Category: Issues

Nigeria’s economy was not insulated from the ravages of the global pandemic which decimated lives and livelihoods across the world. The International Monetary Fund (IMF) says sub-Saharan Africa will grow by 3.4 per cent this year after a two per cent contraction last year. With rising inflation amid static income, tough choices lay ahead to take the economy out of the woods, LUCAS AJANAKU reports.

Mama Joy runs a reatuarant in a busy market in Mushin, a Lagos suburb. Within six months of opening shop, she was able to mobilise enough cash to rent a shop. Business was fine as she enjoyed large patronage by buyers and sellers in the market.

When COVID-19 broke out last year and led to inevitable lockdown of the economy, she closed shop. When the lockdown was eased and she attempted to stage a come back, she couldn’t because of factors such as consistent inflation. “When I tried to launch a come back to the business, I discovered that the price of food items kept skyrocketing. I tried to manage but it was difficult to breakeven, not to talk of making profit. I decided stop the business because I will be slaving for nothing,” she said.

Her case is but one out of the several millions that have been rendered jobless by the rampants of a virus on a weak economy.

Nigeria is the largest economy on the continent but the Nigeria Bureau of Statistics (NBS) report showed that  one in three people in the economy were unemployed.

It has also announced that food inflation has accelerated at the highest pace in 15 years, compounding the misery of many households.

“I have tried to adjust my budget as much as possible to live within my income but it has not been easy. I have three kids in school. It’s been hell trying to ensure they eat one good meal a day,” Peter Onyeka, a 51-year-old electronics seller in Ayobo, a Lagos suburb, said.

According to a COVID-19 impact survey published by NBS last month, the coronavirus pandemic has robbed 70 per centof Nigerians of one form of income or the other.

Food inflation rose to 22.95 per cent in March, caused by wide-ranging price increases across items such as cereals, yam, meat, fish and fruits. The soaring prices have been in part blamed on insurgency, banditry, cattle rustling which have taken huge toll on food security.

The unrest, combined with the more than decade-long Boko Haram insurgency in the north, a weakening currency and higher fuel prices have also contributed to rising food prices, according to SBM Intelligence, a Nigerian research firm.

According to FSDH Capital Limited, Nigeria has a major revenue challenge. Despite the increase in crude oil price early this year, external reserves continue to dip, mainly due to stagnant crude oil production.

This means the country will struggle to take advantage of higher oil prices in the early part of this year, until the Organisation of Petroleum Exporting Countries (OPEC) relaxes production quotas.

The implication is that oil revenue will continue to be challenged and could fall below its projection of N2.4 trillion in the year.

Non-oil revenue will be higher than the actual N2.42 trillion realised last year, but lower than the projected N6 trillion. Structural challenges, a large informal economy and tax compliance issues, are factors that will limit growth of non-oil revenue.

Experts have recommended some policy directions to bail out the economy from the woods. Some of such policies are economic diversification and full deregulation of the downstream oil sector of the economy.

While the first option has been largely embraced by the Federal Government, the second has remained hanging and has put the Federal Government at the crossroads and brought forth the Shakespearean question in Hamlet: “To be or not to be…” The Federal Government, however, appears ready “to take arms against a sea of troubles” as it has indicated its desire to fully deregulate the downstream oil sector this year.

Both the Minister of State (Petroleum) Timipre Sylva and the Group  Managing Director (GMD), Nigerian National Petroleum Corporation (NNPC), Mele Kyari, are on the same page on the issue.

“We have been talking about deregulation for decades. Unfortunately, we have not succeeded. We have succeeded in deregulating some products,” the minister had said.

In what appeared like testing the waters, the  Petroleum Products Pricing Regulatory Agency (PPPRA) had released a template increasing petrol price to N212 per litre. The template, which was like a red rag to a bull, was later deleted as public outcry mounted.

Kyari said NNPC could no longer bear the burden of underpriced sale of petrol. He said the market price needed to be implemented.

He said NNPC pays between N100billion and N120 billion a month to keep the pump price at the current levels.

He said: “The price could have been anywhere between N211 and N234 to the litre. The meaning of this is that consumers are not paying for the full value of the PMS that we are consuming and, therefore, someone is paying that cost.

“As we speak, the difference is being carried in the books of NNPC and I can confirm to you that NNPC may no longer be in a position to carry that burden.”

Kyari said the government was working to deepen the auto-gas programme, which will serve as alternative to petrol.

“That is why early last year if you recall, the full deregulation of the PMS market was announced and we have followed this through until we got to September when prices shifted to N145.

“As we speak, I will not say we are in a subsidy regime but we are in a situation where we are trying to exit this subsidy or underpriced sale of PMS until we get in terms with the full value of the product in the market.

“Today, PMS sells across our borders anywhere above N300 at any of our neighbours. And in some places, it is up to N500 and N550 to the litre.

“In some countries, the Nigerian fuel is their primary fuel.We are supplying almost everybody in the West African region, so it is very difficult to continue this because we have our own issues and that is why the eventual exit from this is completely inevitable.

“When that will happen, I do not know. But I know that engagements are going on. The government is very concerned about the natural impact of price increases on transportation and other consumer segments of our society and as soon as those engagements are taken to logical conclusion, I am sure that the market price of PMS will be allowed to play at the right time.”

Stakeholders’ views

The government’s body language has elicited mixed reactions from stakeholders in the industry.

The Major Marketers Association of Nigeria (MOMAN) has welcomed the resolve of the government to completely deregulate the industry.

Its President, Tunji Oyebanji, said deregulation as understood, is a situation where the forces of demand and supply are allowed to determine the price at which a product would be sold. It is not a situation where an agency of the government sits somewhere and fixes the price of the product.

He said it doesn’t make sense for the government to go borrow money and instead of using such money to provide the basic infrastructure that will drive the economy, it will be used to subsidise domestic fuel consumption. He said the organised labour that has been on the vanguard of stiff opposition to the reform of the downstream oil sector must note that it is helping to destroy the system.

