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Africa’s Future: The Leadership Imperative

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FOR THE RECORD:

Keynote Speech

By

Professor Kingsley C. Moghalu

Chairman& CEO, Sogato Strategies LLC

Former Deputy Governor, Central Bank of Nigeria

Professor of Practice in International Business & Public Policy

The Fletcher School of Law & Diplomacy, Tufts University

At

The Africa Leadership Conference

“Rethinking Africa: Leadership for Possibilities”

Organized by Guardians of the Nation International (GOTNI) USA

Washington, DC

July 9, 2017

Leadership Is Under Threat Worldwide

Around the world today, the very idea of leadership confronts big challenges, big opportunities, and big possibilities. From corporate leaders in advanced industrial countries who have to worry about the implications of disruptive innovation, the demands of corporate citizenship on business models, and the rising political risk to bottom lines from the surge in populism in western democracies, to entrepreneurs in Africa faced with unstable macroeconomic environments, absent infrastructure, policy inconsistency, and weak institutions, leadership is stressed and challenged.

From the political ferment in the United States in the era of Donald Trump to the stunning victory of Emmanuel Macron in response to the yearnings of French citizens for bold, new leadership. From the electoral shifts in the recent elections in the United Kingdom in the era of Brexit to the political crisis in Brazil over allegations of corruption against its elected leaders, leadership is the big issue. For good or ill, we live in its shadow.

We can understand why: in all its manifestations – political, corporate and entrepreneurial, science and innovation, academia, healthcare and public policy, leadership is the main determinant of social and economic progress.

Although our focus here is on leadership in Africa, we must understand that the leadership challenge in the world today is universal. That should help us keep things in perspective. As Mark Beeson, Professor of International Politics at the University of Western Australia has observed: “If we scan the international political horizon, it is difficult to spot anyone that might be described as an unambiguously great leader. Perhaps the last person to fit this bill was Nelson Mandela.”.

Now, it should be clear that the consequences of leadership failure, while not good for any society, developed or developing, are far more profound for developing countries such as those in Africa. Developed countries have strong institutions that can mitigate the effects of bad or weak political leadership. But many African countries, saddled as they are with fledgling or undeveloped institutions, cannot achieve transformational progress without effective domestic political leadership.

What Real Leadership in Africa Should Mean

For our continent, then, leadership is the critical challenge we must confront and overcome. We must, if democracy is to yield good governance, if the entrepreneurial talent expressed in the narrative of an Emerging Africa is to yield true economic transformation, and if Africa’s rich historical scientific heritage is to translate into an explosion of innovation that can make us competitive in a globalized world.

How do we get leadership to make Africa prosper and matter? (Forgive the pun on my book Emerging Africa: How the Global Economy’s ‘Last Frontier’ Can Prosper and Matter.) In the area of business and entrepreneurship we have seen impressive leadership by African entrepreneurs. These businessmen and women are altering Africa’s narrative from one of poverty and foreign aid to one of creativity and wealth creation. From Nigeria’s Nollywood movie industry to Aliko Dangote and his Africa-wide industrial empire, Tony Elumelu and his Heirs Holdings investment group, and the blogger and entrepreneur Linda Ikeji; from Tanzania’s Ali Mufuruki and his Infotech Investment Group and Kenya’s Michael Macharia and his Seven Seas Technologies to Ethiopia’s Bethlehem Tilahum Alemu whose firm, Sole Rebels, manufactures and exports environmentally friendly footwear that’s “hot” in the western world; and from Ghana’s Patrick Awuah, founder of the 21st century non-profit Ashesi University, Ken Offori-Attah and his Databank Corporation, and the young Harvard-educated investor Sangu Delle to Cameroon’s Yaya Moussa, the former International Monetary Fund economist that founded Africa Today TV in the United States, Africa’s entrepreneurs are making progress against all odds.

Our continent’s leadership problem is located mainly in our internal political spaces. But it is precisely these spaces that determine what kind of societies, economies, education and health systems that we have.

The first order of business, as I have argued consistently, is that of our minds. We must reinvent the African mind. Our minds determine whether or how we understand what leadership means or doesn’t. Our minds determine what kind of mindset or worldview we bring to the task and responsibility of leadership. And our minds determine whether we have, or can acquire, the character and competence of leadership.

My personal understanding of leadership, especially in the context of countries like those in Africa, is that great leadership must be transformational. And I always approach the subject with the end in mind: what, for example, would be said about my service after I have completed a specific leadership task or responsibility? Indeed, to envision more radically, what will be said at my funeral? (One should hope that that event will hold somewhere north of my 100th birthday!)

I have sought to apply this understanding to every leadership role in which I have had the privilege to serve – from national reconciliation and nation-building work by the United Nations in New York, Cambodia, Croatia and Rwanda to institutional and management reform in the UN, from building global partnerships and raising billions of dollars for social investments in developing countries by The Global Fund in Geneva to structuring and facilitating investments in emerging markets, from leadership roles in monetary policymaking and banking sector reform in Nigeria in the wake of the global financial crisis to serving as a professor in one of America’s premier universities, my vision has always been to leave the situation, institution or assignment I was tasked to handle much transformed from where I met it.

Leadership is about utilizing appointive, elective or situational authority to envision. To inspire. To take calculated risk.All in order to take societies, family units, organizations or institutions from A to Z or whatever point in the 26 alphabets is relevant, necessary, and possible. It is not, as we often misunderstand it in Africa, about merely holdingpositions of power or deploying authority mainly for self-serving purposes. This is why manycareer politicians in Africa that consider themselves “leaders” are in fact – and despite the veneer of democratic processes — more accurately “rulers”, or minions and accomplices of despotic power.

Leadership requires a certain kind of character that emphasizes and upholds core values, a sense of abnegation to consciously forgo opportunities to advance self or other narrow interests, and the competence to bring these values to bear in a manner that creates change and sustains social progress.

In an illuminating article by Sunnie Giles that was published in the Harvard Business Review (“The Most Important Leadership Competencies, According to Leaders around the World, HBR, March 15, 2016), the author’s research found that the top 10 leadership competences, based on the percentage of respondents from 200 global leaders asked to rate 74 qualities, were:

(1) Has high ethical and moral standards (67%);

(2) Provides goals and objectives with loose guidelines/direction (59%);

(3) Clearly communicates expectations (56%);

(4) Has the flexibility to change opinions (52%);

(5) Is committed to my ongoing training (43%);

(6) Communicates often and openly (42%);

(7) Is open to new ideas and approaches (39%);

(8) Creates a feeling of succeeding or failing together (38%);

(9) Helps me grow into a next-generation leader (38%);

(10) Provides safety for trial and error (37%).

As Giles explained, neuroscience confirms that a leader having high standards based on core values and acting consistent with it, when combined with the ability to communicate expectations clearly, creates a safe and trusting environment and heightens brain activity related to creativity, social engagement, and a drive to excellence.

Leadership in African countries requires a worldview that can build real nation-states from the hodge-podge of ethnic nationalities lumped together by the Berlin Conference of 1884-85 that carved up the continent between imperial global powers at the time. That worldview must understand the dynamics and mechanics of globalization. It must grasp the truth that being a market for globalization is not what is beneficial. Finding a niche in the production value-chain of economic globalization is what really matters.

