CEOs upbeat about 2014

CEOs upbeat about 2014

Obodo Ejiro

It does not happen every day that members of a research and intelligence unit come face to face with 90 top CEOs at an event. When this however happens, it presents a rare opportunity to feel the pulse of the economy and a chance to peer into the future through executive eyes. 

A week ago, BusinessDay’s Research and Intelligence Unit (BRIU) conducted a survey to gauge the economic outlook of the CEOs for 2014.

The survey, which was conducted at BusinessDay’s CEO Forum 2013, was among other things, designed to examine the perception of CEOs on the performance of business in 2013, and their plans for human and machinery acquisition in the coming year.

Firstly, it is important to point out that major sectors of the economy were represented in the survey.

Twenty percent of surveyed CEOs are from the manufacturing sector; CEOs from the banking and financial services sector make up 10 percent of the respondents, those from the agric sector are 7 percent, while those from retail account for 15 percent of the sample. Others sectors represented include IT, Oil and Gas, telecommunications, etc.

Before hinting on their plans for 2014, they made it clear through their responses that 2013 was a fair year for business in Nigeria. When they were asked about the performance of their businesses in 2013, 76 percent of them affirmed that business was fair while 15 percent tagged 2013 an exceptional year. Only 9 percent of them identified the year as poor for business.

A cross tabulation of responses shows an obvious skew in the direction of retail trade, manufacturing, media consultancy (including media services). Strangely, banking and financial CEOs were not so positive on the performance of business in 2013.

Except for banking, we believe that the current trend is likely to play itself out in 2014, especially for the sectors that boomed in 2013. We anticipate a boom in advertising income and consultancy next year as political gladiators open their chests for ultimate showdown in 2015.

At the macroeconomic level, average GDP growth in Nigeria for the first three quarters of 2013 was 6.51 percent (which is moderate, considering the malignant lull which has prevailed in many economies for almost a decade), while inflation was single digit for most of the year.

In terms of business expansion plans for 2014, more than half, 64 percent, of the CEOs said they have plans of expanding their businesses in the coming year by establishing new branches. CEOs in this category are majorly from the manufacturing and retail sectors. Very few in banking and media consultancy have plans to buoy the number of branches they currently operate.

The business leaders were also asked if they will increase their staff in 2014. Sixty-seven percent showed the green light in the direction, 24 percent said they will maintain their current position while 3 percent hinted that they will downsize.

On a sectorial basis, an equal number of bank and financial services companies’ CEOs indicated that they will scale back or employ more. In the Manufacturing sector, more than three quarter of CEOs said they will employ more, while the rest indicated that they will maintain the status quo.

Considering the fact that acquisition of new machines may be used as a quasi-measure of business expectations, it was deemed fit to ask the CEOs about their plans for machine acquisition. The body language is that of refrain among CEOs.

Generally, there is a nod at the direction of maintaining existing machinery as 2014 dawns for most of them; however, CEOs in agric and manufacturing seem to have the greater appetite for new machine acquisition.

Based on the responses, we believe that 2014 may not be a year of massive changes in machinery inventory, however, most new machinery purchases or replacement will be in the sectors which have been identified already.

The power sector reforms were also considered in the survey. It is gladdening that respondents have faith in the power sector road map. When we asked them if they believe that there will be investment in the power sector and consequently improvement in the sector come 2014, most of them affirmed that there will be a change.

Optimism in economic progress in 2014 is not restricted to Nigeria. The International Monetary Fund (IMF) is expecting worldwide economic growth of 3.6 percent in 2014, up from a projected 2.9 percent this year. The IMF calls 2014 a year of “transitions and tensions.”

It forecasts 7.4 percent GDP growth for Nigeria in 2014, up from an estimated 6.2 percent this year, despite the effects of instability in the north and oil theft, which act as a drag on the economy.

According to the multilateral institution, “as always expansion has continued to be driven majorly by high oil prices [‘if Iran’s sanctions are further tempered next year to allow oil export, oil prices may be affected’] and robust domestic demand. But the country may need to push forward reforms to encourage broad-based development, alleviate poverty and nurture a trend towards diversification”.

