The Nation Newspaper

Tag: losses

  • Operators decry losses from non-passage of PIB

    Operators decry losses from non-passage of PIB

    Operators of the Nigerian oil and gas industry are counting their losses arising from the non-passage of the Petroleum Industry Bill (PIB), which has been before the National Assembly for over a decade.

    The non-passage and its consequences, according to them, include uncertainties over investment in exploration and production, which boosts oil output and reserves as well as funding of operations.

    The bill has been undergoing changes from one legislative assembly to another as a result of disagreements between stakeholders over fiscal and structural provisions in the bill. The development led to abandonment of decisions in taking risks to make new discoveries, developing existing acreages and injecting new technologies, therefore, activities have been very low in the industry over the years.

    The lingering bill has created uncertainty that has continued to hang on the business environment, compelling foreign and local investors to cancel or delay business decisions that would have kept activities in the industry alive and growing.

    The Managing Director of Seplat Petroleum Development Company, Mr. Austin Avuru said: “There are too many contending issues that are lumped into one piece of legislation including issues that were never in dispute; including issues that we didn’t need to revisit. And in the process they have thrown the industry into an impasse; you can’t move forward because everybody, especially the multinationals operating in the deep offshore and who have to make multibillion dollar investments, are in an uncertain business climate. Clearly they have pulled back their pen and they are not taking final investment decision (FID).

    “What is stopping the industry from moving forward is the uncertainty created by the possibility of a new legislation that is not clearly understood. And, therefore, you can’t take the risk of making heavy investments because you can’t be certain until that piece of legislation becomes law. And so, as long as there is suspense, there will be a lull. The entire industry is in suspense. Every month, you hear about dwindling revenues in the federation account. Yes, it will continue,” he pointed out.

    On the whole, he said: “our survey of oil industry challenges in the wake of the oil price fall exposed crippling challenges that are eroding profitability.”

    Avuru also said: “Across the industry, cost has gone up 10 fold from where we were 25 years ago. As a young well-site geologist in the 1980s, and if you recall those terms of the 1985 and 1987 memoranda of understanding (MoUs) nominal technical cost was pegged at $3.50 per barrel. It was expected that average technical cost (operating expenditure and capital expenditure) was $3.50 per barrel. That means you have to be operating below $3.50 to be efficient. If you are doing above $3.50 you are considered expensive.

    “Today, that cost has gone up to $30.50 per barrel. So, in the past 30 years, we have allowed a lot of things to creep in. There is the crisis in the Niger Delta; increase in the security apparatus to do the business, there is an increase in everything. All the costs have piled up onto the cost of production.

    “And one of the biggest issues, why there appears to be a disagreement between government and operators over the PIB is because government believes that the fiscal regime cannot be predicated on $35 per barrel. And you can understand their frustration. They were there when the cost was $3.50 per barrel.

    “But the industry is saying the cost is the cost. If it is $35 per barrel then it is $35 per barrel.  People don’t realise that this is where the disagreement resides. The debate is on the cost parameters used to model the fiscal regime.  So, the industry has undergone a huge escalation in cost. Unfortunately, nobody has tried to stem that tide because it has escalated beyond control.”

    However, beyond the arguments is the fact that the domestic operating environment appears to be losing the necessary conditions required for commercial investments to make appreciable returns and deliver profits to shareholders.

  • Tackling post-harvest food losses

    Tackling post-harvest food losses

    Ending post-harvest losses has been a goal of governments, businesses, farmers and traders.  Attributed to improper handling of agro commodities from field to market, the impact has been detrimental to farmers. In the last 10 years, organisations and donors have taken steps to reduce losses in crops, such as tomato and other perishable produce which account for an alarming 86 per cent of total farm produce losses, DANIEL ESSIET reports.

    Approximately, one-thirdof food grown in the farm never reaches consumers. Waste and spoilage occur across the value chain, threatening farmers’ livelihoods and people’s access to nutritious food.

    At harvest level, farmers struggle to ensure the perishables being harvested are handled properly, kept free of bruises, stored and moved fresh to the market.

    One of the crops most affected is tomato.

    Described as more lucrative than rice, maize and yam, tomato is in high demand. However, farmers face tremendous challenges in getting their products to market.

    At the height of the harvest season, farmers lose up to 40 per cent of their produce due to a lack of processing facilities. This results in severe price fluctuations for tomatoes.

