2 BUSINESS DAY g www. g @ g Monday <strong>07</strong> <strong>Jan</strong>uary <strong>2019</strong> 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 <strong>BusinessDay</strong> 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 <strong>2019</strong> BALA AUGIE Consumer firms are set to sidestep any loss due to naira volatility in <strong>2019</strong>. 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.<strong>07</strong> 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 <strong>2019</strong> 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 <strong>BusinessDay</strong> 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 <strong>BusinessDay</strong>. “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 <strong>2019</strong> … Early rally seen in J/Berger, Vitafoam, Union Bank, others ahead of the upcoming <strong>2019</strong> 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 <strong>Jan</strong>uary 4, <strong>2019</strong> 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 <strong>2019</strong> 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 <strong>Jan</strong>uary 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 <strong>Jan</strong>uary 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
Monday <strong>07</strong> <strong>Jan</strong>uary <strong>2019</strong> C002D5556 BUSINESS DAY 3
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