Mr. Johnson Chukwu is the Managing Director/Chief Executive Officer of Cowry Assets Management Limited, an Investment bank. He is also a key player in the capital market, with specialisation in oil and gas. In this interview with NGOZI AMUCHE, he urges the government to be serious about its pet policy, Economic Recovery and Growth Plan, to achieve set goals. Excerpts:
Tell us your assessment of the Economic Recovery and Growth Plan which was launched by the Federal Government over a year ago?
As it stands now, I only know of one area we have achieved some reasonable milestone. That is the ease of doing business. Beyond that, I am not aware that we have made any reasonable progress in trying to achieve our targets as a country. The government said they want to create 15 million jobs.
I have heard the government talking about creating seven million jobs in the agricultural sector. But I find it difficult to relate with this figure. The government said it wanted to produce 10,000 MW, we are still distributing about 3,600MW. The government said ‘we want to be net-exporters of refined petroleum product. I am not aware of any government refinery that is working. Government should be serious on the issue of Economic Recovery and Growth Plan to achieve its set
goals.
I doubt if Dangote Refinery will be ready by the time the government projected for Nigeria’s new status as exporter of petroleum products. Of the numerous milestones that are contained in the Economic Recovery and Growth Plan, one is finding it difficult to see any traction, other than in the easing of doing business index, where Nigeria jumped 24 places. I have always advocated that they break these things into measurable milestones, which was what the minister for Trade and Investment did recently. So, we can measure what we have to achieve.
How will the ordinary man on the street feel the impact of Nigeria’s GDP growth rate, especially with the foreign reserve rising to a five-year high?
When you have a high foreign reserve, it bolsters the confidence of investors, particularly foreign investors, because they know there is liquidity for exit from the stock market if they make that decision. Today, we hardly talk about forex scarcity. We have relative stability in the exchange rate. The country’s exchange rate has a direct impact on inflation rate. Improved FX stability has direct impact on economic activities. Of course, we saw in the last quarter of 2017 that some of the sectors that were starved of FX are beginning to recover.
We saw the trade sector turn positive; we saw the manufacturing sector turn positive. Some other sectors are benefiting from the fact that we have more FX available in the economy than we had in 2016. These are facts that are not mere economic terms. If the reserves are just $20 billion, we are going to go back to the situation where we have multiple exchange rates and trouble with the lack of liquidity in the FX market. It would affect the level of economic activities and it could lead to a recession.
When you have a high foreign reserve, it bolsters the confidence of investors, particularly foreign investors, because they know there is liquidity for exit from the stock market if they make that decision
Oil price improved significantly from what it used to be three years ago; why has it not impacted positively to the oil and gas stock at the exchange?
You have to look at the segment of the oil and gas that is listed in the stock market. Apart from Seplat, all listed oil and gas companies are in the downstream segment. The downstream operators in the country are going through a lot of difficulties. For the upstream operator like Seplat, we observe that its result for 2017 was superb and the stock has appreciated significantly in line with this development in the upstream sector, which include favourable crude oil price and luckily for us, we have also seen improved production volumes.
For the upstream market in which Seplat is listed, the market has responded favourably to the sector’s fundamentals. And for the downstream sector, which is where most listed companies operate, we have seen several hiccups. We have seen supply challenges, where availability of products across the country has been an issue, which ordinarily affects the volume of business. We also know that the market is regulated, which does not allow market operators to optimise capacity. The downstream sector has been going through a lot of difficulties and this could explain why stock prices in this market segment have not rallied strongly.
Some analysts and capital market operators have said that the first half of the year 2018 was a bad outing for the equity market. What is the outlook for the rest of the year?
The market closed at 0.09 per cent in the first half of the year, with approximately 0.1per cent. My take is that the factors that led to weak market performance in the first half of the year are prone to be affected in the second half of the year. Basically, one of the factors that worked against the market in the first half of the year is heightening in political risk in the country. The other factor is that we are at the normalisation of monetary policy with the United States, European Central Bank and Bank of Japan. So it is expected that the US Federal Reserve will give rates so much time. This means that we should expect more outlooks of portfolio investors from emerging market. And that would increase what it was in the first half of the year. So if you look at the two factors in terms of domestic political environment, we should expect that as we approach the election period, political activities will further increase, and investors will rather stay on the sideline from investing invariable income asset which equity is one of the major classes, and they will rather invest in fixed income instruments. So I believe that the market is not going to end on a bullish note in the second half, unless there are some factors that are going to emerge that are not in view at the moment.