Overall, growth in emerging market and developing economies is expected to remain strong at 4½–5 percent in 2013–14, supported by solid domestic demand, recovering exports, and supportive fiscal, monetary and financial conditions.

Commodity prices will continue to boost growth in many low-income countries, including those in sub-Saharan Africa. But economies in the Middle East and North Africa, Afghanistan, and Pakistan region will continue to struggle with difficult economic and political transitions.

The IMF’s projections were made as part of its latest World Economic Outlook (WEO), which noted that sub-Saharan Africa had continued to record growth in 2012 and 2013, thanks to rising domestic consumption. Most of the CEOs sampled have offices within and outside Lagos

                                                                                        

20:2020: From vision to mirage?

20:2020: From vision to mirage?

Unlike inthe Judeo-Christian religion, when visions are conceived in economies, there is a need for effective econometric modelling and planning to determine the variables and necessary actions which will make the visions come true. The case of Vision 2020 is that of a lofty vision which was not domiciled on the right sacrifice to make it come true.

Our econometric simulations on the Nigerian economy reveal that if the current rate of growth of GDP and population is sustained in the next eight years, Nigeria’s GDP per capita will be a mere $2,384 by 2020. Sadly, this was the average GDP per capita of the top 20 economies (which Nigeria seeks desperately to be like) as at 1997.

Our forecasts which are based on data provided by the World Bank also indicate that by 2020, if the top economies are to maintain the average growth rate which they have exhibited in the last 10 years (that is if the developed economies can shake off the current economic doldrums), they will have average per capita income of about $60,525 by that time.

If the status quo does not change in Nigeria, the country will remain far behind. The problem of Nigeria’s slow GDP growth and high population growth is an old one. Not that population growth is the major problem, but if we continue to grow population without corresponding GDP growth and reduction in corruption, our future is threatened.

Historic data from the World Bank indicates that on average, nations in the first 20 economic group attained GDP per capita in excess of $1,223 (which was our per capita income a few years ago) around 1960. France, Norway, and the UK had per capita income of $1,320, $1,441; $1,382 by 1960, and have consistently grown since then. One fully understands that Vision 20:2020 is a wild goose chase when one reckons with the reality that the goal is to attain an economic standard which we could not attain in 50 years, in just eight years.

As of 1960, Nigeria’s GDP per capita was a mere $91 and has just managed to grow by 25 per cent in the last 50 years. In the same period, Norway grew per capita income by 59 per cent; while France gained 34 percent. On average, the High Income Countries (HIC) recorded 30 per cent increase in GDP per capita in the last 50 years; while Nigeria saw a rise of a little less than 25 per cent.

Our simulations reveal that Nigeria needs to grow at an uninterrupted rate of between 9.5-12 per cent per annum in the next eight years or miss vision 20:2020 altogether. And since this is unlikely to happen, we can as well come up with a better and more realistic vision.

Given the current circumstances, there are two choices for Nigeria. If the country cannot automatically implement policies that will grow the economy at a faster pace, then it has the option of shifting the goal post. Clearly, the idea of merely believing that developing infrastructure will grow the economy is not good enough.

Infrastructure is a necessary but not sufficient condition for development. We need to start asking ourselves the questions: From which sector of the economy will our economic miracle emerge?  What policies are we putting in place to make the identified sectors realistically viable?

Policy makers and governments within Nigeria need to answer these questions. Nigeria’s political elite should in a sense start thinking like the Chinese. What the Chinese did was to set targets for different sectors of the economy and work towards those targets.

Nigeria has the capacity to attain high growth if the country fires on all cylinders. But all economic indicators point to the fact that Vision 20:2020 cannot be attained. If we must attain some level of improvement in the next 8 years, our growth should be all-inclusive, well coordinated and not restricted to one sector. The country needs to explore all its growth frontiers.

Nigeria’s policymakers have to implement fundamental policies which foster inflow of FDI in a coordinated manner. This inflow of FDI should be coordinated to attain predetermined economic targets. When the right policies are well implemented, the result will be growth and consequently development.

