By Akin Obakeye
When Christine Lagarde, Managing Director, International Monetary Fund (IMF) came to Nigeria in 2016, she urged Nigerians to brace up for harder times, following the massive fall in the price of oil globally.
The government didn’t place a priority until a report by the Nigerian Bureau of Statistics (NBS) showed that Nigeria had slipped into recession, with the latest growth figures showing the economy contracted 2.06% between April and June 2016.
Nigeria’s slip into recession was triggered by two consecutive quarters of declining growth, the usual definition of recession.
It was a period that recorded several negatives; price of oil fell from about $112 a barrel to a staggering $40, the naira value depreciated, which propelled the highest inflation rate at an 11-year high of 17.1%.
The recession was felt by all and sundry, due to the country’s over reliance on oil and weak attention paid to attempts at diversification of the economy.
A vacuum was created by lack of fiscal policy, which made the Central Bank of Nigeria attempt to combine monetary and fiscal policies in an attempt to direct the economy. The lack of apparent policy direction of the present government left a lot of decisions hanging. Investors played a wait-and-see game; some pulled out their funds in the capital and bond markets because there were no ministers appointed at the early part of President Muhammadu Buhari’s administration.
After suffering contraction for five consecutive quarters, the Nigerian economy officially was on the rebound as the National Bureau of Statistics (NBS) in its second quarter Gross Domestic Product Q2 GDP report announced Nigeria’s exit from recession.
According to the report, the economy grew at 0.55 per cent (year-on-year) in real terms, in the second quarter Q2 of 2017.
Since the slip and eventual exit, most businesses in the country either weathered the storm caused by the recession, or sank faster than they could attempt floating.
In 2016-2017, some notable companies known to Nigerians were affected, and the results have only just begun to show in 2018.
Either through a merger, acquisition or exit, Ripples Nigeria takes a count of some companies affected by the economic recession.
In March 2018, Etisalat Nigeria, as a brand would have been 10 years old, following its commercial launch in March 2008.
The network provider was the talk of the town, using the ‘Nigerianess’ touch to win the hearts of millions of Nigerians through commercials and its adoption of ‘green’ as its signature identity.
Etisalat was the third fixed-line service provider and fifth mobile operator in Nigeria, after MTN, Globacom, Airtel, Mtel and a host of others like Starcomms, Multilinks, Visafone.
In July 2017, following an unresolved $1.2 billion loan talks, news made the rounds that the Abu Dhabi owned telecommunications networks was pulling out of Nigeria as all UAE shareholders of the company had left the country and exited the board and management of the Nigerian brand. Its former chairman, Hakeem Bello-Osagie, and the former management staff, also stepped aside. At these, many wondered what next?
Etisalat Nigeria had in 2013 approached a consortium of 13 local banks for a loan of $1.2 billion for network upgrade and expansion. The money was sourced in dollar and naira denominations, and repayment suffered a major setback due to currency crisis and recession in Nigeria.
Nigerian regulators intervened to save Etisalat Nigeria from collapse after talks with its lenders to renegotiate took a nose dive.
Etisalat Nigeria claimed to have paid $500 million up till February 2017. It said the outstanding loan to the lenders stands at $227 million and N113 billion, a total of about $574 million if converted to US dollars.
The exit of Etisalat International left its indigenous successors, Emerging Markets Telecommunication Services Limited, EMTS, three weeks to source for another name.
Consequently, before the expiration of the deadline, Chief Executive Officer, Boye Olusanya, told Nigerians that, “Emerging Markets Telecommunication Services Limited (EMTS), which previously traded as ‘Etisalat Nigeria’ … has changed its name to 9mobile”.
However, the mild drama currently ensuing is the ‘Take over’ by investors who have shown interest through submission of Expression of Interests (EoIs).
The companies include Globacom Nigeria Limited, India’s Bharti Airtel, operating as Airtel in Nigeria; Dangote Group’s telecoms business unit, Alheri Engineering Limited, the Black Rhino Group; Smile Telecoms Holdings, Helios Towers, Centricus Capital and Africell, Dubai-based Abraaj Capital, Teleology Holdings Limited, Africa Capital Alliance (ACA), and The Carlyle Group.
The firms have been prequalified to submit their financial bids for 9mobile, this will be the final process from which a winner with the highest bid submitted for 9mobile, will emerge.
The winner will then be invited to negotiate and agree to the payment terms to takeover 9mobile.
Although 9mobile has been faced with serious financial crisis since 2013, which forced it to obtain the $1.2 billion loan from 13 local banks, but the attractions of the investors is the apt steps taken by the Nigerian government, especially the CBN, NCC and the Senate, to address the financial crisis.
The fourth largest telecommunications network in the country is desperately in need of a lifeline to enable it cover lost grounds since the long search for fresh investors began some months ago.
Watchers of the economy wait to see if the network, after the takeover, would be a shadow of itself or if an improvement will follow.
