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6 BUSINESS A.M. FEBRUARY, MONDAY 05 - SUNDAY 11, 2018 EDITORIAL business a.m. Our philosophy is driven by the pursuit of more efficient markets Today we set out on a journey, like the Wall Street Journal did over a century ago, influenced by the twin principles of “free markets and free people”, principles, we believe, the true fighters for our independence believed in. They are anchored on Thomas Jefferson’s Declaration of Independence in America and Adam Smith’s Wealth of Nations in the United Kingdom, both occurring in 1776. So, we introduce to you, this maiden issue of business a.m., a financial weekly with a philosophy underpinned by the pursuit of more efficient markets. We seek to do this through a different approach to the coverage and reporting of business and the economy. We are driven by a desire to adequately present an understanding of how the economy works and the developments that shape the markets, including the actions and inactions of operators, regulators and participants that impact our markets. In doing this, we hope to enhance market performance and serve for our readers, a veritable source of information and intelligence on whom and what shape activities in the economy. We acknowledge that in the harsh economic climate prevailing today; it would seem like a rather difficult time to start a new publication. Indeed, these times are times that try men’s soul, but it does take the courage of few to reorder events and history. Therefore, we are immensely excited by the risks and challenges that this journey presents. We believe strongly that the Nigerian public, especially its economic, financial and business actors, deserves a genuine alternative voice in the coverage, reportage and delivery of information and intelligence about developments in the economy across its different markets. This is what we have come to provide. We intend on this journey to bring some intrusive value, which would reorder financial journalism in Nigeria. In doing this we will work tirelessly to be accurate, providing useful and usable business information and intelligence through print, online and digital publishing. We will provide accurate data and information for businesses and markets in order to make them more efficient, thereby offering value-based services for growth and development of the economy. We shall focus on products and operations in the financial markets and the various other markets they support to grow the economy, including energy and electricity, commodities and agriculture, transport and telecommunications, manufacturing and industry, among others. In this first issue, therefore, it is worthwhile saying something about our modus operandi, scope and content of the paper. business a.m aims to publish investigative and rigorous theoretical, conceptual, and empirical reports dealing with issues in all areas of finance and the markets. The weekly is particularly interested in issues that deal with the varying markets, the environmental, social and governance factors in financial decision making and their impact on valuation or what is popularly known as price. Specifically our editorial thrust is to provide insights into the following broad areas – alternative assets, asset pricing, behavioral finance, capital structure, central banking, commodities, and cost of capital. Other broad areas are credit markets, emerging markets, energy markets, ethics in financial markets, exchange rates and how prices are determined in the market for the sale of currencies, interest rates and how they are determined with a view to promoting the role of the markets in shaping such outcomes. We are interested in experimental finance, financial accounting, fintech, foreign exchange markets, governance, mergers and acquisitions, market regulation, real estate finance, risk management and hedging, private equity, investment banking, among others. Other contending issues in the economy and in the markets that we would focus on include pricing, innovation, the role of technology, which would be addressed through well-executed ideas that break from the tradition, and provide answers or solutions that utilize a non-conventional approach or challenge group-think. We are optimistic that ongoing positive developments in the economy would support market efficiency in the near to medium term, which we would report clearly with a sense of diligence without fear or favour. Welcome to our world. 87, Oduduwa Crescent, GRA Ikeja, Lagos, Nigeria. Tel.: +234 907 986 3875 Email: info@businessamlive.com Website: www.businessamlive.com Musings on Nigeria’s recent economic landscape from India DR. ASURI VASUDEVAN Former, Executive Director, Reserve Bank of India and former Special Adviser at the Central Bank of Nigeria. This article was first published by Mint newspaper, India. Institutional and governance systems need to be thoroughly checked and if need be overhauled for their effectiveness. Administrative reforms are critical for the purpose The changing role of the chief financial officer DAVID MBATHA Associate Director with KPMG Advisory Services Limited GLOBALLY, THE ROLE of the Chief Financial Officer (CFO), sometimes referred to as the Finance Director, has transformed over the past decade due to the global financial crisis, rise of big data and the impact of social and digital media. Traditionally, the CFO role entailed supervising, managing and engaging the work of the financial controller, credit manager and insurance manager, and duties including managing investments, analysing expenses and tracking regulatory trends. CFOs require that the focus of the role will need to change. Organisations are in a state of continuous change, and the CFO needs understanding and experience beyond the basic finance function to identify areas for growth and operational excellence across all business HAVING WORKED in Abuja, Nigeria in the prestigious Central Bank of Nigeria (CBN) for four and a half years between December 2006 and end-June 2012 with a break in- between, I have come across a number of professionals and ordinary people who were highly motivated and well-meaning. I did sense that in a fundamental sense, the cultural differences between Nigeria and many Asian countries are not really significant. But economic ideologies and performances differ sharply. Nigerians are aware of it. They too want to grow fast along with price and financial stability. This innate desire is manifest in the periodic reports on improving economic performance. For example, in the early 21st