Connect with us
nairametrics
UBA ads

Blurb

Nigeria in 2020: SB Morgen perspective

The Nigerian economy is expected to be challenged with uncertainties in the year 2020 and possibly beyond, SB Morgen Research disclosed.

Published

on

Chinese debt trap, Nigerian Economy: Solution To Fixing Buharinomics

The Nigerian economy is expected to be challenged in the year 2020 and possibly beyond. This could be attributed to policies implemented based on impulse and not facts in 2019 by President Muhammadu Buhari’s administration, a report from SB Morgen Research disclosed.

The report described Buhari’s economic policies as ones designed by a protectionist instinct, arbitrariness and a more interventionist stance. How will institutions, and indeed the economy, cope with policies that are implemented based on impulses? It inquired.

UBA ADS

energy, corp, recapitalization, New FIRS boss, Nigerians react following the end of Fowler’s reign as FIRS boss, Buhari seeks recapitalisation of African energy corporation to $1 billion tune, Outrage as President Buhari approves N37 billion for National Assembly renovation

Highlights of the report

  • All metrics for the average Nigerian is in decline.
  • The country’s Human Development Index(HDI) value has only shown marginal increases in the last four years, while capital income has fallen, at a time of rising inflation and tepid growth.
  • At least, 600 people lost their lives by the violence that could be traced to election-related incidents that occurred between the launch of political campaigns and the actual elections.
  • A survey conducted in the wake of general elections showed increasing apathy to the political process.
  • Chinese investments and contracts in sub-Saharan Africa totalled $299 billion between 2005 and 2018, Chinese President Xi Jinping had vowed to invest a further $60 billion in African countries.
  • Average oil prices were below $60 in 2019 while Nigeria’s oil production was under 1.75 million barrels per day, above the pledged OPEC quota of 1.69 million barrels per day.
  • Nigeria ramped up production significantly from June increasing its quota; thereby, forcing OPEC to make complaints in early November after a new quota of 1.77 Mbps was agreed.
  • Food and general inflation fell for much of 2019 only to rise towards the end, driven by an unexpected source. That is the closure of Nigeria’s land border to the movement of goods to and from its neighbours to curb smuggling of petroleum products, rice, and motor vehicles among others.

[READ MORE: Economy: Reviewing FG’s 2019 revenue performance)

Head, Research, SBM Intelligence, Cheta Nwanze, said, “The Nigerian economy continues to struggle albeit remaining on a growth path that saw a 2.28% year-on-year. Growth in the third quarter of 2019 compared to 2.12% rise in the previous quarter.

GTBank 728 x 90

“The nation’s fiscal position has been deteriorating in recent years, as evidenced by a rising deficit and increased borrowing. Failure to enforce tax laws and broaden the tax base has resulted in weak revenue generation. Increased debt has resulted in heightened service costs (about 52% of the government’s revenue). Despite this, the government is seeking approval to take $30 billion in new loans, which if approved will drive the cost to 80% of revenue, an unsustainable figure.”

What to expect in 2020

SBM expects slight economic growth in 2020, which is in line with the World Bank and the International Monetary Fund (IMF) projection for the world economy at 2.6% and 3%. It stated that the direction of global growth in 2020 would be heavily reliant on the outcome of US-China trade talks and Brexit, “and we foresee that because Donald Trump is facing re-election in 2020, he will be more open to dialogue with China thus opening the way for more global growth in the New Year.”

On the local scene, the research firm expects 2020 growth to beat the World Bank’s forecast and come in about 2.4% on the back of improved oil revenues.

“We believe that Nigeria would be stuck in a low-growth cycle for the next few years unless more critical reforms are implemented. A high growth rate will require attracting targeted investment in identified growth-driven sectors like oil and gas, agriculture, manufacturing, and telecoms among others,” Nwanze added.

