Blurb
A look at the secret behind Chinese companies’ success in Nigeria
China’s economic exploits across Africa have continued to fascinate observers.
China’s economic exploits across Africa have continued to fascinate observers. Here in Nigeria, the Asian superpower has been able to successfully establish itself as an important ally, a situation that has resulted in some very positive outcomes.
One of the outcomes of the economic partnership between Nigeria and China is the growing number of Chinese-owned enterprises in the country. Typical examples include the likes of Boomplay, Opera (and its many subsidiaries), and CWay among others.
Focus on Boomplay’s success
The rate at which Chinese companies are expanding in Nigeria is something that should be emulated. As you may recall, Nairametrics reported last month that Boomplay was set to expand into some Francophone African countries. The move came after the Chinese-owned music streaming company had consolidated on its Nigerian operation, thanks to the millions of dollars’ worth of investment funding which it recently secured.
The company’s recent partnership with Warner Music gave it an edge over competitors by allowing it to bring international contents to Africa. This is part of the company’s strategic effort to become a one-stop-shop for local and global contents.
The Opera family is also doing well
As you can expect, Chinese-owned companies in Nigeria specialise in offering solutions to basic Nigerian problems, thereby creating value in return. In the case of OPay, which is a subsidiary of Opera, the company has brought so much vigour into the Nigerian payment ecosystem within a rather short period of time.
[READ MORE: Quoted Companies post N4.2 trillion combined profits since 2015]
While its competitors like Paga and QuickTeller agents use kiosks and other means to remain visible, OPay developed “nearby agent”, an in-app feature for finding agents. It uses GPS to connect users with the nearest agents.
Along with its components such as ORide (a bike-hailing service) and OFood, which specialises in food delivery, the company has continued to expand. In the meantime, the parent company (Opera), which was bought over by its current Chinese owners from some Norwegian owners in 2016, has continued to be the internet browser of choice for many Nigerians.
Other notable Chinese companies
In the same vein, CWay Nigeria Drinking Water Science & Technology Co. Ltd came into the Nigerian market in 1999. Although the Nigerian portable water industry was already saturated at that time, the Chinese-owned company was able to create a niche for itself. Since then, it has diversified its operation in Nigeria with the launch of several beverage brands, even as it has also expanded operations into five other countries including Kenya.
Let’s not even talk about the story of Huawei, the globally successful phone manufacturer and ICT infrastructure company which has long established its presence in Africa’s most populous country. Perhaps the success of Huawei in Nigeria is what motivated several other Chinese companies to set up shop here.
Back to the issue at hand…
That said, it is important to note that the ability of these Chinese companies to meet basic needs in Nigeria is not necessarily the only factor behind their success. After all, there are many Nigerian businesses (with good business models) that are still struggling to survive despite many years of being in operation. Let’s not even talk about the thousands of Nigerian entrepreneurs with incredible business ideas whose businesses have yet to take off.
What secrets are the Chinese using?
Well, apart from their viable business models, another thing that is really helping Chinese companies in Nigeria is easy access to funding. According to a report published by the Institute of Developing Economies, which is under the Japan External Trade Organisation, China’s financial institutions play an immense role when it comes to supporting Chinese businesses in Africa.
The likes of Industrial and Commercial Bank of China, the China Export-Import Bank, the China Development Bank, etc., are reportedly willing to stake parts of the huge financial resources at their disposal just to support Chinese enterprises in Nigeria and elsewhere.
“Critical to China’s economic successes in Africa has been the important use of the country’s state backed banking institutions. Under-pinning the aggressive buy-out of foreign resource companies, mineral and energy reserves and large institutional investment projects in the continents oil and infrastructure sectors, are a phalanx of state funding agencies supported by massive national reserves of accumulated liquidity of over US$2 trillion, ready to be shifted into the global market at a moment’s notice.”
This is probably nothing new, especially to those in the know. However, it underscores a very important point – the fact that adequate funding is necessary for business growth and success.
[READ ALSO: Indigenous companies, Oando and JV Partner Promote Health Initiative in Kwale Delta]
What Nigeria should learn from this?
Again, let it be argued here that the greatest problem facing Nigerian entrepreneurship is not the dearth of viable business plans, but the absence of adequate funding. There are many business plans by Nigerians that could solve Nigeria’s problems. Sadly, not enough funds are readily available to finance these business ideas. Unfortunately, no business can succeed without adequate funding.
The issue of lack of adequate funding for Nigerian businesses by Nigeria’s financial institutions is so serious that majority of the country’s tech ecosystem is built almost exclusively with foreign capital. This situation has elicited concerns from stakeholders, with a Nigerian VC expert (Abasiama Idaresit) highlighting its problematics.
