Nigeria Content Online

Chinese Premier Wen
Jiabao vowed again to step up efforts to keep consumer inflation in
check in 2011, state media reported on Sunday.

“The central
government has taken a slew of steps to stabilise prices. We will put
it higher up on our agenda,” state television quoted Wen as saying,
repeating the top leadership’s line since inflation hit a 28-month high
in November.

Wen made the remarks in a New Year trip to supermarkets and herdsmen’s homes in the northern Inner Mongolia Autonomous Region.

China raised interest rates twice and increased bank reserve
requirement ratios six times in 2010 as it moved to normalise monetary
policy to absorb excess liquidity.

Mergers
and acquisitions (M&A) rose for the first year since 2007,
potentially marking the start of a new, multiyear M&A cycle in
which emerging economies account for a bigger share of global deal
making.

Thomson Reuters
data showed announced M&A grew nearly a fifth this year, to $2.25
trillion globally. The preliminary figures show emerging markets made
up a record 17 percent of transactions, and energy was the busiest
sector.

Next year could be
busier still. Executives, bankers, big investors such as Schroders, and
analysts at banks including Credit Suisse, Nomura, and Societe Generale
are among those predicting a further rise.

Cheap debt, record
cash piles, the need to outpace sluggish economic growth, and positive
market reactions to many deals in 2010 should embolden companies to
strike more deals, they say.

“We feel M&A
volumes will improve next year; there’s certainly going to be more
cross-border activity than ever, and Asia – again – will be a bigger
part of the equation,” said Scott Matlock, chairman of international
M&A at Morgan Stanley.

Deutsche Bank, the world’s fifth-busiest merger adviser, said this year could bring a bigger rise.

“The increase in
M&A activity in 2011 should exceed that of 2010. There’s more
confidence, there’s ample liquidity, financing costs are attractive,
and there’s an intense focus amongst corporates to identify growth
opportunities,” said Henrik Aslaksen, Deutsche’s global head of M&A.

“The pipeline is very broad-based. It’s not just confined to one to two sectors,” he added.

Senior executives on average expect $3 trillion of M&A this year, a recent Thomson Reuters/Freeman survey found.

Goldman leads

That means 2011
could be the second of several years of rising deals. Earlier in 2010,
Citi analysts said the world was “in the foothills” of a new M&A
cycle. These cycles typically last years: the last peaks came in 2000
and 2007.

Bankers say a
combination of cheap stocks, as measured by price-to-earnings ratios,
and even cheaper debt means many deals would offer a big boost to
earnings.

The optimism comes,
despite a slower fourth quarter and the worst spate of withdrawn deals
since the height of the credit crisis: two collapsed BHP Billiton
deals, in Canada and Australia, alone cut $100 billion from M&A
volumes.

Jeffrey Kaplan,
global head of M&A at Bank of America Merrill Lynch (BAC.N), said
it was still “challenging to get deals done,” despite “good momentum
going into 2011 for both corporate and private equity activity.”

Morgan Stanley is
lagging archrival Goldman Sachs, after beating it to the No. 1 ranking
in 2009 for the first time in 13 years. Goldman Sachs, under M&A
head, Gordon Dyal, has advised on $513.1 billion of deals to Morgan
Stanley’s $499.5 billion.

‘Land grab’

Emerging markets
deals hit a record $378 billion, while developed markets lagged. Global
M&A increased 19 percent, while U.S. M&A rose 11 percent and
activity in Europe climbed 5 percent.

Colin Banfield,
Citigroup’s head of M&A for Asia-Pacific, said currency rates were
aiding the region’s companies, which were growing “more ambitious” and
contemplating bigger deals.

But aside from
several major telecommunications tie-ups in the developing markets, and
the odd banner deal such as Chinese carmaker Geely’s purchase of Volvo
from Ford, many deals from newer markets were aimed at securing
resources or technologies.

“We’re still in the early days of emerging markets M&A,” said Matlock at Morgan Stanley.

“When it gets
really hot is when people decide they want to buy and build truly
global multinational corporations, and we’re not there yet. It’s more
focused on acquiring natural resources or on opportunistic deals,” he
said.

Energy and power
was the year’s busiest sector, with a near-40 percent rise in announced
deals to $482 billion, followed by the financial and basic materials
sectors.