    In most of the areas where it is cultivated in the North, there are no storage facilities to preserve their produce. As a result, tomato rots on the road to market.

    To watchers, what the sector needs is small-scale and low-tech interventions in the areas of storage and transport.

    Speaking with The Nation, President, Federated FADAMA Community Association, Lagos State, Alhaji Abiodun Oyenekan said such much is required to implement tomato value chain improvements and post harvest quality systems that enable farmers produce crop that will meet standards such as reliable freshness, minimal damage and professional packaging.

    According to him, post harvest losses is a major issue that require interventions.

    To this end, he said Lagos State is taking steps through initiatives to minimise losses, preserve quality, maintain nutritional content, and to ensure year-round availability while empowering equitable income distribution along the value chain.

    The approaches include storage devices, good agricultural practices for harvesting and sorting crops, plastic crates for transporting produce, and others.

    Against this backdrop also, Growth and Employment in the States (GEMS), a joint programme of the Department for International Development (DFID) and World Bank (WB)   is exploring techniques to ensure that small   farmers have greater income and economic opportunities, improved resilience, and increased food and nutritional security through reduced post-harvest loss in the food crop value chain.

    Working with business associations, service providers, producers, retailers, wholesalers and other actors involved in the market, its GEMS 4 programme is seeking significant reductions in food loss by improving farmers’ use of good agricultural practices, such as for proper handling of crops.

    Consequently, 60 members of the Fresh Fruits and Vegetable Dealers Association of Nigeria have been trained as master trainers on good handling practices for fresh perishable produce (and further courses are on-going).

    The master trainers will then train other handlers of perishable produce in collection centres and markets across the country.

    The programme target is increased growth, income and employment, especially for poor men and women, in wholesale and retail markets in selected states and 10,000 full-time equivalent jobs and improved incomes for 500,000 people.

    The project assists farmers to maintain Good Agricultural Practice (GAP) standards and comply with standards that most small farmers do not possess.

    To further enable farmers’ success, GEMS4 provides value chain actors with tomato colour charts that depict the different quality levels of tomatoes and their associated prices. The quality improvements benefit value chain actors further downstream as well, as they capture more value as a result of trading and selling higher quality goods.

    To help the programme, GEMS4 signed a Memorandum of Understanding (MoU) between it and the Tomato Sellers Association in Mile 12, Ketu, Lagos State.

    Senior Intervention Manager, Mr Arafat Hossain said under the arrangement, high-end markets such as hotels, restaurants, supermarket chains and catering service providers would access quality tomatoes delivered in crates.

    The fresh produce are well sorted, graded and hygienically handled by trained handlers under Good Handling Practices (GHP).

    Already, the association has 10 of its members primed to receive and deliver orders up to one metric tonne each as pioneers of the new mode of doing the tomato business.

    GEMS4, using tomatoes as an entry point into the entry produce market, analysed operations from farm to the traditional markets, thereby identifying the challenges in the supply chain that lead to produce damage and cash losses.

    After the trial deliveries from farms around Zaria to Mile 12 market in Lagos, it developed a business plan, which would include a cold chain.

    The result showed only five per cent loss using plastic crates as against 45 per cent the traditional raffia baskets.

    As it stands now, bankers are willing to fund the use of plastic crates in this largely lucrative business that has big chains like Shoprite showing interest in the arrangement, while the State government has supported the Mile 12 market sellers with 2,600 crates of the 4.000 crates released state-wide for a start.

    The Association led by Alhaji Yahuza Alasan, represented by its secretary, Alhaji Shehu Usman, showcased that cleaned sorted, graded and packaged in plastic crates are now available for purchase in Mile 12 market.

    This is being made available through a pilot providing access to Returnable Plastic Crates (RPCs) for farmers, traders and dealers of perishable produce.

    GEMS4 is providing an install-ment repayment plan that will enable traders purchase the plastic crates.

    This had been a challenge for traders in Mile 12 market, who have been struggling to meet market demands of Higher Value Markets and quality conscious buyers.

    The stakeholders involved in this pilot are the Tomato Sellers Association (TSA) arm of the Fresh Fruits Vegetable Community Dealers Association of Nigeria (FFVDCAN) with a national membership spread of over 300,000 across Nigeria.

    There are about 28 other perishable produce groups under this apex association and it is planned that after this pilot, the model will be extended to them as a scale up to enable RPCs become a part of the supply chain operations of the sector.

