• As Adeosun assures: We’ll not burden Nigerians with unserviceable debts

After the country exited its 18-month economic recession in the second quarter of this year, the confidence of local and foreign investors has made a huge leap, which is evident in the equities market gaining N1.05tn so far.

The Nigerian Stock Exchange market capitalisation, which was N11.452tn as of the end of June this year, has moved up by over nine per cent to close at N12.502tn on Friday.

The progression was also evident in the NSE All-Share Index, which rose to 36,320.93 basis points from 33,117.48 basis points.

The National Bureau of Statistics released the second quarter 2017 Gross Domestic Product report on September 5, which showed that the economy grew by 0.55 per cent year-on-year.

The growth was largely driven by improvement in the oil and non-oil sectors, which grew by 1.6 per cent and 0.5 per cent year-on-year, respectively in the second quarter.

In their outlook for the year, analysts at Meristem Securities Limited projected that the country’s equities market would close 2017 positively. In a special market report entitled, ‘In Murky Waters…Wading through Uncertainties’, the analysts predicted that the lead index of the NSE would gain 3.49 per cent.

Though the stock market posted weak numbers in the first half of the year owing to subsisting macroeconomic uncertainties, the analysts anticipate a modest recovery towards the tail end of the year.

The report read in part, “However, we note that market recovery is partly hinged on stability in the foreign exchange 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.”

Speaking on Nigeria’s exit from recession and the fate of quoted companies, the Managing Director/Chief Executive Officer, Guinness Nigeria Plc, Mr. Peter Ndegwa, in an interview with our correspondent, said as a big player in the manufacturing sector, the operating environment had not been all that friendly.

He said, “One of the critical things we need to consider as far as the operating environment is concerned is the GDP, which has started to grow in the second quarter. This is good news as there are signs that the economy is coming out of recession. Again, we need more quarters of positive GDP growth in order to see this reflecting in the consumers’ pockets.

“At the moment, the costs of buying commodities are still going up. So, we can see consumers holding back on spending, reducing frequency of purchases, or spending less anytime they purchase, or going for lower-priced brands. If you look at the other Key Performance Indices, one of which is inflation, it is in double digits; food inflation is about 20 per cent. So, consumers are not in great shape yet.”

The Chief Executive Officer, NSE, Mr. Oscar Onyema, said while the national economy relapsed into recession in 2016 with a contraction of 2.06 per cent, the NSE ASI dropped to its lowest in four years at 22,256.32 basis points.

At the start of the first quarter of this year, he said the market had started showing signs of a rebound that was sustained through the second quarter.

According to the NSE boss, the capital market remains a very reliable forward indicator of economic direction, which is facilitated through market feeds of information.

He said a major drive seen in the current market was being stimulated by local investors, who were embracing market data better than they used to, thus spurring informed investment decisions, among other dividends.

Onyema stated, “Our efforts in improving investors’ education and enhancing the investors’ experience are yielding positive results. The NSE ASI is arguably the best performing index year-to-date in Africa in comparison to major indices in the same league.

“Considering the fact that our market closed the previous year on a negative note, the NSE ASI is up by 32.05 per cent year-to-date. Notably also is the fact that we have witnessed an unprecedented local participation in our market within the last one year.”

The Managing Consultant, CITC Global Consulting, Mr. Tayo Orekoya, said though the country marginally exited economic recession, the corporate result released by quoted companies on the NSE showed that the economy was gradually getting out of the woods post-recession.

He stated that Nigeria had a cause to celebrate as things were beginning to look up despite the economic unease of the past year evident in the degree of forex fluctuations and infrastructural decadence, among other challenges.

“So, despite the challenges that have been there, our companies are returning value to their stakeholders. We need to celebrate them, and we know that they deserve to be celebrated,” Orekoya said.

He called for policy consistency in the country’s financial market, adding that past experiences had shown that when the regulatory framework was right, other thing would fall in place; thus, charting the path for growth.

According to him, the regulators should ensure that the market continues to consolidate on the current gains and ensure consistent education about the capital market operations to the investing public so that confidence can be fully restored.

He said the market needed to attract more capital through fresh listings, stressing that there were lots of indigenous companies that should be encouraged to list on the NSE, especially now that the market was fast rebounding.

“We need to do this to further deepen our market. The more depth the market has, the better it is for the listed firms, investors and the economy at large. Our regulators must encourage this consciously. With this, we can be sure of sustaining current gains seen in the market,” he said.

In the meantime, the Minister of Finance, Mrs. Kemi Adeosun, has said the thought of saddling future generations with unserviceable debts is not part of the President Muhammadu Buhari-led administration’s agenda.

Adeosun stated this in an article entitled, ‘The debt debate: Deconstructing the debt story’, in which she explained the debt history, the short-term strategy and the medium to long-term outlook for the economy.

She said anyone who thought that the economy the administration inherited in 2015 was in need of minor adjustment was deluded.

The minister stated, “Oil prices had plunged from a height of over $120 to a low of $28 per barrel, yet the country had foreign exchange reserves of $28.34bn (having declined by $16bn in the two years to June 2015 from a high of $44.95bn).

“Despite just 10 per cent of the budget allocated to capital expenditure, debt had (in a period of unprecedented oil earnings), inexplicably risen from N7.9tn in June 2013 to N12.1tn in June 2015. Depending on the candour of the commentator, the outlook was at best challenging, and at worst, bleak.”

She said to deliver a fundamental structural change to the economy that would reduce the country’s exposure to crude oil, an expansionary fiscal policy was adopted with an enlarged budget, which would be funded in the short-term by borrowing.

As the economy recovers and returns to growth, borrowings will be systematically replaced by revenue, according to the minister.

“Through the implementation of the Efficiency Unit and enrolment of Ministries, Departments and Agencies on the Integrated Payroll and Personnel Information System, we have successfully saved N206bn in payroll costs using technology to drive the cleansing process, with the removal of 54,000 fraudulent or erroneous entries. This was attained without the negative social impact of retrenchment.” Adeosun said.

She added that the economic modelling team correctly forecast that in the short-term, there would be acceleration in the accumulation of debt and an increase in debt servicing costs.

The minister, however, said this would be ameliorated by correcting the low tax to Gross Domestic Product ratio through revenue mobilisation, releasing funds to sustain investment in capital and repaying the debt.

She stated, “Mobilising revenue aggressively is not advisable, nor indeed possible, in a recessed economy. But as Nigeria now reverts to growth, our revenue strategy will be accelerated.

“This is being complimented by a medium-term debt strategy that is focusing more on external borrowings to avoid crowding out the private sector. This would also reduce the cost of debt servicing and shift the balance of our debt portfolio from short-term to longer-term instruments.”

Commenting on the inherited debt, Adeosun noted that the Federal Executive Council in July 2017 approved that N2.7tn of hidden liabilities would need to be addressed.

According to her, these obligations include salaries, pensions, oil importation, energy bills and contractor payments, some of which date back to 2006.

She said, “It is instructive to note that the recent Academic Staff Union of Universities’ strike that crippled our tertiary institutions is one of many examples of commitments made by previous administrations that were saddled on this team.

“ASUU’s dispute relates to an agreement reached with the Federal Government in 2013 (when oil prices fluctuated between $102 and $116 per barrel), which was not honoured.”

According to the minister, previously undisclosed obligations are uncovered on a daily basis, with the most recent relating to oil importation in 2014.

She added, “The figures recently released by the Debt Management Office indicate that while total public debt in dollar terms had remained relatively stable since 2015; our debt, when denominated in naira, has increased from N12.1tn to N19.6tn.

Punch