That worldview should be able to create a common goal and destiny around which citizens in our countries can unite and strive together for progress. This is different from the narrow views that fuel the ethnic and religious-identity irredentism that has dominated the domestic political space in many African countries. We are trapped in these ethnic tensions and strife because our rulers have exploited these divisions instead of liberating and educating their citizens. But in order to liberate and educate your citizens, you, the leader, must have the substance with which to educate and liberate. As the legal maxim puts it, nemo dat quad non habeat (you cannot give what you don’t have). Fela Anikulapo-Kuti, the late Nigerian musical maestro, had little time for elegant Latin maxims. He puts it bluntly in one of his songs: “Teacher, don’t teach me nonsense”!!

The Role of Nigeria and South Africa

In the quest for good leadership and governance in Africa, few if any countries are more important than Nigeria, Africa’s largest economy and most populous country with 180 million people, and South Africa, the continent’s most advanced and industrialized economy. Both countries can and should set worthy examples of internal domestic leadership that are worthy of emulation. But over the past several years, this expectation of both countries has been observed more in the breach. South Africa has been caught in the throes of a debilitating leadership crisis involving its current President, Jacob Zuma since he assumed office in 2009. One of the very few countries in Africa with independent institutions, efforts by Zuma and his allies to whittle down or block the effectiveness of the country’s Public Protector, which indicted President Zuma with charges of corruption and state capture by Zuma’s cronies and business allies, have created existential threats to Zuma’s government, the political dominance of the ruling African National Congress (ANC) party, and the political stability of South Africa.

Nigeria, like many African countries, has made some progress, but is a far distance in its stage of development from where it could have been after 57 years of independence. Nigeria’s case is especially disappointing when we consider the country’s vast reservoir of human capital and the dynamic nature of its enterprising people.

Nothing illustrates Nigeria’s challenge better than three statistics: the country produces only 4,000 megawatts of electricity when South Africa, with 50 million people, produces 40,000; despite being the largest economy with a GDP of about $345 billion (the figure was $568 billion in 2014 but has been decimated by the country’s worst recession in 25 years), its 2016 per capita GDP is $2,260 and the average figure from 1960, when we became an independent country, up to 2016, is $1,648. This means that there has been very little real progress in average individual income and human well-being.  Malaysia’s GDP per capita is $9,360, Brazil’s is $8,727, and South Africa’s $7,504. And the third statistic is that Nigeria is ranked at 187 out of 189 by the World Health Organization ranking of health systems around the world.

As the great African writer Chinua Achebe wrote, “Nigeria’s problem is simply and squarely that of leadership”. This leadership failure has led to slow progress (and many outright reversals) in the quest to build a united nation, and a dependence on raw mineral and commodity exports (crude oil) for foreign exchange earnings that has prevented real economic transformation.

Citizen-solutions

How can African countries overcome their leadership capital deficit?

Fortunately, democracy offers a great opportunity for an improved process of leadership selection. This brings to mind the role of the citizen. In a normal scheme of things, it is leaders that shape the destinies of nations, but in functioning democracies the citizens act as a check on leadership performance. In those countries where contemporary African leaders have performed poorly, then, it is time for citizens to stand up for their own future.

Our citizens must exercise their democratic rights more effectively and make choices informed by objective leadership selection criteria. That criteria needs to include character, competence, and relevant experience, as well as the track record of persons seeking positions of leadership. To do so, voters must understand what really is in their best interest. That “what” is frequently different from the primordial affiliations and the patronage systems that politicians exploit and build to continue ruling us instead of leading us.When citizens in our countries in Africa, including my own country Nigeria, focus on subjective factors instead of objective leadership competence in leadership selection, they become very active accomplices in their own poverty.

A paradigm shift in leadership selection will require voter education by civil society organizations. It calls for increased demands for democratic accountability by citizens and civil society, the institution of a real social contract between states and citizens as demanded by the latter, and an all-important emphasis on leadership training for the up and coming generation of youth who we should want to be real leaders, not rulers, of tomorrow. GOTNI is blazing a trail in this regard.

The African Diaspora have a role and historic responsibility here, and they have much to contribute the development of their home countries. But few, if any African countries have been able to position their diaspora as a core component and driver of development strategy in the manner that Israel, India and China have done.

First, the diaspora must demand and secure the ability to vote abroad in elections at home, and thereby participate in leadership selection. Second, they must demand a more institutionalized framework for diaspora engagement and contributions to governance and economic life. Here, I note with keen interest the recent issuance of a Diaspora Bond by the Federal Government of Nigeria. The spirit behind this initiative is a commendable one.But the devil is in the execution. We need more transparency on the bondholder base and the subscription process for the bonds. These bonds provide an important window of opportunity for diaspora to engage with economic governance at home by checking to ensure that the bond raised is utilized for appropriate purposes. It is not enough simply to get your financial returns.

Conclusion

The economic, social and political conditions in African countries is the responsibility of African leaders. It is not that of Donald Trump. Indeed, one of the ultimately beneficial outcomes of the rise of populism in the West for African countries is that it will enable our countries look inwards and take responsibility for driving their own destiny; even in a world of globalization, sovereignty and the authority and responsibilities that go with it have not gone away.

Our destiny is not the responsibility of the foreign aid agencies. And we cannot continue to blame the colonial powers. The leaders of our countries must build real nation-states out of what Count Clemens von Metternich, Europe’s leading statesman in the early 19th century, referring to Italy, called “a mere geographical expression” – in other words, countries that are artificially formed and are not nations in a real sense. Our leaders have the responsibility of building institutions that can create a level playing field for everyone and shield citizens from tyranny, to achieve economic transformation, and to reclaim our countries’ place in the world.

Citizens, for their part, have the responsibility to decide who has responsibility for their welfare. In many African countries, they have not taken this duty as seriously as they should. Professor Ameena Gurib-Fakim, the competent and erudite President of Mauritius — one of Africa’s most successful countries –put it so pithily: “But the onus is also on all Africans. People have to start asking the right questions. Politicians, leaders, policymakers in normal democracies are all accountable to the people. But, and I am sorry for saying this brutally, we get the government we deserve. The one we vote in. It’s your vote”.

NSE Wins Employer of Choice Award for 2nd Year …Oscar Onyema named 2016 HR Champion

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NSE Wins HR People Magazine 2016 Employer of Choice Award NSE was named the 2016 Employer of Choice in the under 1,000 Employees category by the HR Peoples Magazine.

The Nigerian Stock Exchange (NSE) is pleased to announce that it has won for the second consecutive year, the Employer of Choice Award, 2016, in the “Under 1,000 Employees” category.

This award which is in recognition of the Exchange’s outstanding contributions to human resources development in the workplace was presented by the HR People Magazine at an award ceremony held in Lagos.

In addition, the Chief Executive Officer (CEO) of the NSE, Oscar N. Onyema, was named the 2016 HR Champion of the year, for demonstrating outstanding leadership through sound and laudable people management practices. He emerged winner ahead of CEOs of United Capital Plc and Unilever Nigeria Plc.

