No ease of doing business as Nigerian companies lament mounting roadblocks 

In 2010 a global research and consultancy firm looking to expand into Nigeria, tried to meet with Government officials at the ministry of interior, to obtain expatriate quotas for their staff, necessary before they could set up offices in the country.

“It took us one year before we were actually able to meet with the appropriate Government people in Abuja,” said a senior partner at the firm, who did not want to be identified.

“Sometimes we set up meetings, landed in Abuja, only to be told that the official had travelled.”

Companies operating in Nigeria are facing mounting roadblocks to doing business, often emanating from the Federal, State and county levels, and effectively rubbishing the finance minister Ngozi – Okonjo Iweala’s stated goal of improving the ease of doing business in the country.

Nigeria is already notorious for being a difficult place to do business and the deteriorating business climate may be compounding the problem.

In the World Bank’s latest ease of doing business ranking, Nigeria fell 9 places to rank 147 from 138 the previous year.

Businesses already burdened by poor electricity and transportation infrastructure, and low access to affordable financing are now contending with multiple taxation from regulatory agencies as well as inefficiencies at the ports that are spiking the cost of production.

Nigerian telecoms providers for example say that too many applications are required to roll-out communication networks and base stations.

“The organs of the state are an encumbrance to our businesses. Here in Lagos getting our fibre in the ground is becoming almost an impossibility due to the high cost and taxes from the state and local governments,” said Wale Goodluck a corporate services executive at MTN Nigeria, at Business Day’s 2013 telecoms roundtable held last October.

The Lagos Chamber of Commerce and Industry (LCCI) reckons that the activities of regulatory agencies have the capacity to overburden companies, whose growth are critical to job creation in the economy.

“We conducted a survey on the activities of some public regulatory agencies including National Agency for Food Drug Administration and Control (NAFDAC). It was discovered that businesses are increasingly at the receiving end, mostly in the following areas: delay in registration and certification of products, multiplicity and arbitrary charges, frequency of visits that come with costs to the companies, overlap of functions with other agencies, excess human interface in operational framework and collection of excessive quantity of products supposedly as samples,” said Goodie Ibru, the immediate past president, LCCI during an interactive session between SMEs and NAFDAC in Lagos last year.

At the sea – ports a new destination inspection scheme, championed by the customs service threatens to unravel some of the modest reforms made by the finance ministry since 2012, aimed at sanitizing Nigerian ports that are notorious for corruption and a customs service often with an incentive to slow down the clearance of goods rather than speed them up.

The new regime at the ports has led to a situation where manufacturers are unable to clear their goods on time since the Nigeria customs service took over from cotecna as the PAAR(pre-arrival assessment report), now takes a minimum of 2 weeks to be released to manufacturers by the customs.

This has led to a situation where by importers and manufacturers who import raw materials spend upwards of N150,000 in extra terminal and shipping charges per container.

A large manufacturer who did not want to be identified, said the major issue is the customs upreparedness for the job.

“Customs has been given this responsibility, but it is evident that they are not equipped for it. The scanners for the containers are not working, our goods are now delayed for weeks, costing us millions, someone should be held accountable for this,” he said.

The manufacturer noted that gradually everybody’s cost of clearing is going up,(from the small scale to large manufacturers),which would soon affect the man on the street in the form of higher prices or inflation.

Manufacturers caught in this new bout of inefficiency at the ports cut across all sectors of the economy from food to milk, and industrial goods producers.

This threatens to unleash a vicious cycle of default and bankruptcy for SMEs and other manufacturers that cannot hold out against the inefficiencies and rising cost of doing business in Nigeria.

“If small SMEs cannot clear their goods due to high charges, then they cannot pay the banks, and maybe the banks will loose money and lay off some workers, so this affects everybody,” said another manufacturer.

The manufacturers are loosing out in four areas, higher shipping charges in form of demurrage, Terminal charges, bank interest rates and the possibility of goods damaged from excess stay at the ports.

“The regulatory agencies and Government bureaucracy now operate as toll roads and view businesses as cash cows to be milked,” said the CEO of a large FMCG manufacturer in Lagos speaking on condition of anonymity .

“The problem is that even when you pay the toll, you are still bogged down and don’t get to pass.”

MTN Nigeria, other mobile companies fined by regulator for missing quality goals

The Nigerian telecommunications regulator the NCC fined the three largest mobile operators N647.5 million ($4 million) and toughened penalties in a move that shows waning tolerance for poor service in Africa’s largest mobile market.

