4 BUSINESS DAY C002D5556 Wednesday <strong>28</strong> <strong>Feb</strong>ruary <strong>2018</strong> NEWS Flour Mills completes N50bn sugar production facility ... largest agric investment in Nigeria CALEB OJEWALE Flour Mills of Nigeria has increased its investments in the country’s agricultural sector with a N50 billion sugar production facility in Niger state, as a way of improving the company’s capacity for backward integration and to gradually eliminate the need for importation. Data provided by the National Sugar Development Council (NSDC) on its website suggests sugar importation cost Nigeria $516 million in 2016, as the country continues to grapple with inability to scale up local production. The Nigerian Sugar Master Plan (NSMP) noted that while Nigeria belongs to the International Sugar Organization whose member countries numbering 92 (at the time) represent 80 percent of total world sugar production, 81 percent of total world consumption, 64 percent of total sugar exports and 55 percent of sugar imports, the country however, only belongs to the category of sugar importers, where Non-oil economy... Continued from page 1 quarter with support stemming mainly from Agriculture. The growth reflects the main harvest season which was above average. For us, we perceive favorable weather, increased cultivated land and sustained focus of the FG on the sector via various support programs as key drivers for increased output during the quarter. Another support to the positive non-oil growth was trade, following five consecutive quarters of negative growth. The rebound in trade was on the back of increased dollar availability, with sector overall contribution increasing to 16.8% (Q3 17: 15.9%),” ARM Research analysts said. Accelerated growth in Agriculture of 4.2 percent YOY versus 3.1 percent in Q3 2017, recovery in trade 2.1 percent YOY versus -1.7 percent in Q3 2017, and slower contraction in services of -0.8 percent YOY versus -3.1 percent in Q3 2017 largely drove the overall economic growth in Q4 2017. But analysts have noted that the country’s GDP growth of 0.83 percent in 2017 remains low. “The growth rate still lags far behind where Nigeria should be,” said Razia Khan, chief economist for Africa at Standard Chartered, although she noted that the fullyear growth was higher than the 0.7 percent forecast by her bank. Elsewhere, the services sector also saw a slower contraction of -0.3 percent (Q3 17: -1.1%) during the review period which stemmed from the ICT sector (Q4 17: -1.5%; Q3 17: -4.5%). Though data from the Nigerian Communications Commission revealed a downturn in industry voice calls (-7% YoY to 142 million active subscribers), mild growth in data services (YoY: 3% to 95 million subscribers) was able to tame its effect on the industry’s total output. Oil refining remained in negative territory, losing -46.2% YoY. it ranked 4 in 2009. When compared to African neighbours, Nigeria is the least food - secure in terms of sugar as most of them produce substantial proportions of their sugar requirements. A pre-commissioning fact sheet made available to <strong>BusinessDay</strong>, revealed that Sunti Golden Sugar Estate (SGSE) Limited is a wholly owned subsidiary of Flour Mills of Nigeria (FMN) Plc, and comprises of a cane production area and sugar factory. “More than N50 billion has been invested in Sunti so far, making it the largest Agro Allied investment in Nigeria so far,” said the company in its fact sheet. It added that “SGSE is FMN’s single biggest investment since inception in 1960; its vision for agro-industrial transformation (in Nigeria).” Designed to have an output of 100,000 tons of sugar annually at full capacity, the facility occupies 15,100 hectares of land with a potential cane area of 5,000 ha out of which 3,000 hectares is currently under cultivation. Majority of the area is enclosed within a 35-kilometer The Nigerian National Petroleum Corporation (NNPC) says it wants to raise the country’s refining capacity from the current nameplate capacity of 445,000 barrels per day (bpd) to 662,000 bpd, but this data indicates such plans are the blueprint for a pipedream. According to data from its operations and financial report for November, the three refineries produced 55,187 metric tonnes (MT) of finished petroleum products and 39,562 MT of intermediate products out of 107,748 MT of crude processed at a combined capacity utilization of 5.92 percent compared to 17.63 percent combined capacity utilization achieved in the month of October 2017. “A problem the NNPC will be confronted with is speed in getting approvals for funding to do repairs to increase efficiency of the assets, and if it can manage the repairs,” said Chuks Nwani, an dyke offering flood protection from the River Niger where the Sugar cane is cultivated under irrigation, making it an annual crop, and available for processing year round. Sadiq Usman, a director in FMN’s Agro-allied division, told <strong>BusinessDay</strong> by phone, that the project started about eight years ago with the acquisition of land, while actual development commenced five years ago. The Estate comprising the plantation and the mill is described in the factsheet as FMN’s Backward Integration programme under the National Sugar Master Plan (NSMP), towards the attainment of locally produced and refined sugar. According to FMN, the facility’s official commissioning is a pivotal event in propagating not only the significant investment in the Mill but the company’s growth and backward integration story to all stakeholders. In 2013, implementation of the Nigerian Sugar Master Plan (NSMP) was started with a goal to effectively end sugar importation within 10 years, when Nigeria should have achieved energy lawyer. Faster growth in food, beverage and tobacco and Textile, Apparel and Footwear erved as pillars in pushing the manufacturing sector back to a positive growth