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Collosal: Economy could lose $10 billion, experts warn

•Stock market gains threatened

By Babajide Komolafe, Peter Egwuatu, Godfrey Bivbere, Godwin Oritse,  Nkiru Nnorom and Naomi Uzor

By midday, yesterday, the colossal loss to the nation’s economy, arising from the postponement of the general elections, hours before the exercise was scheduled to begin, was obvious.

Nigeria Economy

Analysts said the nation could lose about $10 billion due to slow down in business activities caused by the one week postponement.

But in the estimation of the Director-General of  Lagos Chambre of Commerce and Industry (LCCI), Mr Muda Yusuf, the economy could have lost about $1.5 billion.

Sources at the ports put the losses in the sector alone at a minimum of  N600 million.

The ports across the nation had been shut down  on  Friday  ahead of the Saturday’s polls.

One of the major implications of the general  elections’ shift, according to experts, was an immediate threat to investors’ confidence which was speculatively building up in the financial markets in the past two weeks.

Apart from the maritime sector, other major  sector of the  economy worst hit by the election day that was not  to be include  aviation, banking, gas and oil, and  road transport.

According to some analysts, the postponement will heighten uncertainty in the economy, erode investors’ confidence in the Nigerian economy and possibly trigger rise in fixed income yields and increased pressure on the external reserves.

Commenting on the impact of the development on the economy, Managing Director/Chief Executive officer, Financial Derivatives Company, Mr. Bismarck Rewane, said: “The total cost, including opportunity cost, direct cost, consequential cost, disruption cost and what we call reputational cost, if you put it together, everything will give you about 2 to 2.5 percent of Gross Domestic Product (GDP), which is about $9 billion to $10 billion dollars.”

Ayo Akinwunmi, Head of Research, FSDH Merchant Bank, on his part, noted that the postponement will lead to reduction in the nation’s GDP. He said: “It is going to slow down business activities because that is like two weekends paralysed. A lot of people have travelled, a lot of shops have closed today and they still remain closed because people who have travelled out of the country, people have made other plans.

“And many of companies did like half day yesterday, so lot of economic activities were reduced yesterday (Friday) because of election today (Saturday). So next week Friday and Saturday, we are going to see the same thing, people will sit at home. And whether we believe it or not, a lot of people wake up and live on daily earnings. And all these add up to what the economy and businesses report at the end of the day.

“When you have long period of uncertainty, people cannot take decision. It may actually slow down the GDP. And if you look at the GDP, it is accumulation of what happened every day, throughout the 365 days.

“So if we allow people to stay at home, businesses will not work. Their profit will reduce, taxes will reduce, government will not have enough money and government will have to borrow more”.

Senior Research Analyst with Ecobank Nigeria, Mr Kunle Ezun, also speaking on the development,   stated: “ The cost to the economy is going to be huge. Even though it is a weekend thing, the daily turnover today, people who would have gone out for business, all of that have been forfeited now.

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“So in terms of losses to individuals and small enterprises, it will be quite huge.

“Even yesterday (Friday) most of the states declared public holiday; so you can begin to consider the impact on the GDP of those states.”

Speaking on how the postponement will affect investors’ confidence on Nigeria’s economy and the  financial markets, Rewane said: “The most important cost    is the reputational cost. Investors will now say the process of election has been compromised, and    this country has become more prone to conflict because of this. Investors’ confidence will be eroded.

“Democracy is about consensus. In 2015, we did not have a problem because the incumbent accepted defeat. Neither did he go to the tribunal or tell the people to riot on the streets. Today, because of so many things, including this postponement, it appears unlikely that anybody will agree to concede or walk away gracefully. As an investor, I will have to take that into consideration and the higher risk, the higher the expected returns. In other words,    if we are borrowing money or if we are raising money, people that are coming to invest will demand more.”

Akinwunmi added, “The postponement could affect confidence in the market, and if confidence is eroded, there could be over-reaction in the market, there could be sell-off.

“There is an apprehension, there is fear, which leads to improved risks which will make people to ask for more premium on fixed income securities, which could mean there could be sell-down. And sell-down will make yield to go up

“On the foreign exchange scene, when people have elevated risk, foreign investors may say, ‘men, we need to go out’, and when they go out there will be more demand for foreign exchange and, when that happens, currency value will depreciate. The CBN can say, `okay, guys we need to step up to ensure we meet this demand. And this means there would be a lot of pressure on the external reserve. So in a bit not to allow that depreciation to happen, the CBN will have to spend more money from the external reserves.”

Speaking on the losses to Sunday Vanguard, the LCCI DG, Yusuf, said: “The  cost to the economy of the postponement of the election is horrendous. The economy was on partial shutdown the day before and total shut down  on Saturday for the elections that did not hold.

