The Nation Newspaper

Category: Issues

  • Hurdles before Shippers’ Council

    Hurdles before Shippers’ Council

    Last year, the Federal Government appointed Nigerian Shippers’ Council as port economic regulator. Although stakeholders say the Council has, to some extent, brought sanity to the ports, they, however, want in-coming administration to lend support to it on issues relating to international best practices to boost the economy, writes Maritime Correspondent OLUWAKEMI DAUDA.

    One of the observed lapses in the concession agreement that handed over the nation’s ports to private investors in 2006 was Federal Government’s failure to appoint an economic regulator. This lacuna, according to operators and stakeholders in the maritime industry, left port users especially Nigerian importers holding the short end of the stick, with no regulator to monitor the activities of port service providers, shipping companies and terminal operators.

    However, the need to close the gap created by lack of a post-concession regulator of the port system was not lost on government. This was why, having noticed that service providers were taking advantage of the vacuum, government decided to appoint an economic regulator to act as referee in port activities. Consequently, the Federal Government in February 2014, appointed Nigerian Shippers’ Council (NSC) as the Economic Regulator of the ports.

    More than a year down the line, the NSC is now in the centre of public scrutiny. How has the council fared in its new role as port economic regulator? Has the council delivered benefits to stakeholders in the maritime industry? What have been its major challenges?  And how has it positioned itself to continue playing its role under the incoming administration of General Muhammadu Buhari? These are some of the questions agitating stakeholders’ minds.

    To the Executive Secretary, NSC, Mr. Hassan Bello, an understanding of the mandate of the council should form the basis for assessing its performance so far. His words: “In our capacity as Port Economic Regulator, our role is to consult, coordinate, moderate and harmonise the various processes and procedures with a view to achieving operational efficiency at our ports.

    “Where there is unreasonable resistance, we shall not hesitate to apply appropriate sanctions to ensure compliance. We shall remain, independent, neutral and consultative and all decisions will be on the buy in of stakeholders. We are also to assess options for competition; to decide on entry rules; to regulate on pricing freedom; to monitor outcomes and all that.”

    But has the council delivered on its mandate? Bello said: “Effective regulation requires much more than just competent economic and financial analysis, but must also manage often complex interaction with the regulated firms, consumers, politicians, courts, the media, and a range of other interests.”

    Nigeria’s road to a sub-regional hub; while giving insight into what the council is doing, is to create a new port order. Bello said the council has established a new platform for everyone to integrate and make the Nigerian ports the hub in the sub-region and an international logistics centre.

    According to stakeholders, the new port order involves a situation where the cargo is scanned before it is stacked. As the ship is discharging, the cargo is also being scanned, and the image is used by the Nigeria Customs Service (NCS) to commence clearing process in terms of segregating the cargo for whatever line of inspection, such as:  green, yellow and red light, as the case may be.

    “We are working with the Central Bank of Nigeria (CBN), Customs and other relevant stakeholders so that every payment made in the maritime domain is reflected on the platform. In doing this, we have designed a template and standard tariff system that will ensure 30 to 40 per cent reduction in cost to achieve harmony in tariff. This involves all service providers,” Bello said.

    He also explained that the system harmonises every transaction in such a way that transfer of containers to off-dock terminal does not attract extra charge in terms of payment of royalty to the terminal operator. According to him, transfer of containers to off-dock facilities should not attract extra charge, assuring that the practice will be discontinued as it amounts to double charges to the shippers.

    Explaining further, the NSC Executive Secretary said the idea of harmonising the system creates transparency as the importer trades with certainty as to how much to pay and how long to take delivery of the goods. This new port order, he said, will eliminate all the wastages in the system so that the cost of doing business is reduced. Part of the arrangement is that the owner of the cargo should know when his cargo arrives to prepare him to make arrangements to clear his goods in good time.

    “We are also working to streamline and professionalise freight forwarding to strengthen its position in the ports. We prefer to have them in companies rather than individuals,” Bello added. According to him, in doing all these, the council is not competing with any government regulatory agency, but thrives to actualise the mandate of making Nigerian ports the hub in the sub-regional and international logistics centre.

     

    Operators,  stakeholders react.

    The President, Association of Nigerian Licensed Customs Agents (ANLCA), Price Olayiwola Shittu, said his group was aware that Bello was not happy that the nation’s seaports have lost their comparative advantage in terms of cost, especially in cargo clearance and that the council is set to make the seaports attractive.

    Bello, the ANLCA Chief said, is determined to ensure that the country recoups its losses and also restore stakeholders’ confidence in the seaports. He, however, said the problem of the ports came about before the Federal Government appointed the NSC as an economic regulator, after the ports were concessioned. Shittu said this was responsible for the legal tussle the council is fighting and the inability of Nigerians to reap the full benefits of the port reform programme of the government.

    Shittu, however, said the involvement of stakeholders is an important source of legitimacy and public acceptability for regulatory agencies and their decision-making procedures. As a start-off, the NSC, he said, met with all stakeholders, including clearing agents, shipping agents, importers and private terminal operators to understand the challenges facing them individually and how to resolve the problems and unite the stakeholders.

    The Nation learnt that the council also met and received the support of the Nigeria Ports Authority (NPA), whose former managing director, Mallam Habib Abdullahi, affirmed that ‘’it would amount to failure on the part of NPA if the NSC fails’’. At the meeting,  Abdullahi said he was ready to cooperate and support the council in its new role as the economic regulator. The council also had similar consultations with the NCS and the CBN. At these meetings, the chief executive officers of the agencies gave assurances of their support.

    A senior official of the Federal Ministry of Transport, who craved anonymity, said after the implementation of the Federal Government’s port reform programme, which led to the concessioning of port terminals, the importers and other stakeholders noted a vacuum, namely the absence of an economic regulator to act as a referee. This vacuum, the official said, made it difficult for Nigerians to enjoy the gains of the programme.

    “The inefficiency in the procedures and operations of agencies and port users is adversely affecting and undermining Nigeria’s competitive advantage in international trade, which Bello is now set out to correct,” the official said, adding that the effective regulation being put in place by Bello is gradually paying off.

    “The benefits of a regulated port industry, which Bello is trying to establish at NSC, would lead to improved revenue generation, infrastructural development, creation of efficient market, reduction of cost of business and improved Global Competitive Index and consequent attraction of Foreign Direct Investment (FDI),” the official emphasised.

    Another senior official of the council, who does not want his name in print, however, said the regulator needs to provide a level playing field amongst competitors, as the regulator needs to be independent, transparent, legitimate and credible. He added that the global competiveness of Nigerian ports has a major role to play in the attraction of FDI.

    Regulation, a win-win for all. Terminal operators are believed to be top beneficiaries of the emerging port order ocassioned  by the coming of a port economic regulator. Part of the benefit is the protection of their investments from undue interference. This leads to guaranteed return on investment and increased profitability; predictability in processes and procedures; assurance of level playing ground; availability of Common User Information Service provided by the regulator; strengthening of complaint and arbitration mechanisms, among other benefits.

    Apart from the private terminal operators, the government will also enjoy improved revenue generation; improved infrastructural development; creation of efficient market; reduction of cost of doing business; improvement of the nation’s Global Competitive Index and consequent attraction of FDI.

    For the shipping companies, there will be improved delivery of marine and terminal handling services, leading to reduced turn-around time of vessel and reduced cost of vessel operations. There is also the benefit of improved image due to increased customer confidence, transparency, efficiency and effectiveness and consequent improvement in image.

    The presence of an economic regulator ensures the strengthening of complaint and arbitration mechanisms, prompt issuance of Ship Sailing Certificate and consequently, avoidance of demurrage accumulation against shipping companies and other effects.

    For the freight forwarder, it ensures professionalisation of freight forwarding practice. This, on its own, leads to elimination of touting, sanitisation of the port environment, and harmonisation of clearing processes and procedures, and consequently, reduction of clearing charges.

    The NPA will also enjoy the effect of the presence of an economic regulator because it will lead to enthronement of clearer Standard Operating Procedure (SOP) derived from International Laws (Conventions) and Practices. The NPA will also enjoy transparency, efficiency and effectiveness and consequently, improvement in image, improved revenue generation, improvement of competitive advantage in the sub-region, and strengthening of complaint and arbitration mechanisms among others.

    The NCS is not left out either. The emergence of the economic regulator will translate to improved revenue collection, enthronement of clearer Standard Operating Procedure (SOP) derived from international conventions and practices, improved level of compliance by importers, exporters and freight forwarders and others.

    Above all, the ultimate beneficiaries are the consumers. The economic regulator will ensure harmonisation of clearing processes and procedures and the consequent reduction in cost and time of cargo clearing, reduction of Cargo Duel Time, in particular, and generally the trade cycle.

    When the new port order comes on stream, providers of haulage services will also enjoy decongestion of port access roads, leading to improved truck transit time at ports; there is also the ability of re-fleeting of rickety trucks; installation of electronic gating and call system guaranteed loading opportunity for truckers.

    A regulator’s many challenges are exciting as the benefits of an economic regulator for the ports. For instance, the council encountered one of its challenges in the course of performing its duty in October last year. That was when, in consonance with its new roles, the council published notices directing shipping companies and terminal operators to reduce certain charges, increase free storage time, and announced interventions in other levels of pricing.

    The move did not go down well with shipping companies and terminal operators, who filed two separate actions against the council and obtained interim injunctions restraining it from implementing the directives contained in its notices to them. The substance of the actions challenged the exercise of powers of the council and questioned the validity of the council’s appointment as the economic regulator by the government.

    Not done yet, 12 shipping line agents under the umbrella of Association of Shipping Line Agents, filed a suit seeking court’s declaration that the council does not have the power to introduce or impose local shipping charges on them, and that the notices issued by the council were illegal. In the counter-claim, the council had sought for the ‘Shipping Line Agency Charge’ levied by the plaintiffs to be declared illegal, and for payments collected thereby to be refunded.

    Delivering judgment on the two similar matters, Justice Ibrahim Buba of the Federal High Court agreed with the counsel to the NSC, Mr. Emeka Akabogu that the NSC was properly appointed and empowered by virtue of the Constitution of the Federal Republic of Nigeria to undertake its role as an economic regulator. Justice Buba ruled that in the clear absence of any existing law in Nigeria making provision for an economic regulator for the ports, Section Five of the Nigerian Constitution was the adequate basis for the President to issue orders in relation to the subject, as government exists for the welfare of citizens. The court thus affirmed that the NSC was validly appointed as the economic regulator for ports in Nigeria and could exercise powers in that regard.

    The court further ruled that the ‘Shipping Line Agency Charge’ (SLAC) being collected by the shipping companies is illegal. The court, therefore, ruled in the case filed by the shipping companies that the plaintiffs should render account and refund all money collected under the heading of ‘SLAC’, declaring that it is illegal.

    Responding to the court cases, Hassan Bello said: “We’ve resisted attempts to increase charges and we said no to impunity, economic brigandage, fleecing of Nigerians.” It was not the only hurdle before the council. The council also had to take on other responsibilities adjunct to its core mandate, which included the conceptualisation of Inland Container Depots (ICDs) and Container Freight Stations (CFS). The Council was also the arrowhead of the creation and nurture of the Council for the Regulation of Freight Forwarding in Nigeria (CRFFN).

    Beyond that, the Council, in its efforts to protect the interest of Nigerian shippers, has, for a long time, been perceived as a toothless bulldog because of the divergent interests operating at the nation’s seaports and the lackadaisical attitude of those in power. For instance, for many years, the Council fought unsuccessfully to check the arbitrary imposition of charges by the multinational shipping lines.

    Moving forward, the consensus is that the appointment of the NSC as economic port regulator was a step in the right direction and that the Council has not fared badly. Operators and stakeholders say there are still a number of issues confronting the nation’s shipping sector, which need to be addressed by the incoming administration of Gen Muhammadu Buhari.

    Some importers, clearing agents and stakeholders, who spoke with The Nation, said prominent among them are competitive pricing, alleged arbitrary charges by shipping companies and other government agencies. They argued that these issues must be resolved so that importers, who patronise the nation’s seaports do not suffer unnecessarily in terms of delay and cost.

    The Shippers’ Council, stakeholders say, needs the support of the in-coming administration to regulate effectively the commercial activities of all operators, which include terminal operators, shipping companies, the importers, exporters and clearing agents, among others.

  • Why Commodity Boards may return

    Why Commodity Boards may return

    To take storage and marketing burden off farmers, and ensure availability of raw materials for manufacturers, experts are calling for the
    re-introduction of Commodity Boards. Coming at a time the Federal Government is focusing on the
    non-oil sector to diversify the economy, this could be the tonic to stimulate the growth of the agricultural and industrial sectors, writes Assistant Editor OKWY IROEGBU-CHIKEZIE

    For operators in the manufacturing and agricultural sectors, particularly farmers, fear of post-harvest losses is the beginning of wisdom. Many of them have had their fingers burnt after suffering heavy losses as a result of the absence of storage facilities for agricultural products after harvest.

    Not a few experts believe that losses recorded by farmers can be greatly minimised if the government can buy the excess farm produce from farmers through the Commodity Board to stabilise prices and also avoid losses due to the absence of storage facilities to store harvest products.

    President, Lagos Chamber of commerce and Industry (LCCI), Alhaji Remi Bello, is one of them. While throwing his weight behind the reproduction of Commodity Boards, he recalled that Commodity Board, at the best of times, promoted the production of quality produce to meet with the quality standards of manufacturers and encouraged raw material availability for industries. He said the nation is in the woods because of poor attention paid to agriculture and local food processing due to poor storage and poor quality produce.

    To underscore his call for the return of Commodity Board, Bello narrated his  experience “When the government encouraged, for instance, the planting of cassava l plunged into it, but because l had no space to store produce, I stopped. If l had a place to store my produce until the selling price is good, I would have continued with the business, but because the Commodity Board regime has been stopped, the business collapsed,” he said.

    The LCCI chief argued that glut is not good for any business. “It is only when you have good price that the business will be sustainable,” he emphasised, blaming the discontinuation of the Board on abuse of the process. Besides, the aim of the programme was frustrated by operators, a situation that left government with no option but to suspend it. He recalled that Commodity Board, at its height of glory, regulated the price of produce, ensured quality of products to meet the specification of manufacturers both locally and internationally to get the desired output.

    Public Affairs Consultant, A.G. Leventis Group, Mr. Mahmud Othman, also said the Commodity Board recorded some achievements when it was operational. He said, for instance, that the board as a government agency, had checks and balances; it guaranteed multiple buyers from all over the world and ensured standards and rules of engagement accepted world-wide.

    Othman relieved the success of the Northern Nigeria Marketing Board and the Cocoa Board in the Southwest, which helped farmers to produce agricultural products, liaise with foreign buyers and guaranteed standard graded products. He said Commodity Board in its hey days ensured that farmers produced cash crops to standard specification of countries who bought different farm produce according to their needs.

    “The boards set prices for the three different grades of produce, grade 1 -3 and there was no case of sub-standardisation of products from the country because from the onset the parameters are set,” he recalled.

