Nigeria Content Online

Trading activities
in Starcomms’ shares yesterday boosted market volume as the quantity of
shares transacted during the day rose by 26.11 percent as against a
marginal increase of 6.59 percent recorded last trading day. A total of
371.664 million shares were traded compared to 294.696 million at the
previous trading session last Friday.

Investors traded
69.569 million units of Starcomms’ shares worth N50.674 million on
Monday while the company’s share price, listed under the Nigerian Stock
Exchange’s Information & Communication Technology subsector, rose
by 2.74 percent to close at 75 kobo per share. The large traded volume
was followed by Zenith Bank, United Bank for Africa and FinBank.

Olugbenga Emmanuel,
a finance analyst at WealthZone Company, a portfolio management
company, said the investors’ confidence may not have been restored at
the nation’s bourse, “but some institutional investors are currently
buying some stocks at low prices; taking advantage of sellers’
enthusiasm despite the continuous decline in the entire market
performance.”

Decline continues

Meanwhile, the
market capitalisation of equities at the stock exchange depreciated by
0.16 percent at the close of trading session on Monday. The NSE market
capitalisation of the 194 First-Tier equities closed yesterday at
N8.071 trillion after opening the day at N8.084 trillion, reflecting
N13 billion losses.

The NSE All-Share
Index yesterday shed 0.15 percent or 37.96 units to close at 25,262.50
basis points from the 25,300.46 recorded at the beginning of the day’s
trading.

The number of
gainers on Monday closed lower at 33 stocks compared to the 35 stocks
recorded last Friday. UAC Properties topped the gainers chart for the
day with five percent appreciations or 80 kobo to close at N16.81 per
share. On the losers’ side, a total of 21 stocks recorded price decline
compared to the 19 stocks that declined in the previous trading day.
Diamond Bank topped the losers chart with 4.97 percent depreciation or
37 kobo to close at N7.08 per share.

At the close of
trading yesterday, the banking subsector led the most active
subsector’s chart with 195.526 million quantities of shares, valued at
N1.609 billion. Volume in the subsector was largely driven by Zenith
Bank, followed by United Bank for Africa and FinBank.

The Information
& Communication Technology subsector was second in the most active
subsectors’ chart with 69.599 million volumes of shares, valued at over
N50.689 million. Starcomms, the most traded stock for the day, largely
boosted volume in the subsector, followed by Chams Plc.

Trading activities
in the Insurance subsector was third in the chart. Investors in the
sector exchanged 33.653 million volumes of shares, valued at N19.661
million.

Deals in shares of Equity Assurance, NEM Insurance, Universal Insurance Company,

and Goldlink Insurance boosted volume in the subsector.

I readily confess
to a fascination with the “theory of unintended consequences”. But, a
small clarification before anything further is written. My interest is
not in the certainty that everything that may go wrong about a policy
choice/decision is bound to. Confronted by almost six decades of inept
and often cynical management of this economy, it is to be expected that
we have come to associate “unintended consequences” with “negative
outcomes”.

In truth, put this
way, my central narrative is but a variant of Murphy’s Law. Instead, my
enthralment is with the benefits, losses, or wrong signals arising from
a particular action, but which were not conceived of in or intended as
part of the original action plan.

Newspaper headlines
on workers’ day, May 1, were all of one flavour. In their addresses to
the different labour rallies, state governors all pledged to implement
the new minimum wage. Not too long ago, the same persons had argued
that their state government budgets could not bear the extra financial
burden from paying the new minimum wage. What had changed since then? I
could think of only one proximate explanation: the events of late
April, this year.

On balance, the
last polls in the country appear to have moved the social engagement
envelope several notches up. The “voice” of the people was heard loud
and clear, amidst the din of many a strong man’s battered ego. That was
the intended consequence of the clamour over the years for a democracy
in which every vote is counted, and every vote counts.

To the extent that
it acts as counter-weight to the dominant culture of impunity that has
come to define our polity, a representative democracy ought to improve
both the collective capacity to choose, and the different cabinet’s
will to execute.

