the state of the market report q1 2012 - jan - apr 05, 2012,

8/2/2019 The State of the Market Report Q1 2012 - Jan - Apr 05, 2012,

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The Q1 2012 State of the Market Reports

January 2012 to April 05, 2012

ISSN 1597 - 8842 Vol. 1 No.92


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The State of the Market Reports Q1-2012

Copyright@ 2012 www.proshareng.com All Rights Reserved. Page2

CONTENTS

1.0 Revenue Allocation, Insecurity & Poverty in Northern Nigeria 32.0 Paradox of Nigerias Economic Growth and Poverty Levels 073.0 Global Stock Market, the NCM and the Unending Recovery Crisis 114.0 Should Investors add Gold to their Portfolios? 135.0 Dividend Payments in the Nigerian Capital Market - A View 166.0 Subsidy Removal In our Best Interest! 197.0 Fuel Subsidy: Impact on Oil Marketing Companies on the Bourse 228.0 SLS, Atedo Peterside and the Subsidy Argument - The Power of Pause! 239.0 The January Effect - Fact or Fiction? 2710.0 Fuel Subsidy Removal: A Poison Chalice or Pawn? 3011.0 Power to Minority Shareholders: High Time They Got Their Act Together 3412.0 Japual Oil records all time new low, still nose-diving. 38

All documents obtained by the team were with, and through the consent of the authors mentioned therein and

other parties mentioned in the report. No document is referenced in this report which has been obtained through

any other means other than that stated here or/and could not be verified. -2012, Proshare Nigeria Limited, All RightsReserved.

ISSN 1597 - 8842 Vol. 1 No. 92

For enquiries on this report, kindly contact us at [email protected]


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Revenue Allocation, Insecurity & Poverty in Northern NigeriaMarch 13, 2012 / Olufemi AWOYEMI, FCA

From the equality of rights springs identity of our highest interests; you cannotsubvert your neighbor's rights without striking a dangerous blow at your own. Carl Schurz

I'm sure if Sanusi Lamido Sanusi were stuck between a rock and a hard place,that would be preferable to the spot he currently finds himself in overpronouncements made in interviews, speeches and off-the-cuff responses onBoko Haram, revenue distribution and poverty in the country, especially NorthernNigeria.

Consider this: Most Nigerians agree that the current insecurity is worsened or

aided by the high level of poverty in the country and ignores any attempt todiscredit the allusions made by SLS and economic experts. However, no one isable to establish a link between accountability in governance with revenueallocation or its distribution the root cause. In this delicate exchange, the CBN

Governors growing band of critics are having a field day, employing the first rule

of politics: characterize everything he says and does as wrong. That is fair game.There are three clear groups that have emerged from this exchanges the battletested political class who would pick on any issue if it furthers their cause, the

well trained, disciplined and professional class, the aggrieved and excludedmajority and public officials of which SLS is the most visible.

If the information, reasoning and exchanges shaping the debate were premisedon facts and reflect a thorough understanding of our dire socio-economic realities,the level of discourse would be elevated beyond the current cheap politicalposturing taking place. Yet, there are serious issues being raised in and aroundthe issue that should attract the attention of serious minded persons. Indeed,given the back-drop of the terrorist siege that is taking place in the North, the

stakes couldnt be significantly higher.

For now, it is hard for the public to separate the wheat from the chaff, because ofwhere we have been, the growing distrust of government and the biting reality ofthe accelerated descent to poverty of a large majority of Nigerians. This debatehowever is necessary and long-overdue; yet before an opinion is voiced; arebuttal is released, and soon enough everything becomes muddled up. That isno way to hold an absolutely necessary national discussion on something socritical to our federalism and collective well being.

But in the fear driven culture we have created, one would concede this to be aneffective way to keep the people distracted whilst the populace pontificates

without needing to be right, criticize without having all the facts and loudly callfor a redistribution of national wealth without ever having to create one, thusfurther perpetuating the poverty, unemployment and education malaise.

Statistics appear to grossly under-estimate the immensity of poverty that defineNigerias paradox of rich country with poor masses. More than 90% of Nigeriansare poor and exist largely at the mercy of fate. These realities are much more

obvious in rural areas and slums. In these places people die because they cannotafford N500 to purchase needed medication or basic public healthcare. Worsestill, people around may not be able to help as they too may not be able tocollectively raise that amount of money. It is a very obvious reality in todays

Nigeria! As strange as it may sound, this is going on side-by-side withostentatious living by the 1%! Even the official statistics admit that over 112

million Nigerians live on less than US$1.00 a day.


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A factual indicator is the results of the harmonized Nigeria Living StandardsSurvey (HNLSS) conducted by the non-partisan National Bureau of Statistics

(NBS) which puts the Nigerian poverty profile at 69% - this indicates that povertyand income inequality in the country have increased since 2003/2004.Accordingly, the NBS estimated that this trend may rise further if the potentialpositive impact of several anti-poverty and employment generation interventionprogrammes of government fall through. The report reveals that 112.47 millionNigerians live below US$1.00 per day and as a result could barely afford theminimal standards of food, clothing, healthcare and shelter!

Since poverty and unemployment in Africa strongly correlate, it will not besurprising to assume that the unemployment rate is in excess of 40%. The officialfigure is nevertheless about 20% which analysts consider a gross under-

estimation.

But be that as it may, what is true is that we have a crisis which historically hasbeen a platform for the creation of, and dynamic sustenance of other crises. We

have unresolved issues that seek to emphasize our differences more than ourcommon destiny. We operate a system that exposes the weaknesses in the

foundation of our unity which the peoples representatives shy away fromconfronting. Yet, if the January strikes and related house probe(s) provided anylesson, it must be the fact that the inequalities and fundamental imperfections inthe macro-economic structure of Nigeria is unsustainable; and that our politicscannot crowd out the impending reaction to this unaddressed problem.

Karl Marx is popularly known for a truism which emphasizes our current reality:

religion is the opium of the poor! Yet, it is not only about religion but ourhistorical cultural practices of deliberately putting people in a state of ignorance.

Illiteracy is also both a product of and driver of poverty. Thus the greater thelevel of poverty, the higher the illiteracy rate and of course more poverty - thesedynamically reinforce each other.

Accordingly, when a young man is poor, illiterate and unemployed, he becomes aclean slate for any kind of brainwashing which according to Karl Marx is morepotent when it comes from religion and aided by culture. The reason is very

simple. First, this category of persons lacks the intellectual power to logicallyquestion or critique what they are told. They live in the world of myths. Secondly,the activity component of the brainwashing given to them provides a quasi-

equivalent of employment and thus they feel engaged in acting out what theyhave been brainwashed about. Is this not the kind of situation we find with theBoko Haram phenomenon?

To understand this clearly is to closely examine the coordinates of Boko Haram

and that of poverty in Nigeria. Boko Haram at the onset appears to have had itsoperational bases located in the poorest parts of Northern Nigeria. It is in suchplaces where people have been denied the opportunity to go to school as well as

have meaningful economic sources of livelihood that recruitment is the easiest.Boko Haram leaders are aware of it and of course are maximizing the advantagesof that obvious truth. It was not any different from the situation that prevailed

during the pre-amnesty militancy periods in the Niger Delta. The long and shortof it is that with entrenched poverty, illiteracy and unemployment, we cannoteliminate the menace of Boko Haram or similar security threats.

This draws attention to the mismatch between our recorded national economicgrowth of 7% and the growth of poverty. In 2011, while the non-oil sector grew

with major contributions to growth coming from agriculture, wholesale/retailtrade, telecommunications, hotel/restaurants and business/other services sectors,the oil sector output also grew arising from increased oil production made


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possible by paying off militants. It is only reasonable therefore to assume that ifnational real output is growing at such a strong rate, poverty should also be

declining rapidly. That is however not the case - our unemployment rate (and byobvious extensions: illiteracy and poverty) is over 20%. So who benefits from thisgrowth? Who or which sectors grow or will grow as a result of the enhancedaggregate output? Is it not time Government realizes that it cannot be the largestemployer in the economy but rather the creator of enabling environments forpeople to thrive.

It seems clear that until we deliberately orchestrate growth beyond oil (which has

limited employment generating and mass poverty reducing capacities) andeffectively liberalize the participation in the economic growth process we shallcontinue to suffer these consequences and devote more attention to equitable

redistribution or expansion of the derivation principle, increased budgets forsecurity and personality based squabbles rather than demand for accountabilityin leadership that would create economically viable states.

Promoting maximum value-creating activities in virtually all stages in the valuechain for such sectors as agriculture and solid minerals side-by-side an

aggressive war against corruption and bad governance, are the only conditionsthat can make us see meaningful positive economic changes. Agriculture is whatvirtually every Nigerian participates in! Solid minerals are everywhere in Nigeriabut most dominant in Northern Nigeria; yet no one is devoting as much energy toask why nothing has ever been done or focus attention on same.