MTN Group Ltd., the Johannesburg-based market leader, and Bharti Airtel Ltd. are to pay N185 million each, while  Globacom Ltd. has been fined N277.5 million for not meeting quality standards in January, the Nigerian Communications Commission (NCC) said in a statement yesterday. 

They are prohibited from selling new SIM cards during March, the first time a fine includes this punishment, according to Tony Ojobo, the regulator’s director of public affairs.

Nigeria had 156 million mobile-phone subscriptions as of October 2013, with user numbers expected to grow to more than 200 million in 2017, London-based research company Informa Telecoms & Media estimates. 

Jonathan says power vested in president to fire Sanusi

The President has absolute powers to suspend Sanusi, Nigerian President Goodluck Jonathan told the nation in a media chat with journalists tonite.

When asked why it took so long to effect the change at the CBN since the allegations made by the financial reportingFRC where first made early last year, Jonathan responded that due to the sensitive nature of the apex bank, he had to thread with caution.

“When you are dealing with the treasury of a nation, you have to be careful and consult widely,” Jonathan said.

“No president can wake up and take a decision just like that,” adding that the CBN Governor who is a key actor in the allegations cannot preside over the investigation.

Jonathan also assured that investigations into the NNPC's alledged missing $20 bn will not be swept under the carpets.

“Whatever we do, we will follow the rule of law in auditing the NNPC,” he said.

Markets reverse trend as NSE gains 1.07 percent...Naira up vs dollar

Markets reversed their bearish trend today with the NSE-ASI gaining by 1.07 percent, while the naira advanced by 65 basis points to close at N164.50 per USD against N165.57 per USD on Friday.  

The acting central bank of Nigeria (CBN), Mrs Sarah Alade, held a press conference to assure investors that the apex bank will continue in its goal of achieving price stability. A RDAS (reverse dutch auction was held today in defence of the naira. 

The bulls outweighed the bears today as the equities market reversed the bearish trend that dipped the index in the last two trading days of the 

previous week following the news on Sanusi's suspension. 

NSEASI Advanced 411.40pts to gain 1.07 percent pegging YtD at -6.34 percent, Market capitalization 

climbed 1.07 percent, while Volume and Value traded declined 35.19 percent and 11.43 percent respectively. 

Ex-DANGCEM the market expanded 1.10 percent.

Sectoral indices as measured by the NSE indicate that the Banking index led the gains with 2.60 percent, followed by NSE30 and NGEOIG5 with 1.16 percent and 1.07 percent in that order, while the insurance index declined 1.38 percent.

The advancers cart was dominated by the banking stocks as UBA (8.66 percent), DANGSUGAR (7.91 percent), FBNH and DIAMONDBNK (4.92 percent) took the lead. 

Eagle eyed investors see opportunity in midst of Sanusi selloff

The mantra to ‘be fearful when others are greedy and greedy when others are fearful’ is a famous quote made by legendary investor Warren Buffet.

Amidst the sell-off that has engulfed Nigerian financial markets since last week’s suspension of the central bank governor Sanusi Lamido Sanusi; some investors may be seeing an opportunity to profit, as asset prices retreat to levels that represent a compelling buying opportunity.

David Cowan, Citi Bank’s senior economist for Africa notes that while the fallout between Jonathan and Sanusi has taken a new twist with Sanusi’s suspension, when the dust settles, less would have changed than initially assumed.

 “The issue to watch is whether the suspension of Sanusi will speed up the process of nominating a permanent successor…which would actually be a positive,” Cowan said in a note released on Friday titled ‘Nigeria – Sanusi suspended, but things move on.’

“This seems to have already been the case with the president nominating Godwin Emefiele, the current managing director of Zenith Bank, and we think it unlikely he would argue for a major change in exchange rate policy.”

The grounds for cautious optimism despite the current negative sentiment stems from the fact that exchange rate stability is one of the major anchors helping to attract much of the portfolio fund flows that Nigeria has been receiving in recent years.

If investors are reassured that the status quo would be maintained in spite of Sanusi's suspension, it may mean that there are some upsides to financial assets in the medium term.

That re-assurance may already have begun as Doyin Salami, a member of the monetary policy committee (MPC) said last Friday that Nigeria’s central bank will preserve policy continuity and its inflation focus even with the removal of its governor.Turmoil in the markets since the decision was announced is an over-reaction “to the circumstances on the ground,” Salami said on a conference call with reporters and investors.Nothing has “changed fundamentally for Nigeria,” he said.

