Following the significant accumulation of external reserves to $40.4billion, the highest since 2014, Kunle Aderinokun and Bamidele Famoofo examine factors responsible for the quantum leap and the benefits to the economy
Nigeria, most populous and largest economy in Africa, recorded many firsts in 2017. The most significant, perhaps, was its exit from recession in second quarter in 2017 while GDP later grew by 1.4 percent a quarter later. In December 2017, a report from the Central Bank of Nigeria (CBN) showed that the real sector of the economy had recorded a consistent growth for 10 months.
Again, five days into 2018; the apex bank announced that at $40.4 billion, Nigeria’s foreign reserves recorded the highest growth in four years. According to the Central Bank of Nigeria, the growth indicated an increase of about $1 billion between December 2017 and January 2018.
Foreign exchange reserves (also called forex reserves or FX reserves) is money or other assets held by a central bank or other monetary authority so that it can pay, if need be, its liabilities, such as the currency issued by the central bank, as well as the various bank reserves deposited with the central bank by the government and other financial institutions. Reserves are held in one or more reserve currencies, mostly the United States dollar and to a lesser extent, the Chinese yuan.
Meanwhile, the quantum leap in Nigeria’s foreign reserves portfolio has remained a subject of debate among multilateral organisations like the World Bank and local institutions in Nigeria. While the former have linked the growth to a favourable commodity price in the world market, the CBN maintains that its policies on foreign exchange management have brought the gains to the nation.
The World Bank suggested in its January 2018 Global Economic Prospect report launched last week Tuesday in Washington DC, that an upward revision to Nigeria’s growth forecast was based on expectation that oil production will continue to recover and that reforms will lift non-oil sector growth.
“Nigeria is anticipated to accelerate to a 2.5 per cent rate this year from one per cent growth in the year just ended. An upward revision to Nigeria’s forecast is based on expectation that oil production will continue to recover and that reforms will lift non-oil sector growth,” the report said.
The World Bank expects Nigeria’s Gross Domestic Product (GDP) to grow by 2.8 per cent in 2019 and 2020 respectively.
A report from the Organisation of Petroleum Exporting Countries (OPEC) corroborated the position of the World Bank that Nigeria’s economy growth, which also has impacted its external reserves, is in no way disconnected with an increase in crude oil prices which is particularly favourable to Nigeria.
According to OPEC, price of Nigeria’s Bonny Light crude oil reached $67.10 per barrel to emerge the highest priced product among members of Organisation of the Petroleum Exporting Countries (OPEC) recently. “Apart from Bonny Light crudes, other Nigeria’s oil grades such as Brass River and Qua Iboe also appreciated in value to sell at $65.32 and $61.22 per barrel respectively on Tuesday, January 2, 2018, at the international market”.
But the CBN Governor, Godwin Emefiele, who in November last year at a gathering of bankers, economists and key stakeholders in the economy in Lagos, predicted that the nation’s foreign reserves, which has witnessed a positive growth over the last 12 months, from just over $23 billion in October 2016 to over $33 billion in October 2017, will hit the $40billion mark in 2018, said the feat was achieved largely due to the policy direction of the bank on foreign exchange.
His words: “The accretion in reserves does not only reflect increased inflow but also our shrewd forex demand management strategy. When we introduced a policy restricting 41 items from our forex markets, we were called all manner of names”.
Apart from its restriction policy on import, Emefiele disclosed in December last year that the nation’s foreign reserves rose to $38.2billion with the issuance of Eurobonds by the Federal Government. He described the external reserves figure as the highest in 39 months.
In November, the Federal Government raised $3billion through Eurobonds, which were oversubscribed by about $11billion and split across 10-year and 30-year tranches at issuance yield of 6.5 per cent and 7.625 per cent, respectively.
Some financial experts could not agree less with the Nigeria’s number one banker as they said the positive growth witnessed in Nigeria’s economy in the last 10 months was due largely to the forex management policy of the CBN.
