BusinessDay 07 Jan 2019

More documents

Recommendations

Info

Monday 07 January 2019 10 BUSINESS DAY C002D5556 comment Bashorun J.K Randle Randle is Chairman/Chief ExecutiveJK Randle Professional Services Chartered Accountants • Continued from last week At the IMF/World Bank meeting, the lingering matter of the unpaid gratuity and pension of retired partners of KPMG was listed under “AOB” (Any Other Business). Unfortunately, there was no time to do justice to the issue. It was “The Punch” newspaper which took the wind out of our sail with the following front-page report: “Nigeria servicing debt with more than 50% revenue – IMF” (Federal Government of Nigeria proposes to borrow N1.5 Trillion in 2019) “The International Monetary Fund on Thursday painted the precarious situation of the nation’s economy in particular and Sub- Saharan Africa’s, in general, going by how much the country and the region spend on debt servicing. According to the Breton Woods financial institution, Nigeria spends more than 50 per cent of its revenues on servicing debts, a situation that does not give room for other necessary expenses. Speaking at the presentation of Benedict Elujoba Elujoba is of the Centre for Promotion of Enterprise and Business Best Practices Africa is a continent in dire need of growth. The continent’s GDP of $2.18trillion in 2017 as estimated by the International Monetary Fund is less than the GDP of Germany ($3.677trillion), a country of fewer than 83 million citizens and a land mass that is only slightly larger than one-third of Nigeria’s. In the meantime, Africa’s output is generated by 1.3billion inhabitants. It can thus be easily averred that the continent’s poor economic state is a result of the extremely low levels of productivity that are pervasive in most African countries. A major factor for Africa’s low productivity and consequent deplorable economic conditions is the low level of industrialization across the continent and a seeming lack of urgency among African leaders, which is evidenced by a slow pace of adoption of technology and modern industrial practices and systems. In an op-ed published June 15, 2018 by The East African, a Kenyan weekly journal, Mr Akinwunmi Adesina, president of the African Development Bank, opined that Africa’s manufacturing sector is the weakest link in its ongoing integration into the global economy. He stated that primary products or comment is free Send 800word comments to comment@businessdayonline.com XKPMG (In English, Latin and Greek) the Regional Economic Outlook for Sub-Saharan Africa – Capital Flows and the Future of Work in Abuja on Thursday, Senior Resident Representative and Mission Chief for Nigeria, African Department, Amine Mati, put Nigeria’s growth rate for 2018 at 1.9 per cent. Mati said that although Nigeria’s debt to Gross Domestic Product remained low at between 20 and 25 per cent, the country spent a high proportion of its revenue on debt servicing as a result of low revenue generation. For Nigeria, he added, the debt servicing to revenue ratio was more than 50 per cent while for sub- Saharan Africa, the rate was about 10 per cent; a figure he said was too high and reminiscent of what the region went through in the period following debt relief at the beginning of the 21st century. Mati said, “Security issues are exacting a significant human toll in a number of countries. Debt to GDP ratio is increasing in the past five years. Public debt is diverting more resources towards debt servicing. “The interest rate has gone up to where they used to be around the year 2000 before the debt relief. The adjustment has relied on spending compression rather than revenues mobilisation. Meeting the Sustainable Development Goals will require stronger growth and more financing.” The IMF top-notch said that the sub-region needed to create 20 million jobs every year and added that the situation was even more precarious with the Fourth Industrial Revolution lurking around. “Policies are needed today to create more jobs in the coming years. Twenty million jobs are required every year in Sub-Saharan Africa to meet the SDGs. Job creation is complicated by uncertainty to which technology replaces labour,” he said. Speaking at the event, Director General of the Debt Management Office, Patience Oniha, stated that it was important for the government to borrow especially given the nation’s low revenue generating capacity. She contended that without sufficient revenue and with the recession that the country found itself between 2016 and 2017, the government had no option but to borrow and spend the country out of recession. Oniha said, “We are borrowing to be able to increase forex availability. The government needed to borrow in order to spend the country out of recession.” She disclosed that the government had proposed to borrow N1.5tn in the 2019 fiscal year, adding that borrowing had reduced as the nation was now out of recession. Justifying