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Thursday, June 28, 2012

ECONOMIC POTENTIALS OF AFRICA AND THE CHALLENGE OF GLOBAL COMPETITION


  Of recent, there are discussions about the potentials of African economy to follow in the foot step of East Asian economy and join the league of ‘miracle’ economies. Over the last few years the African continent has grown at an average rate of about 4.5% despite the numerous challenges that are crippling growth on the continent. Top of these challenges are continue war in some part of the continent, death of infrastructures, lack of skill man power, political instability and dictatorship, poverty and famine, lack of coordination, poor planning and absence of continuity. But, that notwithstanding Africa has the potentials to rival Asia as the next global economy engine of growth. With a population of about one billion people, though less than the population of China, alone, Africa has the potential manpower and consumers to drive the next era of global growth. Already, economies like that of South Africa, Nigeria, and Egypt have a combine GDP of over $1.5 trillion, which if they were to be one country they will be the 12th largest economy in the world. In the last decades the average inflation rate of the continent has come down from 22% in the 1990s to 8% of the last 10 years, according to the economist (2012); as a result of improvements in the macro economic management adopted by these countries. The same thing can be said of the debt overhang in the continent as the overall debt has come down by a quarter in the last decade. Today the total number of countries that practice some kind of democracy are in the majority compared with 20 years back. The second largest economy on the continent, Egypt has just elected it first democratically elected civilian president in its history. The era of military dictatorship on the continent is over, and looking at the available statistic on the ground the era of poverty and underdevelopment that characterized the continent will soon follow to become history.
    Last year, the performance of the continent slow down due to the events in North Africa, but looking at the performance of sub Saharan Africa alone, its growth is impressive at an average of 5%. But this year, with most of the last year revolutionary events in North Africa over, the performance of the continent will peak up. As the BRIC economies continue with their quest for resources, so will the export earning of mineral resources rich countries in Africa. Already poor economies such as that of Niger who has been ravaged by famine over many years has started to feel the impact of Chinese investors, as they help to build the country’s first oil refinery that is currently refining its not too long ago discovered oil deposit. Over the last few years Nigerien economy grow at a double digit rate, and according to estimates from African economic outlook (2012), this year it is expected to be one of the fastest growing economies on the continent. Resources rich economies such as that of Angola and Libya will continue to grow, despite the recent set backs in the case of Libya in which case if all things are good it is going to be a blessing and put the country among the shining examples of modern African countries. Ethiopia and Rwanda have become the continent role models in term of macro economic prudence, despite their apparent difficult situations they have managed to grow at a higher rate pulling many of their citizens out of poverty. The kingdom of Morocco continues to increase her competitiveness and attraction to the outside world with the recent lunching of ultra modern plant by the France automobile giant Renault-Nissan. In term of political stability the continent still has a long way to go with wars going on in Mali, Sudan, Somalia, Congo, and corrupt regimes everywhere around the continent.
  According to the Economist of 3rd December, 2011, Africa as a region grow consistently faster than any other region in the world; this is another testimony to the other reports that see Africa as the next global power house. Ghanaian economy is one of the fastest growing economies on the continent, attracting billions of dollars annually in form of foreign direct investment. With GDP of about $40 billion, though, small when compare to Nigeria or South Africa, looking at the size of the population, the country is doing well and has succeeded in pulling out millions out of poverty. The number of middle class in Africa is growing fast expected to reach 100 million by 2015, with this development the market for western style consumer goods will be vast and with it the dynamism of the African economies will increase. Trade between Africa and the rest of the world continue to increase at much higher rate than what obtained a decade earlier. Some of the biggest economies on the continent like that of Nigeria, South Africa and Egypt boast of sophisticated financial infrastructures like well capitalized banks and emerging capital market. Nigerian economy this year is expected to grow at the rate of about 7% a much higher rate than South Africa 2.9% and Egypt 2%. Nigeria is on it way to produce new billionaires every year, already it boasts of the richest man in Africa Aliko Dangote. Mobile phone penetration in Africa is growing at an increasing rate, according to some estimates there are about 600 million phones in Africa, making the telecommunication sector one of the profitable sectors on the continent. After the general elections that brought the Muslim brotherhood candidate Muhammad Mursi to power, Egyptian economy is expected to bounce back by next year; and if possible follow in the foot steps of turkey another Middle Eastern power with moderate Islamist in power. Turkey, for example, has alienated all fear about the moderate Islamist holding of political power, it is today one of the biggest economies in the world.
     The last global economic crisis that made working conditions in advance economics difficult was responsible for the return of many expatriates of African origin back to the continent to contribute their quarters to the development of their countries. This has provided the continent with the much needed skill manpower required to push the frontiers of the regions growth. These combine with the existing skill manpower is helping the growth of sectors such as telecommunications, IT, services, and manufacturing. Despite the negatives in facts of the last global economic crisis on the world economy, in some other ways, it has really provided the continent with opportunities, for example, the growing attractiveness of African bonds compare to bonds that come from the developed countries. Many investors kin on diversifying their investments from the highly toxic assets that led to the last global crisis are moving towards Africa. As a result the stock markets of South Africa, Egypt, Nigeria, Kenya, and Ghana are receiving a lot of foreign inflows. To tell one how rewarding investing in Africa has been in recent years, the richest person on the continent, Aliko Dangote has made most of his wealth by, first believing in Africa and, investing there; at a time when many others run away from it. He is planning to make his cement empire one of the largest in the world with the expected listing of the company on the London stock exchange next year, and further expansion into other African countries. Other giants African companies, such as South Africa’s telecommunication giant MTN that has invested widely across the continent, has been investing in other places around the world more especially in the Middle Eastern region with it presence in Iran. Africa is indeed an aspiring economic power house that is yet to develop it potentials; and as other parts of the world reduce their naturally endowed resources, Africa waits as the spire tire of the global grow machine.

