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BusinessDay 13 April 2018


Friday 13 April 2018 10 BUSINESS DAY C002D5556 COMMENT comment is free Send 800word comments to Women entrepreneurs in an emerging economy running a bankable business (I) OYINKAN ADEWALE Mrs. Adewale is Executive Director, Chief Financial Officer, Union Bank. Assessing the viability of your proposition While one cannot undermine the importance of passion and determination on the journey to success, it is important to assess the viability of the product or service the business is built around. To assess viability, a feasibility study should be conducted. A feasibility study is an in-depth examination of a project’s potential for success. The goal of the feasibility study is to determine whether the project is feasible, taking into consideration the company’s resources, the projected cash flow and sustainability in the long term. A feasibility study is particularly useful for a “Greenfield” project – a new project. However, if the business already exists, there might be no need for this. A feasibility study is the foundation of a business plan as it reviews opportunities and threats in key areas including market, organisational structure and financial projections. Following a positive result from the feasibility study, a Business Plan is required. This plan provides the communication link between interested investors and the owner/ promoter of the business. It is a summary of the businesses direction and how exactly it intends to get there. A business plan is a tool used by business owners to set To make a business case attractive, the business plan should include details such as the scalability of the project; profitability, liquidity; technology and quality of management goals and objectives for the company’s performance and to communicate clearly with staff, directors, lenders and potential investors. As women entrepreneurs, what can we do to make our businesses bankable? A bankable project/proposal is one that lenders/investors are willing to finance. To create a bankable project, you need to run the numbers; Are future cash flows – (the net value of what you receive vs your expenses), sufficient to repay the loan on time? When will you break even? Is the business profitable? You need to have security; Security should be adequate/liquid collateral and you need to stay on the right side of the law; complying with industry regulations is key to avoiding fines and a possible business shutdown. In addition, it is important to note that you should separate your company’s financials from your personal finances. Personal lifestyles should not be funded using the capital/ income of the company. To make a business case attractive, the business plan should include details such as the scalability of the project; profitability, liquidity; technology and quality of management. Other important aspects of the business plan are a clear description of the market and the value added proposition which clearly articulates the uniqueness of the project or service. There are several examples of Nigerian women who have successfully balanced passion and viability. These include Banke Meshida- Lawal, founder of BMPro and Tara Fela-Durotoye, the founder of House of Tara who have created a niche for their brands in the Nigerian fashion industry. Others are Yewande Zaccheaus and Funke Bucknor-Obruthe who also took advantage of the Lagos party scene to create successful event management businesses. These ladies have shown that if you can identify gaps in the market and create products to meet the needs of the customers, you can successfully turn your passion into a full-fledged business. Send reactions to: comment@businessdayonline. Expected benefits of debt restructuring, a clincher? GLENN UBOHMHE Glenn lives in Lagos The Federal government, through the Debt Management Office (DMO), recently signalled its intention and indeed commenced the restructuring of its total debt portfolio with a view to securing an “optimal” mix of local and foreign debt components. The scope of the exercise involves refinancing part of the existing local debt with proceeds of new Eurobond issue as well as preference for foreign currency loans in financing budget deficit up to a defined “optimal” threshold of about 60/40 per cent share respectively from 73.36/26.64 percent as at December 2017. The economic rationale for a sizeable mix of foreign debt component in the total debt stock is quite tantalizing, not difficult to measure and seem to make a great deal of sense. One of the overarching objectives for embarking on debt restructuring, as outlined by the DMO, is to reduce the huge interest burden on debt servicing occasioned by high interest rates in the domestic market. An extraction debt service cost can easily be made from the 2018 budget in order to put the argument in perspective - N1.76 trillion was earmarked as interest payment on domestic public debt in addition to interest on external public debt of N254 billion. These are mind boggling sums for debt servicing alone. Other key extenuating factors for this policy direction centre on the need to taper the size of government participation in the domestic debt market for enhanced accessibility by the private sector, moderate heightened pressure on interest rates which government borrowing usually precipitates and also boost foreign reserves through capital account component. These are very compelling arguments, indeed. However, there are more forceful countervailing arguments why the decision to ramp up our foreign debt may be counter-productive as there are plausible reasons why the eventual policy outcome may veer off markedly from expectations. To start with, the assertion that a switch from local to foreign debt will reflect in reduced cost of debt servicing is somewhat tenuous. That assertion would be correct if the naira equivalent of total debt stock is not significantly higher, or even less, postrestructuring. True, government