“Cost to the economy is estimated at $1.5 billion . The postponement has implications for confidence in the electoral process.

“The trouble was that the notice of postponement came too late to allow economic players to make alternative use of their time.  It was a major disruption to economic activities in the country.

“Borders were shut, schools were closed, ports were shut, All these have implications for operating costs.

“In the maritime sector, importers will bear additional demuurage cost  because of the longer cargo dwell time at the ports.

“The cost to the nation’s treasury of the election rescheduling will be almost double   as a large part of processes will be repeated in a week’s time.”

Paying for extra day

Sunday Vanguard findings showed that the postponed elections may cost the nation over N600 million as charges, rents and levies  on ship owners, importers and exporters for one day in the maritime sector alone.

Sunday Vanguard gathered that the amount lost to the failed elections could be far more than that, especially since the sector was closed for two days.

A statement by the biggest container terminal in the country, APM Terminal, on Friday, showed that it handled a total of 1,257 boxes on the above date.

The statement read in part, “Over the last 24hrs,  549  trucks  were serviced  in the terminal with a total of  1257  transactions.”

Speaking on the cost implication of the elections’ shift, National President of the National Council of Managing Directors of Licensed Customs Agents, NCMDLCA, Lucky Amiwero, told Sunday Vanguard that Customs Brokers, commonly referred to as clearing agents, pay as much as N20,000 as storage fee per container to terminal operators on behalf of their principle.

Multiplication of of 1,257 handled containers by the storage fee of N20,000 gives a total sum of N25.14 million for APM Terminals alone.

Other terminals operating in Lagos are conservatively estimated to have handled 1,743 containers, bringing the estimated total volume of containers alone handed at the port in Lagos at 3,000.

Multiplication of 3,000 containers by N20,000 gives a total of N60 million.

Amiwero said that the elections has a huge economic cost for the nation. He explained that it is the importers and exporters that are meant to bear the brunt.

According to him, they are made to pay unwholesome charges, levies and rates by the shipping companies as well as terminal operators. He pointed out that the Nigerian Ports Authority, NPA, is not left out as the Authority collects it berthing charges.

He said Nigerian ports have one of the highest port charges in the world and that it is mostly unregulated.

National Publicity Secretary of the Association of Nigeria Licensed Customs Agents, ANLCA, Joe Sanni, agreed with Amiwero but added that apart from the storage charges, terminal operators also collection “Container Deposit Fees,” CDFs of between N7,000 to N10,000 for 20 feet container and N15,000 to N20,000 for 40 feet containers which they hardly refund.

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Sanni also noted that truckers will lose funds that they would have gotten yesterday.

He said for the Nigeria Customs Service, NCS, there will only be delay in the collection of government revenue.

President of the Ship Owners Association of Nigeria, SOAN, Greg Ogbeifun, said that the shipping sector does not really lose much as vessels at sea simply continue with their operations.

Ogbeifun however noted that vessels berthed at the port at the time of the elections will have to pay for extra day.

Similarly, former President of the  Nigeria Merchant Navy Officers and Water Transport Senior Staff Association, Thomas Kewerigha, said ship owners are made to pay extra day berthing charges because they are forced to stay back at the port even after they have finished discharging their cargo.

Kewerigha explained that with the elections, vessels at sea are not able to come into the country while those that completed their discharge are stock at the port resulting in additional cost for the shipping companies.

On his part, the Chairman of the Lagos Maritime Security Zone of the Forum,  Dr, Ignatius Uche, said that the cost of the postponement was unquantifiable, adding that monies have been spent by various terminal and port facility to secure the premises for the period that election.

“What becomes of these measures and security arrangements, who will bare the cost of a new arrangement?”, Uche asked rhetorically.

He explained that apart from the security implication that the postponement will have on the port industry, development also has a lot of cost implication.

“The   postponement of the election by INEC has political cost, it has environmental cost and it also has overhead cost of management of the facilities and off-course, it has a national cost.

“If you know how much the Ports would have generated today in terms of revenue and all that is wasted, do you know what it has cost many managements to put contingency plans in place with respect to human resources who will be on essential duty.

“Men have already been deployed, armed men have been deployed because their logistics and other arrangements have been taken care of and their duration too have been taken care of.

“So it has all round cost implication to both the Ports Authority, terminal operators, shipping companies and the National economy.

“For us as security professionals, we are always aversed   to this kind embarrassment because we will remain alert and be at our guard at all times.

“We have told our men to remain alert whether elections goes or not.

Speaking in similar vein, the Vice President of the Association Nigerian Licensed Customs Agents, ANLCA, MR. Kayode Farinto said that he will sue INEC for the postponement that distorted and disturb his business for that day.

Farinto also said that over N100million of revenue accruals to the government and its agencies have been lost.

