Ghana came in first in the region. Nigeria was second.

And here is the report on Nigeria:
Doing Business In Nigeria 2010 (222)

Doing Business 2010 - ECOWAS (200)
Doing Business 2010 - Overview (202)
Doing Business 2010 - Nigeria (273)

Standard & Poor on Friday cut Nigeria’s speculative sovereign long-term foreign currency credit rating one notch to B-plus from BB-minus, citing its costly bank bailout and falling oil revenues.

But fellow ratings agency Fitch said the bailout could have a positive effect while Nigeria’s financial markets began to stabilise after a week of uncertainty.

Last Friday, the Nigerian central bank stepped in to rescue five banks with a 400 billion naira ($2.6 billion) injection of capital and warned these defaulting debtors that they would face legal action unless they repaid the funds.

Nigeria, sub-Saharan Africa’s second-biggest economy, has a stable outlook, S&P said in a statement, adding that the financial, economic and political risks are balanced by a strong external and fiscal balance sheet.

“The lowering of the sovereign rating on Nigeria reflects our view of the government’s reduced fiscal flexibility due to costs associated with its recent bail-out of five large domestic banks, and also the fall-off in government oil revenue,” the firm said in a statement.

“In our opinion, the central bank’s action has begun a welcome restructuring of Nigeria’s banking system, but it also reveals deep problems in Nigeria’s credit markets, with the extent of problem loans beyond our previous estimates,” S&P said.

Fitch Ratings said earlier on Friday it did not see any immediate sovereign rating implications from the central bank’s actions.

The firm applauded the bailout and said it did not think further government assistance on the same scale was likely.

You can read excerpts of the report below. My comments follow.

NIGERIAN shareholders have accused the Central Bank of Nigeria (CBN) governor, Mr. Sanusi Lamido Sanusi, of having a hidden agenda on the proposed sale of bailed out banks, stating that they will resist any backdoor takeover of their banks.

The shareholders, who spoke with the media in Abuja, at the weekend, said the CBN action of doling out N420 billion as bailout to these banks was suspicious.

According to them, the apex bank did not consult the boards of the affected banks before doling out the largesse which they said was poisonous to the banks.

The President of the Independent Shareholders Association of Nigeria and a major shareholder in many Nigerian banks, Sir Sonny Nwosu, in one of the interviews, stated that he suspected strongly that the recent action by the CBN governor to inject N420billion equity funds and the removal of Managing Directors/Chief Executive Officers of five banks was part of a hidden agenda.

“I strongly believe that there is a hidden agenda. The reason being that the first press conference by Sanusi which eluded our own people (journalists), was published by the other side (Financial Times of London). It was stated there that the door would be opened to foreign banks to take over the banking institutions in this country and, in fact, come in to establish banks in this country. And in the process you know these banks would be taken over,” Sir Nwosu said.

He said, “some of them could have been taken over as a way of opening the door for these foreign people. And you know Nigerians, I’m not saying that this is so, but I’m saying as a speculation. Someone can go to Dubai from Nigeria and set up a small company there and before you know it, they will say he is a foreign investor coming into the country to take over hard-earned investments of ordinary share holders.”

He continued: “Now, CBN gave out money to these people. Did they ask for the money? This is another way of tying down and they said it is only the appointed MDs from them that will and accept this money. Because the board may not want the money and this money is another way of saying we have given loans, we are converting it to equity.

“Yes, he has already said so. He said the first instance of five years, that the CBN has the option to convert to equity and you know what that means. It’s like taking away our hard-earned investments. Well, I don’t think we will take that,” he vowed.

The outspoken shareholder regretted that in other climes, approvals were sought from the Senate before such actions were taken but not so for Nigeria. “So, we are running a democracy. All the interventions overseas were very clear, as they went to their Senates to seek approval to pump in money there and once you accept the money they either ask that they will give you a board or will dissolve. In the US, one is given loan and the government has a partial control somewhere.

“What is our Senate doing? You can see the Senate and the House of Representatives saying yes they have done the right thing. Taxpayers’ money — N420billion — that never passed through the Senate.”

On the legal front, he made reference to the regulatory law, the Banks and Other Financial Institutions Act (BOFIA), which he said did not approve such actions. “We are also talking about BOFIA, amended BOFIA. We need to salvage this country from any individual.”

On the next line of action , the shareholders, who are in different associations, said they were waiting as events unfold, adding, however, that any action on the part of the CBN to take over their investments would be resisted with their blood.