SOURCE:

AFRICAN ECONOMIC OUTLOOK, 2012: PROMOTING YOUTH EMPLOYMENT
THE ECONOMIST, DECEMBER 11TH 2012

Tuesday, June 19, 2012

THE NSE-LOTUS ISLAMIC INDEX


    Last Wednesday June 13, 2012, the agreement that will usher in the lunching of an Islamic stock index on the Nigerian stock exchange was signed between the management of the exchange and Lotus capital, a premier Islamic fund manager in Nigeria. Before this day there were various speculations on the possible date of lunching the index or whether the index will be introduced at all looking at the controversies generated by the introduction of Islamic banking into the country. The development of Islamic finance around the world is a story of phenomenal grows of a concept that was initially greeted with skepticism and opposition. But, today thank to the hard work and initiative of the earlier pioneers of the concept Islamic finance is the fastest growing segment of international finance. The total asset under Islamic finance is put at over $1 Trillion that comprises such assets as banking, equity, and insurance. With over 1.2 billion Muslim in the world the potential for Islamic finance globally is enormous; this is in addition to it fast rising acceptability among the non Muslim population around the world. Today, there are many non Muslim countries in the world that are welcoming the system, those in the fore front include United Kingdom, United States, Germany, Switzerland, Russia, Japan, Australia, France, to mention just a few.  Islamic index like any other index in the stock exchanges around the world comprises the list of shares of quoted companies, and one unique feature of the Islamic index being that shares listed on them most confirm to certain Shariah guidelines. That includes avoidance of Riba (interest), casino business (gambling), Alcohol, Pork making business, weapons industries, Pornography, etc.
       The Dow Jones Islamic index is pioneer in this area, it made it debut in 1999 promising to make selection of stock out of about 5,000 listed on the New York exchange who also confirm with Islamic ethical finance requirements. Today, there are many other indexes around the global that attempt to filter the numerous companies listed on their respective stock exchanges in order to select the ones that are allowed by Shariah. An attempt is also currently been made to create a unified Islamic stock index for member countries of the organisation of Islamic cooperation (OIC), this will provide a single plat form where all quoted companies on the exchanges of participating countries that confirm with the Shariah guidelines be selected and put into one global index. Like with the Islamic banks, investing into the fool generated by the index is not restricted to the Muslim only as non Muslim investors are also allowed to participate. There are many advantages to such Islamic index, one, it will provide avenue for stock exchanges to increase the flow of investment into them, both from domestic and foreign investors. Two, it will provide a means of portfolio diversification and as a hedge against certain risks that are apparent with the conventional indexes. Though, the Nigeria stock exchange has entered numerous up and down since the peak of the global financial crisis as evidence from it inability to recover from it current woos, the introduction of the Islamic index is a sign that the management of the exchange are now setting things in order. The introduction of NSE-Lotus Islamic index will definitely increase the attraction of the stock exchange to the fool of investors within and outside Nigeria. 
  Lotus capital becomes the first financial firm to introduce the concept of Islamic finance into the Nigerian financial landscape back in 2008. It came out as Islamic fund management firm that help Muslims and other ethically conscious members of the public to invest their money according to the dictate of Islamic law. Since that time the company has made a lot of progress that include the very recent lunching of an Islamic index in cooperation with the Nigerian stock exchange. On the Shariah board of lotus capital are respected Islamic scholars that included Professor Monzer Kahf a respected Islamic scholar and one of the earlier contributors to the development of Islamic economics. He has a working career that spans many years and countries, and contributed to major journals conferences, and books in the area of Islamic economics and finance. Another respected authority on the board is my lecturer at Usman Dan Fodio university, Sokoto professor Muhammad Lawan Ahmed Bashar himself an authority on Islamic economics and finance and one of the pioneers of the program here in Nigeria together with late Sule Ahmed Gusau of bless memory. He has received his education in Nigeria, India and Saudi Arabia (under Professor Najatullah Siddiqi in the 1980s), and he was also part of the team that produced the blue print of Jaiz bank, the first fully pledge Islamic bank in Nigeria. While on the board of the Lotus capital are Fola Adeola, a respected banker and pioneer manager director of Guarantee trust bank, Mr. Muhammad Nurudeen who is with Minna base Islamic Education Trust. It has become the tradition world wide for private Islamic firms to partner with exchanges or major players in the market to establish Islamic index. Prominent examples here includes, BSE TASIS sharia 50 in India, Thomson Reuters Crescent wealth Islamic Australia index, MSCI Islamic index, and many others. These like I mention earlier provide ethically conscious investors with avenue to invest their money.
     The announcement of the lunching of the index did not include the mentioning of the caliber of scholars that will be on the Shariah board, and the screening procedure to be followed, so as to be able to analyze which listed companies on the NSE will make it. Currently there are over 200 listed companies on the Nigerian stock exchange, of this lists there are over 20 interest base banks, number of breweries, Hotels, and insurance companies. Some of the general screening criteria for selection elsewhere around the world include the percentage of interest base debt in the companies’ assets, percentage of account receivable to total assets, in addition to the requirement of the main business of the firm being Islamic. With an economy that is fast growing at a rate of about 7% and annual GDP of over $400 billion, the introduction of an ethical index into the economy is going to boost the volume of investment coming into the Nigeria. Not only that the number of companies who do there businesses according to the Sharia guidelines and seeking to be listed on the exchange will increased. One other factor that investors should watch out for is the potential opposition from the members of Nigerian public that are opposed to the introduction of Islamic finance. But, even if opposition emerges like we have seen with the introduction of Islamic banking, it will surely fizzle out later. In Nigeria nothing comes out no matter how beneficial it is to the people without some sections of the country making noise about.