    GEMS4 Intervention Manager, Richard Ogundele said tomato is big business. The market for it is large, including buyers who run grocery stores, restaurants and hotels. But they need high-quality produce.

  • Manufacturers count losses of economic lockdown

    Manufacturers count losses of economic lockdown

    For the first time in Nigeria, power supply from the national grid hit ground zero, throwing Africa’s largest economy into unprecedented darkness and chaos. The three-day blackout, which began on May 24, was triggered by a system collapse and the strike action embarked upon by oil and gas workers. Although, normalcy is gradually returning, the crisis left business operators in all sectors of the economy, especially manufacturers, severely bruised, prompting renewed calls for the deregulation of the downstream sector of the oil industry. Assistant Editor CHIKODI OKEREOCHA reports.

    Nigerians are known for their resilience and never-say-die disposition. They have the uncanny ability to endure unsavory situations, smiling through them or shrugging them off. But in the last two weeks, it has been extremely difficult to extract a smile from Nigerians. The precarious state of the economy, especially in the days and weeks leading to the inauguration of President Muhammadu Buhari as Nigeria’s fifth democratically elected President on Friday, May 29, hardly gave anybody cause to smile. For the first time in history, there was zero electricity supply from the national grid. For three days, Sunday, May 24 to Tuesday, May 26, most residential, commercial and industrial consumers watched helplessly as their businesses crumbled under the weight of a major system collapse that plunged the nation into unprecedented darkness.

    The system collapse was said to have been caused by Nigeria’s weak transmission infrastructure. And as if that was not enough embarrassment, the situation was worsened by the industrial action embarked upon by Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and Nigeria Union of Petroleum and Natural Gas Workers (NUPENG). The strike by the two major unions in the oil and gas industry disrupted gas supply to the electricity plants. Eighteen out of the 23 power plants in the country were unable to generate electricity due to shortage in gas supply to the thermal plants, according to Chairman of National Electricity Regulatory Commission (NERC), Dr. Sam Amadi.

    Going by the record, Nigeria, that prides itself Africa’s largest economy, generates 1, 327 megawatts (MW) of electricity for its 170 million people, even as the former Minister of Power, Prof Chinedu Nebo put the electricity need of the people at more than 150,000 megawatts.

    Amadi stated that one of the hydro stations had water management issue, which led to the loss of over 2, 000 mw. The Nation learnt that 70 per cent of power generation in the country is from gas-fired turbines, leaving 30 per cent to hydro. The Federal Government under the ousted Peoples Democratic Party (PDP) declined experts’ calls for the diversification of energy sources. It failed to explore alternative power sources such as renewable energy, including coal, solar, wind and biomass. In the heat of the crisis, power generation dropped to an all-time low of 1, 327 mw down from about 4, 500 mw in April.

     

    Manufacturers, business operators groan

    Although, normalcy is gradually returning after the aggrieved unions called off the strike on May 25, but business operators in all sectors of the economy, especially manufacturers and industrialists, have been counting their loses. Before the blackout, the electricity demand by members of Manufacturers Association of Nigeria (MAN) stood at about 3, 000 mw for optimal performance, but they have been getting less than 1, 000 mw gets to the Association.

    Records have shown that over 75 per cent of the electricity needs of manufacturers are generated in-house, leaving only 25 per cent coming from the utility firms. A source close to the Electronics and Electrical Sectorial Group of MAN confirmed this. The source said members of MAN invest about N2 billion per week to power their plants.

    The source, who pleaded anonymity because he was not authorised to speak for the group, described as unfortunate that MAN members pay electricity consumption bills above N120 million monthly.

    Noting that it is difficult to quantify how much manufacturers lost to the three-day outage, manufacturers may have lost about N5 billion.

    The amount, he said, does not include man-hour losses damages to machines, tools, raw materials and disruption to production processes as well as staff redundancy as workers earned their salaries for the period they were unproductive. “When power goes off, waste materials, manpower, time and so many things are wasted. At the end of the day, you discover that you are not making profit,” the source said.

    It is easy to see why manufacturers rue the economic lockdown. For one, it added to their long list of woes, as most of them have long been bogged down by rising production cost due to inclement operating environment.

    The business environment had taken a turn for the worse following the devaluation of the naira in the wake of the crashing crude oil prices at the international market.

