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Finance experts have said that the new pension guidelines may
increase pension coverage in Nigeria from the currently dismal level, but that
funds under the new codes would have to be properly appraised if pension funds
are to be safe.

Last week, Nigeria’s Pension Commission (PENCOM) released the
much awaited exposure draft on the new guidelines on investment of pension
funds. Pension Fund Administrators (PFA) and other interested stakeholders are
expected to forward suggested amendments to the exposure draft on or before
Friday, September 17, after which the draft becomes finalised and ratified by
PENCOM as new set of regulations.

Highlights in the guidelines include more investment options
that PFAs can choose from, as well as the proposal of a new eligibility
criteria for appointments of heads of investment of the Pension Fund
Administrator, which experts say may involve the commission stipulating some
academic criteria in addition to the minimum experience previously required.

It also stated that principal officers of PFAs are prohibited
from making investment decisions where a conflict of interest exists, and are
required to report to the commission on a quarterly basis in an advised format.

Investment limits

The new draft guidelines, among other changes, gave new limits
to the investments options of Pension Fund Administrators.

It states that PFAs shall only invest in eligible bond/debt
instruments issued by states and local governments that have fully implemented
the Contributory Pension Scheme and that all bonds/debt instruments in which
pension funds are to be invested, which exceeds 7 years maturity shall be
inflation-indexed, though it did not specify if it included FGN issuances.

It also states that pension funds can now be invested in the
following allowable instruments such as supranational bonds issued by
multilateral development finance organisations, of which Nigeria is a member,
subject to a maximum portfolio limit of 20 percent of pension assets under
management; Specialist Investment Funds such as infrastructure funds and
private equity funds subject to 5 percent of pension assets under management.

“Pension funds can be invested only in an infrastructure project
situated within Nigeria, subject to maximum limit of 20 percent of funds under
management,” it states.

Pension fund assets can be invested in bonds/debt instruments
issued by any state or local government that meets rating provisions with a
maximum portfolio limit of 30 percent of pension assets under management.

“Pension fund assets can only be invested in ordinary shares of
public limited companies if the public limited liability company has made
taxable profits and paid dividends/issued bonus shares within the preceding
five (5) years. Pension fund assets can be invested in Private Equity (PE)
Funds, subject to pre-approval by the Commission” and may be invested in
ordinary shares of corporate entities, subject to a maximum portfolio limit of
25 percent of pension assets under management.

Investment in money
market

The guidelines states that PFAs can now invest in money market
instruments of a bank, with minimum credit rating of BBB by at least 2
recognised rating agencies – down from minimum rating of A previously.

It stated that any corporate entity that issues Commercial
Papers in which pension funds are to be invested shall have a minimum credit
rating of ‘BBB’ by at least two recognised credit rating companies.

Room for improvement

Pension Fund Administrators were not previously allowed to
directly invest in Commercial Papers without deposit money bank guarantees.
This guideline now allows PFA’s invest directly a maximum of 10 percent in
Commercial Papers of corporate entities, which experts say increases the depth
and number of instruments available.

Renaissance Capital, an investment banking firm, says the new
draft guidelines would increase pension coverage in the country. According to
the firm, PFA’s investment in state and local government bonds/debts would
increase pension coverage.

It, however, says the requirement for long tenured bonds and
debt instruments to be inflation indexed “is novel” and adds that, excluding
REIT’s, most of the investment options are all new asset classes which were
introduced with the new draft.

“PFA’s are now permitted to invest directly in commercial papers
of corporate entities without a financial intermediary or the underlying
guarantee of same.”

The firm also called for more appraisals on state and local
government bonds, and other sources, if PFA’s would invest in them.

“Investment in state or local government bonds must be readily
marketable and must be for specific projects with direct socio economic
benefits. This requires additional appraisal of state and local government
bonds before investment.”

The Commission has also stated that PFAs shall henceforth pay a
penalty for willful violation of approved investment limits. “Penalty shall be
the value of the excess over the approved limit,” the draft stated, introducing
its first penalty for wilful violation.

Professionals in
Nigeria’s aviation sector are divided over the ‘pay as you go’ mode of
payment which was recently introduced by the Nigerian Airspace
Management Agency (NAMA) and aimed at collecting terminal navigational
charges from domestic airlines.

The fuss generated
by the new levy since it was introduced on September 1 has resulted in
series of complaints and reactions from some airlines. The development
resulted in the grounding of Arik Air’s 120 domestic flights in one
day, and led to the introduction of N100 additional ticket charge by
Aero Contractors, which the carrier described as ‘NAMA Tax’.

Lateef Lawal, an
analyst with over two decades experience in the country’s aviation
industry, and the editor of Nigerian Aviation News in Lagos, said the
objections by domestic carriers on the new charges are “unnecessary”,
adding that the airlines are looking for ways to evade the payment for
services rendered to them by service providers in the sector.

Debt owed FAAN

Mr. Lawal argued
that all domestic carriers in Nigeria jointly owe the Federal Airports
Authority of Nigeria (FAAN) and the Nigerian Airspace Management Agency
(NAMA) a “whooping N10 billion, if not more,” out of which over N4
billion is owed NAMA.

