Kellogg, Brown & Root, the engineering, construction, and services company, and its former parent, Halliburton, have agreed to pay a combined $579m to settle US criminal and civil allegations that KBR bribed Nigerian government officials to obtain contracts.
The fines, imposed by the US Department of Justice and the US Securities and Exchange Commission, make the largest combined settlement ever paid by US companies for violations of the 1977 Foreign Corrupt Practices Act.
Tuesday, February 17, 2009
Middle class under pressure
By Matthew Green in Lagos / FT.com
Anne Ayinuola, founder of the Fundermentals lingerie boutique in Lagos, has a problem. As the outlook for Nigeria’s economy darkens, she has no idea how long demand for her range of luxury bras, girdles and thongs will last.
“It’s still holding up,” she says, as a pair of men browse through the almost overwhelming selection of delicates dangling from the hangers. “I don’t know what will happen in two to three months time, I don’t like to think about it.”
Located at the mouth of the Palms mall, the high temple of Nigeria’s growing consumer culture, Ms Ayinuola’s store is the perfect bellwether for the impact of the global slowdown on the country’s small but aspiring middle class.
Boasting what she describes as the widest range of designer intimates on sale anywhere in Nigeria, Ms Ayinuola’s emporium reflects the aspirations of a type of woman, or her male admirer, who wants more than the cheap Chinese imports or second-hand undergarments sold in the city’s markets.
Nigeria’s fans in the investment community have often portrayed the increasingly sophisticated tastes of this expanding cadre of young professionals as a pool of demand for goods and services that will one day spur the country into the big league of emerging markets alongside Russia and Brazil.
However, with falling oil prices sapping export earnings, dreams of owning Victoria’s Secret smalls and improbably large plasma-screen televisions, are starting to fade.
“Since you’ve been here, how many customers have come in?” says a saleswoman at an electronics store in the Palms. Her answer? “Few.”
The re-emergence of Nigeria’s middle class in part reflects a trend unfolding across Africa, where young professionals – many returning from successful careers in the west – have injected fresh dynamism into the private sector.
In Nigeria, their fate will reveal how far a programme of market reforms has delivered a genuine structural shift in the economy, rather than a temporary surge in consumption among what remains a tiny minority of a population of 140m.
Forming a thriving community at independence in 1960, Nigeria’s mid-level professionals, then mainly civil servants, were almost wiped out by the hardships of military dictatorship and repeated oil shocks. A rich elite revelled in a shower of petrodollars while everyone else remained poor.
The middle class has resurfaced as fast-growing bank and telecom companies generated thousands of well-paid jobs.
The smarter parts of Lagos, once a virtual desert for bourgeois pursuits, now boast fast-food chains, the Palms and Silverbird Galleria malls, and plenty of mid-range night spots.
High oil prices caused the cost of an acre in the Victoria Island business district to shot from 300m naira ($2m, €1.6m, £1.4m) to N1bn while the stock market grew wings.
One local bank advert declared: “What goes up, just keeps going up.”
In a matter of months, the mood has flipped. Share prices have collapsed, bank lending has slowed and runaway rents have cooled.
For millions of subsistence farmers, motorbike taxi drivers, or the city’s high-rolling oligarchs, such reversals may have little immediate impact on their lifestyles.
It is the middle class, by contrast, who will have to economise. Ben Murray-Bruce, owner of Silverbird Galleria, says the average spend is already down 20-25 per cent this year. “We just don’t have a feel-good factor any more,” he says.
Among professionals, the mood is one of apprehension rather than alarm. Ayo Koiki, a self-described member of the new middle class who works at an asset management company, says friends who have lost jobs as stockbrokers have been quick to find new roles. “It’s not like in America, or even in the UK,” she says.
But the worst may be ahead. A sharp fall in the naira has raised the price of imported suburban staples such as air-conditioners, cars and sofas.
Should oil prices dive further, then Nigeria’s middle class could taste real pain instead of champagne.
Oil price plunge raises risk of big slowdown in growth
Nigeria has won kudos among foreign investors in the past few years with a series of measures designed to break the devastating cycles of boom and bust fuelled by past oil shocks, writes Matthew Green.