NSE Wins HR People Magazine 2016 Employer of Choice Award
NSE was named the 2016 Employer of Choice in the under 1,000 Employees category by the HR Peoples Magazine.

According to the organisers of the awards, the HR People Magazine Awards is an annual event designed to recognise companies and individuals for their outstanding contribution to the HR profession.

They noted that eight (8) organisations were shortlisted for further screening for the Employer of Choice Award (Under 1,000 Employees category), out of which the final top four (4) contenders, MainOne, DHL Nigeria, Airtel Nigeria and The Nigerian Stock Exchange, were selected.

Receiving the award on behalf of The Exchange, Ms. Pai Gamde, Acting Head, Corporate Services Division, NSE, stated that “we are very honoured to be recognised as the Employer of Choice in the ‘Under 1,000 Employees’ category and are extremely proud to have achieved this feat not once, but twice in a row. This award is hugely encouraging and a testament to the innovations we have undertaken on the people front. I would like to thank the esteemed jury for recognising our efforts and considering us worthy of this honour.”

“Our heritage of success and winning culture is attributed to our employees who are the core of our business. It is their skills, creativity and commitment that shape the Exchange’s performance. As such, we invest great efforts in recruiting and retaining the best employees. These recognitions will continue to spur us to providing an enjoyable work environment and culture that is characterized by diversity, equal employment opportunity, affirmative action and trustful collaboration in ensuring employee well-being and satisfaction”, said Ms. Gamde.

Ms. Gamde further stated that the NSE has automated most of its HR processes and established many other practices such as Employee Recognition Schemes, Graduate Trainee Programme, Enhanced Maternity Leave, Paternity Leave, and Activity Centre comprising a Gym, Crèche and Café among others, to enhance employee productivity and work life balance.

Linkage Assurance Maintains Strong Growth as PAT Grows 167% in Q1

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Dr Pius Apere MDCEO Linkage Assurance Plc
Dr Pius Apere (PhD/FCII) (Actuarial Scientist and Chartered Insurer)

Linkage Assurance Plc is set for a strong growth this year as major indices, according to the Company’s unaudited first quarter results for the period ended 31 March, 2017, show a significant increase over the period in 2016.

The results released at the Nigerian Stock Exchange (NSE) shows a 167 percent growth in Profit Before Tax (PBT), which rose from N665.68 million in 2016 to N1.78 billion during the review period, while Profit After Tax (PAT) also inched remarkably by 167 percent to N1.42 billion in the review period against N532.55 million in 2016.

Linkage also grew its investment income by 993.5 percent from N125.01million in 2016 to N1.37 billion in 2017.

The company’s gross premium written rose by 9.3 percent from N1.61 billion in the previous year to N1.76 billion at the end of first quarter 2017. While shareholders fund moved up by 8.07 percent from N17.57 billion in 2016 to N19.0 billion in 2017 and the company’s assets rose by 1022 percent from N20.62 billion in 2016 to N23.14 billion in the review period.

Thus, the company is optimistic that this growth will be sustained for the remaining part of the year and hopes for good returns on investment to its shareholders.

At the last financial year ended 31 December 2016, Linkage Assurance achieved a 7 percent growth in profit after tax, from N508.42 million in 2015 to N544.56 million in 2016.

Its underwriting profit was a resounding indication of good underwriting and risk management capabilities, as the figure grew 56773 percent to N720 million in 2016 as against N1.27 million in 2015.

Dr. Pius Apere, Managing Director/CEO, Linkage Assurance Plc., said “the company will continue to refine its strategy in line with the political, economic, sociological and technological changes in the industry. Also, we will continue to develop innovative products, alternative channels of distributions and strategic initiatives that will enable us achieve our corporate goals and objectives. With a medium-to-long term perspective, we believe that we will benefit from growth in these initiatives.”

In addition, Dr. Apere said “the company will consolidate on the going initiatives to improve our operational efficiency so as to reduce the cost of doing business, improve business processes, eliminate wastages and achieve higher margins in our core business”.

According to him, Linkage Assurance recently launched a number of retail products which include Linkage Third Party Plus, which is a budget friendly motor insurance that provides not only the compulsory Third party protection but an additional own damage protection to the tune of N250,000. “This product is only available from our Company, Linkage Assurance Plc.

Other products are the Linkage SME Comprehensive, Citadel Shield – which provide compensation to pupils and students in recognized academic establishments for injuries sustained from accident; Linkage Events Xclusive Insurance, Linkage Shop Insurance, Purple Motor Plan – a comprehensive motor cover exclusively for women, and the Linkage Estate Insurance.

Dr. Apere also disclosed that the company was also making efforts to deploy her online portal to make its products and services available to its customers especially the digital savvy customers and enterprises.

SMILE Excites Customers with New Device, Bonus Offers

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Smile Telecoms Holdings Ltd

Smile, pioneer 4G LTE telecommunications service provider in West Africa, has announced its new device and bonus offers to reward their customers. The offers will make it easier and more affordable for Smile customers to enjoy the benefits of its SuperFast, reliable Internet without worrying about high costs of data.

Through the offers recently introduced by Smile, customers will upon purchase of a SMiFi or Router Starter Pack get 50% bonus data on recharge for three consecutive months.  Customers are at liberty to get 20GB/7GB plus SMiFi or UnlimitedPremium plan, which offers customers unlimited access to the Internet, with a router to create their own hotspot, stream, download and connect with family and friends. Prices start from as low as N16, 500

“We recognise that the Internet is becoming more and more important for nearly everybody in their everyday lives, and as such, it is our goal to enable as many new connections as possible. These offers are yet another step towards realizing this goal,” said Lotanna Anajemba, Smile Nigeria’s Head of Marketing.

Emphasising further, he said the need to have instant continued access to the Internet has resulted in a higher demand from customers for data to be easily accessible at an affordable rate.

The new device and bonus offers give customers great value and rewards them for their usage. The offers can be accessed via online shop at smile.com.ng, Smile shops and authorised distributors spread across the cities that they operate.

Applauding the offer, leading industry analysts opined that, through these efforts, Smile Nigeria has championed the goal to extend Internet access to the majority of Nigerians who still don’t have access to the Internet.

Smile’s effort to get Nigerians on to the Internet is demonstrated by its aggressive investment in what is now the largest 4G LTE network in Nigeria, introduction of a wide and affordable bundle portfolio, affordable data enabled devices and now these offers.

For Smile Nigeria, these feats align with the company’s commitment to create differentiated value propositions and provide customer centric services. These services are aimed at adding unrivalled benefits to its teeming customers spread across major cities and towns in the country.

More than anything else, the new offers meets with Smile’s position as the Broadband provider of choice in Nigeria that enables its customers to do and achieve more.

AKINWUMI ADESINA and THE WORLD FOOD PRIZE

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On Monday, 26th of June, 2017, Nigeria’s former Minister of Agriculture and Rural Development, now the President of African Development Bank, Dr. Akinwumi Adesina, was announced as the winner of the 2017 World Food Prize, at a ceremony at the U.S. Department of Agriculture, in Washington D.C.

The World Food Prize, which is regarded as the Nobel Prize for Food and Agriculture, was founded in 1986 by Dr. Norman E. Borlaug.

