The Nation Newspaper

Tag: industry

  • Boost for tomato industry

    To boost food  production, the  Department  For  International  Development(DFID) has partnerede  farmers to improve  tomato cultivation and post-harvest losses.

    The Intervention Manager, GEMS4, a United Kingdom backed  Project , Mr. Richard Ogundele, announced  this  at a workshop for farmers in Kaduna.

    He noted that the issue of post-harvest losses, which range from 30 to 40 percent in the case of tomato, has been a source of worry to most farmers.

    He  said  farmers   produce large quantities of tomatoes annually but suffer huge post-harvest losses especially during the major harvesting season.

    Ogundele added  that  the  adoption of the proposed solutions of the project by the stakeholders will reduce the loss of produce from 40  per cent  to five per cent , as well as drive capacity building in good handling practices(GHP) and improve supply chain operations.

    The  other issue  is  to   enable farmers  to have a ready market for their produce to spare them the ordeal they normally go through after harvesting the produce.

    He was optimistic that the project when completed will provide jobs for the youth and also reduce poverty.

    Akin to the ones earlier held, the workshop was developed to enlighten stakeholders on the potential economic benefits of  tackling the existing challenges faced by the perishable produce sector which currently results in 40% loss of produce in transit. Key features of the workshop include the proposal of business solutions, exposure to Good Handling Practices (GHP), capacity building opportunities, discussion on the use of multi-purpose crates to curtail loss and the inclusion of women to drive empowerment through the provision of supply-support services.The cross section of stakeholders which included representatives of the Federal Ministry of Agriculture (Horticulture unit), Bank of Agriculture (BOA), CBN/NIRSAL, Jaiz Bank, Dizengoff, as well as tomato and other perishable produce dealers and dealer associations expressed satisfaction at the quality information made available by the resource persons.

  • Ebola: Counting losses in tourism industry

    Ebola: Counting losses in tourism industry

    The Ebola Virus Disease (EVD) may have been stamped out of the country, but it’s ripple effects are taking a huge toll on the businesses related to tourism and hospitality. OKORIE UGURU reports.

    There was an air of euphoria and sighs of relief when the World Health Organisation (WHO) certified Nigeria Ebola Virous Disease (EVD) free last September. This was after the mandatory 21-day waiting period to see if the disease, which was imported into the country from Liberia, would resurface.

    While Nigeria battled the disease from July through August and September, the industry most hit, negatively, by the Ebola outbreak, was the tourism and hospitality industry. Thousands of foreign tourists, mostly on business, left the country. They left behind thousands of empty bed spaces. Hotels also had cancellations in their event centres of programmes booked months earlier. Occupancy rate for hotels in Lagos, which hitherto had hovered between 75 to 90 per cent, for example, nosedived to about 15 per cent.  Some even went lower than that.  So, the announcement by WHO was like a kiss of life for the industry.

    The tourism industry was not spared. Many tourism programme had to be either cancelled or postponed. The annual  Akwaaba International Tourism Fair held in Lagos last month  was almost cancelled but for the doggedness of its organisers. Initially, about 20 countries were billed to attend the fair, but at the end of the day, only Kenya, Rwanda, South Africa and Ethiopia participated. The organiser of the fair, Mr. Ikechi Uko, said at the peak of the crisis when countries started canceling their participations, he ended up being on admission at the hospital, having expended so much fund into the project. He said it was a miracle that the event survived the crisis. But he had to reduce the size of the fairground due to the cancellations.

     

    Post Ebola business environment

     

    Ordinarily, the clean bill of health given by the WHO should have signaled the return to business normalcy. But many expatriate investors and businessmen, who left the country in a hurry, are not in keen about returning. They are mindful of Liberia, Sierra Leone and Guinea that are still battling with the disease. They constitute the bulk of business for most branded hotels and top local hospitality outfits in the country. That is why top brands in the industry are passing through difficult times. Considering the fact that most costs in running a hotel are fixed with or without guests, the hotels are incurring enormous cost to keep their hotels open. The fear is that if the situation did not normalise in the next couple of months, many hotels will close down pushing thousands of people into the labour market. The grim reality is that if the situation does not improve, many hotel workers would be thrown into the labour market.

     

    Long-term effect of the Ebola   

    crisis on hospitality industry

     

    Since 2008, Nigeria has seen a steady influx of top hospitality brands into the country.

    Before then, the only top international hospitality brands were Starwood Hospitality Group’s Sheraton and Le Meridian and Hilton (which later pulled out) and then the Protea group of hotels from South Africa.

    However, between 2008 and now, the industry has witnessed an explosion in  international hospitality  brands making in-road into the country. They include Four-Point by Sheraton; Southern Sun; African Sun; Radisson Blue; Marriot; Golden Tulip; Ibis; Luxury Collections; Swiss group and many others.  It is no secret that the growth in the hospitality industry was helped by the Arab Spring. If the Ebola crisis is not tackled, all these gains may be lost.

    The Managing Director of Swiss Hotel group, West Africa, Dr. Wasiu Babalola, explained the co-relation: “Let’s look at Arab uprising as an example. Leaders of about two or three countries were removed because of the Arab Spring, but are they steady? If you look at it, most investors moved their business because they thought it will be a short thing, it became long and we don’t know when it is going to stop.

    “As business investors, they need to make money, so they moved practically all their events out of North Africa to sub-Sahara, especially West Africa. Those guys are here and they are comfortable, even when the crisis was over, they did not go back. When you look at a research that was done this year, as at three years ago, about three countries in North Africa (Egypt, Morocco, and Libya) had about 50 per cent of hotel development in Africa, and then Nigeria was ranked fourth in hotel development. But as at 2014, Nigeria is accounting for about 48 per cent of developments in Africa, that is based on signed contracts and so on while Egypt is far below. It means some of the investments that were planned for Egypt two years ago had to be moved away, and the same thing with this Ebola crisis. If we don’t try to build the confidence in the populace, investors and foreign travelers, they will look elsewhere.”

    The attraction to Nigeria is the huge population, the steady economic growth, the oil money and to, a certain extent, Nigeria has become very popular for international conference tourism. Unfortunately, all these are evaporating into thin air as the Nigerian hospitality industry battles various problems. For them, the issue of safety has made profitability to pale into insignificance.

