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2017 VAT figures place value of goods supplied in Nigeria at N19.4 trillion

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Data from the National Bureau of Statistics reveals that Nigeria collected a total of N972 billion in Value Added Tax for the year ended December 2017.

This is 25% higher than the N777.5 billion collected in 2016. Nigeria collected N759.4 billion in VAT in 2015.

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The Federal Inland Revenue, headed by Babatunde Fowler, is the agency entrusted with collecting VAT in Nigeria.

Cursory Interpretation

  • At N972 billion, this implies that total value of goods and services sold in Nigeria was at least N19.4 trillion. 5% of N19.4 trillion is about N972 billion.
  • This is because VAT is a tax on total value of Vatable goods and services supplied in the country.
  • VAT is basically a tax on the increase in value of a product or service at each stage of production or distribution.
  • Whilst it does not represent the total value of goods and services sold in Nigeria, it provides a proxy to just how large the economy is.
  • A N19.4 trillion value of goods sold is still a paltry 16.8% of Nigeria\’s N119 trillion GDP as at 2017.

Ugo Obi-chukwu "Ugodre" is a chartered accountant with over 16 years experience in financial management, corporate finance and financial analysis. He is also a retail investor and a personal finance advocate with over a decade experience investing in the Nigerian stock market. Ugo is the founder/Publisher of Nairametrics and blogs regularly on the website.

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Analysts forecast when Nigeria’s Bonny Light could hit $50

Economies are opening up, however, the recovery is gradual and will take some time for oil prices to hit pre-COVID-19 levels.

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Where next for oil prices?, Brent crude futures gained 0.14 to trade at $34.70 at the time this report was drafted, recovering some of its losses earlier in the oil trading session. 

After months of dwindling demand and fluctuations in crude oil prices, which had crashed below $0 at a point, oil has now witnessed a resurgence in the last six days. Also, most countries are carefully reopening their economies after weeks of global lockdown.

As the world slowly moves towards resuming normal economic activities, oil industry players will be focused on how quickly things get back to shape. An uptick in economic activities signified by a return of public transportation, air travel, and reopening of factories will brighten the light at the end of the tunnel for oil prices. Some international oil experts have however argued that oil prices could only witness a surge later this year. According to them, an average of $35-40 per barrel might be possible by the end of the year.

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For instance, a Norwegian consultancy firm Rystad Energy had stated that about $100 billion is expected to be cut in 2020 from E&P budgets, and that would, no doubt, be a negative development. The firm warned that if oil prices stayed below $30 per barrel in 2021, the total cut could reach $150 billion.

Rating agency Moody is a bit more optimistic, expecting a bounce in oil prices, but only in the medium term.
According to berry commodities group, oil prices in the long term will range from $50 to $70 per barrel. In the short term, Moody is less optimistic and sees the effects of CAPEX cuts trickling down from E&P companies to oilfield service companies (OFS).

How oil firms trim costs

Already, the ICCs are adjusting to the oil price crisis. For instance, last week, the Dutch-British oil and gas major Shell announced the reduction of its underlying operating costs by $3-4 billion per annum over the next 12 months compared to 2019 levels. It also announced a reduction of cash capital expenditure to $20 billion or below for 2020, from a planned level of around $25 billion.

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In its own case, French oil major Total has also cut organic CAPEX by more than $3 billion, while planning savings of $800 million on operating costs in 2020 from $300 million announced earlier, along with a suspension of its buyback program.

Unlike the American supermajor ExxonMobil whose further cuts are in the pipeline, ConocoPhillips has started to cut its 2020 capital program by approximately 10% or $700 million, while Chevron targets $2 billion in cost savings. The IOCs aren’t the only ones suffering; with a financial crash in US shale, Canadian shutdowns, and of course, the OPEC deal.

Oil prices surge …

The oil futures in the New York exchange, which once traded below $0, was around $24 per barrel in Asian trading on Friday. This represents a 20% increase this week. Also, the Brent crude, which is around $30.15 per barrel, has had a 15% price increase in the last week. Nigeria’s Bonny Light also stands at N24.93, an increase of 10.16% as at Friday afternoon.

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It was reported earlier that Saudi Arabia’s oil giant Aramco raised the price for all its crude oil grades to all regions for June, in a move that many analysts see as the start of demand recovery. This also hints that OPEC+ has started to cut production with the aim to stabilize the market.

READ ALSO: Another devaluation looms as Naira depreciates at 5 years forwards market, now N570 to $1

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But has the rebound come to stay? 

Oil experts have described the surge as a welcome development driven by some factors. Director, Centre for Petroleum, Energy Economics and Law, Prof. Adeola Adenikinju, told Nairametrics in an exclusive interview that the development is hinged on a combination of demand and supply factors.

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According to him, the reopening of global economies is bringing increased demand for energy services, thereby driving up oil demand. In addition, the cut in oil supply by OPEC+ members has also lowered excess demand in the market, as the global oil inventory figures have also shown some tentative positive signs.