The Award recognises the achievements of individuals who have advanced human development by improving the quality, quantity or availability of food in the world.

In announcing the Award, the President of the World Food Prize Foundation, Ambassador Kenneth Quinn, stated that the selection of Dr. Adesina reflects both his breakthrough achievements when he was Minister of Agriculture in Nigeria, and his critical role in the development of the Alliance for a Green Revolution in Africa, where as Vice President, he led a major expansion of commercial bank lending to farmers.

Adesina has over the past two decades provided strong leadership in expanding food production in Africa; introducing initiatives to exponentially increase the availability of credit for smallholder farmers across the African continent; and galvanizing the political will to transform African agriculture.

As Nigeria’s Minister of Agriculture and Rural Development, Adesina was known as “the farmer’s Minister.”

Among other reforms, he introduced the E-Wallet system for fertilizer distribution. The system saved the government significant amount of money and ensured farmers have direct access to buying fertilizers.

Speaking on his selection for the Prize, Dr. Adesina said he was humbled by the award. He said his work to ensure Africa could feed itself is still an uncompleted business.

Adesina, a son of a farmer, sees his life’s mission as lifting millions of people out of poverty, especially rural farmers; and turning agriculture into business all across the continent to create wealth for African people.

According to Adesina, the Prize Award serves as an encouragement for him to continue to pursue his vision for enhancing nutrition, uplifting smallholder farmers, and inspiring the next generation of Africans as they confront the challenges of the 21st century.

As President of the African Development Bank, Dr. Akinwumi Adesina has put in place the High 5s Agenda which, among others, consist of a strategy to feed Africa.

The key to feeding Africa is to practice agriculture as a business and not as a development activity, Adesina is known to advocate. Africa has 65 percent of the world’s uncultivated arable land but, regrettably, African countries imports food worth $35 billion every year from outside the continent. He said if this is unchecked, it will swell Africa’s food import bill to $110 billion by 2025.

Under Adesina as President of the AfDB, the Bank is launching an agriculture strategy that will rapidly transform Africa’s agricultural sector, develop agro-allied industrial zones, push for food self-sufficiency and move the continent up the global agriculture value chain; and place Africa as the food basket of the world.

Adesina has called on governments and institutional investors, such as pension and insurance funds, to “see the gold” in African agriculture and invest in it to unlock its potential.

In his words, “the future of African young people lies in a more prosperous and inclusive Africa, and there is no other sector that has greater power to create growth than the agricultural sector.”

Adesina will be presented the $250,000 World Food Prize and Laureate sculpture at a ceremony that will hold later in the year on October 19 in Iowa State, USA.

Since its establishment more than 30 years ago, the World Food Prize has honoured45 individuals from 18 different countries.

Adesina is the 46th person, and the sixth African, to win the World Food Prize.

By Ebere ECHENDU

NB: Ebere Echendu, Accountant and Agro-industrialist lives in Lagos

Osinbajo Set for National Insurance Conference

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Mr. Shola Tinubu, Chairman, Planning Committee of the National Insurance Conference (c) flanked by other members at a media briefing in Lagos.

Professor Yemi Osinbajo, the Acting President is expected to declare open the National Insurance Conference being organied by the Insurance Industry Consultative Council (IICC) in Abuja from July 9-11, 2017.

Mr.  Shola Tinubu, Chairman of the Planning Committee said the idea behind the formation of the IICC was actually to give a unified and cohesive voice to the Nigerian insurance industry, with a view to making the industry accelerate its impact and contributions to the nation’s economy.

‘The National Insurance Conference is one of those programmes aimed at fostering intellectual and professional development of insurance practitioners and further creating a platform for networking and exchange of ideas between industry operators and critical stakeholders in the nation’s economy. It is most heartwarming that the 2017 Conference is being organised to further underscore the aim of the insurance industry to continually upscale the knowledge of insurance operators and other professionals in the financial services sector as well as other stakeholders about contemporary dynamics in the economic development of the country and the globe generally.’

Tinubu said the Conference would also highlight the catalytic roles which the insurance industry in achieving financial inclusion and by so doing, accelerating its contributions to Nigeria’s Gross Domestic Product.

Guild of Editors Seek Tolerance, Unity in Nigeria

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nigerian guild of editors

The Nigerian Guild of Editors (NGE) has called for tolerance and unity for a stronger Nigeria as it condemns the hate speeches emanating from different sections of the country.

After the second quarterly meeting of its Standing Committee in Lagos, the NGE released a nine-point communiqué stating as follows:

1. The Guild condemns the hate speeches from different sections of the country and calls for restraint and tolerance among Nigerians, stressing that the country remains stronger together.

2. The Guild notes that those sowing seeds of discord should realise that they are not just destroying the dreams of the nation’s founding fathers but the progress we have made over the years as a nation; their actions have the capacity to alter the destiny of Nigeria negatively.

3. The Guild reminds the hate agents that as major stakeholders in the Nigerian Project, Editors and Journalists fought for the enthronement of the current democratic dispensation, with some paying the supreme price, to birth a constitutional government.

4. The Guild regrets that elders from different parts of the country kept quiet for too long, which allowed the youths to take over the socio-political space and brought the nation to the present situation. The Guild urges the elders across the country to always keenly take interest in the affairs of the nation, rather than play the ostrich.

5. The Guild also urges Nigerians to ignore those agitating for the dismemberment of the country and to go about their businesses without fear or let, and focus more on repositioning the country for present and future generations.

6. The Guild appreciates the firm and decisive intervention of the Acting President, Prof. Yemi Osinbajo, which has calmed the situation and urges the government to do more.

7. The Guild notes that the Inspector-General of Police, Ibrahim Idris, has been issuing orders to his men to get these persons arrested but is worried that no commensurate action has been taken. It urges the Police to be more responsive and pragmatic.

8. The Guild commends the Nigeria Police Force for the arrest of the kidnap kingpin, Chukwudi Dumeme Onuamadike and other kidnappers and urges that they should do more to ensure the release of the abducted pupils of Igbonla Model College, Epe in Lagos State, who have been missing for more than three weeks now.

9. The Guild notes and condemns the overzealousness of operatives of the Economic and Financial Crimes Commission (EFCC), and other security agencies against the media. At all times, duties come with deep responsibilities that must be upheld.

Funke Egbemode, President;  Victoria Ibanga, General Secretary

Leadway Assurance Paid N23bn Claims in 2016

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Mr. Oye Hassan-Odukale MD/CEO Leadway Assurance Company Limited
Mr. Oye Hassan-Odukale MD/CEO Leadway Assurance Company Limited

Leadway Assurance Company Limited, Nigeria’s leading insurance company, recently held its 45th Annual General Meeting (AGM) to present its accounts for 2016 fiscal year to its shareholders and other stakeholders.

The company declared that it’s assets grew from N137.3billion 2015 to N166 billion in 2016. Gross Premium Income also rose by 13% from N46.6 billion in 2015 to N52.7 billion in 2016, an increase largely attributable to annuity business.

Leadway reaffirmed its commitment to its policyholders by paying claims in excess of N23billion in 2016, the largest payout in the market. This is further evidence of the promise that the company has kept to its customers over the years, maintaining its position as the highest claims’ paying company for over five years.

