Author: The Nation

Nigeria exports of coffee is still under one million bags yearly, according to  data sourced by The Nation.

This is behind Ethiopia, Africa’s largest exporter of coffee, anticipated to produce 8.25 million 60-kilogramme bags of coffee (495,000 MT), according to the United States Department of Agriculture. 

Global coffee and tea market was worth $112.3 billion last year,  the United States-based Business Research Company said.

Ethiopia obtained a record-high $1.4 billion from coffee exports in 2021/22 fiscal year.  

Nigeria is not among the top 10 producers of coffee in Africa, which includes Burundi, Cameroon, Côte d’Ivoire, Democratic Republic of Congo, Ethiopia, Guinea, Kenya, Madagascar, Rwanda, Tanzania, Togo and Uganda.

Despite this, United States- based Williams & Marshall Strategy, a global full-service market research and consulting company, noted that  Nigerians are among the continent’s biggest coffee drinkers, and the trend there is steadily increasing.

 According to its report, the coffee market in Nigeria is forecast to reach $4.62 billion in 2025. The company forecast that  average consumption per capita in value terms in Nigeria is  growing  at a compound annual growth rate (CAGR) of 21.49 per cent  per annum.

In line with this, Euromonitor International’s Coffee in Nigeria report indicated last year, Nestlé Nigeria Plc remained the dominant player in terms of off-trade coffee value sales.

A   study  by researchers at the Cocoa  Research Institute of Nigeria (CRIN) indicated that while globally, yearly output is increasing, coffee output and export in Africa, on the other hand, are declining.

The report attributed the decline in production to lack of capacityto generate technical knowledge on high-yielding disease resistant varieties and drought, climate change, aging coffee trees, poor agronomic practices due to weak extension service, dropping in the global market of coffee, among others.   

Despite coffee’s importance for economic growth and poverty reduction, the study revealed that the coffee production trend in Nigeria has shown a highly significant level of decline over time.

Read Also: Nigerian farmers urged to cultivate coffee

It owed this to poor pricing and marketing channels particularly at the international level, aging coffee trees, lack of training on good agricultural practices, lack of government support, climate change, lack of input, land acquisition and drought.

In an effort to improve the production and exportation of coffee, the Nigerian Export Promotion Council (NEPC) has trained around 200 coffee farmers in Plateau State.

The Regional Coordinator, NEPC, Mr Samson Idowu, pointed out that the production of the commodity was on the decline in Plateau State, despite the fertile soil for its production. He stressed that tackling some of the challenges confronting coffee production made the council bring together seasoned experts to engage in strategic enlightenment programmes.

Speaking further, he stated that the event was organised to equip coffee farmers, processors, and other stakeholders in the coffee value chain with the necessary skills and knowledge to increase productivity, improve quality, and reduce post-harvest losses.

At World Coffee Producers’ Forum in Kigali, Rwanda , powered by international Trade Centre( ITC)’s Alliances for Action partners , the President, African and Malagasy Robusta Coffee Agency, Enselme Gouthon,  noted :”We all know that most African coffee producers live below the minimum subsistence income. It’s crucial to find an innovative model to capture more value from the first processing stage.”

Coffee is commercially produced in more than 50 countries, and the world drinks upwards of 3 three billion cups a day. The annual income of the coffee sector is estimated to exceed $200 billion. While the number of coffee drinkers continues to rise and producers work hard to keep up with demand, the coffee industry is faced with unprecedented challenges.

• High debt burden, low productivity
• GDP growth at risk

The securitisation of Federal Government’s N23.7 trillion Ways and Means may trigger stronger macroeconomic headwinds, with extensive repercussions on the country’s productivity and financial stability.

The National Assembly last week approved President Muhammadu Buhari’s request to securitise outstanding government’s Ways and Means of N22.7 trillion due to the Central Bank of Nigeria (CBN). It also received approval for an additional N1 trillion Ways and Means advances for the implementation of the 2022 Supplementary Appropriation Act as passed by the National Assembly.

The CBN Act, 2007 provides window for “Ways and Means”, essentially a stop-gap funding window for overdrafts from the apex bank to the Federal Government, subject to a limit of five per cent of the previous year’s revenue size.

Analysts at the weekend said the securitisation of the ballooning Ways and Means could be a bitter-than-sweet measure, with possible negative implications on general economic performance and access to funding by both governments and private operators.

Investment banking group, Afrinvest (West Africa) said the securitisation could turn to be a landmark or landmine for the economy, with many negative implications for the economy and the citizenry.