But the slump in oil prices from last summer’s record highs has raised the risk that Africa’s biggest crude exporter will witness a sharp slowdown in growth in spite of its more robust defences.
Olusegun Obasanjo, the previous president, set up a system of savings to break the link between swings in the oil price and government spending in Nigeria, which depends on oil exports for 80 per cent of revenues. But Umaru Yar’Adua, the current president, has struggled to maintain the same level of fiscal discipline with his administration undermined by concerns over his health.
Declining oil earnings have caused the naira to fall more than 20 per cent against the US dollar in the past two months, fuelling inflation in Nigeria’s heavily import-dependent economy.
Foreign currency reserves fell to about $50bn this month from a peak of $63bn in September as the central bank sought to prop up the currency.
Investors are also concerned that government spending plans – a key engine of growth – will have to be cut. The draft budget assumes an oil price of $45 a barrel, which already looks optimistic. A further assumption that Nigeria will pump 2.29m barrels a day this year also looks like wishful thinking, given limits imposed by the country’s Opec quota. Remi Babalola, minister of state for finance, insists that the government has a big enough cushion from its oil savings to meet its commitments. “There is no excuse not to meet our budget estimates,” he said.
He expects Nigeria to grow by at least 6 per cent this year, compared with 6.7 per cent last year, buoyed by a strong performance in agriculture, which accounts for about 40 per cent of gross domestic product. Should oil prices fall further than the $36 they hit on Monday, few other analysts will be so bullish.
The Financial Times
Anne Ayinuola, founder of the Fundermentals lingerie boutique in Lagos, has a problem. As the outlook for Nigeria’s economy darkens, she has no idea how long demand for her range of luxury bras, girdles and thongs will last.
“It’s still holding up,” she says, as a pair of men browse through the almost overwhelming selection of delicates dangling from the hangers. “I don’t know what will happen in two to three months time, I don’t like to think about it.”
Located at the mouth of the Palms mall, the high temple of Nigeria’s growing consumer culture, Ms Ayinuola’s store is the perfect bellwether for the impact of the global slowdown on the country’s small but aspiring middle class.
Boasting what she describes as the widest range of designer intimates on sale anywhere in Nigeria, Ms Ayinuola’s emporium reflects the aspirations of a type of woman, or her male admirer, who wants more than the cheap Chinese imports or second-hand undergarments sold in the city’s markets.
Nigeria’s fans in the investment community have often portrayed the increasingly sophisticated tastes of this expanding cadre of young professionals as a pool of demand for goods and services that will one day spur the country into the big league of emerging markets alongside Russia and Brazil.
However, with falling oil prices sapping export earnings, dreams of owning Victoria’s Secret smalls and improbably large plasma-screen televisions, are starting to fade.
“Since you’ve been here, how many customers have come in?” says a saleswoman at an electronics store in the Palms. Her answer? “Few.”
The re-emergence of Nigeria’s middle class in part reflects a trend unfolding across Africa, where young professionals – many returning from successful careers in the west – have injected fresh dynamism into the private sector.
In Nigeria, their fate will reveal how far a programme of market reforms has delivered a genuine structural shift in the economy, rather than a temporary surge in consumption among what remains a tiny minority of a population of 140m.
Forming a thriving community at independence in 1960, Nigeria’s mid-level professionals, then mainly civil servants, were almost wiped out by the hardships of military dictatorship and repeated oil shocks. A rich elite revelled in a shower of petrodollars while everyone else remained poor.
The middle class has resurfaced as fast-growing bank and telecom companies generated thousands of well-paid jobs.
The smarter parts of Lagos, once a virtual desert for bourgeois pursuits, now boast fast-food chains, the Palms and Silverbird Galleria malls, and plenty of mid-range night spots.
High oil prices caused the cost of an acre in the Victoria Island business district to shot from 300m naira ($2m, €1.6m, £1.4m) to N1bn while the stock market grew wings.
One local bank advert declared: “What goes up, just keeps going up.”
In a matter of months, the mood has flipped. Share prices have collapsed, bank lending has slowed and runaway rents have cooled.
For millions of subsistence farmers, motorbike taxi drivers, or the city’s high-rolling oligarchs, such reversals may have little immediate impact on their lifestyles.
