Nigeria’s Promise Turns to Peril as Investors Head for the Exits

By   |  Bloomberg

Shrinking economy

The promise of Africa’s biggest economy has turned to peril.

Companies drawn to Nigeria by the prospect of a population bigger than Germany and Turkey’s combined are retreating; those staying have publicly criticized the president, a military strongman in the 1980s who came back to power via an election last year; and foreign investors are pulling their money out.

The corporate tribulations that began with a slide in oil prices and accelerated after the imposition of capital controls are also entangled in a global emerging-market slump. In propping up the naira in a futile bid to contain inflation, officials have jacked up pressure on an economy running out of cash, deepening a black market in currency trading and causing shortages of imported goods from fuel to milk. U.S. officials said they will press their Nigerian counterparts to change tack during talks in Washington this week.

“Our clients, Fortune 500 and other multinationals, are all quite concerned by the state Nigeria finds itself in,” said Alexa Lion, a senior analyst at Washington-based Frontier Strategy Group, which advises companies looking at developing nations. “Sentiment has worsened. There’s a lot of anxiety.”

Frustration too.

After four years trying to gain traction, Truworths International Ltd., a South African clothing retailer, last month gave up. It closed its last two outlets in Nigeria, in the southeastern cities of Enugu and Warri. Willing to tolerate dilapidated infrastructure, complicated red tape and expensive rent, the company said the import and foreign-exchange restrictions caused it to throw in the towel.

‘Impossible’

“We were happy to lose money for a few years while we developed the business and opened new stores,” Chief Executive Officer Michael Mark said in an interview. “The straw that broke the camel’s back was not being able to get stock into Nigeria. You can’t have a clothes shop with no clothes. With all the other things, it just wasn’t worth it. It was impossible to do business.”

Nigeria’s appeal has faded as the price of oil, source of 90 percent of export earnings, has crashed. Growth slumped to 2.8 percent last year, the slowest since 1999, and will decelerate to 2 percent in 2016, according to Morgan Stanley. In dollar terms, the economy in 2019 will still be 17 percent smaller than its 2014 peak of $542 billion. Only two years ago, McKinsey & Co. said Nigeria had the potential to grow 7.1 percent annually until 2030 and build a $1.6 trillion economy.

As Nigeria lags, other countries in sub-Saharan Africa have gotten more appealing. Last month, Nigeria fell from first to fourth, behind Ivory Coast, Kenya and Tanzania, in a ranking of business prospects by the research unit of Nielsen Holdings Plc.

Portfolio investors including Aberdeen Asset Management Plc and Ashmore Group Plc, which together oversee about $450 billion of assets, have retreated from Nigerian markets. The main stock index is down 10 percent this year, while the MSCI Frontier Markets Index has lost 2.8 percent. Nigeria’s local-currency bonds are the only ones among 31 emerging markets tracked by Bloomberg to have generated aloss this year. Foreign direct investment this year is set to be the lowest since the 2008-09 global financial crisis, according to data from the central bank.

For now, President Muhammadu Buhari and Central Bank Governor Godwin Emefiele say they aren’t budging from their strong-naira policy. While both acknowledge that businesses are struggling to source enough dollars, Buhari says that a devaluation and easing of capital controls would be akin to “murdering” the naira and send prices up. That’s already happening as manufacturers struggle to buy foreign inputs, with inflation accelerating to a three-year high of 11.4 percent in February.Naira in Choke

Markets are betting Nigeria will be forced to follow oil exporters from Russia to Kazakhstan and Mexico and let the currency weaken. While the naira has been all but pegged at 197-199 per dollar since March 2015, forward prices suggest it will drop 29 percent to 280 in a year. The black market rate has weakened to 320.

Bruno Witvoet, the Africa President of Unilever, whose Nigerian subsidiary has seen its shares plunge 31 percent since Buhari came to power, said it would be “very insane” for the country to persist with the currency policies. Nestle SA says its local unit, which has fallen 18 percent in that period, has had to widen the number of banks it uses so that it can access enough foreign exchange.