will appropriate the benefit of interest rate differentials between domestic and international debt markets debt on the substituted portion of local debt but as long as the total debt stock trends upwards, budget allocation for interest servicing may not reduce. Therefore, what is required to sustainably manage interest and overall debt burden is a more frontal strategy of reverence for fiscal discipline - 26% allocation for debt servicing as projected in the 2018 budget is inimical to growth (please reserve your comment on debt to GDP ratio). It is against this backdrop that the admonition by Abraham Lincoln on March 4, 1843 to the people of Illinois fittingly finds expression - “the system of loans is but temporary in its nature and must soon explode. It is not only ruinous while it lasts, but one that must soon fail and leave us destitute. As an individual who undertakes to live by borrowing soon found his original means devoured by interest and next, no one left to borrow from, so must it be with government”. A perceptive appreciation of Lincoln’s statement should nudge us towards some sort of enlightened introspection. Rather than a blanket rebuttal of the crucial role that debt plays in financing critical infrastructure, Lincoln’s statement is more pointedly a rebuke of unbridled accumulation of debt. Debt-to-asset transformation is an ideal but sometimes such transformation is illusory especially in a jurisdiction where public accountability is in short supply and where consumerism takes precedence over labour-for-posterity. Again from another and crucially important perspective is the potential risk factor of excessive foreign currency exposure. Significant foreign currency loan exposes the economy to external shocks and creates vulnerabilities that could upend macroeconomic stability. Low interest rate has often underpinned excessive exposure to foreign currency borrowings (whether by the private or public sector) and constitutes a key trigger to most financial and macroeconomic crises – the Emerging Market Economic (EME) of 1997 and the more recent Greek debt crises are classic reference points. Therefore, the bias for foreign currency loan (and debt in general in this instance) may not be an optimal one, if there is no sustainable strategy around it and developmental outcome is by every stretch doubtful. Understandably, the size of government borrowing from the domestic debt market could potentially influence the direction of interest rates but it is by no means the only factor. The level of money supply in the economy, inflation, exchange rate, overall external stability and other macroeconomic factors feature prominently in determining interest rates trajectory. Substitution of local debt with foreign debt will not reduce money supply. In fact, foreign currency borrowing exerts more expansionary impact on the monetary base in this particular instance. Given this scenario, what will therefore be the likely policy response by the monetary authority to excess system liquidity induced by fiscal expansion as is currently the case? Other variables to bear in mind include economic imperatives and political expediency of maintaining stable exchange rate in or close to an election year, accentuation of demand for the greenback to oil the political machines, heightened political risk perception by investors as we approach the forthcoming elections, the possible reversals of foreign portfolio investments and ultimately the potential adverse impact on foreign reserves. It will be interesting to see the reaction of the monetary and macroprudential authority – the CBN. In my view, the monetary authority is most likely to maintain its liquidity sterilisation policy using both conventional and non-conventional tools based on aforementioned reasons and also sustain relatively attractive premium on yields to retain foreign investments and mop up excess system liquidity. Notably, the pervasive influence of international oil price will also weigh considerably in determining the direction of interest rates. This brings into sharp focus the immediate threat to crude oil price in the ensuing geo-economic tariff war between US and China. While the impact of the impending trade war (if elevated beyond rhetoric) on Nigeria’s non-oil trade balance is yet unclear, a depressed global trade arising from tariff war could have far reaching consequences on global output and by implication global oil demand and Nigeria’s external balance. In that event, policy intervention will be required to increase capital account buffer for improved reserves with recourse to attractive yield on domestic market instruments to spur foreign inflows in order to achieve external balance objective. In the final analysis, CBN’s response with respect to rates will largely depend on prioritisation of policy choices but my bet is that rates are not likely to trend down below the current corridor, in the short to medium term. Therefore, debt restructuring may not have the desired impact on domestic interest rate as envisaged. As matter of agreeable necessity, finding that optimal debt mix may become secondary if fiscal prudence takes centre stage in resource management. In conclusion, since there is no one-handed economist like Harry Truman (a former American president) famously quipped, I will also conclude this article by saying that debt restructuring may be beneficial on the one hand but on the other hand there are potential risks especially if there is the developmental impact is hazy. We may end up in another (foreign) debt trap without realising the much envisaged benefits of debt restructuring. Send reactions to:

