- When surveyed in early-January for our quarterly business confidence survey, airline CFOs and heads of cargo reported that profitability was unchanged in Q4 2016 compared to that in the same period of 2015;
- Industry heads were slightly more optimistic about the outlook for profits over the coming 12 months than they were in October’s survey. But set against a more difficult operating backdrop, the latest survey results continue to indicate that momentum in the profitability cycle has weakened;
- The responses on the demand side were broadly consistent with the trend pick-up in passenger volumes towards the end of last year, as well as the stronger-than-expected 2016 peak season for air freight. Our participants remain very positive about the outlook for passenger (especially) and cargo demand over the 12 months ahead;
- 31% of respondents reported an annual increase in operating costs in Q4 2016 (the highest proportion since July 2014). With a rebalancing in the oil market slowly taking place, and some signs of emerging labor cost pressures, the forward-looking weighted-average score remained above the 50-mark for just the second time in the past 10 surveys, pointing to a further increase in input costs over the coming year;
- Nearly two-thirds of respondents reported lower passenger yields in Q4 2016 compared to the same period in 2015, underlining the challenging profitability environment. On the freight side, ongoing concerns about future capacity growth, particularly related to belly-hold capacity from additions to the passenger fleet, mean that respondents remain negative on the prospects for freight yield over the coming 12 months;
- Airline employment activity increased for the eighth consecutive quarter in Q4 2016. Half of the respondents expect to keep employment levels unchanged at current levels over the next 12 months.
Global Airlines Confidence Survey: January 2017
TRUMP: 7 Telecom Action Plans
Last Friday, Donald Trump was sworn in as the 45th president of the United States, and as he settles into his new job there are a number of outstanding issues in the telecommunications industry he will likely address in the coming weeks, months and years.
Below are the top seven issues that President Trump will likely weigh in on throughout his administration, as well as speculation on what he might do.
- Select FCC’s leadership and determine its direction
First up on Trump’s to-do list is to name a new chairman to the FCC, the government agency that oversees everything from voice calling services to pay-TV offerings to spectrum allocation. President Barack Obama’s appointment to the position, Tom Wheeler, said last month he will resign today.
Industry observers believe Ajit Pai, who was appointed as one of two Republican commissioners on the FCC by President Obama, is likely to be selected by Trump to chair the agency. Trump met with Pai this week, according to Broadcasting & Cable.
And what might Pai focus on as chairman of the FCC? Earlier this week, Pai tweeted about a speech (PDF) he gave in Cincinnati last September where he said he wants to focus the FCC on finding ways to extend more broadband services to economically challenged areas by providing financial incentives for internet service providers to deploy gigabit broadband services in low-income neighborhoods.
However, according to a report in Multichannel News, Trump may implement far more aggressive changes to the FCC and its role in the telecom industry. Citing unnamed sources, the publication reported that Trump may be looking at ways to streamline the FCC and refine its focus by removing “duplicative” functions that might already be covered by other agencies like the Federal Trade Commission. Such a strategy appears to align with Trump’s campaign rhetoric about reducing government spending, past statements from some Trump advisers, as well as his selections for other government agencies like the Environmental Protection Agency.
- (Almost certainly) repeal net neutrality
One of Wheeler’s major accomplishments during his tenure as FCC chairman was implementing net neutrality rules on wireless and wireline carriers. And in his farewell speech last week he made one last case to defend the net neutrality rules that he championed. “Tampering with the [Open Internet] rules means taking away protections that consumers in the online world enjoy today,” Wheeler said last week. “What some describe as free market economics cannot simply mean freeing incumbents of their responsibilities.”
Wheeler added that a “hands-off approach to network oversight is more than a shift in direction, it is a decision to remove rights and move backward.”
But three of the five members of Trump’s FCC transition team—Jeff Eisenach, Mark Jamison and Roslyn Layton—have spoken out against net neutrality guidelines in the past, and Trump is widely expected to roll back government regulations like net neutrality. “Obama’s attack on the internet is another top down power grab. Net neutrality is the Fairness Doctrine. Will target conservative media,” Trump himself tweeted in 2014 (though, to be clear, Trump has shown he may not adhere to positions he has taken in the past).
Some telecom industry executives are already looking forward to a market without net neutrality regulations. “It would provide the opportunity for significant innovation and differentiation,” T-Mobile CFO Braxton Carter said late last year of a telecom industry without net neutrality rules. “You could do some very interesting things” without net neutrality.
- Act on AT&T’s proposed merger with Time Warner …
“As an example of the power structure I’m fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few,” Trump said during an October campaign speech. However, a wide range of analysts and industry observers now believe Trump’s administration will approve the proposed $85.4 billion merger between media giant Time Warner and telecom heavyweight AT&T.
“While we expect there likely will be concessions (possibly a CNN spinoff, and continued infrastructure investment by T), from a legal standpoint, we note that if denied this deal would be precedent setting given the fact that no vertical merger in the TMT space has been denied,” Wells Fargo analyst Jennifer Fritzsche said in a research note this week. Fritzsche added that the relatively small amount of overlap in core business and expertise between AT&T and Time Warner likely means no major headcount reductions.
AT&T’s CEO Randall Stephenson has already met with Trump, though AT&T said the two did not discuss the company’s pending deal with Time Warner.
“Mr. Stephenson had a very good meeting with President-elect Trump earlier today covering a wide range of topics. AT&T’s proposed merger with Time Warner was not a topic of discussion,” the company said in a statement issued shortly after the meeting. “Rather, as the country’s leading investor of capital for each of the last five years, the conversation focused on how AT&T can work with the Trump administration to increase investment in the U.S., stimulate job creation in America, and make American companies more competitive globally.”
“[Trump] asked me straight up, ‘Has this regulatory environment been difficult for you guys.’ And I said it’s had a huge impact on how we think of investment in the U.S.,” Stephenson told CNBC after the meeting. “We talked about what the implications of what streamlining regulation would be.”
In general, Trump has discussed ways of loosening restrictions on businesses with the goal of increasing jobs, and an eventual approval of AT&T’s purchase of Time Warner could likely align with that strategy.
