Policy Round Up: Electricity Tariffs and Miscellaneous
Nigeria needs to generate between 40,000MW and 60,000MW of Electricity, but generation is less than 5,000MW. You know the gist. The common consequence is that businesses run on generators thereby increasing the cost of production. On 31st August, our ”What’s New?” informed you that the government had approved an increase in electricity tariffs, even though the National Assembly had promised that this would not happen until 2021. Well, this post expands on the issue further. Wanna learn more? Keep reading! How tariffs work. If you are a metered consumer in Nigeria, the cost of electricity depends on 4 factors. First, your location. There are 11 electricity distribution companies (DisCos) operating in Nigeria. Second, your tariff class. Every electricity customer belongs to one – residential, commercial, industrial, special and street lights – based on projected energy consumption. Third, tariff rate. This depends on your tariff class. Finally, the quantity of energy consumed in KWh. The hike in electricity tariffs. A planned increase in electricity tariff was initially scheduled for April 1st, 2020. This was postponed to July 1st in order to give stakeholders time to design a service based tariff system. When a service based system works, it ensures that the customers receiving high quality of service would pay agreed rates with the distribution companies, while those receiving poor service would not experience any tariff increase. The increase in tariff and a commencement date of 1st July were both approved by the Nigerian Electricity Regulatory Commission (NERC). By June however, Premium Times Newspaper reported that DisCos were accusing the NERC Of dissociating itself from the increase in tariff. Well, you cannot blame the NERC. En masse, Nigerians have condemned the tariff increase. The most common argument is that the electricity situation should improve first before any increase. Meanwhile, proponents of the tariff (e.g. Discos) counter this argument by explaining that the electricity situation cannot improve unless consumers pay the appropriate prices for electricity. This way, investors will make enough money to reinvest in their infrastructure. Well, August came and ta-dah! Hike approved! Why is the hike happening? Business Day Newspaper did a useful breakdown. The estimated cost of electricity in Nigeria is about N53/kWh. Meanwhile, distribution companies only charge N31/kWh. The difference of N22/kWh is a subsidy which cost the Federal Government of Nigeria N560 billion in 2019 (7% of the budget!). If this subsidy continues, it will total N610 billion in 2020 even though energy produced is the same. The most prominent argument is that this recurrent expenditure used to cover the tariff shortfall could be used to improve other sectors such as healthcare and education. In addition, an analysis corroborated by the World Bank showed that 60% of this subsidy is actually used to cover electricity consumption for the richest 10% of the population. Meanwhile, 90 million of the poorest Nigerians have no access to power. Nigeria cannot fund the subsidy for this year. The National Assembly only approved N80 billion for tariff subsidy. The government planned for 40% of the 2020 tariff subsidy to come from a $750 million loan the World Bank agreed to grant. The World Bank then made this loan contingent on the removal of the subsidy regime, calling it retrogressive and exploitative of the poor. Removal of subsidies is the rave now. The African Development Bank and the World Bank have made it clear that they would not extend more facilities until retrogressive subsidies are removed. When DisCos (distribution companies) met with the federal government, their projection was that 80% of the increase would be borne by the richest 20% of the population. There would be no change in tariff for the poor, and customers who receive less than 50kW of energy a month will not experience any increase. Well, let’s see. More talk. Citizens have labeled the hike as unnecessary considering the poor state of the economy and growing poverty among Nigerians. Some have gone as far as protesting. On September 10, Vanguard Newspaper reported that armed policemen in Lagos arrested 14 protesters and 4 journalists who were protesting the hike. NGOs have since condemned this action. A striking discovery is that Discos are yet to provide prepaid meters for all consumers. If this is the case, then most consumers would still be subjected to estimated billing. A service reflective electricity tariff would then be implausible. Also, many Nigerians are not connected to electricity at all. It may be time for the government to support the off-grid space in the power sector. Since September 7 however, the President has personally defended the hike. He explained that there was no provision for subsidy in the revised 2020 budget. He then said his administration was pursuing a mass metering program to provide meters for over 5 million Nigerians. Regarding those who are not connected to electricity, “We are providing solar home systems to 5 million Nigerian households (impacting up to 25 million individual Nigerians) in the next 12 months.” In conclusion, he said, “Protecting the poor and vulnerable, while ensuring improved service in the power sector, is also a major priority for the Government.” Well, these fingers are crossed again.