    The implication of the latest crisis is that the hope of an early reversal of Nigeria’s record as the most expensive country to do manufacturing business in the world may not be realised soon. At the moment, cost of manufacturing in the country is about nine times that of China, four times that of South Africa and about twice that of Ghana. Manufacturers have had to contend with falling profit margin, which remains a major threat to business sustainability and global competitiveness.

    MAN’ President Dr. Frank Jacobs said last week that manufacturers are faced with payment for electricity not consumed.

    “Despite the poor energy situation in the country, NERC has maintained increased electricity charges not considering its implication on the economy, especially on the productive sector,” he said at a media luncheon at MAN’s House, in Lagos.

    Dr. Jacobs said despite the current high tariff from NERC, the manufacturing sector spends so much on alternative energy sources for production and the implication was increase in the average cost of production in the sector, which lowers the competitiveness of locally produced goods against imported close substitutes.

    He urged the new government to streamline electricity tariff to reflect the actual consumption by the industries instead of the current use of estimated bills.

    Yet, manufacturers are not the only ones counting their losses. Smaller business operators are equally feeling the pains. For instance, dealers in frozen foods in Ijora-Olopa,  Lagos, last week, cried out over heavy loses inflicted on them by the blackout. The frozen food dealers under their umbrella association, Ajeromi Frozen Food Market Association, raised the alarm that between May 23 and May 25 alone, they lost food items estimated at N10 million.

    President of the association, Alhaja Afusat Popoola, who listed the lost items to include chicken, turkey, fish, shrimps, gizzard and prawns, said members of the association were caught unawares because they never envisaged a prolonged energy crisis.

    Her words: “The traders were crying when we ordered them to surrender all the decayed food items for destruction on Tuesday. The market has a reputation for selling fresh frozen food and we cannot allow any trader to sell bad frozen food under our leadership.

    “What we destroyed on Tuesday because of power outages and our inability to buy petrol and diesel was worth more than N10 million. We are appealing to the Eko Electricity Distribution Company (EKEDC) to always consider the impact of outages on our business and the health of the general public. Our business depends on regular supply of electricity.”

    She lamented that irregular electricity supply had forced many traders out of business and also made many to be indebted to the banks.

    Mrs. Popoola said: “We used to have many frozen food traders in this market before, but this power outage has forced them out business. Previously, when power supply was regular, we used to sell more than seven trucks of fish, turkey and chicken, daily.

    “There is no kind of fish that one will not find in this market before because it is the number one frozen food market. But, the poor power supply has liquidated many traders. Some of them who use generating sets spend close to N80, 000 to buy diesel or petrol monthly. By the time one removes this amount from monthly sales, you discover that you’ve spent above your profit and part of your capital to buy diesel.”

    The crisis also left sour taste in the mouths of operators in the aviation sector. The blackout forced many domestic airlines to cancel flights due to scarcity of Jet A- One. Most passengers were stranded at the general aviation terminal of the Murital Mohammed International Airport (MMIA), Ikeja, Lagos, as fuel shortage disrupted flights’ schedules. The collateral losses were mind-boggling. An aviation source told The Nation that for each of the three days, Arik, the biggest domestic airline, lost about $1 million.

    This translates to about $3 million for the three days the crisis lasted. With about seven domestic airlines operating in the country, the source, who declined to be mentioned, said the local aviation industry lost close to $10 million in ticket sales alone to the economic shut down.

     

    Banks, telecom firms also affected

    Bank customers were jolted when, in the hit of the crisis, banks started scaling down operational time from the official closing time of 4pm to 1pm, citing the crippling fuel shortage as reason. The Guarantee Trust Bank (GTB), First City Monument Bank (FCMB), Sterling Bank and First Bank Pls, among others, sent SMS to their customers to bear with them.

    For instance, in a message sent to its customers, FCMB stated clearly, “Dear customer, our branches will close at 1pm from Monday May 25th, 2015 due to the shortage of petroleum products. All our alternative channels will remain available.” However, there are banks that shut down banking operations, but could not communicate same to their customers, a situation that infuriated their customers.

    Unlike in the other sectors, the loss suffered by the banking sector to the crisis could not be ascertained. Some banking and finance experts who told The Nation that banks only wanted to minimise or cut their losses; that much as the banks were losing money, they were also saving cost by scaling down operations. Besides, all their electronic (e-channels) were active, allowing transactions to go on.

