2020 has been a devastating year for the Nigerian economy, especially the hospitality industry, with hundreds of people laid-off and salaries of some workers slashed.
Interestingly, as the big-wigs in the industry continue to grapple with the economic impact of the Covid-19 pandemic on their patronage, smaller boutique hotels (short stay apartments) are witnessing a boom during the Yuletide season.
While the average price of 1-bedroom flat short-let in Lagos is N35,000 per day, the most expensive flat costs N80,000 per day.
Their location, especially in Lagos is also an attraction to their patrons, with range of choices from Ikeja, the state capital; high-class areas like Magodo; Chevron Drive, Lekki Phase 1; Oniru, Victoria Island; to Surulere areas of the nation’s commercial hub.
Expensive but safer, flexible and functional – Patrons
Akinwole Adekoya, who is based in Qatar, United Arab Emirate (UAE), is one of the patrons of the short-let apartments in Lagos.
According to him, he usually visits his family every Yuletide season but had to stay at one of the apartments close to Lagoon School, Lekki Phase 1, where he pays N80,000 per day.
Before he chose the apartment, he told Nairametrics that he saw an apartment where he was asked to pay N450,000 per calendar month off Marwa within the same area, which he rejected.
“Though, some people may think it’s expensive but I prefer it because it is safer compared to the conventional hotels, where you don’t know the Covid-19 status of people around you.
“I decided to stay at the apartment because I needed to isolate myself for about two weeks in order to keep my family safe. The room is just like home-from-home experience, as I have everything to myself including the kitchen.
“Even before COVID-19, I use them whenever I go to Abuja, largely because of their privacy feature. While cheaper hotels are accessible, I prefer the apartments due to their home away from home feel.”
Abuja based Engineer who craved anonymity, prefer the apartments around Oniru, VI; and Magodo Phase II, anytime he is in Lagos because of special features like privacy, functionality, flexibility, and comfort of a high-end home, along with the efficiency of hotel services.
“Some of them have increased their rates to stay in business, especially during the pandemic. The last time I came to Lagos for four days, I first checked an apartment on Airport Road, which had gone up from N20,000 to N30,000.
“I finally chose one at Magodo Phase II, which had also increased from N15,000 to N20,000. That is because of the serenity of the environment and the incentives they offered. They dry cleaned my clothes for three days free of charge and I have decided to use the facility anytime I am in Lagos.”
These patrons are only two out of hundreds of Nigerians that preferred the services of the short-let apartment due to the flexibility, amongst other functionalities.
Revenue is steady, ticking up and good investors
Olajide Abiola, Co-founder and CEO, Smart Residences Ltd, operating as Gidanka, told Nairametrics that despite the COVID-19 pandemic, the revenue generated from the apartments has been steady because of the excellent service reputation earned within the short period.
According to him, Gidanka has facilities across four neighborhoods in Abuja cityspace, Lagos and still counting.
He said, “There has been steady uptake and about 30% to 70% month-on-month growth since January 2020, when an additional 28 space units were added. The revenue is steady, ticking up and good.
“Revenues are made from nightly, weekly, and monthly room rates. We will be cash flow positive before the 4th quarter of 2020, even in the face of COVID-19. Out of the debt raised, 65% has been offset within seven months, which is five months ahead of the moratorium.”
On the source of fund, he told Nairametrics that his company secured N1.07 billion in seed funding, and have been able to lease out properties in four neighborhoods, to provide 86 unique spaces in about a year.
“We have hosted travelers from over 12 countries, and have paid over 70% of the loan. Interestingly, in the face of the COVID-19 pandemic, our spaces have seen steady patronage because of the excellent service reputation earned within the short period.”
Another investor in the industry, Lekan Okueyungbo, who owns apartments in Maryland and manages another in Lekki (Chevron axis) for a friend, explained that traditional hotels with their limited spaces birthed the increasing demand for the services of the short-stay apartments.
He said, “This is an emerging industry across major commercial cities in Nigeria because the investors ensure the apartments are positioned in new and fascinating locations.
“From my observations, the demand for our services increased especially during COVID-19 pandemic/lockdown. About three of my friends that said the business is not lucrative pre-COVID called me and asked if I could help manage or consult for them.
“Most of our rooms are fully booked sometimes for days. Sometimes, customers book a day or two ahead just to be assured of a room whenever they need one.”
What you should know
- Last September, Nairametrics reported that the rise of the short-stay apartments and boutique hotels also points to their profitable business models and financial viability.
- An operator in a hotel located on Victoria Island informed Nairametrics that apart from the initial one-month lockdown in April 2020, occupancy rates have picked up to pre-pandemic levels.