He flayed the attitude of Nigerians, who he said, never wanted to pay for fuel. According to him, in Ghana, a litre of fuel costs N400 inclusive of tax. He said the impression is created that it is only in this country that people are suffering. “we must endeavoiur to adjust our life style. That is what people in other countries do,” he said.

The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, said the deregulation conundrum is a major cause for concern.  “There are a number of critical issues that need to be aligned. We have the huge economic cost of petrol subsidy and the inherent huge fiscal leakages which are clearly unsustainable. There is the social cost of the possible increase in petrol prices and the worryabout possible backlash. There is the adverse investment effect on the downstream sector resulting from policy uncertainty and inconsistencies.”

He said private investors will be reluctant to invest in petroleum refining if the subsidy regime persists.

“The reality is that the deregulation of the petroleum downstream sector is inevitable if the economy must progress and put an end to the corruption that comes with the subsidy regime.  But the policy transition needs to be strategically worked out,” Yusuf said.

Another marketing body, Independent Oil Marketers Association of Nigeria (IPMAN), also agreed with him.

Its Vice President, Alhaji Abubakar Maigandi, said the group is in support of the government in view of the realities on ground.

The National Union of Petroleum and Natural Gas workers of Nigeria (NUPENG) is, however,  against the deregulation policy that is import-dependent.

Its Southwest Chairman, Tayo Aboyeji, said the government ought to have fixed the local refineries and encourage others  to be streamed before contemplating full deregulation of the sector.

Aboyeji insisted that deregulation is not the answer.

He said: “You cannot deregulate while you rely on importation. An import-driven deregulation will see the price skyrocket. Look at diesel. The price of diesel has been on the rise. If the refineries are working and we have products in-country, the price of petrol will not increase. If the Federal Government goes ahead to fully deregulate the downstream oil sector, there will be crisis.”

The Manufacturers Association of Nigeria (MAN) has also thrown its weight behind the move.

Its former Acting Director-General, Mr. Ambrose Oruche, told The Nation that the era of fuel subsidy bred corruption, as the subsidy hardly got to the intended citizens, but to those he described as “briefcase billionaires.”

Oruche, however, noted that the review in fuel price would further spike inflationary trend. According to him, the country is battling cost-push inflation and the hike in fuel prices would further affect Nigerians’ cost of living. He also said fuel price increases arising from deregulation definitely has implications on businesses, especially small businesses that depend largely on petrol to power their generators.

He said, for instance, that it will affect the cost of running businesses because office cars have to be fuelled at a high cost. He also said the development has no impact on big businesses that use AGO to power their electricity, as “They are already accessing AGO at a deregulated price, at a very high price.”

 

Cushion for pains

The impact of full deregulation is not lost on the stakeholders. Petrol price will, inevitably, go up in a fragile economy with weak infrastructure, spiraling inflation, food insecurity as a result of banditry and a growing army of jobless youths.

Oyebanji said the Federal Government has promised to intervene in providing and promoting alternative clean energy to the citizens. He said the government is exploring Compressed Natural Gas (CNG) for cars.

He however said the challenge in this alternative is the speed. For one, there are no ubiquitous conversion stations in the country and for another, there are also not enough CNG filling stations too.

According to the MOMAN chief, a typical conversion plant could do only between 10 and 15 cars per day, a figure that is a far cry when compared with the millions of cars on the roads in the country.

He said for the government to attract investment into the conversion business, cash must be involved to support the investors.

Maigandi said IPMAN would encourage the Federal Government to seek alternative fuel for oiling the engine of the economy.

He said the CNG alternative is good, adding that the government has agreed to extend facilities to marketers to ensure its success.

According to him, government officials are already taking census of the filling stations in the country to supply CNG dispensing equipment and conversion tools.

He said the government has all the capacity to make it work if it is determined to do so.

“We marketers are standing in support of the Federal Government hoping it will however not bring hardships on the common man,” he said.

Aboyeji disagrees with Yusuf that deregulation will spur foreign investment in the downatream oil sector.  He said Dangote is not a foreign investor.

The government, he said, owed the citizens the responsibility to explain why the local refineries have not been working, refining zero fuel yet incurring billions of debts in running cost.

The LCCI chief said there could be a social pricing window in the interim where petroleum products could be sold at a subsidised price.  “NNPC stations could be so designated since they exist in all parts of the country. The government will have to provide a limited budget for this.The other players in the sector should, thereafter, be allowed to buy and sell according to the dictates of the market. We need to free the sector from the current suffocating regulatory framework. The economy has suffered major setbacks as a result of the over regulation of the sector,” he said.

Oruche said the government should invest more in efficient power generation and distribution to ensure electricity supply for at least, 20 hours a day.

He said: “That is a way to reduce the dependence on PMS to power generators, because we are depending on PMS , making PMS a premium because many of us depend on it to power our small generators for our households and businesses.

“But when electricity is there, we don’t need to buy PMS. PMS is now left for those that want to buy for their cars.”

Oruche also urged government to find a way of compensating small businesses that are faced with the price increase through tax rebate or grants in order to remain in business.

 

For nearly six years, the Central Bank of Nigeria (CBN) has  been under pressure to close gaps between the official and parallel market exchange rates. Foreign investors, multilateral institutions – World Bank and International Monetary Fund (IMF) – have continually asked the apex bank to close the gap between official and parallel market exchange rates to quicken growth and save the naira. The CBN has, however, implemented several measures to harmonise diverse rates to promote exchange rates stability, writes COLLINS NWEZE.

 

The naira has for decades  come under pressure sending shockwaves to the people and economy. With crude oil still the mainstay of the nation’s economy, oil price volatility always translates to exchange crisis for the country.

For those in search of dollars for imports, payment of school fees or medical bills abroad, the pressure of sourcing the greenback persists.

The Central Bank of Nigeria (CBN) has, however, assured that it will continue to meet all ‘legitimate’ foreign exchange (forex) demands.

With over $2 billion forex backlog and new demands increasing by the day, keeping the naira stable would require extra-ordinary measures.

But the apex regulator said it has kept its eyes on the local currency, taking several steps to keep it stable.

The battle to save the naira has led to several devaluations by the apex bank, some announced and others implemented at the official market, without a word from the regulator.