“Prior to the 1st
September 2010, when the management of NAMA took the bull by the horns
after the directive of the Minister of Aviation for aggressive revenue
and debt recovery drives, there had been several meetings between NAMA
officials and those of the debtor airlines on debt reconciliations.
Some attended, others blatantly refused to attend,” he said.

According to him, a
ministerial committee was later set up to look at all the issues at
stake and come up with recommendations, adding that members of Airline
Operators of Nigeria (AON) were part of the committee, along with those
of the ministry and all the parastatals in the industry.

“After the
committee’s two-week sitting, they came up with far reaching
recommendations which included the spreading of the old debt owed by
the airlines since 2005 to June 2010 across 36 months, while they
should henceforth make it a point of duty to always pay for services
rendered to them,” he said.

He explained that
the recommendation, among others, was endorsed by the minister for
implementation. “This is what NAMA started to do on 1st September this
year.”

He said that it is disturbing for airlines with whom such agreement was reached to want to renege on the arrangement.

Different views

However, Gabriel
Olowo, a seasoned expert in the sector and chief executive of Sabre
Travel Network, said that the answer to the ongoing disagreement was to
“abolish ticket sales charge.” He said that the Airline Operators of
Nigeria had in the 90’s agreed to give five percent of what they get
from the sales of air tickets to the government to enhance the aviation
sector, adding that the amount was meant to cover any other levy on the
airlines.

“We ordinarily
should not speak on the matter waiting before the Supreme Court of
Nigeria; but throwing light into the history of ticket sales tax,
Airline Operators of Nigeria (AON) during the early 90’s had a
gentleman’s agreement with government to contribute five percent of all
ticket sales for aviation development having appreciated the financial
needs of our airports and airspace,” Mr. Olowo said.

“While this
subsists, it is expected to replace and substitute whatever charge
these institutions may have legitimacy to charge. There exists a
sharing formula for the fund by the agencies,” he added.

Mr. Olowo disclosed that it was after the agreement that NCAA became independent.

“NCAA thereafter
became autonomous and FAAN was collecting Passenger Service Charge
(PSC) known as airport tax, in addition to its landing and parking
fees. NAMA saw the sense also in collecting terminal navigational fees,
which is tantamount to eating your cake and wanting to have it,” he
said, stressing that the levies on domestic airline tickets are
exorbitant.

“If we are serious
about having strong and thriving Nigerian carriers, additional tax
burden on ticket in whatever nomenclature will simply turn the airlines
to revenue collecting agents in the face of the already difficult
business environment,” Mr. Olowo said.

The Nigerian Civil
Aviation Authority (NCAA), the regulator of the aviation industry, is
yet to make any public states on the issue.

Any time we finally
agree to take the tentative steps required to reconstruct this country,
the most striking proof of the unpleasant consequences of the inept way
the country has been governed over the years will be the way in which
distortions to the functioning of the economy now interact with every
sphere of our lives. I used to imagine that the strongest failing
described by this negative feedback loop was that of the market. We
still distrust the market. It is in the popular imagination, akin to a
beast of prey with a morbid craving for the flesh of the vulnerable in
societies. Concerned about the impersonal effect of the market on the
poor and the elderly amongst us, we have over the years acceded to
bureaucrats the right to make key decisions over how much of our
resources go towards certain sectors of the economy, and when.

Of course, this is
one of the larger paradoxes of life in this country. For simultaneously
as we invest bureaucrats with responsibility for decisions on the
commons, we can scarce trust them with such responsibility over our own
lives and property. In the popular imagination, they are no different
from bandits, able and willing to loot at will. What logic then makes
it okay that they sit in judgement over the national purse? Every day,
we see evidence of the failure of this arrangement. No sector of our
economy is where it should be considering the resources we reportedly
have expended in these directions over the years. Worse still, a number
of sectors that were in considerably decent fettle at the end of the
colonial administration have fallen way behind their peers elsewhere.

There are other
evidence. In those sectors of the economy where our favoured
bureaucrats have lesser influence, the difference is notable. Two of
these are outstanding: the wholesale and retail trade sector; and the
telecommunications sector. Here prices respond in real time to signals
from the market. Moreover, we see a general tendency for prices to go
down, or (which is just putting it differently) for suppliers to
continuously increase supply and differentiate their product/service
offerings. Alas, we also see businesses in these sectors laying off
their staff, and now and again shutting down whole assembly lines. But
this is as it should be. For only an economy, led by bureaucrats can
continue to proffer a line of goods and services when the market has
clearly expressed its preference for something else. Or how else could
NEPA (nay, PHCN) and a host of government run corporations continue to
exist?

If the “market” as
“electorate” had a choice in the matter, we would have long since shut
these institutions down a la NITEL. “Government by the public sector”
is not just one reason why this economy has not developed as well as it
might. It would seem, on this reasoning, that our system of economic
management is also implicit in our failure to develop as a democracy.
Our decision to allow the public sector directly allocate resources
within the economy is the greatest let on individual exercise of choice.

None of this is
saying anything new really. At best, I might be charged with putting a
new spin on this phenomenon. Nonetheless, there ain’t many Nigerians
who have given passing thoughts to these issues who then failed to
reach the conclusion that the way we have managed the economy over the
years adds greatly to the relatively high domestic cost of doing
business. And that the relatively high cost of doing business in this
country is a major problem across board.

