Sitting beside the smelly and loquacious bus driver, Gloria observed the traffic through a cracked windscreen. She watched the assorted vehicles, all of which were stretched out along the pothole-ridden road and moving at snail’s pace. And then she heaved a heavy sigh, overwhelmed with worry just as she glanced at her wrist watch for the umpteenth time. It was minutes past 8 am and the young woman was nowhere near her workplace. She worried that she might lose her job.
On a normal day, Gloria would leave her house in Egbeda as early as 5 am in order to be at work by 8 am. Just like the hundreds of thousands of Lagosians who live on the mainland and work on the Island, this is the best way to beat the early morning traffic in order to be punctual at work. But Gloria’s early morning routine had to change when last month her neighbour —who also used to leave home early for work — was kidnapped, robbed, and murdered by criminals who pretended to be commuters and a bus driver.
As I sat beside Gloria, who was between the bus driver and myself, I continued to engage her whilst the traffic persisted. She works as a personal assistant to a certain female CEO/Founder of a small cosmetics company. She dislikes this job very much, no thanks to her “bitchy boss” and the poverty pay she receives every month. But she said her greatest challenge is the traffic she faces every day as she commutes to and from work.
Understanding the problem and the challenge it poses
Despite its status as one of the world’s megacities, Lagos suffers major infrastructural deficits. Much like the rest of the country, the city’s transportation system is in urgent need of improvement. And for as long as the Government continues to do very little to solve this problem, the estimated twenty-one million residents in the city will continue to bear the brunt of the challenges posed by it.
According to a civil servant who pleaded for anonymity,
“The Lagos metropolis is replete with the old and decayed infrastructure that was built by the colonialists years ago. As it appears now, the Government doesn’t seem too keen on fixing this mess. Of course, we the people suffer for it.”
Indeed, one of the worst things that can happen to anyone is being stuck in Lagos traffic during early morning rush hour. Unfortunately, this is a reality most Lagosians deal with on a daily basis. And they might have even gotten used to it, especially the mild drama that typically unfolds in a Lagos bus — passengers arguing with the bus conductor/driver, and someone trying to sell a drug that can supposedly cure every ailment imaginable, including HIV/AIDS.
But no matter how much one gets used to the entertaining aspects of commuting to work in Lagos, the truth remains that nothing makes up for being stuck for hours in traffic. According to Mr. Akin who works in the FMCG sector,
“there is something utterly uncomfortable about being in a cramped, stuffy, and slow-moving bus filled with many strangers. You would inhale different types of cheap perfumes, sweat, and exhaust fumes, all while worried that you might just get to work late and get queried.”
How traffic affects workers’ productivity and overall organisational output
After spending about one hour thirty minutes in traffic on the way to the office, it is understandable that workers may feel a little tired and even cranky when they clock in. Therefore, before they can get into the right frame of mind to work, lots of minutes go by. Mind you, this means less time spent working. According to Ms Bunmi Oni who works in Human Resources, this is how traffic affects workers’ productivity.
My first 30mins when I arrive work is very unproductive cos I have to rest first before doing anything, all because the stress of driving through Lagos traffic! Journey from Ogba to Island without traffic is 35mins, with traffic it is now 2hours30mins🤯
— Mabunmi O. O. (@olumabs) September 28, 2018
How are companies dealing with this problem?
As expected, many companies have long identified the challenge posed by the peculiar traffic situation in Lagos, whilst taking various unique measures to address it in their own ways. For instance, some companies have a policy never to employ potential candidates no matter how qualified they are, except such candidates live close to where the job is located, usually on Island. Cynthia, who now works with a PR firm in Ikeja, said her job application was once clearly turned down because she was living in Amuwo Odofin.
Other companies (especially the bigger ones) simply pay their staff more money in order to encourage them to live closer to where the work is. Some of these companies also ensure to provide their own buses which will typically pick up staff members from strategic locations across the city and convey them to work.
Yet, a vast majority of Lagos workers like Gloria, mentioned earlier, must find their way to work every day. Her company is not interested if she must risk her life by leaving home as early as 3 am just so she’d resume early at work. As a matter of fact, companies like the one Gloria works for simply do not care about the distress employees go through to be at work. All they care about is that employees must deliver at all costs or risk their jobs.
Now, let’s examine the negative impact and economic benefits of Lagos traffic
A few years ago, outgoing Lagos State Governor, Akinwunmi Ambode, said that the Government loses an average of N42 billion per annum due to the perpetually bad traffic situation in the city-state. While it is unclear how the Governor arrived at this figure, it seems plausible enough because the traffic crisis in the city is indeed a full-blown one. The question though is, what has his administration done over the past four years to address the problem?
