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February Polls: Long-term Investments Suffer Major Setback

As preparations for the country’s general election heat up across the country, long-term investment is suffering a major hit with investors adopting a precautionary stance.

olusegun-aganga_3LEADERSHIP investigations show that local and foreign investors are being cautious about making long-term investments because of the forthcoming general election among other issues confronting Nigeria’s macro-economic environment.

This stance, they maintain, is due to the perceived uncertainty over the outcome of the coming elections, particularly the presidential poll.
They argue that long-term investment requires stable political and macro-economic environment to thrive.
Discerning investors are usually wary to make investment decisions during periods of general election because they are usually characterised by instability and uncertainty.
Another reason for the lull, analysts maintain, is because funds which come mainly from government have been channeled into electioneering activities, thus leaving less room for investment decisions.
According to the director-general of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, the political transition process has far reaching implications for the economy. Political and social stability are critical factors driving investor confidence and investment in the country.
Noting that new investors in the country would like to wait to see the outcome of the election, Yusuf said: “The heightened tempo of electioneering activities has led to injection of significant amount of funds into the economy through various channels of political campaign finance.
“The main sources of the funds are state funds, funds provided by candidates contesting elections, political party funds and proceeds of corruption. Some segments of the economy have benefited tremendously from these spending. They include the media houses, logistics providers for political rallies, printers of posters and banners, crowd mobilisation contractors, and hotels in major cities because of the itinerant nature of politicians at this time.”
He pointed out that there is also the aspect of spending that is undertaken by the electoral body, INEC, pointing at procurement of ballot papers, ballot boxes, vehicles for logistics, and various printing jobs among others.
Suppliers of these materials would be major beneficiaries of the current political transition expenditure, while there will also be job creation through the recruitment of numerous ad-hoc staff, he noted
All these, he said, would impact the economy positively, especially where such procurements are done locally.
He, however, noted that governance at all levels of government had slowed down as political leaderships are engrossed in electioneering campaigns.
“Important matters requiring approvals of the political leadership may not get the right attention at this time. Investments and projects that are dependent on such approvals will experience some challenges at this time,” he said.
“Political transition periods come with possibilities of changes in government in power, changes in individuals occupying political positions, changes in policy direction and changes in priorities of government.
“These possibilities increase the political risk of investment during periods of political transition. Investors will, therefore, be very cautious in taking major investment decisions until after the elections.”
The managing director of APT Securities and Funds Ltd, Garba Kurfi, said that the nation’s bourse had been experiencing high volatility and unpredictable fluctuations due to the forthcoming elections and over reliance on foreign investors, pointing out that investors, especially foreign ones, are waiting to see the outcome of the elections.
He added that there would a boom in the cement industry after the election, as about nine new state governors would want to embark on infrastructure development as key project.
He asserted that that economic activities, by both local and foreign investors, would be determined by the outcome of the elections.
Head of Research at Sterling Capital, Sewa Wusu, while hoping for a smooth transition following the February general election, noted that investors had become cautious in investing in the country ahead of the elections.
Although he did not give figures in terms of investment inflows into the country, he said the political tension in the country had heightened investors’ fear of putting their resources in the country.
“Normally, investors adopt a cautionary stance in an election year, but the increased political tension in the country has worsened the fear. We have had elections before now but this is different. Hopefully the peace pact signed recently will help reduce the tension,” he stated.
In Information and Communications Technology (ICT) sector, especially telecommunications subsector, most of the investments expected from major telecom operators who drive the ICT industry are hanging as a result of the fear of the violence that may ensue after the general election.
Major telecom operators who normally make public their investment plans for each new year have remained silent. Also, the fear of the outcome of the elections is also being attributed as one of the reasons for stalled the 2.6 GigaHertz spectrum auction that would have taken place in December 2014, with the telecommunications regulator, Nigerian Communications Commission (NCC), putting it on indefinite suspension.
Industry players saythe telecom licence auction with a base price of N34.8 billion is being frustrated by lack of interest from telecom operators who have adopted a ‘wait and see’ attitude.
“It is unfortunate that the two licences-Broadband Infrastructure Companies (InfraCos) and the 2.6GHz are being programmed few weeks to the general election in Nigeria. No discerning investor will stake his money at this critical period. They will prefer that any telecom auction will take place after the general election,” said a top official of the one leading mobile operators who does not want his name mentioned.
The NCC had planned to auction seven licences in Lagos and the six geopolitical zones since the third quarter of 2014, without success. The regulator wanted to start with pilot auctions in Lagos and North Central Zone, but the process is said to be stalling as a result of non-competitive bidding from major service providers in the country who have the bulk of investments in fibre-optic cable and copper infrastructure scattered across the country.