Mr. Oye Hassan-Odukale MD/CEO Leadway Assurance Company Limited
Mr. Oye Hassan-Odukale, MD/CEO
Leadway Assurance Company Limited

Despite the depressed economic environment, investment income grew from N7.4 billion in 2015 to N10.5 billion in 2016. However, with increased cost of doing business resulting from inflationary pressures within the economy, company performance after tax increased marginally from N6.3 billion in 2015 to N6.6 billion in 2016, due largely to gains recorded in foreign currency translation.

The company also announced the appointment of three non-executive directors to its Board following the retirement of three erstwhile directors in compliance with the 2009 NAICOM Code of Good Corporate Governance.

The new appointees include Gen. Martin Luther Agwai, who now holds the position of Chairman, Mr. Oluseyi Bickersteth and Mr. Odein Ajumogobia who are also Non-Executive Directors.

Gen. Martin Luther Agwai is a Commander of the order of the Federal Republic (CFR) and was a former Chief of Defence Staff of the Nigerian Armed Forces.  He is pro-Chancellor of a Nigerian University and the Chairman of the Subsidy Reinvestment Programme (SURE-P). He is chairman and a member of several local and international boards. Mr. Oluseyi Bickersteth was National Senior Partner at KPMG, Nigeria and head of the oversight committee for KPMG Africa. He currently sits as Chairman KPMG, Africa and is a director on the Nigerian Economic Summit Group and well as the South African Chamber of Commerce. He is a Fellow of the Institute of Chartered Accountants of Nigeria and the Chartered Institute of Taxation of Nigeria. Mr. Odein Ajumogobia is a Senior Advocate of Nigeria (SAN), a Fellow, Chartered Institute of Arbitrators FCI, Arb (London) and a Former member, ICC, International Court of Arbitration in Paris. He is a leading environment and pollution litigator and at various times held the positions of Attorney-General and Commissioner for Justice, Rivers state, Minister of State for Petroleum Resources and Minister of Foreign Affairs.

Commenting on the performance, the newly appointed Chairman, Gen. Martin Luther Agwai, expressed his optimism and confidence about the company’s successes and aspirations saying, “We are consistently inspired by the doggedness, unflinching support and patronage of our revered customers, brokers, agents and other stakeholders. We thank you for your continued loyalty and pledge our improved services to your contentment.”

On his part, the Managing Director of Leadway Assurance Company Limited, Mr. Oye Hassan-Odukale stated; “The current realities of our operating environment appears dire and continues to test us on all fronts. However, we continue to find ways to deepen penetration of insurance by educating the public and encouraging them to Think Leadway once they have decided to buy insurance.”

Red Star Express to Host SME 1000

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Mr. Sola Obabori GMD/CEO RedStar Express Plc
Mr. Sola Obabori GMD/CEO RedStar Express Plc

Red Star Express Plc is set to host entrepreneurs and owners of Small and Medium Enterprises to a forum to give them support by sharing insights, information and industry advice as it affects them in relation to the growth of their business.

This event will seek to provide advice and logistics resources from Red Star Express, other industry leaders and concerned regulatory agencies so as to assist in creating an excellent opportunity to interact and network.

Tagged “Breaking Boundaries”, the event will be held on July 7 in Lagos at the Welcome Centre, International Airport Road. Apart from being a form of Corporate Social Responsibility for Red Star Express, SME1000 is a groundbreaking medium by the company to bridge the logistics gap faced by SMEs.

Mr. Sola Obabori GMD/CEO RedStar Express Plc
Mr. Sola Obabori, GMD/CEO, RedStar Express Plc

The Group Managing Director of RedStar, Mr. Sola Obabori elucidated on the reason behind the project. “Red Star chose to embark on this SME 1000 project in order to promote and create a platform to connect these SMEs globally, because RedStar is a global business that can connect with any part of the world in 72 hours. We want to bring 1000 SMEs together to partner with them and create opportunities and network for them in order to enable them understand the process of running an SME”.

“We understand that some of the challenges of coming up with an SME is infrastructure, inconsistency, succession plans, lack of focus, all amongst others. In international countries there are usually plans for succession but it’s hardly done in Nigeria. However, we can’t say Nigerians have done badly because we have had good SMEs that have grown and stood the test of time. For instance, we have Dangote, Globacom, FCMB, and the likes.”

According to the Head, Projects and New Ventures, Ngozi Ochokwu, the SME sector is a major part of Nigeria’s economy and has the potential to spur the country out of recession. With SME1000, Red Star Express, as a foremost logistics company in Nigeria, will reaffirm its unwavering commitment to the development of the indigenous market.

“As we undertake all concerns regarding logistics, we urge businesses to take advantage of SME1000 whilst focusing on building robust trading platforms. All they simply need to do is to register at http://sme1000.redstarplc.com  and from there; they can get the opportunity to participate. Attendance is free and there are lot of experts on ground to assist these entrepreneurs with business ideas and opportunities”, she said.

Red Star Express has been a major e-commerce delivery backbone for a large number of SMEs, by ensuring hassle free order fulfillment. The SMEs will be availed the opportunity of choosing from a bouquet of services depending on their business needs and requirements ranging from deliveries within 3 to 6 hours in Lagos, door-to-door deliveries nationwide, Cash-On-Delivery, Prepaid Delivery, Drop off & Pickup Centres, Freight, Warehousing, Inventory Management, Outsourcing, among others.

‘Why Nigeria’s Smatphone Market Fell in 1st Qtr 2017’

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Africa’s mobile phone market started 2017 off with a drastic quarter-on-quarter (QoQ) decline according to the latest figures announced today by International Data Corporation (IDC).

The global technology research and consulting firm’s newly released Quarterly Mobile Phone Tracker shows that overall shipments for the first quarter of the year in Africa totaled 54.5 million units, down -8.2% on Q4 2016.

The prime driver of this downturn was a stark -17.6% decline in the smartphone segment, with shipments falling from 25.8 million units in Q4 2016 to 21.2 million units in Q1 2017.

When viewed year on year (YoY), the overall mobile market was up 8.4%, primarily due to feature phone shipments growing from 26.6 million units in Q1 2016 to 33.3 million units in Q1 2017. Feature phones have now been rising as a proportion of the total market for more than a year, which highlights the continuing importance of basic mobile communications in many parts of Africa, particularly in rural areas.

The drop in smartphone shipments in Q1 2017 was caused by substantial QoQ declines in the continent’s three largest smartphone markets – South Africa (-13.6%), Nigeria (-8.1%), and Egypt (-11.5%).

“In South Africa, the drop was mainly due to high levels of stock in the channel from previous quarters,” says Nabila Popal, a senior research manager at IDC. “Nigeria’s decline was caused by the ongoing recession in the overall economy as well as difficulties in accessing foreign currencies for imports, while continuing exchange-rate difficulties were also behind the major decline seen in Egypt.”