The exchange rate in the Investors and Exporters Window (I&E Window) also called the Nigerian Autonomous Foreign Exchange -NAFEX has remained at N411/US$1 since February. The CBN Governor, Godwin Emefiele, gave credence to the new NAFEX rate when he said at a meeting in Lagos that the rate has moved to N410/$1.

Over three weeks ago, the CBN introduced a ‘’Five Naira for Dollar Scheme”, for remittances from the diaspora, in what is being seen by markets forces as effectively a further official devaluation of the naira.

In a circular to deposit money banks and International Money Transfer Operators (IMTOs), the CBN said recipients of diaspora remittances through approved IMTOs and commercial banks will receive an extra N5 for every dollar received as a remittance inflow. This means that a dollar fetching N410 at the official rate will now pay N416.

But the unannounced devaluation was not always the case with Nigeria. Last year,  the CBN devalued the naira by N6, a move announced through a weekly exchange rate for disbursement of proceeds of IMTOs released on November 30.

The CBN had directed authorised dealers, Bureau De Change (BDC) operators and service providers were advised to add N6 across all rates.

The regulator pegged IMTOs sale of dollar to banks at N388/$1 from the previous N382/$1; banks sale of dollar to CBN was at N389/$1, as against previous rate of N383/$1 while CBN sale of dollar to BDCs was pegged at N390/$1, as against previous rate of N384/$1.

Head of Research at Coronation Asset Management, Guy Czartoryski, observed the new trend and declared that unscheduled crawling-peg devaluations may be the norm this year and could eventually close the gap between the NAFEX and parallel market rates, which are approximately 20 per cent apart.

Likewise, Forex Trading Associate (AZA), a global forex dealer, Oghenefejiro Eduviere, said since February 26, that the official exchange rate has stood around N411/$1, a 7.6 per cent devaluation from N379/$1 previously published on the CBN’s website.

For him, further devaluation leading to a convergence of the official and parallel market exchange rates could encourage the World Bank in its discussions with the Federal Government over withheld loan disbursement.

The World Bank is withholding a $1.5 billion loan until the Federal Government implements currency reforms, that included exchange rate harmonisation.

Eduviere said a liquidity crisis in the foreign exchange (forex)market was highlighted by a $1.86 billion decline in external reserves over the past seven weeks to $34.66 billion on March 10. The reduction in reserves occurred despite the rising trend in the crude oil prices, with Nigeria’s Bonny Light jumping to $63.96 per barrel on March 19 from $46.67 per barrel on November 30.

IMF’s views on the naira

The International Monetary Fund (IMF) is also seeking further devaluation of the naira, which it said was overvalued by  18.5 per cent.

The IMF, therefore, called on the CBN to establish a more transparent and market-based exchange rate policy to instill confidence in the market.

The advice was contained in IMF Article IV Consultation with Nigeria which was released in February.

The IMF Executive Board recommended establishing a market-clearing unified exchange rate with the near-term focus on allowing greater flexibility and removing the backlog of requests for foreign exchange.

For the Fund, Nigeria’s  long-running policy of a stable exchange rate has produced limited benefits.

“Staff’s latest estimates suggest an overvaluation of the real effective exchange rate (applied on the current level of the official exchange rate) of 18.5 per cent, with the external position assessed as substantially weaker than what is consistent with fundamentals and desirable policy settings,” it said.

The Fund said clear exchange rate policy is needed to instill near-term confidence and bring long- term gains.

 

WTO DG speaks

World Trade Organisation (WTO) Director-General Ngozi Okonjo-Iweala said the organisation was concerned about how Nigeria was managing its foreign exchange.

“The WTO is concerned about foreign exchange, the way we manage it and how we use it to support manufacturing, export and import in our economy, “ Okonjo-Iweala said after a meeting with President Muhammadu Buhari in Abuja. She called for exchange rate harmonisation to boost Nigeria’s foreign trade.

Several foreign exchange rules were introduced recently by the CBN to attract foreign capital and keep the naira stable.

The CBN, in February 2020, introduced new domiciliary account rules in which it directed that customers can deposit dollar into their domiciliary accounts but are not allowed to transfer it to another party.

Another policy encourages foreign portfolio investors to invest in high-yielding Open Market Operation (OMO) bills at 14 per cent while local investors are restricted. The OMO Bills are now being phased out, after the CBN complained that investors were taking huge returns in dollars at the expense of the economy.

Besides, the apex bank restricted importers of milk from accessing foreign exchange from the official market. It reduced the importation of milk and other dairy products to six firms- FrieslandCampina WAMCO Nigeria; Chi Limited; TG Arla Dairy Products Limited; Promasidor Nigeria Limited; Nestle Nigeria PLC (MSK only), and Integrated Dairies Limited. This WTO is also working on reversing this policy, which it said, does not give room for fair trade.

For Czartoryski and other market analysts, rate convergence might unlock some multilateral budget support from the World Bank and others that was said to be conditional upon unspecified movement on exchange-rate policy. On the macro side, the adjustment gives a boost to non-oil exports and to inflows converted into naira at the NAFEX window.

Czartoryski said: “We do not expect to see a crawling peg regime announced, but we do expect the CBN to continue with such step-changes in Naira/$ exchange rates during 2021. This way the CBN would be able to gradually narrow the gap between, say, the NAFEX Window at N410/$1 and the cash parallel exchange rate, reported at N485.00/US$)”.

Reserves respond to ‘Naira for Dollar’ policy 

The ‘Naira for Dollar’ policy has also led to positive accretion to the foreign reserves one month after take off.

The foreign reserves, on April 1, stood at $34.85 billion, representing $404 million increase compared to $34.41 billion on March 11.

The uptick in reserves has been attributed to CBN’s ‘Naira for Dollar’ policy, which has seen dollar inflows pass through commercial banks, instead of unofficial channels.

Also helping reserves accretion is the continued rise in benchmark Brent crude oil price, which stood at $63.29 per barrel as at April 8, representing about $23.29 above the $40 per barrel benchmark for 2021 budget.

