The deal is laden with pitfalls
In a swap deal expected to provide local currency liquidity for both Nigerian and Chinese businessmen, the Central Bank of Nigeria (CBN) and the Peoples Bank of China (PBoC) recently signed an agreement on a transaction valued at Renminbi (RMB) 16 billion, the equivalent of about $2.5bn. Both the CBN Governor, Godwin Emefiele, and the Director General of the African Affairs Department of China’s foreign ministry, Lin Songtian, spoke glowingly about the deal. “The essence of the mandate is to ensure that Nigeria is designated as the trading hub with China in the West African sub-region for people who want the Renminbi as a currency denomination,” argues Emefiele while Lin contends that the deal “means that the Renminbi (Yuan) is free to flow among different banks in Nigeria and has been included in the foreign reserves of Nigeria.”
For sure, a currency swap deal means that the Chinese Yuan would begin to rank with dollar, Euro and to a little extent, pounds sterling as a second currency in Nigeria. It also means that Nigerian banks can open letters of credit in Yuan instead of the dollar, euro or sterling. Theoretically, this deal will enhance trade between the two countries.
From a currency risk management perspective, by including the Yuan in our foreign reserve basket, we reduce the exposure of our foreign reserve to the volatility risk of any single currency, especially the dollar.
Aside the fact that the deal shields Nigerian businessmen from the vagaries of third currency fluctuations, it is now also easier for Chinese manufacturers seeking to buy raw materials from the Nigerian market to obtain naira from Chinese banks to pay for their imports. Many countries now have this kind of agreement with China in what can be described as a win-win situation in an increasingly interdependent global market situation. Notwithstanding, there are genuine fears that Nigeria might still not enjoy the benefits of this deal under the current prevailing environment.
As we stated in an earlier editorial on the issue, there are too many questions left hanging. China has historically been accused by Western nations of artificially weakening the Yuan to encourage export, implying that a weaker Yuan gives China an undue advantage over other stronger currency nations. The converse will also be correct: a weaker Yuan will discourage import of foreign goods into China as their prices would become uncompetitive. Therefore, on this swap deal, will Nigeria also fall prey to a relatively weaker Yuan especially given the current balance of trade in favour of China?
China is a trading partner in the purchase of our crude oil, which is responsible for over 80 per cent of our foreign exchange earnings. If China now pays for that with Yuan, our stock of Yuan increases while our dollar receipts will decrease by the same amount. But the relevant question here is: given the balance of trade between China and Nigeria of over US$14billion and growing, will the Yuan supply gap in Nigeria not imply an upward rate push eventually of the Yuan thus bringing us back to square one? Besides, from where are we going to get enough Yuan to stabilise the naira and keep it strong since that appears to be the main economic objective of the administration?
Put differently, we must do something to earn Yuan except we are borrowing from China and if we borrow, we must pay someday. If we don’t, then we must sell something to China to be able to trade in that currency. The point we are making is that other than oil, we have nothing more to sell to China but we buy so many things from China. Therefore, in implementing the Swap, we hope the authorities will take these concerns into consideration.
By Chima Akwaja – The Leadership
O-Mobile Multimedia Limited, a Nigerian firm that specializes in technology based financial and agricultural services development, has secured a grant of US$10 million from So.Sui.Ben Foundation, a Swiss-based non-governmental organization that promotes development in Africa.
The grant, which is to promote digital economy in Africa, was facilitated by AFRICUNIA LIMITED (trading as AFRICUNIA BANK), an innovative banking technology firm headquartered in United Kingdom. Chief Executive Officer of O-Mobile Multimedia Limited, Mr. Benjamin Aduli, said the focus of the pact is to promote and deepen knowledge of the practice of digital-based services among Africans and thereby reduce poverty. “We are excited about this ground-breaking pact which involves the creation of awareness about digital banking opportunities, educating governments and the general public about digital banking opportunities.
We will be developing applications that will help Africans utilize digital banking technology and reduce poverty in the continent,” he said. He added that the company would offer its multimedia business academy and provide free, digital and multimedia training to all interested micro, medium, small and small enterprises in Nigeria through a network of 1,200 O-Mobile academy centres that are currently being set up across the country.