Can a more aggressive development of agriculture and solid minerals save theNorth as well as free us from the evil and negative yielding actions of BokoHaram? Perhaps yes! It would sound like a much better proposition than the

feeling one gets of living in a state of an undeclared civil war that envelopes thepsyche.

There are many reasons for this but before going into that argument; it sufficesto state that aside Lagos State, no other Nigerian State government can survivewithout oil revenue receipts. Why has Lagos State scaled the hurdle? It wouldappear that over the years, and mostly because of its progressive outlook, it has

made its environment amenable for industrial and other economic activities.Accordingly, the more the inflow of value-creating entrepreneurs that the State isable to attract, the more the tax and other income that the government earns.

Attracting entrepreneurs in turn requires the presence of stable socio-politicalenvironment, the market for the final output as well as other input factorresources particularly, employable labour. These factors aside oil has accountedfor the differences in the prosperity of various States, a position supported by

data from the Federal Board of Inland Revenue (FBIR).

Neither has Lagos prospered or is prospering on account of the derivationprinciple! Yet many of the Northern States can orchestrate the economic

conditions that will lead to their earning the same level of the derivation bonusesas well as more funds to banish poverty.

The question however is: what are these State Governments doing with theresources at their disposal? The Niger Delta as we know it today, like otherregions is not a monolithic entity and the oil appears to be a poisoned chalice rich yet economically structurally deficient. Do the Northern states therefore

foresee a situation where there is no oil and possibly no revenue allocation?

Derivation may have taken valuable resources away from many States byconcentrating a whopping 13% of the national earnings from oil in the hands ofthe Niger Delta States, but the onus is really on all State Governments to develop


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the natural resources within their own State and equally earn a derivation! Butbeyond derivation is the tax incomes, and the economic empowerment of the

citizens of those states which are natural consequences of good economicdevelopment strategies.

In effect therefore, it can be concluded that derivation has not, in any meaningfulway, disproportionately orchestrated poverty in Northern or any other part ofNigeria. What on the contrary has driven poverty is the short-sighted fiscalmanagement of resources by many of the State Governments. Recentdevelopments in some northern states provide affirmation to this position and

highlight how purposeful leadership can alter the fortunes of citizens in the state Taraba, Bauchi, Jigawa comes to mind.

At a country level, we are predominantly import dependent, and by implication,have been exporting employment opportunities to other parts of the world thatwe patronize. The sad truth is that while we are sustaining productive activities inother parts of the world, major manufacturing companies in our own country

have either shut down or are operating below capacity. This does not seem wouldabate in the immediate future as the domestic business environment is becoming

increasingly worrisome for interested investors. The obvious consequences aremassive job loses, under-utilization of productive resources and poor livingconditions.

What this discussion in effect points at is the fact that political freedom has notyet in a significant way, resulted in the much desired economic freedom. It alsomeans that there is an urgent need to recalibrate the discussion around theissues of Boko Haram and overall insecurity in the country. Although not clearlyarticulated as such, it is inferred from the ongoing exegesis that the Boko Haram

phenomenon has a deep economic root more than any other perspectives fromwhich the investigating intelligence can suggest.

While steps be taken to prevent further loss of lives, the damage to the humanpsyche, our way of life and investors outlook; it should be very clear to all andsundry that we cannot banish unemployment, illiteracy and poverty the threestrongholds sustaining Boko Haram by focusing on oil revenue except to the

extent that it helps in making needed investments in the key sectors ofagriculture, solid minerals and gas. State governments have a huge responsibilityto save their youths from these three plagues by re-aligning the way they

allocate the scarce resources in their possession. Of course the federalgovernment has its own share of this blame based on our brand of unitaryfederalism independent states dependent on the center.

The question now is: what should be the focus of contemporary debates on this

issue. Very simply, the discussions should be couched within the context of a higheconomic security alert.

State Governments particularly in Northern Nigeria should introspect and (a)begin to realign their spending more towards attracting, protecting and retaininginvestors in the Solid Mineral and agricultural sectors of their States or any key

competence that justified the creation of the state, (b) embark on enhancedsocial investment in and enforcement of mass education. These will have moreenduring positive impacts in curtailing the menace of Boko Haram or its variants,which now includes kidnapping and outright criminality. The federal government

has almost same work to do. Otherwise we will persevere in the conspicuousconsumption and greed that threatens to ruin us all.

Olufemi AWOYEMI, FCA, ACIT is a thought-led analyst/consultant.


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Paradox of Nigerias Economic Growth and Poverty LevelsMarch 22, 2012 / Proshare

The significant divergence between the Nigerian economic indicators, macroeconomics variables and the reality presents a source of concern. The growingdisconnect between the improving macro economic indicators and the growingdescent into poverty of over 100 million Nigerians clearly has both short term andlong term implications.

Statistics appear to grossly under-estimate the immensity of poverty that define

Nigerias paradox of rich country with poor masses. More than 90% of Nigeriansare poor and exist largely at the mercy of fate. These realities are much moreobvious in rural areas and slums. In these places people die because they cannot

afford N500 to purchase needed medication or basic public healthcare. Worsestill, people around may not be able to help as they too may not be able tocollectively raise that amount of money. It is a very obvious reality in todaysNigeria! As strange as it may sound, this is going on side-by-side with

ostentatious living by the 1%!

A factual indicator is the results of the harmonized Nigeria Living StandardsSurvey (HNLSS) conducted by the non-partisan National Bureau of Statistics(NBS) which puts the Nigerian poverty profile at 69% - this indicates that povertyand income inequality in the country have increased since 2003/2004.Accordingly, the NBS estimated that this trend may rise further if the potentialpositive impact of several anti-poverty and employment generation interventionprogrammes of government fall through. Since poverty and unemployment inAfrica strongly correlate, it will not be surprising to assume that theunemployment rate is in excess of 40%. The official figure is nevertheless about

20% which analysts consider a gross under-estimation.

But be that as it may, what is true is that we have a crisis which historically has

been a platform for the creation of, and dynamic sustenance of other crises. Yet,if the January strikes provided any lesson, it must be the fact that the inequalitiesand fundamental imperfections in the macro-economic structure of Nigeria isunsustainable; and that our politics cannot crowd out the implosion that would

ensue from this unaddressed problem. It is a trite fact that unemploymenteconomically translates to low purchasing power leading to lesser consumption ofgoods and services. This in turn impacts on businesses who then have to lower

production outputs (or seek new markets, an irony when we have the largestmarket in Africa). These cyclical behaviour ultimately impacts economic growth inthe long term.

It is this basic, and perhaps simplistic understanding that makes the touting of a

continued growth in GDP curious; as it suggests we had more production in thecountry. Yet if total output was so impressive, the question must be asked as towhy this is not reflected positively in the unemployment, poverty and income

figures for the majority of its people. Further, it is curious how what should beour distinct advantage our 160million population size is now a burden on thesovereigns resources. Could it have something to do with the economic model

that positions Nigeria as an input provider and an import dependent economy? Isit not possible that our policy of selling all our agricultural produces and mineralresources (cassava, cocoa, cashew, oil etc) as inputs to developed nations whohas invested in PROCESSING/PRODUCTION and exports same back to us to

consume is the underbelly of all our problems?

Questions and more questions continue to agitate the mind. Yet, it is clear thatwe cannot continue to pretend about this reality anymore. Until we pursue agrowth inclusive economic model, we would continue to manage an economy that


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pushes the productive capacity of this country into irrelevance, and the people farinto desperation.

Shedding some light on the impending crisis, CBN Governor Mallam SanusiLamido Sanusi described the level of poverty as unacceptable because of the riskit poses to economic growth.

According to Lamido ..at the heart of the problem is the governments economicpolicy which needs to change. The economy since SAP is one that supportsimported consumption and not local production, perpetuating dependency, non

inclusive growth and insecurity. Why is it that the economy is growing at 7pctannually but the people are getting poorer? The answer is simply because growthgains are not evenly distributed. Personal income is skewed towards people in the

oil industry, Telecoms, high finance, stock market, real estate and yes civilservants and politicians who feed on corruption. We produce crude oil but importpetroleum products (today the UKs highest exports to Nigeria are petroleumbased products).

We have a large cotton belt but import textiles from China (thus keeping their

subsidized factories open and jobs in china). We are the world's number oneproducer of cassava but import cassava starch from Europe. We have a hugetomato belt in Kadawa, Jigawa and Chad Basin but are the world's largestimporter of tomato paste - from China and Italy. We can produce rice but weimport rice from Thailand and India-most of it from grain reserves that have beenin stock for over 5 years.

Today Promasidor imports powdered milk from New Zealand and packages inNigeria using our foreign exchange while we have cattle. WAMCO imports milk

from the UK and adds water and tins it and calls it "production" of Peak milk. Weuse our Forex to import petroleum products and keep refineries and jobs open inEurope.