The truth is that Nigeria has not done too badly in terms of growth in the past six years. The problem however is that this growth has not trickled down to the masses. There are prospects for Nigeria’s economic ‘resurgence’, but things will not work by mere uncoordinated visions. We have to do more.

Sectors that got the most deals in H1 2013

Teliat Sule

Our track of deals sealed in the first half of 2013 shows that investors have focused majorly on three sectors of the Nigerian economy: oil & gas, telecommunications and power. Each of these sectors attracted about $5 billion based on the values of the memoranda of understanding signed during the period under review. We are not surprised by this trend because the first two sectors have always been a cash cow while the power sector is expected to produce similar returns once the on-going privatization exercise is completed.

 

Next in importance –measured by value of deals, are those transactions sealed in agriculture & agro-allied, healthcare, manufacturing, banking & insurance as well as infrastructure financing. Investment inflows into the aforementioned sectors range from a low of $1 billion to a high of $2.7 billion.

Another significant discovery is that the south-south region is about to become Nigeria’s new investment haven. This is because about 64 percent of the deals went into that geopolitical zone. The south-west attracted about 29 percent, south-east 5 percent, while the north-central got about 2 percent. The north-west and north-east zones attracted the least deals during the period under review.

Altogether, memoranda of understanding (MoUs) on different investments worth about $29 billion were signed by local and foreign investors in Nigeria during the first six months of 2013.  This is one of the findings in the about-to-be-published Nigeria’s Dealbook H1 2013, prepared by BusinessDay Research and Intelligence Unit. The publication, “Nigeria’s Dealbook H1 2013” is about deals sealed by investors who are poised to take advantage of the opportunities within the Nigerian economy.  The investments reported in this publication were captured just as they were announced. Therefore, the publication tracks the nature of investment, direction, amount, as well as profiles the investors.

On a sectoral basis, activities in the oil & gas, telecommunications and power sectors topped the chart.  With regards to oil and gas deals, Oando Plc, a major player in the upstream, downstream and midstream acquired ConocoPhillip’s Nigerian assets worth $1.79 billion.  In addition, Shell will build a jetty worth $5 million in Bayelsa State whereas Sagas and the Nigerian Gas Company sealed a $20 million deal that will require Sagas to supply and distribute compressed natural gas as alternative automotive fuel.

Another important deal that took place in the oil & gas sector was the commencement of the second phase of Calabar gas project which attracted $225 million loans from Nigerian financial institutions. Players involved are Seven Energy, Accugas, while the facility were syndicated by FBN Capital,First Bank, FCMB, UBA and Stanbic IBTC. The project became expedient because of the growing gas demand from industrial users and power plants due to the on-going power sector reforms.

The telecoms sector equally witnessed a lot of sealed contracts during the period estimated at about $5.95 billion. For instance, MTN Nigeria sourced $3 billion from a consortium of banks for network expansion; Globacom obtained $1.75 billion for service modernization and capacity expansion. Huawei Technologies and China’s ZTE featured prominently in the Globacom deals. Etisalat Nigeria, which is registered as the Emerging Market Telecommunications Services Limited (EMTS), was also involved in a $1.2 billion deal for network capacity expansion. The competition in the telecommunications sector has become intense after the Nigerian Communications Commission (NCC) introduced number portability into the country earlier in the year.

Our record of inflows into the power sector does not include the 25% initial payments made by the preferred bidders in the on-going power privatization program because the exercise is still inconclusive. Nevertheless, investment in power plant expansion and related activities attracted about $5 billion in the six months to June. Major players in the sector include General Electric (GE), Transcorp, Geometric Power and GMB Leasing Partners. Others are ContourGlobal, Siemens, US Export Import Bank, Azura Power and the World Bank.

The World Bank will fund Egbin Power Plc to the tune of $145 million, through its Partial Risk Guarantee Scheme. Through its Export-Import Bank, the United States of America has made available $1.5 billion as a financial back-up for the purchase of power equipment and services from renowned US companies just as Azura Power and the Nigeria Bulk Electricity Trading Plc will invest $700 million to develop open-gas turbine power plant in Edo State. Based on the initial plan of the federal government, electricity generation should hit 10,000 MW by 2013 year end. However, this seems like a Herculean task as all the power plants in Nigeria can only generate around 3,000MW.