They identified the source of resurging forex liquidity and stability in the sectors as the emergence of the popular Investors’ & Exporters’ (I&E) FX Window, which has been operational since 10 months and stable oil prices.
Specifically, financial experts at Afrinvest Securities Limited, in their weekly market update, noted that improved liquidity in the FX market remain a key determinant of the performance of the broader economy, as recent developments in manufacturing and non-manufacturing sectors has indicated.
They however noted that despite improvements recorded in 2017, gains still remain “fragile” as the impact is yet to be reflected in non-oil sector growth figures, which was unimpressive in third quarter data as provided by the Purchasing Managers Index (PMI) for December, released by the CBN.
Under the renewed forex intervention and management policy of the CBN since February 2017, these sectors were given opportunities to obtain the much-needed forex liquidity to sustain activities amid dwindling forex earnings by the country.
Acting Director, Corporate Communications, CBN, Mr. Isaac Okoroafor, explained that restricting access to official market against importers of the 41 items was the major turning point that helped to stop the haemorrhaging of the country’s external reserves, which hitherto witnessed heavy depletion due to huge import bills and other debt obligations.
According to him, the CBN policy had ensured a decline in Nigeria’s import bills from over $5 billion monthly in 2015 to about $1.5 billion in 2017.
He expressed optimism that with the determination of the bank and the cooperation of the fiscal authorities, the external reserves will continue to enjoy more accretion in the course of 2018.
CEO, Global Analytics Consulting Ltd, Mr. Tope Fasua, noted that the accretion to reserves was a great development, as occasioned by rising crude oil prices, and the institution of better controls by the Central Bank. The deliberate policies to encourage exports and reduce importation – even where unpopular – are having salutary effects.
Fasua, however, cautioned that, there are two downsides. “The first is that fiscal policy is still dismal, thereby putting a question mark to how long we can sustain this run. Nigeria still budgets yearly for some of the most frivolous items that no other country will permit. “Secondly, we need to be sure that as reserves are increasing, the national debt is not galloping at a far higher pace such as to net off and render useless the current accretion,” he noted.
Fasua added: “A number of our peers are doing far better in economic management. Algeria has a strong debt sustainability policy even though it also relies on crude oil. Its external debt is currently around $3billion while its reserves stand at over $130billion. If looked at from the overall economy I doubt if we should commence celebrations yet.”
Similarly, Director, Union Capital Market Ltd, Egie Akpata, stated that for the external reserves to hit the $40billion mark was a positive and welcome development.
Specifically, Akpata noted that it showed that “the CBN strategies to improve the FX situation are working.”
“Part of the rapid growth in reserves came from a sharp reduction in imports, some of which was driven by CBN policies.”
Akpata explained that, ”The significant rise in oil prices last year also played a very important role in the rate FX was able to accumulate in the reserves.
“It is possible that the biggest factor in this reserves growth was the success of the I&E window which recent reports say has recorded $26billion in transactions since inception.
Without the significant FX inflows from foreign portfolio investors, it is unlikely reserves would have gotten to $40billion.”
Akpata, however, pointed out that, “The challenge for the CBN is how to ensure that those foreign investors don’t start to leave in large numbers as we approach the early 2019 elections.
It is possible that the CBN might not bring down interest rates to as low a level they would want so as to encourage the foreign portfolio investors to leave their funds in Nigeria.
But, CEO, The CFG Advisory Ltd, Adetilewa Adebajo, pointed out that the rising external reserves showed how vulnerable our economy is to oil prices.
According to him, “There is a perfect correlation between oil prices and the state of the Nigerian Economy. This has also exposed the structural deficiency with our FX management system as Naira should now be trading at the 200+ levels.’
“While the reserves levels are optimal without the proper stimulus, the resumption in bank Lending and government capital expenditure spending, we cannot see a significantly increase in economic growth,” he added.
Investment Researcher at WSTC Financial Services Limited, Mr. Olutola Oni, said it was expected that the fiscal authorities would be more inclined to managing the nation’s resources giving lessons learnt from the economic disruptions in the last few years.