- … and rule on future deals, like a possible Sprint and T-Mobile matchup
Although AT&T is expected to be successful in its bid to acquire Time Warner, it’s unclear how a Trump administration might approach other deals in the telecom space, mainly because Trump hasn’t set much clear or consistent precedent in his views on the space.
“According to Cowen TMT Policy Analyst Paul Gallant, early signs indicate benefits to cable/telcos, ISPs, and media companies via less regulation,” the analysts at Wall Street firm Cowen and Company wrote in an end-of-the-year research note. “That said, Trump’s previous lack of TMT policy positions, populism, and lack of FCC/DOJ clarity also inject a degree of uncertainty including M&A. While the likelihood of Sprint/T-Mobile has undoubtedly increased, we view a deal with skepticism believing the probability was higher the first time around in December 2013 for many reasons.”
The possibility of a merger between Sprint and T-Mobile has been floated a number of times since Obama’s administration essentially forced Sprint parent SoftBank to abandon its bid for T-Mobile two years ago. And some analysts still don’t believe a merger between the two players is in the cards: The odds of a merger between Sprint and T-Mobile over the next two years are less than one in five, Walter Piecyk of BTIG Research opined in December.
Nonetheless, shares of T-Mobile and Sprint gained significant momentum in the weeks after Trump’s surprise electoral victory in November on Wall Street expectations of a possible matchup between the two. In fact, it’s exactly those expectations among investors that might sour a possible deal: “As the probability of bankruptcy has faded with Sprint’s recent refinancings, and as its stock price has risen with deal speculation, it has robbed itself of its best argument for allowing a merger,” the analysts at MoffettNathanson wrote in a recent note.
And even if the deal is finalized, Trump still may not go for it: “Certainly, on its face, a merger would be hard to sell to the DOJ even in a Republican Administration,” MoffettNathanson wrote.
Finally, beyond a Sprint and T-Mobile matchup, Trump’s administration will likely face a large number of other mergers and acquisitions in the telecom space in the coming months and years; most recently, reports indicate Verizon may be interested in nabbing a major cable player like Charter Communications or Comcast.
- Finish the incentive auction and formulate an overall spectrum policy
One of Wheeler’s key accomplishments as chairman was getting the incentive auction off the ground. The first-of-its-kind auction seeks to purchase spectrum from TV broadcasters in a reverse auction, and then release that spectrum to wireless carriers and others in a forward auction. Wheeler called the event a “spectrum bonanza” that could potentially bring in up to $80 billion from bidders keen to license low-band, 600 MHz spectrum ideal for covering large geographic areas.
However, the incentive auction isn’t raising anywhere near expectations, with Stage 4 of the reverse portion setting a clearing cost of just more than $10 billion for up to 84 MHz of airwaves, dramatically short of the $40.3 billion set in Stage 3 and marking a tiny fraction of the $86 billion set in Stage 1.
Indeed, the situation is such that Multichannel News reported members of Trump’s FCC transition team have even considered suspending the auction. (It is currently expected to end in March.)
Beyond the incentive auction though, the Trump administration will be able to weigh in on a number of ongoing spectrum proceedings, including the FCC’s much-lauded “spectrum frontiers” effort that seeks to free up a range of high-band spectrum for possible 5G networks. Other spectrum issues facing the administration include the rollout of spectrum sharing in the 3.5 GHz CBRS band (sharing that the wireless industry has largely opposed) as well as sharing in the 5.9 GHz band currently set aside for DSRC vehicle-to-vehicle communications.
Obama issued a Presidential Memorandum in 2010 through the NTIA to free up 500 MHz spectrum over the next 10 years for mobile and fixed wireless broadband use. Based on Trump’s statements and his general pro-business stance, it’s reasonable to assume his administration will work to release additional spectrum for commercial purposes. In fact, Trump’s pick for commerce secretary, Wilbur Ross, spoke of the need for more spectrum for commercial uses, as well as the importance of broadband infrastructure, during his confirmation hearing this week, according to Morning Consult.
However, exactly how that spectrum will be managed—and potentially shared—remains unclear.
- Address “unlock the box” and the pay-TV market
One of Wheeler’s final regulatory efforts centered on set-top boxes in the cable industry. His “unlock the box” campaign was intended to require cable operators and others to open their video devices to services from other providers, thus potentially giving TV enthusiasts more video options.
Not surprisingly, the cable industry and deregulation proponents blasted the move: “Unfortunately, these burdensome regulations would bring drastic changes to the marketplace that will likely have the reverse effect of harming consumers,” noted one Republican in July.
Although Trump hasn’t directly weighed in on the topic, it’s reasonable to assume a Republican-led FCC would drop the issue altogether.
Further, Trump’s administration could also have an impact on the wider pay-TV market in general, a market that Trump is already intimately familiar with through his Apprentice TV show. Though, again, it’s unclear exactly what positions a Trump administration would take in the space.
- Create more jobs in telecom
Creating new jobs in the United States remains a key goal for Trump, and his efforts on that front have already trickled down into the telecom industry. For example, Trump boasted in December that Sprint parent SoftBank would invest $50 billion in the U.S. in an effort to create 50,000 jobs. And in late December Sprint pledged to add 5,000 positions in the U.S. as part of parent company SoftBank’s effort.
Trump took credit for Sprint’s decision: “I was just called by the head people at Sprint, and they are going to be bringing 5,000 jobs back to the United States,” Trump said, according to Reuters. “They have taken them from other countries. They are bringing them back to the United States.”
A Sprint spokeswoman told The New York Times that the new positions would be “a combination of newly created jobs and bringing some existing jobs back to the U.S.”
And Sprint spokesman Dave Tovar told FierceWireless he didn’t know how many customer care positions the carrier has in the U.S. compared to offshore, adding that “it’s premature to speculate on specifics” of the announcement.
Trump has also boasted that an additional 3,000 jobs will be created by OneWeb. That startup recently closed a $1.2 billion fundraising round with SoftBank as the lead investor.