    However, customers did not find the situation funny, as some of the Automated Teller Machines (ATMs) in major cities across the country had network problems as the inverters that power the network had little or no power to run the machines. It is inverter that powers ATMs after daily banking operations. Anytime the inverter runs down, the ATM will seize to work. The result: long queues of angry and frustrated customers.

    Many customers of telecoms services providers also got their share of the frustration following serious service degradation caused by difficulties in getting diesel to power the base stations.

    All the major service providers such as MTN, Airtel and Etisalat warned that the scarcity of petroleum products particularly diesel was hitting hard on their operations.

    For instance, MTN, in SMS sent to its subscribers, informed that they might experience “degraded service” due to the scarcity. The message read: “Dear customer, due to the diesel scarcity nationwide, you may experience degraded services.” The message, however, said the company was working hard to tackle the problem and solicited for the understanding of its subscribers.

    Although, MTN and indeed, all other operators assured that they were working to continue to deliver quality services despite the fuel scarcity challenge. The Nation however learnt that such assurances were only intended to pre-empt a possible backlash from angry subscribers, who were actually experiencing poor quality of services, and it could not have been otherwise, as base stations and switches across the country are powered with generators.

    The situation was not different at the nation’s ports where operations suffered serious hitches due to the scarcity. “The ports and terminals are driven by heavy-duty equipment and cranes, which are powered by diesel. It is sad to note that it is becoming increasingly difficult for our members to replenish their diesel stock due to the lingering scarcity of the product,” members of Seaport Terminal Operators Association of Nigeria (STOAN), said in a statement last week.

     

    Small scale businesses shut down

    Most small scale businesses simply went on vacation and locked up their ware points. Soft drink, bottled water and sachet water hawkers, (aka pure water), recorded huge losses, as patronage tumbled because of lack of electricity to chill the drinks. Barbing and hair salon operators shut down for lack of fuel to power their generators. Those who managed to maintain skeletal services after scouting for fuel at between N600 and N650 per litre, jerked up the cost of their services.

    Recounting her ordeal, a supervisor with an upscale hotel in Lagos, Miss Chidi Igwe, said she trekked the entire Shagari Estate on Ipaja Road in search of a salon to fix her hair. She said the one that opened for business in the sprawling estate charged her N1, 800 against the usual N800.

    She also lamented power outage in the last one month despite the fact that her subscription to DSTV, the PayTV service provider, never stopped running. Besides, Miss Igwe said she cannot even remember the last time she went to work with her dress ironed.

    Eateries, beer parlour owners recorded low sales, as customers stayed indoors. Those who managed to leave their homes contended with skyrocketed fare, as transporters increased fares fivefold. For instance, passengers commuting from Iyana-Ipaja to Obalande/CMS coughed out between N600 and N700, up from the original N200. Those who could not cope with the high transportation cost trekked long distances. Nigerians cursed and hissed. It was bedlam.

    It is extremely difficult to put a figure to what the nation lost to the economic lockdown, considering the nation’s penchant for poor record keeping. However, experts and operators say that the financial hemorrhage and social dislocation could be huge running into hundreds of billions of naira.

     

    Calls for deregulation heighten

    With the inauguration of a new government on May 29, the Director-General, Enugu Chamber of Commerce, Industry, Mines and Agriculture (ECCIMA), Mr. Emeka Okereke, said a fresh impetus has come the way of President Buhari to deregulate the downstream sector of the oil and gas industry. He said the new government only needs to muster the necessary political will and courage to call the bluff of certain cabals in the oil and gas industry and deregulate.

    “The government has no business in doing business. Deregulation is an idea whose time has come. Put the right policies in place so that private investors can come in,” he told The Nation.

    Mr. Okereke noted that because of political exigency, the administration of former President Goodluck Jonathan failed to take the bull by the horns and deregulate the sector.

    While pointing out that this was why the administration buckled under the pressure of labour unions and civil society groups in 2012 when there was nationwide protest against the removal of fuel subsidy, he said subsidy has become unsustainable.

    “Subsidy doesn’t make economic sense anymore. It has become unsustainable. We will never come out of the wood as long as we continue to subsidise the price of petroleum products. We cannot continue to postpone the evil day,” Okereke said.

    He also urged the new administration to sustain the normalcy that is gradually returning to stabilise the oil sector by plugging all the leakages.