On whether the surge has come to stay or not, he said, “If the rally would be sustained is still uncertain. This is because the fundamentals of the market have not changed significantly. Economies are opening up, however, the recovery is gradual and will take some time for economic activities to resume to pre-COVID-19 levels.

“There is uncertainty around the V-shaped recovery that has been predicted in some circles. In particular, the major source of global demand for oil, transportation, in particular, air transportation, is still largely under lockdown. International travels, tourism, etc., will not remain the same again, even when the vaccine is found.”

Adenikinju, who is also an associate of Delphi Ventura, US-based petroleum and energy-based consultancy firm, added that the daily commuting for work would also not remain the same, as employers accept the reality of working from home, and online meetings take centre stage.

READ MORE: FG to further revise 2020 budget oil benchmark to $20 per barrel

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If the surge continues, the oil experts expect the price of Nigeria crude oil, the Bonny light, to stay above $35 for Q3 and Q4, 2020. “It will pick up to mid-$40s or low $50s in 2021. However, Nigeria may not be able to fully take advantage of the increase because of production cuts that OPEC+ would need to maintain to sustain the market.

“Moreover, at higher prices, many of the shale oil producers would come back to the market and drive supply. Nigeria will also continue to face competition in its traditional market from other global suppliers, and reduce demand as some countries are using the Covid-19 pandemic to restructure their economies away from fossil fuels to renewable energy.

“The smart thing for Nigeria is to accept the reality that it will not be business as usual and find a way of increasing domestic value addition of its petroleum sector locally. We need to reduce costs of governance, and open up the economy for greater domestic and foreign investments,” he added.

Meanwhile, another oil expert, Chief Operating Officer, Oando Energy Resources, Ainojie Irune, urged stakeholders and Nigerians to stay optimistic, even as they see some casualties along the way to a rebound.

READ MORE: IATA raises alarm over excessive charges on Nigerian airlines, others

In an interview on CNN’s ‘First Move’ with Julia Chatterley, he explained that while most oil producers are currently battling with costs that they have very little control over, it is important for all to stay optimistic. He gave reasons why the surge could be sustained:

“We’re seeing an uptick in the price, we are seeing the decision by OPEC to cut 10 million barrels come in to realise the intention of OPEC; they’ve taken that huge step. But more importantly, the Government is stepping in to ensure that Independents like ourselves are engaged in conversations to ensure that process of survival, which is indeed a process for us, unknown as well, is managed jointly, to see that it takes the least amount of time to see a recovery.”

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Companies

These banks gave AMCON N168 billion in 2019

Nigerian Banks increased their contributions towards the AMCON sinking Fund to about N167 billion in 2019 compared to about N154,9 billion a year earlier.

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AMCON

Nigerian Banks increased their contributions towards the AMCON sinking Fund to about N167 billion in 2019 compared to about N154,9 billion a year earlier. This is according to data compiled by Nairametics Research.

All banks operating in Nigeria contribute 0.5% of their total assets as at the dates of their audited financial statements as levies to the Banking Sector Resolution Cost Trust Fund (BSRCTF), also known as the AMCON Sinking Fund, to repay AMCON’s debt to the Central Bank of Nigeria (CBN).

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According to the data banks in our universe of data that we track have contributed a combined N455.9 billion in the last 3 years alone. Financial services conglomerate, FBNH has contributed the most with about N107.4 billion in the last 3 years. Zenith Bank is next with about N82.7 billion.

READ ALSO: “There will be no downsizing”, Access Bank assures its employees in spite of the pandemic

Nigerian Banks’ contribution to AMCON Sinking Fund.
Source: Nairametrics Research.

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What it means: The AMCON’s sinking fund was established following the realization that recoveries from AMCON-acquired bad loans might be insufficient to meet the cost of restoring financial stability. The fund is to further ensure that the burden on the national treasury is reduced, as any banking crisis will be resolved by banks, CBN and AMCON.

READ MORE: What banks might do to avoid getting crushed by Oil & Gas Loans

Meanwhile, the increase in levies is in tandem with the growth of the banks’ total assets. For instance, the total annual assets of banks in the last five years were N27.37 trillion in 2015, N32.02 trillion in 2016, N35.77 trillion in 2017, N41.04 trillion in 2018 and N47.27 trillion in 2019, based on data compiled by Nairametrics Research.

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While some industry watchers believe that AMCON’s existence will be longer than expected, considering the crisis that rocked the industry from inception, some shareholders told Nairametrics that such tenure elongation is not a welcome development for them.
National President, Constance Shareholders’ Association of Nigeria, Shehu Mikail, explained that the contributions made by the banks are huge and if care is not taken, it could deplete banks profit and returns on investments (ROI).

He said, “The contributions being made by banks into the sinking fund is to the detriment of their shareholders. The act that established AMCON needs to be reviewed and the agency should give details of its services to the nation.
“We do believe that all other regulatory agencies are up to the task of enforcing the necessary rules to sustain the financial sector but this is not, as it causes more injury to shareholders in terms of dividend payment.”