    The Managing Director of HSSL Global, Nigeria’s first indigenous hospitality management group, Ayo Olowoporoku, put it thus: “This year has been challenging as a result of the Ebola outbreak. It has adversely affected business. Most of the people that use hotels come from other countries.

    “They come by air, and if airlines are affected,  it affects the industry. Ebola has affected travel generally.  I, personally, have lost businesses, cancellations of reservations and so on, because companies cannot risk convening people in a venue. They don’t want to risk it. Even transient customers are refusing to come to hotels or places where they know they will meet with a lot of people. Everybody is running away. Hotels depend on social lives and ability of the people. We have been adversely affected.”

    Babalola  added his voice: “The Ebola crisis has actually affected the entire hospitality, tourism and leisure industry, not only in Nigeria, but all over West Africa. We are only fortunate that ours has been wiped out; we have a government that is pro-active to some extent.

    “Ebola has affected the hospitality business directly, and possibly the tourism and leisure industry indirectly. Presently, most hotels are experiencing the worse case, even worse than the world recession. It has been recorded that even during global recession, when all other economies were reducing prices, Nigerian hotels were increasing prices. This is a kind of global epidemic that has actually affected hotel industry seriously.  We are currently experiencing occupancy at the lowest ebb; we, the investors, are having terrible cash flow situations.

    “There is no confidence anymore in the industry as it is. This has shown to me that customers value their safety. Safety is now a core, and that is the message they have passed across that Ebola is a safety issue and customers are particular about their safety.” When asked if the local market has also been affected, he said: “I can say it is both ends. When Ebola was still animal to man transmission, it was still a bit manageable, but when it became human to human…the hospitality business is about human beings, which is giving service to human beings, it became a very serious problem for the industry.

    “You can see how parents revolted when government announced that schools should resume, they said no, we won’t. We know also people that took their children out of the country, saying whenever they get back, the children will continue with their schooling. Hospitality is human driven, not technology driven, you have to make contacts with human beings, because of that most of the foreign clientele had to leave. Even the local market, people said this is not the right time to organise any event, any retreat or anything.

    “So, the corporate client that would have even sustained our economy is not even coming out because people would say Ebola is everywhere, we don’t even know who is carrying Ebola. It is not written on anybody’s face. That is why it is everywhere, the local market retreated into its shell and the international travelers are not looking at our way. That is where the government needs to start looking at the post Ebola effect which will be tougher than the Ebola crisis itself.”

    So, how has the industry been coping with the dwindling revenue and cash flow as a result of Ebola?  Most top hospitality outfits in the country are finding it difficult  paying salaries of their workers. As at middle of last month, most of the hotels have not paid their workers September salaries. One of the leading non-branded hotels in Lagos based in Victoria Island has laid off all its auxiliary staff. There are threats that some workers would be laid off if the problem continues.

    “It is so bad that most operators are making less than one-third of what they used to make, meanwhile the cost of doing business is still the same. We still need to run diesel and so on. At a point, the investor would need to make decision: which cost do I have control over? The first thing that comes to mind would be staff. The second thing that comes to mind is that let’s turn it to bread and breakfast hotel.

    “We start sacking all the food and beverages department. As investors, there are options. If the government would allow us to get to that option, they are going to get a long-term problem on their hands, because they will start fretting where do we get jobs. It does not only affect the people we sack. Our third party suppliers will sack some people because the capacity for demand is coming down.”

    Some of them complained about the issue of cash flow as a result of this low occupancy rate, they are asking for incentives like tax waivers for them to recoup some of the money they are losing.

    However, Lagos State Commisoner for Tourism and Inter-governmental Relations, Mr. Disun Holloway said no: “there are no plans to that effect”. Adding: “We’ve not been approached with such request and we meet with them regularly. There are other things that will happen. The state government cannot, any time something happens in an industry, begins tax breaks and things like that. We quite appreciate what has happened in the industry and we will do our best to ensure that the period that they are going through does not turn into a period of massive unemployment. We are glad that, as at now, the hotel occupancy rate has begun to go up. So, we hope it will continue.”

     

    Wooing back tourists

     

    The hotels say they have not been sitting and waiting for their guests to return, rather they have been pro-active in wooing them back; telling them that Ebola has been wiped out of Nigeria. According to the Deputy General Manager of Southern Sun, Ikoyi, Mr. Cliff Shiridzinody, efforts to bring back guests would take at least, three months before yeilding results.

    “You know it is not going to take just the next day for people to come. The damage was done. We are talking of health issues here, it will take three or four months for people to come. But what we have done is that we have taken all the cuts from the newspapers and e-mail them to the travel agents outside Nigeria and say this is what is happening in Nigeria. So, we are sending the cuts from all the newspapers to corporate organisations and travel agents in South Africa, because most of our businesses come from there, so that they can know the situation. But it is not uhuru yet, it is not going to be tomorrow, no, it will take long for the industry to stabilise again.

    “When the news of WHO clearance came out, our head office in Dubai started sending out information to places where we source our market that Nigeria is Ebola free so that they can bring back the clients that we lost,” Shiridzinody said.

    To get the industry back to its feet, according to Babalola, there is need for confidence building.  “Building confidence to me is in three ways: we have the short, medium and long term. The short term has to be done by the government, which is two things. One needs to work with the private sector and internationally recognised institutes, such as the Institute of Hospitality, to do health and safety certification of our hospitality units.

    “It is all about confirming to the world that our hotels are free, they are doing personal hygiene, food hygiene, and a certificate being displayed so that everybody will know that they have done this thing. The government needs also to go back to the media and make noise on a daily basis that Nigeria is Ebola free.

    “I went to Google to get the names of Ebola country, Nigeria’s name was among, they did not even say Sierra Leone and other places, because that is not the market for the press. Nigeria is the most populous black nation on earth, so it goes beyond October 1st announcement by the President thanking everybody. No, the president, the governors and everybody needs to, on daily basis, tell the whole world that they are  free to do their business in Nigeria without fear of any contagious disease, even beyond Ebola.

