Against expectations of financial analysts that the Monetary Policy Rate would remain unchanged at 12 per cent, the Monetary Policy Committee of the Central Bank of Nigeria on Tuesday hiked the MPR by 200 basis points to 14 per cent.
The 14 per cent MPR announced by the CBN is the highest in over a decade.
However, the committee left the Cash Reserve Ratio and the liquidity ratio unchanged at 22.5 per cent and 30 per cent, respectively.
The CBN Governor, Mr. Godwin Emefiele, who announced the decision of the committee after a two-day meeting held at the apex bank’s headquarters in Abuja, said eight out of the 12 members of the committee attended the meeting.
Out of the eight, he said five members voted in favour of monetary tightening, while the other three voted to hold the MPR at 12 per cent.
The MPR is the anchor rate at which the CBN, in performing its role as the lender of last resort, lends to the Deposit Money Banks to boost the level of liquidity in the banking system.
If the apex bank intends to increase the level of liquidity in the economy, it reduces the MPR but increases it whenever it desires to tighten money supply.
In taking the decision to increase the MPR, the CBN governor said the committee was faced with two policy choices – whether to hold or reduce the rate to stimulate growth, or increase it in order to curb inflation.
Emefiele, however, said when considered from the standpoint that the primary mandate of the CBN was to maintain price stability, the committee decided to focus on its mandate by checking inflationary pressures.
The governor explained that members of the committee agreed that the economy was passing through a difficult phase, adding that the concern was that headline inflation had risen significantly in June.
He said the June inflation of 16.5 per cent, which is the highest in 11 years, was approaching twice the upper limit of the CBN policy reference band.
The committee, he said, noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging down growth.
The CBN governor said the high inflationary trend had culminated in negative real interest rates in the economy, noting that this was discouraging savings.
According to him, members of the committee also noted that the negative real interest rates did not support the recent flexible foreign exchange market as foreign investors’ attitude had remained lukewarm, showing unwillingness to bring in new capital under the circumstance.
He said the decision to raise interest rate would give impetus to improving the liquidity of the foreign exchange market and the urgent need to deepen the market to ensure self-sustainability.
The governor said members were of the opinion that the liquidity of the foreign exchange market would boost manufacturing and industrial output, thereby stimulating the much needed growth.
He stated, “The MPC was further concerned that while the situation called for obvious tightening of the monetary policy stance, the technical recession confronting the economy and the prospects of negative growth to year-end needed to be factored into the policy parameters.
“The arguments in favour of growth were anchored on the premise that the current inflationary episode was largely structural.”
“Members called on the Federal Government to fast-track the implementation of the 2016 budget in order to stimulate economic activity to bridge the output gap and create employment,” he added.
When asked about the state of Nigerian banking system, the governor maintained that the industry remained strong and that there was no need for depositors to panic.
He said the fact that the management team of a bank was removed by the CBN did not mean that the lender was in distress.
Such an action, he noted, would always be taken to protect depositors’ funds when there were infractions of rules and regulation.
Emefiele added, “Let me say that since 2009, the CBN has come out to say boldly that no depositor of a Nigerian bank will lose their deposit and we stood by that to the extent that the CBN even issued guarantees in favour of any depositor and those guarantees have indeed not crystallised since 2010.”
On the bank’s assessment of the new foreign exchange policy, Emefiele said, “It has been excellent so far given that we had a 16-month period of no activity in the foreign exchange market.
“I will say that the results have been good with a few activities that we are not too happy about, but we feel that in the course of time, because it is just one month since this started, there is a lot of room for improvement.”
However, financial analysts faulted the decision of the MPC to increase the benchmark lending rate from 12 per cent to 14 per cent, adding that the decision would not result in the CBN’s objective of checking inflationary pressure.
The Head, Department of Banking and Finance, Nasarawa State University, Keffi, Uche Uwaleke, said the banking sector would be worst hit by the latest decision of the CBN.
He said, “In my view, the outcome of the MPC meeting inspires little prospects for early economic recovery. I had expected some easing of the monetary policy or at worst an unchanged MPR in view of the slump in the Gross Domestic Product.
