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Redefining Capital in the Nigerian Context

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  • Redefining Capital in the Nigerian Context

According to a recent report by TechCrunch on transportation technology in Israel, “there are twelve companies left standing in the global ridesharing market, and nearly half were built in a country of 8 million people and the size of New Jersey.” The question that will cruise through any curious mind is, how does such a “small” country that is relatively lean in natural resources create so much value for the entire globe? Nigeria has a staggering population over twenty times and a land mass about forty five times that of Israel, yet it cannot measure up when it comes to value creation.

As the old but apt proverb of the wise King Solomon goes “much food is in the tillage of the poor; but there is that is destroyed for want of judgment”. It may seem a reasonable judgement that the present economic menace, which has been attributed to the downturn in international oil price, fall in oil production due to activities of militants in the Niger Delta, and the currency crisis that has caused the Naira to plummet against the Dollar, is directly or indirectly a product of misplaced judgement on what the true capital of our nation is. Perhaps, we will begin our journey to recovery and healing from the Dutch disease that has plagued our nation if we begin to actively refocus and redefine capital in the Nigerian context. This redefinition is even much morepressingnow in the face of the recent Paris Agreement, where it was made clear that the world is taking concerted effort towards decarbonisation. It will be sheer foolhardiness for any country to keep focusing on crude oil as its sole or major capital.

At the nucleus of capital redefinition ought to be human capital. Although Nigeria tops the global human population table, what the country lacks is human capacity, the key driver of development and progress. The fusion of its population strength with human capacity development will give Nigeria a competitive advantage both locally and globally; otherwise, the population strength becomes a threat to its continuous existence and development. China, the world’s most populous country, is ramping up its economic power by leveraging on its population strength, which accounts for both its labour force and its market share.

The country empowers indigenous companies to thrive both at home and abroad, just in the same way it directly empowers its people to be productive. I once worked in a Chinese firm that operates within the Nigerian technological space. In all honesty, it was mind-boggling how Chinese citizens who are not inherently smarter than their Nigerian counterparts were dominating Nigerians, in number, ranks and in control of resources in our own country. The truth is, they were empowered to do so. Indeed, it is not a question of who is better off between Chinese firms or Western firms when it comes to foreign firms operating in Nigeria; it is a question of Nigerians taking their own destiny in their hands and calling the shots on any firm that wants to operate (make money) in Nigeria. Sadly, this comes only by empowering the people. Successful countries develop their human resources who in turn make their countries successful.

Therefore, what Nigeria must do urgently is to restructure both the formal and informal education sectors. This restructuring must begin from the grassroots, withelementary schools, and must enable the participation of both the public and private sectors in a properly defined and regulated manner. Nationwide vocational training and apprenticeship programmes should be revamped, and a partnership between the government, academic institutions and employers of labour should establish research directions, academic syllabuses and on-the-job training schemes that help provide solutions to our (local) problems and develop necessary skills for the labour market.

More so, we must understand that it will not suffice to develop talents, we must create opportunities and provide enabling environments for talents to thrive. We must discourage a culture that promotes mediocrity, and build strong institutions that encourage and reward excellence. A nation is as developed as the majority of its people are.

What are our core values as a nation? What is it that every single Nigerian will stand up for, to defend and protect? Is there any clear-cut direction as regards where we are heading together as a nation? There have been lots of arguments about whether our diversity as a nation is a blessing or a curse. The truth is, it is what we make of it. The point I am trying to address here is ofsocial capital, which is closely linked to human capital. People have always viewed the subject of national development mainly from the economical vista, however, the sociological perspective is equally as important.

Researchers have outlined three dimensions to social capital when it comes to value creation within any organisation. These three dimensions are structural, relational and cognitive dimensions.