I agree with most of their concerns. Here are my issues:

1. Is it lawful for the CBN to just go ahead and take over these banks? Especially since it involves taxpayers’ money.
2. The audits of the other banks are still continuing. Why not wait until the audits are completed before taking any actions?
3. Were these banks on the verge of immediate collapse?
4. It seems that the board of directors of these banks were not consulted. Neither were the banks given any opportunity to make their case.
5. The fact that the audit of the other banks gives other banks that might even be in worse shape enough time to press their debtors and collect the money owed them. At the end, these other banks will seem to be in good shape as they were able to retrieve some of the money owed them.

At the end, I think the CBN blew this. They should have waited until the audit was completed.

In Nigeria, Africa’s most populous country and biggest oil producer, low crude prices are dragging down growth expectations, foreshadowing a dramatic slowdown in an economy that was teetering even in the good years.

Nigeria has long struggled with a fractious federal system, endemic corruption and ramshackle infrastructure — all factors that kept the commodities boom from lifting living standards significantly for most of the country’s 148 million people.

Now, falling oil prices and a struggling banking sector have forced the government to tap into a reserve account tied to excess crude-oil revenues that had bulked up during last year’s commodity boom. Nigeria depends on oil for more than 90% of its export earnings and 80% of its revenue.

On Tuesday, President Musa Yar’Adua signed a $21.2 billion budget for 2009 after months of wrangling. That is slightly more than budgeted last year, but it forecasts a bigger deficit, at about 5%.

The government also said it would tap into its windfall oil-reserve account and disperse $1.5 billion to federal, state and local governments.

The account, meant to protect Nigeria from price fluctuations, and now at $15 billion, collects revenue whenever oil prices climb above the benchmark price set in the budget. This year’s spending plan is based on some optimistic forecasts: Nigeria says it will produce 2.29 million barrels of crude oil a day, and that oil will fetch at least $45 a barrel.

Prices for U.S. benchmark crude, which sells at a premium to Nigerian crude, fell more than 7% to trade late Wednesday in New York at $42.33 a barrel.

Nigeria’s output quota after recent cuts by the Organization of Petroleum Exporting Countries to help stem oil price weakness is just 1.6 million barrels a day.

OPEC members often sell more crude than they’re allowed, and Nigeria’s production capacity is around 2.47 million barrels a day. But sabotage on oil installations in the Niger Delta has cut production to 1.83 million barrels a day.

Amid the steep fall in oil prices, the Nigerian currency, the naira, has fallen 25% against the dollar in the last two months. The International Monetary Fund last week revised its estimate of Nigeria’s 2009 economic growth to 3.3% from the 8% seen in October. Other analysts forecast a growth rate closer to 2%.

Nigeria’s finance ministry predicts gross domestic product growth of around 6%. Anything under 5% for a developing country such as Nigeria, where the population is growing quickly, may be too slow to improve unemployment and poverty, analysts say.

Sub-Saharan Africa is still expected to grow faster this year than every other region except China, India and the Middle East.

But foreign investors who had been flocking to Nigeria are reconsidering in the face of a struggling Nigerian stock market and financial problems in their own countries. International oil majors are postponing plans, and smaller oil-and-gas companies are hard-pressed for funding.
Wannabe oil companies will disappear” here, said Ann Pickard, a vice president at Royal Dutch Shell PLC, at a recent conference in Nigeria. Shell has put several of its own exploration operations on hold.

Here are the main points:

FLOUR MILLS OF NIGERIA PLC: EQUITY RESEARCH REPORT

Executive Summary

-Flour Mills of Nig. Plc operates one of the most broad-based and diversified portfolio of industrial products in Nigeria having successfully weathered the storms of the conglomerates’ power play and struggle for relevance in a stiffly competitive market place.

-Owing to aggressive expansion in product lines, the company recorded impressive organic growth in its FYE 2007 result. The group’s Operating Profit and Profit After Tax (PAT) grew by 56.25 percent and 59.57 percent respectively. However, the company’s recent Q-3 2007 results show modest declines of 6.5 percent and 6.7 percent in PBT and PAT respectively.

-Our forecasts for FYE 2008 put turnover at 120.8billion, PBT and PAT at N11.04 billion and N7.80 billion respectively translating to an EPS of N5.04k. We expect modest improvement in performance in some of Flour Mills’ major subsidiaries especially Nigerian Bag Manufacturing Company (BAGCO) which is a foremost bag manufacturing company in Nigeria and the Northern Nigeria Flower Mills (NNFM) which has recently bounced back into profitability after several years of cumulative losses.

