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NESG: From high-tables to work-tables

NESG has focused on vital themes that underscored the need to expeditiously rebuild the Nigerian economy.

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3 bank directors resign from NESG in protest to CBN immunity letter

It used to be the case that the Nigerian economy stood on an intellectual tripod that comprised the academia, the civil service and the private sector.

All three legs did not, strictly speaking, work in tandem towards achieving a common goal. Whilst the professors theorised with minimal input from the field, the civil servants formulated and implemented public policies from a weak economic knowledge base and the private sector carried the can for every flip-flop in the marketplace.

READ: Bank CEOs ‘explain’ why they resigned from NESG

If goals aligned along the line, it was largely circumstantial, not the result of careful planning. If not, all three parties met at conference tables to produce ad hoc solutions to the country’s myriad of economic challenges.

The need for more strategic planning for national economic development spurred a band of key players in the private and public sectors, the civil society and the academia to conceive the Nigerian Economic Summit Group (NESG) in 1993.

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READ: 3 bank directors resign from NESG in protest to CBN immunity letter

The Group’s mandate is to promote and champion the reform of the Nigerian economy away from a largely public sector, closed-door affair into an open, globally competitive economy.

The six underlying principles of NESG emphasized; a commitment to a free-market economy, the encouragement of private sector investment, the creation of an enabling environment, governance in the national interest, commitment to the rule of law, and the establishment of an economic foundation for democracy.

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READ: Nigeria imported N1.28 trillion “used vehicles”, motorcycle in one year, up by 42%

Twenty-six years into its annual Summits, the NESG has kept faith with its vision of strategically promoting inclusive growth, achieving impactful economic policy reforms and ensuring stakeholder satisfaction.

Of significance is the theme of the third Summit in 1996, ‘Unlocking Nigeria’s Economic Potential’, the outcome of which influenced the Federal Government’s institution of ‘Vision 2010 – A Long Term Free Market Development Plan for Nigeria.’ Subsequent Summits focused on vital themes that underscored the need to expeditiously rebuild the Nigerian economy.

READ: Nigeria’s Broadband subscriptions peak at 82.7m – Prof. Danbatta

Much of the positive outcomes generated at NESG Summits derived from shifting emphasis from the ‘talk-a-thon’ approach of conferences to a ‘Paying to Serve’ culture in which NESG members invest their time, resources and capabilities in advancing the public/national interest.

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As the pioneer Vice-Chairman, Mr Dick Kramer, clarified it:  “We substituted High-Tables for Work-Tables (because) we knew that it would take sitting in small groups with the government officials to make the policy changes we needed for Nigeria to happen.” The resultant Technical Working Groups (TWG) have continued to serve as the engine room for the operations of NESG and the core groups that engage in the follow-up commitments established at the maiden summit in 1993.

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READ: 150 million to fall into extreme poverty by 2021 – World Bank

If anything, the ready acceptance of the recommendations of the NESG by successive governments point to the fact that the Group had filled yawning gaps in development planning in Nigeria. Indeed, the NESG’s qualitative interventions could be felt in its recommendation of far-reaching economic and institutional reforms that were essential for the nation’s return to and sustenance of democracy.

The recommendations include; the creation of the Niger Delta Development Commission, the implementation of the Universal Basic Education Programme to enhance literacy in Nigeria and institutional reform to turn around years of systemic and institutional corruption, which presage the establishment of the Independent Corrupt Practices Commission (ICPC) and the Economic and Financial Crimes Commission (EFCC).

READ: CBN urges banks to ‘support’ media, aviation industries to avert growing job losses

Also notable was NESG’s partnership with the Obasanjo administration, which led to the development of the medium-term economic agenda called the ‘National Economic Empowerment Development Strategy’ (NEEDS) and its domestication as the ‘State Economic Empowerment Development Strategy (SEEDS), and the ‘Local Government Economic Empowerment Development Strategy’ (LEEDS).