So far, one can
explain the high cost in the real estate sector. This is arguably where
the public sector’s influence is most pernicious: what with the myriad
rules and regulations, including ones, which add so much to the
mortgage process, making even this inaccessible to the economically
vulnerable amongst us. However, of late, the main costs for putting up
a building in the country have remained stable. It is instead, the
labour component that has gone up. Now, in a labour-rich, and fairly
poor country, this is strange indeed. Recall the feedback loop, and
this is properly explained, however. Our youths would rather get rich,
than work trying. Accordingly, the pipeline of apprentice masons,
bricklayers, etc. has thinned, making the custom of the few available
master artisans expensive.

The stock market
opened for three days as Thursday and Friday were declared public
holidays in celebration of id-el- fitri. Meanwhile, the bear took the
lead as the stock exchange and the All Share Index failed to sustain
the last support point it found during the previous week; thus, it
dropped from the opening point of 24,241.84 and rested at 23,802.79
points having shed 1.81 per cent an equivalent of 439.05 points.
Investors should note that the straight drops have dragged good numbers
of equities below their respective intrinsic values leaving traders
with short term trading opportunities. The market capitalisation of the
listed equities equally closed at N5.832 trillion.

The NSE-30 Index
closed in the red below 1,000 points at 994.19 points from the opening
figure of 1,010.57. This is an indication that good numbers of the most
capitalised equities were hit by the bear’s knife. All the four most
active sectoral indexes closed below their respective opening figures.
NSE- Food/Beverages index closed down at 770.54 from the opening
figures of 775.06 having shed 4.52 points or 0.58 per cent. NSE-Banking
index lost 9.55 points same as 2.70 per cent moving from 354.05 to
344.50. NSE-Insurance index closed low at 171.74 from 173.86 losing
2.12 points an equivalent of 0.12 per cent and NSE-Oil/Gas index closed
in the red at 362.52 points from the opening of 367.22 shedding 4.7
points or 1.28 per cent.

Technical view

The NSE broke above
the upside resistance level of 22,160.69, 161 days ago. This was a
bullish sign. This previous resistance level of 22,160.69 may now
provide downside support. Volume on the day of the breakout was neither
extremely heavy nor extremely light – providing no convincing evidence
either way as to the validity of the breakout. A long lower shadow
however occurred, typically a bullish signal, so traders should
therefore watch for possible short bull takeover.

Within the three
trading days the stock market recorded a turnover of 591.85 million
shares valued at N5 billion in 17,660 transactions. Of these volumes,
the banking subsector contributed 304 million shares that were
exchanged in 9,650 deals. Volumes in the sector were chiefly driven by
transactions on the shares of Zenith Bank Plc, FinBank Plc, Guaranty
Trust Bank Plc, and First Bank of Nigeria Plc in that order. Volume in
the banking sector accounted for 51.44 per cent of the entire market
performance. On the other hand, volume on the shares of AIICO Insurance
Plc, and NEM Insurance boosted performance in the Insurance sector as
the sector followed on performance chart with 79.63 million shares
moved by 884 transactions.

First Aluminum tops
the price percentage gainers’ with 13.40 per cent appreciation from
N0.97 to N1.10. Honeywell followed with 10.36 per cent price
appreciation while 7-Up’s price was impacted by the corporate action on
dividend and bonus as it gained 10.23 per cent. Due to price adjustment
for dividend of N0.40 and bonus of 1:5, University press top the
losers’ table by 24.00 per cent. While profit taking activities dropped
the price of National Salt by 13.91 per cent, Poly product shed 13.74
per cent and Bank PHB closed down by 13.18 per cent.

Bond market

A total volume of
141.71 million bonds worth N129.01 billion exchanged in 1,257 deals was
transacted last week. This is in sharp contrast with the 264.92 million
units valued at N262.72 billion transacted in 3,111 deals for the week
ended Thursday, September 2, 2010. Measured by turnover/volume, the
most active bond was the 10 per cent FGN July 30, 2010 series which
recorded a traded volume of 77.05 million valued at N68.96 billion
cross 694 deals. It was immediately followed by 4 per cent FGN April
2015 series, with a traded volume of 31 million worth N25.25 billion
and exchanged in 227 deals. Ten out of the available 37 FGN Bonds were
traded in the week under review in contrast to 14 recorded in the
Penultimate week.

During the week, 15
equities were placed on full suspension for non-compliance with the
listing rules on financial reporting for 2008 as at 6th September,
2010. The equities delisting process shall formally commence if they
fail to release their respective result by Monday 11th October, 2010. A
total of 28 equities shall be placed on technical suspension on Monday
4th October 2010 if they failed to release their 2009 financial reports.

Five equities were
directed to regularize their status in the areas of audited accounts,
evidence of recapitalization and payment of outstanding listing fees;
failure to do this, the exchange shall commence delisting process
against them.

Meanwhile, seven
equities have appeared on the NSE watch list for complete
recapitalization activities, submission of outstanding financial
accounts, AGM meetings, and clearance of all regulatory issues with the
Securities and Exchange Commission among other issues.