According to Emefiele, the ‘Naira for Dollar’ policy, gives N5 rebate for every $1 sent in by Nigerians in diaspora, which is paid to the account of the beneficiaries, following receipt of the remittance inflows.

The CBN had promised that the new policy would provide Nigerians in the Diaspora with cheaper and more convenient ways of sending remittances in.

Defending the dollar policy, Emefiele said the move was also to increase the transparency of remittance inflows and reducing rent-seeking activities. He expressed optimism that the new policy measure will encourage banks and financial institutions to develop products and investments vehicles, geared towards attracting investments from Nigerians in the diaspora.

Reiterating the provision a new circular on remittances, the CBN boss said the bank introduced the rebate of N5 for every $1 of fund remitted to Nigeria, through IMTOs licensed by the Central Bank to incentivise the process of remittance.

He emphasised that the new measure would help to make the process of sending remittance through formal bank channels cheaper and more convenient for Nigerians in the diaspora.

Eduviere said naira would remain stable on the parallel market, hovering around the N480 to N490 level, as the Central Bank of Nigeria’s ’N5 for $1′ incentive scheme encourages forex flows to go through banks.

“We see trading on the Investors and Exporters (I&E) Forex window extending depreciation towards N435 in the short term,” he said in emailed notes to investors.

On the foreign reserves, Fitch Ratings, a global rating agency  predicted that Nigeria’s external reserves would rise to $42 billion by year-end.

In a report entitled, “Depreciatory pressures on key Sub-Saharan African currencies to lessen,” Fitch Ratings had hinged the forecast on its expectation that Brent crude would average $53 per barrel, compared to the $43.1 per barrel recorded last year.

Moreover, the agency anticipated that the CBN would allow the official naira exchange rate to depreciate further in 2021, notwithstanding improved terms of trade and foreign exchange reserves.

“Given rising oil prices in 2021, we expect forex reserves to rise to an average of around $42 billion in 2021 (around eight months of import cover), compared to $36 billion in 2020.

“However, this will not negate the impact of persistent depreciatory pressures on the naira, notably as a result of rising dollar demand driven by the domestic economic recovery,” it stated.

 

The aftershock of COVID-19 pandemic and decline in oil prices may have prompted a strategic rethink in favour of optimising Nigeria’s mineral value chain to put the economy back on track post-COVID-19. Minister of Mines and Steel Development Olamilekan Adegbite is leading the charge to implement a N6 billion project for the establishment of mineral processing clusters in the six geo-political zones, among other initiatives. This may have positioned mining as the focus of the renewed push to reboot the economy. Assistant Editor CHIKODI OKEREOCHA reports.

 

The economy’s vulnerability has never been this evident. Since the outbreak of the Covid-19 pandemic and the incalculable damage it inflicted on the global economy, including Nigeria’s, it’s been a tale of woes for Africa’s largest economy and, indeed, other oil producing countries.

As if the disruption in business, economic and financial activities by the pandemic was not enough trouble for Nigeria’s already fragile economy, the economy also had to contend with the decline in global oil prices, because of its over-dependence on proceeds from oil and gas.

But an ambitious and strategic effort to push back the impact of both crises and also strengthen the economy’s resilience against future shocks is on course. At the core of the effort is unlocking opportunities in mineral processing to counter the fallout of the coronavirus pandemic and also build sufficient bulwark against potential future disruptions.

Specifically, this involves the implementation of the Federal Government’s N6 billion project for the establishment of artisanal and small-scale mineral processing clusters in the six geopolitical zones of the country, according to the Minister of Mines and Steel Development, Olamilekan Adegbite, who is leading the charge.

Adegbite explained that the establishment of the mineral processing clusters, which is under the Nigeria Economic Sustainability Plan, entailed a kaolin cluster in Bauchi for the Northeast region, to stem the importation of kaolin by the pharmaceutical and paint industry; and a gold cluster in Kano State for the Northwest region, to stem the export of unprocessed gold.

There is also another gold cluster in Kogi State for the Northcentral; a gemstones cluster in Oyo State for the Southwest region, to stem the export of unprocessed gemstones; barite cluster in Cross River State for the Southsouth region, to halt the importation of barite by the oil industry; and a lead/zinc cluster in Ebonyi State for the Southeast region.

Adegbite said in each cluster, the government would formalise and build the capacity of artisanal and smallscale miners and Small and Medium sized Enterprises (SMEs).The government will also facilitate their access to mining and processing equipment, leasing facilities and reliable markets, as well as provide basic infrastructure and other amenities.

Giving further details of the Federal Government’s renewed effort, through the ministry, to leverage the mining sector’s robust potential to diversify the economy, create jobs and increase government revenue, Adegbite said with Bauchi very rich in kaolin, which is used in the pharmaceutical and paint industry, the government, accordingly, was building a Kaolin processing plant in Bauchi,

He said the plant could process kaolin so that Nigeria would not need to import industrial kaolin again, thus saving the country huge foreign exchange. Same for Kogi, where a modern gold smelting plant would be built to help artisanal miners stop their crude method of smelting which usually leads to environmental disaster and poisoning of water.

Hopefully, the establishment of mineral processing clusters in the six geo-political zones will bring back the old glory of Kano as a major gold trading hub. Before now, Kano had been known for gold trade along the international gold trade route in West Africa. Today, a lot of the gold in that ancient city are being smuggled out and the country is losing value to Dubai, which is usually the destination of the smuggled gold.

But there is a concerted effort by the ministry to push back gold smuggling and return the glory of Kano as a gold trading hub. “What we are doing in Kano is to have people in the market who can turn the gold to products like jewelry, thereby adding value. So, we are training people for that in another programme of the ministry,” Adegbite said.

Similarly, in Ibadan, where there is an existing informal market for gemstone, government is building a new gem stone market there and also formalising the market so that the market takes plasce in a more secure and serene environment. This, according to Adegbite, will enable the government get its revenue from the gem stone trade, even as it also adds value by training people how to cut and polish gem stones.

The Minister also said lead found in Ebonyi State is probably one of the purest in the world. The snag, however, is that it is exported in raw form with impurities. “So, what we want to do is to build a lead processing plant in Ebonyi so that what we will be exporting from Ebonyi is lead ingot, meaning that all impurities have been removed, meaning it is 100 per cent lead,” he said.