We don't create any value-added jobs as the only real production is peasantfarming. Oil, Telecoms, finance and real estate are not employment intensive. Soeveryone becomes a civil servant as the economy cannot create jobs. In the 2012

budget, out of a total N1.8tr recurrent expenditure for the executive arm N1.6tris on personnel costs not overheads. To reduce this you have to cut salaries orpensions or retrench civil servants. This is the classic trajectory of

underdevelopment, de-development and de-industrialisation

The most pitiable attribute of Nigeria society today is that majority of itsmembers are living in a state of penury while the remaining relatively

insignificant minority, are living in affluence. These distorted economic relations

do not reflect the geographic spread of resource endowment; rather it is aproduct of class greed, injustice and poor leadership.

GDP which quantifies the output of an economy has three main componentswhich constitute it and they are Agriculture, Industry and Services. In NigeriasGDP computation, the economy is broken in two broad groups namely: Oil andNon-oil Sectors.Despite oil being the major source of revenue for the country,the non-oil sector continued to be a major driver of the Nigerian economy. In Q3

and Q4 2011, the sector grew at 8.81% and 9.07% respectively. The Q4 2011growth was largely driven by improved activities in the telecommunications,Building & construction, Hotel & Restaurant, Business services and other sectors.

In February 2012, the national bureau of statistics (NBS) said despite strong

growth in Nigeria, Africa's second largest economy, the level of absolute povertyrose to 60.9 percent of the population in 2010 from 54.7 percent in 2004. Theagency further said poverty is likely to worsen this year as wealth inequality


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continues to widen. Absolute poverty, which is measured by the number of peoplewho can afford only the bare essentials of shelter, food and clothing, showed that

almost 112 million people in Nigeria were living on less than $1 a day in 2010,61.2 percent of the population, compared with 51.6 percent in 2004.

Contrast this with the statement by the NBS that Nigerias vision to be among the20 largest economies in the world by the year 2020 which is measured by GDPremained on track as only 2 countries (Mongolia at 14.9% and China at 8.9%)out of the 46 that had released their Q4 GDP estimates at the time of this reportgrew faster than Nigeria and only one of the two, China is ahead of Nigeria in

current GDP rankings.

How does one explain away this paradox?

GDP Outlook Across the GlobeCountry

2011Q4

2011Q3

2011Q2

2011Q1

2010Q4

2010Q3

2010Q2

2010Q1

2009Q4

2009Q3

Australia 2.30 2.50 1.10 1.20 3.00 2.70 3.30 2.70 2.80 0.90

Austria 1.20 2.50 3.90 4.20 3.20 2.60 2.40 0.20 -0.90 -3.60

Belgium 1.00 1.60 2.20 2.90 2.10 2.00 2.70 1.70 -0.10 -2.70

Brazil 1.40 2.10 3.30 4.20 5.30 6.90 8.80 9.30 5.30 -1.50

Bulgaria 1.60 1.30 2.00 1.50 3.10 0.30 1.00 -4.80 -7.60 -5.00

Canada 2.20 2.60 2.10 2.90 3.30 3.80 3.60 2.10 -1.40 -3.50

China 8.90 9.10 9.50 9.70 9.80 9.60 10.30 11.90 10.70 9.10

CzechRepublic

0.60 1.20 2.20 2.80 2.70 2.60 2.34 1.20 -3.23 -4.41

Denmark 0.70 0.00 1.70 1.70 2.90 3.43 2.83 -0.91 -3.08 -6.04

Egypt 0.40 0.20 0.40 -4.20 3.80 5.50 5.10 5.80 5.00 4.60

Estonia4.50 8.50 8.40 8.50 6.80 5.40 3.10 -2.60 -9.00

-15.30

Euro Area 0.70 1.30 1.60 2.40 1.90 2.00 2.00 0.60 -2.10 -4.10

Finland 1.40 2.70 2.90 5.50 5.50 3.10 4.70 -0.50 -5.50 -8.30

France 1.41 1.55 1.67 2.10 1.40 1.70 1.60 1.20 -0.50 -2.60

Germany 1.50 2.60 3.00 4.70 3.80 3.90 4.30 2.50 -1.30 -4.40

Greece -7.50 -5.00 -7.30 -8.00 -8.60 -4.60 -0.70 0.40 -0.80 -3.50

Hong Kong 3.00 4.30 5.00 7.50 6.40 6.90 6.70 8.00 2.50 -2.40

Hungary 1.40 1.40 1.50 2.40 1.90 1.70 1.00 0.10 -4.30 -6.74

Iceland 2.70 3.80 1.80 3.80 -0.10 -3.20 -6.20 -6.60 -8.60 -6.50

India 6.10 6.90 7.70 7.80 8.30 8.90 9.30 9.40 7.30 8.60

Indonesia 6.50 6.50 6.50 6.50 6.90 5.80 6.17 5.69 5.43 4.16

Israel 3.90 4.70 5.00 5.70 5.70 5.10 4.80 3.80 1.80 0.11

Italy -0.40 0.20 0.80 0.80 1.60 1.50 1.60 1.00 -2.90 -4.60

Japan -0.60 -0.40 -1.70 -0.30 3.10 5.40 4.40 4.80 -0.50 -5.60

Latvia5.70 6.60 5.60 3.50 3.60 2.80 -2.60 -6.10

-16.80

-19.10

Lithuania4.30 6.70 6.50 5.90 4.80 0.80 0.90 -0.90

-15.30

-14.40

Malaysia 5.20 5.80 4.30 4.90 4.80 5.30 9.00 10.10 4.60 -1.20

Mexico 3.70 4.50 3.20 4.50 4.40 5.10 7.60 4.50 -2.00 -5.50

Netherlands -0.70 1.10 1.60 2.80 2.30 1.80 2.10 0.50 -2.00 -3.30

Nigeria 7.68 7.40 7.72 7.69 8.36 7.86 7.69 7.36 7.67 7.30

Norway 1.50 4.00 -0.40 0.90 1.30 -1.10 1.80 -0.70 -1.20 -1.30

Peru 5.50 6.70 6.90 8.80 9.20 9.60 10.02 6.16 3.44 -0.59

Philippines 3.70 3.60 3.10 4.60 6.10 7.30 8.90 8.40 1.40 0.50

Poland 4.30 4.20 4.30 4.40 4.50 4.20 3.40 3.00 3.20 1.70

Portugal -2.80 -1.90 -1.10 -0.60 1.00 1.30 1.70 1.70 -1.50 -2.50

Romania 1.90 2.60 0.30 0.30 -0.60 -2.20 -0.40 -2.20 -6.50 -7.10

Singapore 3.60 6.00 0.90 9.10 12.00 10.50 19.40 16.40 4.60 2.10

Slovakia 3.30 3.00 3.30 3.50 3.50 3.80 4.20 4.70 -3.60 -5.00

Slovenia -2.80 -0.50 0.70 2.10 2.10 1.70 2.10 -1.20 -5.70 -8.80

South Africa 2.90 3.10 3.00 3.50 3.80 2.70 3.10 1.70 -0.60 -2.10

South Korea 3.40 3.50 3.40 4.20 4.70 4.40 7.50 8.50 6.30 1.00

Spain 0.30 0.80 0.70 0.80 0.60 0.20 0.00 -1.40 -3.00 -3.90


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Sweden 1.10 4.60 4.90 6.40 7.70 6.60 4.50 2.80 -1.80 -6.40

Switzerland 1.30 1.60 2.30 2.50 3.10 2.60 2.60 1.94 0.30 -1.70

Taiwan 1.90 3.37 5.02 6.16 7.13 10.69 12.86 13.59 9.24 -1.21

Ukraine4.60 6.60 3.80 5.30 3.30 3.60 5.50 4.80 -6.70

-15.70

UnitedKingdom

0.80 0.50 0.60 1.60 1.50 2.70 1.60 -0.20 -2.90 -5.30

United States 1.60 1.50 1.60 2.20 3.10 3.50 3.30 2.20 -0.50 -3.70

Venezuela 4.90 4.20 2.50 4.80 0.60 -0.30 -2.00 -5.10 -5.90 -4.60

Vietnam 6.10 6.07 5.68 5.57 7.34 7.18 6.40 5.83 6.90 6.09

Source: Trading Economics/Proshare

References:

1. Revenue Allocation, Insecurity & Poverty in Northern Nigeria2. Nigerian Poverty Profile Report 2010 - NBS3. Surprise! Surprise!! Nigerias Inflation Eases to 11.9% in February - FDC

Economic Bulletin - March4. Nigeria: An African emerging economy with prospects.5. Nigerias consumer inflation drops to 11.9% in Feb as against 12.6% in Jan

2012

6. Business and Economic Review for February 2012 - RTC7. FDC Monthly Economic Review for March 20128. Nigeria economy picks up on non-oil sector growth9. Poverty, Anger & Instability in Nigeria - An Appraisal

10.Sanusi predicts increase in Nigerias poverty level11.The Distribution of Nigerias Wealth amongst the States of the Federation:

2008 - 201012.Subsidy Removal In our Best Interest!

