Liberia Leasing Investment Forum

Transcription

1 Liberia Leasing Investment Forum Finance Leasing in Liberia: June 13-14, 2012 Monrovia, Liberia Leasing is both a source of affordable capital for small and medium-sized businesses and a catalyst for socio-economic development. Understanding the benefits of a developed leasing sector, the Government of Liberia has worked to develop an enabling environment for finance leasing in Liberia. Increasing interest, awareness and participation of all local and regional stakeholders in leasing business development is key to supporting widespread finance leasing opportunities for private sector development in Liberia. The Liberia Leasing Investment Forum brought to you by Liberia s National Investment Commission in partnership with IFC with generous contributions from our donors and sponsors featured below, brings together local government and private sector individuals alongside regional and international stakeholders to meet and promote investment in the leasing sector in Liberia.

2 Finance Leasing in Liberia: Leasing in the global context Worldwide, finance leasing has demonstrated its ability to increase investment in capital equipment and plays an important role in economic development. It accomplishes this role by serving not only as an alternative financing mechanism, but a more powerful mechanism to manage risks and benefits associated with the use of productive assets. In developed countries, leasing is used to finance about one third of private investments. Given the challenges in accessing affordable capital, leasing is particularly relevant for Africa, and is a suitable financial instrument for small businesses because they often lack sufficient collateral to access traditional forms of financing. In the case of finance leasing, as the leased asset serves as the collateral, it therefore significantly reduces the entry bar for participation, making leasing an attractive financial tool for many small business owners. Why is finance leasing important to Liberia? In Liberia, due to a variety of circumstances, such as difficulties in obtaining property titles, most assets cannot be used as collateral. Leasing is therefore an effective means to increasing access to finance for many. Leasing provides a means to deliver increased domestic investment within economies. By developing additional financial tools such as leasing or mortgages, Liberia will be able to deepen financial sector activities by introducing new products and/or industry players. Founded as it is on extractive industries, Liberia s economy creates great potential for an industry such as leasing. As a result of the lifting of the UN ban on timber exports and recent Foreign Direct Investment into the country, private What is Leasing? Leasing is a medium-term financial instrument for the procurement of machinery, equipment, vehicles and/or properties. Fundamentally, it is asset-based financing with the asset providing, in most situations, the security for the financing. Known as the lessor, leasing institutions whether banks, leasing companies, insurance companies, equipment producers or suppliers, or nonbank financial institutions purchase the equipment that has usually been selected by the lessee, and then allow the lessee use of that equipment for a specified period of time. For the duration of the lease, the lessee makes periodic payments to the lessor, at an agreed rate of interest and in an agreed currency. At the end of the lease period, the ownership, or title, of the equipment is transferred to the lessee at a pre-agreed residual value, or the equipment is returned to the lessor, which may then sell it to a third party or declare it worthless and obsolete. Leasing is based on the proposition that income is earned through the use of assets, rather than from their ownership. investors are likely to be the major drivers for the expansion of the leasing industry in the coming years. Mining experience from around the world has shown that most mining companies prefer to lease rather than own equipment. The experience has also shown that, such companies would rather sub-contract an operation to private operators than carry out the operation themselves. Other non-core services including bussing, vehicle rental and hospitality services are additional off-shoot activities also likely to increase the leasing potential when such sectors grow.