- In another hotel in Lekki, the owner told Nairametrics that his major challenge was not having enough rooms. “I wish I could purchase the adjacent building and expand my operations. I lose money I would have easily earned because I have to refer my customers to other hotels,” he remarked.
China Harbour Engineering Company latest equity infusion into Lekki Port is $221million – CEO, Lekki Port
CEO, Lekki Port LFTZ, discusses how Lekki Port will create an immense macro and catalytic economic impact on Lagos State and Nigeria in general.
Contrary to allegations that lack of fund has been the major source of delay of the Lekki Deep Sea port project, the management of the port has cleared that such claim is false and that it recently got an equity infusion worth $221 million from China Harbour Engineering Company, its major shareholder.
In an interview with Nairametrics, the Chief Executive Officer, Lekki Port LFTZ Enterprise Limited, Mr. Du Ruogang, talked on the catalytic economic impact on Lagos State and Nigeria, which include the creation of about 170,000 jobs and approximately $201 billion in revenue to State and Federal agencies from taxes, royalties and duties. Excerpts:
It appears the completion date has been shifted several times for a while now. Specifically, when will the facility be ready for business? Is the deadline realistic and how prepared are you?
Personally, as the CEO of Lekki Port, with full responsibility for delivering this project, I am fully committed to ensuring the project completion by the end of 2022. My team and I, in conjunction with the EPC Contractor, are working very hard to meet this deadline, and we are doing our best to anticipate any unforeseen circumstances that can derail this goal, so we can eliminate them and stay focused. We are very committed to honouring our pledge to the Honourable Minister of Transport, Rt. Honourable Rotimi Amaechi for a 2022 completion date. This was in November 2020 when he visited the port site.
What would be the impact of Lekki Port on the Nigerian economy after completion?
Lekki Port, when operational, will help to ease the congestion in existing ports and generally upgrade the continued development of the maritime and port facilities in Nigeria. With full collaboration from all port users and the regulatory authorities, we hope to cut down the operating costs and improve efficiency of doing business in Lagos, Nigeria.
What are the pressing challenges faced by the management, are there any funding issues?
There are no funding issues. All the equity partners have fully funded the project, with the latest equity infusion being the $221million received from China Harbour Engineering Company.
There are 4 beneficiary owners of The Lekki Port LFTZ Enterprise Limited, the sole operators of Lekki Seaport i.e. Four China Harbour Engineering Company, Tolaram Group, Lagos State Government and the Federal Government through the Nigerian Ports Authority (NPA). Which of these entities is the majority shareholder of the company and what percentage shareholding does each of these entities have?
China Harbour Engineering Company and Tolaram Group jointly hold 75% of the project through Lekki Port Investment Holding Inc. The other shareholders are Lagos State Government (20%) and the Nigerian Ports Authority (5%).
Do you have any plan to list the company on the Nigerian Stock Exchange?
Yes, at the right time Lekki Port intends to list the company on the Nigerian Stock Exchange.
What is the financial benefit of the port (after completion) to the Nigerian economy?
When completed, Lekki Port will create an immense macro and catalytic economic impact on Lagos State and Nigeria in general. This includes the creation of about 170,000 jobs and approximately $201 billion in revenue to State and Federal agencies from taxes, royalties and duties. Also, over the term of concession, there will be direct and induced business revenue impact of $158 billion as well as qualitative impact on manufacturing, trade and commercial services sector.
In summary, Lekki Port will have an aggregate impact of approximately US$ 361 billion on the Nigerian economy.
Five years into your operation, where do you see the Lekki seaport?
Lekki Port when operational will help to ease the congestion in existing ports and generally upgrade the continued development of the maritime/port system in Nigeria. Within five years of operation, we hope to have become the transhipment hub for the West African region.
Essentially, we hope to be doing our own part in increasing commercial operations in Nigeria and indeed, across the entire West African region.
In terms of marine infrastructure, we are aiming for global standards. Vessels will approach through a 9 km long and 19 m deep navigation channel reaching the 600 m wide turning basin. The port is protected against the ocean waves and currents by a main breakwater of 1,900 m long and a secondary breakwater of 300 m, providing a controlled environment for the handling of vessels alongside the 1,500m quay at a water depth of 16.5 m, and 3 Liquid Bulk Jetties with 19m water depth. For safe and secure handling of shipping, berthing facilities for marine services (tugboats, pilots’ boats) are provided as well.
The Container Terminal will have a 1,200m long quay for 3 container berths and a storage yard with over 15,000 ground slots. The terminal is designed to support a throughput of 2.7 million TEUs annually. The Dry Bulk Terminal will have an available quay length of about 300m which will be sufficient to accommodate 1 berth for a Panamax size vessel (75,000 DWT).