    Othman further noted that the Commodity Board served both the seller and the buyer. “The seller is exposed to the international market and encouraged to produce to global standards through government assistance in terms of training, ready market, equipment acquisition, quality specifications and standards. On the other hand, the buyer is assured of quality produce and sustainable supply. He is also sure that he will not be cheated by spurious sellers,” he explained.

    Othman, who made a case for the return of Commodity Board, pointed out that those who are against its re-introduction citing corruption of the process by the operators, should have a rethink. He said with a focused government determined to deliver on its mandate, the issue of corruption of the system would be eradicated. He cited what happened during the Buhari/Idiagbon military era when price control boards arrested and tried petty traders who sold above the regulated price of milk and other provisions. He said if the leadership in the centre was sincere there was nothing it set out to achieve that it couldn’t achieve.

    A policy and economic analyst, Mr. Bala Zakka, also lend his voice to the call for the return of Commodity Board. According to him, an arrangement that allows the government buy the excess farm produce from farmers through the Commodity Boards to stablise prices and also avoid losses remains a win-win for both government and farmers. He noted that the arrangement would not only move the agricultural sector forward but also encourage the growth of Small and Medium Scale Enterprises (SMEs).

     

    Govt muted the idea

     

    The renewed clamour for the return of commodities marketing boards enjoys the support of the Federal Government. Recall that Minister of Agriculture and Rural Development, Dr. Akinwunmi Adesina, earlier hinted that the Federal Government intended to re-introduce commodities marketing boards to ensure that farmers got adequate prices for their products.

    At the opening session of the Growth Enhancement Support (GES) for registered cocoa farmers in Ondo State recently, the minister said the board would be private sector-driven and would perform all the functions that the defunct marketing board performed before it was scrapped in 1986, except buying and selling. Adesina said the GES was initiated to remove middlemen from the sale and distribution of fertiliser and chemicals.

    The Minister noted with concern that marketing of agricultural produce had become an all comers’ affair since the scrapping of the cocoa marketing board. The development, he said, had left farmers at the mercy of merchants. He said the government would start the programme  with two commodities boards of cocoa and cassava, adding that some foreign experts had been invited based on their experiences on the project.

     

    How the boards operated

     

    Commodity Marketing Boards were established in 1977 by the Federal Military Government under the Ministry of Agriculture and Cooperatives to take care of specific crops such as cocoa, rubber, roots and tubers, etc Food imports were limited, but crop production for exports was intensified during the period of liberalisation. There were six Commodity Boards. They include Nigerian Cocoa Board, Nigerian Groundnut Board, Nigerian Cotton Board, Nigerian Palm Produce Board, Nigerian Rubber Board, and Nigerian Grains Board.Their headquarters were located in Ibadan, Kano,  Funtua, Calabar, Benin, and Minna.

    These Boards interfaced with farmers and brought stability in their operations and also served as interventionist agencies, especially for cash crop farmers, ensuring that their produce were bought from them by government. This is to control the prices. In some other cases the Board arranged overseas trading partners to buy the produce as they ensured that it is produced to the highest quality and specification of the buyers.

    On its part, the government provided necessary tools, such as tractors, scale, jute bags and gamalin to treat pests in the farms to encourage small scale millers to farm and harvest with minimal loses.

    Agriculture extension workers were also used and young men and women given elementary training in the application of pesticides and fertiliser to both cash and arable crops. They were later deployed in the various farm settlements where they assisted rural farmers who largely toiled for subsistence.

    The initiative, no doubt, boosted produce and income to the farmers as well as the government, which was able to build infrastructure, such as roads, schools and health care facilities to make the transportation of products easier and ready for either local manufacturing or export.

    While these may have prompted renewed calls for the return of Commodity Board, there are those who do not support its re-introduction. For instance, while acknowledging that Commodity Board recorded some measurable success when it was operational, a former Minister of Industry, Chief Nike Akande said she prefers the incoming administration to fashion out a new policy that will not only enhance the productivity of farmers with all the benefits inherent, but also the manufacturing sector to have access to raw materials needed for the industries.

    Akande said she is an apostle of buy-Nigeria and that she promoted same as a minister. She, however, said she will prefer new ideas and innovations to move the nation forward without recourse to the past.

    For National Vice President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr. John Udeagbala, the private sector is the engine of every economy and whatever that is needful to create an enabling environment should be done. He advised the government to work with the private sector before coming out with any policy, insisting that without the support of the private sector policies, no matter how attractive, would not work.

    He said the poor delivery of the out-going administration and by extension, the manufacturing sector, was largely because the organised private sector was not carried along in most of the policies rolled out for them.

     

    Boards as vehicle to boost

    industrialisation

     

    Since mid-last year when the price of crude oil started tumbling, causing major upsets in the nation’s finances, Federal Government’s new, strategic thinking has been to explore opportunities in the non–oil sector of the economy. The overall objective is to diversify the economy by reducing the country’s heavy dependence on proceeds from oil. To achieve this objective, experts say that agriculture must be accorded priority. Besides, there has to be massive investment in the export sector by ensuring that value is added to raw materials before exportation.

    This, The Nation learnt, is part of the planned integrated support for local manufacturing and by extension the agricultural sector. The idea is to stem wastages for farmers occasioned by the lack of storage facilities and also provide ready raw materials for local industries.

    To deliver on this overall objective, analysts and experts are now calling for the re-introduction of Commodity Board to serve as safety net where government will take the burden of storage and marketing from farmers while ensuring the steady inflow of locally available raw materials for the manufacturing sector.

    For farmers, a Commodity Board, according to experts, is particularly necessary. Their argument is that for the reforms in the agricultural sector to succeed, farmers need to be assured that whatever they produce will be taken up by the government, prices stabilised and wastages eliminated. They noted that the reform and sustenance of  the Board is necessary to stimulate  the chain of production from the farm to the markets.

    Besides, farmers need to be protected by the government against importers who will want to use the country as a dumping ground. They also need the support of a sophisticated engineering industry to produce the machines and equipment they need to guarantee the crops and livestock they grow to reach the high quality standards.

    Incidentally, this is where manufacturing comes in. To achieve all these, experts canvass for a robust policy for the manufacturing sector with strong emphasis on local content. This is why they urge the government to encourage the use of available local products in place of the imported alternatives.

    In such a scenario, the agricultural and the real sector will be revamped and the much needed foreign exchange will be earned as the international market would have confidence in dealing with a government agency rather than individuals. They will also be confident that the quality specification on the produce is real and not counterfeits.

    Through the establishment of commodity boards needed infrastructure will also be established in rural areas, especially those where the cash crops are grown and packaged. The agricultural sector will thrive more and more jobs created if the sector is made attractive for youngpeople and fresh graduates who see farming as odious and not attractive.

  • Darkness envelopes Nigeria

    Darkness envelopes Nigeria

    Two years after the privatisation of the power sector,  the country has been thrown into an unprecedented darkness. Power supply has dropped to less than 3,000 megawatts (Mw). In spite of this, the distribution companies keep slamming crazy bills on customers for electricity not supplied. With all the funds pumped into resuscitating the sector, Nigerians are wondering if the nation’s power nightmare will ever end, writes EMEKA UGWUANYI.

    Poor power supply seems to have defied solution.The various initiatives to revive the ailing sector have failed. While the government alleges sabotage as the cause of its continued failure to fix the sector, some stakeholders blame it all on the government’s insincerity.

    With the huge funds sunk into the sector over the years, stakeholders say the nation ought not to be talking of increased generation that doesn’t translate into supply, but rather, it should be focusing on achieving its electricity target.

    According to them, Nigeria has more than enough gas for thermal power stations. Besides, there are rivers for hydro power plants. Nigeria has more than sufficient sunshine for solar power generation, enormous coal deposits and wind, among other sources of power generation. Yet, this country has so far failed to diversify her sources of power generation.

    When former President Olusegun Obasanjo assumed duties in 1999, he tried to sanitise the sector. He set up a technical committee headed by the Governor of Cross River State, Senator Liyel Imoke, to find what was wrong with the utility firm and also gave the committee a 4,000 megawatts (Mw) generation target. Although the committee claimed it accomplished the target, its claim could not be matched with the reality on ground, as darkness persists. Even the creation of the National Integrated Power Project (NIPP), which has 10 medium power plants with a cumulative output capacity of over 4500Mw by the Obasanjo administration couldn’t break the jinx. The projects are still ongoing, eight years after Obasanjo left office.

    When the late President Umaru Yar’Adua took over in 2007, he declared emergency in the power sector with generation target of 5,000Mw.

    Unfortunately, that target, again, was never  achieved. It was not until President Goodluck Jonathan stepped in that the Federal Government embarked upon a transformation agenda for the sector with the launch of the Power Sector Reform Roadmap in 2010.

    Some of the highlights of the roadmap include generation targets of 5,000Mw by April 2011,  14,000Mw by December 2013, and 40,000Mw by 2020 with investment of at least $3.5 billion per year for the next 10 years. It also includes the implementation of the National Gas Master plan to ensure 1,636 billion standard cubic feet per day (bscfd) of gas to actualise the 2011 power generation target, removal of obstacles to private sector investment in the sector, ensuring substantial reduction in the government’s funding and managerial direction of significant elements in the electricity value chain as well as reforming the fuel-to-power sector and privatisation, among others.

    Jonathan’s administration reinforced commitment to implementing the Electric Power Sector Reform Act (EPSRA) 2005, which set the rules for transition to private sector control, such as the unbundling of the Power Holding Company of Nigeria (PHCN) into 18 successor companies, the establishment of appropriate tariff regime and gas pricing to encourage private investors to take over the sector in line with the law.

    The unbundling and eventual sale of  PHCN’s successor companies as well as handover of the assets to the preferred bidders on November 1, 2013, marked the completion of the privatisation of the sector. The exercise came with high expectations from electricity consumers who thought the end to their plight had come.But they were wrong.

    Despite the inauguration of the NIPP 750Mw Olorunsogo 11 Power Station in Ogun State and 220Mw from the rehabilitated unit six turbine of the Egbin Power Plc in Lagos this year, generation has not exceeded 4,000Mw. Generated power has been falling since March. On March 8, generation reportedly stood at 3,505 Mw and dropped to 2,747.45Mw by March 11 and as at April 13, it was 2988Mw for a nation of over 170 million people.

    Besides, the transmission network compounds the problems. Sometimes, the transmission worsens the power supply problem as it becomes so fragile that it is unable to wheel 3,000Mw. Under such situation, if that capacity is exceeded, it results in system collapse, throwing the entire nation into darkness. There is no reported case of system collapse yet the country is in darkness.

     

    Consumers cry out

    The electricity supply, according to consumers who spoke to The Nation, has never been this bad. And the power firms are not giving reasons for the poor service delivery. Many residential customers are alleging rip-off by service providers whom they accuse of taking them for granted. As far as they are concerned, there is no difference between the defunct PHCN and the new utility owners. Most of them even said life was better under PHCN.

    They said power supply had dropped below what it was when it was under the government’s management. They also lamented the continued upward review of tariff, which they are compelled to pay despite not getting electricity supply.

    The Managing Director, Zion Food Palace, a small scale enterprise that runs a cold room where chicken, turkey and other food materials are kept, Mrs. Olabisi Akinbola, said her business located at Idimu, Egbeda, Lagos, has suffered untold losses.

    She said: “We don’t use light for up to three hours in a day. Many times, we get light once in three days. Sometimes, they (power firm) bring the light in the night after we had closed from business and they take the light before we resume the following day.

    “We usually buy between 15 litres and 20 litres of diesel every day and we cannot put on the generator for the entire day because that will kill my business. As a result of this, several times, many of the fishes and turkeys get spoilt because the generator cannot freeze the food as power supplied from the public utility. As I am talking to you, my shop smells of spoiled fishes and turkeys.

    “Out of the five deep freezers that we have, we only use two to run the business because of the power situation. We use generator for at least five hours in a day. We are losing money seriously because the business that is run with five deep freezers loaded with fishes and turkeys has now been reduced to two.

    “You can only imagine the difference between the sales with five freezers and two freezers. When you calculate the sales and the expenses every month, you will only appreciate the losses. I am considering closing shop for now until things improve because  putting the business into operation is not worth it.”

    In spite of all these, officials of the power firm still bring ‘crazy’ bills to her. She showed  our reporter her latest electricity bill dated April 15 which showed that she was billed N83, 370.43.

    Many residential customers, who spoke to The Nation, said the rip-off from the electricity distribution companies is unbearable. Some of the customers said their bills rose by over 100 per cent in one month (between March and April). One of them, Mr. Jide Olumide, showed our reporter his bills for March and April. In March, he was billed N5, 000 while he was slammed with N11, 000 in April. He was at Electricity Distribution Company’s office to lay his complaint. He queried the bill because his consumption has not changed; besides, he was not getting supply.

    Industrial consumers, especially manufacturers are also groaning.The Chairman, Electronics and Electrical Sectorial Group of Manufacturers Association of Nigeria (MAN), Mr. Reginald Odiah, said  his members depend on generators to power their operations. He said: “On the average, members of the association spend over N2 billion per week on self-power generation. This translates to between N72 billion and N75 billion annually.”

    Also, a source at Cadbury Nigeria Plc told The Nation that the company uses more than 4,000 litres of diesel daily. This, according to the source, translates to over N480, 000 per day to provide the diesel for its power generating sets. “Currently, diesel is sold at between N120 and N150 per litre. That is the magic of our own brand of deregulation that has seen consistent increase in the price of the product.  So, on the average, the company spends over N15 million per month, to run the production process,” he said.

    In different parts of the country, particularly Lagos, angry youths had beaten up workers of the distribution companies when they come to distribute bills or disconnect them from the grid. Their anger is understandable. Such customers hardly get an hour power supply in a day while officials of the power firms come around with ladder to embarrass them by cutting and carting away their electricity cables.

    Just last month, Ikeja residents marched in protest to the Ikeja Electricity Distribution Company’s head office in Alausa, Ikeja over poor power supply and outrageous billing. Brandishing placards that read: No Crazy Bills!, they said the PHCN was giving them crazy bills, extorting them and not giving them electricity. The residents asked PHCN to provide them with prepaid meters and threatened to burn down the building if their demands were not met.

    An economist and public analyst, Mr. Henry Boyo, said there had not been any improvement despite the privatisation of the sector. He said: “We haven’t seen much of improvement in power supply. What is equally worrisome is that after selling the distribution companies, we ended up with a loss of N400 billion. The same group of people to whom we sold the distribution and generation companies and made a loss of N400 billion incurred from the allowances and outstanding payments to contractors.

    ‘’After all that, we suddenly find that they don’t have the money to run the companies efficiently. So, what do we do?  We call them together again and say okay we give you soft loan in spite of the fact that we ended up with N400 billion in debts as a result of selling the distribution companies.”

     

    The issues

    Minister of Power, Prof. Chinedu Nebo, said lack of gas supply to the thermal plants is a major challenge. Besides, he said due to pipeline vandalism, even part of the available gas meant for power plants is shut in. He also lamented that power plants that use gas as fuel account for over 70 per cent of Nigeria’s power generation and the situation is worsened by the fact that on conception of most of the those plants especially the NIPP, gas supply to them were not considered. This   made it very difficult or impossible to get gas there.

