IS THE PRESIDENCY STILL ON VACATION?

It is no longer news that the problem Nigeria is having and may continue to haunt her has to do with lack of a functional plan or not planning at all or both. Either way, the fact remains that we need to do some re-think by way of seeing to it that we have a functional plan in place, a plan that we allow businesses to key in into activities with less disruptions and or distortions. A plan that will ensure stable prices and sound projections, with the Nigerian business operating in a near certain environment that is commerce friendly.

The envisaged plan should also take note of state tardiness and pump live into official activities with purpose and focus on what will benefit Nigeria and aid development.

Therefore, in this new year, we should spare some time to reflect on our past, reviewed against our present to shape our future as made popular by the late reggae artist ‘Peter Tosh’ in one of his works titled ‘Equal Rights’, in a lyric that states thus…“I reflect in the past, live in the present but working for the future…“. I propose this approach because Nigeria is notorious for not learning from experience.

The basic management tools that encourages review or auditing or appraisal of activities periodically is only in our consciousness to fulfil all righteousness. Beyond that it must be the way it has been, chaotic, dis-organized and sometimes, very violent and confusing. This way, records would have been compromised, and rules abridged so that accountability will suffer.

Painfully to the generality of the public, and to the benefit of a few who created the confusion, set goals and objective cannot be appraised and measured because the tools to do that has been corrupted and violated all because there was no plan in place at the out set.

The need for this reflection is ever present with us and is now more urgent and necessary than ever given the signals emanating from the direction of the ‘institutions’ that should show the lead and the way the nations’ economic activities should go.

Sadly, the national assembly always not sure of what to do next, may be, because they do not understand their briefs, probably by default or share ignorance, are yet to pass the 2009 budget. It is normal in Nigeria, even when in more than nine years of democratic practise; we are yet to come to terms on the necessity of being orderly. Imagine the senate president suggesting that by 2011, we would have ‘learn’ the act of passing the budget well’ on good time. No problem.

For a nation that has substituted an annual budget for a national plan not much should be expected and you cannot blame the senate president for displaying crass ignorance. It is just that the man has stayed a little more than two terms for a formal degree in a university on the average, yet he is asking for more time to have a resit? And this character is one of the key functionaries who are to give Nigeria an enabling environment for good business by way of laws that tallies with international standard.

Even the budget as presented has once again exposed our readiness to help other economies grow at our own expense. The small and medium sector of the economy received a good measure of neglect by way of protecting imports to local production. No thanks to the complete absence of any concrete serious plan to tackle the energy sector which should have reduced cost of production and conserve foreign reserve from the importation of petroleum products albeit shamefully though. Nor are the authorities bothered on the future health implications of having to run generating sets noted for pollutants. See the ‘Owerri” deaths. Our roads are where madam Dezani met them and may not even receive attention beyond the annual ritual of constructing the roads on paper at Abuja.

The presidency is still on vacation. Can we have some speed? Can we just for Gods sake change our time worn strategy? Please, we need it. And now too.

INVESTMENT GUIDELINE FOR 2009

You are welcome to 2009, I want to wish you a happy new year and my sincere prayer is that the Almighty God will see you through the year. During the course of the Christmas and New Year break I took time to reminisce on the events that took place in the financial markets in 2008. For example, all of us are aware that as far as the stock market is concerned 2008 was a year that you and I will not forget in a moment because it was dominated by the bears.

Dear friend, irrespective of all the challenges that we had witnessed in the capital market in 2008, it’s important for you to know that a new year has come. It’s time to get over the past and make new strategies for the challenges and opportunities that lie ahead which form the focal point of this article.

Stock market and general financial crises are recurrent phenomena in different generations, so it is inevitable. The most important thing is knowing what to do when we face financial challenges and that is why I want to congratulate you if you are reading this article because it will definitely open your eyes to common sense financial principles which a lot of us have broken and have paid seriously for.

HOW TO INVEST WHEN THE MARKET IS DOWN

1. Risk and Return: the forces of risk and return are two major factors you must put into consideration before investing your money in any venture this new year. Risk and return are twin brothers that are inseparable and in the financial world they have what we call a direct relationship, which means, the higher the return expected from an investment the higher the risk attached to it, also the lower the return expected from an investment, the lower the risk level will definitely be.

I want to appeal that you come to terms with these two major factors that will determine how successful you are financially in 2009, because investors who have ignored these forces, have had their fingers burnt and you reading this article might have been a culprit at one time or the other in the process of taking investment decisions.

I will explain these two major forces better by using the various classes of investments we have and how these two factors affect them. The classes of investments that yield the lowest return in Nigeria today include government bonds, treasury bills, fixed deposits and many other instruments that yield interests. As low as the return being generated from these instruments may seem, the level of risk attached to them is quite low; an investor who puts his money in any of these will, at least, be assured that he will get the principal invested back. Let’s take a look at the capital market that most of us are familiar with.

In Nigeria, the major instruments traded in the capital market are shares or stocks as some people call them. Shares are volatile financial instruments whose prices can go up or come down; they are not interest yielding instruments and are very different from the classes of investment earlier mentioned. At every time the prices of shares continue to go up or down, they are not meant to be static, and as a wise investor your major priority is knowing the factors behind these upward and downward gyrations so that you can take steps to safeguard your investment accordingly. But the painful observation I had made is that many investors who put their hard earned money in the stock market assume that stocks can only go up and not down, this is a wrong assumption.

