Power, consumer and industrial goods, and the oil and gas sectors need substantial investments to thrive and galvanise activities in the economy. Investment inflows, banks’ asset-mix are creating hope for renewed economic growth. Analysts spoke during the launch of Meritrade, an on-line stock trading platform by Meristem Securities Limited, in Lagos. COLLINS NWEZE reports.
Reforms in the power sector are expected to trigger an influx of investments both locally and internationally, Managing Director, Meristem Securities, Oluwole Abegunde has said.
He said the World Bank has indicated its interest to invest $1 billion in the power sector. International Finance Corporation, a member of the World Bank, is set to mobilise funds for one of the power generation firms and to support about three power distribution firms.
In addition, the Federal Government has signed an agreement with Chinese firms to build $1.3 billion power plants in the country. Also, General Electric (GE) okayed a $1 billion deal with the Federal Government, starting with $250 million with the balance spread over five years in a multi-model service and manufacturing facility in Rivers State, thus making Nigeria a hub for servicing GE turbine generating machines in Africa.
MTN Nigeria has also obtained $3 billion syndicated loan deal involving 17 Nigerian and seven foreign banks, as part of efforts to enhance its infrastructure and service delivery across the country. Abegunde said with the quantum of investments coming into the country, the impact on GDP from last year will be sizeable and should contribute to shifting the growth curve outwards.
Abegunde said government remains the biggest spender in almost all global economies, and Nigeria is not an exception. For him, the level of spending recorded during the 2011 election would be repeated in the 2015 election year. He said such spending creates huge impact on the money and capital markets, which discerning investors can leverage on.
He explained that from government spending, equities market activities, banking transactions and naira positions are critical in raising the level of activities in the economy.
Govt spending will keep rising
Analysts said government spending would rise ahead of the election year. For instance, the Federal Government consumption expenditure accounted for 26.8 per cent while private consumption expenditure and other components accounted for 50.5 per cent and 22.7 per cent in 2012.
Also, government capital expenditure contributed 2.16 per cent to GDP while the recurrent expenditure contributed 8.2 per cent. The level of the government expenditure has grown by 6.87 per cent over the past five years (2008 to 2012) as against GDP growth of 6.27 per cent over the same period.
“Assessing expenditure figures in 2010 and 2011 (pre-election and election years), we noted increased contribution of government’s expenditure to GDP. In second quarter of 2010, the government’s expenditure contribution to GDP increased by 30.29 per cent on a quarter on quarter basis and 22.55 per cent year-on year,” Abegunde said.
Also, the fourth quarter of 2010 and first quarter of 2011 witnessed significant year-on-year increase of 31.74 per cent and 24.14 per cent as against the usual average year-on-year rise of 0.21 per cent (pre-election period from first quarter of 2009 to first quarter of 2010) and an average year-on-year decrease of -11 per cent (post-election period from fourth quarter of 2011 to fourth quarter of 2012), he said.
Explaining further, he said in second quarter of 2010 and second quarter of 2011, the government expenditure contributed 35.88 per cent and 36.76 per cent to GDP quarterly was 31.48 per cent in pre-election period, 33.03 per cent in election period and 28.09 per cent in post-election period.
He explained that with the imminent 2015 presidential and gubernatorial elections, the same impact will play out in the year as pre-election fiscal releases emerge.
“In proposing a ‘winning’ strategy that delivers alpha, our strategy considers the potential risk inherent within the economic and financial landscape in Nigeria in years ahead owing to the uncertainties around the polity amongst other headwinds,” he said.
Equities market expectations
He said the equities market posted 47.19 per cent, which is the second highest returns in Africa, after Ghana’s 78.9 per cent. Major thrusts of this robust return include strong, though moderate corporate earnings and benefits, strengthened outlook on emerging and global economies as well as news flow on the United States quantitative easing tapering.
He said the sector, consumer goods, industrial goods and oil and gas retained dominance in terms of returns and activities.
He said with recovery in the global economy in sight, attractiveness of the domestic economy and expectation for sustained foreign portfolio investment inflow, with pockets of domestic political concerns and modest equities valuation, “we expect 6.56 per cent return for equities in 2014”.
Abegunde also said myriad of factors, including reduced interest income and increasing operating costs last year, saw the sector record slower earnings growth which stood at 18 per cent as at September, last year, compared to the previous year when earnings growth averaged 100 per cent.
“In our view, we expect banks’ asset-mix to tilt towards treasuries with the burgeoning infrastructure and power sector,” he said.
Abegunde said last year was bad for the agricultural sector when compared with its 2012 performance, as declining commodities’ prices and insecurity in the north affected revenues.
