Nigeria Content Online

Egypt’s government
is reviewing a proposal to increase the size of a fund set up to help
small investors who bought shares on margin or credit before political
turmoil led to the bourse closing, a market official said.

The stock exchange
has been shut since January 27 amid a popular uprising that forced
President Hosni Mubarak out of power after 30 years. The exchange said
it would reopen before the end of the week but has not specified the
date.

Analysts say the
government has been reluctant to reopen the bourse out of concerns
about the economic repercussions of shares tumbling and capital flight
abroad. Rules have already been put in place limiting how much a share
can fall each session and many particularly small investors have
petitioned officials for support.

A fund worth 250
million Egyptian pounds has already been set up to offer loans to small
investors who were involved in margin trading or who used credit. “We
are now in the process of discussing with the Ministry of Finance
options to increase this amount but until now, we have not succeeded,”
said Mohamed Abdel Salam, chairman of the stock exchange’s Clearing
Settlement and Central Depositary.

Prime Minister
Essam Sharaf on Sunday approved changing rules to the country’s Capital
Markets Law to ease margin calls by brokerages, to limit volatility
when the bourse opens. When the client’s debt reaches 70 percent of the
shares’ value at the end of trading each day, brokerages will require
investors to pay margins or present more collateral, the Egyptian
Financial Supervisory Authority (EFSA) said on its website.

Brokers had
previously been required to make margin calls at 60 percent. Brokers
can also now sell a client’s shares when debt reaches 80 percent of
their value, instead of 70 percent. “If we open it a little bit to 80
percent, this will relieve the brokers and make them think not to sell
before they reach the 80 percent,” Abdel Salam said.

Under exchange
rules, market investors could borrow money on margin through brokers by
using shares they held as collateral. The loans were limited to 50
percent of the market value of the shares on the day the loans were
signed and could be used only to buy the 30 stocks in the benchmark
index.

The heads of EFSA
and the bourse met Finance Minister Samir Radwan on Monday to call for
him to expand the fund, Abdel Salam said, adding he expected a big fall
when the market opened. “Nothing will be enough to prohibit the numbers
of selling orders at the beginning of the market. It is my opinion –
that of course the market will lose in the first two days,” he said.

For shares in the
benchmark index, the bourse has said it will suspend trade for
half-an-hour if it declines by 3 percent and for the remainder of the
session if it falls by 6 percent.

Egypt’s economy
nearly ground to a halt during weeks of protests. Some of its main
sources of foreign exchange, including tourism and foreign investment,
have collapsed. Many factories continue to operate below capacity. MSCI
said in February Egypt would risk being excluded from its emerging
markets index if the market did not reopen before MSCI reviewed its
status in four weeks.

Experts have stated
that high oil price, which is expected to shore up the nation’s foreign
reserves, may also have harsh effects on consumers’ pockets and
companies books.

The high oil
prices, which experts foresee would last through March and April and
moderate sometime midyear at the expense of consumers’ disposable
income, would soon begin to have some indirect rippling effects.

Oil prices have
been rising especially since January, due to the unrest in the Middle
East and experts are of the view that high oil prices imply higher
Automotive Gas Oil (AGO) and Low Pour Fuel Oil (LPFO) prices.

“Our oil price
outlook suggests Automotive Gas Oil (AGO) and Low Pour Fuel Oil (LPFO)
prices will remain high. According to our economists, our base case for
the oil price is that it will stay at around $110 per barrel through
March and April 2011, before moderating to $90/bbl in the second half
of 2011,” Akintola Akinbamidele, research analyst, Renaissance Capital,
an investment bank, said.

In 2003, the
Nigerian government had deregulated the downstream segment of the
petroleum industry, with the exception of Premium Motor Spirits PMS,
permitting petroleum marketers to compete favourably and to import and
sell at market rates.

The deregulation of
the sector thereby created competitive scenery that forced down prices,
unlike when the Nigerian National Petroleum Corporation had a monopoly
on importing and selling. However, high oil prices are now implying
higher automotive gas oil and low pour fuel oil prices.

This, Mr. Akinbamidele said, has translated into an average 35 per cent increase in AGO prices in the local Nigerian market.

“The depot price of
AGO from an independent retailer averaged at N90-95/litre in 2010. We
have seen an uptick in prices, with the average price of AGO sold by
independent retailers now at N145-155/litre,” Mr. Akinbamidele said.