century there was a report for growth and stability which became the basis for many development projects from 2003 onwards. In March of this year, the new economic recovery and growth plan (ERGP) was unveiled in the context of the recession in the economy for five quarters beginning 2016. It is a well-written report and is worth careful reading. The ERGP identified two issues that are well known to all the scholars on Nigerian economy: excessive consumption and crude oil exports. What is new, according to ERGP report, is that implementation is at the core of delivery strategy. Implementation is to be done by different Ministries and Departments of the Federal Government. At the Presidency, there will be a Delivery Unit. The intent of the report is very good. And implementation and delivery—the two words much used in the report—are undoubtedly critical for the ERGP to succeed, assuming that all the numbers given in the report are feasible. Prima facie, the two words seem to weave a magic formula. But one needs to go a little deeper. One should recognize the imperative need for unleashing elaborate accountability mechanisms for implementation to proceed successfully. Each Ministry and Department would have implementation groups which, going by past experience, would be very large because each sitting of the group would entail some material gains for members. Implementation groups will obviously submit reports to the persons who would be heading the Ministries/Departments. The lags here could be long. If implementation faces obstacles or faces constraints because, say, of lethargic response from another Department or Ministry that may have to contribute its mite to the implementation, then the exercise would be further delayed. How does one resolve this governance issue? Through inter-Ministerial coordination groups? Or let reports go to respective Ministerial Heads to give their final decisions? Let us assume that the entire pro- domains. This requires a range of skills, from the foundation and basics of the finance function to a strategic level focusing on the outside world. People Skills of which 97% of CEOs said that attracting and retaining top talent was the path to improve the finance function. Global reach where 48% of the CEOs surveyed listed global experience as the most important attribute a CFO can possess. Tech Savvy how the Mastery of IT like cloud enabled ERP systems. To succeed in today’s business environment and to thrive in tomorrows, the CFO needs to excel in the following five areas. (Adopted from The Changing Role of the CFO, Hugh Morris. Financial Management, 2014 and KPMG CFO Global Survey, 2015). Having a strategic outlook and an intimate knowledge of the business, which enables a focus on growth and optimization of the value from investments. The CFO is also expected to understand emerging technology and where things are headed; cloud-based solutions, emerging cess goes smoothly and reaches the Delivery Unit. What does it do? How accountable would it be? Where will the buck stop? These questions may sound like those of a skeptic but the institutional and governance systems need to be thoroughly checked and if need be overhauled for their effectiveness. Administrative reforms are critical for the purpose. So is the need for political will and commitments. The last mentioned, however, cannot be taken for granted. After all, everyone knows how much time is spent in passing annual budgets. On some occasions, it has taken almost five and odd months from the beginning of the fiscal year in question. There are a few more observations that need to be made on the ERGP. How good are the projections for the three-year mediumterm period? Real GDP growth is expected to leap from -1.54 per cent in 2016 to 4.8 per cent by 2018 and further to 7.00 per cent by 2020. In the terminal year, agriculture growth is projected at 8.37 per cent which will perhaps be the highest in recent years. Industry will record 8.02 per cent from a negative of 10.13 per cent in 2016. Both the sectoral growth projections need to be carefully looked into, after duly taking into account base effects. How much of public investment would go into these sectors, given the ERGP’s emphasis on the necessary investment for environmental restoration in Niger delta area? How does gross saving rate (gross savings to GDP) go up from 11.29 per cent to 21.31 per cent by 2020—almost double—within a matter of three years is not properly explained. There would be a deceleration in consumption by little over 10 percentage points between 2016 and 2020, giving a return to the classical concept of ‘forced saving’ that has no place in most modern societies. Current account deficit in 2016 of 1.84 per cent of GDP is projected to turn out to be a surplus of 2.89 per cent by 2020. This number is lower than the projected excess of saving over investment of 3.97 percentage points in 2020. How does one account for this discrepancy? It is with regard to oil GDP that one has to ask a few questions with reference to the developments in the international arena. Many observers believe that alternatives to oil have grown recently and would have accelerated growth in near future. Shale oil is only one of the alternatives. There are efforts at generating wind energy and solar energy in large quantities particularly in the light of the climate change concerns and overall global agreement for moving away from fossil fuels to non-fossil ones. Oil GDP growth of 4.45 per cent projected for 2020 from a negative of 15.41 per cent could, therefore, turn out to be an unfeasible proposition. work and collaboration platforms. Driving innovation will also be a key role, which entails developing new creative ideas based on data insights to help drive change towards cutting costs and fueling innovation. Fourthly, investing and retaining talent which means employing diverse talent and attracting talent to organically grow the business, sourcing from diverse backgrounds working closely with HR executives. Finally the art of effective communication on complex financial results and business performance to both internal and external stakeholders is extremely crucial. To enable the CFO to focus on more strategic and value aspects of the role, the more traditional aspects of the role should run as efficiently as possible. The finance function strategy will therefore be geared towards providing the CFO and the business with insights and thereby taking on the role business partnering and decision support as opposed to traditional book keeping; an Intelligent Finance Function.
