The Nation Newspaper

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  • CBN lists Nigeria’s fiscal problems 

    CBN lists Nigeria’s fiscal problems 

    As the country’s economic condition hangs in the balance, the Central Bank of Nigeria (CBN) has decried the long list of fiscal woes confronting Nigeria.

    The Deputy Governor, Economic Policy of the CBN, Dr Sarah Alade, speaking at the Fiscal Liquidity Assessment Committee retreat in Abuja, listed some of the challenges as low fiscal buffers, expansionary fiscal policy, high volume of maturing instruments; impact of external shocks, dwindling foreign exchange earnings; declining reserves; weak oil market and high unemployment.

    These challenges, she said, have redefined the boundaries of macroeconomic management resulting in the need to redress mutual suspicion and hostility experienced globally between the two macroeconomic management institutions, the fiscal and monetary policy managers.

    According to her, “at the moment, the economy faces significant downside risks of reversal in capital flows, reserve depletion, depreciation of Naira, financial market instability and higher inflation and we cannot afford not to understand ourselves and work together”.

    Alade added that “in the next couple of months, political activities would peak; anticipated level of injection would require enormous effort to manage domestic excess liquidity to reduce inflationary pressure.”

    To effective tacklely these problems, the CBN deputy governor advocated for “increased level of coordination between monetary and fiscal policy instruments and institutions in order to achieve macroeconomic growth by strengthening the joint effectiveness of monetary and fiscal policies in the country.”

    Also speaking at the event, the Director, Monetary Policy Department of the CBN, Mr Moses Tule, called for sustained macroeconomic stability through effective and efficient domestic policies because current economic developments have provided the committee with a strong motivation for strengthening coordination between monetary and fiscal policies.

  • Economist predicts further crash in naira value before year end

    Economist predicts further crash in naira value before year end

    THE crash in the value of the naira to its current N178 to the dollar is likely to go as high as N200-250 before the year runs out, Dr. Makilolo Isaac Goddey, an economist has predicted.

    Speaking in an interview with The Nation, he noted that: “As a mono-culture economy that depends on oil revenue to survive as long as the oil prices drop our naira will continue to fall.”

    Continuing, he said: I’m not a pessimist, but before the year runs out, you will see our naira hit over N200-250 to a dollar, mark my word because by Christmas when a lot of people start importing things  the demand for dollar would rise and thus further bring down the naira.

    “Already there is a lot of importation as the Xmas fever heats up. There are lots of things that have gone wrong and still going on in this country. In every economy, the government make concerted efforts to protect the local industries, but this is not so here. I don’t need to tell you today that we import toothpick. It’s that bad. What is toothpick that we have to be importing?”

    “In the short to medium term, the new equilibrium value of the naira may be low until a longer term wider economic balancing policy is enacted, beyond the simple defense of naira by the CBN, with the country’s reserves.”

    The national currency has been under persistent pressure since June when the global oil prices started crashing.

    It, however, began a steep and consecutive fall a fortnight ago.

    The naira at the weekend shed 6 per cent to close at the N179 against the greenback, despite the Central Bank of Nigeria’s intervention to prop up the currency.

    According to foreign exchange dealers, the development forced the CBN to ask 21 commercial banks to bid for $2m each.

    The apex bank has been selling between $150m and $200m in each intervention, causing huge depletion in nation’s external reserves.

  • Naira exchanges N186 to $1 at ‘black market’

    Naira exchanges N186 to $1 at ‘black market’

    The naira touched a record low against the dollar yesterday, the day after Central Bank of Nigeria (CBN) Governor Godwin Emefiele announced its devaluation.

    The CBN devalued the naira by 8 per cent and raised interest rates sharply, trying to stem losses to its foreign reserves spent defending the currency as the price of oil – Nigeria’s dominant export – slides on global markets.

    The naira fell to a record low of N178.85 to the dollar, shortly after the market opened, but rebounded by around 1 per cent to N176.35 after two oil companies sold dollars. Nevertheless, that was still just below the new target band of 5 per cent either side of N168 to the $1, announced by Emefiele.

    The exchange rate for the dollar in Abuja “black market’’ on Wednesday stood at between N182 and N186, an investigation by a News Agency of Nigeria (NAN) correspondent found.

    On Lagos Island and at Ikeja, the state capital, $1 sold for above N180.

    This is against the official exchange rate of N168.

