I still remember, as if it was yesterday while walking on the street of New York, as I was trying to cross Madison Avenue by 5th, heading west, I saw who looked like a familiar face, as I looked closely, I could not believe my eyes. I was seeing Mrs. Ngozi Okonjo-Iweala, face to face. Though she did not respond to my attempt to give her a hug, as she was in a hurry to cross the same street heading east, but the few seconds that we spoke made my day that day.
That was during the last United Nations General Assembly in New York, before Corona Virus put paid to movements and social interactions. This is a woman I have come to appreciate her success and the pride of place she has bestowed on Nigeria with her professionalism, in periods when Nigeria’s image needs a makeover.
When the World Bank presidency became vacant, I did a piece on “Time for a Nigerian To Preside Over the World Bank” which appeared on Nairametrics on January 22nd, 2019, asking the president to nominate Mrs. Okonjo Iweala, for that post. That enviable position eluded Nigeria, but there are always opportunities. Another of such opportunity has come. It is the opportunity for a Nigerian to oversee the World Trade Organization, WTO. This time, the president has nominated Ngozi Okonjo Iweala (disregard the initial controversy that originated from Egypt about the nomination).
Nigeria’s nominee in the person of Mrs. Ngozi Okonjo Iweala has all it takes to preside over the WTO. She has been Independent Director of Twitter, Inc. since July 19, 2018, and Senior Advisor of Lazard Ltd since September 21, 2015. Dr. Ngozi Okonjo Iweala has worked with Asian Infrastructure Investment Bank and she is also an Adviser to World Bank on the Stolen Assets Recovery initiative. She served as Managing Director at The World Bank Group from December 1, 2007 to August 2011.
Before serving as Minister of Foreign Affairs of Nigeria from 2003 to 2006 and Coordinating Minister for the Economy and Honourable Minister of Finance of Nigeria until 2015, she served in a number of important positions at the World Bank such as Vice President and Corporate Secretary, Director of Operations in the Middle East and North Africa region and Country Director for Southeast Asia and Mongolia Country unit. Not too long ago, South African President, Cyril Ramaphosa appoints Ngozi Okonjo-Iweala as a member of the Economic Advisory Council of South Africa. With over 30 years of economic development and financial expertise and as an internationally renowned economist and a prominent African leader, Dr. Ngozi Okonjo Iweala more than qualifies to do Nigeria proud, once again.
It will not be Easy
Nothing good comes easy as we all know. And for Mrs. Okonjo Iweala, the assumption of the highest office of the World Trade Organization will not be easy, given the caliber of people being nominated by other countries. Those are the people that Mrs. Okonjo-Iweala will go head to head with when the nomination closes in August and the selection process begins. Here they are:
Ms. Yoo Myung-hee from the Republic of Korea, the first female trade minister for the Republic, she has over 25 years of career experience in trade. She is described as being a skilled negotiator and strategist
Another nominee is Mr. Jesús Seade Kuri from Mexico. He is said to have a unique experience in global trade negotiation and policy. He had worked at the WTO, IMF and World Bank in the past. He was once a deputy director of GATT and founding deputy director-general of WTO. He is currently Mexico’s under-secretary for North America.
Mr. Tudor Ulianovschi from Moldova (never heard of that country before). Mr. Tudor Ulianovschi served as the minister of foreign affairs for his country as well as representing his country in various international fora like the World Economic Forum in Devos in 2019.
Mr. Abdel-Hamid Mamdouh from Egypt, another nominee, has played an important role in trade policy and diplomacy for 35 years on half of Egypt. He had worked for the WTO as a senior official and he counts on his supposed long WTO senior management experience to take him through the selection process.
Fight of the Titans
As can be seen from the biography and success of the various nominees, they are all qualified, crème de la crème of their countries. It is indeed going to be a fight of the titans and I am confident that our flag bearer, Mrs. Ngozi Okonjo Iweala, will come up victoriously. Nigeria and Nigerians have done it in the past and the selection of our own Ngozi will not be different. When, in Atlanta 1996, Nigeria went against Brazil, as the underdog, history of Olympic soccer was rewritten with the overpowering success of the Eagles. Be it in the field of sports, engineering, or even in pioneering the internet, Nigeria never carries last, so Go Mrs. Ngozi Okonjo Iweala, Nigerians are with you, Sub Saharan Africa supports you, and God is with you. You will do us proud, like you have always done.
