STANBIC-IBTC YEAR END ACCOUNT UNDER INVESTIGATION

The year end financial result of Stanbic-IBTC Bank is reported to have come under the serious scrutiny of officials of the National Accounting Standard Board. Sources at the Alausa, Ikeja office of the body responsible for setting the accounting reporting template of the nation’s corporate and other economic active sectors, said a number of…

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Vice President frustrates Transcorp’s plan to sell off NITEL’s Backbone

The nation’s Vice-President, Goodluck Jonathan has, according to sources, stopped moves by the board of directors of Trans National Corporation (Transcorp) to reduce the net worth of Nigeria Telecommunications (NITEL), the national telecommunication carrier in which Transcorp 51 per cent holdings have remained an unending hassle in the Federal Government privatization of former national assets and companies.

The Transnational Corporation of Nigeria secured the purchase of the Nigerian Telecommunications Limited and its mobile arm, Mtel, on Monday, July 03, 2006 for a fee of about $750m.

However, Transcorp paid only $500m of the amount pledged, as it could not come up with the balance of $250m.

The $750m represented the 75 per cent equity holdings that the Federal Government intended to divest from NITEL to the core investor. The remaining 25 per cent was to be sold to Nigerians through a public offer latest in November in 2006. This, however, never happened, as Transcorp could not meet most of the terms of the contracts.

Close to two years after the acquisition of the 51 per cent holding in NITEL, Transcorp was yet to actualize the intentions of the sale of the majority stake in NITEL, the Federal Government under the presidency of Umaru Yar’Adua, successor to the Olusegun Obasanjo’s presidency that superintended the sale of the NITEL shares to Transcorp, in February 2008, reversed the sale of NITEL and its mobile subsidiary, Mobile Telecommunications Limited to Transcorp.

In the immediate aftermath of the announcement of the reversal of sale of NITEL to Transcorp, confusion ensued over the true position of the Federal Government; eventually it was clarified that since Transcorp lacked the requisite technical and financial capacities to manage and successfully rejuvenate NITEL and Mtel, it (Transcorp) and the Federal Government that still holds 49 per cent of the shareholdings would cede 27 per cent and 24 per cent holdings respectively in NITEL to a new core investor.

However, as the nation awaits the announcement of Transcorp successor core investor in NITEL, Transcorp was reported to have floated a special purpose company; the Nigerian Telecommunication Backbone Company Limited. The company was intended to be used to buy out the telecomm-unication backbone of NITEL by way of stripping the telecommunications company’s assets before the cessation of the majority holdings in the company is concluded.

Communications experts explained that success of this sell-off would have put the main operational sphere of NITEL in the purview of this so called Nigeria telecommunication backbone company.

“The company would have inherited NITEL’s main telecommunication platform which may include the SAT 3, the fibre optic and CDMA platforms,” an industry expert said. “These are the platforms that the whole gamut of the Nigerian telecommunication industry still depend on, so if Transcorp arrangement was successful they would, in fact, be transferring a stripped entity to whoever succeeded in the bid to become the new core investor,” the expert reasoned.

Mr. Jonathan, the Vice-President, who is also the Chairman of the National Council on Privatisation, the office on which the ultimate responsibility for the supervision of the privatization processes rests, was reported to have thwarted the move to sell NITEL’s backbone.

“The promoters of the company had successfully persuaded some Nigerians and foreign investors to be part of the Nigerian Telecommunication Backbone company, but when they brought the issue to the attention of the Vice-President he insisted that the status quo must be maintained. This means that nobody is allowed to dispose off any assets or rights that belong to NITEL or Mtel until a new core investor in the company emerges,” a source close to NITEL, confided.

We are the future of television in Nigeria

Tayo Adewusi was right at the heart of the democratic struggle to validate the annulled presidential mandate of Bashorun MKO Abiola after his 1993 presidential election was annulled by the military government of then military president Ibrahim Babangida. But today, he is a wave making TV-preneur, the owner of a TV satellite channel.