3 Leasing potential in Liberia: Over US$200 million Finance Leasing in Liberia: The leasing market in Liberia is relatively new. There are no existing players engaged in leasing activities at the bank or non bank lessor level. However, the introduction of legislative and regulatory framework for leasing by the government and Central Bank of Liberia is creating movement in the sector which is expected to transition from an inactive to an active market within the next year. In 2012, an IFC consultant projected the potential market opportunity for leasing in Liberia to be more than US$200 million based on GDP, population and the needs in development of certain sectors such as oil and gas and infrastructure. The market is expected to increase over time due to the country s growing equipment needs in agriculture, construction, mining and other sectors of the economy. A successful leasing industry is founded on four pillars: regulatory framework, legal framework, tax burden and accounting practices, and the government of Liberia has successfully implemented several of the components to promote leasing development: The Regulatory and Legal Framework: In 2010, the government passed the Finance Leasing Law to strengthen the regulatory and legislative framework for leasing in Liberia. The leasing law is favorable, especially toward the rights and the obligations of the lessor and the duties of the supplier. The law further provides for an expedited court process if a lessor must repossess the leased asset in cases in which the lessee has defaulted on payment. The Tax Burden: The tax environment for lease contracts in Liberia is favorable. Financial leases are therefore competitive compared to other existing forms of financing. Currently however leasing players and tax authorities could benefit from additional training and guidance to implement the tax leasing provision. While there are no leasing tax exemptions for the lessor, all related exemptions granted to small businesses could be transferred to the lessor but limited to the leasing term under a lease agreement. Followup capacity building is planned in order to educate players in the leasing market on how to implement the new leasing law to address these issues. The Accounting Practices: Accounting practices play a singularly important role in leasing as they have the potential to play a role in the determination of who owns an asset as well as the determination of tax liabilities. International Accounting Standards (IAS) 17 is the seminal accounting regime for leasing but it is important to note that even developed countries have adapted its principles to their own realities. Liberia could benefit in adopting such standards and similarly adapting them to its own climate. Importance of investment in developing the leasing sector in Liberia There are 3 major constraints for the development of leasing in Sub-Saharan Africa: An inadequate tax and legal framework for leasing operations The lack of technical partners in the region The scarcity of medium-term funding resources Given the country s favorable legal and regulatory framework, the bank and non bank lessor sectors and other technical partners are imperative to the development of leasing operations in Liberia. While Liberia has taken a laudable first step in laying the foundation necessary for this, investment in the leasing sector will be necessary to propel Liberia s leasing sector to the next level and make the leasing business effective and sustainable.

4 Finance Leasing in Liberia: Benefits of finance leasing for financial institutions and entrepreneurs Benefits to Lessee Eliminates need for collateral: In leasing, the bank or leasing company owns the leased asset and as such will use the asset as the primary security, thereby eliminating the need for collateral. Longer term financing: Leasing provides a means to access mid- to long- term financing because the financing will be tied to the useful life of the asset. Reduction in taxes: Finance charges on a finance lease are tax deductible expenses, unlike other loans where only the interest element is taxed. This typically means that while income from operations is expected to increase with the acquisition of the asset, costs reduce as the tax burden is reduced because the entire financing cost is tax-deductible. Reduces appearance of debt on balance sheet: Depending on the laws of the land, a lease is not considered a long-term debt or liability; it does not appear as debt on the financial statement, thus making it more attractive to traditional lenders. Immediate write-off of the asset: Because leasing payments are treated as expenses on a company's balance sheet, the subject equipment does not have to be depreciated over its lifespan. This considerably lowers tax liability and reduces the cost of access to such equipment. Flexibility: As a business grows and as its equipment become old and obsolete, leasing allows for upgrading at any point during the lease term. Leasing financing provides the flexibility for clients to have customized financing models that address their needs and requirements - cash flow, budget, transaction structure, cyclical fluctuations, etc. Conservation of working capital: Equipment leasing allows the business access and usage of equipment to generate income without an initial high cash outlay, thereby ensuring that there is working capital to run the business. Easier replacement of obsolete equipment: Leasing offers the opportunity to replace obsolete equipment faster. Spare part and maintenance drive up the cost of running obsolete equipment. Leasing is therefore a cheaper option. Benefits to Lessor Increased Income and profit: Leasing enhances the income of the lessor through increased sales and services provided. It also provides opportunities for enhanced profits through monetization of residual value of assets. Benefits to Vendor Increase in sales: Additional financing options for small businesses, such as provided through leasing, result in an increase in sales for the vendor. Long-term relationships: Develop a long term partner with the leasing player. Sustainability: Development of the leasing industry helps sustain their business. Quality assurance: Improved quality of after sale service to client. Brings vendor closer to client: Develop their network to be more close to the client. Increased security: Point of sale financing provides additional security. Benefits to Broader Economy Increases overall GDP: Leasing creates opportunities for employment, provides impetus for the widening of the tax base of a country and contributes to the development of social benefits such as education and health care. Leasing provides alternative sources of financing for the private sector, opportunities for incremental business investment, and opportunities to develop and enhance secondary markets while contributing substantially to a deepening of financial markets.