    He said: “When the NIPP was conceived, there was no concomitant development and deployment of gas infrastructure to supply gas to the plants to power the turbines and they are all gas-fired turbines. Another complex area is the stealing and vandalisation of transformers.”

    Inadequate metering of customers is another issue. Many customers are billed on estimation, which is responsible for the outrageous billing commonly called ‘crazy bills.’ Even some customers who have analog meters complain that their meters are no longer read by workers of the distribution companies who now prefer handing out estimated bills to reading the meters and getting accurate bills. The anomaly was worsened by the new owners of the power assets as they now buy the power they distribute to customers and endeavour as much as possible to recover their cost and add some margins. Because of the shortcomings in the system resulting in commercial and collection losses, the distribution companies now slam uncalculated bills on those who don’t operate prepaid meters.

    Nebo agrees no less. He said: “There are technical losses from generation to transmission, to distribution, and to supply; some of the losses are due to faulty equipment and ageing equipment and infrastructure, and some because of non-optimisation of the route for delivery of electricity. The most serious losses are commercial losses, but we have reduced technical losses substantially, so technically we are not losing a lot but commercially much.”

    According to him, many Nigerians get power but are reluctant to pay for it.

    While noting that the distribution companies are not collecting enough money, he said they are in the habit of giving customers estimated bills, which have nothing to do with technical and scientific reality. “That is why we must meter everybody. The meters we have are not smart meters. It is only recently that we started getting smart meters. So, it was possible for them to override those meters and that is why we are moving to smart meters. That way, you can only consume as much as you can afford. If you are consuming so much, you learn to shut down your air conditioner when you go to work as well as lightings that are not being used, among others,” he said.

    The minster said the government is moving to solve all these problems. According to him, between November 1, 2013 and this month, the government discovered that the commercial losses were huge.

    He said: “Power sector cannot guard against these losses without metering. Less than 60 per cent of Nigerians are metered. How do you collect your money? So commercial losses are huge and, unfortunately, somebody has to pay for it. “And unfortunately again, it is those who are paying that are penalised to pay for those who are not paying.”

     

    What should be done?

    The Managing Director of Nigeria Liquefied Natural Gas, Mr Babs Omotehinwa, said: “Nigeria should also look at how other countries solved their power problems and achieved stability. I think the first thing to realise is that in many countries the key for power is diversification. For example, Russia has the highest gas reserves in the world. It has more than 10 times what we have in Nigeria but Russia produces less than 25 per cent of its power from gas. It produces power from other sources such as nuclear, hydro and coal, among others. And you need to diversify your sources of power because you cannot rely solely on one. Also in China, one hydro power plant produces over 20,000Mw. In terms of hydro, we can generate a lot as a country. I think the diversification of power sources is important to us. We cannot be producing gas thinking we can generate all our power from gas, transport it either by pipeline or by overland because you will just lose so much. Nigeria is so blessed that we have hydro, coal, solar and wind, so the diversification is very important.”

    He said the problem with Nigeria is not the non-availability of gas but how to quickly make it available. “Our challenge is how quickly can we explore, produce and make it available with the infrastructure that will make it available to the domestic facilities. “So, when you are looking at the requirement for either power or petrochemical, it is not because the gas is not in the ground but our challenges are that we need money, the right system to be able to explore them, to produce, transport to those facilities and those are the work that need to be on bloc, which we call non-technical issues.”

    The President/Chief Executive Officer, General Electric, Nigeria, Dr Lazarus Angbazo, said: “In the gas sector, I must say gas is one of the biggest challenges the country has. With 187 tcf proven gas reserves, and ranked number eight in the world, the country in theory is awash with gas but this gas is associated gas. Therefore, to collect this gas, clean it up and transport it to the point of use involves a lot of investment and because of this, gas is not available. So, Nigeria is both gas rich and gas poor. It is not available because the owners of the gas, the oil companies, didn’t invest.”

    He also said  natural gas can be supplied to these power plants through virtual liquefied natural gas (LNG).

    Nebo has however assured that the Federal Government is working on energy efficiency policy to diversify the sources of power supply. He said many distribution companies are also looking at embedded generation (off-grid generation) to complement whatever comes from the national grid. He said the government also has plans to commence electronic monitoring of pipelines and other facilities channelling gas to power plants across the country to curb the challenges of incessant pipeline vandalism in addition to  deploying soldiers, naval men and the men of the Nigerian Civil Defence Corps, among others to stop vandalism.

    He said the challenges though not insurmountable, are worsened by the fact that 70 per cent of the total power generation comes from gas-fired turbine and 30 per cent hydro.

    “We have far larger installed capacity than the power we are giving out because of gas supply and that is being taken care of. More forces are being deployed. Electronic gadgets are being installed to ensure that at any point of disruption our security forces will know and move to forestall it,” he said.

     

  • Selling the marketplace

    Selling the marketplace

    The proposed conversion of the Nigerian Stock Exchange (NSE) from a member-owned entity to share-based public limited liability company got a major lever few days ago with the publication of the much-awaited rules and regulations that will serve as guidelines for the demutualisation. Capital Market Editor, Taofik Salako, examines what may be the biggest change in the history of the 55-year-old stock exchange 

    The Nigerian stock market, like the traditional African market, is a hub of trading desks brought together by the mutual interest of each trader. Selling and buying and the marketplace have thrived for centuries on mutuality, with all the stakeholders bounded by the common values being derived from the market. Although the sovereign usually plays important roles in establishing a market, the growth of the market, its integrity, regularity and aesthetics depend on the efforts of all.

    The stock market, institutionally represented by the Nigerian Stock Exchange (NSE), has thrived for decades on the traditional mutuality of a marketplace. Now, the NSE appears set on a new trajectory where the marketplace will be owned by shareholders and the marketplace itself combines the functions of providing amenable space for profit-making to traders with that of making profit itself to distribute to its shareholders. This is the concept of demutualisation. The NSE has been locked in intense grip of demutualisation in recent years, with various views on the necessity, procedures and timing and other details of the exercise as widely divergent as the multitude of different backgrounds that trade on the market.

    The demutualisation of the marketplace got a major lever few days ago with the publication of the much-awaited rules and regulations that will serve as guidelines for the demutualisation. The release of the rules and regulations by the Securities and Exchange Commission (SEC), the apex regulatory body for the Nigerian capital market, concluded a four-year exercise to provide amenable template for the demutualisation. SEC had in February released the draft rules and regulations on demutualisation for comments and review by stakeholders.

    Demutualisation is the process of changing a member-owned stock exchange, otherwise known as mutual exchange, to a corporate entity owned by shareholders. In a mutual exchange, the three functions of ownership, management and trading are concentrated into a single group, hence the broker members of the exchange are both the owners and the traders on the exchange and they further manage the exchange as well. In a demutualised exchange, the three functions of ownership, management and trading are clearly separated. The new rules by SEC simply defined demutualisation as “the process through which a member-owned organization becomes a shareholder-owned company.”

     

    A volte face from voice vote

    Established as Lagos Stock Exchange (LSE) in 1960, the Exchange started as a private company limited by shares. It was renamed Nigerian Stock Exchange in December 1977 and was re-incorporated as a company limited by guarantee in December 1990. As a limited by guarantee not-for-profit organisation, the NSE thrives on the goodwill, reputation and integrity of its members. It has also operated over the decades as a self-regulatory organisation (SRO). The NSE altogether has some 350 individual and institutional members including some 255 active dealing members, state-owned investment firms and major high networth investors (HNIs).

    While Nigeria’s doyen of accounting, Mr. Akintola William, is the only surviving initial signatory to the founding memorandum of the NSE, the membership list of the NSE has always included “the movers and shakers” of the Nigerian economy. Beside stockbroking firms and other capital market operators that are dealing members, members of the NSE included Alhaji Aliko Dangote, Alhaji Abdul Rasaq (SAN), Alhaji Aminu Dantata, Chief Ernest Shonekan, Chief Jerome Udoji, Chief Chris Ogunbanjo, Chief Bayo Kuku, Dr. Lateef Adegbite, Dr, Chris Abebe, Mr. Gamaliel Onosode, Mr. Isaiah Balat, Alhaji Isyaku Umar, Mr. Oba Otudeko, Otunba Adekunle Ojora, Mr. Pascal Dozie, Mr. Paul Ogwuma, Chief Phillip Asiodu,  Rear Admiral Allison Madueke (rtd.), Senator Udo Udoma, Mr. Goodie Ibru, Mr. Tony Elumelu and Senator David Dafinone among others.

    Several State Investment Companies are also institutional members of the NSE, giving the States inputs into the operations of the NSE. These included Adamawa Securities Limited, Kaduna Investment Company, Kano State Investment and Properties Limited, Katsina State Investment and Property Development Company Limited, Kwara State Investment Corporation, New Nigerian Development Company Limited, Niger State Development Company Limited, Sokoto Investment Company Limited and Yobe Investment Company Limited among others.

    But the designation of members may soon change to shareholders, with all the trappings of a public limited liability company and with the Exchange itself listed on its own floor and probably other continental and global floors. The SEC’s rules and regulations on demutualisation settled a major contention-the probable template for demutualisation and placed the NSE firmly on the path of potential radical change in ownership and other related structures.

     

    How to sell the market

    The final body of rules and regulations on demutualisation appears to be a delicate balancing act. With ceiling on single individual and institutional shareholding, total equity interest of trade groups and core investor as well as provisions on procedures, documentations, corporate governance and finances among others, selling the shares of the market may not be as straightforward as buying from the market. For a start, stockbrokers and dealers, who constitute the largest members of the NSE, may have to sell down their shareholdings within a period of five year under the demutualisation of the Exchange. As against earlier ceiling of 40 per cent indicated in the draft rules and regulations, the final rules indicated that the aggregate equity interests of members of any specific stakeholder group such as stockbrokers and broker-dealer in the demutualised securities exchange should not exceed 20 per cent. Also, no individual or entity must directly or in directly own more than five per cent of the issued shares or voting rights in a demutualised securities exchange. The rules, made pursuant to section 313 of the Investments and Securities Act (ISA) 2007, describe “related entities and persons” as a person or entity that is related to the entity or person that owns the equity or the voting rights.

    According to the rules, the stakeholder groups who are shareholders of the Securities Exchange shall with effect from the date of demutualisation reduce their cumulative shareholding in the demutualised Securities Exchange to no more than 20 percent within five years. The 20 per cent ceiling is however an improvement on the draft rules, which stipulated a ceiling of 10 per cent within five years.

    The rules stipulate that the securities exchange should initiate a process for determining the accurate list of members of the Exchange prior to the commencement of demutualisation while the process of demutualisation should include an exchange of membership rights in the Securities Exchange for ownership of shares in the demutualised Securities Exchange.

    The rules allow the Exchange to give equity interest to a strategic investor subject to establishment of the fact that the strategic investor has technical expertise through previous experience in managing other Exchanges. However, the aggregate number of shares to be offered to the strategic investors shall not be more than 30 per cent of issued and fully paid up capital of the securities exchange. Notwithstanding this, if the Exchange is in dire need of funds, it could issue a higher number of shares subject to approval of the Commission.

    As part of preconditions for demutualisation, a securities exchange shall prior to demutualization submit the names and profiles of members of its committee on demutualization, a valuation report, the draft Memorandum and Articles of Association of the Securities Exchange, the proposed rules of the demutualised Securities Exchange, the proposed allotment and the basis of the proposed allotment of shares to the initial shareholders of the  Securities Exchange, a list of the directors proposed as the Board of the Securities Exchange, an implementation plan stating the process to be adopted for effecting the demutualisation of the Exchange, including but not limited to the treatment of the rights and liabilities of the existing members of the Exchange and the proposed plan for the independent management of the commercial and regulatory functions of the demutualised Securities Exchange and timelines for implementation of necessary structures to ensure the functional treatment of commercial and regulatory functions for a “No Objection” clearance by SEC. Any changes to the information provided under the preconditions must also be filed with the Commission for a “No Objection” clearance.

    The demutualised Exchange is also expected to implement its plan for the independent management of its commercial and regulatory functions within one year of approval by SEC.

    On corporate governance, demutualised Exchange shall have a board of sufficient size relative to the scale and complexity of its operations and the board must be composed in such a way as to ensure diversity of experience without compromising independence, compatibility, integrity and availability of members to attend meetings. At least one third of the board shall be independent directors as provided for under the SEC Corporate Governance Code or any other applicable Corporate Governance Code while all appointments of directors and executive management shall require the prior written approval of the SEC. Besides, the demutualized Exchange shall be required to comply, in all other respects with the SEC Code of Corporate Governance for public companies and any other applicable corporate governance code.

     

    Drumming supports for demutualisation

    Nigerian retail shareholders have expressed supports for the demutualisation of Nigeria’s only regular securities exchange. Minority retail shareholders, who usually operate under various groups and see themselves as major stakeholders at the stock market, said the demutualisation of the Exchange would open up the marketplace for popular ownership and enable minority shareholders who have been part of the growth of the market to benefit from ownership of the market.

    Chairman, Ibadan Zone Shareholders Association (IBZA), Chief Sola Abodunrin, said demutualisation portends good omen for the Nigerian stock market as the NSE can now truly become a national institution in terms of ownership. The zonal shareholders’ associations were established by SEC to widen domestic participation in the Nigerian capital market.

    National coordinator, Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu, said the demutualisation of the Exchange will open up opportunity to minority retail shareholders to be part of the market they had contributed to. According to him, the demutualisation should be inclusive and should encourage participation by the generality of the people including shareholders that have been major stakeholders in the market.

    He said shareholders were in support of the provision which limits the maximum allowable equity stake for any individual or entity in the demutualised exchange to five per cent. “I think it is good for the shareholders, they should allow everybody to participate in the ownership, we are the growers of the market and we should be able to participate in the fortunes we have created. They should however ensure that nobody, no matter how big you are, should own more than five per cent in the Exchange,” Nwosu said.

    President, Constance Shareholders Association of Nigeria, Shehu Mikhail, described demutualisation as one of the best things to happen to the Exchange noting that it will create opportunities for the general investing public and also for the NSE itself.

    Beyond domestic concerns, demutualisation is being driven by global trend, increasing globalisation of the marketplace and the capital-intensive nature of competitive stock exchange. Proponents argue that mutual-ownership does not provide the flexibility to adequately meet these new challenges. Demutualised entities have wider access to capital and can have wider horizons compared with mutual-owned exchanges. A demutualised NSE, for instance, will be able to float initial public offering (IPO) and supplementary equity and debt issues to raise funds from the investing public. While the NSE boasts of superior trading technology relative to other African exchanges, it will need to increase investments in cutting-edge technology and operating systems to realise its dream as the African hub for financial trading. This is further highlighted by the ongoing programme to integrate all stock exchanges and stock markets in the West African region under the West Africa Capital Market Integration (WACMI) programme.

    Under the WACMI programme, securities exchanges in Nigeria – NSE; Ghana-Ghana Stock Exchange (GSE), Sierra Leone-Sierra Leone Stock Exchange and the bloc of eight francophone countries under the Bourse Regionale des Valuers Mobilieres (BRVM)- including Benin, Burkina Faso, Cote d’Ivoire, Guinea, Mali, Niger, Senegal and Togo, will be gradually integrated in phases.