    “We should also start talking about other things beyond Ebola. It is building confidence in the consumers and investors so that they don’t find a way to move their fund because if investors don’t get their returns, everybody has an exit strategy, they will move. So, for us to guard against it, the government needs to do that. Now, once you are making noise that Nigeria is Ebola free, talk to both the print and electronic media. Put it on the social media and foreign magazines; let’s do a campaign that we are Ebola free nation. This is a campaign the government can undertake for just three months and we will achieve result.  While government is doing that, it will generate some level of demands. The local demands will get excited to sustain the industry pending when the big funding will come. You would remember that WAEC does their marking in Lagos. West African Surgeons also use hotels in Lagos.

    “All these West African examination bodies come to Nigeria for their programmes. Since Ebola, all of them have moved out. So, if we don’t quickly do this, they may get comfortable wherever they are and may not come back. So, we need to quickly do that. That is in the short term.”

    For the medium term solution, the industry according to Babalola, needs to look at the investors, who are crying for help, but not crying aloud because they still hope that normalcy would return. “But I pray it doesn’t get to the next two to three months. Probably the signal the government will see would be retrenchment of workers,” he said. The industry, he said, has been greatly affected by the stigma from the Ebola Virus Disease as some hotels that have suffered low patronage have begun to lay off some of their workers.

    “Presently in the industry, we know of some of our colleagues that have laid off their temporary staff. They are keeping minimal staff; the basic workers, because patronage had dropped ridiculously in Lagos particularly, to between 20 to 30 per cent. Even some unbranded hotels are experiencing less than 10 per cent drop in patronage. It is so bad that most operators are making less than one-third of what they used to make, meanwhile the cost of doing business is still the same,” he said.

     

  • Oputu, others make case for vibrant fast food industry

    THE nation’s hitherto burgeoning fast food industry, now experiencing a lull, has the potential to expand if well harnessed. This was the submission of a cross-section of experts, who attempted a prognosis of the quick service industry.

    The occasion was at a public forum at the instance of the Association of Fast Food Confectioners of Nigeria (AFFCON) at its second annual national conference in Lagos.

    The conference tagged: ‘Food Industry in Nigeria: Challenges and Opportunities’, had the former Managing Director of Bank of Industry, Ms Evelyn Oputu, as guest speaker.

    Oputu, who spoke against the backdrop of the opportunities in the sector, challenged the fast food industry to take charge of affairs in their value chain, noting that waiting for the government to solve the problems in the system could be an endless effort.

    According to Oputu, AFFCON has to strengthen its value chain by putting the smallholders, who supply food, grains, vegetables, oil, spices, and other food ingredients into cooperatives, so that they can be more efficient, cost-effective and productive.

    She noted that the customers do not care about all the problems of high cost of materials and production facing the local entrepreneur. “The customer is only concerned about getting quality at the best price, on time and in the right place. Since the cost of production in Asia is low, it is usually very difficult competing, and the customer does not care the nationality of the brand that offers the best product at the best price,” she said.

    She, therefore, advised that the customer should be met at a deeper level that would offer him value and satisfaction.

    Twenty-five per cent of the fertile land, according to Oputu, is in Africa. “Yet we produce 10 per cent of the food needs of the world. That is unacceptable. The person, who will grow is the person who will grab the opportunities in the system. Agriculture has become a business. Nigeria is full of opportunities. We have the land, the people, and our people are lazy,” she said.

    “These three factors make our country a place to be tapped. Those who are outside see what we don’t see. While we grumble about the difficulties in the system, they see the opportunities and tap into them. How can one explain the fact of one seeing Ijebu garri in London imported from South America, or Nigerian yam imported from Ghana?” she asked.

    Earlier, in her welcome address, AFFCON President, Mrs Bose Ayeni, noted that Nigeria’s rebased economy in April this year, which saw her GDP leaped from $262 billion to $510 billion to become the biggest in Africa and the 26th in the world, is a testimony that in spite of the huge challenges Nigeria is grappling with, Nigeria’s economy is a goldmine waiting to be tapped.

    Ayeni explained the contribution of the fast food industry to the nation’s economy saying: “The Nigerian fast food industry is a significant contributor to the Nigerian economy, with estimated annual revenue of N200 billion and taxes in excess of a billion naira. It also collectively provides employment for over 500,000 people at the processing and retailing levels.”

    AFFCON, she said, is contributing to the reduction of unemployment, a focal point of the government. The figure, according to her, can grow significantly given the right environment for businesses to thrive.

    “Our food sector is dominated by some 150 small to medium-sized indigenous brands with over 800 outlets/restaurants spread across Nigeria.  Small and medium scale enterprises are the bedrock of economic growth. This has been demonstrated in developed and developing economies in the West and in Asia. Many of the small local players, who operate at the neighbourhood level, also have potentials to become big, given the right environment to thrive,” she said.

    Speaking on the growth in urbanisation and its effect, Ayeni noted: “Globally, we are living through the largest wave of urbanisation in history.  Urban population, being more prosperous, aided by the steady decline in poverty arising from economic growth, will give rise to a greatly expanded consumers group. We, as operators, must understand the nature of this expanding consumer group. In Nigeria, they are largely youthful and culturally diverse. We must understand the strategies required to reach them.”

    She also stressed the importance of the social media in today’s business, saying: “Between 2012 and 2013, total global social media audience increased from 1.47billion to 1.73billion. With 25 per cent of the population now online using social networks, we cannot be left out of the opportunities that abound in tapping into the use of social tools for business values.”

     

  • ‘Shipping industry remains a cash cow’

    ‘Shipping industry remains a cash cow’

    The shipping industry has the potential to boost the nation’s gross domestic product far above the crude oil if well harnessed.

    Making this submission is Mr. Temisan Omatseye, a former Director-General of the Nigerian Maritime Administration and Safety Agency (NIMASA) and the Nigeria Ship owners’ Association (NISA) presidential aspirant.

    Speaking against the backdrop of the parlous state of the shipping sub-sector in the last few decades, the Chairman of Polmaz Limited, said: “Snail pace is even better. Do you know what, this industry can turn around in just 24 months? But the administration has to be right, ship owners has to be ready, I think the policies I have which I already started running by the agency and the government are in line. If I am able to get there, I know the way money moves.”