FSDH 2008 Market Outlook

Here is a write up by Meristem Securities on the facts about Penny Stocks

The Nitty Gritty of Penny Stocks

Blue Chip companies are made rather than born contrary to the perceptions of some investors.  They have to work through the different growth phases/business life cycles everyone else. Unfortunately, some investors believe that the best way to ‘dig for gold’ in shares trading is by scouring through penny stocks in hopes of finding the next Japauloil, IPWA, Niwicable,C&I Leasing,Cutix in the early 2007 or Capoil, Afroil, Poly Products in recent times. Some analysts express that this is probably not the best strategy.

Understanding a Penny/Micro-Cap Stock:

Technically, micro-cap stocks are classified as such based on their market capitalization while penny stocks are looked at in terms of their price. Definitions of what stocks qualify as penny / micro-cap vary. In the U.S, stock with market capitalization between $50m and $300 m (N6bn to N36bn) is a micro-cap. (Less than $50 m (<N6m is a nano-cap.) According to the U.S Securities & Exchange Commission (SEC) any stock under $5 is a penny stock.

While all these categorizations are not outlined in any formal /regulatory documents in the Nigerian context, but generally as a norm or market perception, a stock trading at a price range of N1 and N10 is usually considered penny.

The main thing you have to know about penny/micro stocks is that they are much riskier than regular stocks. For instance, junk bonds (bonds with a rating lower than BBB) are considered a much higher risk than those of investment grade (bonds with a rating higher than BBB). In the stock market parlance, equivalent comparison is penny stocks and blue-chip.

What is the Problem with These Stocks?
Market analysts have identified four (4) major issues which make penny stocks riskier compared to other stocks. These are:

Lack of Information Available to the Public:
A fundamental principle that is always preached by many professional analysts is that the key to any successful investment strategy is acquiring enough tangible information to make informed decisions. For micro-cap stocks, information is much more difficult to find. Companies listed on the second and third tiers market are have less stringent requirements especially in relation to disclosures and filling of operational reports with the regulators and are thus not as publicly scrutinized or regulated as those on the first tier board furthermore, much of the information available about micro-cap stocks is typically not from a credible source.

No Minimum Standards:
Stocks on the Second and Third Tier Markets do not have to fulfill minimum standard requirements to remain on the Exchange. Sometimes, this is why the stock is on one of these markets. Minimum standards act as a safety cushion for some investors and as a benchmark for some companies.

Lack of History:
Many of the companies considered to be micro-cap stocks are either newly formed or approaching bankruptcy. These companies will generally have a poor track record or none at all. As you can imagine, the lack of histories of companies only magnifies the difficulty in picking the right stock.

Liquidity:
When stocks do not have much liquidity, two problems arise: first, there is the possibility that the stock you purchased cannot be sold. If there is a low level of liquidity, it may be hard to find a buyer for a particular stock, and you may be required to lower your price until it is considered attractive by another buyer. Second, low liquidity levels provide opportunities for some traders to manipulate stock prices, which is done in many different ways – the easiest is to buy large amounts of stock, hype it up and then sell it after other investors find it attractive (also known as pump and dump).

The Problem for Investors
Penny stocks have been a thorn in the side of the regulators for some time because micro-cap stocks’ lack of available information and poor liquidity make these groups of stocks an easy target for fraudsters. There are many different ways these people will try to part you from your money, but here are two of the most common:

Biased Recommendations – Some micro-cap companies pay individual analysts to recommend the company stock in different media, i.e. newsletters, financial television and radio shows. Look to see if the issuers of the recommendations are being paid for their services as this is a giveaway of a bad investment and make sure that any press releases are not given falsely by people looking to influence the price of a stock.

Off-Shore Brokers– This is does not relate to Nigeria system. In the advanced markets like the U.S, under regulation S, the SEC permits companies selling stock outside the U.S. to foreign investors to be exempt from registering stock. These companies will typically sell the stock at a discount to offshore brokers who, in turn, sell them back to U.S. investors for a substantial profit. By cold calling a list of potential investors (investors with enough money to buy a particular stock) and providing attractive information, these dishonest brokers will use high-pressure “boiler room” sales tactics to persuade investors to purchase stock.

Buying These Stocks
Two common fallacies pertaining to penny stocks are that many of today’s stocks were once penny stocks and that there is a positive correlation between the number of stocks a person owns and his or her returns. Investors who have fallen into the trap of the first fallacy believe NESTLE, OANDO,FIRSTBANK, WAPCO, OCEANIC, ZENITH and many other large companies were once penny stocks that have appreciated to double/tripple digit values. Many investors make this mistake because they are looking at the “adjusted stock price”, which takes into account all stock splits. Rather than starting at a low market price, many of these companies actually started pretty high, continually rising until they needed to be split.

