International Journal of World Research
Print-ISSN: ISSN: 2347 – 937X
December 2013, Issue IXI: Volume: I
Impact Factor: 0.4327
FUTURE AND CHALLENGES OF EQUIPMENT LEASING IN NIGERIA
1OKO,
A. E. NDU, Department of Marketing, Abia State University, Uturu-Nigeria
ABSTRACT
The equipment lease industry in Nigeria is challenged in its growth and
developmental drive. These challenges which are economic and finance as well as marketing
policies and strategies oriented have diverse negative impacts on professionalism and
specialization in lease marketing. It is important to note that inspite of these challenges; the
future is bright for operators as changes in information and risk management techniques,
relationship marketing and others that have their off shot as customized leasing are
expanding the international borders for leasing as envisaged, and are capable of making the
market operations profitable.
Keywords: Synchronization, Scramble merchandizing, economies of scale, regulatory
instruments, Information system.
Introduction:
The per capital income in Nigeria is low-World Development Report (2010), hence citizens
operate below poverty level-National Bureau of Statistics (2012). Thus it is difficult for
entrepreneurs to accumulate fund for capital investment. This situation encourages the
adoption of equipment leasing as alternative.
Depending on equipment leasing in Nigeria is challenged by economic, financial, social and
cultural variables in addition to problems considered marketing and professionalism oriented.
These problems and challenges if well managed are capable of exposing opportunities for
equipment lease marketing profitable activities.
Evaluation of the Nigeria Lease Market:
The equipment lease industry of Nigeria over the years especially between 2000 and 2012 has
exhibited indices of growth rather than development, hence expected industrial sector
development has been retarded. The situation in this industry (equipment leasing) is
associated with problems identified as economic and finance oriented and marketing practice
oriented respectively–Oko and Anyanwu (2012).
The problems as economic and finance include inadequacies in government policies, lack of
social-political stability and security, lack of specialization and professionalism in the
practice of leasing and inadequacy of legal and regulatory environmental frame works for the
protection of lessees and lessors in equipment lease exchange relationships.
Based on the above, the lease market is poorly funded, hence the high incidence of fraud and
corruption-Abashiya (2005). Government with its tax policies, deduct withholding taxes from
the rent accruable from lessors, causing il-liquidity in the market –Oko and Anyanwu (2012).
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International Journal of World Research
Print-ISSN: ISSN: 2347 – 937X
December 2013, Issue IXI: Volume: I
Impact Factor: 0.4327
Worst still is the inability and unwillingness of government to address the negative impacts of
the Statement of Accounting Standard II (SASII) that denies lessees the right to claims on
capital allowance-Adakotsu (2000), Abashiya (2005) and Lemo (2003). Based on these,
leasing is considered expensive compared to outright acquisition of assets for productive
bactivities-Oko and Anyanwu(2012).
Socially and politically, Nigeria is experiencing relative stability. However the activities of
members of different political and religious sects that champion the interests of their leaders
affect the inflow of foreign investments and capital into the nation –Abashiya (2005), hence
the growth and development of infrastructure on which equipment leasing anchors has
remained poor. Following this, equipment available for lease exchange are willfully over
used or and maliciously damaged -Olorudu (2000). These political and legal adequacies, have
given rise to the situation of lack of synchronization of specifics as pre-requisite in equipment
as part of a processing system and or equipment specifications, as actual requirements –
Abashiya (2005).
The equipment lease market and its practice lack professionalism resulting from lack of
specialization. Hence lessors operate in all sectors and ticket markets. For most Nigerians,
leasing does not differ from any other form of loan agreement-Abshiya (2005). Therefore, to
survive in this market situation, many small size lease firms exist, especially on the basis of
scramble merchandizing principles-Oko and Essien (2013).