“With the benchmark rate jumping from 12 per cent to 14 per cent, the CBN has clearly chosen to focus on inflation rather than growth. Unfortunately, this approach will most likely miss the target. The banks will be the worst hit as increase in the MPR will automatically lead to another squeeze within the system.”
The President, Time Economics Limited, Dr. Ogho Okiti, said while the tightening of the MPR would reduce negative real interest rate as well as stabilise the naira, it would not check the current level of inflation.
A Professor of Economics at the Olabisi Onabanjo University, Sherriffdeen Tella, said, “It is an unfortunate decision. When you have prices going up, what you should do is to find a way to reduce the interest rate, and not to increase it; more so, when you know that there is already a liquidity crisis in the country.
“This decision by the MPC cannot reduce inflation, we will continue to grapple with higher interest rates.”
The Chief Executive Officer, Economic Associates, Dr, Ayo Teriba, said the decision showed that the MPC was not sensitive to the plight of Nigerians.
He said, “At a time that the country is on the brink of recession, it is expected that the CBN will support economic recovery by easing the monetary policy. The CBN has been maintaining a tight monetary policy and I believe this may have partly contributed to the situation we are in today. The MPC is not sensitive to the economic situation of Nigerians. I believe this hike will worsen economic recession.
“They should have reduced the MPR and the CRR to provide support for economic recovery. The decision shows that the monetary policy is disconnected from the people.”
Speaking in the same vein, the Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson Chukwu, stated, “The inflationary pressure we are experiencing is caused by cost-push inflation, that is, foreign exchange-related problems and increase in energy costs and the rest. It is not as a result of excess liquidity in the system. So, you cannot say you want to reduce liquidity in the system to fight it.”
The Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said the decision would lead to increase in borrowing cost for the Small and Medium-scale Enterprises and that the general economic situation would be very tough over the next few months.
He, however, said the MPC decision was a tactical move to attract the much-needed foreign capital into the economy.
The Chief Executive Officer, Renaissance Capital, a United Kingdom-based investment bank, Mr. Temi Popoola, said the firm welcomed the decision as it would help the CBN to solve the biggest problem of attracting dollars into the economy.
“Today, it appears the biggest challenge before the CBN is how to attract dollars into the economy; and we feel that the decision by the MPC is a good step in that direction,” he stated.
FBN Holdings Plc on Tuesday declared a profit before tax of N23.84 billion for the second quarter ended June 2016.
This was against the N25.14 billion posted in the comparative period of 2015.
The report is contained in the company’s audited result released by the Nigerian Stock Exchange (NSE) on Tuesday in Lagos.
The profit represented a decrease of N1.31 billion or 5.19 per cent when compared with figure for 2015.
The report also showed that profit for the year went down from N17.46 billion to N15.13 billion, representing a drop of N2.33 billion.
The company’s net interest income stood at N62.18 billion against N126.06 billion in the corresponding period of 2015, showing a decline of N63.88 billion or 50.68 per cent.
Its interest income decreased to N85.75 billion from N110.490 billion recorded in the preceding period.
The total assets rose from N4.17 trillion recorded in December to N4.80 billion in June, 2016 while total Liabilities grew from N3.59 trillion to N4.19 trillion.
Its loans and advances to customers surged to N2.11 billion from N1.82 billion reported in the corresponding period.
In a statement announcing this development yesterday, Divisional Head, Corporate Communications, Olusola Longe-Okenimkpe said, “HBCL Investment Services Limited (HISL) a major shareholder of Heritage Bank Limited has executed the term sheet for the issuance of guarantee for its $150 million Convertible Bond with the African Export Import Bank (AfreximbanK) to support Heritage Bank Plc in its next phase of growth.
Heritage Bank recently concluded a business combination with Enterprise Bank Limited as part of its market focus and positioning strategy. The underlying essence of the combination was to facilitate the deployment of its retail banking franchise especially its aspiration of emerging as the bank of choice for small growing businesses.
Afreximbank, a frontline African financial institution believes in the uniqueness of the business strategy of Heritage Bank especially the Small Growing Business focus of the bank which aligns with the founding mission of Afreximbank.