How to Position your Startup for Funding
According to Forbes, 9 out of 10 startups fail. Failure is more frequent than success when it comes to startup companies. It is difficult to run a startup, but it is also rewarding. You may be set to go with your business but you may be facing the most damning problem of them all – funding. Cash flow problems are said to be largely responsible for 82% of small business failures. Here is a helpful guide that tells you how to position yourself for funding as well as funding channels to explore. First, create a detailed business plan. A business plan will increase your chances of securing funds. It should come after market research. It will give a clear description of your business and serve as reference to remind you how to proceed. It will provide information about your target market and your competitors. Finally, the proposed organizational structure of your company. Investors will need to see your financial projections. Make them as realistic as possible. Here are important considerations for your business plan and all pitches you do. What are the points that serious investors will objectively consider? First, your management. Investors want to know how much experience the manager/management possesses, their educational background and track record. Second, what problems are you trying to solve? What is your unique, sustainable solution? Uniqueness is important because it determines how competitive your market will be. Importantly, ROI. How much return on investments are you promising and how long will it take before you become profitable? Also, can your business scale up? Can your business expand? Can it cater for a larger pool of customers? Can your process be replicated? Is your structure entirely fixed on you? Finally, what is the exit plan? Private equity investors, especially, do not want to get stuck. They want to provide capital and support for your company, then sell out to other investors. This is why your business must be attractive to other potential investors. Next, what are the direct solutions for your funding problem? What funding channels can you consider? Here is a quick list. But hold on. Before we get to it, learn how to manage your operational costs! For instance, before you commit money into any major acquisition, measure the expense against the expected ROI. You may need to learn new skills as you go. Then, do not outsource a job you can do yourself. Choose team members who possess complimentary skills. Finally, build relationships that allow you to access free resources or barter – this way you exchange one service for another, instead of having to pay. Now to our list. a. Self funding If you have the money, then you should consider funding your startup on your own. This way, you will not have to give up any equity, you will not pay interests on loans and you can keep all your eventual profits. The downside is losing all your savings of course. b. Friends and family Friends and family are second on the list for top startup funding sources. An advantage is you are likely to get money from these without having to pay interest. The downside however is the lasting, uncomfortable situation you may be put in if you lose their money. But that could also serve as motivation. c. Strategic partners A partner will share capital and liability. The downside is less profits for you and the possibility of conflict. While it is important to choose a partner you can trust, a detailed agreement is very helpful. d. Crowdfunding Crowdfunding websites are available for use. Some put you in a pool of professional investors, while others let you raise money from anyone. If your project is promoted properly, you can raise a ton of money. Examples of crowdfunding sites available to Nigerians are Kickstarter, NaijaFund, Funda Enterprise, CircleUp, MicroVentures, e.t.c. e. Loans You may visit a local bank and present your business plan to a loan officer. You would need to offer collateral of course. If you do not meet the requirements of a commercial bank, consider a microfinance bank. They allow payments in installments but their interest rates are usually higher. f. Angel investors Angel investors are usually entrepreneurs or former entrepreneurs themselves. They inject capital in expectation of equity, but you may also offer convertible debt. They are more likely to do seed investing (early stages). They can help you scale an idea into a prototype, for instance. They demonstrate their belief in you, your idea and plan. An impressive pitch with an angel investor may be all it takes. You may also benefit from their expert insights. g. Venture capitalists (VCs) Venture capital is a form of private equity. Recall our article on private equity. If you take this option, you would have to give away part of your business. Venture capitalist firms usually invest in the early stages of a company in exchange for an equity share. They also have a preference for startups within the tech industry or others with high growth potential. VCs will seek to cash out in a few years. Other funding options exist. There are startup incubators that provide support to startups in order to prepare them for investments. Also, if your startup is in the relevant industry, you may apply for government grants. And with that we have come to the end again. At Volition Capital, we are all about Private Equity. Read this to understand what that really means. We manage cooperatives and we help institutions raise funds. Subscribe to our newsletter to learn how we can help you/ your business.