Corporate actions

Seven-Up Bottling
Company Plc: the Q4 FY results of the heavy weight bottling company,
7-Up Plc for the period ended March 31, 2010 was made available in the
market last week. A cursory view on the performance indexes as shown in
the table below revealed improved growth against a comparable period in
2009. Lead indicators recorded double digit growth. Sales revenue
attained new high of N41.07 billion. Cost of sales (COS) remained high
at 85.4 per cent (same figure attained in FY 2009). Despite high COS
earnings was boosted by advanced growth in the bottom line.

Q4 EPS recorded a
growth of 23.8 per cent from 298 kobo in FY 2009 to 369 kobo
stimulating need for improved incentives. Other performance yardsticks
are ROE, PE ratio and Net profit margin of 21 per cent, 12.9x and 4.6
per cent respectively. At current earning yield of 7.7 per cent, 7-Up
returns to average shareholder is above benchmark 5 per cent. The
company’s directors have recommended a twin incentive; dividend of 175
kobo and scrip of 1 for every existing 4.

Observation: These
incentives are attractive considering the fact that 11.33 per cent of
the current market price will be paid to shareholders.

John Holt Plc: Conglomerates quoted company, John Holt Plc made available in the
market last week its belated Q4 FY results for the period ended
September 30, 2009. Performance indices showed subdued performance. As
depicted in the table below, TO and PAT dipped significantly by 11.6
per cent and 649.7 per cent.

With the
significant decline in the major profitability indices, ratio
indicators equally slide low, as such EPS loss ground by 655 per cent
at current LPS of 550k against 100k in FY 2009. Other major indicators
turned negative.

Observation: This stock is not attractive for short-medium investment.

Aiico Insurance
Plc: Policing covering firm, AIICO Insurance Plc last week reported its
overdue Q4 FY December 31, 2009 results to the market. Indicators
revealed stimulated performance in the midst of endemic concerns by
household units over the insurance industry, especially in the period
covered. Growth in the bottom line was notable. Though sales premium
managed 0.2 per cent growth, bottom line boosted by tax rebate grew by
67.5 per cent.

Performance ratios
witnessed improved growths. EPS went up by 75 per cent at 14k against
8k in FY 2008. At PE ratio of 7x, net profit margin of 26.8 per cent
and earnings yield of 14.3 per cent, AIICO appears attractive for
medium term investment.

Observation:AIICO is attractive for medium term investment.

The management of the Nigerian Stock
Exchange (NSE) has appealed to shareholders of quoted stocks to support
the market through regular report of unethical practices of companies.

Sola Oni,
spokesperson for the NSE, in a statement at the weekend, said Emmanuel
Ikazoboh, interim administrator of the NSE, gave the advice when some
members of the Ibadan Zone of the Shareholders’ Association paid him a
courtesy visit.

Mr. Ikazoboh said
investors should also support the market through positive comments.
“Investors are the nerve centre of the market otherwise there would be
no market,” he said.

Meanwhile, the
association’s six-man executive members, led by its chairman, Aderemi
Oyepeju, passed a vote of confidence on the Exchange’s management for
working to reinforce investors’ confidence in the stock market. They
said the on-going market reform will put every operator and quoted
company on their toes.

The group also
commended the Exchange’s recent sanction of all erring quoted companies
that have reneged in meeting their responsibilities, listing
obligations such as prompt release of financial statements and payments
of listing fees among others. “Such zero tolerance is much needed to
build the market” Mr. Oyepeju said.

They expressed
dismay at the way many investors have suffered untold hardship due to
lack of regular information from quoted companies and unethical
practices of some market operators.

They urged the
Exchange’s management not to relent in its efforts at ensuring
compliance with market rules and regulations by operators and quoted
companies.

Necessary machinery

The shareholders
also urged the NSE to put necessary machinery in motion to ensure that
private companies no longer use listing of shares on the Exchange as a
marketing gimmick for private placement. According to them, “Many
investors have got their fingers burnt through participation in private
placement as those companies hardly apply for listing after the offer.”
Commenting on the modalities for payment of dividend by quoted
companies, the shareholders suggested the need for banks to device a
means of informing shareholders whenever dividends are credited into
their accounts under the new regime of e-dividend.

On the on-going
discourse on the status of registrars, they endorsed independence of
registrars for enhanced professionalism and avoidance of avoid conflict
of interest. However, they admonished the registrars to always treat
verification of share certificates with dispatch.

On the need to
strengthen prompt communication between the market and investors, the
group urged the exchange to ensure that Central Securities Clearing
System (CSCS) alerts investors anytime transaction is about to be
effected on their stocks.

The group lauded the on-going market
reform by the Securities and Exchange Commission (SEC) but cautioned
that it should be handled in a way that would not heat up the system.
They said, “The Exchange has a lot of potentials that would always make
it attractive to investors globally as long as investors’ confidence is
sustained.” In his response, Mr. Ikazoboh thanked the group for their
confidence in his administration and the Exchange’s management and
noted that virtually all the issues they raised are being addressed.
For instance, he explained that a new window created by the Exchange to
address the challenges of private placement has commenced operation. He
assured them that all forms of breach of market rules and regulations
shall continue to attract stiff sanctions. He informed them that
operation of trade alert is being reviewed to make it more effective
and efficient as a monitoring device.

Industry
professionals in Nigeria’s aviation sector hold divergent views on the
‘pay as you go’ mode of payment recently introduced by the Nigerian
Airspace Management Agency (NAMA) for collecting terminal navigational
charges from domestic airlines.