Trump appears to be driving his job-creation message in part by blasting companies he said are taking U.S. jobs overseas. For example, earlier this month he threatened Toyota with a “big border tax” if the company built a plant in Mexico. “Pretty much everybody is dreading being the subject of a tweet,” Kristin Dziczek, a spokeswoman for the Center for Automotive Research, told the Guardian. “Getting hauled out into the court of public opinion with virtually no warning is not something anybody wants to get engaged with.”
Although it’s in some cases difficult to discern whether such job announcements are straightforward new additions to the U.S. workforce or merely, as NBC News noted, recycled proclamations mainly geared toward currying favor with the incoming administration, the end result appears to be a renewed focus on companies’ hiring strategies. And that will likely have an impact on a telecommunications industry that is rapidly consolidating while also working to cut expenses.
-Courtesy: Mike Dano, FierceWireless
Westin Hotels Unveils Let’s Rise Campaign to Regale Guests
Westin Hotels & Resorts, part of Marriott International, Inc. has unveiled its first global brand campaign in more than five years, taking on the disruptions, distractions and unpredictability of travel and empowering travelers to embrace well-being as a way to regain control of their routines and be their best while on the road.
The $30 million dollar, integrated advertising campaign – called Let’s Rise – communicates Westin’s commitment to its guests’ well-being before, during and after their stay. Beginning today, the Let’s Rise campaign will be featured in broadcast, digital, radio and out-of-home channels, with print placements to follow later this year. The Let’s Rise mantra will also serve as an anchor for the wellness programs and partnerships that roll out for guests and associates throughout the year.
Westin’s Let’s Rise campaign is inspired by and illustrative of the wellness and travel trends fueling the future of both industries, as articulated in a new global study conducted in partnership with StudyLogic that surveyed travelers in North America, Mexico, the United Kingdom, Germany, the United Arab Emirates and China.
The results show a seismic shift in the way today’s travelers prioritize their well-being. With less time and more disruptors on the road, they are reinventing business and leisure travel to put things like fitness first with new vigor to pursue mindfulness and adventure.
“Let’s Rise is perfectly positioned to connect with travelers as more of a rally-cry than a brand campaign, given today’s over-scheduled and always-on culture,” said Brian Povinelli, Global Brand Leader, Westin Hotels & Resorts. “Around the world, we are seeing travelers realigning their priorities to put their well-being first, and Westin is proud to empower our guests to rise to the occasion and be their best selves on the road.”
Brand Campaign Challenges Travelers: “Will You Get Up, or Will You Rise?”
Westin worked with San Francisco-based Venables Bell & Partners to develop the multi-faceted campaign, consisting of multiple executions in which travelers take control of their well-being. Overall, the campaign calls consumers to answer a simple question, “Will you get up, or will you rise?”.
Leadership
Westin’s Let’s Rise campaign reinforces how the brand is uniquely positioned to cater to the ever-evolving demand for well-being on the road all around the world. Scheduled to open 50 hotels in the next 5 years, Westin will debut in emerging destinations as diverse as Indonesia, Jordan, Malaysia, the Philippines, Taiwan and Vietnam, on the heels of growth in established markets including Hamburg, Dubai and Denver.
“Looking ahead, we’re also seeing increased intention to explore smaller cities,” Povinelli continued. “This aligns closely with Westin’s robust pipeline particularly in the Americas, with openings in Milwaukee, Chicago, Sarasota and Cozumel on the horizon.”
PwC Survey: CEO Confidence Rises Despite New Risks, Uncertainty
Worldwide, CEOs’ confidence levels for their growth prospects and outlook for the economy is back on the rise amidst new risks and uncertainty.
In PwC’s 20th annual survey of CEOs worldwide, 38% (2016:35%) are very confident about their company’s growth prospects in the next 12 months while 29% (2016:27%) believe global economic growth will pick up in 2017.
Just over one-third (33%) of South African CEOs are very confident of their company’s own growth in the next 12 months, 4 points down on last year, and 5 points below this year’s global average (38%). Furthermore, only 19% expect global economic growth to improve in the next 12 months, 10 points below the global average.
Commenting on the survey results, Dion Shango, CEO of PwC Southern Africa, says:
“Despite significant challenges in 2016, CEO confidence is on the rise – albeit slowly and still has some way to go from the levels that we saw back in 2007. Across the globe, there are signs of optimism despite mixed views on how the global economy will respond to the recent US presidential election result as well as the outcome of the UK Brexit vote.”
The global survey results, based on interviews with 1379 CEOs from 79 countries, were released at the World Economic Forum annual meeting in Davos yesterday. In South Africa 36 CEOs from a broad spectrum of listed and privately-owned companies participated in our survey.
“It is positive to note that local CEOs expect to increase their headcount in the next 12 months. CEOs are promoting talent diversity and inclusiveness; they have implemented strategies to reflect the skills and employment structures needed for the future,” Shango comments.
PwC’s annual 20th Global CEO Survey explores what CEOs in 2017 think about three imperatives: a people and technology strategy that is fit for the digital age, preserving trust in a world of increasingly virtual interactions, and making globalisation work for everyone by engaging even more with society and collaborating to find solutions.
“The challenge to all three imperatives is leadership. How leaders engage with employees and stakeholders has never been more important. A company’s strategy must be built upon a long-term vision of growth, access, equality, innovation, and the human endeavour,” adds Shango.
Where CEOs Will Look for Growth
PwC’s first global survey (1997) showed emerging markets – including China and India as a sure bet for success. But the changeability of markets, exacerbated by current volatility, has caused CEOs to turn to a greater mix of countries. This year’s survey shows the US, Germany and the UK have become bigger priorities, while enthusiasm for investing in Brazil, India, Russia and Argentina has lessened from three years ago.
South African CEOs named China (36%), the UK (31%), the US (25%) and India (22%) as the most important countries for their organisation’s overall growth prospects.
New York (8%), Tokyo (8%) and London (19%) were also identified as the most important cities to an organisation’s overall growth prospects over the next 12 months.