Policy Round Up: The New Companies Act and How it Concerns You
On August 7, 2020, President Muhammadu Buhari signed the Companies and Allied Matters Bill into law. And that’s a big deal. The Act was passed by the National Assembly in 2018 but was refused assent. Well, ta-dah! The Companies and Allied Matters Act (CAMA) promises to ease business in Nigeria by reducing regulatory hurdles and compliance costs. The bigger picture is more jobs and investments. Today, in simple English, we take a quick look at the most significant changes this Act brings. Let’s take 5 eh? 1. Yaay! We’re going online! The new CAMA has moved things online for private companies. It provides for electronic filing and electronic transfer of shares. Electronic meetings too. Section 861 provides that certified true copies (CTCs) of electronically filed documents are admissible as evidence in a court, the same way original documents are admissible. Also, section 176(1) of the Act provides that instruments of transfer of shares shall include electronic instruments of transfer. Oh, virtual Annual General Meetings too. The Act provides that a company can hold its AGMs virtually, as long as they comply with its Articles of Association. So, stakeholders can be anywhere in the world during such meetings. This is especially relevant in these Corona times, don’t you think? 2. New kinds of businesses! Section 18(2) makes it possible to form a company with only one member. Yup, just you. Importantly, this new CAMA introduces the creation of Limited Liability Partnerships and Limited Partnerships. These are a hybrid of companies and partnerships and were already operative in Lagos (under its Partnership Law). LPs and LLPs enjoy the flexibility of partnerships as well as the limited liability of companies. Oh, mergers are now plausible for Incorporated Trustees (not just companies). Incorporated Trustees are usually NGOs, schools, churches, etc. According to Section 849 of the new Act, two or more associations that share the same objectives can merge, subject to the directions of the Corporate Affairs Commission (CAC). 3. Exemption from appointments. The former CAMA had extensive provisions on persons you must appoint for several compulsory roles. For instance, a company had to appoint auditors at its annual general meeting to audit its financial records. Section 401 of the new CAMA expunges this requirement. Also, all companies were mandated to appoint a company secretary. Section 330(1) of the new CAMA removes this requirement for private companies. In addition, small companies are now allowed to have a minimum of one director, as opposed to the requirement of two directors under the former CAMA. 4. Transparency and Protection. Many provisions of the new CAMA are all about that transparency life. First, Section 307(1) of the Act prohibits a person from being director in more than five public companies at the same time. Second, a company is now required to disclose persons who have significant control in a register. Significant control involves holding shares amounting to 10% of voting rights. Section 119 of the new CAMA imposes an obligation on these companies to disclose the capacity in which shares are held (whether in person or by nominees). Finally, in order to protect the minority shareholders, section 265(6) prohibits firms from appointing the same person as Chairman and CEO of a private company. 5. Fees and ease. There is more! The filing fees for charges have been reduced from 1% and 2% for private and public companies to only 0.35% of the value of the charge. Also, the old CAMA required companies to own a common seal, used to authenticate their documents. Section 98 of the new CAMA says nah, no need. Under the old CAMA, when you filed your incorporation documents, you also had to file a Declaration of Compliance. This Declaration had to be signed by a lawyer or attested to by a notary public. Under the new CAMA however, this document has been replaced with a Statement of Compliance. Section 40(1) provides that this Statement can simply be signed by you or your agent. Speaking about replacements, one final one! The concept of authorized share capital has been replaced with minimum issued share capital. What matters is no longer the share capital of the company but the number of shares alloted. This way, promoters of a company only need to pay for shares when they actually need them. The new CAMA rides on the back of the Finance Act, a comprehensive law that improved several tax legislations in the country. A tax drive is visible in the new CAMA, the government is easing and mandating registrations so it can expand the tax bracket. But CAMA is also good news for MSMEs (micro, small and medium enterprises) especially. The Nigerian market is dominated by MSMEs so easing formation and independence for them is important. Oh well, we have come to the end again. More information next week. Until then, peace!