The third dimension to viewing the forces of risk and return by a Nigerian investor is by considering the case of wonder banks like Sefteg, Wealth Solution and others. These wonder banks promised investors returns as high as 500 to 1000 per cent within a space of time. Most of these schemes did not stand the test of time because they have broken the same financial principle that I am sharing with you now. I actually found it funny when investors started complaining when these illegal fund managers folded up. My answer to the whole issue was very simple and I really need you to think about it very well: “If a scheme can promise the highest return within the shortest possible time, shouldn’t you be ready to face the music if all your funds are lost in the process, just because of that same financial law which states that the higher the return from an investment, the higher the risk will be.”

Dear readers, always take these two factors into consideration when it comes to investment and financial decisions you will be making in 2009 and years to come. They are basic laws in financial management that most investors often ignore but I want you to come to terms with them and apply them appropriately. I have shown you the weaknesses and strength of different forms of investment, in the next issue of this weekly, we will consider other financial principles that will guide how you invest in these trying times. Happy New Year!

Jide Ogunleye is a chartered accountant, and CEO, Denaro Capital Ltd.

Good management pays healthy dividends

Amid an atmosphere of escalating socio-economic uncertainty, it is important for both employers and employees to position themselves effectively.

Service providers who focus on people management through technology suggest this positioning should involve a serious review of the efficiency of human resources, recruitment processes and payroll administration.

Teryl Schroenn, CEO of Accsys, a provider of HR, payroll and time and attendance management solutions, says current conditions are forcing businesses to re-assess their abilities in these key departments and are also compelling job-seekers to fine-tune their skills and polish up on the basics.

“Decision-makers and HR managers have to check the results and outcomes of HR strategies, and whether these are having a positive or negative effect on progress and growth,” she says.

“Their recruitment policies, induction programmes, on- and off-site training programmes and career development programmes, all fall under scrutiny.”

Technology application is one of the first areas where decision-makers tend to heed a call to action. There is technology out there that can and does make a difference to processes and procedures, if applied correctly.

While this is true, says Schroenn, with any technology investment there needs to be a careful consideration over critical business requirements, existing systems in place, training and long-term consequences.

“Technology alone is limited in the elimination of problems with HR or payroll processes. At the end of the day, it still requires people to apply their skills and extract the maximum benefit and value out of the technology,” says Schroenn.

Accsys advocates the importance and relevance of training and skills development as elements of a corporate growth strategy. “Companies are also under pressure to ensure that they have a competitive recruitment policy framework in place and that skills development is firmly entrenched in their core operations. Essentially the effective management of people will pay short- and long-term dividends and reflect in an improved bottom line,” adds Schroenn.

“People management, in terms of the workplace, has changed and is being shaped by a myriad factors – from technology right through to economic pressure and work/life balance.

“The result is that job-seekers are more aware of what they would like from the workplace, but also that employers are more astute in their selection of candidates.”

However, while a company has a number of responsibilities with regard to people management and raising levels of productivity, employees and job-seekers need to be aware of the ever-changing dynamics of the modern workplace.

While the skilled employee is in a strong bargaining position, a long-term successful career requires a good track record in terms of a combination of skills growth and stability alongside strategic job moves and promotions.

Today, there are many career and lifestyle coaches who can assist employees with their choices.

Schroenn also comments that companies need to look both internally and externally for input on their people management policies. “It helps to have an experienced partner on board that has the knowledge and resources to offer proactive support and guidance to businesses.

“This is because a credible service provider can help organizations negotiate the many pitfalls in HR strategies. These challenges include lack of communication between employer and prospective employee, mis-information, poor placement of individuals, lack of training or input from management, and much more.”

Essentially, the tried-and-tested principle of a happy employee being a productive employee still holds true, says Schroenn.

McKinsey Global Survey Results: How companies make good decisions

Companies get a lot of advice about how to make good decisions. Which decision-making disciplines really make a difference?

Do strong decision-making processes lead to good decisions? This McKinsey survey highlights several process steps that are strongly associated with good financial and operational outcomes. In the survey, we asked executives from around the world about a specific capital or human-resources decision their companies made in the course of normal business. We learnt who was involved, what drove the decisions, how deep the analysis was, how unfettered the discussions, and how and where politics were involved. Respondents also described the financial and operational outcomes of the decisions.

The results highlight the hard business benefits such as increased profits and rapid implementation of several decision-making disciplines. These disciplines include ensuring that people with the right skills and experiences are included in decision making, making decisions based on transparent criteria and a robust fact base, and ensuring that the person who will be responsible for implementing a decision is involved in making that decision. Finally, although corporate politics sometimes seems to undermine strong decision-making, some types of consensus-building and alliances apparently can help create good outcomes.

Notes. The survey was in the field in November 2008 and received responses from 2,327 executives from the full range of industries, regions, and functions.

Describing the decisions. The survey covered the gamut of typical corporate decisions, from expanding into new products or services to maintaining infrastructure. More than three-quarters of investments were aimed at revenue growth, and among decisions related to human resources, the majority aimed to improve efficiency or productivity.