But despite the challenges posed by Lagos traffic, the interesting thing is that it does have its positive aspects. For instance, quite a lot of Lagosians make their living selling things to commuters who are stranded in traffic. Along Bank Anthony Way, which leads from Ikeja to Maryland, these hawkers can be seen all day selling everything from cold carbonated drinks to phone chargers and household utensils. One of them told me that he prefers selling to motorists because he cannot afford to rent a shop.
Meanwhile, not every Lagos worker is affected by the traffic problem
It is important to note at this juncture that although this problem may seem like a widespread one, not everyone in Lagos is affected by it. This is because asides those who can afford to live close to where they work, there are also those who always commute against the traffic every morning and evening. Examples of these ones are those who live on the island part of Lagos but work on the mainland. This is because while the heavy traffic moves from the mainland to the Island in the morning, the reverse is the case in the evening, thereby making it possible for Island residents who work on the mainland to commute the Third Mainland Bridge without stress.
What are the likely solutions to this problem?
To be fair, managing the city of Lagos must be quite the task. The city has an estimated population of more than twenty million people; more than the entire population of some Northern European countries. That notwithstanding, we all know that one of the ways to get the city to function efficiently is by fixing its infrastructural problems.
It is high time those in charge of administering the affairs of the city began to put in more efforts to address the issue of infrastructural inadequacy. Roads should be repaired/widened, even as alternative means of transportation like water and rail must be developed.
Meanwhile, companies should consider more humane approaches to dealing with this issue and the challenge it poses to employees. According to Mr. Jude Adigwe, an HR professional, one of such humane approaches is to come up with more flexible working hours. In his words
“I think we should take a more humane approach to this. We may want to revisit resumption time or possibly come up with flexible working hours. That’s more practical than offering loans to bring people to live closer to the workplace.
“Lagos is a peculiar state and one needs to look at the challenges peculiar to living in it. That said, I won’t soft-pedal on KPIs. They must achieve their performance goals.” -Adigwe
In the meantime…
It is interesting to note that while the problem persists, some Lagosians have figured out better ways to cope with the traffic in the city. For example, a Nairametrics Twitter follower named Izzi Boye said he tries to “learn/improve on productive skills” during his commutes in Lagos traffic.
Since traffic is inevitable in Lagos, I try to make good use of it. I try to learn/improve on productive skills. During my NYSC in 2016, on my daily commute, I learned digital marketing using @Google resources and following their course track. I only did this during my bus time.
— Izzi Boye (@izziboye) September 28, 2018
Others also read books on their android phones, or simply watch YouTube videos to keep their minds at peace. This goes to show how resilient Nigerians are and how they can withstand the daunting challenges they face as they pursue their daily activities.
Julius Berger’s rebound contingent on full economic bounce back
Julius Berger’s construction portfolio includes infrastructure, industry, building, and facility services solutions.
Due to the COVID-19 pandemic as well as the economic impact of the measures put in place to slow the spread of it, many industries have experienced slower growth. The construction industry was not left out. According to reports by GlobalData, the construction output growth forecast for Sub-Saharan Africa (SSA) has been revised to 2.3%, down from the previous projection of 3.3% (as of mid-April) and 6.0% in the pre-COVID-19 case (Q4 2019 update).
The reason for the contraction was noted by GlobalData to be as a result of the global slowdown and the outbreak of COVID-19 in the region. Other factors responsible include economic headwinds such as inflation, spending cuts, widening fiscal slippages, suspension of certain projects and more that could disrupt the construction sector. This contraction is projected to be 4.3% in South and Southeast Asia while France is expected to shrink by 9.4% in 2020.
Leading Construction Company, Julius Berger, had foreseen the contraction in the industry and commenced efforts to mitigate its impact and cushion the blow. One of such efforts was the reduction in dividend pay-out. After initially announcing a dividend pay-out of N2.75K per 50K share for the financial year ended December 31, 2019 and a bonus of 1 (one) new share for every existing 5 (five) shares held, the company eventually recommended a final cash dividend pay-out of N2.00K per 50k share.
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It noted that the Group had “carefully considered the emerging social, operational, financial and economic impact of the COVID 19 pandemic, the outlook for Nigeria for the financial year 2020, and the impact on the business and cash flows of the Group.”
The company’s fears have been confirmed by its recent financials which, among other negatives, showed huge foreign exchange losses of N3.102 billion in the first half of 2020.