A look at Nigeria’s Data Protection
A year ago (October 2019), the National Information Technology Development Agency (NITDA) commenced investigation into a potential breach of privacy rights of Nigerians by Truecaller Service. You must know about this. That app that lets people know your name when they call your phone. Apparently, the privacy policy of Truecaller was divided into two sets – one for those in the European Economic Area (EEA) and another for those outside the EEA. Nigeria fell under the second category. An assessment of the relevant policy revealed noncompliance with the NDPR. An expository press release (as published on NITDA’s website) concluded with the following words: NITDA would like to assure Nigerians that we will continue to monitor the activities of digital service providers with a view to ensuring that the rights of Nigerians are not unduly breached while also improving the operational environment to support ethical players in their bid to get maximum benefit from Nigeria. How well has NITDA done since then? How secure is data in Nigeria? Last Friday, thisdaylive.com wrote about the efforts of NITDA to implement the Nigeria Data Protection Regulation (NDPR). According to this article, within the space of one year in office, NITDA has created more than 2,700 jobs. Also, Nigeria’s data security industry has surpassed the N2.5 billion mark. Ultimately, the agency has ensured strict compliance with the NDPR. While we cannot confirm or challenge these commendations, today’s article discusses the NDPR and prior legislation that are part of Nigeria’s data protection efforts. Just so you know your rights? Data Protection Laws in Nigeria In the beginning, there was no comprehensive law for data protection. However, the privacy of persons was protected by Section 37 of the 1999 Constitution which guarantees the privacy of citizens, their homes, correspondences, telephone conversations and telegraphic materials. Soon, there were specific laws that contained snippets of data protection. The National Identity Management Commission Act of 2007 established a commission. This commission is responsible for operating a National Identity Database. The Act provides that no person or company shall have access to data or information contained in the database with respect to a registered individual without authorization. Also, the Freedom of Information Act No. 4 of 2011. This Act actually provides for public access to public records. Still, it prevents a public institution from disclosing personal information to the public unless the concerned individual consents to such disclosure. It also provides that a public institution may refuse to disclose information that enjoys professional privilege (lawyer-client privilege, for instance). The Consumer Code of Practice Regulations was issued by the Nigerian Communications Commission (NCC) in 2007. It requires telecommunication operators to take reasonable steps to protect consumer information against “improper or accidental disclosure”. The National Health Act of 2014 requires health establishments to maintain health records for every user of health services. The confidentiality of such records is to be maintained and protected. Meanwhile, the Cybercrimes Act 2011 prevents the interception of electronic communications and imposes data retention requirements on financial institutions. Finally, the Federal Competition and Consumer Protection Act of 2019 requires the Commission to protect the business secrets of all parties involved in the Commission’s investigations. The Nigerian Data Protection Regulation In 2007, the National Information Technology Development Agency was set up by the National Information Technology Agency Act as the statutory agency with the responsibility for planning, developing and promoting use of information technology in Nigeria. The Agency is mandated to develop regulations for electronic governance and to monitor the use of electronic data. In line with this responsibility, the Agency issued the Nigerian Data Protection Regulation (NDPR) in January 2019. Essentially, the Regulation aims at protecting the personal data of all Nigerians and non-Nigerian residents. It targets transactions that involve the processing of personal data. The Regulation is directed to government agencies and private organizations that own, use and deploy Nigerian information systems as well as foreign organizations that process personal data of Nigerian residents. Data is personal when the information relates to an identified or identifiable natural person, whether it relates to his or her private, professional or public life. Personal data must be processed for the specific lawful purpose as consented to by the Data Subject. It must be without prejudice to the dignity of the human person. Also, it must be stored only for the period within which it is reasonably needed. Finally, it must be secured against all foreseeable hazards and breaches. A Data Subject is identified as the individual who the data is about. A Data Controller is the company or organization that possesses/requests for your data. The advent of information technology has quadrupled the amount of information available. Necessarily, governments of the world are promulgating data protection legislation to regulate the processing of data and to safeguard information of persons. The Nigerian experience has been slow and steady.