That said, it is high time Nigeria’s financial institutions began to try harder to provide financial support to Nigerian businesses. This is the only way they too can succeed like their Chinese counterparts. Already, the Central Bank of Nigeria has given the country’s lenders till next month to ensure that they maintain a loan-to-deposit ratio of 65%.
If this directive is strictly implemented by the CBN and adhered to by the lenders, it will go a long way towards ensuring that entrepreneurs in the country are availed access to finance. This will, in turn, enable them to grow/expand their businesses.
Blurb
Nigerian Breweries leveraging, but stacking cash through rising input costs
The marathon continues for Nigerian Breweries with its 2020 financials.
Humanity might need more booze to survive the increasingly daunting intricacies of life, but Nigerian Breweries 2020 financial statement is proof that even the best can get caught up in the reality of changing business lifecycles.
Nigerian Breweries Plc had floored the market providing both alcoholic and non-alcoholic premium quality beverages across the nation. But with brands like Star lager beer launched as far back as 1949, Gulder lager beer launched in 1970, and even the family-friendly Maltina introduced as far back as 1976, it is only natural that both the old and new generation competition gives them a run for their market share.
Much like other old money companies, Nigerian Breweries has done its bit to remain relevant in the industry from creating new variants of existing favoured brands to paying dividends consistently annually for the past few years. Yet within the same period, the company’s financial statements have been a testament to its streamlined market share and reducing profits. The marathon continues with its 2020 financials. The industry giant may as well be setting itself up for a debt quagmire peradventure its projections do not match the true reality of events.
READ: How COVID-19 has changed Nigeria’s consumer goods & industrial markets –KPMG
2020 financials: A tale of higher costs & larger debts
2020’s unfavourable financial/ business environment led to the increase in the prices of raw materials and disruptions in logistics for many Nigerian-domiciled businesses including Nigerian Breweries. Raw materials and consumables witnessed a 17% increase despite the marginal growth in revenue.
While the group’s 2020 results revealed a 4.35% increase in revenue from N323 billion in the prior year to around N337 billion, these gains were curtailed by a higher-than-par increase in cost of sales which had risen by 13.9%, from the N191.8 billion expended in 2019 to N218.4 billion as its 2020 financials reveal and interest rates going way up.
READ: Flour Mills and its diverse challenges
The company’s lower operating expenses were not enough to salvage the disruption caused by the raging interest expense following increased charges paid on bank loans and overdraft facilities as well as the significant increase in overall debt. Between 2019 and 2020 alone, long term loans and borrowings increased by 974% from N4.8 billion to as much as N51.8 billion. Even trade and other long term payables increased by 35%.
In its financials, the company noted that it has revolving credit facilities with five Nigerian banks to finance its working capital. The approved limit of the loan with each of the banks range from ₦6 billion to ₦15 billion (total of ₦66 billion) and each of the agreements had been signed in 2016 with a tenor of five years. The Company had also obtained Capital and Working capital finance from the BoI in 2019.
READ: Manufacturing sector in Nigeria and the reality of a “new normal”
It is no news that the company is involved in diversified lease arrangements. Following reclassifications made in 2019 to some of its lease assets, the 2020 asset base also witnessed significant increase in Right of Use Assets which increased by 288%% from N11.1 billion to N42.9 billion. Yet, the fact that in one year, interest expense on Lease Liabilities rose from N19.7 million in 2019 and to a whopping N4.171 billion shows that the company is taking way more debt than its books require.
But what’s it using all the cash for?
Beyond rising material costs, borrowing costs have been huge and the annual interest payment by virtue of these loans make the possibility of higher profits for the company a mirage. That said, the overall increase in total liabilities might not have been such a bad idea if the funds were being used to increase revenue and profits. But having a huge chunk of all that money in cash creates a different kind of challenge. Cash and bank values in its statement of financial position significantly increased by 377% from N6.4 billion in 2019 to N30.4 billion in 2020.
Is the cash being held to mitigate possible challenges of the volatile economy or are they being used to pay dividends? Even at a share price of N52 per share, the company’s price-to-book value sits at 2.5816, testament of its dire overvaluation. Consequently, there is an ardent need for the company to come up with newer ways to attract the wider market and keep its book in the green with a little less external funding.
Blurb
Secret behind MTN’s blistering performance
Despite COVID-19 disruptions, MTN Nigeria’s 2020 financials showed marked improvements compared to its 2019-year-end.
