Firms Battling Squeeze in Profit Margins

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By Obinna Chima

Corporate costs are now rising faster than the rate of household inflation as more firms record lesser profits, an Associate Professor at the Lagos Business School, Dr. Doyin Salami has revealed.

This is an indication that more firms appear to be going through troubled times.

Salami, said this in a presentation he delivered at the Nigeria British-Chamber of Commerce (NBCC) breakfast meeting held in Lagos recently, with Rand Merchant Bank as the moderator.

Shedding more light on the effect of a rise in corporate cost, the economist said, “the implication of this is that their margins are being squeezed. That is, companies are having to forego margins in other keep market position.

“If you look at the financials of Nigerian banks, at the end of 2017, 16 per cent of the risk assets was made up of non-performing loans.”

Continuing, in his macroeconomic outlook for Nigeria in 2019, Salami said oil was going to remain a major factor as far as Nigeria is concerned, both on the production side and the price.

He, however, based his projection for 2019 on the expectation of the success of the presidential election which holds next month.

“My hope is that we have a successful election. I am not bothered about who wins. What is important is a successful election and what do I mean by a successful election?

“Essentially, if you go back to 2015, not in terms of the outcome, but in terms of the process. I am sure you all recall that in 2015, there was about 15 minutes, when it looked like we were headed for trouble and that 15 minutes of seeming madness was over and the election was successful. “That was the single most importance thing that Nigeria achieved in 2015,” he explained.

According to Salami, with the 2019 Appropriation Bill with crude oil predicated on an assumption of 2.3 million barrels per day and Nigeria’s quota from Organisation of Petroleum Exporting Countries at about 1.9 million barrels per day, shows there is going to be a challenge in the revenue aspect of the budget.

He pointed out that Nigeria remains fundamentally an oil story, saying if the impact of the 2019 elections is excluded from his prediction, oil would be the next issue.

Salami noted that Nigeria’s tax revenue amounts approximately to seven per cent of Gross Domestic Product, which according to him is almost what Afghanistan, ravaged by war, achieves.

Owing to this, he stressed the need for reforms to enhance Nigeria’s revene.

“That explains why part of the reforms we need to see are reforms around revenue. The movement in Value Added Tax is one I would expect to see in 2019.

“On the monetary policy side, I can safely tell you that there will be no movement in exchange rate, even after the election, as far as oil prices don’t misbehave.

“The term of the current Governor of the Central Bank expires in June. If he is getting a second term, we would know in June and if he doesn’t get a second term, whoever is appointment, will require some time to understand the new role before settling down,” he explained.

The economist pointed out that the current tight monetary policy environment was required to check inflation and keep the naira stable.

“Indeed, my sense tells me that as at quarter three of 2018, average growth for the year was still sub-two per cent.

“By the time the quarter four growth rate comes out, we need it to be about four per cent of GDP for the economy to growth by about four per cent if we are going to achieve two per cent growth in 2018.

“For 2019, my expectation is that growth is unlikely to exceed 2.5 per cent. All of these depends on one assumption – that we would have a successful election. “Whoever wins the election, even if it is the opposition, would be confronted with the reality in the economy,” he said.

President of Council of the NBCC Mr Akin Olawore in his opening remarks said the nation needs to turn its underemployment to full employment.

He argued that any a nation that had its people engaged in various jobs will be productive and progressive.

Opanachi:   N1.3tr Needed to Adequately Fund MSME Sector

Goddy Egene

The Managing Director of Development Bank of Nigeria (DBN), Mr. Tony Opanachi has said about N1.3 trillion funding is needed to realise the country’s potential in the   micro, medium and small enterprises (MSME) sector of the nation’s economy.

A virile MSME is key to the growth of any economy and the Nigerian government over the years has been making efforts to ensure funding for the sector. The efforts include setting up of financial institutions that can extend loans specifically to the sector.  DBN was established in 2017 to provide longer term loans for MSMEs.

While DBN has started well, surpassing its projection in the first year of operations, Opanachi said other sources are needed to be able to adequately meet fund needs of the sector and unleash its potential on the economy.

Speaking to journalists in Lagos, the DBN boss said the need of the sector is over N1.3 trillion.

“All the intervention funds currently available put together cannot scratch the surface.  It has to be a combination of borrowings from various sources and vehicles. There is no harm in many sources.  So the National Microfinance Bank (proposed by the Central Bank of Nigeria) will also help.  The intervention funds we have now will help to encourage the sector. The need of the segment is too much for one source of funding to satisfy.

“So the Microfinance Bank will be another source of the reach the MSME. The more the merrier,” he said.

Opanachi said on its part, the DBN will continue to support the MSME sector with the funding currently available while working out other ways to improve on the support. According to him, the   bank disbursed N31.36 billion to 35,000 MSMEs in 2018, which was the first year of its operations, while it is projecting N70 billion this year.

“Our total disbursement-to-date stands at N31.364 billion thus exceeding our year end projection of N30 billion. Total number of end borrowers stands at 35, 000 which also exceeded our year-end target of 20,000 MSMEs.”

Encouraged by the achievement recorded in the first year, the DBN boss said   the bank’s disbursement target for the year 2019 is N70 billion, which he stressed would    help deepen the bank’s penetration in the MSMEs sector of the economy.

 “We are not sector-specific and as long as you have the potential to create employment, you have potential to empower and make development impact, DBN will fund you. We also know that some sector has more growth potential so as we go down we try to encourage those sectors,” he said.

Opanachi also disclosed that so far the bank has zero-non-performing loan(NPL), explaining that it has developed an in-house Credit Rating Model, which was validated by Dun & Brad Street. 

“We have similarly put in place a number of risk management policies such as: framework for lending to finance companies and mortgage banks, related party credit policy; information security policy and business continuity policy,” he said.

 The DBN boss said they just don’t give out money to PFIs but also know the MSMEs that are end borrowers and monitor their operations.

“We don’t just give the money to PFIs. What we do if  PFIs  bring their transactions,  we know who the borrowers are, we have their details, who they are, what they do  upfront. So by the time we give the money to PFIs  and they on lend  we go again  to monitor,” he said.