Financial Management and Planning

Archive for the ‘Financial Crisis Impact’ Category

The Genesis

Americans caused the crisis, by spending more than they save, the American government spending more than it made, American financial institutions giving house loans to people who had a very weak capacity to pay and reselling the loans to naïve and sometimes greedy global investors while the world’s financial regulators watched blindly.

 

The losses

The sums are mind blowing. As at the close of October, estimated money lost in the current world financial turmoil is placed at US $2.8 trillion. This is equivalent to N322 trillion which is about 14,000 years of Nigeria’s economic output. Simply, what the world has lost in the last two months will take the Nigerian economy, with an economic output (GDP) estimated at $200 billion per annum, about 14,000 years to produce.

 

 Is Nigeria immune to the crisis?

The Central Bank Governor (CBN) has reassured that Nigerian banks will not be affected; that our external reserves estimated at over US $50 billion is safe despite the crumbling of financial institutions abroad. But we are not totally immune to the global crisis. It brings good and bad news home. The bad news first.

 

 Nigerian banks feel the pinch?

Easy credit from financial institutions has dried up for Nigerian banks. This has raised the cost of funds indirectly locally. Also the crisis of confidence that has plagued the international inter-bank market has impacted negatively on the international finance operations of Nigerian banks.

 

The stock market also feels the pinch

The downturn in the Nigerian capital market is speculated to have been sparked off when hedge funds withdrew about N1.5 trillion from the market. With the current global downturn, this capital may not return soon, meaning the market may never regain the momentum to saw it rise to new highs.  Nigeria’s capital market is currently rated as one of the worst performing in the world.

 

Oil revenues also affected  

Oil prices currently hover at a low of $43-$53, about one third of its $150 high price in July 2008. This has had a crunching impact on Nigeria which earns about 90 percent of its income from sales of crude oil.

 

Drop in oil revenues mean less revenues for the government. That means less money to build new infrastructure, invest in new oil production and raise our reserves and fall in our external reserves which Nigeria has consistently built up in the last eight years. The immediate impact has been in the steep fall in the value of the Naira against the US dollar as Forex inflows have dried up. Nigerian cars will have to endure the bad roads a bit longer. Don’t also expect any magic with NEPA (Power Supply) soon.

 

 

 

Remittances will drop

Do you have relatives abroad? Then you will have cause to be really worried. Firms are collapsing and those not collapsing are cutting jobs. Obviously, the jobs at risk most are those of immigrants. Fear of job loss and actual job losses are expected to impact negatively on remittances which has become a big source of earnings for economically disadvantaged Nigerians.

 

 

 

The good news of the global crisis

 

Fuel prices will not go up

Fuel prices are not like to go up. The Federal Government was initially planning to remove subsidies on fuel due to the rising prices of crude oil in the international market. With crude oil prices now at all time low, the government’s decision to remove subsidies will not lead to increase of the pump price of fuel immediately. Drive with ease.

 

 

Go for shopping abroad

Americans and Europeans are tightening their belts. Nigerians can now loose theirs a bit. There are sales and sales galore everywhere as retailers compete to get goods off their shelves. Perhaps this is the best time to pick up your bags to go shopping abroad.

 

Houses for sale

House prices are dropping like hot potatoes abroad as foreclosures become the order of the day. If you ever wanted to buy a house in London, or the US, this may be your best time. Stocks are also falling. So this is perhaps the best time to own a little bit of the American dream.

 

 

Any lessons for the future?

On the personal level, do not take a loan you do not have a clear repayment plan with workable alternatives. For Bankers, do not give credit to people with doubtful earnings stream. For Regulators..There is no substitute to close monitoring of how financial institutions make and use their money because when financial institutions sneeze, the economy can get really, really cold.

 

Report on ‘Global Oil Multinationals – Strategies to Survive the Global Recession and a Lower Oil Price’ ( http://www.bharatbook.com/Market-Research-Reports/Global-Oil-Multinationals-Strategies-to-Survive-the-Global-Recession-and-a-Lower-Oil-Price.html  ) analyzes the market risks facing the industry and the strategies that the companies can adopt to survive and grow in the current business environment. The report provides an overview and an in-depth analysis of the factors that led to the financial crisis and the global economic slowdown, the risks and challenges for the companies in the oil and gas industry and an analysis of the various strategies that different categories of companies (National oil companies, International oil companies and Independent oil & gas companies) can adopt to counter the key industry challenges.