However, he said firms in the sector have made significant strides in cost efficiency projects, which are expected to yield in the year, even as commodities prices are expected to remain moderate. Also, the increased capacity by firms has led to new business lines which should also drive business performance in the year.
Meritrade trading platform
The Meritrade on-line platform with mobile apps will serve as a virtual stockbroking platform, helping users to trade on stocks on the Nigerian Stock Exchange (NSE) from anywhere.
Abegunde said the innovation will offer investors control and convenience over their investments. According to him, “the Meritrade app will give users a unique experience, convenience and control over their investments. Our customers can n trade and manage their investments 24 hours daily, with their mobile devices without having to come to our office.’
Abegunde explained that the portal is a do-it-yourself module that allows investors fill and submit account opening forms online and fund their accounts through their internet banking model or designated banks.
He said the investors will monitor their investments online and can invest in shares and fixed income (bonds) even as they can also make withdrawal requests from their stock broking account online.
At the launch, Mr. Oscar Onyema, Chief Executive Officer, NSE endorsed the Meritrade app as a reliable and convenient mode of trading on equities.
He described it as an innovation, noting that it will encourage people from all walks of life, particularly the youth, including students, first- time employees and civil servants to invest in stocks.
Onyema said: “In June 2013, while discussing technology and some of the NSE’s pillar for growth, I mentioned Mobile and Online trading as part of the next wave in our business development efforts. This position is rooted on the NSE’s realisation that the securities industry is largely driven by technology.
“Speed, accessibility and robustness of technology systems are critical success factors of modern trading and the Meritrade platform has been demonstrated as one that provides the aforementioned.”
Presenting the product’s overview, Mrs Gbadunola Sokunbi, the Divisional Head, Stockbroking, Meristem Securities, said the app will allow investors trade in shares and bonds from as low as N50,000. She explained that “to be eligible, interested people should have access to internet, e-mail address, an operational bank account, a moderate understanding of the stock market and a stockbroking account with Meristem Securities.’
Coordinator, Independent Shareholders Association of Nigeria (ISAN) Sir Sunny Nwosu said investors were glad about the seamless nature of the portal. He said steps taken by Meritem Securities Limited will make it possible for investors to take quick investment decisions and earn better returns on their investments.
Demography-backed growth
Report by Meristem said wholesale and retail trade in Nigeria have been majorly driven by operations in the retail sector, which consists of packaged foods, mobile phones, clothing items, and other consumer goods. The sector is one of the major beneficiaries of the changing demography in Nigeria. It said Nigeria’s 170 million population is mainly composed of young people with median age estimated at 19.2 years.
“With the introduction of the Structural Adjustment Programme in 1980 came the significant shrinking of the middle class as well as major supermarkets. However, since 2011, Nigeria has witnessed an expanding middle income population with channels for wholesale and retail distribution simultaneously rising to cater for their needs,” it said.
Macro indicators
The investment and research firm said key global and domestic macro indicators are set to be the pillars of our growth outlook for the year and in the medium-term.
“While major indicators suggest a positive investment environment in 2014, we note the likely impacts of political tensions in the country as the 2015 elections draw closer. Notwithstanding, these macro factors support our optimistic case for Nigeria as a choice investment destination in 2014,” it said.
Naira role in investment drive
The report said given the sustained commitment of the CBN to defend the naira, the naira/dollar maintained a relatively stable rate of N156 at the official market for most part of 2013. The interbank and parallel markets opened the year at 0.3 per cent and two per cent premiums respectively to the official rate but closed at wider premiums of four per cent and 12 per cent.
“Given pockets of observable inefficiencies in the system in 2013, CBN met most of these with stern policy actions. However, given the outlook on the global economy, the possible flow reversal and fiscal environment, the CBN is expected to maintain the current monetary stance for most of June -2014, but there are possible indications that exchange rate will trend up by December 2014,” it said.
MPR was retained at 12 per cent last year as the CBN maintained its tight policy stance, given the political and fiscal environment. The apex bank has restated its intention to further tighten MPR. Based on the above and impact of policy action in the economy, MPR is expected to be retained for most of the year, or raised. However, uncertainties surrounding the successor of the acting CBN governor remain a concern.
“Also, domestic output in 2014 is expected to expand by 6.65±0.2 per cent. This GDP growth is to be driven by increased consumer spending buoyed by higher urbanisation rate as well as rising middle class; increased government expenditure from pre-election fiscal spending; and increased FDI as well as local investment arising from favourable economic conditions in the country,” it said.
Continuing, it said: “The political environment in the country is getting tenser by the day. Continued internal rancour within the ruling party coupled with the strengthening of the main opposition and the continued re-shuffling of the political game cards makes judgment about the political terrain in 2014 a premature and weighty one.”