In this interview with GOKE OLUWOLE, Tayo recounts his days in the struggle and how that exposure ultimately attracted him to broadcasting.

What prompted you into becoming a TV-Preneur?

Because of my inclination, influence and motivation from the likes of my big brother, Mr. Niyi Akinsiju, whom I met in my formative years and who was always there to encourage me with all his heart; Mr. Niyi Akinsiju is one of Nigeria’s most articulate journalists, who, today, publishes FORTUNE & CLASS magazines, Nigeria’s most authentic and authoritative business journal, and the likes of Mr. Segun Banjo, who also writes for Fortune & Class and Mr. Femi Davies, who currently manages the White House Hotel, Ikeja, Lagos.

But among all these friends, I have in the entertainment and showbiz world, the man, whom I can call my mentor, Bob Dee [Mr. Dele Momodu] the publisher of Ovation, I can’t forget these people. They were there in my trying periods, their words were energizers that kept me going until I arrived here. You know, having been to most of these TV and radio stations for MAVED programme, I was exposed to the power of television which I realized is the most powerful media tool.

But really, it was my brother in-law who introduced me to mainstream broadcasting, he was the one who called me and told me to come and relief him in presenting his Information Technology focused IT TV programme while he was away for just one month as he was relocating his family to Europe then. Can you believe that that one month had become six years as I’ve been producing, directing and presenting the programme since then and I’ve even elevated it to become ICT WATCH on MITV, and MINAJ and some other stations.

However, in the course of doing some ICT public relations jobs for Engineer Banjo, the Chairman and CEO of DISC Communications Ltd. we became very close because he was one of the pioneers of indigenous TV in Nigeria and, of course, I also aired my programme on the platform.

It was in the middle of a discussion with Femi Davies who called me at MITV and said “Tayo, you are very close to Uncle Banjo, why don’t you tell him you want to have a TV channel on his platform,” I said, ‘fine,’ it was this statement that spurred me into the adventure you all are seeing today as FOCUS TV.

I remember that it was in July, 2006 that I first came to see him (Engr. Banjo) and told him my intension to have my own TV channel. Engr. Banjo’s response was, “my friend, do you know what it takes to have a channel?” I said, ‘yes, I’m prepared.’ He then asked if I had the money; naturally, that question was popular with him. He loved to ask anybody who made such a request on him, if they have the money to manage a cable station.

I responded that I was capable, so, I went to the drawing board and between that July in 2006 and April 2007, when we were given the nod to start, we commenced operations inside a very small cubicle, where we started our test transmission that April ending in 2007. Because I knew that every new station that comes up the first thing that they always do to attract viewing is to have a lot of entertainment programmes like film and musicals.

We just had it behind our minds that we were not going to do what other people were already doing, so we remained FOCUSed just like our name and our plan then was to be the channel to beat on this platform in six months, but in just two months of our operations, we became the channel to beat and that again threw up challenges of remaining on top for us.

Was that really your biggest challenge as TV- preneur ?

I would say no, it was just one of the challenges but because we don’t have any bank to support us. Nigerian banks don’t help small customers grow; they prefer to go and sponsor blue chip companies with billions of naira whereas there are entrepreneurs who need only N50,000 to survive. My brother, just like any other business owner in Nigeria today, I still believe power is one of our biggest problems.

If I tell you how much it is costing us to fuel our three stand-by generators in a month, now, if that same amount is injected into our operations, our production quality will be better and tighter and that means more income for us. Despite the fact that we are in an industrial neighbourhood, we at times, don’t have power from NEPA or PHCN as they call them, for hundreds of hours in a month. It is annoying when they prefer to supply power in the thick of the night while everyone was asleep and then switch it off before day break. If government can listen to me, let them forget other infrastructure and face power supply, every other thing will fall in place.

How have you been able to manage your business related challenges?