    The ECCIMA chief has an ally in the Nigeria Employers’ Consultative Association (NECA) which has also called for proper deregulation of the sector. NECA’s Director General Segun Oshinowo argued that the recent reduction in the price of petroleum products by the government begs the more fundamental issues of appropriate policy framework that will promote investment in the downstream sector of the oil and gas industry and put a stop to the embarrassing and shameful importation of petrol.

    He said: “Our expectation therefore, is that the government will seize the opportunity of the current decline in the price of crude oil to commence implementation of the policy on deregulation of the downstream sector of the oil and gas industry.

    “This is a unique timing the government cannot afford to miss as full implementation of deregulation, which in time past had led to price increase and reaction by the labour movement in form of industrial action, does not have any negative effect on the masses.”

    The NECA director-general added that rather than reducing the price of petrol from N97 to N87, there ought to have been a more holistic announcement of a new policy thrust of deregulation of the downstream sector and privatisation of the four refineries, which have now become sink-holes.

    According to him, the economy stands to gain from deregulation.

    Oil marketers under the aegis of Major Oil Marketers Association of Nigeria (MOMAN) could not agree less, noting that deregulation would stimulate investment in the sector and encourage the establishment of private refineries.

    Its Executive Secretary, Mr. Obafemi Olawore, said the government should muster the courage to fully deregulate and remove subsidy or embark on continuous subsidy regime payment as at when due.

    “If the government likes, it can introduce gradual removal of subsidy, but it should not go beyond six to 18 months,” Olawore said, adding that if fully deregulated with rules, Nigeria will have serious investors coming in to invest adequately.

    He insisted that deregulation remains the answer and that the government must talk to the people and let them understand the advantages.

    Henry Boyo, an economist, noted that the 23 firms franchised to established refineries have not invested their funds for fear of being asked by the government to sell products at regulated prices

    According to Boyo, crude oil produced in Nigeria, Saudi Arabia, or America has a uniform international commodity price.

    “In the same vein, the process of producing crude oil or refined petroleum products is the same everywhere in the world; it is the same equipment. So, if you put in the same feed stock what you will get at the end will be the same price,” he told The Nation.

    Noting that monies spent by the Federal Government through the Nigerian National Petroleum Corporation (NNPC) on Turn Around Maintenance (TAM) of the state-owned refineries were enough to build new refineries, Boyo said the point remains at what price will the government sell the products.

    He said notwithstanding the federal ownership of the refineries, products cannot be sold to marketers at below production cost.

    His words: “In no time they will pack their loads and go. So, the question of whether we sell off the refineries is not the issue, it is pricing, “ adding that once the pricing is right, those who got licenses for refineries will swing to action.

    He, however, said the process of influencing the pricing has to do with the  naira-dollar mechanism.

    Will the payment of about N1 trillion annually as subsidy continue under the President Buhari administration, when the nation’s revenue base is bleeding amidst rising debt burden of about $60 billion?  Will the new administration remove subsidy and risk confrontation with organised labour and the civil society? How he dances around this minefield will be a litmus test of his resolve to fix the economy.

  • South Africa’s rand extends losses against dollar

    South Africa’s rand extended losses against the dollar after a statement by United States Federal Reserve Chair Janet Yellen  signalled that the bank was on course to raise interest rates later this year, stoking greenback buying.

    The rand had softened 0.28 percent to a week-low of 12.0690 per dollar, remaining above the crucial technical level that is likely to see the unit weaken further towards 2002 lows of 12.6500.

    The rand flirted with three-week highs in the previous week before capitulating to a firming dollar, as inflation pressures increased with local petrol prices set to rise 14 percent.

    A wage dispute between South African public sector unions, demanding a 10 percent wage hike, against an offer of 5.8 percent, is also likely to pressure the unit.

    “The fact that the government hasn’t made any tangible progress on this matter remains a concerning overarching factor for the rand,” said economists at ETM Analytics in market note.

    Government bonds were also weaker, with the benchmark issue due in 2026, adding five basis points to a week-high of 7.88 per cent.

  • Bank losses from Swiss currency to continue

    The $400 million of cumulative losses that Citigroup Inc. (C), Deutsche Bank AG and Barclays Plc (BARC) are said to have suffered from the Swiss central bank’s decision to end the cap on the franc may be followed by others in coming days.

    “The losses will be in the billions — they are still being tallied,” said Mark T. Williams, an executive-in-residence at Boston University specializing in risk management. “They will range from large banks, brokers, hedge funds, mutual funds to currency speculators. There will be ripple effects throughout the financial system.”