    The NAN correspondent, who checked near the Sheraton Hotel, Zone 4, Abuja, the rendezvous for most black market operators, found that the closest naira exchange to the official exchange rate was N182.

    Some of the operators said the difference between their rate and the official rate was to accommodate the “extra charges’’ they pay to “dealers’’ they get the hard currency from.

    A black market operator, Alhaji Usman Gongola, told NAN that he sold one dollar at N186 and bought one dollar for N183.

    Another operator, Alhaji Bello Abdullahi, said he sold at N184 and bought one dollar for N182.

    Alhaji Mohammed Bichi sold one dollar at N182 and bought one dollar for N181.

    Trading in the next few days will test whether financial markets believe the new target is realistic for Nigeria contending with a 30 per cent fall in world oil prices since June. The country is also battling with insurgency in the Northeast.

    Economists welcomed Emefiele’s action as accepting the reality of the naira’s sliding value – in common with the currencies of other oil exporters, such as Russia, in trading between commercial banks.

    “Given the move higher in the largely-market determined interbank rate … the widening of the band around the official mid-rate, and the setting of the mid-rate at 168 were the right moves,” said Razia Khan at Standard Chartered bank.

    Analysts also said Tuesday’s widening of the band from 3 per cent either side of the target rate would help to build in some flexibility. The stock market received the devaluation positively, rising by 1.5 percent.

    However, continued downward pressure on the naira threatens to stoke inflation by pushing up the cost of imports, on which Africa’s biggest economy relies for around 80 per cent of its consumption.

    Over the past two years Nigeria has enjoyed historically low inflation in single digits, a target the Central Bank is keen to keep meeting. A surge in living costs would be a headache for President Goodluck Jonathan less than three months before general elections.

    Though Nigeria grows much of its own food, a number of staples, particularly wheat and rice, are largely imported. The statistics office in 2012 estimated that about 60 per cent of Nigerians were living on less than a dollar a day in 2010.

  • ‘CBN committed to protecting Naira against counterfeiting’

    ‘CBN committed to protecting Naira against counterfeiting’

    The Central Bank of Nigeria (CBN), says it remains committed to safeguarding the value of the Naira by ensuring that banknotes are not susceptible to counterfeiting.

    A statement from the CBN said the apex bank Governor, Mr. Godwin Emefiele gave the assurance Wednesday in Abuja while declaring open the maiden temporary exhibitions of the Currency Museum on “Counterfeit Money: Who Pays?” and “Non-Interest Banking in Nigeria”

    Mr. Emefiele, who was represented at the event by the Deputy Governor in charge of the Operations Directorate, Alhaji Suleiman Barau, noted that educating the public would enable them identify counterfeited notes should they encounter such.

    In his opening remarks, the Director, Currency Operations Department of the CBN, Mr. Olufemi Fabamwo, observed that technological advancement posed a serious threat for national currencies to be counterfeited.

    He, however, stressed that the CBN was alive to its role of protecting the country’s legal tender from counterfeiting by putting in place appropriate policies relating to preventing and minimizing currency counterfeiting as well as providing the public with basis for easy identification of fake notes.

    On the second subject of the exhibitions, Fabamwo noted that the concept of non-interest banking was largely still being misunderstood in Nigeria.

    He stated that the activities of non-interest banks are duly regulated by the CBN, and urged stakeholders to embrace the products offered by non-interest banking, which he noted are universally accepted and profitable to customers.

     

  • CBN empowers Osun small businesses with N2b

    CBN empowers Osun small businesses with N2b

    The Governor, Central Bank of Nigeria (CBN) Mr. Godwin Emefiele on Monday said the people-focused programmes and policies of the Rauf Aregbesola administration since inception have established him as “the strongman of Osun politics’.

    Represented by his Special Adviser on Development and Finance, Mr. Paul Nduka Eluowe, the CBN chief said the polices had raised the state to a higher pedestal.

    He spoke at the official ceremony for the disbursement of N2 billion CBN Micro, Small and Medium Scale Enterprises Development Fund  (MSMSEDF) and the distribution of the second batch of 22 mini-buses, in Osogbo, the Osun State capital.

    The scheme is a partnership with the CBN. Under the CBN’s N220 billion MSMSEDF, the N2billion secured by Osun is already being disbursed.

    Emefiele said the Small and Medium Scale Enterprises (SMEs) are essential ingredients of growth for any serious developing country.

    He priased the governor for formulating policies and programmes that have economically and financially empowered the people of the state.