Uncertainty

Analysts pointed at immediate threat to investors confidence which was speculatively building up in the financial markets in the past two weeks after the elections’ postponment yesterday.

The bonds market has been bullish with foreign investors committing over $1.7 billion in the two weeks while Nigerian Stock Exchange rebounded closing positive in two consecutive weeks, all indicating confidence in the election.

But some stock market operators told  Sunday Vanguard yesterday that the confidence has been undermined by the postponement of the elections, a development they believe may affect stock prices as the market opens tomorrow.

According to capital market operators, who described the postponement as unfortunate and sad,   it would create uncertainty in the market and might result to reversal of the positive sentiment witnessed in the last two weeks as investors would be undecided in taking any investment decision.

Emeka Madubuike, Managing Director/CEO, Compass Securities, said:”On a general level,   what the postponement does is to bring in huge uncertainty and that is one of the things the market does not like . Once something like this happens, the market begins to wobble.

“As soon as there is uncertainty, it affects the market. People cannot make decision in an atmosphere of uncertainty and investment is about decision making . So,   if no decisions are made,   there will be no demand and it,   therefore means that if there is no demand,   the market is likely to go down.

“It is just unfortunate that we have all these uncertainties, it’s inexplicable. This is very unfortunate because nobody can plan in this kind of environment.”

He stated that the entire economy would be negatively affected as people would be forced to cancel businesses and other engagements on Saturday, February 23 when the election is tentatively scheduled to hold.   He lamented that billions of naira had been lost as a result of the postponement.

His words: “We are talking about the stock market, what about individuals who have plans for next Saturday, they will be forced to put it off. What about the daily paid workers: people who earn their living on a daily basis? The whole of today, all the petty traders will be out of business.   So, you can imagine what our economy would have lost today (yesterday). All sectors are on a stand still today and same thing is going to happen again next Saturday and that is if the election will hold on Saturday because listening to the INEC chairman,   he was not specific.

“So,   the dimension is not good for the market”.

Speaking in the same vein, Mr.   Jimmy Omoregie,   Managing Director/CEO, Fidelity Finance Company, said the postponement would slow the market down but the market will   find respite in the year end financial reports being expected.

He said: “It has created uncertainty: activities in the market will be slow for sometime,   but it will definitely go up because the release of 2018 financial results is getting closer for most companies and once the political terrain is clearer,   the market will move on because it’s just that uncertainty that needs to be removed within this one week .

“But as it is,   people will not really be willing to commit their money in the market.”

Patrick Ajudua, Chairman,   New Dimension Shareholders Association, NDSA said,   “The positive movement in equity price in the last few days is primarily due to investors taking position as a result of expected financial result of the companies. Therefore, postponement of election will have little or no effect on investors sentiment.

“However, investors would have been happier if the election is concluded on time as it will determine way forward for the economic direction & government   policies.”

Divergent views

However, other stakeholders in the capital market presented divergent views.

Chief Patrick Ezeagu, Chairman, Association of Stockbroking Houses of Nigeria, said: “Let’s wait and see’. Investor attitude will pervade the market place in the coming week until INEC conducts a free, transparent and creditable election expectedly.”

Reacting also,  Mallam Garba Kurfi, CEO, APT Securities & Fund Limited, said: “I don’t think there will be much impact to the market because of the postponement of Elections. The market have already bounced back from the last month’s negative performance and February performance to date which reflected in both Volume and Value of our transaction are expected to continue because of most of our Stocks trade at a very low prices which attracts Foreign Investors, Institutional and High Net worth Index and couple with the expectations of Corporate action on Dividend and Bonus that also attracted Speculators Short term players.

“As we witness in less than two weeks Dangote Flour, TRANSCORP have gained more than 50% and more are expecting the same in respect of the postponement of the Election. But it has cost to Economy.”

In his own comment, Mr Moses Igbrude, spokesperson, Independent Shareholders Association of Nigeria, ISAN said: “INEC postponement of the presidential elections five hours to the election is   unfortunate, unacceptable and should be condemned in its entirety.   This single unthoughtful action by INEC has created uncertainty and doubt on ability of the Chairman and his team to conducts a free and fair polls. Imagine the economic wastage to the electorates who has travelled to various locations where they are to   exercise their civil responsibility, wastage to   state governments and others private businesses that gave their workers days off.   Cost on Foreign and local elections observers, what of those who have moved   one engagement or the other from today or who fix something next Saturday?   This action will surely frustrate and discouraged the electorates from voting. Next week is full of uncertainty and will surely affect the market negatively. I  sincerely appeals to INEC and   president Buhari not to throw Nigeria into chaos or problems they should make sure that   they conducts elections that would be free and acceptable to every body. They should assured us on their trustworthiness and I am also appealing to the voters to be calm and   avoid conditions that will encourage INEC and those behind this the opportunity to perpetual their evil activities.”

 


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.