    Citigroup, the world’s biggest currencies dealer, lost more than $150 million at its trading desks, a person with knowledge of the matter said last week.

    Citigroup, the world’s biggest currencies dealer, lost more than $150 million at its trading desks, a person with knowledge of the matter said last week. Deutsche Bank lost $150 million and Barclays less than $100 million, people familiar with the events said, after the Swiss National Bank scrapped a three-year-old policy of capping its currency against the euro and the franc soared as much as 41 percent that day versus the euro. Spokesmen for the three banks declined to comment.

    Marko Dimitrijevic, the hedge fund manager who survived at least five emerging-market debt crises, is closing his largest hedge fund, which had about $830 million in assets at the end of the year, after losing virtually all its money on the SNB’s decision, a person familiar with the firm said last week.

    FXCM Inc., the largest U.S. retail foreign-exchange broker, got a $300 million cash infusion from Leucadia National Corp. after warning that client losses threatened its compliance with capital rules. FXCM, which handled $1.4 trillion of trades for individuals last quarter, said it was owed $225 million by customers.

    The SNB’s move “shocked people all over the world,” Timothy Massad, chairman of the U.S. Commodity Futures Trading Commission, said in an interview in Hong Kong. The regulator is “continuously” monitoring the situation, he said.

    Shorting the franc was a popular trade and most firms would leverage their positions some 20 times or more, said Williams, who consults for hedge funds. With such leverage a 5 percent move against the position wipes out all the value, yet the trades were seen as relatively low-risk by models used by financial institutions because volatility of the franc was reduced by the SNB’s cap, he said.

    Citigroup had reported an average total trading value-at-risk, a measure of how much the company could lose in trading in one day, of $105 million in the third quarter, of which $32 million was attributed to foreign-exchange risks.

     

  • 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.

     

  • Swiss Re profit rises by 14 % on lower catastrophe losses

    Swiss Re profit rises by 14 % on lower catastrophe losses

    Swiss Re, the world’s second-biggest reinsurer, said its third-quarter profit has risen by 14 per  cent after lower-than-expected losses from natural catastrophes.

    Net income rose to $1.23 billion from $1.07 billion in the year-earlier period, the Zurich-based reinsurer said in a statement. That beat the $928.6 million average estimate of 13 analysts surveyed by Bloomberg.

    Swiss Re is cutting back on catastrophe coverage and moving into new lines of business to bolster earnings growth as low interest rates and fewer natural disasters undercut prices. Munich Re, the world’s largest reinsurer, said third-quarter profit rose by 16 percent, while German rival Hannover Re reported a 21 percent increase for the period.

    Chief Financial Officer David Cole said in the statement: “I’m pleased to report that all business units have again delivered solid performance during the third quarter, contributing to an overall strong group result.

    “This performance was supported by a lower-than-expected loss burden from natural catastrophes as well as a continued improvement in the life and health operating margin.”

    Swiss Re has fallen about five percent this year, valuing the company at 29 billion Swiss francs ($29.8 billion). That compares with a 4.3 percent increase in the 32-company Bloomberg Europe 500 Insurance Index.

    Swiss Re wants to invest $3 billion of its excess capital at an 11 per cent  return on equity by next year. It does not disclose how much of the capital it holds.

    Reinsurers such as Swiss Re that help primary insurers cover the costs of damage claims from disasters like floods and hurricanes are under pressure from declining prices for their coverage and years-long slump in borrowing costs across developed countries.

  • The day after: Aleshinloye market traders recount losses

    The day after: Aleshinloye market traders recount losses

    Ten years after a fire at the popular Aleshinloye Market in Ibadan, the Oyo State, part of the facility went up in flames again last Friday, destroying goods and property. OSEHEYE OKWUOFU reports on the cause of the inferno and efforts being made to restore the market and assist the victims get back to business.

    Last Friday 15, August 2014 darkness fell on the popular Aleshinloye Market in Ibadan when a night fire outbreak wrecked havoc, destroying goods and property worth several millions of naira.

    The victims, numbering over 200 are yet to recover from the shock of the fire disaster, even as some of them were making effort to clear the ruins of the destruction and start reconstruction of their stalls when The Nation visited last Monday.

    Others who wore glooming look mill around their burnt shops, discussing with one another the fire incident.