Not all companies are gloomy. In January, Coca-Cola Co. agreed to pay about $240 million for a 40 percent stake in Chi Ltd., which is based in Lagos, and makes fruit juice and dairy products. Boston Consulting Group this month opened its first office in Nigeria.

“It’s an immense market,” said Geoffrey White, CEO for Africa at Kuwait-based Agility Public Warehousing Co K.S.C., which plans to spend hundreds of millions of dollars building four warehouse and logistics parks in Lagos and the capital Abuja by 2020. “You can’t really have an African policy without having Nigeria high up on the list.”

For Frontier Strategy Group’s Lion, Nigeria is too important for foreign companies to exit en masse.

“But a lot will depend on what happens with the currency,” she said. “For now, the opportunity cost of not being there is too high. That could change if the currency situations worsens. It’s definitely a pivotal time.”

U.S. to press Nigeria on foreign exchange rate flexibility

WASHINGTON | 

Nigerian naira notes are seen in this picture illustration March 15, 2016 REUTERS/AFOLABI SOTUNDE/ILLUSTRATION
Nigerian naira notes are seen in this picture illustration March 15, 2016
REUTERS/AFOLABI SOTUNDE/ILLUSTRATION

The United States said on Monday it would press Nigeria in talks this week to adopt a more flexible foreign exchange rate to boost growth and investment in Africa’s largest economy.

U.S. Assistant Secretary of State for Africa, Linda Thomas-Greenfield, told an audience at the U.S. Institute of Peace that Nigeria should ensure that the value of the naira currency versus the U.S. dollar was “more realistic.”

“While most people complain about the possibility of there being a devaluation, people are already operating on a devalued currency, and the only people who are not, are people who are doing it officially,” Thomas-Greenfield said.

“Our recommendation is, and we will have discussions about it … that they should look at the exchange rate and try to make the exchange rate more realistic to what the value of the naira is to the dollar,” she added.

She spoke before talks in Washington to be launched by Secretary of State John Kerry on Wednesday and which will focus on Nigeria’s economy, security and development.

Nigeria faces its worst economic crisis in decades as the falling price of oil has slashed revenues, prompting the central bank to peg the currency and introduce curbs to protect foreign exchange reserves, which have fallen to an 11-year low.

Some members of Nigeria’s central bank monetary policy committee have said the naira should be devalued.

Thomas-Greenfield said the parallel currency market in Nigeria was “alive and well,” warning that a rigid exchange rate, capital controls and import bans could undermine President Muhammadu Buhari’s efforts to expand economic growth and fight corruption. Buhari has rejected the idea of devaluing the naira.

“Capital controls that limit access to foreign exchange rewards insiders and undermines the stated goals of Nigeria to increase domestic production because both Nigerian and expat investors alike tell us many businesses are unable to obtain the capital to purchase badly needed intermediate goods,” she said.

The naira trades some 40 percent below the official rate on the black market versus the dollar. The central bank last year pegged the exchange rate to curb speculative demand for the dollar and conserve foreign exchange reserves after it restricted access to hard currency for imports of certain items, frustrating businesses.

The International Monetary Fund called on Nigeria to lift the curbs and let the naira reflect market forces more closely, as the restrictions have significantly affected the private sector.

Volkswagen recalls 800K cars globally due to faulty pedals

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Volkswagen AG VLKAY is recalling around 800,000 VW and Porsche vehicles globally, according to sources. These vehicles are being recalled due to a defect in the foot pedals which can make them loose.
The vehicles covered under this recall mainly include 409,477 Cayenne SUVs and 391,000 Touareg vehicles of model years 2011 through 2016. Volkswagen found that these vehicles may have a loose clip on the bearing bracket of the pedals. The automaker detected the issue during internal assessment. There have been no reports of any casualties related to this problem.Cayenne used to be the bestselling Porsche vehicle in the U.S. However, the smaller SUV, the Macan captured the top position last year. In 2015, Porsche sold 86,016 Macan and 79,700 Cayenne vehicles.These vehicles’ sister model Q7 is not covered under this recall.

