2022: Economy and the Unfinished Business

 

As the euphoria of the new year gives way to the reality of the emerging economic dispensation which will become manifest when business and economic activities fire back to life nationwide on Tuesday, January 3, 2022, economic affairs commentators said many things would change. Whether in the government-led public sector, which will rely heavily on the ingenuity, sincerity, and sentiments of public officers as the drivers of the various policies enunciated in the Budget 2022, or businesses, largely driven by private sector participation with eyes on higher profit margins, whatever level of successes that would be recorded at the end of the year will be determined by the synergy between the government and the organised private sector. In this sector-wide report, Festus Akanbi, Emmanuel Addeh, Chinedu Eze, Emma Okonji, Raheem Akingbolu and Kayode Tokede lay bare, issues that will shape business and economy in the new year

Finance Sector

Analysts believed the degree of success or otherwise, that will be recorded in the economy in 2022 will largely depend on the quality of leadership and direction to be provided by the Central Bank of Nigeria as it continues to lead the way in the management of the finance sector in particular, and the overall economy, in general.

They believed that the full implementation of the CBN’s recent policies designed to boost different sectors of the economy will help to keep the inflation rate at bay.

However, the International Monetary Fund (IMF) said the Nigerian economy is projected to grow by 2.9% in 2022, based on an expected recovery in crude oil prices and production. Stimulus measures outlined in the Economic Stimulus Plan and the Finance Act of 2020 could boost non-oil revenues. It stated that the growth would be driven by a recovery in non-oil sectors and higher oil prices.

Banking: Mergers among Tier-2 Banks as First Bank, Union Bank reposition

The Nigerian banking sector is tipped to grow by 15 per cent next year. However, bookmakers have predicted mergers and acquisitions in the Nigerian banking industry to build more robust banks in the moulds of the five Tier-One banks of Zenith Bank, GTBank, First Bank, Access Bank, and United Bank for Africa. These five banks currently control approximately 70 per cent of banking activities in Nigeria. Again, some of these big banks are expected to continue their African expansion.

Amid speculation that the falling value of the naira may compel the Central Bank of Nigeria to raise the minimum share capital of commercial banks in 2022, Managing Director of Financial Derivatives Company Limited, Mr. Bismarck Rewane said rather than raise banks’ share capital, the apex bank may decide to tinker with the bank’s capital adequacy ratio. Currenly, a minimum Pillar 1 regulatory Capital Adequacy Ratio (CAR) of 15% is applicable to all banks and banking groups with international authorisation and those that have been categorised by the CBN as being Domestic Systemically Important Banks (D-SIBs). A minimum CAR of 10% is be applicable to all other banks. Capital adequacy ratio (CAR) is a measurement of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures. The capital adequacy ratio, also known as capital-to-risk weighted assets ratio (CRAR), is used to protect depositors and promote the stability and efficiency of financial systems around the world. According to Rewane, what the banks need most at this period is the capacity to take risks.

According to the current thresholds, the minimum paid-up share capital of the National level banking license is N25 billion, or any such amount that may be prescribed by the CBN, while for Regional Banking Licence is N10 billion and International Commercial Banking Licence is N50 billion.

However, all eyes will be on the two oldest banks, the Union Bank of Nigeria Plc and First Bank Holding Plc. Union Bank is being taken over by Titan Trust Bank Limited (TYB), following an agreement by Union Global Partners Limited, Atlas Mara Limited, and other majority shareholders to sell off their 88.39 per cent shareholding in Union Bank to TTB.

In the case of First Bank, analysts said the year 2022 will pose a serious challenge to the bank, which has been at the centre of the storm for a while. Already, the bank has been going through some challenges. The first challenge was the resignation of Remi Babalola, former chairman of FBN Holdings Plc. Babalola claimed in his resignation letter that he resigned “amid frustrating attempts to reinstate confidence in the brand and improve corporate governance within the system.” Unfortunately, his successor and former chief executive officer of Fidelity Bank Plc, Mr, Nnamdi Okonkwo is too busy clearing his name with the Economic and Financial Crimes Commission (EFCC) for him to settle down in the holding company.

Another issue is the acquisition of more shares by the Nigerian investor, Femi Otedola, and the response in like manner by another boardroom player, Tunde Hassan-Odukale. Otedola’s total stake in FBNH is now 7.57 per cent. Hassan-Odukale had laid claim to 5.36 per cent shareholding in the Holdco in what he called “cumulative equity stake” drawn from a combination of his direct, indirect, and related party shareholding in the group, a claim that has been shattered by PENCON’s position that stripped him of the interest of Leadway Pensure Ltd.

