Manufacturers need local raw materials to reduce import bill – Parthian Partners CEO

Nigeria has been witnessing the exit of multinationals with consequences on the populace who consume the products they produce. In this interview, the Chief Executive Officer of Parthian Partners, Oluseye Olusoga, speaks with OLUWAKEMI ABIMBOLA on the opportunities available to local manufacturers with the multinationals’ exit, among other issues

How sustainable is the bullish trend on the capital market?

Who knows? The market has gone up to 80,000. I think it’s at a point where it’s going to have a pullback. Nothing goes in a straight line but more importantly, I think a lot of the gains are driven by the financial services sector. I think they have pretty much taken all of that into consideration during the FX gains that you saw reported in their nine months’ results. Probably, you will see more of their FX gains in their full-year numbers, given that the Naira closed around N900 on the NAFEX. We are going to see that the market has taken all of that into consideration. I think at this level, it’s a bit toppish and you are going to have a little bit of market pullback. We can then revisit from there.  I think it’s too early to say if the party will continue or not for a number of reasons. One of that will be the reduced number of options; the number of active stocks in the market, the number of stocks to trade are not that many. So, there is a scarcity of supply of things to buy so money will like to find its home.   The other thing to note is that we haven’t seen a lot of foreign investors in the market.  A lot of our stocks are cheap now given the devaluation that has happened to the naira. If we are able to solve our FX problems, wherein foreign investors feel that they can take their money out easily, then I expect them to pile in because, in comparison to other emerging markets, we are relatively cheap but if you are just looking at it based on Nigerian and local factors, I think this rally is due for a significant pullback before we decide whether we are continuing on this trajectory or not. People, who haven’t got in will probably try and get in because they won’t want to be at risk of being cut out.

At this point, I’m cautiously optimistic except if our FX situation changes significantly. If the FX situation changes, I expect a significant rally because like I said earlier, we are relatively cheap compared to other emerging markets.

 What is your assessment of how businesses and companies will cope with accessing forex this year?

 I’m not super optimistic about that. I think that manufacturers are going to try and look for local substitute goods to reduce the amount of imports that they have to bring in. Even though the government is doing a significant job in trying to revive our FX situation, it is not going to change overnight so there is still a lot of work that needs to be done.  And even as you do the work that needs to be done, there is still that lag period between when you put things in place and when you start to see the results. So, I’m cautiously optimistic. In. the meantime, I expect them to look for local substitutes to reduce their forex spending.

 We saw Cadbury Plc recently convert debt to equity due to challenges with accessing forex. What impression does that leave local investors with, especially in light of some multinationals who have indicated interest in shutting down their operations in Nigeria?

The Cadbury situation is not that bad for local investors. I mean, if you owe money, it comes with a fine. That debt could just keep ballooning, so, this is like a cure, so the question is, how do you keep it from growing again, so it doesn’t become a liability? That was why I said we need to focus on how to get local substitutes and how we export more of what we manufacture.  You know the idea of manufacturers leaving the country could actually be a good thing for local manufacturers especially if local manufacturers are able to take advantage of the opportunities that these multinationals’ exit open up. For me, I’m bullish on a company like Fidson Pharmaceuticals. I think they are one of the biggest winners in the manufacturing space because GSK is gone, P&G is gone. Those are the competition, right? So local manufacturers who understand the terrain and can also manufacture efficiently will also be able to take advantage of the exits. These multinationals are exiting the country and moving to import-only models, they still have a large pockets that can intimidate local manufacturers.  I think local manufacturers should move to generics. I think for every drug that GSK and any of those other multinationals produce, we can go with the generic. If our local guys can produce the generic version, that would do the same thing, then we should buy that. We should encourage our local companies. We only need our regulatory agencies to ensure that standards are upheld and that these medicines are good not that we are taking all sorts of medicines into our body. Also, the government should support local manufacturers. Once that is done, it changes the game.  Personally, I’m cautiously optimistic for the year as I was for 2023. I think it is going to be a good year for businesses. Let me put a caveat on that. It is going to be a great year for businesses who have positioned themselves for recovery, and businesses who have positioned themselves to take advantage of the new government reforms that are coming into play; whether it is solving our FX issues or others. If you look at the government’s budget, it is way bigger. That money has to find a home. It doesn’t matter what you want to tell me. So the question is, how do you position your business to ensure that you can deliver value and by delivering value, you create value for your shareholders, employees and all your stakeholders? Naturally, the community around them will be beneficiaries. I think if you look at the financial services sector, you will see opportunities in the stock market just because you are going to have rights issues, which is an opportunity for people to participate in the prosperity of the companies.  I feel that 2024 will be a much better year than 2023. If you had this discussion with me in 2023, I was a lot more doom and gloom but in 2024, I’m extremely upbeat. If you look at the FX issues, we have taken a lot of the pain. If we are able to get our acts together going forward, we will come out much stronger and resilient.

