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5 things Buhari’s new Finance Minister must do within 100 days

5 things @MBuhari’s new Finance Minister @ZShamsuna must do within 100 days

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Finance Minister, President Muhammadu Buhari, AFCTA

Nigeria’s President Muhammadu Buhari will likely assign portfolios to ministers this week. Among the most anticipated appointments will be the office of the Minister of Finance.

In Nigeria, the Minister of Finance oversees setting and implementing the economic policies of the government. Under Buharinomics, this portfolio has been characterized by controversies and (perhaps this sounds harsh) incompetence.

Whomever President Buhari decides to appoint to that portfolio this week will have his or her work cut, out and could be expected to remain in the portfolio for the next four years. Never before, in the democratic dispensation ushered in since 1999, has the portfolio of the next Minister of Finance been so important.

Thus, it is crucial that whoever is appointed sets the ball rolling immediately, making a mark in the first 100 days in office. Nairametrics surveyed opinions from economists and analysts on what their expectations are from the Minister. Unfortunately, most of the requests instructively laid down by our analysts may not be acceded to, nevertheless, it still is important to lay down the marker.

[Read Also: Difference between FGN Savings and Treasury Bills]

Fiscal Quagmire: According to Wale Okunrinboye, the Head of Research at Sigma Pensions, the Minister will need to produce a credible plan for improving Nigeria’s fiscal revenues. Nigeria is yet to recover fully from the 2014 crash of the price of oil, as the government has had to rely on increased borrowings to finance capital and recurrent expenditure.

  • Since President Buhari assumed office in 2015, the country’s debt profile has increased by almost 107% in naira value.
  • In the first quarter of 2015, Nigeria’s total public debt stood at N12.4 trillion or $64.2 billion, while it rose to N24.9 trillion or $81.27 billion in March 2019.
  • Analysis of data obtained from the Debt Management Office also shows that Nigeria has spent a total of N7.04 trillion to service both domestic and external debts under President Muhammadu Buhari’s administration alone.
  • Nigeria currently spends over 50% of its revenues on debt servicing.

Unfortunately, the government plans to fund the 2019 budget with even more borrowing. We do not expect the Finance Minister to go against this plan.

Relationship with CBN: According to Yomi Fawehinmi, an Oil and Gas expert and Economic commentator, the new Minister will have to secure better coordination with the Central Bank of Nigeria. During the last regime, Nigeria’s Minister of Finance, Kemi Adeosun, had a cordial relationship with the Governor of Central Bank in the eye of the media, but often differed on policy coordination.

  • While the government pursued economic expansion via monetary handout to the poor, the Central Bank towed the way of the hawkish monetary policy.
  • The Buhari government has spent billions on grants to farmers as it pushed through its agricultural policies.
  • While it favoured the way of grants and soft loans to farmers and other preferred sectors of the economy, the Central Bank often raised lending rates to discourage excessive borrowing, part of a grand plan to stifle demand for forex.
  • In the case where there was coordination, it was a disaster. Case in point, the way the government handled the exchange rate crisis and its synergy on pseudo banning of importation of 41 items.

[Read Also: Access Bank Unveils Smartphone Device Financing Scheme]

Yomi believes that the government will have to focus more on policy coordination if it encourages private sector investments. He also believes that transparency in public finances is key in improving investor confidence in the management of economic coffers, especially the CBN.

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Unfortunately, this too is unlikely to happen, as the president is more inclined towards interference. Just last week, the president declared that he had instructed the CBN Governor to stop providing forex to suppliers of food.

Budget Implementation: Nigeria’s 2019 Budget has its fair share of positives, even if most critics of the government still highlight its shortcomings. Nevertheless, the new Minister will have to ensure that the budget implementation plan is robust and cash-backed.

  • Out of the N8.9 trillion earmarked for the 2019 Budget, N2 trillion was budgeted for Capital Expenditure.
  • Critical sectors such as Power, Works, and Housing are badly in need of funding to complete projects across the country and initiate new ones.
  • Massive infrastructural work across the country can help stimulate its economy.

Ighodaro Alonge, a Fund Manager, and Financial Analyst believe that the government should reduce its wage bill, particularly recurrent expenditure. It is however unlikely that the government will cut down on recurrent expenditure.

[Read Also: CBN is no longer independent – Moghalu]

In fact, over the years, the government has achieved 100% spending on recurrent expenditures but far less on capital expenditure. It could also be beyond the purview of the Minister of Finance to implement budget across the economy.