Till date I cannot tell you I’ve conquered my challenges because they are still there. There are some I cannot conquer, so what I did was to find a means of living with them like the alternative power supply. These are some of the challenges that as an individual I cannot conquer. We are barely floating, I tell you, since the day we commissioned our live studio in October 2008, if I show you the bill we’ve paid on fuel alone you’ll marvel, but I can tell you we are still not close to our target. The dream is big, we are not even close yet. It is just a dream coming true, but we are not yet there.

How would you describe the impact of regulations in your industry of choice compared to other sectors?

What I can say about the ICT sector of the economy is that we once clapped our hands for increasing telephone subscriber base from NITEL’s 400,000 to the 62 million lines we have now. But looking at it critically, a lot of people carry an average of two to three phones, so don’t let us look at the specific number but the service delivered. It would have been okay if we all carry one phone and we are satisfied with the services. The issue is that I want to call Mr. A and I want to reach him on time and spend my normal time but you’ll see that before I can reach him I will have to spend some additional time and when you even make the calls, they are not going and you have drop them.

Even at that, the GSM service providers are better than the CDMA phone service providers. The moment you started dialing their computer will start counting on your charges between the time you started dialing and the time your receiver picked up his phone, you are already being charged for time spent calling. Why can’t they configure their lines just like the GSM service providers, the quality of services rendered by all the networks are very poor and that had been our campaign for a very long time; the regulators, in fairness to them, one should say they’ve done a good job, but when we look at the quality of services by these providers, it leaves much to be concerned about.

Does this have direct negative or positive impact on your operations?

Yes, because we are still under the same ministry, the current challenges those of us in the broadcast sector are having with the National Communication Commission is that while we are trying to better the quality of our services, the frequency we transmit from, the NCC is planning to auction it. We are talking of people who had secured their licences for the past 15 years; the frequency had been allocated in the past 15 years, why are you now opting to sell it while these people have their renewal in the last five years still in tact.

I think that there are duplications of roles by the regulators; we are under BON [Broadcasting Organisations of Nigeria] and if there is any erring broadcaster or operator, he should be disciplined by the NBC [Nigerian Broadcasting Commission] but the NCC is usurping that role of overseeing the frequency band. According to Engr. Banjo, the power of broadcasting cannot be compared to the power of communications, the two are far apart, the industry needs more regulatory framework that will help drive and develop the sector.

How would you compare the impact of the new minister on the sector with that of the former minister?

I think the background of the new Information Minister, Prof. Dora Akunyili as a renowned regulator has certain implications. Being in the kind of the country we are, she should be in the real sense of it the Minister of Information and Communications and not the Minister of NCC as she is now inclined to be. I say this because there has been a tendency in Nigeria’s government where ministers appointed to oversee different aspects of a ministry ended up just concentrating on one aspects of the responsibility of the ministry.

We have had sports ministers that performed more or less as ministers for football, while ministers for mines and power have only concerned themselves with electric power, leaving the mines aspect of the ministry. Now, since Prof. Akunyili does her things with passion, we are expecting her to use the same passion to drive the general information sector.

For now it will be unfair for me to start comparing her with her predecessors, all I know is that the sector needs someone who will help nurture and tend it.

What is the capital base or worth of FOCUS TV?

Well, I may not be able to tell you how big we are or how rich we are, but I know we are still acquiring equipment and expanding our frontiers, so the only thing I know is that to have a local channel on our platform, you’ll need to build your own studio from the scratch like I did, costing you millions of naira; but what I know is that you must be a millionaire to run or own a TV station in Nigeria, because we have over head very close to what obtain in banks, because we burn our generators 24/7, so when you add that alone to the cost, it is very heavy. What I’ve learnt over the years, running this business, is that every business has a gestation period and it must be clearly defined at the inception. What we are doing now is to plough back all our returns to the business, and to remain focused.

What are the future expectations of focus TV?