The President of AFRICUNIA BANK, Don Chancellor, said the time had come to tackle poverty in Africa using every available means adding that technology will help do this. “Development needs to be fast-tracked in Africa and we are committed to the continent’s growth through digital banking products and services. We are very elated about this opportunity to develop MSMEs across Nigeria and Africa and make them globally competitive in this era of technology. We have already started the hardwork.
Working with O-mobile and So.Sui.Ben affords us the opportunity to quickly reach the unbanked and unconnected and give them access to first-world banking infrastructure and services. We believe that our partnership with a firm that already understands technology and has wide presence in Nigeria will help us quickly accomplish our goal,’’ Chancellor commented.
Aduli stated further that the company had already commenced work and hoped to sign-up at least 500,000 digital banking customers for AFRICUNIA BANK within 90 days globally. He said O-mobile had already commenced rolling out the first agency group network in Africa that will take financial, telecoms, insurance, educational, agricultural extension services and data mining services to the unbanked and unconnected in the continent.
…I expect MPC to reduce MPR to 13.5%, says Uwaleke
…Committee members likely to cut interest rates – FDC
…No, I don’t expect any change in the rates – Adedipe
Expectations are high over the reduction of the Monetary Policy Rate (MPR), as the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) begin its second meeting of the year between today and tomorrow, but economics and financial experts have expressed divergent opinions on the likely outcome of the of the committee decision on Tuesday in Abuja.
The MPR is the benchmark interest rate for lending in the country, and it was held at its meeting in April 2018, at 14 per cent with the asymmetric corridor at +200 and -500 basis points around the interest rate, and retained the Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) at 22.50per cent and 30 per cent respectively.
After the first meeting, the nation’s economy recent developments and the short-term outlook of the economy favour monetary policy easing, which is required to stimulate economic growth and credit creation.
Just last week, Nigeria’s inflation rate slowed down for the 15th consecutive month to 12.48 per cent in April from 13.34 per cent in March 2018, but the committee at its last meeting had noted that loosening would strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing.
“This may, however, lead to a rise in consumer prices, generating exchange rate pressures on the currency in the process. The Committee also believes that loosening could worsen the current account balance through increased importation.
“On the argument to hold, the Committee believes that key macroeconomic variables have continued to evolve in a positive direction in line with the current stance of macroeconomic policy and should be allowed more time to fully manifest,” the CBN governor, Mr. Godwin Emefiele, explained in a communiqué.
But analysts have said with improved macro economy indicators, the committee might decide to cut-rates in a move to improve money supply and now concentrate on growth in the economy.
Others argued that the committee might maintain rates, in a move to further stabilise the nation’s economy.
Speaking in an exclusive telephone chat with The Daily Times over the weekend, Professor of Economics at the Nasarawa State University, Uche Uwaleke, said that the call to cut the monetary rate becomes necessary as a result of moderation in inflationary pressure, the increase in foreign reserves and stable exchange rate.
Uwaleke added: “I expect the MPC to signal the easing of monetary policy by reducing the monetary policy rate by say 50 basis points from the current 14 per cent to 13.5 per cent.
“This is in view of the moderation in inflationary pressure, the buildup in external reserves and stable exchange rate.
“However, the effect on banking liquidity arising from the implementation of the 2018 budget will be a major consideration. So I don’t expect any deep cut on the policy rate.”
Also, financial analysts at the Financial Derivatives Company (FDC) predicted that the committee members are likely to cut interest rates.
According to them, the declining inflation rate as well as sustained high oil prices is significant good news for the nation’s economy.
They also pointed out that the outlook for agric prices, especially grain prices, was positive as forecast for good weather suggests an increase in output and a fall in prices.
Explaining further on why interest rate has not reduced, Chief Risk Officer, First Bank, Mr. Olusegun Alebiosu, said that the lending rates remain high for a number of reasons.
He noted that savings interest rate is mapped to MPR and MPR is yet to change.
He also mentioned that it is also important to note that CRR is 22 per cent and that has a lot of implications for interest rate which is yet to change.
He said if we still have these two conditions in place, interest rate cannot come down the way they envisage.
Meanwhile, analysts at FSDH said, the nation economy favour monetary policy easing, which is required to stimulate economic growth and credit creation.
“We believe this easing may come in the form of an adjustment to the MPR or an adjustment to the CRR,” it stated.
“The yields on the fixed income securities in Nigeria have declined sharply in the last few months despite the hold in the MPR.