The strategic idea behind the formulation of NEEDS-SEEDS-LEEDS was to activate Nigeria’s political economy by empowering private sector enterprises to become the engine of growth. It similarly redefined and re-emphasized the role of government within the context of policy formulation and the establishment of appropriate legal and regulatory framework, which underlines a core part of the NESG mandate.

READ: FG moves to ease congestion on arrival at airports, introduces new online procedure

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NESG’s Summits and contributions from its members also set the tone for the comprehensive review of Nigeria’s telecommunications and broadcasting policies and the consequent deregulation of the Information and Communication Technology sector. The full liberalisation of the sector and the auction of mobile telephony licences also helped to change the face of communication in Nigeria.

In the financial services sector, the 2004 banking consolidation programme, which reduced the number of banks in the country from 89 to 25, was an offshoot of Summit deliberations. Recommendations from NESG also impacted maritime and seaports reforms, especially in respect of accelerated ratification and domestication of all pending International Maritime and Shipping Codes and Conventions to which  Nigeria was a signatory.

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READ: IITA Signs MoU with Nigerian Cassava Growers

The strategic concession, commercialisation and privatisation of Nigeria’s sea ports, maritime local content development through the Cabotage Act and Bareboat Charter Regulations to boost tonnage, the establishment of Unified Maritime Administration for the full implementation of all Maritime Codes, Conventions and Protocols and improving Security and Safety of Nigerian Maritime Domain, which led to the establishment of the Presidential Implementation Committee for Maritime Safety and Security (PICOMSS).

In the education sector, the NESG reached an agreement with the National Universities Commission (NUC) to collaborate on the development of solutions that strategically drive effective development of a productive university system that also guarantees quality and relevant education for national development and a globally competitive economy.

READ: Lagos to use Ehingbeti summit to sustain socio-economic development

That collaboration aims to bridge the gap between business and the academia. Beyond this, the NESG has also established a working committee that comprised the NESG and the NUC to review the blueprint on the Rapid Revitalisation of University Education in Nigeria, 2019-2023. This was sequel to the discovery that the current strategy did not align with the future of work and needed to be coordinated with critical stakeholders in the public and private sectors.

Also worthy of commendation is NESG’s strategic alliance with the European Business Policy Council to provide international investors in Nigeria with a dedicated platform to engage government on conducive environment and policies for foreign investments in Nigeria.

READ: Nigeria records lowest remittances from abroad since 2008

One must also recognize the smooth collaboration of NESG with the National Assembly and the legal profession which gave rise to the National Assembly Business Environment Roundtables (NASSBER), a wholly private-sector funded body made up of working groups that hold regular meetings and review selected legislations. NASSBER collaborates with some other stakeholders to facilitate the speedy passage of critical bills to improve Nigeria’s economy.

Whilst stakeholders are agreed that the NESG has reasonably demonstrated the capabilities to sustain its mandate, there still are misgivings that the body has yet to maximise its ability to secure sufficient legislative powers to back its initiatives. Even at this, the body cannot take the bulk of the blame. In 2019, NESG did point out that the non-passage of some priority bills has contributed to the persisting regulatory environment that has contributed to low investor confidence and slowed Nigeria’s economic growth.

READ: Fitch Ratings: Nigeria clinches a stable ‘B’ Issuer Default Rating

Let us look at the records. According to NESG, NASSBER had identified 31 priority Acts and Bills as crucial for economic development and enabling business environment. Of the Acts and Bills, 16 were passed by the Senate and the House of Representatives, with four pending at both chambers. Thirteen of these bills were transmitted to President Muhammadu Buhari for his assent. However, he assented to only two, that is, the Secured Transactions in Moveable Assets Act and Credit Reporting Act. The President later withheld assent to four of the bills.

READ: Nigeria @ 60: The Banking Sector and the Nigerian economy 

Till date, the NESG can be said to have succeeded in playing its self-assigned role as the country’s foremost economic think-tank and a bridge between the government and private sector stakeholders. As the NESG converges on Abuja between October 26 and 27 for its 26th Summit, much is expected from the body as participants reflect on the state of the Nigerian economy, rethink the country’s economic fundamentals and deliberate on the impact of the coronavirus pandemic on the socio-economy.

