Foreign Firms Invest N278 Billion In Nigeria’s Equities Market

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Foreign investors on the Nigerian Stock Exchange (NSE) have put in N278.27 billion in the first eight months of the year.

This was contained in the NSE’s Domestic & Foreign Portfolio Investments (FPIs) Report for August 2019.

The FPIs report includes transactions from nearly all custodians and capital market operators and it is widely regarded as a credible measure of foreign portfolio investment (FPI) trend.

The report uses two key indicators -inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy.

Foreign portfolio outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE.

Segmental analysis delineates the proportion of foreign to local participation, institutional to retail investors as well as the momentum of activities among others.

However, the nation’s stock market has witnessed more foreign investment outflows than inflows in the period under review as N316.19 billion in FPI outflows recorded higher than N278.27 billion brought in by the foreign investors.

Total transactions at the nation’s bourse from January to August stood at N1.323 trillion, while foreign transactions accounted for about 47.29 per cent of the total transactions carried out.

Domestic transactions constituted about 52.71 per cent, outperforming foreign investment during the same period.

Also, the Nigerian equities market has witnessed high volatility, with a year-to-date loss of 11.95 per cent as of September 27, 2019, due to insecurity and economic uncertainties perceived by investors.

Managing director, APT Securities & Funds Ltd, Kasimu Garba Kurfi said most foreign investors understand and play better in the Nigerian investment market, noting that clearer macroeconomic direction, upbeat crude oil pricing and reduced political risks usually influence foreign investments.

He, however, added that selling pressure on domestic investors might not be unconcerned with a demand to raise funds to meet financing needs in preparation for the resumption of schools.

With a trading cycle of four days, most investors find their shares handy in the event of immediate cash requirement.

Chief executive officer, Sofunix Investment and Communications, Mr Sola Oni, said strong fundamentals and undervaluation of Nigerian equities have made them attractive to investors even as he noted that clearer economic and political directions have further reduced Nigerian macro risks and made Nigerian securities more attractive.

On his part, the chief operating officer of InvestData Consulting Ltd, Mr Ambrose Omordion expressed worry at the spill-over effect and volatility caused by over-dependence on foreign investors in the nation’s stock market.

He linked the huge investment outflow from foreign investors to uncertainties that shrouded the nation’s economic outlook, occasioned by insecurity, kidnapping and recurrent farmers-headers clashes.

According to him, this gives credence to the fact that while the large presence of foreign investors in the market signifies strong attraction to the country, their sudden reversal also portends great danger, given the bearish mode currently being witnessed in the market.

He insisted that the major reason for the depressed state of the market is the sell-down by foreign investors who play a dominant role in the nation’s stock market.

Analysts at United Capital Plc noted that “the moderated share prices continue to present good entry points for value investors, although we expect the current bearish trend to persist even into the last quarter of 2019 as there is no stimulus insight.

Hence, we expect the authorities to implement market-friendly policies in order to facilitate real sector productivity.

“Over first half of the year, equities in global, emerging and frontier markets bucked the 2018 bearish trend. This was as most indices ended in the green territory on the back of the global easing narratives.

However, most equities in the Sub-Saharan Africa (SSA) region underperformed their emerging and frontier market peers, as FPIs piled into high yielding debt instruments within the region.

“Looking ahead, we believe the outlook for emerging and frontier market equities will remain positive through H2, 2019 on the back of the expectation for a more dovish global monetary policy.

For SSA, we expect interest inequities to remain fundamentally driven as the heavy-weight market movers, FPI continues to look for bold economic reforms as a fundamental reason for buying equities.

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Thus, in the absence of any new reforms in H2, 2019, we expect sentiments to remain similar to that of H1, 2019.”

For the month of August, total transactions at the nation’s bourse increased by 7.51 per cent from N113.47 billion in July to N121.99 billion. The performance of August 2019 when compared to the performance in the same period, August 2018 of the prior year, revealed that total transactions decreased by 8.85 per cent.

In August 2019, the total value of transactions executed by foreign investors outperformed transactions executed by domestic investors by four per cent.

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Also, over a 12-year period, domestic transactions decreased by 66.68 per cent from N3.556 trillion in 2007 to N1.185 trillion in 2018 whilst foreign transactions increased by 97.88 per cent from N616 million to N1.219 trillion over the same period.

Total foreign transactions accounted for about 51 per cent of the total transactions carried out in 2018, whilst domestic transactions accounted for about 49 per cent of the total transactions in the same period.

IOCs Resist FG’s Move To Recover Unremitted $21bn There are indications that a powerful pressure group from vested interests in some international oil companies are resisting the move by the federal government to recover the payment of monies due to the federal government in arrears of profit from production sharing contracts on crude oil exploration.

The Senate had last week directed its relevant committees to probe the loss of $21billion accruable to the federal government as a result of failure to amend the Production Sharing Contract (PSC) Act.

This resolution followed a motion entitled: “Urgent need to review and recover additional revenue accruable to the government of the Federation from the Production Sharing Contracts pursuant to Section 16 of the Deep Offshore and Inland Basin Production Sharing Contract Act CAP D3 LFN 2004 and amend the Extant Act.”