The Federal Government, The Nation learnt, is also looking inward to save huge foreign exchange spent in the importation of about $300 million worth of barite yearly. And the Southsouth region, precisely Cross River State, is bountifully nature-endowed with huge deposit of barite to help achieve this feat.

Already, the Federal Government put the right foot forward first by ensuring that the barite produced locally meets internationally acceptable standard so that oil firms would stop importing barite.

Adegbite said the ministry was working on raising the quality of barite produced in the country to internationally acceptable standard which is known as American Petroleum Institute (API) standard.

A consultant had been contracted to help raise standard in the local production of barite to ensure that the oil industry players began to use barite produced in Nigeria as against importing from other countries.  The Minister noted that there was ample opportunity for investors in the barite segment of the sector.

“Barite is a critical weighting material in drilling fluids used in oil industry. We have a lot of barite, but the issue is that it is not produced to API standards. However, we are putting a system in place which would be ready to launch in about July.

“We have got the millers who can produce barite to API standard. Hence we will be able to compete with foreign once and it would save Nigeria a lot of foreign exchange in import substitution,” he said, in response to the enquiry of the Australian High Commissioner to Nigeria, John Donnelly, who visited the ministry on Tuesday, last week.

The Australian envoy was at the ministry to express his country’s willingness to work with Nigeria to develop the mining sector. A statement made available to The Nation, after the meeting, quoted the minister as informing Donnelly that the ministry had also been working with artisanal and small-scale miners to create an enabling environment for them to operate in the formal sector.

As part of the formalisation, incentives such as training and easy access to funds are being provided for artisanal and small-scale miners. “We are bringing artisanal miners together and make them to come into a formal arrangement. We have a department in the ministry dedicated to artisanal miners that provides various incentives so that they could join the formal sector,” Adegbite said

The minister explained that the more focused and coordinated activities now taking place in the mining sector were responses to government’s search for a sector with the potential to help the economy recover post COVID-19.

“During the pandemic, government got together and said what can we do in the sector as a post-COVID-19 palliative for the people? So, we (the ministry) submitted a proposal and the money has been released for a mining regional project in the six geo-political zones,” Adegbite said.

He, however, clarified that in all these, the Federal Government, through the ministry, was partnering  the private sector, which means that the government will not be running those businesses that will spring up from the mineral processing clusters in the six geo-political zones.

“With support from President Muhammadu Buhari’s administration and his ethos on diversification, job creation and sustainable revenue generation, I am confident that we are on track to meeting our ambition to build Nigeria’s economic resilience through economic diversification and export-oriented industrialisation, Adegbite said.

The Director-General, Mining Cadastre Office (MCO), Obadiah Nkom, could not agree less. He said the idea to situate a mining project in each of the six regions was, indeed “a good and welcomed one.”

“This would, indeed, create lots of jobs and also make the business environment friendlier for the artisanal miners as infrastructure corridors would be built along the regional projects. The projects would boost the economy, help many small artisanal miners,” Nkom told The Nation.

The MCO DG said, for instance, that the gold system that the minister is working upon would further unleash funds into the economy, as people would be able to use their gold to secure funds to run businesses. “The multiplier effect on the economy would be tremendous,” he stated.

Nkom expressed his belief that the sector, and by extension, the economy would bounce back from the effect of the COVID-19 pandemic due to the measures and policies being vigorously pursued by the ministry.

The recourse to the establishment of mineral processing clusters in the six geo-political zones is one leg of the rescue effort for the economy post COVID-19. The other plank is the aggressive pursuit of reforms in the mining sector aimed at opening the floodgate of investments into the economy.

Some of the reforms that may have raised hopes of rebooting the economy via mining include the building of a strong geosciences base to drive investment into exploration and mining industries through improvements in the quality and breadth of geo-scientific data; and data gathering and analysis through the Nigeria Minerals Exploration Project (NIMEP).

The Project, The Nation learnt, has engaged high calibre local and international professionals to conduct exploration in brown and green fields for gold, lead, zinc, tantalite, lithium, and iron ore. This will generate credible geoscience data capable of giving confidence to investors and prospective investors in the Nigeria minerals sector.

Other reforms include improvement of regulatory management and enforcement; strengthening critical sector institutions and governance; improvement of the MCO and field operations by investing in information technology and upgrading and automating the MCO mineral title administration and processes.

MCO’s automation will facilitate the online application, processing, and management of mineral titles. Sufficient capacity has also been built to manage environmental and social impacts from mining and also investing in improving environmental surveillance and green mining practices to ensure minimum damage to the environment.

COVID-19 induced recession aided by international spot oil prices dip in 2020 have left the Central Bank of Nigeria (CBN) and its leadership with no choice than to go the extra mile to nip future occurrence in the bud, reports Group Business Editor, SIMEON EBULU

 

The announcement in February by the National Bureau of Statistics (NBS) that Nigeria’s economy was out of recession turned out to be one of the cheering news that dominated media platforms, this first quarter of 2021.

The country’s untoward experience during the period it slipped into recession, largely for the infamous COVID-19 pandemic and the drop, both in crude oil production and international spot market oil prices, put a serious strain on the fiscal and monetary authorities, tasking them to explore avenues to wrestle the economy out of the recession mode.

In the period that the lockdown lasted, virtually all citizens and governments at the various levels lived on reserves, with tax payments and collections at their lowest levels. It was a period that left virtually all institutions and departments of government, especially the revenue generating ones in a quandary, as the pandemic brought in its wake unbudgeted huge expenses.

It foisted on the government the challenge of how to fund and tackle the attendant health needs and medicaments required to mitigate its ravaging infections that resulted in aggravated hospitalisation and consequential deaths that followed across the country. Devastating as the pandemic was and still is, the Federal Government, through the CBN, stayed resolute and unrelenting in churning out policies that in the main have proved resilient and that have effectively turned the tide, pulling the economy back on course and on the growth trajectory once again.