Frontier markets - including Nigeria – posted inflows of $407 million in the first six weeks of 2014, largely based on their currency pegs to the dollar while $21 billion was pulled from emerging markets, EPFR Global data show.

This has led to a gain of more than 3 percent in the MSCI Frontier Market Index this year, pushing stocks to a 2008 high.

Nigerian equities will from May 2014 make up 20 percent of the MSCI frontier markets index – the key benchmark for equity investors – from 14 percent today, leading to increased bid for Nigerian equities from global fund managers.

The current uncertainty over Sanusi’s suspension has however clouded the bullish outlook in the short term.

The naira weakened as much as 3.2 percent to N168.90 per dollar after news about Sanusi’s suspension filtered out. Stocks fell again on Friday, as the NSE – ASI shed 520.45 points or 1.34 percent to close at 38,295.74 points, bringing year to date losses to – 7.34 percent.

Despite the lingering situations however, Nigerian equities “look very attractive compared to what was obtainable in 2013,” note Meristem Securities research analysts in a report released on Friday.

“The current market price to earnings (P/E) ratio of 13.53x compared to 2013 year end P/E of 14.5x, and the sectoral P/E compared with 2013 yearend P/E show that the market looks ripe for investors to savor,” Meristem said.

Some individual stocks are showing signals of being oversold while others have held up well during the recent sell-off, a positive signal that shows investors are not indiscriminately selling across the board.

Guaranty Trust Bank (GTB), regarded as the best in class bank in Nigeria among its peers is currently trading at N23.67 per share. Just as recently as one month ago (Jan. 23) it traded at N28.5, meaning it is down some 20 percent in 30 days.

At the other extreme, heavyweight bellwether Dangote Cement is bucking the down trend in equities with a 7.3 percent gain year to date.

The cement maker which is the largest listed company in Nigeria, with a market capitalisation of $24.2 billion grew after tax income by 46 percent to N154.9 billion ($974 million), in the third quarter of 2013 from N105.5 billion a year earlier.

Nigerian companies are riding a growth wave- that should positively affect the bottom lines – which saw them sign more than $13 billion of syndicated debt, four times the amount raised in 2012, according to data compiled by Bloomberg.

The economy grew 6.81 percent in the third quarter of 2013, figures from the National Bureau of Statistics (NBS) show, while gross domestic product will increase by 7 percent this year, according to IMF estimates.

“Indeed, there are loads of buying opportunity in the market currently,” said Abiodun Keripe, head of research at Investment One Financial services Limited, in a response to questions.

“Clearly, company fundamentals remain and have not been affected by the news flow, and as such I will expect to see some stability in the weeks ahead.”

Nigerian banks dominate as foreign entrants play catch up

Bamidele Ajayi, a businessman living in Lagos has bank accounts with three different home grown Nigerian Banks. He moved to his recent (3) banks from other Nigerian banks, but has never considered banking with a foreign brand such as Standard Chartered.

“I don’t know why, I just prefer Nigerian banks,” said Ajayi, 44 in an interview outside of a Diamond Bank branch in Festac Town, a Lagos suburb.

“I believe that if I have any problem with my money, they will resolve it for me, since I have banked with them for a long time.”

As the Federal Government struggles with its buy Nigerian campaign, one area it can rest easy is in the financial services sector, where Nigerians mostly patronize the domestic bank brands who dominate the market.

This comes as a lot of foreign banks have expressed interest of recent in the Nigerian financial services space, with various players keen on entering the market.

The new entrants to the market would however have a difficult time dislodging entrenched players analysts say; although increased competition may affect some of the established banks bottom lines.

“We believe that leading banks have stable business position in Nigeria and new entrants would have limited impact on Top tier Nigerian banks,” said Samira Mensah, associate director, Financial Institutions ratings at Standard & Poor’s, in an email response to questions.

“The nationalized banks are fairly small and we consider that they would not provide game changing attributes to existing players, but could be good entry points for foreign banks,” said Mensah.

The six tier-one banks (First Bank, ETI, Zenith Bank, UBA, Access Bank and GT Bank), account for 68 percent of the industry total assets of N21.3 trillion ($136 billion) as at December 2012.

 The AMCON (Asset management corporation of Nigeria), has 3 bridged banks for sale which may attract foreign buyers, while Robert Diamonds Atlas Mara Co-Nvest Ltd has announced his intention to acquire a number of African financials probably starting off in Nigeria.

A number of South African banks have also expressed their intention to enter the Nigerian retail banking market.