The OLX slogan was one which caught the attention of millions of Nigerians as at 2012 when it was launched in Nigeria. It was often used by the company to depict the advantage of creating a platform where someone can easily trade an item he doesn’t need anymore to another that needs it, showing how anything can ‘Literally Sell’ On OLX.
As at 2015, the company announced that it had over 3 million traders on its platform, boasting of over 1,122,001 items at an average time of 30 seconds per item posted.
OLX is a global online marketplace operating in many countries around the world. Owned by a South African broad-based multinational internet and media group, Naspers, OLX recorded over N12.1 trillion worth of second-hand items posted on the country’s online classified platform, olx.com.ng since inception.
OLX created a platform for Nigerians to easily monetise their used items, instead of letting them decay without any economic value.
The announcement by Naspers that it was shutting down its OLX offices in Nigeria sent a shockwave through the blood streams of many Nigerians who have adopted the classified site as a market place for buying and selling.
Asides Nigeria, there are also indications that Kenya and Ghana will tow the line, hinting at a major withdrawal from OLX operations in Africa.
Inside sources confirmed that the OLX CEO for Middle East and Africa Sjoerd Nikkelen said last year that, “business is booming across board in Africa, but there is a low return, especially the Naira”.
According to Nikkelen, “We made a difficult but important decision in Nigeria to consolidate our operations between some of our offices internationally. Our marketplace will continue to operate here — uninterrupted — as it has since 2010”.
Even if OLX will still be running in Nigeria, with a remote operations strategy, will the customer confidence still be retained? Will the company be the way it used to be? Or are we just seeing the gradual pullout of parent company, Naspers from the Nigeria business clime, bearing in mind their investments in major African TV media companies like DSTV, GoTV, Multichoice, and Supersports, all operating in Nigeria.
In spite of its current disposition, OLX, it must be admitted, has been able to contribute its quota to strengthening the local currency by latching onto the secondhand market offering in Nigeria.
Another company in the e-commerce business clime to face an acquisition and a possible merger is Konga, partly owned by Naspers, a South African multinational. This time, unlike OLX, Konga decided to shift its entire shop to integrated Information Communication Technology (ICT) solutions conglomerate, The Zinox Group, with Mr. Leo Stan Ekeh as chairman.
The deal, which covers all of Konga; its eCommerce domain, Konga.com, KOS Express which is its logistics arm, and KongaPay, the integrated mobile money payment channel, according to analysts, is a ‘sell or shutdown’ deal, worth around $10m – $18m.
It is worthy to point out that, Zinox Group was arguably, one of the first to launch in Nigeria’s e-commerce space with BuyRightAfrica.com 12 years ago.
However, with the failure of the e-commerce platform, Yudala came alive, through Nnamdi Ekeh, son of Zinox Group chairman, after several intense understudy, adopting both online and offline business module.
The question is, will Konga merge with Yudala?
After a long spell of non-dominance, Konga began to feel a rejuvenated spirit in November 2017, when it joined the endless lists of e-commerce companies to kill ‘Pay on Delivery’ PoD.
Konga is known to be a purely online marketplace with about 184,000 active customers; Yudala in just a year of launch, is said to have become sub-Saharan Africa’s e-commerce market leader, with nearly one million active users.
The acquisition of Konga by Zinox group is projected to boost the profile of e-commerce in the country, which is receiving massive revenue potential in the global multi-billion-dollar industry.
Konga, which is barely 5 years in existence, is valued at about $35 million by Kinnevik, a Swedish entrepreneurial investment group.
According to a global report, in 2017, retail e-commerce sales worldwide amounted to 2.829 trillion US dollars while e-retail revenues are projected to grow to 4.48 trillion US dollars in 2021.
Industry analysts foresaw the acquisition when Konga CEO, Shola Adekoya stated that “The restructuring which also entails workforce reduction is a prudent and necessary step for the long term success of the company. The reorganizing will also impact the business model as we continue to do retail but only focus on the products that customers really like with high throughput in the warehouse and that will leave other products to strategic merchants that will take over some of the products in a marketplace fashion.
Konga, is owned by a Nigerian entrepreneur and business mogul, Sim Shagaya, who is also the executive chairman of DealDey, which is also struggling to survive.
Shagaya has a precedence of ‘relatively’ unsuccessful online sites with; Alarena, Jobclan, Gbogbo and iNollyWood.
Intercontinental Hotels (Exit)
Even with the level of insecurity in Nigeria, the country is still arguably, a tourist destination, with world-class hotels readily available to meet the demands of local and international tourists.
The country has also had its fair share of challenges, which has in turn, affected business operations; recession in 2015, devaluation of the naira and ensuing fiscal crisis, Nigerian general elections in 2015, the West African Ebola health crisis in 2014.
For InterContinental Hotels Group Plc (IHG), headquartered in the United Kingdom, to decide to leave after four years of operation over debt disagreement with local partners, shows that the challenges could not be surmounted post-recession.