Perverse results

However, to the
extent that politicians interpret “re-election” as the main challenge
of a democracy, then even the best voting process could have perverse
results. One such result is the rise of populist politics. Because the
masses may now have the power of the vote, what is to stop unscrupulous
politicians from pandering to its basest instincts? To take but a few
examples, a thin line separates the need for higher taxes on the
affluent in aid of society’s redistribution responsibilities from a
restraint on commerce as part of an ill-advised process of
democratising poverty; a no less blurred space sits between the need to
protect employment for locals and xenophobia.

A less than honest
treatment of the policy choices at the heart of these two examples
could lead politicians in a race to the bottom of the dump yard; more
so in a democracy where people have only just begun to savour the power
that rightfully belongs to them. Our best bet is a lot more conviction
at the top. For leadership is not solely about bending resources and
capacity to the discharge of the popular will. It is more about shaping
the choice space. Agreeing a desired destination, and selling this to
the electorate. It is, in this very narrow sense, a question ultimately
of shaping the popular will. Of leading it down paths where only
visionaries have travelled previously.

Again as between a
visionary leader and a demagogue, the thinnest of lines demarcate. So
we arrive at the point where we must agree that even under the best of
representative democracies, the threat of continued misrule in this
country does not evaporate overnight. This danger is heightened by the
prevalent low levels of education in the country, both of the classroom
variety, and of the civic one, which can only come from a long thriving
civil society.

In the absence of such a society, then, our hopes for a better
tomorrow, in the short-term, at least still depend on the quality of
leadership we get. In the absence of a functioning democracy, a
benevolent caudillo almost became a popular fancy. One, who,
understanding the need for progress along modern lines, a la Singapore
and Malaysia, rammed that vision through society. Once we change the
rules of the game through trying to run elections properly, we deny
this possibility. Instead, the new need is for conviction politicians,
prepared to argue their corner as strenuously as the most modern
constitution permits, while eschewing popular lines.

The Nigerian banking industry is expected to put up a good
showing this year in the aftermath of apprehension over recently concluded
national elections. According to a report by Renaissance Capital (RenCap), a
global institutional finance company, the economy will receive a boost but
warned that inflation will remain high.

“Nigeria’s inflation will remain stubbornly high in 2011, owing
to structural factors including poor infrastructure, high commodity prices and
an expansionary fiscal policy. Given the strengthening inflationary pressures,
there is room for additional hikes of the monetary policy rate to beyond 7.5
per cent.”

Tabula rasa

The report stated that Nigerian banks are starting on a clean
slate following the clean-up of their books by the Asset Management Corporation
of Nigeria. It added that strong capitalisation and ample liquidity provide a
positive background for the banks to do well in 2011.

It however cautioned on the inherent risk in the system, especially
macro and political risks, particularly with oil remaining a key factor for
Nigeria’s budget and revenues.

“At the sector level, post the recent crisis, regulation will
need to prove itself through the cycle before we are fully comfortable,” it stated.

RenCap added that the macro economic environment is a function
of how the government decides to tackle underlying issues. With ongoing reforms
in that direction, the report cited the power, agriculture, oil and gas sectors
are identified as areas where the banks can leverage.

“Loan book concentration risk forces banks to look beyond these
sectors, and the fast-growing telecoms sector has been an area of much bank
focus, while the power sector, and potentially the agriculture sector, are seen
as areas of potential growth going forward.”

The report estimates that the services sector will remain the
largest contributor to real GDP (gross domestic product) growth in 2011.

“On our estimates, owing to the potential for the telecoms
sector to continue expanding exceptionally rapidly, and in light of sustained
strong wholesale and retail trade growth.”

High dividend payout

According to RenCap, unlike other emerging markets where banks
pay little out as dividend due to need for growth and safety, Nigerian banks
pay as much as 40 to 60 percent of their earnings as dividend.

“This reflects the dividend demands of a large proportion of their historic
local investor base. Hence, in a growth environment like Nigeria, coupled with
current dividend policy, sizeable CARs (Captial Adequacy Ratio) can be eaten into
relatively quickly.” Capital Adequacy Ratio (CAR) is a ratio that regulators use to watch bank’s health, specifically bank’s capital to its risk. In measuring the soundness of a firm, two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up.

Ghana’s annual inflation rate fell to 9.02 percent in April, the
country’s statistics office said on Wednesday, the second dip in a row that
reinforces prospects of a rate hold decision by the Bank of Ghana this week.