By the special grace of God we know that FOCUS CABLE Channel will be transforming to terrestrial television, but we are also looking at the possibility of kicking off with our own private owned radio station and our area of coverage is Lagos zone though we have our footprints in all the South West states of Nigeria, at times we stray into the Midwestern states.

You know, the Federal Government has declared that by 2011 every broadcast establishment must go digital that means that AIT, GALAXY, MITV,etc; will be satellite stations and you can only watch them via cable network system, that is the future of television broadcasting.

We hope advertisers can see the quality of our programmes, like some of our superb programmes that can stand shoulder to shoulder with some premium TV programmes on our local stations. We have a popular breakfast talk-show running from Monday through Saturday, ICT programme runs from Monday to Saturday, Lalale Friday is an entertainment programme that showcases spots for fun seeking viewers to know what is happening around town and where they are happening. Our presenters are seasoned professionals with track records in the industry.

Our Celebrities Hangout programme over the last three months had showcased and featured top celebrities including the likes of Evangelist Ebenezer Obey, Sammie Okposo, Adewale Ayuba, Wale Thompson while we have lined up artistes of the likes of KWAM 1, Lanre Teriba Atorise, Evag. Dunni Olanrewaju Opelope Annointing, as our next set of guests.

We have a review of 10 top movies in English and Yoruba home videos; there are a lot of programmes on the terrestrial TV that are also on our channel, both local and foreign. Really, FOCUS TV is a must watch channel for everyone.

What does it take to get FOCUS TV to our homes?

All you need to do if you reside in Lagos State or its neighbouring towns or cities, is to buy the old antenna and a decoder, this will cost you about N300, but if you preferred the bundle, it is going to cost you N11,500 plus one month free subscription. And you are likely to watch about 60 channels, you are even permitted to watch about 16 foreign channels, and 20 indigenous channels including FOCUS TV when you are not able to pay your monthly subscription. The bundle subscription is family channel including CNN, Al jazerah, Christian Channel, Cartoon Tv, Sports, Music Channel, Movie Channel and many more. You cannot compare FOCUS TV with all these regular TV stations, our programmes are packaged with the niche viewers in mind and the maturity in our production is of world class standard.

Who is Tayo Adewusi?

I was born 40 years ago in Ilorin, Kwara State to Owu parents, which means I’m an Owu person. I started my primary education in Ile-Ife, Osun State, but I completed it in Lagos, I was at the Methodist Boys High School, Lagos and thereafter at the Lagos State School of Basic Studies, on Agidingbi Road, Ikeja, now converted to the Lagos State Technical College, Ikeja.

After my studies at the Lagos State School of Basic Studies, I did not get into a higher institution straight away because I wasn’t able to secure admission for the course of my interest so this delayed me a bit because I told myself that once I did not secure admission for the course of my interest I will not go for any other course. My intention then was to study Computer Science but I invariably went into the Lagos State Polytechnic to study accounting.

Again, though I had the goal to get to the top of my accounting career, to be a Chattered Accountant, due to my inclination for the democratic struggle in Nigeria during the heady days of the military era, I was more or less distracted.

I started out my democratic struggle while in school as a student activist, I was the public relations officer of the Student Union Government – Lagos State Polytechnic, and later, the Director of Travels & Exchange of the National Association of Nigerian Students [NANS] Under Dennis leadership. These were some of the things I engaged in between 1992-1996,and thereafter, by the time I was probably leaving the school, my encounter with the likes of Chief Gani Fawehinmi, Olisa Agbakoba, Ayo Obe, Femi Falana, Festus Keyamo had influenced my decision to go into a full time activism which made me to pitch my tenth with the Civil Liberties Organisations [CLO] I use to have my desk at the CLO’s office.