    Omatseye who heaped the blame for the diminishing fortunes if the sector on bad policies, said: “It was just a silly policy by CBN, whereby they said that you cannot apply for the letter of credit unless the vessels come from abroad. What that simply does is that, mother vessels that use to come to Lagos is now stopping at Lome. All STS operation is done by Lome mother vessels that go to Lome and pays a fee to the Togolese government. In addition to that, most of those cargoes are actually coming to Nigeria, so what we now do is send vessels as daughter vessels to the mother vessel to pick the cargoes and that costs money.

    “If that mother vessel has berthed in Nigeria, it would have been cheaper for daughter vessel to take cargoes from Lagos to Port Harcourt than from Lome to Port Harcourt as obtained today. Government is now losing money by sending daughter vessels to Lome to bring cargo to either Lagos or Port Harcourt. Mother vessel will pay, daughter vessel will pay, and cabotage will collect. That is the kind of money we are losing.

    “If you go to Lome now you will see like over 100 vessels there, Lagos is about 143, so tell what kind of business is Lome doing that is having so much vessels anchoring there whereas it is not happening in Lagos.”

    On the way forward, the former NIMASA boss said: “We need to go and sit down with CBN and explain that to them. Also, why is CBN giving sector funds to Aviation and not to Maritime? If a plane crashes, because of the CNN News, they will now give all airline operators something but if a ship sinks with crude oil or products the impact of that is 25-30 years. Look at what happened with Exxon or NNPC when their pipe leaks. So it is more in the interest of the government to fund the Maritime Industry even as it relates to safety.”

  • Investor seeks better incentives for printing industry

    Investor seeks better incentives for printing industry

    The chairman of Academy Press Plc, Chief Simeon Olusola Oguntimehin, has called for better incentives for the printing industry to remain afloat, noting that the company generated a revenue worth of N2.347billion in the year 2014 as against revenue in the previous year which was N2.286billion.

    Oguntimehin made the declaration during the company’s 50th Annual General Meeting, held at the company’s premises in Lagos.

    He lamented that, the greatest threat to the survival of the printing industry in Nigeria is the importation of print products from abroad for Nigerian consumption, stressing that it has continued to affect the skills and capacity in the country.

    “The operating import tariff regime which made importation to be more economically viable for print product buyers to the detriment of local partners has been responsible for this.

    “We therefore wish to commend government on its recent pronouncement on measures to encourage industrialization and job creation by amending tariffs that have constituted barriers to these objectives.

    We can only hope that the steps being taken in this direction will be sustained to the benefit of the printing industry,” he said.

    He maintained that the printing industry in the country has demonstrated that it can sustain the economy if the enabling condition is created.

  • ‘Nigeria must develop its steel industry’

    The National Association of Metallurgical and Materials Engineering Students (NAMMES), University of Nigeria, Nsukka, has organised a public lecture on challenges of the steel sector.

    The event, with the theme: “The practice of metallurgical and materials engineering: effects on Nigeria’s industrialisation bid” was held at the new Engineering Lecture Theatre.

    It was attended, among others, by President of the Nigeria Metallurgical Society (NMS) Prof John Ade Ajayi and Director of Scientific Equipment Development Institute, Enugu (SEDI) Prof Christian Nwajagu.

    In his lecture titled: “Sustainable iron and steel production in Nigeria: the techno-economic backbone of the national transformation agenda”, Prof. Ajayi said though not all G-8 countries produce oil like Nigeria, they are top iron and steel producers.

    “The developing economics such as Brazil, China, India, Mexico, South Africa, South Korea and Taiwan have all embraced this sector as a strategic weapon to bolster the fortunes of their economies,” he stated.

    He described the iron and steel industries of any nation as a core industry that could produce a spectrum of products for consumers, adding that the sector had the potential to become one of the highest employers of labour in the country.

    Lamenting the poor state of the sector, he warned: “With confirmed mass importation of iron and steel products in Nigeria instead of producing our own, the following are bound to happen: more building will collapse, more graduates will be unemployed, more brain drain will take place; and MDGs vision 20:20 will remain a mirage and the transformation agenda of the federal government will be like Alice in the wonder land,” he said.

    The second lecturer, Prof Christian Nwajagu, emphasised the need to revive the metallurgical and materials sector to achieve technological development.

    Prof Nwajagu, who was represented by the head of department, Machine Building section, Mr C.N. Ifediegwu, said the development gap in the country could be filled by the development of the metallurgical sector.

    In his address, President of the group, Kinsley Amatanweze, 500-Level, said the summit was held to contribute to the industrialisation efforts of the nation, adding that the steel sector must be revamped to drive national development.

    Highlights of the event included the presentation of awards to the lecturers.  Other awardees were the Commissioner for Works and Infrastructure, Enugu State, Engr Godwin Madueke; Managing Director of Funds Associates Limited, Prince Matthew Agu; Chairman of Simplicity Industries limited, Godwin Jioke and former Chairman of Post-primary School Management Board, Enugu State, Prince Alex Akpa.

  • ‘Industry risk for securities firms generally higher than banks”

    Securities firms generally have higher industry risk than traditional banks that focus on commercial banking and not investment banking, Standard & Poor’s Ratings Services has stated.

    In a report on ongoing efforts to increased rating criteria for securities firms, Standard & Poor’s (S & P) outlined that the main reasons for the higher level of risks in the securities business are typically because of securities firms’ lower level of regulatory oversight, lack of access to central bank funding or other ongoing support compared with prudentially regulated banks, and higher competitive risk.

    The report generally described securities firms to include firms that engaged in a wide variety of securities-related businesses, most notably retail and institutional securities brokerage, debt and equity underwriting, mergers and acquisitions and corporate restructuring advisory, securities sales and trading, and principal investing and proprietary trading.

    According to the report, securities firms’ financial performance is typically more volatile than traditional banks because their often less-diversified businesses are more subject to prevailing capital markets and competitive conditions.

    “Securities firms’ economic and funding risks are typically higher in countries with structurally less liquid or more volatile capital markets. In countries with historically more liquid and less volatile markets, the sector is still more exposed to market downturns and economic conditions. For instance, an uncertain economic outlook that tempers corporate activity and investors’ risk tolerances has historically contributed to greater earnings volatility for securities firms than traditional banks,” S & P stated.

    The report noted that revenue volatility hinders the ability to generate stable and recurring earnings sufficient to offset risk of capital losses due to trading activities adding that excessive leverage and risk or large holdings of illiquid assets further increase vulnerability to confidence erosion, potentially large losses, and liquidity constraints during times of financial stress.

