Distinguished Members,
I am pleased to welcome you to the 27th Annual General Meeting of our Association and present to you the Financial Statements and Report for the year ended 31st December 2021.
THE ECONOMY
in 2021, the global economy recovered noticeably from the prior year’s economic downturn, driven by comprehensive stimulus programmes in major economies; progress in global vaccination campaigns; and a significant pick-up in global consumer sentiment after the lock-downs. However, the global economy continued to face maximum headwinds – over inflation, recession, stock market crash, and currency depreciation across countries exacerbated by the raging storm of the Covid-19 pandemic. The general economic situation was essentially dominated by the implications of the COVID-19 pandemic. New waves of infection and renewed restrictions on public life, including widespread contact and international travel restrictions, had an overall dampening effect on global economic development.
In all, 2021, marked the year of recovery as the global gross domestic product (GDP) grew at approximately 5.9 percent from a negative growth of −3.1 percent in 2020. The pace of economic recovery, however, varies across countries and sectors, depending on the degree of pandemic-related disruption and the level of political support.
On the domestic front, following the pandemic, the Nigerian economy showed steady growth in 2021 at 3.6 % from a 1.8% contraction in 2020. The growth was largely driven by a 4.4% expansion in the non-oil sector of the economy against an 8.3% contraction in the oil sector. Non-oil growth was driven by agriculture (2.1%) and services (5.6%). The economy sustained recovery, was fueled by the implementation of the Government’s Economic Sustainability Plan and the easing of COVID-19-induced restrictions while the Central Bank of Nigeria (CBN) kept the policy rate unchanged at 11.5%
Inflation closed at 15.63% in 2021, from a four-year high of 18.2% in March 2021 while the Naira, was at N415.10 per dollar at the official Investors and Exporters (I & E) Window, representing a depreciation of more than five percent on the rate of N394 per dollar recorded at the beginning of the year. At the parallel market, the Naira traded at N570 per dollar at year-end.
The Naira volatility is expected to continue in 2022, as it faces various pull forces during the year. Public debt stood at N39.55trillion in 2021 about 22.5% of GDP as the country’s debt stock continued to grow amid weak revenue mobilisation, raising concerns about sustainability.
THE LEASING INDUSTRY
The global leasing industry’s contribution to the world’s economy remained impressive as the world continued to recover from the ashes of the pandemic. The leasing market grew from $1.18 trillion in 2020 to $1.35 trillion in 2021 and is expected to reach $1.83 trillion in 2025. The industry sustained its resilience since the beginning of the pandemic with continuous positioning of leasing as an added value product; allowing flexibility in asset management; embracing digitalisation of processes and maintaining a high level of services as it poised further to meet the world’s equipment needs
The Nigerian leasing industry reflecting the picture of the global industry, continued to navigate through the storm, making a significant contribution to capital formation in the economy. For over a decade, the industry consistently recorded growth in business transactions amidst challenges. After recording a sharp decline in growth from 14.5% in 2019 to 4.3% in 2020, the industry recovered with a 28.65% growth in 2021.
Available statistics show that outstanding lease volume as of 2021 stood at N2.58trillion against N2.01trillion in 2020. The oil and gas sector continued to be dominant contributing 23.8% of total volume at N739bn; followed by Transportation & Logistics sector 21.4% recording N614bn; Manufacturing 16.7% at N375bn; Telecommunications, 9.5% of the total volume at N232bn. Others (including Healthcare and Education accounted for N294bn (19%), with Agriculture and Government recording a positive showing. This growth was mainly a result of the full resumption of economic activities following the relaxation of Covid-19 restrictions as businesses tried to catch up, despite the continued adverse impact of the pandemic on socio-economic fundamentals.