Some
experts favour the initiative, but other stakeholders in the sector see
the development as cumbersome and an additional tax on the highly
levied air tickets.

The
‘pay as you go’ fuss, which for two weeks resulted in series of
complaints and counter reactions from some airlines, saw to the
grounding of Arik Air’s 120 domestic flights in one day, and led to the
introduction of N100 additional ticket charge by Aero Contractors,
which the carrier described as “NAMA Tax.” Explaining that the
objections of domestic carriers to the new charges are “unnecessary,”
Lateef Lawal, an analyst who has spent over two decades in the
country’s aviation industry and the editor of Nigerian Aviation News in
Lagos, said that the airlines are looking for ways to evade the payment
for services rendered to them by service providers in the sector.

Mr.
Lawal argued that all domestic carriers in Nigeria jointly owe the
Federal Airports Authority of Nigeria (FAAN) and the Nigerian Airspace
Management Agency (NAMA) a “whooping N10 billion if not more,” out of
which over N4 billion is owed NAMA.

“Prior
to 1st September 2010 when the management of NAMA took the bull by the
horns after the directive of the Minister of Aviation for aggressive
revenue and debt recovery drives, there had been several meetings
between NAMA officials and those of the debtor airlines on debt
reconciliations.

Some attended others blatantly refused to attend,” he said.

According
to Mr. Lawal, a Ministerial Committee was set up to look at all the
issues at stake and come up with recommendations on the ways out and
members of Airline Operators of Nigeria (AON) were part of the
committee along with ministry officials and others from parastatals in
the industry.

“After
the committee’s two-week sitting they came up with far reaching
recommendations which included the spreading of the old debt owed by
the airlines since 2005 to June 2010 to be spread across 36months while
they should henceforth make it a point of duty to always pay for
services rendered to them,” he said, adding “this recommendation among
others was endorsed by the Minister for implementation, which was what
NAMA started on 1st September this year.” He said that it is surprising
to see an about turn by the airlines that were part and parcel of the
report to which their representatives at the Ministerial Committee
Meeting appended their signatures.

Different views

However,
Gabriel Olowo, another expert in the sector and chief executive of
Sabre Travel Network, said that the answer to the ongoing palaver is to
“abolish ticket sales charge.” Mr. Olowo posited that the Airline
Operators of Nigeria had in the 90’s agreed to give five per cent of
what they get from the sales of air tickets to the government to
enhance the aviation sector, adding that the contract should replace
whatever levy is placed by any government organization on airlines.

“We
ordinarily should not speak on the matter waiting before the Supreme
Court of Nigeria; but throwing light into the history of Ticket Sales
Tax, Airline Operators of Nigeria (AON) during early 90’s had a
gentleman agreement with government to contribute five per cent of all
ticket sales for aviation development having appreciated the financial
needs of our airports and airspace,” he said.

“While
this subsists, it is expected to replace and substitute whatever charge
these institutions may have legitimacy to charge. There exists a
sharing formula for the fund by the agencies.” Mr. Olowo said that it
was after the agreement that the Nigerian Civil Aviation Authority
(NCAA) got its independence and the Federal Airports Authority of
Nigeria (FAAN) commenced taxation on airlines, stressing that the
levies on domestic airline tickets are exorbitant.

“NCAA
thereafter became autonomous and FAAN was collecting passenger service
charge (PSC) known as airport tax, in addition to its Landing and
Parking fees. NAMA saw the sense also in collecting Terminal
Navigational fees which tantamount to eating your cake and wanting to
have it as this amounts to double taxation,” he said.

“As you are already aware, Airline ticket contains too many taxes
(TST,PSC,VAT) and if we are serious about having strong and thriving
Nigerian carriers, additional tax burden on ticket in whatever
nomenclature will simply turn the airlines to revenue collecting agents
in the face of their already difficult environment of business.”

A major problem
with the Nigerian oil industry can be traced to its regulatory
mechanisms. While we should assume that such mechanisms could actually
help secure efficient operations of the sector, they have led the
sector into more murky waters.

For a number of
years, the Nigerian president doubled as the minister of petroleum.
Busy on many fronts, a number of issues must have gone without strict
oversight. Because the president was also the minister, the office had
more powers assigned to it. Some experts believe that because of this
setting, the minister of petroleum was allowed wide scope for
discretion and decision-making powers, without commensurate systems of
review and accountability.

The sector is
disparately regulated, mainly from the Ministry of Environment and that
of Petroleum. How coherent these two perform and how their powers
overlap or synergise are issues for another day. But there are many
areas we ought to worry about. One area of concern is that the oil
sector has created some of the most critical environmental and health
problems for the Niger Delta and the entire nation.

Who is the
governmental watchdog for the Nigerian environment? The answer to that
question may seem obvious. Do you say it is the ministry of
environment? You would be right. But that would be only to a point.

When we had a
Federal Environmental Protection Agency (FEPA) as a subset of the
Federal Ministry of Environment, the answer would have been right to a
larger extent than it is now. After the demise of FEPA, another agency
with a suspiciously long name emerged in 2007. We are talking of the
National Environmental Standards and Regulations Enforcement Agency
(NESREA).