this viewpoint, Oniha said that in 2016, the Federal Government borrowed N2.5tn which was approved by the National Assembly while it proposed to borrow N1.64tn in the current financial year. In 2019, she added, the proposed debt of N1.5tn had gone further down. She added that the government had taken steps to diversify the economy and increase tax collection which she said was lower than in most countries of the Economic Community of West African States. The DMO boss differed with the opinion of a questioner who argued that the infrastructure in the country had been decaying despite increased borrowing in the last three years. However, a Non-Governmental Organisation, Social Action, has berated the government for its inclination towards borrowing. In a statement made available to our correspondent in Abuja on Thursday, Head, National Advocacy Centre, Social Action, Nigeria, Vivian Bellonwu-Okafor, said that the inclination to borrow by the government showed cluelessness. Bellonwu-Okafor said the recent statement made by the Minister of Works, Power and Housing, BabatundeFashola that ‘those who complain that we (FG) borrow too much should tell us where else to find funds’ was not only unfortunate but also a glaring admission of cluelessness. She said, “While it is distressing to watch the country’s debt profile balloon into pre-2006 levels – before Stemming Africa’s industrialisation gap raw materials make up 62% of the continent’s total exports. According to him, it explains (among other things) why a region that produces about 75 per cent of the world’s cocoa accounts for just 5% per cent of the nearly $100 billion annual chocolate market. According to the Economist Intelligence Unit, a British research group, Africa accounted for more than 3% of global manufacturing output in the 1970’s but this percentage has since halved. This is a clear indicator of the urgency the continent needs to catch up with the rest of the world. The United Nations, as part of its efforts to redress this situation set aside 20 November of every year as Africa Industrialisation Day. The year 2018 theme, “Promoting Regional Value Chain in Africa: A Pathway for Accelerating Africa’s Structural Transformation, Industrialisation and Pharmaceutical Production,’’ is very appropriate considering the low level of integration and economic cooperation within Africa’s regions or among its nations. Take Nigeria, Africa’s largest economy for instance, in 2017 only two of its top 15 export destinations were African countries (South Africa and Togo accounting for 4.5% and 2.4% of exports, respectively) The low level of industrialization is the reason much of Africa’s exports are still commodities (raw ‘ Security issues are exacting a significant human toll in a number of countries. Debt to GDP ratio is increasing in the past five years. Public debt is diverting more resources towards debt servicing ’ materials) with very little value-add as the continent is unable to compete with other more established economies on quality, cost and scale. Consequently, Africa accounts for a paltry 2.6% of total world exports and exports account for only 7.3% of the continent’s economic output. Many economic experts agree that a major reason for Africa’s slow industrialization is that its leaders have failed to pursue bold economic policies out of fear of antagonizing donors. In spite of suboptimal policy direction and implementation in many parts of the continent, some multinationals and other manufacturing concerns are leading the charge for industrialization and regional integration. Taking another look at Nigeria that has struggled to find ways to increase non-oil revenues to counter the fall in commodity prices in the near term and achieve sustainable growth in the long term, the annual report of the nation’s central bank for 2017 revealed that the top three contributors to Nigeria’s non-oil exports in 2017 were British American Tobacco Nigeria (BATN), Olam and Indorama Eleme Fertiliser Company. While BATN led the top 100 companies with $145.48million (about N52.37B) worth of exports, it also brings the added value of having exported manufactured goods as a result of its investments in processing and manufacturing (across Africa and particularly in Nigeria) and its integration of local farmers into its operations such that rather than tobacco leaves, cigarettes were exported to Liberia, Cameroon, Ghana, Niger and Cote D’Ivoire. Olam International was second with $110.892 million (about N39.92billion) worth of Sesame seeds and fermented cocoa beans while Indorama exported $69.815million (about N25.13billion) worth of granular urea in bulk to Uruguay Brazil and Argentina. Other companies that contributed to the volume of manufactured exports include De-united foods with $30.568million (about N11billion) on indomie and mini me exports as well as Dangote with $21.496million (about N7.74billion) from export of cement. Dangote