The outcome of recent engagement with a number of institutional investors shows a desirable appetite for the bond issuance which is scheduled to be completed within a couple of weeks.
Heritage Bank continues to present itself as an evolving institution with solid commitment to innovation, service excellence and value creation underlined by world class corporate governance.”
• Projects N7.418tr federal revenue • Naira falls to N313/$ at inter-bank market
For the next fiscal year, the executive arm of government has proposed a crude oil benchmark price of $42.5 per barrel, up from the $30 in the 2016’s budget.
An estimated N7.775 trillion is expected as revenue to be generated from the oil mineral resources alone based on the proposed $42.5 benchmark price and an estimated 2.2 million barrel per day oil production volume.
These proposals are contained in the 2017 – 2019 Medium Expenditure Framework and Fiscal Strategy (MTEF) prepared by the Ministry of Budget and National Planning that would guide the engagement with the National Assembly and other stakeholders, as well as the eventual implementation of the 2017 plan when finally passed and signed into law.
The proposal is to be submitted to the National Assembly before the end of August, according to the executive arm of government. Yesterday in Abuja, the Budget and National Planning Minister, Senator Udoma Udo Udoma and the Minister of State in the Ministry, Mrs. Zainab Ahmed as well as the Director-General of the Budget Office of the Federation, Mr. Ben Akabueze, met with civil society groups to get their inputs to the MTEF in line with the provisions of the 2007 Fiscal Responsibility Act.
Unfolding the three-year MTEF budgetary plan, the executive also presented a crude oil production forecast of 2.3 million for 2018 and 2.4 million for 2019, just as it believes that the benchmark price for 2018 and 2019 would be $45 and $50 respectively. The proposal left the exchange rate at N290/$ for the three years beginning from next year to 2019 while it projected the inflation rate to remain at a double digit at 12.92 per cent for 2017; 11.88 per cent for 2018, and 12.57 per cent for 2019.
Surprisingly, Udoma projects Nigeria’s BDP to rise from its sluggish growth level of 0.35 now to 3.02 per cent in 2017; 4.26 per cent in 2018, and 4.04 per cent in 2019.
He explained: “The GDP growth is projected to gradually recover after the slowdown. A very marginal positive growth of 0.35 per cent is envisaged for 2016 and is projected to 4.04 per cent in 2019, thus averaging 3.77 per cent during MTEF period. GDP growth is largely to be driven by non-oil sector with agriculture, including agro – business, solid minerals, building and housing playing a lead role. Export- led growth is to be pursued as government will continue to step up efforts in diversifying the productive base of the economy as well as implementing relevant reforms.”
On non-oil mineral revenue, the minister declared that Companies Income Tax (CIT) was projected to increase from N1.788 trillion this year to over N1.86 trillion in 2017 and beyond; VAT collections/ receipts to increase by about 42.4 per cent in 2017, while operating surpluses from independent revenue sources projection are expected to moderate in 2017 and thereafter a modest growth.
On duties generated by the Nigerian Customs Service, Udoma said they were equally projected to moderate downwards in 2017 before picking up , while recoveries of misappropriated funds are projected to increase later this year and the succeeding years as well as recoveries / refunds from strategic alliance contracts and recoveries of other misappropriated funds and fines.
Reflecting on the implementation of the 2016 fiscal plan which came into full force early May this year, the minister announced that N2.123 trillion out of the approved N6.06 trillion, representing 35 per cent of the total sum has so far been released to Ministries, Departments and Agencies (MDAs) of government for implementation of the 2016 plan.
He gave the breakdown of the releases as follows: “Recurrent expenditure has been largely covered as at June. Debt service – N598.63 billion; Statutory transfers, N175.68 billion; Overheads and SWV, N125.4 billion; Personnel, N891.31 billion; and Pension and gratuity N79.18 billion.
“Capital expenditure was as at July 18 N253 billion. This has largely been releases for MDAs utilisation on investment in critical infrastructure projects. Total aggregate of capital expenditure, inclusive of capital share in statutory transfer is N331.58 billion as at July 18.2016.”
Udoma expressed regret that revenue projection or forecast as overall revenue flow was short by 55.2 per cent, representing N1.064 billion as at June 2016. He added however that the shortfall was augmented by domestic borrowing of N600 billion out of the approved N1.818 trillion plan.
Meanwhile, the naira has lost more than 2.5 per cent in value at the interbank market, closing at N313 per dollar yesterday from N302.10 it started.
Already, blame has been put on the market’s inability to attract local or foreign investors with the much-sought greenback, as transactions quickly dried up in anticipation of interest rate hike from the Monetary Policy Committee today.
The interbank market just transacted $8.64 million yesterday, a volume considered too insignificant when compared with $100.54 million recorded on Friday, although it was spurred by the apex bank’s intervention.
On Friday, the currency had first hit the lowest point of N331/$ since the introduction of the flexible exchange rate regime, before recovering ground at the end of the day to N300/$. Two days after the maturity date, CBN settled its one-month forward contract worth $697 million, at the rate of N280/$, with outstanding forwards of $1.22 billion and $1.57 billion for two-month and three-month contracts respectively.
As a support to the falling confidence in the exchange rate, the one-month naira-dollar forward was quoted at N328/$, while one-year contract fell as low as N368/$.
Stock market investors (equities only) in the country recorded an appreciation in value of N1.461tn on their investments in the second quarter of this year.
Compared to the first quarter of the year, the Nigerian Stock Exchange market capitalisation closed at N10.165tn on June 30 from N8.704tn on March 31.
The NSE All-Share Index also moved to 29,597.79 basis points from 25,306.22 basis points in the same period.
Between January and March, the equities market had depreciated by 10.79 per cent, according to available data from the NSE.
As of the first day of trading this year (January 4), the NSE market capitalisation stood at N9.757tn, while the All-Share Index was 28,370.32 basis points. But as of the last day of trading in March, the market capitalisation and All-Share Index had crashed to N8.704tn and 25,306.22 basis points, respectively.
Equity investors had in the first seven trading days of the year lost N804bn of their investment worth. The market capitalisation after the close of trading on the floor of the Exchange in the first seven days closed at N8.953tn.
The All-Share Index also dropped from 28,370.32 basis points recorded on the first day of trading in 2016 to 26,034.94 seven trading days into the year.
A few weeks into the year, the downward trend in the Nigerian stock market prevailed with 10 out of the 12 indices of the NSE turning out negative.
The market capitalisation of the NSE had fallen by N811bn in the first 10 weeks of the year.
Market capitalisation is the total market value of the shares outstanding of all traded companies on the floor of the Exchange.
It dropped from N9.75tn on January 4, 2016 to N8.939tn 10 weeks into the year, while the All-Share Index also closed at 25,988.40 basis points in the same period from the 28,643.67 basis points recorded on the first trading day of the year.
Investors had also made huge losses in the Nigerian equities market last year, as the market capitalisation (equities only) of the NSE shed a total of N2.354tn between December 2014 and December 2015.
Financial experts tied the improved performance of the market on the Central Bank of Nigeria’s decision to introduce the floating foreign exchange policy.
They said the introduction of a forward market to hedge volatility in the foreign exchange market, and the licensing of foreign exchange primary dealers were innovations that had helped, to some extent, to reawaken the market.
The President and Chairman, Governing Council, Chartered Institute of Stockbrokers, Mr. Oluwaseyi Abe, said the implementation of the new forex framework had helped in boosting dollar supply, while ensuring some form of clarity in the currency exchange rate.
The naira to dollar exchange rate had been pegged for 16 months before the CBN reversed the policy. This had resulted in the dearth of dollars and prompted large-scale capital flight, with the attendant growth challenges in the capital market and the economy at large, he said.
The Minister of Finance, Mrs. Kemi Adeosun, will on Wednesday meet the World Bank to finalise Nigeria’s “policy support document” needed to complete its application for funds to help plug the $11bn budget deficit.
“What was delaying (budget support loans) was a lack of flexibility in the exchange rate…we now have that,” the minister said in an interview with the Financial Times on Sunday.
The President Muhammadu Buhari administration’s strategy also envisions heavy spending on infrastructure projects to jump-start growth.