With the securitisation, the CBN would become a constitutionally recognised long-term creditor to the Federal Government. Under the approval, the total outstanding Ways and Means of about N23.72 trillion would be structured into a long-term issuance from the federal government to the CBN with key terms, including tenure of 40 years; moratorium on principal repayment of three years; and pricing or interest rate fixed at nine  per cent yearly.

Read Also: Furore over Nigeria’s $4.1billion unpaid debts to China

Afrinvest noted that the securitisation evidenced the inability of the outgoing administration to offset what should have been a stop-gap funding from the CBN.

“Noteworthy, 96.2 per cent or N21.8 trillion of the gross Ways & Means liability was obtained within the eight years of the outgoing administration-2015 – 2022, a gross violation of the allowable five per cent of previous year’s revenue limit imposed by section 38 of CBN’s Act, 2007,” Afrinvest stated.

According to analysts, with the securitisation approval coming less than 30 days to the swearing-in of a new administration and Nigeria’s dwindling national revenue amid rising loan-servicing costs, there could be many negative implications for the economy.

“First, Nigeria’s total debt profile has surged by 32.9 per cent to N69 trillion, translating to an increase in debt per capita from N210,227 to N313,409 assuming population size of 220 million. With very little infrastructural development to show for the 96.2 per cent and 310.8 per cent increases in Ways & Means liability and other borrowings respectively in the last eight years, the securitisation approval has just passed on the liability, especially principal payment at maturity, to the young and future generation.

“Second, though the reduced interest payment cost on the Ways & Means liability, now nine per cent as against previous 300 basis points above Monetary Policy Rate, and the three years moratorium window provided in the restructuring terms should reduce cost of debt servicing in the near-term, budget and fiscal deficit sizes may not in any way reduce due to Federal Government’s u-turn on Premium Motor Spirit (PMS) subsidy removal by mid-year. PMS subsidy is estimated to gulp N6.8 trillion in 2023,” Afrinvest stated.

Analysts said the securitisation and continuation of petrol subsidy could create extended apathy from foreign investors and bilateral lenders towards Nigeria in the near-term.

“Hence, should the Federal Government’s projected revenue underperform going forward, as the trend has been historically, deficit plugging would mostly be done through domestic debt issuance, and by extension, crowd out local businesses which are major drivers of Gross Domestic Products (GDP) growth,” Afrinvest concluded.

Cordros Capital said the securitisation of the Ways and Means as part of the balance sheet of the CBN raises a “moral hazard issue”.

Cordros Capital however noted that the conversion would ensure that “the public debt profile reflects its true picture, bringing debt sustainability to the forefront of policymaking and, possibly, ensuring the next administration consciously embark on fiscal consolidation”.

Analysts at Cordros Capital said they were not surprised by the decision to suspend the subsidy removal given how the administration has delayed the decision over the past three years.

“Indeed, we stated in our 2023 fiscal year domestic macroeconomic outlook that our base case scenario is for the incoming administration to embark on partial subsidy removal as it is unlikely the administration follows through with removing the PMS subsidy by June 2023.

“Besides, our view for partial subsidy removal by the incoming administration is premised on the lingering acute domestic price pressures amid the need to avoid public protests at the start of a new administration,” Cordros Capital stated.

President, Capital Market Academics of Nigeria, Professor Uche Uwaleke, said the securitization has many positive parts but called for overhaul of the Ways and Means framework to avoid a reoccurrence of the huge unbudgeted borrowing.

“Be that as it may, it’s important that going forward, adequate safeguards are put in place to ensure that CBN’s Ways and Means are curtailed due to its negative impact on the general price level. The relevant provisions of the CBN Act should clearly stipulate the conditions under which debt limits can be breached, the process which should involve approval by the National Assembly as well as stiff sanctions for breach of the limits provided in the Act without following due process,” Uwaleke said.

According to him, the securitisation of CBN’s Ways and Means, on the positive side, affords the government a breather in terms of debt service burden in view of the fact that repayment of the over N22 trillion will now be spread over 40 years with a three year grace period on the principal sum.

“Similarly, the cost of annual debt service will reduce given the concessional rate of 9.0 per cent as against the current 20.5 per cent interest rate charged on CBN’s Ways and Means. The cumulative effect of these would be a reduction in government budget deficit and freeing up resources that could be applied to more productive areas.

“It’s also important to note that since the securities will only be taken up by the CBN and not the public, the fear that it will crowd out the private sector is no longer there. There’s equally the issue of debt transparency that it engenders. Before now, CBN’s Ways and Means did not form part of the public debt stock reported by the Debt Management Office DMO). Securitisation would entail including it as part of the country’s public debt which makes for transparency,” Uwaleke, a professor of capital market studies and Don at Nassarawa State University, stated.

