The Nation Newspaper

Tag: cautious

  • Cautious optimism

    •This is what the good news from Investors’ and Exporters’ FX Window calls for

    If sceptics had doubted the potentially calming effects of the Investors’ and Exporters’ FX Window created in April 2017 by the Central Bank of Nigeria (CBN) to tame the raging bull of forex market instability, the latest numbers coming from the segment would appear as an attestation to the wisdom of the initiative. According to FSDH Research in a report, “The total turnover at the Investors’ and Exporters’ FX Window (I&E Window) between April 2017 and May 2018 stood at $50.73 billion”.

    At a time the country is locked in an export mode, the pointers are certainly hard to ignore. First, it is unmistakably, a sign of renewed confidence by foreign investors in the domestic economy. Secondly, it reaffirms what is now common knowledge about the immense potential locked within the domestic economy and which require the right trigger to unleash. No doubt, the signs are of a steady, albeit slow progression in the journey towards economic diversification.

    Having noted the above, we must also state that the report says nothing that previous ones have not revealed about the potential of the Nigerian economy. Indeed, it needs stating that the initiative – Investors’ and Exporters’ FX Window – does not even pretend to be any magical wand to solve the problem of scarcity; it was more about managing scarcity – a mere window to  avail investors the opportunity to sell dollars to willing buyers at rates of their choice. Only when it is appreciated that the Nigerian forex problem goes beyond managing scarcity to one of fundamentally boosting the nation’s forex stock best guaranteed by an export-led growth can the initiative be seen for what it truly is – a placebo.

    And so for us – far beyond the optimistic numbers routinely churned out by national and international agencies – is the broader question of what indices such as the latest one translates to for the economy; the question of whether the economic fundamentals have changed in any significant sense for our import dependent economy, either in the specific sense of lessening our dependence on oil revenue, or in our ability to produce everyday goods which would otherwise have been imported, and whether the economy is better placed to deliver impressive job numbers in the long run.

    Undoubtedly, some measures of progress are being recorded. One of these is the steady accretion in our foreign reserves (it seems a measure of our import dependence hangover that this continues to be denominated in the amount of imports it can finance over a given period). The other is the massive boost in agricultural output which has led to the cutbacks in food imports as indeed other basic industrial manufactures being aggressively pursued by the Muhammadu Buhari administration. Even at that, the noticeable progress can best be described as modest given its potential and the enormity of the challenge. The reality of course is that our international trade has barely lifted beyond exports of primary products– of raw materials. As if that is not bad enough, the absence of any significant local input in processing not only erodes the basis of reciprocity inherent in trade relations, it undermines our ability to derive meaningful advantage from it.

    And to add to these the infrastructure challenge which continues to present formidable obstacles to our quest for competitiveness; and the problem of porous borders which makes smuggling and dumping fair game; the odds facing our manufacturers, and by extension those facing the nation’s quest for the more lucrative export trade, becomes better appreciated.

    More than mere numbers which have come to mean nothing, our quest should be for self-reliance and industrial competitiveness. And we do know that the twain will never happen without massive upgrade/modernisation of our infrastructure, particularly of transportation and power, without a deliberate programme to retrain and retool our youths for the future. They will not happen without measures to protect our industries from smuggling and dumping of cheap foreign products. And surely, they would not happen without targeted incentives to get indigenous manufacturers not only up and running, but in competitive mode.

     

  • Cautious optimism over proposed ban on palm oil import

    Cautious optimism over proposed ban on palm oil import

    Prompted by the need to boost local production and halt the huge import bill for palm oil, valued  at N116.3 billion in 2017, the National Assembly has renewed the push to ban the importation of palm oil and its allied products. It is envisaged that this will conserve foreign exchange, create jobs and boost the economic diversification push. However, with palm oil refineries operating at 30 per cent installed capacity, there are fears that without first addressing the product’s demand/supply gap, the proposed ban will amount to putting the cart before the horse, Assistant Editor CHIKODI OKEREOCHA reports.

