Nigerian leasing industry grew 11.3% in 2014

The outstanding lease volume of the leasing industry in Nigeria grew by 11.3 percent from N780 billion in 2013 to N869 billion in 2014.

The report of the performance of the leasing industry released by Chuka Onwuchekwa, chairman, board of directors, Equipment Leasing Association of Nigeria (ELAN), states that an analysis of the various sectors revealed that the oil and gas sector dominated the industry with 31.6 percent of the lease volume, closely followed by transportation with 15.8 percent, manufacturing sector grew by 11 percent, government, agriculture and telecoms all grew above 5 percent, while other sectors recorded 26 percent growth.

A further breakdown of the statistics indicates vehicles as the most leased asset with 50 percent, plant/machinery 29 percent, office equipment 10 percent, while aircraft/vessels had 2 percent, and others (including household equipment) 9 percent.

In terms of types of lease transactions, finance leases dominated with 75 percent while operating leases represented 25 percent.

Operating lease will continue to deepen its market penetration with the increasing demand for the product, especially from corporate customers, who are now redefining their business strategy to focus on their core business activity and the outsourcing of non-core services. Also, the recent Central Bank of Nigeria’s (CBN) guidelines on the regulation of finance leases may likely witness increase in operating leasing as some lessors who do not want to be regulated may shift to operating lease.

According to Chuka, the major contributors include banks playing at the high-end of the market in terms of transaction value and supporting other lessors with funds for their transactions. The non-bank lessors however have better spread representing 80 percent of lease transactions, with many of them focusing on Small and Medium Scale Enterprises (MSMEs). Vendors are equally enhancing their visibility in the marketplace, especially in the consumer market, where they are engaged in the lease of their own products, mainly household assets and cars under vendor lease programmes supported by banks in some cases.

Also, he says majority of Nigerian lessors are engaged in general leasing, financing different types of asset cutting across various industries, though financial capacity and industry’s knowledge may restrict participation in some specialised cases such as telecoms, power and agricultural equipment.

“The events, which started in the last quarter of 2014, which include dwindling oil prices leading to the devaluation of the naira and the tense political atmosphere may have considerable negative impact on the volume of leases in 2015. The industry is however expected to rebound subsequently, especially as the stability in the polity improves.

“The fact that leasing facilitates convenient and easy access to capital equipment goes to show the unique role of leasing in building and supporting productive ventures. This will be very relevant to achieving the developmental initiatives of government and supporting private sector investment,” he says.

However, the desired performance and continuous growth of the leasing industry in Nigeria is predicated on the capacity of the industry to overcome the various challenges affecting its growth and development. Appropriate funding for instance is critical to the success of the leasing industry. The available sources, which are primarily banks, appear inadequate to provide the right kind of funding for the leasing industry to meet the huge demand for capital assets in the economy. There is therefore need for a funding mechanism that would provide cheap long-term funding.

For instance, some of the intervention funds for development in specific sectors of the economy can be channelled through leasing. All these will no doubt broaden the funding sources and strengthen the capacity of the industry to expand the scope of its leasing activities.

Also, the regulatory framework needs to be strengthened to provide protection, encourage investment and support the overall development of the leasing industry.

HOPE MOSES-ASHIKE