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Johannesburg’s
All-share stock index hit a record high on Monday, helped by a rise in
some resource-related companies such as BHP Billiton.

Stocks in Africa’s biggest economy have been helped by investor appetite for commodities and emerging market equities.

The All-share, the
broadest measure of South African stock performance, touched 33,334.55
in early trade, surpassing a previous high of 33,309.82 set in May 2008.

“I don’t think it
will go aggressively higher from here in the short term. Normally what
happens if you get a market that tests an all-time high, it won’t bust
through it and move up higher,” said Andrew Todd, a trader at Imara SP
Reid.

“It normally pulls back a bit and consolidates for a couple of days, or even a couple of weeks,” he added.

The benchmark Top-40
index of blue chips was up 0.61 per cent at 29,994.56 after earlier
hitting 30,195.81, its highest since June 2008.

Ordinarily, consolidation makes a position of power or success stronger so that it is more likely to continue.

Several enterprises
have utilised consolidation by way of mergers, acquisitions, and
combinations to avert failure or grow their businesses. However, it is a
risky double-edged sword that could mar the fortunes of enterprises if
improperly conceived.

The case of
Nigeria’s banking industry is a vivid illustration of how forced
consolidation can derail the orderly growth of an entire industry.
Experience has shown that consolidations that work are those driven
internally by enterprise peculiar needs rather than industry wide
imposition by external forces.

In context of free
market economy, consolidations are treated with utmost suspicions as
they could engineer emergence of monopolies or oligopolies which stifle
competition to the detriment of consumers. For economic sectors where
unfettered competitions precede the attainment of perfect market,
anti-trust regulators resist combinations that could breed monopolies.

Soon after
consolidation of Nigeria’s banks and emergence of 25 mega banks out of
the 89 that hitherto existed, monetary regulators were forced to
introduce Microfinance Banks (MFBs) to fill the void that arose from
constriction. Today, there are over 400 MFBs servicing the neglected
needs of Small Scale Enterprises that generally had no access to credits
from the mega banks.

A similar fate
awaits retail clients in the stockbroking industry if consolidated into
fewer numbers of firms. The few emergent large firms will set
prohibitive minimum requirements which retail investors cannot meet,
thus denying a large segment of Nigerian investors’ direct access to
investment opportunities in the nation’s capital market. It is common
knowledge that before global meltdown, several large stockbroking firms
set N5 million as minimum investment entry requirement to open
investors’ stockholding accounts.

The stock market is a
mass market. Its capital formation power is derived from mass
participation driven by investors’ confidence which stockbrokers work
strenuously to cultivate. Large number of stockbroking firms in a
country as populated as ours constitute the vital bridges that connect
an equally large number of diverse investors who are remotely located to
the capital market. With fewer stockbrokers, the bridges will also be
fewer.

Odife reform panel
on the capital market even advocated multiple stock exchanges and
capital trade points to bring capital formation mechanism close to the
grass root in Nigeria. Had his recommendations been implemented, several
more stockbroking firms would have been required to trade on those
platforms. Odife’s expansionary reform, geared towards growth of the
capital market and the economy at large, remain superior as remedy to
challenges that beset the market today, rather than moves to consolidate
into monopolies and elitism.

In recent past,
consolidation of Stock Exchanges was a popular reform theme in the
global capital market. This worked against establishment of multiple
stock exchanges in Nigeria. However, to date, all major European stock
exchanges and Asian stock exchanges have failed to consolidate into one
entity.

As a result, global
competition among stock exchanges has continued with undiminished
intensity. China is even establishing more stock exchanges with
fanatical zeal. Major stock exchanges including London, Frankfurt,
Paris, Hong Kong, Tokyo etc have maintained their individual identities
because the cultures and structures of capital markets and economies
they serve differ from place to place.

Between banking and stockbroking

Renewed threat by
government after previous hesitation to consolidate capital market
operators in Nigeria with possible increase of minimum capital base of
stockbroking firms from N70 million to N1.5 billion, has stimulated
public debate about desirability of the move at this time when the
capital market is just recovering from a major catastrophic meltdown.

In spite of the now
evident disaster consolidation wreaked on the banking sector,
stakeholders are surprised that the bandwagon effect continues to haunt
other sectors of the finance industry, fundamental differences between
banking and stockbroking notwithstanding.

