ISSN 1597 - 8842 Vol. 1 No.

92

The Q1 2012 State of the Market Reports
January 2012 to April 05, 2012

The State of the Market Reports – Q1-2012

CONTENTS
1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 Revenue Allocation, Insecurity & Poverty in Northern Nigeria Paradox of Nigeria’s Economic Growth and Poverty Levels Global Stock Market, the NCM and the Unending Recovery Crisis Should Investors add Gold to their Portfolios? Dividend Payments in the Nigerian Capital Market - A View Subsidy Removal – In our Best Interest! Fuel Subsidy: Impact on Oil Marketing Companies on the Bourse 3 07 11 13 16 19 22

SLS, Atedo Peterside and the Subsidy Argument - The Power of Pause! 23 The January Effect - Fact or Fiction? Fuel Subsidy Removal: A Poison Chalice or Pawn? 27 30

Power to Minority Shareholders: High Time They Got Their Act Together 34 Japual Oil records all time new low, still nose-diving. 38

All documents obtained by the team were with, and through the consent of the authors mentioned therein and other parties mentioned in the report. No document is referenced in this report which has been obtained through any other means other than that stated here or/and could not be verified. -2012, Proshare Nigeria Limited, All Rights
Reserved. ISSN 1597 - 8842 Vol. 1 No. 92

For enquiries on this report, kindly contact us at info@proshareng.com

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Revenue Allocation, Insecurity & Poverty in Northern Nigeria
March 13, 2012 / Olufemi AWOYEMI, FCA

“From the equality of rights springs identity of our highest interests; you cannot subvert your neighbor's rights without striking a dangerous blow at your own.” –
Carl Schurz

I'm sure if Sanusi Lamido Sanusi were stuck between a rock and a hard place, that would be preferable to the spot he currently finds himself in over pronouncements made in interviews, speeches and off-the-cuff responses on Boko Haram, revenue distribution and poverty in the country, especially Northern Nigeria. Consider this: Most Nigerians agree that the current insecurity is worsened or aided by the high level of poverty in the country and ignores any attempt to discredit the allusions made by SLS and economic experts. However, no one is able to establish a link between accountability in governance with revenue allocation or its distribution – the root cause. In this delicate exchange, the CBN Governors’ growing band of critics are having a field day, employing the first rule of politics: characterize everything he says and does as wrong. That is fair game. There are three clear groups that have emerged from this exchanges – the battle tested political class who would pick on any issue if it furthers their cause, the well trained, disciplined and professional class, the aggrieved and excluded majority and public officials of which SLS is the most visible. If the information, reasoning and exchanges shaping the debate were premised on facts and reflect a thorough understanding of our dire socio-economic realities, the level of discourse would be elevated beyond the current cheap political posturing taking place. Yet, there are serious issues being raised in and around the issue that should attract the attention of serious minded persons. Indeed, given the back-drop of the terrorist siege that is taking place in the North, the stakes couldn’t be significantly higher. For now, it is hard for the public to separate the wheat from the chaff, because of where we have been, the growing distrust of government and the biting reality of the accelerated descent to poverty of a large majority of Nigerians. This debate however is necessary and long-overdue; yet before an opinion is voiced; a rebuttal is released, and soon enough everything becomes muddled up. That is no way to hold an absolutely necessary national discussion on something so critical to our federalism and collective well being. But in the ‘fear’ driven culture we have created, one would concede this to be an effective way to keep the people distracted whilst the populace pontificates without needing to be right, criticize without having all the facts and loudly call for a redistribution of national wealth without ever having to create one, thus further perpetuating the poverty, unemployment and education malaise. Statistics appear to grossly under-estimate the immensity of poverty that define Nigeria’s paradox of ‘rich country with poor masses’. More than 90% of Nigerians are poor and exist largely at the mercy of fate. These realities are much more obvious in rural areas and slums. In these places people die because they cannot afford N500 to purchase needed medication or basic public healthcare. Worse still, people around may not be able to help as they too may not be able to collectively raise that amount of money. It is a very obvious reality in today’s Nigeria! As strange as it may sound, this is going on side-by-side with ostentatious living by the 1%! Even the official statistics admit that over 112 million Nigerians live on less than US$1.00 a day.

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A factual indicator is the results of the harmonized Nigeria Living Standards Survey (HNLSS) conducted by the non-partisan National Bureau of Statistics (NBS) which puts the Nigerian poverty profile at 69% - this indicates that poverty and income inequality in the country have increased since 2003/2004. Accordingly, the NBS estimated that this trend may rise further if the potential positive impact of several anti-poverty and employment generation intervention programmes of government fall through. The report reveals that 112.47 million Nigerians live below US$1.00 per day and as a result could barely afford the minimal standards of food, clothing, healthcare and shelter! Since poverty and unemployment in Africa strongly correlate, it will not be surprising to assume that the unemployment rate is in excess of 40%. The official figure is nevertheless about 20% which analysts consider a gross underestimation. But be that as it may, what is true is that we have a crisis which historically has been a platform for the creation of, and dynamic sustenance of other crises. We have unresolved issues that seek to emphasize our differences more than our common destiny. We operate a system that exposes the weaknesses in the foundation of our unity which the peoples representatives shy away from confronting. Yet, if the January strikes and related house probe(s) provided any lesson, it must be the fact that the inequalities and fundamental imperfections in the macro-economic structure of Nigeria is unsustainable; and that our politics cannot crowd out the impending reaction to this unaddressed problem. Karl Marx is popularly known for a truism which emphasizes our current reality: religion is the opium of the poor! Yet, it is not only about religion but our historical cultural practices of deliberately putting people in a state of ignorance. Illiteracy is also both a product of and driver of poverty. Thus the greater the level of poverty, the higher the illiteracy rate and of course more poverty - these dynamically reinforce each other. Accordingly, when a young man is poor, illiterate and unemployed, he becomes a clean slate for any kind of brainwashing which according to Karl Marx is more potent when it comes from religion and aided by culture. The reason is very simple. First, this category of persons lacks the intellectual power to logically question or critique what they are told. They live in the world of myths. Secondly, the activity component of the brainwashing given to them provides a quasiequivalent of employment and thus they feel engaged in acting out what they have been brainwashed about. Is this not the kind of situation we find with the Boko Haram phenomenon? To understand this clearly is to closely examine the coordinates of Boko Haram and that of poverty in Nigeria. Boko Haram at the onset appears to have had its operational bases located in the poorest parts of Northern Nigeria. It is in such places where people have been denied the opportunity to go to school as well as have meaningful economic sources of livelihood that recruitment is the easiest. Boko Haram leaders are aware of it and of course are maximizing the advantages of that obvious truth. It was not any different from the situation that prevailed during the pre-amnesty militancy periods in the Niger Delta. The long and short of it is that with entrenched poverty, illiteracy and unemployment, we cannot eliminate the menace of Boko Haram or similar security threats. This draws attention to the mismatch between our recorded national economic growth of 7% and the growth of poverty. In 2011, while the non-oil sector grew with major contributions to growth coming from agriculture, wholesale/retail trade, telecommunications, hotel/restaurants and business/other services sectors, the oil sector output also grew arising from increased oil production made Copyright@ 2012 www.proshareng.com All Rights Reserved.
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The State of the Market Reports – Q1-2012

possible by paying off militants. It is only reasonable therefore to assume that if national real output is growing at such a strong rate, poverty should also be declining rapidly. That is however not the case - our unemployment rate (and by obvious extensions: illiteracy and poverty) is over 20%. So who benefits from this growth? Who or which sectors grow or will grow as a result of the enhanced aggregate output? Is it not time Government realizes that it cannot be the largest employer in the economy but rather the creator of enabling environments for people to thrive. It seems clear that until we deliberately orchestrate growth beyond oil (which has limited employment generating and mass poverty reducing capacities) and effectively liberalize the participation in the economic growth process we shall continue to suffer these consequences and devote more attention to ‘equitable redistribution or expansion of the derivation principle’, increased budgets for security and personality based squabbles – rather than demand for accountability in leadership that would create economically viable states. Promoting maximum value-creating activities in virtually all stages in the value chain for such sectors as agriculture and solid minerals side-by-side an aggressive war against corruption and bad governance, are the only conditions that can make us see meaningful positive economic changes. Agriculture is what virtually every Nigerian participates in! Solid minerals are everywhere in Nigeria but most dominant in Northern Nigeria; yet no one is devoting as much energy to ask why nothing has ever been done or focus attention on same. Can a more aggressive development of agriculture and solid minerals save the North as well as free us from the evil and negative yielding actions of Boko Haram? Perhaps yes! It would sound like a much better proposition than the feeling one gets of living in a state of an undeclared civil war that envelopes the psyche. There are many reasons for this but before going into that argument; it suffices to state that aside Lagos State, no other Nigerian State government can survive without oil revenue receipts. Why has Lagos State scaled the hurdle? It would appear that over the years, and mostly because of its progressive outlook, it has made its environment amenable for industrial and other economic activities. Accordingly, the more the inflow of value-creating entrepreneurs that the State is able to attract, the more the tax and other income that the government earns. Attracting entrepreneurs in turn requires the presence of stable socio-political environment, the market for the final output as well as other input factor resources particularly, employable labour. These factors aside oil has accounted for the differences in the prosperity of various States, a position supported by data from the Federal Board of Inland Revenue (FBIR). Neither has Lagos prospered or is prospering on account of the derivation principle! Yet many of the Northern States can orchestrate the economic conditions that will lead to their earning ‘the same level of the derivation bonuses’ as well as more funds to banish poverty. The question however is: what are these State Governments doing with the resources at their disposal? The Niger Delta as we know it today, like other regions is not a monolithic entity and the oil appears to be a poisoned chalice – rich yet economically structurally deficient. Do the Northern states therefore foresee a situation where there is no oil and possibly no revenue allocation? Derivation may have taken valuable resources away from many States by concentrating a whopping 13% of the national earnings from oil in the hands of the Niger Delta States, but the onus is really on all State Governments to develop Copyright@ 2012 www.proshareng.com All Rights Reserved.
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the natural resources within their own State and equally earn a ‘derivation’! But beyond derivation is the tax incomes, and the economic empowerment of the citizens of those states which are natural consequences of good economic development strategies. In effect therefore, it can be concluded that derivation has not, in any meaningful way, disproportionately orchestrated poverty in Northern or any other part of Nigeria. What on the contrary has driven poverty is the short-sighted fiscal management of resources by many of the State Governments. Recent developments in some northern states provide affirmation to this position and highlight how purposeful leadership can alter the fortunes of citizens in the state – Taraba, Bauchi, Jigawa comes to mind. At a country level, we are predominantly import dependent, and by implication, have been exporting employment opportunities to other parts of the world that we patronize. The sad truth is that while we are sustaining productive activities in other parts of the world, major manufacturing companies in our own country have either shut down or are operating below capacity. This does not seem would abate in the immediate future as the domestic business environment is becoming increasingly worrisome for interested investors. The obvious consequences are massive job loses, under-utilization of productive resources and poor living conditions. What this discussion in effect points at is the fact that political freedom has not yet in a significant way, resulted in the much desired economic freedom. It also means that there is an urgent need to recalibrate the discussion around the issues of Boko Haram and overall insecurity in the country. Although not clearly articulated as such, it is inferred from the ongoing exegesis that the Boko Haram phenomenon has a deep economic root more than any other perspectives from which the investigating intelligence can suggest. While steps be taken to prevent further loss of lives, the damage to the human psyche, our way of life and investors outlook; it should be very clear to all and sundry that we cannot banish unemployment, illiteracy and poverty – the three strongholds sustaining Boko Haram – by focusing on oil revenue except to the extent that it helps in making needed investments in the key sectors of agriculture, solid minerals and gas. State governments have a huge responsibility to save their youths from these three plagues by re-aligning the way they allocate the scarce resources in their possession. Of course the federal government has its own share of this blame based on our brand of ‘unitary federalism’ – independent states dependent on the center. The question now is: what should be the focus of contemporary debates on this issue. Very simply, the discussions should be couched within the context of a high economic security alert. State Governments particularly in Northern Nigeria should introspect and (a) begin to realign their spending more towards attracting, protecting and retaining investors in the Solid Mineral and agricultural sectors of their States or any key competence that justified the creation of the state, (b) embark on enhanced social investment in and enforcement of mass education. These will have more enduring positive impacts in curtailing the menace of Boko Haram or its variants, which now includes kidnapping and outright criminality. The federal government has almost same work to do. Otherwise we will persevere in the conspicuous consumption and greed that threatens to ruin us all.
Olufemi AWOYEMI, FCA, ACIT is a thought-led analyst/consultant.