Adeosun said the delayed passage of the 2016 budget had stalled the start of those projects to the fourth quarter. By then, she said, Nigeria would have secured funding from abroad for the record N6.1tn budget, quashing concerns that funding would not be available in time for the projects to begin this year.
The central bank’s decision last month to remove a 16-month-old peg on the value of the naira is the signal that international lenders, including the World Bank, have been waiting for, she added.
She also said the Federal Government was hopeful of an economic revival, even as the country slides into recession.
Low global oil prices have helped push Africa’s biggest economy into its worst economic crisis in decades. But many economists believe policies adopted by the central bank during the first year of Buhari’s presidency exacerbated the problem.
Adeosun said the government did not dispute the International Monetary Fund’s forecast last week that the economy would contract by 1.8 per cent.
“We’re simply saying that we have a very credible plan for dealing with the challenges we are facing, which we’ve been very honest about,” she said.
Although the minister thinks “there is still a long way to go,” the government is convinced that “diversifying and repositioning” the oil-dependent economy will bear fruit.
Part of that diversification includes the agricultural sector, where a boost in output is expected this year. Aggressive management of food price inflation, which includes low cost loans to farmers and improved distribution of fertiliser, will help bridge the shortfall in oil revenues, she said.
Investors have also viewed the greater flexibility in the foreign exchange market as a step in the right direction. But restrictions on hard currency allocation to import raw materials are still hurting manufacturers and leaving investors hesitant to bring their money back in.
More than $20 billion local investments in the oil and gas sector are under threat as a result of low oil prices.Following the situation, the relevant House of Representatives committee is planning to extend the implementation of the Nigerian content policy to the country’s manufacturing, telecommunication, aviation and construction sectors.
The Guardian gathered that before the fall in price of crude oil (when it was about $110 per barrel), indigenous firms purchased over $10 billion worth of divested assets from International Oil Companies (IOCs), largely financed by bank loans.The financial projections underpinning the loans have long been invalidated, and many indigenous companies struggle to service their debts. Consequently, oil revenues and profits have contracted sharply and companies, particularly in the upstream sector, battle to stay afloat.
Data from the Nigerian Content Development and Monitory Board (NCDMB) revealed that the average spend in the country’s oil and gas sector after the passage of the local content policy was more than $20 billion.
The Egina Deep Water project is said to have attracted over $1 billion into the country’s industry to create capacity and execute Nigerian content scopes provided on the deep-water project. It was gathered that business activities of indigenous companies that have invested billions of dollars have been low due to the declining crude oil prices. The Lagos Deep Offshore Logistics (LADOL), for instance, invested over $600 million in transforming the swampland of Apapa port axis in Lagos into a one-stop base for deep offshore logistics. The company even plans to attract another $5 billion investments through the LADOL Industrial Free Zone located in Lagos within the next few years.
Speaking to The Guardian on the impact of crude oil prices on operations, an industry player, Alhaji Ibrahim Sambo, disclosed that some companies had to embark on redundancies.
Sambo specifically said there had been low activities at his boat-building factory in Warri Base which commenced operation in 1986 and had built over 500 boats of various models of personnel carriers Q-860, Q-2700, Q-3300, Q-4000 and landing crafts.
According to him, the IOCs, which patronise the base that operates and maintains the boats with the facility of a maintenance workshop, have been complaining about low prices of oil.
Sambo listed other challenges to include importation of boats by some companies and paucity of funds. “We are praying that the sector will pick up very soon,” he said. Chairman of the House of Representatives Committee on Local Content, Emmanuel Okon, during a recent visit to Warri, said that the Federal Government would continue to provide condusive environment for indigenous oil companies to succeed in the face of the current low oil prices.
He expressed the House committee’s commitment to prevailing on the IOCs to patronise indigenous oil and gas firms. “We will make sure that there is a legislative policies to encourage local companies. The local content is to help companies like West Africa Ventures”, he added.
Ekon appealed to local investors to invest heavily in the economy of Nigeria, saying the development is the only measure to spur the growth of the country.The House of Representatives member explained that local content in its entirety should be beneficial to all Nigerians if implemented appropriately. “Local content has the capacity to turn around the fortunes of Nigeria for good. It has the capacity of transforming our economy to any level that we want to, but again the implementation lies with us all. We must realise that Nigeria is our country. We do not have any other country to call our own”, he said.