This was at the height of the June 12 crisis, of course, we formed the Moshood Abiola Vanguard For Democracy [MAVFD] I was the founding and still the Secretary General. It was a trying period for all of us in the struggle between 1993-1999, it was evident that we weren’t looking beyond 1999 when we had democracy. Even Baba Abraham Adesanya, the leader of the Afenifere then, now of blessed memory, was not looking beyond 1999.

We were short sighted in the contemplation of what those that struggled for democracy should do when the military returned power to civilians in 1999. That is why, today, most of us that were in the struggle were not really part of the team running the country now. A lot of us were not just prepared for that, none of us was preparing to become even a councillor or hold any political position.

But in the course of our struggles, two organizations really supported and funded us, they gave financial backing to MAVFD programmes, these were the Democratic Department of the United States Embassy, and the Dutch Embassy. They were very supportive of our advocacy programmes. I can recall that we went into a relationship with MITV, RayPower 100.1FM, and MINAJ TV. We aired a programme called “Democratic Values” on all these stations between 1999 and 2001.

In the course of your activism which singular event would you say influenced you greatly?

One of such event as an activist was that I was privileged to be one of the few people that spoke with late Alhaja Kudirat Abiola, wife of the winner of June 12 election, Bashorun MKO Abiola, before she was shot dead. She had a brief meeting with our group, the Moshood Abiola Vanguard For Democracy [MAVFD] which I was the General Secretary at their home before she was shot and killed less than an hour later.

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

Heavy Debt Burden: Banks suspend funding for Dangote’s cement project

A heavy debt burden and the anticipation of high profile competition for the share of the Nigerian cement supply side from Femi Otedola may have compelled Alhaji Aliko Dangote to call off investments with intent to expand production lines in his many cement manufacturing plants and to build new ones. Sources in the banking industry indicated that some bank’s exposure to Dangote have become quite high and more discomfiting for the banks in consideration of hurdles they would have to contend with in the effort to get the debt repaid.

Though Forbes Magazine had listed Dangote as the richest man in Nigeria in 2007, financial sector source said his total debt folio drawn from various Nigerian banks may add up to N622billion. According to the source, about N300billion was secured from a bank by Dangote to play in the stock market between February and March 2008 when prices of stocks were at their peak.

“Prices of stocks started falling soon after the investment in the stock market and the fall in prices have become protracted which has resulted in stock prices sliding to historic lows. This, apparently, has affected the repayment traction of Dangote and this had added to the depressing situation of the banks that gave out the fund,” the source explained.

According to the source, Dangote also secured a N75billion loan for Obajana Cement and N240billion for his cement production plant in Ibeshe while also funding his Alheri Engineering, the company that won the 3-G GSM licence and will manage the GSM telephony service provider in the Dangote group.

Dangote’s decision to beat a retreat from cement manufacturing besides Nigerian banks refusing to make their money available for his use, is the wholesale opening up of the supply side of cement through the cement importation scheme of the Federal Government.

Dangote had enjoyed near monopoly status on the supply side of cement in Nigeria, and not a few aspiring builders had protested persistent increase in the price of cement which got to a high of N1,800 mid 2008. The Federal Government under Alhaji Umar Musa Yar’Adua removed the protectionist policy of the Olusegun Obasanjo’s presidency which banned the importation of cement into the country and closed down some other Nigerian cement producing companies ostensibly to protect the manufacturing essence of Dangote Cement production subsidiaries and the other players in the sector.

“This did not help price at all, because just a few producers can come together to determine the price of a bag of cement,” an industry player told FORTUNE&CLASS Weekly.

The Federal Government’s bid to beat down the price of cement by flooding the market with imported brands may have started impacting the market as the price of a bag of cement has come down to about N1,500 even as the imported brands are yet to fully land in the country.

Industry buzz, however, suggests that Dangote may also be worried with the licence granted Femi Otedola by the Federal Government to import two million tonnes of cement into the country as part of the effort to crash cement prices.