Standard Bank, South Africa’s largest bank already has a presence in the country through its local unit called Stanbic IBTC, while First Rand pulled out of negotiations to acquire sterling bank in 2012 after a deal could not be reached although it was granted a Nigerian Merchant banking license in 2012.

Rand Merchant Bank the local unit of First Rand would build scale and critical mass in its merchant banking platform, “before it ventures into retail in a couple of years,” it’s CEO Michael Larbie, said last week, in an interview.

The prize for foreign players eyeing the Nigerian financial services space lies in the demographics, growing incomes and low financial inclusion.

The nation of 170 million people – the largest population in Africa – has seen its economy expand more than six-folds since 2000 to $261 billion at year end 2012, making it the second largest in Africa.

GDP growth averaged 8.3 percent per annum in that time period, while GDP per head rose to $1,587 in 2012 from $378 twelve years earlier.

However 46.3 percent or 39.2 million adult Nigerians do not have access to financial services, according to the central bank (CBN).

Nigerians that do own bank accounts, often prefer the local or indigenous banks that they have grown used to, which usually have more branch networks across the country than foreign banks. 

Regulatory changes that could slow earnings growth in 2014, higher capital requirements, and increasing pressure on costs and margins also mean banks are bracing themselves for a tougher, more competitive market.

This will limit newer bank’s ability to compete with existing players for some of the unbanked said Meristem research analyst, Olukayode Omosebi, who expects established banks to aggressively defend their market share.

“The impact of the new entrant into the sector will mean heightened competition for deposits. The banks with large balance sheet can easily expand their local franchise to generate cheap deposit and create more risk assets. So for the new entrants, it will be a bit challenging.”

Zenith Bank CEO to become next CBN Governor

The Managing Director/CEO of Nigeria's Zenith Bank Plc, Godwin Emefiele has been nominated by President Goodluck Jonathan, to succeed suspended CBN Governor Sanusi Lamido Sanusi.

Zenith Bank is Nigeria's second largest bank by market value.

Emefiele is a University of Nigeria, Nsukka - trained banker.

He also has an MBA from the same institution.

Emefiele who joined Zenith Bank from inception assumed the post of MD/CEO of the bank on August 1 2010.

Nigerian President Jonathan suspends Central Bank Governor

Nigerian President, Good Jonathan has suspended the Central Bank Governor, Sanusi Lamido Sanusi.

The action halted bond trading and sent the naira to a record low against the dollar.

Stocks fell 1.47 percent,while the naira fell to N164.35 per dollar.

It remains to be seen if this is a temporary blip to markets confidence, perhaps in 6 months we will all look back and see the coming weakness in markets as a buy opportunity.

However, this sends a bad signal about the independence of the Central Bank in Nigeria

Stocks maintain uptrend as bulls push index up 1.09 percent

The Nigerian Stock Exchange (NSE), maintained the bullish trend today as a bullish investors pushed the index up 1.09 percent at the close of trading.

Market breadth which had been favouring decliners tilted towards the advancers to peg at 1.74x (33 stocks gained as against 19 stocks that lost).

The ASI closed at 39,397.09 points. The next battle for the bulls is to cross the psychologically important 40,000 points, on the upside.

ETI set for a takeover?: The plot thickens

Thierry Tanoh the Chief Executive Officer (CEO) of Ecobank Transnational Inc, the pan- African lender which has been hit by poor corporate governance allegations may quit next month after reports that senior executives called for him to steo down, DaMina Advisors LLP said.

Tanoh may resign at an extraordinary shareholder meeting that Ecobank is holding on March 3 to adopt a plan for recommendations on corporate governance made by Nigeria's Securities and Exchange Commission, New-York based Damina said in a note released February 17.

Could this be the beginning of a take-over battle for the West African based ETI by South African shareholders?

South Africa's Nedbank has options to convert a $285 million loan to ETI into equity by November 2014. 

Nedbank holds hold subscription rights into 2.478m shares (equivalent to a proforma 12.6 percent stake based on the December 2012 shares in issue).

It also has the right to purchase additional shares at a market based price to reach a proforma  ownership of 20 percent in ETI.

Meanwhile the South African based Government Employee Pension Fund (PIC), is already the largest single shareholder in ETI, with an 18.16 percent stake as at December 2012.

Other top holders include Nigeria's AMCON and the International Finance Corporation (IFC) a World Bank arm. (See Table).

At 31 December 2012, ETI had authorized share capital of 50,000,000,000 ordinary shares with a par value of 

$0.025 per share.