    The report pointed out that the industry risks for securities firms are exacerbated when securities firms use excessive short-term wholesale funding, leverage, or holdings of less liquid, higher risk assets, as investment banks demonstrated during the financial crisis.

    “In times of financial stress, we believe that such a funding profile renders a firm more vulnerable to sudden confidence erosion and liquidity constraints than retail deposit-funded institutions, and such a portfolio exposes the firm to potentially large and rapid asset write-downs. Conversely, those firms with largely agency business models; limited leverage, principal credit, and market risk; and mostly recurring revenue can potentially overcome their higher industry risk to be rated as high or higher than the anchor of a traditional bank. However, we anticipate that only a few independent securities firms are likely to achieve this,” the report stated.

    The report outlined that the past 20 years have provided examples of how the securities firms sector’s cyclicality has played out. The most severe recent downturn in the securities industry began in 2007, before the downturn in the general economy, and started to recover sooner–as the surge in fixed-income trading revenues and improved results in equities trading, helped by the rebound in many stock markets, in 2009 attest. The downturn of most of the United States securities industry in 2001 and in many Asian countries in 1997 coincided with general recessions. However, investment banks were uniquely affected by the sharp rise in interest rates in 1994, the Russian default, and the industry rescue of the long-term capital management hedge fund in 1998, while retail and other securities firms in many markets were much less affected by these events.

    “The perils of migrating from distributors of securities to large holders of risk were made evident in the massive losses many investment banks sustained during the most recent crisis. The experience of the large US independent investment banks in 2008 is an extreme example of this and shows the high volatility and confidence sensitivity that investment banking can be subject to. By the end of that year, the five formerly independent investment banks, which were among the largest in the world, had either converted to bank holding companies, failed, or were acquired by a larger banking group,” the report noted.

    The report estimated that for countries with mature securities industries, the peak-to-trough decline in revenue in the 2006-2009 cycle was typically about 50 per cent more severe for the securities industry than it was for banks.

    S & P stated that the competitive dynamics of securities firms are frequently weaker than those of traditional banks given their typically less diversified businesses, less stable revenue, and higher vulnerability to competition as new companies enter the market.

    “In addition, since securities firms are both buying and selling, securities firms run the risk of real or perceived conflicts of interest that may raise litigation risks and, if poorly managed, can damage a firm’s franchise and revenue streams. In particular, we view the competitive dynamics of investment banking as unfavorable given the overcapacity and incentive to increase risk that emerges as part of the business cycle. Securities firms’ investment banking and trading activities can deliver attractive headline returns, but as a cycle turns, firms tend to take on more risk to maintain market shares and revenue,” the report stated.

    It noted that securities firms are often at the cutting edge of financial innovations with new products that make risk management more difficult and dependent on mathematical models and assumptions adding that this complexity, coupled with the myriad transactions firms often enter into and the need for them to protect proprietary trading strategies, may result in a lack of transparency from the perspective of analysts and investors, which can exacerbate the market’s reaction to surprises.

    According to the report, where securities firms do not have a central bank to act as a “lender of last resort,” it increases their funding risk relative to banks. Lack of such a liquidity backstop increases the confidence sensitivity of securities firms’ creditors, particularly in times of systemic stress. When the market loses confidence, collateral requirements can increase as counterparties demand credit protection, revenue can dry up if customers walk away, and access to wholesale funding can become more expensive as investors charge a higher risk premium–or access can disappear if they refuse to take the firm’s credit risk.

    “For better or worse, lack of central bank access makes securities firms more dependent on local capital markets, banks, and any government or industry funding mechanisms. The extent to which securities firms fund themselves in the organized capital markets is higher than that of the average bank, which makes them more vulnerable to local securities market liquidity, particularly short-term funding dislocations,” S & P stated.

     

  • Industry boss pledges constructive engagement with stakeholders

    From the newly elected chairman, Committee of E-banking Industry Heads (CeBIH), Mr.  Tunde Kuponiyi has come a pledge to stakeholders:  ‘There is need for constructive engagement with stakeholders to facilitate growth of electronic payment in the country.’

    Speaking shortly after his election, Kuponiyi, who is also the Head of E-banking Ecobank Plc, appreciated the immediate executive for working very hard to project the image of and advance the cause of CEBIH. He also appreciated all members for the trust reposed in him and his team to lead the committee.

    He promised the new executive will continue to build on the good foundation laid by the outgoing executive and earn more recognition for CEBIH.  He said the team will also embrace advocacy which is the focal point of CEBIH and also engage all industry stakeholders constructively.  He thereafter appealed to all members for their cooperation with the new executive.

    Also speaking, the immediate Chairman of CeBIH, and former Head of E-Channels, Skye Bank, Mr. Chuks Iku appreciated all members of the group for their cooperation which led to the success of the executive team he led.

    The newly elected executives of CeBIH comprise Tunde Kuponiyi of Ecobank as Chairman, Dele Adeyinka of Wema Bank as Vice- Chairman and Fatai Amoo of Sterling Bank as the Secretary. Others are Bob Nwojo of First Bank as Asst. Secretary, Simi Osinuga of GTBank as Treasurer, Juliet Nwanguma of Zenith as Financial Secretary, Ernest Obi of Keystone Bank as Publicity Secretary, Ejikeme Obiano of Heritage Bank as Asst. Publicity Secretary,

    Benedict Anyalekenya of Unity Bank as Policy Review Secretary and Adeleke Adekoya of Access Bank as Internal Auditor.

  • Driving a robust retail industry

    Driving a robust retail industry

    Nigeria’s retail market is evolving. The Retail Council of Nigeria (RCN) is making efforts to formalise the market and make it safe to enhance Nigerians’ shopping experience in line with international best practices, reports TONIA ‘DIYAN.

    Organised retail business has come to stay. The hitherto unorganised method of retailing is fast becoming more structured. Before the advent of the Retail Council of Nigeria (RCN), it was difficult to record and track transactions and investment in infrastructure. Retail business in Nigeria is steadily moving to an organised platform thatpromises a major turnaround in the fortunes of operators. Much of that turnaround in the industry, which compfises supermarkets, department stores, stand-alone stores, shopping malls/hypermarkets, Mom & Pop stores, street vendors, and the weekly markets, is driven by the council.

