Nigerian officials are meeting bond investors in London next week, according to a person familiar with the matter, as the government considers tapping international debt markets for the first time in three years to help finance its record budget deficit.
Minister of Finance Kemi Adeosun will head the meetings on June 7, which have been arranged by Standard Chartered Plc, according to the person, who asked not to be identified because they’re not authorised to comment publicly.
According to Bloomberg, the Director General of the Debt Management Office, Abraham Nwankwo; an adviser at the finance ministry, Dami Adesanya, and a representative of the central bank will be part of the Nigerian delegation.
The talks will probably focus on Nigeria’s currency controls and its policy of pegging the naira against the dollar, according to Standard Life Investments Limited, which manages around $1.3 billion of fixed-income assets in emerging markets.
The curbs have exasperated investors, who say the currency is overvalued, and cause investment into Africa’s largest economy to shrivel.
President Muhammadu Buhari and Central Bank Governor, Godwin Emefiele hinted in the past two weeks that they will shift their stance and allow more flexibility.
“A lot of Nigeria’s problems today can be traced back to the pegged exchange rate,” a money manager at Standard Life, which has recently bought Nigerian Eurobonds in anticipation of a devaluation, Mark Baker said by phone from London.
“The current policy mix is clearly unsustainable, given what’s happened with oil prices and the impact on the fiscal position. A weaker currency is obviously needed to help boost fiscal revenues.”
The government said earlier this year that it plans to raise about $5 billion of external debt in 2016 to help fund a N6.1 trillion ($31 billion) budget that’s meant to stimulate its contracting economy. Adeosun said in April that Nigeria was considering a debut yuan-denominated bond as it may be cheaper than dollar-debt.
Nigeria’s external reserves fell by 2.65 per cent to $26.42bn on May 27, the Central Bank of Nigeria statistics showed on Tuesday.
The reserves stood at $27.15bn a month ago.
The foreign exchange reserves have dropped by over 10 per cent from last year when they were at $29.7bn.
The global plunge in oil prices has caused the reserves to be depleting very fast. The development has forced the CBN to introduce foreign exchange controls, which have frustrated businesses and caused the economy to contract.
The CBN’s Monetary Policy Committee had last Tuesday announced plans to adopt a flexible exchange rate policy as the external reserves fell to $26.56bn as of May 23.
Investors, businesses and stakeholders in the economy are passionately awaiting the details of this plan, which the CBN hopes to release soon.
The external reserves had lost over $2bn dollar this year.
Nigeria recorded a balance of payments deficit of 1.4 per cent in its Gross Domestic Product at the end of 2015, owing largely to its first current account deficit (three per cent of the GDP) in over a decade.
As a result, external reserves dropped by $6bn to $28.4bn in December 2015, Moody’s Rating said in a report recently.
Analysts said the CBN’s decision not to devalue the naira had led to the sharp drop in the external reserves.
But they lauded the MPC’s plan to adopt a flexible exchange rate policy, noting that the move would help to boost forex inflow into the country.
An economist and Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, who hailed the MPC’s decision on the exchange rate policy, said adopting flexible exchange rate policy would eliminate the fears foreign investors nursed about the Nigeria’s forex policy.
According to him, the decision may make the naira to depreciate initially but it will find its equilibrium price against the dollar and other major currencies over time.
Rewane said, “The CBN has finally come to terms with economic reality. This is what we have been talking about in the last one year – a managed floating exchange rate regime.”
He added, “This is what we need. It will bring in transparency to the forex market; eliminate the fears investors have been nursing about devaluation and encourage inflow of forex into the country.”
Another economic analyst and Head, Investment Advisory, Sterling Capital, Mr. Sewa Wusu, who also hailed the MPC decision, said, “The muted economic growth was traceable to structural issues such as scarcity of forex and fuel. The MPC’s latest decision on the exchange rate will help stimulate growth. It is a right move.”
Jaiz Bank Plc on Tuesday declared a profit after tax (PAT) of N794.2 million the for 2015 financial year, representing an increase of 576 percent when compared with N126.8 million recorded in the previous year.
Chairman, Jaiz Bank, Alhaji Umaru Abdul Mutallab said the performance demonstrated continued growth and operational efficiency as the bank’s finance income also grew by 47 percent to N4 billion from N2.72 billion in 2014.
Speaking in Abuja at the bank’s fourth annual general meeting (AGM), he said the bank’s total assets closed at N52.6 billion compared to N44 billion the previous year.
He said customer deposit base further closed at N38.7 billion for the 2015 financial year with current account and customers’ investment account deposits showing strong growth of 43 percent and 39 percent, and valued at N15.5 billion and N23.2 billion respectively.
He said: “In the next five years, I see this bank (Insha Allah) in every nook and cranny of this country and other sub-Saharan African countries. In sub-Saharan West Africa, there’s still the big problem of paucity of banking services. The small and medium scale enterprises (SMEs) do not have adequate access to financial services. So this bank wants to champion the funding of small and medium scale enterprises.”
Also, outgoing Managing Director of the bank, Mr. Mahe Abubakar said the bank had provided financing worth N25.39 billion to 1,507 customers in 2015 from 1,076 customer in 2014.
He added that the bank has had to reduce its expenses to the nearest minimum to mitigate the effect of the difficult business environment, preserving its asset value and increasing income streams to safeguard the interest of shareholders through a robust risk management framework.
He said: “With this major milestone achievement, we face 2016 with a lot of optimism to deliver significant level of profitability that will see us pay dividend by the end of year 2017.”
Meanwhile, the Board of Directors of the bank at its AGM appointed Mr. Hassan Usman as substantive Managing Director to run the affairs of the bank subject to the approval of Central Bank of Nigeria (CBN). The decision was reached after a rigorous selection exercise where seasoned Islamic bankers within and outside the country were screened and interviewed.