What is Private Equity?
Volition Capital Investments Limited is a private equity company that helps the honest and hardworking create wealth. You must know this part of the gist already. But are we assuming you know what it means? No, we are not. And that is okay. You may not really know what we’re about. So this is why this post is important. Today, we’ll answer simple but important questions. Questions with expository answers too. And in the end, you’ll know about private equity and what we do. So keep reading! What is Private Equity (PE)? Literally, private equity is a stake in a company that does not have publicly traded shares. Before a private equity firm invests in a company, they raise capital from investors called limited partners. This capital is used to form a private equity fund. Once they hit their fundraising goal, they close this fund. The investments these partners make come with a maturity period called an investment horizon that typically ranges from four to seven years. The stake is eventually sold to another company or investor at a profit. This sale is called an exit. Finally, it distributes the profit from the sale to its limited partners. Then it does this all over again. And that, friend, is the summary. But there are more questions! What are the types of Private Equity? Leveraged buyouts and venture capital are the most popular types of private equity funding. • Leveraged buyouts: This is the most popular form of private equity funding. It involves buying out an entire company with the objective of improving its business and reselling it for a profit. A private equity firm identifies a target company and then creates something called a special purpose vehicle (SPV) to fund the buyout of said company. • Venture capital This one is the most innovative though. Here, investors (also called angels) provide capital to entrepreneurs. Venture capital is called different things depending on the stage it is provided. If it is provided to scale an idea from a prototype to an actual product, it is called seed financing. Early stage financing enables a company to grow further while Series A financing helps it become competitive. There are important differences between private equity and venture capital though. Venture capital is usually invested in unproven but promising companies. Meanwhile, private equity is invested in established businesses. Why Private Equity? PE firms can be flexible. Management is able to experiment with strategies that can turn a company around without the glare of public markets. How do Private Equity firms make money?PE firms charge management fees and performance fees. Management fees are usually charged at 2 percent for managing the assets in a fund while performance fees are usually 20 percent of the eventual profits gained from the sale of a company. Capiche? How is Private Equity doing in Nigeria? Quite well. Between January to February 2019, the Nigerian private equity space recorded investments worth N277.65 billion ($767 million) in deals. This was of course dominated by Coca-Cola’s acquisition of Chi Limited, a deal worth about $500 million. Also, the merger between Access Bank and Diamond Bank which was worth $200 million. Private equity has been useful for fundraising, investments and equity acquisitions. Venture capital has propelled Nigerian startups these past years, reaching $600 million in 2019. In Nigeria, private equity funds are funded by institutional investors like pension funds, sovereign wealth funds, insurance companies, financial institutions and HNIs (High Net-worth Individuals). Enter, Volition Capital!Now that you understand the basics, let’s bring it back to us. How do we do what we do? Through cooperatives, venture funds, debt finance, deal flows and investment education. What exactly do we do? We manage cooperatives, assess viable investments, help institutions raise funds and connect investors to opportunities. And oh, we offer courses and investment plans. All because we what? Because we care! But remember, we do not take investments from the general public. We invite you to join our mailing list though. We have even more information that tells how we help businesses! And that’s all for now. Stay glued until next week!
How do Cooperatives work?