CBN Ways and Means: In 2016, the Emir of Kano Sanusi Lamido Sanusi accused the CBN of contravening section 38.2 of the CBN act by borrowing more than the required threshold to the Federal Government. This has not deterred the CBN, as the apex bank has continued to lend money to the government.

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  • As at May 2019, the CBN has lent a whopping N6.8 trillion to the FG in the form of “overdraft for Budgetary Expenses” as contained in its data.
  • The CBN Ways and Means, which the Emir of Kano alleged was being violated, is also drawn to the tune of about N277 billion only.
  • The government is likely to continue to rely on the CBN to fund its budgetary expenses, hoping to repay someday from oil receipts.

Dr. Nonso Obikili, an Economist, believes that the new Minister should rein in on the indirect financing of the FG by the CBN. With oil prices falling and the government increasingly failing to achieve its budgetary targets, it is unlikely that the new minister will have the balls to stop this ill-advised policy.

It is interesting to note how similar all the recommendations are including that of @Ugodre, the founder of Nairametrics.

See the table below:

Finance Minister, Buhari

What the new Finance Minister must do

[Read Also: History repeating itself as President Buhari grounds work on capital projects]

Blurb articles are succinctly written opinions editorials from content contributors expressing their views on financial reports, macroeconomic data, and economic policies. Blurb is recommended for readers seeking 'straight to the point' information and viewpoints that can help shape better investment decisions.

2 Comments

2 Comments

  1. Femi Obadeyi

    August 19, 2019 at 9:39 am

    Please clarify if the recommendations of both Dr. Nonso and Ighodaro are the same. Both recommendations are verbatim in the table provided.

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Merger, Tax incentive boosts BUA Cement FY 2019 result

BUA Cement Plc recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.

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BUA Cement gives succour to host communities in Edo

One of the industries set to experience the downsides of the Covid-19 pandemic is the construction industry. Given the slowdown in construction activities as a result of the lockdowns and constrained economic activities, the reasons are not farfetched.

Prior to the outbreak of the pandemic, Globe Newswire had predicted an accelerated growth pace of the global construction industry from 2.6% in 2019 to 3.1% in 2020. This growth has now been revised to 0.5%. What is even more daunting is that the revised growth rate is based on the assumption that the outbreak will be contained across all major markets by the end of the second quarter of 2020.

It is only after that (including freedom of movement in H2 2020) that events could facilitate reverting to the normal course of activities to foster businesses in the industry like BUA Cement or those that depend on it to restart activities.

Nigeria’s third-largest cement company, BUA Cement Plc, however, still has its 2019 victories in order. Involved in the manufacturing and sales of cement, BUA Cement has 3 major subsidiaries and plants in Northern and Southern Nigeria.

(READ MORE:Update: BUA Cement Plc lists N1.18 trillion shares on NSE)

With a market capitalisation of N1.18 trillion ($3.3 billion), BUA is the third most capitalised company on the NSE. Its recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.

Kalambaina Cement Line 2, BUA Group, Kalambaina Cement, CCNN, Merger, Tax Incentive Boost BUA Cement FY 2019 Results

The company’s profits also increased by 69.1% from N39.17 billion in 2018 to N66.24 billion in 2019. Core operating performance was strong, and this was supported by strong cement sales in the domestic market, impairment writes back, and other income.

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The main reason for the company’s increased earnings is from the cost synergy and increased revenue as a result of the merger that took place between CCNN Plc and Obu Cement Company Limited.

There was also a striking jump in its income statement on its tax for the year. For FY 2019, it incurred a tax expense of N5.6 billion, in comparison to the N24.9 billion tax credit it received in FY 2018.

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This was as a result of a reversal of previous tax provision made on Obu Line 1; it received approvals for an extension of the company’s pioneer status on Obu line-1 and Kalambaina line-2 in February 2020, to leave effective tax rate at just over 8% in 2019. The pioneer status will help the company save funds that will otherwise have been spent on higher taxes.

(READ MORE:Dangote Cement to access more debt funding)

BUA reported an impressive FY’19 result. Its performance shows the growing strength of the company and its increasing market share. On the back of the strong performance, management declared an N1.75 dividend per share that translates to a dividend yield of 5.5% on current prices.

Cash flow position was also robust with a strong closing cash balance – from N2.8 billion in 2018 to N15.6 billion as at year ended 2019. The company’s growth, as well as the impact of its merger, present a great buy opportunity of the highly capitalized, low-cost stock. As of today when the market closed (21st May) its share price stood at N35.60 from a 52-week range of N27.6 and N41.