    The CBN boss urged the governor to ensure that 60 per cent of the N2billion  given to the state go to women and two per cent to the physically challenged people in the state.

    He said: “I am overwhelmed by the number of people present at today’s event. It shows that you are the strong man of Osun politics.

    “Your programmes have shown that you are loved by your people with this massive attendance. I hope you will continue to be the strongman of Osun.

    “I am not surprised that  majority of the people in attendance are women. The CBN believes that women are supposed to be empowered to unleash their potentials.”

    Aregbesola, in his address titled: Marching onto greater development heights, said his determination to drive the state to a prosperous height was borne out of genuine commitment to take the state to the height of socio-economic and industrial development.

    Aregbesola said his administration is conscious of the fact that the success of any development enterprise was dependent upon the active involvement and participation of the people.

    He said Osun, with carefully thought-out policies, programmes, conscious mobilisation and proper organisation of the people, would continue to grow.

    The governor added that the most effective ways of making people the driving agents of development is to economically and financially empower them, and then allow them to handle the rest.

    He said:  “We thus decided to come up with various economic empowerment schemes in order to give our people the economic wherewithal and the financial enablement to make them job-creators and wealth generators in a manner that will be beneficial to all and sundry.

    “In order for the programmes to have the widest coverage for maximum outcomes, we have decided to spread the net to include the people in the lower rung of the socio-economic ladder – the small traders, the market women, the artisans, the transporters, the small-holder farmer, and the craftsmen and women among others.

    “It is for this reason that we have established the Osun Micro-Credit Agency which was officially inaugurated on July 9, 2014.

    “It was aimed at ensuring easy access to credit facilities by operators of micro, small and medium scale enterprises, particularly those in the informal sector of Osun economy.”

    The state Commissioner for Finance, Dr. Wale Bolorunduro, said Osun was the first state in Nigeria to get N2billion from the CBN to improve MSMEs, adding that the money was a product of financial engineering.

    He maintained that 50 per cent of the money is expected to be used for agriculture and commerce.

    Bolorunduro promised that the loan would be judiciously used by the beneficiaries.

    “Osun is the first state to have assessed and secured the N2billion loan for CBN for the purpose of development, he said.

  • Foreign exchange: CBN accuses authorised dealers of round tripping

    Foreign exchange: CBN accuses authorised dealers of round tripping

    The Central Bank of Nigeria (CBN) has cautioned all authorized dealers in foreign exchange to desist from selling forex for items not supported with necessary shipping documents.

    CBN Director, Trade & Exchange, Olakanmi Gbadamosi said in circular released yesterday with title: Sale of Foreign Exchange without adequate documentation- Particularly Shipping Documents’ that any dealer who violate its policy on foreign exchange sales will be sanctioned.

    He said that only imports which are backed with evidence of shipment and other relevant documents are eligible for foreign exchange.

    “This is to inform all authorised dealers and General public that we have observed that some authorised dealers have been indulging in the sale of foreign exchange for items not supported with necessary shipping documents, particularly on open account basis. It is therefore important to note that only imports which are backed with evidence of shipment and other relevant documents are eligible for foreign exchange,” he said.

    For the avoidance of doubt, only transactions for which letters of Credit are cash-backed, or with matured Clean Lines or matured Bills for Collection are eligible for the foreign exchange in the forex market.

  • Electricity tariff ‘ll go up Dec 1, says NERC

    Electricity tariff ‘ll go up Dec 1, says NERC

    In spite of the erratic power supply situation in the country, the Nigerian Electricity Regulatory Commission (NERC) yesterday said it will increase electricity tariff with effect from December 1  this year.

    It blamed data collected from the Central Bank of Nigeria (CBN) and the National Beurea of Statistics (NBS) which showed inflation rate, gas price and falling exchange rate for the inevitability of its decision.

    NERC said throughout the period from  December 1 this year to May, 31 next year, the retail tariff will be based on the generation of 3,676megawatts (Mw) of electricity.

    Its Tariff and Rates chief, Roland Achor, who spoke  in Abuja at a meeting with Electricity Industry Stakeholders on the Bi-Annual Minor Review of Multi Year Tariff Order (MYTO-2), said tariff increase has become imperative in view of the prevailing circumstances.

    He said: “So the last available deduction capacity that we used was 3,424Mw, throughout the period from Dec 1 to  May 31, 2015 retail tariff will be based on the generation of 3,675Mw. That is what we are going to use to come out with the new tariff.