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Paradox of Nigeria’s Economic Growth and Poverty Levels
March 22, 2012 / Proshare

The significant divergence between the Nigerian economic indicators, macro economics variables and the reality presents a source of concern. The growing disconnect between the improving macro economic indicators and the growing descent into poverty of over 100 million Nigerians clearly has both short term and long term implications. Statistics appear to grossly under-estimate the immensity of poverty that define Nigeria’s paradox of ‘rich country with poor masses’. More than 90% of Nigerians are poor and exist largely at the mercy of fate. These realities are much more obvious in rural areas and slums. In these places people die because they cannot afford N500 to purchase needed medication or basic public healthcare. Worse still, people around may not be able to help as they too may not be able to collectively raise that amount of money. It is a very obvious reality in today’s Nigeria! As strange as it may sound, this is going on side-by-side with ostentatious living by the 1%! A factual indicator is the results of the harmonized Nigeria Living Standards Survey (HNLSS) conducted by the non-partisan National Bureau of Statistics (NBS) which puts the Nigerian poverty profile at 69% - this indicates that poverty and income inequality in the country have increased since 2003/2004. Accordingly, the NBS estimated that this trend may rise further if the potential positive impact of several anti-poverty and employment generation intervention programmes of government fall through. Since poverty and unemployment in Africa strongly correlate, it will not be surprising to assume that the unemployment rate is in excess of 40%. The official figure is nevertheless about 20% which analysts consider a gross under-estimation. But be that as it may, what is true is that we have a crisis which historically has been a platform for the creation of, and dynamic sustenance of other crises. Yet, if the January strikes provided any lesson, it must be the fact that the inequalities and fundamental imperfections in the macro-economic structure of Nigeria is unsustainable; and that our politics cannot crowd out the implosion that would ensue from this unaddressed problem. It is a trite fact that unemployment economically translates to low purchasing power leading to lesser consumption of goods and services. This in turn impacts on businesses who then have to lower production outputs (or seek new markets, an irony when we have the largest market in Africa). These cyclical behaviour ultimately impacts economic growth in the long term. It is this basic, and perhaps simplistic understanding that makes the touting of a continued growth in GDP curious; as it suggests we had more production in the country. Yet if total output was so impressive, the question must be asked as to why this is not reflected positively in the unemployment, poverty and income figures for the majority of its people. Further, it is curious how what should be our distinct advantage – our 160million population size – is now a burden on the sovereign’s resources. Could it have something to do with the economic model that positions Nigeria as an input provider and an import dependent economy? Is it not possible that our policy of selling all our agricultural produces and mineral resources (cassava, cocoa, cashew, oil etc) as inputs to developed nations who has invested in PROCESSING/PRODUCTION and exports same back to us to consume is the underbelly of all our problems? Questions and more questions continue to agitate the mind. Yet, it is clear that we cannot continue to pretend about this reality anymore. Until we pursue a growth inclusive economic model, we would continue to manage an economy that Copyright@ 2012 www.proshareng.com All Rights Reserved.
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pushes the productive capacity of this country into irrelevance, and the people far into desperation. Shedding some light on the impending crisis, CBN Governor Mallam Sanusi Lamido Sanusi described the level of poverty as unacceptable because of the risk it poses to economic growth. According to Lamido “..at the heart of the problem is the government’s economic policy which needs to change. The economy since SAP is one that supports imported consumption and not local production, perpetuating dependency, non inclusive growth and insecurity. Why is it that the economy is growing at 7pct annually but the people are getting poorer? The answer is simply because growth gains are not evenly distributed. Personal income is skewed towards people in the oil industry, Telecoms, high finance, stock market, real estate and yes civil servants and politicians who feed on corruption. We produce crude oil but import petroleum products (today the UK’s highest exports to Nigeria are petroleum based products)”. “We have a large cotton belt but import textiles from China (thus keeping their subsidized factories open and jobs in china). We are the world's number one producer of cassava but import cassava starch from Europe. We have a huge tomato belt in Kadawa, Jigawa and Chad Basin but are the world's largest importer of tomato paste - from China and Italy. We can produce rice but we import rice from Thailand and India-most of it from grain reserves that have been in stock for over 5 years”. “Today Promasidor imports powdered milk from New Zealand and packages in Nigeria using our foreign exchange while we have cattle. WAMCO imports milk from the UK and adds water and tins it and calls it "production" of Peak milk. We use our Forex to import petroleum products and keep refineries and jobs open in Europe”. “We don't create any value-added jobs as the only real production is peasant farming. Oil, Telecoms, finance and real estate are not employment intensive. So everyone becomes a civil servant as the economy cannot create jobs. In the 2012 budget, out of a total N1.8tr recurrent expenditure for the executive arm N1.6tr is on personnel costs not overheads. To reduce this you have to cut salaries or pensions or retrench civil servants. This is the classic trajectory of underdevelopment, de-development and de-industrialisation” The most pitiable attribute of Nigeria society today is that majority of its members are living in a state of penury while the remaining relatively insignificant minority, are living in affluence. These distorted economic relations do not reflect the geographic spread of resource endowment; rather it is a product of class greed, injustice and poor leadership. GDP which quantifies the output of an economy has three main components which constitute it and they are Agriculture, Industry and Services. In Nigeria’s GDP computation, the economy is broken in two broad groups namely: Oil and Non-oil Sectors. Despite oil being the major source of revenue for the country, the non-oil sector continued to be a major driver of the Nigerian economy. In Q3 and Q4 2011, the sector grew at 8.81% and 9.07% respectively. The Q4 2011 growth was largely driven by improved activities in the telecommunications, Building & construction, Hotel & Restaurant, Business services and other sectors. In February 2012, the national bureau of statistics (NBS) said despite strong growth in Nigeria, Africa's second largest economy, the level of absolute poverty rose to 60.9 percent of the population in 2010 from 54.7 percent in 2004. The agency further said poverty is likely to worsen this year as wealth inequality Copyright@ 2012 www.proshareng.com All Rights Reserved.
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continues to widen. Absolute poverty, which is measured by the number of people who can afford only the bare essentials of shelter, food and clothing, showed that almost 112 million people in Nigeria were living on less than $1 a day in 2010, 61.2 percent of the population, compared with 51.6 percent in 2004. Contrast this with the statement by the NBS that Nigeria’s vision to be among the 20 largest economies in the world by the year 2020 which is measured by GDP remained on track as only 2 countries (Mongolia at 14.9% and China at 8.9%) out of the 46 that had released their Q4 GDP estimates at the time of this report grew faster than Nigeria and only one of the two, China is ahead of Nigeria in current GDP rankings. How does one explain away this paradox?
GDP Outlook Across the Globe Country
2011 Q4 2011 Q3 2011 Q2 2011 Q1 2010 Q4 2010 Q3 2010 Q2 2010 Q1 2009 Q4 2009 Q3

Australia Austria Belgium Brazil Bulgaria Canada China Czech Republic Denmark Egypt Estonia Euro Area Finland France Germany Greece Hong Kong Hungary Iceland India Indonesia Israel Italy Japan Latvia Lithuania Malaysia Mexico Netherlands Nigeria Norway Peru Philippines Poland Portugal Romania Singapore Slovakia Slovenia South Africa South Korea Spain

2.30 1.20 1.00 1.40 1.60 2.20 8.90 0.60 0.70 0.40 4.50 0.70 1.40 1.41 1.50 -7.50 3.00 1.40 2.70 6.10 6.50 3.90 -0.40 -0.60 5.70 4.30 5.20 3.70 -0.70 7.68 1.50 5.50 3.70 4.30 -2.80 1.90 3.60 3.30 -2.80 2.90 3.40 0.30

2.50 2.50 1.60 2.10 1.30 2.60 9.10 1.20 0.00 0.20 8.50 1.30 2.70 1.55 2.60 -5.00 4.30 1.40 3.80 6.90 6.50 4.70 0.20 -0.40 6.60 6.70 5.80 4.50 1.10 7.40 4.00 6.70 3.60 4.20 -1.90 2.60 6.00 3.00 -0.50 3.10 3.50 0.80

1.10 3.90 2.20 3.30 2.00 2.10 9.50 2.20 1.70 0.40 8.40 1.60 2.90 1.67 3.00 -7.30 5.00 1.50 1.80 7.70 6.50 5.00 0.80 -1.70 5.60 6.50 4.30 3.20 1.60 7.72 -0.40 6.90 3.10 4.30 -1.10 0.30 0.90 3.30 0.70 3.00 3.40 0.70

