Nigeria largest companies are spending more on the acquisition of technologies, equipment, and facilities, signalling they are upbeat that economy activities would pick up.
With data from companies’ 2018 audited financial statement, cumulative expenditure totalled N397.17 billion, up 26.19 percent from a year ago and on track to be the highest since 2016 when a recession damped cash flows.
“They are just hoping that the economy will improve, and in terms of expansion they are trying to boost their capacity for the future, albeit sales have been growing at a slower pace,” said Ayodeji Ebo, managing director and CEO of Afrinvest Securities Limited.
“Some major players in the industrial goods industry are able to increase prices twice while the construction giants built capacity based on pre-announced projects,” said Ebo.
A breakdown of the figure shows building material sector account for 35.75 percent of the increase in spending by companies, with energy 19.64 percent, and consumer goods at 29.63 percent.
Among the biggest spenders, Seplat Development Corporation Company Plc recorded N26.93 billion as capital expenditure in 2018, a surge of 163.18 percent from a year ago, the highest amount since at least 2016.
Oando Oil Plc’s capex spend increased to N37.86 billion, representing a 91.12 percent increase from a year ago, while Mobil Oil’s spiked by 93.69 percent in the period under review.
Oil and gas firms have been increasing capital expenditure since confidence picked up after crude oil prices climbed above $70 a barrel from a 12 year low of under $30 in 2016, thanks to output curb by Organization of Petroleum Exporting Countries (OPEC), Russia, and others.
Nigeria’s Gross Domestic Product (GDP) growth rate increased to 2.38 per cent (year-on- year) in the fourth quarter of 2018 (Q4, 2018), indicating a 0.55 percentage rise compared to the 1.81 per cent growth recorded in the preceding quarter, according to the National Bureau of Statistics (NBS).
Nigeria’s Consumer Price Index (CPI) report for March showed headline inflation eased for the third consecutive month by 6 basis points to 11.25 percent year on year (yoy) from 11.31 percent yoy in February.
“Companies invest in fixed assets because they expect a pickup in economic activities and increased demand for their products. There has been improvement in economic outlook,” said Onyeka Ifeoma, research analyst at Vetiva Capital Management Ltd.
“But increased capex spend could be company specific. For instance, between 2017 and 2018 Seplat has been selling gas to Azura power plant in Edo State. They are also working on different projects that require huge capital outlays,” said Onyeka.
Onyeka added that Oando is poised to invest in the upstream sector as the company is divesting from its downstream operations.
Oando has finalized a N14 billion Axxela divestment.
For the industrial goods players, Dangote Cement’s capital spending hit N131.04 billion, up 21.39 percent from a year ago as the largest producer of the building material continues to spread its tentacles across Sub Saharan Africa.
Julius Berger, the largest construction company in Nigeria saw investment in property plant and equipment surge by 840.16 percent to N5.45 billion from a year ago as it anticipates contracts from Federal government.
Cement Company of Northern Nigeria (CCNN) investment in asset also surged from a year ago as the cement maker increased operating capacity with a view to increasing share of the market.
Analysts say additional spending could extend the growth circle for earnings if it results in increased sales and operating efficiency.
Nigerian Stock Exchange 30 Index- the list of the most liquid and capitalized firm- saw cumulative net income rise by 29.23 percent to N1.38 trillion in December 2018 from N1.06 trillion as at December 2017. The growth was largely driven by banks that leveraged on lower impairment and uptick in non-interest income to compensate for receding revenue.
However, the above stellar performances are not enough to allure foreign investors as the equity markets have been in a rout since the start of the year.
The Nigerian All Share Index NSE ASI has shed -5.38 since the start of the year.
Analysts say investors are not investing in stocks despite a benign political environment because they are yet to see structural reforms by the President Muhammadu Buhari led administration.
A rewind to 2015 after the president was first voted into power showed he was not nimble enough in taking strategic decision as it took him 6 months to appoint ministers.