Analysts said the surprise fall from 9.13 percent in March might
spark calls for a further rate cut, but for now, the consensus was for the
prime rate to be held at 13.5 percent and some analysts warned that inflation
could take off again soon.

Fuel price hikes pushed inflation higher in January but the
national statistics office said the stabilisation of fuel prices, coupled with
the abundance of food and a relatively stable exchange rate, had led to dip in
April.

“This is a good reading, especially given the inflationary
pressures stemming from high oil prices and a relatively weak currency,” said
Lisa Lewin, an analyst at London-based Business Monitor International.

“It looks almost certain that rates will be kept on hold this
time around, but as soon as inflation edges back into the double digits, we can
expect a hiking cycle to commence,” she added.

Separately, the statistics office said the Ghanaian economy grew
7.7 percent in 2010. Analysts see that accelerating to around 13 percent this
year thanks to oil revenues. An expected announcement of first quarter 2011
growth was put back to June.

Food for thought

The Bank of Ghana’s Monetary Policy Committee is due to announce
its decision on interest rates on Friday. Ahead of Wednesday’s announcement,
seven out of ten banks polled said they were expecting the rate to be unchanged
at 13.5 percent.

“The immediate impact of this will be to set people thinking
…whether with the Prime Rate at 13.5 percent since last July there is any
probability of a late-cycle rate cut,” said Standard Chartered analyst Razia
Khan.

“While the good news on inflation will certainly boost the case
of those who have been arguing for a rate cut, our call is still for the Bank
of Ghana to keep interest rates on hold.” Mr Khan cited possible volatility in
the Ghana cedi, concern over Ghana’s fiscal deficit, a trend towards higher
inflation and improved credit access for the private sector as reasons for
holding the rate steady.

Non-food inflation was almost three times that of the food group
in April. High fuel prices, hikes in public sector wages and the influx of oil
revenues since Ghana started pumping oil last year have all raised the
prospects of steady increases in the pace of inflation over the year.

Reuters

The Nigerian banking industry is expected to put up a good
showing this year in the aftermath of apprehension over recently concluded
national elections. According to a report by Renaissance Capital (RenCap), a
global institutional finance company, the economy will receive a boost but
warned that inflation will remain high.

“Nigeria’s inflation will remain stubbornly high in 2011, owing
to structural factors including poor infrastructure, high commodity prices and
an expansionary fiscal policy. Given the strengthening inflationary pressures,
there is room for additional hikes of the monetary policy rate to beyond 7.5
per cent.”

Tabula rasa

The report stated that Nigerian banks are starting on a clean
slate following the clean-up of their books by the Asset Management Corporation
of Nigeria. It added that strong capitalisation and ample liquidity provide a
positive background for the banks to do well in 2011.

It however cautioned on the inherent risk in the system, especially
macro and political risks, particularly with oil remaining a key factor for
Nigeria’s budget and revenues.

“At the sector level, post the recent crisis, regulation will
need to prove itself through the cycle before we are fully comfortable,” it stated.

RenCap added that the macro economic environment is a function
of how the government decides to tackle underlying issues. With ongoing reforms
in that direction, the report cited the power, agriculture, oil and gas sectors
are identified as areas where the banks can leverage.

“Loan book concentration risk forces banks to look beyond these
sectors, and the fast-growing telecoms sector has been an area of much bank
focus, while the power sector, and potentially the agriculture sector, are seen
as areas of potential growth going forward.”

The report estimates that the services sector will remain the
largest contributor to real GDP (gross domestic product) growth in 2011.

“On our estimates, owing to the potential for the telecoms
sector to continue expanding exceptionally rapidly, and in light of sustained
strong wholesale and retail trade growth.”

High dividend payout

According to RenCap, unlike other emerging markets where banks
pay little out as dividend due to need for growth and safety, Nigerian banks
pay as much as 40 to 60 percent of their earnings as dividend.

“This reflects the dividend demands of a large proportion of their historic
local investor base. Hence, in a growth environment like Nigeria, coupled with
current dividend policy, sizeable CARs (cash reserve ratio) can be eaten into
relatively quickly.” The CAR is a measure of a firm’s ability to pay its
short-term obligations by comparing the firm’s cash reserves and liabilities.

The numbers of
quoted companies posting positive financial results at the Nigerian
Stock Exchange have continued to increase in figures.