The smartphone markets in Morocco and Algeria also performed poorly in Q1 2017, although the QoQ declines were much less drastic at -2.2% and -1.5%, respectively. “Morocco’s economy was significantly impacted by a stalemate in the government that is delaying the disbursement of budgetary funds, while Algeria’s unstable politics continue to dampen consumers’ willingness to make discretionary purchases,” says Soufiane Bouhaji, a research analyst at IDC. “Tunisia was the only market in North Africa to record a QoQ increase in smartphone shipments (0.5%) in Q1 2017 and that was mainly due to the country’s healthier macroeconomic environment.”

The East African markets performed stronger than any other region in Africa in terms of smartphone shipments for Q1 2017, with Tanzania and Uganda seeing substantial QoQ increases of 8.1% and 11.6%, respectively. The Kenyan market, which has seen big gains in smartphone shipments over the last two years, was more subdued in Q1 2017, with shipments declining slightly by -1.3 % QoQ.

In terms of vendor rankings, Samsung remains the continent’s leading smartphone vendor, with 29.8% share in Q1 2017, up on the previous two quarters but slightly down on Q1 2016. Its big rival in Africa, the China-based Transsion group, took second place with 23.9% share of the smartphone market, thanks to its diversified portfolio of mid-range phones and strong focus on the ˂$150 price segment. In the feature phone space however, it is Transsion that dominates not Samsung, with its Tecno and itel brands accounting for three out of every five feature phones shipped across the continent in Q1 2017.

“IDC expects Africa’s overall smartphone market to slowly rebound from its current lull to a state of growth,” says Bouhaji. “Despite the tough macroeconomic conditions currently inhibiting much of the region, smartphone prices continue to fall and this will drive their adoption across Africa. Almost 40% of all smartphones shipped in Africa in Q1 2017 were priced below $80, up from 28% just two years earlier. Mobile data charges are also becoming more affordable, while increasing use of video-sharing applications and improving penetration of over-the-top services are further encouraging smartphone adoption.”

IDC is forecasting that Africa’s smartphone shipments will remain flat this year, but for growth to resume in 2018 as the economy gradually recovers.

The Global Airlines Financial Monitor: May 2017

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  • Global airline share prices performed strongly in May, surging 7.8% to be up more than 20% over the past year. Gains were observed in all 3 regions, but European airline shares led the way again this month, with a 14.3% rise.
  • The latest financial results for Q1 provide further evidence of the squeeze on airline profit margins, reflecting higher costs and weak yields. Industry-wide free cash flow also eased in Q1, compared with the outcome in Q1 2016.
  • The fall in Brent crude prices in April extended into May and despite some recovery, the monthly average price fell almost 4%. Jet fuel prices behaved in a similar fashion and were down 5.6% for the month overall.
  • The strong start to the year for passenger and freight demand growth has continued. The passenger load factor set a new record high in April while freight loads consolidated recent gains.
  • Growth in premium passenger traffic has exceeded its economy counterpart in many key markets in the past year.
  • Passenger yields remain 3-5% lower than a year ago amidst ongoing signs that the downward trend in yields of the past three years may have bottomed.

NEXIM Bank to Support Growth of Mining Sector

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NEXIM Bank
L-R: Hon. Minister, Mines & Steel Development, Dr. Kayode Fayemi and MD/CEO, NEXIM Bank, Abba Bello, during the meeting in Abuja.

“Solid minerals, along with the other three sectors of manufacturing, agriculture, and services, is an essential pillar upon which our activities within the nonoil sectors rest, and deserves NEXIM Bank’s full support.” – Abba Bello

The MD/CEO of Nigerian Export-Import Bank, Abba Bello paid a courtesy visit to the Minister of Mines and Steel Development, Dr. Kayode Fayemi at the Ministry’s offices in Abuja to introduce himself and his executive management team to the Honourable Minister.

Bello used the opportunity of the visit to appreciate the commendable work the Minister and his team are doing in development of the solid minerals sector. According to the NEXIM Bank, “solid minerals, along with the other three sectors of manufacturing, agriculture, and services, is an essential pillar upon which our activities within the nonoil sectors rest, and deserves NEXIM Bank’s full support.”

NEXIM Bank
L-R: Hon. Minister, Mines & Steel Development, Dr. Kayode Fayemi and MD/CEO, NEXIM Bank, Abba Bello, during the meeting in Abuja.

Welcoming the NEXIM Bank team, D. Kayode expressed his appreciation to Abba Bello, mostly for recognising the importance of the sector and the strong synergy between the work of the Ministry and the Bank.

According to Hon. Minister Kayode, this much is underscored by the fact that Abba came calling with his team soon after he settled into his new role at the Bank. He noted that Abba, being a top-ranking professional banker, would be able to meet the challenges of his new office and contribute to the work of the Administration to fixing the Nigerian Mining industry to become a key contributor to achieving national goals of diversifying the sovereign revenue base and creating jobs.

The Honourable Minister used the opportunity of the visit to brief Abba and his executive team on the recent inauguration of the newly constituted Board of the Solid Minerals Development Fund (SMDF) on May 25.

According to Fayemi, the SMDF, which seeks to address the fundamental sectoral challenge of Insufficient Funding – a problem that has historically undermined the growth potentials of the sector, is an important milestone in Government’s efforts to reposition the Nigerian Mining industry.

Currently, according to the Minister, the Solid Minerals Roadmap, to which the SMDF would provide support, had prioritised the development of seven strategic minerals (7SM), namely coal, bitumen, limestone, iron Ore, barytes, gold and lead/zinc. Albeit, he stated that the list does not preclude investments in some other viable solid minerals if and when the funding is available, especially considering that the Roadmap clearly targets to integrate artisanal miners into the formal sector.

Fayemi stated that a close collaboration between the Ministry and the NEXIM will be strategic to growing the sector, particularly in achieving the goals set under the Solid Minerals Roadmap.

In this regard, the Ministry would want to work with the Bank in monitoring to ensure that the beneficiaries of its funding interventions within the sector use the loans judiciously. He indicated that the Ministry will also be relying on the expert technical advisory support of NEXIM from time to time.

Concluding, Fayemi mentioned that the Government is quite keen in mineral beneficiation as a way to bring value addition to the sector and also boost local content and import substitution.

Abba expressed immense appreciation to the Minister for his uncommon commitment to growing the solid minerals sector, and pledged that NEXIM Bank, in line with mandate, will continue to be a dependable partner with the Ministry in the commitment to fixing the Nigerian mining industry as an enabler to economic diversification and job reaction.

FG: “Only 7 Agencies Authorised at Ports”

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Hadiza Usman, MD, NPA

The Management of the Nigerian Ports Authority (NPA) has reiterated for the umpteenth time that it would enforce the Presidential Executive Order concerning the 24-hour operations at the nation’s Seaports.

The directive which had amongst others stated that only 7 Agencies are permitted to operate within the Ports, these are the Nigerian Ports Authority (NPA), Nigerian Maritime Administration and Safety Agency (NIMASA), the Ports Health, the Nigeria Customs Service (NCS), Nigerian Immigration Service (NIS), Nigeria Police Force (NPF) and the Department of State Security (DSS).

‘We wish to categorically state that the Federal Government had earlier in 2011 streamlined the operations of the Agencies at the Ports with the view to ensuring swift Customer Service Delivery in the area of efficient clearance of cargoes.

