Recession: Nigeria’s biggest companies cutback over N176 billion in investments in 2016
Nairametrics| A compilation of top NSE 30, the leading index on the Nigerian Stock Exchange, reveal a whopping 26% cutback in cash spent on investments in the year 2016 compared to 2015. These companies have a combined market capitalisation of about N8.4 trillion compared to the N8.9 trillion total market capitalisation of the equities all share index. Even though they do not capture the entire Nigerian economy, they provide a fair insight into the ravaging effect of the policy decisions taken by the government in 2016.
Nairametrics research reveal the sectors representative of the listed companies spent a combined N510.7 billion in investments on property plant and equipment compared to N687.3 billion a year earlier. Thus, a total cut back of about N176.6 billion was experienced by the economy from these 30 companies alone. At N510 billion, their spending is nearly at par with the total cash backed capital expenditure of the federal government of Nigeria.
Nigeria has been in a recession since 2016 culminating in massive job losses, inventory cutbacks, cut back on investments as well as dip in revenues.
According to the data, cutbacks were seen in nearly all companies in the sectors except banking and agriculture. The banking sector recorded a massive boost to their bottom lines following the massive depreciation of the naira, providing them with the cash required to invest in property plant and equipment, including software acquisition. The agricultural sector has also benefited from the depreciation of the naira and an appreciation in the value of biological assets.
The Agricultural sector recorded a new twofold uptick buoyed mostly by new investments undertaken by Presco Plc. Banking sector gains was influenced mostly by ETI, which spent about N66 billion during the year.
For the rest, it was a devastating cut in spending as they had no such luck from the forex debacle. The oil and gas sector for example, reported a massive cut back of 43% as the likes of Seplat, Forte, Oando cutback on new investments due to a drop-in oil prices.
The industrial and consumer goods sectors recorded 21% and 43% drop in spending during the year as they were mostly hit by the economic recession.
Even though, some of these investments are spent overseas subsidiaries, a huge portion of the spending are for assets located in Nigeria
Analysts opine that one of the reasons for these cutbacks was because of forex policy embarked upon by the CBN as they moved to defend the naira. The capital controls introduced by the CBN between the second half of 2015 and first half of 2016 along with its other policies is thought to have negatively affected companies investing plans. Whilst most could not secure the funding required to invest as they would have wanted to, in their long-term operations, those who had cash could not secure forex to invest.
The CBN has introduced new forex windows in 2017, that is aimed at alleviating the foreign currency supply gaps thus providing liquidity in the system and a quasi market determined rate.
See the full list of NSE 30 companies and their spend on PPE in 2016/2015.