Are you paying attention? Do you really know what we do at Volition Capital? Have you read our article about Private Equity? Well, it provides insight into what we do. This is another in the series. It’s about cooperatives, which we manage. But what are cooperatives and how do they work? This brief article will shed some light. What are cooperatives? Likely, you are familiar with a cooperative credit society or a multipurpose cooperative society. These lend money to members at a very low-interest rate. But cooperatives do more than that. Simply, a cooperative society is a group of people who have specific common interests and financial goals. The general objective is to improve the economic status and social welfare of members. A consequence of capitalism is inequality of wealth and cooperative societies help to reduce this by aggregating and distributing resources. Cooperatives are as predominant as they are useful. The Worldwatch Institute found that in 2012, approximately one billion people in 96 countries had become members of at least one cooperative. The turnover of the largest three hundred cooperatives in the world reached $2.2 trillion. Meanwhile, here’s a little about the history of cooperatives. The Rochdale Society of Equitable Pioneers, (RCEP) founded in 1844, is considered the first successful cooperative enterprise. A group of 28 weavers and other artisans in Rochdale, England set up the society to open their own store selling food items they could not otherwise afford. Within ten years there were over a thousand cooperative societies in the United Kingdom. Rochdale created a model for modern cooperatives, embodied in the “Rochdale Principles”. Many cooperatives follow these seven principles: • Voluntary and open membership• Democratic member control, with each member having one vote• Economic participation by members• Autonomy and independence• Education, training and information• Cooperation among cooperatives• Concern for community What are the features of a cooperative? A cooperative enjoys a separate legal personality after it is registered. This means that it acquires an identity, distinct and independent of its members. It can purchase and dispose of its assets in its own name. It can also sue and be sued. It has a continuous existence because it is not affected by the death of any member of society. Members enjoy liability that is limited, to the extent of the amount contributed by members as capital. Membership is voluntary. Also, the capital of a cooperative society is raised from its members. Members have the right to vote. They use this to elect the managing committee. This committee has the power to take decisions. Cooperative societies are self-governing institutions. Yet, once they are registered, they are subject to the rules and regulations of the government. In Nigeria, they are governed by the Nigerian Cooperative Societies Act which provides for compulsory registration. Registration is effected at the Office of National Civil Registration. Now to types of cooperatives. There are various types of cooperatives. Cooperatives in agriculture gather, process and store the produce of their members. They are useful to small scale farmers who may be unable to market their products individually. Consumer cooperatives supply household essentials to their members at prices lower than those in the market. You must have heard about savings and credit cooperatives. They are the most common. Members save money with the cooperative and the funds are made available to them as low-interest loans for individual projects. Transport cooperatives are involved in purchasing vehicles and using them for public transport or for hiring or leasing. Likewise, insurance cooperatives provide insurance. Housing cooperatives buy and develop houses for the members or sell houses to members at lower prices. A utility cooperative is tasked with the delivery of a public utility like electricity, water or telecommunications services to its members. Ah, then there are multi-purpose cooperatives that do some or all of these many things. Oh well, now you know about cooperatives. Our cooperative at Volition Capital is exclusively by referral. You have to be recommended by an existing member. To those who are already part of our community, high five! To everyone else, do well to join our mailing list for information on how we help businesses and private individuals. Bye for now!