For clarity, banking
is a trade in which the relationship between the banker and his
customer are Debtor and Creditor respectively. In contrast, stockbroking
is a profession in which the relationship between the stockbroker and
his client is Agent and Principal respectively.

The capital base of a
bank is security required to mitigate the risk of non performance of
risk assets created from customers deposit liabilities because the risk
assets are owned by the bank. Whereas, in stockbroking, the assets
purchased for investor clients are owned and registered in names of the
investors.

Because stockbrokers
do not create risk assets, their need for capital is only limited to
infrastructure they require to efficiently deliver their professional
services. All over the world, professional service providers including
stockbroking firms, carry unlimited liabilities and mitigate their risks
with fidelity guarantee insurance. It is for this reason that the
highest capital requirement for stockbroking in India prescribed by
Bombay Stock Exchange is equivalent of N2 million. Other 22 stock
exchanges in India prescribe lesser amounts. India is about the fifth
largest economy in the world. The country has a large population and
similar neo-colonial economic heritage as Nigeria, yet its capital
requirement for stockbroking firms is so infinitesimal compared to
Nigeria’s current N70 million.

Although
consolidation could lead to large entities and economies of scale up to
the point of diminishing returns, there is no concrete evidence that
size alone is panacea for cost effectiveness, efficiency of service
delivery, and profitability.

Today, Nigeria’s
finance industry is replete with several distressed large stockbroking
firms, failed rescued big banks, succeeding and strong small banks and
stockbroking firms.

The competitive
future of Nigeria can only materialise if market mechanism determines
free entry and free exit of economic enterprises under effective market
friendly regulatory framework.

Adonri is the CEO, Lambeth Trust & Investment Company Ltd, Lagos

Two
large international banks suspended operations in Cote d’Ivoire on
Monday as a power struggle following a disputed presidential election
tightened its grip on the economy of the world’s top cocoa grower.

French bank, BNP
Paribas’s Ivorian unit, the second biggest banking operation in the
country, was closed due to security concerns, an official said.

Citibank also said
it would be closed on yesterday, giving no official reason but saying it
would continue to monitor the situation.

BNP Paribas and
Societe Generale have around two thirds of the Cote d’Ivoire market.
Citibank is a smaller operation with no retail arm but is the largest
corporate financer for Cote d’Ivoire’s oil and gas operations, the main
creditor of its 80,000 barrel a day refinery and the third biggest cocoa
exporter financer.

The West African
nation has been in turmoil since a disputed November 28 presidential
election between incumbent Laurent Gbagbo and rival Alassane Ouattara.
Gbagbo’s planning minister condemned the bank closures and said they
were breaking the law.

United
Nations-certified election commission results named Ouattara the winner,
but the result was reversed by a pro-Gbagbo legal body and the
incumbent remains in power despite international sanctions and threats
of military force.

“The entire BICICI
network is closed until further notice. The head office in Paris
informed us of this decision yesterday at around 2300 (GMT). I’m staying
home today,” the official, who could not be named because of death
threats against other banking staff, told Reuters.

A spokesperson for Citi in Paris said the bank was closed on Monday and the bank was monitoring the situation.

The power struggle
has hit the banking sector as Ouattara, backed by western nations and
regional bodies, try to cut Gbagbo’s access to funds to force him from
power. West Africa’s monetary union last month cut off his access to
state accounts at West Africa’s BCEAO central bank.

“It was becoming
very difficult for those banks to operate in Ivory Coast because they
can’t use the BCEAO platform any more,” Standard Bank analyst, Samir
Gadio, told Reuters.

Gadio said that
procedures that usually took an hour were now taking up to eight days,
and added that there was a “reputational risk if they continue to
operate in Ivory Coast … (and are) seen as allowing Gbagbo’s regime to
survive”.

Endgame?

Western nations have slapped travel bans and sanctions on a range of individuals and organisations backing Gbagbo.

Cocoa exporters have
stopped registering new beans for export as a result of the sanctions,
and a ban called for by Ouattara. Cocoa futures touched their highest
levels in over a year on Monday as fears grew that the ban, initially
put in place on January 24 for one month, would be extended.

But Ouattara remains
trapped in a lagoon-side Abidjan hotel, protected by U.N. peacekeepers
while Gbagbo, who has the backing of the military, remains in control of
government buildings.

