Rebasing reveals winners as banks, cement coys to benefit

As the National Bureau of Statistics (NBS) revealed the rebased gross domestic product (GDP) data for Nigeria on Sunday, which gave a clearer picture of the structure of the economy, analysis of the new data series is showing potential industry sector winners and losers.

“Nigeria’s fiscal position looks stronger to us under the new metrics – the budget deficit/GDP and public debt/GDP for 2013 fall to 1 percent (vs. 1.8 percent previously) and 11 percent (vs 20 percent), respectively,” said Yvonne Mhango, senior Africa economist at Renaissance Capital, in a note released April 7.

“This means the government has more room to borrow, which is positive for infrastructure development – in turn positive for the cement companies,” Mhango said.

Nigeria’s four major cement companies (Dangote Cement, Lafarge, Ashaka and CCNN) reported a 23 percent growth in full-year 2013 revenues to N522.5 billion, as growing economic activity fuelled demand for the building material.

The NBS updated GDP figures showed that Nigeria’s GDP of $510 billion is on a par with that of Poland and Belgium, and ahead of Argentina, Austria and Iran.

Agriculture’s share declined to 22 percent (from 35 percent), and there was also threefold increase in manufacturing/GDP to 7 percent, from 2 percent.

The dramatic increase in GDP was largely due to services, which increased more than threefold in nominal terms. Services’ share of GDP jumped to 53 percent, from 29 percent previously. This was partly due to the surge in telecoms’ contribution to 9 percent of GDP, from 1 percent.

“Our SSA telecoms analyst, Johan Snyman, estimates the size of Nigeria’s telecoms sector at $12 billion. In his experience, telecoms amount to 2.5-4.0 percent of GDP, with developed economies. We think this implies the sector is maturing and growth is set to slow,” Mhango said.

The signals of a maturing telecoms market include Nigeria’s high SIM penetration of 72 percent (13 percent in 2005) and surge in the number of SIMs to 115 million (vs 18 million). The 60 percent drop in average revenue per user (ARPU) also reflects the maturing of the sector and deepening penetration.

Nigeria’s GDP per capita was boosted by the rebasing moving up 11 places, to 126th position ($3,000 vs $1,600).

“The near-doubling of Nigeria’s per-capita income implies food producers may be closer than we thought to the pivotal point beyond which they have pricing power,” said Robyn Collins, a consumer analyst at Rencap.

Collins argues that at a certain GDP (PPP) per capita (which she estimates to be $2,500-$3,800 for high-growth countries such as Nigeria, India and Indonesia), food producers’ operating profit growth becomes stronger and more consistent, implying they have pricing power.

The upward revision in Nigeria’s per-capita income means food producers are closer to the point where they can pass on higher input costs to a less price-sensitive consumer.

“We believe the disparity of wealth may slow food producers from reaching the pivotal point,” Mhango said.

Nestle plc, Nigeria’s largest FMCG manufacturer and bellwether for the industry, reported a 14 percent increase in revenues to N133.08 billion for the full-year 2013 period.

However, the company’s profits before tax (PBT) were up marginally by 4 percent y/y to N26.05 billion, from N25.06 billion 2012FY, as operational expenses increased by 19.6 percent to N28.93 billion, suggesting an inability to pass on costs to consumers, even as sales increased.

Meanwhile, the higher GDP is implying that Nigeria’s banking penetration is lower than the previous GDP series suggested, revealing potential room for long-term secular growth for the banks.

“The gap between Nigeria’s and East Africa’s bank penetration is even bigger than we thought. Kenya’s loans/GDP of 38 percent is almost double that of Nigeria, at 21 percent (vs 38 percent pre-rebasing). This explains why retail banking in Nigeria is at a nascent stage and behind that of East Africa. We think this means the banking sector’s growth potential is even greater than we initially thought,” Mhango said.

PATRICK ATUANYA