Tuesday, March 08, 2016 09:30 AM /FBNQuest Research
The fixation of offshore portfolio investors with the CBN’s exchange-rate policy does not extend to corporate Nigeria. This was our conclusion from the first day of The Economist’s conference in Lagos (The dawn of a new day?).
One captain of Nigerian industry rightly urged that, if the CBN is to persevere with its current policy, it should make public its priorities in fx allocation. (We estimate that it is meeting no more than 15% of fx demand, which has prompted suggestions of favouritism.) The consensus was that business should acknowledge the set policy, and adjust its strategy accordingly.
Dangote Cement is well placed to live with the fx shortages since its inputs are 97% sourced locally. Its group chief executive accepted that the payment of its expatriate salaries in fx is proving onerous.
The shortage of fx brings casualties, in which context we should cite those companies that add limited value from their processing. We wonder therefore about the future of the embryonic vehicle assembly industry. The casualties will not feature in the policy statements but are the natural result of any attempt at remodeling of a national economy.
The foreign investor base has three components. The plight of the portfolio community, and its irritation with official exchange-rate policy, is well documented. The mindset of the strategic investor and private equity players is rather different.
Coca Cola took a long=term view for its recent acquisition of a 30% interest in Chi Group, which is well known locally for its fruit juice production.
Last week saw a successful €225m fundraising for Africa Internet Group, which is best known in Nigeria for e-commerce player Jumia. This was another vote of confidence in the long-term story since the industry has been laying off workers across Nigeria.
Standard and Poors’ last year downgraded Nigeria’s sovereign rating by one notch to B+, and Angola’s notch by two notches to B due to its far greater oil dependency. The clear message is that Nigeria is not “in meltdown” because of its predominant non-oil economy. Its managing director for Africa also told the conference that investors asked more about the security issues in the Niger Delta than those in the north east.
For our startling statistic of the day, we cite the figure that Nollywood has become the most prolific film industry globally, producing more than 30,000 films in the past 15 years (or five per day).