BUSINESS A.M. FEBRUARY, MONDAY 05 - SUNDAY 11, 2018 COMMENT 7 Maybe central banks are too independent EDITORIAL NARAYANA KOCHERLAKOTA Throughout the developed world, central banks enjoy a large measure of independence. This is considered desirable because it guards against elected officials’ preference for overly easy monetary policy, as a means to generating jobs and votes. But what if the central bank wants easier money than politicians do? This has been the case in the U.S. for much of the past decade, and it raises important questions about how independence should be defined. Matched photo of Nigeria Central Bank Logo and A conundrum of governance, Federal Reserve Consider the situation in late 2010. The Republican party won a huge victory in the midterm congressional elections, at least in part thanks to voters’ unease with the $800 billion fiscal stimulus package that the Obama administration adopted the previous year. The newly elected Republicans largely opposed additional stimulus as a way of addressing the protracted recession. Yet one day after the election, with unemployment still close to 10 percent and inflation falling toward 1 percent, the Federal Reserve began a new round of bondbuying designed to provide added economic stimulus (a policy that I, as a Fed official at the time, supported). This was no isolated event. Throughout the recovery, the Fed systematically sought to boost growth and inflation even as Congress made choices — such as the budget sequestration of 2013 — that seemed deliberately intended to constrain them. At first glance, the Fed’s policy choices could be seen as a great example of how an independent central bank works: By design, it acts in isolation of, and possibly in contradiction to, the wishes of the public’s elected representatives. The stimulus was amply justified given the Fed’s mandate to seek maximum employment and price stability. Indeed, I’ve argued that it could and should have done more. It was right about the economy and Congress was wrong. Still, there’s something wrong with this picture. It has to do with the governance of central bank policy. Congress has given the Fed — a group of unelected technocrats — the power to pursue a more pro-inflation and pro-growth policy than the public’s elected representatives desire. What is the justification for this delegation? As far as I know, the vast theoretical and empirical academic literature addresses central bank independence only as a way to counter the short-term pro-inflation biases of elected officials. It doesn’t explain why central banks should be allowed to do the opposite. One argument, I suppose, could be expertise: The unelected technocrats just know a lot more about monetary policy than Congress does. But, as someone who’s been one of those technocrats, I’m leery of this argument. The aura of expertise can end up being a way to hide political biases — biases that should really be up to the electorate to adjudicate. To arrive at a more defensible approach, Congress might have to rethink central bank independence as it is enshrined in the Federal Reserve Act. It could, for example, periodically establish a lower bound for the level of interest rates and an upper bound for asset holdings, leaving the Fed free to choose a higher interest rate and a smaller balance sheet. This would give the central bank ample power to keep inflation in check but would prevent monetary policy from being too much easier than what Congress and the voters desire. To be sure, this could on occasion prevent the Fed from doing the right thing when Congress is wrong — as it did in 2010. But over the longer term, it would preserve the most important part of the central bank’s independence, shielding it from accusations that it has become too unaccountable to the people. Courtesy Bloomberg The vast theoretical and empirical academic literature addresses central bank independence only as a way to counter the short-term pro-inflation biases of elected officials. It doesn’t explain why central banks should be allowed to do the opposite EXECUTIVE EDITOR Phillip Isakpa Tel.: 0809 400 0025 phillipi@businessamlive.com MANAGING EDITOR Steve Omanufeme Tel.: 0802 501 3059 steveo@businessamlive.com REPORTERS Andy Nssien Ajose Sehindemi Bukola Odufade ONLINE Goddey Odin GRAPHICS Christopher Ikosa _____________________________ Businessnewscorp Limited Phillip Isakpa Steve Omanufeme Amadi Iheukwumere Adedotun Akande Bobby Igwe Tiamiyu Adio Isaac Jayeola 87, Oduduwa Crescent, GRA Ikeja, Lagos, Nigeria. Tel.: +234 907 986 3875 Email: info@businessamlive.com Website: www.businessamlive.com
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