READ ALSO: COVID-19: Best and worst case scenarios for the Nigerian economy

What we see is a great growth stock further heightened by the population expansion and increased urbanization. However, we expect the impact of the Covid-19 pandemic to be felt from the Q1 results of the company.

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The industry could slow down for the year as the level of commercial construction also slows down. Yet the best part of holding stocks like this is that even with stalled operations for a period, a resurgence will always emerge.

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Analysis: Airtel Nigeria is winning where it matters

Airtel has left no stones unturned in ensuring that its provisions are top-shelf – subscribers to the network, of course will have their own ideas.  

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Analysis: Airtel Nigeria is winning where it matters.

Airtel might have won our hearts over with internet-war adverts starring our favourite tribal in-laws, but its fundamentals are what will make us the bucks that keep us happy. Airtel Africa Ltd is a subsidiary of Indian telecoms group, Bharti Airtel Ltd; the group has left no stones unturned in ensuring that its provision of prepaid plans, credit transfers, mobile internet services, messaging, roaming facilities and more, are top-shelf – subscribers to the network, of course, will have their own ideas.

Since last year when Airtel Nigeria became the second telecommunication company in Nigeria listed on the NSE, the company has experienced a steady level of growth. With a presence in 14 African countries, the group’s strength lies in its diversity with stronger companies mitigating the poor performances of others.

Performance Overview: Airtel Africa 

Airtel Africa’s report for the year ended March 2020, revenue jumped by 10.9% from $3.1 billion at the year ended 2019 to $3.4 billion in 2020. The consolidated profit before tax also jumped by 71.8% from $348 million in 2019 to $598 million in 2020. However, profit for the period dropped by 4.23% with earnings of $408 million in 2020 from the $426 million it had earned in 2019. A reason for this is the tax figure that moved from a credit of $78 million in 2019 to tax payments as high as $190 million in 2020. Total assets also jumped by 2.41% from 2019’s value of $9.1 billion to $9.3 billion in 2020 primarily as a result of their acquisition of more property, plant, and equipment (PPE). The total customer base grew by 9.3% to 99.7 million for the year ended.

Full Report here.

Revenue growth of 10.9% was driven by double-digit growth in Nigeria and East Africa. However, the rest of its African operations experienced a decline in revenue. Its success in Nigeria is especially commendable, considering the fact that the company lost more than 100,000 subscribers in Nigeria between December 2019 and January 2020. Raghunath Mandava, Chief Executive Officer, remarked that the results which were in line with the group’s expectations, “are clear evidence of the effectiveness of our strategy across Voice, Data and Mobile Money.”

(READ MORE: NCDC and NNPC-IPPG reinforce #TakeResponsibility theme with multi-lingual campaign)

Behind The Numbers – Nigeria

Airtel Nigeria’s performance indicates the company is making the right calls in a very competitive industry. Nigerians are fickle when it comes to data and voice but will spend if the service is right. The company grew its data revenue by a whopping 58% to $435 million a sign that its strategy to focus on data is working. Voice Revenues for the year was up 15% to $850 million. In total, Airtel Nigeria’s revenue was up 24.4% to $1.37 billion. Ebitda margin, a number closely watched by foreign investors 54.2% from 49% a year earlier. Operating profit for the year ended also jumped by 52.6% for the year from 2019 and 32.4% from Q1 2019. Total customer base in Nigeria also grew by 12.5%.

Regulation forces Airtel Africa to initiate shares listing in Malawi , Analysis: Airtel Nigeria is winning where it matters.

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Nigeria is surely critical to Airtel Africa’s future seeing that it contributes about one-third of its revenue. Recent results thus indicate it is winning where it matters most and it must continue to stay this way if it desires to survive a brutal post-COVID-19 2020. Telcos are expected to be among the winners as Nigerians rely more on data to work remotely but there are other players in this game. Concerning the impact of the pandemic, he explained that at the time of the approval of the Group Financial Statements, the group has not experienced any material impact arising from the impact of COVID-19 on its business.

On cash flows…

The group has also taken measures to enhance its liquidity. The CEO explained that it is moving its focus to enhance liquidity towards meeting possible contingencies.