Let me confess that
I had to visit their website to be sure I got that name right! The
duties of NESREA, as stated in the Act by which it was set up, are
lofty and should build confidence in the agency. However, there are two
key areas that raise serious concern. And they are related.

First area of
concern is the composition of the governing council of the agency.
Article 3 (viii) of the NESREA Act of 2007 specifies a membership slot
in the council for a representative of the oil exploratory and
production companies in Nigeria.

Why, we ask, is
this space created for the oil companies to regulate our Nigerian
environment? We note that apart from a slot allowed for the
Manufacturers Association of Nigeria (MAN), there is a provision for
the Minister of Environment to appoint “three other persons to
represent public interest.” There is no clue in the Act as to who these
three would be and on what basis the minister would select them. Would
there be representatives of fishers, farmers, or pastoralists? Would
there be youth whose future we are already squandering?

We have picked on
the objectionable inclusion of the oil corporations in the regulation
of our environment because these entities, while baking the petrodollar
pie, are also guilty of causing severe damage to the environment and to
the psyche of our peoples.

The submission of
this writer is that the oil companies should be in the dock and not on
the bench in hallowed chambers of environmental and sundry justice.
What they have done in the oil communities is nothing short of criminal.

The second issue,
which, as already mentioned, relates to the first objection above, is
the stipulation of Article 7 (d) of the NESREA Act. This section states
that the agency shall “enforce compliance with regulations on the
importation, exportation, production, distribution, storage, sale, use,
handling and disposal of hazardous chemicals and waste other than in
the oil and gas sector.”

It is clear from
the above that a factor has been inserted here to confer a certain
status on the oil companies that keeps them away from being regulated
by an agency that sets environmental standards in Nigeria and which is
supposed to enforce regulations in the land.

With the biggest
environmental abuser excluded from the purview of NESREA, the agency
must be truly and fully handicapped to play the role it ought to play
in regulating the environment. Consider what it would mean if the
United States FEPA had no say about how oil companies handle and
dispose of chemicals and wastes in the oil and gas sector.

This exclusion from
regulation of the oil companies is shocking and scandalous. However,
what makes it more objectionable is the fact that these companies,
which continue to commit heinous environmental and human rights abuses
in the oil fields and communities, are also elevated to the seat of
judgement over other lesser polluters of the Nigerian environment.

This is a sad
commentary on environmental regulation in Nigeria. It is unacceptable
and needs urgent re-examination and correction. A very basic tenet of
justice holds that an offender cannot be a judge in his own case. The
unholy wedlock between regulatory agencies and the oil and gas
companies is ripe for a divorce.

Perhaps, you will
tell us that there are other agencies that regulate the oil and gas
companies. You could list the Directorate of Petroleum Resources as
one. That would make a good joke if you were on a comedy train. The DPR
that is unable to tell us how much oil is extracted from the wells and
keeps a blind eye or raises hands controlled by political levers cannot
take the place of a central environmental regulatory agency.

NESREA needs urgent attention to help close the dangerous gaps created by her blind spots.

The economic
meltdown has indeed posed enormous challenges to the marketing
communication industry. The harsh economic realities have forced
several companies and brands to abandon marketing communication
platforms. It is true that the global economic meltdown comes with
harsh realities, but this should not force companies to shrink budgets
or in extreme cases, jettison marketing communication campaign in its
entirety. The reason for this is the long term value and benefits that
this brings over a specific period.

It has indeed
become expedient for brands to remain visible in the market place
during the recession. It is not being suggested that budget may not be
reviewed, but it would not get to that point that adverse effects
become noticeable on building and sustaining brand equity. The economic
recession can be a good opportunity for companies to rethink their
marketing strategy and explore new platforms to retain market share.

Some companies have
actually adopted a number of strategies that cannot deliver on brand
success in the past and all they want to do now is to drastically do
away with marketing communication. This is not the way out, as such
firms should go back to the drawing board and engage professionals to
develop workable strategies for them. It is pertinent to state that
brands will suffer in the long run when the effects of economic
recession thin out.

The economic
recession offers companies the opportunity to gain a deep understanding
of consumer behaviour. This includes purchase decisions, what motivates
consumers, what is the current lifestyle of consumers, even during
recession, and what value does the consumer want? All these are key
consumer insights that will go a long way in helping the brand achieve
market penetration in times of recession.

It is indeed
crucial for brands not to leave any gap for competition during times
like this. There is the critical need to communicate continuously and
also focus on internal re-tooling on such areas as quality, service
delivery, consumer bonding, packaging, production, channels of
distribution, etc. This is also without losing sight of the financial
margins in business.

In our clime in
Nigeria, despite the economic recession, people still expend a lot of
money on social events. There are some brands that still thrive, in
spite of all odds. For instance, a soft drink manufacturing company.
Some marketing team have been following up on churches where wedding
ceremonies take place regularly. That is a strategy that has worked
over the years as the brands are sold through a direct marketing
strategy. This is one effective way to increase bottom line while also
supporting the brand with communication.

It is even during
economic recession that some brands adopt other tools of marketing
communication to build share of voice and gain the consumers mind. It
has now become a warfare strategy for brands to battle to occupy a
larger percentage of the consumers mind.