Benefits
According to the apex bank, Nigeria’s reserve has benefited from the peace in the Niger Delta as well as the rise in the price of crude in the international market but the main driver has been the Importers and Exporters foreign exchange window that was created by the CBN which allowed portfolio foreign investors enter and exit the equities market with ease.
Citing the CBN policy restricting access to forex by importers of some 41 items as the major turning point, Okorafor said the policy had helped to stop the haemorrhaging of the country’s external reserves, which had witnessed heavy depletion due to huge import bills and other debt obligations.
According to him, the CBN policy has ensured a decline in Nigeria’s import bills from over $5bn monthly in 2015 to about $1.5billion in 2017.
He expressed optimism that with the determination of the regulator and the cooperation of the fiscal authorities, the external reserves would continue to enjoy more accretion in the course of 2018.
Not yet Uhuru
While the CBN policy to manage forex has begun to yield positive results in terms of economic growth, Godwin Emefiele, believes it is not time for the bank and the nation to rest on their oars.
“For one, our import bill may have fallen but our manufacturing and agriculture sectors still have a long way to go if we must attain self-sufficiency in those sectors. To date, the bank has committed close to N45.5 billion under the Anchor Borrowers’ Programme (ABP) with active participation across 30 states of the federation.”
“I expect that the exchange rate will not only be stable but would begin to appreciate against major currencies. The adverse competitiveness outcome, which such appreciation may entail, would be adequately mitigated by proactive policies to ensure that our balance of payments position is not undermined.”
Emefiele also attributed Nigeria’s recent improvement in the ease of doing business indicators, partly to the introduction of the I&E forex window, which, he said, boosted investor confidence and eased market sentiments.
“The World Bank’s ease of doing business indicator for 2018 showed that Nigeria, with a score of 52.03, improved 24 places to rank 145 out of 190, standing above the regional average score of 50.43 recorded for sub-Saharan Africa. I must note that the CBN efforts reinforced the presidential initiatives to improve ease of doing business in Nigeria.”
Bonds worth about N1.60trillion were listed on the trading floor of the FMDQ OTC Securities Exchange in the financial year ended December 31, 2017, THISDAY can report.
The FMDQ OTC Securities Exchange said it admitted the listings of seven bonds in the financial year. These were apart from 33 commercial papers (CPs) worth N152.35billion quoted on the floor of the securities market in the review period.
The FMDQ OTC Securities Exchange provides the platform for trading short and medium-term securities, where investors could pick quick returns on their investments.
“By their admission to the FMDQ platform, these securities gain access to the full complement of the unsurpassed FMDQ listings and quotations service, which include, but is not limited to, improved secondary market liquidity, efficient listings/quotations process, unprecedented transparency and information disclosure, global visibility and improved network effects,” FMDQ OTC disclosed during the review of activities in the market in the period.
The latest of the listings was the Pioneer Diaspora Bond and the Federal Republic of Nigeria (FRN) Eurobonds listed by the Debt Management Office (DMO) in the month of December, 2017.
The FRN Diaspora Bond – $300.00 million 5.625per cent Diaspora Bond due 2022 issued in June 2017, along with the two tranches of the FRN Eurobonds – $1.50 billion 6.500 per cent Notes due 2027 and $1.50 billion 7.625 per cent Notes due 2047 under its $4.5 billion Global Medium-Term Note Programme Eurobonds, were listed on the OTC Exchange to promote, among others, visibility for the issues and financial inclusion.
In the course of the investment year, the FMDQ OTC admitted commercial papers valued at N160.00billion. Corporate organisations, which raised short term capital by means of commercial papers in the review financial year included Lafarge Africa PLC, one of Nigeria’s leading cement manufacturers, which raised N60.00 billion and First City Monument Bank Limited, N100.00 billion.