5 Finance Leasing in Liberia: Day 1: Wednesday, June 13, 2012 Agenda 8:30 Registration 9:00 Welcome by National Investment Commission Chairman Hon. O. Natty B. Davis, II IFC : Access to Finance and Private Sector Development Central Bank of Liberia: Leasing in Liberia Opportunities for investors Keynote Address : Vice President of Liberia, HE Joseph N. Boakai Presentations Minister of Finance, Hon. Amara Konneh: Incentives and Opportunities : Government s role in promoting leasing and creating an enabling environment Maximizing value through SME lease financing Leasing licensing and arbitration in Liberia Building a Sustainable Leasing Business in Liberia Moderated Discussion 12:30 Lunch 13:30 Presentations Minister of Commerce, Hon. Miatta Beysolow : Business Readiness for Finance Leasing Leasing to SMEs Realities of Leasing the prospect of local banks to participate in the leasing business Agrileasing: the role of leasing in developing agriculture 15:00 Discussion followed by networking Day 2: Thursday, June 14, :30 Registration and breakfast 9:00 Overview of Day 1 Presentations Global Leasing Practice: Case Scenarios and adopting best practice models to make leasing work in Liberia Overcoming Challenges for Investors and Businesses Making Leasing Attractive in Liberia: Government initiative to motivate potential investors to start leasing business in Liberia Long Term Financing for Leasing the venture capital option Discussion and break Presentations Multilateral Support of Leasing Facilities Building Capacity of Small Business and Microfinance Institutions to Gain Access to Finance through Leasing Doing Business in Liberia Leasing in emerging markets Moderated Discussion 13:00 Closing Remarks: National Investment Commission Chairman Hon. O. Natty B. Davis, II Lunch

6 About Liberia National Investment Commission As the principal champion of investor relations, the National Investment Commission, or NIC, works to assist investors in Liberia. Its current mandate is to promote the country s many investment opportunities, attract and support the growth of value-adding foreign direct investments, and advocate for and strengthen the domestic private sector. The Chairman of the NIC chairs the government's Business Reform Committee, which has helped implement 39 specific reforms in the past three years, earning Liberia the title as one of the "top 10 global reformers" in the annual IFC-Work Bank Doing Business report ranking. A member of the Liberia Better Business Forum, the NIC is working to create an investment environment that makes it easy and predictable to do business in Liberia. The NIC also chairs the Inter-Ministerial Concessions Committee, or IMCC, which includes permanent committee members from the Ministries of State, Finance, Justice, and Planning and Economic Affairs, as well as other key stakeholder ministries and agencies. The IMCC works to ensure that while unlocking Liberia's natural resources, the country's national interests are safeguarded, jobs are created, and access to capital, new technologies, markets, and world-class training and business development is accelerated. In addition, the NIC chairs the Commissioner's meeting, which approves investment incentive contracts above USD 10 million. For more information, please visit: About IFC Africa Leasing Facility Launched in 2008 and active in 15 countries on the continent, IFC s Africa Leasing Facility works with governments, financial institutions, equipment suppliers, insurance providers and small business owners to help make leasing a viable tool to increase revenue of small businesses thereby impacting overall country GDP. Over the past five years, the program has trained over 9,000 small business owners through 200 training sessions, assisted in the passage of 12 leasing legal, regulation and tax laws and facilitated investment in 7 leasing projects worth $31 million. The Facility, run from Senegal, is being implemented by IFC Advisory Services and is funded through IFC s Private Enterprise Partnership for Africa in partnership with the African Development Bank, Denmark, Ireland, Japan, Luxemburg, The Netherlands, Norway and SECO. Since 2008, upon request from the Ministry of Finance and the Central Bank of Liberia, the IFC Africa Leasing Facility has been engaged with various Liberian counterparts to provide technical support to both the public and private sector. Program contributions in Liberia include a market survey to identify leasing opportunities in Liberia; validation of the market survey report in various stakeholder workshops; a best practice finance leasing law drafted and enacted as part of Liberia s new Commercial Code; a process that permits prompt recovery of assets in the event of default under the new Commercial Code; and a set of best practice regulations developed by the Central Bank of Liberia. IFC leasing work in Liberia is currently being supported by Ireland, the Netherlands, and Norway through our Conflict Affected States in Africa Initiative and the Swedish International Development Cooperation Agency. For more information about the IFC Africa Leasing Facility in general, please visit: