Firms face ‘New normal’ as government closes loopholes

Nigerian firms are facing a ‘new normal’ of fewer free lunches from a more assertive Federal Government as the slide in oil prices forces an aggressive move towards plugging fiscal loopholes.

“Nigerian corporate’s have to adjust to the new normal of a more effective government which will have a ripple effect over time,” said Aurelien Mali, Senior Analytical advisor, Africa, Sovereign risk group for Moody’s, at their maiden credit risk conference in Lagos yesterday.

“Firms have to adjust to paying more taxes and less tax dodging, however this is extremely positive over the medium to long term.”

The tougher regulatory landscape and recent imposition of fines on firms for infractions, enforcement of the Treasury Single Account (TSA), crackdown on corruption and move for greater accountability, are all a signal of the new normal, according to Mali.

Nigeria, which is Africa’s largest economy, is struggling to cope with an almost 60 percent plunge in crude oil prices since June last year.

Gross domestic product rose 2.8 percent from a year ago, compared with 2.4 percent in the second quarter and 6.2 percent in the same period of 2014, the National Bureau of Statistics (NBS) said on Tuesday.

Economic growth is set to slow to 3.5 percent this year, before rebounding in 2016, according to Moody’s.

The government is pushing to increase enforcement of value added tax (VAT) remittances by companies, which could raise N1 trillion in additional revenues, a majority of which would go to states and municipalities, according to Mali.

Most firms operating in the country would welcome the new era of accountability and clarity in rules, as they gear up their businesses for Nigeria’s demographic upside.

“ Corporate’s are positioning for long term growth, and are beginning to use Nigeria as a production hub for West Africa,” said Douglas Rowlings, a corporate finance analyst for Moody’s.

“There are big opportunities in the non-oil and oil sectors,” Rowlings said.

Nigeria’s oil sector grew by 1.1 percent in the three months to September 2015, after contracting by 6.8 percent in the previous quarter.

The non-oil industry, which makes up 90 percent of GDP, increased 3.1 percent in the third quarter, down from 7.5 percent a year earlier.

There have been  no new oil licensing rounds since 2008, while reserves have remained stagnant at around 37.5 billion barrels.

The fall in crude prices has led to a big pullback in drilling and exploration activity by International Oil Companies (IOCs), while their domestic counterparts are struggling with debt acquired during the boom times .

“Most of the loans to upstream players from Nigerian banks have been restructured and their tenures pushed out,” said Akintunde Majekodunmi, a banking analyst at Moody’s.

‘‘ The banking system can withstand risks from the oil and gas sector,’’ Majekodunmi said.

Moody’s currently rates two Nigerian financials, Access Bank and Sterling Bank, as well as the non-bank financial, the Africa Finance Corporation (AFC).

The recent crash in money market rates is also a signal of the new normal which will force banks to lend to the real sector and cut back on buying fixed income securities issued by government.

‘‘Banks will have to find good companies to loan to and begin to move away from spread income,’’ said Mali.

‘‘Businesses will now have to pay taxes. We view that as a positive.’’

PATRICK ATUANYA