Category: Money

The Nigeria’s foreign exchange reserves which stood at $37.4 billion on May 20 will cover over 86 per cent of the country’s foreign obligations relating to debt services and imports, Renaissance Capital (RenCap), has said.

In an emailed report obtained yesterday, the investment and research firm, said that aside Nigeria and the Gambia, many other Sub-Saharan African (SSA) economies, and other Emerging Markets and Frontier Markets, remain vulnerable to debt default.

It said a review of their proportion of new financing (PNF) needs showed the proportion by which current uses of foreign income (debt service, imports) exceed current foreign resources (exports, transfers and reserves) in many of the affected countries.

RenCap explained that in countries like Ghana, Rwanda and Kenya, a review showed that their uses of foreign reserves are larger than resources, so new financing is needed to avoid a default, or an import adjustment via currency devaluation.

For Nigeria, it said the naira is not in the least vulnerable to debt default. “But we maintain our projection of devaluation in the short-term, premised on our view of downside risk to foreign exchange reserves, in the run up to the February 2015 polls. The 2014 and 2015 naira forecasts are at N172 to a dollar and N175 to a dollar, respectively,” it said.

“Of concern are Ghana and Rwanda, where the uses of foreign income marginally exceed their respective foreign resources. This implies Ghana and Rwanda need additional foreign financing, in the short term, to meet their foreign obligations,” it said.

RenCap said empirical analysis of developing countries’ experience showed that debt service difficulties become increasingly likely when present value (PV) evaluation of debt/exports reaches 200 per cent.

It said shocks that could trigger a default, in a country vulnerable in foreign exchange shortage, include a change in Gross Domestic Product (GDP) growth, terms of trade and foreign interest rates.

It said the market expects the US to start hiking interest rates in the second quarter of next year even as the subsequent narrowing of the risk premium on Emerging Markets and FM debt is expected to slow net foreign portfolio inflows into the latter debt markets.

“In Kenya, we project higher interest rates over the next 18 months which should help counter the impact of higher US rates and in Ghana, we think there is upside risk to rates. But in Nigeria, we think rates could fall from June 2015. We believe the SSA countries at most risk from a fall in foreign resources PNF greater than one, such as Ghana.

This risk may be partly mitigated by investors shifting from debt to equities,” it said.

RenCap said countries with a high PNF need weaker currencies for their current account to become less problematic for their debt sustainability.

“We think further Ghana Cedi depreciation, a weaker Kenya Shillings and a more flexible Rwanda Franc would help temper import demand, narrow current account deficits and by implication, the flow of debt. We believe the scope for a smaller current account deficit in Ghana, and by implication slower debt growth, will remain small unless there is a significant fiscal contraction,” it said.

Demand for Nigeria’s short-term debt has surged, driving yields down 1.43 percentage points on average across maturities.

According to Reuters, subscription rose more than four-fold the amount sold during Wednesday’s auction, but the Central Bank of Nigeria (CBN) stuck to its initial offer.

It said Nigeria received N520.7 billion in subscriptions for Treasury bills ranging from three-month to one-year maturities. The CBN had offered N121.32 billion worth of the debt notes, and strong demand from local pension fund and assets managers pushed down yields across the board.

Dealers said demand for the debt notes was heavy due to a large amount of liquidity in the banking system and offshore investors hunting for yields with the 1-year note receiving bulk of the subscription.

The CBN sold N40.6 billion in the 91-day paper at 10 per cent returns, compared with 10.5 per cent at the last auction on May 7.

It sold N25 billion in the 182-day bills at 10.01 per cent against 11.24 per cent at the previous auction, while a total of N55.68 billion was sold in the one-year Treasury Bill at the rate of 10.12 per cent compared with 12.7 per cent previously.

Ecobank has signed a $200 million facility with African Development Bank (AfDB) to boost intra-regional trade in Africa, the Pan-African lender told Reuters yesterday.

“This facility will greatly support international and intra-regional trade in Africa,” Ecobank CEO Albert Essien said in a statement.

The facility comprises a trade facilitation and origination loan and will support around $1.8 billion of trade transactions in Africa over a 3-1/2 years, from local corporates and small and medium sized businesses, the bank said.

The overarching objective of the AfDB Group is to spur sustainable economic development and social progress in its regional member countries (RMCs), thus contributing to poverty reduction.

The Central Bank of Nigeria (CBN) has said Commercial Agriculture Credit Scheme (CACS) will be funded through a N200 billion bond to be instituted by the Debt Management Office (DMO).

According to the guidelines for the CACS operation released yesterday, the apex bank explained that it is collaborating with the Federal Government, represented by the Federal Ministry of Agriculture and Rural Development (FMARD) in the establishment of the CACS, for promoting commercial agricultural enterprises in Nigeria. The guidelines noted that this is a sub–component of the Federal Government’s Commercial Agriculture Development Programme (CADP).

It said the N200 billion will complement other special initiatives of the CBN in providing concessionary funding for agriculture such as the Agricultural Credit Guarantee Scheme (ACGS) which is mostly for small scale farmers, Interest Draw-back scheme, Agricultural Credit Support Scheme, among others.

“The scheme shall be financed from the proceeds of the N200 billion three-year bond raised by the Debt Management Office (DMO). The fund shall be made available to the participating bank(s) to finance commercial agricultural enterprises.

“In addition, each state government could borrow up to N1.0billion for on-lending to farmers’ cooperative societies and other areas of agricultural development provided such initiatives/interventions are in line with the objectives of CACS,” the CBN said.

The apex bank said the scheme was created to fast track development of the agricultural sector of the economy by providing credit facilities to commercial agricultural enterprises at a single digit interest rate. It is also expected to enhance national food security by increasing food supply and effecting lower agricultural produce and product prices. This, it said  will promote low food inflation as well as reduce the cost of credit in agricultural production to enable farmers explore the potentials of the sector.

It will also increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide input for the industrial sector on a sustainable basis.

The scheme shall be under the management of the CBN through the Board of Directors and the Committee of Governors while the Committee of Governors shall be responsible for the overall administration of the Scheme while the day-to-day implementation of the Scheme shall lie with the Development Finance Department.

The chairman of BUA Group, Alhaji Abdulsamad Rabiu has been reappointed as the Chairman of the Bank of Industry (BoI) by President Goodluck Jonathan. He is to complete a four year tenure and his appointment takes place with immediate effect according statement.

This is coming on the heels of the appointment of Rasheed Olaoluwa as the new Chief executive of the Bank.

Abdulsamad Rabiu is founder of the BUA Group, a conglomerate that spans different sectors of the Nigerian economy, including real estate, manufacturing and commodities.

Also approved were the Boards of the Nigerian Investment Promotions Council (NIPC) and the Boards of the Industrial Training Fund (ITF).