Meanwhile, the Spanish Ambassador to Nigeria, Alfonso Barnuevo Sebastian de Erice, has said that Spain buys €4.6 billion worth of crude oil from Nigeria annually. The envoy who disclosed this at the official commissioning of the Spanish LaLiga Nigeria office at the weekend in Abuja said Spain was the third best client of Nigeria.
“I am very happy that the already fruition relation between Nigeria and Spain is expanding to other domains. Nigeria is a strategic partner of Spain in energy matters,” he said. The Spanish envoy noted that as the first economy in Africa in terms of GDP, Nigeria has enormous potentials.He said that the commissioning of the LaLiga office in Nigeria marked the beginning of a solid presence in Nigeria.“As a Spanish ambassador, I have to express my satisfaction that one of the strongest institutions in Spain, and probably one of the best in the world known worldwide, LaLiga has established an office in Nigeria.”
Speaking at the commissioning of the office, LaLiga President, Javier Tebas, said the commissioning was a proof that League was ready to help the country in making Nigerian League one of the best in the world.“The Spanish League is convinced that together with the Nigerian League, we would be very strong.”
Expectations are high about the steps that the Central Bank of Nigeria’s Monetary Policy Committee will take at its meeting, which holds today and tomorrow, following the declaration by the Finance minister that the economy is now in recession amid rising inflation and massive job losses,
Financial analysts have called on the Monetary Policy Committee of the Central Bank of Nigeria not to increase the Monetary Policy Rate, which currently stands at 12 per cent, ahead of the committee’s meeting scheduled for today (Monday) and Tuesday.
The Monetary Policy Rate is the anchor rate at which the CBN, in performing its role as a lender of last resort, lends to Deposit Money Banks to boost the level of liquidity in the banking system.
If the apex bank intends to increase the level of liquidity in the economy, it reduces the MPR, but increases it when it intends to tighten money supply.
The President, Institute of Fiscal Studies of Nigeria, Mr. Godwin Ighedosa, said that since the economy was struggling with high inflation rate and unemployment, raising the interest rate now would not achieve the desired result.
He said the level of inflation in the country was caused by factors outside the control of the monetary policy, noting that rather than tightening the level of liquidity in the economy, the CBN should either hold the rate at 12 per cent or reduce it to stimulate productive activities.
Ighedosa stated, “There is a general tendency to want to raise interest when there is a general rise in price level as the fundamental job of the central bank is price stability.
“The stabilisation of prices is vital for investment decisions, but again, monetary policy is a short to medium-term measure, and so one of the problems in Nigeria is the disconnect between the monetary policy, industrial policy and fiscal policy issues.
“Now, there is temptation to raise interest rate when you have inflation, but the problem now is that we have inflation with unemployment rising at the same time; and so, the idea of wanting to raise interest rate with the hope of reducing the price level will not necessarily deal with the problem.
“And so, if you want to stimulate the economy, then the rate should be left unchanged, because what is evident in our economic situation now is that the inflationary pressure is import-induced and whatever traditional policy measures you want to use now by raising the interest rate will not solve the problem.”
He added that the best policy response that could be adopted by the monetary and fiscal authorities was to begin to build productive capacity and also invest in areas where the country had domestic capacity in terms of demand.
“This is the wrong time to move the interest rate up; rather, we should invest massively in terms of building industrial capacity locally and then try to consume locally the things that we produce,” he noted.
Head, Department of Banking and Finance, Nasarawa State University, Keffi, Uche Uwaleke, said the fact that inflationary pressure had remained in spite of the CBN’s efforts to control money supply underscored the fact that in reality, dealing with double-digit inflation was more complex, particularly in a period of declining output and unemployment.
He said, “What is needed now is a combination of monetary and fiscal measures aimed at removing supply side constraints.
“The CBN left its benchmark rate unchanged at 12 per cent in May and is expected to announce its next decision after its meeting later in July. Without prejudice to the outcome of that meeting, the MPC will be well advised not to jerk up the MPR in a bid to subdue the inflationary pressure as doing so will further hurt output and employment.