1.20 4.20 2.90 4.20 1.50 2.90 9.70 2.80 1.70 -4.20 8.50 2.40 5.50 2.10 4.70 -8.00 7.50 2.40 3.80 7.80 6.50 5.70 0.80 -0.30 3.50 5.90 4.90 4.50 2.80 7.69 0.90 8.80 4.60 4.40 -0.60 0.30 9.10 3.50 2.10 3.50 4.20 0.80

3.00 3.20 2.10 5.30 3.10 3.30 9.80 2.70 2.90 3.80 6.80 1.90 5.50 1.40 3.80 -8.60 6.40 1.90 -0.10 8.30 6.90 5.70 1.60 3.10 3.60 4.80 4.80 4.40 2.30 8.36 1.30 9.20 6.10 4.50 1.00 -0.60 12.00 3.50 2.10 3.80 4.70 0.60

2.70 2.60 2.00 6.90 0.30 3.80 9.60 2.60 3.43 5.50 5.40 2.00 3.10 1.70 3.90 -4.60 6.90 1.70 -3.20 8.90 5.80 5.10 1.50 5.40 2.80 0.80 5.30 5.10 1.80 7.86 -1.10 9.60 7.30 4.20 1.30 -2.20 10.50 3.80 1.70 2.70 4.40 0.20

3.30 2.40 2.70 8.80 1.00 3.60 10.30 2.34 2.83 5.10 3.10 2.00 4.70 1.60 4.30 -0.70 6.70 1.00 -6.20 9.30 6.17 4.80 1.60 4.40 -2.60 0.90 9.00 7.60 2.10 7.69 1.80 10.02 8.90 3.40 1.70 -0.40 19.40 4.20 2.10 3.10 7.50 0.00

2.70 0.20 1.70 9.30 -4.80 2.10 11.90 1.20 -0.91 5.80 -2.60 0.60 -0.50 1.20 2.50 0.40 8.00 0.10 -6.60 9.40 5.69 3.80 1.00 4.80 -6.10 -0.90 10.10 4.50 0.50 7.36 -0.70 6.16 8.40 3.00 1.70 -2.20 16.40 4.70 -1.20 1.70 8.50 -1.40

2.80 -0.90 -0.10 5.30 -7.60 -1.40 10.70 -3.23 -3.08 5.00 -9.00 -2.10 -5.50 -0.50 -1.30 -0.80 2.50 -4.30 -8.60 7.30 5.43 1.80 -2.90 -0.50 16.80 15.30 4.60 -2.00 -2.00 7.67 -1.20 3.44 1.40 3.20 -1.50 -6.50 4.60 -3.60 -5.70 -0.60 6.30 -3.00

0.90 -3.60 -2.70 -1.50 -5.00 -3.50 9.10 -4.41 -6.04 4.60 15.30 -4.10 -8.30 -2.60 -4.40 -3.50 -2.40 -6.74 -6.50 8.60 4.16 0.11 -4.60 -5.60 19.10 14.40 -1.20 -5.50 -3.30 7.30 -1.30 -0.59 0.50 1.70 -2.50 -7.10 2.10 -5.00 -8.80 -2.10 1.00 -3.90

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Sweden Switzerland Taiwan 1.10 1.30 1.90 4.60 1.60 3.37 4.90 2.30 5.02 6.40 2.50 6.16 5.30 1.60 2.20 4.80 5.57 7.70 3.10 7.13 3.30 1.50 3.10 0.60 7.34 6.60 2.60 10.69 3.60 2.70 3.50 -0.30 7.18 4.50 2.60 12.86 5.50 1.60 3.30 -2.00 6.40 2.80 1.94 13.59 4.80 -0.20 2.20 -5.10 5.83 -1.80 0.30 9.24 -6.70 -2.90 -0.50 -5.90 6.90 -6.40 -1.70 -1.21 15.70 -5.30 -3.70 -4.60 6.09

4.60 6.60 3.80 Ukraine United 0.80 0.50 0.60 Kingdom United States 1.60 1.50 1.60 Venezuela 4.90 4.20 2.50 Vietnam 6.10 6.07 5.68 Source: Trading Economics/Proshare

References:

1. Revenue Allocation, Insecurity & Poverty in Northern Nigeria 2. Nigerian Poverty Profile Report 2010 - NBS 3. Surprise! Surprise!! Nigeria’s Inflation Eases to 11.9% in February - FDC Economic Bulletin - March 4. Nigeria: An African emerging economy with prospects. 5. Nigeria’s consumer inflation drops to 11.9% in Feb as against 12.6% in Jan 2012 6. Business and Economic Review for February 2012 - RTC 7. FDC Monthly Economic Review for March 2012 8. Nigeria economy picks up on non-oil sector growth 9. Poverty, Anger & Instability in Nigeria - An Appraisal 10. Sanusi predicts increase in Nigeria’s poverty level 11. The Distribution of Nigeria’s Wealth amongst the States of the Federation: 2008 - 2010 12. Subsidy Removal – In our Best Interest! DISCLAIMER/ADVICE TO READERS:
While the website is checked for accuracy, we are not liable for any incorrect information included. The details of this publication should not be construed as an investment advice by the author/analyst or the publishers/Proshare. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All opinions on this page/site constitute the author’s best estimate judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions. This information is published with the consent of the author(s) for circulation in/to our online investment community in accordance with the terms of usage. Further enquiries should be directed to the author.

Olufemi AWOYEMI, FCA, ACIT is a thought-led analyst/consultant.

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Global Stock Market, the NCM and the Unending Recovery Crisis
March 30, 2012/ Reshu BAGGA, Proshare

The Eurozone economic crisis seems to be a continuous trend. This is particularly true for the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain). Greece is still not out of the woods despite several rescue efforts made by European Central Bank. The most disturbing story now is the health of the Spanish economy. Earlier, most economists were predicting that Italy may be the next Greece. However, the recent rise in Spain's 10-year government bond yield suggests an altogether different story. It has surged to 5.4% at the end of February 2012, 0.4% higher than its Italian counterpart. The main reason for this is the widening fiscal deficit in the Spanish economy. First, Spain missed its 2011 budget deficit target. Then, it tried to revise its 2012 budget deficit estimate from 4.4% of GDP to 5.8%. This was enough reason for investors to start losing confidence in the Spanish economy. Two day ago, Barcelona-based Caixabank, one of Spain's strongest lenders, agreed to buy Civica in an all-share deal valuing Civica at 980 million euros ($1.3 billion), 27 percent less than the Civica's initial public offering price when it floated in July 2011. The newly installed Spanish government aims to reduce the number of lenders to around 10 from more than 40 before the economic crisis. Not only investors but other European economies, especially Italy are also concerned. Italy has been trying hard to come out of its bad economic phase. Any fallout from Spain would push back the whole region to the crisis situation. And it would hurt the corrective measures taken by the Italian government as well. But will Spain go Greece way? Only time can answer. The world stock markets ended last week on a sour note. The Dow Jones industrial average and the Standard & Poor’s 500 Index both fell by -1.15% and 0.50% respectively. The German DAX fell by -2.27% while the London FTSE 100 also moved in the same direction with -1.86% loss while similar story can also be said about World Market during the week based on available data. The US stock markets were down 1.1% during the week due to disappointing housing data. New home sales fell for the second straight month in February by 1.6% to 313,000. Fall in volumes suggested that the recovery in the US housing market may take longer than expected. Furthermore, the factory data from Europe and China was also disappointing leading to a broader fall in global markets. In early afternoon Wednesday trading, the Dow Jones industrial average fell by 4.20 points, or 0.03 per cent, at 13,237.43. The Standard & Poor’s 500 Index was down by 0.10 points, or 0.01 per cent, at 1,416.41. Nigeria’s Status, Economic? Maybe! The Nigerian Stock Market was down during the week after closing green at the end of the previous week. The market year to date performance as at 29th March 2012 stands at +0.41%. Interestingly we remain one of the very few markets yet to record a bounce on the back of favourable economic data and GDP growth figures. Amongst the other world markets, Spain was down by -2.54% while Japan was down -1.2% during

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the week. France was the biggest loser registering losses of -3.3% during the week.

Europe is crumbling and unfortunately for Europeans things may not improve soon. Much attention has been focused on Greece, Portugal, Ireland, Spain and Italy, but the contagion effect remains a real and present threat. Today, public debt in Britain is about $2 trillion and still growing despite huge cuts in spending. Africans know the ravages of poverty too well to revel at Europe’s misfortunes. Just as Europe’s financial crisis still threatens the United States recovery, Nigeria is not an exception as IMF recently issued a blunt warning that unless the European economic crisis is resolved, the global economy faces another 1930s style ‘Great Depression’ which would negatively affect frontier markets including Nigeria. The alert therefore is more urgent in the absence of a clear and deliberate plan or communication of a set of steps to address the continuing decline of the capital markets and indeed the import dependent economic policy being pursued. We need to be assured of a safeguard plan/measure to absolve the shock from the economic crisis in Europe. Such measures can only be achieved through economic diversifications and people oriented reforms – both of which we have heard nothing about.

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Should Investors add Gold to their Portfolios?
April 05, 2012/ Reshu BAGGA, Proshare All that glitters might not be gold, but the yellow metal is definitely shining brighter than ever before. Worries about European debt crisis haunted global stock markets for most part of FY11, making gold a safe haven buy for investors. From April-July 2011, it kept hovering in the range of US$1,331.33 to US$1,360.81 per ounce. When Standard & Poor's downgraded US rating in August 2011, it led to a weakness in the dollar index. This action, coupled with the US Federal Reserve's operational twist and currency depreciation in some countries pierced gold prices. Gold witnessed a strong rally at the international level till September 2011 which added to the sentiment. From September to December 2011, international gold prices however fell from a high of USD 1,923 per ounce to USD 1,594 per ounce. The CPM Group in its 2012 Gold Long-Term Outlook report cited that last year marked the 10th annual average increase in gold prices. The past decade was a period of declining mine supplies, rapidly growing secondary supply, declining net sales of gold from central banks (turning to net purchases by 2008), declining fabrication demand, and significantly larger volumes of investment demand relative to previous decades.
(http://www.cpmgroup.com/free_library1/PRESS_RELEASES/Gold_LongTerm_Outlook_Press_Release_January_2012.pdf)

After recording a lifetime high last year, the question now is will investors have to pay up more to add gold to their portfolio? According to the CPM Group, gold prices are likely to remain high this year but they are unlikely to rise above the record levels reached in 2011 as increasing supply versus a bigger global pool of investors for gold are combining to put a floor under the market, and prices are expected to remain firm, without the parabolic rallies of the recent past. The CPM report further added that in spite of soaring gold prices, China and India are expected to continue to buy gold in 2012 at the same levels seen in 2011. China is the largest mine producer and refiner of gold and one of the largest consumers of gold. Gold fabrication demand and investment demand in China are expected to grow at a strong pace over the next ten years, outpacing growth in domestic supplies from mines and scrap. Gold is believed to be the most favorite investment option. Apart from its traditional importance in certain countries, gold investments act as a shield against economic downturn and crisis situation. Besides traditional options like purchasing jewellery or investing in gold bars and coins, plethora’s of new options are available like the Spot Exchange, Gold ETFs and also Gold Fund of Funds.

