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MPC Meets Today, May Cut Interest Rate

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CBN

The Central Bank of Nigeria’s Monetary Policy Committee will today (Monday) begin its two-day bi-monthly meeting to review the state of the economy.

It is expected to take key policy decisions that will influence the direction of the economy.

Top on the agenda of the meeting is the need to tackle the biting recession occasioned by slow growth in the economy, rising inflation, and the volatility in the foreign exchange market.

In a notice posted on its website, the  CBN stated that 252nd meeting of the MPC would hold at 10am on Monday and Tuesday at the corporate headquarters of the apex bank in Abuja.

Economic experts expect the 12-member MPC to begin an expansionary monetary policy by reducing the Monetary Policy Rate (the benchmark interest rate), and lower the Cash Reserve Ratio.

According to the economists, the MPC will need to reduce the liquidity ratio and take measures to address the lingering volatility in the foreign exchange market.

The Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said the MPC might have no other choice than to purse an expansionary monetary policy considering the state of the economy and the recent stimulus package announced by the fiscal authority.

He said, “We expect an accommodative monetary policy as against a contractionary one. The CBN will want to complement the effort of the fiscal authority, especially as regards the stimulus package that was recently announced.”

In an economic bulletin released on Friday, Rewane added, “The divergence between the year-on-year headline inflation and the annualised monthly rate of 6.17 per cent poses a major dilemma to the apex bank. Even though the monthly measure is more relevant to inflation expectations, it may need to maintain consistency with the previous measure.

“The clamour for a stimulus package and lower interest rates by the government and the public will force a more accommodative stance by the committee in spite of other considerations.

“The high inflation environment has reduced consumer spending, real returns and corporate profitability margins. The markets have reacted accordingly.”

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, was also of the view that the MPC would begin an accommodative monetary policy.

He said, “It is clear that we have not been able to control inflation with the tightening policy. If the overriding consideration is to reflate the economy, the MPC will need to reverse the last increase made in the MPR by reducing it from 14 to 12 per cent. The committee may need to cut the Cash Reserve Ratio from 22.5 per cent to 20 per cent and then to 15 per cent later.

A professor of Economics at the Olabisi Onabanjo University, Sheriffdeen Tella, also said he expected the committee to reduce the MPR in order to lower interest rate on bank loans and subsequently boost credit in the economy.

He said, “This is a time to begin an expansionary monetary policy. The MPC must reduce the MPR, reduce the liquidity ratio or maintain the status quo. We have seen that the inflation we are experiencing is cost-push, i.e caused by increase in cost of capital and not by demand pull. So we need to reduce the cost of capital in the economy.

“There is also a need for the committee to tell us how they intend to tackle the volatility in the exchange rate. They need to tell us whether the volatility is being caused by speculators or real demand. If it is caused by real demand, there is nothing they can do about it. However, if it is activities of speculators, then they must state how they intend to deal with it.”

The MPC had during its July meeting hiked the MPR by 200 basis points to 14 per cent.

The 14 per cent MPR announced by the CBN is the highest in over a decade.

However, the committee left the CRR and the liquidity ratio unchanged at 22.5 per cent and 30 per cent, respectively.

The CBN Governor, Mr. Godwin Emefiele, who announced the decision of the committee after a two-day meeting held at the apex bank’s headquarters in Abuja, said eight out of the 12 members of the committee attended the meeting.

Out of the eight, he said five members voted in favour of monetary tightening, while the other three voted to hold the MPR at 12 per cent.

In taking the decision to increase the MPR, the CBN governor said the committee was faced with two policy choices – whether to hold or reduce the rate to stimulate growth, or increase it in order to curb inflation.

Emefiele, however, said when considered from the standpoint that the primary mandate of the CBN was to maintain price stability, the committee decided to focus on its mandate by checking inflationary pressures.

The governor explained that members of the committee agreed that the economy was passing through a difficult phase, adding that the concern was that headline inflation had risen significantly in June.

The committee, he said, noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging down growth.

The CBN governor said the high inflationary trend had culminated in negative real interest rates in the economy, noting that this was discouraging savings.

According to him, members of the committee also noted that the negative real interest rates did not support the recent flexible foreign exchange market as foreign investors’ attitude had remained lukewarm, showing unwillingness to bring in new capital under the circumstance.

He said the decision to raise interest rate would give impetus to improving the liquidity of the foreign exchange market and the urgent need to deepen the market to ensure self-sustainability.

The governor said members were of the opinion that the liquidity of the foreign exchange market would boost manufacturing and industrial output, thereby stimulating the much needed growth.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Economy

FIRS Proposes Road Infrastructure Tax

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Federal Inland Revenue Service- Investorsking

The Federal Inland Revenue Service (FIRS) says it is proposing the introduction of Road Infrastructure Tax in Nigeria, to make the informal sector contribute to building a modern society.