Finance lease maintained its lead position at 55% of the total transactions while operating lease recorded 45%. of the market share. In recent times, operating lease is increasing its share in the marketplace, owing to the dictates of the market – preference of corporate bodies to focus more on their core activities, and outsource other operational functions such as transportation and other logistic services. Also, as a risk mitigant and niche market for several lessors in the industry. Like in other climes, vehicles constitute the most leased assets in Nigeria accounting for 50% of leased assets in 2021. These vehicles include heavy-duty trucks for haulage and distribution; buses for inter-state commercial transportation and staff shuttle.
Essentially, the leasing terrain in 2021, was largely defined by the spillover of the impact of the manifestation of conditions in 2020 and prevailing industry’ specific factors. Particularly:
Improved rate of rental payment and fulfillment of other obligations; arising from the improved stability of cash flow of customers due to resumption of business activities and re-structuring of lease transactions.
Growth in new business origination but volume remained low, owing to the fear of portfolio risks and limited capacity to finance new transactions. Lessors pre-occupied themselves mainly with the task of managing the existing portfolio and exercising caution in venturing into new transactions. Transactions that were consummated were dominated by the SMEs segment and the provision of logistics for large organisations.
Continued shift from Finance lease, as a risk protective mechanism and in response to market dictates. Finance lease though still dominates the market, its share has been dwindling in recent years, especially with its associated risks and demand from corporate bodies for a leasing product, that allows more flexibility and convenience to enable them to focus more on their core activities. This has seen some major lessors, shifting completely to operating leases to meet the outsourcing needs, particularly in transport and logistics. In a bid to create a further niche, some of these lessors have set – up workshops of their own, providing services to outside customers as well.
The increasing interest of vendors in leasing, especially vehicle vendors. New entrants from multinational vehicle manufacturers and major distributors have set up vendor leasing schemes in recent times financing leases of their products on their own and most often with banks under various asset acquisition schemes.
Maintenance of business and operational approach adopted in response to “the new normal. The lifting of restrictions notwithstanding many lessors still maintained some limited measures of working from home leveraging technology and dealing with external relations such as customers, through online and other non-physical modes of engagement. This has improved the cost profile associated with physical engagement such as office administration – electricity, fueling, transport, etc., and better time management. More than ever before, many lessors have equally developed and adopted technology applications to improve their processes in response to prevailing conditions.
The increased cost of assets and operations. The depreciation of the Naira in the Foreign Exchange market caused prices of goods and services to rise. This affected the capacity of leasing companies to finance new transactions where the opportunities were available to do so and equally maintained service-oriented leases. The increasing cost limited the acquisition of assets through outright purchase by consumers. While, this presented opportunity for leasing as alternative means of acquisition, it equally affected demand for leases as many businesses extended their replacement period.
The Regulatory Environment remained largely unchanged. The impact of the International Financial Reporting Standard (IFRS 16), on Leases, is yet to fully manifest since it came into operation on the 1st January 2019. The Standard is aimed basically at eliminating off-balance sheet financing, which has been a major attraction of operating lease to companies seeking off-balance sheet financing. The introduction of the standard was expected to adversely impact the market dynamics, especially the demand for operating leases. However, operating lessors are using structuring techniques to meet the needs of customers and in compliance with the Standard
The industry continued to be faced with the challenges of full implementation of the Equipment Leasing Act 2015. The ELRA, a public-private partnership arrangement, is expected to give full effect to the intent and purport of the Act, ensuring certainty, and stability and promoting investment in the leasing industry.
Essentially, driving success in the industry will require: a broad and deeper funding structure; prioritising risk management and processes, enhancing internal capacity to improve processes and performance; sound corporate governance; improved leasing infrastructure; maintaining and improving portfolio quality while keeping the balance; constructive engagement with the market and relevant stakeholders as well as controlled back-office cost.
There is no doubt that Leasing will continue to make considerable impacts in propelling the development and growth of the Nigerian economy. This is predicated mainly on the wide financing gaps in the economy, which presents enormous opportunities for leasing, though the challenges of the macro-economic and industry situations remain obvious.