Investment Opportunities for these Corona Times 2
Hello there! We hope you and yours are safe and sane. Welcome to the second episode of our post on investment opportunities to exploit during the pandemic. Local and global markets are gradually working their way back to optimal performance. In Nigeria, a new Companies and Allied Matters Act has been passed and FGN Savings Bonds are back on offer. Perhaps, we should have considered government bonds in this post. Cryptocurrency too… Blockchain.com reports that the highest flow activity in its wallet app since April 2020 has been from Nigeria. Hmmn. Haha, the point is economic activities are doing better. Again, the options we are discussing are not entirely immune to present economic challenges, they are only doing better than others. Last week, we considered real estate and agriculture. Well, this week we will discuss… drum roll Logistics What’s up? Logistics is why those memes about Jeff Bezos exist. It is one of the fastest-growing sectors in the world. Because Nigeria is spread over 350 thousand square miles, logistics is a lucrative business investment option. Infrastructure development, coupled with a growth in the e-commerce sector are fueling this sector. In Nigeria however, it faces obvious problems. Bad roads and traffic jams increase costs. The industry therefore holds potential for disruption. Bike logistics, for instance, is effective in avoiding traffic congestion and ensuring same day delivery. What’s fun? During lockdown, logistics have become indispensable, since food, medicine and belongings have to be delivered, as people are less eager to move themselves. What’s new? Regulations. In July, the Nigerian Postal Service (NIPOST) announced new regulations to govern the logistics and courier sector of the economy. It categorised logistics companies into international, regional, state, municipal or intra-city, and SME operators. Accordingly, international operators were to pay ₦20 million as a license fee, national, ₦10 million and regional operators, ₦5 million. State, municipal and special SME operators were to pay ₦2 million, ₦1 million and ₦250,000 respectively. Each operator was to pay 40% of the license fee as renewal fee annually. Nigerians immediately protested this development via #SayNoToNipostFee on Twitter and similar campaigns. NIPOST has since halted the regulation. But stay woke. E-commerce What’s up? 70% of the world is connected on mobile and Africa is catching up. PwC reports that between 2007 – 2016, mobile phone usage in Africa increased by 344%. There are at least 25 million smartphone users in Nigeria. According to Statista, Internet penetration amounted to 46.6 percent of the population in 2020 and is set to reach 65.2 percent in 2025. What mobile phones do is afford people the means to participate in e-commerce. Nigeria’s e-commerce sector is Africa’s largest, valued at $13 billion. You may transition from brick and mortar to create your own ecommerce website or you may ride on the back of successful giants like Jumia and Konga. What’s fun? Power supply and broadband internet remain challenges for the e-commerce sector. Also, cough internet fraud cough. However, e-commerce is the exact kind of business that capitalises on a pandemic. Everyone is indoors and online. Families need to stock perishable goods. More persons are working from home and will require essentials like edibles, toiletries and appliances. Gadgets too. Also, the pandemic is clearly not slowing people’s use of their phones and the Internet. It is increasing it. Data from the National Communications Commission reveals rugged growth in the telecoms sector. What’s new? E-commerce involves searching, ordering, payment and delivery. So yeah, e-commerce requires logistics to function. So, insert the concern about NIPOST regulations here. The many consumers who have become dependent on online shopping may lose interest if these charges are enforced. This is because the prices of goods sold online may increase. On July 25, the Federal Minister for ICT tweeted at @NipostNgn saying that the increase in licence fees was not part of the regulations he approved. Perhaps a question is, which part of the regulation was approved? Oh well, we are at the end of this ride. We hope that all of this was useful, to assist in your independent decisions. Remember, we are a private equity company and do not solicit for or take investments from the general public. So do consult your professional investment advisor. You may however join our mailing list for information on how we help businesses and private individuals. Bye for now!
