Demand for dollar to match year-end imports by large corporations has put pressure on the naira. Analysts insist that the local currency may continue to face rising demand until importers conclude orders for the year, writes COLLINS NWEZE
Naira depreciation continued last week due to increased dollar demand by corporate organisations to cover import bills and other foreign exchange obligations for the year-end.
The naira declined by 1.2 per cent at the parallel market to trade at N167 per dollar as at the end of the week.
This has brought the official cum parallel markets spread to N11.95, primarily due to increased demand from importers. On the Retail Dutch Auction System (RDAS) market, the Central Bank of Nigeria (CBN) sold $399.9 million and $399.6 million on Monday and Wednesday at a marginal bid of N156.1 and N155.8 per dollar respectively.
Analysts at Afrinvest West Africa Plc said they expect further pressure on the naira as the Yuletide draws closer.
Rates at the money market trended in opposite direction to the declining yields witnessed across various treasury instruments during the week. The Nigeria Interbank Offered Rate (NBOR) call rate was up by 39 basis points (bps) week-on-week, closing the week at 10.58 per cent while the three-months and 12-months NIBOR trended in like path with 168bps and 32bps increase in the same manner to 13.16 per cent and 12.58 per cent. “While we expect a marginal retraction this week, we expect a more stable money market rates for the rest on the year,” the analysts had said.
The inter-bank rate was broadly steady on 29 October, reflecting improved market liquidity from treasury bills (TBs) and open market operation (OMO) repayment. The call/overnight and seven-day money market rates were: 10.5 per cent and 11 per cent respectively on 29 October.
The three-month NIBOR was 12.4 per cent, though less activity is done on the tenor. The inter-bank secured lending (Open Buy Back) was also steady on 10.33 per cent for commercial banks and 10.5 per cent for discount houses on 29 October.
Capital flight
The CBN developed a macro-prudential framework to mitigate the risk of sudden capital flight in the economy, its deputy governor, Economic Policy, Dr. Sarah Alade said.
Speaking during the International Monetary Fund (IMF) launch of Regional Economic Outlook for Sub-Saharan Africa in Lagos, she said most of the capital flows have been in portfolio investment which is more volatile and transient in nature.
She said the CBN still insists that investors get Certificate of Capital Importation (CCI) from banks as a way of ensuring that capital flows do not easily exit the economy.
CCI is aimed at providing customers with statutory evidence of capital inflow/investment into a Nigerian company. It legitimises and facilitates the repatriation of dividends and capital to the foreign investor.
According to her, while this trend is a plus for the economies in sub Saharan Africa and have helped countries to meet some unmet financial obligation, it also can cause financial crisis if not properly monitored and managed.
She stressed the need to keep proper records of inflows to better monitor and effectively manage such capital flows.
According to her, enhanced macroeconomic and financial policies should be put in place, as inflows is more likely to be successful if supported by sound fiscal, monetary, international reserve buffers to sustain.
Pension fund
The Nigerian Stock Exchange (NSE) is seeking to have rules on pension-fund investing relaxed to attract funds and boost Africa’s third-best performing gauge this year, its Chief Executive Officer, Oscar Onyema said.
Nigeria has more than N3.5 trillion in invested retirement savings, according to the National Pension Commission (Pencom). Investors should be able to put that money into companies with at least three years of financial statements, less than the five required now, he said in an interview with Bloomberg.
“Most of Pencom’s regulations are designed to protect investors, but investors are becoming more sophisticated.
“We are working very closely with them, the National Assembly, and other appropriate bodies to highlight areas where we believe there is a need for enhancement.”
Agric loans
The Central Bank of Nigeria (CBN) guaranteed a total of N840 million to 4,413 farmers under the Agricultural Credit Guarantee Scheme (ACGS) in August, a report released by the regulator showed.
This amount, it said, represented a decrease of 6.9 and 77 per cent below the levels in the preceding month and the corresponding period of 2012, respectively.
A sub-sectoral analysis showed that food crops obtained the largest share of N669.9 million guaranteed to 3,195 beneficiaries, livestock got N123.9 million (14.9 per cent) guaranteed to 1,016 beneficiaries, while fisheries had N27.6 million (3.4 per cent) guaranteed to 93 beneficiaries.