Fig 1: Top 10 ETI shareholders as at Dec 2012

Markets mark time, NSE rises 0.02 percent

Nigerian markets closed flat today, as the NSE - ASI barely stayed in the green rising by 7.81 points to close at 38,972.56 points.

The naira dipped at the interbank market today, with the counter currently offered at N163.5 according to FMDQ data.

The Central Bank of Nigeria (CBN), sold $599.904 million of the $600 million offered at the currency auction yesterday at a marginal rate of N155.75/ $.

The CBN still has $41.7 billion in FX reserves (Feb.14), suitable for 9 months of import cover. However for this market to rally, the hemorrhaging of reserves has to stop, and investors need to see a credible plan from the central bank on how it plans to stop further naira weakness.

A shift in the naira peg band upwards to N160/ dollar plus or minus 3 percent may also not be out of order.

CBN to auction N130  bn in T-Bills

The Central Bank of Nigeria's (CBN) Treasury Bills (T-Bills) Primary Auction is scheduled to hold on the 19th of February, 2014.

T-Bills worth N130.648bn will mature on the 19^th of February, while an equal sum will be issued in 91-day, 182-day and 364-day instruments. 

The CBN is expected to auction a total of N20.648bn, NGN30.00bn and NGN80.00bn in 91-day, 182-day and 364-day instruments respectively.

NSE rebounds gains 0.51 percent

The Nigerian Stock Exchange rebounded from last weeks sell-off , to gain by 0.5 percent today as investors went bargain hunting for beaten down stocks.

The index was up 195.87 points to close at 38,963.16. The gauge is still down 5.67 percent year to date.

NSE vs JSE in charts

Stock market performance of Africa's number one and number two economies, year to date.

Chart: Bloomberg (click to enlarge)

Where are the privatised power companies capex announcements?

The Nigerian government concluded the first round of power privatisation last October.

Generation and Distribution companies were sold, while the Transmission company is to be managed by Manitoba corporation of Canada.

The question now is, four months after the handover of PHCN (Power Holding Company of Nigeria) assets to private sector players, where is the capital expenditure to improve efficiency and boost output.

It is no secret that most of the acquired power assets are in poor shape and need billions of dollars in new investments.

Unless we begin to hear new announcements of capex investments by the new private owners, i would not be optimistic on the prospects of Nigerians overcoming the incessant blackouts and energy deficit any time soon.

NSE shake-out : Buy the dip?

Weak longs capitulating on this sell-off may well see this as a missed buying opportunity a month, or year from now.

The NSE was the worlds worst performing index today, according to Bloomberg data.

The reason for the sell-off can be boiled down to two things: currency risk and Central Bank regulatory actions that may hurt lenders profits.

The CBN has come out today to vow naira defense.

This may take the first variable (currency risk) off the table, however it may exacerbate the second, if the CBN tightens the screw further on liquidity (in a bid to defend the currency peg), which may further hurt lenders profits.

So what is the play for investors?

Selective stocks selling at a bargain would be the way to go.

GTB (Guarranty Trust Bank) at N24.7 looks like a steal. Investors may want to start nibbling a little on what is perhaps the best in class banking name in Nigeria today.

Dangote Cement has behaved well since the sell-off began, and at N234.7 is just off its all time highs.

If you are already in this name do not sell this one cause its going much higher.

The market selloff may persist for a while though , but investors that buy solid company's that provide essential services or goods will come out of this smiling.

Disclosure:  I own Dangcem and GTB stock in my personal portfolio.

Sell-Off persists as NSE down 1.55 percent

The sell-off in Nigerian stocks continued today as the Nigerian Stock Exchange (NSE), fell 1.55 percent to close at 38,767.29 points.

The market confidence has been sapped by a weakening currency as well as tighter regulatory actions targeting the banks.

FirstRand to see 50 percent growth in Nigerian business on rising deals

…set to bring 3 IPOs to market in 2014

FirstRand Ltd is expecting a 50 percent growth in its Nigerian business this year as it increases its deal footprint across diverse sectors of the economy.

“We will see a 50 percent increase in performance across all our businesses, subject to the various uncertainties and risks that are in the markets, although we are coming from a low base, “Michael Larbie, Chief Executive Officer of Rand Merchant Bank (RMB) the Nigerian unit of FirstRand, said in an interview i had with him yesterday at their Lagos headquarters.

“The prospects for 2014 are quite encouraging, even with elections uncertainty which is to be expected. The types of transactions we are seeing however will stand the test of time.”