“The Federal Government had to consciously look out for a Nigerian business that has enough cash to back up the importation. It would not make sense to allow for importation of cement when you don’t have high profile business people that can mobilize enough funds to flood the market in the shortest possible time. That is why I think the Federal Government gave Otedola the licence to be involved in the importation of cement and I think he has a commitment to the Federal Government to sell at very cheap rate to Nigerians,” a source in the Presidency said.

NIGERIAN ENTERPRENEURS SCARE: GOVERNMENT POLICIES THAT DESTROYED BIG-TIME BUSINESSES

Only the naïve entrepreneur in Nigeria is excited with the contemplation of floating a manufacturing concern. The wise ones, schooled in the experiences they have had to contend with in the ever changing dynamics of manufacturing and other investments tasks in the production lines have fled the scene to the shelter of trading and merchandising. This, for good reasons. The challenges of conducting manufacturing and related production activities in the country, though, besetting, are however benign when compared with the ease with which government oft volte-face on policies and action stamp out the promises or existence of a once upon-a-time manufacturing plant.
In this review, we track some of the celebrated industrial concerns that had been heckled into non-existence by government policy summersaults over the years, official actions or inaction that have become the scare of entrepreneurs.
Presidential Initiative on Cassava Production
In 2002, cassava suddenly gained national prominence following the pronouncement of a Presidential Initiative. The intent of the Initiative was to use cassava as the engine of growth in Nigeria. In the ordinary sense, the perception is that cassava is indigenous to the country, official statistics claim that Nigeria grows more cassava than any other country in the world with a production capacity of about 34 million metric tones a year.
The Presidential Initiative on Cassava production and export was initiated in the year 2002. The goal of the initiative was to promote cassava as a foreign exchange earner in Nigeria as well as to satisfy national demand. The challenge of the initiative was to make Nigeria earn 5 billion US dollars from value added cassava exports by 2007. The objectives of the Presidential Initiative on Cassava was to expand primary processing and utilisation to absorb the national cassava production glut, identify and develop new market opportunities for import substitution and export stimulate increased private sector investment in the establishment of export oriented Cassava industries, ensure the availability of clean (disease free) planting materials targeted at the emerging industries, increase the yield, productivity and expand annual production to achieve global cassava competitiveness, advocate for conducive policy and institutional reforms for the development of the Nigerian cassava sector and integrate the rural poor especially women and youths into the mainstream of the national economy.
The federal government under Chief Olusegun Obasanjo backed the initiative with funding support while encouraging banks and other government and multilateral agencies to drive the initiative through funding support.
Suffice to say that in response to the government drive, an industry revolving around cassava plantation and processing started emerging. Opportunity seekers were encouraged to invest because of the obvious outward flourish of government. The signs were obvious too, under the Presidential Initiative on Cassava, Nigeria mandated millers to integrate 10 percent cassava flour to wheat flour in making bread, a percentage mix of ethanol in refined petroleum motor spirit (petrol) in the nation’s refineries. These were moves aimed at increasing the utilization of the tuber crop.
Other statistics pointed to the profitability of entrepreneurial engagement in cassava related activities; the domestic demand for cassava starch is about 130,000 tonnes per annum and 200,000 tonnes per annum for high quality cassava flour. The domestic demand for ethanol is 180 million litres – all ethanol is imported In Nigeria. None of these markets are being satisfied by local supplier even till today in Nigeria.
Individual entrepreneurs were attracted into the field and the buzz made the rounds of great things happening in cassava production in Nigeria. Unfortunately, the fancy was just for a time, even before the exit of the Obasanjo’s regime, there were obvious signs of government distancing itself from the clarion call to cassava farming and processing, soon after the assumption of office of President Umar Musa Yar’Adua, immediate successor to Obasanjo, federal government articulation of the cassava initiative lost its din.