Besides the rebound in oil price fixtures in the international spot market which partly helped flipped the direction of the nation’s economy on the growth trajectory, the CBN, under its various intervention programmes, has largely contributed to the feat that resulted in turning the fortunes of the economy from negative to positive growth thereby ending the recession.

The NBS validated this in its February 18 report, which said Nigeria posted a real Gross Domestic Product (GDP) growth rate of 0.11 per cent for the fourth quarter of 2020, which means that the country just about slipped out of recession. This was Nigeria’s first positive GDP growth rate following two consecutive quarters of contraction.

Slim as the growth to the GDP was (0.11 per cent), the news that aggregate production of goods and services has started to look north, was all it takes to conclude that the measures so far taken by the fiscal and monetary authorities have started yielding results. The growth rate in terms of contribution to GDP, revealed that Agriculture, where CBN has consistently lent its support through the Anchor Borrowers Programme, for example,  among others, grew by 3.4 per cent,  In terms of contribution to GDP, Agriculture, Industries, and Services comprised 26.95 per cent, 18.77 per cent, and 54.28 per cent.

 

 Intervention schemes

The CBN recently launched a total of eleven intervention schemes aimed at increasing access to finance by non-interest financial institutions. A circular signed by the CBN’s  Director, Financial Policy and Regulation Department, Kevin Amugo, said the overall objective of these interventions is to promote financial inclusion in the country.

Among the various schemes are the Non-Interest Guidelines for Accelerated Agriculture Development Scheme (AADS),  Textile Sector and for the operation of the Agri-business, Small and Medium Enterprise Investment Scheme (AGSMEIS), as well as for Non-oil Export Stimulation Facility and Anchor Borrowers’ Programme.

There is one for Real Sector Support Facility and another for the operation of the Credit Support for the Healthcare Sector. These intervention schemes have been designed to meet specific purposes and objectives.

For example, the AADS, is aimed at reducing unemployment in Nigeria by funding agriculture production initiatives that will engage as many as 370,000 youths over the next three years, while the intervention in Textile Sector is intended to resuscitate Nigeria’s textiles industry by providing a N50 billion special mechanism for restructuring of existing facilities and provision of further facilities for textile companies with genuine need for intervention.

The CBN has further assured that the intervention schemes will continue to focus on enhanced credit delivery to critical sectors, with a view to enhancing productivity and stimulate the real sector of the economy. Driven by the need and urgency required to pull the economy out of the wood and keep if afloat, the CBN pushed through a range of critical sector interventions, including a N1 trillion COVID-19 intervention fund for manufacturers.

CBN Governor, Godwin Emefiele, who made this known about three weeks ago, said N400 billion has already been disbursed to beneficiaries, among them, 76 manufacturers, adding that the fund has increased activity in the manufacturing sector, which he noted, has started to thrive. Emefiele noted that the manufacturing industry has been a key focus of the efforts by the monetary and fiscal authorities towards driving recovery of the economy, following the downturn in the first half of 2020, as a result of the pandemic.

He said:”At the Central Bank of Nigeria, we set up a N1 trillion facility in April 2020 for the growth and expansion of manufacturing firms in Nigeria. So far close to N400 billion has been disbursed to 76 manufacturing firms, which would boost local manufacturing across critical sectors over the next few years,” pointing out that the CBN’s efforts have aided the recovery of the manufacturing sector as reflected in the Purchasing Managers Index which shows that the index on manufacturing activities rose from a low of 42.4 points in May 2020 to 48.7 points in February 2021.

The CBN chief also alluded to the multiplier effects of the intervention with respect to the Small and Medium Enterprises. As he put it: “The impact of a manufacturing plant also goes beyond its immediate environment, as it also enables the growth of SMEs that work to meet the needs of the manufacturing plants and the staff. This is in addition to the skills transfer gains that could be made when our people are able to acquire knowledge on new technological skills.”

Aside manufacturing, the CBN also increased by 100 per cent, the  N150 billion  Targeted Credit Facility (TCF) being accessed by households and small and medium enterprises affected by the pandemic to N300 billion. The expansion of the credit line, the apex bank said, was to enable it reach more households and small businesses raved by pandemic.

The TCF funds  are already being disbursed  through the NIRSAL Microfinance Bank. Emefiele said about N149.21 billion of the fund has been disbursed to 316,869 beneficiaries, stating that the TCF was designed to cushion the adverse effects of COVID-19 on households and small and medium businesses. The scheme was to support households and small and medium businesses to expand their productive capacity through equipment upgrade, research and development.

The CBN chief said the modality for the loan disbursements was based on the activity, cash flow and industry size of the beneficiaries. Each eligible small business , he said, can receive a maximum of N25 million while qualified households can access a maximum of N3 million each, adding that the fund was jacked up  ” to accommodate many more beneficiaries and boost consumer expenditure which should positively impact output growth.

Given the impact on COVID-19 on key economic variables earlier mentioned, the fiscal and monetary authorities took unprecedented measures to prevent any long-term damage to the growth prospects of our economy,” he said.

In addition, Emefiele said there is  one-year extension of the moratorium on principal repayments for CBN intervention facilities and regulatory forbearance was granted to banks to restructure loans given to sectors that were severely affected by the pandemic. He said the CBN has also strengthened the Loan-To-Deposit Ratio policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers. In this regard, total gross credit rose by over 21 per cent over the past year from N15.5 trillion to N19.54 trillion.

 

Creation of N15tr Infrastructure Company

The establishment of the N15 trillion Infrastructure Company (INFRA-CO), is another landmark initiative of the CBN aimed at turning the economy around from its bashing by the ripple negative effects of the pandemic. The Infra-Co vehicle would enable the use of private and public capital to support infrastructure investment expected to have  multiplier effects on growth across critical sectors.

The Infra-Co which is billed  for take-off in the second quarter of this year, has a combined debt and equity  capital of N15 trillion, and will be managed by an independent infrastructure fund manager. The dedicated privately-managed infrastructure and industrial vehicle will harness opportunities for Nigeria’s infrastructure development by originating, structuring, executing and managing end-to-end bankable projects in that space. Besides the CBN, its other promoters include the Africa Finance Corporation (AFC) and the Nigeria Sovereign Investment Authority (NSIA).