    Since its debut in October last year, RCN has been working to ensure that retail business is done in compliance with international standard. Most countries have moved away from the open market system where there is no such process. In an organised retail market, there is audit of suppliers/manufacturers and customer service is high. Besides, investment in infrastructure is high with many windows of employment. There is availability of products and services in an organised retail, a feature which is usually restricted in an open market trade.

    Also, the RCN’s intervention in evolving an organised retail business has since ensured that sourcing of raw materials and finished goods is through international and national sources with a complete regulation of products and services. Today, there is high compliance to standard specification of products and services and when it comes to quality check and assurance, it is always comprehensive with a complete information on products and services. Besides, counterfeiting is strictly controlled and  monitored when a business is organised. By organising the retail business, RCN has helped improve the efficiencies of the value chain, reduce wastage, and increase revenue. This is unlike in the past when governments at all levels  had challenges collecting taxes from the unorganised retail market.

    The successes so far recorded by the Council were not by chance; they were products of well-thought out strategies aimed at repositioning the nation’s retail industry for efficient service delivery. At the launch of the Council in Abuja, last year, Asiwaju Onafowokan, a Member of Board of Trustees of RCN, explained that the body had the target of formulating, facilitating, and propagating retail business practices and processes in line with international best practices. This, he believes, would lead to increased consumption, boost in production, employment generation and ultimately, the growth of the economy.

    Similarly, Haresh Keswani, another Member of Board of RCN, also said organised retail is  related to economic growth. Hear him: “The United States and Britain have organised retail, which contributes over 80 per cent each to economic growth. In Japan and India, the organised retail market contributes about 66 per cent and 10 per cent to economic growth, respectively. But Nigeria receives only three per cent due to unorganised retail market.” He however, said that though Nigeria has the smallest percentage of retail, the Council aims at liaising and co-operating with the government and regulatory authorities for ease of implementation, training and operation in the retail industry.

    Already, the organised retail strategy, The Nation Shopping learnt, is beginning to promote modern retailing in Nigeria and contribute to the Gross Domestic Product (GDP). It is facilitating the development of associated/allied sectors of the economy, providing a platform for networking as well as disseminating useful information and knowledge to members and the public to make them educated and be aware of what the entire system entails. The council said it is also creating a database of members and that it encourages members to adopt the right values, imbibe international best practices, wholesome practices and embrace good corporate governance in the conduct of their businesses.

    In doing these, The Nation Shopping learnt that the Council is hoping to replicate in Nigeria the success of more organised and robust retail markets in more developed countries of the world where the platform is contributing to economic growth and development.For instance, experts say that organised retail contributes 27 per cent to the global GDP. Also, across the globe, retail employ 17.1 per cent of the workable population. In the US alone, organised retail market accounts for 14 per cent of employment, while 20 per cent of the US economy is said to be supported by retail.

    Sectorally, the contributions of organised retail are also telling. For instance, it has impacted the finance sector, as banks are now interested in supporting the retail business. The belief is that when there is increase in organised retail, there will automatically be an increase in consumer spend and finance. An increase in organised retail brings about increase in capital investment and project finance. It also provides Small and Medium Enterprise (SME) finance through supply chain contracts with retailers.

    The manufacturing sector is not left out. Organised retail increases the presence of brands in all categories. When new products and concepts are launched to test the markets, it leads to eventually setting up local manufacturing facilities in the country. In other words, the country’s manufacturing infrastructure improves as technology transfer is facilitated.

    Much of the transformation in Nigeria’s retail industry is driven by the revolution in the Information and Communications Technology (ICT) industry. The ICT industry has emerged, arguably, the backbone of organised retail. The hardware and software aspect of the IT industry has since caused a boom in the retail business. Increase  in telecoms and IT infrastructure has facilitated a cashless economy where people buy and sell without carrying cash.

    The far-reaching impact of organised retail, experts say, is anchored on the fact that the retail market is not about shops only, but every company that has relationship with consumers, including banks, telecommunications, manufacturing, tourism and consultancy firms. This was why  the Council is determined to create an improved platform for direct interaction with consumers. The Retail Council believes that one sure way to achieve this is by encouraging informal retailers to move to the next level and become formal.

    RCN also operates an open membership system where issues are collectively tabled to the government and to various policy makers for improvement and positive changes. “Organized retail is  helping people think big and start small; it is helping to develop the value chain in the system knowing that value chain entities are SME drivers,” says Kaymu.com boss, Massimiliano Spalazzi.

  • Fast food industry…not so fast anymore

    Fast food industry…not so fast anymore

    With a business model that seemingly scares away investors and mounting cost of doing business, the indigenous Quick Service Restaurant (QSR) is facing trying times. Lack of corporate governance, among others, has  also been identified as another problem unsettling the sector, which was contributing about N200b  annually to the GDP, writes ADEDEJI ADEMIGBUJI

    The cozy ambience of their outlets in strategic locations in major cities across the country, series of marketing promos and the aroma and taste of their pizza, chicken and chips give the impression  that operators in Nigeria’s Quick Service Restaurant (QSR), more popularly called fast food industry, are having a swell time. Far from that. The “all-is-well smile” on the faces of models on their billboards on major highways is actually a façade for an industry in need of help. The sector is, indeed, sitting on the edge of heavy revenue losses and distress.

    A pointer to this emerged a few weeks ago when one of the leading indigenous QSR, Tantalizers, the only locally-owned fast food chain listed on the Nigerian Stock Exchange (NSE), posted a dismal performance in the market. Consequently, the company revealed plans to undertake a sale-and-lease back arrangement on some of its unfettered  assets this quarter, with a view to raising about N1 billion  working capital. This was after it experienced 86 per cent increase in net loss. It lost  N564.82 million last year.

    The company’s audited report and accounts for the year ended December 31, 2013, showed that its turnover dropped from N41.20 billion in 2012 to N3.48 billion in 2013. Gross profit declined from N1.9 billion to N1.56 billion, while operating loss worsened from N243.4 million to N395.54 million. Loss before tax doubled from N263.18 million to N598.45 million. Loss after tax rose from N303.47 million to N564.82 million.