In the Nigerian context, these dimensions cut across our ethnicities/cultures, beliefs/practices, work ethics, family and community orientations,value systems, and our lifestyles in general. While most of these things have been greatly influenced by the western world so much so that it is becoming unclear what our true identity is, we must set out clear-cut strategies to refine our identity. For example, we must discourage our consumer-centric mindedness, which only makes us numbers on the market share indices of productive economies, and replace it with a productivity-centric mindedness. We must develop a reading culture. We must instil in our children a problem-solving mentality and impress in their mind that the essence of going to school is not so as to get a good job, as our own parents told us, but it is so as to be able to solve societal problems. As a nation, we really cannot excel beyond the level of our attitude.

Furthermore, we must redefine our physical capital with an eagle-eye perspective that sees beyond crude oil. Arable land, infrastructures, mineral resources and finance should all fall into this category.In his book “How Asia Works: Success and Failure in the World’s Most Dynamic Regions”, Joe Studwell argued that critical interventions in agriculture, manufacturing and finance can help poor nations achieve rapid economic transformations.

In the Nigerian context, high labour-intensive household farming should be encouraged. Not only will this help bring about a judicious use of land and labour, it will increase outputs and also facilitate rural development. This should be backed up by appropriate policies and incentives, and should be taken as a supportive measure for reforms in large scale farming.

Manufacturing, which according to a 2016 report by the Boston Consulting Group, accounts for 10.6% of Nigeria’s GDP in 2013, is a promising avenue for the country to grow not only its GDP, but also its foreign revenue. This will require that the government engages the private sector in ways that attract investment and entrepreneurs,in order to ramp up development of infrastructures and the production of goods;to meet local demands, thereby reducing our reliance on imports, and also for exports to neighbouring countries andthe rest of the world.More so, the engagement of the private sector, and in fact every action involved in this redefinition process, must be structured around long term rewards and not short term gains.

To accomplish this redefinition, intelligent but radical efforts will be required, and these efforts may even be against the general concepts and ideas set out by international governing bodies. We must develop policies and initiatives that are locally sourced and that are relevant in the context of our own realities, and curb our dependence on international concepts or ideas. The sane thing is for us to get enlightened by exposure to these international concepts, then bring them home in a partially (or completely) modified and customised version. The present government can, together with its fight against corruption, make efforts to reduce the cost of governance and divest the savings towards human capacity development.

The Imperial College Nigerian Society (ICNS), the body of Nigerian students–and any student with interest in the Nigerian culture–currently studying at Imperial College London, has been at the forefront of discussing and enlightening our community on issues such as the ones addressed in this article, with the aim of actively advancing the cause of our great nation and helping to bring about an inclusive prosperity. We have been doing this through our annual symposium. This year, the theme of our symposium is “Creating Local Value with Global Standards”. The date is 4th of November, 2016 and the venue is The Great Hall, South Kensington Campus, Imperial College London.

 

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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Markets

Seesaw Price Action Continues

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By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Stock markets are bouncing back again on Wednesday as the seesaw price action continues in the face of significant Omicron uncertainty.

Today’s rebound really doesn’t feel particularly warranted given what little we know about Omicron at this point and what Jerome Powell said yesterday. A hawkish central bank and clearly concerned governments around the world is hardly the recipe for a new surge in the stock market.

But then, buying dips has often appeared to defy logic and yet been very effective so you can’t blame investors for giving it a try. And let’s face it, we’re a good headline on vaccine effectiveness away from a potentially tasty Santa rally. Maybe that’s the play for those jumping back in despite the worrying signs around the new variant.

Whether these rallies will have the legs over the next week or two maybe doesn’t matter in that sense. And I’d be surprised if they do until we get more information.

It’s perhaps more surprising that Powell’s comments haven’t had a bigger impact. For the Chairman to wait so long to tell investors what they already know and choose to do so at a time of real uncertainty when many still expect the central bank to be the backstop is both bizarre and a big deal. Is Powell trying to lay the groundwork for a faster tightening of policy if Omicron turns out not to be too bad, or regardless of whether it is or not?

CBRT intervenes as Erdogan vows there’s no going back

It’s been another wild session for the lira after the CBRT intervened in the markets and President Erdogan doubled down on his assault on interest rates, stating there’s no going back from the current economic model. The lira continued to fall on these comments prior to the intervention which only gave the currency a temporary lift.

