At its core, compounding refers to the process of generating additional returns on an initial investment by reinvesting the profits generated. This compounding effect results in exponential growth, as the profits themselves begin to generate further profits. It is a snowball effect that accelerates with time, creating a compounding curve that can yield extraordinary results.

Several real-life examples demonstrate the incredible power of compounding. Take, for instance, the story of Warren Buffett, one of the most successful investors of our time. Much of his wealth was amassed through compounding over decades of consistent investing.

The most common application of compounding is in the financial world. Whether it’s investing in stocks, bonds, or mutual funds, the power of compounding can work wonders for those who practice patience and consistency.

Consider this scenario: You invest ₦100,000 with an annual return of 7%. After one year, your investment would grow to ₦107,000. However, if you decide to reinvest those gains, the next year you would earn a return not only on your initial ₦100,000 but also on the ₦7,000 in gains. This process continues, and over time, the compounding effect becomes increasingly powerful

It has been widely discussed and agreed that the multiple exchange rates are detrimental to the economy as the current system allows arbitrage.

The unification of the ₦/US$ exchange rates through deregulation is expected to eliminate arbitrage opportunities and enhance market competition. By removing the existing complexities, this liberalisation will encourage banks to actively support trade and provide facilities to credible businesses with foreign exchange (FX) needs. Strategic banks, seeking to diversify their earnings, will seize the opportunity to play in the FX market, boosting productivity in the economy. However, the black market may face challenges as more transactions shift towards commercial banks.

The Back Story

Fuel subsidies in Nigeria were implemented to ensure affordable fuel prices for citizens and stimulate economic growth. As one of Africa’s largest oil producers, Nigeria heavily relies on crude oil for its economy, GDP, and employment opportunities.  However, sustainability concerns have emerged due to the strain on government finances and associated challenges.

The history of fuel subsidies in Nigeria dates back to October 2000 when supply inadequacies from the country’s refineries prompted the government to establish a committee to review petroleum product pricing and distribution. This committee led to the formation of the Petroleum Products Pricing Regulatory Committee (PPPRC), which later evolved into the Petroleum Products Pricing Regulatory Agency (PPPRA). The PPPRA utilizes a price modulation mechanism that allows for adjusting petroleum product prices in response to changes in global oil prices. This mechanism enables the government to regulate fuel prices and maintain stability in the domestic market.

However, fuel subsidies have become increasingly unsustainable in recent years. The high costs of maintaining subsidies, inefficiencies, corruption, and fraudulent practices have strained the government’s finances. The subsidies have also led to issues such as smuggling and black-market activities, economic distortions, and reduced investment in critical sectors. To address these challenges, the Nigerian government has undertaken efforts to reform the subsidy system. Recently, the newly elected president Bola Ahmed Tinubu announced the removal of the fuel subsidy resulting in the current fuel price hike. The recent fuel price hike has sparked debates and raised concerns about its impact on inflation, transportation costs, household budgets, and economic growth.

What does this mean for our Economy?

Subsidies distort market dynamics and discourage healthy competition in the oil industry. With the removal of petrol subsidies, the downstream sector can operate in a more market-driven environment. This fosters competition, encourages efficiency, and allows for a more dynamic and responsive industry.

The subsidy regime has disincentivized investment in local refining capacity in Nigeria. By removing petrol subsidies, the downstream sector becomes more attractive for investment in refining infrastructure. This can lead to the construction of new refineries and the expansion and modernization of existing ones. Increased refining capacity would reduce Nigeria’s reliance on imported petroleum products, boost local production, create jobs, and enhance energy security.

Furthermore, The removal of petrol subsidies can incentivize investment in alternative energy sources and technologies. With higher petrol prices, there is a greater motivation for consumers, businesses, and the industry to explore and adopt cleaner and more sustainable energy options. This could lead to increased investment in renewable energy, natural gas, and other environmentally friendly alternatives, fostering a transition to a more diversified energy mix.

From a fiscal sustainability perspective, removing fuel subsidies can alleviate the burden on the government’s finances. Redirecting funds from subsidies to priority sectors can help address budget deficits and create a more sustainable fiscal environment. This, in turn, can enhance investor confidence and attract foreign direct investment, signalling to foreign investors that the Nigerian government is committed to economic reforms and creating a favourable business environment.

• The Board and Management of Ardova highlighted recent operational challenges that have impacted the performance of the business and its ability to make attractive returns to shareholders citing the decline in security’s price on the exchange over the past 5 years as well as the decline in its dividend yield.
• The Board and Financial Adviser, Stanbic IBTC Capital, in the scheme document highlighted the need for capital injection into the business and the consideration of the most appropriate funding method for the company.
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• The conclusion of their analysis is that the majority shareholder will be better positioned to take strategic decisions, raise funds and drive the company’s operations by buying out the minority shareholders and delisting from the exchange.
• They also stated that the company will be unable to make attractive returns to shareholders in the near term and advice minority shareholders to consent to the scheme.
• According to the proposed timelines in the scheme document, June 22, 2023, will be the last trading day on the Nigerian Exchange.
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• Ardova will be delisted from the Nigerian Exchange on June 29, 2023.
• Though the dates were stated as indicative, we believe the transaction is on track to meet these timelines. 

Oando Plc disclosed that it has received an offer from its core shareholder, Ocean and Oil Development Partners Limited (OODP), to acquire the shares of all minority shareholders in the company. Following the acquisition, the company will be delisted from NGX and JSE and re-registered as a private company. Under the Scheme, each Scheme Shareholder shall be entitled to receive the sum of N7.07 in cash or its equivalent in South African Rand (ZAR) for every ordinary share held by qualified Scheme Shareholders at the Effective Date of the Scheme.