    The Senate, has renewed the call to ban the importation of palm oil and its allied products. It came at an auspicious time, which was, perhaps, why it enjoyed an overwhelming support of members of the Upper Chamber of the National Assembly and, indeed, operators and stakeholders in the palm oil value chain.

    Although the fresh push to ban the importation of the product came at a time the Federal Government’s diversification agenda, anchored on increased agricultural production and export, was gathering momentum, the move has come under scrutiny by some experts and critical stakeholders.

    Some of them, who spoke with The Nation, described the proposed ban as a welcome development. They were, however, quick to point out that at the 30 per cent installed capacity of the crude palm oil refineries, banning the importation of the product without first addressing its demand/supply gap would be tantamount to putting the cart before the horse

    For instance, the General Manager, External Affairs, PZ Cussons Nigeria Plc, Mr. Muhammed Tahir, said he supports the move to ban the importation of palm oil into the country as this would boost local production. He, however, told The Nation that at present, the crude palm oil refineries operate at about 30 per cent installed capacity.

    The implication of this, he said, was that there was the need to ramp up local production by addressing the issues around the supply of crude palm oil to the refineries. According to him, at 30 per cent installed capacity, the refineries cannot meet demand by individual and industrial users. To him, addressing the demand and supply gap for palm oil is important before banning its import.

    The upper chamber of the National Assembly, recently started fresh move to ban the import of palm oil and its allied products. Waxing patriotic, Senator Francis Alimikhena of the All Progressives Congress (APC), Edo State, said the importation of the product was a threat to the government’s campaign on diversification.

    The lawmaker, who sponsored the motion, titled: “Urgent need to halt the importation of palm oil and its allied products to protect palm oil industry in Nigeria” and also led the debate, recalled with nostalgia that Nigeria, before the 1970s, was a global powerhouse in palm oil production and export.

    Alimikhena, however, lamented that the country lost her leadership position in the global palm oil trade, forcing her to import about 450, 000 tons of palm oil to the tune of N116.3 billion in 2017 alone. He, therefore, insisted that the government must reverse this trend.

    The lawmaker was right. Nigeria was the world leading producer of palm oil in the 1950s and mid-1960s. She was reportedly supplying about 645,000 Metric Tons (MT) of palm oil yearly to markets across the world and boasting an enviable global market share of about 43 per cent.

    Palm oil alone accounted for 80 per cent of Nigeria’s export earnings. It also created millions of direct and indirect employment opportunities for Nigerians. Malaysia, one of the Asian emerging markets, was even said to have obtained the oil palm seedling with which she built her thriving oil palm business from Nigeria.

    Although the Asian Tiger has since refuted this claim, it, nonetheless, underscored Nigeria’s towering status and visibility in the global palm oil industry. Curiously, from controlling over 40 per cent market share, Nigeria has since lost her grip on the business. She  accounts for a paltry seven per cent of total output.

    Malaysia and Indonesia have since surpassed Nigeria as world’s leading palm oil producers and exporters, retaining the second and first position, respectively. Sadly, Nigeria, as at 2016, fell to an unenviable fifth position.

    While Indonesia produces 32 million tons of palm oil, Malaysia boasts 17.7 million tons. And they have been exporting palm oil products to Nigeria. The country, which was once the bride of the international palm oil business, is now a net importer of palm oil to meet her growing domestic demand.

    Africa’s largest economy has between 450, 000 and 500, 000 tons annual palm oil supply shortage, made up of about 300, 000 tons of Technical Palm Oil (TPO) for the production of soap and about 200, 000 tons of Special Palm Oil (SPO) used in the food industry.

    The fact that much of these are  being met through imports, with the attendant humongous loss to Nigeria in foreign exchange is something Alimikhena and, indeed, other concerned stakeholders cannot comprehend hence the current wave of campaign to reverse the trend.