It is observed that there is lack of quality legal and regularity environment for the practice of
leasing in Nigeria; hence activities in other sectors of the economy have direct negative
impacts on leasing-Olusoga (2004). Instance of this is the fact that the judicial process in
seeking redress for breach of lease obligations in Nigeria is cumbersome-Wright (2003), thus
lessors have often lost their investments on equipment.
Other problems of the Nigeria equipment lease market identified as marketing oriented are
those of inadequacy in pricing strategies and policies, poor promotional strategies and failure
to appreciate the peculiar nature of the Nigeria lease service consumers and their behaviour in
lease market targeting and offer positioning –Oko and Anyanwu (2012).
The Nigeria lease industry is more of the sellers’ market; the lessors impose stringent
conditions on the lessees as exchange value for the derived benefits of the lease equipment at
different periods in the life span of the equipment. Based on this, lessees are involved in
different fraudulent activities to cushion the impact of high price of the lease servicesSimpson (2000) and Wright (2003). This pricing method does not recognize the fact that
lessees have their basis of assessment of the value of the services of asset, thus does not
encourage flexibility in repayment for the purpose of matching the income of the lessees.
Rather prices are arbitrarily fixed –Oko and Anyanwu (2012) by the lessors.
In the area of promotion strategy, the Nigeria lease market operations are executed based on
poor integration of variables necessary to promote the availability and quality of the product
and associated services as well as role of personnel in service rendering as are vital for
market targeting and product positioning. Hence direct loan for project financing is more
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International Journal of World Research
December 2013, Issue IXI: Volume: I
Print-ISSN: ISSN: 2347 – 937X
Impact Factor: 0.4327
acceptable compared to equipment leasing –Onkvisit and Shaw (1989); Hite, Fraser and
Bellizzi (1990), George and Berry (1990), Johnson,Sheuing and Gaida (1986) and Abasiya
(2013). Thus leasing in Nigeria has low penetration rate –Wright (2002).
As a strategy for survival in this relatively poor sector of the Nigeria industrial market,
lessees and lessors exhibit poor vendor and consumer decision exchange behaviours that
show that each desires and actually takes advantage of the other in pricing, distribution and
positioning of the offer and in the consumption of the product. These behaviours that are
fraudulent and prerogative tolerant; tamper with the components of the leased asset-Wright
(2003), as well, impose stringent lease exchange conditions on the lesses-Simpson (2000) and
Wright (2003), thus expose lessees to opportunities of defrauding lessors in defaults and
unprofessionalism in the use of the leased equipment.
Given this unholy relationships between the lessees and lessors, the lessees develop desire to
own assets rather than to lease, as evidenced in their culture, perception and psychology of
asset ownership-Abashiya (2005), Iheduru (2005), Olowude (2000) and Oko and Anyanwu
(2012).
These arrays of problems as are evident in the Nigeria lease market have negative impacts in
the acceptance of leasing as well as the contributions of leasing to national (macro) economic
development of Nigeria.
Leasing in Nigeria Impact Assessment:
Nigeria has continued to show poor rate of lease consumption compared to other nations of
Africa, inspite of the level and rate of investment in the oil and gas sector of the economy as
well as its (active) economic population. In the study by Oko and Anyanwu (2012), Nigeria
compared to South Africa for period 2001-2005. Shown in table 1,
Table 1.0:
South Africa and Nigeria Lease Volume Comparison 2001-2004 (US $ in
Billion)
2001
2003
2004
Annual
Annual
Annual
%
%
%
%
Country
2002
Volume Growth
Volume
Volume
Growt
Growt
Growth
h
h
South
Africa
2.79
25.4
2.79
0.0
4.61
22.2
6.60
15
Nigeria
0.27
63.7
0.37
50.6
0.43
24.0
0.59
31.8
Source: ELAN PUBLICATIONS 2000-2005 (most current data in this regard)
Nigeria lease market based on statistics shows a declining rather than growing rate of 63.7%,
50.60% and 24.0% for 2001, 2002 and 2003 respectively and growth of 31.8% in 2004 over
2003. Comparing this with South Africa that show a growth rate of 25.4% in 2002 over 2001,
recorded 22.2% growth in 2003 over a declining growth of 15% in 2004 over 2003.