“Rather, the committee should consider easing the monetary policy with a view to stimulating economic growth and reducing unemployment.”
The economy has been badly hit by rising inflation, which peaked at 16.5 per cent in June, the highest in 11 years, in addition to forecast by the International Monetary Fund that the nation is heading into a recession.
The Minister of Finance, Mrs. Kemi Adeosun, had while appearing before the Senate on Thursday, said the current indices had shown that the country was technically in a recession.
She had said, “Technically, in economic terms, if you have two periods of negative growth, you are in a recession. I don’t think we should spend too much time on this. The issue is we are in a tough place, whether we call it recession or not, we are in a tough place.
“But most importantly, we are going to get out of it. What we are doing is moving us out of it.”
A recession is defined as a significant decline in activities across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale retail trade.
The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s Gross Domestic Product.
Nigeria’s GDP growth contracted to -0.36 per cent in the first quarter of this year compared to 2.11 per cent in the fourth quarter of 2015.
The National Bureau of Statistics is due to release the GDP figure for the second quarter any time from now.
Financial analysts said without adequate coordination of monetary and fiscal policies, it would be difficult for the government to stimulate the economy.
A former Acting Managing Director, Unity Bank Plc, Mr. Muhammed Rislanudeen, said that while the Nigerian economy had been badly hit by rising inflation and weak growth, the government could have reduced the negative impact if it had an effective economic management team made up of representatives of both the public and private sectors.
He said, “The economy is challenged from two fronts, inflation and weak growth. Now, for inflation, which is at 16.5 per cent, the challenge for the MPC is to either allow it to go up unchallenged or raise interest rate above the rate of inflation.
“But from what is on the ground, I will suggest that the CBN should still hold the rates and then challenge the government to address the structural challenges causing inflationary pressures.”
Asked what could be done by the government to reposition the economy on the path of growth, Rislanudeen said, “In terms of the slow economic growth, there is a need for synchronisation between the monetary and fiscal policies.
“Currently, there is no synchronisation of policies and that is why the economy is facing challenges. So, this is the time for both the CBN and the Ministry of Finance to work together to fashion out policies that will help to address the challenges facing the economy.”
A former Managing Director, Nigeria Deposit Insurance Corporation, Mr. Ganiyu Ogunleye, said the country had so much depended on revenue from oil, which had made the economy to become volatile and unable to withstand external shocks.
He explained that there were no quick fixes to the structural challenges facing the economy, noting that even if the country was to have all the money in the world, there was no way it could build projects such as roads, power plants and refineries before the end of the year.
These, according to him, are needed to stimulate economic activities and attract the much needed investments to create jobs and reduce the level of poverty.
Ogunleye stated, “The country’s over-dependence on oil revenue has been a problem to the economy, and if the government is to bridge this kind of gap, it will take some time.
“There are no quick fixes to the economic challenges. The government needs to clearly indicate its policy direction. There is no quick fix and as such, all of us have to adjust our expectations and consumption pattern.
“The inconsistent policies of government is one of the reasons why investors are not coming and this has to be addressed, because it appears that we are doing some kind of experimentation with our foreign exchange. We have been trying various approaches at managing the foreign exchange and I am not sure we are there yet.”
He added, “We started with capital control; now, we have gone to a liberalised system and for the liberalised system to even work efficiently, there is an underlying assumption that the supply will be adequate and investors are still having problems finding foreign exchange.
“The government can look at privatising some of our major entities if that will increase the level of foreign investors in the economy.”
On his part, the Executive Director, Corporate Finance, BGL Capital Limited, Mr. Femi Ademola, called on the Federal Government to scale up spending on critical infrastructure projects, noting that the time for talk shows was over.
He said, “This is not time for talk shows. The government should start implementing its programmes if it has any. They should let people go back to work. It’s not bad to fight corruption, but it appears that this government is spending a lot of its time fighting corruption and seems to be neglecting the economy.
“Inflation has risen to 16.5 per cent and it is high not because of excess liquidity, but because of structural issues that have made it difficult for people to produce.
“There is no money in the economy to produce and those that could produce did so with a lot of difficulties. Things have become so expensive now and this is the time for this government to start massive implementation of its programmes.”