Policy Round Up: Oil Price and Miscellaneous
The fall in oil prices It all started in March when Saudi Arabia and Russia disagreed over proposed oil production cuts. This triggered a price war that crashed oil prices. The COVID-19 pandemic became official in the same month and slashed demand for oil significantly. Oil prices plummeted. Prices remained below $10 per barrel in April. Why? Excessive supply over demand. The Organization of Petroleum Exporting Countries (OPEC) resolved to curtail the output of countries in order to boost prices. Nigeria was reportedly producing 2 million barrels per day. It was then forced to cut this production to about 1.412 million barrels per day. Slowly, global prices improved. But almost half of Nigeria’s earnings were gone. By 12th March, fears grew over the devaluation of the naira currency. Oil and the Naira You see, the Naira is called a petrocurrency. This is because its fate is intrinsically tied to global oil prices. Almost 90% of Nigeria’s foreign exchange comes from oil exports. So, when oil prices went down, the pressure on Nigeria’s exchange rate increased. The Central Bank of Nigeria (CBN) therefore had to devalue the Naira to reflect its true value. By 20th Match, the CBN devalued its official exchange rate from N307/$1 to N360/$1. By August 6th, this was further adjusted to N380/$1. Oil and refineries Nigeria has four refineries: two in Port Harcourt, one in Warri and one in Kaduna. Don’t ask why there’s a refinery in Kaduna. In April this year, the Group Managing Director of the NNPC (Nigerian National Petroleum Corporation), Mele Kyari said Nigeria would shut down these refineries until it secures financing. Apparently, the facilities were built between the 1960s and 1980s so they had to be upgraded. Meanwhile, NNPC’s financial report in June showed that the refineries had total running costs of $367 million even though they had processed no oil. Can you imagine? Na wa oh. In September, the Federal Government decided to give up its majority stake in these refineries. Private investors will now manage and operate them while the NNPC will resort to minority shares. Will the refineries fare better in private hands? That is likely, since private persons actually care about being profitable. Which private persons will the majority stake be given? We don’t know that. Oil and deregulation Last week, the Petroleum Products Marketing Company (PPMC), a subsidiary of the NNPC announced an increase in petrol price from N151.56 to N162 per litre. It directed all oil petrol retailers to comply immediately. Two seconds, everywhere burst. Why the increase? Well, deregulation. The downstream (supply and transportation) of the petroleum sector has been deregulated. This basically means that the government no longer determines the price of petrol, global market forces do. Or do they? It’s not that bad really, it’s just the timing. The federal government approved deregulation of the petroleum sector in March. It ended petrol subsidy, as well as NNPC’s status as sole importer. At the time, it also announced a reduction in petrol pump price from N145 to N125 per litre. That was apparently a palliative for Nigerians. The government also said that prices of petrol would be deregulated. The PPPRA (Petroleum Product Pricing Regulatory Authority) was then directed to give monthly “guidance” on the prices of petrol. The pricing was to be dependent on a price modulation method, meaning that petrol prices would be determined by the price of crude. Subsequently, petrol price was reduced in March, April and June before it was increased in July. Well, empowering an authority to guide price isn’t the same as allowing it to be determined by market forces, is it? It sounds like the opposite TBH. So yeah, marketers were not satisfied. According to them, the government should not meddle in petrol pump prices, it should indeed be allowed to float. Demand and supply. Economics 101. Ta-dah! It seems that the government has finally taken this advice. The latest increase in petrol pump price supposedly reflects cost. Oil subsidies The hike in pump price has predictably met mixed reactions. Marketers are happy. Most Nigerians are not. Meanwhile, the Peoples Democratic Party (PDP), the Nigeria Labour Congress (NLC), etc. have condemned the new price calling it “a demonstration of the government’s insensitivity to the plight of the people…” Well, according to the federal government, petrol subsidies are gone forever. The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed has said that fuel subsidies drain the economy. The government has even removed fuel subsidy provision from its budgets. The Minister of State for Petroleum, Mr. Timipre Sylva, said that subsidy removal would save Nigeria about N1 trillion every year. Also, those who cannot afford petrol can try alternatives like gas! Compressed Natural Gas (CNG) and Liquefied Petroleum Gas which are “cheaper and better alternatives.” Will subsidy removal work for the Nigerian economy? We can’t tell, what do we know? Let’s ask the stakeholders… According to marketers, “deregulation will foster an eventual price reduction in the nearest future when other market fundamentals would converge to create the desired competitive market space”. According to the Minister, “deregulation is a necessary policy direction. I agree it would come with a few pains initially. But I can assure you that when we all overcome it, we will be happy that we took the decision.” Well, we’ll keep our fingers crossed then…