also continues to improve Africa’s industrialization drive with the establishment of manufacturing plants in industries including flour, sugar and cement across African countries and notably the multibillion dollar refinery in Lagos, Nigeria. Data from the National Bureau of Statistics put Nigeria’s total exports for 2017 at N13.59trillion. Though an improvement on 2016 figure N8.53trillion, it still leaves a massive and daunting industrialization and productivity gap especially when it is noted that crude oil exports accounted for N11.03trillion (81.1%). In commemoration of Africa Industrialisation Day 2018, the the debt buyback deal when the Olusegun Obasanjo administration paid $12bn to eliminate over $30bn then owed to the Paris Club of creditors – it is disheartening that the Buhari government seems to be bereft of ideas on what to do to generate revenue without resorting to excessive borrowing.” Perhaps it was this precarious state of affairs as a prelude to anarchy and fragmentation that provoked the late Apostle HayfordAlile the pioneer Director-General and Chief Executive Officer of the Nigerian Stock Exchange to issue a “fatwah” on his 80th birthday (24th April, 2018) interview which was published on the front page of the “Vanguard” newspaper of November 9, 2018. Headline: “If I were God, I’d cut Zimboda’s blessing” “God says I can’t come from heaven above to come and help you, but if He identifies you as a good instrument, He will pump his goodness through you to others.” It is always a huge task to ascertain who is on the side of the angels. A case in point is the fierce contest between XKPMG and KPMG over the sponsorship of “The Match”(Golf) Tournament. KPMG outbid XKPMG by depositing the princely sum of U.S. $9 million. Alas, according to the report by The Sunday Times, it was money down the drain. It would have been better spent on retired partners of KPMG who are still awaiting their gratuity and pension. Send reactions to: comment@businessdayonline.com UN Secretary-General Antonio Guterres, in a message, called for inclusive and sustainable industrial development in Africa, saying it is critical for achieving the 2030 Agenda for Sustainable Development. Meanwhile in Lagos, Governor Akinwunmi Ambode pledged to continue formulating and implementing policies and programmes that would consolidate the state’s position as the industrial and commercial hub of Nigeria. In his address delivered by Mrs Olayinka Oladunjoye, the State Commissioner for Commerce, Industry and Cooperatives, Ambode said that sundry projects in the areas of security, environment, infrastructural renewal and upgrade were designed to create an enabling environment that would promote industrialisation and sustain the state’s status as prime investment destination in Africa. His Edo State counterpart Governor Godwin Obaseki said that his administration’s commitment to the development of an industrial park, a modular refinery and the Benin River Port in the state, will help accelerate Africa’s industrialisation drive. It is hoped that governments at all levels across Africa will improve on policy formulation and implementation to urgently close the gap in Africa’s industrialization. Send reactions to: comment@businessdayonline.com
Monday 07 January 2019 comment Patrick Atuanya Atuanya is the editor of BusinessDay. Email: patrick.atuanya@businessday.ng Twitter: @patrick_atuanya It’s the start of the New Year, Nigerian stock are still falling, the feel good vibe around this time of the year is yet to ebb and yet I’m still thinking about the announcement made late last year about a merger between Access Bank and Diamond bank, with the potential to shake up Nigeria’s financial services sector. Whenever I think of the Nigerian Banking sector one thought always gets me excited. This is the pre provision operating profits levels for the industry. The thinking goes that if only the banks can clean up their books there could be potential upside for investors in financials. However there is always the fear of falling into a ‘value trap’, or by definition a stock that appears to be cheap because the stock has been trading at low valuation metrics such as earnings multiple, or book valuefor an extended time period. The trap springs when investors buy into the company at low prices and the stock continues to languish or drop further. The recent Access Bank – Diamond Bank merger has made the new entity to emerge to become the largest lender in Nigeria by assets and other metrics. With its huge bad loan portfolio which would need writing off, there is some similarity the new entity bears with FBN Holdings which used to be the largest bank by assets and is also dealing with bad loans for which impairment charges of N76.1 billion was taken C002D5556 Investors should instead be asking themselves what kind of Nigerian banking/ financial services sector will emerge from 2020 (just 1 year from now), and who will be in