Q2 was the hardest
Julius Berger’s construction portfolio includes infrastructure, industry, building, and facility services solutions. With companies and nations alike revising scheduled capital expenses as a result of the shrinkages in product demand (owing to global quarantine measures), uncertainties around supply logistics as well as supply of materials, the company had gotten hit. Q1 had its own issues, but Q2 birthed a new dimension of challenges for the company.
Revenue was down 33% from N68.9 billion in Q2 2019 to N46.1 billion in 2020. There was also a huge loss in profit after tax of around 200% from a profit of N2.3 billion in Q2 2019 to a loss of N2.3 billion and this can be attributed to lower revenue, and increased losses from the company’s many investments.
Exchange difference on translation of foreign operations for the quarter alone increased by 227% to N1.4 billion in Q2 2020 from N438.5 million in the comparative quarter.
Outlook for the company and for investors
The disruptions the construction industry is currently experiencing is expected to continue for the medium-long term. Reports by Beroe Inc., a procurement intelligence firm, reveal major concerns that companies in the industry will witness profits being hurt and may even incur losses on a number of projects.
Companies having worldwide supply chains could see tier 2 and tier 3 suppliers highly affected by disruptions related to the pandemic. Worse off, it explains that construction materials like “steel, wood, plaster, aluminum, glazed partition systems, cement and cementitious products, paints, HVAC equipment, electrical equipment, and light fixtures from China are expected to be delayed.”
For the company, cost-cutting has never been more important. While there are a series of strategies it could explore to augment the challenges, its growth right now depends largely on the speed of global economic recovery. This is because both the company’s input needs as well as its output in terms of the recommencement of projects, depends on the speed with which business as usual commences and the amount of time it takes for the industry to find a new balance for its operations.
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For investors, however, this presents a long term opportunity. Julius Berger currently trades at N15.05, falling 44.26% just within the last 3 months. The share price is also on the downside of its 52-week range (N14.42 and 22.92) and its price-to-book ratio of 0.6331 shows that the stock is undervalued.
While the company’s EPS is currently low at N2.52, investors who are willing to wait the time could find a gem in the stock particularly with the increased infrastructural needs born out of the population expansion which is taking place in many parts of the world in the years to come.
Total Nigeria caught in the oil demand and lockdown saga
In Q1 2020, the company had recorded a revenue drop of 9.3% to N70.2 billion compared to Q1 2019.
The year 2020 was supposed to be a good one for the global oil and gas industry. Save for the unprecedented fangs of the Covid-19 pandemic, the IEA had forecasted in February that the global oil demand would grow by 825,000 barrels a day in 2020. On the contrary, lockdown measures restraining travel and other economic activities to contain the pandemic in many parts of the world had global oil demand down around 90,000 barrels a day from 2019. While the upstream sector had a direct hit owing to this reduced demand, the impact of the pandemic on the downstream oil industry caused the price of crude oil to fall significantly in a short period of time. GlobalData had forecasted that the energy sector would face downward earnings revisions of 208% in 2020.
With the pandemic leading to a slowdown in a wide range of business and personal travel, even gasoline demand had reduced and this has led to inventory challenges in both the distribution network as well as the refineries. In Nigeria, following the challenges of the pandemic, the federal government deregulated the downstream sector of the oil industry through the removal of fuel subsidy. While it presents a level playing field for the downstream oil private sector, it didn’t take long before companies like Total Nigeria plc. started caving into the overall reduction in inventory from the reduced demand for oil products in Q2 2020. Consequently, the company witnessed a 45% reduction in inventories from N33.6 billion as at 31st December 2019 to N18.5 at the end of Q2 2020.
How the exogenous shocks affected an already ailing Total Nigeria
The success or failure of any organization depends on both the macroeconomic environment as well as the operations of the company itself. For Total Nigeria, the timing for the crisis had been off as it too had operational challenges to deal with. In Q1 2020, the company had recorded a revenue drop of 9.3% to N70.2 billion compared to Q1 2019. While the headwinds of the pandemic might have played a small role in the decline at least in the latter part of the quarter, the loss after tax of N163 million it had recorded was 65.6% better than the loss after tax of the comparative quarter – a testament of the series of operational challenges it had from huge loans to raging expenses. While the company had set off on a strategic trajectory deploying a series of initiatives around cost efficiency, process optimization, as well as a significant reduction of working capital requirement and finance costs, Q2 had its own troubles waiting.