     

    Private operators support ban

    This time, the public sector (Senate) is in the vanguard of the renewed push to return Nigeria to its glory in palm oil production and export. However, the imperative of repositioning the sector to contribute to diversification is not lost on the private sector, which includes farmers, refinery operators and companies that utilise palm oil as raw material for production.

    To them, the proposed ban bode well with the private sector’s age-long agitation to embrace the Backward Integration Policy (BIP) to encourage local production and ultimately, create jobs and conserve foreign exchange. This was why, for instance, the Plantation Owners Forum of Nigeria (POFN) has thrown its weight behind the move.

    The Forum through its Executive Secretary, Mr. Fatai Afolabi, said the Senate’s move deserved the commendation and support of all Nigerians. According to him, the importation of palm oil and allied palm products were threats to Federal Government’s campaign on diversification of the economy through increased agricultural production and exports.

    Afolabi was particularly peeved that Nigeria, which once held sway in palm oil production and export, imported about 450,000 tons of the product valued at N116.3 billion last year. He, therefore, urged the Federal Government to halt the importation in order to boost local production.

    As far as POFN and indeed, other private sector operators are concerned, Nigeria has no reason spending scarce resources importing the product when Mother Nature has strategically positioned her to call the shot in global palm oil production and export.

    For one, Nigeria and indeed, most parts of Africa, especially West Africa, lie in the world’s oil palm belt – a region which produces the best results for oil palm plantations. Also, she was, and is still, endowed with enormous human resources and fertile arable land to support large scale cultivation of palm oil.

    According to experts, Nigeria’s all-year-round hot weather, a lot of sunshine, abundant rain, rich, deep, flat and permeable soil, among others, are some of the features that make Nigeria most suitable for cultivation of oil palm plantations.

    While hot temperatures allow the oil palm to grow many leaves and, as a result, produce more fruit, oil palms need a lot of sunshine to grow well. It also needs access to water and mineral salts deep in the soil to do well hence the need for a permeable soil like Nigeria’s.

    But, sadly, the country has evidently failed to translate these huge advantages into maintaining a strong position in palm oil production and export.

     

    Where Nigeria got it wrong

    According to experts, Nigeria put the wrong foot forward and lost its economic bearing when she turned her back on agriculture following the discovery of crude oil in commercial quantity in the 70s. Before independence, agriculture was Nigeria’s economic mainstay, with more than 70 per cent of the population engaged in the sector.

    Alimikhena observed, for instance, that apart from various food crops produced in the country, Nigeria was a major producer of palm oil/kernel, cocoa, groundnut and rubber. But following the discovery of crude oil in commercial quantity, agriculture was neglected, while attention was shifted to oil.

    While acknowledging that Nigeria is endowed with the land and manpower to boost palm oil production, the lawmaker noted that the focus should be directed towards returning to pre-independence status in palm oil production. “We have no business importing palm kernel or any oil palm product from any country,” he pointed out.

    Alimikhena said the focus should be directed towards returning Nigeria to pre-independence status in palm oil production, noting that importation was hurting the local palm industry and depleting the nation’s foreign reserve.

    He also said it was threatening the industry’s viability into which many Nigerians have sunk huge sums of money in support of government’s export promotion drive. He expressed hope that if the palm oil industry is fully developed, it will guarantee mass employment and boost the nation’s foreign exchange earnings.

    Some of his colleagues in the Senate could not agree less, with Senator Theodore Orji (Abia-PDP), saying, for instance, that there was need to establish a special fund to encourage local production of palm oil.

    Orji expressed concern that many oil production plants were moribund. While pointing out that palm oil used to be a major income ear      ner for the country, he said unfortunately many plants are dead.

    For Deputy Senate President Ike Ekweremadu, the importance of reviving the palm oil industry cannot be over-emphasised. He, therefore, said there was need to properly position the sector to play its role as one of the major income earners for the country. He added that reviving the sector will boost employment.

    However, those  critical of the fresh move to ban the importation doubt if the Federal Government has the political will to do so let alone follow up with the introduction of policies targeted at encouraging local production.