A widely predicted
European resurgence failed to occur as debt crises rattled the
continent and forced Greece and Ireland to seek bailouts. European
M&A rose 5 percent to $589 billion.

“All the right
ingredients are in place for an upturn,” said Philip Noblet, Merrill’s
co-head of M&A for Europe, the Middle East and Africa.

“But it could be another lost year for M&A in Europe if economic
worries don’t subside and chief executives don’t regain the confidence
to do deals. The outlook is very uncertain – and people hate
uncertainty when they are buying,” Mr. Noblet added.

Bank customers are
apprehensive about the deadline for update of customers’ data, which
expired on December 31, 2010. The Central Bank of Nigeria (CBN)
recently directed banks to carry out an update on customer profile in
furtherance of its know-your-customer requirement. According to the
directive, customers that fail to comply will no longer have access to
their bank accounts.

A visit to some
banks in Lagos last week saw a lot of customers rushing to beat the
deadline. While many customers complained about the poor enlightenment
by the banks and the CBN, others called for an extension of the
deadline to enable more people comply with the directive. They
complained about the failure of the banks to notify them on time.

Poor enlightenment

A bank customer,
Ibrahim Buba, in Kaduna expressed disgust at the manner the regulator
was going about it. “How can they just expect us to comply within this
period? I only just got to know about it two weeks ago and I did not
take it serious thinking it was one of these scam notices,” Mr Buba
said.

He said he was surprised to get to his bank on Thursday only to see a huge crowd of customers who wanted to update their data.

“There ought to be
enlightenment campaign by the CBN to sensitise people on the need to do
this. In any case, what is the need for the rush? This thing ought to
be stretched over a long period instead of this current exercise that
is causing a lot of inconveniences to people.”

Another customer,
who declined to give his name, said he has no new information to supply
as previous data was still relevant. “But I went to my bank and they
told me I need to bring my drivers’ license, international passport or
utility bill and a new passport photograph,” he said.

First Bank had on
December 24 2010 sent email messages to customers informing them of the
CBN directive. “The Central Bank of Nigeria (CBN) recently directed all
Banks to have their entire customer’s data updated before December 31,
2010. In line with this, please visit any FirstBank branch nearest to
you, collect an update form, fill and submit to the Customer Service
Officer,” the message read. The bank advised customers to attach a
recent passport photograph and a photocopy of identification (National
ID, Driver’s license or International Passport to the form).

When this reporter
visited the Abibu Oki branch of First Bank on Thursday afternoon, a
number of already submitted forms were cited while others made effort
to complete theirs. A staff of the branch who did not want to be named
said so far, the response has been poor as not many customers are aware
of the directive.

“Even as a banker,
I only just updated my data with my bank today. The Central Bank may
have to extend this deadline to enable more people comply,” he said.

Compliance has been high

Efforts to speak to
Mohammed Abdullahi, the CBN spokesperson was not successful but a CBN
official who did not want his name mentioned because he was not
authorised to speak on the matter, said compliance has been high. “A
lot of people have been complying with the KYC (know-your-customer)
directive, from initial reports we have been receiving.”

He, however, said
the CBN is yet to take a decision on whether it will extend the
deadline. “We have not taken a decision yet on whether we will extend
the deadline. Until we get the full compliance report from all the
financial institutions, then we will decide whether to extend or not.”
According to him, the central bank has conducted a lot of enlightenment
campaigns to sensitise Nigerians on the exercise. “Campaigns have been
going on especially among the interagency on money laundering
comprising the EFCC (Economic and financial Crimes commission), United
Nations office on Drugs and Crimes and the CBN.

The Central Bank in October 2009 released a revised manual on anti-money laundering/Counter Terrorism Financing.”

According to the regulator, there are doubts about the veracity or
adequacy of previously obtained customer identification data, hence the
need for bank customers’ data update.

The Federation
Accounts Allocation Committee (FAAC) last Friday held an emergency
meeting in Abuja to disburse the sum of $1 billion (about N150 billion)
from the Excess Crude Account to the three tiers of government.

