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Nigerian Firms Capex Spending Slows on Election Uncertainties

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Nigerian companies have slashed capital spending on the acquisition of plants and equipment over worries about the uncertainties surrounding the 2023 election.

Analysts say the weaker level of investment will hamper recovery in productivity.

Of course, firms usually conserve cash and wait on the sidelines for the outcome of the election and the policy direction of the incoming president whether his policies will be private sector friendly and market reaction to the news of his victory.

The combined spending on the acquisition of property, plant, and equipment by firms under coverage dipped by 4.50 percent to N947.14 billion as at December 2022, from N991.82 billion the previous year, according to data gathered by MoneyCentral.

It is important to note that entities had near death experiences during the coronavirus pandemic that forced the government to impose lockdown measures to prevent the spread of the malaise that paralyzed business activities and plunged the country into a recession.

“As one may expect, election activities will likely weigh on capex spending in the first half of the year as private sector investors are likely to remain on sidelines due to uncertainties in the polity,” said Gbolahan Ologunro, former research analyst at Cordros Capital Securities Limited.

However, Olorogun said there should be improvement in the second half as political risk subsides albeit it will depend on the smooth transition of power and the language of the new administration.

The largest consumer goods firm’s capital spending was down 16.71 percent in December 2022 from N301.89 billion the previous year.

It is important to note that the sector was largely weighed down by BUA Foods (the company who listed early last year) whose capital spending dipped by 90.51 percent to N10.18 billion as at December 2022.

The producers of the building materials also lost their appetite for expansion plans as Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa, saw their collective capital spending reduce by 16.14 percent to N200.15 billion as at December 2022 from N238.69 billion the previous year.

Dangote Cement was a drag on the sector as its spending fell by 52.92 percent to N74.61 billion as at December 2022 from N158.50 billion the previous year.

It is expected that the government’s planned capital expenditure spending will be a boon for cement makers as it is expected to accelerate construction activities. And that is on top of private sector investments and the infrastructure gap and housing deficit.

Despite higher oil prices propelled by the Russia and Ukraine war and pent up demand following reopening of the economy, Seplat has slashed spending on the acquisition of property, plant, and equipment.

The most capitalised listed upstream oil and gas firm in Nigeria saw spending reduced by 85.29 percent to N1.97 billion as at December 2022 from N13.41 billion the previous year.

Many oil majors across the globe who have been posting record profit since the onset of the geopolitical tensions have increased capex.

The company said that deposits for investment of $140.3 million include a $128.3 million (which is refundable) deposit for the proposed acquisition announced in February 2022 of Mobil Producing Nigeria Unlimited and the $12.0 million farm-in fee for the Abiala marginal  field carved out of OML 40.

“The Group received total proceeds of $10.8 million in the period under the revised OML 55 commercial arrangement with BelemaOil for the monetisation of 298.4 kbbls of crude oil. In 2022, recovery was affected by sabotage along the Nembe Creek Trunk Line and the Trans Niger Pipeline, with theft factors ranging from 30% to 90%,” said Seplat.

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