The plan to diversify the economy received a strong boost with the injection of $800 million into Indorama Eleme Fertilizers Company in Rivers State. The breakdown shows that the International Finance Corporation mobilized $375m; the African Development Bank (AfDB) provided $100 while the Commonwealth Development Corporation (CDC) from the United Kingdom provided $40 million. Apart from that, Olam Nigeria has invested $19 million in a new plant at Sagamu, Ogun State. The new plant is expected to have a warehouse and a factory that can handle up to 75,000 metric tons of processing value when completed. De United Foods, the maker of indomie brand has invested $30 million in oil palm refining plant in a bid to reduce the gap between the supply of and the demand for crude palm oil (CPO) in the country.

It was battle royal in the airline sector during the first half of 2013. A noticeable deal in the sector involved Arik Air which has eventually decided to take the bull by the horn in order to reduce the domination of the sector by foreign airlines. In this regard, Arik has placed an order for seven new aircraft through a contract worth $297 million. Delta Airline was not left out as it introduced business elite amenity kit to attract new customers and retain existing ones.  In 2012 as in the previous years, sectoral statistics are in favour of foreign airlines. The British Airways, Emirates and Air France jointly realised N70 billion from ticket sales out of the N158 billion realised by all airlines in Nigeria as at December 2012. The United Airline and Delta Airline dominate the intercontinental passenger market between the United States and Nigeria while the British Airways and Virgin Atlantic dominate the Nigeria-London route. On both routes, Arik Air controls less than 20 percent of the market.

In the banking sector,  two prominent Nigerian banks- Fidelity Bank and First Bank each raised $300 million in Eurobond from the international capital market. Others raised their share capital through rights issue.

To obtain the full report, you can send your request to research@businessdayonline.com or teliat.sule@businessdayonline.com

A good year for retail in Africa

A good year for retail in Africa

With a population of over 1.02 billion (15% of global population), retail spend of almost $0.9 trillion (N144 trillion) in 2013 and economies expected to grow at 5.3% in 2014, Africa is fast establishing itself as a ‘retail frontier’.

 

Available data leads us to the conclusion that 2013 may go down as one of the best years yet, for retail on the continent.

 This is not only because more was spent on retail in nominal terms, but because more retail focused investments flowed into the continent, more brands, which where hitherto not in mass circulation were introduced, also, new versions of products that are already in circulation were introduced. Indeed, retail contributed more to most African GDPs in 2013.

 In 2013, notable injections into retail trade came in form of new investments or expansions of existing retail paraphernalia.

 Last year, the South African retail market got a boost when the world’s largest retailer, Walmart, expanded its international business with a 51 per cent stake in South Africa’s retail and wholesale giant, Massmart.

 The $2.4 billion deal gave Walmart access to 50-million new customers while using Massmart’s footprint to expand into other African countries.

 Mid 2013 saw the announcement by French retail giant, Carrefour, that it will set up shop in West Africa, especially in Ghana and Nigeria. Though, the retail outlets will be fully operational in 2015, moves began to actualize the project.

 By September, Imara S.P. Reid Stockbrokers, a Johannesburg based investment bank, said South Africans which had invested in retail through it, had committed as much as $2.5 million to retail endevours in sub-Saharan Africa.

 Before the year closed in December, South African retailer, the Spar Group Limited, in partnership with an Angolan company, opened a store in Luanda, Angola’s capital. The Fouani Group, which retails electronics, also opened new shops across Africa, especially, in Nigeria.

 Apart from these investments, new product lines as well as advanced models of existing products were introduced into the continent, as western producers, along with their local partners (retailers) increased their brand offerings and new established supply chains.

 Major electronic and IT brand retailers, beauty and personal care product retailers, machinery makers as well as food chain retailers launched new products into Africa in 2013.

For instance, the Spanish clothing retailer, Zara, entered the Kenyan market through a distribution agreement with local retailer, Deacons. Also, Deacons launched its own Massimo Dutti clothing line in Kenya during the year.