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International Journal of World Research
December 2013, Issue IXI: Volume: I
Print-ISSN: ISSN: 2347 – 937X
Impact Factor: 0.4327
Table 2: Trends in Nigeria Leasing Market 2005-11
Year
Leasing Volume
Growth (%)
Marginal Growth
(%)
2005
115,140,079.01
46
-
2006
189, 881,130.00
65
19
2007
245, 700,000.00
30
(35)
2008
348,894,000.00
42
12
2009
445,265,650.00
28
(14)
2010
537,907,637.75
21
(7)
2011
622,907,637.75
15.8
(5.2)
Source: Equipment Leasing Association of Nigeria, Leasing Today (2013) Leasing and
Power Sector Development. Vol. 11.No 2 Jan-March
Between 2005, and 2011 the percentage growth rates were and are 46%, 65%, 30%, 42%,
28%, 21% and 15.8%. These statistics as shown in table 2 do not show increasing rather
constant and or decreasing returns to scale on succeeding period over the previous periods of
19%, -35%, 12%, -14%, -7% and -5.2% for 2006, 2007, 2008, 2009, 2010 and 2011
respectively. Some sectors like, transport, oil and gas manufacturing and Agriculture are
fairing well as. Government and telecom sectors recorded marginal increase growth.
Oko and Anyanwu (2012), highlight that the average lease volume transaction for Nigeria
was 0.42 US billion Dollars while South Africa had 4.20 US billion Dollars both for the
period 2000-2004. This shows that Nigeria performed below half a billion US dollar.
This performance of Nigeria lease market is far below those of nations like United States,
Japan and United Kingdom that have continued to dominate the global lease market-Poter
(2006).
The 2013 (June-March) edition of ELAN presented in the white Clarke leasing report of
2011, that South Africa had 3.10 US billion Dollars lease consumption and market increase
of 20% on 2010 based on 2009 performance and Nigeria for the same period had 0.69 US
Billion Dollars annual lease service consumption volume and 7.4% performance
improvement of 2010 over 2009. This still points to the fact that the lease market in South
Africa performed better than Nigeria, as the statistics do not obliterate the fact that South
African equipment market is estimated at 17:3 ratio in favour of hire purchase against leasing
–ELAN (2013).
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International Journal of World Research
Print-ISSN: ISSN: 2347 – 937X
December 2013, Issue IXI: Volume: I
Impact Factor: 0.4327
Future of Leasing in Nigeria
Despite the gloomy nature of the Nigerian lease market compared with the developed
economies, resulting from the un-conducive-operating environments, research results show
that there is hope that the future has good stock for the market.
Governmentally, the Nigerian Investment Promotion Commission (NIPC) in conjunction
with the World Bank is contemplating a wide range of reforms aimed at addressing tax,
accounting, regulatory and legal infrastructural issues that form the basis of leasing
operations. The recently concluded Banks consolidation exercise in Nigeria has added
impetus to the development of the lease market, as banks are strengthened to serve the public
better, compete and participate reasonably at the international level for the attraction of
investable capital to Nigeria.
The above structural adjustment platforms in addition to positive future impacts have
challenges for the Nigerian Lease Market. These are the subject of this sub-discourse.
Positive Future Impacts:
The under discoursed are expected impacts on the lease industry (market) in the future in
Nigeria.
Changing Lease Base:
New entrants into the lease industry gain entry mostly based on equipment leasing for
subsequent niche operation. However, the development in the banking industry, and increase
awareness and subsequent improvement in capital market activities, the Nigerian secondary
market will offer changes. Quality in project appraisal given expertise and good appraisal
techniques will ensure improvement in lease market segmentation-small, medium and large
tickets as well as (Second Hand) used equipment market. Improvement in the residual value
of lease equipment will be ensured, as users of leased equipment will improve their quality of
care-Abashiya (2005). Lessors will enjoy operational economy of scale, enhanced market
growth with associated increase in sales, and reduced cost of operation, and increased market
share.