According to sources, there is intense lobbying going on by the said pressure group to influence the government to overlook the payment of monies due to the federal government in arrears of profit from production sharing contracts (PSC) on crude oil exploration.

LEADERSHIP learnt that the federal government had resolved to shore up its revenue and was determined to recoup arrears of revenue due to Nigeria from PSC agreements on crude oil dating back to 1993.

According to sources, the money is the share due to Nigeria as profit from oil exploration, given proper adjustments in profit calculation as dictated by the price of crude oil in the market”, a top government source said yesterday.

According to sources, the federal government considered the agreement expedient at the time when the country’s revenue generation was significantly low and considering the enormous capital involved in setting the oil production course.

Analysts said that the PSCs were entered in good faith for the purposes of advancing the economy of the country and the profit motive of the contracting parties.

The agreement, however, places the burden and responsibility of sourcing fund for oil exploration on the oil firms, not minding its unpredictable nature and this was sealed under documentation called Production Sharing Contract (PSC).

The contract stipulates that if the oil is found and produced, the oil companies which have invested the funds will allocate a fraction of the oil for royalty, another portion for cost of their investment and another percentage for tax and then the final fraction becomes the profit.

At the time these contracts were entered, the price of crude oil was at $9.50 per barrel. The PSCs are governed by the laws of the Federal Republic of Nigeria and captured under the Production Sharing Act and then a decree that was effective from 1993.

Various clauses guided implementation of the law and in particular Section 16 (1) which stipulated that “if at any time the price of crude oil exceeds $20 per barrel in real terms, the share of the Federal Government of Nigeria in the additional revenue shall be reviewed to make it economically more advantageous to Nigeria’’.

In addition, section 16(2) specified that after a tenure, the National Assembly shall review the Act, and it is therefore estimated that subsection one of section 16 does not require the intervention of the National Assembly, rather it imposes a duty on the oil companies and contracting parties, led by the Nigerian National Petroleum Corporation, NNPC, to by themselves review the sharing formula so as to make it more economically advantageous to the country.

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Also, the analysts said that by implication, it is an inescapable duty binding on all the contracting parties and it was the failure to observe and abide by this clause, either by dereliction of duty or by wilful mischief, that neither party reviewed the sharing ratio to be more economically advantageous to Nigeria as stipulated in the PSCs even when oil prices have exceeded $20 per barrel.

Available information clearly indicates that at the time the first oil was struck by the Nigeria Agip Energy, the price of oil was already at $28.50 per barrel, but in putting the ceiling $20 per barrel, it was presumed that oil prices will not be able to exceed twice its price at then.

Oil price further rose to $60 per barrel when SNEPCO struck oil and appreciated to $65.00 per barrel when Total/Elf got oil and it got to $95.00 per barrel when SNEPCO got oil at Bonga field without any of the parties reviewing the terms of the binding contracts.

Also, Section 162 of the constitution of the Federal Republic of Nigeria stipulates that 13 per cent of the crude oil revenue earned by the country should go to the oil-producing states, a responsibility that specifically rests on government because it occupies the position of trustee for the oil-producing states.

The attorney-general of these states, after reviewing this position, believe they should get more but did not hold the oil-producing companies responsible for the shortfall as they believed that their trustee, being the federal government of Nigeria, should get the additional revenue.

In exercise of this responsibility, the states through their legal teams approached the Supreme Court to invoke this original jurisdiction to determine whether this law has been obeyed or not, and then determine whether the federal government is not liable to them in terms of revenue losses.

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They sued the federal government as represented by the Office of the Attorney-General of the Federation and through an ill-advised contravention, some lawyers applied to join in that case, despite being warned that this is a case of the states against the federal government and when one lawyer was insistent on abusing the order of the Supreme Court, he was slammed with N8 million fine.

The Supreme Court, in a unanimous decision in October 2018, said this claim is well-founded and directed the AGF to constitute a committee to carry out the recovery from the oil companies.

A law firm, TEMPLARS, published an article in an international magazine entitled: “A COUP against PSC Contractors? Re: Attorney General of Rivers State & 2 others v.

Attorney General of the Federation: Impending review of the Deep Offshore and Inland Basin Production Sharing Contract Act” which gave rise to the multiple lawsuits by the oil companies against the Federal Government of Nigeria, NNPC and the lead consultant, Trobell International.

It is believed that the current sharing formula is hugely skewed in favour of the oil-producing companies who currently take 80 per cent while Nigeria as a country takes 20 per cent even though they have since wholly recovered their cost of production through cost of oil.

Experts have questioned the legality of any person or entity local or foreign to challenge the decisions of the Supreme Court of Nigeria.

In fact, the oil companies had sued the federal government, NNPC and Trobell International, a lead consultant in the deal.

Earlier this year, industry and government sources told Reuters that Royal Dutch Shell, Chevron, Exxon Mobil, Eni, Total and Equinor were each asked to pay the government between $2.5 billion and $5 billion.

Reuters, however, reported that a spokesperson for Shell in Nigeria said, “We do not agree with the legal basis for the claim that we owe outstanding revenues and the matter is pending before the court.”

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