Compared to last
year’s performance of some companies, where most of them posted
negative results, about 55 companies out of the over 80 companies that
have submitted financial results at the Exchange this quarter recorded
profits.

Market watchers had
predicted early this quarter that more quoted companies, particularly
the banks, will return to profitability in their financial reports on
the back of the improved state of the nation’s economy.

Stockbrokers at GTI
Capital, a stock broking firm, also said that the recent streak of
positive earnings emanating from quoted firms has continued to “add-up
enthusiasm to the market.” “Despite the fact that the market has been
in oscillatory trend as a result of periodic profit taking, volume of
transaction confirms intensified interest from the investing public,”
the firm stated. “In response to positive earnings reported in the
market, indicators grew northward (upward).”

Recent results

Nigerian Breweries’
unaudited result for the first quarter ended 31st March 2011 shows a
turnover of N52.029 billion as against N40.574 billion in the
comparable period of 2010. Profit after tax stood at N7.919 billion
compared with that of N6.456 billion in 2010.

Also, UAC Nigeria’s
unaudited result for the first quarter ended 31st March 2011 shows a
turnover of N12.533 billion, as against N10.912 billion in the
comparable period of 2010. The company’s profit after tax and minority
interest stood at N464.3 million compared with that of N422.09 million
in 2010.

In the unaudited
result of Nigerian Bottling Company, for the first quarter ended 31st
March 2011, the company recorded a turnover of N29.144 billion as
against N26.787 billion in the comparable period of 2010. Profit after
tax stood at N331 million compared with that of N241 million in 2010.
Oceanic Bank’s unaudited result for the first quarter ended 31st March
2011 shows gross earnings of N27.173 billion as against N30.351 billion
in the comparable period of 2010. The bank’s profit after tax stood at
N1.902 billion, compared with that of N1.676 billion in 2010.

Adesoji Solanke, a bank analyst at Renaissance Capital, an
investment bank, said Oceanic Bank financial results showed that the
company is returning to profitability though it is still evident that
the bank’s performance is “lethargic; as it experienced massive
write-back and recovery last year.” “Going forward, we believe
investors’ focus for these banks should be to see whether the yield
from their asset mix currently dominated with liquid assets, would be
adequate enough to cover their operating and regulatory expenses,” he
said. “We expect 2011 to be mixed in terms of financial performance
across the intervened banks space, but with an incremental
profitability run-rate through the quarters.”

The Nigerian Stock
Exchange (NSE) says it is on track towards its integration into global
capital market operations and standards.

The chairman of the
Securities and Exchange Commission’s (SEC) board of directors, Udoma
Udoma, told participants in the ongoing Thomson Reuters Foundation
journalism training course on financial and economic reporting in
Lagos, that apart from the reforms to restore confidence in the wake of
the 2008 market crash, steps have been taken to upgrade the operational
process to bring them to global standards.

He noted
unprecedented growth by all market indicators, saying capitalisation
rose fromN2.5 trillion in 2005 to N12.1 trillion by March 2008, while
trading value increased with a daily average of N1.06 billion from
N254.7 billion in 2005 to N2.086 trillion in 2007, with a daily average
of N8.62 billion.

Though he said
market capitalisation as of December 31, 2010, was at about N10.33
trillion, with about 264 listed securities comprised of 217 equities
and 47 debts, Mr Udoma, however, traced the collapse of the capital
market to insider dealings as well as abuses of margin lending by
banks, which gave loans to many investors to buy shares without
collateral.

He said the
reactivation of FGN bond resulted in the issuance of over N3.5 trillion
bonds between 2003 and 2010, while secondary transactions of the bonds
on OTC market was over N48 trillion between 2006 and 2010, with about
11 state governments going to the market to raise funds for their
programmes.

Market challenges

He listed the
challenges the market is currently facing to include low investor
confidence; poor market depth, in terms of limited securities and
products on offer; poor savings and investment culture as a result of
the country’s low per capita income; low market liquidity; excessive
market concentration, with over 60 percent of trading activities on
bank stocks as well as legal constraints.

As part of the
reforms, he said 52 new rules and amendments have been introduced since
2008, including new margin trading guide lines by the Central Bank of
Nigeria and the Anti-Money Laundering/Combating Financing of Terrorism
manual to help banks and stockbrokers check incidences of money
laundering.

