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Naira Devaluation Will Restore Economy — Ajaegbu

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Chidi Ajaegbu, the Chief Executive Officer, Heritage Capital Markets Limited, and the immediate past President, Institute of Chartered Accountants of Nigeria, speaks with OLAWUNMI OJO of Punch News on how government could reverse the dwindling fortunes of the capital market

The Nigerian capital market is said to be second only to that of South Africa. But the market is crumbling. What is responsible for this and how can the trend be reversed?

In an economy, there are a lot of variables that drive the valuations in the capital market or the asset pricing in other sectors. The market does not work in isolation of the economic policies of government; it takes a cue from how policies of the government impacts on people’s standard of living.

Looking at the last 12 months, especially in the last quarter and considering the seamless transition of power between the incumbent and the immediate past administrations, we felt the market would build on that to sustain a rally. Unfortunately, the decline in the crude oil price and the obvious challenges the economy has had over a period of time created a lot of issues in terms of valuation of the naira.

 Therefore, a lot of foreign investors are wary of the value of the naira. Nobody wants to come in at N199 to one dollar only for you to devalue tomorrow by as much as 50 per cent. It means such investors would have lost 50 per cent of whatever value of money they are bringing in. So, what they have done is to exit the market and then wait to see the Federal Government’s response to the issue of over-valuation of the naira.
The very adamant posture of the government does not apply to economics. Economics does not obey order. We must recognise that for us to attract foreign investors, we have to devalue. There are no two ways about it; we do not have the resources to fund the naira at the level it is today. We have to tell President Muhammadu Buhari without equivocation that it is not an ego thing but something necessary that must be done to attract foreigh investors.
How does Nigeria begin to rebuild confidence in the market?

Foreign investors in the market are in a hurry to exit, which has led to a lot of glut. And when there is excessive supply, it impacts on the price. Price begins to go south. So, the inability of the market to sustain any rally is because the foreign investors who constitute about 70 per cent of the market are no longer participating in it from the demand side. They are dumping stocks and trying to get away as quickly as possible, probably so as not to be caught with the issue of devaluation. Once that happens, no matter what your returns are in the market, you are going to take a direct hit of whatever percentage devaluation government comes up with.

We also need to deal with the perception issue. For instance, the reputation risk the government is going through with the very punitive MTN fine has far-reaching implications. Nobody is saying MTN should not obey the laws. But the company probably employs over a 100,000 people. And if it has committed an infraction, yes it should be sanctioned. But how do you ask a company to pay a fine equivalent to its 15 years profit after tax. You want to liquidate the company? As a foreign investor, would I want to come into the country under this kind of hostile environment? Even when you imprison people, it is a correctional thing; it is not meant to be terminal. There is need for consistency in our policy positions.

What I have seen is that we are fighting corruption on the one the hand but the rule of law that should drive the culture of excellence and atract investors is being trampled upon. If a court of competent jurisdiction grants somebody a bail, it is wrong for government to generally disregard such decisions. As such, you send negative signals to investors that you decide what court order to obey and which not to obey.

Aside from this, I think the anti-corruption crusade is being given more bite and it is good for us. But to take the capital market out of the bearish cycle where it is now, we need to first devalue our currency and then institute a rule of law that is functional.

The President says he is not convinced on the need for devaluation, especially by his economic team? Are they not seeing things from your perspective?

They are political appointees and there is a limit to how far they can drive a contrary position to the President’s. Even a non-finance or economics student will know that devaluation is the thing to do.

In any case, we would not have a choice; it is not about convincing the President. We would devalue this year. The President would be forced to devalue. What he probably does not understand is that the more aversed he is to devaluation, the more the economy will suffer. We do not have resources to fund the naira at the level we are funding it. The world knows that; if the President does not, it is unfortunate. The President’s grasp of economic issues is limited because of his background but that is why he has economic advisers and ministers. He has to listen them; he must have an open mind.

Some experts have opined that even if Nigeria devalues, it would in no way add to its reserves. What, in your view, would be the advantages of devaluation?

You would be paying probably less for a lot of imported goods. You would attract foreign investors as they return with money that would give them more naira. The multiplier effects could actually reflate and drive the economy to where it should be.

What do we stand to gain by remaining where we are now and doing nothing about it? I am not calling for a total devaluation. But by now, the economic team should be giving us scenarios that if we devalue by certain percentages – 25, 50 or 75, so and so would be the policy implications. They should simulate those scenarios for the President to have options to choose from. And then, they should also let him know that if we do not devalue, so and so are the implications. The President could then study the opinions, call for independent third party opinions from one or two economists he respects, and compare the opinions. But that he is not convinced? That should not be the attitude.

