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Coronation Capital report showcases changed structure of Nigerian economy

By BusinessNews Staff on May 13, 2015

Nigeria’s economy has undergone remarkable evolution in the last 14 years as series of reforms were undertaken since 1999 which unlocked the dynamism that underpins Africa’s largest economy today.

Data from a new research report titled, ‘The Fourth Republic: Economy and Opportunities Beyond Politics’, by recently launched proprietary investment firm, Coronation Capital, showcases this progress.

The report reveals that investors who bet on Nigeria in 1999 were rewarded handsomely with over 6,000 percent returns.

Coronation Capital is betting that Nigeria’s growth trajectory will continue into the next decade, and is poised to deploy significant amounts of capital to exploit emerging opportunities in the financial services, oil and gas, digital technology and real estate sectors.

BusinessDay learnt that the principals behind Coronation Capital will use their edge in macro-economic research and analysis to take positions and outperform the markets.

“Aigboje Aig-Imoukhuede predicted 18 months ago in private presentations to the Economic Management Team that the exchange rate will be between N220 and N250. Well, look where we are today,” one source with knowledge of the matter told BusinessDay.

One big area where Coronation is looking to invest in is in the creation of a world class, exploration and production firm, BusinessDay has been made to understand.

“They are currently backing one of the fastest growing E & P firms in Nigeria. It’s a good time to do oil deals because assets are cheap,” another source said.

Coronation’s ultimate ambition is to create a premier investment firm that strives to provide solutions that create lasting value for our investors, in the mould of private equity giant Blackstone Group L.P.

“Banks cannot generate the next Dangote or Ali-Baba. These have to come through private equity,” Aig-Imoukhuede was keen to point out when BusinessDay asked him about this new venture, Coronation Capital.

He goes further to draw attention to China, where private equity funding has hit the $100 billion mark. “We hope that our own action can lead to a situation where private equity funding can bring in billions of dollars into the economy to create more Dangotes. We need at least 10 local groups that can mobilise billions of dollars into this economy by way of private equity,” Aig-Imoukhuede told BusinessDay.

Coronation’s appraisal of the performance of the top 20 most capitalized companies as at 1999 (Old MCC) and top 20 most capitalised as at 2013 (New MCC) shows the emergence of new corporate power houses in line with the evolving structural changes in the economy.

“From a position, in 1999, where the economy was at rock bottom and only the 5th largest in Africa, to today’s position as the largest economy on the continent we have seen immense change,” Aigboje Aig-Imoukhuede, chairman of the investment firm, said.

Nigeria’s 20 largest listed companies had a combined market capitalisation of only N158.1 billion in 1999, according to data from the report titled, ‘The Fourth Republic: Economy and Opportunities Beyond Politics’.

However, the combined capitalisation of the 20 largest companies (with new entrants to the list) had risen to N9.7 trillion by 2013, equivalent to a 6,038 percent gain in 14 years.

The top five firms by market cap in 1999 were Nigerian Breweries (N15.68 billion), First Bank (N15.21 billion), Guinness Nigeria (N14.53 billion), Union Bank (N13.91 billion), and WAPCO (N12.06 billion).

The five firms were made up of essentially two brewers, two Nigerian banks with puny balance sheets and a cement firm that could not meet domestic demand with importation.

Fourteen years later the top five largest listed Nigerian firms were Dangote Cement (N3.59 trillion), Nigerian Breweries (N1.22 trillion), Nestle Nigeria (N939.38 billion), Guaranty Trust Bank (N794.64 billion), and First Bank of Nigeria (N530.27 billion).

The new diversity and growth taking place in the Nigerian economy can be highlighted in the five top firms which consist of an industrial, a brewer, a consumer goods company and two financials.

“The data and analysis in the report provides a sound basis for understanding the basic fundamentals of the economy in Nigeria especially the nature of progress since 1999,” Doyin Salami, senior fellow at the Lagos Business School, member of Nigeria’s Monetary Policy

Committee and a contributor to the report said.

There has been an exponential growth in Nigeria’s economic activity since 1999, with its GDP expanding to $522 billion in 2013 from a base of $36 billion in 1999.

Reforms of the nation’s debt management process means that the debt profile today compares very favourably to 1999 when Nigeria’s external and internal debt represented 87 percent of GDP as compared to 18.32 percent in 2013.

Improvements in monetary policy, combined with the consolidation process in the banking sector have led to a considerably stronger banking sector, while the CBN Act of 2007 instituted the CBN’s operational independence enabling its leadership to swiftly and effectively resolve the 2009 banking crisis.

The oil price benchmark in the budget, combined with a budget deficit ceiling of 3 percent and the privatisation of state assets all contributed to significant improvements during the period, according to Coronation.

The service sector has grown from 32 percent of GDP in 1999 to 57 percent in 2013, fundamentally altering the structure and improving the sustainability of the economy.

Meanwhile, the biggest economic success story of the last 15 years and a key driver of growth was the telecoms sector, which went from a GDP contribution of $5 million in 1999 to $47 billion 2013 at an average annual rate of 61.4 percent.

“My own professional history has been heavily influenced and guided by the economic progress Nigeria has made since the return to democracy,” Aig-Imoukhuede, said.

“Coronation Capital will leverage that experience to invest across the specific sectors of the Nigerian economy that we believe have the potential to grow exponentially over the coming years. We believe in the power of capital to act as a significant catalyst for long term economic growth and we are committed to investing for the long term.”

In illuminating the growth trajectory of the Nigerian economy in this Fourth Republic, Coronation Capital’s research report is not unmindful of the challenges that have confronted the economy, some of which still persist. But in the face of these challenges also lie opportunities, the reported noted.

The report recognised and captured what it terms the looming fiscal crisis arising from sever revenue leakages.

It also noted, “A deteriorating industrial base: Nigeria continues to trade the goods and services produced in other countries, with trade contributing over 17% of GDP in 2013. Value addition from domestic processing remains insufficient and industrial policy must be addressed in order to reduce the economies vulnerability to oil prices and create employment,” it noted

The report added that power and transportation were important but were challenged in the Nigerian economy. “Power and rail infrastructure are fundamentally important and without both, an industrial renaissance will not happen. Investment opportunities exist to fill this gap; unmet housing needs must be addressed, and represents a strong investment opportunity, with a World Bank estimated funding gap of US$384 billion to build the over 17 million units that are required.

“Education must be a priority: High unemployment and a skills shortage mean that we must prioritise education, not only to drive up income across the board, but to reduce the inequality gap and deliver a future for a growing population,” stated the report.

Coronation Capital promoters said the company’s priority sectors have been specifically selected to address some of the key challenges facing the economy over the next decade, from financial inclusion and shelter to the digital divide and the emergence of the oil and gas sector as a value adding segment of the economy.

[Business Day]

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