FirstRand’s signature deals for 2014 include the Lekki port project, a fertilizer project and an independent power plant, according to Larbie.

“We remain ready to participate a lot more in the power sector. With phase one of the PHCN privatization done, we think a lot more transactions need to happen to actualize the power targets of 40,000 MW,” said Larbie.

“We think the successor companies to PHCN are going to need a lot of money maintain existing infrastructure and improve capacity generation.”

RMBs Nigerian businesses currently consist of financial advisory, structured products, corporate lending, trade finance, letters of credit (LCs), fixed income trading and FX trading.

The bank expects to enter the stock broking and equities trading business once it puts its platform together and secures the necessary licenses from the regulatory bodies.

“There is also the custody and asset management business, which are all verticals that over time one would expand into,” said Larbie.

The bank is set to bring a number of names to the IPO market this year.

“We are engaged on several IPO mandates, in the Agro processing, FMCG and ICT space,” said Larbie.

“I am quite encouraged by the variety of sectors these names are coming in from…the pipeline looks encouraging.”

FirstRand opened an investment banking unit in Nigeria in 2012. Some signature deals RMB participated in last year include the $3 billion in local and foreign currency transaction for MTN, of which it participated to the tune of $200 million.

Dangote’s $3.3 billion dollar deal for a 400,000 barrels a day refinery and fertilizer plant, and a fund raise for African steel mills a Nigerian based steel manufacturer.

It also concluded a transaction for the Africa Finance Corporation (AFC) late last year, as mandated lead arranger for a $250 million syndicated loan.

In the oil and gas space the bank provided loans to the NNPC Exxon Mobil JV, was financial advisor and lender to Oando for the Conoco Phillips acquisition, and is “currently engaged with several indigenous companies on marginal fields divestiture by Shell,” Larbie said.

RMB would be willing to partner with the Mortgage Refinance Corporation, in creating securitization structures that allows the deepening of the mortgage market and involvement of PFAs and other investors into the real estate sector, by providing properly packaged real estate Mortgage backed securities (MBS), according to Larbie.

“We are active participants in the real estate sector in Nigeria, and have just broken ground to build Oando’s new HQ. We acted both as an equity investor as well as a debt financier for that project,” he said.

Feb 14: One year to Nigerian general elections

The Nigerian general elections will hold exactly a year from today (Feb 14, 2015), and it is quite exciting that we are slowly moving towards that decisive day.

Some investors have been expressing some angst over the fallout from the elections which are expected to be the tightest race since the PDP came to power in 1999.

However whomever comes to power next year, the reform pace is surely set to continue.

The opposition APC does not have a radically different agenda from the ruling PDPs laizzes faire free markets capitalism. If anything some say the APCs win might actually accelerate free market reforms.

The party has done well in the few states it controls and it is mainly in Lagos, that it gets its credibility for turning around the city into the vibrant metropolis it is today.

Nigeria has had 15 years of un-interrupted democracy, since the military left power in 1999, after decades of mis-rule, and the generals are firmly under civilian control.

That is better than a lot of frontier and emerging markets such as (Thailand, Pakistan, Egypt, Colombia, Venezuela, Vietnam and so on).

Investors looking at the medium term - 3 to 5 years - may do well not to be spooked in the coming months as the election rhetoric ramps up.

If anything they should be more worried about who takes over from the incumbent Central Bank Governor in June, than in who takes over from the incumbent President, next year.

Red ThursDay: NSE down 2.24 percent on negative sentiment

Stocks fell today as the prospects of a rise in the cash reserve requirments (CRR) for banks to 100 percent weighed on stocks, see...http://patrickatuanya.blogspot.com/2014/02/what-does-100-percent-crr-mean-for.html.

Most financials sold off with First bank and Stanbic Ibtc down 5 percent each.

The NSE-ASI lost 900.67 points (down 2.24 percent), to close at 39,378.15 points. The market capitalisation fell by N289.22 points to N12.62 trillion. The markets year to date losses fell to -4.72 percent.

Fixed income flows to Nigeria stable despite EM turmoil

Offshore investor flows to Nigeria, are remaining stable for now, despite the ongoing Emerging Market (EM), turmoil.

This is according to Michael Larbie, Chief Executive Officer and Regional Head: West Africa for FirstRands Nigerian unit called Rand Merchant Bank, in a chat with me, today in Lagos.

Larbie said: "On the fixed income side, the flows have so far continued to be robust, there have been some redemption's, but on a net-net basis, the rate of outflows is not as bad as we see in other markets, like South Africa, India, and Turkey. On a comparative basis Nigeria is well positioned."