Besides, he said a
new code of corporate governance, which became effective last month,
requires auditors to report on the adequacy and effective of internal
regulatory systems as well as change the company’s audit and partners
every year, while upgrades have been carried out on the NSE platform to
meet international standards.

“We are on track
towards reforming the Nigerian Stock Exchange into a world class
capital market. The country’s capital market is not in isolation from
the international community. The Nigerian economy is poised to take off
with the stability being provided better elections,” he said.

Other actions taken
to reform the system include development of a model for risk-based
supervision, particularly for regulated entities; rationalization of
the market’s intermediary structure through stratification of the
broker-community; overhauling of complaints management framework to
ensure improved efficiency and alignment of the market with
international best practices in complaint management as well as
encouragement of functional market makers to facilitate securities
lending and borrowing.

International regulatory standards

Apart from
migration to International Financial Reporting Standard before 2012,
the SEC board chairman said the commission is considering the
self-assessment exercise of the implementation of the 38 International
Organisation of Securities Commission objectives as well as the
principles of securities regulations to conform to international
regulatory standards.

“Capital market
offers enterprises and governments wider opportunities to secure funds
for development. Where there is no developed capital market, short-term
funds from commercial banks are not the best sources of funding for
business enterprises and long term investments.

“In Nigeria, where industrial production is as low as 4 percent of
gross domestic product (GDP), as against an average of 8.5 percent
about 15 years, it is the country’s low industrial capacity that is
partly responsible for the current high unemployment in the country.
Therefore, if Nigeria must realize its aspiration to be among the
world’s top 20 economies by 2020, industry share of the GDP has to
increase to about 20-25 percent. That is why the integration of the
capital market is crucial,’ he said.

Five months after
it launched the ground-breaking 2Good plan, leading telecommunications
service provider, Airtel Nigeria, has introduced a new tariff plan
which offers very affordable call rates and sets a new benchmark for
value offering in the industry.

The new tariff
offer, the Airtel Big Family package allows existing and new customers
to make On-Net calls at 15 Kobo per second and Off-Net calls at 30 Kobo
per second, after the first minute call of the day at 60 Kobo per
second, upon migration to the plan.

Announcing the new
package in Lagos recently, chief executive officer and managing
director of Airtel Nigeria, Rajan Swaroop, said the introduction of the
new tariff is further demonstration of the company’s determination to
give Nigerians more tangible true value and empower more people across
the country to freely communicate in line with its well articulated
plan to deliver innovative, affordable, relevant, and most value based
telecoms solutions in the country.

Additional benefits
of the new plan include 20 bonus SMS (Short Message Service) monthly
after the first recharge of the month of more than N100. The free SMS
applies to numbers within Airtel network.

Mr Swaroop said: “With the Airtel Big Family package, we have given
our customers the benefits of communicating freely with all their
family, relations and friends who are on Airtel, at affordable rates.”

The Revenue
Mobilisation Allocation and Fiscal Commission (RMAFC) yesterday said
revenue accruals from the exploitation of crude oil from the 172
disputed oil wells between Akwa Ibom and Rivers states are to be saved
in a special account pending the resolution of the issues by the
Inter-Agency Technical Committee on the implementation of the Supreme
Court Judgment.

The Commission said
at the end of its 53rd plenary session in Abuja that the decision to
create the escrow account was part of steps taken to ensure equity,
fairness and justice in the implementation of the judgment by the apex
court.

Head, Public
Relations unit of the commission, Theodora Onyebuchi, said the creation
of the account was part of the resolutions reached during the meeting.
“The amount due to Akwa Ibom and Rivers states for the month of
February 2011 from the disputed areas in which the 172 oil wells are
located would be put into an Escrow Account pending the time the
inter-agency technical committee on the implementation of the Supreme
Court Judgment completes its assignment,” Mrs Onyebuchi said.

Level of compliance

Following the
Supreme Court’s judgment of Friday, March 18, 2011 in suit No.
SC/27/2010 in the dispute between the two states over the ownership of
the oil well, the attorney general of the federation and minister of
justice had written to the commission and other relevant agencies to
advise them on the need to comply with the judgment, especially the 1st
order on page 16 of the lead judgment.