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Currently, with a larger number of global investors for gold, rise in supply is being equalized with demand which eventually is providing a support to gold and preventing it from any big decrease in value. If the forecast in the CPM Group’s report is to be believed, then gold could enter into a consolidation phase after seeing a decade of long continuous rise in prices. Though it was highlighted that the uncertainty over worldwide economic conditions still prevails, there are no more fears that the global financial system will collapse. As such, investors have stopped buying into gold from a panic reaction mode. Apart from trading in gold and silver, other precious metals that can be traded on include platinum and palladium. Gold and silver investors need to diversify as investing in precious metals means more than simply buying the "barbaric relics" that have served as money in the past. For today's investors, there's a small window of opportunity to get in on both of them before prices really start to take off. As commodities and mining expert Peter Krauth recently explained, "soon virtually every substance vital to modern life will become enormously expensive and profitable for investors who know how to play it." Palladium, element 46, is one of the platinum group of metals which share the characteristics of being chemically inert and physically heavy. Palladium is industrially important because of its ability to absorb up to 900 times its own weight of hydrogen gas, making it ideal for use in automobile catalytic converters. (http://moneymorning.com/2012/03/28/investing-in-preciousmetals-four-ways-to-diversify-with-palladium-and-platinum/) Because of this use, its price peaked in 2000 at over $1,100 an ounce, at a time when gold was selling for around $250 an ounce. Currently its price is around $690 an ounce, which is much cheaper than platinum. That's why the automotive market is switching back to it. As much as 25% palladium can be substituted for platinum in catalytic converters, and that proportion has been increased to 50% in the laboratory. Platinum, element number 78, is much heavier than palladium, checking in 20 times as heavy as water. As with palladium, its primary use is in catalytic Copyright@ 2012 www.proshareng.com All Rights Reserved.

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The State of the Market Reports – Q1-2012

converters, but it also has uses in jewellery and electronics. The price of platinum has traditionally been higher than gold's, and it soared to over $2,000 an ounce in 2008; currently it trades around $1,640, or just below gold. Although palladium is twice as common as gold, only 200 metric tons of palladium and platinum are produced annually, less than a tenth of annual gold production.

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Dividend Payments in the Nigerian Capital Market - A View
April 6, 2012 / Proshare Research

For many investors, dividend-paying stocks have come to make a lot of sense in Nigeria given the almost cultural belief that making returns on investment is the essence of engaging in any investment or business plan. Many investors think of dividend-paying companies as having low-return investment opportunities compared to high-flying small cap companies whose volatility can be pretty exciting; thus representing dividend-paying stocks as more mature and predictable. In the last few years, activities in this regard appear to be dull, the practice nonetheless provides a combination of consistent dividend with an increasing stock price – which offers earnings potential powerful enough to get excited about. Dividends paid by corporate firms are therefore viewed positively by the investors, firms and the general public – without question. The firms which do not pay dividends are conversely rated by these groups without consequential impact on share prices. The people who support the relevance of dividends payment clearly state that regular dividends reduce uncertainty of the shareholders i.e. the earnings of the firm is discounted at a lower rate, thereby increasing the market value. However, it is exactly the opposite in the case of increased uncertainty due to non-payment of dividends. The dividend policy of a firm traditionally helps the decision to pay cash dividend in the present or paying an increased dividend at a later stage – building a perception of growth, strength and viability. The firm could also pay in the form of stock dividends which unlike cash dividends do not provide liquidity to the investors; however, it ensures capital gains to the stockholders and as such determines the form of payment. Empirical Data in the NCM In the year 2010, out of the 199 First Tier Equities listed on the main board of the Nigerian Stock Exchange, Eighty-Four (84) firms representing 42.21% of the entire listed first tier equities, paid dividends to its investors with Large CAP, Medium CAP and Small CAP companies comprising of 7, 22 and 55 quoted firms respectively. Large CAP companies that made the top ten in this period were NESTLE and NB. TOTAL and MOBIL both made the top as Medium CAP stocks while FTNCOCOA and CAP both made the chart as Small CAP dividend paying stocks. The number of companies that paid dividend in the year 2011 witnessed a slight drop in total figure – Seventy Six (76) out of 186 First Tier Equities listed on the main board in the year under review (a drop of 8 or 10% from 2010 figures). This figure represents 40.86% of listed First Tier Equities with Large CAP taking 7 while Medium and Small CAPs took 19 and 50 in that order. Two financial services companies, GUARANTY and ZENITHBANK, both made the list as Large CAP stocks while TOTAL and NNFM BOTH made it as Medium and Small CAPs stocks. As at Q1 2012, Twenty (20) quoted firms out of the 187 First Tier Equities listed on the main board have proposed dividends to its investors representing 10.70% of the listed First Tier Equities. 3 Large CAP companies are characterized in the figure while Medium and Small CAPs firms have 7 and 10 correspondingly.

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ZENITHBANK led the chart as a Large CAP stock while PAINTCOM and WAPCO both appeared as Small and Medium CAP stocks respectively.

No of Companies that Paid Dividend btw 2010 to 2012 No of Companies by CAP Larg e Medium Small CAP CAP CAP 7 7 3 22 19 7 55 50 10

Yea r 2010 2011

Length of Period Full Year Full Year

No of Listed First Tier Equities 199 186 187

No that Paid Dividend 84 76 20

% 42.21% 40.86% 10.70%

2012 Q1 Source: Proshare Research/NSE

Further analysis of this data revealed that the Financial Services Sector has the highest number of dividend paying companies all through the periods reviewed and this sector was closely followed by those from Consumer Goods, Services and Industrial Goods sectors in that order.
Dividend Payment by Sectors Year Sector Financial Services Consumer Goods Services Industrial Goods Oil & Gas Conglomerates ICT Agriculture Construction/Real Estate Healthcare Natural Resources Source: Proshare Research 2012 5 4 3 3 0 1 1 1 1 1 0 2011 26 13 11 8 4 3 3 2 2 2 2 2010 20 15 13 12 8 4 3 3 3 3 2

In the year 2012, ZENITH, PAINTCOM and WAPCO led the top ten (10) dividend paying companies while the Oil Marketing firms comprising TOTAL and OANDO both led the chart in 2011, closely followed by GT Bank. The 2010 top ten chart was principally led by TOTAL, MOBIL and FTNCOCOA. Top Ten Dividend Paying Companies

2012
Company ZENITHBANK PAINTCOM WAPCO COURTVILLE Sector Financial Services Industrial Goods Industrial Goods ICT Banking Building Materials Building Materials Computer Based Systems Sub sector Dividend Declared 95kobo 8 kobo 75k 5 kobo Bonus Declared CAP Size Large Small Medium Small

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The State of the Market Reports – Q1-2012

VANLEER VITAFOAM NAHCO JBERGER NESTLE CAP

Industrial Goods Consumer Goods Services Construction/Real Estate Consumer Goods Industrial Goods

Packaging/Containers Household Durables Transport-Related Services Non-Building/Heavy Construction Food Products-Diversified Building Materials

30kobo 30kobo 25k 2.40k 11.05k (Final), 1.50k (Int) 1.50k 1 for 5

Small Small Small Medium Large Small

2011
TOTAL OANDO GUARANTY NNFM ZENITHBANK DANGSUGAR UAC-PROP NASCON ROADS ENAMELWA Oil & Gas Oil & Gas Financial Services Consumer Goods Financial Services Consumer Goods Construction/Real Estate Consumer Goods Construction/Real Estate Consumer Goods Petroleum and Petroleum Products Distributors Integrated Services Banking Food Product Banking Food Product Real Estate Development Food Product Non-Building/Heavy Construction Household Durables 600k, 200 N3.00 75k,25k 90k 85k 60k 55 kobo 50k 50k 42k 1 for 4 1 for 4 Medium Medium Large Small Large Medium Small Small Small Small

2010
TOTAL MOBIL FTNCOCOA OANDO FLOURMILL NESTLE CAP NB UACN NB Oil & Gas Oil & Gas Agriculture Oil & Gas Consumer Goods Consumer Goods Industrial Goods Consumer Goods Conglomerates Consumer Goods Petroleum and Petroleum Products Distributors Petroleum and Petroleum Products Distributors Crop Production Integrated Services Food Product Food Products-Diversified Building Materials Beverages-Brewers/Distillers Diversified Industries Beverages-Brewers/Distillers N8.28 N7.00 N3.50k N3.00 N2.00 N10.60 N1.60k, N1.00 N1.50, 0.89k N1.30k N1.15k 1 for 4 1 for 3 1 for 2 1 for 10 Medium Medium Small Medium Medium Large Small Large Medium Large

Source: Proshare Research/NSE

It is natural for shareholders of quoted companies to anticipate dividend payment at the end of every financial calendar year YET it must be appreciated that companies do and can decide to re-invest the profit(s) made in the business through retained earnings. Some believe that company profits are best re-invested back into the company while others are in support of companies that return profits to shareholders. The former group tend to view such company management as having run out good ideas for the future of the company and may impact the fortunes of the stock in a clime that has been traditionally sold the message that dividend payout is a measure of progress. The challenge for the NSE is to encourage companies to justify their dividend payment policies as a function of their forecasts, holding such companies accountable to its internal processes of profit warnings, facts behind the figures and the believability index of the information upon which investors take decisions.

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Subsidy Removal – In our Best Interest!
January 05, 2012 / 10:45 AM Here is a straight-to-the-point response to some internet enquiries on the fuel subsidy by Sanusi Lamido Sanusi (Governor of the Central Bank of Nigeria). Here, SLS shares his convictions and presents a holistic insight into the reality about the Nigerian economy, governance, corruption, the growing gap between the rich and the poor, the challenges to sustainability, the need for the recalibration of the current debate and concerns about the decision taken to remove the subsidy on PMS.