The receipt of final approvals for the conversion of the 60-year-old Nigerian Stock Exchange (NSE) to a public limited liability company ushers in a new horizon for the capital markets and the economy. In this report, Deputy Group Business Editor, Taofik Salako, examines the journey to demutualisation and underlying details that will shape the markets

After more than three decades of operating as a mutual, member-owned, not-for-profit entity, the Nigerian Stock Exchange (NSE) last week received final approvals to demutualise, and become a profit-making, public limited liability company with clearly defined shareholdings and shareholders.

Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC) and the apex corporate registry and regulator, Corporate Affairs Commission (CAC) gave the final approvals for the conversion, otherwise known as demutualisation.

The approvals brought to a momentous end a long journey of nearly two decades, which started in 2002 when the council of the NSE gave ‘approval-in-principle’ for demutualisation. In March 2017, members passed crucial resolutions that authorised the council and management to proceed with the process of demutualisation of the Exchange. The process, through twists and turns, slowly gathered momentum and picked up dramatically with the signing of the Demutualisation of the Nigerian Stock Exchange Bill into law in August 2018. In December 2019, SEC in a “No Objection letter” gave consent to the NSE to hold the court-ordered meeting (COM) and extra-ordinary general meeting (EGM) in furtherance of the demutualisation.

Amid the COVID-19 pandemic, the NSE trudged on, sustaining market activities and the demutualisation process. In May 2020, the Federal High Court (FHC) sanctioned the scheme of arrangement for the conversion after shareholders had at the COM and EGM in March 2020 approved the scheme of arrangement and major changes in the organisational structures of the post-demutualisation NSE. In November 2020, at the 59th Annual General Meeting (AGM) of the NSE, members voted for the listing of the NGX Group on the NGX Limited upon the completion of the demutualisation. The emergent NGX Group will be listed by way of introduction, paving the way for members of the Exchange to unlock values and for members of the general investing public to buy the shares and become co-owners of the Exchange.

Meanwhile, pending the listing on NGX Limited, shareholders of NGX Group can trade their shares through bilateral trades in line with extant rules and regulations at the capital market.

Past as the new compass

The demutualisation literally brought the Exchange to the full cycle of its history. The NSE was established as the Lagos Stock Exchange (LSE) on September 15, 1960 under the provisions of the Companies Ordinance 1922, with a share capital of £5,000 divided into 500 ordinary shares of £10 each. At incorporation, each of the original subscribers subscribed to five shares in the Exchange.

Subscribers at incorporation included C. T. Bowring & Co. (Nigeria) Limited, Senator  Theophilus Adebayo Doherty, John Holt Nigeria Limited, The Investment Company of Nigeria Limited, Sir Odumegwu Ojukwu,  Akintola Williams and Alhaji Shehu Bukar.

The share capital of the Exchange was subsequently increased to N20,000 consisting of 1,000 ordinary shares of N20 each, pursuant to an ordinary resolution dated December 2, 1977. The name of the Exchange was then changed from the LSE to the Nigerian Stock Exchange on December 15, 1977.

However, following the enactment of the Companies and Allied Matters Act (CAMA) 1990, companies limited by guarantee were prohibited from being registered with a share capital; and all such existing companies were mandated to re-register without a share capital. The NSE was re-registered on December 18, 1990 as a company limited by guarantee and the then existing share capital of N20,000 was cancelled; and the equity rights of the initial subscribers extinguished. Thus, from then till now, the NSE operated as a mutual company limited by guarantee with no issued or paid-up share capital; as such no individual or corporate entity had equity-based ownership rights.

A holdco for the markets

With last week’s approvals and the completion of the pre-demutualisation processes, the NSE will immediately commence the implementation of the scheme of arrangement for the demutualisation, including immediate recognition of prior decisions and appointments made in furtherance of the demutualisation.

Under the scheme, a new non-operating holding company, the Nigerian Exchange Group Plc (NGX Group) has been created. It is the shares of the NGX Group that will be allotted to members of the NSE and which will be listed for public trading, similar to other publicly quoted companies. The NGX Group will have three operating subsidiaries, namely: Nigerian Exchange Limited (NGX Limited), the operating exchange, which will take on the listing and trading function of the NSE; NGX Regulation Limited (NGX REGCO), the independent regulation company which will take on the self regulatory functions of the NSE; and NGX Real Estate Limited (NGX RELCO), the real estate company that will take ownership of real estate and other assets, including the iconic Stock Exchange building in Lagos. All the entities have been duly registered at the CAC.

 

Transition to new marketplace

With the emergent companies come new management and directors. Chief Executive Officer of NSE, Mr Oscar Onyema, will lead the NGX Group as Group Chief Executive Officer. Temi Popoola, a Chartered Financial Analyst (CFA) and Chief Executive Officer, West Africa, Renaissance Capital, will lead NGX Limited while Executive Director, Regulations, NSE, Tinuade Awe, has been appointed as Chief Executive Officer of NGX REGCO. At the EGM in March 2020,

At the March 2020 EGM, President of NSE, Otunba Abimbola Ogunbanjo, was appointed as the first chairman of the board of directors of the NGX Group. Other non-executive members of the new board included Dr. Umaru Kwairanga, Mrs. Fatimah Bello-Ismail, Mr. Oluwole Adeosun, Mr. Chidi Agbapu, Mr. Patrick Ajayi, Dr. Okechukwu Itanyi, Mrs. Nimi Akinkugbe, Prof. Enase Okonedo, Mr. Ikpobe Oghooritsewarami and Mrs. Ojinika Olaghere.

The conclusion of the pre-demutualisation  marked the beginning of the immediate transition plan, which will give birth to the new shapes, colours and faces of the Exchange. The transition plan, which will take NGX Group and its subsidiaries to full operational launch, includes legal and practical changes to enable the functioning of the new corporate structure, inauguration of board of directors for each of the new entities, staff reallocation to their functions within the operating subsidiaries, operationalisation of business plans and budgets, technology systems transfer, and the requisite arm’s length agreements between the entities.