“The government
condemns the illegal character of this decision … By proceeding with
their closure, BICICI and Citibank are … seriously contravening their
obligations under banking law. (We) will not tolerate these acts of
defiance,” budget minister, Kone Katinan, said on state TV.

After being cut off
from the regional bank, Gbagbo sent soldiers to seize its Abidjan unit
and appropriate local reserves, forcing the bank to close its Cote
d’Ivoire operations completely and causing problems with liquidity and
cheque clearing.

Banking sources say
the military has since intimidated banks into participating in a new
clearing system set up in the building Gbagbo seized. Some have received
death threats.

“Gbagbo is not going
to leave just because the banking system has shut down … he will
leave the day his life is at stake,” Gadio said.

“But this is going to speed up the endgame. I don’t see how the salaries are going to get paid,” he added.

Investors
at the Nigerian Stock Exchange (NSE) on Monday recorded more losses on
the value of their equities, as market closed trading on a negative
note.

The NSE market
capitalisation of the 201 First-Tier equities closed yesterday at N8.501
trillion after opening the day at N8.528 trillion, reflecting 0.31 per
cent decline or N27 billion losses. The market had lost over N168
billion during last week’s trading session.

Commenting on
Monday’s trading performance, analysts at GTI Capital, a stockbroking
firm, said the same growth that was recovered in the market last trading
day of the previous week was again “snatched back by the bear
(downturn) at the end of Monday’s transactions.” They said investors
watched market activities yesterday with close attention wondering if it
would bounce back.

Low gainers

The number of
gainers at the close of trading session on Monday closed lower at 19
stocks while losers closed higher at 31 stocks.

Custodian &
Allied Insurance and Nigerian Bags Manufacturing topped the price
gainers’ table with an increase of five per cent and 4.95 per cent, to
close at N3.36 and N3.18 per share, respectively. Wema Bank and RT
Briscoe followed on the gainers’ table with an increase of 4.83 and 4.71
per cent, to close at N1.52 and N2.89 per share.

On the flip side,
Livestock Feeds and Skye Bank led the price losers’ chart with a loss of
five per cent each, to close at 57 kobo and N9.50 per share,
respectively. Fidson Healthcare and Intercontinental Bank followed with a
loss of 4.92 and 4.88 per cent, to close at N2.51 and N2.73 per share.

Active sectors

The Banking
subsector led the most active subsectors’ chart with 158.807 million
volumes of shares, valued at over N987.093 million. Volume in the
subsector was driven by Unity Bank, Sterling Bank, Finbank, and First
Bank.

Trading activities
in the Media subsector followed with 65.004 million volumes of shares
valued at over N32.502 million. Deals in shares of Daar Communications,
the most traded stock on Monday, largely boosted volume in this
subsector.

The Building
Materials subsector was third in the chart with 13.408 million volumes
of shares worth N567.048 million. Volume in the subsector was driven by
Lafarge Wapco, Ashaka Cement, and Cement Company of Northern Nigeria.

More
private companies have expressed their interest in the electricity
companies being offered for sale by the federal government ahead of the
February 18 deadline for receipt of applications.

In December last
year, the government, through the Bureau for Public Enterprises, called
for interested buyers for 51 per cent stake in 11 electricity
distribution companies, while concessionaires are sought for four
thermal power stations and two hydro power stations.

Efforts to get the
actual number of firms that have indicated interest were not successful
as Chukwuma Nwoko, BPE spokesperson, refused to divulge the figure.

However, Global
Utilities Management Company (GUMCO), a subsidiary of Vigeo Group, last
week, officially indicated its interest in the bid.

The chairman of the
Vigeo Group, Victor Osibodu, said the company is partnering with two
Indian companies to achieve its goals, and compete favourably with other
companies who have shown interest. Nigeria’s power sector has been
plagued by several problems that have prevented it from operating at
optimum level. In a bid to address the difficulty of inadequate electric
power supply, President Goodluck Jonathan last August presented a
Roadmap on the Power Sector Reform.

A major thrust of
the Roadmap, which foundation was laid in 2005 by former president,
Olusegun Obasanjo, was the privatisation and concession of the
distribution segment of the market while concessioning the generation
and transmission outlay.