It is the middle class, by contrast, who will have to economise. Ben Murray-Bruce, owner of Silverbird Galleria, says the average spend is already down 20-25 per cent this year. “We just don’t have a feel-good factor any more,” he says.
Among professionals, the mood is one of apprehension rather than alarm. Ayo Koiki, a self-described member of the new middle class who works at an asset management company, says friends who have lost jobs as stockbrokers have been quick to find new roles. “It’s not like in America, or even in the UK,” she says.
But the worst may be ahead. A sharp fall in the naira has raised the price of imported suburban staples such as air-conditioners, cars and sofas.
Should oil prices dive further, then Nigeria’s middle class could taste real pain instead of champagne.
Oil price plunge raises risk of big slowdown in growth
Nigeria has won kudos among foreign investors in the past few years with a series of measures designed to break the devastating cycles of boom and bust fuelled by past oil shocks, writes Matthew Green.
But the slump in oil prices from last summer’s record highs has raised the risk that Africa’s biggest crude exporter will witness a sharp slowdown in growth in spite of its more robust defences.
Olusegun Obasanjo, the previous president, set up a system of savings to break the link between swings in the oil price and government spending in Nigeria, which depends on oil exports for 80 per cent of revenues. But Umaru Yar’Adua, the current president, has struggled to maintain the same level of fiscal discipline with his administration undermined by concerns over his health.
Declining oil earnings have caused the naira to fall more than 20 per cent against the US dollar in the past two months, fuelling inflation in Nigeria’s heavily import-dependent economy.
Foreign currency reserves fell to about $50bn this month from a peak of $63bn in September as the central bank sought to prop up the currency.
Investors are also concerned that government spending plans – a key engine of growth – will have to be cut. The draft budget assumes an oil price of $45 a barrel, which already looks optimistic. A further assumption that Nigeria will pump 2.29m barrels a day this year also looks like wishful thinking, given limits imposed by the country’s Opec quota. Remi Babalola, minister of state for finance, insists that the government has a big enough cushion from its oil savings to meet its commitments. “There is no excuse not to meet our budget estimates,” he said.
He expects Nigeria to grow by at least 6 per cent this year, compared with 6.7 per cent last year, buoyed by a strong performance in agriculture, which accounts for about 40 per cent of gross domestic product. Should oil prices fall further than the $36 they hit on Monday, few other analysts will be so bullish.
The Financial Times
Monday, February 9, 2009
Nigeria Banking sector's outlook in 2009 will remain precarious.
Economic Briefing: Oxford Business Group
Despite tightening credit conditions and falling oil prices, recent consolidation in the industry has left Nigerian banks in good stead to weather the storm. However, with the beginnings of a nascent liquidity crunch, the sector's outlook in 2009 will remain precarious.
Reduced credit lines, combined with the exodus of foreign portfolio investors from Nigeria's capital markets, have exacerbated the country's drop in oil revenues. As a result, the government's Federation Account, funded by hydrocarbon taxes, has had less liquidity to inject into the inter-bank money market, making it more difficult for the sector to raise funds, and forcing the central bank (CBN) to become the dominant supplier of foreign exchange.
"Foreign investment is not flowing into Nigeria to supplement domestic liquidity, due to the worldwide financial crisis," Wale Abe, chief executive officer (CEO) of the Money Market Association of Nigeria, told OBG. "So I don't see any end to the illiquidity we are seeing in the market in the near future until the global economic climate improves."
However, even as international banks and funds begin to call in their loans, there is evidence that the Nigerian industry can muster sufficient cash to fulfill its commitments. In December 2008, for example, Intercontinental Bank repaid its $160m obligation to a consortium of eight foreign banks, including BNP Paribas and Citigroup.
The difficulties banks are facing in mobilising funds on the international capital markets has pushed them to focus more aggressively on retail and corporate deposits. Indeed, the sector has recently been on a bit of an acquisition spree in West and Central Africa, with four major Nigerian banks currently moving into the UEMOA market. In December 2006 the United Bank for Africa (UBA) bought 37.84% of the Banque Internationale pour le Burkina (BIB), while in April last year Access Bank acquired 88% of Omnifinance, a small bank in Cote d'Ivoire. Additionally, Diamond Bank has plans to open 23 new branches in Benin by the end of 2010.