Although Otedola was quoted as saying his shares mop-up was not a precursor to his membership of the bank’s board, analysts said his influence is bound to determine who calls the shot at the holding company when the dust begins to settle.

Oil and Gas: The Dangote Refinery

The 650,000 barrels per day Dangote crude oil refinery, located in the Lekki Free Zone, near Lagos, is expected to begin operations in the first half of 2022.

Put at roughly $18 billion to $19 billion, the refinery will produce Euro-V (fewer sulphur fuels) quality petrol and diesel, as well as jet fuel and polypropylene, generating over 4,000 direct jobs and 145,000 indirect jobs.

Covering an area of 2,635 hectares, the icing on the cake for the much-awaited project is that it will save Nigeria billions of dollars in foreign exchange as well as ensure energy security for the country, other things being equal.

With Nigeria currently refining zero products, the Dangote refinery which will have an annual refining capacity of 10.4 million tonnes (Mt) of petrol, in addition to about 4.6mt of diesel and 4mt of jet fuel, among others, is expected to significantly alter the fuel supply dynamics as well as boost the economy.

COVID-19

In 2020, oil prices hit the negative territory, arguably for the first time in history, with some sellers offering buyers dollars to pick the products from them. Nigeria’s benchmark, Brent, fell below $10, literally throwing the Nigerian economy, largely dependent on revenues from oil, into chaos.

Although economies are opening up and economic activities have since revved up globally, the coronavirus remains a major threat to the oil and gas industry.

With the new variant, omicron compelling countries to enforce restrictions on movement, the virulence or otherwise of the virus will remain a major determinant of oil prices this year.

PIA and Deregulation

It’s been hanging in the air for months, but the argument for full deregulation of the oil and gas industry has never been this strong. If the Petroleum Industry Act (PIA) is activated as prescribed by the law, the removal of subsidy on petrol prices will likely follow.

This will have ripple effects on almost every facet of the Nigerian economy, coupled with organised labour’s threat to embark on a massive strike action which could markedly disrupt Nigeria’s already ailing economy.

Labour

Although the federal government is yet to be categorical about the timeline for the planned removal of fuel subsidy, the Nigeria Labour Congress said it would call out its members on a nationwide protest should the policy come into effect.

The congress said the planned rallies would commence without warning should the federal government announce new fuel prices.

According to NLC, the protest is slated for January 27, 2022, and would culminate in the submission of protest letters to all the 36 state governors.

The government had said it would remove the fuel subsidy next year following advice by the International Monetary Fund, and the World Bank.

In its place, the Minister of Finance, Mrs Zainab Ahmed, said about 40 million poor Nigerians would be paid a N5,000 monthly stipend for transportation.

President Muhammadu Buhari remains the de facto Minister of Petroleum Resources, but the newly rechristened Nigerian National Petroleum Company (NNPC) Limited, by its critical importance, is expected to drive the execution of government’s policies in the oil and gas industry.

The head of the company is Mallam Mele Kyari, who will oversee the operations and transition of the national oil company under the new Act. The efficiency with which the top oilman handles the task will either make or mar the process.

Power: The Siemens Project

In July 2019, the federal government signed a deal with Siemens AG of Germany to increase Nigeria’s electricity generation to 25,000 megawatts (MW) in six years.

Although there have been many delays in the actual take-off of the project, it is expected to be a major game-changer for the electricity supply industry in the country.

To be executed in three phases, it was expected to increase the capacity of the grid from the current average of less than 5,000MW to 7000MW by the end of 2021. That timeline has now been missed.

The initial projection is further expected to increase the grid capacity to 11,000MW by 2023 and achieve total operational generation and national grid capacity to 25,000MW by 2025.

Buhari has already approved the payment of €15.21 million and N1.708 billion as counterpart funding for the project, although the parties were said to have disagreed on the local content component of the deal.

With about 17 months before his exit and a new minister who is still grappling with the nuances of the sector, it is unclear how soon this very critical project will come on stream.

Telecoms: Deployment of 5G Network, Data Centre, Subsea Cable Operations the Issue

Industry watchers said the recent emergence of MTN Nigeria and Mafab Communications Ltd, as winners of the keenly contested 3.5 GHz spectrum auction for 5G deployment in the country, coupled with the $574.2 million that the federal government realised from the auction, Nigeria, will be a strong boost to the nation’s digital transformation in 2022.