The CBRT won’t be able to fight the market forever in its pursuit of rate cuts without consequences. The only thing they’re bringing to the market is more volatility and two-way price action but if they continue on the path they are on, then stability will elude them and the whole experiment will come at a great cost. Perhaps this is the first step towards Turkey joining Team Bitcoin?

Oil edges higher ahead of massive OPEC+ meeting

Oil remains extremely volatile ahead of tomorrow’s OPEC+ meeting when the group will decide if and how to respond to the Omicron news and last month’s coordinated SPR release by major consuming nations. On the latter, I don’t think there’ll be a direct retaliation – perhaps a warning – but it may feed into any decision-making on the new variant.

I still think the meeting has come too soon. That’s evident in the fact that it was pushed back by a couple of days in order to gather more data. And I’m not sure there’s enough at this stage to make an informed judgment. And if they had, by their own admission, factored in another wave this winter, then there should be no need to adjust at this stage. Although the SPR release may push some to support it anyway under the guise of an Omicron response.

With prices having fallen so far from the highs – around 20% – a one-month pause, for example, could see crude bounce back sharply and would discretely undo any benefit resulting from the SPR move.

Gold awaiting more data

Gold is really struggling for direction at the momentum, having repeatedly failed to generate any momentum above $1,800. It’s not in decline anymore but it can’t seem to make its mind up. The dollar easing in recent days and the huge amount of uncertainty in the markets should be giving it a lift but then we have seen near-term yields rising as the Fed has accepted more action may be necessary.

Perhaps like the rest of us, gold traders are simply waiting on more information before deciding where to head next. Choppy price action may be here to stay for now but the next couple of weeks will shed a light of light on what’s in store, at which point we should see gold find some direction once more.

Bitcoin benefiting from improved risk appetite

Bitcoin is enjoying some reprieve in today’s risk recovery but just like other assets in the same bracket, remains vulnerable to the continual shifts in sentiment as information slowly appears. We seem to be jumping from good news to bad news and back again on a daily basis which perhaps doesn’t bode well for Thursday. Although at this stage and after such a pullback in risk assets, no news may also bring some temporary relief.

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Crude Oil Could Hit $150 a Barrel When Global Economy Fully Reopened

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Crude oil - Investors King

Crude oil price could skyrocket to $150 a barrel when the world economy fully reopened, according to Christopher Wood, the Head of Equity Strategy at Jefferies, an American multinational independent investment bank and financial services company headquartered in New York City.

Brent crude oil, against which Nigerian oil is priced, plunged to $67.46 a barrel on Tuesday amid the uncertainty surrounding the Omicron Covid variant. However, it pared losses on Wednesday, rebounding to $70.94 a barrel as of 3:03 pm Nigerian time.

In spite of about 21 percent decline in the value of the commodity in the last three trading sessions, Wood believed the commodity could rise to as much as $150 per barrel once the world economy fully reopened despite campaigns to halt the use of fossil fuel and embrace more environmentally friendly energy.

Explaining the modalities for his position, he said crude oil rose to over $80 a barrel with the partial reopening of the global economy, this he said was largely due to high demand for fossil fuels even without the usual investment incentives in the sector.

“Oil got to over $80 with a lot of Asia closed,” and China’s borders are effectively still closed, he said, in reference of Beijing’s strict zero-Covid approach. “In a really fully reopened world, the oil price could go to a $150 dollars because the supply constraints are dramatic.”

He claimed the political attack on fossil fuels in recent years was the reason incentive for investment in the sector dropped in spite of its lingering importance, adding that 84 percent of the world’s energy in 2020 was met by fossil fuels.

According to him, because nobody is really investing in fossil energy, supply constraints will continue to support prices, which could hit $150 a barrel.

“The issue for me is not the oil price, the issue is the pandemic. The oil price is gonna go higher in a fully reopened world because nobody’s investing in oil but the world still consumes fossil fuels,” he said.