The Wema Bank PLC N3.41 billion Series 1 and N13.62 billion Series 2 CP Notes under its N50.00 CP Issuance Programme were also quoted alongside Lafarge and FCMB on the OTC Exchange in the month of October. The FMDQ OTC revealed that the month of October saw key activities in the CP quotations space on the OTC Exchange.
FMDQ said it commenced the year with the commemoration of the successful quotation of the Access Bank PLC N8.45 billion Series 1, N4.22 billion Series 2 and N22.33 billion Series 3 Commercial Paper (CP) Notes under its N100.00 billion CP Programme on the OTC Exchange.
“This marked the beginning of a year, which saw significant activity in the CP market as corporates made a deliberate move to tap the debt market to raise short-term finance to support their business operations.”
In yet another remarkable and historic feat, FMDQ, also in July, welcomed the listing of the pioneer Infrastructure Debt Fund on the OTC Exchange. Chapel Hill Denham Management Limited, following the approval of SEC, registered and established the N200.00 billion Nigeria Infrastructure Debt Fund (NIDF) Issuance Programme, and subsequently issued the first series under this Programme – Series I 49,450,000 Units of N101.20 each, on FMDQ’s platform.
The NDIF was the first-ever listed infrastructure debt fund in Nigeria (and Sub-Saharan Africa) and aims to enable investors access infrastructure as an asset class, while providing the benefit of predictable returns available from long dated infrastructure debt investments.
Notwithstanding the successes achieved under the leadership of Mr. Onadele Bola-Koko, chief executive officer at the FMDQ OTC Securities Exchange in 2017, the market is upbeat about a better performance in 2018.
“Despite some challenging conditions faced in the markets during some periods in the year, they proved to be encouraging in terms of market development, and have, no doubt, set the pace for a significantly positive outlook for 2018”, the OTC market revealed.
The FMDQ remains very optimistic about the possibilities of the Nigerian markets and looks ahead to the coming year 2018 with much eagerness and expectation.
The OTC Exchange noted that it recognised the potential of fully-functional debt capital markets (DCM) and financial markets at large, and will remain steadfast in innovating and providing efficient services and infrastructure, as may be necessary, to support issuers, investors, government and their agencies and other corporate businesses at large, towards achieving an economy that would support sustainable development and directly impact the citizenry.
Vitafoam Nigeria Plc has secured a four-year N2billion soft loan from the Bank of Industry (BoI) at concessionary interest rate as part of the company’s strategic move to boost its working capital and sustain competitive edge.
The loan, which has an annual interest of 12 per cent compared with the over 25 per cent commercial bank rate as at last year, is expected to reduce Vitafoam’s finance cost and enhance the company’s ability to directly import its raw materials off-shore.
The Group Managing Director, Mr. Taiwo Adeniyi stated this at a media briefing in Lagos on Friday.
Vitafoam paid over N1 billion as interest charges for the year ended September 30, 2017.
However, Adeniyi said: “The good news is that Vitafoam has secured N2.0billion structured working capital support facility with BoI at 12per cent per annum interest rate. When compared to commercial banks 24.5 percent average interest rate borne in 2017. There will be a huge favourable reduction in finance cost by a minimum of N240million, representing 20.4 percent. Secondly, the previously depleted working capital will be boosted by the Bol four-year working capital support.
“This will enable Vitafoam to source its major raw materials directly from overseas manufacturers, thereby retaining middlemen margin in the business. A minimum of 15 percent margin will be saved on every direct import of major raw materials.”
He explained that despite the 15.98 per cent inflation, in the economy, through firm cost control measures, management reduced administrative expenses by three percent (Group) and four percent (Company), while distribution cost reduced from five percent to four percent as percentage of revenue between 2017 and 2016 financial year. He noted that due to weak working capital and paucity of forex for letters of credit, the company’s over 80 per cent of raw materials were locally purchased, thereby incurring more costs. According to him, despite the challenges, the directors recommended N156.36 million dividend to be paid to shareholders from distributable profit.