A majority of decisions were undertaken at the behest of the CEO or the executive committee, with only a minority (23 per cent) driven by some sort of immediate threat. More decisions were made outside an annual planning process than within one. And nearly two-thirds of respondents say they expected their decision to pay off within two years of implementation. Operations executives had significant influence on only about a third of the most financially unsuccessful decisions, reinforcing findings from other surveys that companies frequently overlook execution when making decisions.

Overall, outcomes for these decisions were good. Among decisions for which the outcome was known, about two-thirds met or exceeded executives’ expectations for revenue growth and cost savings.

Furthermore, strong majorities of respondents say the results of their initiatives met their expectations for speed, implementation cost, and gains in market share or efficiency.

Outcomes are not known for about 20 per cent of decisions aimed at revenue growth and 16 per cent of decisions aimed at cost savings.

What goes into a good decision. For starters, the survey emphasizes that good decision-making involves avoiding some basic mistakes. Decisions initiated and approved by the same person generate the worst financial results indicating the value of good discussion. And decisions made at companies without any strategic planning process are twice as likely to have generated extremely poor results as extremely good ones, more than a fifth of them generated revenue 75 per cent or more, below expectations. This may indicate an overall lack of rigour at these companies.

Furthermore, this survey highlights several elements of decision-making processes that are associated with good financial and operational outcomes, whether the goal is revenue growth or cost savings. One relatively straightforward finding is of strong relationships linking financial success, clarity about who is responsible for implementation, and the involvement of that individual in the decision-making process. Other important findings concern the types of analysis, discussion, and corporate politics that are associated with successful decision-making.

Analysis. We asked about 11 aspects of analysis. Four are associated with financial success, speed of project completion, cost of implementation, and improved efficiency or productivity:

 Performing sensitivity analysis and creating financial-risk models

 Including comparable situations from one’s own or the firm’s experience

 Examining the risks of this project combined with the risks of other projects in the firm’s portfolio

 Creating a detailed financial model of the decision.

The survey also indicates that including analogous situations from outside of the organization improves some outcomes, notably expected profitability and revenue growth.

Discussion. Respondents also describe the discussions surrounding their decisions. Of the eight potential discussion types we asked about, three are associated with financial success and with completion of the project in less time than expected:

 Encouragement of participation on the basis of individuals’ skills or experiences

 Reliance upon transparent approval criteria for the decision

 Discussion of this decision as part of the firm’s whole portfolio of decisions.

Politics. Corporate politics has a bad name, but respondents suggest that the effect of politics depends on the nature of the tactics used. When executives involved in a decision were primarily concerned with its effect on their business unit rather than the overall organization, for example, financial results and all other measures of success were much likelier to fall far below expectations. Simply put, a silo mind-set hurts performance. In addition, slow project completion times are associated with selective information reporting.

However, the survey results suggest some types of informal alliance-building and horse-trading among executives, may help companies make good decisions. We asked about six ways that politics can affect decisions. Better-than-expected completion speed is associated with executives forming alliances to craft consensus for action across business units and with executives making exchanges across alliances to build support for different projects.

Finally, a word about CEO involvement: Respondents say CEOs tend to have a large role in instigating both the most and the least successful decisions. Perhaps this indicates CEOs are more likely than other executives to place or be able to secure approval of risky bets with big up-sides and down-sides. This result also suggests that thorough examination and devil’s advocacy will be particularly valuable when CEOs champion pet projects.

Looking ahead. Unlike the external risks that accompany most strategic initiatives, the analysis of a project, its discussion, and the management of the internal politics, lie entirely within the control of the top leadership team. Companies not using the best practices identified here should be able to improve their decisions simply by following these guidelines:

 Pay particular attention to the risks of the project, examined through a detailed financial model, sensitivity analysis, and the relationship of those risks to the risks of other projects in the firm’s portfolio. Learning from past comparable situations also is beneficial.

 Ensure that participants in the discussion about any decision are included on the basis of skills and experience, that decision criteria are transparent, and that the decision is discussed in relation to the organization’s other strategic decisions.

 Put organizational goals ahead of business unit’s goals, and encourage efforts to build consensus across business units.

About the Contributors. Contributors to the development and analysis of this survey include Massimo Garbuio, a lecturer at the University of Sydney, Dan Lovallo, a professor at the university and a research fellow at the Institute of Management, Innovation and Organization at the University of California, Berkeley, as well as an adviser to McKinsey; and Patrick Viguerie, a director in McKinsey’s Atlanta office.

Notes Including intelligence about the likely reactions of current and of potential competitors, doing sensitivity analysis and financial models of risk, examining the risks of this projects combined with the risks of other company projects, studying multiple comparable cases to provide a reality check on financial analysis, creating a detailed financial model of the decision, analyzing the potential reaction of capital markets and analysis, studying comparable situations from both inside and outside the firm, including information that would contradict the investment hypothesis, and basing the decision largely on intuition.

Respondents were asked whether the discussion of this decision included the firm’s whole portfolio of decisions, the major uncertainties inherent in this decision, participants determined by their skills and experiences, transparent approval criteria, points of view contradictory to those of senior leaders, and a robust fact base. Also, they were asked whether the decision was made and implemented, at least, as quickly as it would have been by competitors.

WHEN CONDOMS AND APHRODISIAC DOMINATE SHOPPING ITEMS

Written by Tom Obaseki.

