BusinessDay 07 Jan 2019

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Monday 07 January 2019
NEWS
Apapa: Tough times for businesses, residents as
rush to return empty containers heightens gridlock
AMAKA ANAGOR-EWUZIE
There are indications that the
coming weeks will be very
tough for residents and businesses
located in Apapa port
city, following the rush by importers
and their agents to return empty
containers after discharging their
imported goods.
Usually, the first few weeks into
the New Year is characterised by
surge in business activities at ports
following the rush by importers to
clear backlog of containers and other
spill over consignments from the
ones that were not cleared during
the festive period.
By implications, motorists, port
users and commuters are expected
to experience man-hour loss on
their daily transit to the port city as
the traffic gridlock persists.
Also, shippers may be forced to
pay more to shipping companies as
demurrage for the containers and
storage charges to terminal operators
for occupying space in the terminals
as their cargoes spend longer
time without clearing them from the
ports, and offloading to return empty
containers back to the ports.
This is coming few days after
businesses, residents and commuters
enjoyed relief during the one
week Christmas and New Year celebrations
period, where driving into
Apapa became fun and free of traffic.
A recent BusinessDay visit to
Apapa-Ijora-Wharf through Western
Avenue, revealed that few days after
the resumption of work from the
Christmas and New Year holidays,
that gridlock is returning to Apapa
roads gradually.
Tony Anakebe, managing director
of Gold-Link Investment Ltd, a
Lagos-based clearing and forwarding
company, who confirmed that
Apapa traffic situation is expected
to worsen in the coming weeks, said
that the number of trucks coming
to the ports is expected to increase,
thereby providing temporary inconveniences
to Apapa road users.
“The last quarter of every year
usually marks the peak of importation
activities at the ports. Judging
from past experiences, the 2018
importation peak season is over
but the importers and their agents
will continue to clear the spillover
while those, who were able to clear
their consignments during the
festive season, would have been
able to discharge the goods in their
warehouses, and ready to return the
empty containers,” Anakebe said.
According to Anakebe, the situation
means increased business
activities as a result of the spillover
from Christmas imports, before the
volume would be expected to drop
especially for the remaining part of
the first quarter of this year.
Jonathan Nicole, president, Shippers
Association of Lagos State, said
that the poor condition of the access
roads into Apapa and Tin-Can Island
ports, have been a major challenge to
doing business at the ports.
This, according to him, has been
pushing up the cost of doing business
for shippers and manufacturers,
whose goods and raw materials
spend days and weeks before getting
to their warehouses.
Emma Nwabunwanne, a Lagos
based importer said: “If traffic returns,
trucks coming to evacuate cargoes
will find it difficult to access the ports
because they will be trapped on
the road. This will be dangerous for
port business and for the economy
because the situation could lead to
port congestion. It could also compel
shipping companies to impose congestion
surcharge on Nigerian ports.”
Consumer firms to sidestep FX
losses from naira volatility in 2019
BALA AUGIE
Consumer firms are set to
sidestep any loss due to
naira volatility in 2019.
Also, experts added that
some of these firms had embarked
on backward integration to reduce
reliance on imported raw materials,
but there are downside
risks for those
that have not hedged
against financial risk.
“Not all firms have exposure to foreign
exchange risk. A lot of them have
reduced Foreign exchange borrowing
in the last two years. We may not
see the magnitude of the hit of 2016
that nearly crippled businesses,” said
Christian Orajekwe, equity research
analyst at Cordros Capital Ltd.
“Nestle has gone far in the area
of backward integration as it sources
material locally,” said Orajekwe.
Foreign exchange losses for the 10
largest consumer goods firms quoted
on the floor of the Nigerian Stock
Exchange (NSE) stood at N396.05
million as at September 2018, this
compares with N15.07 billion and
N39.88 billion incurred in the corresponding
period of 2017 and 2016.
The Naira traded at around
N364.41 per dollar in the Investors
and Exporters (I&E) window on Friday,
Data from FMDQ shows.
Firms have reduced burden on
operating profit as combined interest
expense fell by 49.08 percent to
FINANCE
N25.13 billion in September 2018
from N49.37 billion in 2017.
That compares with an 86.65
percent increase in finance cost
recorded in 2016 financial year.
Oil prices have slumped in recent
weeks, as concerns mount about a
glut of crude supply and fears that
global economic headwinds could
lessen demand.
After reaching a
high of more than
$86 a barrel in early October, which
prompted warnings that it would
climb further to $100, the oil price
has since plunged by more than
30 percent.
Analysts at Vetiva Capital Ltd forecast
a +50 basis points rise in benchmark
borrowing costs and upend in
money market rates in 2019 will dive
a modest rise in finance expenses.
“This comes in contrast to the
notable moderation recorded in
net finance costs in 2018, supported
by declining market rates for most
of the year and benefits from the
significant deleveraging exercises in
2017 to early 2018,” said analysts at
Vetiva Capital.
“In tune with this, most consumer
goods companies will continue to
enjoy relief from any debt burden
despite the mild uptick in rates on
borrowing,” summed analysts at
Vetiva Capital.
•Continues online at
www.businessday.ng
President Muhammadu Buhari (m), receives in audience Governor Ibikunle Amosun of Ogun State (r), and
Adekunle Akinlade, Ogun State governorship candidate of Allied People Movement (APM), at the State House.