The gainers and losers

Many fast moving
consumer goods (FMCG) companies, like other industrial users in the
Nigerian space, depend totally on self-generated power, which can be
fuelled by AGO, LPFO, coal or, more recently, natural gas. Compared
with the cheap cost of power from the national grid, which remains
unreliable, experts say the cost of running a generator averages at
30-45 per cent of an FMCG company’s production costs.

Experts say these
fast, moving consumer goods companies that have invested in the
generation of power through the use of gas turbines are in a better
position to protect themselves from the price shocks expected for AGO
and LPFO and therefore, are in a better position to reduce the net
impact of the increase in AGO prices (assuming any attacks in the Niger
Delta do not interrupt the gas supply).

Mr. Akinbamidele said consumers are also going to feel the pinch.

“We expect higher
energy costs to eat into the disposable income of the average Nigerian,
especially as a sizeable proportion of the population use kerosene
(which is deregulated and is currently priced at about N105/litre, up
from an average of N70-80/litre in 2010) for its cooking needs, rather
than more expensive cooking gas. PMS is a regulated product segment, so
we do not expect any direct impact on its price, which we expect to
remain flat at N65/litre.

“We are of the view
that the ability of FMCG companies to pass on increases in the cost of
raw materials and commodities to their customers, in absolute terms, is
minimal, as any significant price increase would result in consumers
shifting to cheaper alternatives,” he said.

“These are
short-term setbacks, in our view, and we maintain our positive outlook
on the FMCG segment over the medium to long term,” he added.

The National
Pension Commission (PENCOM) said the recent review of its investment
guidelines for pension fund assets was done in order to allow for
investible funds to be channeled to critical sectors of the economy.

The revised
guidelines, which were released on December 16 last year, were designed
to enable pension funds to be used to intervene in correcting the
infrastructure deficit in the country.

According to the
review guidelines, the list of assets in which the funds can be
invested include bonds, debentures, redeemable/ convertible preference
shares, and other debt instruments issued by corporate entities,
including asset backed securities and infrastructure bonds.

Section five of the
reviewed guidelines states that pension fund assets can be invested in
infrastructure projects through eligible bonds or debt securities,
subject to the infrastructure project being “awarded to a
concessionaire through an open and transparent bidding process, is not
less than N5 billion in value, and managed by concessionaire with good
track record.”

According to
PENCOM, such projects must be in accordance with and meet due process
requirements of the Public Private Partnership (PPP) Policy, as
certified by the Infrastructure Concession and Regulatory Commission
(ICRC), and approved by the Federal Executive Council (FEC).

Investment in critical sectors

The Central Bank of
Nigeria (CBN) governor, Sanusi Lamido Sanusi, disclosed recently that
it was collaborating with PENCOM on ways to unlockthe huge pension fund
for investment in critical sectors of the economy. He said rather than
expose the Nigerian economy to cheap dollar loans, which could prove
costly in the long run, it was better to access cheap funds locally.

“Part of it has
been working with the Pension Commission to see how we can unlock some
of the N2 trillion we have in pension funds into infrastructure and
power in a manner that works.

“If we put up
guarantee worth N400 billion and the pension funds puts down N400
billion 20 year money into power and infrastructure, the maximum risk
it will take on the Central Bank balance sheet is N20 billion bond, and
N400 billion generates 4,000 megawatts,” Mr. Sanusi said.

The reviewed
investment guidelines said such funds can only be invested in
infrastructure bonds, subject to a maximum portfolio limit of 35 per
cent of the pension assets under management, with a maximum of 15 per
cent being in infrastructure bonds.

Such investment
shall have a maturity date that is prior to the expiration of the
concession and have a redemption procedure, in the event of project
suspension or cancellation.

The commission said
the review was done in order to give backing to any institution that
wants to invest in the infrastructure development.

“We do not have the
power to direct the PFAs on areas to invest. What we have only done is
to review the guidelines so that those who want to invest in the sector
can do so.”

A statement from
the commission said the emphasis of the review was to allow PFAs to
invest in bonds which would be floated by the CBN targeted at power and
infrastructure development.

“PENCOM did not sign any understanding directly with the CBN. What
we just told them is if you want to raise money for power sector, issue
bonds, and if it makes sense to the PFAs, they will invest in them.”

Some
market operators at the Nigerian Stock Exchange (NSE) have criticised
the recent proposed extension of trading period by another two hours.

Emmanuel
Ikazoboh, interim administrator of the NSE, announced last week that he
will increase trading activities by another two hours within the next
two months. The move will take trading hours to seven. The NSE had last
December extended the trading hours from 9.30 am to 2.30 pm, against
the former 9.30 to 12.30 pm.