    With the removal of jurisdictional restrictions, the defining factor for financial convergence may be technology- with the most seamless, foolproof and smoothest remotely running the regional market. The competitive verve, more than any other factors, has seen conversion of many exchanges from mutual member-owned entities to limited liability companies. London Stock Exchange (LSE), which has significant relationship with the NSE including several dual listings, was demutualised in 2000. The Australian Stock Exchange was demutualised in October 1998. India started the process of demutualising all the broker-run exchanges with the demutualisation of the Bombay Stock Exchange in August 2005. Many other exchanges such as the Singapore Stock Exchange, Japan’s Nikkei and New York’s NASDAQ have also converted into shareholding structure.

    Besides, many believe that demutualisation will remove inherent weakness in the constitution of member-owned exchange. Mutual exchanges are ultimately geared to maintaining their members’ interests. The interests of the members are not necessarily the same as those of the exchange; they are disparate. The separation of shareholders, management, and users in a demutualised exchange makes for better strategic decision-making, rather than protecting vested interests.

    Many stakeholders appear keen on the demutualisation. The Federal Government, which played a major role in the founding of the private members-owned NSE in 1960, said it had held talks with the NSE and SEC prior to the release of the rules and regulations. Minister of State for Finance, Ambassador Bashir Yuguda, confirmed the discussion between the government and other stakeholders on the demutualisation. According to him, government is engaging stakeholders such as SEC and the NSE because of the importance it attaches to the capital market and the import of such demutualisation on the market. He noted that the engagements and discussions with the stakeholders were geared towards ensuring that government comes up with the right policy for the demutualisation.

    President, Nigerian Stock Exchange (NSE), Mr. Aigboje Aig-Imoukhuede, also said the discussions on the demutualisation of the Exchange are ongoing noting that the exercise is of critical importance to the NSE and the entire capital market. According to him, giving the position of the NSE, the demutualisation of the Exchange will require input from both the government side and the private sector.

     

    Beyond the silver linings

    However, demutualisation also has its own challenges, which may colour the success or otherwise of the entire exercise. One of the most difficult aspects of demutualisation is the adoption of the correct corporate structure. Corporate structure is the first rung of the demutualisation ladder and will adversely affect all other stages unless the optimal solution is implemented. There may be potential vexatious issues that may arise given the status of NSE as an SRO including the issue of conflict resolution mechanism in case the exchange finds itself in a commercial conflict with another company listed on its board and enforcement of disciplinary action especially where such enforcement would hurt the exchange’s bottom line. Also, a shareholding structure spread across large number of shareholders without a major controlling shareholder may unduly delay decision making as vested interests jostle to carry the votes while a controlling core investor with larger-than-majority shareholding could return the NSE into a worse private ownership. For the Nigerian market, the demutualisation may not fare better than the entire market, where more than two-thirds of transactions are controlled by foreign portfolio investors and less than five per cent of the entire population participate in the market.

    Already, there is a seething rage among the stockbrokers and dealers who feel that the rules and regulations are unfair. Stockbrokers and dealers, the largest constituency of the market, had earlier kicked against the ceiling placed on trade group’s final shareholding in the post-demutualised period. With the new rules reducing trade group’s stake to 20 per cent, many operators said broker-dealers will be shortchanged in the demutualisation process.

    “I have reservation with the demutualisation provisions. The market is owned by the dealing members who are the major stakeholders. The limit of stockbrokers to 20 per cent is unfair while the 30 per cent for core investor may create avenue for a single individual or institution with financial strength to exert major influence in the NSE. The provisions should be fair to all and core investor limit should not be more than 15 or 20 per cent,” said Tunde Oyekunle, a broker at the NSE and managing director, Finawell Capital Limited. President, Association of Stockbroking Houses of Nigeria (ASHON), Mr. Emeka Madubuike, said the group’s sub-committee on the demutualisation, which scheduled meeting this weekend, will come up with a common position on the final rules and regulations.

    Many have cited example of the Indian government’s scheme for demutualisation of stock exchanges, which was used in the demutualisation of the Bombay Stock Exchange, now BSE Limited. With some 790 brokers, the maximum trade group’ holding was 49 per cent with a provision that a minimum of 51 per cent of the equity capital would be held at all times by public other than broker-shareholders. The BSE scheme shared similarity with the SEC’s rules with regard to the provision that no individual or institution should be allowed to have more than five per cent voting rights. Also, the Nairobi Securities Exchange, which in third quarter 2014 floated its IPO and listed its shares on its own floor, allocated more than three-quarter of its shares to former member-broker-dealers.

    The demutualisation’s IPO and eventual listing may be the lift several cash-strapped and illiquid Nigerian stockbroking firms have been angling for. The Nairobi Securities Exchange’s IPO was the most successful in the history of the bourse. Such a repeat by the NSE’s IPO will lay a background for strong post-listing trading.

    But the demutualisation is still a long walk for all the stakeholders. It may be a puzzle to the local folks that the stock exchange, where shares of quoted companies are sold, is also up for sale. But to the stakeholders, this demutualisation is about the redefinition of the marketplace.

     

  • Post-election: Equities, financial indicators rally

    Post-election: Equities, financial indicators rally

    The financial services sector is on the upbeat, following the emergence of General Muhammadu Buhari (rtd) as the President-elect in the March 28 election. In this report, Capital Market Editor, Taofik Salako and Senior Finance Correspondent, Collins Nweze look at the underlying trends across the markets.

    Nigerian equities are riding on the momentum of the successful conduct of the general elections. In the past eight trading session since March 28 presidential and National Assembly elections, equities have traded on the upside for six days, with two days of profit-taking discounted by another surge in demand for Nigerian equities.

    Against the background of negative average year-to-date return of -11.81 per cent on March 27- eve of the presidential and national assembly elections, Nigerian equities opened today with a modest positive average year-to-date return of 0.8 per cent. Over the past eight trading sessions, Nigerian equities have retained capital gains of more than N1.58 trillion, in spite of the profit-taking that momentarily slowed down the stock market last week.

    With the successful conduct of the presidential election and emergence of Buhari as president-elect, the negative sentiments and depreciation haunting Nigerian equities gave way to optimism and scramble for quoted equities. As indications emerged on Monday, March 30 that the March 28 general elections were largely peaceful and credible, and the opposition candidate of the All Progressives Congress (APC) was leading, investors upped demand for Nigerian equities. Quoted equities’ capitalisation, which opened the week at N10.319 trillion, closed Monday at N10.494 trillion. The eventual announcement of Buhari as the president-elect and the concession of defeat by President Goodluck Jonathan spurred the bullish rally.

    Market data released by the Nigerian Stock Exchange (NSE) showed that the announcement of the presidential election triggered a massive bullish run that saw the largest gain by Nigerian equities this year. Nigerian stock market is dominated by foreign investors, who account for almost two-thirds of total transactions. Buhari had built his campaign on resolution of three core issues of corruption, insecurity and economic underdevelopment.

    Aggregate market value of all quoted equities closed the four-day week ended April 2 at N12.135 trillion as against the week’s opening value of N10.319 trillion, representing an increase of N1.82 trillion. The benchmark index for the Nigerian stock market, the All Share Index (ASI), also jumped by almost six steps to close at 35,728.12 points as against its opening index of 30,562.93 points. The ASI, a value-based index, tracks the prices of all quoted companies and it is thus directly related to market sentiments. The stock market had sustained consecutive upswing, rising from N10.494 trillion on Monday to N10.718 trillion on Tuesday and N11.621 trillion and N12.135 trillion on Wednesday and Thursday respectively.  The market performance was driven by increased demand for equities as turnover rose consecutively during the four trading sessions. Investors staked N1.84 billion on 196.26 million shares in 3,638 deals on Monday and increased this to N5.05 billion for 379.45 million shares in 4,138 deals on Tuesday. By Wednesday, turnover stood at N10.94 billion for 881.58 million shares in 4,611 deals. Turnover peaked at N18.75 billion on 1.17 billion shares in 9,006 deals on Thursday. Friday, April 3, was declared a public holiday in commemoration of Good Friday.

    All key indices at the NSE have shown widespread positive sentiments, with most equities recording their highest gains so far this year. The renewed optimism helped the Nigerian market to reverse its dragging negative average-year-to-date return to positive, with modest average year-to-date gain of 3.09 per cent in the first week. By the close of trading on April 2, the ASI indicated average week-on-week gain of 16.90 per cent. The NSE 30 Index, which tracks the 30 most capitalised stocks, indicated higher weekly gain of 17.91 per cent. The NSE Banking Index recorded the highest gain of 23.97 per cent, reflecting the scramble for banking stocks. The NSE Oil and Gas Index, NSE Industrial Goods Index, NSE Consumer Goods Index and NSE Insurance Index recorded average weekly gain of 16.42 per cent, 13.62 per cent, 15.14 per cent and 3.46 per cent respectively. The NSE Lotus Islamic Index, which tracks ethical stocks on the basis of Islamic rules, also rose by 14.30 per cent.

    Altogether, turnover within the first four days surged above average to 2.63 billion shares worth N36.58 billion in 21, 393 deals. The financial sector, driven by banking stocks, remained the dominant sector with a turnover of 2.06 billion shares valued at N21.06 billion traded in 12,133 deals; representing 78.1 per cent and 57.6 per cent of the total turnover volume and value respectively. The conglomerates sector was the second most active sector with a turnover of 178.25 million shares worth N2.352 billion in 1,493 deals while the consumer goods sector placed third with a turnover of 118.96 million shares worth N5.59 billion in 2,816 deals.

    With the N1.8 trillion gains in the first four days, the market opened last week with a tinge of bearishness induced by profit-taking transactions from investors seeking to monetise their capital gains. Aggregate market capitalisation of all quoted companies, which opened last week at N12.135 trillion, closed the first trading session lower at N11.868 trillion. By Wednesday, the market value dipped to N11.608 trillion. The market however resumed the bullish run on Thursday with the market rising by N155 billion to close at N11.763 trillion. The market further consolidated the uptrend on Friday with a gain of N140 billion to close at N11.903 trillion. The ASI also started the week, dropping from its opening index of 35,728.12 points to close at 34,941.79 points. It dropped further to 34,175.24 points on Wednesday. However, the ASI picked up to 34,520.14 points on Thursday and rallied further to 34,930.02 points at the weekend.

    Market activity also remained above average last week. The market opened the week with a turnover of 581.77 million shares valued at N8.31 billion in 7,587 deals. It rose to 704.06 million shares valued at N4.66 billion in 6,742 deals on Wednesday. Market turnover dipped to 601.18 million shares worth N4.17 billion in 5,724 on Thursday. Ahead of the April 11 State election, the expectant market railed on Friday with a turnover of 1.62 billion shares valued at N8.05 billion in 6,783 deals.

    Major foreign and Nigerian investment firms have placed “buy” on several Nigerian stocks, a reference to the reduction in the political risk and the attractiveness of Nigerian equities, most of which had been undervalued by sustained depreciation over the past 15 months. Exotix, a global investment firm, described the successful conduct of the election and the emergence of Buhari as “unprecedented positive”.

    “A broadly effective voter card system, largely peaceful voting days, generally orderly announcement of results, concession of defeat and most importantly, the win for the opposition candidate, comprise a remarkable, unprecedented and positive presidential election in Nigeria,” Exotix stated.

    The firm noted that some macro level concerns which have driven Nigeria to underperform all major frontier markets have thus been removed. Exotix subsequently raised its recommendation for Nigerian stocks, especially banking and consumer goods companies.

    “In contrast to the public apprehension that preceded the March 28 elections, the generally peaceful conducts of the Presidential election and the attendant acceptance of the outcome by major political parties has significantly doused political tensions and lifted investors’ confidence. The Nigerian equity market rallied 12.2 per cent in two days after President Jonathan conceded defeat, while yields were pressured downwards in the fixed income market as investors hunted for bargains,” Afrinvest Securities, an investment firm at the stock market, noted in a review at the weekend.

    Analysts at Afrinvest Securities pointed out that the market will continue to draw on the positive sentiments that have characterised the elections. Analysts expected the momentum in the equities market to strengthen in the coming week on the anticipation that events in the polity will stabilise.

    “As the curtain however finally draws on the cyclical election phase, we expect investors to further re-price risks in the Nigerian economy and financial markets, discounting for political risks. Consequently, we expect a bullish capital market next week, similar to the one witnessed after the presidential election,” Afrinvest Securities stated.

    Market analysts said the bullish rally might help Nigeria to reverse its negative foreign portfolio investment (FPI) position. The latest FPI report by the NSE had indicated that there was “significant increase in foreign portfolio investment outflow”. The report showed that nearly three-quarters of the transactions on the stock market were done by foreign investors during the period, highlighting the dominant negative trend orchestrated by the foreign divestments.

    The report, based on the latest available data for the period ended February 2015, showed that foreign portfolio investment outlook had so far been negative, with year-to-date deficit of more than N32 billion.

    According to the NSE, foreign outflows totaled N81.60 billion in February 2015 as against inflow of N52.35 billion, indicating a significant increase on the downtrend that started the year when foreign portfolio outflow was N51.08 billion against inflow of N48.03 billion.

    Year-to-date, total foreign inflow stood at N100.38 billion compared with outflow of N132.68 billion, representing net deficit of N32.3 billion. The report had underlined concerns that foreign investors were downsizing their portfolios. Nigeria recorded negative net foreign portfolio position of N154.14 billion in 2014 as against a positive net position of a modest N20.48 billion in 2013.

    The latest report also showed continued dominance of the foreign investors in the Nigerian market with foreign transactions accounting for 72.61 per cent of total transactions in February compared with 27.39 per cent contributed by domestic investors. Foreign investors had contributed 52.24 per cent while Nigerian investors accounted for 47.76 per cent in January. Altogether, the proportion of foreign transactions to domestic transactions so far this year stood at 62.28 per cent and 37.72 per cent respectively.

    The NSE report is generally regarded as a credible gauge of foreign portfolio investments in Nigeria as it coordinates data from nearly all active investment bankers and stockbrokers. Nigeria presently operates a mono stock exchange, which makes the NSE the sole gateway to the nation’s stock market and the NSE’s benchmark indices, the country indices for Nigeria.

    The NSE report used two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy. Foreign portfolio investment outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE.

    The 12-month foreign portfolio investment report for 2014 had shown that foreign portfolio outflow was N846.53 billion as against inflow of N692.39 billion in 2014, representing a net deficit of N154.14 billion. In 2013, total foreign inflow stood at N531.26 trillion compared with outflow of N510.78 trillion, leaving a positive balance of N20.48 billion.

    The report showed a notable spike in foreign transactions, although the negative colouration indicated that the propensity was towards divestment rather than investment. Total foreign transactions rose by 52.5 per cent to N1.54 trillion in 2014 as against N1.01 trillion in 2013.

    The money market and foreign exchange market have also shown considerable upbeat since the presidential election. For the first time in many years, the official and parallel market rates for the Naira closed together at the weekend at N197 to dollar. The naira firmed more than six per cent on parallel market as individuals who had stockpiled dollars to hedge against political risk because of the general elections sold off their holdings, black market dealers said.