In this regard therefore, the Management of the NPA wishes to unequivocally state that any other Agency that has not been listed as in the above in line with this Presidential Order should henceforth vacate operating from within the premises of the nation’s Seaports, adding that when required these other Agencies would be notified accordingly.

The Management of NPA therefore solicits for strict compliance from all agencies and stakeholders concerning this directive.

Furthermore, the Management of the NPA herewith assures the entire Port Community of its continued strive to ensure greater operational efficiency at the Nation’s Ports.’

“Great Macro Trade of 2017”: Changing Narratives on Nigerian Equities

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NSE

How quick narratives change in frontier markets investing. Just three months back, as the Naira weakened below N500.00/US$1.00 in the parallel market and business confidence waned due to foreign currency shortages, macroeconomic risk became the most fundamental short term basis for forecasting Nigerian equities despite cheap valuation of assets.

Fast forward to June, all that seem to be in the very distant past with reinvigorated investment confidence, popularly termed “animal spirit” by JM Keynes, driving asset prices and valuation multiples to their 1-year highs in what we have termed “Great Macro Trade of 2017”.

Whilst we had called positive market sentiment post-FX liberalisation in our 2017 Economic and Financial Market Outlook, the bounce is also not so surprising for investors accustomed to the boom-bust cycle of frontier markets.

Predominantly, equities have essentially been a macro play in Nigeria over the past two years due to elevated macroeconomic risks which overshadowed resilient earnings fundamentals of companies in sectors ranging from banking to non-cyclical manufacturing.

Since the turn of the second Quarter however, macroeconomic fundamentals have shown remarkable improvements due to:

Rebound in oil production volumes and stable oil prices – which have stabilized fiscal balance and buoyed FX earnings;

Recent policy moves by the central bank to converge FX rates at all segments of the market. The latest of these moves is the opening of the Investors’ and Exporters’ Window (I&E window) in April which allowed market determined pricing of FX on a “willing buyer willing seller” basis for trades related to invisibles. Transactions have topped US$1.7bn in the I&E window since turnover data became available three weeks ago.

The I&E window has opened up the equities market once again to foreign investments with average value of daily trades on the NSE more than doubling to N4.5bn since 24th April from N1.6bn in the prior month while the benchmark All Share Index has gained 26.4% in five weeks.

MSCI last week also increased Nigeria’s weighting in its Frontier markets index from 6.5% to 7.9% while the CBN added to the flurry of good news with a circular released on 5th April 2017 to improve efficiency of the I&E window and aid faster convergence of all rates. Hence, as the stars continue to align for Nigeria from different directions, the narratives have conveniently changed from an underperforming economy in crisis to a growth economy leaving behind her cyclical and structural economic problems. These changing narratives have so far justified the recent bullish run on equities.

Yet, current trailing market P/E multiple of 14.2x may also appear fair, if not lofty, compared to 12.7x the market was trading three months back, bringing to fore the question on whether to pull the brakes on overweighting equities or doubling down on the accelerator. We answer this question and more in subsequent sections of this note, giving our perspectives on the fundamental and technical factors to consider as well as the risks to price into valuation.

Foreign Portfolio Investments: A Change in Tide?
Since the crash in global oil prices which began in H2:2014, there have been an exodus of foreign investors from the equity market and reduction in foreign investments inflows partly due to mispricing of the domestic currency and weak liquidity in the FX market.

Historically, foreign players have accounted for a larger proportion of trades in the domestic equities market, hence the investment decision of these players has been a factor driving market performance.
As depicted in chart 1, 2012- 2013 was a golden age for investors in the Nigerian Bourse, essentially due to influx of foreign funds benefiting from access to easy money in advanced economies and seeking high returns in growth markets with cheap valuations.

Consequently, foreign investment in equities peaked at US$4.9bn in 2013 but the trend reversed in the last three years following the decline in commodity prices. Average FPI into equities crashed 59.1% from US$3.8bn in Q3:2014 to US$1.5bn in Q4:2014 and has remained on a steady decline, settling at US$102.0mn in Q1:2017. The slowdown in FPIs is reflected in the performance of the equities market which has declined for three consecutive years.

Interestingly, the introduction of somewhat flexibility in the I&E FX window in April has attracted frontier fund managers into Nigerian equities with noticeable impact on market performance. We believe there is still room for more participation, especially from emerging market funds, as liquidity within the FX market continues to improve.

The MSCI Story…Golden Sectors and Stocks to Watch
The Morgan Stanley Capital International (MSCI) Frontier market index was rebalanced in May 2017 with Nigerian stocks weighting increased to 7.9% from 6.5% following the upgrade of Pakistan from the Frontier Market Index to the Emerging Markets Index.

The increase of Nigeria’s weighting further supported the 4-week old rally in the Nigerian Bourse as the benchmark index gained 3.9% on resumption of trading this week. Before the announcement of the Index rebalancing, MSCI had put Nigeria’s status in the Frontier Markets Index under consideration for a “Standalone” re-classification as a result of the liquidity constraints and fragmentation of the foreign exchange market.

Nonetheless, we think the odds of Nigeria being reclassified are slimmer now on the back of the recent development in the FX market, particularly the introduction of the I&E window and improvement in FX interventions by the apex bank, which has buoyed liquidity and narrowed the parallel market premium. We perceive that MSCI will most likely adjust the currency it uses for the computation from Interbank pegged rate to the I&E fixing (NAFEX).

Regardless, we believe the increase in Nigeria’s weighting bodes well for the equity market, particularly the 16 stocks included in the index, as it exposes the market to global tracking funds seeking exposures to frontier markets. Whilst the market prices of these stocks may appear overvalued based on absolute valuation, their relative valuation multiples (as shown in chart 3) indicate that they are still attractive when compared to other Sub-Saharan African and frontier markets.

Our analysis reveals that the Banking, Industrial and Oil & Gas sectors are under-priced when compared to the other Sub-Saharan African Frontier Markets which avail investors the opportunity to take position in the sectors.

However, the Consumer Goods sector is relatively expensive owing to the historical premium investors value Nigerian consumer goods companies as well as the recent pressure on earnings of most of the blue-chip stocks in the sector.

What About Fundamentals…Are Nigerian Equities Still Undervalued?
Prior to recent rally on the Bourse, most stocks quoted on the Nigerian stock exchange were trading at deep discount to analysts’ valuation as the major players (PFAs, Mutual Funds, and Insurance Firms etc.) held short-term views.

The re-entry of foreign players coupled with the ongoing positive sentiment in the economy presents a possibility for a year-long bull market. The NSE All Share Index price-to-earnings ratio stands at 14.2x, which is relatively cheaper compared to frontier and emerging markets peers – South Africa FTSE/JSE (18.9x), MSCI FM index (15.0x) and BRICS (16.5x).

Moreover, company scorecards have remained resilient in recent times as companies exposed to the downside risk of macro headwinds were able to navigate the choppy terrain by leveraging on scale, non-core earnings growth strategy, operating cost optimisation, local input sourcing, usage of deferred tax assets as well as individual proficiencies to stay profitable.

We remain optimistic on corporate earnings for 2017, forecasting EPS to grow 18.5% for companies within our coverage as we expect the recent improvement in FX liquidity – which has resulted in the appreciation of parallel market FX rate – to positively impact cost of sales for manufacturers, while improvement in fiscal revenue for the Sovereign and Sub-nationals is also positive for consumer spending and earnings growth.

