Distinguished Members,
I am pleased to welcome you to the 25th Annual General Meeting of our Association and present to you the Financial Statements and Reports for the year ended 31st December 2019.
Macroeconomic Environment
The global Gross Domestic Product (GDP) growth fell to 2.6% in 2019- its lowest rate since the financial crisis. This reflected the broad-based weakness observed during the first half of the year, including a further deceleration in investment amid rising trade tension between United States of America and China. Notably, for advanced economies, especially the Euro area and US, economic growth declined to 1.2% from 1.9% in 2018 and 2.3% from 2.9%, respectively. This was mainly due to weakening exports and investment, overall weakening of consumer and business sentiments, growing concerns of no-deal Brexit geopolitical tensions and disruption of global supply chain.
Sub-Saharan Africa, recorded growth of 2.6 % in 2019 from 2.4% in 2018. Despite the improvement, the external environment remained difficult and uncertain for the region. The slow pace of reforms, drought, insecurity and increased cost of public borrowing and private investment, continued to weigh heavily on economic activities within the continent.
Domestic Economy
Tensions from the general elections, subdued economic activities in the first half of the year, but normalcy returned in the second half of the year following the successful conduct of the elections.
The year started with GDP growing at 2.10%, a drop from the 2.38% of the last quarter of 2018. The economy then witnessed steady growth in subsequent quarters, closing at 2.55%. Inflation started the year at a moderated level of 11.37%, but experienced a surge to 12.1% in November 2019 from a 43-month low of 11.0% in August 2019,closing at 11.98%. The increase in inflation rate, was largely due to the closure of the land border resulting in a surge in prices of major consumer stables.
The oil sector continued to foster growth in 2019 as global events such as the sanctions on Iran and the attack on Saudi Aramco’s oil pushed oil prices upwards. The increased prices were however not sustained. Growth in the sector improved to 4.59% from 0.97% in 2018, while activity in the non-oil sector also rose marginally to 2.06% from 2% 2018. The performance in the non-oil sector was mainly driven by finance and telecommunications, which made up for the rather modest expansion in agriculture and manufacturing.
The foreign exchange market remained relatively stable since August 2018. However, the wide deficit in the current account balances reflected in the decline in external reserves from US$45.1billion in July 2019 to US$38.6billion at close of year representing a fall of 10.5%.
Another significant event was the passage of Finance Bill 2019, by the National Assembly and was signed by the President in January 2020. The bill amongst other things, seeks to utilise various fiscal measures in plugging the country’s revenue gaps.The Central Bank of Nigeria (CBN),remained a crucial player with a number of significant policy interventions in the Financial sector.
The CBN Monetary Policy Committee at the end of the first quarter of 2019,adjusted the Monetary Policy Rate (MPR), by 50 basis points from 14% to 13.5%. This comes after 14 quarters of maintaining rates at 14% andwas due to the inflationary pressures on the economy. Also, in a bid to foster growth in the real sector, the CBN directed all commercial banks to maintain a Loan to Deposit Ratio (LDR) of 65%. The Apex bank also introduced a new customer tariff structure which come into effect by the 1st of January 2020.
The Leasing Industry
The equipment leasing industry continues to be the creative financing alternative, deepening its penetration in the equipment finance market as more of the world’s equipment needs are being met through leasing. The industry is vibrant and resilient, delivering multiplicity of benefits to customers and generating estimated total annual volume of $1.5 trillion globally, accounting for 20% of total investment in equipment, contributing about 1.5% to GDP.
The Nigerian leasing industry remains an essential contributor to national economic development and continues to demonstrate innovation and flexibility in the face of economic turbulence. The industry maintained its growth trajectory -recording more than a decade of uninterrupted growth.Available statistics show that new business volume grew by 13.5 percent in 2019, rising from outstanding lease volume of N1.68trillion in 2018 to N1.91trillion in 2019.This growth is a testament to the attraction of leasing and its market potential, facilitated by enhanced lease awareness, increasing demand for leasing services – necessitated by the rising cost of assets and stimulation of domestic production; increased investment and participants as well as relative stability in the macroeconomic environment.