    The naira firmed to N197 against the dollar on the parallel market operated by bureau de change (BDC) agents, the same level as the interbank market, from N210 naira last Thursday.

    A BDC operator Mohammed Abdul explained that dollar demand has fallen to record low, as many travelers who left for fear of political crisis are returning, when the feared violence and instability did not materialise.

    “There are too many dollars in the market with no naira,” one black market dealer told Reuters, adding that he had bought dollars as low as N226 just before the elections.

    Analysts said the black market rally will be welcome relief to the central bank, which had been spending billions of dollars to keep the currency on an even keel. As of the end of last month, foreign reserves had dropped by a third to below $30 billion.

    Managing Director, Standard Chartered Bank Limited, Bola Adesola, said the Bankers Committee, the group of banks in Nigeria, wants stability in the forex market and has met all legitimate demand in the market. She said that actions so far taken by the apex bank has led to the stability and convergence in the forex market between the interbank rate and parallel market rate.

    Adesola also said that some of the speculative demand in the market has disappeared leading to the stability currently enjoyed. She said that the CBN is not a vending machine for forex, and therefore is not the only source by which users access the fund. She said that aside the official market, customers can also access the forex from international oil companies, and from bureau de change operators.

    The Managing Director, Union Bank of Nigeria Plc, Emeka Emuwa said the Committee is also working on cutting the limit of naira debit card from $150,000 downwards when they are used abroad. This, he said would reduce the volume of forex that used by account holders, and channel same to the real sector of the economy. “The naira debit cards used abroad is putting a drain on forex that should be used in funding industries. Cutting the limit on this card will help the CBN in conserving forex,” he said.

     

    Trading restrictions

    Analysts at Bloomberg predicted the naira would face the prospect of a sell-off when the CBN removes trading restrictions imposed last year to reduce volatility. But the question for investors wanting to get back into Nigerian assets is when that will happen.

    “If you buy local bonds now you have to factor in how much the currency will move. It’s a tricky proposition,” Claudia Calich, a money manager at M&G Ltd. in London, which oversees about $1 billion of emerging-market assets, said.

    The naira has slumped 18 per cent against the dollar as oil prices collapsed by almost half since June, prompting the apex bank lower banks’ trading limits and introduce a new dealing system in February that prevents lenders from buying dollars on the interbank market without matching orders from customers needing to import goods.

    The CBN also sold dollars to support the naira, cutting foreign-exchange reserves to $29.8 billion, the lowest in a decade, according to HSBC Holdings Plc. Those measures have left the currency overvalued, according to investors including M&G, BlackRock Inc. and Investec Asset Management.

    “One of the first big challenges the new government’s going to have to face is what on earth to do with the naira,” Samuel Vecht, who oversees $2.7 billion in five emerging-frontier-market funds at BlackRock, said by phone from London on Wednesday. “Steps have to be taken to ensure reserves don’t keep falling.”

    Yields on Nigeria’s $500 million of Eurobonds due 2023 fell 19 basis points to 6.02 per cent on, the lowest since December 8, and rates on benchmark naira bonds dropped 118 basis points to 13.81 percent, also the lowest since Dec. 8.

    While naira forward contracts, traded offshore and exempt from the central bank’s restrictions, also rallied, they still suggest the currency’s depreciation is far from over. Naira six-month non-deliverable forwards fell 2.8 per cent to 233.50 against the dollar, the lowest since January 22.

    The currency changes hands among unofficial money changers at 226, Alan Cameron, an economist at Exotix Partners LLP in London, said in a March 19 note.

    The naira’s current interbank value is appropriate and the discrepancy between that and the parallel rate isn’t an indication that it’s under pressure, Emefiele had said at the last Monetary Policy Committee meeting on March 23 to 24.

    The CBN may end the so-called order-based trading system introduced in February now elections are over, according to the Lagos-based Financial Markets Dealers Association, an industry body.

    Sub-Saharan Africa Economist at Renaissance Capital and co-author of the Fastest Billion Yvonne Mhango said the CBN has shown absolute commitment to dealing with dwindling fortune of the naira.

    She said that while Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability.

    Meanwhile, investors including Morgan Stanley, Aberdeen Asset Management Plc and Landesbank Berlin Investment GmbH cut their local bond holdings in the last quarter of 2014 as the price of crude oil, Nigeria’s main export and source of more than two thirds of government revenue, fell by 37 percent during the period.

    While naira government debt offers the highest yields among 31 developing nations tracked by Bloomberg, foreign investors have to factor in the increasing risk of a currency devaluation that will hurt returns when converted to dollars.

    However, most analysts agreed that the financial markets will still contend with the tough macroeconomic variables as the new government struggles to build on weak earnings and poor public infrastructure.

    “Political risks have diminished but the other risks are still in place: a very low oil price and pressure on the naira,” Lutz Roehmeyer, who oversees Landesbank Berlin’s $1.1 billion emerging-markets debt portfolio, said. “You can still expect devaluation. I see a lot of local-currency investors waiting for that to happen before they re-enter Nigeria.”

    Afrinvest Securities also noted that notwithstanding the current optimism, the continuous decline in the level of external reserves, low oil prices and fiscal challenges remain a drawback on investor sentiments.

    Head, Research and Investment Advisory, Sterling Capital Markets, Sewa Wusu, investors would still wait to gauge the policy direction and economic management ability of the incoming government before making long-term commitments that can stimulate sustained stability in the financial markets.

    He said while the share price trend would enable several companies to reduce their undervaluation, government will still need to do more to enhance investors’ confidence.

    According to him, the medium to long term post-election performance depends largely on government policies, the quality of the economic management team and the general direction of governance.

    “What the market is reacting to now is the success and credibility of the election and the president-elect. But companies will still tarry a while to look at direction of government policies,” Wusu said.

    Managing Director, Finawell Capital Limited, Mr. Tunde Oyekunle, said the stability of the economy and resolution of major challenges such as power and insecurity would positively impact the capital market and provide a long-term support for the recovery of the primary market. Analysts agreed that such sustained medium-to-long-term stability will bolster the lackluster primary market, providing the economy with the much-needed funds to drive long-term growth.

    But, nearly everyone agreed on the point-that Nigeria has started on a journey of hopes.

  • Post-election: Equities, financial indicators rally

    Post-election: Equities, financial indicators rally

    The financial services sector is on the upbeat, following the emergence of General Muhammadu Buhari (rtd) as the President-elect in the March 28 election. In this report, Capital Market Editor, Taofik Salako and Senior Finance Correspondent, Collins Nweze look at the underlying trends across the markets.

    Nigerian equities are riding on the momentum of the successful conduct of the general elections. In the past eight trading session since March 28 presidential and National Assembly elections, equities have traded on the upside for six days, with two days of profit-taking discounted by another surge in demand for Nigerian equities.

    Against the background of negative average year-to-date return of -11.81 per cent on March 27- eve of the presidential and national assembly elections, Nigerian equities opened today with a modest positive average year-to-date return of 0.8 per cent. Over the past eight trading sessions, Nigerian equities have retained capital gains of more than N1.58 trillion, in spite of the profit-taking that momentarily slowed down the stock market last week.

    With the successful conduct of the presidential election and emergence of Buhari as president-elect, the negative sentiments and depreciation haunting Nigerian equities gave way to optimism and scramble for quoted equities. As indications emerged on Monday, March 30 that the March 28 general elections were largely peaceful and credible, and the opposition candidate of the All Progressives Congress (APC) was leading, investors upped demand for Nigerian equities. Quoted equities’ capitalisation, which opened the week at N10.319 trillion, closed Monday at N10.494 trillion. The eventual announcement of Buhari as the president-elect and the concession of defeat by President Goodluck Jonathan spurred the bullish rally.

    Market data released by the Nigerian Stock Exchange (NSE) showed that the announcement of the presidential election triggered a massive bullish run that saw the largest gain by Nigerian equities this year. Nigerian stock market is dominated by foreign investors, who account for almost two-thirds of total transactions. Buhari had built his campaign on resolution of three core issues of corruption, insecurity and economic underdevelopment.

    Aggregate market value of all quoted equities closed the four-day week ended April 2 at N12.135 trillion as against the week’s opening value of N10.319 trillion, representing an increase of N1.82 trillion. The benchmark index for the Nigerian stock market, the All Share Index (ASI), also jumped by almost six steps to close at 35,728.12 points as against its opening index of 30,562.93 points. The ASI, a value-based index, tracks the prices of all quoted companies and it is thus directly related to market sentiments. The stock market had sustained consecutive upswing, rising from N10.494 trillion on Monday to N10.718 trillion on Tuesday and N11.621 trillion and N12.135 trillion on Wednesday and Thursday respectively.  The market performance was driven by increased demand for equities as turnover rose consecutively during the four trading sessions. Investors staked N1.84 billion on 196.26 million shares in 3,638 deals on Monday and increased this to N5.05 billion for 379.45 million shares in 4,138 deals on Tuesday. By Wednesday, turnover stood at N10.94 billion for 881.58 million shares in 4,611 deals. Turnover peaked at N18.75 billion on 1.17 billion shares in 9,006 deals on Thursday. Friday, April 3, was declared a public holiday in commemoration of Good Friday.

    All key indices at the NSE have shown widespread positive sentiments, with most equities recording their highest gains so far this year. The renewed optimism helped the Nigerian market to reverse its dragging negative average-year-to-date return to positive, with modest average year-to-date gain of 3.09 per cent in the first week. By the close of trading on April 2, the ASI indicated average week-on-week gain of 16.90 per cent. The NSE 30 Index, which tracks the 30 most capitalised stocks, indicated higher weekly gain of 17.91 per cent. The NSE Banking Index recorded the highest gain of 23.97 per cent, reflecting the scramble for banking stocks. The NSE Oil and Gas Index, NSE Industrial Goods Index, NSE Consumer Goods Index and NSE Insurance Index recorded average weekly gain of 16.42 per cent, 13.62 per cent, 15.14 per cent and 3.46 per cent respectively. The NSE Lotus Islamic Index, which tracks ethical stocks on the basis of Islamic rules, also rose by 14.30 per cent.

    Altogether, turnover within the first four days surged above average to 2.63 billion shares worth N36.58 billion in 21, 393 deals. The financial sector, driven by banking stocks, remained the dominant sector with a turnover of 2.06 billion shares valued at N21.06 billion traded in 12,133 deals; representing 78.1 per cent and 57.6 per cent of the total turnover volume and value respectively. The conglomerates sector was the second most active sector with a turnover of 178.25 million shares worth N2.352 billion in 1,493 deals while the consumer goods sector placed third with a turnover of 118.96 million shares worth N5.59 billion in 2,816 deals.

    With the N1.8 trillion gains in the first four days, the market opened last week with a tinge of bearishness induced by profit-taking transactions from investors seeking to monetise their capital gains. Aggregate market capitalisation of all quoted companies, which opened last week at N12.135 trillion, closed the first trading session lower at N11.868 trillion. By Wednesday, the market value dipped to N11.608 trillion. The market however resumed the bullish run on Thursday with the market rising by N155 billion to close at N11.763 trillion. The market further consolidated the uptrend on Friday with a gain of N140 billion to close at N11.903 trillion. The ASI also started the week, dropping from its opening index of 35,728.12 points to close at 34,941.79 points. It dropped further to 34,175.24 points on Wednesday. However, the ASI picked up to 34,520.14 points on Thursday and rallied further to 34,930.02 points at the weekend.

    Market activity also remained above average last week. The market opened the week with a turnover of 581.77 million shares valued at N8.31 billion in 7,587 deals. It rose to 704.06 million shares valued at N4.66 billion in 6,742 deals on Wednesday. Market turnover dipped to 601.18 million shares worth N4.17 billion in 5,724 on Thursday. Ahead of the April 11 State election, the expectant market railed on Friday with a turnover of 1.62 billion shares valued at N8.05 billion in 6,783 deals.

    Major foreign and Nigerian investment firms have placed “buy” on several Nigerian stocks, a reference to the reduction in the political risk and the attractiveness of Nigerian equities, most of which had been undervalued by sustained depreciation over the past 15 months. Exotix, a global investment firm, described the successful conduct of the election and the emergence of Buhari as “unprecedented positive”.

    “A broadly effective voter card system, largely peaceful voting days, generally orderly announcement of results, concession of defeat and most importantly, the win for the opposition candidate, comprise a remarkable, unprecedented and positive presidential election in Nigeria,” Exotix stated.

    The firm noted that some macro level concerns which have driven Nigeria to underperform all major frontier markets have thus been removed. Exotix subsequently raised its recommendation for Nigerian stocks, especially banking and consumer goods companies.

    “In contrast to the public apprehension that preceded the March 28 elections, the generally peaceful conducts of the Presidential election and the attendant acceptance of the outcome by major political parties has significantly doused political tensions and lifted investors’ confidence. The Nigerian equity market rallied 12.2 per cent in two days after President Jonathan conceded defeat, while yields were pressured downwards in the fixed income market as investors hunted for bargains,” Afrinvest Securities, an investment firm at the stock market, noted in a review at the weekend.

    Analysts at Afrinvest Securities pointed out that the market will continue to draw on the positive sentiments that have characterised the elections. Analysts expected the momentum in the equities market to strengthen in the coming week on the anticipation that events in the polity will stabilise.

    “As the curtain however finally draws on the cyclical election phase, we expect investors to further re-price risks in the Nigerian economy and financial markets, discounting for political risks. Consequently, we expect a bullish capital market next week, similar to the one witnessed after the presidential election,” Afrinvest Securities stated.

    Market analysts said the bullish rally might help Nigeria to reverse its negative foreign portfolio investment (FPI) position. The latest FPI report by the NSE had indicated that there was “significant increase in foreign portfolio investment outflow”. The report showed that nearly three-quarters of the transactions on the stock market were done by foreign investors during the period, highlighting the dominant negative trend orchestrated by the foreign divestments.

    The report, based on the latest available data for the period ended February 2015, showed that foreign portfolio investment outlook had so far been negative, with year-to-date deficit of more than N32 billion.

    According to the NSE, foreign outflows totaled N81.60 billion in February 2015 as against inflow of N52.35 billion, indicating a significant increase on the downtrend that started the year when foreign portfolio outflow was N51.08 billion against inflow of N48.03 billion.

    Year-to-date, total foreign inflow stood at N100.38 billion compared with outflow of N132.68 billion, representing net deficit of N32.3 billion. The report had underlined concerns that foreign investors were downsizing their portfolios. Nigeria recorded negative net foreign portfolio position of N154.14 billion in 2014 as against a positive net position of a modest N20.48 billion in 2013.

    The latest report also showed continued dominance of the foreign investors in the Nigerian market with foreign transactions accounting for 72.61 per cent of total transactions in February compared with 27.39 per cent contributed by domestic investors. Foreign investors had contributed 52.24 per cent while Nigerian investors accounted for 47.76 per cent in January. Altogether, the proportion of foreign transactions to domestic transactions so far this year stood at 62.28 per cent and 37.72 per cent respectively.