The meeting, coming
barely two weeks since it met last, lasted for less than half an hour,
and largely secretive, as the chief press secretary, Ministry of
Finance, Usman Nakorji, declared it was not for press coverage.

“Please don’t put me into trouble,” Mr. Nakorji pleaded.

“The meeting was
not meant for press coverage. It was an emergency, that is why they
said they did want the press to cover it,” he told anxious journalists,
who were interested to find out details about what informed the meeting
less than 24 hours to the end of the year.

It was, however,
gathered that President Goodluck Jonathan may have given approval for
the disbursement of the money following pressures from the state
governors as a trade off for their pledge to support his bid to secure
the People’s Democratic Party (PDP) presidential ticket during its
forthcoming primaries scheduled for January 11.

Yawaba Lawan-Wabi,
the minister of state for finance, who presided over the meeting, which
lasted between 11:11 and 11:39 a.m., told reporters that the committee
got the presidential approval to meet and share the money among the
three tiers of government.

Presidential approval

“We are here now
because we got approval from the president to share $1 billion from the
Excess Crude Account (ECA) among the three tiers of government. We are
doing this because the ECA is a financing item of the 2010 budget of
both the federal and state governments,” Mrs. Lawan-Wabi said.

Against the
background of insinuations that the timing of the disbursement of the
money suggests it is politically-motivated, the minister justified the
decision, saying the three tiers of government needed to share the
money considering the recent approval by the National Assembly to
extend the 2010 budget year for capital projects to March 2011.

Details of the
disbursement indicate that the Federal Government would take $458.316
million, or 52.68 percent; 36 states, $232.464 million, or 26.72
percent; while $179.220 million, or 20.60 percent would go to the Local
Governments Councils, and $130 million, or 13 percent, would go to the
nine oil producing states as oil derivation revenue.

The immediate past
Accountant General of the Federation, Ibrahim Dankwambo, had during the
last FAAC meeting, announced that the balance of revenue in the
dollar-denominated ECA was about $1.9 billion.

With the latest
disbursement, it was learnt that the ECA, which had a balance of over
$20.01 billion as at July 2009, has now been depleted to about $3
million, excluding the $1 billion set aside for the proposed Sovereign
Wealth Fund (SWF).

Chairman,
Commissioners of Finance Forum, Rebo Usman, told journalists that the
emergency meeting became necessary to enable the committee give effect
to the presidential approval on the strength of the recommendation of
the National Economic Council (NEC) for the disbursement to the three
tiers of government for ongoing special projects in their domains.

“There is no way we
(FAAC) could have brought out money from the excess crude account
without the meeting of the Federation Accounts Allocation Committee. We
had to convene the emergency meeting to take care of that decision by
the NEC,” Mr. Usman said.

Denying that the
disbursement was a new year bonanza for the states, he said the ECA is
savings for the states and Federal Government to fall back on whenever
they believe there is a need to fund some ongoing special projects,
pointing out that he is not worried that the account has gone down to
about $3 million, as government is planning to create the Sovereign
Wealth Fund for infrastructure development and immediate national needs.

Below, we have
identified some of the more common financial mistakes that lead to
economic hardship so that you can try to avoid them in 2011.

Not having a financial plan

Apart from maybe
winning the lottery, or inheriting a fortune, financial success doesn’t
just happen. Most people live from day to day adopting a “spend as you
go” lifestyle with no clear plan in place to save for specific future
events or protect their families from unforeseen circumstances. Are
there big financial decisions you need to make, like buying a house or
a car, paying your children’s school fees? If you don’t plan for such
events, you might not have the outcome you envisaged.

The adage “if you
fail to plan, you plan to fail” highlights the importance of having a
clearly defined plan or achievable goal in place that you can work
towards. You can’t just sit back and expect things to fall into place.
It’s your money; if you are not proactive about your finances, nobody
will do it for you. Even though you can’t predict the future, you can
be better prepared for it if you plan ahead.

Borrowing on behalf of someone else

A good friend asks
you to help them get a loan from their bank. You then accede to the
offer and borrow in your name on their behalf and sign off on the
dotted line. Your friend may have very good intentions at the time of
borrowing but if they should run into financial difficulty and fail to
pay you back, you are liable to pay the loan back in full.