Yes, Welcome to 2009. Yes, Most of us Pharmacists are usually always pushed to the peak of professional counselling during end of year celebrations. Christmas and New Year celebrations are supposed to be periods for stock taking and sober reflections. Unfortunately, it is now associated with high level of promiscuity, infidelity and unprecedented high level of sexual activities.

It is not unusual to find most Pharmacists overwhelmed with demand for condoms, aphrodisiacs and ‘Postinor-2.’

For the group of condom seekers and users, our problem is usually half solved as they already appreciate the challenges of sexuality and are already taking steps to practise safe Sex.

A new development that however characterised the last festivities was the strong demand for aphrodisiacs like never before. While the men wanted to boost their strength and power, the females were desperately seeking for medicinal enhancement to prove a point by satisfying their men in order to impress them.

But then, the highest professional counselling requirement was certainly from the group that used Postinor 2. Postinor 2 belongs to the class of emergency contraceptive indicated for people that engage in infrequent sexual intercourse to prevent pregnancy.

This group usually start turning out at the pharmacies from Christmas day after the merriment’ and revelling of the Christmas Eve. The demand for the contraceptive usually peaks on Boxing Day. Over the years this group have grown in number and is populated almost, by females of different age groups.

This year, the below 30years bracket seems to have taken the lead within this group on the demand spectrum. This is where the problem really lies. This group is made up of young girls who are sexually naive and their only fear in a relationship with the opposite sex is unwanted pregnancy.

The ever increasing number of this group suggests to us that the message of safe sex may just be hitting the rocks and not getting home.

Outside these sexuality group are those general fun seekers who over indulge in everything eatable with their mouths. They take every drink and eat every food available. Do you blame them? No, food and drinks are just in abundance. From afternoon on Christmas, they start trooping into pharmacies with complaints manifesting as indigestion and/or diarrhoea. Unfortunately, they are too quick to self medicate by asking for Flagyl Thalazole and Tetracycline when what they need is just an ant-diarrhoea. This is usually the time that most Pharmacies, run out of stock of Antacids and Andrews Liver salt.

What is the lesson for the season? It appears there is no better time and season to emphasis campaigns on sexuality, HIV/AIDS and STDs than the days leading to festivities like Christmas. Non Government Organisation, (NGO’s) and appropriate government and private agencies involved in projects in these areas will achieve so much success if such campaigns started in November and peaks toward the Christmas and New Year celebrations the effect would be better felt in the target group.

CRISP FUN AT SKYEBANK END OF THE YEAR PARTY

Work hard, play hard, clear all worries form the fulcrum of the marketing theme of Skye Bank’s Hakuna Matata!

Staff of the bank lived it up big time at the bank’s year end party that had top of the range artistes including 9ice and D’banj perform live on stage!

It was merry making all the way with plenty to eat, drink and even take away souvenirs.

The well organized and well attended event was held at the Eko Tourist and Beach Resort.

RUMBLE AT MTN

There was tremor, no, shake up particularly at the sponsorship department of the leading telecommunication company, MTN.

Key officers including Osaze Ebueku were seconded to another department for reasons described by our source as classified.

The new officers have since taken up the challenge and mandate to ensure that MTN gets more than a fair share of the highly competitive industry.

Shock Treatment At Oceanic Bank ATM

It was not a palatable experience for customers of Oceanic Bank, Toyin Street, Ikeja branch, in December when the bank’s automated teller machine (ATM) decided to give customers the ‘shock treatment’ as yuletide gift.

Of course, many customers had to stylishly and sensibly retrieve their cards to avoid possible electrocution.

However, we are glad to inform all concerned that the technical fault that led to that shocking experience has since been rectified.

But really, what could cause such? It then advisable to wait for the green light from the security-person before attempting using one.

Investor Beware! A Preview of the Nigerian Capital Market in 2009

Capital market drivers. The prosperity of the capital market depends on the prosperity of the economy. Thus the capacity of the market to successfully provide long-term funds and a good platform to trade in the accompanying securities will depend on the strength of macroeconomic productivity. A productive economy is invariably one in which economic agents create value and earn correspondingly meaningful income. Because economic agents generally subscribe to primary offers of either debt or equity or purchase stocks at the secondary market if they have income it is only consistent to argue that vibrant markets are ones where the economies create positive economic value added.

There are, however, other reasons investments can be made. These other factors are usually considered if the budget constraint has been satisfied. Thus no matter how appealing the market prospects of a security is, in the absence of income there will be no transaction overtures from the demand side. The reverse cannot be the case because even badly performing securities can be deliberately purchased once there are the funds depending on the kind of strategy that is being pursued by the investor largely because these strategies ultimately aim at making profits or returns.

So when an investor consciously transacts on the securities of an obviously dead company, such decisions though in the short-run, can be with a long-term focus of acquiring, restructuring and turning around the stock’s underlying business operations for better performance. A good example is the acquisition game between bank PHB and some Springbank investors.

Similarly some old persons, for instance, may forgo the fat capital gains of stocks of companies which are still at the early stages in industry life cycle and consistently go for the moderate returns of stocks of companies at matured stages in the industry growth cycle. Although in this case, returns are fundamental, risk perceptions are considered. This risk consideration is not strictly of the stocks but on the perceptions of the impact of the business environment on such firm’s prosperity.