    The NSE report is generally regarded as a credible gauge of foreign portfolio investments in Nigeria as it coordinates data from nearly all active investment bankers and stockbrokers. Nigeria presently operates a mono stock exchange, which makes the NSE the sole gateway to the nation’s stock market and the NSE’s benchmark indices, the country indices for Nigeria.

    The NSE report used two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy. Foreign portfolio investment outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE.

    The 12-month foreign portfolio investment report for 2014 had shown that foreign portfolio outflow was N846.53 billion as against inflow of N692.39 billion in 2014, representing a net deficit of N154.14 billion. In 2013, total foreign inflow stood at N531.26 trillion compared with outflow of N510.78 trillion, leaving a positive balance of N20.48 billion.

    The report showed a notable spike in foreign transactions, although the negative colouration indicated that the propensity was towards divestment rather than investment. Total foreign transactions rose by 52.5 per cent to N1.54 trillion in 2014 as against N1.01 trillion in 2013.

    The money market and foreign exchange market have also shown considerable upbeat since the presidential election. For the first time in many years, the official and parallel market rates for the Naira closed together at the weekend at N197 to dollar. The naira firmed more than six per cent on parallel market as individuals who had stockpiled dollars to hedge against political risk because of the general elections sold off their holdings, black market dealers said.

    The naira firmed to N197 against the dollar on the parallel market operated by bureau de change (BDC) agents, the same level as the interbank market, from N210 naira last Thursday.

    A BDC operator Mohammed Abdul explained that dollar demand has fallen to record low, as many travelers who left for fear of political crisis are returning, when the feared violence and instability did not materialise.

    “There are too many dollars in the market with no naira,” one black market dealer told Reuters, adding that he had bought dollars as low as N226 just before the elections.

    Analysts said the black market rally will be welcome relief to the central bank, which had been spending billions of dollars to keep the currency on an even keel. As of the end of last month, foreign reserves had dropped by a third to below $30 billion.

    Managing Director, Standard Chartered Bank Limited, Bola Adesola, said the Bankers Committee, the group of banks in Nigeria, wants stability in the forex market and has met all legitimate demand in the market. She said that actions so far taken by the apex bank has led to the stability and convergence in the forex market between the interbank rate and parallel market rate.

    Adesola also said that some of the speculative demand in the market has disappeared leading to the stability currently enjoyed. She said that the CBN is not a vending machine for forex, and therefore is not the only source by which users access the fund. She said that aside the official market, customers can also access the forex from international oil companies, and from bureau de change operators.

    The Managing Director, Union Bank of Nigeria Plc, Emeka Emuwa said the Committee is also working on cutting the limit of naira debit card from $150,000 downwards when they are used abroad. This, he said would reduce the volume of forex that used by account holders, and channel same to the real sector of the economy. “The naira debit cards used abroad is putting a drain on forex that should be used in funding industries. Cutting the limit on this card will help the CBN in conserving forex,” he said.

     

    Trading restrictions

    Analysts at Bloomberg predicted the naira would face the prospect of a sell-off when the CBN removes trading restrictions imposed last year to reduce volatility. But the question for investors wanting to get back into Nigerian assets is when that will happen.

    “If you buy local bonds now you have to factor in how much the currency will move. It’s a tricky proposition,” Claudia Calich, a money manager at M&G Ltd. in London, which oversees about $1 billion of emerging-market assets, said.

    The naira has slumped 18 per cent against the dollar as oil prices collapsed by almost half since June, prompting the apex bank lower banks’ trading limits and introduce a new dealing system in February that prevents lenders from buying dollars on the interbank market without matching orders from customers needing to import goods.

    The CBN also sold dollars to support the naira, cutting foreign-exchange reserves to $29.8 billion, the lowest in a decade, according to HSBC Holdings Plc. Those measures have left the currency overvalued, according to investors including M&G, BlackRock Inc. and Investec Asset Management.

    “One of the first big challenges the new government’s going to have to face is what on earth to do with the naira,” Samuel Vecht, who oversees $2.7 billion in five emerging-frontier-market funds at BlackRock, said by phone from London on Wednesday. “Steps have to be taken to ensure reserves don’t keep falling.”

    Yields on Nigeria’s $500 million of Eurobonds due 2023 fell 19 basis points to 6.02 per cent on, the lowest since December 8, and rates on benchmark naira bonds dropped 118 basis points to 13.81 percent, also the lowest since Dec. 8.

    While naira forward contracts, traded offshore and exempt from the central bank’s restrictions, also rallied, they still suggest the currency’s depreciation is far from over. Naira six-month non-deliverable forwards fell 2.8 per cent to 233.50 against the dollar, the lowest since January 22.

    The currency changes hands among unofficial money changers at 226, Alan Cameron, an economist at Exotix Partners LLP in London, said in a March 19 note.

    The naira’s current interbank value is appropriate and the discrepancy between that and the parallel rate isn’t an indication that it’s under pressure, Emefiele had said at the last Monetary Policy Committee meeting on March 23 to 24.

    The CBN may end the so-called order-based trading system introduced in February now elections are over, according to the Lagos-based Financial Markets Dealers Association, an industry body.

    Sub-Saharan Africa Economist at Renaissance Capital and co-author of the Fastest Billion Yvonne Mhango said the CBN has shown absolute commitment to dealing with dwindling fortune of the naira.

    She said that while Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability.

    Meanwhile, investors including Morgan Stanley, Aberdeen Asset Management Plc and Landesbank Berlin Investment GmbH cut their local bond holdings in the last quarter of 2014 as the price of crude oil, Nigeria’s main export and source of more than two thirds of government revenue, fell by 37 percent during the period.

    While naira government debt offers the highest yields among 31 developing nations tracked by Bloomberg, foreign investors have to factor in the increasing risk of a currency devaluation that will hurt returns when converted to dollars.

    However, most analysts agreed that the financial markets will still contend with the tough macroeconomic variables as the new government struggles to build on weak earnings and poor public infrastructure.

    “Political risks have diminished but the other risks are still in place: a very low oil price and pressure on the naira,” Lutz Roehmeyer, who oversees Landesbank Berlin’s $1.1 billion emerging-markets debt portfolio, said. “You can still expect devaluation. I see a lot of local-currency investors waiting for that to happen before they re-enter Nigeria.”

    Afrinvest Securities also noted that notwithstanding the current optimism, the continuous decline in the level of external reserves, low oil prices and fiscal challenges remain a drawback on investor sentiments.

    Head, Research and Investment Advisory, Sterling Capital Markets, Sewa Wusu, investors would still wait to gauge the policy direction and economic management ability of the incoming government before making long-term commitments that can stimulate sustained stability in the financial markets.

    He said while the share price trend would enable several companies to reduce their undervaluation, government will still need to do more to enhance investors’ confidence.

    According to him, the medium to long term post-election performance depends largely on government policies, the quality of the economic management team and the general direction of governance.

    “What the market is reacting to now is the success and credibility of the election and the president-elect. But companies will still tarry a while to look at direction of government policies,” Wusu said.

    Managing Director, Finawell Capital Limited, Mr. Tunde Oyekunle, said the stability of the economy and resolution of major challenges such as power and insecurity would positively impact the capital market and provide a long-term support for the recovery of the primary market. Analysts agreed that such sustained medium-to-long-term stability will bolster the lackluster primary market, providing the economy with the much-needed funds to drive long-term growth.

    But, nearly everyone agreed on the point-that Nigeria has started on a journey of hopes.

     

  • Uproar over airlines’ recapitalisation, merger

    Uproar over airlines’ recapitalisation, merger

    Speculations of a possible merger of some domestic carriers have refused to abate. Rather, they are gaining momentum in the aviation sector.

    There is discontent among domestic airline operators, Aviation ministry officials and industry experts over the propriety or otherwise of the move.

    Some experts and operators describe the proposed merger as perhaps the best thing to happen to the sector where the attrition rate of airlines is high; others are suspicious that the plan  may have been subtly packaged under the guise of domestic carriers’ recapitalisation. In other words, the recapitalisation plan is seen as a ploy to force domestic carriers to merge.

    Such suspicion, The Nation learnt, started last month when a committee set up by Aviation Minister, Chief Osita Chidoka, recommended a N5 billion capital base for domestic carriers. Earlier in April 2007, after the spate of air crashes in 2005/2006, the Federal Government raised the capital base for airlines on domestic routes to N500 million, while regional operators were required to recapitalise to N1 billion.

    Those on international routes were required to recapitalise with N2 billion. But, the committee headed by Mr. Ahonsi Uniugbe, said the N2 billion initially set as capital base for domestic carriers is insufficient, given the high cost of running airline.

    The Unuigbe-led committee, therefore, recommended that domestic airlines should recapitalise, noting that the current minimum capital base for airlines, which is pegged at between N500 million and N2 billion is insufficient to maintain a single aircraft. “The minimum capitalisation requirement for domestic airlines is only N500 million, which at today’s exchange rate, barely covers the cost of effectively operating and maintaining one aircraft and, therefore, does not ensure a fleet size that allows for economies of scale,” the Committee said.

    But some experts and operators would have none of that. They are kicking that the recapitalisation proposal is a ploy to force airlines to merge. Their suspicion may have been based on recent call by the Secretary General of African Airlines Association (AFRAA), Dr Elijah Chingosho, for the coming together of African carriers.

    He said in Lagos that attempts by airlines to do it all alone, is not feasible. He said there have too many failed airlines, urging the government to put in place an appropriate policy instrument to encourage airlines’ merger and consolidation.

    The AFRAA scribe pointed out that consolidation is critical to the airline sub-sector, warning that doing otherwise means the airlines would continue to close shop in droves. He observed that indigenous carriers failed in the past due to lack of consolidation, stressing that the era of small airlines operating in the continent was over.

    The planned merger appears to enjoy the support of the Managing Director of Medview Airlines, Alhaji Muneer Bankole. He said the merging of domestic airlines or going into interline agreement was good for the industry.

    According to him, cooperation among carriers is the only way to make air transport seamless and cost effective. He said if airlines cooperate, it would make air travel less cumbersome, adding it was time carriers embraced global practices.

    The Medview boss said the rationale for interline pact might not be unconnected with lack of cooperation and other operational factors that led to the collapse of over 10 airlines in the country.

    The implementation of the agreement, he said, would give airlines the leverage to tap from the benefits of economies of scale, which in turn would reduce cost for the operators. He cited a situation where Medview Airlines had some operational challenges with one of its aircraft, and had to transfer its passengers to another airline under an arrangement between the two carriers.

    “If the cooperation and understanding does not exist between Medview Airlines and Aero, how possible would it be to help fly passengers who could not be air lifted due to operational challenges,” he asked, noting that Medview Airlines’ counsel is that more airlines should come together and forge cooperation, adding that this is good for the survival of the business.

    President, Sabre Travel Network, Mr. Gbenga Olowo, agrees. He warned that Nigerian and African airlines might face serious trouble if they do not embrace merger and consolidation soon. Noting that efforts to ensure merger and consolidation among the continent’s carriers failed in the past, he, however, emphasised that merger or consolidation could not be achieved by government coercion.

    Olowo lamented the precarious situation of indigenous airlines, saying that there were less than 70 aircraft in the fleet of the carriers in the country, whereas an airline like South African Airways has over 67 aircraft in its fleet. He said: “Nigerian airlines are at the bottom level of success. The airlines that we have in operation are in the lowest rung of the ladder in terms of revenue, service delivery and good business model.”

    Managing Director, Overland Company, Capt. Edward Boyo, said indigenous airlines would remain behind in global aviation industry unless they cooperate. He observed that in the past 10 years, no fewer than 10 Nigerian airlines have closed shop, leaving only seven.

    Boyo said: “Mergers enable growth, increase the market shares, increase values of customers, increase credit worthiness for the airline and enhances market perception of the airlines. However, merger cannot be done by government coercion. It has to be marriage of willing parties and there should be trust.”

    He observed that one of the problems of mergers in the sector is lack of trust among the players. “Merger is a voluntary amalgamation of two firms on a roughly equal term into one new legal entity. On the local scene, mergers, consolidation, cooperation and synergies are yet to be realised,” he explained, adding that the question remains how these conditions can be met within the local and regional operating environment.

    Aviation finance expert, Mr Nick Fadugba, supports merging of airlines because of its benefits to them. He said: “I would like to see airlines in Nigeria enter into mutually beneficial partnerships and joint ventures with each other which would enable them to become more efficient and profitable. In fact, Airline Operators of Nigeria (AON) should be championing this cause. All the airlines in Nigeria are owned by shrewd business people who, in addition to wishing to provide safe and efficient air services, also wish to make a decent return on their significant investment.

    The aviation expert said combining forces could help achieve these two objectives.

    “I would like the airline owners, at least, those that are willing, to sit in a room, lock the door, and ask themselves: ‘How can we work together?’ ” he said, adding that if two or more Nigerian airlines joined forces, they would have a larger fleet size and other resources.

    Fadugba also said though Nigeria’s airline industry can be bouyant, many of the players are too small, weak and undercapitalised to take advantage of the market opportunities. “I believe our airlines need to achieve a critical mass to benefit from economies of scale. I believe Nigerian airlines should come together and work together for the common good, no matter how difficult this may seem in the early stages,” he said.

    He noted, however, that indigenous airlines’ owners  said it would be difficult for them to work together, in view of their ownership and philosophies, adding that they are competitors. He said several airlines operate the same aircraft and engines, meaning that by forming aircraft spare parts and engine pools, they could achieve significant savings as well as greater operational efficiency.

    Fadugba said the same approach could be applied to in-flight catering to reduce costs through joint purchasing. He, however, said each airline would have to ensure that it met its payment obligations promptly, otherwise such schemes would fail. Through such cost-saving arrangements, he believes that the airlines could maintain their individual identities in a partnership.

    The airlines, Fadugba said, could also work together when it comes to negotiating with aircraft and engine leasing companies as airlines planning to acquire similar equipment could work together to obtain better pricing. With two or three airlines negotiating together for a larger pool of aircraft they are likely to obtain a better lease rate than one airline negotiating on its own for one or two aircraft.

    Despite the obvious benefits of the proposed merger, not many players are impresed. They argue that they are mere subterfuge to force airlines to recapitalise.

    The Executive Chairman, AON, Captain Nogie Meggison, said the government should rather raise the bar through regulatory policy instrument instead of forcing carriers to merge. He said recapitalisation would not succeed in aviation as it did in banking because they are different industries.

    Meggison argued: “From my own point of view, aviation is not banking. Most of those who label themselves aviation experts at times have very myopic views about aviation. Since they are not inside, they don’t really have a clear view. It is like telling me to go and umpire a rugby match when I don’t really know the regulations. So, when you look at it; you do so from a finance point of view or from the point of view of a concerned interest in aviation.

    “Merger is a different issue. They are all private companies most of the time it is not public companies using public funds, so you can’t tell Mr A selling Roast Plantain, that if he wants to sell he must join Mr. B.  My feasibility study is different from the other person’s feasibility study.”

