIT AGENCY TO DIVERSIFY THE NIGERIAN EXTERNAL SECTOR THROUGH FINANCE & RISK BEARING SERVICES

We complement the role of the commercial banks and other Development Financial Institutions
Market Focus

By focusing on the unserved markets

ECOWAS

Manufacturing Agriculture (i.e. Agro-processing) Solid Minerals

Rest of Africa

Asia Services (Transport, Tourism & Entertainment)

Developed Economies

27

Road Transport

Cumulative disbursement of over US$6.5million Financed over 30 low emission/ environmentally friendly buses/ trucks for interstate road transport in west Africa Objective is to promote energy efficient/ environmentally friendly transport system, while deepening regional trade and facilitating tourism development Over US$23million availed/ disbursed Supported 2 airlines to acquire 3 planes for international flight routes 1 helicopter for charter service contract for movement of personnel and materials Disbursed over US$18million Supported cargo lightering and charter service contract

Aviation

Shipping/ Freight services


In conclusion, let me re-emphasise the need to reduce transportation cost

as a key strategy in boosting trade and enhancing growth in the West African region
United Nations estimate has indicated that a 10% reduction in

transportation cost in developing countries could boost international and domestic trade by 20%
In addition, governments of West African countries need to create enabling

environment that supports investments and flow of funds to the transport sector.

In this regard, the fiscal incentive in Nigeria which allows 0% import duty and VAT for all commercial aircrafts and spare parts is a welcome development. This will increase the commercial viability of the sector and attract additional investment capital Also in the road transport sector, addressing the problems of overloading and eliminating the queuing system will help to enhance competiveness and viability of the sector.

Finally, NEXIM welcomes transactional partnerships in the Transport/ Logistics

sector. We also have arrangements with other EXIM Banks to access Buyers/ Suppliers credits.