According to the scheme, NGX Group will have an authorised share capital of 2.5 billion ordinary shares. About two billion ordinary shares of 50 kobo each will be issued in the immediate period of the conversion. The post-demutualisation shareholders’ base will consist of 255 institutional shareholders and 177 individual shareholders. This shareholding was arrived at by converting the existing dealing members of the Exchange to institutional shareholders and ordinary members to individual shareholders. Shareholdings will be on equal basis in the immediate conversion period with each institutional shareholder holding 6.01 million ordinary shares of 50 kobo each while each individual shareholder will hold 2.44 million ordinary shares of 50 kobo each. Thus, each institutional shareholder will hold 0.3 per cent equity stake while each individual shareholder will hold 0.1 per cent equity stake, in line with the current membership-share conversion ratio of 78 per cent for dealing members and 22 per cent for ordinary members.

Also, a total of 40.08 million ordinary shares, representing two per cent of the proposed issued shares of NGX will be set aside for allotment to parties that may lay claims to entitlement to shares in the demutualised Exchange. This was pursuant to the provisions of the Demutualisation Act 2018. However, each claimant will be expected to provide irrefutable evidence of membership or circumstance that confers such claim of ownership. In the event the claims review shares are insufficient to satisfy successful claims, additional shares will be allotted from the NGX Group’s share capital.

Who owns the market?

As agreed under the scheme, the Exchange will allocate shares to all members-institutional and individual, living and dead, with shares due to deceased ordinary members and expelled or liquidated dealing members being allocated to their legal representatives. The Federal Government, through the Bank of Industry (BOI), many state governments and several prominent Nigerian businessmen and policy experts are among 432 individuals and institutions that will hold shares of NGX Group in the immediate period.

Shareholders include Mr Akintola Williams, late Senator Theophilus Adebayo Doherty, the late Sir Odumegwu Ojukwu, the late Alhaji Shehu Bukar, the late former President Umaru Yar’Adua, the late Bashorun MKO Abiola, the late Dr Abdul Lateef Adegbite and the late Mr Gamaliel Onosode.

Other individual shareholders are Chief Ernest Shonekan, Alhaji Aliko Dangote, Alhaji Abdul Rasaq, Alhaji Aminu Dantata, Mr Tony Elumelu, Mr. Oba Otudeko, Mr. Pascal Dozie, Chief Bayo Kuku, Chief Christopher Ogunbanjo, Dr Christopher Abebe, Mr  Goodie Ibru, Alhaji Isyaku Umar,   Otunba Adekunle Ojora, Mr  Phillip Asiodu, Rear Admiral Allison Madueke, Rabiu Gwadabe, Mr Raymond Obieri, Senator Udo Udoma and Senator David Dafinone.

Institutional shareholders will include GTI Securities Limited, CSL Stockbrokers Limited, Capital Assets Limited, Cowry Asset Management Limited, Meristem Securities Limited and APT Securities and Funds Limited.

Exciting future

President, Chartered Institute of Stockbrokers (CIS), Mr. Olatunde Amolegbe, said the demutualisation would usher in a new vista in the growth trajectory of the Exchange.

According to him, the conversion had enjoyed the support of market stakeholders because of the immense benefits that it will bring to investors and the economy at large.

“We expect increased innovation and growth among market participants,” Amolegbe said.  Members of CIS, which regulates the securities trading profession, the main and largest trade group in the market, will own more than three-quarters of the emergent NGX Group.

Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyewenchukwu Ezeagu, said demutualisation will enhance the effective transformation of not only the NSE but also the entire securities ecosystem.

Ezeagu, who represents institutional corporate members of the Exchange, hailed the new dawn and commended stakeholders who had worked tirelessly to achieve the demutualisation.

Former president of CIS and former council member of the NSE, Mr Ariyo Olushekun, said demutualisation would enhance the global competitiveness of the Exchange and in turn provide opportunities for greater values to shareholders and other stakeholders.

He expressed confidence that the Exchange witness considerable improvement in the years ahead despite known transition challenges.

Chief Executive Officer, World Federation of Exchanges (WFE), Nandini Sukumar said demutualisation would make the Exchange more efficient and dynamic, opening up many global opportunities for the advancement of the market.

According to her, every member of a stock exchange embraces demutualisation because of its benefits which include realisation of the value of historical asset, improvement in market quality, liquidity, trading costs and price volatility.

Ogunbanjo hailed the conversion as a milestone, noting that demutualisation further advances the cause of making the Exchange a multifaceted exchange that extends across various markets and geographical regions.

Onyema said the NGX Group will not only become the premier exchange hub for Nigerian businesses but for the African economy.

According to him, demutualisation of the NSE is pivotal in that it creates new strategic opportunities that will enable the Group realise its vision of becoming Africa’s leading capital market infrastructure provider.

He pointed out that the creation of a holding company and a new capital structure will also enable NGX Group to form new dynamic relationships, drive strategic partnerships and gain capital raising flexibility.

While Olushekun identified cultural adaptation as possible initial challenge, Ezeagu said stockbrokers would need to restructure their business models in the light of the demutualisation. Addressing securities dealers at a webinar themed “The future of Securities Dealing Business in Nigeria Post- Demutualisation of NSE “, Ezeagu said the changes that the conversion will bring in the business model of the Exchange may impact stockbroking firms’ operating models.

“It is important for all securities dealers to understand the changes that may come along with the new market structure.  We need to prepare well in order not to be caught unaware,” Ezeagu said.

Immediate past president of the NSE,  Mr Aigboje Aig- Imoukhuede  said demutualisation of the Exchange would bring new owners, customers and skills  for stockbroking firms and they must be prepared to face the new challenges and opportunities.

Chief Consultant, Biodun Adedipe and Associates, Dr Biodun Adedipe said innovative capital market operators should be incentivised to create market products while business case be made for the government to utilize the market to raise funds for infrastructure.

Many market pundits expressed concerns that demutualisation could lead to increase in minimum capital base for dealing member firms, a development that may trigger a wave of mergers and acquisitions among stockbroking firms.

As the investing public awaits the listing of the shares of the Exchange, demutualisation no doubt is a redefining moment for the Nigerian financial markets.