The Case for Subsidy Removal QUOTE - As a Nigerian and an economist, I often take positions on economic matters and this position is one I have had for years long before coming in to the Central Bank. I have also taken time to explain this position on several occasions and criticised government for not doing this before now. In 2010 at a public hearing in the House of Reps on the 25pct saga I alerted the nation of what I considered a potential big scam around subsidies and urged for its removal. No one paid attention. The economics is very clear to me. That it is unpopular is also understandable. The British public is unhappy with Tory budget cuts. The Greeks went on riot over austerity. Italian parliamentarians came to blows before Berlusconi was thrown out of office. The US congress is yet to approve Obama’s tax increases. Economic decisions-by definition-ALWAYS must involve a cost or an opportunity cost since for them to qualify as economic they must involve a choice in resource allocation among competing uses. An enlightened debate is one that weighs the pros and cons of removing subsidy and continuing with it. Removing it has costs in terms of Nigerians paying more for PMS-which by the way is not the fuel for generators, power plants, production facilities, heavy duty goods transportation trucks and even luxury buses. It is fuel used by the middle class and car owners to drive around town and from city to city not to employ workers and produce goods and services. Diesel which is critical to manufacturing and employment creation is not subsidized as the subsidy was removed years ago by President Obasanjo. Nigerians said nothing then because it was blue collar workers that got retrenched by factories. Those speaking now on the internet and facebook and twitter and newspapers are not workers but middle class elite who use PMS in their smart cars so let's stop all the ideological pretence. This is not about elite and masses but an intra-elite discourse. I will summarise the issues and I write as a Nigerian economist and public intellectual not as a public servant: 1. I am a strong advocate for subsidies if they are for production and not consumption and if they benefit the poor and not middle men and rent seekers. The US government subsidizes cotton and wheat farmers and Nigeria spends its reserves importing wheat from America and keeping American farmers employed. The OECD countries pay subsidies to cattle farmers. Today Promasidor imports powdered milk from New Zealand and packages in Nigeria using our foreign exchange while we have cattle. WAMCO imports milk from the UK and adds

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The State of the Market Reports – Q1-2012

water and tins it and calls it "production" of Peak milk. We use our Forex to import petroleum products and keep refineries and jobs open in Europe. Meanwhile precisely because of market distortions there can be no private sector investment in refineries since no one can make profit selling at the regulated price unless we are going to provide private refineries with crude for next to nothing. Certainly no one can purchase crude at market price, refine it and sell at N65 without huge losses so this explains why there are no private refineries. 2 What I mentioned above is at the heart of the problem with government economic policy which needs to be changed. The economy since SAP is one that supports imported consumption and not local production, perpetuating dependency, non inclusive growth and insecurity. Why is it that the economy is growing at 7pct annually but the people are getting poorer? The answer is simply because growth gains are not evenly distributed. Personal income is skewed towards people in the oil industry, Telecoms, high finance, stock market, real estate and yes civil servants and politicians who feed on corruption. We produce crude oil but import petroleum products (today the UK’s highest exports to Nigeria are petroleum based products). We have a large cotton belt but import textiles from China (thus keeping their subsidized factories open and jobs in china). We are the world's number one producer of cassava but import cassava starch from Europe. We have a huge tomato belt in Kadawa, Jigawa and Chad Basin but are the world's largest importer of tomato paste - from China and Italy. We can produce rice but we import rice from Thailand and India-most of it from grain reserves that have been in stock for over 5 years. I can go on and on 3. If the above is clear then it is evident that this trajectory can only lead to disaster. We will continue to spend our resources promoting growth and employment in our trading partners’ countries. When the Terms of trade shift against us, we can only have foreign reserves because by the good grace of God we have Oil which will be exhausted soon and with new discoveries may become so cheap it loses value. We don't create any value-added jobs as the only real production is peasant farming. Oil, Telecoms, finance and real estate are not employment intensive. So everyone becomes a civil servant as the economy cannot create jobs. In the 2012 budget, out of a total N1.8tr recurrent expenditure for the executive arm N1.6tr is on personnel costs not overheads. To reduce this you have to cut salaries or pensions or retrench civil servants. This is the classic trajectory of underdevelopment, de-development and deindustrialisation. 4. For the above reasons I am a strong proponent of structural reform and this begins from the fiscal framework. The limited resources of government should be allocated to supporting production-especially if we are running a budget deficit. We cannot keep borrowing to support conspicuous consumption. To support a job creating economy we need to fund power, transportation infrastructure, market infrastructure and access, technical and vocational education etc. We need to build rice processing plants, produce starch and cassava flour and ethanol, process our tomato and milk locally, regenerate our textiles firms (which used to employ 600,000 workers but now employ 30,000!), refine our own crude etc. We cannot even begin to do this if 30pct of govt expenditure is on fuel subsidy, if out of the balance 70pct is recurrent spending, 10pct is debt service, 10pct goes to the Niger Delta and only 10pct is capital expenditure. So it is about a choice-what do we spend money on and how do we allocate resources? This is the real debate we should be having. 5. We often compare ourselves to other oil producing countries like Saudi Arabia. What are the facts? With a population of over 160m we produce 2mbpd i.e. 1 Copyright@ 2012 www.proshareng.com All Rights Reserved.
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barrel for every 80+ citizens daily. Govt share of revenues is like 50pct of every barrel so it is effectively a barrel for 160 citizens. Saudi Arabia with a 24m population produces over 8mbpd or one barrel for every 3 citizens. In fact in 2010 the nearest OPEC country to Nigeria in production per capita was Algeria with a barrel for 30 and Algeria is more gas than oil. With one barrel for 3 citizens daily, Saudi Arabia is able to provide infrastructure, education, healthcare and social safety nets and have huge savings. It can provide subsidised fuel at a total cost that is a fraction of its savings and even export refined products. It is paying for subsidies out of its fiscal savings and not borrowing to pay. We are like a poor man with a rich neighbour. The neighbour builds a good house, buys several cars, eat expensive food, travel abroad every year and still have huge balances in several current accounts. Then you choose to live that lifestyle and mortgage your house, take an overdraft from the bank to finance it. Next year it is time to repay the bank, you don't have the money so you go to another bank; borrow enough to pay the first bank’s principal plus interest and also fund the continuation of the lifestyle. It continues till you can't borrow anymore and the bank throws you and your family out of your house and you lose everything. A responsible father would have long since faced reality and told his family he doesn't earn as much as his neighbour and expectations need to be moderated if they are to keep their roof. Of course the children won't be happy at not going to Hawaii for summer and having to take public transport rather than own cars like their neighbour's children. Maybe they will even abuse the father behind his back and call him a miser. That is the cost of leadership. Finally: removing subsidy is not a silver bullet that solves our economic problems. Further, there is a huge trust deficit that government has to address. Government needs to investigate subsidy payments and punish any violations of extant guidelines. It needs to cut off unnecessary and wasteful expenditure. It needs to fight corruption and show seriousness in that. It needs to deliver on capital projects, power and infrastructure including irrigation, farm-level storage and agri-processing. These are all valid issues that are to be taken IN ADDITION to and not in place of subsidy removal.

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Fuel Subsidy: Impact on Oil Marketing Companies on the Bourse
Wednesday, January 04, 2012 12:25 PM / Reshu BAGGA

The January 1, 2012 ‘inevitable’ but ‘curiously timed’ decision to ‘deregulate’ the downstream Oil and Gas Sector did little to change the fortunes of the sectors stocks quoted on the bourse, as the equities remained neutral. On January 3, 2012, the first trading day of the year – Japaul Oil closed 4.44 percent up at N 0.94 on the Nigerian Stock Exchange, Eterna Oil was up by 1.35 percent to N 3.00 while all other stocks in sector did not showed any movement.

Balancing Views With a tight budget for infrastructure funding open to the government in its budget plans, the removal of the fuel subsidy is seen by analysts as the fluid required to bridge the gap while shoring up our foreign exchange reserves. The removal of the subsidy (even though no one has been able to explain how or what triggered the increase from N240bn to N1.2 trillion) is fully supported by the IMF/World Bank and many who believe that this is another way of closing some of the loopholes in the Nigerian economy. Naturally, this should have encouraged a reaction of sorts in the equities of companies in that sector. This was not the case on Tuesday. Events as at the time of writing this report has not altered this position on Wednesday. Pricing energy is always going to be a politically difficult issue. However, higher fuel prices will work as an incentive for consumers and companies to use a scarce resource more carefully and hopefully, more efficiently. Benefits of the fuel subsidy should remain limited to a target class, as the higher society class has a tendency to use subsidized cheaper fuel more. The major adjustment might mean a reduction in consumption above the equilibrium between need and resource. We will naturally be interested in computing a new consumer price index (to track the changes on a daily, weekly and monthly basis); tracking changes on the sectoral stocks, changes in foreign exchange prices and flows, international oil prices and input related cost to the PPPRA cost model; as well as the utilization of the proceeds under the Christopher Kolade led team.

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SLS, Atedo Peterside and the Subsidy Argument - The Power of Pause!
January 10, 2012 / Olufemi AWOYEMI

“The subsidy conversation is one thing. Holding govt accountable is another. The second conversation should continue”. – Sanusi Lamido Sanusi

At moments like this, it is quite dangerous to stay mute. Yet the majority of esteemed professionals and respected citizens in both the middle class and upper middle class, in doing so, have given way to a cacophony of voices that is more noise than facts or reason. For those that “contribute” to the debate, being politically correct has been their main pre-occupation. They are neither for nor against, and rightly so and yet they never seem to have a well articulated position, alternative or way out of the conundrum we find ourselves. In a nation like Nigeria where patronage, sycophancy, access to power, allocation, quota system and being with the “in crowd” are essentials to wealth and status, there are compelling reasons why people would thread cautiously and seek to be politically correct. Strangely, for those who are blessed enough to discern a moment in history, this is not one of such period to place too much weight on ‘political correctness’. The enormity of the situation we are confronted with is too grave and too polarising to avoid building consensus on a common or negotiated way out. Fact is that the sovereign is under siege from within - its own government and the citizens. Everybody is talking and no one is listening. Innuendos pass for facts, illusions and perceptions pass for beliefs and emotions replace informed reasoning. I ask, are we allergic to common sense? The current situation as at today is that Nigeria is on an indefinite pause. We have a strike action without a terminal date in view, parties who are not willing to yield grounds on their interpretation of what is best for the economy; and most disheartening, a citizenry left to recall such metaphors as “worse situation than the civil war”, “better rapport during the military era”. “Federal Government has been infiltrated by terrorists (BH)” and “The poor will have nothing left but the rich”. The comments and contributions inspired by the Sanusi Lamido Sanusi (Subsidy Removal – In our Best Interest!) and Atedo Peterside (Subsidy removal will support fiscal viability of Nigeria, says Peterside) are well reasoned convictions are well noted. We ought to acknowledge and give kudos for these patriots for speaking up and sharing their knowledge, insight and perspectives on the issue. I personally admire SLS for his courage, consistency, and tenacity in saying that the culprits in the subsidy fiasco ought to be prosecuted. He must equally be commended for saying that the need to reduce wastage in governance is a clear and present danger to our economy.