With the banking penetration rate in Nigeria at less than 25% and the ratio of loans and credits to GDP at just 12.3% as of 2007, there are still encouraging prospects for domestic retail growth, although the relatively high commercial interest rates remain a challenge. In line with the need to increase clarity and transparent competition amongst lenders, in August 2008 the CBN began to publish an open display of all banks' deposit and lending rates on its website.
To spur further growth during this relatively fallow period, the central bank has also begun to take a more bullish role, following the recent easing of its monetary policy, by providing access to local banks for the CBN discount window in order to mobilise funds. Starting from September 2008, the CBN reduced the liquidity ratio for banks from 40% to 30%, while the cash reserve ratio fell from 4% to 2%. On September 18 the base interest rate was cut from 10.25% to 9.75%. The central bank estimates that these measures accounted for an N1.2tn ($8.09bn) injection of funds into the economy.
In light of the drop in liquidity as well as share price issues, banks have erred on the side of caution by attempting to cut costs, anticipating a difficult year ahead. Since the start of 2009, they have reduced cost allowances for branches as well as cut travel, communications and advertising budgets. They have also been examining their staffing levels, although no redundancies have yet been announced.
An increasing number of analysts have faulted the lack of transparency in banks' share price trading. The technique of margin trading - whereby banks lent funds to individuals and corporations who then invested part of these funds back into the banks' shares - has been particularly highlighted.
"Margin trading has led to significant exposure for Nigerian banks," Latyr Diop, an investment banker at Lagos-based Afrinvest, told OBG. "Although there doesn't seem to be a widespread realisation yet, banks are in crisis due to their own, Nigerian, version of a credit crunch."
Share prices have come under increased scrutiny in recent months. While 21 of the country's 24 banks are listed on the Nigerian Stock Exchange (NSE) (out of a total of 233 stocks listed), these accounted for 45% of the exchange's capitalisation at year-end 2008. However, the NSE has indeed recorded an N5.7tn ($38.43bn) loss for the full year 2008, with the CBN estimating that banks' exposure to the NSE is around N800bn ($5.39bn), although certain analysts argue that this figure is significantly lower than it should be. As early as May 2008, a JP Morgan study on the country's banking sector argued that the seven largest banks (with a then-market capitalisation of $40bn) were overvalued by 56%.
Much of the drop in the NSE was due to the flight of foreign portfolio investors in light of the global financial situation. However, the drop led to investment flowing to term deposits and money market instruments, thereby boosting deposits. Should the NSE index recover, banks could be left to struggle to mobilise deposits as investors revert to capital market instruments.
Despite these challenges, Nigerian banks do remain some of the biggest players on the African continent. Since the drastic increase in capital requirements to $200m in 2005, consolidation has reduced the number of banks from 89 to 24, all of which now have capitalisations in excess of $1.2bn. Consolidation could well continue: WEMA bank, currently under CBN management, has received takeover bids from both Intercontinental Bank and First City Monument Bank (FCMB), and a deal is expected to be concluded in coming months.
A CBN statement last November, however, noted that the average capital adequacy ratios in the industry, at 22.25%, remained satisfactory. While analysts argue that overall banking assets have been overvalued by as much as 10%, the consensus seems to indicate that given the very strong capitalisation of the banks, none are in danger of insolvency, even with a 10% depreciation of assets.
In mid-2008 the CBN created guidelines for the operations of credit agencies, instituting the Credit Reference Company with financing from 12 of the country's largest banks (accounting for over 70% of the industry) as well as technical support from the International Finance Corporation (IFC). Similarly, XDS Solutions launched an independent credit bureau of its own in 2008. More could well emerge in 2009 as the industry improves its risk management strategies and relies on accurate credit information for lending.
Despite challenging conditions on the international front, Africa's most populated country presents strong growth prospects for the banking industry. With increased attention to transparency and risk management, the sector is set to continue making inroads into the previously low level of penetration. The regulatory reforms are indeed encouraging, as is the size of the sector. But the perfect storm of relatively low oil prices, a depressed stock market and challenges in accessing credit lines from international financial markets point towards a difficult year ahead. As more developed banking sectors falter, international investors keep watching one of the world's premier frontier economies.