OUR ACTIVITIES
The impact of the covid 19 pandemic took its toll on businesses and our capacity to deliver on expectations for the year. However, within the constraints, we were able to sustain our operations and keep afloat in the pursuit of our objectives.
Lease Awareness
We sustained our lease awareness campaign to enhance visibility for the industry and patronage. We maintained considerable media presence and engagement with relevant stakeholders, including the government and development partners. The National Lease Conference (the 19th edition), which has become a major platform of engagement and propagating the ideals of leasing, was held in November to further boost the awareness campaign. It is critical to continue to expand the campaign in view of its importance to the development of the industry.
Training
As part of efforts to stay afloat, we commenced physical training later in the year while maintaining the virtual programmes. In all, 11 (Eleven) programmes were held with considerable success compared to the previous year, though fell short of our expectations as many organisations cut their training budget in response to the challenging times. We are, however, identifying new areas of opportunities and reviewing our approach to increase patronage.
Advocacy
Our focus was mainly on the formal inauguration of the Equipment leasing Registration Authority. We sustained our engagement with the Ministry of Finance, Budget and National Planning, and other stakeholders in this regard. The Minister has formally notified us of her commitment to inaugurate the body and we shall continue to intensify our efforts to ensure that this is done without further delay
Membership
17 new members joined the Association under the three categories of membership during the year as against 20 in 2020. 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. The challenge of retaining and attracting new members remains obvious. Consequently, measures were taken to ensure that the Association is more responsive and proactive in delivering value-added services to members.
Research and Publication
We continued to carry out research into the trends and developments in the leasing industry which is now being published in the Lease Market Review on a quarterly basis. This was in addition to the publication of the quarterly magazine “Leasing Focus” while concluding plans to publish a new book “Equipment Leasing and Practice in Nigeria” next year.
ELAN Secretariat Building Project
Three years ago, at the 24th Annual General Meeting, members approved the proposal presented by the Board to raise the amount of N120million, through levies from members and goodwill donations, for the purpose of acquiring a befitting secretariat building for the Association. Efforts were made to keep the momentum and as of year-end, the total sum of N40million has been realised including N20miillion commitment from internal funds. While we appreciate the challenging period, we encourage our members that are yet to pay their levy, to do so in order to put this to rest. Indeed, this project is our own and it is important to see it through, to enhance our operations and profile given the expected role of the Association.
External Relations
We continued to build on our relations with the Government, Development Partners, and other stakeholders for the development of the leasing industry. Essentially, our engagement is to improve the operating environment, including an appropriate regulatory framework, ensuring adequate funding mechanism, and exploring market opportunities. For instance, we have been working with Deutsche Gesellschaft fuer Internationale Zusammenarbeit (GIZ) /SEDIN (German Development Partner), for technical support for the development of leasing in its access to finance programme for MSMEs, while consolidating the existing relationship with the International Finance Corporation (IFC) in developing leasing in Africa.
Accounts
The Audited Accounts as at year end 31st December 2021, indicate that earnings for the period amounted to N32.14million as against N25.7million in 2020, while expenditure amounted to N28.98miliion as against N24.1million in 2020, with a surplus income of N3.16million as against N2.5million in 2020.
The Board
The tenure of the present Board of Directors shall expire at this meeting. During its tenure, we built on the gains of previous Boards, providing direction and support for the Association in the pursuit of its objectives. As we take our bow, we encourage ourselves to remain steadfast and support the incoming Board in our collective quest to build an enduring leasing industry that would deliver on our expectations.
Finally, distinguished members, I express, on behalf of the Board, our deep appreciation for the opportunity to serve you and the steadfast support given to the Association over the years. Also, we thank the Management and Staff of the Secretariat for their dedication to service. With our collective support, the leasing industry will continue to soar to greater heights.
Thank you
OLUTOYIN OKEOWO
Chairman, Board of Directors