Overall, three important considerations for flourishing capital market existence are the income levels of the investors; investor evaluation of current and potential performance of company as well as the risk perceptions of the investor. These forces cover the supply and demand sides of the market but not of the market umpires. What of the umpires: those who ensure that the rules of the game are complied with? The importance or unpopularity of market umpires have become more critical because from recent experiences their unwarranted interference with the market process created more problems than solutions. So a fourth factor can as well be added as the role of market umpires and regulators.

Behaviour of market drivers in 2009 In order to predict the performance of the capital market in 2009, we have to examine how these four forces are likely to fare during the year. While it is possible to make some informed guesses about the likely behaviours of the first three, it is difficult to predict how the regulators are likely to behave during same period. So for the umpires, we can at best advise on what they should or should not do in order to ensure that the market performs better.

We start with individual incomes. The incomes of individuals are tied to the prosperity of firms who in turn pay them wages in return for the services offered. Possible exceptions here are the government employees may continue to earn their wages irrespective of whether government’s finances are doing well or not.

Although it is equally possible for government to respond to macroeconomic conditions and reduce the number of persons in its payroll, oftentimes such decisions are mired in serious political considerations and are oftentimes wrongly targeted so that those who lose their jobs may not necessarily be the people who should. Historical experience in this country also has not supported wage cuts in the public sector. So we concentrate on the private firms who are more flexible in responding to changes in the environment of business.

The factors which therefore determine the profitable performance of firms in Nigeria are: infrastructure adequacy, monetary stability, fiscal equilibrium, efficient justice system and ease of taxes.

The presence of these factors ensure that firms face minimal macroeconomic uncertainty and also much more able to compete more efficiently. How are these determinants likely to fare in 2009? Infrastructure inadequacy has been unresolved and cannot be resolved in 12 calendar months. On average, partially substantial resolution of Nigeria’s infrastructure problems given its current state – should last longer than 18 months. Power supply has remained the most problematic of the entire infrastructure nightmare which was seemingly, but in futility, addressed over the eight year reign of the past administration.

What of monetary stability? It is going to be a scarce commodity in 2009. The scale of the budget deficit and the pressure on the naira exchange rate following the depressed earnings from crude oil are good pointers to what should be expected in these regards. Such huge deficits will be financed with equally huge expansions in money supply. At present, some of the areas that the budget had specified as its financing sources are being contested by some other stakeholders in the federation account particularly state governments.

With such sustained pressure, the Federal Government and the Central Bank, will come up with more ingenious ways of creating money out of nothing. This has started with the deliberate allowance of the naira exchange rate to fall from N116.00/US$1.00 to N138.00/US$1.00 in less than 60 days which enabled the transfer of naira earnings from actively struggling and value-creating economic agents to the government and its monetary authorities.

More straightforwardly, by deciding not to defend the naira as it statutorily claims with the community fund (foreign exchange reserves) and allowing the naira to fall at such scale with such speed,

(a) the CBN has saved and will continue to save as long as the naira value falls that portion of the foreign exchange reserves that will have been used for such interventions. These savings can be monetized for direct use by the government (depending on the understanding and arrangement) and; (b) all government’s proposed dollar earnings in 2009 would have become higher in naira terms which in a way may plug the holes to be created

(1) should the Federal Government lose the contested revenue sources and

(2) should it have to re-do the clearly unrealistic assumptions that underscored the revenue side of the budget proposal.

Government’s expenditure plans far outweigh its earnings prospects. In the past, the deleterious consequences of this historically traditional policy indiscretion have been cushioned by good oil prices. Government is not an investor and in a highly corrupt environment such as ours and particularly now that it appears that the fight against public sector economic and financial crimes are seriously waning, most of these proposed deficit spending will definitely find their ways straight into the pockets of some powerful predators.

So having lost the opportunity to successfully execute the projects for which the funds are meant, we shall in turn suffer the inflationary and other economic-price consequences of these actions. Who feels the brunt? The firms continue to suffer lack of competiveness in the face of the inclement operating environment where basic infrastructure remains inadequate, firms will equally not able to effectively plan over a longer time horizon because of the heavy degrees of uncertainty injected by policy-induced inflation, distortion of relative prices and inevitably rising interest rates. Firms will equally suffer demand losses because of the reduction in the real worth of incomes in the hands of households (private consumers).

Take for instance, the issue of naira devaluation. Who benefits? Who suffers? More than 70 per cent of all intermediate input into industrial production that take place in this country are imported: raw materials, machinery even technical expertise, etc. With massive naira devaluation, how competitive can these entrepreneurs be? Yet the Central Bank has pitched the reason for naira devaluation on mercantilist premise: to promote exports? Which exports? Unfortunately the export industry in this country has as well been destroyed by exactly the same reasons which we have provided above.

What has happened in the devaluation game in effect therefore is the deliberate sacrifice of the economic well-being of majority of Nigerians and Nigerian businesses in order to meet a pre-determined motivation of government’s short-term financial objectives: a consequence of many years of deliberately neglecting to put in place policies and processes that will make the economy prosper along a natural path with minimal fruitful interventions.

What of the other factors that equally contribute to the prosperity of the economy such as efficient justice system and ease of taxes. We are definitely far from these. This administration which started off with a great promise on the pursuit of the rule of law appears to be pursuing a contrary objective. In recent times we were witnesses to the executive threats meted out in the name of justice to clearly guilty government thieves. Some received N3.5 million as fine for practically wrecking their states.