Speaking on the outlook for the company this year, Adeniyi mentioned some initiatives that would boost profitability: “We have also created new business lines. Specifically, Vitaparts Nigeria Limited, a new subsidiary, established to manufacture oil filters, is expected to commence operation in the third quarter of the current financial year while importation and installation of the manufacturing plant will be concluded in the second quarter of the year, all things being equal.
“These new strategic initiatives are designed to diversify operation and revenue base of the group. In a similar vein, Vitablom Nigeria Limited, the soft furnishing subsidiary has concluded installation of fiber processing plant. The new production line is expected to boost the operation and revenue base of the group,” he said.
The Securities and Exchange Commission (SEC) on Tuesday said the electronic-dividend registration exercise would continue seamlessly in spite of the expiration of the December 31, 2017 free registration deadline.
SEC had undertaken to pay the cost of the enrolment for e-dividend since 2016 and gave December 31, a 2017 as deadline for the free registration.
Speaking in Abuja yesterday, Acting Director General of SEC, Dr. Abdul Zubair, said that all investors that are yet to enroll, are enjoined to continue with the registration exercise at a marginal cost of N150 only.
He said: “Such investors should continue to approach their banks or registrars, as usual, to seamlessly mandate their bank accounts for the collection of their dividends electronically, including unclaimed dividends, not exceeding 12 years of issue as the N150 would not be demanded from them at the point of registration.
“For the avoidance of doubt, the N150 fee would not be demanded from the investors at the point of registration and/or submission of completed e-dividend mandate forms.
In his comments, Director External Relations of the SEC, Mr. Henry Rowlands disclosed that the SEC has consulted with other stakeholders to ensure that the process is seamless, adding that investors should entertain no fear of being charged until their registration is approved.
“Where the investor’s account is not funded, the parties have agreed that such an enrolment request will be disapproved because the account is not funded and the investor will be alerted accordingly,” he said.
Meanwhile, Zubair also announced an extension of the forbearance window for Multiple Accounts consolidation to March 31, 2018.
The SEC boss said: “With a view to encouraging many more investors to consolidate their multiple subscriptions into one account, the SEC wishes to announce an extension of the forbearance for Multiple Accounts till March 31, 2018. Accordingly, investors that bought shares of the same company during public offers, using different names, are allowed till 31st of March, 2018 to continue to approach their stockbrokers or registrars, to regularize their shareholdings in line with SEC Rules on customer identification. Thereafter, all shares NOT regularised shall be transferred, on trust, to the Capital Market Development Fund.”
He added that in line with approved rules of the commission, all registrars have been directed to stop the issuance of dividend paper warrants with effect from January 1, 2018.
He noted that for the avoidance of doubt, all paper dividend warrants issued up till December 31, 2017 are valid and should be honoured.
PZ Cussons, has reiterated that its commitment to the wellbeing of Nigerians, and impacting lives in the country by giving back to the society would not change. The personal care, homes, food and electrical conglomerate firm restated this commitment just as it marked the 10th anniversary of its foundation recently.
The event which took place in Lagos, witnessed the presence of dignitaries from all walks of life and representatives of states and communities from the six geopolitical zones the foundation has impacted since its inception in 2007.
Presenting the score card of the Foundation, its Prof. Emmanuel Edozien, said: “In 2007, PZ Cussons Nigeria Plc came up with the idea to set up a more structured way of formulating and executing corporate social responsibility (CSR) programme by registering a foundation. That was a departure from previous way of doing similar kind acts on ad-hoc basis.”
According to him, to that effect, a board of trustees, comprising 15 persons from diverse professional, ethnic and religious background with four areas of focus- education, health, potable water and infrastructure- was constituted and saddled with the task of translating that dream into reality under my chairmanship.
“These choices were informed by the desire to directly and positively impact lives without any profit motive of consideration by giving back to the society, translating their commercial mission of ‘Making Life Better’ to making social investment better,” Edozien added.