The lacklustre enforcement of the policy of mandating flour millers to integrate 10 percent cassava flour to wheat flour in making bread and other confectionaries were altogether abandoned. Of course, the idealism of the refinery blend of ethanol with petrol had been a mirage according to entrepreneurs that had found their ways into cassava processing. “The nation’s refineries only functioned epileptically, rather, the bulk of refined products are being imported from foreign refineries, so the idea of the ethanol could not have worked out at all.” A cassava processor said
The government of Yar’Adua nailed the fledgling sector by abandoning the ethos of the Obasanjo initiated presidential initiative on cassava initiative. Importations of cassava processed by products and all have been allowed in the country with import tariff of 20 percent value.
“Apparently, this has sounded the death knell for that endeavour.” Another cassava processor said. “Local conditions have made it difficult to produce and process cassava, the thinking was to protect the industry until such a time that it would be able to compete favourably with importation but I understand that government decided to make this reversal because of the need to mitigate increased food prices. But then, we think that it would have been better to strengthen cassava production and processing in the country to boost food supply and to earn more income for government through export.
In the final analysis, the fact is that most entrepreneurs have had their investment and efforts gone up in smoke, another promise subverted by inconsistent government policy shift.
NIGERIAN LAMP PLC
One of the outstanding business endeveavour the recently demised Chief Beyioku Adebowlale of the Adebowale Store fame would be remembered for is his Nigerian Lamp Industry Plc. A courageous indigenous effort to play in the main stream manufacturing sector, when Adebowale built the Nigerian Lamp plant in his native Epe in Lagos State, it was reported to be the first of its kind in Africa. The plant was equipped to manufacture light bulbs and fluorescent.
It is reported that Adebowale was encouraged to make a foray into the manufacturing effort away from his electronic products trading concern in the Adebowale Electronic Store by the positive outlook of government incentive for indigenous manufacturers to commit to the economy in the 1980s.
Unfortunately, by the time the plant came on stream, it was like hitting dirt on first day of commission, government had made a reversal on policy, rather than protect local industries, government lifted the restricted importation of bulbs and fluorescents tube and other lamp forms. The market place was immediately flooded with Asian and Far East Asian countries bulb brands, which were cheaper though low in quality.
Nigerian Lamp, unfortunately, had become a publicly quoted company, Nigerians had subscribed to is initial public offer, but with the influx of cheaper products and brands into the market, the company’s operation became blighted and soon after became literally comatose. The company that never took off for operation eventually was placed under a receiver manager. This officially announced the demise of the once upon a Time promising company.
ROKANA INDUSTRIES PLC
Rokana Industries, had, back in the late 1980s caught the attention of the dentistry world with its production of the uniquely styled Jordan tooth brush. The market penetration of the Rokana brand of tooth brush was fast and quite domineering. It is reported that in its first year of introduction, the Rokana brand had pushed other imported brands to the back of the shelves. Jodan tooth brush was, considered the authentic Nigerian brand though the brand is a British franchise.
The dominance of the brand won’t endure for long however, because the Federal Government felt no need to specifically outlaw the activities of importers who would rather import fake Jordan tooth brush into Nigeria than to import other brands.
This more or less killed the vibrancy of the brand in the market place, it is however to the credit of the endearing qualities of the brand that it still subsists till day despite the continuous import of its counterfeit. The limitation is that Rokana, the producing company which is also a publicly quoted company floated by the immediate past commerce minister in the Yar’Adua’s cabinet Mr. Charles Ugwuh, has remained more or less moribund on the stock exchange’s price listing as investors ignored it even when the stock market was upbeat.
DOYIN INDUSTRIES
Doyin Industries is still a flourishing concern, this would not have been so if the man behind the manufacturing concern had not been well grounded in the ways of manufacturing in Nigeria. Of course he had been badly burnt from his engagement with manufacturing.