These vehicles share technology and some parts too. All these vehicles are produced at Volkswagen’s factory in Bratislava, Slovakia.Volkswagen found itself in troubled waters after the Environmental Protection Agency (“EPA”) revealed that it had developed a software algorithm to deceive U.S. emission tests. Volkswagen admitted to its diesel vehicles being installed with software that makes the engines appear to have low emission levels during tests. According to the EPA, Volkswagen vehicles emit nitrogen oxides, or NOx, at almost 40 times the standard amount. Nitrogen oxide emissions lead to smog and acid rain, and can cause serious health concerns like lung cancer.

BP: The US will be energy independent in 5 years

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By Bob Bryan  |  Business Insider

As a global supply glut continues to keep oil prices at their lowest levels in years, it seems that everyone is focused on the future of the commodity.

In its 2016 energy outlook, the oil giant BP predicted that the US would be “energy self-sufficient” by 2021 and oil self-sufficient by 2030.

Oil is used for products beyond just power, such as plastics, which is why oil independence would come shortly after energy independence.

According to the report, much of this independence will be a function of a global shift, an adoption of more renewable energy, and the growing impact of shale drilling.

“The big winner in the ‘faster transition’ case is renewables, with an almost six-fold increase in output (nearly 9% p.a.) and a 15% share of energy by 2035,” the report said. “The rate at which renewables gain share from 2020 to 2035 matches oil’s gain over the 15 years of 1908-23 — years that included the Texas oil boom, the discovery of oil in the Middle East, the British Navy switching to oil, and the Model T Ford starting mass motorization.”

Despite this, BP said that oil consumption would be driven mostly by emerging economies and that natural-gas consumption would continue to climb.

The company also made numerous other huge predictions, including:

  • “EU energy demand in 2035 is back to where it was 50 years earlier, despite the economy being almost 150% bigger.”
  • “By 2035 coal accounts for less than 25% of primary energy, its lowest share since the industrial revolution.”
  • Renewables account for a quarter of global primary energy growth out to 2035, and over a third of the growth in global power generation.
  • “China adds more renewable power over the Outlook than the EU and US combined.”

BP said the biggest danger to the downside for its outlook is slower-than-expected gross-domestic-product growth; and to the upside it suggested the possibility of a quicker-than-projected adoption of renewable energy.

Nigeria’s first car maker takes to the skies in fighter jets

The grinding conflict between the Nigerian state and Boko Haram insurgents has exacted a devastating human and economic toll over the past six years. But for Nigeria’s first car manufacturer, the crisis may represent an opportunity.

 The Nigerian Air Force (NAF) recently announced a partnership deal with Innoson Vehicle Manufacturing (IVM), which will see the company supply spare parts for jets conducting airstrikes against the insurgents.

“The ingenious effort by IVM is instrumental to the continued operation of the Alpha Jets,” NAF spokesperson Ayodele Famuyiwa said of the deal. “IVM helped to save the day when help was not forthcoming from abroad.”

The air force reached out to Innoson in 2015, as it faced increasing difficulty with the import of vital parts such as brake pads. The deal was struck after a series of site visits around the country.

“The army came to our factories in many states,” says Innoson spokesperson Cornel Osigwe. “They saw we had the capacity.”160323125238-naf-alpha-jet-exlarge-169

IVM, part of the Innoson Group owned by billionaire Innocent Chukwuma, started producing commercial vehicles such as coaches in 2007, before launching a range of private cars in 2014 — the first to carry a “Made in Nigeria” seal.
The offshoot company now employs over 7,000 people and has capacity to produce 10,000 cars a year. It is hoped that the partnership with NAF could help the business expand further.
“The attention is providing a big boost for the company,” says Osigwe.

Innoson has gained several new clients since the deal, according to the spokesperson, including the National Assembly. Leading politicians such as Senator Ben Murray-Bruce have offered strong support.