“So oil can go much higher and that can definitely escalate an inflation scare,” Wood said.

 

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Markets

Omicron Headline Tennis Continues

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By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

Markets endured another night of high drama overnight thanks to the latest omicron return of serve by the CEO of Moderna, and Jerome Powell shifting to what can only be interpreted as a hawkish stance in testimony on the Hill. The Moderna CEO raised questions about the efficacy of present vaccines and omicron late in Asia yesterday, which stopped the recovery rally in its tracks. Equities tumbled in late Asia, Europe and the US, while investors poured cash into Bunds and US Treasuries, flattening the US curve, and the haven Yen and Swiss France jumped. Oil prices, perhaps the most schizophrenic market out there at the moment, collapsed once again, and we haven’t even got to OPEC+ yet.

Jerome Powell, testifying on the Hill yesterday, added to the tumult, retiring the word “transitory” as his favourite pronoun for inflation, and suggesting that the Federal Reserve could unwind monetary stimulus faster than previously announced. The abrupt change of direction caught markets off guard and deepened the malaise in equity markets, while short-dated US yields rose as long-dated ones were falling on omicron-haven inflow, the yield curve flattening substantially overnight.

Treasury Secretary Yellen, also testifying, pleaded with Congress to extend the debt ceiling, saying a recession could follow and that the government would run out of money around the middle of the month. This story has been off the news front pages for a while now and had little impact once again overnight. Markets clearly believe some sort of bipartisan deal will still occur once the chest-puffing is over.

The Powell comments would have had a far greater impact, I believe, if the Moderna omicron story had not done some of the work for markets already. In the case of bond markets, haven buyers of long-dated US yields overwhelmed any inclination by investors to sell treasuries and steepen the yield curve once again. That was also evident in European markets, where Eurozone inflation exploded higher to 4.90% but Bund yields fell. It was left to currency markets to take the strain, with the US Dollar falling across the board and the Euro rallying along with the haven currencies. Perhaps the most confusing move was the US Dollar falling versus the EM space. I am taking the EM FX rally overnight with a massive grain of salt, and I can only surmise that month-end flows played their part.

I warned yesterday that the only winner in December was likely to be volatility as the street sells everything on any negative omicron headline, and then buys everything back on any hint that the new variant isn’t as serious as we all thought. Despite the awful New York session, the fallout in Asia and Europe may not be so bad thanks to a story out of Israel released by Italy 24 News no less. The story quotes the Israeli Health Minister as saying three doses of vaccine (in Israel it is Pfizer), protects from omicron and there is no need to panic. When a politician says, “no need to panic,” I always get nervous, but, financial markets now have their hope is eternal, straw of the day, to grasp at now. Tomorrow is another day though, and I have no doubt that another headline will have the mindless herd we call the financial markets, stampeding the other way.

If we can strip out the noise, I would grasp two themes from overnight. Firstly, European inflation has joined the inflation bonfire and markets are now starting to price that the world’s government debt monetiser-and-chief, the ECB, may have to respond, hence the rally in the Euro overnight. I think that is a false hope. Secondly, Chairman Powell’s comments were a decidedly hawkish change of direction and the mid-month FOMC meeting will be live for a faster taper. Distortions from omicron pushed aside, the US yield curve should steepen, and the US Dollar rally will return in Q1 2022.

Back in the real world, we have had quite a bit of data out of Asia today. Australian Ai Group Manufacturing Index for November jumped to 54.8 and Markit Manufacturing PMI to 59.2. Australian Q3 GDP QoQ contracted by just -1.90%, far better than the -2.70% forecast. The data suggests that the lucky country weathered the Q3 lockdowns better than expected and is recovering in Q4 at a vigorous pace. House prices even went up in Brisbane more than they did in Sydney.

Elsewhere, November PMIs across Asia were positive. Japan’s Jibun Bank Manufacturing PMI rose to 54.5, while South Korea’s Markit Manufacturing PMI climbed to 50.9 and its trade data showed a wider surplus and rising exports and imports. Regional Markit Manufacturing PMIs from ASEAN and Taiwan showed impressive improvements into expansionary territory, with Taiwan holding steady at 53.9. Only Indonesia retreated, falling to 53.9 from 57.2, but still expansionary.