The judgment had
ordered for the immediate transfer of 86 oil wells hitherto located in
Akwa Ibom territory to Rivers State as well as the refund of certain
amounts that the former may have earned from the exploitation of oil
from the wells between April 2009 and March 2011.

Following the
judgment, the RMAFC constituted an Inter-Agency Technical Committee,
which was inaugurated on Wednesday, April 13, 2011, with a mandate to
examine the implications of the judgment in all its ramifications and
collate the data required to effectively implement the judgment.

The Committee
comprise of: Representatives of the Central Bank of Nigeria (CBN),
Department of Petroleum Resources (DPR), National Boundary Commission
(NBC), Office of the Surveyor General of the Federation (OSGF),
Attorney General of the Federation/Ministry of Justice (AGF/MOJ),
Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), and
Accountant General of the Federation (AGF).

The required data
include the crude oil and gas production data for the affected oil
wells from April, 2009 to March, 2011; the prevailing commercial
interest rates for the period, April 2009 to March 2011; details of the
13 percent Derivation Fund Disbursements to oil producing States for
the period April, 2009 to March 2011; computed revenue earnings and
amounts to be paid to Rivers State by Akwa Ibom State as refunds as
ordered by the apex court.

Besides, the
Inter-Agency Technical Committee, which was given two weeks from the
date of its inauguration to complete its assignment, was also mandated
to make recommendations on the modalities for the repayment of the
amount due to Rivers State.

Though the
committee has since submitted an interim report to the commission, it
was gathered yesterday that its final report is expected in two weeks’
time.

Nigerian
banks are currently sitting on excess level of liquidity as financial
institutions are cautious to do real banking business post crisis
period. A recent report by Renaissance Capital (RenCap) stated that
with the relatively robust returns from government instruments, the
banks have virtually abandoned their intermediation role and are
playing safe.

“Traditionally
low-risk government T-bills, and recently government guaranteed
interbank assets, offer high-single digit to low-double-digit returns,
which encourages banks to run their balance sheets like hedge funds, as
opposed to proper economic intermediators of funds, as the additional
return (if any) on lending for the increased risk involved is, at
times, simply not worth the risk,” the report stated.

Deputy
governor, economic policy of the Central Bank of Nigeria (CBN), Sarah
Alade said recently that banks now prefer lending to government instead
of the real sector. “In terms of interest rate being high, when
government borrows money, offering banks higher rates than the private
sector can offer, banks naturally lend to government,” she said last
week at a forum in Lagos.

Efficient intervention needed

The
RenCap report therefore advised banks to grow their loan books. “For
us, the bottom line here is that the structure of Nigerian banks’
balance sheets, on average, highlights a very cautious, underleveraged
banking system that could comfortably squeeze-out more leverage, and
therefore bigger profits, without dramatically shifting out of their
low-risk comfort zones.” The report mentioned UBA and Zenith Bank as
institutions with the largest pool of cheap funds.

Recent positive trends

The
report incorporates coverage on Zenith Bank, First Bank, Access Bank,
Diamond Bank, Guaranty Trust Bank (GTB), United Bank for Africa (UBA),
Skye Bank, First City Monument Bank (FCMB) and Fidelity Bank. It
incorporates strong buy recommendation for Zenith Bank, First Bank,
UBA, FCMB, Skye Bank and Fidelity Bank as the sector looks forward to a
new growth spurt following the clean-up process undertaken by AMCON
(ASSET Management Corporation of Nigeria).

Renaissance Capital also anticipates strong credit growth in 2011
following recent positive trends. Speaking about the report, lead
author David Nangle said, “Taking into account AMCON’s success at
restoring confidence in the Nigerian Banking sector, we believe it is
poised for a new era of growth. This is based on Nigeria’s strong
macro-economic outlook, with growth projected to be between 7-8 per
cent in 2011 and the strong capitalisation in the banking sector.” The
report added that the moves by foreign banks to buy into the sector may
represent a medium-term threat to the current local private
bank-dominated playing field.

The
report stated that though the Nigerian banking space offers an
appealing investment base, there was still the risk associated with
frontier-markets investment. These include the legal system, with
regards to the length of time required to resolve financial court
cases, corruption, weak corporate governance, and the need to diversify
the economy.