    Bricklayers and labourers were busy moving bricks and blocks and other building materials to site to begin reconstruction on some of the burnt open shops.

    A victim, Mr Luke Onwuka, dealer in textile materials whose shop was completely burnt said the incident was the worst ever since the last fire incident on March 9, 2004.

    Onwuka who said he does not know where to start from having lost over N300,000 worth of goods to the inferno blamed the fire outbreak on power surge .

    He said: “according to what I heard when I came here, it was as a result of power surge. They said the electricity supply company brought high voltage and some people who have their shops around that area left some of their appliances on, and immediately the light came the freezer went up in smoke and flame. It happened on Friday around 8.30pm.

    “By the time the fire began to spread, the fire fighters had arrived with four water tankers but three out of the four did not have water. If the four had water they would have been able to stop the fire”.

    Many of the traders expressed concern that the fire could do so much damage in spite of the presence of a fire station within the market, and called on the authorities to investigate the remote causes and why the fire men were unable to curb the inferno.

    “The victims should have been saved the bitter pills if the fire fighters in the market were alive to their duties”, said one of the women traders who would not want her names in print.

    Mrs Iyabo Owanikin, owner of T120 and a dealer in jewelries said she was heartbroken when she got the news particularly a day after she stocked her shop. She appealed to the state government to with the reconstruction of the burnt shops as well as give financial assistance.

    Also, Mrs Easter Oladeji, who sells clothes at shop T121 next to Mrs Owanikin wants the management of the market to assist in putting an end to fire disasters at the facility as this has continued to bring untold hardship on the traders.

    The Oyo State Emergency Management Agency (OYSEMA) officials were busy at the market on Monday, making a list of shop owners affected by the fire.

    One of the officials who pleaded anonymity told The Nation that they came to the market on the directive of the governor who asked that a comprehensive list of victims of the fire be compiled for urgent assistance.

    Governor Abiola Ajimobi who was said to have visited the market at 2am, about four hours after the fire outbreak has pledged government’s assistance to the victims of the disaster within the next one week.

    The governor, who summoned leaders of the market to a meeting on Monday, made the pledge while inspecting the level of damage at the market and expressed sympathy with the traders.

    Apart from first visiting the market by 2am on Saturday before visiting the place again later that day in the afternoon to identify with the affected traders, Governor Ajimobi has directed all the top government officials to visit the victims to assure them of government concern and support.

    He described the fire incident as very unfortunate, pledging that necessary machinery would be set in motion to provide succour for the victims to cushion the effect of the inferno.

    Governor Ajimobi recalled his experience when his private residence in Lagos was gutted by fire in 1993, praying that God, who assisted him to overcome the incidence, would also compensate the traders.

    He directed the affected traders to form a committee to meet with government representatives for the provision of necessary assistance.

    The governor urged the leadership of the market to ensure the equitable distribution of whatever assistance offered by the government, stressing that it should not be politicized.

    The Chairman of the (Fancy) section of the market affected by the fire, Mr Rahman Olabamiji said no fewer than 1000 shops were affected , while appreciating the state governor and Caretaker Chairman of Ibadan South West, Alhaji Taoheed Adeleke for their prompt visit.

    Olabamiji further thanked Governor Ajimobi for his past assistance to the traders, just as he pleaded for kind assistance to the victims to cushion the effect of the huge loss.

    He blamed the fire men for not rising promptly to the challenge, adding that the fire would have been put under control if the firefighters had water in their tankers.

    Investigation revealed that when the fire initially started, five shops were affected while the private night guards on duty alerted men of Oyo state fire Service nearby.

    It was also learnt that the fire fighters could however not get enough water to contain the fire, a development which worsened the situation.

    It was a sad tale for many of the traders who got to know of the incident as late as midnight as hoodlums had already vandalized and stolen their goods before getting to the market.

    The leader of Igbo community in the state, Eze Ndigbo of Ibadanland,  Eze Alex Anozie on Monday led other Igbo chiefs to the market to sympathise  with the  traders .

    Describing the loss as very devastating, Anozie made a passionate appeal to the state government to assist the affected traders financially and also help in reconstructing the shops.

    He also suggested that the market be ordered to close by 6pm daily, leaving only the security personnel to man the market, and to open for business  by 7am .

    “I remember that since such was introduced at Onitsha market, frequent fire out break there stopped”, Anozie added.