READ: Nigeria @ 60: The Aviation sector and its travails

Perhaps, it is fitting that the opening plenary topic of the Summit is ‘Nigeria’s Turning Point.’ At 60, Nigeria truly needs to adopt a different approach from its current hit or miss policy of economic management to a sustained policy planning regime aimed at achieving economic growth and development. That approach, the NESG maintains, will be anchored on a robust partnership between sub-national governments and the private sector to capitalize on sub-national factor endowments to achieve global competitiveness. In the age of economic and physical lockdown brought on by the global coronavirus pandemic, it is also critical, as the Summit is set to do, to consider ‘Counting the Costs: The Economic Impact of COVID-19’ at the Summit’s plenary session.

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As has been the success story of the NESG since its inception, robust contributions and recommendations are expected from the 26th edition that will assist the government in no small way in the management of the economy. This fact can almost be taken for granted. What remains to be seen is the willingness of government to support NESG with the political will to ensure that Nigeria meets the United Nations-approved Sustainable Development Goals by 2030.


 

Dotun Adekanmbi a Consultant writes in from Lagos.

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform. To get your articles on Nairametrics, kindly send an email to [email protected] and we will publish it within 24 hours of approval by our editorial team.

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How Cash flow, Liquidity, and Leverage impacts your financial plans

Aja discusses how Cash flow, Liquidity, and Leverage impacts your financial plans.

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cash flow

It is key to discuss cash under the three themes of Liquidity, Leverage, and Cashflow. These concepts are interrelated, but each has different impacts on your financial plan.

Cashflow

It captures only cash transactions and is simply the amount of cash flowing in and out of your business or person. Hence, if you buy an asset and issue a Purchase Order to pay a supplier in 90 days, that transaction will not show up on your cash flow.

As an illustration, if Emeka buys a TV with N200,000 but issued a cheque for N100,000 cashable in 90 days; only N100,000 will be captured leaving his cash position. Thus, Emeka has positive cash flow and negative leverage, because his debt has gone up.

For Okafor, the seller who received half of the proceeds in cash, he may be liquid but cannot replace his stock due to lack of enough cash flow. He may have to leverage to generate cash. Should he need cash, he can create liquidity from his paper check of N100,000 by discounting to cash before 90 days, but at a cost.

You must be aware of negative and positive cash flow and avoid as much as possible, generating cash from financing activities i.e. borrowing to fund non-income generating assets or activities.

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Liquidity

It is determined by how fast an asset can be converted into cash. If Okafor gets a cheque offer from Dangote Cement and another from Emeka to pay for a TV, which do you think he will accept all things being equal? Most likely the Corporate cheque, because he perceives that it is easier to discount to cash; thus, more liquid than the individual cheque.

Federally issued bonds are said to be less risky than State or Corporate bonds of similar tenor because the issuer (the FGN) is more liquid than the States or even Corporates.

The same can be said of Equities. Stocks that are traded more often and held by more investors are more liquid and commands a better premium to the bonds of a similar company. This is one reason large blue-chip stocks command higher market prices, the investors are also paying for the ease of liquidity.

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A good metric for measuring liquidity has to be the Acid Test liquidity ratio that determines how easy it is for you to generate cash in an emergency. It is calculated by dividing your assets by your liabilities, but the key is that the assets are stripped off all hard assets and will include only cash and easily marketable securities and commodities like gold that can be sold. The higher the ratio the better.

Leverage

Simply put, leverage is borrowing. You can borrow to increase potential profits or to meet an obligation that is due. When cash is borrowed, it must be paid back with a cost called interest. Leverage can produce cash flow and liquidity, but no firm or household can remain a going concern solely on cashflow financed by leverage.

Eventually, the interest cost will swell and more of future operating cash generated by the firm or household will be earmarked to pay off interest, leaving the principal to remain and generate more interest cost.

In the earlier example, Emeka used leverage to buy the TV and gave Okafor a cheque, who will in turn generate cash flow by liquidating the instrument from Emeka.