  • Cautious optimism

    Cautious optimism

    •Not yet time to celebrate the stock market surge 

    FAR from sounding the alarm bells,  managers of the Nigerian economy will no doubt do well to pay attention to the Nigerian bourse. In every respect, the signals are that the good times are finally back. On January 11, the Nigerian Stock Exchange (NSE) All-Share Index (ASI) crossed the 43,000 mark – the first time since the market hit the nadir in 2008. The same day, market capitalisation also hit a historic record high of N15.317tn – again crossing the psychological milestone of N15 trillion after nearly a decade. In what smacks of an unmistakeably bullish trajectory, the market capitalisation would close at an unprecedented N16.154 trillion on Friday.

    In all, the surge of 12 percent since the beginning of the year puts the local bourse at the top as the best performing stock market in the world.

    The developments call for celebration and caution. Celebration because, apart from signalling a general improvement in the macro-economy, the overall indications are that investor confidence is returning, albeit gradually, to the market as indeed the larger economy.

    Caution because a closer look at the factors underlying the swing in fortune merely highlights the issues at the heart of the economy’s exposure to exogenous forces and hence its continuing fragility.

    First is the Investors’ and Exporters’ foreign exchange window introduced by the Central Bank of Nigeria (CBN) last year, said to have boosted the confidence of foreign investors. Clearly, if we understood the imperative of that initiative in the context of the need to bring some stability to the forex management regime at the time, the development, coming when it did, must be seen as an admission of the immense challenges of managing a problem of forex supply. In other words, while the creation of the window may have helped significantly to assuage the fears of the investors, it comes nowhere close to being the magic bullet to address the forex crisis in any fundamental sense, or even in a demonstrably sustainable manner in an environment where even the most basic raw materials – not to talk of basic consumer goods – are imported.

    The same is no less true for the second factor touted for the performance – the rise of crude oil price at the international market. Oil and its price of course remain the proverbial elephant in the room. Its impact on the bourse is self-evident: increase in oil price means a vastly improved foreign exchange earnings and reserves– a critical determinant in the decision on whether the foreign investor plays or exits the market – whether or not he can cash out on his asset at whatever time of his choosing.

    Already, there are concerns about the high relationship between Nigerian stock market and global oil price which the managers of the economy can ignore at great risks to the country. That Bloomberg, for instance, puts the 120-day correlation between Nigerian stocks and Brent crude price as around the highest in two years should ordinarily be sobering, given the potentially devastating impact of an oil price crash.

    Moreover, if there are any lessons from the 2008/9 stock market crash when the hordes of portfolio investors hit the road at the first signs of trouble, and consequently taking down our bourse from its one-time high of N13.5 trillion in March 2008 to an unprecedented low of N4.6 trillion by the second week of January 2009, nothing in the local bourse is known to offer any real impediments to an investor who, for whatever reasons, wants to exit.

    Rather than embark on celebrations, what we expect of the economic managers is to keep working at deepening the economy. Apart from being a sure way to deepen the market itself, the in-grown capacity therefrom will undoubtedly make the economy not only more attractive to genuine investors but one less susceptible to exogenous shocks.

    It is certainly not too early for the Securities and Exchange Commission (SEC) to step up its regulatory activities to forestall the wide-ranging abuses and infractions by operators such as we saw in 2008/9.

  • ‘Equities’ outlook cautious, lukewarm in Q2’