Mr.
Ikazoboh said the previous extension was done to give foreign investors
opportunity to participate in the market, adding that another extension
would further attract more foreign participation in the market.

“Within
the next one month or two, I am going to increase the trading hours
from 9:30 am to 4:30pm. This is to increase volumes and allow American
investors to trade in our market,” he said.

However,
Ola Yussuff, chairman of the Association of Stockbroking Houses of
Nigeria, said that the NSE should direct its efforts at building up the
base of local investors by “encouraging local investors to come back
into the market.”

“If
foreign investors are coming to the market, I think that is a welcome
sign. But our own position is that the NSE should encourage local
investors to also come to the market. As things are now, local
investors’ participation in the market is less than ten per cent
whereas in other jurisdictions, like in the United Kingdom and America,
you have 70 to 80 per cent local participation.

“Having
foreign investors is not bad, but it shouldn’t be at the expense of
local investors. If we have our way, we would direct more energy on
getting the local investors,” Mr. Yussuff said.

“Foreign
investors will only come here when there is something to be gained. As
soon as there is any slightest problem in our economy, they are out.
This makes the volatility of the market high.

“Therefore,
it is the local investors of every country that keeps its market alive
so that when foreign investors want to go, it doesn’t affect the market
negatively,” he added.

David
Amaechi, an executive member of the Shareholders Association of
Nigeria, said the planned trading extension may be a setback.

“There
is still fear that investors’ confidence is yet to be guarded jealously
in the market. It is these same foreign investors who pulled out their
funds, leaving our market to crash. More attention should be given to
us who plan to stay longer in the market,” Mr. Amaechi said.

Workers’welfare

Asked
if the NSE is considering the welfare of its staff in the proposed
plan, Wole Tokede, the Exchange’s spokesperson, said, “Since no staff
of the Exchange is complaining about the development, how the
(proposed) trading extension affects the staff should not be anybody’s
concern.”

However, Mr. Tokede said, “The management of the Exchange will not
create any policy that will affect the health of its workers. I also
believe that there is no sacrifice too much for the NSE staff to pay in
order to make the market progress.”

South Africa’s gold production fell 6.4 percent in 2010 to 191,833.7 kilograms, the Chamber of Mines said on Monday.

South Africa was
the world’s largest gold producer for most of the last century up until
2006, but output has been hit by dwindling grades and stoppages of
mines and shafts for safety-related reasons as companies mine ever
deeper.

Some South African
gold mines reach depths of around 4 km. The main gold mining firms in
South Africa include the world’s No. 3 and Africa’s top gold producer,
AngloGold Ashanti, fourth-ranked Gold Fields and fifth-placed Harmony
Gold Mining Co.

A union
representing workers at Kenya’s sole power supplier started a strike on
Monday to protest against their employment terms, its secretary general
said.

Kenya Power has
been involved in a protracted dispute with the Kenya Electrical Trade
and Allied Workers Union (KETAWU), which claims that more than a third
of the workers are on casual terms, in violation of the country’s
labour law.

Ernest Nadome,
secretary general of the union, told Reuters by phone that 6,000
workers had downed tools after Kenya Power failed to honour this year’s
collective bargaining agreement.

“We are demanding our rights. We will not be cowed by threats,” he said.

The price of
Tanzania’s top-grade AA coffee beans rose to a high of $350 per 50kg at
last week’s auction, surpassing a previous record of $339.80 hit in
January, traders said on Monday.

Traders said the
new high in Africa’s fourth-largest coffee grower was on the back of
strong demand at a time of dwindling supplies, given the current
season’s crop ends in April.

“These are
unbelievable prices. Top-grade coffee is selling for an astonishing $7
a kilo,” said Geoffrey Mwangulumbi, executive director of the
Association of Kilimanjaro Specialty Coffee Growers.

“These prices
reflect the trend at the world market, where there is a huge shortage
of coffee. The prices will likely continue to rise at coming auctions,”
he said.

No fewer than
82,689 farmers benefitted from agricultural input loans under the
Zamfara Comprehensive Agricultural Revolution Programme (ZACARP)
between 2008 and 2010.

Yunusa Abdullahi
Kuturu, the special adviser to the governor, Mahmud Shinkafi, told the
News Agency of Nigeria (NAN) in Gusau on Monday that the state
government provided agricultural inputs worth N5 billion to the farmers.