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READ ALSO: Proposed Arik and Aero merger to form National carrier disapproved  

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Another shareholder, Taiwo Oderinde alleged that AMCON was designed to suppress investment in Nigeria, as all shareholders’ investments in the collapsed banks have gone down the drain. He said,

“Banks must have paid about N1trillion to AMCON in the last 10 years of its existence despite the fact that some financial institutions were nationalized without giving their shareholders anything. It was an emergency toxic vehicle established by the government through the CBN and stakeholders then to save the situation at hand, but it has overstayed its welcome.
“The only way forward is for AMCON to start winding down its operations because it has spent 10 years; it can use 2020 for rounding off. We call on the legislators to look into the tenure extension. The government needs to evaluate the performance of AMCON since inception, noting that the impact of the corporation is not felt.”

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Q1’20: Okomu Oil’s result is more proof that essentials always win

With the pandemic on our tails, one of the lessons many businesses and individuals have learnt is that certain things are more important than others.

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Okomu Oil profit drops by 57% at half year 2019

Even as the world scurries to find shelter from the storm, Okomu Oil stays unscathed as it records a 65.5% jump in revenue and 101.4% jump in Profit After Tax. Its performance is boosted by local sales, reduced cost of sales governed by optimized operations, as well as its decision not to pay dividends in the period just disclosed

 

If there is anyone business analysis tool to aid investors in choosing stocks that are head-above-water most of the time, it is “MoSCoW” – a prioritization system depicting the ranking of consumer spending particularly with the existence of constraints. Representing ‘Must,’ ‘Should,’ ‘Could,’ and ‘Would,’ the idea is that when the chips are down, consumers will spend on “Must-haves” as opposed to “Could haves” or “Should have.”

With the pandemic on our tails, one of the lessons many businesses and individuals have learnt is that certain things are more important than others; people will naturally channel their limited resources to their most essential needs. Even with the international market on a COVID-19-induced hiatus, OKOMUOIL’s Q1 2020 results performed exceptionally well, proving that its products are nothing short of essential.

With the growth in revenue of 65.2% in Q1 2020, the company recorded a turnover of ₦6.9 billion in comparison to the ₦4.2 billion it made in Q1 2019. It also recorded a profit after tax of over ₦2 billion in comparison to the ₦1 billion recorded in Q1 2019 – a jump of 101.4%.

READ MORE: COVID-19 to weaken Nigerian banks’ assets in 2020- Report

What is most exciting is that the producers of the sought after Banga Palm Oil & Quality Noko 10 Rubber brands attained this feat from a YoY increase in local sales, almost doubling at a growth rate of 81.6%, thereby masking the weakness in export revenue – a decline of ₦89.8 million in Q1 2020 from its 2019 figures (-12.5% YoY).

Its export revenue is derived from rubber which is shipped out of the nation’s borders. The disclosed numbers suggest improvement in the company’s margins as well as heightened cash flow generation which could be as a result of the increased domestic demand from ongoing border closures. The growth in revenue also reflects the harvesting of matured portions from previous years’ planting.

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The gain was further buttressed by the equally massive drop in the company’s cost of sales from the ₦838 million it incurred at the end of Q1 2019 to ₦252 million in 2020 – The decrease of 70% possibly attributable to optimized operations or the diminishing operational costs over time, typical of the agro-industry.

There could, however, have been some reclassification between the cost of sales and other operating expense that will be revealed in coming quarters.

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With an increase in interest on long term loans of ₦113.5 million from ₦72.6 million in Q1 2019 to ₦186 million in Q1 2020, it is also clear that the additional capital obtained over the period contributed to its improved performance. The company also did not pay dividends in Q1 2020, clearly opting for a growth strategy of profit reinvestment.

Finally, cash generated from operations surged to ₦3.6 billion in Q1 2020 from ₦7.2 million in Q1’19 as a result of the surge in cash receipt from customers of 129.3% YoY.

The OECD-FAO Agricultural Outlook 2019-2028 foresees that the demand for agricultural products will grow by 15% over the coming decade. However, the Global Palm Oil industry has been witnessing unprecedented growth. The Global Palm Oil Market: Insights, Trends and Forecast (2020-2024) report by Research and Markets revealed that the global palm oil production volume is expected to reach 98.82 million metric tons in 2024, growing at a CAGR of 5.9%, for the period spanning from 2019 to 2024.

Agriculture companies such as OKOMUOIL are likely to be supported by devaluation impact and a larger market share due to border closures.

The company, thus, presents a buying opportunity based on its strong fundamentals and growth trajectory. Its share price as of today, May 5th 2020, before the markets opened was ₦55.05, which is about the midpoint of its 52-week range of ₦40.15 to ₦77. With a price-to-book ratio of 1.7643, the current price might be slightly overvalued.

The Price Earning ratio, which stood at 8.04, serves as a better measure of whether a stock is expensive or not.

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However, with a dividend yield of 3.57% and earnings per share of 6.85 in the same period, Okomu Oil is set to grow at a good pace.

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