Threats
While 91% of South African CEOs are very confident of their company growth over the next three years, their levels of concern about exchange rate volatility (92%), uncertain economic growth (92%), overregulation (89%), social instability (89%), and geopolitical uncertainty (83%) remain very high.
Of business threats, 89% (compared to 77% globally) of South African CEOs cited the availability of key skills, 69% (compared to 49% globally) cited volatile energy costs, 67% (compared to 61% globally) cited cyber threats, and 64% (compared to 70% globally) stated the speed of technological change as concerns.
Driving Corporate Growth
This year, 83% of South African CEOs (compared to 79% globally) plan to expand by way of organic growth in the next 12 months. Sixty-nine percent of local CEOs (compared to 62% globally) plan to implement a cost-reduction initiative. In addition, 61% of CEOs (compared to 48% globally) plan to enter into a new strategic alliance or joint venture, and 53% (compared to only 41% globally) propose a new M&A.
Technology and Trust
CEOs say that technology is now inseparable from a business’ reputation, skills and recruitment, competition and growth. Sixty-one percent of South African CEOs say technology has either completely reshaped or had a significant impact on competition in their industry. Furthermore, 75% say it will have a major impact in the next five years.
Twenty years ago, trust wasn’t high on the business agenda for CEOs. This year, 58% of CEOs globally worry that a lack of trust in business will harm their company’s growth, up from 37% in 2013. After several high-profile technology and security issues for big companies, CEOs identified cyber security, data privacy breaches and IT disruptions as the top three technology threats to stakeholder trust. More than half of South African CEOs (58%) cited risks from the use of social media, 53% cited breaches of data privacy and ethics, and 50% cited cyber security breaches as concerns.
Headcount and Talent
Concern about skills has more than doubled in 20 years (from 31% concerned in 1998 to 77% in 2017) and human capital is a top three business priority, with diversity and inclusiveness and workforce mobility amongst the strategies being used to address future skill needs. Skills availability is a concern for over three quarters (77%) of business leaders, and is highest for CEOs in Africa (80%), and Asia Pacific (82%).
More than half of South African CEOs (58%) expect to increase their headcount in the next 12 months, with 14% planning to cut their workforce.
Impact of Globalisation
More than half of CEOs (58%) globally think it has become harder to balance globalisation with rising trends in protectionism. For the past 20 years CEOs have largely been positive about the contribution of globalisation to the free movement of capital, goods and people. However, this year’s survey respondents are sceptical that it has mitigated climate change or helped create full and meaningful employment to close the gap between rich and poor.
Seventy-two percent of South African CEOs (compared to 62% globally) said globalisation had to a large extent helped with universal connectivity, and 44% (compared to 60% globally) said it had helped with improving the ease of moving capital, people, goods and information.
Concludes Shango: “Looking forward, CEOs will require a different set of skills. The events of the past year have shown us just how interconnected the interests of shareholders and other stakeholders really are. Those businesses that articulate their purpose, anticipate risks and adhere to the value they profess will thrive. Businesses that ignore the power of the people will jeopardise the growth they seek.”
Stock Market Statistics: Tuesday, 17th January, 2017
| Market Cap (N’bn) | 9,041.7 |
| Market Cap (US$’bn) | 29.6 |
| NSE All-Share Index | 26,278.20 |
| Daily Performance % | (0.4) |
| Week Performance % | (0.3) |
| YTD Performance % | (2.2) |
| Daily Volume (Million) | 371.9 |
| Daily Value (N’bn) | 1.7 |
| Daily Value (US$’m) | 5.6 |
Equities Reverse Gains as Consumer Goods Stocks Flounder … NSE ASI down 36bps
The equities market bucked yesterday’s gains as the All Share Index (ASI) fell 36bps to close at 26,278.20 points whilst YTD loss rose to 2.2%. As a result, market capitalisation declined by N32.9bn to settle at N9.0tn.
Today’s performance was dragged by losses in Consumer Goods bellwethers – NESTLE (-3.6%), NIGERIAN BREWERIES (-0.6%) and GUINNESS (-4.2%) – and profit taking in ETI (-4.1%). Market activity however improved significantly as volume and value traded rose 113.7% and 45.8% to settle at 371.9m units and N1.7bn respectively.
Mixed Sector Performance
Sector performance was mixed as 3 sector indices advanced while 2 declined. The Consumer Goods index emerged the worst performer, down 1.5% due to decline in NESTLE (-3.6%), NIGERIAN BREWERIES (-0.6%) and GUINNESS (-4.2%).
The Oil & Gas index trailed with a loss of 0.3% as investors further sold–off in FORTE (-4.4%) and OANDO (-0.2%). On the bright side, the Insurance index gained 38bps on account of price appreciation in CONTINSURE (+3.8%) and WAPIC (+1.9%).
Similarly, the Industrial Goods index added 4bps on account of renewed appetite for CCNN (+4.8%) while the Banking index gained 2bps on the back of gains in ACCESS (+1.7%) and UBA (+1.8%) which offset losses in ETI(-4.1%) and ZENITH (-0.4%).
Market Breadth Turns Negative
In line with market performance, investor sentiment retreated as market breadth (advancers/decliners ratio) weakened to 0.9x from 1.1x yesterday as 18 stocks advanced while 21 declined. UNITY (+5.1%), DIAMOND (+5.0%) and VITAFOAM (+4.9%) were top gainers while 7UP (-5.0%), NEM (-4.7%) and AGLEVENT (-4.5%) led laggards.
We expect investors’ dividend play ahead of corporate earnings releases to continue to dictate equities market sentiment in the short term, while developments regarding macro-economic fundamentals remain medium term drivers.
—Afrinvest Research
NIGERIA: IMF Projects 0.8% Growth in 2017
An accumulation of recent data suggests that the global economic landscape started to shift in the second half of 2016. Developments since last summer indicate somewhat greater growth momentum coming into the New Year in a number of important economies.
Our earlier projection that world growth will pick up from last year’s lackluster pace in 2017 and 2018, therefore looks increasingly likely to be realised. At the same time, we see a wider dispersion of risks to this short-term forecast, with those risks still tilted to the downside. Uncertainty has risen.