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I wish others did the same – whether for or against. Rather than knock them for ‘manning up’, we should take the gauntlet thrown down to advance a more superior logic to the central issues of an unfortunately convoluted debate. Personally, I am not entirely convinced, but persuaded to acknowledge this view points as an analyst. I will always give a benefit of doubt as to the motives and reasoning behind the removal as advanced by these gentlemen, perhaps not the chaotic and disorientated arguments put forward by government officials before now which included the tokenism with transit buses and reduction in basic salaries, and actual elimination of wastages that increase the unreasonable cost of governance immediately. The subsidy will have to go. On that I am resolute but untrusting of government and its ability to hold itself accountable. Government is a key part of the problem and our lack of institutions makes this all the more worrisome. My stand is not predicated on any doubts as to the intentions, sincerity and macro economic arguments advanced by the two most articulate proponents of the government action. No, my stand is premised on the following unresolved issues: 1. The conversation is not structured and we appear to be addressing different sides of a sovereign crisis with a simplistic assumption that the fuel subsidy removal is the sole issue. Fact is that the people of Nigeria are sick to their guts of funding an inefficient, fiscally irresponsible and personal example vacant government that has not shown any measure of prudence, accountability and responsibility in the management of its affairs; 2. The attempt at establishing a correlation between the role of a CEO of a ‘forprofit’ business and that of a President of a nation is ill informed. This is more so in a country where the social contract between the leaders and the citizens is frail and now more strained and fragile; 3. The role of the Federal Government in the Oil & Gas sector is critical to understanding why there exists a trust and integrity deficit in relation to the plans/intentions and expectations. If the government (this regime and those before it) has confirmed its inability to contain the ‘collusion inspired corruption’ that is taken place, it will in all probability be unable to do so when it has washed its hands clean of the scheme; 4. The facts and data/statistics related to consumption, prices, production, players, budgeted payments and role of the banking sector is murky, unavailable and deliberately distorted as to allow for an informed discussion using a common set of data. 5. The contributors to the debate may not in the main be altruistic and may be unfairly targeting a government that its’ only, but perhaps fatal flawed in its inability to sell and secure a ‘buy-in’ for a decision long anticipated. There are consequences for such colossal mismanagement of a defining course of action as intended here. So this reaction from the people is not unexpected. By way of synthesis, let me share some views on the thread on this subject matter from three different perspectives gathered while covering the subject in the last one month: That the more vocal argument that “It is a fallacy that removing the fuel subsidy has costs in terms of Nigerians paying more for PMS, which by the way, is not the fuel for generators, power plants, production facilities, heavy duty goods transportation trucks and even luxury buses. It is fuel used by the middle class and car owners to drive around town and from city to city not to employ workers and produce goods and services” does not stand up to the ‘poverty linear equation’ for Nigeria. Copyright@ 2012 www.proshareng.com All Rights Reserved.
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First, the Federal Government’s Petroleum Policy is based on a 100% importation of Petrol. Second, the country operates a zero local production of petrol. Third, it is wrong to conclude that petrol subsidy is for the rich and not the poor because BRT buses run (which according to the proponents of the argument are for the poor) run on diesel which isn't subsidized. It would interest this community of informed practitioners to note that BRT buses run only in Lagos which is only 1 out of 36 states? It is also a fact that BRT buses cover less than 10% of Lagos State and the Danfos, Okadas and Keke Marwas (well restricted in certain areas) that transport most Lagosians to their homes where they power their homes with the notorious "I better pass my neighbour generator sets" all run on petrol? This is the starting point of the ‘generator economy’ for majority of Nigerians below the middle class who also run hairdressing, barbing, vulcaniser, and other artisan related work in the cities and villages. I bet the argument can be made that there overall contribution to the economy (if the removal holds as it is expected) will be minimal. I agree as much as I agree that an increase in interest rates by the CBN is far less an issue for Nigerians as would be the increase in exchange rates. Yet, we seem to ignore another cost – deviancy, insecurity, unemployment, health issues, educational gaps and social restlessness that would ensue if a large majority of the people end up on the wrong end of the social ladder with very little chance at a decent life. There are 4 categories of people involved in the current discussion: 1. Those who are genuinely bothered about the immediate and long term impact of this decision on their lives: o The 99% who operate under the ‘generator economy’ who will feel the impact and are scared that their ‘Nigerian Dream’ may soon evaporate; o The students and graduates that are either jobless or starring joblessness in the face and feel they need to stand up against this decision; o The everyday people who simply felt hurt by a bad news. 2. Those who are committed to undermine the administration of GEJ and have not been able to build a coherent and formidable coalition against the government but now see in this the most authentic excuse to launch their agenda and appear at the same time as “heroes of the struggle” to an unsuspecting citizenry. 3. Those who recognise this as a money making opportunity had to pass on by from all sides and would like to see it go on and become more intense enough to extract a huge rent till the next problem from a government that seems prone to such open and mortal wounds; and 4. Those who have been driven to the point of desperation and exploitation who have no positive contributions to make to the current discourse but to inflict there own pound of flesh on their perceived enemies – especially symbols of the state – police, taxmen, govt. agencies, landlords, employers, schools and religious organisations. They are the underground that have always waited for such an opportune time to strike. The third and most crucial for me must be the need to preserve the sovereign state and ensure that the government is returned to effective functionality – focussed, responsible and able to overcome the perception Copyright@ 2012 www.proshareng.com All Rights Reserved.
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war launched against it. There exists an absence of a clear and wellthought-out strategy for effectively advancing this reform agenda. To say that the government has handled this issue in a ‘thought-led’ manner is a falsehood beyond comprehension. The follow-up has been treacherous at best, yet the inevitability of a decision range from removal of subsidy to the listing of the NNPC will always reveal some false starts and powerful resistance from those who gain from it, those to be affected and those who might capitalise on such a core input in our personal and economic life. This, I believe is where the government bottled it. But then this is not the end of the story, just a part in an unending drama about a nations journey. Now what needs to be done? This is where the regarded and esteemed members of the forum have to rise above our personal fears, anger and shock about the developments and be counted in bringing about order in the decision making process that would engender this change. We need to articulate a data-backed, concern relevant and sovereign inspired position for the parties to consider. It is my belief that we are in the spring of our revival as a nation and this may yet be our finest hour to once again show the world that we are capable of self-determination, governance and resolve. It is dangerous to remain mute. Remaining mute is what got us into this quagmire? Now is the time to speak up, speak out but do so with clear, common sense data that can inform, enlighten and heal.
About the Author(s): Olufemi AWOYEMI, FCA, AIoD, ACIT is the CEO/MD of Proshare Nigeria Limited, Advisor to the House of Representative Capital Market Committee, Member of the Editorial Board and Strategy & Research committee of the Chartered Institute of Bankers of Nigeria. He is also on the board of many thought led consultancy firms locally and internationally.

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The January Effect - Fact or Fiction?
January 16, 2012

“A general increase in stock prices during the month of January. This rally is generally attributed to an increase in buying, which follows the drop in price that typically happens in December when investors, seeking to create tax losses to offset capital gains, prompt a sell-off.” - Investopedia

At the close of 2011, most financial markets closed on a pessimistic note. It is noteworthy that this was a continuation of the trend all year long.

Two weeks into the New Year, the mood and sentiment should have changed for the better but alas, we have had to contend with an untimely announcement from the Federal Government which came on January 1, 2012 that the fuel subsidy would end immediately as part of efforts to cut government spending http://www.proshareng.com/news/15880.

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This action led to popular revolt and a nationwide strike that basically shut down the economy for about 8 days. While profitable transactions permeated market activities as seen in the ASI being up by 0.82% YTD, this was against the background of skeletal trading activities where volume traded on the floors was significantly reduced. Internationally, the markets have fared well in January 2012. The S&P 500 is up 3% for the year, the Euro zone debt crisis has yet to make new headlines and commodities have also performed well. A well-documented phenomenon in financial markets is what is known as the January effect. Historically, risk assets perform best during the month of the January. They perform better in January relative to any other month of the year. The January effect is said to affect small caps more than mid or large caps. This historical trend, however, has been less pronounced in recent years because the markets have adjusted for it. Another reason the January effect is now considered less important is that more people have no reason to sell at the end of the year for a tax loss. The January Effect is particularly intriguing because it doesn't appear to be diminishing despite being well known and publicized for nearly two decades. There are many reasons for this. One is that many investors sell assets during December for tax reasons, and then buy again in January. It is more pronounced for small cap and mid cap stocks than for large cap stocks. Many investors tend to take new positions at the start of a year rather than towards the end of a previous year. January Effect and the Nigerian Stock Exchange

The January effect on the Nigerian market was evident in the early days when it recorded positive returns. The real challenge is the rate at which it quickly went down once the strike was called off. In the weeks ahead, we will monitor the market to report on how the market responds – and confirm if it is a myth or something we should take seriously in our market. Copyright@ 2012 www.proshareng.com All Rights Reserved.