the dominant position then to drive profitability BUSINESS DAY 11 comment is free Send 800word comments to comment@businessdayonline.com Unlocking value in the Access Bank - Diamond merger in Q3, 2018. Naturally the question for investors would be, is this new entity a buy? I decided to run some numbers comparing all three banks (FBNH, Access and Diamond), separately and then the combined Access and Diamond to see where they stood as at Q3. Basically plugging in the same valuation for FBNH for the combined Access and Diamond gives a share price of N11.38 and market value of N403.9 bn. Note that FBNH bad loan portfolio (NPLs at 14%) is probably much worse that what it would be for the combined Access/ The table below tells the tale: Fig 1 ‘ Diamond entity. Access Bank has signaled they would write off all bad loans in Diamond and no legacy NPLs will be coming into the new entity. Positives for the merged (Access/ ’ Diamond) entity Low valuation If you believe that Nigerian banks or at least the largest banks should trade close to their book value then you could argue that N20 per share is closer to fair value for the combined name. Currently Zenith Bank (another bank which we believe will be closer to the new combined Access/Diamond) is trading at 0.92x book value. Scale Total assets of over N6trillion, and 29 million customers should give the new Access – Diamond entity enough levers to pull to drive profitability. Mobile money The coming mobile money, digital financial inclusion is an opportunity for the new bank given Access adoption of technology and the CBNs mandate to Telcos to partner with banks. Together, the two companies will have 29 million customers, including more than 13 million mobile customers, as well as 3,100 ATMs, 15.9 million cards and around 32,000 PoS terminals. Given how ambitious the Access Bank team driving the merger is, a MTN/Access Bank-Diamond Bank mobile money roll out would not be out of place and the impact on the bottom-line could be huge. Backward looking negative Sentiment Most of the negative sentiment that has followed this merger announcement is backwards looking and in our opinion misses the point completely. Investors should instead be asking themselves what kind of Nigerian banking/financial services sector will emerge from 2020 (just 1 year from now), and who will be in the dominant position then to drive profitability. We think Access – Diamond will be a major winner in the evolving financial services landscape. Nominal growth/unbanked population The Banking sector (assets) has grown at circa 10% per annum on average since 2010 in Naira terms. This should provide steady lift to profits assuming more financially excluded are gradually being lifted into the formal space using digital financial services DFS. Profit levers Looking at the table above, the combined Access/Diamond has a lot of profit levers to pull including operating expenses of N130 billion and Personnel expenses of N58 billion. We expect these to come down with direct impact on topline. Experience from Intercontinental acquisition We think the Access Bank team has learnt a lot from the experience of swallowing Intercontinental Bank. One sign of this is reports that the Diamond Bank LOGO will survive the merger. This is a symbolic but effective way to keep a lot of the Diamond Bank customers from porting. Access Bank has absorbed six institutions in the past 15 years. According to management, the same team who led the past successful integration will be responsible for delivering the merger with Diamond Bank and overseeing the transition to the enlarged entity. Unknowns We believe that any unknowns from this deal (still awaiting more clarity) will be an upside surprise for Access Bank + Diamond Bank. Risks The major risk to our assumptions are execution and possibility of another recession in Nigeria. Also interest expense should increase in the near term as Access plans a $250m Tier 2 capital raising exercise. Send reactions to: comment@businessdayonline.com Dapo Oguntade I watched with keen interest the Vice Presidential candidates’ debate organised ahead of the forthcoming elections in Nigeria. Obviously, the current government, to be candid, has not performed to the level of my initial expectations when it came into office. This is not to say they have done nothing worthy of commendation. At least, some of our rail lines are working again. There are many other initiatives such as the N-power and soft loan programmes as well as the conscientious efforts to develop other infrastructure projects to which the government deserves some credit. If anything, the level of waste and profligacy of the penultimate Vice presidential debate: Beyond the political rhetoric government has been curtailed to a great extent. However, as many would agree, the process of change is moving at snail pace and while the good intentions of current actors cannot be denied, the speed we are running