“The yields on the 90-Day, 182-Day and 364-Day Nigerian Treasury Bills (NTBs) primary auction closed at 10.256 per cent, 11.080 per cent and 11.978 per cent on 16 May, 2018 from 12.96 per cent, 14.96 per cent and 16.68 per cent respectively in January 2018.
“The major drivers of the drop in yields are: the strategy of the Debt Management Office (DMO) to restructure the domestic debt portfolio of the FGN in favour of long-term debt, the drop in the inflation rate and other positive developments within the macroeconomic environment.
“The growth in money supply as at April 2018 was lower than the CBN’s target for the year. The broad money (M2) grew by 2.16per cent (annualised to 6.49 per cent), lower than the annual target of 10.98per cent.
Net domestic credit grew by 6.24per cent to N27.48trillion in April 2018, from N25.86trillion in December 2017. The net credit to the private sector shrank marginally by 0.16per cent to N22.25trillion during the same period,” the Lagos based research firm added.
Meanwhile, the founder and Chief Consultant of B. Adedipe Associates Limited, Dr. ‘Biodun Adedipe, has during the weekend at the investiture of Dr. Uche Olowu, Chartered Institute of Bankers of Nigeria (CIBN), said: “I do not expect any change in the rates. The most sensitive price to MPC is inflation rate- the movement in general price level.
“The inflation rate has been going in the right direction. This year’s Federal Government inflation rate forecast for 2018 budget is 12.4 per cent which means the trajectory is moving more in the direction of government. Inflation rate will not be a worry for the committee members right now.
“The major challenge which is what is happening globally is the management of exchange value of the naira. It has proven clearly that having a robust foreign reserve is not a good enough reason for the stability of exchange value of any country’s currency. It is good we have improved foreign reserves but what is also means is that managing the currency has gone beyond the local tradition in economy.
“More attention should be around investors’ confidence. That is what drives the exchange rate in the sense of movement of investible funds. I think the committee will be paying more attention to investors’ confidence. Am happy the Federal Government is also looking in that direction.”
In his own comment, the Managing Director, Enterprises Stockbrokers Limited, Mr. Rotimi Fakayejo, said inflation rate has dropped drastically and there has been stability in the nation’s economy.
He noted that the MPC might want to maintain status quo on its rates on Tuesday.
He explained that, “With the signing of the 2018 budget, more liquidity is going to enter the system. I believe the committee might consider the CRR since there will be more liquidity in the market in the remaining half of 2018.”
Also, Focus Economics in its latest report said: “All of Focus Economics Consensus Forecast panelists expect the CBN to cut the monetary policy rate before the end of the year, with consensus for the rate to end 2018 at 12.11 per cent. In 2019, the panel sees the monetary policy rate ending the year at 11.75 per cent.”
By Olushola Bello – The Leadership
Cordros Asset Management Limited (CAML) said the company will launch its Milestone Fund 2023 and 2028 aimed at providing products which cater to the retail segment of the economy.
The company yesterday in Lagos held a signing ceremony for the Fund following the clearance of its offer documents by the Securities and Exchange Commission (SEC). Speaking at the group managing director, Cordros Capital Limited, Wale Agbeyangi said “the Cordros Milestone Fund 2023 and 2028 are target date mutual funds which pursues a long-term investment strategy to manage the asset allocation of the fund, to become more conservative as the target dates of 2023 and 2028 approach.
He noted that globally, Target Date mutual funds have become increasingly popular and at the end of 2017, the Investment Company Institute (ICI) estimated a total of $1.1 trillion was invested in these funds worldwide. He stated that the Cordros Milestone Fund 2023 and 2028 are the first set of target date mutual funds to be launched in Nigeria, saying this represents a significant achievement for not just Cordros but the entire capital market.
According to Agbeyangi, the Funds which are initiatives of our asset management subsidiary is a strategic move aimed at providing products which cater to the retail segment of the economy. “These are specially designed to provide for individuals and corporations saving towards a target.” Also, the acting CEO, Cordros Asset Management Limited, Leye Adekeye said, “we are indeed excited at the prospects that the Funds hold.