No surprise as MPC retains policy rates, balancing effects between rising inflation and tepid growth, Financial Inclusion: Fintech firms got $400 million investment in 2019 - Emefiele 

Godwin Emefiele

It expects inflation to continue its sharp rise in the new year leading with food inflation. While the Governor of Central Bank of Nigeria, Godwin Emefiele, expects inflation to moderate within 3-4 months, SBM insists that it expects an average of 13% in 2020.

app

The projection could be attributed to foreign exchange supply restrictions on certain food items, partial border closure, Value Added Tax increase and a possible increase in electricity tariffs and the retail price of petrol.

In all, while all hands are on deck, SBM said the economy might dip back into recession before 2020 is out, as the government is unable to inject any kind of stimulus due to its precarious financial position.

Coronation ads
Patricia

Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper. The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference. The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - [email protected]

1 Comment

1 Comment

  1. anodebenze

    January 2, 2020 at 1:52 pm

    where is the evidence ?,protection measures,arbitrariness,the only protection action done by Mr Buhari was the closing of the border,which will open this month,it is farmers who are pressurizing govt to closes the border.i think things will get better as business confidence is coming back,IF THE GOVT CONTINUE ALL THEIR SOCIAL ACTION,SOCIAL LENDING IN CORMMERCIAL BUSINESS,WE DO NOT FORGET GOVT HAVE STABILIZED THIS RECESSION,AND ALSO,THIS IS THE FIRST RECESSION IN NIGERIAN HISTORY.
    if WE GO BACK TO PRE-RECESSION AND IF THIS BUSINESS CONFIDENCE WILL REACH THIS PRE-CONFIDENCE,and WE DO HAVE CBN INTERVENTION,THE ECONOMY MAY GROW MUCH BETTERas the main action by the govt was in containing this recession,they may change style,by june,if they have seen confidence have been restores,this recession took everybody by surprise and it was very shocking,it is a rude awakeing for all Nigerian,if the economy maintains a growth above the present level for this year and next year,NIGERIANS WILL SEE SOMETHING THEY HAVE NOT SEEN BEFORE

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Blurb

Why Shoprite is “exiting” Nigeria

Shoprite’s intention to divest from its Nigerian operations appears to be anchored on these factors.

Published

on

Shoprite, Growth outlook

Africa’s largest retail chain, Shoprite, announced on Monday that it is considering divesting from its Nigerian retail entity, Retail Supermarkets Nigeria, the owners of Shoprite Supermarket Nigeria.

Shoprite Nigeria operates about 26 outlets across the country and employs about 2000 employees who are 99% Nigerians. A divestment means it will sell its holdings to another investor who will continue to run the business.

UBA ADS

According to the company, it has taken a decision to leave “following approaches from various potential investors” looking to invest in the Nigerian entity.  The group also said the decision is in line with its “re-evaluation of the Group’s operating model in Nigeria” one of the 15 countries where it currently operates.

Shoprite also confirmed it has initiated a formal process to sell its entire stake in the Nigerian entity or a majority stake.

READ ALSO: Nigeria’s retail outlets risk CBN sanction, debit N50 PoS fee from customers 

GTBank 728 x 90

Why the exit?

Shoprite’s explanation of its intention to divest from its Nigerian operations appears to be anchored on its investment expectation and operating environment. However, there could be more to it.

Firstly, Nigeria is a highly competitive space, where retail is the survival of the fittest. Following Shoprite’s foray into Nigeria in 2002, the retail chain disrupted Nigeria’s retail space giving ordinary Nigerians a taste of what it feels to shop with family and friends. But the fairy tale was not going to last forever. Previous retail outlets like Park n Shop rebranded and injected significant funds in their operations and business expansion. Park n Shop rebranded to Spar and has 14 outlets across the country. It only makes sense for them to divest having held on to the Nigerian operations for almost two decades.