The naira has come under renewed pressure in recent days and has traded outside the Central banks nominal band peg of 155 plus or minus 3 percent per dollar.

The offshore flows into Nigerian fixed income assets are necessary for reserve accretion for the central bank, whose firepower (gross reserves) stood at $42 billion (Feb 12), down some 3.4 percent since the start of the year.

Frontier markets attracting increased attention

Frontier markets such as Nigeria are increasingly attracting hedge funds and money managers.

The latest is from Ahmad Zuaiter, a former money manager for Soros Fund Management who is starting a hedge fund firm to invest in frontier markets, including Nigeria.

Earlier this week at the Renaissance Capital Investor conference held in Lagos, i spoke with Bob Diamond CEO of Atlas Merchant Capital, an African Investment Company he founded with Ugandan entrepreneur Ashish Thakkar.

Diamond and Thakkar raised $325 million in an initial public offering (IPO) for Atlas Mara - a cash vehicle controlled by Atlas Merchant Capital and listed in London - in December.

Speaking to Diamond on Monday (Feb. 10), he seemed pretty bulllish on the prospects for investing in Africa, especially in the financial services sector.

Atlas Mara may be interested in one of the three state owned Nigerian banks up for sale by AMCON (the asset management corporation), of Nigeria, although Diamond declined to comment on what specific names he is targeting to acquire.

What does 100 percent CRR mean for Nigerian Banks?

Nigeria's Central Bank Governor Sanusi Lamido Sanusi, hinted at a conference in Lagos today that the cash reserve requirements (CRR) on government deposits in banks may move to 100 percent from 75 percent.

Sanusi has been using the CRR tool as a means to tighten ample liquidity in the system which he blames for the increasing pressure on the Nigerian naira.

Earlier in the day the naira traded at its lowest levels in almost 3 years,at N164.7 per dollar.

Nigerian banking stocks which have had a terrible start to 2014 may correct further in tommorows trading session, which would be bad for the NSE as the banks make up close to 30 percent of the bourses capitalisation.

Banks may sell-off because they make most of their income by channeling excess funds into FGN bonds, at yields north of 13 percent. Some of that free money is being taken away by the CBN, which has started to affect profitability.

Most banks reported lower profits and revenues in the third quarter of 2013, compared to the earlier period in 2012.

Smaller banks (Skye, Diamond, Fidelity) may bear the brunt the most from a further increase in the CRR, however large banks (First Bank) with ample funds may also see a big reduction in profitability. This has already happened for First Bank and Skye Bank, in the 3Q results.

The outlook for Nigerian Banks in 2014, remain hazy. We would need to see full year results for some clarity and outlook for loan growth in 2014.

All the same UBA looks interesting at these levels for accumulation of shares. The bank (UBA) trades at a discount to its peer tier one names, but it has cleaned up its books, has ample room to increase lending with loan to deposit ratios in the mid 50 percent, and also is the most diversified Nigerian Bank, with almost 12 percent of its revenues coming from the rest of Africa.

Nigerian President drops 4 ministers

Nigerian President Goodluck Jonathan, has sacked four of his ministers. They are that of aviation, Niger Delta affairs,  minister of state Finance, and police affairs.

This is probably jockeyeing ahead of next years elections as the President seeks to dispense of political liabilities and beef his cabinet up ahead of general elections.

Investors should not be alarmed as the key reformer in the cabinet, the minister of Finance Ngozi - Okonjo Iweala is still in charge of her ministry.

NSE down 0.72 percent

The Nigerian bourse lost 0.72 percent today bringing the year to date losses to -2.82 percent.

A three year chart shows the upward trendline as unbroken, however, meaning it is still safe to buy the dips here.

Chart: Bloomberg

Heineken reports fully year 2013 results

Heineken N.V. today announced that group revenues grew 1.3 percent for 2013.

Group operating profit increased 2.8 percent and grew 0.6 percent organically, and group operating margins expanded by 20 basis points.

The company proposed total 2013 dividend of Euros 0.89 per share unchanged versus 2012.

In 2014, Heineken expects a gradual recovery in the global economy to underpin improved trading conditions in several of its key markets, according to a statement that accompanied the earnings release.

Heineken had a solid brand performance in Nigeria, in 2013 with volumes rising by 3.5 percent in the Africa and Middle East region.

Nigeria is certainly a key growth market for Heineken which owns a majority of market leader Nigerian Breweries (NB).