The Milestone Funds are balanced funds and will have a mix of equities, fixed income and money market instruments. “The funds will start out seeking capital appreciation and will become more conservative by seeking capital preservation towards their target dates.” He added that “opportunities abound in the capital markets and these funds will ensure we are leveraging these opportunities and providing diversification for our clients.”
The Cordros Milestone Fund 2023 and 2028 are open-ended funds, authorised and registered in Nigeria as Unit Trust Schemes under Section 160 of the Investment and Securities Act. The Funds objectives are to maximise total returns and reduce volatility as the Funds approach their target dates. The investment focus is initially on growing assets and shifts towards capital preservation to manage future income risk.
For individuals, companies as well as nations, crises are a critical inflection point. Character shows in what people make out of an emergency. A Nigerian aphorism says that we know the real worth of a man in a crisis.
Smart people make the most of their crisis. They learn valuable lessons about themselves, about certain situations and how not to tackle some issues. They distil the learning and take corrective action to ensure outcomes that are so much better there is a temptation to give a backhanded compliment to the crisis for opening their eyes. Rwanda is an oft-cited example of profiting from the key learnings from a disaster.
Nigeria has spent the last fortnight acting in crisis mode following exposure by a global broadcaster of the abuse of codeine syrup in major cities of the country. Northern Nigeria has been the epicentre of the drug challenge for many years. It has now taken frightening dimensions.
Unfortunately, the official response to the codeine syrup challenge has in many instances and areas been suboptimal. There have been avoidable lapses in strategy, timing and communication of issues and actions. There is as yet no clear direction. Then there is a deafening silence by the governments of the states most affected by the drug abuse challenge.
Following the BBC documentary, the Federal Ministry of Health reacted in knee-jerk fashion by announcing curbs on the manufacture and marketing of codeine-based cough syrups. It followed on May 7 with poor communication of a regulatory audit process that is standard procedure in handling matters of a breach in the chain for controlled substances.
NAFDAC, in a news release, announced the closure of three drug manufacturing firms in Lagos and Ilorin. The NAFDAC statement stated, “Due to insufficient evidence gathered and apparent resistance to provide needed documents during our inspection on May 2, 2018 at the respective companies in Ilorin and Lagos, it has become necessary to shut down all product lines of the three companies…”
A reading of that statement led to only one conclusion: NAFDAC had shut the entire production activities of the three firms. Alas, it turned out NAFDAC closed only the production units for cough syrups. The media found out just because of checking with Emzor the consequence of the announced closure. As at the weekend, NAFDAC did not bother with a clarification leaving the media and the public to depend only on a message from Emzor confirming that production was ongoing on other lines.
Poor communication led to such a massive misunderstanding by the media and the public. It ignited severe debates on social media and offline. It also played into Nigeria’s ethnic fault lines for citizens so inclined.
NAFDAC at the weekend came out with specific administrative fines for specific offences committed by the three firms. It also ordered the reopening of the shut production lines. We commend the speed in taking corrective action.
There are other concerns. What have NAFDAC and the Ministry of Health outlined as a strategy for tackling the drug abuse challenges mainly in the Northern states but also across the rest of the country? Beyond the documentary that rehashed what Nigerian media have reported on over the years, what studies have NAFDAC and the Federal Ministry of Health carried out or commissioned on the youth drug abuse challenge? Which drugs are mainly responsible for the problem? Is it codeine in cough syrups or other painkillers? In Australia, their study found out that paracetamol or ibuprofen was involved in 55 percent of the 1200 codeine-related deaths recorded between 2000 and 2013. Australia is now looking at how to control the use of codeine implicated in 150 medications. Youths here abuse Tramadol, itself containing the opiate, and several other substances. Nigeria needs to articulate a holistic strategy for tackling an evident national challenge of drug addiction by the young and vulnerable.
No one has yet heard from the Kano State Government what it plans to do about the drug abuse challenge on its doorsteps. Nary a word. How does Kano State Government plan to tackle this problem? What resources is it deploying? What assistance does it need?
Across the world, countries are now questioning the continued use of codeine because of the tendency to abuse it. There is an opportunity here for Nigeria to join nations of the world to study and find out alternatives to the opiates in medication. Can we be one of the first countries to find alternatives to codeine? Can the Ministry of Health work with the Pharmacy Council, universities, pharmaceutical firms and our research institutes to fashion out alternatives. Can we add insights and perspectives from natural medicine for which we already have a federal agency?