Bottomline

A good leverage analysis is to calculate your Leverage Ratio. To determine your leverage ratio, list out all your liabilities, divide by your total assets, and multiply by 100. The answer tells you how much of your assets are financed by debt i.e. leverage ratio.

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Hence, you can have positive cash flow, be liquid but be highly leveraged, which is not ideal. The rule of thumb says the lower the leverage ratio, the better.

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Summarily, with cash, you must be aware of the implication in terms of cash flow, liquidity, and leverage.

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#EndSARS: Analyzing the economic prospects of another lockdown

Decisions taken in the next few days will determine how soon the issues surrounding the #EndSARS protests will be resolved.

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#EndSARS: Analyzing the economic prospects of another lockdown

The past five to seven days in Nigeria have been nothing short of fictional for the Nigerian people.

One would be hard-pressed to describe the events without seeming to take sides with either part of the standoff as emotions, euphoria and sometimes, unfounded principles have seemed to become the order of the day. Logic, accountability and common sense being on vacation as they often are in such matters.

If there were negotiations (of which there are none presently), parties involved may likely disagree on a couple of things ranging from the sincerity of the other party, approach to a peaceful resolution, what amounts to a peaceful resolution and how to forge ahead.

READ: COVID-19: How CBN policies helped prevent the collapse of the Nigerian economy – Oscar Onyema

READ: CBN removes “third parties” from buying forex routed through Form M

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There would be accusations and counter-accusations, more so, as the chasm of discord between stakeholders continues to widen with each passing day of the #ENDSARS protest across major cities and towns of the Country. Nonetheless, one thing both parties would agree on is that their continued standoff and reluctance to resolve the complex issues around the protest is ruinous to the economy.

Nigeria’s real GDP growth for 2019 was estimated at 2.3% by the AfDB. It was an improvement on the 1.9% estimate for 2018 and an achievement of the 2019 expert projections despite the uncertainty about the 2019 election outcomes, policy implementation slowdown and sell-offs by foreign investors in 2018.

READ: $70 billion per annum will be needed to tackle pandemic induced poverty – World Bank

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READ: Manufacturers receive N459.69 billion from banks, thanks to CBN’s lending policy 

Household consumption was the key growth driver in 2019, followed closely by growth in transport, the oil sector and information and communications technology. Agriculture, for all its Government patronage could not withstand the floods that heralded a climate change while suffering from the conflicts between herdsmen and farmers- it flopped, and so did manufacturing which could not be reckoned with due to a lack of financing. Estimated inflation for 2019 was 11.3%.

After a turnaround from –1.6% in 2016 to 0.8% in 2017, 2020 was supposed to be the year where Nigeria consolidated on the steady GDP growth of previous years by implementing its Economic Recovery and Growth Plan with an emphasis on economic diversification.

READ: Nigeria’s $1.5 billion steel plant set to produce 1 million MT of steel annually

The CBN’s proactive decree that banks hold loan–deposit ratios of 60% was geared to increasing lending to the real sector, even as they eased the risks of lending to small businesses.

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An increase in the value-added tax from 5% to 7.5% was implemented to shore up domestic non-oil revenues, and agro-industrial support from the Government was supposed to make 2020 a year to surpass growth forecasts even as oil revenues began to improve and drive foreign exchange reserves. Then came COVID-19.

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READ: CBN wades into the bank vs Fintech debate

Lacking a clear nationwide pandemic framework, coupled with a nonexistent welfare system and weak healthcare infrastructure, the Nation did a relatively impressive job in managing the pandemic but did lose the economic advantage it started the year with. Negative GDP growths were projected for Q2 and Q3 even as oil prices slumped to an all-time low.

Diaspora remittances (which accounted for 83% of the FG budget in 2018) had reduced to a trickle because of the pandemic, and unemployment surges. The World Bank predicted a recession by Q4, it would be Nigeria’s worst in four decades.

READ: CBN clears air on Diaspora Remittances, official inflows $2.6bn not $26bn 

Once again, Nigeria beat the odds. A series of monetary and fiscal policies saw to it that more funds were made available to the real sector; delinquent loans were restructured to keep from becoming bad; the free fall of the Naira was staved off and key industries were supported through Government’s special intervention programs. A few optimists were beginning to think we had rounded the corner, then came #EndSARS protests.