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Suffice to say, a heightened level of uncertainty promises to cloud the market space in Q1 2012 in the least. Economic Fundamentals were bad to begin this year http://www.proshareng.com/news/15957 and a key point to note is that many factors have changed from a fundamental perspective. Time line of developments in the Economy 1. Committee to speed up passage of PIB to be inaugurated on 190112 2. FG suspends electricity tariff hike 3. Presidential Broadcast, Monday, January 16, 2012 4. US Issues Travel Warning on Nigeria 5. Statement from Mrs. Diezani Alison-Madueke on fuel subsidy removal 6. 2012: Being Competitive amidst Heightening Uncertainty 7. The Fraud in the Oil Industry by Sanusi Lamido 8. KPMG report says NNPC is a house of corruption 9. Oil Sector Corruption – The AP/NNPC Saga Revisited (2003) 10. Auditor General alleges distortions in Federation Account 11. Nigeria strikes costing economy $617 million a day-CBN 12. Oil up $2 on Nigeria output threat 13. SA might issue Nigerian travel alert 14. Nigeria union orders oil, gas shutdown from Sunday 15. Foreigners join protest in Nigeria 16. Foreign airlines suspend operations to Nigeria over strike 17. Mr President, Wahala Dey! - The Choice Before Jonathan (2) 18. Nigeria Losses N82 Bn Daily to the Strike – LCCI 19. Cashless: CBN postpones restriction on third party cheques till March 20. What is Nigeria's Boko Haram? 21. Property market ends 2011 with subdued demand, slow developments 22. Is investing in oil stocks safe post Fuel Subsidy Removal? 23. Fuel Subsidy: Impact on Oil Marketing Companies on the Bourse

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Fuel Subsidy Removal: A Poison Chalice or Pawn?
January 04, 2012 1136hrs / Taiwo Ologbon-Ori

The poison chalice, according to wikianswers, is a term used when something was first perceived as being very good and helpful, then ends up being very bad. Often used in relation to societies to see how or why some of the past civilizations fell. For example, Babylon and Ur developed great irrigation systems; however it was this dependence on the systems that contributed to their down fall. The poison pawn however is a jargon used to describe a tempting target, yet one whose capture would ultimately be self-destructive. In essence, in both cases you end up with a self destructive outcome simply because of one or all of the following: the absence of rigour in the thought process guiding an action, the sequencing or prioritisation of the conditions precedent to a decision, communication management leading to a ‘hearts and minds’ perceptions of beneficiaries, excluded and enforcers of the move to get a buy-in or/and the lack of creativity or innovation in packaging the change. In all this the place of timing matters a lot. Further, a judgment call has to be made as to when less is more and when boldness has to be matched with audacity and tact. It matters to the extent that the basis of the decision, and in this case, the fuel subsidy removal is done without questions as to motive looms larger than the substance of the action. Some of these concerns, as aggregated from the analyst community, will include the following: N1.2Trillion as the basis of arguement: The FG at the beginning of the 2011 year set aside the sum of N240bn in its budget for ‘oil subsidy’ (an average of N20bn per month). By the end of the year, the FG is reported to have spent N1.2tn on subsidy payments (outside appropriations by the National Assembly). The drivers of this significant increase (400%) remain unexplained to an enlightened citizenry who are left to wonder why an increase occurred when the international oil price did not spike nor did the local consumption rate increase. The foundation of the argument is thus lost in translation and salesmanship. The 2012 budget and the MTDP 2012 – 2015 did not include any provisions for subsidy that pretty much meant that there was not going to be a debate about the issue but the selling of the decision as a do-or-die decision to Nigerians might have stretched the logic a bit too far. The sales pitch about ‘palliatives’ was equally disingenuous as it presented the provision of core basic responsibilities as a favour or an exchange for giving up on the subsidy. The provision of good roads (concessionaire or otherwise), adequate transport enablers like rail lines and ports, provision of adequate security of lives and property, funding of a functional fire service, funding of the sorry healthcare delivery system and good governance cannot be termed a negotiation tools. They are responsibilities. The lack of a clear decision from those who have taken up the call to serve to lay down the gauntlet on the key message in the decision – i.e. sacrificing today to provide for a better tomorrow is lost in the profligacy associated with governance and sustained in the pattern of recurrent expenditure which did not reflect an austere approach to the cost of governance. This lack of or absence of personal example acted to condition the minds and remind the people of the trust deficit that has

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always been a key feature of the social contract between the leadership and the people. The increased visibility of the IMF/World Bank in dictating the direction of the economy was always bound to rub negatively against those who believe that there involvement in other climes and our recent past remains a sensitive issue. The decision by Ghana to remove was always thought to be a trigger for an action from Nigeria who would be expected to take steps to address the arbitrage that would arise owing to the FG’s inability to efficiently manage its borders and the well known diversion of products to the ECOWAS subregion. Lastly, there were not to many change champions for the subsidy removal other than the President, the Minister for Finance and the CBN Governor who did a decent job to engage and make their case as best as they could. It must be noted though that this was always going to be a difficult and presidency defining action for which the President will always take the blame. The stage was thus set for a reaction, the manner of which remains unknown – even as analyst expect that it may not be a tipping point for a people conditioned to believe that there only dividend of democracy was the subsidies they ‘assumed they got’ from fuel prices, agriculture, education and health services. In the people’s estimation, if there was corruption and the government knew that the system was flawed; it was expected to bring the culprits to book. From those who ran refineries aground, to importers of fuel, executives of DPR/NNPC and their collaborators. To date, no one has ever been held accountable and this presents a moral challenge if not an integrity dilemma for the administration. Yet, no one is sure whether what we have is a deregulation of the market or a simple removal of subsidy whilst retaining a price control regime. Desperation or Well Reality Response Looking at the timeline of activities leading up to the January 1, 2012 decision by the PPPRA, it would appear that the Abubakar Saraki observation on the floor of the senate precipitated the cascading actions that took place. Yet the debate had started long before this during the Remi Babalola press comment about the state of finances of the NNPC that was hushed away. The government, it can be reasonably said must have therefore anticipated and given enough thought to the action, options and possible reactions; which encourages us to believe that the decision is a fait accompli. The deliberate exclusion of the provision for subsidy in the 2012 budget before the outcome of the NASS enquiry into how the figure leapfrogged by 400 percent would indicate that a deficit-running government needed to shore up its finances – and by extension may not be in a stronger position to invest same amount on a sustainable basis in the economy. This position was well echoed during the minimum wage dispute and it would stand to reason that the state governments who in the main, with the exception of a few states, remain unviable entities without FG revenues were in on the removal of the subsidy as a means of covering the hole in their finances. A cursory review of trends using timeline analysis on the issue reveals that this may end up being a ‘poisonous chalice’ for the masses and a ‘poisonous pawn’ for the administration/government.

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Crunching Game of Chess In a game of chess a poisoned pawn is one which is left out in the open as a target for an opponent's piece in order to lure that opponent into capturing what looks like an easy capture. But it is a trap that has many uses. By way of illustration, say an opponent has a piece that is guarding a square you want to go to in order to checkmate the king. The pawn is moved to a square where it can be taken by that protecting piece. If the opponent goes for that pawn it moves to a spot where it no longer guards the spot you want. You then move to the now unprotected square and checkmate the king. So the opponent gobbled up an insignificant pawn only to be poisoned by the lack of protection. Actually, any piece can be used as a poisoned piece if used properly in the right game situation Technically, what this means is that the sudden removal of the subsidy on January 1st as a New Year gift as against all expectations is a trap to stir the masses into protest which will provide a ground/platform for the N1.2trillion as new cost of subsidy i.e. this is the win-win gambit for the government. A gambit is a chess opening in which a player risks one or more pawns or a minor piece to gain an advantage in position. So why is the administration staking its governance mandate on this move? It can only be doing so because on the one side, it might have limited insight into the issues, oversimplified the possible outcomes from reactions or on the other hand (and more plausible) it genuinely means well for the people of the country. The informed reasoning would suggest that government, and to a large extent, the people believe that we must confront the challenges of funding the infrastructural deficit holding us back in our pursuit of becoming an industrialised nation. The angst being vented therefore must lie, not in the validity of the subsidy removal but more with regards to tact, timing and talking points – all about approach to address the most difficult issue in the most populous black nation on earth where according to the CBN Governor, the majority of the people (the fabled 99%) live on les than $2 USD a day. The numbers and deductions
Subsidy Budget (N'm)
2010 Subsidy (NNPC) Subsidy (Marketers) Total subsidy budget Oil Benchmark Oil Vol. Assumption @N150/1$ 271,921 274,004 545,925 US$60/barrel 2,250,000/day 2011 ?? ?? 240,000 Actual Spent (N'm) 2010 ?? ?? ?? 2011 ?? ?? 1,200,000

Variance
2010 ?? ?? ?? 2011 ?? ?? 400%

Some of the subsidy beneficiary in 2011
African Petroleum A.A. Rano A.S.B Arcon Plc Aminu Resources Avante Guard 104.58 Billion 1.14 Billion 3.16 Billion 24.116Billion 2.3 Billion 1.14 Billion

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The State of the Market Reports – Q1-2012 Avido Boffas and Company Brilla Energy DownStream Energy Dosil Oil and Gas Inco Ray Eternal Folawiyo Energy Frado International First Deepwater Oil Heden Petrol Honeywell Petrol Integrated oil AMP Ascon Channel Oil Forte Oil Enak Oil & Gas IPMAN Investment Limited Atio Oil AMP Emac Oil 3.64 Billion 3.67 Million 960.3 Million 789.648 Million 3.375 Billion 1.988 Billion 5.574 Billion 113.32 Billion 2.63 Billion 257.396 Million 693 Million 12.2 Billion 30.777 Billion 11.417 Billion 5.271 Billion 1.308 Billion 8.582 Billion 19.684 Billion 10.9 Billion 64.4 Billion 11.4 Billion 19.2 Billion

Glimpse of the 2012 budget 2012 Budget

2012 (N trn) 3.42 1.33 4.75

% Contribution 72.00% 28.00%

2011 (N trn) 3.33 1.15 4.48

% Contribution 74.33% 25.67%

Recurrent Expenditure Capital Expenditure Total Expenditure

The proposed 2012 budget shows that 72 percent was earmarked for recurrent expenditure, while 28 percent of the budget was earmarked for capital expenditure indicating infrastructure development will be slow. This unfortunately does not tally with govt’s reasoning (infrastructural development) for the removal of subsidy.

Budget 2012 and 2011 compared Budget proposal Capital Recurrent Stat. Transfer (NAS, NDDC,etc) Debt servicing TOTAL Highlighted sectors Security (defence, police etc) Education Health

2011 N’bn 4,226 1,006 2,482 3,488 196 542 4,226

2012 N’bn 4,749 1,320 2,470 3,790 398 561 4,749 Variance 12.38% 31.21% -0.48% 8.66% 103.06% 3.51% 12.38%

Contributions 2011 2012

24% 59% 83% 5% 13%

28% 52% 80% 8% 12%

1,042 489 339

922 400 283

-11.52% -18.20% -16.52%

25% 12% 8%

19% 8% 6%

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Agric Niger Delta

139 57 2,066

79 60 1,744 561 398 2,046

-43.17% 5.26% -15.59% 3.51% 103.06% 43.88%

3% 1% 49% 13% 5% 34%

2% 1% 37% 12% 8% 43%

Debt service Statutory transfer Other sectors (not separated)

542 196 1,422

TOTAL

4,226

4,749

12.38%

About the Author(s): Taiwo OLOGBON-ORI is an analyst at Proshare with input from an editorial advisory issued on the subject.