Some of the accused’s files are already joining the archives of the forgotten documents without even being called up after baton change at the EFCC. For genuine vanguards of the campaign to rid the country of this mess, his reward is bouts of inglorious dishonour culminating in an ultimate sack from the service.

On the area of taxes, my suspicion is that mid-way into 2009, the government will likely invoke the dropped raise in the value-added tax rate. It is my sincere wish that this does not happen. But what can possibly prevent its occurrence is the rebound of good oil prices. The Federal Government has already recognized the massive effects that taxes from non-oil sources can play in its finances in 2009. Thus if oil prices do not stabilize at more than US$45 per barrel, the government are most likely to raise the rate of VAT as it earlier intended.

The current desperation which resulted in the sudden devaluation of the naira justifies this position. Unfortunately, VAT if well implemented and at a higher rate has even more devastating consequences on businesses. Whereas corporate profit taxes are imposed on businesses that have already made profit, there is no such discrimination with VAT and thus firms are forced to internalize in part or full – the additional costs imposed by VAT rather than allowing its transfer to the customer in order to remain competitive in a tough operating environment. In effect many firms may have to give way in 2009 and many more will proceed to the fringe of extinction.

In all these, government still intends to use the capital market to finance some of its deficits. Because the returns on government bonds are much more certain than those that can be expected from firms in a highly uncertain environment of business – as the one we expect in 2009, – entrepreneurial activities will be massively crowded out.

With many foreign investors already gone; with many investors badly hurt in 2008; with prospects for laundering of government funds in the capital market very bleak etc, the level of participation in the capital market will obviously decline. With declines in participation, the hitherto demand pressure that have led to rapid price appreciations will be absent. The crowding out effects of governments’ capital market bond participation will not only limit the capacity of businesses to access fresh funds but will equally raise bank interest rates. Can market makers change the prospects here?

Let us start with the primary market. Market makers cannot fundamentally alter the current trend in the primary market. There is a seeming cessation and poor outing in new issues segment primarily because of the overall lull in the capital market owing to

(a) recent previous massive losses,

(b) heightened market and macroeconomic uncertainty,

(c) massive investor withdrawals particularly foreign investors and short-term speculators.

Market makers, by restoring short-term demands for securities in the market place can trigger equally short-term speculations in the market. Barring any major shock in the market place, market makers can enable the market to coast albeit at a low level over a reasonably long period of time. In the absence of good company fundamentals and income which drive long term investment (following harsh macroeconomic environment of business), market making may have very limited impact on the market. If however, the market regulators over-use market making process and thus create herd reactions, the system will be temporarily ballooned and leave more participants much more hurt.

In summary, the outlook for the year 2009 is that of low productivity (and of course low income) and high macroeconomic uncertainty. These are not consistent with the forces that enable the market flourish which we enunciated at the beginning of this work.

Since the Nigerian economy is umbilically tied to crude oil, reduced earnings from it relative to governments spending plans equally means reduced spending of the Nigerian masses and businesses; majority of whose incomes are tied to such public consumption levels. The peculiarity of this year’s proposed spending is that the present administration must show strong and determined commitment to its promise on infrastructure for it to regain its fast crumbling reputation as non-performer.

If that is the case therefore, unless there is a deliberate policy to use Nigerian firms for the provision of these infrastructure with attendant high performance risks a good percentage of these expenditures will flow into the accounts of expatriate engineering firms. To quickly correct an impression, the high performance risk alluded to here does not refer to any perceived technical inferiority of Nigerians but the high levels of possible compromise due to corruption.

Let me quickly add that the Siemens case equally proves that such compromise is not limited to Nigerians alone. Our conclusion however is that; reduced government spending will affect private consumption levels with consequences for the demand for goods and services supplied by firms.

Similarly, there shall as already stated high uncertainty with implications for high inflation, interest rates and low naira value.

What should stakeholders brace up to? In rough seas, sailors can take a variety of options: abandon the ship altogether and escape on lowered boats, struggle to salvage the ship or do nothing. The present condition of the market approximates a rough sea situation and participants have variety of options which may approximate sailors’ actions in rough sea depending on their specific contexts. For instance, many investors have already abandoned the equities market following the relative shock levels that they experienced in 2008. On the other hand, many market operators together with the regulators are bent on salvaging the market. The question is: which options should various stakeholders take in approaching the capital market in 2009?

Investors as we know are in purposeful pursuit of profit. How much profit that satisfies an investor is subjective and depends on each individual investor. Consequently how much more risk an investor is prepared to take for more returns is equally subjective and depends on investor risk preferences. Thus investors with high return; high risk profiles who have a longer time operational dimension may find the capital market in 2009 worth it. But that is given the scenario that alternative opportunities/markets such as the markets for properties, currencies, solid minerals and other commodities do not offer better returns.

A proxy measure for the returns in the capital market is the expected yields on government bonds which many smart operators will aggressively leverage on to play on in the market place given the possible poor outing of the equities market. This area will be a tough battle ground in which only well funded and technically aware operators can achieve meaningful success. Few operators in the Nigerian capital market meet this desiderata.

Recall that government will be a major player in the 2009 market with the issuance of bonds to finance its huge deficits. If that is therefore the benchmark return expectation, it is my considered opinion that in the short-to-medium term speculating in many other alternative markets will offer better returns than the equities (or capital market) market which will make it clearly not very attractive for the short-term high risk-taking investors.