 In Nigeria, Black & Decker launched over twenty household machines, black|Up Paris, a maker of personal care products launched four beauty products, in conjunction with Montaigne Place a Lagos based retailer while Maybelline New York, also a personal care products manufacturer, formally introduced its products into the country.

 The IT and electronic section of the retail market received a barge of new releases from Apple, Blackberry, Samsung, Techno, LG, Nokia and Panasonic.  This amounted to more raw materials for local retailers and millions of dollars in spending for customers who could afford new brands.

 The impact of these changes will be felt more in 2014, though there are some positive indications, already. In Nigeria, the contribution of wholesale and retail to GDP stood at 9.03% by Q3 2013 compared to 7.44% for the corresponding period in 2012.

What’s driving the trend?

Factors which have traditionally been identified as retail trade drivers continued to fuel its growth in 2013.

According to the African Development Bank (AfDB), rapid population growth and urbanization; poverty reduction and the steady growth of the middle class; improvement in Africa’s business environment and lower trade restrictions; and improvement in use of technology have all contributed to the rise in retail trade in Africa.

 As of now, the World Bank classifies half of Africa’s 54 countries as either middle or high income countries. Some 122.7 million Africans are now classified as ‘middle class’, 30 percent higher than the number of people who made up that class 13 years ago. By 2060, the number of middle-class Africans is expected to reach 1.1 billion.

 Given this mix, the aspirational behaviours of Africans and availability of a verity of products has also been identified as important retail drivers, as products which were hitherto not available on the open market are now available.

Is this trend sustainable?

Most forecasts are positive about the sustainability of the trend in retail growth in Africa. The continent’s economic outlook for the next five years is promising. Its GDP is expected to grow by 5.3% in 2014 according to the IMF. (Sub-Saharan Africa is expected to grow at 6.1 %.)

According to the AfDB, poverty levels as a percentage of total population, was 48% in 2008, by 2020, it is expected to be 20%. 

 We however acknowledge that simply because a continent has favourable demographics does not guarantee higher economic growth and explosion in retail expenditure.

 We hold that the deciding factor will be how consist African countries remain focused on development motivated policy, reforms in trade and agriculture, and job creation. These will inevitably make the retail cake bigger.

 We also observe that the dominance of retail trade and invest on the continent center on Nigeria, South Africa, Ghana, Kenya and Egypt, this reflects an inherent skew in the development of retail on the continent.

Nigeria’s prospect and retail power houses

Similar factors fuel retail in Africa and Nigeria. According to the UN’s Population Division and Euromonitor, Nigeria remains the largest consumer market in Africa, with a population of 167 million (7th largest in the world). Its population will hit 229 million in the next decade.

 According to Nigeria’s trade and investment minister, the retail market has attracted over $1.3 billion (about N205.4 billion) in investments in the last two years while consumer spending, is well in excess of $100 billion a year.

 In terms of regional retail power houses, Lagos, which accounts for close to 50 percent of the country’s cargo traffic dominates retail transactions in Nigeria. But this does not mean that other states are docile.

 There are several factors which point to the fact that more retail naira is available (or will be available) for retailers in the hinterland, especially in the South-South and North West.

 Our analysis on government budget figures, deals stuck in the economy, population structure and consumption patterns show that those regions are fertile for retail businesses.

 About 62 percent of deals struck in Q1 2013 were domiciled in the South-South, the region’s budget per capita of  N90,794 dwarfs that of every other zone in Nigeria. Also, we estimate that about 15% of the Nigerian population dwells in the region. Data on aviation travel in the country shows that 25% of flights in the country went to the zone.

 As for the North-West, its major strength lies in the number of inhabitants it holds; it accounts for 26% of Nigeria’s population, Kano, which is acclaimed as Nigeria’s most populated city is in this zone.

 Apart from Lagos, we note that food spending is relatively high for major cities like Kaduna, Kano, Warri, Port Harcourt and Benin in Nigeria. This is in line with economic theory which food expenditure takes a higher proportion of disposable income in countries where incomes are low.

As incomes and living standards increase, we expect consumption of sophisticated products like electronics to increase in Nigeria.