Economy planting seeds of growth amidst mixed data

The Nigerian economy is planting growth seeds and may be close to bottoming out, even as mixed, mostly backwards looking economic data hides the traction being made.

Among the green shoots indicating faster expansion: Most firms have reported higher revenue growth in Q2, 2016 compared to a year earlier, higher FAAC allocations distributed to the three tiers of government for June, indicating a rebound in economic activity, and accelerating government spending that should lift growth in the remaining half of the year.

States like Lagos, the commercial capital, which is responsible for a quarter of Nigeria’s output, are attracting foreign and local investments, while reforms to petrol and Foreign exchange (FX) markets announced in May/ June should act as growth tailwinds going forward.

“Although the CBN’s flexible FX market regime is yet to gain full traction, non-oil exporters are now able to convert their export proceeds at a (broadly) market determined rate. This should spur growth within the sector over the medium term,” FBN Quest analysts led by Gregory Kronsten, said in a July 22 note to investors.

Amid fears of weakness in Nigeria’s banking sector, two financial firms, United Capital Plc, and Wema Bank, a second tier lender, reported higher profits in the half year 2016 period.

Wema Bank had pre-tax profits rise by 10.2 percent to N1.29 billion, while United Capital’s gross earnings and PBT increased by 32 percent and 182 percent to N3.65 billion and N3.64 billion respectively for the period.

In the brewery sub-sector, Nigeria Breweries saw half year, 2016 sales rose by 3.75 percent to N157 billion, while Unilever, a consumer goods firm, saw revenues increase by 12.3 percent to N32.2 billion in the six-month period to June 2016, compared to 2015 levels, despite the tough macro environment squeezing consumer wallets.

Cadbury Nigeria Plc, another consumer goods firm, reported a profit for the period compared to a loss in 2015, while Transcorp Hotels saw marginally higher revenues and profits in the most recent period compared to last year.

Of the 14 major firms that have reported Half Year 2016 results since the earnings season began on July 4th, 64 percent have seen higher revenues, profits or both, compared to the 2015 period, data compiled by BusinessDay show.

The term “green shoots” became popular in the U.S. after Ben S. Bernanke, who was chairman of the Federal Reserve at the time, used the phrase in 2009 to describe signs of improvement in financial markets during the last U.S. recession.

While the IMF forecast last week that the Nigerian economy would contract by 1.8 per cent in 2016, some analysts say the view may be too pessimistic.

“It is still early days for the new foreign exchange regime and implementation of the budget”, Razia Khan, chief Africa economist at Standard Chartered, said.

“Economic conditions could improve in the second half of the year. It is a bit of a stretch to say a contraction for the year is guaranteed.”

Fiscal allocations shared to its three tiers of government, increased by a whopping 120 percent last month to N559.03 billion, Nigeria’s Finance Minister ,Kemi Adeosun, said in Abuja last week.

The gains were led by increased non-oil revenue collections by the Federal Inland Revenue Service (FIRS) of N165 billion, followed by exchange rate gains (N79.2 billion) and collections by customs (N12.6 billion).

“We are quite encouraged by that because it means that some of the reforms that we had started around collection improvement are beginning to bear fruit,” Adeosun said.

Nigeria’s Purchasing Managers Index moved marginally into positive territory in June to 50.2, as some companies faced with the challenges of sourcing FX for imports of raw materials and intermediates were able to boost processing of local raw materials, according to FBN Quest data.

Fidson Healthcare Plc just announced the completion of its N9 billion drug-making factory located at Sango-Ota, Ogun State on July 15.

The company told BusinessDay that it has strong confidence in the Nigerian market despite facing a huge energy burden, lack of clean water and unhealthy competition from drug importers who now bring in medicines at no duty.

“This is an ultramodern facility. We spent almost N9 billion to put it together, and we are hopeful that the government will consider drugs as a national security issue,” said Abiola Adebayo, operations director, Fidson Healthcare Plc during a factory tour in Sango-Ota, Ogun State.

Erisco Foods Limited, Nigeria’s leading tomato maker, has expanded operations from 16 to 22 lines within the last three months, delving into lines like milk, tea, packaged Garri and sugar, among others.

The tomato processor is now investing N4 billion in Kastina, Sokoto and other parts of Nigeria, as it enjoys more local patronage due to the forex crisis, which makes imports very expensive.

Erisco has raised the number of workers from about 1,600 to 2,052 in the last one month, announcing plans to export finished products to West and Central Africa last Friday.

“In Nigeria alone, we have a tomato paste processing plant with processing capacity of above 450,000 metric tons per annum, among other product lines. Our growth today is because of our innovation in tomato processing,” said Eric Umeofia, CEO of Erisco Foods, who is now processing dried and fresh tomatoes into paste.

Shonghai Technologies Limited, a packaging firm in Ogun State, has projected a turnover of N4.5 billion this year, from N3 billion earned in 2015 as it increases investments in lamination machines, label machines, cross cutting and printing machines, among others.

Shonghai is latching onto untapped opportunities in the packaging space this year, arising from the Common External Tariff which now puts tariff on imports of packaging materials at 20 percent.

“With the help of our quality and product varieties, we have captured a good share of the packaging product market in Nigeria,” said the company, headed by R.K Kanwal, in a statement.

Nassos Sidirofagis, deputy managing director, Tempo Paper Pulp & Packaging Ltd, producer of packaging materials, told BusinessDay that it has been expanding operations in the last five months, thanks to the earlier introduced import restriction policy.

“We have been able to increase our production capacity from 50 percent to 70 percent, thanks to the import -restriction policy,” said.

Oluwasesan Taiwo-Tijani, group operation manager, SREN Chemicals Limited, said several companies now buy SREN Chemicals for use at their factories, adding that this has raised the company’s sales and productive capacity by 30 per cent.

PATRICK ATUANYA & ODINAKA ANUDU