Samuel Adedoyin, the man behind Doyin Industries started out in business as a trader and he made quite a success of it that he diversified into manufacturing of household and food items and body care products. By 1996 he mobilized credit to build an awesome factory to manufacture his company’s range of products, and he was daring enough to take on multi-national companies. Travails soon ensued, electricity limitation to power the factory and the credit sourcing for funding the factory project became a burden, the market was also flooded with cheaper products from Asian countries.
The operations of the company soon became hamstrung, credit issues from City Express Bank became a public embarrassment for the Kwara State born industrialist, eventually, a production line of the industry had to close down and workers lay off.
DUNLOP
Dunlop Nigeria Plc is the latest of once buoyant companies to hit the dirt. The company had endured the harsh economic environment and had over the years returned impressive earnings to investors in the company being a public quoted company a greater majority of 95 per cent of the company’s shares belongs to several state governments, public companies and no fewer than 93,000 private Nigerians.
In 1991, it acquired majority shareholding in PAMOL (Nigeria) Limited, a rubber producing company to ensure uninterrupted supply of the right quality natural rubber, a major raw material in tyre manufacturing.
The company pioneered the radial car tubeless tyres in West Africa; produced the first crossply tyre in tubeless in Nigerian market; was the first Nigerian tyre company to hold the E.C.E 30 Certificate, an export requirement for car tyres to Europe; and first manufacturing company in Africa (beside South Africa) to hold the ISO 9002 certification.
It would soon be revealed during the former minister of commerce visit to Dunlop factory late last year that the company was merely struggling to stay afloat. The managing director of the company had complained about infrastructural deficiency, especially energy (electricity and recently, gas outages) and import duty regimes, inconsistent tax regimes which combine to place local manufacturers at significant disadvantage.
A major gripe of the company was its N8 billion expansion into the Heavy Truck Radial segment which was frustrated by reversal of government policy on tariff for imported truck/bus tyres from 40 per cent to 10 per cent at the beginning of 2007. This according to the company’s officials, created unfair and inequitable advantages for importers of finished tyres.
The dichotomy between tariff for car tyres (50 per cent) and Truck/Bus tyres (10 per cent) is said to have been abused by importers, both in terms of tariff and haulage evasion.
The situation confers undue advantages on importation rather than local manufacturing, now, the company has declared its incapacity to continue manufacturing activities in the country. Unofficial source said it would resort to tyre importation with grave implications for the rubber from its subsidiary, Pamol.
FAMAD (FORMERLY BATA) PLC and LENNARDS NIGERIA PLC
Before the introduction of the Structural Adjustment Programme, Bata’s ubiquitous outlets were the ultimate in foot wear shopping for all ages, Bata with its lesser cousin, Lennards Nigeria Plc. After 1986, the promise of flourishing was effectively shut out of the footwear manufacturing outfits. Government could not stem smuggling activities.
Synthetic shoes from Dubai and other Asian countries and high quality leather foot wear from Europe smuggled large scale into Nigeria particularly suffocated indigenous production. Ironically, the nation’s export in their raw forms the materials needed for footwear manufacturing. The products are exported, refined, recycled and packaged abroad to be sent back to Nigeria as import.
Till date, no appropriate government policy has addressed the inadequacy in the sector that has turned FAMAD (BATA) and LENNARDS into moribund companies.
VOLKSWAGEN AND PAN NIGERIA
In the 1970s Nigerian was the centre of attraction in the African continent with its hosting of the Volkswagen and Peugeot Automobile Nigeria plants. Nigerians, before the economic deluge of the last quarter of 1986 were sure of brand new cars proudly assembled in Nigeria. The assembly plants were supposed to be transitional in the nation’s march to becoming a full fledged vehicle manufacturing country.
The dream was cut short by government policy. Government steel rolling mills could not produce an ounce to support the desire to attain full production capacity, just as the value of the naira had suddenly depreciated in the years running to the close of the 1980 decade, and government back in the days, unofficially gave the go ahead for the importation of second hand vehicle (Tokunbo) at outrageously low tariff without consideration for age of vehicle to be imported.