Osigwe hopes that high profile supporters will help the company make inroads with the wider public.

“If the government patronize Innoson, individuals and companies will follow,” he says.

Innoson staff meeting with Nigerian Air Force pilots at Enugu Air Base. Collaboration is likely to expand beyond the current deal.
Innoson staff meeting with Nigerian Air Force pilots at Enugu Air Base. Collaboration is likely to expand beyond the current deal.
As Nigeria continues to suffer from falling oil revenues that are devaluing its currency, the Naira, the government is making efforts to build up the domestic manufacturing sector and reduce dependency on imports.
The government-promoted Twitter campaign #BuyNaijaToGrowTheNaira has been enthusiastically adopted by the public, trending on several occasions over the past month.
Innoson has featured prominently in the campaign, with indications that the company is gaining recognition.
A recent poll from news site YNaija showed that 60% of respondents would choose the Nigerian-made cars.
IVM is now seeking to capitalize on the current momentum. The company is planning to increase its manufacturing capacity from 10,000 to 50,000 vehicles per year, including of new, lower cost cars to reach a broader market.
Collaboration with the NAF will also expand for research and supply. As patriotism grows across Nigeria, this could prove a crucial selling point.

Nigeria’s unexpected U-turn on interest rates might not be enough

By   |  Business Insider

The Central Bank of Nigeria surprised everyone by hiking rates 100 basis points up to 12% from 11%, on Tuesday.

All fourteen analysts surveyed by Bloomberg expected the rate to remain unchanged.

This decision comes just months after the Central Bank of Nigeria controversially slashed rates by 2% in November, down to 11% from 13%, despite escalating inflation and a wide current account deficit.

In light of that, Tuesday’s decision to hike rates “is, in many ways, a positive sign,” argues Capital Economics’ John Ashbourne in a note to client.screen%20shot%202016-03-22%20at%2012_01_58%20pm

“But this flip-flop on rates will raise yet more questions about the unpredictable and confusing direction of Nigerian monetary policy,” he warned.

Ashbourne also argued that this “policy U-turn” might not have a major economic effect.

He pointed out that inflationary pressures have further escalated over the last few months and that this latest hike does not even completely undo the cut from November.

Additionally, Ashbourne observed that the Central Bank of Nigeria’s governor Godwin Emefiele showed no signs of reconsidering his FX restriction of holding the official exchange rate at N199/US$. This policy has led to shortages of imported goods, which has thus incentivized consumers to jump into the black market.screen%20shot%202016-03-22%20at%2012_03_41%20pm

And finally, Emefiele’s speech didn’t really give a sense of what to expect next. As Ashbourne explained in his note:

“The Governor began his speech by reiterating his view that monetary policy must remain ‘accommodative’ in order to support growth in the struggling economy which he described as ‘starved of liquidity’. This does not sit well with his subsequent decision to tighten policy. He also blamed high inflation on political risk, electricity costs, and seasonal variations, an explanation that conveniently ignores the effect of his own FX policies. It is not clear whether this break from looser policy – which has been supported by both Governor Emefiele and President Buhari – is a shift in both men’s thinking or an attempt by the governor to assert his independence.”

In short, it’s definitely a good sign that Nigeria moved towards a more conventional policy by hiking rates on Tuesday.

But there are still plenty of problems that need to be addressed.

South Africa’s inflation jumps to near seven-year high

The rise in the consumer price index (CPI) was the largest since May 2009 when the rate was 8.0 percent, according to data from StatsSA (AFP Photo/Rajesh Jantilal)
The rise in the consumer price index (CPI) was the largest since May 2009 when the rate was 8.0 percent, according to data from StatsSA (AFP Photo/Rajesh Jantilal)

Johannesburg (AFP) – South Africa’s consumer inflation rate accelerated 0.8 percentage points to 7.0 percent in February, its highest in nearly seven years, official data showed Wednesday.

The rise in the consumer price index (CPI) was the largest since May 2009 when the rate was 8.0 percent, according to data from StatsSA.