Shoprite also competes with homegrown retail outlets especially in Nigeria’s commercial city, Lagos State. Retail outlets like Ebeano, Citydia, and Adiba are now household names that are expanding rapidly across the state. There are also several neighbourhood supermarkets in the nooks and cranny of Nigeria’s commercial capital piling pressure on Shoprite’s market share. Shoprite does not disclose revenues from its Nigerian operations.

Shopping is also going online as evidenced by the growth in online shopping since COVID-19 hit Nigeria. Jumia, one of Nigeria’s largest online retail outlets, revealed lower earnings in the first quarter of 2020. However, the company is optimistic of higher revenue growth in Q2, on the back of the COVID-19 lockdowns. Jumia had earlier noted that “we are seeing unprecedented demand to join the Jumia platform, especially for named brands. We believe those dynamics will help accelerate the shift toward online.”

READ MORE: The deal that helped Lafarge stock gain 18% in less than a week

Local competitors like Spar and Ebeano already offer online shopping experiences and deliver goods to your doorstep. Shoprite’s business model relies heavily on physical store visits.

app

As internet services become faster and cheaper, more Nigerians will rely on e-commerce to meet their shopping needs. Jumia has often struggled in this space and remains unprofitable. However, gravitation towards online shopping is inevitable and only those who have the capital and know-how will come out winners.

Jumia’s competitor in this space, Konga, was also recently acquired by Zinnox. Konga was then merged with another Nigerian retail giant Yudula. Interestingly, Konga’s model includes a combination of online and brick and mortar. The company has since been acquiring warehouses across the country as delivery points for its retail expansion drive.

Nigeria’s harsh operating environment is also another major challenge Shoprite faces. The Muhammadu Buhari-led administration, through the CBN, has focused on supporting locally made goods by banning forex availability for the importation of local substitutes. This has negatively impacted the number of products Shoprite can sell and how many new shelves it can create per floor space. It also creates supply chain challenges, especially with locally produced goods.

Coronation ads

Note that supermarkets sell on very thin margins. Therefore, the more products they can sell the higher the operating profits. Taxes are also higher and Nigeria’s susceptibility to exchange rate devaluation is also a major challenge. The company makes money in Naira and must convert to dollars before converting back to Rands.

READ MORE: Exploring branchless, other digital forms of banking in a crisis

thegreenafricaproject 300x250

In 2017, when Nigeria last faced a currency crisis, Shoprite explained that it has about Rand 2.3 billion in cash locked up in Angola and Nigeria due to currency restrictions (inability to repatriate their money on time). Information reaching Nairametrics from traders suggest most foreign-owned investments in Nigeria are also facing “restrictions” due to limited liquidity in the NAFEX window.

Shoprite’s less talked challenge is its Legal Issues. In 2011, Nigerian company A.I.C Limited (the Claimant), which is owned by Chief Henry Akande, issued a summons against Shoprite South Africa and its Nigerian subsidiary for an alleged breach of a joint venture agreement (the JV Agreement) allegedly concluded in 1998. The company took Shoprite to court claiming it breached on an agreement to set up the Nigerian arm of the business.

The Federal High Court then ruled in favour of AIC and awarded damages of $10 million against Shoprite in 2017. Shoprite appealed the judgment in the appeal court and lost again earlier in 2020. It is unclear if Shoprite has any plans to take the matter up to the Supreme Court. Could this be another reason why the owners are deciding to divest?

Whatever the reason is, officially, it perhaps makes sense for the company to exit its Nigerian operations in the light of the points mentioned above. Its Nigerian entity is worth 1.1 billion Rands (N24 billion) per its financial statements and could be worth more when the sale is eventually consummated.

Patricia
Continue Reading

Blurb

Okomu Oil: Home is where the heart is

Okomu Oil has its tires on the track and is not slowing down.

Published

on

Okomu Oil records N4 billion profit in H1 2020

Despite the teeming opportunities in the Nigerian agriculture industry, very few companies in the agro-space have been able to put in place the right processes and systems to create huge corporations out of farm produce. But there is one that is doing just okay. With a market capitalization of N71.5 billion, Okomu Oil Plc sits at the top of the industry.