This is exactly
what is happening with two major detergent brands: OMO and Ariel. The
brands have developed a strategy that will ensure that the consumers
have direct connection to the brands. It is also aimed at demonstrating
to consumers the need to prefer one brand to the other. The open market
activation, which has a celebrity as the anchor person, has endeared
the brands to the consumers. This is strategy that focuses on
increasing the bottom line and sustaining market share. The brands
adopted the experiential marketing approach to build brand equity
during the meltdown. This should be the focus of companies, rather than
taking harsh decisions that, in the long run, would affect the fortunes
of the brand.

Some days ago, the
managing director of a major QSR with foreign affiliation informed me
that they could not afford any communication now. He even went further
to state that they have just closed down one of their outlets. This,
for me, is not the solution. I believe a marketing strategy that should
target the potentials consumers around that axis of the outlet should
be developed.

There are some
major offices and residential homes around that area. All the company
needs to do is to utilise a direct marketing approach and reach out to
the consumers. For instance, the strategy could be to serve breakfast
to the consumers and this will win them over. Everything is not about
the recession alone, but the marketing communication channel to adopt.
Some companies are also in his shoes and over time, the brands suffer
while competitors take the centre stage of winning their consumers over.

The meltdown can
indeed be a veritable platform for companies to project brands and
achieve success in the market. The key imperative is to identify the
marketing communication tool that will leverage visibility for the
brand to succeed in the marketplace.

Some market operators have expressed
divergent views on what appear to be a race to issue bonds by some
states at the Nigerian capital market.

In the last eight months, Ogun, Bauchi,
Kano, Kwara, Niger, and some other states have all shown interest to
issue bonds before the end of the year.

While some states are still struggling
to meet the requirements for bond issuance, with states like Ogun
currently battling with the legality of its legislative support for
bond, other states like Bayelsa, Ebonyi, and Kaduna have already got
the approval of the council of the Nigerian Stock Exchange (NSE) to
float N50 billion, N20 billion, and N8.5 billion respectively. Last
year, Lagos State raised N50 billion in its first tranche bond and it
was oversubscribed by N8.9 billion.

Some of the bond requirements include:
the submission of the state’s audited accounts for the preceding three
to five years; a favourable credit rating report; a feasibility report;
and an irrevocable Standing Payment Order.

However, while some analysts believe
the rush for bond is worrisome because many of these state governments
have few months left for their administrations to end, hence, the
opportunity to channel the money raised to other purposes, others say
since the utilisation of proceeds from a bond issue is predetermined,
state governments need the funds to achieve their various developmental
plans for the state before they leave office.

David Amaechi, an executive member of
the Shareholders Association of Nigeria, said although the bond market,
a debt instrument platform, has always been an avenue for states to
raise developmental funds, “the present rush to issue bonds, especially
when next year’s election is fast approaching, shows there are hidden
agendas for the funds.”

Mr. Amaechi said bond issuance will
also increase the debt profile of a state and “this will be a burden
for the incoming government.”

“The only assurance investors have on
such bonds is that return on investment is guaranteed. Government bonds
are risk free, even when the purpose for the fund is not achieved,” he
said.

Meanwhile, Bola Oke, finance analyst at
WealthZone Company, an investment firm, said state governments are only
trying to take advantage of the bond market following the continuous
loss of confidence at the equity market.

Ms. Oke said many states approached the
bond market because it is “a safe place” to supplement the low
allocation they get from the federal government.

“State governments will always seek for
more funds since there are several projects to be done. And investors
shouldn’t worry about their money because these funds are fixed income
securities. The cash-flow from them is fixed,” she said, adding that
state bonds are good investment outlet to portfolio managers.

Ikazoboh’s advice

Emmanuel Ikazoboh, the interim
administrator of the NSE, has advised market operators to invest in
fixed income securities to lower their risk exposure in the market.

“Awareness is gradually rising
regarding investments in bond as many state governments and corporate
entities have applied to raise funds on the market via bonds. It must
be noted that investment in bonds guarantees a fixed income. Until the
late eighties, the bulk of investment through the Exchange was in debt
securities, before equity investments took the centre stage,” Mr.
Ikazoboh.

As part of the Exchange’s commitment
toward encouraging more investments in government bonds, the NSE
council, in January, 2010, reduced transactional charges on bonds.

“Investors should take advantage of the
fee reductions to include fixed income securities in their portfolios.
It is heartwarming to say that the Exchange’s trading platform is
effectively configured for trading bonds,” he said.

Bond preconditions

In the meantime, Afrinvest West Africa
Limited, an investment bank, in a report on bonds, said a
well-functioning bond market requires some preconditions. Some of which
are: a reliable regulatory framework, an efficient market
infrastructure, effective corporate governance culture, a functioning
sovereign bond market that provides corporate and a stable and liquid
benchmark curve in local currency, and a developed credit culture.

According to the report, “accessibility, transparency, and liquidity
are also essential preconditions for ensuring that the Nigerian bond
market plays a meaningful role in the country’s economic development –
funding pressing infrastructure investment needs, financing government
deficit spending at both national and sub-national levels,
strengthening bank balance sheets, and supporting capital investments
in the private sector.” </

According to the figures from the
Nigerian Stock Exchange, 12 states, from 1999 to date, have raised
about N374.6 billion from the bond market. This is apart from over N2.6
trillion which the Debt Management Office (DMO), on behalf of the
Federal Government, has raised from the same market. All these reflect
the huge sums many state governments borrowed from commercial banks at
great cost to the states’ treasury.