A sharp fall in the rand currency and the worst drought in a century pushed food prices higher, taking the consumer price index up from January’s annual rate of 6.2 percent.

The rise in the inflation rate has forced the central bank to increase interest rates twice in a row this year.

Last week the central bank hiked its benchmark repurchase rate by 25 basis points to 7.0 percent after an aggressive 50 basis points in January.

Nedbank, one of the country’s leading lenders, stated that the central bank “will have an increasingly difficult task of balancing rising inflation and weak growth.”

“We anticipate that the monetary policy committee will remain focused on the upside risks to inflation, and continue raising the repo rate,” Nedbank said a statement.

Inflation is increasing at the same time that growth is slowing, with the World Bank and the IMF predicting economic growth will drop to less than one percent this year.

Africa’s most advanced economy is battling to avoid a credit downgrade in the face of slow growth and a weak currency.

Houston’s first immigrant entrepreneur conference set for April

On Tuesday, Friday, April 29, 2016 Immigrant Business Magazine will host its first conference “The Immigrant’s Guide to Success in The US” in Houston, Texas at the Westin Galleria Hotel. This all-day event sponsored by Nissan, will bring together seasoned entrepreneurs, corporations, lenders and government agencies, as well as emerging immigrant-owned firms, and provide information, tools and resources to help immigrant entrepreneurs grow and develop their business.

On Tuesday, Friday, April 29, 2016 Immigrant Business Magazine will host its first conference "The Immigrant's Guide to Success in The US” in Houston, Texas at the Westin Galleria Hotel.
On Tuesday, Friday, April 29, 2016 Immigrant Business Magazine will host its first conference “The Immigrant’s Guide to Success in The US” in Houston, Texas at the Westin Galleria Hotel.

“This will be the first learning event for immigrants on how to launch and grow a successful business in the United States,” says Foulis Peacock, CEO, Immigrant Business Magazine. “Immigrant entrepreneurs are a massive engine of economic growth for Houston and the United States as a whole. They are the fastest growing, most dynamic business market in America. Immigrants are launching businesses at twice the rate of American-born entrepreneurs, and were responsible for almost 30 percent of all new businesses last year – despite making up only make up 13 percent of the population. They are creating jobs for Americans, revitalizing our lost neighborhoods and cities and increasing our tax base by billions of dollars a year”.
The Immigrant Entrepreneur Conference will address the unique needs of immigrant entrepreneurs, offering solutions for the key issues these business owners face. Conference attendees can look forward to a day of hands-on instruction, gaining access to specific resources and expert advice on how to make their business a success, including:
• Detailed information on how to raise financing from crowd funders, non-traditional financers, angel investors, the Small Business Administration (SBA) and Houston area banks.
• Representatives will be on hand to speak with attendees face-to-face;
• Strategies on how to sell, and win contracts from large US corporations.
• Information on how to bid on and win government contracts from municipal (Houston), state and federal governments;
• Information on Supplier Diversity, including major companies in Houston who are looking for diverse small business suppliers;
• Information on franchising for immigrant entrepreneurs, including the latest trends and what industries are growing for immigrants.
Some of the individuals and organizations participating in the Immigrant Entrepreneur Conference include Richard Gianni with LiftFund (formerly Accion), Valerie Coleman with the Small Business Administration, discussing how to get government contracts, Steve Dukes with CenterPoint Energy on doing business with large U.S. companies, and April Day with the Women’s Business Enterprise Alliance (WBEA), discussing Supplier Diversity.
The conference will also feature an Entrepreneur Showcase, where successful immigrant-owned businesses from Houston will be recognized for their accomplishments in sustaining their business and demonstrating success in sales, growth and involvement in their communities. These businesses will also be featured in a Houston special report in the May 2016 edition of Immigrant Business Magazine.
Limited seats are currently available at a discounted rate, and registration is required to attend.
To learn more about the conference and to register online, visit https://www.immigrantbiz.org/.

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