Leadership and collaboration are needed and critical. The Health Minister has the experience and exposure to lead cross-cutting teams that should work collaboratively with various institutions, organs and state governments. We should treat the drug abuse issue as a national emergency and engage all our troops in tackling it.
A group of concerned shareholders of Oando Plc has cautioned the company over purported moves to reconcile Oando and Ansbury Investments Inc. owned by popular Nigerian-Italian billionaire, Gabriele Volpi.
The shareholders objected to the reconciliatory moves on the basis of an on-going investigation of Volpi for money laundering by Italian authorities. Volpi who holds Nigerian and Italian dual citizenship, is currently under investigation in Italy for alleged tax evasion, along with some of his associates.
The investigation, which is being conducted by the Italian Economic and Financial Crimes Police, also focuses on Volpi’s longtime associate, and popular Italian banker, Gaimpiero Fiorani. Both have been brought before judges Francesco Pinto and Marcello Maresca, accused of having returned several million of Euros to Italy from a huge tax evasion scheme, a scheme the prosecutors believe, was designed and engineered by Volpi using his ‘right-hand man,’ Fiorani.
With the recent development, the shareholders under various umbrella associations including Investor/Distinct Shareholders Association, Pacesetters Shareholders Association and Sage Shareholders amongst others insisted that Volpi needs to be on the right side of the law before any reconciliation with Oando which they described as a law-abiding corporate institution.
According to the president of one of the shareholder groups who spoke on condition of anonymity, “All we are saying is that Volpi should do the right by sorting every issue he has with the law before seeking to reconcile with Oando. As shareholders, we own Oando Plc and make it mandatory on the board to resist any attempt to reconcile Volpi with our company while he has a case of fraud to reconcile with the Italian authorities.”
Also speaking in the same vein, a senior official at the Convention on Business Integrity, who pleaded not to be named, said “reconciling Ausbury and Oando may raise fundamental ethical questions on Oando and cause the Italian anti-corruption police to beam its searchlight on Oando.” The official asserted further: “This alone may affect not just the reputation of Oando but its share value.”
All efforts by BusinessDay to reach the management of Oando proved abortive as the company didn’t respond to emails sent to the company.
According to data obtained from Bloomberg, Oando’s stock which opened at N9.50 on Thursday, April 19 had by 3pm same day traded at N9.60 after the lifting of suspension by the Nigerian Stock Exchange.
It will be recalled that the Nigeria Stock Exchange on 18th October 2017 announced that it had placed the shares of Oando Plc, a public quoted energy company trading on the floor of the NSE, on ‘full suspension for 48 hours.’ Thereafter on 23rd October 2017, the NSE further announced that it had placed the shares of the Company on ‘Technical Suspension’.
But just five days after the technical suspension placed on its shares was lifted, the firm’s shares recorded 51percent massive growth.
The fact that 178 million Oando shares were on a bid for the first day of trade after the lifting of the suspension but only 5.5 million were available for sale further attested to the high demand for the company’s stock whose six-month absence from the NSE was keenly felt by all shareholders.
A member of the Pacesetter Shareholders Association, who pleaded anonymity, also expressed reservation at the reconciliation move, saying it was capable of eroding the company’s stock and reputation.
“We jubilated when SEC and the NSE finally heeded our pleas by lifting the suspension placed on Oando. It will be unfortunate if after six long months we have not learnt anything and proceed to reconcile Oando, a company doing well, with a man on the wrong side of the law. One of those two brands will kill the other, and it will not profit shareholders like me”, he maintained.
Data from Bloomberg revealed Oando traded N7.55 as at 10 am Friday morning.
The Development Bank of Nigeria (DBN) has named nine financial institutions which it will use to disburse funds to entrepreneurs in the Micro, Small and Medium Enterprises sector, under its intervention fund programme. They include five commercial banks: Wema Bank, Ecobank, Sterling Bank, Diamond Bank and Fidelity Bank; and four microfinance banks made up of MicroCredit, Infinity, Busack and Fortis.
The list notably excludes the FUGAZ. According to its CEO, Tony Okpachi, more banks will be included in the scheme as volume increases. DBN is targeting long-term funding to about 20,000 MSMEs operators in the first year of full operation and will disburse the funds via the listed financial institutions. It will not be dealing directly with the borrowers.