DISCLAIMER/ADVICE TO READERS:While the website is checked for accuracy, we are not liable for any incorrect information included.The details of this publication should not be construed as an investment advice by the author/analyst

or the publishers/Proshare. Proshare Limited, its employees and analysts accept no liability for anyloss arising from the use of this information. All opinions on this page/site constitute the authors best

estimate judgement as of this date and are subject to change without notice. Investors should see thecontent of this page as one of the factors to consider in making their investment decision. Werecommend that you make enquiries based on your own circumstances and, if necessary, takeprofessional advice before entering into transactions. This information is published with the consent ofthe author(s) for circulation in/to our online investment community in accordance with the terms ofusage. Further enquiries should be directed to the author.

Olufemi AWOYEMI, FCA, ACIT is a thought-led analyst/consultant.


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Global Stock Market, the NCM and the Unending Recovery CrisisMarch 30, 2012/ Reshu BAGGA, Proshare

The Eurozone economic crisis seems to be a continuous trend. This is particularlytrue for the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain). Greeceis still not out of the woods despite several rescue efforts made by European

Central Bank.

The most disturbing story now is the health of the Spanish economy. Earlier,most economists were predicting that Italy may be the next Greece. However,

the recent rise in Spain's 10-year government bond yield suggests an altogetherdifferent story. It has surged to 5.4% at the end of February 2012, 0.4% higherthan its Italian counterpart.

The main reason for this is the widening fiscal deficit in the Spanish economy.First, Spain missed its 2011 budget deficit target. Then, it tried to revise its 2012budget deficit estimate from 4.4% of GDP to 5.8%. This was enough reason for

investors to start losing confidence in the Spanish economy.

Two day ago, Barcelona-based Caixabank, one of Spain's strongest lenders,agreed to buy Civica in an all-share deal valuing Civica at 980 million euros ($1.3

billion), 27 percent less than the Civica's initial public offering price when itfloated in July 2011. The newly installed Spanish government aims to reduce thenumber of lenders to around 10 from more than 40 before the economic crisis.

Not only investors but other European economies, especially Italy are alsoconcerned. Italy has been trying hard to come out of its bad economic phase. Anyfallout from Spain would push back the whole region to the crisis situation. And it

would hurt the corrective measures taken by the Italian government as well. Butwill Spain go Greece way? Only time can answer.

The world stock markets ended last week on a sour note. The Dow Jonesindustrial average and the Standard & Poors 500 Index both fell by -1.15% and -0.50% respectively. The German DAX fell by -2.27% while the London FTSE 100also moved in the same direction with -1.86% loss while similar story can also be

said about World Market during the week based on available data.

The US stock markets were down 1.1% during the week due to disappointinghousing data. New home sales fell for the second straight month in February by

1.6% to 313,000. Fall in volumes suggested that the recovery in the US housingmarket may take longer than expected.

Furthermore, the factory data from Europe and China was also disappointing

leading to a broader fall in global markets.

In early afternoon Wednesday trading, the Dow Jones industrial average fell by

4.20 points, or 0.03 per cent, at 13,237.43. The Standard & Poors 500 Index wasdown by 0.10 points, or 0.01 per cent, at 1,416.41.

Nigerias Status, Economic? Maybe!The Nigerian Stock Market was down during the week after closing green at theend of the previous week. The market year to date performance as at 29 th March2012 stands at +0.41%.

Interestingly we remain one of the very few markets yet to record a bounce onthe back of favourable economic data and GDP growth figures.Amongst the otherworld markets, Spain was down by -2.54% while Japan was down -1.2% during


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the week. France was the biggest loser registering losses of -3.3% during theweek.

Europe is crumbling and unfortunately for Europeans things may not improvesoon. Much attention has been focused on Greece, Portugal, Ireland, Spain and

Italy, but the contagion effect remains a real and present threat.

Today, public debt in Britain is about $2 trillion and still growing despite hugecuts in spending. Africans know the ravages of poverty too well to revel atEuropes misfortunes.

Just as Europes financial crisis still threatens the United States recovery, Nigeria

is not an exception as IMF recently issued a blunt warning that unless theEuropean economic crisis is resolved, the global economy faces another 1930sstyle Great Depression which would negatively affect frontier markets includingNigeria.

The alert therefore is more urgent in the absence of a clear and deliberate plan orcommunication of a set of steps to address the continuing decline of the capital

markets and indeed the import dependent economic policy being pursued. Weneed to be assured of a safeguard plan/measure to absolve the shock from theeconomic crisis in Europe. Such measures can only be achieved through economicdiversifications and people oriented reforms both of which we have heard

nothing about.


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Should Investors add Gold to their Portfolios?April 05, 2012/ Reshu BAGGA, Proshare

All that glitters might not be gold, but the yellow metal is definitely shiningbrighter than ever before. Worries about European debt crisis haunted global

stock markets for most part of FY11, making gold a safe haven buy for investors.

From April-July 2011, it kept hovering in the range of US$1,331.33 toUS$1,360.81 per ounce.

When Standard & Poor's downgraded US rating in August 2011, it led to aweakness in the dollar index. This action, coupled with the US Federal Reserve'soperational twist and currency depreciation in some countries pierced gold prices.

Gold witnessed a strong rally at the international level till September 2011 whichadded to the sentiment. From September to December 2011, international goldprices however fell from a high of USD 1,923 per ounce to USD 1,594 per ounce.

The CPM Group in its 2012 Gold Long-Term Outlook report cited that last yearmarked the 10th annual average increase in gold prices. The past decade was aperiod of declining mine supplies, rapidly growing secondary supply, declining netsales of gold from central banks (turning to net purchases by 2008), decliningfabrication demand, and significantly larger volumes of investment demandrelative to previous decades.(http://www.cpmgroup.com/free_library1/PRESS_RELEASES/Gold_Long-Term_Outlook_Press_Release_January_2012.pdf)

After recording a lifetime high last year, the question now is will investors have topay up more to add gold to their portfolio?

According to the CPM Group, gold prices are likely to remain high this year butthey are unlikely to rise above the record levels reached in 2011 as increasing

supply versus a bigger global pool of investors for gold are combining to put afloor under the market, and prices are expected to remain firm, without theparabolic rallies of the recent past.

The CPM report further added that in spite of soaring gold prices, China and Indiaare expected to continue to buy gold in 2012 at the same levels seen in 2011.China is the largest mine producer and refiner of gold and one of the largestconsumers of gold. Gold fabrication demand and investment demand in China are

expected to grow at a strong pace over the next ten years, outpacing growth indomestic supplies from mines and scrap.

Gold is believed to be the most favorite investment option. Apart from its

traditional importance in certain countries, gold investments act as a shieldagainst economic downturn and crisis situation. Besides traditional options likepurchasing jewellery or investing in gold bars and coins, plethoras of new options

are available like the Spot Exchange, Gold ETFs and also Gold Fund of Funds.


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Currently, with a larger number of global investors for gold, rise in supply is beingequalized with demand which eventually is providing a support to gold andpreventing it from any big decrease in value.

If the forecast in the CPM Groups report is to be believed, then gold could enterinto a consolidation phase after seeing a decade of long continuous rise in prices.

Though it was highlighted that the uncertainty over worldwide economicconditions still prevails, there are no more fears that the global financial systemwill collapse. As such, investors have stopped buying into gold from a panicreaction mode.

Apart from trading in gold and silver, other precious metals that can be traded oninclude platinum and palladium. Gold and silver investors need to diversify asinvesting in precious metals means more than simply buying the "barbaric relics"that have served as money in the past.

For today's investors, there's a small window of opportunity to get in on both of

them before prices really start to take off. As commodities and mining expertPeter Krauth recently explained, "soon virtually every substance vital tomodern life will become enormously expensive and profitable forinvestors who know how to play it."

Palladium, element 46, is one of the platinum group of metals which share thecharacteristics of being chemically inert and physically heavy. Palladium is

industrially important because of its ability to absorb up to 900 times its ownweight of hydrogen gas, making it ideal for use in automobile catalyticconverters. (http://moneymorning.com/2012/03/28/investing-in-precious-metals-four-ways-to-diversify-with-palladium-and-platinum/)

Because of this use, its price peaked in 2000 at over $1,100 an ounce, at a timewhen gold was selling for around $250 an ounce. Currently its price is around$690 an ounce, which is much cheaper than platinum. That's why the automotive

market is switching back to it. As much as 25% palladium can be substituted forplatinum in catalytic converters, and that proportion has been increased to 50%in the laboratory.

Platinum, element number 78, is much heavier than palladium, checking in 20times as heavy as water. As with palladium, its primary use is in catalytic


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converters, but it also has uses in jewellery and electronics. The price of platinumhas traditionally been higher than gold's, and it soared to over $2,000 an ounce

in 2008; currently it trades around $1,640, or just below gold.

