State of Emergency: Economic Analysts Rule Out Upset in Economy

19 May 2013

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President Goodluck Jonathan

As security forces crack down on the Islamist terrorist group Boko Haram following the declaration of emergency rule in three states – Borno, Yobe and Adamawa – in the North-east last week, economic analysts have ruled out the fear of a slowdown in the nation’s economy.

Fears were raised that the attendant tension in the region could affect economic activities with a corresponding fall in revenues accruable from that part of the country.

However, a team of economic analysts from the international financial advisory firm, Renaissance Capital, said at the weekend that although the military action in the three states was bound to affect economic activities, the impact would be minimal in view of the contributions of the region to the Nigerian economy.

In their view, “The impact of the state of emergency on Nigerian consumer companies is marginally negative,
“We believe the companies that will be largely affected are animal feed producers, such as UACN’s Grand Cereals and Livestock Feeds, as well as Flour Mills of Nigeria’s Premier Feed, which source raw materials such as sorghum and maize from the north of Nigeria. It is estimated by the National Bureau of Statistics (NBS) that Borno State is the second-largest producer of maize in Nigeria, although the total maize output from these three states combined amounts to just 12% of the domestic maize production,” the analysts submitted in a report last week.

According to the report, UACN had previously highlighted the increased cost pressure and shortages of raw materials it faced in the grand cereals business due to insecurity in the North in FY12. This resulted in the company being forced to import some of its raw materials. We expect that this may continue in the short term.

It explained that Nestle Nigeria might also be marginally affected as the company sources most of its maize requirements domestically.

Borno was a strategically important trade state for many consumer companies as it is a border state, from which consumer goods went out of Nigeria into neighbouring countries like Chad and Nigeria.

This is the reason why the food spend per capita remains high. However, due to the recent insecurity in the state, borders have been closed although they remain porous.

Another industry likely to feel the pain of the military action is the beer industry. According to the Rencap reports, “Unrest in the North has hindered distribution of the brewers’ products; however, the presentations at Heineken’s conference in November 2012, an estimated 10% of market outlets, are situated in the North and approximately 87% of the total market volume is coming from the Southern regions. We think this development will have little additional impact on either of the brewers’ performance.

“Given the location of these states (in the northeast corner of Nigeria), we expect they could be less accessible to the brewers, and hence account for a smaller portion of sales in the north.

On the likely impact on the telecom sector, Rencap’s report said “For the three states in which a state of emergency has been declared, we would be surprised if they accounted for even close to 10% of any nationwide telco’s subscribers in Nigeria. We would argue that the affected states would be dominated by low-ARPU subscribers, and therefore we see an immaterial impact on revenue and profits.

The report said the impact of the emergency regime on banks would be minimal.
“On the liabilities side – most of the retail networks are in Lagos, the surrounding states, as well as in the South and Abuja areas. So we see no material risk to the branch networks.

“On the asset side – again, the banks have more exposure to the wealthier southern states. Agriculture, which dominates the north’s GDP, accounts for about 5% of banks’ loan books so, again, fairly immaterial, in our view,” the report said.

Tags: Business, Nigeria, Featured, State of Emergency

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