If your friend or
relation couldn’t get a loan through a bank or other lender, there may
have been a good reason for the decline. Be very careful in considering
such a request if you are approached.

Not paying back money you owe

One of the worse
mistakes you can ever make is not paying back money that you owe. This
might be a large financial loan or a small personal loan from a
relative or friend. Ideally, you should not get into the habit of
borrowing but worse still is getting into the habit of not paying it
back on time or even at all. Eventually, it all comes back to haunt you
as no one will want to lend you money, even if it is just to tide you
over a difficult patch.

Don’t invest in what you don’t understand

What works for one
person may not work for another as each person’s risk profile, goals,
and circumstances, differ. In 2008, many people heard about the
possibility of borrowing to buy the latest “hot” stocks; many
un-informed investors jumped on the bandwagon without really
understanding margin investing and were left in debt.

Putting your money
in investment vehicles that you do not understand or getting involved
in some of those “get-rich-quick” scams can have devastating
consequences. Invest only in what you understand and try to make
financial decisions based on adequate research and advice from
experienced and tested professionals.

Ignoring the stock market

Even if you were
one of the thousands of people that got burnt during the stock market
crash, it is a big mistake is to ignore it completely. With some blue
chip stocks still selling at considerable discounts, it is an ideal
time to invest. If you have been scared away from the markets, at least
consider buying into a mutual fund. This way, your portfolio would be
more diversified than buying individual stocks and this reduces your
risk.

Be careful not to speculate; consider your risk appetite, your time horizon, and your goals before investing.

Not having adequate insurance

Most Nigerians are
under-insured. Imagine the number of people who do not have even third
party insurance in respect of their cars! Not having adequate insurance
in place can have devastating effect on your finances should you hit an
expensive car when you are at fault. The bill could run into hundreds
of thousands of naira. Yet, the simple payment of the annual premium
could help one avoid this.

Accidents do
happen. Nobody wants to be left paying expensive hospital bills or
witnessing a family unable to make ends meet because of the untimely
death of its primary breadwinner. Make sure your health insurance is up
to date and that you have adequate life insurance particularly if you
are the bread-winner of a young family.

Borrowing to buy a car that you can’t afford

Thousands of new
cars are sold each year, but very few buyers can actually afford to pay
cash for them. Remember that by borrowing money to buy a car, you are
paying interest on an asset that starts to lose value from the moment
you leave the car showroom. Of course, many people have no choice but
to take out a loan to buy a car. Some vehicles are very expensive to
buy, insure, fuel and maintain. If you need to buy a car and must
borrow to do so, consider buying one that is fuel-efficient and with
reasonable maintenance costs.

Likewise, avoid
buying a house that you can barely afford. It is great to have masses
of space but naturally, a large house requires significant expense in
terms of maintenance and utilities. Instead, identify a property that
is less than what the bank says you can afford. That way, your payments
will be manageable and you can continue to build your savings and
financial security.

Living above your means

Yes, of course
there is a thrill in getting behind the driver’s seat of your brand new
car and inhaling the new car smell, but living beyond your means can
put you into a precarious financial position. Trying to have someone
else’s lifestyle is a big mistake.

Many young people
believe they should be able to move straight into a perfect apartment
in a nice area with all the latest gadgets. This is a lifestyle that
you build up to and strive to achieve usually through the dint of
several years of hard work and savings.

Keeping up with the
Jones, or with your own parents who have been working and earning for
several years, is one of the most damaging things you can do for your
future financial security.

Putting money above everything else

While most people
don’t do enough towards achieving financial success, there are others
whose priorities have become so warped that money takes the first
position in their lives. Remember that money is simply a tool, a means
to an end, and should never be considered the end in itself.

The reform process in the petroleum industry appears to have stagnated, as the draft Petroleum Industry Bill (PIB), conceived to establish a fresh legal, regulatory, monitoring and commercial framework for the industry to repeal the outdated Petroleum Act of 1969, is still awaiting National Assembly approval. The proposed law is expected to usher in a revised fiscal sys-tem in the industry, with the introduction of Company Income Tax (CIT) payment regime for all operators, as well as a Nigerian Hydrocarbon Tax (NHT) to replace the current Petroleum Profit Tax (PPT) arrangement.

