The pound fell the most in over a month against the dollar after London Mayor Boris Johnson, one of the U.K.’s best-known and most popular politicians, said he’ll campaign for Britain to leave the European Union in a June referendum.
The drop undid a gain made late Friday, when David Cameron secured a deal on membership terms with EU leaders. The U.K. Prime Minister said the following day that he would fight to keep Britain in the bloc, and set a June 23 date for the vote. Morgan Stanley analysts wrote on Friday that Johnson’s decision would be key for sterling, given his popularity with the British public.
“The pound should come under immediate pressure,” if he opted to campaign to leave, analysts led by Hans Redeker wrote in an e-mailed report.
The pound fell 1 percent to $1.4258 as of 9:11 a.m. in Auckland on Monday, the most on a closing basis since Jan. 15. It climbed 0.5 percent Friday. While the currency is down 3.2 percent this year, it has rebounded from an almost seven-year low of $1.4080 reached in January.
Even after Cameron announced a deal winning welfare curbs on Friday, a measure of traders’ expectations for price swings in the pound against the euro during the next six months remained at the highest since 2011. Although the announcement of the date removes one aspect of ambiguity for traders, they now face months of polls and campaigning that could boost volatility further.
With traders already pushing back bets on the timing of a Bank of England interest-rate increase, the prospect of Britain leaving the world’s largest single market had been causing further concern, helping push down the pound against most of its Group-of-10 peers this year.
“The pound’s weakness is a product of uncertainty of the U.K.’s ongoing membership of the union, not the timing of the poll,” said David Page, a senior economist at AXA Investment Managers in London. “Weakness is likely to reflect any increased perception of the likelihood to leave and as such is likely to be a constant feature over the coming months.”
Six-month implied volatility on the pound against the euro, a measure of price swings based on options, was at 12.10 percent on Friday, the highest level since September 2011, based on closing prices.
“The uncertainty will persist” into the vote, said Kit Juckes, a global strategist at Societe Generale SA in London. “Sterling was the weakest major last week and probably remains under pressure.”
The uncertainty over the vote hasn’t had the same impact on equities. While U.K. stock swings have increased this year, FTSE 100 Index implied volatility remains lower than for the euro area. And the weakening of the pound has actually helped the gaugeperform better than any other major market in the region. Even small- and mid-cap companies, deemed more at risk in a “Brexit” scenario, have fallen less than their European peers. Pictet Asset Management says U.K. stocks are not reflecting the true danger of an exit.
After the announcement of a date, attention quickly turned to the stance of ministers who, while given a free hand by Cameron to campaign against the government’s position, were asked not to announce their intentions until after the cabinet meeting on Saturday.
Johnson isn’t the only dissenter. Six ministers said they’d defy Cameron and campaign to leave on Saturday, among them the Prime Minister’s long-time friend and ally, Justice Secretary Michael Gove.
Even so, Cameron has convinced the majority of his cabinet to support him, including Business Secretary Sajid Javid and Home Secretary Theresa May, who were both seen as wavering over which way to vote.
Remittances To Africa Projected to Drop By 5.4% in 2021: UNECA
According to a new report from United Nations Economic Commission for Africa (UNECA), remittances to Africa are projected to drop by 5.4 percent to $41 billion in 2021 from $44 billion last year.
The report notes that the bleak situation has been compounded by the high cost of sending money to Africa from abroad, as the cost of remittances to Africa remains the highest in the world at 8.9 percent.
Remittances are an essential part of economic activity in low and middle-income countries (LMIC), including Africa. Due to the economic crisis induced by the COVID-19 pandemic and shutdown, global remittances are projected to decline sharply by about 20 percent in 2020. For Africa, remittances are projected to drop by 5.4 percent to $41 billion in 2021 from $44 billion last year, according to a new report by the United Nations Economic Commission for Africa (UNECA) projects remittances.
The report, titled “African regional review of the implementation of the Global Compact for Safe, Orderly and Regular Migration”, notes that the projected fall is mainly due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages amid the pandemic.
The report adds that the bleak situation has been compounded by the high cost of sending money to Africa from abroad as the cost of remittances to Africa remains the highest in the world at 8.9 percent.
“A migrant sending $200 to his/her family in Africa pays an estimated nine percent of the value of the transaction, indicating that the continent is still far from achieving the three percent target set out in Sustainable Development Goal 10,” the report stated.
This signals huge deficits in millions of African households depending on their friends and relatives abroad for a financial lifeline, thus threatening a perpetuation of macroeconomic imbalances on the continent.
The Addis Ababa Action Agenda of the Third International Conference on Financing for Development and Sustainable Development Goal indicator 10(c) provides that countries should, by 2030, reduce to less than three percent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than five percent.
In response, some African countries have taken action to lower the costs of remittance transfers by offering diaspora bonds to investors and relaxing foreign exchange controls to allow for electronic and mobile money transfers at reduced costs.
“It should be noted, in that regard, that the use of digital money transfer platforms reduces transfer fees in Africa by an average of 7 percent,” says the report.
“Private financial institutions also offer incentives to encourage members of diaspora communities to use their services, including low transaction fees for remittances, and facilitate diaspora-initiated projects, especially in the real estate sector. These measures all promote the financial inclusion of migrants and their families.”
The report recommends that member States support migrants and their families through adopting laws and regulations to facilitate the sending and receiving of remittances, including by fostering competition among banks and other remittance handling agencies to establish low-cost transfer mechanisms.