Although palladium is twice as common as gold, only 200 metric tons ofpalladium and platinum are produced annually, less than a tenth of annual goldproduction.


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Dividend Payments in the Nigerian Capital Market - A ViewApril 6, 2012 / Proshare Research

For many investors, dividend-paying stocks have come to make a lot of sense inNigeria given the almost cultural belief that making returns on investment is theessence of engaging in any investment or business plan.

Many investors think of dividend-paying companies as having low-returninvestment opportunities compared to high-flying small cap companies whosevolatility can be pretty exciting; thus representing dividend-paying stocks as

more mature and predictable.

In the last few years, activities in this regard appear to be dull, the practice

nonetheless provides a combination of consistent dividend with an increasingstock price which offers earnings potential powerful enough to get excitedabout.

Dividends paid by corporate firms are therefore viewed positively by theinvestors, firms and the general public without question. The firms which do not

pay dividends are conversely rated by these groups without consequential impacton share prices.

The people who support the relevance of dividends payment clearly state thatregular dividends reduce uncertainty of the shareholders i.e. the earnings of thefirm is discounted at a lower rate, thereby increasing the market value. However,it is exactly the opposite in the case of increased uncertainty due to non-paymentof dividends.

The dividend policy of a firm traditionally helps the decision to pay cash dividendin the present or paying an increased dividend at a later stage building aperception of growth, strength and viability. The firm could also pay in the form

of stock dividends which unlike cash dividends do not provide liquidity to theinvestors; however, it ensures capital gains to the stockholders and as suchdetermines the form of payment.

Empirical Data in the NCMIn the year 2010, out of the 199 First Tier Equities listed on the main board ofthe Nigerian Stock Exchange, Eighty-Four (84) firms representing 42.21% of the

entire listed first tier equities, paid dividends to its investors with Large CAP,Medium CAP and Small CAP companies comprising of 7, 22 and 55 quoted firmsrespectively. Large CAP companies that made the top ten in this period wereNESTLE and NB. TOTAL and MOBIL both made the top as Medium CAP stocks

while FTNCOCOA and CAP both made the chart as Small CAP dividend paying

stocks.

The number of companies that paid dividend in the year 2011 witnessed a slight

drop in total figure Seventy Six (76) out of 186 First Tier Equities listed on themain board in the year under review (a drop of 8 or 10% from 2010 figures). Thisfigure represents 40.86% of listed First Tier Equities with Large CAP taking 7

while Medium and Small CAPs took 19 and 50 in that order. Two financial servicescompanies, GUARANTY and ZENITHBANK, both made the list as Large CAP stockswhile TOTAL and NNFM BOTH made it as Medium and Small CAPs stocks.

As at Q1 2012, Twenty (20) quoted firms out of the 187 First Tier Equities listedon the main board have proposed dividends to its investors representing 10.70%

of the listed First Tier Equities. 3 Large CAP companies are characterized in thefigure while Medium and Small CAPs firms have 7 and 10 correspondingly.


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ZENITHBANK led the chart as a Large CAP stock while PAINTCOM and WAPCOboth appeared as Small and Medium CAP stocks respectively.

No of Companies that Paid Dividend btw 2010 to 2012

No of Companies by CAP

Year

Length ofPeriod

No of Listed FirstTier Equities

No that PaidDividend %

Large

CAPMedium

CAPSmallCAP

2010 Full Year 199 84 42.21% 7 22 55

2011 Full Year 186 76 40.86% 7 19 50

2012 Q1 187 20 10.70% 3 7 10

Source: Proshare Research/NSE

Further analysis of this data revealed that the Financial Services Sector has

the highest number of dividend paying companies all through the periodsreviewed and this sector was closely followed by those from Consumer Goods,

Services and Industrial Goods sectors in that order.

Dividend Payment by Sectors

Year

Sector 2012 2011 2010

Financial Services 5 26 20

Consumer Goods 4 13 15

Services 3 11 13

Industrial Goods 3 8 12Oil & Gas 0 4 8

Conglomerates 1 3 4

ICT 1 3 3

Agriculture 1 2 3

Construction/Real Estate 1 2 3

Healthcare 1 2 3

Natural Resources 0 2 2

Source: Proshare Research

In the year 2012, ZENITH, PAINTCOM and WAPCO led the top ten (10) dividendpaying companies while the Oil Marketing firms comprising TOTAL and OANDOboth led the chart in 2011, closely followed by GT Bank. The 2010 top ten chartwas principally led by TOTAL, MOBIL and FTNCOCOA.

Top Ten Dividend Paying Companies

2012

Company Sector Sub sector

Dividend

Declared

Bonus

Declared CAP Size

ZENITHBANK Financial Services Banking 95kobo Large

PAINTCOM Industrial Goods Building Materials 8 kobo Small

WAPCO Industrial Goods Building Materials 75k Medium

COURTVILLE ICT Computer Based Systems 5 kobo Small


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VANLEER Industrial Goods Packaging/Containers 30kobo Small

VITAFOAM Consumer Goods Household Durables 30kobo Small

NAHCO Services Transport-Related Services 25k 1 for 5 Small

JBERGER

Construction/Real

Estate Non-Building/Heavy Construction 2.40k Medium

NESTLE Consumer Goods Food Products-Diversified

11.05k (Final),

1.50k (Int) Large

CAP Industrial Goods Building Materials 1.50k Small

2011

TOTAL Oil & Gas

Petroleum and Petroleum ProductsDistributors 600k, 200 Medium

OANDO Oil & Gas Integrated Services N3.00 1 for 4 Medium

GUARANTY Financial Services Banking 75k,25k 1 for 4 Large

NNFM Consumer Goods Food Product 90k Small

ZENITHBANK Financial Services Banking 85k Large

DANGSUGAR Consumer Goods Food Product 60k Medium

UAC-PROP

Construction/Real

Estate Real Estate Development 55 kobo Small

NASCON Consumer Goods Food Product 50k Small

ROADS

Construction/Real

Estate Non-Building/Heavy Construction 50k Small

ENAMELWA Consumer Goods Household Durables 42k Small

2010

TOTAL Oil & Gas

Petroleum and Petroleum ProductsDistributors N8.28 Medium

MOBIL Oil & Gas

Petroleum and Petroleum Products

Distributors N7.00 Medium

FTNCOCOA Agriculture Crop Production N3.50k Small

OANDO Oil & Gas Integrated Services N3.00 1 for 2 Medium

FLOURMILL Consumer Goods Food Product N2.00 1 for 10 Medium

NESTLE Consumer Goods Food Products-Diversified N10.60 Large

CAP Industrial Goods Building Materials N1.60k, N1.00 1 for 3 Small

NB Consumer Goods Beverages-Brewers/Distillers N1.50, 0.89k Large

UACN Conglomerates Diversified Industries N1.30k 1 for 4 Medium

NB Consumer Goods Beverages-Brewers/Distillers N1.15k Large

Source: Proshare Research/NSE

It is natural for shareholders of quoted companies to anticipate dividend paymentat the end of every financial calendar year YET it must be appreciated thatcompanies do and can decide to re-invest the profit(s) made in the business

through retained earnings.

Some believe that company profits are best re-invested back into the companywhile others are in support of companies that return profits to shareholders. The

former group tend to view such company management as having run out goodideas for the future of the company and may impact the fortunes of the stock in aclime that has been traditionally sold the message that dividend payout is ameasure of progress.

The challenge for the NSE is to encourage companies to justify their dividendpayment policies as a function of their forecasts, holding such companies

accountable to its internal processes of profit warnings, facts behind the figures

and the believability index of the information upon which investors take decisions.


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Subsidy Removal In our Best Interest!January 05, 2012 / 10:45 AM

Here is a straight-to-the-point response to some internet enquiries on the fuelsubsidy by Sanusi Lamido Sanusi (Governor of the Central Bank of Nigeria).

Here, SLS shares his convictions and presents a holistic insight into the realityabout the Nigerian economy, governance, corruption, the growing gap betweenthe rich and the poor, the challenges to sustainability, the need for therecalibration of the current debate and concerns about the decision taken toremove the subsidy on PMS.

The Case for Subsidy Removal

QUOTE - As a Nigerian and an economist, I often take positions on economic

matters and this position is one I have had for years long before coming in to theCentral Bank. I have also taken time to explain this position on several occasionsand criticised government for not doing this before now.

In 2010 at a public hearing in the House of Reps on the 25pct saga I alerted thenation of what I considered a potential big scam around subsidies and urged forits removal. No one paid attention. The economics is very clear to me. That it is

unpopular is also understandable.

The British public is unhappy with Tory budget cuts. The Greeks went on riot overausterity. Italian parliamentarians came to blows before Berlusconi was thrown

out of office. The US congress is yet to approve Obamas tax increases.

Economic decisions-by definition-ALWAYS must involve a cost or an opportunity

cost since for them to qualify as economic they must involve a choice in resource

allocation among competing uses.

