Weekly Roundup of Business & Economic News From Nigeria (March 18, 2017)

Welcome to our Economic and Business Review, our weekly summary of some of the most important Nigerian economic and business news.

1. The Central Bank Governor explained why he would not float the naira. I’ll just post a quote.   “It does appear that there is no basis in our economic fundamentals to support the prevailing exchange rate at the parallel market. The only logical explanation to the high rates in that market therefore is that a lot of illegal and criminal activities are being carried out there. I obviously cannot be of help to people or businesses that are into speculative FX demand.”

He incidentally won the Vanguard Man of the Year award for helping oversee a recession, bungling the flexible exchange rate policy, banning 41 items, helping banks makes billions in forex exchange gains, helping manufacturers and consumer goods firms lose billions to exchange devaluations. The award is also likely in recognition of his role in helping widening disparity between the official and parallel market rates and making currency speculators and BDC operators overnight billionaires.

1. Emefiele also explained that interest rates are high because the cost of business in the country is high.

If we can approximate cost of capital as the average saving interest rate, which is about 6%, what then accounts for lending rates at 25 or more percent? It is cost of doing business. He also added that reducing interest rates now might make inflation worse, further limiting chances of economic growth.

He seemed to have forgotten that increase in fuel and electricity prices and the scarcity in FX has contributed to the cost of doing business in Nigeria

1. Nigeria’s inflation was 17.78% in February; National Bureau of Statistics showed that annual inflation in Nigeria fell to 17.78% in February from 18.72% in January, the first decline in 15 months.

Don’t be too quick to celebrate. Nigeria is effectively subsidizing fuel prices and most businesses are struggling to increase prices. Another round of devaluation may also result in a spike.

1. The Senate President says the National Assembly aims to pass the 2017 budget by the end of March.

They have less than two weeks

We’ll wait and see…

1. Debt and liquidity problems continue to beguile the Power Sector. The Federal Government declared that the military and defence installations across the country were the biggest debtors to the distributing companies owing about N51 billion.

We hear discos can’t dare disconnect them for obvious reasons. Sigh

1. The FG will start a new round of new licensing for oil blocs and marginal fields in May 2017, according to an internal memo in the Ministry of Petroleum resources. This is the first time we have gotten a date. Industry analysts are cautious about this round of sales as most local oil companies may not be able to raise the cash required to pay for the assets.

Banks are hesitant towards further borrowing as 28%-40% of their portfolios are currently skewed in favour of the oil and gas sectors. This could pave the way for Chinese and Indians to pick up these oil blocs. Now that oil prices are below $50; winners of the bid have a potential upside if oil prices rise in the future to the $100 levels. We also hear that some IOC’s are not too eager to bid for these rounds. An unnamed IOC was said to have volunteered two of its matured blocs for the bid rounds.

1. The Coca-Cola court case. Dr. Emmanuel Fijabi Adebo tried to export Fanta bottled in Nigeria to the UK but was not allowed because the drink failed a human consumption test. Dr. Adebo then sued both the Nigeria Bottling Company Plc. and NAFDAC for damages. In her judgement, Justice Oyebanji slated NAFDAC for its poor regulations, which are failing Nigerians, also awarded N2 million against NAFDAC.

NAFDAC on its part filed an appeal and a stay of motion for the directive to inform Nigerians of the negative effects of Coca-Cola products.

Yes, you read right, I cannot believe it myself.

Then the Minister of Health directed NAFDAC to collaborate with the Standard Organisation of Nigeria, SON in addressing Nigerians on the safety of Coca-Cola products.

1. The Nigerian Broadcasting Commission Revokes the Broadcasting Licenses of 54-radio and television station across the country for their failure to pay the license fees within 60-day stipulated window, some as late as two years. The Director General of the NBC Mallam Is’haq Modibbo Kawu said that another 120 licenses that were paid for within the 60-day mandatory window, but were not used for up to two years after payment were also going to be revoked.

They promised to release names of the broadcast stations who are owing the NBC. We haven’t seen the list yet. Please share if you have?