Mr. Nwoko said in
addition to the offer of a minimum of 51 per cent of the companies,
bidders will be expected to submit proposals that reflect information on
their strategy for meeting the efficiency targets that will be
specified in the Request for Proposals.

“Care will be taken,
by working closely with NERC, to ensure that a monopoly or oligopoly of
market power in the generation sector is not acquired through these
divestitures. The competitive bulk procurement of electricity by the
Bulk Trader; and the bilateral contracting of electricity between
generating and distributing companies – all overseen by a
fully-empowered independent sector regulator through the Multi Year
Tariff Order (MYTO) mechanism – are the key guarantors that electricity
will be generated into the grid on a competitive, commercial and
consumer-oriented basis,” he said.

However, the
National Union of Electricity Employees (NUEE) has vowed to resist any
attempt to sell off the firms. The NUEE secretary general, Joe Ajaero,
said the workers are against the planned sale when labour issues have
not been addressed.

“Have they sold
them? Let them submit their letters of interest and let them take over.
We insist that nothing can take place there. All those noise they are
making just ends at the pages of newspapers. You cannot transfer
ownership when you have not addressed the pending issues of those
working there,” Mr. Ajaero said.

Positive Outlook

Vetiva Capital
Management Limited, a finance firm, says the success of the process
would be closely linked to consistency in policy implementation and
political continuity.

“The Roadmap broadly
outlines a programme schedule, which if properly implemented and
timelines are adhered to, will be expected to bolster power generation,
transmission, and consumption in Nigeria significantly.”

The firm identified
the delay in the outcome of the reforms to the stalled funding of the
National Integrated Power Project (NIPP), for more than two years amidst
allegations of corruption.

“Consequently, a key
risk to its success would be changes in the present proponents of the
Power Roadmap, especially as we approach the elections. If this risk
element crystallizes and a change is effected, we are likely to see the
process being altered or suspended completely again, as the new leaders
at the helm of affairs would come in with their own strategies,” it
says.

Sunday Salako, a
member of the National Economic Management Team (NEMT), however, said
people are tired of roadmaps and visions.

“People want to see
things happen. Last week, I was in Ghana for a whole week and there was
no power outage. The truth is staring us in the eye and we should
actually be challenged. How did they do it? I think that is what we need
to do now,” Mr. Salako said.

The Federation
Accounts Allocation Committee yesterday expressed worry that the
controversy over the N450billion debt of the Nigerian National Petroleum
Corporation is still lingering, more than a year since the initial
ultimatum was issued. At its meeting in December 2009, the committee had
asked the past group managing director of the corporation, Mohammed
Barkindo, to furnish it with the repayment schedule by January 12, 2010.

Since then, two new
chief executives, who have since succeeded Mr. Barkindo (Shehu Ladan and
the incumbent, Austen Oniwon), have received similar ultimatums without
any positive result.

Last December, the
committee resolved to, again, write the NNPC’s management to remind it
of its demand for a schedule for the repayment of the debt.

Last ultimatum

But at the end of
its meeting yesterday in Abuja, the chairman, Comissioners of Finance
Forum and Taraba State Commissioner for Finance, Rebo Usman, told
reporters that members of FAAC are becoming increasingly concerned that
the issue has remained unresolved.

“We have resolved to
extend our last ultimatum by another one month for NNPC to come up with
a repayment schedule. After that, the whole nation will hear from us,
because it is an issue we cannot just sweep under the carpet.

“Very soon, the
Petroleum Industry Bill (PIB) will be passed into law. When that
happens, it will become more difficult for FAAC to track that money. We
are very serious about it, and we believe this extension is going to be
the last,” he declared.

Though Mr. Usman did
not say what options are open to FAAC should NNPC fail to meet the
deadline, he said the latest ultimatum is final, as it was issued by
states of the federation as well as other FAAC member, including the
federal government, who have warned that they would rise against the
NNPC if nothing happens.

Unresolved differences

The reconciled
industry audit of NNPC operations covering 2006 and 2008 published
recently by the Nigerian Extractive Industries Transparency Initiative
(NEITI) showed that the sum of $932.2million was captured as the total
unresolved differences for petroleum profit tax (PPT), royalties and
signature bonuses, apart from a total oil and gas income of $344.686
million for the period. According to the report, the NNPC was unable to
explain the differences of about 3,092,304 barrels between the volume of
total oil allocated by the corporation and the volume actually lifted
by companies for the period. However, Minister of State for Finance
Yawaba Lawan-Wabi assured that the forensic audit ordered by the
presidency on NNPC accounts was nearing completion, as the report of the
audit is currently being analyzed by the appropriate authorities,
pending a formal publication. The minister did disclose when to expect
the audit report.