An enlightened debate is one that weighs the pros and cons of removing subsidy

and continuing with it. Removing it has costs in terms of Nigerians payingmore for PMS-which by the way is not the fuel for generators, power plants,production facilities, heavy duty goods transportation trucks and even luxury

buses. It is fuel used by the middle class and car owners to drive around townand from city to city not to employ workers and produce goods and services.

Diesel which is critical to manufacturing and employment creation is not

subsidized as the subsidy was removed years ago by President Obasanjo.Nigerians said nothing then because it was blue collar workers that got

retrenched by factories. Those speaking now on the internet and facebook andtwitter and newspapers are not workers but middle class elite who use PMS intheir smart cars so let's stop all the ideological pretence. This is not about eliteand masses but an intra-elite discourse.I will summarise the issues and I write as a Nigerian economist and public

intellectual not as a public servant:

1. I am a strong advocate for subsidies if they are for production and notconsumption and if they benefit the poor and not middle men and rent seekers.

The US government subsidizes cotton and wheat farmers and Nigeria spends itsreserves importing wheat from America and keeping American farmers employed.The OECD countries pay subsidies to cattle farmers. Today Promasidorimports

powdered milk from New Zealand and packages in Nigeria using our foreignexchange while we have cattle. WAMCO imports milk from the UK and adds


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water and tins it and calls it "production" of Peak milk. We use our Forex toimport petroleum products and keep refineries and jobs open in Europe.

Meanwhile precisely because of market distortions there can be no private sectorinvestment in refineries since no one can make profit selling at the regulatedprice unless we are going to provide private refineries with crude for next tonothing. Certainly no one can purchase crude at market price, refine it and sell atN65 without huge losses so this explains why there are no private refineries.

2 What I mentioned above is at the heart of the problem with governmenteconomic policy which needs to be changed. The economy since SAP is one that

supports imported consumption and not local production, perpetuatingdependency, non inclusive growth and insecurity. Why is it that the economy isgrowing at 7pct annually but the people are getting poorer? The answer is simply

because growth gains are not evenly distributed. Personal income is skewedtowards people in the oil industry, Telecoms, high finance, stock market, realestate and yes civil servants and politicians who feed on corruption. We producecrude oil but import petroleum products (today the UKs highest exports to

Nigeria are petroleum based products).

We have a large cotton belt but import textiles from China (thus keeping theirsubsidized factories open and jobs in china). We are the world's number oneproducer of cassava but import cassava starch from Europe. We have a hugetomato belt in Kadawa, Jigawa and Chad Basin but are the world's largestimporter of tomato paste - from China and Italy. We can produce rice but weimport rice from Thailand and India-most of it from grain reserves that have beenin stock for over 5 years. I can go on and on

3. If the above is clear then it is evident that this trajectory can only lead to

disaster. We will continue to spend our resources promoting growth andemployment in our trading partners countries. When the Terms of trade shiftagainst us, we can only have foreign reserves because by the good grace of God

we have Oil which will be exhausted soon and with new discoveries may becomeso cheap it loses value. We don't create any value-added jobs as the only realproduction is peasant farming. Oil, Telecoms, finance and real estate are notemployment intensive. So everyone becomes a civil servant as the economy

cannot create jobs. In the 2012 budget, out of a total N1.8tr recurrentexpenditure for the executive arm N1.6tr is on personnel costs not overheads. Toreduce this you have to cut salaries or pensions or retrench civil servants. This is

the classic trajectory of underdevelopment, de-development and de-industrialisation.

4. For the above reasons I am a strong proponent of structural reform and this

begins from the fiscal framework. The limited resources of government should be

allocated to supporting production-especially if we are running a budget deficit.We cannot keep borrowing to support conspicuous consumption. To support a jobcreating economy we need to fund power, transportation infrastructure, market

infrastructure and access, technical and vocational education etc. We need tobuild rice processing plants, produce starch and cassava flour and ethanol,process our tomato and milk locally, regenerate our textiles firms (which used to

employ 600,000 workers but now employ 30,000!), refine our own crude etc. Wecannot even begin to do this if 30pct of govt expenditure is on fuel subsidy, if outof the balance 70pct is recurrent spending, 10pct is debt service, 10pct goes tothe Niger Delta and only 10pct is capital expenditure. So it is about a choice-what

do we spend money on and how do we allocate resources? This is the real debatewe should be having.

5. We often compare ourselves to other oil producing countries like Saudi Arabia.What are the facts? With a population of over 160m we produce 2mbpd i.e. 1


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barrel for every 80+ citizens daily. Govt share of revenues is like 50pct of everybarrel so it is effectively a barrel for 160 citizens. Saudi Arabia with a 24m

population produces over 8mbpd or one barrel for every 3 citizens. In fact in2010 the nearest OPEC country to Nigeria in production per capita was Algeriawith a barrel for 30 and Algeria is more gas than oil.

With one barrel for 3 citizens daily, Saudi Arabia is able to provide infrastructure,education, healthcare and social safety nets and have huge savings. It canprovide subsidised fuel at a total cost that is a fraction of its savings and evenexport refined products. It is paying for subsidies out of its fiscal savings and not

borrowing to pay.

We are like a poor man with a rich neighbour. The neighbour builds a good

house, buys several cars, eat expensive food, travel abroad every year and stillhave huge balances in several current accounts. Then you choose to live thatlifestyle and mortgage your house, take an overdraft from the bank to finance it.Next year it is time to repay the bank, you don't have the money so you go to

another bank; borrow enough to pay the first banks principal plus interest andalso fund the continuation of the lifestyle. It continues till you can't borrow

anymore and the bank throws you and your family out of your house and youlose everything. A responsible father would have long since faced reality and toldhis family he doesn't earn as much as his neighbour and expectations need to bemoderated if they are to keep their roof. Of course the children won't be happy atnot going to Hawaii for summer and having to take public transport rather thanown cars like their neighbour's children. Maybe they will even abuse the fatherbehind his back and call him a miser. That is the cost of leadership.

Finally: removing subsidy is not a silver bullet that solves our economic problems.

Further, there is a huge trust deficit that government has to address.Government needs to investigate subsidy payments and punish any violations ofextant guidelines. It needs to cut off unnecessary and wasteful expenditure. It

needs to fight corruption and show seriousness in that. It needs to deliver oncapital projects, power and infrastructure including irrigation, farm-level storageand agri-processing.

These are all valid issues that are to be taken IN ADDITION to and not in place ofsubsidy removal.


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Fuel Subsidy: Impact on Oil Marketing Companies on the BourseWednesday, January 04, 2012 12:25 PM /Reshu BAGGA

The January 1, 2012 inevitable but curiously timed decision to deregulate thedownstream Oil and Gas Sector did little to change the fortunes of the sectors stocksquoted on the bourse, as the equities remained neutral.

On January 3, 2012, the first trading day of the year Japaul Oil closed 4.44 percentup at N 0.94 on the Nigerian Stock Exchange, Eterna Oil was up by 1.35 percent to N3.00 while all other stocks in sector did not showed any movement.

Balancing ViewsWith a tight budget for infrastructure funding open to the government in its budgetplans, the removal of the fuel subsidy is seen by analysts as the fluid required tobridge the gap while shoring up our foreign exchange reserves.

The removal of the subsidy (even though no one has been able to explain how orwhat triggered the increase from N240bn to N1.2 trillion) is fully supported by the

IMF/World Bank and many who believe that this is another way of closing some ofthe loopholes in the Nigerian economy. Naturally, this should have encouraged areaction of sorts in the equities of companies in that sector. This was not the case onTuesday. Events as at the time of writing this report has not altered this position on

Wednesday.

Pricing energy is always going to be a politically difficult issue. However, higher fuel

prices will work as an incentive for consumers and companies to use a scarceresource more carefully and hopefully, more efficiently. Benefits of the fuel subsidyshould remain limited to a target class, as the higher society class has a tendency touse subsidized cheaper fuel more.

The major adjustment might mean a reduction in consumption above the equilibrium between

need and resource. We will naturally be interested in computing a new consumer price

index (to track the changes on a daily, weekly and monthly basis); tracking changeson the sectoral stocks, changes in foreign exchange prices and flows, international oilprices and input related cost to the PPPRA cost model; as well as the utilization of

the proceeds under the Christopher Kolade led team.


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SLS, Atedo Peterside and the Subsidy Argument - The Power of Pause!January 10, 2012 / Olufemi AWOYEMI

The subsidy conversation is one thing. Holding govt accountable is another. The secondconversation should continue. Sanusi Lamido Sanusi

At moments like this, it is quite dangerous to stay mute.

Yet the majority of esteemed professionals and respected citizens in both themiddle class and upper middle class, in doing so, have given way to a cacophonyof voices that is more noise than facts or reason.

For those that contribute to the debate, being politically correct has been theirmain pre-occupation. They are neither for nor against, and rightly so and yet theynever seem to have a well articulated position, alternative or way out of the

conundrum we find ourselves.