1. Bisi Adegbuyi, the Postmaster-General issued a directive to unbundle NIPOST offices across the country, it will see NIPOST divided into 7 Zones, 6 Business Units, the offices will be operated by zonal managers who will report directly to the Post-Master General. NIPOST Spokesperson Frank Alao said, the aim of the new policy is to increase competitiveness and value for service, and increase operational efficiency and enhance the agency’s revenue-generating capacity.

I got a deluge of emails from my followers on twitter confirming that they indeed use Nipost and it has been very effective.

1. During a visit to the Abuja Steel Mill the Minister of Mines and Steel Development, Dr Kayode Fayemi, said the FG plans to sell Ajaokuta to private operators. The minister said the government’s aim is to see Ajaokuta steel complex running at full capacity, and took the decision not to run it as a public concern. However, the minister did not disclose when the Federal Government would invite bids from prospective core investors.

He is not the first Minister of Mines and Steel to promise the privatisation of Ajaokuta and he probably won’t be the last either.

11. Some stats on Steel import in Nigeria, “In Nigeria, we utilise about 7 million metric tons of steel on annual basis and we produce less than 3 million tons and from scrap mainly. And even the scrap is being depleted now; so, we run the risk of depending almost solely on importation. We spend over $3.5 billion importing steel products into Nigeria annually;

Where is Dangote when you need him?

1. Known for its controversial policies, the NCC (in a different direction) is to declare telecommunications infrastructure national critical assets in two weeks, according to the Communications Minister Adebayo Shittu. He said that no serious nation that prioritises its need right would joke with a critical sector like telecom given its immense contribution to the growth of the economy, according to Nigerian Bureau of statistics the telecom sector has contributed $60 billion in the last 17 years.

Pipelines and oil installations across the country are also considered National Assets.

1. The Debt Management Office issued more bonds than planned as inflation rate fell month on month. At an auction on Wednesday an N80 billion bond due 2036 was sold at yield of 16.28% against 16.77% at its last sale, while a 2021 debt was issued at 16.24% against 16.55% previously to fetch 30 billion naira. Another N50 billion due in 2027 was issued at 16.28%. In total, Nigeria raised a total of N160 billion ($509 million), which is N30 billion more than it had initially offered to sell. The total demand at the auction was N216.38 billion compared to N337.03 billion at last month’s sale.

With government securities, trading for as high as 16%, the demand for FGN bonds and treasury bills will continue to be high. The implication is that critical sectors of the economy requiring funding will be ignored. On the upside, the more demand for government securities, the lower the yield.

1. The Debt Management Office also issued its first ever FGN Savings Bond last week. The bond has a two-year tenor and sold at an interest rate of about 13.1% pa. Recall, the DMO introduced the FGN Savings bond to attract retail investors who are looking to save for at least two years. The bond replaces treasury bills as for investors with less than N50m.

This is the new norm people. At 13.1% the yield is below inflation, meaning that you get a negative yield. However, it is better than what you currently get with commercial banks.

1. Federal Government last week cut Fertiliser Price by Half. This was achieved after President Muhammadu Buhari approved the payment of the outstanding N22bn that is meant for dealers of agricultural inputs, popularly known as agro-dealers, to ensure the seamless distribution of fertilisers at an approved rate of N5, 500 for 50kg.

Only the government can cut prices when demand is high and supply is low. Let’s just call this subsidy and hope that it works for the good of all.

1. Danfo buses are about to be a thing of the past. In a Bus Reform Initiative, the Lagos State Government plans to Buy 5000 new buses to replace the popular black and yellow Danfo buses. Akinwunmi Ambode, the Lagos State Governor said the Bus Reform Initiative is a three-year plan aimed at introducing over 5000 air-conditioned buses to replace the yellow commercial buses, popularly called Danfo, which per him, was no longer befitting of the State’s mega city status.

He specified that the bigger size buses will take 70 people and then the medium range buses will take 30 people. The middle range buses will be supplied up to 70% of the total volume, that is about 3,600 buses.

His “boss” Bola Tinubu tried this once during his term and was not successful. These Danfo guys are like ants, they don’t go away easily.

1. The Federal Government approved the second tranche of Paris Club refund (estimated at N500b) to the State Government’s last week.

