Global economic growth remained slow in 2016 most especially with the continued fall in crude oil the prices. The Nigerian economy faced its worst economic crisis in more than 20 years, as the economy contracted heavily. Our Gross Domestic Product (GDP) declined by 0.4%, 0.26%, 2.24% and 1.3% quarterly, and on the overall, 1.51% in 2016. This created a lot of tension in the system, coupled with high inflation rate hinging at 18.55% as at December 2016. The greatest of it all being the exchange rate that rose to as high as N490/1US$

 

As a measure to tackle these numerous challenges, the Government devised strategies to take the economy out of recession and drive growth. The 2017 budget of N7.298trillion, titled “budget of recovery and growth”, laid the road map of policy measures intended to grow the economy in the year. Also, to stabilize the Naira, Government, through the Central Bank of Nigeria (CBN), has been injecting fresh dollar funds into the system, as a measure to cushion the effect on the economy.

The Nigerian Leasing industry was vibrant and remained succour to many organisations across all sectors in the economy. The saying that leasing thrives during seasons of economic boom and recession, has been demonstrated over the years, as the industry remained resilient in challenging times.

 

The industry during the year, recorded 14% growth in leasing activities. The outstanding lease volume grew to N1.26 trillion, from N1.1 trillion in 2015. Leasing continued to be attractive to new investors with massive diversification by existing players in the industry. The industry recorded a drop in growth, 14% when compared with 27% in 2015. This was mainly due to the inability of the industry to cope with the demand due to high cost of equipment, necessitated by foreign exchange situation and the funding challenge. Nevertheless, the appetite for leasing is still increasing, with new lease transactions being booked on a daily basis. Equally, the level of patronage has increased given the current economic situation, which has made outright purchase increasingly difficult and demand from multinational and other large corporates for service–oriented leases like fleet management.

The analysis of the volume by sector reveals that the oil and gas, with its present challenges still out played other sectors with the lead of N398billion, a 24% of the total portfolio, while transportation followed with N319billion, a 19% of the total portfolio. Manufacturing N180billion, with Agriculture, Government, Telecoms sectors and Others (education, healthcare, construction and consumer sectors) recording considerable growths.

 

Categorising the lease transactions according to types, finance leases retained the dominant position accounting for 70% of all lease transactions while operating lease accounted for 30%. This revealed the increasing trend of operating leases in the recent times, due mainly to risk mitigating mechanism and response by industry players to current market dictates, by provision of vehicles (trucks, cars and staff buses) and other assets to support the operations of their corporate customers.

The industry continued to witness the banks as the lead players, particularly financing big ticket leases, and also providing funds to lessors for lease transactions. The non-bank lessors contributed 70% of lease transactions concentrating majorly on the Small and Medium Scale Enterprises (MSMEs). Many financial investment and capital market companies are coming into the industry to tap into the opportunities in leasing, as a way of hedging against other non – performing product offerings. Also, vendors, service providers (telecom and oil) are getting more involved in leasing.

 

In terms of asset categorisation, about 40% of leased assed are vehicles including trucks for haulage and buses for inter-state commercial transportation, which have been major attraction in recent times. Financing of specialised assets is emerging in the market especially in the health sector.

Our market projections show that the leasing industry will blossom, owing to the various initiatives of Government aimed at re-inflating the economy and the increasing relevance of leasing, to capital formation in view of the challenge to access to finance especially to MSMEs.

 

Essentially, the focus on agriculture will create huge market for the leasing business, as a whole range of equipment would be required across the agric value chain, from seedlings/inputs to fertilizers, harvesting, processing and storage as well as distribution.

Also, the special focus on infrastructure will open up business opportunities for the leasing industry as specialised and general equipment would be needed, to support the massive construction that would take place in the rail, roads, power, housing etc. The manufacturing sector as well as the micro, small and medium enterprises (MSMEs) will equally present enormous opportunities for leasing, as the demand for assets for productive ventures is expected to continue to increase.

 

Another emerging business opportunity lies in the healthcare and education sectors. Already ELAN, is exploring ways to harness this opportunity by partnering with healthcare vendors, to provide assets for players in the sector. In the education sector, various assets are being leased including modern instructional equipment including computers, communications, laboratory, technical and research equipment in addition to the general assets like vehicles, generating sets. Indeed, leasing has immense scope in the sector given the large numbers of educational institutions across the country and the infrastructure financing gap.

 

While it is obvious that the future for leasing is bright in Nigeria, it is imperative that operators reposition themselves to capture the immense opportunities, through appropriate capacity building and market research, to fully understand the peculiarities of these industries, trends, consumer needs, other business dynamics, regulatory and legal changes. Specifically, players in the industry should imbibe sound corporate governance, to increase their corporate profile in order to endear it to necessary support and patronage, especially in the areas of attracting appropriate funding and business partnership. It is also important for operators to adopt proactive business approach, understand the risk profile of transactions and other dynamics before venturing into them.

 

On its part, Government should continue in its support for the leasing industry, through a more favourable operating environment. The capacity of the industry needs to be strengthened and sustained to enable it perform its developmental role effectively. Government can for instance support the industry to overcome its funding challenge, by allowing leasing companies to access pension and the various intervention funds for development in specific sectors of the economy. This will no doubt enhance the capacity of lessors to deepen leasing penetration in the market, and will on the long run promote investments, create wealth and more jobs.

In all, it is important for all stakeholders in the leasing industry to work together to build a stronger industry that would contribute more to capital formation in the Nigerian economy.