On the one hand, the multi-national oil companies, under the aegis of the Oil Producers’ Trade Section (OPTS) of the Lagos Chamber of Commerce, have continued to criticise the fiscal terms in the law as capable of stalling investments. The aggregate impact of the multiple taxes proposed in the PIB through increased royal-ties and taxes as well as removal of incentives to operators, the OPTS argues, will create un-certainties capable of adversely affecting industry capacity to invest in new exploration and production projects. They also query the demand for their compliance with the provisions of the Nigerian Con-tent Act, which was initiated to give legal teeth to government’s aspiration to ensure that about 70 percent of the nation’s oil and gas operations are domiciled in-country, to guarantee that indigenous Nigerian service companies are accorded exclusive considerations in the award of contracts and services on land and swamp operating areas of the nation’s oil and gas industry.

Besides, the companies also contest the requirement for mandatory relinquishment of 50 percent of Oil Prospecting Licences (OPLs) and Oil Mining Leases (OMLs) after five years of the expiration of the initial exploration period leading to commercial discovery, and have mobilised every resource at their disposal to instigate a review. On the other hand, government is saying that the proposed law would guarantee more revenue to the country, while more opportunities would be guaranteed for Nigerian firms to participate in the development of the industry. The NNPC claims government may be losing about $55.4 million (about N825.46 bilion) monthly as a result of the continued delay in passing the PIB by the National Assembly, while the petroleum minister, Diezani Alison-Madueke, said government anticipates an average of $18 billion (about N2.7 trillion) as savings from its total annual budget for the nation’s oil and gas industry if the Nigerian Content Law works. The strategic aspirations in the upstream sector of the industry included increasing the country’s daily oil production capacity from an average of 2.3 million barrels to about 4.5mil-lion barrels, and national crude oil reserve from 33 billion to 40 billion barrels by the end of the year. Though the industry, in re-cent times, has witnessed improvements in oil production activities consequent upon the positive impact of the amnesty programme for Niger Delta militant groups, the capacity is hardly near set targets by government.

Limited progress downstream

In the downstream sector of the petroleum industry, government’s plan was to effectively end the importation of petroleum products for domestic consumption over the next decade as well as ensure that Nigeria becomes a key player in the competitive world of inter-national trading in petroleum products worldwide. Though the ability of the Petroleum Products Pricing Regulatory Agency (PPPRA) man-aged to keep the supply of petrol to consumers at the retail price of N65 per litre, even in the face of unstable fundamentals at the international oil market, indications are that this appears threatened, as marketers have already demanded a review of the pricing template to reflect the current market realities and ensure adequate cost recovery.

Denial of extractive industry validation

Perhaps, the biggest failure by government in the energy sector appears to have been the country’s failure to get the validation by the EITI Board as Extractive Industries Transparency Initiative (EITI) com-pliant nation last October. Out of the eight ‘Candidate countries’ whose applications were pending before the validation committee of the inter-national transparency body, only Ghana and Mongolia were confirmed, while Nigeria, Cameroon, Gabon, and Kyrgyzstan, were given various schedules till next April to remedy their status. The implication was that de-spite being one of the foremost countries to sign up to the EITI principles, Nigeria was not doing enough to promote transparency, accountability, and openness in the management of her extractive industries.

Failed Power road map

Last August, the Federal Government launched the Power Sector Road Map with the objective of raising the country’s electricity generation capacity to at least 5,500 mega watts (MW) by last December. Under the action plan, about 2,278 MW was to come from Federal Government-owned gas -fired power plants; about 1,230MW from the refurbished existing hydro power stations; about 350MW from the National Integrated Power Projects; and about 1,520MW from Independent Power Producers (IPPs). Adequate gas supply, which has always been cited as reason for failure of key power plants to function, was not going to be a problem, as government had given assurance of ad-equate stock at about one billion standard cubic feet per day (BSCF/D), apart from about 325 million SCFD from ongoing short term projects.

However, rather than improve, the level of electricity supply has continued to de-cline, with current generation capacity hovering at around 3,000MW as at last December, with no significant milestones in progress in the roadmap. Besides, the power sector re-form scheduled to end by the end of the year with the privatisation of the 18 successor companies from the Power Holding Company of Nigeria (PHCN) only recently reached the stage of invitation of expression of interests (EOIs) by the Bureau of Public Enterprises (BPE) from prospective core investors in 11 electricity distribution and six transmission companies.