Three sectors- oil and gas, transportation and manufacturing, account for almost 60% of the lease volume.The oil and gas sector grew by 11.5%and maintained its lead with outstanding lease volume of N577 billion representing 26%, of total volume;transportation achieved 11% growth with N469billion accounting for 22%, and Manufacturing increased by 9.7% at N269billion representing (11%) of outstanding leases as at 2019.This performance follows on from the dominant position of these sectors over the years. Other sectors, including healthcare,education,agriculture, telecommunications, and the public sector, also witnessed new lease investment growth, representing 41 % of total portfolio.
Finance lease remained predominant at 65% of total leases, though there has been gradual shift over the years as the industry evolves. Operating lease has been strengthening its market share in recent times, due to market dictates arising from the preference of corporate bodies to focus more on their core activities, while outsourcing other operational functions such as transportation and other logistics services. Also, operating lease is increasingly becoming a risk mitigant and niche market for several lessors in the industry.
The industry continued to operate amidst the perennial challenges, especially in the areas of funding, default and regulation. These headwinds have constrained the faster growth and development of the industry.
Essentially, in 2019 the Nigerian leasing industry witnessed in addition to the effects of the general macroeconomic environment:
- The continued absence of appropriate funding mechanism in termsof availability, variety and cost
- Market focus on Small and medium markets due to inadequate funds and expertise.
- Continued predominance of finance lease, mainly of general assets e.g. vehicles
- New opportunities in construction industry, agriculture, mining and health care sectors
- Greater lease awareness and visibility for the industry leading to new entrants and patronage
- Low competition across market segments, the extent of competition remained low due to fewer lessors compared to level of demand.
- The coming into effect of International Financial Reporting Standard (IFRS 16.) which replaced the old standard IAS17, and abolished off balance sheet financing
- Slow turnover of equipment due to high cost of acquisitionwhich necessitated the increased demand for fairly used assets especially vehicles.
- Dwindling appetite from banks for direct leasing investment due mainly to inadequate fiscal incentives and motivations amidst competing products.
- Continued interest on the Equipment Leasing Act 2015, especially from foreign investors but the delay in the inauguration of the Equipment Leasing Registration Authority, remains a major setback to the full realisation of the benefits of the Act.
- Improved understanding on leasing intricacies through various capacity building and advisory programmes of ELAN.
Our Activities
The general operating environment remained daunting and this affected our activities for the year. However, I am pleased to report that we were able to sustain considerably with positive outcome, the pursuit of our objectives notwithstanding the constraints.
Lease Awareness
We continued to increase the visibility and essence of leasing through
engagement with the media and other stakeholders supported by organised
programmes. Regular lease features were made in all major newspapers, some television and radio stations. Also, we successfully organised in November, the 17th National Lease Conference in Benin City, Edo State. The conference has become a major platform for spreading the essence of leasing and engagement on various issues affecting the development of leasing. Similarly, we spread the lease awareness message to higher institutions with the donation of our publications including the second edition of Lease Financing in Nigeria. These activities have further added impetus to our lease awareness campaign.
Capacity building programmes
We continued to sustain our reputation as the citadel of lease training and education in Nigeria, with innovative capacity building programmes to meet the needs of the industry.The training modules were reviewed in line with international best practices and standard and new courses introduced covering ancillary areas such as facility management and fleet management, while adopting strategic approach to increase patronage. In all,a total of 11(eleven) Programmes were held to further advance the knowledge and skill requirements of the industry.
Advocacy
Efforts were sustained towards achieving better regulatory environment for the industry. We engaged the Ministry of Finance and other stakeholders for the full implementation of the Equipment Leasing Act 2015, especially the takeoff of the Equipment Leasing Registration Authority established by the Act. The IT infrastructure template was developed and office space provided for the smooth take off of the operation. However,the formal inauguration of the body remains a sore point for us, despite considerable efforts made in this regard.
Also, during the year we engaged Financial Reporting Council of Nigeria (FRCN), on the need torecognise lease practitioners as ‘’Professionals”. This is in line with theCouncil’s requirement, that all practitioners in some specific professionmust register with them. We embarked on this to enhance the profile of theleasing industry and give our individual members the desired status asprofessional lease practitioners.
Membership
29 new members joined the Association under the three categories as against 10 in 2018. We continued to enhance our value propositions to members through organised “face time “events, business networking opportunities and Advisory Services to guide them in their business and improve the bottom line. However, the challenge of retaining and attracting new members remains obvious. Consequently, these and other measures were taken to ensure that the Association is more responsive and proactive in delivering value added services to members.