Usman is taking over from Abubakar who had been acting since December 2015. However, Usman is not new to this position as he had previously acted as Managing Director in 2013.
The National Bureau of Statistics said on Tuesday that the country recorded a decline of N793.5bn in the first quarter merchandise trade to close at N2.72tn from N3.51tn in the fourth quarter of 2015, the first time in the last seven years.
The bureau, in the trade statistics report released on Tuesday, said the drop in the first quarter trade represented a decline of about 22.6 per cent over what was recorded in the preceding quarter.
It attributed the decline in the first quarter trade to a sharp drop in both import and export trade.
For instance, the report stated that while the country experienced a decline of N671.1bn, representing 34.6 per cent, in the value of exports, imports also dropped by N122.4bn or 7.8 per cent.
The report noted that the difference between the country’s total exports, which was put at N1.269tn, and total imports of N1.454tn made Nigeria to record a negative trade balance of N184.1bn in the first quarter.
The report read in part, “The total value of Nigeria’s merchandise trade at the end of Q1 2016 stood at N2.72tn. From the preceding quarter’s value of N3.51tn, this was N793.5bn or 22.6 per cent. This development arose due to a sharp decline in both imports and exports. Exports saw a decline of N671.1bn or 34.6 per cent, while imports declined by N122.4bn or 7.8 per cent.
“The steep decline in exports brought the country’s trade balance down to -N184.1bn, or N548.7bn less than in the preceding quarter.
“The crude oil component of the total trade decreased by N716.7bn or 46.6 per cent against the level recorded in Q4 2015.”
The report explained that the import trade stood at N1.45tn at the end of the first quarter of 2016 as against the preceding quarter’s value of N1.57tn.
The structure of Nigeria’s import trade, according to the report, was dominated by the import of machinery and transport equipment, fuel and chemical-related products.
These, the NBS report stated, accounted for 34.7 per cent, 17.4 per cent and 14.7 per cent, respectively.
On the other hand, the report stated that commodities such as oils, fats and waxes; beverages and tobacco contributed the least, accounting for 1.5 per cent, 0.8 per cent and 0.6 per cent, respectively.
In terms of exports, the report revealed that the highest export product for Nigeria in the first quarter was mineral products, which accounted for N1.05tn or 83 per cent of the total export earnings.
Further analysis of the report showed that in terms of exports by continent, Nigeria mainly exported goods to Europe and Asia, which accounted for N467.1bn or 36.8 per cent and N360.6bn or 28.4 per cent, respectively.
Furthermore, Nigeria exported goods valued at N161.3bn or 12.7 per cent to the continent of Africa, while that of the Economic Community of West African States was put at N50.4bn.
Financial analysts blamed the negative trade balance recorded in the first quarter of 2016 on the country’s inability to formulate an effective strategy to boost exports.
They also said the inability of exporters to know the economic direction of the government owing to the delayed passage of the 2016 budget as well as overdependence on revenue from oil were some of the major reasons for the decline in merchandise trade.
The Head, Banking and Finance Department, Nasarawa State University, Uche Uwaleke, said the negative trade balance recorded at the end of the first quarter of 2016 and the fact that a significant proportion of the exports were mineral products underscored the need to diversify the export base.
He said. “The fact that imports declined by just 7.8 per cent speak volumes of the weak elasticity of imports in spite of the high exchange rate. This revelation goes to buttress my position that devaluation of the naira will not make any significant impact on our trade balance given the inelastic nature of imports and the country’s shallow export base.
“The NBS report also shows that the bulk of Nigeria’s imports is from China. By implication, a lot of pressure will be taken off the dollar if the Nigeria-China agreement on yuan transactions is well implemented.
“The naira will also firm up as a direct consequence of settling imports from China in yuan instead of the dollar.”
Also reacting to the negative trade balance for the first quarter, the President, National Association of Nigerian Traders, Ken Ukaoha, said a lot of factors contributed to the development.
He said, “We have for so long remained import-dependent; we have also continued to cultivate a mono product economy, which is oil, and our earnings from oil is presently disappointing. Apart from the fact that the price of oil is depreciating, you also find out that the quantity of our export is going so terribly low as a result of vandalism.
“In terms of other non-oil exports, the country has still not yet got its act together. This is because diversification, which should have pioneered our exports, has not been effective. As we speak today, we don’t have a trade policy in place and we don’t have an export strategy in place.
“We are talking about import substitution, but all the strategies needed there are not in place. Also, the delay in the passage of the budget made all the private sector operators who are major players in exports to relax waiting for the budget passage in order to know the next line of action.”
On what could be done to reverse the trend, Ukaoha said the National Economic Management Team should as a matter of urgency come up with a trade policy.
Other economic experts said the negative trade balance meant the nation would likely record a severe negative balance of payment for the first quarter of this year.
This, they said, had serious negative consequences for the economy as the nation’s external reserves would deplete further.
“The implication of a negative trade balance for a country that does not have invisible imports is that we are going to have a severe negative balance of payment; the implication of this is that our external reserves will deplete further because we will need to use much of it to pay for imports,” the Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said.
He advised the Federal Government to develop a strategy to grow non-oil exports in the face of the global plunge in oil prices.
The Head, Investment Research, Afrinvest, an investment bank and research firm, Mr. Ayodeji Ebo, said the negative trade balance further buttressed the challenges facing the economy.
While linking the decline in imports to the Central Bank of Nigeria’s restrictive foreign exchange policy, the expert said the decrease in exports could be linked to the sharp drop in global oil prices and production.
“It is a further call on the CBN to implement the flexible exchange rate policy it has announced. This will help to boost exports,” Ebo added.