The Executive Chairman of the FIRS, Muhammad Nami, disclosed this on Thursday while receiving a delegation of the Nigeria Union of Journalists (NUJ) led by its National President, Chris Isiguzo, in his office, in Abuja.

Mr. Nami reportedly said the proposed Road Infrastructure Tax, to be administered by FIRS, will provide the government with adequate funding for road construction, rehabilitation, and maintenance, as well as providing the needed security for roads in the country.

According to the FIRS Executive Chairman, “The only way to make the informal sector contribute to building a modern society is by making them pay when they use the roads.” He stated.

“That is why we are proposing that government should consider introducing Road Infrastructure Tax in Nigeria.“

He noted that “in many jurisdictions, road users pay for the use of road infrastructure as such it shouldn’t be seen as an additional burden on our citizens because it has the potential of making life better for all of us.”

Speaking further, Mr Nami stated that Nigeria’s economy presently relies heavily on non-oil revenues to discharge its statutory responsibility of paying salaries and providing social amenities to the citizenry.

“Without the tax that you pay governments at all levels would not be able to fulfill their mandate to the electorates. Tax money also helps to ensure the roads you travel are safe and always in good condition,” he said.

Mr. Nami also stated that despite sharp practices by some companies who were in the habit of evading taxes, by shifting their capital and profits to tax havens, as well as low revenue from Petroleum Profit Tax, due to the shortfall in crude oil production among other factors, the FIRS has been putting forward critical reforms that have been yielding positive impact on the Service’s operations.

“Adopting technology in tax administration is crucial in improving domestic revenue mobilization in view of dwindling oil prices in order to avoid falling into a debt crisis. It is against this backdrop that the TaxPro-Max became the channel for filing Naira-denominated tax returns effectively from 7th June 2021.

“The TaxPro-Max enables seamless registration, filing of returns, payment of taxes and automatic credit of withholding tax as well as other credits to the Taxpayer’s accounts among other features. The technology also provides a single-view to Taxpayers for all transactions with the Service,” Mr. Nami explained.

The tax agency official also noted that the management of the Service had established two critical units, the Intelligence, Strategic Data Mining & Analysis Department (ISDMA) and the Tax Incentive Management Department (TIMD) as part of institutional reforms to generate more revenue and forestall revenue leakages.

“While the TaxProMax will serve as the flagship tool for mining data, it will be complemented by other tools that the Intelligence, Strategic Data Mining and Analysis Department department may deploy, with the data engineers in the Department carrying out necessary distillations.

“Management also established the Tax Incentive Management Department to manage, implement and report on tax incentives as provided by relevant extant laws and regulations. The TIMD is specifically in charge of the tax affairs of companies/enterprises enjoying tax exemptions and holidays. Companies enjoying Pioneer incentives, Non-Governmental Organizations (NGOs), Cooperative Societies, companies in Export Processing Zones (EPZ), Free Trade Zones (FTZ), Oil and Gas Export Processing Zones (OGEFZ), those engaged in Downstream Gas Utilization and all others enjoying tax holidays are being managed by the TIMD to forestall revenue leakages, such that these companies/enterprises do not use their status as a cover to earn taxable income and refuse to pay tax on such income,” the FIRS chief said.

He added that the service created 10 Value Added Tax (VAT) Regional Coordination Offices across the country to drive the collection of VAT.

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COVID-19 Has Permanently Lowered Path of Real GDP in sub-Saharan Africa – IMF

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Institute of Chartered Shipbrokers

The IMF is predicting that the pandemic has permanently lowered the path of real GDP in sub-Saharan Africa, suggesting a loss of real per capita output of close to 5.6 percent in the latest issue of the sub-Saharan Africa Regional Economic Outlook report released Thursday (October 21) in Washington, D.C.  

“We estimate that sub-Saharan Africa’s economy will grow by 3.7 percent this year and 3.8 percent in 2022. The recovery is being supported by favorable external conditions on trade and commodity prices. It has also benefited from improved harvests and increased agricultural production in a number of countries. And the recovery, of course, follows the sharp contraction in 2020 and is, of course, very much welcome,” said Abebe Aemro Selassie, head of IMF’s African Department.

The region is on a different recovery path from much of the world. Such global divergence, which is expected to persist over the medium term, reflects sub-Saharan Africa’s slow vaccine rollout and stark differences in policy space.

Sub-Saharan Africa has been hit by a third wave of the pandemic, this time with the more contagious Delta variant, with infection rates often rising to triple, quadruple the rates seen in earlier waves. Thankfully, this wave has now eased over the past months or so, but there is little reason to believe that there won’t be repeated waves going forward. This is also because vaccination efforts in sub-Saharan Africa have been slower than other regions due mostly to stockpiling by advanced countries, export restrictions by major vaccine manufacturing countries, and additional demands for booster shots that we’re seeing in advanced economies that could further compromise supply. At the moment, only around 3 percent of the population in sub-Saharan Africa has been fully vaccinated, in sharp contrast to most advanced economies that are close to the 60 percent or more level of vaccination,” explained Selassie.