 We have seen some delistings in the market. Should stakeholders be concerned?

For investors, no. For the market, maybe if the trend continues. We are at 80,000, we have never reached that height before. So, is this a source of concern? No, the party is still on. Things are happening in the right direction. We encourage more people to come back and list in the market.  That allows companies to be bigger, that allows for more participation in the prosperity of the businesses by members of the public. I think that in 2024, the issue of delisting is not of much concern. For me, what is of concern is how we stem the tide.

 The Q3 Foreign Capital importation report from the NBS showed that banks were the largest recipients of foreign capital, should that be a source of concern, especially when Nigeria’s manufacturing sector is taken into consideration?

Financial services are the lifeblood of any economy. Take payment collections, trade, and everything that you do in whatever sector, you still need a banker. Now, if money is coming to the banks, it means that the banks can provide you with the foreign liquidity or dollar liquidity that you need. So let’s look at the problem from a positive perspective. The foreign money is coming into the banks, it hasn’t reached the manufacturing sector yet. It will get there. We should stop worrying about the things we cannot control and focus on the things we have and see how we can make it go further for us.  I believe that the funds will come, it is just a matter of time. We just need to improve and increase confidence that things will get better, and that the reforms that the government is trying to put in place, once they’re done, will yield results.

 There is a concerted effort by the government to boost FDI, when is it likely that we will begin to see the effects of these efforts?

I don’t have a crystal ball. I’m not a magician but I will tell you something. With the removal of fuel subsidy, we have seen some benefits. The truth of the matter is that we have seen some behavioural change. People are beginning to pay the right price for things. It reduced smuggling because it was no longer viable. Overall, we now know our true consumption. Those are the positives and we should acknowledge that those positives exist.  However, we all are feeling the pinch. I think that is also reflective of the fact that things are expensive globally. We need to improve our productivity, so we can earn more and justify our minimum wage going up. You know we Nigerians like to compare ourselves with the international market. We shouldn’t compare too much because the cost of living there is higher than here. We should not just look at how much you’re making but how much it costs to live in those economies. So, someone may be making more money in the Western economy but what does it cost you to live in those economies vis-à-vis what it costs to live in Nigeria?  Nigeria is a great country and there is no greater time than now to be a Nigerian. People have had it worse and despite all that we go through, we are the largest economy in Africa. Why are we complaining like this is the worst? We should be optimistic that Nigeria is on the mend.

 The 2024 budget is based so much on private capital, can the market fund the infrastructure demands given the state of the economy?

The capital market will play its part but it’s not going to be everything. We are going to have VCs (Venture Capital), and private monies. We are going to have funding from all sorts of places but the capital market will play its part in mobilising capital to support the economy but we shouldn’t expect the capital market to do everything. Many factors come into play.

 Since late 2023, there have been calls by some stakeholders for the capital market to fund the creative industry in Nigeria. Any possibilities of that happening soon and what are the structures that need to be put in place?

 Anything worth doing takes time. I think the market will get there eventually but people need to have a better understanding of how to price it, the risks and then over time, a better understanding of the sector, then financing. We need to find out how to measure the risks, what’s viable and what’s not.

 A Stablecoin backed by the CBN is scheduled for launch, it is projected that it will help the unstable Naira. What are your thoughts about this new initiative?

I’m not excited about it. I don’t think the Stablecoin is going to transform or improve Nigeria’s fortunes. I think it is just us trying to be on trend which is okay but I don’t think it is going to be transformational in the immediate, medium or long term. It’s innovation, let’s see where it goes.

 IPOs are drying up not just in our market but in the global capital market, do you think we will see a return of IPOs and if they return, to what extent?

We could see but it is really down to the cost of money. If money gets cheaper, people will be willing to buy more. Regardless of that, if your business has a compelling argument and people can see the value, do an IPO, the question is down to price. We should see some IPOs, there are talks of NNPCL coming to the market, and assuming Dangote Foods comes to the market this year, I think there are opportunities for that to happen.