Friday, June 15, 2012

NIGERIAN CAPITAL MARKET: THE PROBLEMS IN SEC


   The current crisis brewing out of the head quarters of the security and exchange commission (SEC) warns one that it is not yet time to celebrate. It is not a return to the good old days of 2007. The suspension of the Director General of the security and exchange commission by the board on Tuesday on accusation of misappropriation of funds, wasteful expenditures and corruption is a signal to the problems in the organization. But, its management have continued to hide that fact from the eyes of the public. It will be recalled that the Director General of the commission Ms Arunma Oteh came into office in 2010 after the resignation of her predecessor Musa Al-Faki on allegations of corruption and shady dealings involving listing of  shares of AP petroleum companies own by Femi Otedola who is currently involve in another corruption scandal on fuel subsidy. It is about three months now since the house of representative committee on capital market accuse Ms Oteh of wasteful spending and corruption. Ms Oteh on her own part is a controversial lady, recently he was caught in an exchange of fire with the former DG of the Nigerian stock exchange, another controversial lady who has her own cases to answer pertaining corruption allegation in the capital market, each one accusing the other of being corrupt and incompetent. Nigerian authorities have penchant for appointing individuals with baskets of foreign qualifications into top position without recourse to other factors. Ms Oteh was recruited from African Development Bank where he held various positions including that of vice president corporate management & corporate service of the bank. She has an MBA from Harvard in the United States of America. The former DG of the Nigerian Stock Exchange (NSE) Ms Ndidi Okereke and the current DG Oscar Onyeama worked for some years in the US and also earned their degrees there. Like in the now famous case of the US oil giant Enron, having degrees from top schools around the world is not guarantee for integrity and ethical conducts. The earlier Nigerian authorities come to understand that the better. Even the top business schools in the world have now come to realized the importance of emphasis ethical conduct in their regular courses. It now includes visits to prisons to forewarn potential executives against stealing and misconducts.


