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Nigeria can do better with Sovereign Wealth Fund

Nigeria earns 80% of her Foreign Exchange earnings from one commodity, crude oil, with a significant budget deficit of over 2 trillion.



Sovereign Wealth Fund

Nigeria is an “oil” economy, earning 80% of her Foreign Exchange earnings from one commodity, crude oil, with a significant budget deficit of over 2 trillion.

However, unlike fellow oil exporter Saudi Araba, which is financing a huge part of her deficit from her SAMA Foreign Reserves Holding, Nigeria is funding her budget deficit by record borrowings. Nigeria’s debt service is projected at N6.7 billion a day!

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Nigeria has not saved her oil wealth, as the foreign reserves of Nigeria are not savings. They are not even owned by the Nigerian Federation but by the Central Bank of Nigeria, almost 70% of it is. The fx reserves represent, amongst other things, the import claims on Nigeria. Nigeria cannot fund the deficit from the fx reserves, as they are mostly already spoken for. The CBN can spend the fx reserves to defend the Naira without approval or appropriation from the Executive or the National Assembly, and they have.

So why does Nigeria not have significantly higher savings? She sells crude oil, makes billions of dollars in USD earnings; why just $2 billion savings? Well, the constitution of Nigeria is very clear: all revenues shall be paid into the Consolidated Revenue Fund then shared horizontally and vertically accruing to a formula specified by the Revenue Mobilization and Fiscal Commission. The Governors of the 36 States all said in 2012 that the Nigerian Sovereign Investment Authority (NSIA), which managed the Sovereign Wealth Fund (SWF) of Nigeria, was illegal and unconstitutional.

The first attempt made to save money in Nigeria was the Excess Crude Account (ECA), which is simply a “spill over” savings account that accumulates the excess of the benchmark and the actual price of crude oil. Thus, if the benchmark price in the annual budget is $50 per barrel and crude oil is sold for $70 during the year, $20 flows to the ECA. However, no Federal law set up the ECA.

[READ MORE: Buhari meets Economic Advisory Council, as devaluation concerns loom)

It’s a finance mechanism to “sterilize” the revenues streams. The setting of the benchmark price is also a contentious annual event, consisting of debates between the Executive and the National Assembly (NASS). In the famous “50 Questions”, the NASS queried the lower oil benchmark price set by the Executive, predicting that “oil prices will remain at $125 per barrel for years.” Technically, the ECA is simply FAAC. The ECA technically is not backed by legal precedence nor constitutional provision.

A Sovereign Wealth Fund (SWF) is a savings account created by nations to save money for the rainy day. SWFs are also “investment funds” operated by governments to achieve various objectives. They are seeded  by allocating funds intended for long-term investments. While many of the SWFs in existence are based on earnings from natural resources, they also include non-resources endowed nations like Singapore. The Singapore Government owns the funds in the GIC. Its investment returns supplement the country’s annual budget in areas such as education, R&D, health care and physical environment.

Nigeria’s Sovereign Wealth Fund was an upgrade on the ECA. The NSIA SWF is a savings account, set up by law, with an independent Board of Directors and a clear mandate. The NSIA operations are professional and transparent. Nigeria has so far invested in the SWF $1 billion, then $500 million, and a further $650 million. So just to be clear, from 1960 to 2019, Nigeria has saved only $2.15 billion i.e., N752 billion. Nigeria can do better.


The solution to low savings is to save more, but how? First, Nigeria needs to build fiscal buffers, but also make any saving vehicle legal and constitutional. So a few points:

Make saving for investment a first-line charge

 Let’s save money before we pay NASS allocation. With the current benchmark system, if oil price falls to $37, Nigeria does not save. Thus, drop the benchmark system and convert to a percentage-based method. This means, when Nigeria earns income, she simply invests a fixed percentage of the earnings. Thus, if she earns $100, transfer 10% or $10 to the SWF.

[READ ALSO: President Buhari finally signs 2019 finance bill into law)

Earmark projects the SWF can fund, just like Singapore does.

Yes, the SWF can support the budget; not to pay salaries or imports but rather to fund education, health, etc. Restrict the spend to capital expenditure and infrastructure projects.

Rewrite the SWF mandate: allow more local investment in state-led capital projects

The SWF can create a State Infrastructure Fund, an equity fund of N1t minimum. Allow all 36 governors bring capital projects that meet guidelines and are already budgeted for and passed from their State Assembly into the fund with buy-ins and annual cash contributions. Use the SWF N1t fund for equity down payment for State PPP projects. E.g., a new housing estate is financed by a private developer, but the State counterpart funding comes from this SWF fund directly to developer.