at is way too slow for (i) where Nigeria currently stands and where we want to be (ii) the rate of expansion of our burgeoning population now forecast to exceed 250 million by 2030 and (iii) the speed at which the rest of the world is moving at. I am not a particularly strong supporter of some of the government’s policies including those on infrastructure. I ask myself if the government can really bankroll the infrastructural needs of Nigeria by taking on various loans from international finance institutions. The Vice President, Professor Yemi Osinbajo recently estimated Nigeria needs about $1 trillion to modernise its energy infrastructure alone. The country is estimated to require $450 trillion to execute on the National Integrated Infrastructure Master Plan (NIIMP). In my own estimations, there is only so much government can do and given the requirements, Nigeria needs to be moving with urgency. I am aware some measures have been taken to create certain structures through the Nigeria Infrastructure Fund and the resuscitation of the Infrastructure Bank. But these measures are just not enough. If we are looking to attract capital, we need to create the right legal framework and other measures necessary to guarantee attractive returns on investment. However what we truly need is a holistic infrastructure development strategy with creative policies as to limit our dependence on foreign capital to finance our infrastructure needs. This is a long term plan which cannot be done overnight. Our policies on agriculture and development of local industries are not robust enough. Our agricultural policies are at best disjointed and we lack the necessary support industries such as steel and petrochemical industries, to mention a few, which are the essential requirements to drive a modern industrialised economy. It is only when the essential industries are in place, then the resulting multiplier effects could lead to the creation of an even larger service driven economy. However, this is a matter for another day. There is a glaring absence, at this time, of any holistic, strategic and interconnected national development plan which accounts for all elements of monetary, fiscal, trade, foreign exchange, industrial, and capital formation and labour policies. Not to forget the legal, regulatory, constitutional and institutional framework necessary to achieve our aspirations. If those policies exist today in some form – maybe the national industrial revolution plan - then execution is lacking. There is need for joint concerted effort across all sectors, government levels and the private sector. Why was I so keen on the debate? I was interested in knowing if there is truly an alternative in this election cycle. While I am mindful that perfection might just be a pipe dream or a mirage, it is important to at least assess and critically analyse our options albeit from the limited scope of a time bound debate. Given my doubts on what difference Atiku Abubakar can make as the President, I was more interested in knowing what his running mate, Peter Obi, could offer. I could hear a lot of numbers and statistics coming forth during the time he presented. However, beyond the numbers, which should be expected ahead of such a debate. I felt the comments shared were light on details and short of any concrete plan in place to make a change. It sounded all too familiar – back to 2015 again – the numbers game. The arguments in my mind felt somewhat peripheral, on-the-surface and lacking depth. Further, I thought the comments on fuel subsidy was being in some ways economical with the truth and maybe playing to the gallery. It is true a more efficient system will provide additional savings but that distracts from the substance of the matter. Can Nigerians really bear a situation where subsidies are taken away? Let’s be factual, our refineries are at present not working. Note: the rest of this article continues in the online edition of Business Day @https://businessdayonline.com/ Send reactions to: comment@businessdayonline.com
Page 1 and 2: usinessday market monitor NSE Bitco
Page 3 and 4: Monday 07 January 2019 C002D5556 BU
Page 9: Monday 07 January 2019 C002D5556 BU
Page 15 and 16: Monday 07 January 2019 www.business
Page 17 and 18: Monday 07 January 2019 g www. g @ g
Page 27 and 28: Monday 07 January 2019 BUSINESS DAY
Page 29 and 30: Monday 07 January 2019 g www. g @ g
Page 33 and 34: Monday 07 January 2019 Start-Up Dig
Page 35 and 36: Monday 07 January 2019 BUSINESS DAY
Page 37 and 38: Tuesday 08 January 2019 www.busines
Page 49 and 50: Monday 07 January 2019 Stakeholders
Page 57 and 58: FT BUSINESS DAY FINANCIAL TIMES Mon
Page 61 and 62:
Monday 07 January 2019 www.business
Page 63:
Monday 07 January 2019 www.business
Page 66 and 67:
www.businessday.ng www.facebook.com
Page 68:
BUSINESS DAY Insight NEWS YOU CAN T
show all

BusinessDay 07 Jan 2019

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?