The region’s recovery remains highly vulnerable to changes in the global outlook, including a tightening of global financial conditions.

Policymakers in sub-Saharan Africa need to navigate an increasingly difficult and complex policy environment. Against the backdrop of a context of weaker than expected growth, policymakers need to navigate among three formidable pressures, pressing spending needs to address the many social and human capital and infrastructure needs they face, limited borrowing capacity given the already high public debt levels in most cases, and the time consuming and politically difficult nature of mobilizing tax revenues. How deftly countries navigate this trilemma, as we’ve been calling it, will have a huge bearing on macroeconomic wellbeing of countries as well as economic growth prospects,” said Selassie.

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Nollywood, a Potential Growth Driver – Coronation Merchant Bank

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movie

Drawing on data provided by the National Film and Video Censors Board (NFVCB), the National Bureau of Statistics (NBS) has released its report on Nollywood Movies Production for Q2 ‘21. Given that the sector’s performance is strongly linked to consumer confidence, trends within the industry can be regarded as a sound indicator of private consumption.

The Nigerian film industry is the largest in Africa in terms of value, number of annual films, revenue and popularity. It is also globally recognised as the second largest film producer in the world in terms of output. Based on the NBS report, Nollywood produced 635 movies in Q2 ’21 compared with 416 in Q1 ’21. This points towards growth of 53.9% q/q and 1.4% y/y. We note that during the period under review, Lagos had the highest number of movies produced with 234 movies, followed by Abuja (196 movies). However, Benin and Port-Harcourt recorded the least movies produced in Q2 ’21 with 7 movies each.

The national accounts from the NBS show that the entertainment industry grew by 1.2% y/y in Q2 ’21. This is compared with a contraction of -1.1% y/y recorded in the previous quarter. However, the sector’s contribution to total GDP declined from 0.3% in Q1 ’21 to 0.2% in Q2 ’21.

The global film industry suffered setbacks during the pandemic, leading to the halt of film production and the closure of cinemas. In Nigeria, several film shoots were placed on hold or scrapped and professionals across the industry struggled to earn wages. Industry sources suggest that the estimated losses for the sector have reached c. USD9m and that at least 50,000 jobs have been lost.

However, there has been a considerable pickup in activity following the easing of lockdown restrictions across the country. Another challenge faced by the film industry in Nigeria is the significant loss of revenue that arises from the illegal exploitation of intellectual property. A World Bank report estimates that for every legitimate copy (of a Nigerian film) sold, nine others are pirated.

Furthermore, a United Nations Educational, Scientific and Cultural Organization (UNESCO) report estimated that the country lost USD3bn in revenue from creative works in 2019 due to digital piracy.

Funding is another challenge in the Nigerian film industry. However, over the past ten years, Nigerian filmmakers and entrepreneurs have started to gain access to new types of funding from different sources such as the federal government, international organisations, as well as private investors. We recall that in 2019, the Federal Government introduced the Creative Industry Finance Initiative (CIFI), where players within the film industry such as production and distribution companies can potentially access as high as N500m, at a maximum interest
rate of 9%, with an allowance of up to ten years for loan repayment.

As a purely economic process, gentrification in the film industry requires that the industry be formalised. In Bollywood, the establishment of film academies and corporatisation of the industry are steps that transformed the Indian film industry.

The recognition of filmmaking as an approved industrial activity in India led to structural changes that have helped to reshape the industry. However, we note that the presence of investors prompted the transformation of the industry. For Nollywood, there is the need for more government support through its regulatory agencies.
The role of the government as an enabler is important, as its proactive stance on some of the challenges that have hindered growth within the industry should boost investors’ confidence.

The Nigerian film industry is a low-hanging fruit for Nigeria with regards to the African Continental Free Trade Area (AfCFTA) agreement. The agreement is likely to boost Nigeria’s film industry market, as the agreement is expected to expand consumer market on the back of the combined population of 1.3 billion Africans.

Based on a recently released UNESCO report, it is estimated that Africa’s film industry contributes at least USD5bn to Africa’s total revenue annually. Furthermore, the second phase of AfCFTA implementation which focuses on intellectual property rights should have a positive impact on the film industry, as one of the objectives is to create a single, unified jurisdiction for the administration of intellectual property rights in Africa.

The expectation is that increased certainty, stability and confidence in intellectual property rights would encourage creativity and innovation across the continent. For Nigeria’s film industry to maximise the opportunities within the AfCFTA, structural issues need to be addressed. In addition, investments in broadband (internet) infrastructure and creative content could further bolster the growth of the film industry in Nigeria. Furthermore, strengthening the creative industry (Nollywood inclusive) will assist with easing pressure on Nigeria’s unemployment rate as the industry is capable of providing jobs for skilled job seekers. In addition, the industry is well-positioned to boost fx earnings via exports.

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