NB, the second largest stock traded on the Nigerian Stock Exchange (NSE)(market cap., $7 billion) has however had a slow start to 2014, down 9.35 percent and under-performing the wider stock index, which is down by 1.34 percent.

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Big cap Dangote Cement outperforming NSE 

The Nigerian Stock Exchange (NSE) is down 1.34 percent year to date, however heavyweight bellwether Dangote Cement is bucking the downward trend with a 9.49 percent gain ytd.

Dangote Cement has a market capitalisation of $24.5 billion and is the largest listed company in Nigeria.

Investors seem to love this stock because even though it is a heavy weight large cap, it is still throwing out eye-popping revenue and net income growth figures.

The cement name which is the largest manufacturer of the building material in sub-Sahara Africa (20.23 million metric tons) grew revenues by 29 percent in the nine month period to September 2013.

After tax income for the nine month period advanced by 46 percent to N154.9 billion ($974 million), from N105.5 billion a year earlier.

Dangote Cement is riding the demographic growth wave in Nigeria of rising population, increasing urbanisation and higher income levels.

The 170 million population may also more than double to 400 million by 2050.

Dangote Cement fires its plants with natural gas which is cheap and plentiful in Nigeria. Its gross margins - around 50 percent- are some of the highest in the world.

The company is also spending $4 billion to expand into 18 countries in Africa

I believe Dangote Cement can easily double to a $50 billion company, if it can effectively execute its expansion plans.

The stock closed trading at N239.77 a share, today.

Investors could accummulate this stock here with a stop loss at N180 per share, while my initial upside target would be N320 per share in the next 10 months.

Chart: Bloomberg

CBN sells $399 million at currency auction 

The Central Bank of Nigeria (CBN), sold $399.98 million at its bi-weekly currency auction yesterday.

The highest bid rate at the auction was $158.27 per dollar, while the lowest bids came in at $155.00 per dollar.

22 banks participated in the auction.

The spread between the CBN rate and the interbank rate hovers around N6, with the naira trading at N164.8 at the Nigerian Interbank Foriegn Exchange (NIFEX), market.
USD/NGN - 1 month

Chart : Yahoo

FGN to sell N90 bn ($552 million) in sovereign bond notes

The Nigerian Federal Government through the debt management office (DMO) will be offering N90 bn ($552 million), in sovereign naira denominated bonds on February 12, 2014, through a bond auction at the primary bond market.

The instruments to be offered at auction are 3yr and 20 yr bonds of N45 billion each.

It will be interesting to see the bid to cover ratios on this offer, in light of the current EM turmoil, and slight pressure on the naira.

The 3year 13.05 16-AUG-2016 currently yield 13.46 percent, while the 10.00 percent 23-JUL-2030 trades at a yield of 13.54 percent, according to data from the Financial Markets Dealers Quotations (FMDQ), website.

Nigeria SWF growth begins as $550 million transferred to it

Finally, Nigeria's Sovereign Wealth Fund (SWF), gets to become a real SWF with regular transfer of oil funds above the budgeted benchmark oil price as the minister of finance Ngozi-Okonjo Iweala, announced yesterday that it had transferred $550 million to it.

The SWF now has a total of $1.55 billion in assets, after it started operations with $1 billion.

The $550 million provided to the SWF is to help guarantee power trading and spur investments to build the country’s electricity market, Okonjo-Iweala said.

Out of the fund, $350 million will be used as “liquidity facility” for the state-owned bulk electricity trader, which guarantees power sales by producers to distribution companies,according to Okonjo-Iweala . 

The remaining $200 million “will be for the infrastructure fund for gas-to-power investments.”

This is great news in so many ways. It shows that even with general elections in about a year and temptation for politicians to spend, there is still some push for reform.

I expect Nigerian stocks to rally today on this news, and the naira (domestic currency), to firm against the dollar.

Nigeria relies on crude exports for about 95 percent of its foreign-currency earnings and about 80 percent of government revenue.

However despite decades of oil production, the country has never previously had a SWF.

The Nigeria SWF is split into three funds.

The SWF will safeguard oil revenues for future generations, with a future generations fund, provide a buffer against external shocks with a stabilisation fund and spur infrastructure development in Nigeria with its Infrastructure fund

The Nigeria SWF is the third-largest in sub-saharan Africa, after the $6.9 bn Botswana and $5 bn Angola fund.

However at only 0.56 percent of Nigerian GDP ($273 billion at ye 2013), the SWF has room to grow before it can confidently perform all of its intended functions. 

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