The IHG, entered into an international management agreement with Milan Industries Limited, owners of InterContinental Hotel Lagos, in January 2012.
The company’s director of African operations, Simon Stamper announced that from Thursday, January 18, 2018; it will no longer operate as InterContinental-branded property in Nigeria, following its debt burden with Skye Bank and other lenders.
“We remain committed to Africa and continue operations in all our other properties across the continent as usual,” Simon said.
In other words, it would continue its operations in other parts of Africa, but it’s an emphatic no for operations in Nigeria.
InterContinental Hotel Lagos opened in 2013, after a long development period of inactivity. The hotel is owned by Milan Group, an Indian-owned family conglomerate that has operated in Nigeria for nearly 40 years. The hotel opened with a development cost of N30 billion (approximately US$83 million, at current values), with funding provided in large part by Skye Bank and a consortium of other lenders. Skye Bank’s portion of the lending was estimated at US$29.8 million and N3.8 billion
In May 2017, a Federal High Court in Lagos under Justice Babs Kuewumi ordered Skye Bank Plc to take over ownership of the hotel due to the debt still owed on the property.
A receiver-manager was appointed following the court order. IHG claim that several efforts were made to engage with the receiver-manager, which proved futile. IHG claims it was owed up to US$3.1 million (approximately N995 million) in management and other fees. Subsequently, the hotel operator saw it fit to invoke its right to terminate the management agreement on the property, based on a clause which allowed the right to do so “upon the appointment of an administrator or receiver over the assets of Milan”.
But Senior Advocate of Nigeria (SAN), Messrs Kunle Ogunba who was appointed receiver/manager by Skye Bank dismissed the allegation, saying the receiver/manager has remitted over N173 million to the Intercontinental Group as of date.
The InterContinental brand will be the second international hotel brand to pull out from a hotel management agreement in Lagos, in 2017/2018. Earlier in January 2017, the Renaissance Hotel Ikeja rebranded as Radisson Blu, after Marriott terminated its management agreement on the property.
Ajaokuta Steel Company (ASCO) (Acquisition)
Although, Nigeria government has recovered ownership of Ajaokuta Steel Company (ASCO), following the resolution of a protracted legal dispute with Global Infrastructure Nigeria Limited, GINL, the case of Ajaokuta is as a result of failed attempts by successive governments to make the dream for Nigeria’s industrialisation a reality.
In 1980, former President Shehu Shagari championed the foundation laying of an integrated steel plant in Ajaokuta, the Ajaokuta Steel Company (ASC), on 24,000 hectares of sprawling green-field landmass, built on 800-hectares.
It sparked the birth of an industrial revolution in Nigeria; arguably, envisioned to have multiplier effects on all sectors of the Nigerian economy such as the industrial, agriculture, transport and construction sectors, among others.
On its website it states, that ‘Ajaokuta Steel Company is Nigeria’s leading steel company. Guided by a philosophy to produce safe, sustainable steel, it is the leading supplier of quality steel products in all the major economic sectors including construction, packaging and wire drawing/nail making industry’. In 1994, equipment erection work at Ajaokuta Steel Plant had reached 98 per cent completion, but ironically, it has not produced a single steel till date.
The Ajaokuta Steel Company in Kogi State of Nigeria was envisaged to serve as the bedrock of Nigeria’s industrialization, and would have done better if it had started production as far back as 1994.
The steel plant was designed to produce 1.3 million tonnes of liquid steel per annum in its phase one, with a built-in capacity to expand its production to 2.6 million tonnes of flat iron and steel products in its second phase and phase three plan was to produce 5.2 million tonnes of various types of steel products, including heavy plates.
The steel plant complex also has highly sophisticated assemblage of 43 different plants made up of a web of complex iron, cable and machinery of different sizes and functions.
With all these achievements, it was, however, sad that the gigantic steel plant idea conceived and executed by past leaders had failed to contribute to the development of Nigeria.
The federal government has spent more than $10 billion over 34 years and would require another $2 billion to complete the remaining two per cent of the plant. But, corruption, lack of political will, international conspiracy and policy summersaults/inconsistencies have continued to tie down the completion of a project capable of positioning Nigeria strategically on the world map of steel production.
Though blessed with raw materials such as iron ore, coal, natural gas and limestones needed for the manufacture of steel, Nigeria is still struggling with what to do with the dormant plant.
Nigeria, according to Vice-President Yemi Osinbajo, is the 12th largest iron ore resource in the world. But, it spends at least $4.5 billion annually to import basic metals and aluminum products.
These are only a few notable companies facing the herculean task of letting go of their ‘dream business’ to investors locally.
Industry players are foreseeing more announcements of takeover in the coming months. But, between 2018 and 2019, a foreign company, also in this list, will be parking its remaining businesses away, not because of losses, but due to government policies that would tend to promote its local licensing initiative to foreign investors.
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