Another issue that will shape the new year is the launch of a 10-megawatt data centre facility in Nigeria by the Africa Data Centres (ADC), which held in Lagos in December 2021. This, they said, would further diversify Nigeria’s economy and enhance her digital transformation agenda in 2022.

According to the Chief Executive Officer of Tetconsult UK and the immediate past Secretary-General of the Commonwealth Telecommunications Organisation (WTO), Shola Taylor, the ultimate beneficiary of the successful launch of 3.5GHz spectrum, would be the Nigerian telecoms consumer, whom he said, would enjoy the enormous and real-time benefits of 5G technology, considering its high-speed downloads, high internet connectivity capacities, and with very low latency that would drive a faster digital transformation across Nigeria.

Chairman, Association of Licensed Telecoms Operators of Nigeria (ALTON), Gbenga Adebayo, told THISDAY that the 3.5GHz spectrum auction would open a vista of opportunities for 5G rollout and also enhance digital transformation across the country in several ways in 2022. According to him, “The 3.5GHz spectrum will pave the way for speedy deployment of 5G network/in 2022, and once we have systems and applications running on the spectrum at high-speed data, there will be faster integration of systems and there will be increased access with a machine-to-machine connection that will also drive financial inclusion.

Industry stakeholders also believed that the launch of additional data centres and the berthing of additional subsea cables in Nigeria, would not only diversify the Nigerian economy in 2022 but would also create opportunities for economic growth and digital transformation in 2022.

Capital Market: Regulation, Activities in Banking, Cement, Telecoms Sector, the Game Changer

The Nigerian capital market in 2021 witnessed mixed trading, dropping by 3.04 per cent in the first three months and dropping further by 5.87 per cent in the first half-year.

The NGX All-Share Index, which tracks the general market movement of all listed stocks shed 0.12 per cent to close nine months at 40,221.17 basis points from 40,270.72 basis points at which it opened trading for 2021.

In 2022, all eyes will be on policy reforms by Director-General, Securities and Exchange Commission, Mr. Lamido Yuguda; Group Chief Executive Officer of Nigerian Exchange Group Plc, Oscar Onyema, and other capital market stakeholders to witness more listing, drive liquidity, and attract foreign/ local investors to the market.

Activities such as the mop-up of the shares of FBN Holding, Flour Mills buying a stake in Honeywell, MTN public offer, and federal government bonds taking over listings on the bourse were key notable events on the NGX in 2021 and the trend is expected to drive activities in 2022.

Analysts also projected that the stock market is going to depreciate in the post-election year, attributable to foreign investors exiting the market over uncertainty.

Despite the uncertainty, analysts said that activities in the shares of Zenith Bank Plc, Guaranty Trust Holdings Plc, FBN Holdings, and the acquisition of Union Bank of Nigeria by Titan Trust Bank Limited (TTB), among others are the top lenders to reshape the market in 2022.

Also, the likes of cement manufacturing, oil and gas, and telecommunication companies are what investors should be looking out for in a post-election year.

Analysts also feared that insecurity will also be a factor in the market, saying that the market would witness financial assets shifting to fixed income market because the federal government will besiege the market to raise a lot of debts.

However, some foreign investors may likely exit the market in the fourth quarter of 2022 due to the coming election of 2023.

Aviation: National Carrier: A Gamble Between Nostalgia and Reality

It will be counted as a golden achievement if, by the second quarter of 2022, Nigeria unveils a national carrier, as assured by the Minister of Aviation, Senator Hadi Sirika.

There are too many doubts that such a dream will be actualised because there are many factors against its realisation. The major factor is the factor of reality.

Can a national carrier be established in the next six months when there is no physical structure for it in December 2021? Will the period designated be enough for the new airline to obtain Air Operator Certificate (AOC), recruit and train personnel, acquire the aircraft for operation, complete the shareholding arrangement and start scheduled flight service?

In addition to establishing a national carrier in 2022, the federal government is also expected to complete the concession of four major airports in Lagos, Abuja, Kano, and Port Harcourt; it is also expected to complete the process of establishing a Maintenance, Repair, and Overhaul (MRO) facility to enable Nigerian airlines to carry out heavy aircraft checks in the country and also put the leasing company on stream. A leasing company will ease Nigerian carriers with the torturous process of leasing aircraft overseas, which goes with high insurance premiums and stringent conditions.