Despite tightening credit conditions and falling oil prices, recent consolidation in the industry has left Nigerian banks in good stead to weather the storm. However, with the beginnings of a nascent liquidity crunch, the sector's outlook in 2009 will remain precarious.
Reduced credit lines, combined with the exodus of foreign portfolio investors from Nigeria's capital markets, have exacerbated the country's drop in oil revenues. As a result, the government's Federation Account, funded by hydrocarbon taxes, has had less liquidity to inject into the inter-bank money market, making it more difficult for the sector to raise funds, and forcing the central bank (CBN) to become the dominant supplier of foreign exchange.
"Foreign investment is not flowing into Nigeria to supplement domestic liquidity, due to the worldwide financial crisis," Wale Abe, chief executive officer (CEO) of the Money Market Association of Nigeria, told OBG. "So I don't see any end to the illiquidity we are seeing in the market in the near future until the global economic climate improves."
However, even as international banks and funds begin to call in their loans, there is evidence that the Nigerian industry can muster sufficient cash to fulfill its commitments. In December 2008, for example, Intercontinental Bank repaid its $160m obligation to a consortium of eight foreign banks, including BNP Paribas and Citigroup.
The difficulties banks are facing in mobilising funds on the international capital markets has pushed them to focus more aggressively on retail and corporate deposits. Indeed, the sector has recently been on a bit of an acquisition spree in West and Central Africa, with four major Nigerian banks currently moving into the UEMOA market. In December 2006 the United Bank for Africa (UBA) bought 37.84% of the Banque Internationale pour le Burkina (BIB), while in April last year Access Bank acquired 88% of Omnifinance, a small bank in Cote d'Ivoire. Additionally, Diamond Bank has plans to open 23 new branches in Benin by the end of 2010.
With the banking penetration rate in Nigeria at less than 25% and the ratio of loans and credits to GDP at just 12.3% as of 2007, there are still encouraging prospects for domestic retail growth, although the relatively high commercial interest rates remain a challenge. In line with the need to increase clarity and transparent competition amongst lenders, in August 2008 the CBN began to publish an open display of all banks' deposit and lending rates on its website.
To spur further growth during this relatively fallow period, the central bank has also begun to take a more bullish role, following the recent easing of its monetary policy, by providing access to local banks for the CBN discount window in order to mobilise funds. Starting from September 2008, the CBN reduced the liquidity ratio for banks from 40% to 30%, while the cash reserve ratio fell from 4% to 2%. On September 18 the base interest rate was cut from 10.25% to 9.75%. The central bank estimates that these measures accounted for an N1.2tn ($8.09bn) injection of funds into the economy.
In light of the drop in liquidity as well as share price issues, banks have erred on the side of caution by attempting to cut costs, anticipating a difficult year ahead. Since the start of 2009, they have reduced cost allowances for branches as well as cut travel, communications and advertising budgets. They have also been examining their staffing levels, although no redundancies have yet been announced.
An increasing number of analysts have faulted the lack of transparency in banks' share price trading. The technique of margin trading - whereby banks lent funds to individuals and corporations who then invested part of these funds back into the banks' shares - has been particularly highlighted.
"Margin trading has led to significant exposure for Nigerian banks," Latyr Diop, an investment banker at Lagos-based Afrinvest, told OBG. "Although there doesn't seem to be a widespread realisation yet, banks are in crisis due to their own, Nigerian, version of a credit crunch."
Share prices have come under increased scrutiny in recent months. While 21 of the country's 24 banks are listed on the Nigerian Stock Exchange (NSE) (out of a total of 233 stocks listed), these accounted for 45% of the exchange's capitalisation at year-end 2008. However, the NSE has indeed recorded an N5.7tn ($38.43bn) loss for the full year 2008, with the CBN estimating that banks' exposure to the NSE is around N800bn ($5.39bn), although certain analysts argue that this figure is significantly lower than it should be. As early as May 2008, a JP Morgan study on the country's banking sector argued that the seven largest banks (with a then-market capitalisation of $40bn) were overvalued by 56%.