Prostrate Steel sector

Earlier in the year, government had given indication that technical audit of the Ajaokuta Steel Company (ASC) and its affiliate, the National Iron Ore Mining Company (NIOMCO), would facilitate the process to restore operations in the two companies before the end of the year. That appears far- fetched as the year rolled by. The situation in the Aluminium Smelter Company of Nigeria (ALSCON) in Ikot Abasi, Akwa Ibom State, appears no different, as the plant’s production is still below installed capacity. The House of Representatives committee on privatisation and commercialisation had earlier in the year asked the management of the controversial core investors, UC Rusal, to immediately refund the sum of $120 million for breaching of the February 2007 Share Purchase Agreement (SPA) with the Federal Government for failure to ensure the complete turn around and modernisation of the plant, including the dredging of the Imo River Channel, within three months.

The stage is set for the revitalisation
of the Nigerian economy with the issuance of bond certificates by the
Asset Management Corporation of Nigeria (AMCON) to 21 banks.

This took place in Lagos last Friday
and signaled the transfer of non performing loans (NPLs) to the asset
company and the issuance of zero coupon bond worth N1.036 trillion to
the banks.

Aliyu Belgore, AMCON chairman, said the
bond has the guarantee of the federal government and the full support
of the executive and legislature.

“We are making history today where many
have failed or not even dared to try. AMCON will help in shoring
confidence in our banking system, reinvigorate the capital market, and
guarantee the soundness of the financial system and Nigeria’s sovereign
credit rating,” Mr. Belgore said.

The bond, which is coming with a yield
of 10.125 percent, is due in 2013. The bond was issued to the eligible
financial institutions for AMCON to acquire the eligible banks assets
comprising almost all the NPLs in the nine intervened banks as well as
margin related NPLs from the non intervened banks.

Swap with tradable bonds

Mofoluke Dosumu, executive director,
finance and operations, said the initial consideration bonds were the
first instruments rolled out to absorb the non performing loans in the
banking system.

“Within the first quarter of 2011, we
will be swapping these with another set of tradable bonds. We will be
issuing more bonds as we buy up more non performing loans, which is up
to N3 trillion in total,” Mrs. Dosunmu said in a telephone interview.

At a parley with bank executives on
December 16, she said that the essence of the intervention is to buy
the non performing loans and to cater for their capital adequacy. She
added that the liquidity of the bonds will be enhanced as it will not
only be held by banks but also fund managers, pension fund
administrators, insurance companies, trustees, and custodians.

On the valuation method, she said the
non performing loans secured without underlying collateral will be
bought at five percent of the principal sum.

“For the listed shares, it will be
valued on a 60 days average on the NSE trading platform counting back
from November 15 with a 60 percent premium on the price,” Mrs. Dosunmu
further said.

She said unlisted assets will not be taken in the first tranche of bonds to be issued.

Giant stride

Director general of the Securities and
Exchange Commission, Arunma Oteh, said the transfer of the NPLs from
the books of the banks will have positive impact on the Nigerian
capital market.

“I look forward to when the bonds will
be tradable. It is a giant stride in addressing the challenges we have
faced over the last two years. The capital market is truly an enabler
of our economy. If we have relied on oil all these years, it is time to
leverage on capital market to build businesses and boost
entrepreneurship skills of Nigerians,” Mrs. Oteh said.

The event was attended by chief
executives officers of 10 banks namely Oceanic Bank, GT Bank, Afribank,
Intercontinental, Spring, Zenith, First Bank, UBA, Union Bank, and
Ecobank. All the other banks were represented apart from Citi, Standard
Chartered, and Stanbic IBTC.

The board members of each bank has
individual and collective responsibilities for the accuracy of the
information provided, especially as regards the valuation of the assets
handed over to AMCON. AMCON will manage these assets and sell off at a
later date to recoup its investment.

In the AMCON law, which is yet to be
made public, the asset company can take over assets of bank debtors
which are not charged as collateral while banks or customers found to
have made false representation on valuation can attract a jail term of
three years or fine of N5 million.