Our central projection is that global growth will rise to a rate of 3.4 percent in 2017 and 3.6 percent in 2018, from a 2016 rate of 3.1 percent. Much of the better growth performance we expect this year and next stems from improvements in some large emerging market and low income economies that in 2016 were exceptionally stressed. That being said, compared to our view in October, we now think that more of the lift will come from better prospects in the United States, China, Europe, and Japan.
A faster pace of expansion would be especially welcome this year: global growth in 2016 was the weakest since 2008–09, owing to a challenging first half marked initially by turmoil in world financial markets. General improvement got under way around mid-year.
For example, broad indicators of manufacturing activity in emerging and advanced economies have been in expansionary territory and rising since early summer. In many countries, previous downward pressures on headline inflation weakened, in part owing to firming commodity prices.
Among emerging economies, China remains a major driver of world economic developments. Our China growth upgrade for 2017 is a key factor underpinning the coming year’s expected faster global recovery. This change reflects an expectation of continuing policy support; but a sharp or disruptive slowdown in the future remains a risk given continuing rapid credit expansion, impaired corporate debts, and persistent government support for inefficient state-owned firms.
At the global level, other vulnerabilities include higher popular antipathy toward trade, immigration, and multilateral engagement in the United States and Europe; widespread high levels of public and private debt; ongoing climate change—which especially affects low-income countries; and, in a number of advanced countries, continuing slow growth and deflationary pressures. In Europe, Britain’s terms of exit from the European Union remain unsettled and the upcoming national electoral calendar is crowded, with possibilities of adverse economic repercussions, in the short and longer terms.
Social dislocation due to globalisation and, even more, to technology change is a major challenge that will only intensify in the future. One result has been wider inequality and wage stagnation in many countries. Rolling back economic integration, however, would impose aggregate economic costs without reducing the need for government investment in well-trained, nimble workforces, along with policies to promote better matching of available jobs to skills.
– By Maurice Obstfeld
Standard Chartered Bank Outlook 2017: A Pivot Year for Investors
Standard Chartered Bank’s Wealth Management Advisory Group has released its Outlook 2017 publication, highlighting the key market scenarios and offering investors a map of key investment themes to navigate uncharted waters in 2017.
Given continuing uncertainties in the global economy, investors need to take into account the possibility of different, evolving scenarios to guide their investment decisions.
This sentiment is reflected in Standard Chartered’s ‘#pivot?’ theme, guided by the following:
“#” symbolises today’s fast-changing world where both information and misinformation perpetuate at an increasing pace in the cyber space, and has the potential to accelerate the emergence of trends.
“Pivot” suggests that investors will benefit from keeping one foot firmly planted in asset classes that should perform in an environment of structurally slow growth and low inflation (‘muddle-through’ scenario), while taking a step towards assets that should do well in a scenario of controlled recovery in growth and inflation (‘reflationary’ scenario).
The inclusion of a “?” highlights the uncertainty around the potential pivots – despite a reasonably clear direction, the magnitude, pace and implications are all open to significant debate and may have been overly priced in, especially in the near term.
“Take the scenario in the US as an example: it is not clear when and in what form its fiscal stimulus will pass through the legislature,” said Steve Brice, Chief Investment Strategist, Standard Chartered Bank.
He added: “Although one can easily assume that a fiscal stimulus is a positive move in a growth-starved world, there is also the possibility that increased government spending and tax cuts feed through more to rising inflation than to faster growth, with the US already approaching full capacity.”
Market sentiment towards a reflationary scenario is also quickly gaining traction, and a continuation of this momentum is contingent on the implementation of fiscal policies that would support this scenario. However, the sustainability of such a trend is still unclear, and even if it is, a smooth process is unlikely.
Gautam Duggal, Regional Head of Wealth Management for Africa, the Middle East and Europe – Head of Wealth Management for the UAE, Standard Chartered Bank, said: “Against the global backdrop of the four key pivots – a shift towards greater use of fiscal policy, a more reflationary environment, increasing protectionism and rising multi-polarity – uncertainties surrounding the outlook are likely to rise. As such, it is critical investors in the region take a scenario-based approach when it comes to reviewing investment opportunities.”
He noted: “Our approach of proactively accessing and assimilating diverse sets of information and perspectives provides a more rounded view of the investment outlook, and helps to shape the advice we offer to our clients to navigate the increasing challenging investment landscape.”
Tobacco: BAT, Reynolds Seal $49bn Mega Merger
Two of the world’s biggest cigarette companies are being rolled into one.
British American Tobacco (BAT) said yesterday that it’s agreed to pay $49.4 billion to take control of Reynolds American (RAI), the No. 2 U.S. tobacco company.
The two cigarette giants hold some of the biggest selling brands on the planet, including Pall Mall, Camel and Newport. Bringing them together would create the world’s largest listed tobacco company by net sales and operating profit, according to BAT.
It already owns about 42% of Reynolds and launched a $47 billion bid in October to buy the remaining 58%. But it had to go higher to win the approval of Reynolds’ directors.
The new cash-and-stock offer of $59.64 per Reynolds share is about 26% above the price the stock closed at before the original offer in October. If shareholders and regulators approve the deal, the two companies expect it to go through in the third quarter of this year.
Their existing strong ties mean they already share some brands. For example, Reynolds has the rights to Pall Mall in the U.S., and BAT has them for more than 100 international markets.
The deal will also enable the two firms to pool their resources in the growing industry for next-generation tobacco products, like e-cigarettes.
Based in Winston-Salem, N.C., Reynolds made headlines last year for bringing in John Boehner, the heavy smoking former House speaker, as a director.
Retirement: 6 in 10 Americans Lack $500 Savings
A report by CNNMoney says nearly six in 10 Americans don’t have enough savings to cover a $500 or $1,000 unplanned expense, according to a new report from Bankrate.
Only 41% of adults reported having enough in their savings account to cover a surprise bill of this magnitude. A little more than 20% said they would put it on a credit card, the report said, while 20% would cut their spending and 11% would turn to friends and family for financial assistance.