Another way to look at it is that those who were most hurt in the market last year were the high risk-taking cum short-term inclined investor groups. This is where most of us (over 90% of the investor-side participants in the stock market in the last two years) belong to. At the time it became obvious to many Nigerians that the equities market had become an ATM of some sort where you simply slot your card and draw money, millions threw caution to the wind concerning the associated market risks and ‘went for the money!’. Many more persons borrowed their lives and used it in the gamble. Consequently, when this supposed ATM machine got bad, they were the most badly hurt.

Now this category of short-term inclined and high-risk-taking groups are not going to gleefully run back to the equities market without serious meditation and sophisticated professional guidance. The reasons are many:

(a) their fingers have been burnt and they are yet to recover from it. The nasty experience is enough discouraging factor;

(b) they have lost their own past savings and are using their current incomes to pay the interest due on the margin facilities used to build the now decimated portfolios;

(c) even though they are high-risk taking, the global uncertainty and domestic macroeconomic outlook are very indicative of the need for serious caution;

(d) the outlook for the market is not consistent with the typical risk-return calculation. Thus the expected return by the end of the day, may not justify the attendant risk if they decide to take a chance once more. Perhaps, because this group constitutes the largest proportion of the investor-universe in Nigeria, their indisposition to the market is in fact the ‘market sentiments’.

Naturally, the short-term focused but risk averse investor groups have naturally retreated further into their shells.

The high pro-risk investors with long term focus may want to stay on and wait for a longer period of time to see if the market will rebound. Unfortunately this category of investors with strong waiting power constitutes not more than 2% of the entire investor-universe in Nigeria . Another side of that coin too is that if this category dominates the market, they scarcely engage in aggressive short-term price speculations – which create market ebullience. On the contrary they speculate with a focus on the long-term which equally implies that less of the tradeable instruments are brought to the market.

On the other hand, if many of the investors in the Nigerian market who are largely short-term inclined decide to move into alternative markets, the likely obstructions include poor development of these markets as well as limited technical expertise to profitably speculate in them. For instance the commodities and solid mineral markets may provide very good alternatives but these markets are not yet well developed in Nigeria and there are limited technical know-how as regards how to successfully operate such markets.

This therefore provides some kind of opportunity for the professionals and regulators of the capital market. The immediate development of the Nigerian commodities market has become indispensable as this can provide credible alternatives in situations such as this. The situation equally calls for increased attention to the bonds market. Since this has more guaranteed returns as well as generously involves government with high capacity to honour debt securities issued, many more investors that are relatively risk averse and many more high risk investors who want to diversify their portfolio holdings will find that outlet more reassuring.

It is evident from the market gloom that many operators in the Nigerian capital market will die within the next few months. At present, many of these firms are finding it difficult to pay the salaries of their members. This therefore calls for many likely initiatives. One of such is mergers and acquisitions as well as organizational refocusing and repositioning. For the former, the question is: what is there to acquire in many of these firms? Some of these firms are set up just to deliver dealing activities. And thus their expanse of skill availability ends with stock trading. Regrettably too, in most (up to 80% of all) instances, these firms are equally poorly capitalized.

Now with the recent calamity already wrought on proprietary portfolio of capital market operators such as in the described firm who are forced to repay margin facilities taken at about 33% while the portfolio value for which the facility is taken in the first instance is worth less than 40% of their cumulative purchase value because of rapidly dwindling prices, what strategic impact will the merger of firms in this category have? Very limited too! It could be a merger of liabilities! The funds are not there. The technical expertise that could enable the strategic navigation of these companies into alternative opportunities is equally lacking.

Inevitably therefore, many firms will be sold at much lower value to stay afloat while many lay-offs should be anticipated. Over the years the research and strategy capabilities of the firms in the market never exceeded the writing of reports and were not very much encouraged by the management. Today this works against many of the companies as they have to pay more dearly with non-existent funds in order to refocus and reposition.

Operators in the market who are well capitalized should begin a refocusing and broadening of their business areas outside of core capital market activities. Massive retraining of staff in what it takes to successfully operate in alternative markets is imperative. With a devalued naira for instance, the commodities export market will be a good option.

In Conclusion. The regulators have a critical role in the entire process as they can either aggravate or ameliorate the current crisis in the market. In an uncertain environment, the quality of monitoring and fine-tuning of the market rules and procedures shall go a long way in minimizing the risk exposure of majority of the participants.

I personally do not believe that market decisions based on the sole discretion of one man can produce such high quality. For instance, for quite a long time, the Nigerian equities market has been run at the discretion and whims of one person. Although there may be semblances of collective deliberation and output, closer examination of the decision making process reveals very much the contrary. Such monopoly needs to be broken.

Perhaps the establishment of more Exchanges may be an answer as it will engender necessary diversification and competition. It is equally very important that the market regulators cooperate among themselves so as to always minimize prejudiced decisions that usually fallout from their personality wrangling and disagreements. Whereas such disagreements are inevitable, it should at best be to further the cause of market development.

The regulators also need to generously seek as well as process the informed views and ideas of many stakeholders before arriving at their ultimate decisions. Patriotism should be the watchword here. For instance, decisions taken by the regulators should always be at the interest of the larger number of market participants and not to protect the sectional interest of few, which for instance may have rightly or otherwise been behind the initial decision of the NSE to put a wedge restricting downward movement of share prices by 1%.