Competitive Market:
The Nigeria lease market like most other national markets has been more competitive and
customer driven than now. This is particularly as lease financing is increasingly being
appreciated as a profitable product-ELAN (2004:7). This is so given the combination of more
knowledgeable and aggressive lessees with inexpensive analytical tools. The situation is more
likely to be keener given greater inter banks and independent lessors quest and access to fund
for lease operations, and economy of scale in operation with subsequent fall in lease pricesAbashiya (2005).
Impersonal Lease Services:
The growth in technology and technological system has its impact on lease business. There is
a definite tendency on the part of lessors to depersonalize the business. The emphasis now is
increasingly on systems, and much of the marketing and even credit appraisal are done by
brokers and vendors as bills are settled based on electronic medium of computerSrinivasraghavan (2005). This development has reasonably reduced the import of personnel
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International Journal of World Research
Print-ISSN: ISSN: 2347 – 937X
December 2013, Issue IXI: Volume: I
Impact Factor: 0.4327
relationship thus retaining clients and building a loyal class of customers is difficult, as
lessors are tending toward cost efficiencies based on impersonal-strict credit policies.
Changes in Lease Products:
Most lease industries globally are not regulated. This spurs up market competition and quick
adoption to evolving lease product mix in response to vagaries in environmental policies,
regulatory and legal issues-Ndakotsu (2000). Thus, to survive in the future, lessors must be
creative in product design, and packaging, distribution, pricing and promotion of corporate
offers, especially in response to the needs of the market, however without alienating existing
regulatory instruments.
Full service leasing which involves other services such as maintenance, insurance and
ancillary products should be adopted. This will serve as means of distinguishing corporate
offer from those of competitors as well as for (market) customer segmentation. To satisfy the
market therefore, facility management contracts will be in vogue as it is currently common
among firms in manufacturing and oil and gas sectors of the economy.
Emergency of International Markets:
Given the world policies on trade liberalization and increase in lease awareness and
sophistication, sequel to the formation of international trade unions, leasing will continue to
grow all over the globe. However, there will be demand for quality end results, renewal
options, and care in selection of lessee and lessors as well as better lease agreements. The
cumulative effect will enhance inter-industrial lease competition; hence lessors will be
complied to horizontally and vertically expand their market beyond the national borders.
Product and service offers will be blending to satisfy numerous international markets, thus
cross border leasing will be encouraged.
Consumer Customized Leasing:
Consumer leasing has gained considerable momentum in Nigeria as many lessors particularly
banks now regard it as a major source of income-ELAN (2004:7). This trend is expected to
increase dramatically as the number of consumer equipment lease increase-Ndakotsu (2000).
It is important to appreciate the fact that lease ancillary services that accompany these
equipment, may as the diversity and complexity of consumers increase be customized. This
however will be at extra cost to the lessees. The lessors must be prepared to satisfy these
customization requests of lessees.
Horizontal and Vertical Lease Industry Membership Relationship:
The expected increase in the volume of lease business across different sectors of the Nigerian
economy, given increased area of investment preference, the use of expertise in portfolio
appraisal and information technology base of the transactions; quality horizontal and vertical
relationships will be developed and sustained among and between equipment manufacturers,
lease financiers, and lessors and different classes of lessees. This will encourage industrial
harmony, exchange of ideas and information.