In a nation like Nigeria where patronage, sycophancy, access to power,

allocation, quota system and being with the in crowd are essentials to wealthand status, there are compelling reasons why people would thread cautiously andseek to be politically correct.

Strangely, for those who are blessed enough to discern a moment in history, thisis not one of such period to place too much weight on political correctness. Theenormity of the situation we are confronted with is too grave and too polarising toavoid building consensus on a common or negotiated way out.

Fact is that the sovereign is under siege from within - its own government andthe citizens.

Everybody is talking and no one is listening. Innuendos pass for facts, illusionsand perceptions pass for beliefs and emotions replace informed reasoning. I ask,are we allergic to common sense?

The current situation as at today is that Nigeria is on an indefinite pause.

We have a strike action without a terminal date in view, parties who are notwilling to yield grounds on their interpretation of what is best for the economy;and most disheartening, a citizenry left to recall such metaphors as worsesituation than the civil war, better rapport during the military era. FederalGovernment has been infiltrated by terrorists (BH) and The poor will havenothing left but the rich.

The comments and contributions inspired by the Sanusi Lamido Sanusi (SubsidyRemoval In our Best Interest!) and Atedo Peterside (Subsidy removal willsupport fiscal viability of Nigeria, says Peterside) are well reasoned convictionsare well noted.

We ought to acknowledge and give kudos for these patriots for speaking up andsharing their knowledge, insight and perspectives on the issue.

I personally admire SLS for his courage, consistency, and tenacity in saying thatthe culprits in the subsidy fiasco ought to be prosecuted. He must equally becommended for saying that the need to reduce wastage in governance is a clear

and present danger to our economy.


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I wish others did the same whether for or against. Rather than knock them formanning up, we should take the gauntlet thrown down to advance a more

superior logic to the central issues of an unfortunately convoluted debate.

Personally, I am not entirely convinced, but persuaded to acknowledge this viewpoints as an analyst. I will always give a benefit of doubt as to the motives andreasoning behind the removal as advanced by these gentlemen, perhaps not thechaotic and disorientated arguments put forward by government officials beforenow which included the tokenism with transit buses and reduction in basicsalaries, and actual elimination of wastages that increase the unreasonable cost

of governance immediately.

The subsidy will have to go. On that I am resolute but untrusting of government

and its ability to hold itself accountable. Government is a key part of the problemand our lack of institutions makes this all the more worrisome.

My stand is not predicated on any doubts as to the intentions, sincerity and

macro economic arguments advanced by the two most articulate proponents ofthe government action. No, my stand is premised on the following unresolved

issues:

1. The conversation is not structured and we appear to be addressing differentsides of a sovereign crisis with a simplistic assumption that the fuel subsidyremoval is the sole issue. Fact is that the people of Nigeria are sick to theirguts of funding an inefficient, fiscally irresponsible and personal examplevacant government that has not shown any measure of prudence,accountability and responsibility in the management of its affairs;

2. The attempt at establishing a correlation between the role of a CEO of a for-

profit business and that of a President of a nation is ill informed. This is moreso in a country where the social contract between the leaders and the citizensis frail and now more strained and fragile;

3. The role of the Federal Government in the Oil & Gas sector is critical tounderstanding why there exists a trust and integrity deficit in relation to theplans/intentions and expectations. If the government (this regime and thosebefore it) has confirmed its inability to contain the collusion inspired

corruption that is taken place, it will in all probability be unable to do so whenit has washed its hands clean of the scheme;

4. The facts and data/statistics related to consumption, prices, production,

players, budgeted payments and role of the banking sector is murky,unavailable and deliberately distorted as to allow for an informed discussionusing a common set of data.

5. The contributors to the debate may not in the main be altruistic and may be

unfairly targeting a government that its only, but perhaps fatal flawed in its

inability to sell and secure a buy-in for a decision long anticipated. There areconsequences for such colossal mismanagement of a defining course of actionas intended here. So this reaction from the people is not unexpected.

By way of synthesis, let me share some views on the thread on this subjectmatter from three different perspectives gathered while covering the subject in

the last one month:

That the more vocal argument that It is a fallacy that removing the fuelsubsidy has costs in terms of Nigerians paying more for PMS, which by the

way, is not the fuel for generators, power plants, production facilities,heavy duty goods transportation trucks and even luxury buses. It is fuel

used by the middle class and car owners to drive around town and fromcity to city not to employ workers and produce goods and services doesnot stand up to the poverty linear equation for Nigeria.


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war launched against it. There exists an absence of a clear and well-thought-out strategy for effectively advancing this reform agenda. To say

that the government has handled this issue in a thought-led manner is afalsehood beyond comprehension. The follow-up has been treacherous atbest, yet the inevitability of a decision range from removal of subsidy tothe listing of the NNPC will always reveal some false starts and powerfulresistance from those who gain from it, those to be affected and thosewho might capitalise on such a core input in our personal and economiclife. This, I believe is where the government bottled it. But then this is notthe end of the story, just a part in an unending drama about a nations

journey.

Now what needs to be done?

This is where the regarded and esteemed members of the forum have to riseabove our personal fears, anger and shock about the developments and becounted in bringing about order in the decision making process that would

engender this change.

We need to articulate a data-backed, concern relevant and sovereign inspiredposition for the parties to consider. It is my belief that we are in the spring of ourrevival as a nation and this may yet be our finest hour to once again show theworld that we are capable of self-determination, governance and resolve.

It is dangerous to remain mute. Remaining mute is what got us into thisquagmire? Now is the time to speak up, speak out but do so with clear, commonsense data that can inform, enlighten and heal.

About the Author(s): Olufemi AWOYEMI, FCA, AIoD, ACIT is the CEO/MD of Proshare NigeriaLimited, Advisor to the House of Representative Capital Market Committee, Member of the EditorialBoard and Strategy & Research committee of the Chartered Institute of Bankers of Nigeria. He is alsoon the board of many thought led consultancy firms locally and internationally.


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The January Effect - Fact or Fiction?January 16, 2012

A general increase in stock prices during the month of January. This rally is generallyattributed to an increase in buying, which follows the drop in price that typically happensin December when investors, seeking to create tax losses to offset capital gains, prompt asell-off.- Investopedia

At the close of 2011, most financial markets closed on a pessimistic note. It isnoteworthy that this was a continuation of the trend all year long.

Two weeks into the New Year, the mood and sentiment should have changed forthe better but alas, we have had to contend with an untimely announcement fromthe Federal Government which came on January 1, 2012 that the fuel subsidy

would end immediately as part of efforts to cut government spending

http://www.proshareng.com/news/15880.


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This action led to popular revolt and a nationwide strike that basically shut downthe economy for about 8 days.

While profitable transactions permeated market activities as seen in the ASI beingup by 0.82% YTD, this was against the background of skeletal trading activitieswhere volume traded on the floors was significantly reduced.

Internationally, the markets have fared well in January 2012. The S&P 500 is up3% for the year, the Euro zone debt crisis has yet to make new headlines andcommodities have also performed well.

A well-documented phenomenon in financial markets is what is known as theJanuary effect. Historically, risk assets perform best during the month of the

January. They perform better in January relative to any other month of the year.The January effect is said to affect small caps more than mid or large caps. Thishistorical trend, however, has been less pronounced in recent years because themarkets have adjusted for it. Another reason the January effect is now considered

less important is that more people have no reason to sell at the end of the yearfor a tax loss.

The January Effect is particularly intriguing because it doesn't appear to bediminishing despite being well known and publicized for nearly two decades.

There are many reasons for this.One is that many investors sell assets during December for tax reasons,and then buy again in January. It is more pronounced for small cap andmid cap stocks than for large cap stocks.Many investors tend to take new positions at the start of a year rather

than towards the end of a previous year.

January Effect and the Nigerian Stock Exchange

The January effect on the Nigerian market was evident in the early days when itrecorded positive returns. The real challenge is the rate at which it quickly went

down once the strike was called off. In the weeks ahead, we will monitor the

market to report on how the market responds and confirm if it is a myth orsomething we should take seriously in our market.


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Suffice to say, a heightened level of uncertainty promises to cloud the market

space in Q1 2012 in the least. Economic Fundamentals were bad to begin thisyear http://www.proshareng.com/news/15957 and a key point to note is thatmany factors have changed from a fundamental perspective.