Restrictions in the oil market had led to weaknesses across product lines. Total revenue fell by as much as 50% from N73 billion in Q2 2019 to N36.5 billion in Q2 2020. Revenues from petroleum products had contracted by 55.7% while lubricant sales also fell by 26.7% in the quarter. Across the company’s core business sectors comprising Networks, General Trade, and Aviation, revenue from aviation experienced the most decline, falling by 83.0%. Its performance can be predominantly attributed to the fall in demand owing to strict lockdown measures even in major Nigerian cities.
The outcome of the company’s internal and external challenges is a loss after tax of N373.9 million from N604 million in Q2 2019 – an alarming drop of 161.9%. However, its strategic intent is also visible. Net cash balance was a negative N19.6 billion at the end of the quarter, compared to negative N41.8 billion a year ago. Finance costs also declined by 76.1% to N830.3 million as the company sought to reduce its leverage position. In the same vein, borrowings came at N31.0 billion in Q2 2020 as opposed to the N39.9 billion in Q2 2019. Yet, the success of the company in the immediate future is somewhat bleak.
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This is because of the conditions of the oil market and overall economic landscape which is set to take a few years before returning to the norm as well as the financial and operational position of the company. That said, its earnings per share (EPS) of N4.37 and its price-to-earnings ratio of 18.12, reveal that the company has a good potential to make a rebound. However, it could take a few years. Hence, investors must be willing to wait for the long term. With its share price of N79.10 at the far bottom of its 52-week range of N78 and N129.50, it’s a great time to purchase its shares if you are willing to wait the long term.
Implications of CBN’s latest devaluation and FX unification
This move portends significant implications for Nigeria’s public and private sector.
The CBN devalued the naira by 5% at the end of last week, adjusting the official exchange rate to N380/$1 in a major move aimed at unifying the multiple exchange rate windows.
Whilst no official confirmation was issued by the apex bank, its website displayed the buying rate of N379/$1 and selling rate of N380/$1. Nigeria is clearly in a new exchange rate territory.
This move portends significant implications for Nigeria’s public and private sectors. Since March when the CBN last depreciated from N307/$1 to N360/$1, there have been calls for further depreciation to at least close the gap between the official CBN rate and the more market-friendly NAFEX exchange rate. The NAFEX rate has traded between N385-390 in recent weeks.
For the federal government, devaluing the naira solves two major issues:
- Firstly, it increases the amount available to share from the Federal Allocation (FAAC) between the FG and States.
- Oil proceeds, which is a major source of revenue sharing for the government is deposited at the CBN and then converted to naira using the official exchange rate of N360/$1. The CBN’s latest devaluation suggests more money for the government as the conversion rate is now N379/$1.
- Government taxes that are priced in forex but converted to naira also stand to gain a major earnings boost.
- Custom duties, petroleum profit taxes, and other charges will now be converted at an exchange rate of N379/$1 or whatever new rate the CBN chooses, assuming it will work within the NAFEX band.
- A second issue the solves is the condition precedent towards obtaining a $3 billion world bank loan. The government applied for a world bank loan as part of its N2.3 trillion stimulus expected to be injected into the economy.
- It is understood that a unification of the exchange rate is critical to the disbursement of the loan.
Whilst these are positives, the government will record cost escalations for some if not all of its capital projects and expenditure. From vehicle purchases to furniture and fittings we should expect a spike except the contracts are fixed-priced.
The impact of the latest devaluation will also be significant for the private sector.
- While the private sector has recorded its own devaluation via the NAFEX and more recently the SMIS window, the impact of the CBN’s latest move will still be felt.
- Most private pubic partnership projects, contracts are priced using the CBN official exchange rate. The price will now change to N379/$1 at the least.
- The latest move could also lead to a reopening of forex sale to BDC’s which the CBN suspended in March as the Covid-19 pandemic ensued.
- Sectors such as Power, Downstream Oil and Gas where the government has control over pricing will be significantly affected by the new price.
- An example if fuel prices. With the exchange rate devalued again, fuel prices might increase if the impact of the exchange rate is reflected in the pricing template.
NAFEX versus Official Rate
It is not clear how the latest round of devaluation affects the NAFEX rate and other separate rates currently in use by the CBN. Whilst the disparity has been closed somewhat, we still do not know if these windows will be retained or if we will just have two major exchange rate windows, the BDC and the NAFEX.
Most critics of the CBN’s forex policy prefer a uniform exchange rate that is floating or under a managed float system. The difference is that the CBN intervenes occasionally to ensure the exchange rate trades within its preferred band. It does this even if it means burning through its thin reserves.
We expect a string of circulars in the coming days which will perhaps douse some of the confusion providing needed clarity to the exchange rate situation.