Publications and Research
The annual research on the trends and developments in the leasing industry, was carried out and was published earlier in the year. This was part of our submission to the World Leasing Year Book, published yearly by Euromoney publications. This effort was supported by the publication of our quarterly magazine “Leasing Focus”, with improved content to provide succinct lease information to readers. The research and publication work of the association, have continued to be important source of information and documentation for the industry and other stakeholders.
External Relations
We sustained our engagement with the World Bank group including the International Finance corporation (IFC) and other development partners for the development and growth of the leasing industry. As part of this engagement, we worked with the team of the World Bank on the project initiative to develop a framework for the Federal Government, on the utilisation of leasing to support mining and agriculture sectors. It is a five-year intervention programme that is expected to drive increased participation of leasing in these sectors, while addressing the capacity challenges of the leasing industry, that will affect its effective participation.
Also, on the home front, we maintained our cordial relationshipwith relevant stakeholders including, the Ministry of Finance and the Central Bankof Nigeria (CBN) in our quest to developthe leasing industry.
ELAN Secretariat Building Project
At the last Annual General Meeting,I reported to you efforts made from successive Boards to have a befitting secretariat building for the Association and in furtherance of this initiative, the Board decided to raise the amount of N120million for the project, through support of members and partners by way of levies and good will donations. The proposed levies based on categories of membership, were presented and approved by members.
As at end of year, the sum of N19million was realised as levies from members and the commitment of N20million internally, bringsthe total sum to N39million. We have missed out on opportunities due to insufficient funds. I therefore encourage our members that are yet to pay their levy, to do so in order to cash in on any subsequent opportunity. We appreciate the prevailing trying time. However, this project is our own and it is important to see it through.
Finance
There was an improvement in our financial performance.Our audited accounts as at 31st December 2019, indicate earnings for the period amounted to N30.7million as against N27.6in 2018, while expenditure amounted to N26.79 million as against N26.74million in 2018 with a surplus income of N2.19million as against N1.08million recorded last year.
The Board
The tenure of this present Board expires at this meeting and members are expected to re-elect/elect directors. The Board in the past two years, consolidated on the gains of previous Boards, providing policy direction and support for the Association in the pursuit of its objectives. In accordance with our articles of Association, the directors are eligible for re-electionfor another term.
Future outlook
As we continue to push forward on the path of success, the Coronavirus pandemic poses a major threat to the growth of the global and domestic economies. The pandemic has caused monumental dislocation in economic activities for the better half of 2020- a trend that is expected to continue to 2021 and even beyond.
The leasing industry is not insulated from the impact of the pandemic as it affects business volume and operations. However, in the midst of the distraction, it is imperative for the leasing industry to remain resilient to navigate through the storm. This calls for realignment of strategies and adoption of innovative approach. Specifically, it would require members for instance:to build strategic alliance within and outside the industry to enhance capacity;strengthen internal capacity to enhance processes and performance; and concentrate on areas where they can impact and control while identifying new opportunities.
Government implementation of its interventions and the recovery of the economy in the post covid era,will further provide opportunities for the leasing industry. Essentially, increased government and private sector investment in key sectors, will impact positively on the leasing industry as more equipment will be needed to deliver on the various developmental initiatives.
Indeed, as an Associationit is our duty to look beyond the clouds to constantly deliver value for our shareholders. we shall continue to provide integral support, creating and facilitating the platform for the realisation of the corporate objects of stakeholders. Our core commitments in this regard, include:
- Sustained engagement with relevant authorities and organisations for better operating environment, including the implementation of the Leasing Act 2015 especially full commencement of operation of the Equipment Leasing Registration Authority.
- Creating more visibility for leasing through effective media campaign, visits, “face time” and other networking events.
- Identifying areas of business opportunities for members and facilitating effective linkage
- Expansion of membership base through engagement of stakeholders in the leasing value chain in various sectors/industries
- Enhancement of capacity building that would meet the needs of the market and strengthening of advisory services.
- Acquisition of a befitting building for the Secretariat.
Finally, distinguished members, as we come to the end of our tenor,I express on behalf of my colleagues on the Board, our deep appreciation for the opportunity to serve you and steadfast support given to the Association. It is our hope that the new Board continues from where we stop and with our continuous commitments, we shall build a virile leasing industry that will meet our collective expectations.
Thank you.
DR. OLUTOYIN OKEOWO
Chairman, Board of Directors