 

 Oil Price Volatility and the Credit Crunch Are the Major Short Term Risks That the Oil & Gas Companies Need To Counter Effectively

 Price volatility and the limited availability of credit are the key risks that the oil & gas companies need to manage in the short term. Price of oil and gas and the easy availability of credit play an important role in influencing the future growth decisions of the companies. Low oil and gas prices and a grim outlook on global economic growth and future prices are affecting the development of new projects. Many projects that were planned when the prices were at record levels are now getting postponed as they are no longer economical at current prices. According to Energy eTrack, over 60 oil and gas projects across the value chain have been delayed, postponed or cancelled. The credit crunch and the eventual financial crisis have also squeezed the availability of funds for new oil and gas projects. The tightening of credit markets, collapse of equity markets and a sharp decline in the oil prices has had a combined effect in creating an uncertain environment in the oil and gas industry.

 

 Inadequate Reserves, Depletion of Easily Extractable Oil & Gas and Competition from NOCs Are the Key Long Term Risks Facing the Oil & Gas Companies

 Threat of inadequate reserves, depletion of easily extractable oil and increasing competition for reserves from national oil companies (NOCs) are the major long term risks that the integrated oil companies (IOCs) need to effectively manage to ensure that they are able to sustain their growth in the long term. Oil and gas reserves have been depleting rapidly and as a result the oil and gas companies are now forced to expand their operations to areas where the costs of extraction are high (like deep offshore) and are now also exploiting unconventional resources (like oil & gas shales, coal seam gas, heavy oil etc) to ensure that they are able to sustain their growth in the long term. International oil companies are also facing increasing competition from National oil companies which have started to expand beyond their domestic boundaries and have started competing aggressively to acquire assets internationally. National oil companies also benefit from the political support from their domestic government which at times proves to be an important factor in securing deals. 

 

 

 

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The small companies which are expert to develop high-tech will be purchased by large enterprises that have diversified business because the banks are in trouble now, actually they did not need these technologies any more a few months ago.

Endpoint Technologies Associates analyst Roger Kay, said: "For those who have a reasonable and stable customer base and hold a large amount of cash, now is the best time."

The market conditions for the companies which are in terms of start-up is a disaster for they have not enough cash flow, Market research company Forrester Research shows that the financial services industry is the largest source of revenue to the field of IT. According to Citigroup analyst Brent Thill, to the software industry, about 10-30% of the revenue is from the financial sector.

This year, IBM, Hewlett-Packard and Cisco, and other IT giant has felt the pressure from the banking industry. Last week, Forrester issued for senior IT managers found that about 43% of business plans to reduce IT spending this year, while the financial sector, 49% of the IT department plans to cut the budget. Forrester analyst Eileen Carney said: "The signs at the beginning of this year have been very clear that the cost-cutting is likely to start already."

Compare with those who supply services such as data center outsourcing, companies which are specializing in high-performance hardware and software manufacturers suffered an heavier shock from the financial crisis. AAA Forrester Research report that will be published later this month, show that IT managers of the bank plans to raise investment at the necessary facilities or services, and the demand for high-performance hardware and software is on the decline.

For the Science and Technology Corporations which are hold large amount of cash , now is the best time to Acquisition. For example, after 9.11 terrorist attacks, while at the decline of economy, Cisco acquired a number of small companies, in 2002 acquired 5 and bought 4 at the following year. Despite less than 20% of the revenue comes from services field, Cisco may also be affected by the economic downturn, but the company CEO, John Chambers had said in this summer that Cisco holds 24,000,000,000 cash, they will be used to acquire the appropriate assets.

Another big IT services giant IBM is also likely to escape from the financial crisis for the constant high profit of a number of quarters. The company attributed most of which focus on data center management, and Saas (software as a service), users can use former to replace the manual operation which is need high cost, while use the latter to replace the costly traditional software. IBM’s revenue from services business of its total revenue could account for about 60%.

In addition, IBM has continued to increase internationalization to take care of the economic downturn, IBM CFO Mark Loughridge has disclosed that in July last year, about 75% of the IBM customers are come from outside the United States. In addition, IBM’s investment in emerging markets is also growing because the impact to emerging markets in the United States from financial industry is the smallest. For some brand name IT giant such as SONY, CANON, IBM, DELL, HP, JVC,can take care of the financial crisis for their strong power on R&D system, Supply system, fiancial deparment. But to many small companies that have not enough cash to turn over, this is a cold winter. It’s likely that they will be acquired by the IT giant in the financial crisis. After the financial winter, strong one will be stronger, a new order in the field of IT is coming.

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