“This is a persistent American problem of how you should handle your finances and spending,” said Jill Cornfield, retirement analyst for Bankrate.
But at least the number has improved. Last year, only 37% of Americans reported having enough savings to cover an expense of $500 or more.
Millennials were the most financially prepared to handle monetary headwinds with 47% of those aged 18-29 saying they could dip into savings to cover an unplanned expense, a substantial increase from 33% in 2014.
Personal finance experts tend to stress the importance of having an emergency fund to cover unanticipated expenses to avoid long-term financial damage.
“If you aren’t set up to tap cash for something, it can derail you financially if you put it on credit card,” said Cornfield. “The original expense can bloom because of interest.”
Almost half of the 1,003 adults surveyed reported they or a family member faced a major financial expenditure in the past year.
“If you are human, have a pet, kids, a house or a place to live, something is going to happen that will cost you money,” said Cornfield.
Creating a cash cushion can seem like an unrealistic task, especially for those living paycheck to paycheck. But Cornfield said there’s usually some wiggle room in a budget to cut back.
“There are ways to track your spending and look where your money is going and find the holes and gaps,” she said. “There are places you can cut back: daily coffee, alcohol, vacations, some people take several vacations, maybe cut back on one,” said Cornfield.
NSE Employees Give Back in CSR Initiative
The Nigerian Stock Exchange has announced that its employees recently donated food and sundry items to charities in communities where they work and live as part of the annual employee give-back initiative. In addition, they also volunteered their time and resources to mentor some students in select school under the Employee Volunteering Programme (EVP).
Under the NSE EVP, employees visited and contributed their time and talent to teach students of Wesley School for the Hearing Impaired Children, Lagos about the basics of financial literacy with the help of a sign language interpreter.
In addition, they donated fire extinguishers, plastic chairs and bags of rice to the school. For the employee give-back initiative, NSE employees donated food items, clothes and sundry items to three charities namely The Lagos Food Bank Initiative, Agege, Lagos, Total Parental Guidance Orphanage, Ibadan, Oyo State and Christian Relief Fund Motherless Babies Home, Obosi, Anambra State.
On selection of the charity homes, employees submitted their choice beneficiaries and a raffle draw was done to pick three recipients.
The Exchange, as part of its Corporate Social Responsibility (CSR) strategy instituted an Employee Volunteering Scheme and Employee Give-Back Initiative in 2015, to encourage employees ‘give back” to the community whilst providing them with “hands on” experience and the opportunity to make worthwhile difference to their operating community.
For the flagship scheme, the Pacelli School for the Blind and Partially Sighted Children, Lagos, Heart of Gold Children s Hospice, Lagos and Regina Mundi Home for the Elderly, Lagos were chosen as beneficiaries.
The Exchange continues to build a sustainable capital market by championing sustainability along four key impact areas of Marketplace, its platform for promoting market-based approach to Environmental, Social and Governance (ESG) imperatives; Community, where the NSE makes contributions to positively impact lives; Workplace, through which the Exchange facilitates diversity, wellbeing and harness the talent and skills of its people; and the Environment as it focuses on reducing its environmental impact.
About NSE
The Nigerian Stock Exchange services the largest economy in Africa, and is championing the development of Africa’s financial markets. The Exchange offers listing and trading services, licensing services, market data solutions, ancillary technology services, and more. The Nigerian Stock Exchange continues to evolve to meet the needs of its valued customers, and to achieve the highest level of competitiveness. It is an open, professional and vibrant exchange, and the Entrepreneurial Growth hub of Africa. The Nigerian Stock Exchange aspires to be Africa’s foremost securities exchange, connecting Nigeria, Africa and the world.
SCIB & Company New Party 2017
From left; Messrs Eddy Igbiti, Group Managing Director, AIICO Insurance Plc, Eddy Efekoha, Chairman, Nigerian Insurers Association, Tope Smart, Group Managing Director, NEM Insurance Plc, Shola Tinubu, Managing Director, SCIB Nigeria and Bode Opadokun, Managing Director, FBN General Insurance at the 2017 New Year Party of SCIB Nigeria & Company in Lagos.
World Economic Forum: Sage CEO Laments Absence of Small Business Issues
CEO Stephen Kelly says small businesses still being ignored by policy makers as big business flocks to Davos Sage launches Forum for Business Builders to give entrepreneurs a voice.
Global research by Sage highlights that only 33% of small businesses feel represented by politicians in their country’s decision making. The data has been published in the run up to the annual World Economic Forum (WEF) where politicians and big business will gather in Davos to debate the global economic picture.
Sage CEO Stephen Kelly has lamented the absence of small business issues from the agenda, and called for greater representation, given that in most economies entrepreneurs, or business builders, creates 2/3 of all jobs.
The research measured sentiment of small businesses in 2016, showing that:
- The majority(58%) consider the wider global economy to be less stable and (69%) either have or are considering changing their business plan as a result of recent events.
- 22% of businesses are planning to export more in 2017, 10% less and 25% felt there would be no change.
- 31% of businesses think turnover will remain constant or remain the same over the next year.
Clearly the role of government in helping navigate uncertain economic and political times will be key.
Almost half (46%) singled out export opportunities and grants as being the most important thing that the government can now do.
The second most important was improvements to the tax environment (38%).
Good local services ranked third (26%).
In order to give business builders a platform to connect with policy makers, Sage is launching its ‘Forum for Business Builders’. The Forum brings entrepreneurs from around the world insights, events and policy-forming partnerships to give them a powerful collective voice that can be heard on the world stage.
Anton van Heerden, Managing Director and Executive Vice-President, Africa & Middle East at Sage, adds:
“We’re seeing an uptake of entrepreneurial drive throughout the African continent, with many people starting out on their own to build businesses that serve the community, create jobs, and raise income levels. Sometimes, this demands great financial and personal sacrifice on their part.”
Sage CEO Stephen Kelly said:
“Only too often when the world’s policy makers discuss the global economic picture, small businesses are excluded from the discussion. This is most evident with the annual World Economic Forum in Davos where small businesses aren’t an item on the agenda. Worse still, 60% don’t even know the event is taking place. It’s crazy when you consider that small businesses create two thirds of all the jobs in most economies, and represent over 98% of all businesses.”