Return on Investment (Profitability)
It is expected that the future will experience increase in returns on investment for the lessors
and lease financiers, given increase in lease volume especially at reduced cost of fund and
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International Journal of World Research
Print-ISSN: ISSN: 2347 – 937X
December 2013, Issue IXI: Volume: I
Impact Factor: 0.4327
increase in lease tenor-Abashiya (2005). Profitability in leasing is achievable in the lease
industry with enhancement in economies of scale and variety of produce based on large-scale
business –Halladay and Amembal (1995). Important to note equally is the complex and
diverse lease information. Satisfaction of future lease consumers will require customized
service at reasonable price, which will tend to profit.
Lease activities of the future will also experience increase in market share, this is however
subject to a review of the financial service product for comprehensive investment in Real
Estate leasing and lease insurance oriented businesses for internal economy of scale through
sells re-organization-Halladay and Amembal (1995).
Sells reorganization which entails reduction in selling and administrative expenses achievable
with system and software efficiency at offices for lower office cost using computerized
scoring systems that are both time and cost efficient. Lessors in a bid to contending with the
trend of competition may show interest in assets management that (which) will be among the
fastest growing departments, hence will be spurred to search for new and innovative
strategies of expected residual value realization-Ndakotsu (2000). Asset leasing (activities)
businesses, given increase in used equipment being leased, will show interest in equipment
refurbishment as a strategy to the realization and profitability in residual value risk
management objective.
These expected growths in the leasing industry are however not devoid of challenges.
However, Efficiency in the management of these challenges is the key to the anticipated
success in the lease market. These challenges, in the contribution of Lemon (2003:19)
include:
Service:
Lessors are expected to be customer responsive and to focus attention on providing the best
possible leasing services.
Specification:
Lessors are expected to show high level of professionalism, compiling with the ethics of the
profession. Services are expected also to be market segmentation and niche marketing based;
given high level of experience as input. All assets portfolio strategies should be considered
outdated and obsolete.
Risk Management:
Efficiency in credit finance (funding), tax and residual value risks management are sine-quanon to lease profitability, hence equipment expertise is essential for managing assets during
and at the end of the lease tenor in order to maximize the residual value of assets and
minimize bad debts.
Cost:
Cost of operation-administration inclusive must be controlled even in the face of increase in
lease volume if the much needed profit must be achieved.
Management and Marketing Information System:
Lease operations should be based on quality management and marketing information system
that will ensure quality asset evaluation, and market environment scanning respectively.
These will aid management in pro-active decisions to the best interest of lease services
consumers. This is however most possible in the face of quality personnel, achievable based
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International Journal of World Research
Print-ISSN: ISSN: 2347 – 937X
December 2013, Issue IXI: Volume: I
Impact Factor: 0.4327
on appropriate skill acquisition enhancement pogrammes and enhancement of programmes. It
is therefore important to conclude that equipment leasing is a tool that can be used to solve
the problems of inadequate investment in capital equipment, high cost of equipment,
maintenance and the general problem of lack of needed loans and credit facilities. This will
not achieve desired results in this competition prone economy in the absence of personnel
discipline and corporate mission and vision motivated personnel.
Summary and Conclusion:
Leasing especially in land and equipment is as old as modern civilization. It is as a contract
between a lessor and a lessee, given the lesee’s possession and use of a specific asset on
payment of rentals over a period –Ndu (2003). Lease contract provides that the lessor should
retain ownership of the asset while the lessee enjoys the benefits of its usage; hence the
responsibility of maintaining the leased asset lies with the lessor.
Leasing facilities ease access to the much-needed assets for productive ventures, and to
stimulate economic growth and development –Olusoga (2004). It is suitable for the financing
of fixed assets while equity is appropriated for financing permanent operation without any
threat of management/ownership take over or dilution as well as the maintenance right
balance in capital gearing structure-Owoeye (2004). In addition, leasing provided ease of exit
as investment amount is liquidated in installing and the lessee’s production process is
technologically up to date rather than obsolete.
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International Journal of World Research
Print-ISSN: ISSN: 2347 – 937X
December 2013, Issue IXI: Volume: I
Impact Factor: 0.4327
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