Much of the drop in the NSE was due to the flight of foreign portfolio investors in light of the global financial situation. However, the drop led to investment flowing to term deposits and money market instruments, thereby boosting deposits. Should the NSE index recover, banks could be left to struggle to mobilise deposits as investors revert to capital market instruments.
Despite these challenges, Nigerian banks do remain some of the biggest players on the African continent. Since the drastic increase in capital requirements to $200m in 2005, consolidation has reduced the number of banks from 89 to 24, all of which now have capitalisations in excess of $1.2bn. Consolidation could well continue: WEMA bank, currently under CBN management, has received takeover bids from both Intercontinental Bank and First City Monument Bank (FCMB), and a deal is expected to be concluded in coming months.
A CBN statement last November, however, noted that the average capital adequacy ratios in the industry, at 22.25%, remained satisfactory. While analysts argue that overall banking assets have been overvalued by as much as 10%, the consensus seems to indicate that given the very strong capitalisation of the banks, none are in danger of insolvency, even with a 10% depreciation of assets.
In mid-2008 the CBN created guidelines for the operations of credit agencies, instituting the Credit Reference Company with financing from 12 of the country's largest banks (accounting for over 70% of the industry) as well as technical support from the International Finance Corporation (IFC). Similarly, XDS Solutions launched an independent credit bureau of its own in 2008. More could well emerge in 2009 as the industry improves its risk management strategies and relies on accurate credit information for lending.
Despite challenging conditions on the international front, Africa's most populated country presents strong growth prospects for the banking industry. With increased attention to transparency and risk management, the sector is set to continue making inroads into the previously low level of penetration. The regulatory reforms are indeed encouraging, as is the size of the sector. But the perfect storm of relatively low oil prices, a depressed stock market and challenges in accessing credit lines from international financial markets point towards a difficult year ahead. As more developed banking sectors falter, international investors keep watching one of the world's premier frontier economies.
Friday, February 6, 2009
Many Nigerians to return home as a result of the global financial crisis.
There are indications that many Nigerians and other immigrants from developing countries living abroad may return to their home countries as a result of the global financial crisis.
Already, many developed countries have started rolling out new economic policies in favour of their citizens to enable them foot their bills including mortgages.
Speaking on the development, Adetokunbo Kayode, labour minister, observed that the present situation may further compound the unemployment rate across the world especially in Nigeria. Read More
Already, many developed countries have started rolling out new economic policies in favour of their citizens to enable them foot their bills including mortgages.
Speaking on the development, Adetokunbo Kayode, labour minister, observed that the present situation may further compound the unemployment rate across the world especially in Nigeria. Read More
Bank tie employment to securing juicy accounts
As the drive for deposits continues, banks have changed employment requirements from a very good degree from recognised universities to requesting for juicy accounts as prerequisites for automatic employment.
Before now, banks had always insisted that applicants must possess at least a first degree with second class upper from one of the reputable universities or Higher National Diploma for the few banks that were employing diploma holders. Read More
Before now, banks had always insisted that applicants must possess at least a first degree with second class upper from one of the reputable universities or Higher National Diploma for the few banks that were employing diploma holders. Read More
Sunday, January 4, 2009
Saboteurs blow up Agip oil pipeline in Nigeria
Saboteurs blew up an oil pipeline operated by Italy's Agip in Nigeria's southern Niger Delta late on Friday, the military said on Saturday.
Brigadier-General Wuyep Rimtip, commander of the joint military taskforce in the western Niger Delta, said the pipeline had been attacked between the villages of Odimodi and Ogulagha in Delta state.
"It was not a militant attack, it was saboteurs because they used dynamite to blow up the pipeline. We have reported it to Agip," Rimtip told Reporters.
He said the pipeline ran through an area whose ownership was disputed by communities living in Odimodi and Ogulagha.
Brigadier-General Wuyep Rimtip, commander of the joint military taskforce in the western Niger Delta, said the pipeline had been attacked between the villages of Odimodi and Ogulagha in Delta state.
"It was not a militant attack, it was saboteurs because they used dynamite to blow up the pipeline. We have reported it to Agip," Rimtip told Reporters.
He said the pipeline ran through an area whose ownership was disputed by communities living in Odimodi and Ogulagha.
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