Kelly continues: “Business builders are the heroes of the economy. They toil away long after the rest of us have gone home, making personal sacrifices to grow their businesses, to support their families and build their communities. Policy makers and big business must wake up to the fact that these heroes need to be supported and given a voice, if we are to ensure the future health and prosperity of the world’s economy.”
Concludes van Heerden: “We are the champion of small businesses. They are fuelled by a passion for improving their lives and helping their communities. It is encouraging to see African governments recognising just how central they are to the continent’s growth story.”
The Forum is open to all small businesses and will be refreshed regularly with diverse content and insights from guest contributors and advisors.
World Bank: Nigeria to Quit Recession, Grow at 1% in 2017
Global economic growth is forecast to accelerate moderately to 2.7 percent in 2017 after a post-crisis low last year as obstacles to activity recede among emerging market and developing economy commodity exporters, while domestic demand remains solid among emerging and developing commodity importers, the World Bank said in a recent report.
Sub-Saharan Africa: Sub-Saharan African growth is expected to pick up modestly to 2.9 percent in 2017 as the region continues to adjust to lower commodity prices. Growth in South Africa and oil exporters is expected to be weaker, while growth in economies that are not natural-resource intensive should remain robust. Growth in South Africa is expected to edge up to a 1.1 percent pace this year. Nigeria is forecast to rebound from recession and grow at a 1 percent pace. Angola is projected to expand at a 1.2 percent pace.
Growth in advanced economies is expected to edge up to 1.8 percent in 2017, the World Bank’s January 2017 Global Economic Prospects report said. Fiscal stimulus in major economies—particularly in the United States—could generate faster domestic and global growth than projected, although rising trade protection could have adverse effects.
Growth in emerging market and developing economies as a whole should pick up to 4.2 percent this year from 3.4 percent in the year just ended amid modestly rising commodity prices.
Nevertheless, the outlook is clouded by uncertainty about policy direction in major economies. A protracted period of uncertainty could prolong the slow growth in investment that is holding back low, middle, and high income countries.
“After years of disappointing global growth, we are encouraged to see stronger economic prospects on the horizon,” World Bank Group President Jim Yong Kim said.
“Now is the time to take advantage of this momentum and increase investments in infrastructure and people. This is vital to accelerating the sustainable and inclusive economic growth required to end extreme poverty.”
The report analyses the worrisome recent weakening of investment growth in emerging market and developing economies, which account for one-third of global GDP and about three-quarters of the world’s population and the world’s poor. Investment growth fell to 3.4 percent in 2015 from 10 percent on average in 2010, and likely declined another half percentage point last year.
Slowing investment growth is partly a correction from high pre-crisis levels, but also reflects obstacles to growth that emerging and developing economies have faced, including low oil prices (for oil exporters), slowing foreign direct investment (for commodity importers), and more broadly, private debt burdens and political risk.
“We can help governments offer the private sector more opportunities to invest with confidence that the new capital it produces can plug into the infrastructure of global connectivity,” said World Bank Chief Economist Paul Romer.
“Without new streets, the private sector has no incentive to invest in the physical capital of new buildings. Without new work space connected to new living space, the billions of people who want to join the modern economy will lose the chance to invest in the human capital that comes from learning on the job.”
Emerging market and developing economy commodity exporters are expected to expand by 2.3 percent in 2017 after an almost negligible 0.3 percent pace in 2016, as commodity prices gradually recover and as Russia and Brazil resume growing after recessions.
Commodity-importing emerging market and developing economies, in contrast, should grow at 5.6 percent this year, unchanged from 2016. China is projected to continue an orderly growth slowdown to a 6.5 percent rate.
However, overall prospects for emerging market and developing economies are dampened by tepid international trade, subdued investment, and weak productivity growth.
Among advanced economies, growth in the United States is expected to pick up to 2.2 percent, as manufacturing and investment growth gain traction after a weak 2016. The report looks at how proposed fiscal stimulus and other policy initiatives in the United States could spill over to the global economy.
“Because of the outsize role the United States plays in the world economy, changes in policy direction may have global ripple effects. More expansionary U.S. fiscal policies could lead to stronger growth in the United States and abroad over the near-term, but changes to trade or other policies could offset those gains,” said World Bank Development Economics Prospects Director Ayhan Kose. “Elevated policy uncertainty in major economies could also have adverse impacts on global growth.”
Regional Outlooks
- East Asia and Pacific: Growth in the East Asia and Pacific region is projected to ease to 6.2 percent in 2017 as slowing growth in China is moderated by a pickup in the rest of the region. Output in China is anticipated to slow to 6.5 percent in the year. Macroeconomic policies are expected to support domestic drivers of growth despite soft external demand, weak private investment, and overcapacity in some sectors. Excluding China, growth in the region is seen advancing at a more rapid 5 percent rate in 2017. This largely reflects a recovery of growth in commodity exporters to its long-term average. Growth in commodity importers excluding China is projected to remain broadly stable, with the exception of Thailand where growth is expected to accelerate, helped by improved confidence and accommodative policies. Indonesia is anticipated to pick up to 5.3 percent in 2017 thanks to a rise in private investment. Malaysia is expected to accelerate to 4.3 percent in 2017 as adjustment to lower commodity prices eases and commodity prices stabilize.
- Europe and Central Asia:Growth in the region is projected to pick up to 2.4 percent in 2017, driven by a recovery in commodity-exporting economies and recovery in Turkey. The forecast depends on a recovery in commodity prices and an easing of political uncertainty. Russia is expected to grow at a 1.5 percent pace in the year, as the adjustment to low oil prices is completed. Azerbaijan is expected to expand 1.2 percent and Kazakhstan is anticipated to grow by 2.2 percent as commodity prices stabilise and as economic imbalances narrow. Growth in Ukraine is projected to accelerate to a 2 percent rate.
