Intensifying macro-economic challenges in the country as well as a weakening naira, are forcing several Nigerian firms to seek ways to boost their capital and reduce costs in order to stay in business.
Although the banking and manufacturing sectors are exploring rights issue means of capital raising and rationalisation of staff and operations respectively, to hedge possible collapse, some analysts say liberalisation of foreign exchange policy and more synergy between monetary and fiscal policy measures should be pursued.
“Corporates are indeed struggling for survival as most of them are already in the intensive care unit. The tough and resilient corporate will devise means to get out of the problem but no doubt, many will be muffled out of business. The manufacturing sector will be the most hit, as they have been the ones suffering from rising cost of inputs, “says Robert Omotunde, head, investment research, Afrinvest, in an email response to BusinessDay inquiry.
Bolade Agbola, executive director, Cashcraft Asset Management Limited, said the poor performance of most of the corporate, which was as a result of the downturn in our economic fortunes and the sub optimal management of foreign exchange, was a pointer to the imminent collapse of many of the organisations.
“SMEs are already failing and that’s why the unemployment rate is daunting. The bigger firms, which are supposed to be more resilient, are already coming out with woeful results, which may be compounded going forward, if remedial measures are not taken by government immediately.”
The low hanging fruit is restoration of peace in the Niger Delta for oil and gas to continue to flow. This will lead to increase in forex available to pay our import bills and provide gas for the thermal stations to stem the dismal electricity output, which of recent was as low as 3,000MW.
The President should give the nation a five-man economic team and be ready to accept reforms that may initially be painful and unpopular. What has been on ground since May 2015 is not working and won’t work,” Agbola said.
The Purchasing Managers Index (PMI) data released by both the CBN and FBN Quest declined below the 50 points level in January. The PMI, which is a measure of the state of the manufacturing sector, and acts as a proxy for economic activities, moved into the contraction region, heightening fears of a prolonged recession period.
Bismarck Rewane, chief executive, Financial Derivatives Company (FDC) Limited, in the February Lagos Business School (LBS) breakfast meeting note, observed, “The inventory build up by manufacturers was more of a hedge against further price rises. Inventory build-up that does not translate into output growth means GDP growth could still be stalled. For the top five companies in 2016, inventory turnover value declined by 25 percent in third quarter of 2016. There are concerns that the contraction witnessed in manufacturing (a sector that contributes 8.59 percent to GDP) could indicate a longer than anticipated recession.”
A Lagos -based investment and research firm, CSL Stockbrokers Limited, stated in a recent report titled: “Capital Adequacy: Pulse Check,” that capital adequacy has been a persistent issue for a number of banks.
“Regulatory capital ratios have been impacted by the large depreciation of the naira, given the extent of USD lending in the sector. They have also been hit by the sharp rise in impairments (implying little or no retained earnings),” they further observed.
The current moves by some banks to raise tier two capital is expected to enable the financial institutions withstand any shock in the industry, as well as to remain above the regulatory threshold.
“A look at banks nine month 2016 capital adequacy ratios (CAR) suggests that we may begin to see a flurry of capital raising activities if macro-economic conditions fail to improve,” say the analysts.
The Central Bank of Nigeria (CBN) requires that banks with international subsidiaries maintain a capital adequacy ratio (CAR) of 15 per cent, while banks without international subsidiaries maintain a CAR of 10 per cent. The minimum requirement for systemically important banks is 16 per cent.
However, Buhari’s economic blueprint for the next four years, due to be released this month, will aim to lift West Africa’s biggest economy from its worst slump in more than two decades and boost the annual economic growth rate to at least 7 percent by 2020, said to Udoma Udo Udoma, Budget and Planning Minister, in Abuja recently.
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