    “The effective foreign exchange to $1 is N156.29k. Recently, the commission with BPE (Bureau of Public Enterprises) in collaboration with the Ministry of Petroleum Resources have agreed on a new bench mark commencing Dec 1 and the new price is $2.50 and a transportation cost of 80 cent effective  Dec 1.

    “The exchange rate takes care of foreign exchange risks in the power sector. The equipment required are always foreign denominated, so we allow the foreign exchange rates to take care of the risks. From the data we received from CBN, it shows that the foreign exchange rate as at Sep. 2014 is N154.75 to $1 while the exchange rate as at last year was N158.57 and if you look at our model, we bench marked it at N178 to $1.”

    According to him, it is important to note that the commission allowed one per cent above the CBN rate to cover for letters of credit and other bank charges. He said,  currently, if the one per cent which is the premium is added, the new foreign exchange rate to $1 is N156.29 commencing Dec 1, 2015.

    He said: “It should be noted that the minor review we did in May was at $1.8 for both pricing and transportation. “Before 2012, there where only three standard tripod that was used for the manual review which was inflation, exchange rate and gas price.

    “It was projected that by 2008 we were supposed to generate 4000Mw, in 2009, 6000Mw, 2010, 1000Mw and 2011 16,000Mw it was gathered that all of these projections ended in fiasco.

    “Based on information we got from the system operations department, it shows that on a six months average ending  Sep 30, 2015, the total division (sic) capacity was 3,675.41 Mw, the gross capacity estimated was to be 5,556 Mw.

    “The inflation rate compensate for the rising cost of doing business, it equally allows investors pay their staff living wages.

  • Naira hits new low of N176 to dollar

    Naira hits new low of N176 to dollar

    The naira came under further pressure yesterday after hitting a new low of N177.65 to the dollar though it recovered to close at N176.25 after the Central Bank of Nigeria (CBN’s) intervention.

    Traders said the naira is being depressed by concerns that the CBN might devalue it on the back of persistent pressure from offshore investors leaving local debt and equity markets.

    The selloff came as investors weighed potential outcomes of an Organisation of Petroleum Exporting Countries’ (OPEC) meeting next week, with Morgan Stanley saying a production cut looks increasingly likely. Nigeria is an OPEC member and crude oil exports account for about 70 per cent of government’s revenue.

    Foreign reserves dropped two per cent this month as the CBN sold dollars to lenders to stem the naira’s slide. The regulator may increase its key rate from 12 per cent next week to support the currency, according to analytics.

    “Expectations are rising that the bank will throw in the towel and hike policy rates given the seeming futility of trying to keep the naira from depreciating,” Gareth Brickman, a Johannesburg-based Africa analyst at ETM told Bloomberg.

    The currency has continued to depreciate against the dollar since November 2008. From N118 per dollar in November 2008 to yesterday’s closing rate, the naira has, no doubt, fallen from its Olympic heights. It has weakened 11.2 per cent this year on concerns over the falling price of oil, triggering a broad sell-off.

    Currencies Analyst at Ecobank Nigeria, Olakunle Ezun said recent developments suggest that an implicit devaluation has taken place but this needs to be confirmed.

    He explained that due to the bearish outlook for oil prices, the CBN is under pressure to continue supplying dollar to support the plus or minus three per cent N155 exchange rate band.

    Across Africa, central banks in Kenya and Nigeria are likely to keep supporting the shilling and the naira next week, while Tanzania, Ghana and Zambia’s units are seen steady, dealers and analysts said.

  • CBN disburses N213b to boost electricity supply

    • Govt begins settlement of N36.9b gas debts

    The Central Bank of Nigeria (CBN) yesterday began the disbursement of the N213 billion Nigerian Electricity Market Stabilisation Facility (NEMSF) to electricity generation and distribution companies.

    A  Memorandum of Understanding (MoU) with firms in the power sector for the provision of the fund under the NEMSF and government agencies such as the CBN, the ministries of Power and Petroleum Resources was signed to begin the disbursement of the facility to resolve the liquidity challenges facing the power firms.

    Speaking at the event, the CBN Governor, Mr Godwin Emefiele, lamented the inability of electricity firms to achieve appreciable increase in electricity supply but said the N213 billion facility would kick start the electricity market in a way to ensure improvement in the power supply.

    He said: “The CBN will provide this facility to address shortfall in power supply. In exchange for this intervention, we expect parties that are signing this agreement today to ensure that the funds are repaid as and when due; ensure that gas increases into the generation of power and invest the fund in necessary improvements in generation.”