In the few days since the protests have begun, the Nation is estimated to have lost billions of Naira with Lagos state, understandably, being the biggest loser so far hosting the largest protests. Manpower hours have been lost, properties have been destroyed and worst of all lives have been lost.

READ: CBN knocks airline and shipping firms over non-compliance with form NXP

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Household spending, transportation and manufacturing cannot continue to thrive in these unrests. September inflation was pegged at 13.7%, its highest since February 2018 there is already considerable strain on healthcare due to the pandemic and the exposure of the populace during the #endsars protests and counter-protests could spike up the COVID-19 numbers once again.

The peculiarity of the nature of the protest has seen Nigerians in the Diaspora channel their funds to supporting the protests in Nigeria while organizing theirs in their host country. Another significant loss of diaspora remittances which represent a substantial percentage of the GDP. Also, the protests are beginning to weigh in on stock market activities and could affect other economic indices if tensions escalate further.

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READ: Nike stocks post gains, women’s apparel division grow by 200%

The unfortunate resolve of both sides to fight to the finish without giving room for dialogue could lead to another lockdown of economic activities as witnessed in Edo, where a 24hr curfew has been declared; Lagos where schools and businesses have shut down; Osun, Ekiti, Plateau, Imo and the FCT where business activities have come to a grinding halt.

The cyber warfare being threatened by both sides could also have far-reaching effects on the liquidity of our financial institutions as their customers opt for crypto wallets as safe haven for their funds and as punitive measure for brands they perceive as not being supportive towards their cause.

READ: Leaked memo: CBN instructs banks to block bank account of 38 companies for “forex abuse”

Of course, decisions taken in the next few days will determine how soon the issues surrounding the protests will be resolved, but for a country on the precipice of serious economic repercussions, both parties seem a little too comfortable in staring down the opposition when serious gains could be made by coming to a round table.

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More agriculture loans but longstanding bottlenecks remain

Despite the flurry of funds provided via intervention policies, long-standing bottlenecks in the agric sector still exist.

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Nigeria’s agricultural export, Nigeria’s top 10 agricultural exports rose to N206.16 billion in 9-month 

According to local media reports, the Minister for Agriculture, Sabo Nanono through an information official of the Agric ministry announced plans by the ministry to provide relief for farmers in form of interest-free loans, and effective input subsidisation. According to the statement credited to the minister’s representative, the relief is for the recent covid-19 disruptions to farming activities and flooding in Kebbi, Jigawa and Kano states. In addition,
the minister stated the interest-free loans would be provided through a partnership of the Agric ministry and the Central Bank of Nigeria.

We acknowledge that farming activities have been significantly affected in 2020 due to covid-19 movement restrictions during the planting season as well as abnormal rainfall patterns which led to flooding of farmlands. That said, we note that the farmers/herders clashes remain a significant threat to agricultural productivity. These unfortunate events have led to a spike in food prices refelected in the food inflation rate of 16.66% in September according to the National Bureau of Statistics (NBS). Thus, we consider provision of reliefs for farmers important to restore farming activities and output level back to pre-covid levels.

However, we note that the agriculture sector remains plagued with long-standing structural challenges which if ameliorated, would significantly improve output level and drive the country towards its goal of achieving self-sufficiency in food production. Some of the long-standing bottlenecks include; poor transport network to connect farmlands with main markets, poor storage facilities, sub-standard farming inputs, crude agricultural techniques
etc. These in our view, are the reasons why the funds that have been pumped into agriculture via different intervention schemes such as Anchors Borrowers Program (ABP) and Commercial Agricultural Credit Scheme (CACS) have yielded limited results and remain riddled with repayment controversies.

In our opinion, while short term relief for farmers is necessary to immediately alleviate some of the pressures on food prices in the short term, we think some of the flurry of funds provided via intervention policies should be directed at resolving long-standing bottlenecks to truly maximise the full potential of Nigeria’s agriculture promise.

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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.

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