    Captain Meggison said the best thing to do is to raise the standard. For, he said, “You can’t tell two people who are taking funds from two different sources and have two different projects to join their businesses. There are tricks. Some people come in with different policies and different agenda. Some came in as low cost; some came in as classic, some as charterers, while some as cargo. So, you can’t just place a blanket on all of them and ask them to merge. It doesn’t work and you will just end up with zero.”

    Chairman, Air Peace, Mr. Allen Onyema, also thinks that the proposal is an inappropriate measure in addressing the challenges of airlines. He said recapitalisation by airlines is not sufficient evidence that the carriers are in sound financial health.

    According to him, pegging a fixed amount for any airline is insufficient evidence that the carrier has the technical wherewithal to operate safe flights.

    His words: “I am in support of any policy by the government that would make the aviation sector stable. I have not heard anybody in the government talking about recapitalisation of airlines. But we are hearing rumours that they are proposing about N5 billion recapitalisation for domestic airlines. It is strange to me that figures are being thrown about. The airline sector is not like the banking sector. It is strange to hear this in Nigeria; it is unusual in other parts of the world to propose this.”

    He emphasised that airlines are not banks that had to recapitalise because they need to give out loans daily. He noted that banks need more money as back-ups to give out, adding that the same model cannot be applied to airlines. “Banks need solid financial base because they daily have to give money to people to trade with. Airlines do not trade with money, so the whole idea of requesting them to have a N5billion recapitalisation base is not ideal,” Onyema argued.

    The Air Peace Chairman said that when the government is proposing recapitalisation in aviation, the model for the banking sector could not be applied to aviation. “What I think the government should do is to put in place policies that would assist airlines to source cheaper access to funds, ease the problem of aviation fuel by reducing the taxes. The new airlines should be given four years tax holiday,” he suggested, adding that there are no mega profits in airline business.

    Onyema said what should be paramount is to ensure that airlines are categorised to operate according to the number of aircraft they have. For instance, airlines, he said, should be restricted to operate limited routes according to the number of aircraft in their fleet. “To me, this is the best form of recapitalisation. Airlines’ operations should be restricted to the number of aircrafts they have, not to set N5billion by the side,” he said.

    He warned that if the government’s plan is to forge mergers in the industry, the proposal will not materialise, as mergers are not forced. He called for the creation of a conducive environment that would encourage collaboration among the carriers. He said the partnership among airlines is the way to go, as against the proposed recapitalisation.

    Onyema also said that Air Peace is not favourably disposed to merging with other operators, but could enter into operational agreement for use of aircraft under a code share arrangement.

    “I do not think I am interested in merging with another airline. But I will be happy to work with airlines that have same business model like AZMAN Air to consolidate our northern operations. Airlines should be free to partner one another if the business understanding is there,” he said.

    Similarly, Director, Zenith Travels, Olumide Ohunayo, argued that the planned recapitalisation is not a solution to the challenges facing local operators. He said instead of embarking on another round of recapitalisation, the Federal Government through the Nigerian Civil Aviation Authority (NCAA) should strengthen its regulatory functions on the issuance of Air Operator’s Certificates (AOCs) to local carriers.

    Executive Director, Centre for Aviation Research and Safety, Sheri Kyari, condemned the proposed recapitalisation. He said it would lead to the death of some of the airlines that are struggling to survive due to several challenges confronting them.

    According to Aircraft Engineer, this is not the time to recapitalise. To him, the recapitalisation may be a ploy by the authorities to force domestic airlines to merge.

    But what is the government’s position on the issue? According to Chidoka, the government is worried over the high failure rate of domestic carriers. He noted that efforts were underway to design stimulus package and incentives that would get the troubled carriers out of the woods. Nigerian carriers, the Minister said, are grappling with a litany of woes.

    Hear him: “Nigerian carriers have experienced dismal performance due to gaps in the system, which have hampered growth. These gaps include: underfinanced domestic airlines, underutilised BASA (bilateral Air Service Agreements), poor incentives for private sector participation and weak corporate governance in the industry.” He said government is worried hence the need to reverse the trend.

    Chidoka said the government has designed a stimulus plan to assist domestic airlines, as other countries have done. He said the plan “would involve a package of financial incentives that will provide support across the aviation value chain.” What this means is that the government has not thrown its weight behind the proposed merger. It has not ruled out the option either.

    So far, the Ministry has yet to make any pronouncement on  recapitalisation. But  when it does, it would be opposed by operators.

  • Mixed reactions trail shift in auto policy implementation

    The Federal Government has, for the third time, postponed the implementation of the 70 per cent tariff on imported used vehicles. Some stakeholders argue that the latest shift in date to July 1, this year will enable them keep their jobs as it will give the assembly plants enough time to produce adequate  vehicles to meet local demands. TOBA AGBOOLA reports. 

    the Federal Government last year directed the Nigeria Customs Service (NCS) to collect 35 per cent as duty and 35 per cent as levy for imported used cars and buses from July 1. This implies that beginning from that date, imported cars and buses would attract cumulative tariff  of 70 per cent.

    The circular had explained that the new increases in duty were in line with the Federal Government’s new automotive policy of revamping the automotive industry, encouraging local production of vehicles, enhancing entrepreneurial inclusiveness and generating employment for Nigerians.

    Consequently, the government approved import duty waivers on imported Completely Knocked Down (CKD) components while Semi-Knocked Down (SKD) components will attract only five per cent duty without any levy.

    No doubt, the reasons the government proffered for raising the tariff are laudable. The policy will not only attract investors to the country but also enhance employment opportunities. It is instructive that since the policy was announced, many automobile industries have expressed interest to begin manufacturing vehicles in the country with some already at the stage of rolling out locally made vehicles. But the government postponed the July 1, 2014 implementation date and decided to implement the policy in two phases of 35 per cent to January 1, this year. It was again postponed to July 1, from April 30, 2015, bringing the number of times the tariff implementation date will be shifted to three in six months.

    The Nation confirmed that the government’s decision to further extend the implementation date was informed by the fact that none of the assembly plants has manufactured  vehicles in commercial quantity. In addition, there were issues bordering on standardisation, as well as the stiff opposition from some stakeholders. However, the implementation of the second phase of the 70 per cent tariff would have made Nigerians pay more for imported second-hand vehicles from April 30, 2015, thereby depleting the dwindling purchasing power of the masses.

    It would be recalled that government while beating a retreat in July 2014, had stated that the postponement was to enable local vehicle assembly plants to ramp up production in order to meet the nation’s growing demand for brand new vehicles. But so far, the new vehicles produced by Innoson Motors and Stallion Motors costs between N1.3million and N1.6million

    An end of year statement issued by the National Automotive Council (NAC) said government deferred the implementation of the new tariff to April 30, 2015, due to the delay in the establishment of a vehicle finance scheme.

    Some industry watchers are however praising the decision by the government. Many of them noted that the opposition was already waiting to cash in on it, in the vain hope that the backlash of the implementation of the policy would have created a spiralling inflation and a new disequilibrium in the economy.

    According to the Managing Director, First Rit Nigeria Limited, Mr. Eric Umezurike,the  implementation of the policy will no doubt throw many agents out of job, adding that the postponement would enable the agents have jobs to do in the main time while looking for other alternative means of livelihood.

    He stated that agents were ready to look government in the face over its implementation. “We were waiting for government to begin the implementation; we wish to make a point. The issue would have been used not only to paint Mr. President black, but also as a heartless person, who does not want Nigerians to have access to even tokunboh (second-hand) cars,” Umezurike said.

    He was, however, quick to add that it was not that the agents were averse to any policies that would encourage Nigerians to use new cars, only that the present approach was considered too hasty and lacking in proper  implementation.

    The Director-General, NAC, Aminu Jalal, who noted that Nigeria imports about 400,000 units of vehicles annually, with about 300,000 being second-hand, said staff of the collaborating bank, Wesbank of South Africa, delayed their planned trip to Nigeria to set up operations from September 2014 to January 2015. He added that this led to the shift in the date, then.

    “The arrangements for the establishment of the affordable vehicle finance scheme suffered a delay of about four months due to the Ebola Virus Disease,” he said.

    National Coordinator, Maritime Advocacy and Action Group (MAAG), Alhaji Alhassan Dantata, who confirmed the development, praised the presidency for having a listening ear.

    According to him, the extension is a confirmation of the fact that government can listen when confronted with genuine facts about issues.

    “MAAG wishes to use this opportunity to thank the President, Dr. Goodluck Jonathan, the Minister of Industries, Trade and Investment; Dr. Olusegun Aganga and the Director General of NAC, Alhaji Jalal for seeing reason with the position of MAAG on this issue,” he said. Dantata explained that even though MAAG is in support of the auto policy, a proper and realistic roadmap needs to be designed for its proper implementation.

    His words: “While we are not opposed to the new policy, our position has always been that the infrastructures must be visible on a level playing field and that the automobile plants must not take advantage of it to the detriment of the average Nigerian. Already, there are fears that prices of imported, used and new vehicles will skyrocket, but we are happy that the extension has been granted”.

    President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Alhaji Badaru Abubakar called on the Federal Government to further delay the take-off of the policy because of its potential to inflict hardship on the masses.

    He said the delay is necessary to enable stakeholders resolve the lingering controversies generated by the policy and reach a consensus on how to effectively implement the policy for the benefit of the sector’s investors and the economy at large.

    “Having reviewed the lingering controversies between government and auto industry stakeholders on the implementation take-off date of the new auto policy in Nigeria, the chamber wishes to add its voice by expressing some concerns on the short moratorium period given on the effective take-off date of the policy. If implemented, it will not only constrain them to operate optimally but also negatively affect sustainable transformation of the economy as it would lead to fall in demand of imported used vehicles,” Abubakar said.

    According to him, this will invariably affect negatively the transportation sector; erode the welfare of the citizens by reducing their purchasing power; breed unnecessary monopoly due to privilege/insider information about the government policy; result in increase in unemployment, low income, and inflation, amongst others.

    He said to ensure that the good intention of government on the policy becomes a realityand all interests addressed , there is need for the Federal Government to put its house in order before commencing full implementation of the policy.

    He said this is because it is capable of further encouraging diversion of cargoes to neighbouring countries if it is not halted to allow for sufficient moratorium period given to auto industry operators/stakeholders. He said: “NACCIMA believes that the implementation of the sharp increase in import duty on fully built vehicles to 70 per cent (35 per cent duty plus 35 per cent levy) from 22 per cent (20 per cent duty plus 2 per cent levy) will place the cost of vehicles beyond the reach of about 90 per cent of Nigerians, increase the cost of transportation by at least 50 per cent, increase inflation level and create huge gap between demand and local supply capacity of automobiles due to infrastructure challenges.”

    According to him, supply currently stands at a pathetic 45,000 units while demand stands at 800,000 units per annum. He said smuggling activities from neighbouring countries will boom, especially from Cotonou Port with imported vehicles still dominating the market place since Nigeria has about 1,400 illegal entry routes, over 80 poorly manned borders and a yet to be fully-equipped Customs structure, and so on.

    Another stakeholder, Chairman of Oris Velvet Autos, Mr Alfred Omoghiade, advocated for a 10-year incubation period before it can be fully implemented by the Federal Government. He said: “Based on certain fundamentals in the nation’s economy, the auto policy ought to have been given at least 10 years of incubation before its full implementation. This is to ensure that the right enabling environment is in place and consequently guarantee its success.”

    Omoghiade noted that with the hurried implementation, the nation would see undue advantage being given to a few people who are cashing in on the policy to milk the nation dry through unscrupulous practices to make huge money at the expense of the national economy. The policy which, he said, had failed to yield the expected dividends because the local production of cars and vehicles as key elements of the policy is not being met just as the nation is losing much revenue at the ports.

    He, therefore, called on the Federal Government and its agency, NAC, to take urgent steps to review the current policy in the interest of the nation’s economy. Omoghiade recalled that the policy came into effect early July last year with the aim of localising the manufacturing of vehicles with the assembly plants projected to roll out an aggregate of 300, 000 vehicle units within the next two years and specifically 23, 000 vehicle units of various brands of automobiles produced by the plants between June and December 2014.

    “The policy, in the thinking of government, would not only help reduce the pressure on foreign reserves by discouraging importation but also lead to massive job creation and enhance the wellbeing of the economy. Accordingly, with the full implementation of the auto policy, tariffs jumped from 20 per cent duty on passenger cars (PC) and 10 per cent on commercial vehicles (CV) to 70 per cent and 35 per cent, respectively, he said, adding that Federal Government should as a necessity wade in and review the policy especially in view of the prevailing economic situation in terms of job losses at the ports and retarded business activities of other stakeholders.

    He noted that while the policy was a noble vision, the implementation had been hasty leading to contradictions and no concrete benefits yet to the nation as planned.

    Last week, the National President, Association of Nigerian Licensed Customs Agents (ANLCA), Prince Olayiwola Shittu, recounted his disapproval over what he considers a counterproductive strategy. “We have always been critical of this automotive policy and we have not changed our position. By the time July comes and the 35 per cent levy is added, it will be a problem because there will be no cargo through here, our people will lose jobs and we will lose the whole revenue,” he said.

    The policy, which has five components, includes most importantly the promotion of market development and protection of local manufacturers. In order to support this, tariffs will be increased on fully assembled vehicles until the local production of cars and content procedures become much more competitive.

    Recently, Jalal said the implementation of the 35 per cent import levy on used cars will now begin on July 1, as the Federal Government has once again shifted the commencement date by two months. He said a circular had been issued by the Federal Ministry of Finance deferring the implementation of the levy to that day.

     

  • Stemming the tide of unclaimed dividends

    Stemming the tide of unclaimed dividends

    Shareholders eagerly await dividend payment. Yet, many do not claim it when it is paid. The Securities and Exchange Commission (SEC) puts unclaimed dividends at over N70 billion. Why is unclaimed dividends this high? What should be done with this huge cash? SEC suggests that it be ploughed back into the business. Amid plans to tinker with the rule on handling of unclaimed dividend, Capital Market Editor Taofik Salako examines the implications.

    Every year, quoted companies pay billions of Naira as cash dividends. While dividend payment is not statutorily compulsory, its payment, distribution and custodianship are statutorily regulated. In the next few weeks, the new earnings season- the period of the release of corporate earnings and dividends; will start and build up all through the second quarter. Post listing rules at the Nigerian Stock Exchange (NSE) requires all quoted companies to submit their periodic financial statements and reports not later than three months after the expiration of the reporting period. With most companies-including all banks, running the 12-month Gregorian calendar year that ends on December 31, corporate earnings reports and dividends for the 2014 business year are expected to trickle in this month and build up gradually in March and subsequently peak in the second quarter.

    Earnings season is the most momentous period for investors.  It is simply the harvest season. The twin inseparable objectives of investment are the protection of capital and attainment of appreciable return on investment. Dividend is used in generic sense as well as specific sense to refer to return on investment. In generic sense, dividend refers to all gains that accrue on an investment including cash payouts, scrip or bonus shares and capital gain. But dividend is usually used in relation to cash dividend-the periodic distribution of net profit from the business to shareholders. For most retail and long-term investors, the cash dividend is the regular allure and immediate reward since the capital gain-the premium that comes due to appreciation in value of investment, only comes at the point of sale or exit. Just like a landlord looks forward to expiration of current rent and payment of new rent by a tenant, so an investor looks forward to dividend payment.