    Just as in the Nigerian banking industry, effective regulation and ethical conduct is the hall mark of financial sector world wide. It was with the intention of restoring sanity into the Nigerian banking industry after the collapse of the capital market in 2008 that Oteh was appointed. Alas, that look to me a long way journey.  The current management of SEC under Oteh has failed to bring the changes needed to pilot the capital market into a higher level. Just like Sanusi did in the Central Bank of Nigeria. Instead she is foot dragging and lack will power to bring needed changes. Many of what Oteh is parading as her achievements is not more than change of names to inherited regulatory rules and management style. For example, Oteh failed to effectively address the problems that arised from the margin lending crisis that ushered the collapse of the market. Instead, went on to employ high ranking bankers as consultant who are yet to make any difference to the system.  While other Security and exchange commissions around the world are busy developing mechanisms to deal with challenges that arise after the last global financial melt down, Ms Oteh was busy painting offices and hotel booking for her extravagant trips. Until this moment nothing concrete have been achieved on issue of demutualization of the exchange apart from the initial setting up of committees to look into the issue.  While other exchanges around the world have since recovered from the effects of the last global crisis, internal crisis and absence of effective supervision and regulation on the part of the SEC have delayed that in Nigeria. Though, in fairness to the commission and Oteh it has succeeded in suspending some brokers for failing to comply with directive on minimum capital requirements. The commission under Oteh has made amendments to the commission rule and regulation to incorporate ethical/Islamic fund, exchange traded funds, payment of divided etc. It has also organized some training workshops for it staff that consumed a lot of the commission money.


    Though, most of the problems in the commission at the time of Oteh tenure in office were inherited from Al-Faki, looking at the importance of capital market to the economy Oteh should have done more in attending to these issues. In the fifty year history of the commission, it always lagged behind the Nigerian stock exchange it is suppose to supervise. Now that an acting Director has been appointed by the ministry of finance to supervise the affairs of the commission under the leadership of Bolaji Ibrahim (a former director in the organization) we are waiting to see whether Oteh will return to her seat or finally ask to go.  From what is happenings now, it looks like even those close to the presidency are against the return of Oteh back to her seat. Already, Oteh has petitioned the minister of finance Ngozi Okonjo-Iweala over the board decision to send her on compulsory leave. Nigerian capital market, as an emerging market, has failed to live up to it potentials instead trailing behind it competitors such as those of Egypt and South Africa. For example, bond issuing in the market is still at primary stage of development, likewise the development of ethical instruments such as the Islamic bond Sukuk. In term of corporate governance, a lot need to be done to improve the standing of the market. Now that the management of the commission is under prove we wait to see what actions are going to be taken to pave way for rapid development of the Nigerian capital market. The contribution of capital market to the development of economies such as that of Nigeria cannot be under estimated, needles to say one does not need to explain it here. For example, the rapid development of the financial superstructure in Malaysia and Singapore would not have taken placed without the simultaneous development of the capital mark