Mr. Kuturu, who
spoke through the coordinator of the programme, Dahiru Kaura, said that
the inputs distributed included fertiliser, improved seeds, pesticides,
and agricultural chemicals.

He said that under
the programme, farmers initially paid 25 per cent of the total bill of
their inputs requirement to balance 75 per cent after harvest.

Mr. Kuturu said that between 2008 and 2010, about 254,224 hectares of land were cultivated under the programme.

Afam Obiago, the
Economic Adviser to governor. Emmanuel Uduaghan of Delta , says the
state government is re-positioning to take advantage of the provisions
of the Local Content Act.

Mr. Obiago told the
News Agency of Nigeria (NAN) in Asaba that the act would help to
promote production of inputs and improve manpower in the oil and gas
sector locally. He said the state was ‘‘beginning to recover from its
staggering position in oil and gas production’’ which was hampered by
militants’ activities in the recent past. “What the act seeks to do is
to promote what you can find both in terms of products, technology and
manpower locally” he said, adding that about 40 per cent of gas
production in the country comes from Delta state.

I was pleasantly
surprised, in a conversation last week, to learn that of the many
concerns over the Central Bank of Nigeria’s (CBN) repairs to and
reforms of the banking sector, the nationality of the would-be buyers
of the banks rescued by the apex bank is the more troubling.
Transparency of the accounting treatments of the intervention funds did
not make the grade. According to the IMF, the original financial
intervention in 2009, by the CBN (N620 billion) in support of the 10
banks and its subsequent quasi-fiscal interventions in designated
sectors in support of a recovery in the market for credit, “pose on and
off-balance sheet risks…that should be undertaken, if at all, within
the context of the federal government budget”.

Related
reservations have been entertained over government’s attempts to pass
on some of its responsibilities for developing domestic infrastructure
on to the Nigerian Sovereign Investment Authority. Worries abound too
about how much of the Asset Management Company of Nigeria’s (AMCON)
purchase of the industry’s dodgy loan portfolios will feed into
monetary aggregates, and thence into domestic prices.

However, none of
these mattered to my interlocutors. Unease centred on protecting the
“national interest” from the beady gaze of “greedy” foreign investors.
According to the lead argument, top on the list of interests to be
protected are shareholders. And it mattered nought that a majority of
these shareholders had been complicit in the significant value erosion
that had taken place in the banks before the CBN’s August 2009 special
audit of the industry. Indeed, it is a long walk to health, from the
negative equity, and huge non-performing loan books that most troubled
banks’ balance sheets carried then, to the current valuations of their
shares on the stock market. Moreover, because of the CBN’s efforts,
these shareholders may yet come off better than they had reason to
expect a year ago, if external investor interest in their banks pushed
valuations up the more.

Shareholders gain
two things in addition. Unlike previously, no bank failed in the
current round of distress. Secondly, we all have learnt a lesson or two
about the importance of a strong governance suite for the management of
the companies in which we have financial interests. Admittedly, the
corporate governance sphere includes legitimate fears over minority
shareholder interests. As the banks’ recent experience indicates, this
has nothing to do with the complexion of the major shareholding
interests. In the absence of a strong regulator, there will always be
benefits from gaming the system, and a disposition to do so.

Incidentally, the
regulator in question in this instance is not the CBN. For as long as
these banks remain quoted companies, the operative environment that
either helps or impedes the progress of good governance will largely
remain the SEC and NSE’s call. So for shareholders, there are real
welfare gains to be had from investor interest in the banks. Foreign
investors have the added advantage of bringing in new money, new
management competences, and the latest technology.

But are they good
for staff? If they are not nepotistic, and choose to run efficient
shops, the short-term response is a resounding “no”. The choice before
your average executive is simple. Depending on the product and customer
service preferences, it would always pay to automate. Costs are driven
inexorably downward, and the space for human error is minimal. So if
the same value may be obtained from three staff, which was previously
delivered by five, stronger returns will accrue to that organisation
that can ask the two individuals who are surplus to requirement to go.
A major proviso here: the welfare effects depend on the relative costs
of labour and capital. This is good, because with cheap labour, the
incentive will always favour labour-intensive solutions. The only
drawback is that then, you are at the bottom of the production
ecosystem. That is how the private sector should run. Those who
bellyache over the fate of staff who lose their jobs as entrepreneurs
search for more efficient ways of doing business should turn instead to
the public sector. A bigger economy, including through best of breed
fiscal and monetary policies, and an education sector that ensures
constant retraining opportunities are baseline requirements if labour
is to be both mobile and productive.