Legislative framework, not elections discouraging investment – Experts
Experts in the energy sector do not view the coming election as a challenge in making investment decisions, rather they blame obsolete legislative framework and weak institutional and human capacity as impediments.
They said even in the upstream sector, indigenous firms were bracing up for asset development.
Managing director and chief executive officer of Mandy Petroleum, Barrister Chidi Ahaotu, said his company is currently procuring petroleum delivery assets and planning a joint venture project with a foreign firm to execute a tank farm facility to expand its operations before the end of 2015.
Ahaotu also said that some other upstream operators are securing facilities to develop oil production assets.
For instance, he recalled that a Nigerian oil company, Seplat Petroleum Development Company Plc (Seplat), had successfully refinanced its existing debt facilities with a new $700 million seven-year facility and $300 million three-year revolving credit facility.
He said the seven-year facility also includes an option for the company to upsize the facility by up to an additional $700 million for qualifying acquisition opportunities.
He noted that even the banks were willing to fund energy projects, the election notwithstanding, and that the $700 facility by Seplat was closed with a consortium of banks in Nigeria, comprising First Bank of Nigeria Ltd, Stanbic IBTC Bank Plc, United Bank for Africa Plc and Zenith Bank Plc.
In the power sector, respondents identified epileptic electricity as the one issue that has remained malignant and ever present drawback in the political economy, and that a lack of political will to turn around the sector has posed a major challenge.
Adetayo Adegbemle, a researcher and convener of PowerUP Nigeria, on his part noted that key issues affecting development of the sector range from political will, policy failures, technical capability, greed, lack of a sense of duty, and systemic corruption coupled with sabotage from a set of people (which is called by the loose term- cabals).
“Whichever position one is tempted to take, the direct and visible result is that the power sector has simply remained moribund, and nothing good seems to come out it.”
Barring the 20 years period from 1980 to 1999 where successive governments made little or no investment in the sector, over $1.2bn had been pumped annually into the sector since the return of democracy, he observed, insisting that election has nothing to do with investment in the sector as more foreign companies have entered into memorandum of understanding (MOU) this year with government.
Also, chairman Momas Electricity Meters Manufacturing Company Ltd (MEMMCOL), Engr. Kola Balogun, said that if government starts to fully implement the Local Content Policy in the meter manufacturing segment of the power industry, indigenous firms would expand their present installed capacity.
Balogun said efforts had been made, through presentations to government, on the need to patronise local manufacturers to enable them raise production and create jobs.
Property development experts are of the view that while the uncertainty in the forthcoming elections could delay investors going into concession deals with the present government, it has no strong effect on property market.
In the property market, they noted, selling a home is a big decision; it goes beyond mere office talk.
According to a realtor, Amos Ishola, despite the coming election, the Nigerian property market is still very stable.
“What you see right now is situation whereby some politicians contesting the February election are throwing some properties in the market to raise money, and investors investing in the real estate sector are also buying the properties.”
For the managing director Realty Point Ltd, Mr. Debo Adejana, the real estate sector has remained an investor’s haven for long, saying, “Whether there is election or not, you don’t wait to buy property but you buy property and wait. The value will always appreciate.”
In the view of Engineer Afolabi Adedeji, the managing director of Ethical Business and Management Associates, the approaching general election has sparked uncertainty over the political direction of the country.
He said it is obvious that many vendors who were previously inclined to sit on the sidelines now seem eager to put their properties in the market to raise funds for political projects.
“What I know, for sure, is that no right thinking investor will go into concession agreement with the present regimes a couple of weeks away from the presidential and governorship elections. So some people might want to see what’s going to happen first before investing in infrastructural development deals.”
Beyond the election the managing director of Cornerstone Construction Company Ltd, Mr Lanre Okupe, noted that though election is around the corner in the country, property prices are likely to fall in line with the financial market.
Okupe said the drop in oil price and devaluation of the Naira will have more noticeable effect in the real estate market than next month’s elections.
According to the president of the National Association of Government Approved Freight Forwarders (NAGAFF), Chief Eugene Nweke, foreign investment is usually threatened during major elections such as the presidential election and this is usually the case anywhere in the world due to uncertainties surrounding the political atmosphere. However, due to the long term nature of typical maritime investments, it is not usually easy for investors to withdraw or withhold investments within a short time.
“We have reports of foreign investors coming into the country from Europe and we have been told that some of them will invest in Maritime. Already, we have investors for the Lekki Deep Seaport and the Badagry Port and these investors have not disclosed their intentions to withdraw from these projects. Their investment intents are intact,” he stated.

(Culled from http://leadership.ng)

January 19, 2015

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