Wednesday, June 13, 2012

BRAND VALUE AND THE CREATION OF NATIONAL CHAMPIONS IN NIGERIA


      One may ask what national champions are, and who are these national champions? My answer is simple; they are global corporate brands who dominate a particular market segment and whose names, in most cases, goes with the image of the country of origin in the minds of the consuming public. But, the origin of the term can be traced back to the era when leaders such as French Charles de Gaulle wanted to create big companies that would champion their national interest. The modern revival of the concept, as national strategy to build huge national companies, is traceable to Vladimir Putin who pushes for the creation of national companies to control the production and marketing of Russia’s mineral resources. But, the term is not restricted to government own companies as it was then restricted to, as the term has expanded to include private companies whose national governments see them as of strategic national interest. For example, there are many instances where national governments prevent the take over of private companies by foreign buyers; these include the Dubai port World take over of an American company, the take over of French diary company Danone by an American firm, etc. Examples of national champions include, Samsung and Hyundai (South Korea), Nokia (Finland), Toyota and Sony (Japan), Coca Cola and General Motors (USA), Premier league and British Airways (England), Mercedes Benz and Siemens (Germany), Heir (China), Peugeot and Total (France) to mention just a few. In the 1960s and 70s the policy of creation of national champions was interwoven with the economic policy of import substitution industrialization and economic self dependency to create major national manufacturers in countries like Italy, Netherlands, South Korea, Spain and Taiwan. Today multinational companies such as BP, who is a private company, are turning to the old strategy of national interest to protect itself from growing American resentment in the wake of the oil disaster in the American coastline in 2010. Immediately Britain authorities resent that BP was been subjected to load of accusations and public inquiries, the old idea of BP being a national champion comes back.
     Brand value on the other hand connote ‘positive differential effect that knowing the brand name has on customer response to the product or service’,(Kotler, 2003). Thus, brand value can be put as meaning how strong do the consuming public feel about a particular product or service and how much cost they will pay in order to have it. Brand value is normally created over time through strategic advertisement and marketing by building customer loyalty and meeting their expectations. In Nigeria some of the most well recognize brands are those of very well known companies and biggest in term of capitalization. Example here includes Dangote, First Bank, PZ, Nestle, Zenith Bank, GTBank, MTN, Daily Trust, Guardian, Ashaka cement, to mention just a few. The most capitalize companies on the Nigerian stock exchange such as Dangote and banks like GTBank are also the most valuable brands in the country. This bring us to the question of creation of national champions, whether among the privately own companies or government own.  Does Nigeria have national champions like it is found in other countries we mention earlier? If the answer is yes, then who are these national champions and what are their contributions towards the growth of the Nigerian brand itself? The fact of the matter is that up till this moment we do not have any Nigeria company that is globally recognized as top brand, the few that we have can be said to be doing well in Africa, but in the global scene they are small time players.  Examples of Nigerian brands that are doing well in Africa include Dangote, GTBank, and UBA, they are therefore our national champions here. Other brands that are following in there foot step include Glo, First bank, Zenith bank, and Access bank.
    Nigeria itself is a brand that continue to growth as the economy grow, already Nigeria is ranked 3rd in Africa in the latest ranking of national brands after just South Africa and Egypt. Therefore, as other sectors of the economy moves ahead the national brand follows it, likewise other individual brands that bear the name Nigeria. For example, in term of music and local film production Nigeria is a top brand in Africa where every body is happy to associate with the brand. Likewise, in foot ball, despite the dwindling fortune of Nigerian foot ball the country is still a great foot balling nation in Africa. Other factors that contribute to the growth of the Nigerian brand include it growing significant in term of peace keeping on the continent; many see Nigeria as a giant power in this regard. The large numbers of Nigerian intellectuals who are contributing in different areas of human endeavors also contribute to the growth of the brand. There are also other factors that (from the negative angle) continue to tarnish the image of the brand around the world; such factors include the growing cases of fraud and corruption that is associated with the name Nigeria, the many Nigerians abroad that hold the passport of the country who commit crimes elsewhere around the world. These and some others, combine to devalue the Nigeria brand, and that can only be reversed by sustain efforts on the part of the Nigerian government and public. Coming back to the issue of creating national champions, Dangote group is one potential candidate that is on its way to becoming a true national champion from Nigeria. Already, the cement subsidiary is planning to be among the top tree cement company in the world and by the time it enters this league Nigeria can lay claim to having a national champion.  The next to come may likely emerge from the banking industry, possibly between the current top four banks in the country i.e., First bank. GTBank, Zenith, and UBA. The top country brand in Africa, the South African brand, can boast of national champions like the telecommunication giant MTN; but which bigger brand can Nigeria boast of that is operating in South Africa? There is none yet.
    The biggest national brand in the world, the United State of America, have more national champions than any other country in the world, in the last count it has about 50% of the top 100 global brand followed by Germany 11, France 9, and Japan 7. These top brands are its national champions that continue to fly the flag of the United State around the world. Some of these companies are behind some of the biggest invention around the world in the last decades and continue to pump more money into research and development. They are also among the most capitalized corporations around the world. The second biggest economy in the world in term of the size of its GDP, China, has few national champions compare to its size. And the answer for this is not far fetch looking at the emerging nature of its economy, but as the economy grows and matures we are bound to see more top brands coming from that world giant. Back to Nigeria, many corporations here are yet to give value to the significant of brand equity in the future prospect of their companies, as they are yet to pay any significant attention to the development of their brands. But, brand is like personal integrity, once it is not there, no body respects you and wants to do any thing with you. The quest for the creation of national champions cannot be left to the individual corporations alone to pursue, as government has a role to play in it as it happens in other countries around the world.  Nigerian government can help private sector companies to become its national champions by, for example, investing in research and development in conjunction with these companies, provision of suitable infrastructural facilities to aid the development of such companies, export grants and aids to those that show potentialities of venturing abroad, tax incentives, and pursuing of economic diplomacy in its relationship with other countries around the world.

SOURCE:

Kotler, P. (2003), “Marketing management”, Delhi, Pearson Education
Hallward, J. (2005), “Understanding Brand Value: A review of price, performance, equity, and category Dynamics”, Ipsos-ASI, Advertising Research Company