In addition, the report recommends that African countries make every effort to reduce the transfer costs associated with remittance payments by making more extensive use of digital transfer solutions, such as MPESA, and by streamlining the regulatory constraints associated with international money transfers.
Finally, the report concludes that the African States should also engage with destination countries to identify ways to enhance the provision of basic services to migrants in those countries as remittances are a primary source of national income for at least 25 African countries, all of which have large diaspora populations.
Nigeria’s Inflation Rate Declines to 17.01 Percent in August 2021
Prices moderated further in Africa’s largest economy, Nigeria, in the month of August despite rising costs and growing economic uncertainties.
Consumer Price Index (CPI), which measures inflation rate, grew by 17.01 percent year-on-year in August 2021, representing a 0.37 percent decrease when compared to the 17.38 percent recorded in the month of July 2021.
On a monthly basis, inflation rate increased by 1.02 percent in August 2021, slightly higher by 0.09 percent than the 0.93 percent filed in July, the National Buruea of Statistics (NBS) stated in its latest report.
Prices of goods and services continued to drop on paper in recent months even as costs are hitting record highs across most sectors in Nigeria.
Naira has plunged to a record-low against the United States Dollar and other global currencies following the Central Bank of Nigeria’s decision to halt sale of forex to Bureau De Change Operators in an effort to curb illicit financial flows and forex supplies to the black market.
Naira plunged to N560 per United States Dollar at the black on Wednesday to set a new record low against the greenback and subsequently dragged on cost of import goods and profit of import dependent businesses.
Food Index also rose at a slower pace in August 2021 even with Nigerians complaining of over 50 percent increase in the price of food items. Food composite index rose by 20.30 percent in August, at a slower pace when compared to 21.03 percent recorded in the month of July 2021.
The rise in food index were caused by increases in prices of Bread and cereals, Milk, cheese and egg, Oils and fats, Potatoes, yam and other tuber, Food product n.e.c, Meat and Coffee, tea and cocoa, according to the NBS report.
On a monthly basis, the food sub-index grew by 1.06 percent in August 2021, representing an increase of 0.20 percent from 0.86 percent filed in the month of July 2021.
Looking at a more stable food index guage, the twelve-month period ending August 2021 over the previous twelve-month average, food index increased by 0.34 percent from 20.16 percent achieved in July 2021 to 20.50 percent in August 2021.
Glo to Reconstruct 64km Ota-Idiroko Road Using Tax Credit Scheme – Fashola
Mobile telecommunications giant, Globacom, has offered to reconstruct the 64 km Ota-Idiroko road in 2022, using Federal Government’s Tax Credit Scheme.
The Minister of Works and Housing, Mr. Babatunde Fashola, announced this on Wednesday during an inspection tour of the ongoing reconstruction of the Lagos-Ibadan Expressway.
“From Ota to Idiroko, we don’t have a contract there, but Chief Mike Adenuga of Globacom has offered to construct that road using the tax credit system.
“So, that has also started, they are doing the design, and hopefully, by sometime early next year, they should mobilize to site. The real reconstruction is going to happen if we have a deal with Glo,” Fashola said.
He said that FERMA would carry out rehabilitation works on the Ota-Idiroko road between October and December.
“But between now and December, FERMA has gone to take measurements there and they will move there from the end of September if the Ogun State Government does two things.
“Clear all the squatters, traders, and the settlers on the road and help us manage traffic and the governor as at last night has committed to doing that for us,” the minister said.
He said efforts were on to bring in Flour Mills of Nigeria Plc and Unilever to reconstruct the Badagry link to the Lagos-Ota-Abeokuta road under the Tax Credit Scheme of the Federal Government.
The minister said that the Lagos-Ota-Abeokuta road had become a problematic road due to years of neglect by previous administrations, as such the highway required a huge investment.
He commended Gov. Dapo Abiodun for his passion for fixing roads in Ogun State, adding that the reconstruction of the failed portions of the Lagos-Ota-Abeokuta road would be completed by December at the cost of N13. 4 billion.
The minister added that the project would be handled by the Federal Road Maintenance Agency (FERMA).
He called on federal lawmakers representing Lagos and Ogun States to ensure increased budgetary allocation for the roads to ensure their speedy completion to ease the hardship on road users.
“When people say Fashola is looking away, I am not looking away, I just can’t find the money,” he said.
He also called for support of citizens for parliamentarians to ensure more borrowing for infrastructure upgrades because the future depends on development strides today.
Also speaking during the inspection tour, Gov. Dapo Abiodun of Ogun said that the project became necessary because Ogun is the industrial hub of the nation that needed good roads for interconnectivity to boost commerce.
He said: “We have given the commitment that we will relocate traders, we will control and manage traffic, whatever that it is we need to do, we will ensure that we begin to bring succor and needed relief to our people.
“The state of that road today is pitiable. I went on that road myself and I felt bad for our citizens.”
Abiodun said the state government was ready to borrow to reconstruct the Lagos-Ota-Abeokuta Road should there be a delay in the Sukuk funding for the highway.
“If this Sukuk bond would not happen immediately, the state government is willing to go and borrow against that promise so that we can mobilize the contractor,” he said.
He thanked Fashola for the efforts to reconstruct roads in the state and pledged the support of the state government in fixing the highways.
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