    Major investment firms and analysts believe Nigerian capital market will be characterised by restrained bargain-hunting amidst evident lull in investors’ appetite in the second quarter as the market oscillates between external pressures and domestic regulatory transition.
    Leading market pundits and analysts said they expected the market to be somehow tepid in the remaining months of the first half, although there could be some modest resurgence. With a negative first quarter return of -6.25 per cent, most opinions seemed to tilt towards a negative close for the market in the second quarter.
    Investment experts at BGL Plc, GTI Capital, FSDH Securities, Financial Derivatives Company (FDC) and CBO Capital said they did not expect an overtly bullish market in the second quarter, although there were several bargain stocks that could enliven the market.
    Group deputy managing director, BGL Plc, Mr. Chibundu Edozie said the capital market would remain cautious and undecided, although it may not witness a major decline.
    According to him, the outlook for the market is unclear as the market has so far failed to respond to a number of impressive corporate financial announcements of listed companies.
    “The cautious mode of the market is likely to be sustained through the first half of the year until the new CBN Governor resumes in June and monetary policy direction becomes clearer especially in relation to exchange rates. We however do not foresee a further precipitous decline given that the market currently presents significant bargain opportunities to investors,” Edozie said.
    He noted that the bearish run in the equities market was due largely to foreign investors selling down in response to the global investment risk reappraisal in the wake of US active tapering of its quantitative easing and hence rising interest rates abroad.
    Edozie pointed out the influence of foreign portfolios in Nigerian market noting that among peers and emerging markets, the Nigerian stock market was the second worst performer in the first quarter; behind Russia which declined by 8.8 per cent during the period.
    Managing director, GTI Securities Limited, Mr. Tunde Oyekunle, said the rebasing of the GDP and the emergence of Nigeria as the largest economy in Africa will boost the nation’s economic outlook and fuel economic activities, which may impact performance of quoted stocks positively.
    According to him, more impressive results and dividend payouts by some quoted companies are expected to boost market performance in the second quarter. This would be marginally supported by expected growth in first quarter unaudited results.
    He noted that the momentum around SEPLAT, the first indigenous upstream oil company to be listed, could create a spark in the second quarter, drawing investors’ attention to other potentials.
    “We are optimist that the passage of the 2014 Budget and other reforms will enhance market performance in the next quarter, though at a slower rate since the foreign reserve is still on the decline while foreign portfolio investors remain wary of new risks,” Oyekunle said.
    Analysts at FSDH Securities advised investors to diversify their equities portfolios to take on additional sectors in the upstream oil and gas subsector while maintaining long positions in banking stocks
    Analysts at GTI Securities outlined the key sectors that may herald market performance in the remaining months of the year to include power, construction, oil and gas and banking sectors.
    Analysts noted that the positive reforms in the mortgage industry which has seen the creation of the Nigerian Mortgage Refinancing Company to create liquidity by providing access to cheap funds will drive a lot of building activities and boost the construction and building material sector.
    “The huge dependence of the economy on the oil and gas sector makes a compelling case for it. Despite all the unresolved issues in the sector, the economic relevance of the product makes the sector one to watch out for in the rest of 2014,” analysts stated.
    They noted that contrary to market insinuations, the recent results of a good number of banks have shown that they were not much affected by the increased public sector cash reserve requirement (CRR).
    “We are much enthusiastic on the banks with strong fundamentals and rich dividend history,” analysts stated.
    Analysts at FDC pointed out that as the stock market is currently in the bear territory, value investors will target perceived undervalued stock to hunt for good bargains during the second quarter.
    “In the interim, the market would depend on positive earnings release as local investors look for bargains on cheaper prices. Earnings will provide a guide; domestic retail investors are important to the outlook,” analysts at CBO Capital stated.
    The performance of the Nigerian equities market was largely bearish during the first quarter of the year. In January, February and March, the market consistently recorded losses of 1.8 per cent, 2.5 per cent and 2.0 per cent respectively. This was in sharp contrast to the corresponding period of 2013 when the market returned about 17.7 per cent in the first three months. In terms of activities, the average daily volume of transactions of 380 million units for the first quarter of 2014 was also lower than 512 million units in the corresponding period of 2013.
    The All Share Index (ASI), the benchmark index at the Nigerian Stock Exchange (NSE), closed the quarter with a drop of 6.25 per cent to close at 38,748 points while market capitalization dropped by 5.89 per cent to close at N12.45 Trillion. Total market volume for the quarter also fell by 26 per cent at 22.83 billion while total market value rose marginally by 6.3 per cent to close at N269.4 billion.