To end this piece, what if things do not fall out as predicted? What if oil prices get back to about US$60 per barrel? That obviously is my prayer. Welcome to year 2009.

Martin Oluba, Ph.D., DBA, is the President/CEO of ValueFronteira Limited and an advisor to Proshare. He can be reached at martin@valuefronteira.com

Killing the proverbial Elephant

Every now and then, a journalist has a story dumped in his lap when he least expects it. For me, the official compulsion of a rider to use helmet is such a story.

Taking a critical look at the whole thing, the bye-law can be critiqued in two ways; either as another act of official hysteria that would soon pass away or a pursuit of permanent solution to the incessant head injury related deaths on motorbikes popularly called Okada.

Putting all these aside, and being happy for the time being, even if the bye-law will soon be thrown aside, I guess it is only proper to applaud the introduction of the compulsory usage of helmet for users of motorbikes for reasons I want to review here.

Comparison to a car, motorcycle is a very dangerous form of transportation, whether the rider thinks otherwise or not. In fact, it is believed in some quarters that it should be banned as a means of carriage, although some others think such action might be too extreme. Generally, those I spoke with canvassed the fact that government could make legislation to limit the excessiveness of Okada riders.

A particular study estimated that the number of deaths per mile arising from motorcycle accidents in 2006 was about 35 times the number involving cars. It’s quite alarming, those motorcycles deaths have been on the increase. The figure in 2007 actually doubled deaths recorded in 2006. Incidentally, as the death toll increases, so also the number of Okada purchased everyday. Now, this is beside the injuries consequent on Okada accidents like broken limbs, fractured skulls and spinal cords, to mention just a few.

Although, when the recent call for the compulsory use of helmets is considered, it is believed that the policy is justified, because commercial motorcyclists, with what have become their belligerent characteristics on roads, even as they find much pleasure in over-speeding and riding on the wrong side of the road anytime they feel the convenience of such law breaking act. All make them to be more prone to life threatening injuries or deaths from accident in their un-cased machine when compared to the relative security provided by a cased car.

Motorcycles are unenclosed, exposing riders to contact with hard road surfaces. And since deaths due to motorcycle accidents are associated with head injuries, the policy that enforces the use of helmet is then justified. It serves as principal counter-measure for reducing crash-related head injuries.

Several states government have made it the responsibility of government to foot medical bills of accident victims, it can be reasoned that by using helmet, which is designed to cushion and protect the head of a rider on impact with ground, the money expended on taking care of Okada accident victims can now be used in other meaningful ways.

Although, a 100 per cent protection from head injuries cannot be guaranteed with the use of the helmet just as safety belt doesn’t ensure the safety of a vehicle’s occupant in the event of an accident, it does reduce the incidences of injury. It is quite effective in preventing brain injuries, which often require extensive treatment and may result in life-long disability. According to a scientific finding, unhelmeted motorcyclists are three times more likely than helmeted riders to suffer traumatic brain damages.

However, despite all talks about helmets’ ability to protect your brain from scattering out of your skull, they still require certification of a federal body to okay the use of some particular ones. That is, even when the right motorcycle helmets are used, head injuries are much more likely with some helmets than with some. And this calls for urgent intervention by the Road Safety Commission.

The Okada riders in Kaduna recently protested the use of the helmets, either out of ignorance or they saw it as an opportunity to be recognized. Some, among other litanies of complaints across the nation, widely claimed that helmet obstructs rider’s vision, but studies show full-coverage helmets provide only minor restrictions in horizontal peripheral vision. It also found that wearing helmets restricts neither the ability to hear horn signals nor the likelihood of seeing a vehicle in an adjacent lane prior to initiating a lane change. To compensate for any restrictions in lateral vision, riders should increase their head rotation prior to a lane change. There are no differences in hearing thresholds under three helmet conditions: no helmet, partial coverage, and full coverage. The noise generated by a motorcycle is so loud that any reduction in hearing capability that may result from wearing a helmet, is inconsequential. Sound loud enough to be heard above the engine can be heard when wearing a helmet.

Another good thing about the use of helmet is the decline in motorcycle thefts, mainly because some potential thieves would not have helmets, and not wearing helmet would attract police notice. One thing is sure, with the introduction of the law, the rate of thefts would reduce drastically.

All said and done, one Yoruba (an ethnic tribe in southwestern Nigeria) maxim says that different knives are expected at the death of an elephant, this could be said of the different kinds of helmets now being exhibited on the roads. I think the riders should really be warned, because you would not imagine the kinds of eyesore of objects masquerading as helmets being displayed and forced on people to wear by Okada riders. These objects range from calabash type helmet, rugby football type helmet, military type helmet, space type helmet, knight-type helmet, and construction type safety helmet.

The standard should be either full-face motorcycle helmets like the X-11 and TZ-R, and open-faced motorcycle helmets, like the RJ Platinum R, St. Cruz, and J-Wing. Although any of these might set your pockets back at ten thousand naira (N10, 000.00).

There is no gain-saying that with the new law, high reduction in death rate by motorcyclist crash will be recorded, but then the different knives that are appearing at the death of this proverbial elephant should be regulated.

Written by ol’Victor Ojelabi