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Power to Minority Shareholders: High Time They Got Their Act Together March 27, 2012 / Proshare Nigerians have a tendency not to rebel. More often than not, we just complain to no person in particular and succumb to our individual circumstances. Even in our role as minority investors, we carry the same mindset. Quite often, we are used to being abused by deceitful promoters. But is this about to change? The position of the minority shareholders is usually more precarious as a result of the narrow understanding of the general legal rule that allows only a company, through its majority shareholders, to assert the legal rights of such a company. This rule, commonly known as the rule in Foss V Harbottle (1843) 2 Hare 461, is intended to avoid multiplicity of law suits and also to protect our courts of law from interfering in the internal affairs of a company. However and sometime, the damage to the company is caused by the majority shareholders or their appointed Directors to which situation, the law has created exceptions to this general rule. Most times, this damage is done at the expense of the minority shareholders. Minority shareholder rights consist of rights that are generally available to all shareholders and rights that may be available under CAMA. Companies are governed by this law and shareholder rights are set out in the corporate statute of the company’s state of incorporation. Typical rights are: 1. 2. 3. 4. 5. 6. 7. 8. The right to vote on the election of directors; The right to amend corporate bylaws; The right to amend articles of incorporation; The right to vote on major corporate events such as mergers, liquidation, or the sale of substantially all the corporation’s assets; The right to take action through a written consent; The right to annual stockholder meetings; The right to call special stockholder meetings; and The right to inspect books and records and the list of shareholders.

The Nigerian rescued banks would have been better off, if minority shareholders had exercised their right to inspect their books and also try to check on the activities of the directors which forms the majority shareholders. In Oceanic Bank, Cecilia Ibru was found guilty on charges of fraud and mismanagement. Akingbola was sacked in August 2009 by the Central Bank of Nigeria (CBN) along with other bank bosses over allegation of mismanagement. All these would have been averted if minority shareholders have exercised their rights to the fullest.

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Based on the evidence gathered from the offer documents of the companies in the table below, it is apparent that most of the companies never met their forecast for the period in question except for Bank PHB which surpassed its PAT forecast by 27.98%. At present, Bank PHB (Now keystone Bank) has since been nationalised after being rescued by CBN/AMCON. Also, Daar Communications Plc’s proposed dividend of N2.5 mln and has not fulfilled the forecast promise till date. Issues like this can be taken up by the minority shareholders in order to help improve the company and its corporate governance ethos.

Recently at the yearly general meeting of the Tourists Company of Nigeria held in Lagos, shareholders raised questions for the board to deal with. Specifically, the shareholders argued that a company has been in business for four years, recording continuous improved performance in its operations and should consider its dividend policy to extend part of its profit to the stakeholders who invested in the business based on the offer prospectus. They insisted that come next financial year, dividend should be offered to reward their respective investments in the business.

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The shareholders also sought the retirement of board members they assessed as being too old to continue as directors of the company. Special mention was made of directors who were in their 70’s or close to that age. Actions like this is what is expected of minority shareholders in order to protect their investment in the company. In another instance, and based on expected action from minority shareholders, the shareholders of Investment and Allied Assurance Plc (IAA Plc) recently called on the Federal Government to intervene in the alleged mismanagement of the N14.7bn realized from the private placement that followed their recapitalisation exercisein 2008 by its former management and Board. The call for intervention will surely help attend to some problems in the company as many of the shareholders have expressed their intention of not wanting the company to die as a result of the unaccounted and mismanaged fund. At the International stage, a recent move by The Children's Investment (TCI) Fund, a London-based hedge fund has set a new precedent that could mark the beginning of shareholder activism in India. Just a few days back TCI has sent a letter to Coal India – in which TCI’s 2 per cent stake makes it the biggest shareholder after the Indian government, with 90 per cent – accusing it of committing a “breach of fiduciary duties” to minority shareholders by reversing an earlier steep increase in the price it charges for coal. “We are strongly considering taking legal action against CIL’s individual Board Members for breach of fiduciary duties if no clear commitments are made public in the immediate future to provide parity of coal prices to import prices and rectifying the other breaches of fiduciary duties we have outlined in this letter,” wrote Oscar Veldhuijzen, a partner at TCI, in the letter obtained by the FT. Cases of promoters wanting to give a better deal to group companies for their vested interests have thwarted shareholders' interests several times. Thus, regulators should propose a law to restrict the elbow room for promoters to ignore minority shareholders may be of long term interest to investor community. All stakeholders must have a say in the future plans of the businesses they own. Will this revolt be successful? And how long will promoters take minority shareholders for granted? It is high time they get their act together. If they are not ready to respect the rights of minority shareholders, they could certainly shun the stocks of companies that show no regard for their rightful opinions. Minority shareholders often find that they are unable to exercise their rights because the majority shareholder(s) control the corporation. Minority shareholders should address this issue by exercising their freedom to contractually secure greater rights than the corporate statute explicitly allows.

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Japual Oil records all time new low, still nose-diving.
April 08, 2012 / Proshare Research

Recently, Japaul Oil Plc broke its all time support level of N0.61kobo recorded on 17th November 2011 to close at new low of N0.58kobo, indicating -72.41% dip below the listing price in 2005. Precisely, April 5th 2012, the stock dipped further to close at all time low of N0.56kobo while all technical indicators reveal a further decline as sell off pressure dominated- this suggests a strong bearish sentiments towards the stock.

In a bearish market, the principle of fair value will always prevail as investors tend to punish stock/market severely if such is found to be overvalued before the downtrend. The general bearish sentiment in the market as noticed across the board has put the year to date market performance at a low of +1.02%. To this regard, analysis of the price movement of Japaul Oil Plc showed that the stock hit its high of N1.02kobo for the year on the January 5th 2012. However, the stock plunged considerably to close lower at N0.56kobo on April 5th 2012 and this translates to -45.10% loss so far in the current year. More so, a recent technical review of market sentiments towards the stock being top loser in the week ended April 5th 2012 revealed a strong bearish sentiment towards the stock as noted above. This further signified possible erosion/weakness of shareholders loyalty towards the stock while the negative trend is likely to continue, all things being equal. We also observed that there was no signal of fresh flow of cash into the stock as revealed by technical indicators while investors maintained consistent sell tendency towards the stock.

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Analysis of the price movement further revealed a prevailing bearish sentiment. The 23.89% gain recorded for the year 2010 has been completely erased by 35.71% loss recorded in the year 2011. So far in the current year, the stock has booked another significant loss of -37.78%- revealing a continued falling trend into negative zone.

More so, a comparison analysis of the price trend with the general market trend revealed a worse performance of the stock, plunging further into red zone with YTD loss of -37.78% while the key benchmark indices is showing a resilient posture with YTD performance of 1.02% gain.

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Furthermore, a peer analysis of the Oil & Gas subsector revealed Japaul Oil Plc as worst performing stock so far in the current year within the subsector.

On a final note, the outlook revealed a depressed posture with continued ouflow of funds- a pointer to a further decline to nominal value. Though, a trend reversal is not in doubt, if and only if the key fundamentals could drive it.

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ACKNOWLEDGEMENTS
Olufemi Awoyemi, FCA – Founder/CEO Proshare Reshu Bagga, Technical Director/COO, Proshare Mr. Taiwo Ologbon-Ori, Research & Analyst Unit, Proshare Dr. Martin Oluba, President/CEO Value Fronteria, Nigeria Saheed Kiaribe, Research Other contributors acknowledged in the materials referenced.

Practice Ethos and Disclaimer
Proshare does not guarantee any results or investment returns based on the information you receive. Although we have used our best efforts to provide the most accurate trading and investment strategies, we cannot promise your future profitability and do not promise verbally or in writing that you will earn a profit when or if you purchase/sell stocks; or take the actions that might have been prescribed here by the author, our analysts or available on www.proshareng.com. Ultimately all decisions are made by you. There is risk of loss in all trading and investing. Past performance is not necessarily a guide to future performance and all investment can go down as well as up. WHAT YOU CAN DO: You are given the unlimited right to print this commentary and to distribute it electronically (via email, your website, or any other means). You can print out pages and use them in your private discussion groups as long as you acknowledge PROSHARE and you do not alter the material in any way. Most importantly, you should not charge for it. We encourage professionals and investors alike to send in completed research materials on topics relevant to building a virile intelligent investment culture to us at info@proshareng.com. If approved for publishing, we will subject it to the same terms and conditions applicable to information developed by Proshare. We retain the rights however to edit the submission as applicable to conform to practice ethics and market decorum/regulations. COPYRIGHT: The copyright in this work belongs to the authors who are solely responsible for the content. Please direct permission requests to the Chief Operating Officer (COO), Proshare Nigeria Limited, via analyst@proshareng.com. This work is licensed under the “Proshare” trademark and is registered accordingly at relevant agencies. Proshare Reports, a critical part of Proshare’s public investor education and support service is designed to make it easy for insight into market developments, knowledge, tips and strategies to be made publicly available for people to make their own decisions. While the co-author we work with is responsible for his own work, the report issued is designed to document facts and nothing more. CREATION DATE: This document was created on 08 April, 2012 and is based on the best information available at that time. To check for updates, kindly send us an e-mail at info@proshareng.com . Thank you.

ISSN 1597 - 8842 Vol. 1 No. 92

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You are given the limited right to print this report and to distribute it by any means. You can print out pages and use them in your private discussion groups as long as you acknowledge PROSHARE and you do not alter the report in any way. Most importantly, you should not charge for it. Stock trading is inherently risky and you agree to assume complete and full responsibility for the outcomes of all trading decisions that you make, including but not limited to loss of capital. None of the stock tr ading calls made by Proshare, its analyst board, employees, contributing partners and companies associated with it should be construed as an offer to buy or sell securities, nor advice to do so. Proshare is not responsible for any errors, omissions or representations on any of the pages in this report. Proshare does not endorse in anyway any advertisers or firm(s) used as case studies in the report. Please verify the veracity of all information on your own before undertaking any alliance. 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