The second reason that many investors may be attracted to penny stocks is the conception that there is more room for appreciation and more opportunity to own more stock. If a stock is at N2 and rises by N1, you will have made a 50% return. This together with the with the fact that a N20,000 investment can buy 10,000 shares convinces investors that micro cap stock are a rapid surefire way to increase profits. For some reason, people think of the upside but forget about the downside. A N5 stock can just as easily go down N2.50k and lose half its value. Most often, these stocks do not succeed, and there is a high probability that you will lose your entire investment.

Conclusion

Sure, some pennies might be of good quality, and many Second and Third Tier Securities are working extremely hard to make their way up to the more reputable First Tier Securities. However, the flip-side is that there many good opportunities in stocks that are not trading for pennies. You need to understand that this is a high risk area that is not suitable for all investors. If you can not resist the lure of micro-caps, make sure you do extensive research and understand what you are getting into.

Analysis of Some Insurance Stocks

Afrinvest 2008 Stock Market Outlook

As a result of this, the Securities and Exchange Commission (SEC) has said that it would suspend trading in the shares of any publicly quoted company that fails to dispatch share certificates or return surplus monies on time.

Here is the story:

The Securities and Exchange Commission (SEC) wielded the big stick yesterday saying it would suspend trading in the shares of any public quoted company that fails to dispatch share certificates or return surplus monies in accordance with market rules.

 

The commission also said with effect from April 1, 2008, no registrar will be allowed to administer any public company to which it is a subsidiary.Many investors have expressed considerable displeasure which has turned into disenchantment with the capital market over deliberate delays by public quoted companies to dispatch their (investors’) share certificates several months and even years after the closure of their public offers.

 

Also, in instances when offers are oversubscribed, investors who are unlucky to get their full allotment of shares wait endlessly to get back their money.

 

In a bid to check this unwholesome trend and stamp its authority on the market, SEC yesterday said companies that violate its rules and regulations relating to the dispatch of share certificates and returned/surplus money will have their listed securities suspended indefinitely from being traded on the floor of the Nigerian Stock Exchange (NSE).

 

According to SEC’s rules, companies must submit their allotment proposals six weeks after the closure of an offer while certificates/returned money must be dispatched 15 working days after the date of clearance of the allotment.

 

These rules have been violated by many companies without any serious sanctions by the capital market regulator. Commenting on these developments, market analysts said SEC may have awoken from its slumber by the issuance of the new directive.

 

Apart from suspending trading in the shares of erring companies, the commission said that such defaulting companies would not be allowed to access the market for fresh issues.

 

“All such defaulting companies shall not be allowed to access the Nigerian capital market until all outstanding complaints against them are cleared to the satisfaction of the commission,” SEC said in a circular to all quoted companies.

The commission has also disallowed applications for preferential allotment.

 

“With effect from April 1, 2008, no registrar shall be allowed to administer the register of any public company to which it is a subsidiary, a holding company, a related company or which has substantial shareholding in the said registrar or in which the said registrar has substantial shareholding,” SEC said.

 

According to the commission, any violation of the directives shall attract severe sanctions including the outright withdrawal of registration to operate in the Nigerian capital market.Meanwhile, SEC has asked all investors who have not received their share certificates and returned/surplus monies in respect of all public offers that closed on or before October 31, 2007 to forward their complaints in writing to the director-general of the commission.

 

The commission advised such investors to enclose evidence of transactions justifying their claims, indicate the public offer and clearly mark the complaint “Non-receipt of share certificates and return/surplus” and telephone numbers.
 

Some of the companies whose offers closed before October 31, last year include, United Bank for Africa Plc, Oceanic Bank International Plc, First Bank Plc and Access Bank Plc.

“I think there is something in the NSE we are all overlooking.
People are waking up to the NSE and everyone is pouring money into the NSE now.Even my grand mother in the village was asking me the other day if she could buy shares.With so much money around,and few companies listed on the stock market ,your guess is as good as mine,especially with the penny shares.

NSE will even continue to climb when the hedge funds come in.Every financial analyst in Europe is researching Nigeria.Today my friend who works for a research company,told me a hedge fund has commissioned them to investigate 8 Nigerian companies.I think the market will rise this year and then start to even out,except ofcourse,Yar’adua’s election is annulled and a re-election leads to anarchy!!!This appears to be a major reason why Hedge Funds are not yet pouring into the country.”