Why Nigeria’s oil production
cost of $22 per barrel is no cheer
DIPO OLADEHINDE
The New Year day news of
Africa’s largest producing
country reducing its cost
of producing oil leaves
little to cheer as further
investigation shows it’s much cheaper
to produce crude oil in war torn Iraq,
Saudi Arabia and Iran than in Nigeria.
At first glance it all seems like good
news when group managing director
of Nigerian National Petroleum
Corporation (NNPC) Maikanti Baru
said in 2018 Nigeria has been able
to reduce production cost from $27
barrel to $22 barrel while listing milestones
achieved by his team in 2018.
However at second glance, Nigeria’s
cost of producing oil of $22 is
still far higher than Iran and Iraq and
OPEC’s kingpin Saudi Arabia.
According to data from energy
industry consultant Rystad Energy, on
average it cost Saudi Arabia less than $9
to produce a barrel of oil last year while
other OPEC countries like Iran and Iraq
can produce for around $10 per barrel.
Drilling down into what makes
Saudi oil so cheap; Rystad Energy
explained that Saudi Arabia only
spends $3.50 in capital to pull a barrel
of oil out of the ground. This amount
includes money invested in drilling
new wells as well as the associated
equipment while production cost
and administrative and transport cost
stood at $3 and $2.49 respectively.
Luqman Agboola, head of energy
and Infrastructure at Sofidam Capital
said after making much money
from crude oil in the past Nigeria got
carried away with corruption, inefficiency
and security challenges while
other countries were consciously
reducing cost of production.
“One major factor affecting Nigeria’s
situation is the Niger Delta security
condition which naturally increases
cost of producing a barrel by nothing
less than $5,” Agboola told Business-
Day by phone. “If we become very efficient
Nigeria should be having a cost
of production of between $12 and $15.”
Agboola explained that the second
factor affecting cost of production
is the Terrain.
“The likes of Iran, Saudi Arabia and
Iraq produce in the desert which is
naturally cheaper so they don’t need
elaborate preparations to drill a well.”
An oil expert who pleaded anonymity
told BusinessDay that the
main problem facing Nigeria are
issues concerning multiple taxes,
government policies and insecurity.
“Even Ghana and Tunisia are producing
at $15 and $10 respectively.”
“Government needs to put the
right fiscal policies in place and stop
playing politics with the implementation
just like the PIGB,” the expert
told BusinessDay. “Until we get this
out of the way we would not get a
favourable pricing mechanism.”
Rystad Energy explained that
Saudi Arabia also has low capital costs
due to the fact that the country’s oil is
located near the surface of the desert
and pooled in vast fields, so it doesn’t
need to invest that much in drawing it
out of the ground. Contrast this with
countries that have large offshore production
bases like Nigeria, Norway
and the United Kingdom, which incur
significantly higher CAPEX costs of
around $13.76 to $22.67, respectively,
due to the need to build large offshore
production platforms.
Agboola admitted that it’s a bit
complex when calculating cost of
production because factors such as
production per day or capacity to produce
per day are always considered,
while the size of a country’s oil reserves
cannot also be taken into isolation.
“This is why we can easily see that
a country with higher oil reserves
have cheaper production costs,”
Agboola said.
•Continues online at
www.businessday.ng
Cautious trading intensifies on Customs Street
IHEANYI NWACHUKWU
In the absence of near-term positive
catalysts that could entice
bulls on Customs Street, the now
amplified political worries ahead
of February general election occupies
topmost the mind of investors’.
Rising from varied degrees of stock
related bruises witnessed last year,
some investors are now approaching
the Nigerian Stock Exchange (NSE)
with their eyes on this near-term concern
while other discerning investors
are taking advantage of low valuation
of stocks and strong market fundamentals
to beef up their portfolio.
Analysts at Lagos-based Cordros
Capital said their outlook for equities in
the near-to-medium term is negative.
“We guide investors to trade cautiously,
amidst absence of a near term
positive catalyst and political jitters
ANALYSIS
… Stock investors lose N300bn in first trading week into 2019
… Early rally seen in J/Berger, Vitafoam, Union Bank, others
ahead of the upcoming 2019 elections.
However, macroeconomic fundamentals
remain stable and supportive of recovery
in the long term,” Cordros added.
From a year-open high of N11.721
trillion, the value of listed stocks
moved lower on Friday January 4,
2019 at N11.425trillion; it implies
investors have lost approximately
N300billion in three days.
Also, the NSE All Share Index has
declined by 2.52percent this year to
30,638.90 points. It opened the year
2019 at 31,430.50 points.
“In the year ahead, we expect a
subdued performance in the earlier
part of the year (pre-election period)
and depending on the outcome
of the election and smoothness
of transition period, we expect a
post-election equity recovery,” said
research analysts at United Capital
Plc in their January 2 note.
“With positive sentiment due to
end-of-year activities over, we anticipate
a resumption of investor apathy
and foresee this driving the market in
the coming weeks. Therefore, we expect
another relatively quiet session
on the NSE with continued negative
trading”, Vetiva analysts said in their
January 4 note to investors.
Despite analysts maintaining their
bearish short-term outlook for the
stock market this year, some stocks
still kicked-off the first trading week
on a positive note. Some of the stocks
that have achieved over 5 percent gain
in their share price this year are Julius
Berger Nigeria Plc (15.67percent);
Union Bank of Nigeria Plc (7.14percent);
Custodian Investment Plc
(7.96percent); Cutix Plc (6.71percent);
and Union Dicon Plc (8percent).
•Continues online at
www.businessday.ng