Giving a breakdown of some of the projects done so far in the education sector, Edozien said: “We constructed and furnished block of three classrooms and provided 70 fully furnished classes. We decongested classrooms and created conducive learning environment by providing table and chairs; increased student in-takes in some schools by creating new spaces for additional 2,400 students.”
Similarly, he said infrastructure including rehabilitation of hostel, Assembly Hall, and administrative blocks and ICT training were done for the Government College Keffi, Nasarawa State, Queen School Ilorin, Kwara and Ibadan, and College of Education, Gumel, Jigawa State, respectively.
He added: “As a foundation that knows the importance of science in secondary school, we encouraged the study of chemistry in secondary schools, made laboratory easily accessible to schools in rural areas and improved computer literacy and access to teachers and students. We purchased a van that was converted into a mobile laboratory in Katsina. We have been funding and organising PZ chemistry challenge for Lagos secondary schools.”
Representative of Mbamba Community, Yola, Adamawa State, Malam Umar Aliyu Bello, while thanking the foundation for the project executed in the community, said: “On behalf of the entire members of the Mbamba community, we extend our profound gratitude and appreciation to the P.Z Cussons Foundation, We will remain eternally grateful for renovating Mbamba Community Health Clinic. The renovation undertaken by the foundation has upgraded the clinic. Consequently people from the neighbouring towns and villages patronise the clinic.”
He added: “After suffering a long period of darkness due to the breakdown of the transformer supplying electricity to our community, Cussons came to the rescue. The Foundation purchased and installed a brand new 200KVA transformer for the community. This singular gesture has helped our community tremendously. It was able to connect the community primary school, borehole as well as the Mbama Health Clinic to the national grid. It is also noteworthy that the following intervention of the foundation, the World Bank also supported the clinic by supplying some clinical equipment as well as hospital beds.”
High demand for banking stocks at the stock market lifted their prices further yesterday, which was the second trading day for the new year. Although the stock market closed on negative note with the Nigerian Stock Exchange (NSE) All-Share Index falling 0.20 per cent, the NSE Banking Index appreciated by 1.2 per cent.
Out of the 37 price gainers recorded yesterday, 15 where banking stocks. Diamond Bank Plc led the price overall price gainers’ chart with 9.5 per cent, trailed by FCMB Group Plc with 9.4 per cent. Fidelity Bank Plc and Wema Bank Plc chalked up 8.5 per cent and 8.0 per cent respectively.
There were also: FBN Holdings Plc (4.6 per cent); Sterling Bank Plc (4.4 per cent); Unity Bank Plc (3.6 per cent); United Bank for Africa Plc (3.4 per cent) among others.
The banking sector recorded the highest gain in 2017 with the NSE Banking Index rising by 73.3 per cent.
Commenting on the last year’s performance of the sector, analysts at Meristem Securities Limited said active investor participation was seen as investors reacted to the inflow of favourable news within the space in a bid to position adequately for short-term and long-term profits.
“The sector’s performance was largely anchored by investors’ reaction towards the financial performance and corporate benefits of sector companies. We also note the impact of portfolio rebalancing activities and the year-end rally on the sector, as this drove most counters to their year-highs. In the coming year, we envisage increased participation within the space as we note that the sector is highly suited for speculative trading as well as long-term investments,” the analysts said.
Meanwhile, a further analysis of the trading yesterday showed that the decline in the index was majorly caused by the depreciation in share price of Dangote Cement Plc. The stock fell by 3.0 per cent to close lower at N223 per share. However, Double 11 Plc led the 11 price losers with 9.2 per cent decline. Neimeth International Pharmaceuticals Plc trailed with 8.0 per cent, while Cutix Plc and Cadbury Nigeria Plc shed 4.9 per cent and 4.2 per cent respectively.
Commenting on the market performance, FSDH Research said the market closed on a negative note largely attributable to the decline recorded in the share price of Dangote Cement
“ However, there was a sustained demand for banking stocks, most of which traded at the higher limit and closed on bid. We expect increased activity and bargain hunting in coming trading sessions driven by positioning for 2017 corporate earnings,” they said.