The Liquid Berths will be capable of servicing vessels up to the size of 45,000 DWT initially, with design flexibility for expansions, catering to an increase to a capacity of 160,000 DWT. The berth will be equipped with loading arms and connected by pipelines running along the breakwater to carry cargoes between tank farms and the vessels. Finally, there will be in-built technology that allows for screening and processing which will promote efficient movement of goods within 48 hours.
Nigeria records $4.3 billion in Corporate Deals in 2020
Paystack, Flutterwave, 54 gene, Trade Depot headline as Nigeria generates $4.3 billion from corporate deals.
Nigerian owned businesses and businesses operating in Nigeria recorded over 106 corporate deals valued at over $4.3 billion (N1.63 trillion) in 2020.
This is according to data compiled by Nairalytics the research arm of Nairametrics between January and December 2020 all at different stages of completion.
Nigeria’s investment climate was precarious in 2020 as the global economy spluttered due to the Covid-19 pandemic. Nigeria’s GDP contracted by 3.62% (year-on-year) in real terms in the third quarter of 2020 after enduring a 6.1% contraction in the previous quarter, a development that was also attributed to the sustained shocks emanated from the continued spread of the virus as well as weak global oil prices.
Thus, foreign investor sentiments towards investing in Nigeria remained dampened due to the economic downturn stifling foreign portfolio inflows into the country. Data from the National Bureau of Statistics (NBS) shows that capital inflow into Nigeria was estimated at $8.61 billion between January and September 2020, compared to $20.19 billion recorded in the corresponding period, falling by 57% year on year.
In addition, data obtained from the Nigerian Stock Exchange (NSE) reveals that about N226.13 billion was recorded from Foreign Portfolio Investors between January and November 2020 as domestic investors drove market turnover for the most part of the year.
Despite the economic downturn, the economy witnessed several corporate deals consummated or under different stages of completion for the period ended December 2020.
Corporate Deals Soar
Corporates ranging from Startups to more matured businesses announced the closure or intent to secure funding through debt or equity-related deals amidst covid-19 and the lockdown. From Silicon Valley to South Africa the deals flowed in from all over the world boosting the capital structure of most Nigerian firms.
- A total of 106 deals were captured in 2020 valued at $4.3 billion or N1.6 trillion occurred during the year with transactions ranging from raising equity, debt issuances, outright acquisitions, and divestments.
- While the tech community dominated most of the equity-related deals, more established companies focussed on public offerings and debt securities such as commercial papers to raise money.
- It is no surprise that the largest deal captured in 2020 was the International Breweries rights issue valued at about N165 billion or $457 million.
- Dangote Cement was next to a bond issuance of about N150 billion, one of the largest private-sector debt-related deals for the year. BUA Cement followed suit with its own debt issuance of about N100 billion.
- In terms of commercial papers, MTN raised N100 billion, the largest commercial paper issuance raised during the year.
- In the tech community, the $200 million acquisition of Paystack by Stripe was by far the largest deal directly affecting a Nigerian based tech-related company.
- Bolt, the cab-hailing tech firm operating across Nigeria and some African countries also got a significant funding boost raising about $100 million.
Why this matters
While the Nigerian economy suffered one of the biggest drops in portfolio investments in 2020 there was a flurry of mega deals that boosted the capital structure of most firms operating in the country.
- Nairametrics research believes a large chunk of this funding will be spent in Nigeria as the country picks up from the economic ruin that was 2020.
- The funds will flow into marketing budgets, capital expenditures, hiring of talents and executives, software acquisitions, etc.
- Nairametrics also expect a significant rise in corporate deals on the Nigerian Stock Exchange as more companies take advantage of low-interest rates to either raise cheaper debts or replace expensive debts with equity.
- Nigeria has a thriving Deals market that provides a significant source of revenue to law firms, financial advisory firms, auditors, fund sourcing firms, and investors.
- Nigerian regulators also earn significantly from fees and taxes collected as the deals are consummated.
A comprehensive report on all 106 deals will be published by Nairametircs next Monday. Kindly send in your email address here to get a copy.
Nigeria spends N29 trillion on recurrent (non-debt) expenditure in last 10 years
Nigeria spent N29.3 trillion on recurrent expenditure, 10x more than capital expenditure.
The Federal Government of Nigeria has spent N29.3 trillion in the last 10 years on (non-debt) recurrent expenditure. The government has earned N33.2 trillion as revenue in this period.
This is according to data compiled from the budget implementation report of the federal government compiled and published by the Budget Office of Nigeria.
High on non-debt recurrent expenditure
Nigeria’s recurrent expenditure includes spending on personnel expenses, pensions, and gratuities, service-wide votes, and overheads. It has consumed about 50.6% of total budget expenditure and 88.5% of revenue in the last decade.
- Nigeria is amid an economic crisis brought upon by the fall in oil prices and more recently the covid-19 pandemic.