Power: Nigeria’s deal with Siemens – the birth of a new era?
Siemens’ position in the power value chain remains unclear given the huge investment it is committing.
Recently, the Minister of Power, Sale Mamman disclosed that the power deal between Nigeria and Siemens AG, a renowned German firm, will lead to the upgrading of 105 power substations and construction of 70 new substations across the country. The Minister also disclosed that the Federal Government had made an initial N8.6bn commitment in the transaction. We recall in July 2019, Nigeria and Siemens signed a power sector deal which provides a blueprint on improving power generation and fixing the archaic transmission and distribution infrastructure in the sector. Notably, the president set a goal of achieving 7,000MW and 11,000MW of reliable power supply by 2021 and 2023.
Siemens’ position in the power value chain remains unclear to us given the huge investment it is committing to make. Currently, the Transmission Company of Nigeria (TCN) is 100% owned by the government while the Gencos and Discos are privately controlled. While we see a possibility of Siemens getting a stake in TCN, we struggle to see how that will work for the discos and gencos given that Siemen’s huge invesments may mean they have to cede
control. Also, government’s desire to maintain a stranglehold on the power sector in bid to regulate electricity tariffs remains a key risk to any investment in the sector. We are also sceptical on Siemen’s ability to recoup its investment given that the liquidity squeeze in the sector attributable to non-cost reflective tariffs remains unresolved.
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Over the years, the widening deficiency in on-grid supply of power has forced consumers into costly off-grid alternatives, which account for 52% of electricity consumption, based on IMF estimates. According to the world bank, about 80 million people still lack access to grid electricity, making Nigeria the country with the largest access deficit in Sub-Saharan Africa. The institution further puts the national electrification rate at 55%, with rural electrification rate at a meagre 39%. Clearly, a lot of work is required in improving the supply of power across the country and ensuring its availability to unserved and underserved households and businesses.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
No trophy for International Breweries after bland Q2 results
Brewing companies have found few and fewer opportunities to consolidate and generate quality turnover.
International Breweries Plc closed with a net loss in the second quarter (Q2) of 2020. They made a revenue of N25.3 billion, 28.5% shy of their achievements in the opening quarter (Q1) of the year.
Cost of sales consumed virtually all the revenue generated, taking as much as 86% in Q2 and 82.5% in Q1. This has been the sad trend/trajectory for International Breweries which ultimately almost guarantees that they close their books with a loss.
International Breweries Plc is a brewery company in Nigeria with its flagship product being the Trophy Bottle. Other products include Hero Lager, Eagle lager, Eagle Stout, and Beta malt. They have managed to improve revenue but haplessly struggles with rising costs of production and expenditures. The effect of government regulations, with the new excise duty implemented in 2018 hasn’t been palatable. Brewery companies generally do not have the luxury of tweaking their prices at any point in time to improve their topline. This is as a result of the immense sensitivity of the industry where increasing the price of a bottle instantly delivers the customer to the competition, albeit on a silver platter.
COVID-19 stalled operations and interrupted the accustomed seamless flow of activities around the world. Brewing companies have found few and fewer opportunities to consolidate and generate quality turnover. April 2020 ushered in a lockdown of vehicular movements and operations across major cities in the country. Bars, Clubs, Weddings, and other avenues for merriment, which hitherto are hubs for amassing turnover were given secondary attention until further notice. For companies in the industry, sales ordinarily would plunge, in light of these factors. Whilst we acknowledge and recognise the negative impacts the pandemic has wrought, it isn’t entirely accurate to allot all of International breweries travails to this.
International Breweries, with the figures generated appears, nears its demise. Retained earnings for H1 showed a negative of N12.2 billion, this suggests that the company has made consistent losses. It also has borrowings amounting to over N107 billion naira secured by corporate guarantee with interest ranging between 7%-13%. And with the ever-increasing negative value for retained earnings, death has been slow but consistent and almost inevitable.
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The statement of cash flow for H1 2020 exposes the true sources of cash inflow for International Breweries Plc. Only 5% were derived from operations, 0.8% from investing activities, and over 90% representing N162 billion from financing activities particularly rights issues.
International Breweries is in sinking sand and must devise new solutions quickly if it entertains any hopes of prolonging its longevity.
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.