2017: Year of innovation in the midst of challenges

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By Our correspondents

The Nigerian business environment passed through different stages which recently  exited from economic meltdown in the second quarter (Q2) of the year, this report documents how it has fared in 12 months.

Across all the sectors, both public sector companies led by the Federal Inland Revenue Service (FIRS).The Central Bank of Nigeria (CBN) deployed policies that helped to block revenue leakages and illegality in forex management. State governments such as Lagos invested in projects such as elimination of traffic congestion and revenue boost.

Capital market

So far in 2017, the Nigerian stock market has overseen a bullish run with NSE All-share index at an average positive of 3.49 percent to close at 27,812. 50 basis points as reported by analysts at Meristem Securities Limited (MSL), an investment banking firm in a special report entitled; “In Murky Waters…Wading through Uncertainties”, the analysts gave an expected account of the stock market bullish run.

MSL analysts said: “However, we note that market recovery is partly hinged on stability in the FX market and moderation in exchange rate gap between the interbank and parallel markets. Based on our mix of methodologies, we arrived at a 2017 index level of 27,812, 50, indicating a +3.49 per cent potential market return by December 31, 2017.”

Although, the market declined by 5.1 percent in the first quarter (Q1) of 2017 but it recorded a growth of 23.2 percent in the first half (H1) of the year and 7.01 percent growth in third quarter (Q3) of 2017.

At the beginning of Q3, no fewer than 17 companies were suspended by the NSE for non submission of yearly results.

The NSE claimed that the suspension was in line with its guidelines which give it the powers to suspend any quoted company that did not release its results within a stipulated period.

Experts blame FG on cargo volume drop

On the maritime front, experts blamed the drop in cargo volume and huge loss of revenue by port and terminal operators on the anti-trade policies of the federal government. These policies have also made the country unattractive to investors.

Investigations also show that break bulk terminals at the ports are struggling to pay their bills and meet their finance obligations to the NPA due to the plethora of banned products and the hike in import duties on others.

On his part, Director, Research and Advocacy, Lagos Chamber of Commerce and Industry (LCCI), Vincent Nwani, said: “There must be an urgent review of the ease of doing business so as to attract more investors in the upcoming year.

A maritime expert, Tunji Owoeye said lack of scanners at the Nigerian port is worrisome and a shame to the country, he urged the Federal Government to see to the provision of scanners at the port in 2018.

The development, they added, had also led to drastic reduction in the volume of cargoes handled at Nigerian ports, with affected port terminals losing about 60 per cent of their cargoes to the CBN restriction policy.

During the year, the Nigerian Ports Authority and Integrated Logistics Services Nigeria Limited (Intels), Nigeria’s leading logistic firm for the oil and gas industry, were locked in a fierce business dispute, with the NPA threatening to terminate Intels’ port revenue collection contract.

Those familiar with the matter said the dispute, which had seen the two parties hold several tension-soaked meetings and exchange of aggressive correspondences, arose from Intels’ alleged non-compliance with the Federal Government’s Treasury Single Account policy.

The TSA was introduced by government to enthrone centralized and transparent management of all government revenues and plug leakages. Some analysts have criticised the policy saying the nation’s finance sector is under severe stress as the TSA policy starved commercial banks of cash.

Ms. Bala-Usman had proposed a new arrangement for sharing the revenue stream. The company will receive 28 percent as agency commission from boats service revenues, while the remainder will be shared on a 30:70m percent ratio in favour of government and the company respectively.

But in its March 27 response, Intels, though, accepted the new sharing arrangement, it, however, said it was unable to comply with the TSA policy because it had loan commitments with some commercial banks.

“We still have an issue with the making of payments to a finance institution with complete sweep of funds to the TSA account,” the company said.

Weak capital base still an issue in the money market

It was in September 2017 that some members of the Central Bank monetary policy committee said four Nigerian banks are operating with too many non-performing loans on their books and with liquidity ratios below the minimum requirement.

Although they did not name the lenders, the four banks together according to them were equivalent to at least one systemically important bank.

Finance sector stress tests showed capital adequacy ratios for the industry in Nigeria worsened to 11.51 percent in June, from 12.81 percent in April, as against a regulatory minimum of 15 percent for lenders with international licenses.

“The financial performance indicators showed that when the four outlier banks were removed, capital adequacy, (NPLs) non-performing loan ratio as well as liquidity ratio are all above the prudential requirement,” another member, Balami Dahiru Hassan, said.

Slow GDP growth

Banks encounter several threats from operating environment of which Nigeria sliding into recession is an inclusive factor. Low oil prices and also, the dwindling availability of foreign currency.

Banks face severely narrow foreign currency liquidity notwithstanding the authorities’ relentless efforts to regulate and perhaps normalize the foreign exchange interbank market and enhance the inflow of dollars.

Slower economic growth and lower risk appetite from banks will continue to translate to subdued credit growth and weak core earnings generation in the not-too-distant future. Nigeria had a dwindling economic growth since the end of 2015. The rate dropped to an estimated 3.0%. This in turn adversely affected the Nigerian banking industry.

On foreign exchange market management, the Central Bank of Nigeria ( CBN) was able to stabilize the exchange rate which was very volatile in 2016.

Power sector

During the year, the sector recorded marginal increase in power generation, improvement in transmission but rejection of power supply from national grid by Electricity Distribution companies (DISCOs).

Nigerians struggled with the barrage of problems in the power sector in 2017 despite  two new peaks  of  5,155mw on December 8,2017  and  5,222mw  power generation on December 23 transmitter to the national grid. The year started with the challenges of debt owed Discos by MDAs but was settled by the government during the second quarter.

In a statement signed by the GM Public Affairs Ndidi Mbah, TCN said that this milestone achievement, is the highest ever recorded in the nation’s power sector to-date. This surpassed the 5,155.9mw achieved on December 8, 2017 and the earlier peak of 5,074.70mw, achieved on February 2, 2016.

Oil sector

The year started with a steady rise in the price of crude oil from $44 per barrel and peaked at over $65 in December. The effect of the rise in crude oil price on the downstream resulted in the shortage of fuel supply as a result of the high landing cost above the ex-depot price.

The consequence of the shortage was the long queues for fuel by motorists and sales of PMS at prices which range between N250 and N400 per litre.

The gains recorded in the upstream through the high crude price has however led to the return of N26 subsidy at a landing cost of N171 per litre on regulated price of PMS at N145 per litre.

Hence, failure of the crude swap contractors of the NNPC under the Direct Sale of crude oil and Direct Purchase (DSDP) of refined products to meet up with the terms of the contract led to the nationwide crisis, hoarding and diversion by marketers.

Entertainment & Media

The two sectors faced a very difficult environment with low patronage in 2017. Most of the programmes requiring the services of entertainers were postponed. Also the media sector suffered major advertising companies. It however, created opportunity for practitioners  in both sectors to be innovative.

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