Time line of developments in the Economy1. Committee to speed up passage of PIB to be inaugurated on 1901122. FG suspends electricity tariff hike3. Presidential Broadcast, Monday, January 16, 2012

4. US Issues Travel Warning on Nigeria5. Statement from Mrs. Diezani Alison-Madueke on fuel subsidy removal6. 2012: Being Competitive amidst Heightening Uncertainty

7. The Fraud in the Oil Industry by Sanusi Lamido8. KPMG report says NNPC is a house of corruption9. Oil Sector Corruption The AP/NNPC Saga Revisited (2003)10.Auditor General alleges distortions in Federation Account

11.Nigeria strikes costing economy $617 million a day-CBN12.Oil up $2 on Nigeria output threat

13.SA might issue Nigerian travel alert14.Nigeria union orders oil, gas shutdown from Sunday15.Foreigners join protest in Nigeria16.Foreign airlines suspend operations to Nigeria over strike17.Mr President, Wahala Dey! - The Choice Before Jonathan (2)18.Nigeria Losses N82 Bn Daily to the Strike LCCI19.Cashless: CBN postpones restriction on third party cheques till March20.What is Nigeria's Boko Haram?21.Property market ends 2011 with subdued demand, slow developments

22.Is investing in oil stocks safe post Fuel Subsidy Removal?23.Fuel Subsidy: Impact on Oil Marketing Companies on the Bourse


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Fuel Subsidy Removal: A Poison Chalice or Pawn?January 04, 2012 1136hrs / Taiwo Ologbon-Ori

The poison chalice, according to wikianswers, is a term used when somethingwas first perceived as being very good and helpful, then ends up being very bad.Often used in relation to societies to see how or why some of the past civilizationsfell. For example, Babylon and Ur developed great irrigation systems; however it

was this dependence on the systems that contributed to their down fall.

The poison pawn however is a jargon used to describe a tempting target, yet

one whose capture would ultimately be self-destructive.

In essence, in both cases you end up with a self destructive outcome simplybecause of one or all of the following: the absence of rigour in the thought

process guiding an action, the sequencing or prioritisation of the conditionsprecedent to a decision, communication management leading to a hearts andminds perceptions of beneficiaries, excluded and enforcers of the move to get abuy-in or/and the lack of creativity or innovation in packaging the change.

In all this the place of timing matters a lot. Further, a judgment call has to bemade as to when less is more and when boldness has to be matched with

audacity and tact.

It matters to the extent that the basis of the decision, and in this case, the fuelsubsidy removal is done without questions as to motive looms larger than the

substance of the action.

Some of these concerns, as aggregated from the analyst community, will include

the following:N1.2Trillion as the basis of arguement: The FG at the beginning of the2011 year set aside the sum of N240bn in its budget for oil subsidy (an

average of N20bn per month). By the end of the year, the FG is reportedto have spent N1.2tn on subsidy payments (outside appropriations by theNational Assembly). The drivers of this significant increase (400%) remainunexplained to an enlightened citizenry who are left to wonder why anincrease occurred when the international oil price did not spike nor did thelocal consumption rate increase. The foundation of the argument is thuslost in translation and salesmanship.The 2012 budget and the MTDP 2012 2015 did not include any

provisions for subsidy that pretty much meant that there was not going tobe a debate about the issue but the selling of the decision as a do-or-diedecision to Nigerians might have stretched the logic a bit too far.The sales pitch about palliatives was equally disingenuous as it presented

the provision of core basic responsibilities as a favour or an exchange forgiving up on the subsidy. The provision of good roads (concessionaire orotherwise), adequate transport enablers like rail lines and ports, provision

of adequate security of lives and property, funding of a functional fireservice, funding of the sorry healthcare delivery system and goodgovernance cannot be termed a negotiation tools. They areresponsibilities.

The lack of a clear decision from those who have taken up the call to serveto lay down the gauntlet on the key message in the decision i.e.sacrificing today to provide for a better tomorrow is lost in the profligacyassociated with governance and sustained in the pattern of recurrent

expenditure which did not reflect an austere approach to the cost ofgovernance. This lack of or absence of personal example acted tocondition the minds and remind the people of the trust deficit that has


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Crunching Game of ChessIn a game of chess a poisoned pawn is one which is left out in the open as a

target for an opponent's piece in order to lure that opponent into capturing whatlooks like an easy capture. But it is a trap that has many uses.

By way of illustration, say an opponent has a piece that is guarding a square

you want to goto in order to checkmate the king. The pawn is moved to asquare where it can be taken by that protecting piece. If the opponent goes forthat pawn it moves to a spot where it no longer guards the spot you want. Youthen move to the now unprotected square and checkmate the king. So the

opponent gobbled up an insignificant pawn only to be poisoned by the lack ofprotection. Actually, any piece can be used as a poisoned piece if used properly inthe right game situation

Technically, what this means is that the sudden removal of the subsidy onJanuary 1st as a New Year gift as against all expectations is a trap to stir themasses into protest which will provide a ground/platform for the N1.2trillion as

new cost of subsidy i.e. this is the win-win gambit for the government. A gambitis a chess opening in which a player risks one or more pawns or a minor piece to

gain an advantage in position.

So why is the administration staking its governance mandate on thismove? It can only be doing so because on the one side, it might have limitedinsight into the issues, oversimplified the possible outcomes from reactions or onthe other hand (and more plausible) it genuinely means well for the people of thecountry.

The informed reasoning would suggest that government, and to a large extent,

the people believe that we must confront the challenges of funding theinfrastructural deficit holding us back in our pursuit of becoming an industrialisednation.

The angst being vented therefore must lie, not in the validity of the subsidyremoval but more with regards to tact, timing and talking points all aboutapproach to address the most difficult issue in the most populous black nation on

earth where according to the CBN Governor, the majority of the people (thefabled 99%) live on les than $2 USD a day.

The numbers and deductions

Subsidy Budget (N'm) Actual Spent (N'm) Variance

2010 2011 2010 2011 2010 2011

Subsidy (NNPC) 271,921 ?? ????

?? ??

Subsidy (Marketers) 274,004 ?? ?? ?? ?? ??

Total subsidy budget 545,925 240,000 ?? 1,200,000 ?? 400%

Oil Benchmark US$60/barrel

Oil Vol. Assumption @N150/1$ 2,250,000/day

Some of the subsidy beneficiary in 2011

African Petroleum 104.58 Billion

A.A. Rano 1.14 Billion

A.S.B 3.16 Billion

Arcon Plc 24.116Billion

Aminu Resources 2.3 BillionAvante Guard 1.14 Billion


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Avido 3.64 Billion

Boffas and Company 3.67 Million

Brilla Energy 960.3 Million

DownStream Energy 789.648 Million

Dosil Oil and Gas 3.375 Billion

Inco Ray 1.988 Billion

Eternal 5.574 Billion

Folawiyo Energy 113.32 BillionFrado International 2.63 Billion

First Deepwater Oil 257.396 Million

Heden Petrol 693 Million

Honeywell Petrol 12.2 Billion

Integrated oil 30.777 Billion

AMP 11.417 Billion

Ascon 5.271 Billion

Channel Oil 1.308 Billion

Forte Oil 8.582 Billion

Enak Oil & Gas 19.684 Billion

IPMAN Investment Limited 10.9 Billion

Atio Oil 64.4 BillionAMP 11.4 Billion

Emac Oil 19.2 Billion

Glimpse of the 2012 budget

2012 Budget2012 (N trn)

%

Contribution 2011 (N trn)

%

Contribution

Recurrent

Expenditure3.42 72.00% 3.33 74.33%

Capital Expenditure 1.33 28.00% 1.15 25.67%Total Expenditure 4.75 4.48

The proposed 2012 budget shows that 72 percent was earmarked for recurrent expenditure, while 28percent of the budget was earmarked for capital expenditure indicating infrastructure developmentwill be slow. This unfortunately does not tally with govts reasoning (infrastructural development) forthe removal of subsidy.

2011 2012 ContributionsBudget 2012 and 2011compared

Nbn Nbn Variance 2011 2012

Budget proposal 4,226 4,749 12.38%

Capital 1,006 1,320 31.21% 24% 28%

Recurrent 2,482 2,470 -0.48% 59% 52%

3,488 3,790 8.66% 83% 80%

Stat. Transfer (NAS, NDDC,etc) 196 398 103.06% 5% 8%

Debt servicing 542 561 3.51% 13% 12%

TOTAL 4,226 4,749 12.38%

Highlighted sectors

Security (defence, police etc) 1,042 922 -11.52% 25% 19%

Education 489 400 -18.20% 12% 8%Health 339 283 -16.52% 8% 6%


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Agric 139 79 -43.17% 3% 2%

Niger Delta 57 60 5.26% 1% 1%

2,066 1,744 -15.59% 49% 37%

Debt service 542 561 3.51% 13% 12%

Statutory transfer 196 398 103.06% 5% 8%

Other sectors (not separated) 1,422 2,046 43.88% 34% 43%

TOTAL 4,226 4,749 12.38%

About the Author(s):Taiwo OLOGBON-ORI is an analyst at Proshare with input from an editorialadvisory issued on the subject.


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Power to Minority Shareholders: High Time They Got Their Act TogetherMarch 27, 2012 / Proshare

Nigerians have a tendency not to rebel. More often than not, we just complain tono person in particular and succumb to our individual circumstances. Even in ourrole as minority investors, we carry the same mindset. Quite often, we are usedto being abused by deceitful promoters. But is this about to change?

the state of the market report q1 2012 - jan - apr 05, 2012,

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