January revenue allocation

On the revenue
allocation for the month of January, Mrs. Lawan-Wabi, said though
N610.801billion was gross revenue for the month, total distributable
revenue stood at about N414.305billion, including value added tax (VAT)
of N48.763billion and statutory allocation of N354.237billion, which was
higher by N5.071billion, or 1.45 percent compared to the allocation for
last December.

The gross revenue,
she said, is higher than N581.561billion from the previous month by
N29.240billion as a result of higher prices of crude oil in the
international market above the $60 per barrel benchmark in the 2010
budget.

The minister said
the sum of N11.305billion was proposed as augmentation to the allocation
as a result of the shortfall in the N354.237billion revenue from the
official ceiling of N369billion pegged last year as monthly
distributable allocation for the three tiers of government.

Unease over the
outlook for the country after the April general election is due to a
variety of reasons. One source of worry is the fact that the political
class is not acting differently – albeit it was always something of a
stretch to have imagined that without incentives to the contrary, they
would have gone through a damascene experience.

The elections’
arbiter – the Independent National Electoral Commission (INEC) – after
having raised so much hope in the possibility of free and fair
elections, through its single-minded commitment to using direct data
capture machines for the voter registration exercise, is no less
confused. Indeed, if the differing announcements on the composition of
party slates offer any clue, INEC itself may be part of the general
confusion.

However, more
worrying have been the party platforms themselves. In spite of the
common grounds that these cover, they do not offer a roadmap to
anywhere. Where the right questions are asked, there’s much agreement
on the cheerless state of the domestic economy. Agriculture alone
contributes close to half of the 7% output growth that the economy has
notched up in the last three years. A fifth part of annual output
growth is again the result of hydrocarbon exploration.

So all you need to
grow this economy faster than the current global norm is for the rains
and the rigs to hold steady. Is it surprising, therefore, that this
“stellar growth” has produced few jobs? Still, on the evidence of
stronger currents in the rural-urban drift, there are those who would
challenge the putative performance of the agric sector, and hence of
its contribution to domestic output growth.

Recovery in other
sectors of the economy is therefore necessary, if growth is to generate
the employment levels needed to absorb most school leavers. Efficient
investment in infrastructure is essential to this task. This is as much
about roads, rails, and power from the mains, as it is about social
infrastructure.

Our schools must
work, not because students go through them, but because the competences
learnt in those hallowed places have use in the real economy.
Similarly, the healthcare system must conduce to a healthy population,
not because we then site a hospital in every neighbourhood, but because
every healthcare facility offers cost-effective interventions.

These latter points
are missed by all the party policy documents that I have seen so far.
In all, there is a premium on government provision of everything,
especially in the health and education sectors. Now, in our present
circumstance, this is an understandable reaction. An unconscionable
governance failure over the years has led to massive underinvestment in
these sectors; and there is thus a crying need if we must correct the
lapses of the past for an increase in public investment in these
sectors.

Still, going
forward, it would be a sin worse than the under-investment in the past
to ignore the extent of private sector provision in these sectors
today. In most cases, including crime prevention, private sector
operatives have stepped into the breach created by governance failure.

Instead, then, of
seeking to restore the public sector’s old role as prime provider in
these sectors, appropriations for the sectors should aim to develop the
public sector as regulator, rather than as service provider. Standards
development, monitoring, and enforcement then become the critical
competences that the civil service should grow.

Although the
regulatory function places a premium on the allocative efficiency of
competitive markets, it requires in addition that a competent regulator
should look out for collusive, price-fixing amongst private sector
service providers.

There would, of
course, be plenty of people who would not be able to afford the prices
in a market for social services. This is where the appropriations for
these sectors come into their own: as means-tested augmentation for
families who cannot afford to send their children/wards to these
schools, and/or use the private health facilities.

On this reasoning,
it is hard to contemplate the use of government’s spend to set up
publicly-funded facilities in direct competition with private service
providers.