While many companies, big and small, are losing their grip to the volatile global economic landscape of 2020 birthed largely by the COVID-19 pandemic, Okomu Oil has its tires on the track and is not slowing down. More so, it is not only proving COVID-19 wrong. Just a little over a year ago, Nairametrics had downgraded the company to a “Sell” owing to its faltering revenues. Today, with huge increases in revenue in 2 out of 2 completed quarters, Okomu Oil plc is laughing last.

UBA ADS

READ ALSO: Okomu Oil half year profit drops by 57%

Winning by the Numbers

The company’s Q1 financials had revealed a 65.2% growth in revenue as the company recorded a turnover of ₦6.9 billion in comparison to the ₦4.2 billion it made in Q1 2019. It had also recorded a profit after tax of over ₦2 billion in comparison to the ₦1 billion recorded in Q1 2019 resulting to a 101.4% jump in profits. In the second quarter of the year, its unaudited results reveal that the company has also increased its revenue. Turnover jumped by 50.6% from N4.3 billion in Q2 2019 to N6.5 billion in Q2 2020. This jump was not totally reflected in its profits after tax, however, owing to a significant increase in income tax from nothing in Q2 2019 to N462 million in Q2 2020. PAT was still able to increase by 30% to 1.9 billion in 2020. While there could be a myriad of reasons for the tax burden, the company’s foreign operations are starting to rain on its parade.

Why it has to watch its foreign operations

Okomu Oil’s wins can be directly attributable to its domestic activities, bolstered by devaluation impact and a larger market share as a result of border closures. A closer look at both its Q1 and Q2 financials reveal that a majority of its earnings have been from improved domestic operations. In Q1, the company witnessed a decline of ₦89.8 million in Q1 2020 from its 2019 figures, representing a drop of 12.5% in the comparative quarter. In Q2, its export revenue took an even greater plunge. Export sales experienced a 35.3% drop from N730.6 million in Q2 2019 to N473 million in Q2 2020. Domestic sales had increased by 67.9%.

GTBank 728 x 90

READ MORE: GTBank declares closed period as directors meet July 22nd to consider H1 result

While this is reflective of the current economic activities, there are rising fears that it will keep relapsing. Failure to contain its activities will, sooner than later, have it in the same position as some of the equally large companies that had to eventually spin off ailing foreign activities. Reduced turnover is not the only diaspora-induced challenge being faced by the company. Its Q2 financials also reveal exchange losses of over N17 million for the quarter. Compared to the exchange losses incurred in Q2 2019 which stood at 1.2 million, it recorded a 1284% increase in foreign exchange losses.

In today’s world, it is becoming increasingly tough for businesses to ward off the allure of foreign opportunities in trade as well as in the area of raising finance. While these, no doubt, have immense benefits to businesses, there’s a long list of reasons why staying home and penetrating local markets has been underrated. Being able to source inputs locally, produce locally, and even finance locally is becoming even more of a luxury to Nigerian companies especially given the challenges around the relatively weak currency to stronger currencies.

Okomu Oil plc is creating a sustainable market in Nigeria and its efforts are paying off. Until order is restored, an increasing focus on its domestic market will do the company more good. That said, the company is a great stock to have in your investment portfolio to serve as a hedge against companies that have been negatively impacted by the pandemic. Its current share price is N74.95. While its price to book ratio is high at 2.2857 hinting that it could be overvalued, its EPS is stable at 7.33.

Patricia
Continue Reading

Blurb

WARNING: Why you should avoid investing long term in Nigeria’s stock market

The stock market is only as resilient as the economy.

Published

on

Thirteen years ago today, I was getting set to oversee a meeting with a group of partners in a newly formed investment club. About a dozen of us, young and just at the cusp of family hood thought it was important to come together and put money aside for the future.