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“Having considered business performance, free cash flows, liquidity expectation for the next 12 months together with its other existing drawn and undrawn facilities, the group cancelled the remaining USD 1.2 billion New Airtel Africa Facility. As part of this evaluation, the group has further considered committed facilities of USD 814 million as of date authorisation of financial statements, which should take care of the group’s cash flow requirement under both base and reasonable worst-case scenarios.”

To this end, they have put in the required strategies to preserve its cash as its cash and cash equivalents, consequently, jumped by 19.1%.

(READ MORE: COVID-19: MTN says it has put strict measures in place to preserve resources)

Buying opportunity

Investors looking at this impressive result will be wondering if this portends a buying opportunity. Airtel Nigeria closed at N298 on Friday and has remained at this price for about a month. The stock is quite illiquid and is not readily available to buy.

It’s the price to earnings ratio of 4.56x makes it quite attractive. Further highlighting this opportunity is its price-to-book ratio which is as low as 0.5273, suggesting that the stock could be undervalued. Whether it is available to be bought, is anyone’s guess.

 

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Analysis: Nestlé strong but exposed.

Being a market leader is great, but in times of economic despair, it can quickly turn you into prey.

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Why Nestle Nigeria’s return remains strong - EFG Hermes, Nestle Nigeria Plc appoints new Director, Nestle Plc: FY 2019 Revenue beats estimate; but profit underperforms

With about six decades of being the choice companion for families within Nigeria and the diaspora, Nestlé Nigeria Plc has positioned itself as one of the largest food and beverage companies on the continent. Owing to the expansive growth of Nigeria’s population – one projected to reach 300 million by the year 2030, as well as the growing middle class, the FMCG sector has a very positive outlook.

Consequently, Nestle’s leadership in the industry and its huge market size expectedly gives it a huge advantage. However, with the global economy barely racing against the impact of the Covid-19 pandemic, even the brimming FMCG sector will experience its own level of disruption.

Nestle’s recently released Q1 2020 financials reveal a revenue decline of 0.9%, as it dropped to a marginal ₦70.33 billion from the ₦70.97 billion turnover it garnered in Q1 2019. The profit before tax also experienced an 8.7% drop while the profit after tax had a 12.84% drop, both yielding ₦17.5 billion and ₦11.2 billion respectively, for the first quarter of this year. This is predominantly owing to its increased losses from its overseas activities.

READ ALSO: Italy to invest in Nigeria’s agric sector

The company procures all of its raw materials on a commercial basis from overseas and local suppliers; consequently, the percentage of its supplies dependent on international suppliers had a negative impact on its Q1 2020 financials. Its profits were plagued by a foreign exchange loss of ₦154.7 million from ₦18.9 million, an even higher loss of 720.6%. While the company did not disclose the value of its export revenue, we believe it too might have suffered from reduced exportation in the latter part of the quarter.

The group has since been taking on expansionary projects, such as its launch of a second beverage production plant in Ogun State in February of 2018. The company, on a continuous basis, explores the use of local raw materials in its production processes, contributing its own quota to the Nigerian economy.

READ MORE: Polaris Bank’s profit rises to N26.2 billion from N2.8 billion

Just last week, Nestlé’s stocks went up 2.56% to close at ₦1000, a price it still currently holds today after markets closed. Its price to earnings ratio is 18 and its earnings per share (EPS) of 55.54, signal an investor sentiment of confidence. However, its high price to book ratio of 13.9865 reveals that the company is slightly overvalued and its price of ₦1000 makes it attractive primarily to institutional investors that can afford to purchase large volumes of the stock enough to benefit from its steady growth in value. The company had proposed a dividend payout of ₦45 per share. This also comes after paying ₦25 per share interim dividends earlier. Its dividend yield at the time of writing this is 7%, further heightening the possibilities for the income investor.

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While the company has strong fundamentals governed predominantly by its position as a market leader, its years of experience, and its existence in the FMCG sector, it too might not have a smooth sail in the coming quarter. Its overseas business from both the supply and the demand sides are expected to experience a further decline, ultimately resulting in an even lower relative turnover and lower earnings.

READ MORE: Cadbury Nigeria reports N638.9 million profit for Q1 2020

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We also expect the decline in average disposable income of Nigerians from loss of jobs and an overall wariness of the economic impact of the pandemic, to further drive down turnover; however, sound operational efficiencies and cost control/ profit strategies by the group could ease the burden. The company fundamentals remain strong but its exposure to consumer disposable income remains a major concern. There is always a cheaper alternative and when your pocket empties your choice for cheaper substitutes swells.

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