    Apparently worried by the dwindling fortune of the once vibrant and popular fast food chain and determined to turn things around, the Chairman, Tantalizers Plc, Dr. Jaiye Oyedotun, highlighted the new strategic direction of the company. He said the board and the management were working on repositioning the ailing fast foods company following a critical appraisal of its precarious financial and operational health.

    The repositioning is part of a rescue mission to put the company back on the path of profitability.

    “Our quarter one 2014 unaudited result showed a better performance, as the loss trend has reduced from N124 million to N109 million compared with the same period of 2013. We expect the performance improvement to continue as we execute the strategic turnaround programme to get the company back to profitability in 2015,” Dr. Oyedotun said, maintaining that for the  time being, the company would continue to analyse, identify and shut down stores and institutions that continuously make losses.

    Tantalizers is not the only fast food giant whose fortunes have been dwindling. Before Tiger Brand bought equity in the fast food arm of United African Company Nigeria (UACN), Mr Bigg’s, its QSR, was under threat. Even after the intervention, it is not clear whether Mr Bigg’s has returned to the path of profitability, as some of its outlets at some service stations are closing down. For instance, when The Nation visited one of its outlets at a Mobil Filling Station at Adura, Alagbado Lagos, it was closed due to lack of patronage. “We were not making sales and rather than continue to incur overheads, we had to close down, though some other outlets are thriving,” the manager of the outlet who preferred anonymity, told The Nation.

    In 2011, when the sale of 49 per cent stake in UAC’s food division to Tiger Brands (TBS) of South Africa was perfected, the Group Managing Director/CEO, UAC Larry Ettah said: “We are delighted to partner with famous brands in this venture. This is a transformative transaction, which ensures UAC has the necessary strategic partner to unlock the considerable value potential in the QSR landscape, which Mr Bigg’s defined 25 years ago and in which it still maintains a leadership position. UACR will be availed of famous brands’ tested and highly successful brand stewardship to enhance and reinforce the Mr Bigg’s brand market power. This deal further reinforces UACN’s commitment to ensure we collaborate and leverage international partnerships to accelerate our strategic growth and progress.”

    Indeed, the transaction was seen by analysts as a sign of the inherent value in the company whereby the sum of the individual parts of UAC may be seen by investors as greater than the whole. However, Nigeria’s huge market with an estimated 169 million people, and an economy with annual growth rate of 6.8 per cent appear not to have leveraged the fast food giant and the ailing sector generally.

    While the cases of Tantalizers and UACN are easily known because they cannot hide the fact behind the figures as quoted companies, The Nation learnt that other leading QSR are also facing hard times. But it has not always been the case. Some time ago, the sector, according to the Association of Fast Food and Confectioners of Nigeria (AFFCON), an umbrella body of the QSR, was contributing about N200 billion to the Gross Domestic Product (GDP) and paying about N1billion in levies and taxes to various tiers of government. The sector was also a big employer of labour.

    The President of AFFCON and Managing Director of Tantalizers, Mrs. Bose Ayeni , disclosed that the industry employs over 500, 000 workers at processing and retail levels. Driven largely by Nigeria’s mushrooming middle class with high spending power, an increasing expatriate community, as well as consumer spending, the sector attracted global QSR brands, such as KFC, Domino, Nandos and Debonairs Pizza, among others.

    Ayeni said  the sector has a massive growth potential and is dominated by some 100 small-to medium –sized indigenous brands with over 800 outlets spread across the country with potential to become bigger given the right environment.

    But today, the story is different. The Nation learnt that issues of high operating cost arising from lack of critical infrastructure, particularly power, remains a common thread that runs through most businesses in Nigeria, including the QSR sector. Ayeni said that about 30 per cent of the gross profit made by the fast food companies is used to service power supply. She also raised concern over multiplicity of taxes and levies.

    “This is compounded by the overlapping functions of several regulatory agencies. These overlapping functions and a lack of coordination amongst such regulators lead to heavy financial burden on fast food companies,” she said.

    Apart from operational challenges, cost of servicing bank loans remains a major barrier. However, the QSR sector faces peculiar challenges: ownership structure and wrong business model.

    Some leading stock brokers in the sector and marketing communications experts have expressed concerns over the business model deployed by operators in the fast food industry, especially the local investors, noting that it is one of the factors rocking the sector . As the Chief Executive Officer of Domino Pizza Nigeria, Mr. Eric Andre, observed that the industry, which is still young, is bedeviled by ownership structure, which makes it difficult for them to operate and thrive on the capital market.

    The Managing Director of Proshare, Mr. Olufemi Awoyemi perhaps, puts it more succinctly:  “The structure of ownership in the sector in terms of corporate governance is that of ‘My husband and I business’.

    He explained further: “Tasty Fried Chicken is owned by a family, Sweet Sensation is owned by the Kamson, Tantalizers is owned by the Ayeni’s. For many of them, the husband is the Chairman, the wife is the Managing director. So, as you go along, that model will not work to get them listing on the stock market.”

    He lamented that this is despite the fact that “this is a sector that could never go wrong because of how important food is. Patronage is there, is it not ironic that almost all of them are not listed? The problem is the business model.”

    An investment strategist and Founder/Chair, Growing Business Foundation, Mrs. Ndidi Edozue, thinks so too. She said the ownership structure adopted by the players could cause a lucrative business to fail.

    “In terms of corporate governance and corporate structure, the sector is nowhere to be found. The poor  performance of the sector in attracting investors is sometimes an issue of corporate governance bothering on ownership and management style. That will cause even a lucrative business to fail,” she told The Nation.

    The President, Chartered Institute of Stockbrokers, Mr. Mike Itegboje, said  the challenges facing the operators go beyond ownership structure and business model. According to him, mismanagement of fund raised from the market is also an issue.

    “You will observe that Tantalizers raised money from the market just before the melt down. They probably did not invest and manage the proceeds effectively. The result is poor returns. Many failed to render reports as at when due to the market. I am not even sure if they have held AGM (Annual General Meeting) since raising funds from the market,” he  said.

    But, the President of Public Relations Consultants Association of Nigeria (PRCAN), Mr. Chido Nwakanma, canvassed a different position.

    He said the problem is not so much about ownership, but cost of servicing loans borrowed from banks. Nwakanma, who has handled brands’ management for some operators in the sector, said : “Mr. Bigg’s adopted a model called Franchise. Each time it  opens new outlet, it’s not UAC that is funding it. It is the Franchisee who brings his money and given some standards to adhere to.