We had several options such as real estate or treasury bills, but we settled for the Nigerian Stock market. The decision wasn’t difficult to make especially when you look at the performance. Stocks were up 37.8% in 2006 and will close the first half of 2007 55% up.

UBA ADS

Demand was high as everyone wanted a piece of what was then the fad. Private placements, right issues, IPOs were fast and coming and it was as if any offer placed in the table was sure to sell. The early signs that this was a bubble was when spare part traders abandoned their trade to get in on the gold rush.

READ MORE: Facebook, Microsoft, Amazon shares drop, top U.S official orders lockdown

The All Share index showed its first signs that the bears were around the corner when it fell by 5.15% in August 2007. As investors who were made to understand that investing in stocks for the long term was wise, we ignored the temptation to sell believing that stocks will rise again.

GTBank 728 x 90

It’s 13 years now and the Nigerian All Share Index is down 52% between June 2007 and June 2020. In hindsight, we should have sold everything we had and simply bought dollars and kept it under our pillows. The stocks, we had hoped will deliver compounding returns over the years have delivered nothing but losses.

The Nigerian Stock Exchange is not a long-term market. We learned this 13 years ago but believed that experience was just a massive correction and that things will change. It did not and is unlikely to change so long as we remain a highly import-dependent economy. The stock market is only as resilient as the economy. If you have an economy like Nigeria that is good at growing its population and not its economics, investments in capital and money markets is a risky activity.

READ MORE: Where to Invest N5 Million right now

The more we remain reliant on crude oil and high imports, the worse it gets and you lose more money. Thus, it is my firm belief that investing in Nigerian stocks for the long term is folly. There are much better investments out there that will deliver you better returns and reduce capital erosion, two of the major symptoms of the Nigerian Stock market. But why is this market not a long term investment?

The reasons…

Firstly, stocks rely heavily on foreign portfolio investors to drive demand up. Since former CBN Governor, Sanusi Lamido Sanusi allowed foreign investors to repatriate any portfolio investment into the country without restrictions, stocks have become heavily reliant on hot money to keep valuations high. Thus, when foreign investors exit, stocks suffer. They create a bubble when they enter our markets and leave bears to dominate when they exit, until they are ready to get back in again.

READ MORE: A New Wave: Where to Invest in H2 2020

app

Secondly, Nigeria’s susceptibility to frequent currency devaluations keeps market valuations in perpetual risk of capital erosion. For example, if your portfolio was worth N165, 000 in 2013 it was the equivalent of $1,000. Today, that portfolio is worth just $412 assuming N400/1. So, even if you are lucky to have a portfolio that has performed well over the years, it will struggle to outperform dollar investments on the medium term.

Also, Nigerian companies are hardly accountable with the way their businesses are run. Insider trading persists without control and suspicions are immediately swept away. There are no consequences for reckless corporate behaviour. Most of the corporate fraud and unscrupulous activities perpetrated in the great stock market crash of 2008/2009 did not lead to a single jail term for anyone.

READ MORE: Eid-El-Kabir: Food prices surge, as ram traders decry low patronage

Coronation ads

Billions lost in stocks over the years have not been recovered. Whilst some companies have continued to grow their revenues and profits most remain unprofitable and lack the basics of corporate governance.

Investor protection is weak in this market as there are no reliable remedies for fraud induced market losses. The stock market is also very limited in the number of products available to buy. Apart from buying and owning stocks, there are little options to short-sell. We understand this is in the pipeline but it has remained there for years.

thegreenafricaproject 300x250

These are examples that explain why investing for the long term cannot work in Nigeria for now. Buy and hold forever is a myth at least in today’s Nigeria. You will get burned and likely lose the value of your investments.

Patricia
Continue Reading
Advertisement
Advertisement
Patricia
Advertisement
Advertisement
first bank
Advertisement
Heritage bank
Advertisement
devland
Advertisement
devland
Advertisement
GTBank 728 x 90
Advertisement
Advertisement
financial calculator
Advertisement
devland
Advertisement
app
Advertisement