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The developer will build with own cash, knowing the SWF Fund stands as an equity partner/guarantor for the project, thereby removing repayment risk. The developer can issue commercial paper for those projects. Same for a road, which can be built by a private sector player and funded by adverts/tolls on the road. The private contractor knows the SWF counterpart funding is available as equity and repayment.

Once the homes or road is built by the developer, the SWF can then exit the investment by selling its equity stake to the State or Market.  The taxpayer makes a profit. Such an arrangement will be welcome by Pension Funds seeking long term infrastructure projects to invest in.

Nigeria will be investing taxpayers’ cash on infrastructure that creates jobs in the very states and reflates local economies.

This is an economic stimulus package to develop infrastructure, rather than a bailout to pay salaries. This fund will also attract diaspora forex inflows and other Private Equity and International Development partners who can come in as equity investors.

Again, Nigeria can do better. (Technically, Nigeria has $2.15 billion in her Sovereign Wealth Fund).

1 Comment

1 Comment

  1. Mike O

    April 4, 2020 at 12:15 am

    I literally, well not quite, banged my head against the wall when I saw the atrociously low oil savings for Nigeria. That is ofc, given our 40 year old stellar(world class) production levels. Essentially, a limp appendage to what should otherwise be an impressive profile under normal circumstances.

    Underwhelming to say the least.

    This really clears things up. And to think that for most of our history, those earnings have been privatized by a select few…very sad.

    Btw, interesting take on infrastructural devt. Market driven and out of the hands of just our characteristically hesitant govt authorities. Great read !

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Analysis: Total Nigeria needs a financial overhaul

 Total Nigeria’s Q1’20 results are a testament that some might have it worse than others as it recorded a revenue drop of 9.3% to N70.2 billion



Total Nigeria, Analysis: Total Nigeria needs a financial overhaul

The Oil Industry has had a particularly tough year, owing primarily to the novel pandemic. The International Energy Agency (IEA) predicts that the global oil demand is expected to further decline this year as Covid-19 spreads around the world, constraining travel as well as other economic activities.

Organizations like Total depending on international trade will be forced to scale down operations until restrictions ease off. However, Total Nigeria’s Q1’20 results are a testament that some might have it worse than others.

The period recorded a revenue drop of 9.3% to N70.2 billion in the first quarter of this year compared to Q1 2019. Total earns its revenue from three main sectors namely: Networks, General Trade, and Aviation. Revenue from Aviation fell by 39.5%. The decline in Networks is attributed to the reduced demand as a result of the enforced lockdown and restriction on travel across the nation.

READ ALSO: Analysis: MTN’s blow out Q1 profit vs Covid-19 headwinds  

Yet, it is clear that the company had its own challenges pre-COVID-19. In the quarter, it attained a loss after tax of N163 million which was 65.6% better than the loss after tax of the comparative quarter; it is overwhelmed by a myriad of distinct issues.

First off, its revenue has experienced a steady fall over the years; reasons for this is tied largely to its lack of importation of petroleum products.

It is also burdened by inefficiencies in its operations evident in its high operational and direct expenses, as well as its high debt over the past years. The company has carried on huge loans and borrowings in its books: N40.6 billion in 2019 and only a marginal reduction of N2.2 billion in the current year.

(READ MORE:Nigeria’s Bonga crude oil export terminal shut down)

Even higher are its expenses after an 8.38% reduction in the just-released results, it arrived at N69.7 billion for Q1 2020. Amongst its high operational expenses is the high and increasing technical fees it pays to its parent company. From N251 million in the first quarter of last year, it incurred around N700m in the year under review. It also has cash flow issues with about N22b in negative cash and cash equivalents. In its 2019 report, it revealed that the year had been tough with its cost of doing business rising exponentially as evident in its interest expense, 395% higher than the previous year as a result of repayment for products and a high level of borrowing.

Total Nigeria records loss for the first nine months of 2019, Analysis: Total Nigeria needs a financial overhaul


The company, in its last full year annual report, noted that to make significant savings to both operational and capital expenditure costs, a series of initiatives relating to cost efficiency, process optimization, and significant reduction of working capital requirement and finance costs, were put in place and are in motion for this year.

READ ALSO: STERLING BANK: Reduced fee income, weak operating efficiency drives steep decline in pre-tax profit

As Dr. Fatih Birol, IEA’s Executive Director put it “The coronavirus crisis is affecting a wide range of energy markets – including coal, gas, and renewables – but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand transport fuels.”

However, Total’s position goes beyond the impact of the pandemic. Its rebound rests on its ability to carry on with cost control and lower debt commitments, together with the speed of the containment of the virus. That said, the company might need to raise capital soon while also coming up with formidable strategies to strengthen its business model.

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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.



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.

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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.

Deal book 300 x 250

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.


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.


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.  



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.

Deal book 300 x 250

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.


“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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