Is there anything stakeholders and the Nigerian Stock Exchange can do to change the fortunes of the capital market?

It is totally out of their control. They have done all they can – giving zero-tolerance to market infraction, with which they have built confidence.

That is not enough to drive a bullish rally in the market and sustain it. It is a free market – free entry, free exit; you can not stop people from selling their stocks if they want to, except you want to close down temporarily like they do in the far-east. But you cannot suggest that here. As a matter of fact, when you do that, you are sending wrong signals. In China, Hong Kong and all of those places, what they do is that their government intervenes by mopping up excess supplies in the market. Government would buy it up to stabilise the market.

As we speak, the capital market has lost over 20 per cent this year alone in terms of total capitalisation, yet there is no government intervention or pronouncement. Meanwhile, the capital market is the single most important indicator of how your economy is doing. It determines a lot of things. So, ministers should be very sensitive and proactive in what is happening in the market. For government not to be saying anything when the market is almost collapsing totally shows the level of appreciation of the market in government circle.

But do you see the market rebounding anytime soon, perhaps this year?

Not immediately. Perhaps, towards the end of the year. But that again would depend on if the crude oil price picks up and we begin to see that Nigeria can effectively sustain and fund the foreign exchange element of our economy. May be that could attract foreign investors. Without investors coming back, the market cannot rebound.

We also anticipate that earnings this year would be impacted on – banks, oil companies and virtually all the sectors. We would start seeing the result. There is no way major banks and oil companies would not take hits because the decline in growth of the GDP would reflect in their performance.

Government has been fixing the foreign exchange rate. But some experts opine that it should be determined by free market forces. What’s your view on this?

No, that would be too dangerous for Nigeria because we are not producing anything. Government is right by fixing it but they need to be more flexible, not too rigid. Nigeria cannot allow her currency to float. Even China, with over $2 trillion in reserves, cannot. You would open your economy and currency to attacks by set economy or individuals. Look at Russia spending 40 per cent of their reserves to defend their currency, it was not necessary. Yet, they lost massively.

Foreign investors are said to dominate the market at a ratio of 70 to 30 per cent of indigenous investors. How can the nation improve local participation?

Indigenous investors lost confidence after the crisis of 2008/09, many of them lost a lot of money. The foreign investors are far more discerning than the locals, that is why they are still in the market.

However, what the Exchange has done since then is to try and rebuild confidence of local investors in the market by introducing zero-tolerance for infractions, transparency in transactions and all of that. But even at that, it has taken our people longer time to get over the losses they incurred. Until you are able to deal with that psychological thing, you cannot have them come back the way they came pre-2008.

On the whole, government must devalue the currency, change their posture and be more flexible with policy positions, while the Central Bank of Nigeria needs to work on a lot of things.

People are being careful now because of the renewed anti-crime crusade but I think government is wasting too much time on it. We hear there are recoveries but we have not seen facts and figures; government should be more open on how much is being returned and how the funds are being applied. You may not necessarily disclose names but let us know how much is being recovered.

 

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Finance

Remittance to Nigeria, Other African Countries Hits $53bn in 2022

Remittance to Sub-Sahara Africa rose to $53 billion in this year

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The World Bank report has indicated that remittance to Nigeria and other countries in Sub-Sahara Africa has reached $53 billion in 2022. This represents an increase of 5.2 percent when compared with 2021.

Investors King understands that remittances into Nigeria and Kenya constitute a significant percentage of all the remittances into the African Sub-Sahara region. 

“Remittances to Sub-Saharan Africa, the region most highly exposed to the effects of the global crisis, grew an estimated 5.2 percent to $53 billion in 2022, compared with 16.4 percent last year (due mainly to strong flows to Nigeria and Kenya),” the report stated.

According to the World Bank report on Migration and Development, prepared by the bank’s Migration and Remittances Unit and Development Economy, remittance has constituted an important part of the Gross Domestic Product (GDP) for a number of African countries. 

For example, Remittances as a share of GDP in the Gambia is 28 percent while it stood at 21 percent in Lesotho, the report noted. 

The report added that remittances are an important source of household income for most Low and Middle-Income Countries (LMICs). Through remittances, most of the households in the LMICSs have been able to survive harsh economic conditions such as the Covid-19 pandemic. 

“Remittances are a vital source of household income for LMICs. They alleviate poverty, improve nutritional outcomes, and are associated with increased birth weight and higher school enrollment rates for children in disadvantaged households”. 