- Latin America and Caribbean:The region is projected to return to positive growth in 2017 and expand by 1.2 percent. Brazil is projected to expand at a 0.5 percent pace on easing domestic constraints. Weakening investment in Mexico, on policy uncertainty in the United States, is anticipated to result in a modest deceleration of growth this year, to 1.8 percent. A rolling back of fiscal consolidation and strengthening investment is expected to support growth in Argentina, which is forecast to grow at a 2.7 percent pace in 2017, while República Bolivariana de Venezuela continues to suffer from severe economic imbalances and is forecast to shrink by 4.3 percent this year. Growth in Caribbean countries is expected to be broadly stable, at 3.1 percent.
- Middle East and North Africa: Growth in the region is forecast to recover modestly to a 3.1 percent pace this year, with oil importers registering the strongest gains. Among oil exporters, Saudi Arabia is forecast to accelerate modestly to a 1.6 percent growth rate in 2017, while continued gains in oil production and expanding foreign investment are expected to push up growth in the Islamic Republic of Iran to 5.2 percent. The forecast is based on an expected rise in oil prices to an average of $55 per barrel for the year.
- South Asia:Regional growth is expected to pick up modestly to 7.1 percent in 2017 with continued support from strong growth in India. Excluding India, growth is expected to edge up to 5.5 percent in 2017, lifted by robust private and public consumption, infrastructure investment, and a rebound in private investment. India is expected to post a 7.6 percent growth rate in FY2018 as reforms loosen domestic supply bottlenecks and increase productivity. Pakistan’s growth is projected to accelerate to 5.5 percent, at factor cost, in FY2018, reflecting improvements in agriculture and infrastructure spending.
NSE 2017 Outlook: Economy Will Rebound Marginally
Global Economic Outlook Global economic growth is projected to reach 3.4% in 2017 according to the IMF, while Goldman Sachs’s chief economist puts this estimate at a range of 3.0% to 3.5%. Accordingly, all estimates suggest that there will be positive global growth in 2017.
From the NSE’s perspective, we believe there are specific factors that will determine the pace of global economic activity in the coming year.
These include: 1) political developments in the West under the emerging “new world order”, as populist sentiment towards nationalism and protectionist economic policies take effect on global trade and immigration; 2) pace of global fiscal and monetary policy implementation; 3) oil price averaging $55 per barrel as forecasted by the World Bank following the decision of OPEC to limit output and a subsequent improvement in the outlook for commodity exporters; and 4) continued growth in Asia’s largest economies (i.e. China, India, Japan, etc.) and recovery of other emerging and developing economies (i.e. SSA).
Nigeria is expected to recover from its recession in 2017 with a modest GDP growth forecast of 0.6%9 driven by: i) vigor of fiscal policy implementation, with a keen focus on articulation of desired goals; ii) lower rates of disruptions to oil infrastructure from resolution of the Niger Delta conflict, thereby increasing FX inflows; iii) crude oil prices remaining above the FGN’s benchmark of $42.5/barrel; iv) positive impact of the war against corruption manifested in ease of doing business improvement; and v) policies aimed at boosting economic productivity (ex: improved budgetary allocation to capital expenditures, exit from JV Cash Call arrangements with IOCs by the FGN, which is expected to save the country $2bn annually, etc.).
Notwithstanding the forgoing, the Nigerian capital market will have to do a better job at promoting its unique value proposition to both global and domestic investors. Monetary policy will continue to play a vital role in determining activity in the market.
With forecasts for inflation expected to moderate due to the base effect, we believe that all things equal, monetary authorities will have more flexibility with respect to interest rates and FX regime. Hence good coordination between fiscal and monetary policy should result in resolution of aforementioned structural deficiencies and drive economic growth.
We expect investors to continue to keep a close eye on the divergence between the interbank FX rate and other exchange rates in the country.
Accordingly, a convergence of FX rates in the country and the performance of listed corporates will determine the level of market activity in the short term.
NSE Strategic Outlook Cognizant of the ever evolving economic realities on ground, the NSE will take an adaptive approach to strategy execution in 2017. In the immediate future, the NSE will focus on achieving its goal of becoming a more agile and demutualized exchange and will fast track efforts towards developing innovative products such as exchange traded derivatives to provide investors with tools to better weather economic realities in 2017.
We intend to strengthen our thought leadership efforts with policymakers to drive policies that will free up the system and promote the ease of doing business in Nigeria. We believe that i) incentive schemes for sectors of the economy that can support a pivot to export led economy will be beneficial, and ii) systematic removal of impediments to doing business and therefore reduction of leakages will attract private sector investments.
From a capital market liquidity standpoint, we will enhance our cross-border integration efforts via African Securities Exchange Association’s (ASEA) African Exchange Linkage Project (AELP) model and the West African Capital Market Integration (WACMI) program.
We will also continue our engagement efforts with the Government to promote the listing of privatized state owned entities (SOEs), as well as engage with the Private sector issuers for listings across all of our product categories.
We anticipate that secondary market activity will be challenged initially as the impact of various policy measures work their way through the system. However, we expect to see a revival of supplementary listings, return of the new issuance market, and potentially one IPO since the equity market is a forward indicator of the economy.
We are cautiously optimistic, as consensus estimates suggest a moderate recovery for Nigeria in 2017, provided that policy makers implement the right combination of policy measures.
MTN, NSE Finalising Deal on Listing
MTN Nigeria and the Nigerian Stock Exchange are currently finalizing the necessary details for the listing of the telecom operator on the Exchange this year, according to an announcement by NSE Chief Executive Officer, Oscar Onyema.
Onyema indicated that his teams were working with the mobile phone operators to this end.
“The pressure on MTN has never been higher to list,” Onyema said.
Despite Nigeria being a key market for MTN, it remains that the nation made 2016 a quite difficult year for the operator as its authorities asked it, in that year, to pay a heavy fine for failing to deactivate 5.1 million unregistered SIM cards.
The listing is in fact one of the measures imposed the firm to bring down the fine.
The group has paid about N130 billion, out of the final N330 billion agreed between the parties.
Aaron Akinocho