of +0.1 percent (Q3 17: -2.9%). “Consistent with the above-50 readings in PMI releases over H2 2017, the manufacturing sector expanded 1% y/y driven by gains in the key sub-sectors: food, beverage and tobacco (up 2.2% y/y) and textiles, apparel and footwear (up 1.6% y/y) alongside a return to growth across most industries which helped offset continued weakness in refining (down 47% y/y) and cement (down 1.6% y/y). The improvements reflect an improved FX liquidity profile and a recovery in consumer demand as PMI readings in Q4 2017 showed higher new orders, growing inventory and rising employment,” said Ecobank research analysts in a <strong>Feb</strong>. self-sufficiency. As at last year, however, it was reported that Nigeria has achieved only 40.3 per cent of the target set for attainment by the first half of the 10-year lifespan of the sugar master plan. It appears many companies are yet to fully take advantage of the opportunities in producing more sugar locally, retaining more of the foreign exchange used for importation, and putting the country in a position to be more elf-sufficient. The sugar production facility in Mokwa, Niger state, currently employs 3,000 people mainly sourced from the surrounding communities. Once development is completed 10,000 people will be employed. CSR projects have been done installing drains, culverts and roads around host communities, including the 30-kilometer road from Mokwa. In addition to the Sugar value chain, FMN says it has also embarked on significant backward integration investments in the Cassava/Sorghum/Wheat value chain as well as the Edible Oil (Palm and Soybean) value chains. Sitting from Left: Jin Tao, director-general, Global Cooperation Department– Americas and Africa, China Development Bank (CDB), with Kennedy Uzoka, GMD/ CEO, UBA plc, signing a $100 million loan facility agreement to fund SMEs in Africa. Standing behind are Zheng Zhijie, president of CDB, and Tony Elumelu, chairman of UBA plc, at the UBA House in Lagos, yesterday. 27 note to clients. “Looking ahead, the stronger non-oil growth reading lifts our optimism regarding Nigeria’s economic growth prospects over <strong>2018</strong>. We now see telecommunications GDP exiting recession in Q1 <strong>2018</strong> given the strength of the quarterly recovery over Q4 17 even as a more accommodative monetary policy stance and improved FX liquidity buoys activity in the manufacturing and trade sectors. In addition, improvements in fiscal revenue at both federal and state level are likely to allow for further gains in the construction and cement sectors. For oil GDP, we expect oil production to average 2.11mbpd (2017e: 1.88mbpd) helped by continued peace in the Niger Delta and likely on-streaming of the 250kbpd Egina oil field in Q3 <strong>2018</strong>. In all we look for real GDP growth of 3% in <strong>2018</strong> up from our prior forecasts for 2.6% growth. Nigeria’s $2.5bn Eurobond could trigger yield curve normalisation BALA AUGIE Federal Government of Nigeria’s decision to tap the international debt market with a view to refinancing domestic debt and reducing local borrowing costs could trigger yield curve normalization. Investors historically have viewed the shape of the yield curve as a signal of future growth. The yield curve compares interest rates at different maturities, typically the spread between yields on one- and 10-year bonds. Ten-year yields historically have reflected the market’s growth and inflation outlook, while the short end of the curve is mainly tied to market expectations for central bank rates. The normal yield curve is one in which short term debt instruments have a lower yield than long term debt instrument of the same credit quality. Fixed Income analysts have agreed that the narrow difference between yields on shorter term paper of 15.40 percent and the yield on long term dollar denominated debt of 13.80 percent means there is significant downward pressure on short term interest rates. However, they add that yields on short term securities may not go down further as the central bank could mop up or stem liquidity by intensifying on Open Market Open (OMO) issuance with a view to attracting foreign investors. “Because federal government plans to bring down borrowing costs, they are going to reduce their borrowing in treasury bills and that will suppress the short term interest rates,” said Wale Okunrinboye, a fixed income and FX analyst at Ecobank Group. “More money is going to come into the system and that will depress yields at the segment so short term interest rate will start declining. Last year short term rates were higher than long term rates,” said Okunrinboye. Nigeria recently sold $2.5bn worth of Eurobond via a dual series offering of 12 year and 20 year tenors, priced at 7.143% and 7.696% respectively. Investors have flocked to Nigerian Eurobond as improved oil production and a flexible exchange rate helped the country exist its first recession in 25 years. Inflation which is a bonds worst enemy because it moves in inverse proportion to price, fell to 15.10 percent for a 12 consecutive month in January <strong>2018</strong>, according to a recent report by the National Bureau of Statistics (NBS). Finance Minister Kemi Adeosun said recently that the country plans to redeem N762.5 billion worth of treasury bills and that it would save government N64 billion each year after the refinancing is completed. Eurobonds make up more than a fifth of Nigeria’s $15.35 billion foreign debt portfolio as of September and more than half of interest paid in the third quarter, according to data from the Debt Management Office (DMO). Nigeria’s Eurobond portfolio now stands at $8.5bn (or $8.8bn if the $300 million diaspora bond is included), and the total external Continues on page 38
Wednesday <strong>28</strong> <strong>Feb</strong>ruary <strong>2018</strong> C002D5556 BUSINESS DAY 5