What’s Paris Club got to do with this? States Government claimed that their accounts were over deducted between 1995-2002, when we serviced the Paris Club debts. Nigeria paid back the Paris Club loan in 2005 through a deal brokered by former finance minister Ngozi Okonjo Iweala. States were supposed to pay unpaid salaries with half the amount but ended up mismanaging the funds. Let’s hope they use it judiciously this time.

1. Last week the Federal Government banned and unbanned helicopter shuttle from Kaduna to Abuja. In disclosing the ban, The National Security Adviser, Babagana Munguno, claimed that the Federal Capital Territory Abuja is controlled and only security flights or those with the requisite security clearance from the Presidency are granted overhead clearance for obvious security reasons. 48 hours later, he changed his mind and lifted the ban.

Rumours suggests the initial reason for the ban was because of a certain strong Governor in the North, who was also a former Minister of the FCT.

1. It appears that the new CBN Forex Policy is working, at least on the surface. The MD of Fidelity Bank, Nnamdi Okonkwo revealed last week that most banks had cleared backlog of PTA’s.

We heard from the grapevine that the CBN has been pumping banks with so much cash for PTA, that banks have now started begging the CBN to stop. While, the CBN may have finally met demand for PTAs, the big elephant in the room is still FX for companies in all sectors of the economy.

By the way, the government also sold about $150m in currency forwards to corporates last week. Official Exchange rate depreciated to N306 for the first time in months but closed the week at about N450 at the parallel market.

1. In a related story, The Bureaux de change operators also got some good news last week, after the CBN promised to sell about $25 million to them via an auction. The central bank also cleared 3,124 BDCs who qualify for purchase of forex. The forex will be sold by international money transfer firm Travelex at N381 per dollar.
2. Trucking Cabal, The Joint Council of Seaport Truck Operators (JCOST) has rolled out new haulage fees to be paid by importers effective from April,1 2017. Importers using the Lagos seaports are projected to pay an average of N3 billion to the truck operators weekly to freight their goods from Lagos port to their destination weekly. The report claims that there is an average of 3,000 trucks which suggest an average price of N1m per truck. The new rates within Lagos State range from N80,000 to N150,000 for general cargo, N60,000 to N140,000 for 1×20 feet container, N100,000 to N170,000 for 2×20 feet container, and N80,000 to N140,000 for 1×40 feet container.

In case you are wondering, JCOST is made up the following Road Transport Employers Association of Nigeria (RTEAN), Association of Maritime Truck Owners (AMATO), Nigerian Association of Road Transport Owners (NARTO), Maritime Workers Union of Nigeria/Truck Drivers Unit (MWUN/TDU) and Truck Terminal Users Association of Nigeria (TTUA).

1. The Security and Exchange Commission, SEC has reduced the issuing cost of IPO’s and Public offers and bonds in Nigeria. Under the proposed amendment, the total cost of issue for equities shall not exceed 2.833 per cent as against the existing ceiling of 3.17 per cent. Also, the total cost of issue for bonds shall be reduced to a maximum of 2.293 per cent from the current ceiling of 3.9375 per cent.
   This is good news for companies listed on the NSE, many of whom plan to raise capital this year.
2. The National Automotive Design and Development Council (NADDC) estimates that in 2015 Nigeria imported about 400, 000 vehicles valued at $4.2 billion. The data is broken down into 100, 000 new vehicles and 300, 000 used vehicles. The council also revealed that Nigeria imported about 300,000 vehicles in 2016. Local production capacity is also estimated at about 300, 000, but utilisation is currently at about 15 per cent of installed capacity.

Nigeria has an estimated 14 million cars in the country.

1. The Nigerian Society of Engineers have revealed that the Local production of speed limiting device will make Nigeria N40 billion richer. The device was introduced by the FRSC earlier this year, to help reduce the speed limit of commercial vehicles in Nigeria. The device cost about N40,000 and they are targeting about 1 million vehicles.

Nigerian regulators are known to compete with businesses. So, while this the speed limit device looks like a laudable move, the government as usual has its eyes on the money.

That’s it for this week. We love your feedbacks and comments

Credits: Ugo Obi-Chukwu