    He said the CBN has indicated its willingness to provide the NEMSF to settle certain outstanding debts in the Nigerian Electricity Supply Industry (NESI) and guarantee the take-off of the Transitional Electricity Market (TEM).

    In specific terms, the facility will cover legacy gas debts and the shortfall in revenue during the Interim Rule Period (IRP).

    According to him, the CBN has engaged the services ofTransaction Advisor – FBN Capital; Fund Manager  – Meristem Securities;  and Legal Team – Detail Solicitors and Stream Sowers & Kohn (SSK).  The facility will be administered through deposit money banks; the Facility will be disbursed at the rate of 10 per cent per annum;  the tenor shall not be more than 10 years;  a Special Purpose Vehicle (SPV) that complies with section 31 of CBN Act 2007 will serve as an intermediary between the banks and the electricity market players;  Nigeria Electricity Regulatory Commission (NERC) shall reset the Multi Year Tariff Order (MYTO) to ensure that it provides for the loan repayment including the costs of setting up and operating the NEMSF.

    He said other power sector value chain players must also agree to specific service related commitments which include gas suppliers to commit to assured gas supply at higher volumes; generating companies (GENCOs) and Distribution Companies (DISCOs) to commit to utilising the funds for equipment/infrastructure acquisition, refurbishment and/or upgrade.

    He added that all parties that are licensed by the NERC to operate in the electricity market to accept to be immediately bound by performance agreements signed with the relevant authorities including the Bureau of Public Enterprise (BPE); all parties will also be subject to additional oversight mechanism to be developed by NERC and CBN to ensure business continuity; and that all power sector players must meet obligations that are critical for continued electricity supply.

    Minister for Petroleum Resources Mrs. Alison-Madueke said with the signing of the MoU, the N36.9 billion legacy debts that has inhibited investment in gas supply and infrastructure has been fully addressed.

    She said unattractive pricing of domestic gas, anomalies in the tariff regime, difficulties across the value chain in addressing capacity issues primarily due to shortfall in revenues were some of the reasons for the initiation of the financial intervention.

    She said: “This gas intervention and the legacy debt of N36.9 billion owed to gas suppliers by the power sector-(PHCN) over the last few years is now being settled through the CBN-led intervention scheme, and with this intervention, all undisputed claims are hereby settled.”

  • CBN may raise CRR for private-sector deposits

    CBN may raise CRR for private-sector deposits

    The Central Bank of Nigeria (CBN) may raise the Cash Reserve Ratio (CRR) on public sector deposits at the next Monetary Policy Committee (MPC) meeting, FBN Capital, an investment and research firm has said. There are indications that the MPC may meet next week.

    The CRR is a portion of banks’ deposits kept with the CBN.

    Some of the developments in the financial market created room for such policy shift. The naira went into a tailspin losing 1.6 per cent of its value after the CBN issued new administrative measures restricting the use of CBN funds for many categories of eligible transactions.

    The foreign exchange shift also spread to the stock market, dragging the index down by four per cent, bringing the yearly loss to 16.53 per cent.

    Analysts say the 28 per cent decline in oil prices, which remains the engine of the economy,is the genesis of the volatility. These developments, they argued,  might make the MPC to make some changes to the monetary policy at its meeting.

    Also, the research firm explained that the CRR on public sector deposits, which stands at 15 per cent, may be raised further.

    The CBN raised CRR on public sector deposits from 12per cent to 50 per cent in July, last year. By March, this year, the ratio was further hiked to 75 per cent.

    CRR on private sector deposits also rose by 300 basis points from 12 per cent to 15per cent during the MPC meeting in March. For many banks, especially those with weak deposit base, it was bad business.

    These policy adjustments removed over N1.5 trillion from banks’ vaults and placed it in CBN’s custody, thereby worsening existing cash crunch faced by lenders.

    Hence, when banks started releasing their last year’s results, many pundits were interested in knowing the changes in cash reserve, reduction on Commission on Turnover  (COT) fees, removal of Automated Teller Machine (ATM) charges and increase in contribution to the Asset Management Corporation of Nigeria (AMCON) levy had on lenders’ profitability.

    Vetiva Capital Management analysts predicted that on an aggregate level, the banking industry  gross earnings in the year would take a potential $690 million yearly hit, assuming a 12 per cent yield on the newly sterilised CRR deposits. They said the impact would vary from bank to bank depending on how much public sector deposits on their books.