Sirika is said to have also been talking with the core investor for the establishment of the MRO facility in Nigeria and this has reached an advanced stage so 2022 will witness a modern and big MRO in the country.

Manufacturing: Banking on Capital Budget Implementation

Based on the 2022 budget, manufacturers said there will be very few highs and several lows for them this year.

The highs, according to the Director-General of the Manufacturers Association of Nigeria (MAN) Mr. Segun Ajayi-Kadir, include the proposed capital expenditure of N5.35 trillion, which resonated well with the MAN’s cry for the need to prioritise infrastructure development that would lay the foundation for Nigeria’s sustainable economic development.

He said: “In summary, the highs principally centre around the proposed aggregate capital expenditure of N5.35 trillion is 32.64 per cent of the total expenditure as against the N4.37 trillion and 32.2 per cent respectively of 2021 budget.

“This means that the sum allotted to capital expenditure will increase appreciably in 2022, particularly for the building materials and construction segment that has higher multiplier effects on the manufacturing sector.

However, industry observers identified the top three low points of the proposed 2022 budget as the proposed excise duty on carbonated drinks; the likelihood of increased drive for collection of taxes and levies, which might entrench multiple taxations and untoward means of collection all in the bid to increase non-oil revenue generation that would cover the deficit side of the proposed budget, and thirdly, the suspicion that the highly ambitious assumption of 13 per cent inflation rate in the budget might not hold water, especially when the prevailing inflation rate as at August 2021 stood at 17.01 per cent.

Ajayi-Kadir said: “The proposed excise duty on carbonated drinks means further strangulation of the manufacturing sector that is already burdened with a multiplicity of taxes/levies and fees.

The sourcing of the much-needed foreign exchange will also be a major that will determine the survival of the industrial sector in 2022.

Manufacturers will also intensify their demand for the easing of cargo clearing processes at ports. This is a major component of ease of doing business to which the government has expressed commitment. So, the campaign will continue to make government reduce the number of agencies involved in cargo clearing at our ports and for the deployment of technology to aid the customs clearing process.

Advertising: Bickering over Code of Conduct, Highway Concession

For the players in the nation’s Marketing Communications industry, the last quarter of 2021 was characterised by division over the introduction of a code of conduct titled, Advertising Industry Standard of Practice (AISOP), by the Advertising Practitioners Council of Nigeria (APCON). Though meant to sanitise the industry, the new development was received by stakeholders with mixed feelings.

While the promoters of the new standard of practice saw it as a vista to enhance a global best practice for the industry, members of the Advertisers Association of Nigeria (ADVAN) kicked and condemned it as a retrogressive move meant to promote a price-fixing Behaviour in the Nigerian Advertising Market. Of course, the leadership of the Association of Advertising Agencies of Nigeria (AAAN), Media Independent Practitioners Association of Nigeria (MIPAN), Outdoor Advertising Association of Nigeria and the Experiential Marketers Association of Nigeria (EXMAN) also in their corners celebrated the new order as the best for the industry.

As various sectoral bodies look into the new year for the official adoption of AISOP, the relationship among stakeholders can be likened to that of cat and mouse as each body is busy plotting graphs to either make or mar the adoption. APCON has come out fully that it would wield the big stick and sanction whoever stands in its way. On the other hand, ADVAN has begun making clandestine moves by recruiting economic and legal experts to point out the shortcomings of the proposed standard of practice. The question is; who will have the last laugh?

Unanswered Questions over Highway Road Concession…

The outdoor sub-sector of the Advertising Industry under the auspices of the Outdoor Advertising Association of Nigeria early in 2021 made a subtle appeal to Minister of Works and Housing, Babatunde Fashola to reconsider the proposed concession of some high ways in Nigeria.

With the proposed concession, the attention of outdoor practitioners shifted from the challenges posed by some states regulating others to the national level. Till now, the fear is; what becomes of practitioners after 12 major roads in the country must have been concessioned. The Federal Ministry of Works and Housing (FMW&H) had announced early in 2021 that it would concession 12 major roads in the country, under the Highway Development and Management Initiative (HDMI).

According to the guide, the affected roads are; Benin-Asaba, Abuja-Lokoja, Kano-Katsina, Onitsha-Owerri, Shagamu-Benin and Abuja-Keffi-Akwanga. Others are, Kano- Shuari, Potiskum- Damaturu, Lokoja Benin and Enugu-Port Harcourt.

Analysts believed practitioners will push for a clearer picture especially as it has to do with whether the existing agencies will be on the priority list to protect businesses and prevent multiple job losses.