- The federal government currently relies on about 33% of its actualized revenue since 2015 when oil prices started their sustained fall. It was about 55% between 2013 and 2015.
- With oil revenues falling, the impact of a continuous increase in recurrent expenditure has widened Nigeria’s fiscal deficits closing at N6.1 trillion in 2020, the highest since we started tracking records in 2009.
- Economic analysts have for years pointed to Nigeria’s high spending on recurrent expenditure compared to capital expenditure as a phenomenon that is inimical to economic growth.
Nigeria has recorded a budget deficit every year since 2009 averaging about N1.1 trillion in the 5 years before the Buhari Administration came into power in 2015. However, since 2015, budget deficits have averaged N3.3 trillion.
The government budget deficits have meant increased borrowing, exacerbating the situation. Last year, Nigeria borrowed N2.8 trillion from the central bank via the Ways and Means provisions. To service this borrowing about N3.2 trillion was spent in 2020, once again the highest on record.
Recurrent expenditure vs Capital expenditure
A cursory review of the data shows that at N29.3 trillion, recurrent non-debt expenditure is about 3x more than the N10 trillion spent on capital expenditure in the last 10 years.
- The Buhari Government has often compared itself with prior PDP led governments claiming it has spent more on capital expenditure. In 2020, the government spent N1.7 trillion on capital expenditure, the highest on record.
- They have also spent between N1.4 trillion and N1.7 trillion between 2017 and 2020.
Whilst, their numbers have been impressive, spending on Capex as a percentage of total government expenditure is far lower than any other year in the last 10 years.
Here are some stark numbers
- Nigeria spends on average 21% of the total budget on capital expenditure. The highest percentage was 29.8% in 2017.
- It was 20.9% in 2020.
- In contrast, recurrent expenditure as a percentage of total expenditure is as high as 115% on average in the last 10 years. It was 86% in 2020.
- While capital expenditure has risen to N1.7 trillion in 2020 compared to just N958 billion in 2017, it is far lower in dollar terms at $4.6 billion compared to $5.8 billion respectively.
In the recently approved budget for 2021, Nigeria plans to spend N13.5 trillion in budgetary expenditure out of which N4.3 trillion is for capital expenditure and another N5.64 trillion on recurrent(non-debt) expenditure.
If this plan pans out the government would have succeeded in increasing its capital expenditure as a percentage of total expenditure to 32% in line with 30% included in the ERGP.
If history is to be relied upon as a basis for projecting, the government is more assured of hitting its recurrent non-debt expenditure spend than capital expenditure.
Nigeria’s Capital Expenditure challenges
According to a world bank report, capital expenditure involves spending on transport, information technology, power and utilities, defense, etc.
- A recent Moody’s report indicates Nigeria needs to spend about $3.3 trillion in capital expenditure over the next 30 years or $1.1 trillion a decade to close its infrastructure deficit.
- This amounts to $100 billion (N40 trillion) per annum or 28% of Nigeria’s GDP of N144 trillion, a tall task considering where the country is at the moment.
- Nigeria is far from this goal and may not meet this target if it continues to spend more on recurrent expenditure compared to capital expenditure.
Also, the government will also need to explore new revenue sources other than oil to boost its revenues while relying less on budget deficits.
- Doing this will require massive tax reforms that target the informal sector, block leakages and reduce wasteful incentives.
- Unfortunately, the covid-19 pandemic has pushed back any immediate plans to aggressively tax revenue.
- For example, in its 2021 budget, the government is projecting a tax revenue of N1.4 trillion down from N1.6 trillion a year earlier.
The Private Sector way
Another possible area of increasing achieving Nigeria’s infrastructure goals is via the private sector. But to do this, Nigeria will need to improve its capital formation policies that enable the private sector to invest in public infrastructure while delivering a legal path to recovering its investments and profits.
- There is also the public-private partnership initiative pursued by the federal government towards funding infrastructure development in the country.
- Just recently, the president approved the setting up of a $39.4 billion Infrastructure Company, wholly focused on critical infrastructural investments in Nigeria.
According to the president, “this Infrastructure company will raise funding from Central bank of Nigeria, Nigeria Sovereign Investment Authority, Pension funds, and local and foreign private sector development financiers.”
Upshots: Nigeria plans to spend N5.6 trillion on recurrent non-debt expenditure in 2021. The increase is coming from the following;
- Personal cost for MDA’s rising from N2.8 billion (as per 2020 budget) to N3 billion in 2021 budget.
- Personal cost for government-owned enterprises (GOEs) will more than triple from N218 billion to N701 billion.
- Overheads also increased considerably during the year.
- In addition, debt servicing for 2021 is budgeted at N3.1 trillion up from N2.6 trillion in 2020.