When Edo State, under Lucky Igbinedion,
blazed the trail in 2000 to successfully raise N1 billion, it opened
the gates for other states to rush to the market, which provided an
alternative and cheaper window to augment their receipts from the
federation account. Delta State soon followed in the same 2000 with N5
billion in two tranches, then Yobe (2001), and Ekiti (2002) States,
with N2.5 billion and N4 billion respectively. In 2002, Lagos floated
the largest sub national debt issue at the time with N15 billion for
various projects in two tranches.

The success of these issues attracted
others and soon Cross River (2003), Akwa Ibom (2004), and Kebbi (2006)
followed with N4 billion, N6 billion, and N3.5 billion respectively.
Imo, Bayelsa, Kaduna, and Ebonyi are currently in the market to raise
N18 billion, N50 billion, N8.5 billion and N20 billion.

Debt Management Act

However, the plausible question to ask
at this point is, where has all the money gone? The desire to restore
modesty to the manner in which states and federal government bonds were
raised prompted the government of President Olusegun Obasanjo to pass
the Debt Management Office Establishment Act 2003.

Thereafter, the president invoked
section 24 of the DMO Act, which demands that states must obtain the
permission of the minister of finance before issuing bonds. The point
was to ensure fiscal discipline in the manner states funds are raised
and appropriated. To get the minister’s consent, states were required
to submit three years financial report and the approval of the state
house of assembly. The consent of the minister of finance would
translate into the signing of an Irrevocable Standing Payment Order
(ISPO), which allows the interest and principal payable on the bond to
be deducted at source from the federation account.

Lanre Oloyi, spokesperson of the
Securities and Exchange Commission (SEC), said state governments that
raise funds from the bond market are expected to deploy the proceeds
for that which they stated it would be used for.

“There have not been any issues about funds misappropriation,” he said.

“The market is rule based and due
process must be followed and complied with. If there are instance of
states not acting responsibly, they would have been so advised,” Mr.
Oloyi said.

SEC is responsible

According to him, SEC has the
responsibility to ensure that states use the funds judiciously, adding
that the commission conducts monitoring exercise and on-the-spot
assessment.

“If there are issues, we advise the
state accordingly, without necessarily having to make it public. The
fact that we have not made such findings public does not mean that SEC
is sleeping. We are always alive to our responsibility,” he said.

The commission, after a similar concern
raised some years back, actually cleared some states of wrong
application of bond proceeds. According to SEC, under the former
director general, Suleiman Ndanusa, Edo, Ekiti, and Yobe States did not
misapply the proceeds from the bonds which they raised from the capital
market then. This clearance came at a time when Charles Soludo, who was
then the chief economic adviser to President Obasanjo, took a position
that states should not be encouraged to raise funds from the capital
market because such funds were not properly utilised.

However, out of the four states which
were evaluated, the report only blamed the Edo State government for
lack of co-ordination and adequate supervision of the projects. It said
that lack of co-ordination by the Edo State government stemmed from the
involvement of many agencies and ministries in the execution of the
identified projects.

Up till now, the Iyekogba Housing
Estate in Benin City, for which the funds were raised, is yet to be
completed, and the occupants have moved in without the basic amenities
which were promised as at the time the funds were being raised. Delta
and Lagos State governments, which raised N5 billion and N25 billion
respectively, were not mentioned in the SEC report.

Not much monitoring

However, a securities dealer who spoke
off record said SEC may not have done much in monitoring how states
deploy such funds. He said even though the commission is supposed to
guide against irresponsible bond issuance, some states still go ahead
to raise funds just to offset recurrent expenses.

“Only a certain percentage of their
annual revenue are supposed to be raised as bond in order to keep it at
a responsible level. But what we find is that many states are trooping
to the bond market.”

He said the latest effort by Ogun State
and the attendant political crisis that it has generated is good enough
reason for people to begin to ask how much of these funds are put to
judicious use.

“SEC and CBN (Central Bank of Nigeria)
have come up with rules to contain irresponsible bond issuance. The
guidelines under which state bonds can be considered as liquid assets
is one of them. State bonds already have a problem of illiquidity at
the secondary market, as it is difficult to sell,” he said.

Victor Ogiemwonyi, managing director of
Partnership Investment Limited, said the important thing is for
investors to get returns on their investment. “It would really be
difficult to monitor how states utilise the money unless an on-the-spot
assessment is carried out on the projects they have said it would be
used for.”

The CBN in July released guidelines for
states wishing to float bonds, among which must be a law enacted by its
House of Assembly, specifying that a Sinking Fund, fully funded from
the consolidated revenue fund account of the issuer, is in place.

According to the guideline, states
must, “put in place a Fiscal Responsibility Law with adequate
provisions for debt management and ensure that proceeds from the issued
bonds are specifically disbursed to the projects they are meant for,
with the execution monitored by the Securities and Exchange Commission
(SEC).”

The guideline also stipulated that that there should also be a
credit rating at inception and throughout the tenor of the bonds. The
credit rating would be determined by a rating agency registered or
recognised by SEC.</