Nonetheless our general bullish view of the market, our assessment of different sectors differs as we highlight below:

Banking Sector:  The Banking sector has benefitted the most from the bullish run, with the NSE Banking index YTD return (at +42.4%) outperforming the benchmark. Valuation multiples have also improved – sector P/E and P/BV ratio have risen to 6.3x and 0.8x from 4.3x and 0.6x in January respectively. However, investors’ interest has largely been centered on Tier-1 lenders with P/E and P/BV for these banks at 7.1x and 0.8x respectively compared to average P/E and P/BV for Tier-2 lenders (ex-STANBIC) of 5.7x and 0.2x respectively.

Nonetheless, we note that most of the Tier-2 banks (DIAMOND, SKYE, FCMB, UBN and UNITY) are still recording below-trend level of fundamental returns (measured by ROE) whilst facing capital adequacy challenges. Hence, it will take more time for value to be unlocked in the stocks.

This informs our preference for Tier-1 banks still trading below pre-crisis valuation multiples and recommend Tier-2 banks for investors with longer holding period.

Industrial Goods Sector: The Industrial Goods sector has returned +25.1% YTD with sector P/E now at 12.9x. Cement companies – which dominate the sector index weighting – have largely driven the rally as challenges which had weighed on their earnings in FY:2016 (gas pipeline vandalism, aggressive price competition and high external leverage) have been largely surmounted with earnings now set to improve remarkably in FY:2017.

The improvement in industry fundamental was reflected in Q1:2017 results of CCNN, WAPCO and DANGCEM but the short-term upsides to these stocks are limited following the recent rally.

Insurance Sector: Despite weaknesses in Nigeria’s macroeconomic fundamentals in 2016, performance of the insurance sector was largely positive, albeit modest. The Insurance index has however underperformed the benchmark with current Year to Date return of 14.0% largely driven by gains in MANSARD.

One of the factors dragging sentiment towards the sector is the renewed drive towards risk based supervision and capitalisation rules via the shift to Solvency II and ORSA (Own Risk and Solvency Assessment) guidelines. Solvency II is a Risk Based Supervision (RBS) – similar to the BASEL II guidelines for Banks – which is expected to increase pressure on capital as it specifies how the capital requirement and resources are set, assessed and determined. Consequently, many insurers are in the process of raising additional capital with potential dilution of shareholders’ equity. Hence, we are neutral on the sector.

Consumer Goods Sector: Activities in the Consumer goods sector have been majorly hampered by the economic downturn which dragged revenue while lingering FX liquidity challenges pressured profitability. These factors weighed on sentiment towards stocks in this sector.

However, the recent improvements in the general economic condition as well as increased FX supply is expected to boost performance of companies in the sector this year with market prices already reflecting this expectation. NESTLE and NIGERIAN BREWERIES have advanced 19.1% and 7.5% YTD.

Likewise trading multiples – NESTLE (P/E: 79.9x) and NIGERIAN BREWRIES (P/E: 41.7x) – indicate that investors continue to place premiums on pricing of these stocks. Our top picks in the sector are NESTLE and NIGERIAN BREWERIES, based on the fact that foreign players have started to return to the market and “pre-FX crisis trading trend” suggests that these counters are investors’ choice picks in the sector.

Oil & Gas Sector: The sector has come under a lot of pressure having been hit hard by militancy and liquidity challenges in the power sector which has constrained the performance of sector large-caps such as OANDO, SEPLAT and FORTE.

Downstream companies which outperformed in 2016 have not enjoyed similar sentiment save for MOBIL which is a subject of an M&A transaction. Consequently, the sector is the weakest performer of all sector indices we track with a YTD return of 1.8%.

However, we believe the sector should record improvements in subsequent quarters in terms of earnings and valuation, due to restoration of peace in the Niger Delta, reopening of the Forcados terminal which is the major export routes for upstream indigenous companies and efforts being channeled into solving the liquidity crisis in the power sector.

Greatest Risk to Current Optimism – FX Liquidity and Market Structure
The CBN’s approach towards the management of FX remains a downside risk to equity market performance as past and current developments indicate that sentiment towards equities have been anchored by FX liquidity.

This is not surprising as investors are typically wary of participating in the equities market when the economy faces FX liquidity challenges or inconsistent management policies that do not provide an assurance for convenient repatriation of funds.

The recent rally in domestic asset prices since the launch of the I&E FX window attests to the importance of a market determined FX rate and exchange regime. Thus, the CBN’s ability to maintain its stance of non-interference in the I&E window regardless of the direction in which the naira trends, is highly essential, as a breach on the CBN’s part will almost certainly retard participation by investors in the equities market.

However, the ability of the CBN to sustain its timely interventions which have significantly boosted FX liquidity in the economy remains susceptible to shocks in the global Oil market.

The possibility of lower global oil prices and reduced production levels – that could come about through an OPEC quota limit extension to Nigeria or acts of sabotage – remain key points of concern as they could stymie oil export earnings which account for a major share of total foreign exchange earnings and consequently pressure the external reserves.

Oil prices seem to have stabilized around the US$50.0/b mark post-extension of oil production cuts whilst production level is set to go back to peak level following lifting of Force Majeure on the Forcados Terminal. Going forward, we expect factor drivers of FX liquidity – domestic crude oil production, oil prices and CBN policies on FX – to affect sentiment in the equity market.

“Random Walk on Customs Street” …Will Technical Analysis Work?
Although the Nigerian equities market has been largely shaped by macroeconomic and company fundamentals post-2009 financial market crisis, technical study of trends, momentum, volume and volatility have also dictated the direction of stocks especially when market is considered overbought or oversold.

Whilst technical analysis suggests that investors begin to book profit as the Relative Strength Index (14D-RSI) hits the overbought threshold (70 points) and rebounds as RSI hits the oversold region (30 points), our study of trend shows that technical analysis between 2014 and 2016 – period of capital control and FX management inflexibility – has lagged the performance of NSE ASI given the more fundamental leading indicators that drove equities.

We hold a strong view that technical indicators are beginning to lead the direction of the index since the launch of I&E FX window but trend is not evocative of support and resistant levels for the RSI yet as we have seen the market sustain a bullish run for days within the overbought territory.

We believe that the Nigerian Bourse is currently being driven by Fundamentals (improving macroeconomic condition, particularly regarding FX) and technical analysis may not be the best methodology in calling the future performance of the Nigerian Bourse in the near term, largely because the market is in transition as stocks begin to break previous resistance levels and try to attain new support and resistance levels.

Conclusion
Nigerian equities as a basket are currently the 2017 goldmine of the emerging and frontier markets following the improved flexibility in the administration of FX.

The on-going repricing of the market suggests investors are playing “catch-up” with resilient company fundamentals, which market has lagged, having reduced the premium on macro risk.

Whilst we noted in our 2017 Outlook that the equities market will rebound northward of 15.6% if the FX challenges are addressed, the current structure of FX administration and the response rate of the equities market reinforces our conviction that the market is set for a “year round bull run.”