Corporation’s boss urges review of existing regulations The Nigeria Deposit Insurance Corporation (NDIC) has condemned the rising rate of non-performing insider loans in various banks. It said this situation, if not checked could have negative consequences on the financial system.
Managing Director/Chief Executive of Alhaji Umaru Ibrahim expressed this concern while receiving the newly elected President & Chairman of Council of the Chartered Institute of Bankers of Nigeria (CIBN), Professor Segun Ajibola and his executive members who paid a courtesy call on the NDIC Senior Management in Abuja.
According to Ibrahim, the development poses credibility questions, capable of eroding public confidence in the banking system.He therefore called for strict compliance with the existing code of conduct and a review of the existing laws and regulations to provide stiffer penalties for directors who take advantage of their positions and failed to pay back their loans.
The NDIC CEO also observed with concern the practice of some banks to assign sensitive roles to casual staff; thereby exposing the banking industry to cases of fraud and forgeries. Advising restraint, Alhaji Ibrahim urged banks to exercise caution so as not to create industrial unrest in the industry, he therefore called on the CIBN to intervene by advising its members on the aim of the rationalisation which should be to weed out bad eggs from the industry.
The NDIC boss emphasized that the corporation would continue to partner with the CIBN and other professional bodies towards achieving effective capacity building among its staff.
Prof. Ajibola expressed appreciation to the Corporation for positive contributions to the activities and programmes of the Institute and also pledged to table the matter at CIBN’s next meeting with banks’ CEOs with a view to addressing the issues.He stated that efforts were being put in place by the CIBN to enhance the capacity of bank staff, particularly in credit administration.
Investors staked a total of N48.72 trillion on fixed income securities and currencies on the FMDQ OTC Securities Exchange between January and June 2016.
According to statistics obtained by the THISDAY, N22.5trillion was invested in the first quarter of 2016, N9.43trillion in April, N7.43trillion in May and N9.36trillion in June, amounting to N48.72trillion in six months.
A breakdown of the performance in June showed that activities in the Treasury bills (T.bills) market remained dominant, accounting for 38.14 per cent of total turnover while Secured Money Market (Repurchase Agreements (Repos)/Buy-Backs) came second place, accounting for 26.5 per cent.
Total Foreign Exchange (FX) market transactions accounted for 26.07 per cent, while Federal Government of Nigeria FGN bonds and Unsecured Placements/Takings accounted for 4.85 per cent and 4.34 per cent of the total turnover respectively.
FMDQ explained that milestones were recorded in the FX market as the Central Bank of Nigeria (CBN) took steps to restructure the market.
“The apex bank released revised guidelines for the FX market, effectively liberalising the market, and appointed Foreign Exchange Primary Dealers (FXPDs). Furthermore, in a very bold and decisive move, the CBN cleared the backlog of transactions in the market via a one-time Special Secondary Market Intervention Sales (SMIS) auction. Accumulated backlog totalling $4.02 billion, was cleared with $0.53 billion (13.24 per cent) settled spot and the remaining 86.76 per cent ($3.49bn) spread over one to three months forward contracts,” it said.
The exchange added that on June 27, Naira-settled OTC FX Futures product was also introduced into the Nigerian FX market with the CBN as the pioneer seller. “The CBN offered twelve (12) consecutive monthly contracts with initial notional amounts of $1.00bn each. OTC FX Futures Contracts totalling $38.80 million were executed by the end of the month,” the exchange said.
Based on the reform in the market by the CBN, transactions in the FX market settled at $7.51 billion in June, an increase of 83.82 per cent compared with the value recorded in May.
Turnover in the fixed income market settled at N4.02trillion, showing increase of 2.05 per cent above the previous month’s value, with transactions in the T.bills market accounting for 88.71 per cent of the turnover.
Outstanding T.bills closed the month at N5.28 trillion whilst outstanding FGN bonds increased 1.73 per cent to close at N6.57 trillion. Trading intensity in the Fixed Income market settled at 1.24 and 0.07 for T.bills and FGN bonds respectively, with maturities between one month to three months being the most actively traded in June.