Others received N6.2 million (0.7 per cent) guaranteed to 62 beneficiaries, mixed crops received N6.2million (0.7 per cent) guaranteed to 24 beneficiaries, while Cash crops received N6.1 million (0.7 per cent) guaranteed to 23 beneficiaries.
Analysis by state showed that 28 states benefited from the scheme during the month with the highest and lowest sums of N121.3 million (19.9 per cent) and N22.7 million (0.1 per cent) guaranteed to Edo and Delta states, respectively.
Money laundering
INTER-Governmental Action Group against Money Laundering in West Africa (GIABA), has advised banks to report suspicious transactions perpetrated by their customers to Financial Intelligence Unit (FIU) as well as observe customer due diligence.
These, the GIABA Information Officer, Timothy Melaye said would keep Nigeria out of the list of countries identified as jurisdictions with significant deficiencies in their Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) regimes.
Melaye, told The Nation at the weekend banks should do more in ensuring that they understand their customers’ businesses better. He said Nigeria has taken the right steps including the establishment of legal and regulatory framework that will assist it meet its anti-money laundering initiatives, the Financial Action Task Force (FATF) and
GIABA in a statement said: “The FATF welcomes Nigeria’s significant progress in improving its AML/CFT regime and notes that Nigeria has established the legal and regulatory framework to meet its commitments in its Action Plan regarding the strategic deficiencies that the FATF had identified in February 2010. Nigeria is therefore no longer subject to FATF’s monitoring process under its on-going global AML/CFT compliance process. “Nigeria will work with GIABA as it continues to address the full range of issues identified in its Mutual Evaluation Report.”
Equity fund
Private equity firms have invested nearly $12 billion in Nigeria, South Africa and other Africa countries. The firms have also raised almost $10 billion, according to a study released last week by Ernst & Young and the African Private Equity & Venture Capital Association (AVCA).
Reuters in a report, said many private equity firms were adamant that Africa is the next hot spot for the industry as its burgeoning middle class continues to bloom, but the pension and endowment funds who invest in private equity funds are more cautious.
According to the report, it is not hard to see what has attracted them to the continent, adding that over the last ten years, Africa’s economic output has increased threefold to $2 trillion and six African countries have been among the fastest-growing economies in the world.
World Bank
Nigeria’s short term macroeconomic outlook looks generally strong, with the likelihood of higher growth, lower inflation, and reserve accumulation, the World Bank said last week.
In a statement, the global lender said the development will present the government with an opportunity to make progress in key reforms and public investments associated with the Transformation Agenda for job creation, diversification, and more effective governance.
The Nigeria Economic Report (NER) launched by the World Bank earlier in the year sounded a cautionary note, indicating that the nation’s economic growth had not automatically translated into better economic and social welfare for Nigerians.
“Poverty reduction and job creation have not kept pace with population growth, implying social distress for an increasing number of Nigerians,” the NER noted.
As part of its forecast for the country, the NER also suggests that the country will need to build up its fiscal reserve to protect it from oil price volatility. It will also need to increase internally generated revenue to compensate for what will likely be declining oil revenues relative to the size of the economy.
Given that Nigerian Gross Domestic Product (GDP) is growing much faster than oil output, and is experiencing significant inflation at a stable exchange rate, the size of Government oil revenues relative to GDP should decline even in the event that oil prices increase.
Leasing
Leasing could be a significant financing alternative for projects and businesses that would create wealth for the economy, a communique issued at the end of this year’s leasing conference held in Lagos, explained.
The communique noted that globally, leasing has been used to facilitate the sale of vendors’ goods, enhance lessors’ profits and grant lessees the access to productive assets.
The lessor, vendor and lessee need to collaborate for them to achieve set objectives.
Noted the communique: “There exists a communication gap between the lessor and vendor which must be adequately bridged to produce a more robust leasing environment.
“The potential of leasing is high considering the low lease penetration in Nigeria in comparison with other countries. There is need to regulate the activities of vendors in order to check the unscrupulous acts of some vendors which are detrimental to the growth of the leasing industry.”
It added that professionals should facilitate accurate valuation of leased assets and create a strong secondary market for used assets, noting that improved synergy between lessors and vendors will create growth and employment for the economy.
The communique disclosed that ELAN will liaise with vendors and other stakeholders to create an efficient leasing industry that will continue to build wealth for the economy, adding that the body will continue its proactive initiative by bringing to the membership fold reputable vendors and work towards setting standards for their dealings with lessors.
