Nigeria offers huge market potential with its large economy, digitalisation, and rapidly growing population, a fact already demonstrated in terms of pure business volume.

Outstanding leases in the country totalled ₦4.19 trillion (£5.29 billion) in 2023, compared to ₦3.25 trillion (£6.21 billion) in 2022, a rise of 28.7% in naira terms but a fall of 14.8% in sterling. New leases increased to ₦935.6 billion (£1.18 billion) from ₦672 billion (£1.28 billion), or 39.2% in naira, but down 7.8% when measured in pounds.

These figures are provided by the Equipment Leasing Association of Nigeria (ELAN). It was established in the country in the 1980s to promote and protect equipment lessors and is hosting its 23^rd National Lease Conference on November 20th.

Double-digit growth persisted into 2024, according to ELAN, and the portents are favourable given what it refers to as the “wide financing gap” in various sectors of the economy. Coupled with this is the growing appetite for asset finance set against a tight cash squeeze and the rising cost of assets, notwithstanding, of course myriad challenges posed by the peculiarities of Nigeria’s complex macroeconomic climate.

Soon after the election of Bola Tinubu as President in 2023, the government allowed the currency, the naira, to float freely, a move that led to it immediately losing one-third in value, and eliminating the need for multiple exchange rates. The naira has since fallen sharply, from its fixed value of N460/$ to more than N1,600/$. Given this, and the spike in inflation the country has shouldered, borrowing rates have continued to climb.

The rising cost of assets naturally means that more money is required to finance lease agreements. However, the limited sources and high cost of funds have constrained the capacity of most lessors to finance more leases and engage in larger transactions, thus limiting their scope to smaller enterprises.

Rolling out legislation

Supporting the market’s growth is the Equipment Leasing Act (ELA), which is based on British common law and has put Nigeria on a par with other countries with specific leasing legislation. It was passed in 2015, as part of the government’s efforts to enhance the contribution of leasing to the economy, aiming to bring together the various public and private stakeholders under the auspices of the Ministry of Finance.

The Act essentially sets out the framework for equipment leasing agreements in the country, including registration requirements, insurance responsibilities between the lessor and lessee, and the tax implications. The ELA provides two routes by which a lessor may wish to terminate an equipment lease agreement following a lessee’s insolvency, in one case without requiring a court.

The Act also established the Equipment Leasing Registration Authority (ELRA). However, it was not until 2020 that this body was formally unveiled, with its inauguration coming later, in 2023, as part of the new government’s “Access to Capital and Job Creation” agenda, and its guidelines were only issued at the end of 2024.

According to Christian Chigbundu, managing director/CEO of Coscharis Mobility Limited – Sixt Nigeria, “the kick-up” of the Equipment Leasing Act is a very interesting and welcome development, giving rise to leasing regulation and registration. It offers “good support,” he says, even if the government could do more to play-up the contribution of leasing to GDP and support the growth of SMEs.

That view is backed up by a recent report from ELAN, stating that the government, as a major stakeholder, should ensure both a favourable regulatory environment and other support mechanisms, such as funding windows to facilitate the development of the industry.

The ELRA’s executive chairman, Engr. Saidu Njidda, has previously stated that the ELA and the full take-off of the ELRA, will help to identify fraudulent and unscrupulous practices of transacting parties. “This will no doubt fill the gap and bring out a comparative advantage in driving the equipment leasing sector to a developed status,” he says, “through the introduction of appropriate policies, guidelines and standing orders that will shape up and sanitise the industry.”

Andrew Emonuwa, executive secretary of ELAN says that the ELA is expected to bring enormous benefits, including “easier ways for small businesses to acquire productive assets for growth and job creation.” It will also bring “certainty, security, consistency and growth to the industry, enhance investor confidence and drive economic growth.”

Maintaining growth

Structurally, the Nigerian market differs in that oil and gas operators typically hold a quarter of all outstanding leases, highlighting the relative importance of the sector. This is followed, among others, by transportation and logistics (23%), manufacturing (14%), agriculture (9%), and telecoms (8%). This dominance reflects the shift from finance leasing to operating leasing for large assets such as vessels, vehicles and heavy-duty equipment, whereby the cost of the asset is not fully amortised during the primary lease period.

As ELAN explains, the lessor does not necessarily depend on the lease rentals during the primary lease period for total returns, but expects to recover the balance of its cost plus profit from the secondary lease, or sale of the returned asset at the end of the lease period.

This means the operating lease is usually for a period shorter than the economic life of the asset, after which it can then be re-leased to the same lessee or someone else at a new rental rate, or even sold. It can be cancelled before the end of its tenor by either party, and the lessor retains the ownership, risks and benefits accruing to it.

Chigbundu explains that funders in Nigeria are split roughly 60:40 in terms of specialised companies and banks. He also reiterates that high asset costs are a key factor driving the market, while also mentioning the lack of cheaper funding for companies, flexible payment terms, and simply growing awareness of what is available.

All of this will drive the leasing market forward in 2025, not least because of the low penetration rate. With greater economic stability to factor in, and improved product supply, which has proved challenging in the past, this leads Chigbundu to expect market growth of more than 20% this year, spurred by the oil and gas, and transport and logistics sectors. The energy transition is a factor too, as many companies are shifting into alternative sources of power, combined with the trend towards compressed natural gas (CNG) trucks, buses and vehicles in Nigeria.