Friday 13 April 2018 COMMENT SOJI APAMPA Olusoji Apampa is the CEO of The Convention on Business Integrity. Nigeria has grown her economy about 100 times the size it was in 1960. Thanks to the rebasing of the economy, from the US$4bn GDP in 1960, by 2016 the GDP was some US$402bn. Has the “Giant of Africa” not done well? Before we pop the champagne though, let’s get a frame of reference. How well has her rival, South Africa, done? In 1960, South Africa’s GDP was US$7.2bn and by 2016 it had grown to some US$296bn. On the face of it therefore, Nigeria has done extremely well? But, if Nigeria has done so much better than South Africa, why do Nigerians feel so much poorer on average than South Africans? Let’s broaden the field a little more to add Singapore into the mix. Nigerian leaders admire Lee Kwan Yew and in his famous book, From Third World to First, he makes some reference to Nigeria in the 1960s and how well or not she has turned out on certain dimensions. So, where was Singapore in 1960? Her GDP was a mere US$0.7bn, which had grown impressively to US$296bn by 2016, on a par with South Africa’s GDP. So, if her GDP is less than Nigeria’s DAN STEINBOCK Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see For a year, President Trump has promoted global division and trade friction, while China has defended global trade and cooperation. It is time to defend the open, global economy. If President Xi Jinping’s speech was highly anticipated in the Boao Forum, it was even more eagerly waited in Washington and Wall Street, as trade tensions have begun to penalize US markets. In his keynote speech, Xi urged countries to “stay committed to openness, connectivity and mutual benefits, build an open global economy, and reinforce cooperation within the G-20, APEC and other multilateral frameworks.” The ultimate goal is to make economic globalization “more open, inclusive, balanced and beneficial to all.” Xi presented plans to further C002D5556 Nigeria is turning a very gentle corner but equal to South Africa’s why are Singaporeans now “First World”, South Africans said to be living in an “Emerging Economy” and Nigerians classified as belonging to a “Frontier Market”? Definitions abound at the ‘University of Google:’First World economies are assumed to be capitalist, industrialised and developed, amongst other things. Emerging Economies are considered to be moving rapidly towards Frist World status by reason of steady growth, development and industrialization while Frontier Markets are described as a type of developing country that is more developed than the least developed, but still too small to be generally considered Emerging Economies. By now, it should be clear to us that raw GDP numbers often quoted at us, are not sufficient to describe how wealthy the citizens of a country should feel as a result. But having said that, South Korea with a GDP of US$4bn was perhaps the closer one to Nigeria’s in 1960 and should be a more acceptable frame of reference. By 2016, the GDP of South Korea had grown to US$1.4tr and we should not have to debate whether or not South Koreans should feel much less poor than Nigerians. Perhaps a better measure is GDP per Capita (or per head of population). This is perhaps more telling. In 1960, Nigeria’s GDP per capita was US$93, South Africa’s was US$435, Singapore’s US$428 and South Korea’s, US$158. By 2016 the figures were Nigeria US$2,200, South Africa US$5,300, Singapore US$53,000 (competing with that of the United States) and South Korea, US$27,500. By this measure, it is clearer why Sin- Time to safeguard global free trade open up the Chinese economy, including lower import tariffs for autos and other products, enforcement of the legal intellectual property of foreign firms, and improving the investment environment for international companies. It was a balancing act that highlighted China’s goal to safeguard open global economy, even amid Trump’s trade wars. Trump’s trade war In early March, President Trump introduced a global tariff of 24 percent on steel imports, while launching a 10 percent duty on all aluminum entering the US. On March 22, Trump directed his administration to make a case against Chinese technology licensing in the WTO, launched a slate of tariffs at $50 billion on Chinese products and proposed to step up restrictions on Chinese investment in key US technologies. That’s when China, in response to US steel and aluminum tariffs, imposed tariffs on $3 billion worth of US goods. On April 2, China imposed tariffs of up to 25 percent on 128 US products, in response to steel and aluminum tariffs. The next day, the US proposed tariffs on $50 billion worth of Chinese electronics. Afterwards, China launched $50 billion in tariffs on more US products, including soybeans, cars and chemicals. And on April 5, Trump said he was considering an additional $100 billion in tariffs Nigeria regularly gives the impression the success she is capable of is imminent, but onlookers are often frustrated by how long it appears to be taking for this success to materialise. gaporeans should feel First World. The difference comes when the raw GDP is spread over the population, which for Singapore with its 5.6 million people in 2016 (up from 1.6 million in 1960) gives a better impact per person than South Africa with the same GDP in 2016 but a population of 56 million people. So, is population a main differentiator? Yes, but not the only one. Nigeria’s population has grown from 43 million in 1960 to 186 million in 2016 while South Korea grew from 25 million to 51 million in the same period. It is tempting to conclude that once you limit the population growth, everyone would feel much wealthier. But South Korea and South Africa have similar population sizes today against China. With substantial geopolitical leeway, Trump is also playing targeted countries against each other. That’s why he has granted “initial exemptions” to US NAFTA partners, Mexico and Canada, and “temporary exemptions” to the EU, South Korea and others on steel and aluminum tariffs. Over a year ago at Davos, President Xi Jinping stressed the need for global cooperation to sustain global recovery. In a trade war, he said, “no one will emerge as a winner.” In the White House, that wisdom got lost in translation. Now the only question is how costly that policy mistake will prove. Costly