    So, for Tantalizers, the cost of roll out was huge. If you look at their book you will realise that a lot of challenges emanate from cost of servicing bank loans, which put lots of pressure on the business and not really the operational cost.”

    However, a greater threat to operators in the QSR sector may have been  coming from traditional restaurants, more popularly called, ‘Mama Put’ in local parlance. It is a growing trend, which is changing the face of QSR. The traditional restaurants are fast taking over and sharing the market share of the standard QSR. Some of the operators process local soup from various cultural background, which leaves taste of originality in the mouth of consumers. They offer eba, semovita, pounded yam, Ofada rice, and moin-moin, among others.

    They also serve different kinds of soup such as efo riro, Edika Ikong, oha soup  and so on to lure consumers of standard QSRs. Some of them have also introduced continental/Chinese meals to woo expatriate communities.

    “They are facing competition also from our old ‘Mama Put’. There is one in Port Harcourt that has opened about 30 outlets across the country and they are planning to open more. Again, our informal restaurants are upgrading standards now,” Awoyemi said.

    As if that is not enough cause for concern, many consumers are increasingly becoming conscious of the dangers of eating processed foods, a development that has put the fast food business under threat.

    The fast food industry and its non-stop marketing has been tabbed by many experts as a major player in the obesity and other health epidemic. For instance, a Pediatrician and co-author of a commentary published in the Journal of the American Medical Association (JAMA), David Ludwig, raised questions about whether big food companies can be trusted to help combat obesity.

    For the General Manager, Camry Security, Atiku Kafaru, the proliferation of fast food outlets, including the growing incursion of ‘Mama Put’ outlets, has eroded standards, which in turn, scare investors from risking their money in the sector whether as franchisees or shareholders.

    “A lot of people are coming into this industry and standard has gone down. The issue of franchisee has eroded standard,” he said.

    Awoyemi also cited quality control of taste offering of the QSR, which renders to consumers different taste of the same food from different outlets. He said this raises the issue of quality control, which is also putting off consumers.

    “You will discover that another major problem is in the taste, which is what they are actually selling. The taste of a particular food from the same brand differs from location to location. As a result, there is question about quality control,” he observed.

    With that trend, which has created a perception problem for QSR, Nwakanma said the players must respond to it. He said Tantalizer is the first to introduce African culinary and deserves the credit. “That is growing; the fast food model in Nigeria is different. They are the one that introduced African culinary into fast food, so they blended our local content into what they are offering consumers. They must take credit for it. The QSR in Nigeria is not the standard fast food business you see across the world. Yes, health awareness is growing and people are becoming aware of what they eat. So that sector must respond to that because it’s a perception problem,” he said.

    Despite the challenges faced by the sector, foreign investors have continued to express confidence in the sector, insisting that the opportunities are far from being explored considering the population.

    “The sector is full of opportunities and challenges. It is full of opportunities because Nigeria is a large market and if you bring good quality products, the people will accept it, thereby guaranteeing the success of the business. It is challenging because there are issues of infrastructural deficit such as power, transportation and access to good and quality materials. But for a serious business, Nigeria is surely a place to succeed,” Andre said.

    Andre noted that the QSR industry is young. He said while the latest brand in Africa is KFC, the largest in Nigeria is Mr. Bigg’s.

    “But overall, even if you put all the brands together, what you will have is less than 200 restaurants for 180 million people. So, in comparison, it’s a very, very young industry. A country of 180 million people will generally have something like 10,000 QSR and not 200,” he pointed out.

    Apparently noticing that lack of innovation contributes to the lull in the sector,  telecoms operator Airtel recently stepped in to help operators deploy technology to deepen market penetration. At an inaugural annual national conference of AFFCON, Airtel General Manager, Corporate Small Medium Enterprise and High Value Consumer Sale, Tawa Bolarin, said the telecoms company offered operators in the fast food business opportunities to reduce their fixed cost and add value to their services to customers. The offer, which comes in form of confectioners cost effective communication solutions, which could give added value to their services includes toll free call centres, Close User Group service, Teleconferencing, co-promotion and advertising opportunities and much more.

    She explained that fast food owners can actually outsource some of their services, which they are not necessarily good at, like ICT and telecommunications in order to allow them focus on their primary business and this also helps them avoid operation costs.

    She said: “We at Airtel have services like Close User Group, Wi-fi and other services that can enhance their services and also reduce their cost of operations. The Close User Community, which some are already using, allows users to call another person who works in the same business or company without paying up to N40. You can get a much cheaper service by having everybody in the Close Users Group. We have the 3G high speed Internet, which you can use. You can put a router in your restaurant, like some restaurants have VIP sections. And the fast food owners can make a lot of money from that.”

    Bolarin noted that Airtel could supply and host website for the fast food companies, therefore reducing their worries.

    She added: “This means that the cost of providing this service is much lower than you will otherwise pay for it. And you will be able to reach a lot more people.”

    The Marketing Manager of Sweet Sensation, Yemi Yusuf, said the products came at the right time because cost-effective strategy is a key factor to driving increase in profit that will eventually sustain the business. “A lot of us here will be interested to see how we can use this opportunity. Most of us are familiar with the CUG product, but I   personally tick the one that has to do with co-promotion, which I will like to know more about so that I can use it in marketing,” he said.

    Also commenting on the Airtel business solutions, Jimoh Ademola,  Manager, Lacuisine Fast Food, noted that fast food operators face many challenges, including high cost of operation,  especially running on generator among other issues. Ademola said teleconferencing could be helpful to his company because it would make it easier for him to reach other branches located far away.

    Although, Nigeria is an attractive destination for QSRs and future consumer expenditure is underpinned by a range of key drivers, including higher monthly income levels resulting from GDP expansion, an increase in the minimum wage, and a shift in social class demographics, with the middle class (the business’ core target market) expected to increase to 35 per cent of the population in 2015 compared to 30 per cent in 2009, most investors consider the sector as a risk.

    Notwithstanding, experts are of the view that the deployment of technology to deepen market penetration, coupled with some kind of ownership dilution and adherence to corporate governance, among others, would help stem the slide in the fortunes of the sector.