• Official forex inflows drop to two-year low

Many Nigerian companies are scrambling to obtain foreign loans to create a buffer and bridge acute shortage of foreign exchange (forex), as the illiquidity in the country’s forex market worsens.

Several regulatory and independent operators’ reports reviewed at the weekend indicated increasing preference for foreign-currency denominated loans by companies seeking to stabilise their global supply chains.

This comes against the background that forex inflows into the official Investors and Exporters (I & E) Window dropped by 58.9 per cent from $1.49 billion in March 2023 to $613.80 million, its lowest point since April 2021.

Market pundits were unanimous that recourse to foreign loans was on the increase as a result of the worsening forex shortage, as the Central Bank of Nigeria (CBN) struggles to sustain a managed float system that had fuelled three-digit gap between official and parallel markets rates.

Read Also: CBN guarantees Letters of Credit to foreign banks

Nigerian Breweries (NB) Plc, a subsidiary of Netherlands-based Heineken N.V, has started a process to raise 110 million Euros intercompany loan from Heineken International, a member of the Heineken N.V.

Heineken’s majority holding stake in Nigerian Breweries are held partly by Heineken International, Heineken Brouwerijen BV and Distilled Trading International BV. Heineken holds more than 56 per cent majority equity stake in Nigerian Breweries. The foreign holding has remained fluid due to additional secondary market purchases and dividend conversion in recent period.

FTN Cocoa Processors Plc is also seeking to raise a dollar-denominated loan from its major shareholder and stakeholder, OH Origins Global Commodities Inc.

The Board of Directors of FTN Cocoa has scheduled an extraordinary general meeting to obtain shareholders’ approval to raise interrelated loan of $6.35 million from OH Ecosystems LLC (OH Eco), a member of OH Origins Global Commodities Inc.

Managing Director, APT Securities and Funds, Mallam Kasimu Garba Kurfi said companies were  resorting to foreign loans because there were not enough forex to meet their demand at the official CBN window.

According to him, the forex shortage is affecting companies’ ability to meet essential forex demand llike importation of raw materials for production and machineries for expansion.

“Therefore, they seek foreign loans from parent companies to meet up with demand. That’s also why multinational companies are also converting their dividends into ordinary shares, as demonstrated by MTN Nigeria Communications and other companies,” Kurfi said.

Managing Director, Arthur Steven Asset Management, Mr. Olatunde Amolegbe said the trend should be expected as one of the main advantages of a company having foreign partners or shareholders is its ability to leverage their financial and technical expertise to grow their business.

“And in our current environment of foreign currency scarcity and lopsided pricing regime, it’s natural for such companies to leverage their international connections to obtain the foreign currency required to keep their business running.

“It is clear companies cannot get their requirements from official sources so they are not really left with much choice. This is positive for the local investors in this foreign-affiliated company because their investments also leverage on this unique advantage to thrive while those with only local investors might struggle to get forex for their business,” Amolegbe, a former president of Chartered Institute of Stockbrokers (CIS) said.

Managing Director, Marble Capital Limited, Mr. Akeem Oyewale, said there had been “very few supply of forex to corporate entities from the banks and the CBN”.

“So, for Nigerian firms to meet their forex needs, those that are lucky to have parent or associated firms located offshore, get into arrangements with those foreign parent firms to advance them dollar-denominated loans to enable them get needed raw materials, spares and machineries, to be able to operate and generate revenue in Nigeria,” Oyewale said.

He noted that acute forex shortage could make companies with substantial imported raw materials or needs for machinery to shut  or reduce their capacity production.

Group Executive Director, Investment Banking, Cordros Capital, Mr. Femi Ademola, explained that the scarcity of foreign currencies in Nigeria means that the companies are unable to work optimally due to limited raw materials, as most manufacturing companies import raw materials to manufacture their products and they pay for such  in foreign currencies.

“In the bid the solve this problem, most of the companies with foreign parents and associates are helping out by funding the exports to the Nigerian companies with the provision of foreign-currency denominated loans to the local companies. In some cases, some of the companies also export their finished goods to repay the loans,” Ademola said.

According to him, the recourse to foreign loans appears to be a good temporary measure until there is a stable availability of forex.

Experts said the increasing recourse to foreign loans may have both positive and negative consequences.

“The implication for local investors is that it may open the windows of converting foreign loans into ordinary shares, which will increase the foreign companies’ shareholdings in the Nigerian companies at the detriment of local investors. On the other hand, it gives companies alternative ways of sourcing forex at ease,” Kurfi, a senior investment banker, said.