consequences President Trump may be in for a cruel awakening. For now, the economic impact on Chinese companies and banks is still limited. The US accounts for only 15 percent of China’s goods exports, and China’s domestic activity - not net exports anymore - now fuels its economic growth. US economy will carry a substantial burden, however. Second, Trump’s unilateral tariffs will soon begin to hit hard the constituencies that were vital for his triumph in 2016 and who remain critical to Republicans in the fall mid-term elections. These farmers and blue-collar voters gave Trump a mandate to negotiate better terms with US trade partners, but not a carte blanche, and certainly not a license for a trade war. BUSINESS DAY 11 comment is free Send 800word comments to yet South Korea is much wealthier simply because it grew its economy many multiples faster than its population rose. At the end of the day, a large, wealthy population is an asset to countries like the US and China and had Nigeria kept pace with its 1960 classmate, South Korea, and grown its economy similarly, its GDP per capita would have been between US$7,500 and US$8,000. In Global Competitiveness Rankings, Nigeria is believed to be challenged by inadequate infrastructure, corruption, poor access to financing, political instability and inefficient government bureaucracy not just a large population (which really ought to be an asset). Could this be why development and industrialization are severely challenged too? Nigeria grew on average by more than 4% year-on-year between 2006 and 2014 inclusive. This growth was not inclusive (code for not felt by the ordinary people) because to them it was nothing more than accounting entries on the basis of oil sales. Nigeria is now turning the corner by de-emphasizing oil and emphasizing other sectors like agriculture, mining, ICT, services and so on. Nigeria regularly gives the impression the success she is capable of is imminent, but onlookers are China is the largest customer for America’s farm surplus at over $20 billion per year. Since US farm groups have greatly benefited from the reduction of trade barriers over time, there is an unease across the US heartland that Trump’s tariffs could upend decades of progress. Even worse, if trade friction worsens with NAFTA and EU partners, US farmers would take hits from all directions. Third, as US sovereign debt now exceeds $20.7 trillion (107% of GDP) and Trump’s infrastructure initiative is fueled by recordhigh leverage, trade war is undermining America’s critical revenue sources. Fourth, Trump’s trade war is escalating at a time when even rising interest rates can no longer ensure a strong dollar, and petroyuan is on the ascend. Moreover, with $1.2 trillion of US debt, China remains the largest foreign holder of US Treasuries. And it also has $3.1 trillion of foreign exchange reserves. Fifth, if Trump proceeds in the trade war path, he would undermine US ties with its NAFTA partners, alienate EU allies while undercutting US alliances with the rest of its trade and security partners in Asia. Over time, that would undermine not just trade, but investment and finance with America’s biggest economic partners in North America, Western Europe and East Asia. Sixth, global growth prospects often frustrated by how long it appears to be taking for this success to materialise. At the just concluded Africa CEO Forum in Abidjan, during the debate moderated by The Africa Report, the Executive Secretary of the Nigeria Investment Promotion Council, Ms. Yewande Sadiku was asked, “Has Nigeria turned a corner away from oil towards diversification of her economy?” It was a very memorable response she gave: “Nigeria is turning a very gentle corner away from oil, not a sharp corner. You won’t see the changes overnight but we’re on the right track.” Indications that we are on the right track could be characterized by greater investments in infrastructure (preferably by the private sector); greater effort to prevent corruption by strengthening business and public integrity; the consequent attractiveness of Nigerian firms/Nigeria to international capital (e.g. via private equity firms); smooth political transitions continuing in 2019 and beyond (preferably with governments having a higher ratio of professionals to politicians than we have had); and, a reduction in government red tape (e.g by further improving on our Ease of Doing Business rankings). If I were to sum this up in one indicator, it would be that the average citizen is enabled raise his/her income sustainably, year-on-year, regardless of what part of the country s/he operates in. What do you think? Has Nigeria turned a corner in the direction you are expecting? Send reactions to: are not immune to the trade war. Before Trump’s tariffs, global investment flows remained well behind their peak a decade ago. World export volumes reached a plateau already in early 2015. In finance, global cross-border capital flows have declined by a 65 percent since 2007. Prohibitive lessons For now, the damage of the Trump tariffs is still reparable and reversible. However, the net effect of further escalation would result in critical erosion in global investment, trade, and finance. That has potential to derail the fragile global economic recovery and disrupt international supply chains. In that case, four decades of bilateral confidence-building could be undermined in four weeks and mistrust would soon spread to US relations with its partners in Americas, Western Europe and East Asia. In that path, there is a historical precedent. After the US economy drifted into the Great Depression in the 1930s, Washington enacted the Smoot-Hawley Tariff Act, which led the way to tit-for-tat retaliation, and ultimately paved the way to much worse. Trump’s unilateral tariff war is on the wrong side of history. •The original, slightly shorter version was published by China Daily on April 10, 2018 Send reactions to:

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