The World Bank noted that although the rising price of goods has adversely affected migrant incomes, the reopening of the economy and international borders has led to the increase of remittance inflow into Sub Sahara Africa.

Meanwhile, the global bank acknowledges that countries that witnessed scarcity of foreign exchange rates or multiple exchange rates officially recorded a decline in remittances inflow as migrants shift to alternative channels which promise better rates. 

The report noted that sending funds back home from some countries in Europe and America could attract a transaction fee that is as high as 7.8 percent on average. 

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Banking Sector

Insider Dealing: Hafiz Mohammed Bashir Acquires 37 Million Shares in Unity Bank

Alhaji Bashir carried out the acquisition in 32 different transactions at an average price of N0.51 a unit between November 8th and 11th 2022

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The management of Unity Bank Plc has announced that a non-Executive Director, Hafiz Mohammed Bashir scooped 37,681,947 shares of the bank.

The transaction was disclosed in a statement signed by the bank’s secretary, Alaba Williams.

Alhaji Bashir carried out the acquisition in 32 different transactions at an average price of N0.51 a unit between November 8th and 11th 2022, according to the disclosure available on the Nigerian Exchange Limited (NGX).

Insider dealing is the buying or selling of a company’s shares by someone with a piece of insider information not available to the public. Insider dealing is illegal in the U.S. but not in Nigeria as long as it’s disclosed.

The Nigerian Security and Exchange Commission (SEC) mandated all listed companies to disclose insider trading to enforce transparency across the nation’s Exchange market.

Also, insider dealings can help stakeholders and retail investors assess the confidence of top company executives in a listed company. While Alhaji Bashir’s acquisition could demonstrate his trust in the future of the company, it could also mean positioning ahead of a major company’s event given his position.

Hafiz Mohammed Bashir Profile

In 2017, Hafiz Mohammed Bashir was appointed as a Non-executive Director following the Central Bank of Nigeria’s approval.

Hafiz Mohammed Bashir is an accomplished professional with vast experience in the public and private sectors. He retired at the apex of Local Government Administration in Katsina State in 1992 and has chaired the Board of many companies – including Fiztom International Ltd, HafadGlobal Resources limited and Fiziks Nigeria limited.

Alh. Hafiz who is currently in private business holds a Post Graduate Diploma in Management from Abubakar Tafawa BalewaUniversity, Bauchi, and an Advance Diploma in Public Administration from the University of Jos, a higher Diploma in Local Government Administration- AhmaduBello University. Zaria and Diploma in Insurance from ABU, Zaria He is also currently undergoing a Master’s programme in Business   Administration at the Business School of the Netherlands.

See the details of the transactions below.

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Loans

Lagos Chamber of Commerce Advised FG on Borrowing, Proffer Solutions to Foreign Exchange Crises

LCCI lamented that additional borrowings will further increase Nigeria’s debt-servicing bill

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The Lagos Chamber of Commerce and Industry ( LCCI) has advised the Federal Government to explore alternative ways to finance the deficit in the 2023 budget proposal. LCCI lamented that additional borrowings will further increase Nigeria’s debt-servicing bill.

Investors King understands that the 2023 budget proposal as submitted to the National Assembly by the president has a deficit of N10.78 trillion.

Speaking at the organisation’s 134th Annual General Meeting (AGM) held in Lagos, LCCI President, Dr Olawale Cole, stated that although the chamber does not totally frown at the budget deficits, the chamber, however, is not disposed to issuing new commercial loans as well as bilateral and multilateral loans to finance the deficit. 

Dr. Olawale added that while President Buhari alongside other African presidents is seeking debt cancelation from international creditors, the presidents across the African continent keep piling up debts. 

“The world is a bit confused at our president’s well-publicized call for debt cancellation at the last United Nations General Assembly,” he noted.

Speaking further on the danger of the country’s incessant borrowing, Olawale said “the borrowings are significantly increasing, and Nigeria is struggling to service these debts due to revenue mobilisation challenges and an increased fuel subsidy burden”.

“The International Monetary Fund (IMF) has warned that debt servicing may gulp 100 percent of the federal government’s revenue by 2026 if the government fails to implement adequate measures to improve revenue generation,” he lamented. 

Similarly, the LCCI president also spoke on the foreign exchange challenges in Nigeria. He noted that the major cause of the fall in naira is a result of the drop in oil output and weak production amid increased demand for foreign currency. 

“The real solution to our forex scarcity crises is to boost production and expand exports. We must also resolve the crises around oil production, as 80 percent of forex earnings come from oil and gas exports,” he said. 

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