Ademola noted that, as a temporary measure, the foreign loans also work to support the interest of the domestic investment market.

“As for the local investors, the alternative funding from abroad allows the companies to continue in operation and in effect, pay dividends to all investors.

“In addition, the companies also require working capital that would be sourced locally and in which local investors can participate. That may account for the prevalence of capital raise through commercial papers in recent times. In the past, they have raised long-term capital locally which they used to purchase foreign currency to buy raw materials. Therefore it is expected that, once the sentiments of the foreign currency market improves in the country, they will come back to raising more local investment,” Ademola said.

The board of Nigerian Breweries had indicated that the 110 million Euros loan would be used to settle foreign currency-denominated payment obligations of the company.

According to the company, the loan was necessary at this time to help it address the challenge of forex and pay off some of its overdue foreign currency denominated payables.

The board noted that the loan would ensure that there was no disruption in the company’s operations due to a shortage of imported raw materials as its procurement agent would have stopped its services as a result of the overdue payables.

“Forex loss was a major impact on our profitability in 2022. Access to forex continues to be a major issue for NB Plc. The increase in our trade payables has been driven majorly by outstanding payments to our foreign trade partners due to unavailability of forex at the official windows,” the board had said.

Data obtained from FMDQ Securities Exchange (FMDQ Exchange) showed that total inflows into the CBN-moderated, official Investors & Exporters Window (IEW) declined to its lowest level in nearly two year to $613.80 million in April 2023, trailing the lowest point of $564.20 million recorded in April 2021. A breakdown showed that while inflows from local sources dropped by 55.6 per cent from March 2023 to $533.20 million in April 2023, a two-year low; foreign inflows declined by 72.4 per cent from March 2023 to $80.60 million in April 2023.

The report showed a general decline across local sources between March and April 2023. Non-bank corporates inflows dropped by 54.3 per cent, exporters declined by 34.3 per cent, CBN inflows slumped by 89.9 per cent while individuals sources plummeted by 85.2 per cent.

Foreign portfolio investments (FPIs) in Nigerian equities fell to a record low in March 2023, according to the latest report by the Nigerian Exchange (NGX). Total foreign transactions at the NGX dropped to N9.19 billion in March 2023, a new record low and paltry 6.3 per cent of total transactions. FPIs had traditionally accounted for more than half of transactions at the Nigerian stock market, but have since seen gradual slump in recent years.

The Nation had reported exclusively that Nigeria’s forex reserves had dropped by $1.82 billion in a long-running downtrend over the past four months, with official data indicating that the forex reserves had suffered consecutive declines for the most part of this year.

The forex reserves closed April 2023 at $35.36 billion as against $37.08 billion recorded at the close of 2022. The April 2023 closing position represented the lowest point in recent months.

Analysts were unenthusiastic about the outlook for the nation’s forex reserves, with most experts expecting the reserves to continue deteriorating, a scenario that could worsen the country’s currency risks and delay recovery.

“Over the short-to-medium term, we expect forex liquidity conditions to remain frail in the absence of reforms to attract US dollar inflows into the economy. The low forex liquidity conditions will also be driven by lingering global uncertainties and higher global interest rates, limiting foreign inflows to the economy. Thus, foreign investors will need some convincing actions as regards flexibility and clarity in the forex framework going forward,” Cordros Capital stated in a weekend note.

According to the investment banking group, foreign forex inflows have remained low due to forex liquidity constraints, overvaluation of naira and the absence of significant macroeconomic reforms.

The naira appreciated by 0.2 per cent to N462.23 per dollar at the I & E Window at the weekend. It is however still about N280 gap to forex rate at the popular unofficial market, where forex rate hovers around N740 per dollar. Meanwhile total turnover at the I & E Window dropped by 36.8 per cent last week to $206.79 million, with trades were consummated within the N460.00 and N478.82 per dollar band.

Member of Presidential Economic Advisory Council (PEAC), Mr. Bismarck Rewane, said the outlook for the nation’s forex reserves is negative.

“The external reserve is expected to continue its downward trend in the coming weeks as major sources of forex inflows deteriorate. This would be compounded by an adverse ruling in the ongoing P & ID trial. The $11bn arbitral award accounts for about 30 per cent of gross external reserves,” Rewane stated.

Rewane, Managing Director of Financial Derivatives Company (FDC), said the implication of the declining reserves was likely worsening of the country’s external imbalance and limitation of the Central Bank of Nigeria (CBN)’s supply of foreign exchange to support the naira at the forex market.

He noted that CBN’s inability to meet up the pressure of its managed exchange rate would lead to further depreciation of the naira