    Besides the earnings season, new rules and regulations aimed at changing the custodianship and distribution of unclaimed dividends have brought dividend payment into the focus. Three weeks ago, Securities and Exchange Commission (SEC), the apex regulator for the Nigerian capital market, released a draft of new rules and regulations that tend to portend a paradigm shift in the management of unclaimed dividend.

     

    Unclaimed dividends,

    unknown billionaires

    Unclaimed dividend is a recurring issue in the Nigerian market. Over the years, the market has grappled with mounting piles of returned and unclaimed dividend warrants, and the pool of unregulated “slush” fund runs into billions every year.  According to official data from SEC, unclaimed dividends had increased sharply from about N27.8 billion in 2008 to N41.3 billion in 2009, only to hit N41.7 billion in 2010. In 2011 it hit N50.2 but slightly increased further to N50.7 billion as at September 2012. By the end of 2012, SEC put unclaimed dividend at N60 billion.  Unclaimed dividend is currently estimated at more than N70 billion, based on its three-year growth average.

    This is the honey-pot of interest to all stakeholders. Under the current rules and regulations, the billion-Naira unclaimed dividend portfolio is idling away under the registrars-who receive and distribute dividends and keep the unclaimed dividends for as long as 12 years. The nature, distribution and custodianship of the unclaimed dividend have been at the centre of the controversy, accusations and counter-accusations that roundly animate all stakeholders whenever the unclaimed dividend takes the stage. From whichever perspective, there is always a bit of argument in support of every angle to the debate.

    Naturally, a good understanding of the nature of dividend, the rights of shareholders with respect to dividend declaration and payment, the dividend payment process and institutional responsibilities and necessary rules and regulations guiding dividend payment would enhance dividend payment and reduce unclaimed dividends.

    The board of the company recommends possible cash payout, closure date for register of members and payment date to shareholders who usually approve these recommendations at a general meeting and thereafter the gross value of the dividend is deposited with the registrar for onward distribution to shareholders. The “cheque-like” nature of dividend itself presents a challenge to several shareholders.

    Being a “cheque,” the requirement of a “current account” to convert dividend warrant into raw cash has been a major hurdle to most small investors who operate mostly “saving deposit account.” Another cause of the huge unclaimed dividend is the seeming intangibility of dividend especially by average and below average companies.

    For instance, a dividend per share of 10 kobo would result into a net sum of N90 on 1000 ordinary shares. With the cheque-like nature of dividend warrant and the intangibility of some dividends, many shareholders who received their warrant merely dump them somewhere. Also, events such as change of address, death, and incorrect entry also contribute to the unclaimed dividend problem. Many shareholders hardly bother to communicate these vital changes in their details to the registrars, so the registrars continue to work on the old details and after many returned warrants, may altogether suspend further communication based on the previous details. These poor attitudes on the part of shareholders are major reasons for unclaimed dividends. This is explained by the fact that the largest chunk of unclaimed dividends belongs to individual retail shareholders and are scattered in little amounts.

    It could however not be denied that many unclaimed dividends resulted from inefficient public utility and the nature of dividend sometimes. Gone are those days when the post-office officials moved through the nooks and crannies of cities and towns to drop letters. The private couriers are not better and more importantly far too expensive. So, many companies are left with the public postal system which often performs below expectation.

    This has been further compounded by the lack of investment and financial education on the part of several retail shareholders. This is illustrated by the fact that several options that should nonetheless work to reduce the unclaimed dividends appear not to be suitably working for the larger segment of retail shareholders. Under the current system, a dividend warrant becomes statute-barred, that is, unclaimed and due for return to the originating company after 12 years. But before this, it only becomes temporarily invalid after six months and this could be solved by simply taking it to the registrars for revalidation and revalidation can be for as many times as possible.

    In effect, many shareholders still have ample chance to claim their monies “lying waste in banks’ vaults.” However, revalidation can become difficult in the case of absence and irregularity of signature and valid identity card. There have also been commendable improvements to the payment system. A mandate could be given to the registrars to pay dividends directly into the owner’s account-either current or saving deposit account. Registrars now provide electronic-dividend (e-dividend) mandate form, either separately or attached to company’s annual report. Many banks have also introduced varieties of special deposit account that accepts monetized papers such as cheque and dividend warrant. Rather than the delay and uncertainties around the postal system, a shareholder can also undertake to pick his warrant directly from the registrars. With cooperation of the board, some registrars pay dividends at the venue of general meeting, thus giving shareholders immediate access to their monies.

    But companies have been alleged to borrow certain sum to pay dividend with mindset that certain percentage may not be claimed by their owners. This was one of the many reasons put forward by SEC in its initial efforts to establish a highly controversial unclaimed dividend Trust Fund, a move that was shut down by popular outcry from shareholders and companies. Until the Central Bank of Nigeria (CBN) changed the banking regulatory framework through its Scope of Banking Activities and Ancillary Matters No 3, 2010, most banks directly own ed their registrars. The Scope of Banking Activities and Ancillary Matters No 3, 2010 requires banks to fully concentrate on core banking functions. The model requires banks to either sell all non-core banking businesses or form a holding company to hold such non-core banking businesses including activities such as insurance, asset management and capital market operations. The owner-registrar relationship has been at the centre of suspicion of dividend malpractices. While some companies still own their registrars, the divestments that followed the change in banking regulatory regime have significantly altered the structure and ownership of registrars.

    The registrars, who by the current nature of custodianship keep custody of unclaimed dividends, have all along been subjects of intense criticisms by many stakeholders. Sometimes poorly staffed and often lacking in efficient internal processes, registrars’ corporate failures and alleged deliberate efforts to create unclaimed dividends have also been contributing factors to unclaimed dividends.

     

    Blocking the loopholes

    In the quest to block loopholes and strengthen the institution of dividend payment, SEC had in 2011 strengthened its rules on payment of dividends. SEC Rule 204 stipulates that a separate interest yielding escrow account shall be opened by a company within 24 hours of the approval of dividends at a general meeting in the case of final dividends or a board meeting in the case of interim dividends, and evidence of such opening must be forwarded to SEC and the company within 24 hours of the account being opened. Also, the rule provides that the total dividend declared by the company shall be paid en-bloc into the said escrow account within 24 hours after the opening of the account and evidence of such payment forwarded to SEC and the Registrar within 24 hours. The Registrar, then, shall be responsible for effecting dividend payment either by way of electronic transfer or by issuance and distribution of dividend warrant to the beneficiaries within the time limit prescribed in Rule 204(a)(5).

    Besides, the Registrar is expected to forward a monthly statement of account certified by the bank to SEC detailing the outflow and inflow into the accounts and the accrued interests on the dividend. Failure to comply with the rules carries stiff penalties for the registrars and paying companies.

    Now, SEC plans to change the custodianship and duration of the unclaimed dividend. The draft of new rules and regulations; released three weeks ago and currently undergoing stakeholders’ review, will allow companies to retrieve unclaimed dividends and invest such money for their benefit. It is a paradigm shift from the current position where companies are not allowed access to unclaimed dividends until after 12 years. Unclaimed dividends, which, under the current regime, are in the custody of registrars until after they become statute-barred after 12 years, will now revert back to the paying company after 12 months.

    However, the company is under obligation to make the unclaimed dividend available to the registrars for payment whenever there is request by any shareholder. According to the new rules and regulations, all unclaimed dividends in the custody of the registrars shall be returned to the paying company 12 months after the date of approval of dividends at a general meeting, in the case of final dividends, or a board meeting, in the case of interim dividends. The registrar is expected to provide evidence of such remittance to SEC within 24 hours.

    The rules indicated that “where dividends are returned to the company unclaimed, the company may invest the unclaimed dividend for its own benefit in a guaranteed income investment outside the company and no interest shall accrue on the dividends against the company”. However, unclaimed dividend shall not be used by the company for its own business except in accordance with provisions of Companies and Allied Matters Act (CAMA). This obviously is a reference to the 12-year waiting period for companies to plough back unclaimed dividends into their capital.

    Also, a company may retain a minimum of five per cent of the unclaimed dividends in cash or near-cash for the purpose of remittance to the Registrars upon request for payment. According to the draft, all accrued interests from the failure of Registrars to remit the unclaimed dividends within the time limit prescribed in these Rules and Regulations shall be remitted along with the unclaimed dividend to the paying company.

    In this instance, the accrued interest shall be calculated at a rate not below a premium of five percent above the Central Bank of Nigeria (CBN) treasury bills rate. Failure to remit unclaimed dividends to the paying company by the Registrar as indicated shall attract a penalty of N5 million and an additional sum of N100, 000 for every day such contravention persists.

    The rules however retain registrars as the distributors of dividends. The registrars will still bear the responsibility of paying dividends to a shareholder after the dividends have been returned to the company. However, the affected company shall remit the portion of unclaimed dividends claimed by a shareholder to the registrar within 48 hours of receiving a request or claim for payment. Where the company fails to meet the remittance or payment deadline to registrar as indicated above, the company will pay penalty of N1 million in the first instance and N100, 000 for every day such contravention persists. Also, any registrar that connives or fails to comply with the provision of the rules on the 48-hour repayment will pay a penalty of N2 million in the first instance and N500, 000 for every day such contravention persists.

    Taking altogether, the existing rules and impending rules and regulations appear to address substantially stakeholders’ concerns on the unclaimed dividends. Companies and shareholders had argued that rather than idling away with registrars, unclaimed dividend should be put to better use by the companies, which indirectly still create values for shareholders. Shareholders have thrown their weight behind the draft.

    President, Constance Shareholders Association of Nigeria, Shehu Mikhail, said the main plank of the new rules and regulations is in line with the agitation of shareholders. According to him, shareholders have been clamouring that unclaimed dividends should revert to paying companies rather than staying with registrars as shareholders own both the paying company and unclaimed dividends and can get future values from both.

    “This is one of the things shareholders have been clamouring for, it is good to have the unclaimed dividends sent back to the companies,” Mikhail said. He said the new rules and regulations might help to check any unhealthy collaboration between directors of companies and registrars noting that there has always been suspicion that shareholders were being deliberately frustrated from getting their dividends.

    Founding member of Nigeria Shareholders Solidarity Association (NSSA) and shareholders’ rights activist, Alhaji Gbadebo Olatokunbo, said the impending new rules will be good for the capital market. Still suspicious of registrars, Olatokunbo said that registrars are still using delay tactics to create unclaimed dividends because the returned monies will come to their custody. “Some companies don’t abide by the payment date stated in the annual report and will not release cash as at when due to the registrars, yet the registrars will keep quiet in order not to lose the clients. Really, the new rules will lead to improvement in dividend payouts, the sanctions will prevent malpractices,” Olatokunbo said.

    Chief relationship officer, TFS Securities and Investment Limited, Mr. Charles Fakrogha, also described the new rules as welcome development noting that putting the unclaimed monies in the custody of paying companies will be better. Managing director, Dependable Securities Limited, Mr. Chinenyem Anyanwu added that the new rules will provide the paying-company additional funds to improve its bottom-line for the benefit of the shareholders. He however noted that stringent enforcement should be put in place to ensure that the company remits the money whenever it is required.

    However, while shareholders under the aegis of Salemson Shareholders’ Association of Nigeria welcomed the general nature of the new rules, they wanted the rules to be modified.  According to the association, the unclaimed funds should be used to buy additional shares of the paying company in the name of the beneficiary. National coordinator, Salemson Shareholders’ Association of Nigeria, Chief Erinfolami Gafar, said such provision will lead to direct benefit to the affected shareholder in the form of increased shareholdings.

     

    Beyond rules and regulations

    Most stakeholders agree that stemming the tide of unclaimed dividends requires multi-prong approach that involves commitments of all stakeholders; from paying companies, to regulators, shareholders, registrars, banks and other capital market operators. Mikhail urged SEC to coordinate a compendium of unclaimed dividends with names and addresses of the beneficiaries as part of efforts to push unclaimed dividends out to shareholders. Shareholders said SEC should liaise with the CBN to ensure that dividend warrants can be paid into savings accounts and banks should stop the charges on signing of e-dividend form. Alternatively, with the know-your-customer (KYC) relationship management firmly establish in the capital market, stockbrokers should be able to sign e-dividend form since they are closer to the shareholders than the banks.

    Shareholders have also called for increased public enlightenment to educate investors about the processes at the capital market. Some shareholders still want the 12-year statue-limit to be removed completely so that shareholders can claim their money whenever they want.  Alongside the new rules, SEC is also addressing the issue of valid identity card. SEC is amending its rules to include voter’s registration card issued by the Independent National Electoral Commission (INEC) as another valid identity for capital market transactions.

    This will increase possible personal identity documents for shareholders to seven. The other means of identity include current international passport, residence permit issued by the immigration authorities, current driver’s licence issued by the Federal Road Safety Commission (FRSC), inland revenue tax clearance certificate, birth certificate or sworn declaration of age and national identity card. The new SEC management, under acting director general Mounir Gwarzo, has indicated that it will take investors’ education to the front burner and will create nationwide enlightenment framework. With multi-prong and multi-stakeholders approach, the quantum and growth rate of unclaimed dividends will reduce considerably, to the benefit of all stakeholders.

  • ‘Why banks should adopt anti-money laundering measures’

    Banks have been  urged to see anti-money laundering (AML/CFT) compliance as obligatory because of the need to insulate banks and other financial institutions against criminal activities.

    Managing Director of DataPro Limited, Mr. Abimbola Adeseyoju, who said this at the January meeting of the Committee of Chief Compliance Officers of Banks in Nigeria (CCCoBIN) sponsored by his company as part of activities to mark 20 years of its existence, added that with AML/CFT compliance the economy will be protected from avoidable crises.

    Adeseyoju wondered “what happens if we build around our banks and institutions around the ‘bad’ guys?

    “When the storm comes, we cannot properly profile out customers. Their loans are not serviced. And they (customers) do not care and simply walk away. That is why we need to do all the Know Your Customer (KYC), Customer Due Diligence (CDD) Enhanced Due Diligence (EDD) Record Keeping, Mandatory and Suspicious Reporting and put in place Processes, Procedures, Policies and Programs,” the DataPro boss said.

    He maintained that the above measures are duties forced on banks as necessary tools for the survival of the banking business, so it is therefore expected that compliance practitioners should obey the law and comply with regulations.

    Adeseyoju warned banks that reputational risks are something that cannot be quantified in naira, adding that compliance is the only provision for reputational risk.  Taking the banks and their compliance officers down memory lane, he said: “Our brand is only as strong as our reputation. The events of August 2009 are still fresh.

    “Compliance or the public perception of some operators moved them notches up to the top of the ladder. Those of us in compliance should therefore, see ourselves as the custodians of our institutions.”

    DataPro is regarded as the leading and most experienced AML/CFT compliance training and consulting firm in Nigeria that offers AML/CFT compliance training services to more than 70 per cent of the banks and other non-bank financial institutions in Nigeria. The firm is a development partner of the Committee of Chief Compliance Officers of Banks in Nigeria (CCCOBIN).