Perhaps the only blot on the copybook today has been China’s Caixin Manufacturing PMI which retreated from 50.6 in October to 49.9 in November. The fallout should be minimal as the official PMI climbed to 50.1 yesterday. It still suggests that China faces challenges regarding input costs, and energy, although the squeeze in the latter has eased somewhat. The trade surplus remains very healthy though, and the overall picture from Asia is that its post-delta recovery continues to gain momentum despite supply chain challenges. Obviously, omicron could change that picture, but it is far too soon to draw conclusions.

A number of heavyweight Markit Manufacturing PMIs, including Germany and France, are also released today, as well as the ISM Manufacturing PMI. They should hold steady in expansionary territory whilst revealing supply chain and material cost challenges under the bonnet. With omicron dominating market direction, their impact will be minimal. US ADP Employment could print above 500,000 jobs added tonight, giving weight to a stronger Non-Farm release on Friday and perhaps increasing the Fed tapering noise.

A mixed day for Asian equities.

The Moderna CEOs concerns about vaccine efficacy and omicron torpedoed late closing Asian equity markets overnight, as well as Europa and US markets. A hawkish Jerome Powell darkening an already dark day for Wall Street. However, US index futures are strongly rallying this morning on what I assume to be a follow-through from comments out of Israel that booster shots would offer omicron protection. That has also lifted some Asian markets.

Overnight, the S&P 500 sank by 1.90%, with the Nasdaq falling by 1.55%, while the Dow Jones slumped by 1,84%. In Asia, US futures have jumped higher, led by Nasdaq futures which have leapt 1.10%, followed by a gain of 0.75% by the S&P futures and a rise of 0.45% by Dow Jones futures.

In Asia, the picture is mixed, with late closing markets yesterday outperforming earlier closing ones that missed the Moderna headlines and are playing catchup. Thankfully, the rise in US index futures is taking the edge of regional losses. The Nikkei 225 is 0.70% higher with the Kospi leaping 1.60% higher, coat-tailing the Nasdaq futures. In China, the Shanghai Composite and CSI 300 are flat after a softer Caixin PMI and nagging property sector debt repayment concerns. The Hang Seng is showing no such worries, rocketing 1.45% higher.

Regional markets are mixed today. Taipei is unchanged as Singapore rallies sharply, rising higher by 1.40%, but Kuala Lumpur has fallen by 0.80% and Jakarta by 1.15%, hampered by the overnight slump in oil prices. Bangkok is 1.40% lower with Manila falling 0.55%. Australian markets are also in the red but only modestly. The All Ordinaries has fallen by 0.55%, with the ASX 200 down just 0.35%.

The price action this morning highlights that omicron headlines continue to dominate intra-day market direction despite some major developments from Jerome Powell overnight. European markets are likely to follow North Asia higher for exactly the same reasons and in an environment of schizophrenic tail-chasing, the only winner this week will be volatility.

A confusing night on currency markets.

It is difficult to unpick the overnight movements in currency markets. The Moderna omicron headlines sent haven currencies such as the Japanese Yen and Swiss Franc soaring, but the US Dollar also faded badly versus the Euro and the emerging market space. Inflows into the German Bund market will have assisted the Euro, but heighteded concerns over omicron should have weakened EM currencies, not strengthened them. Additionally, a hawkish Powell narrative in overnight testimony should have been US Dollar positive, although the US yield curve flattened afterwards.

I can only surmise that in the confused menagerie of overnight trading, month-end institutional flows played their part in the US Dollar’s demise. Notably, the Sterling and Australian and New Zealand Dollars barely moved on a closing basis, despite the EM FX rally. That suggests the risk sentiment remains fragile and that the EM rally overnight should be taken with a huge grain of salt. The prospect of a faster Fed taper and earlier hikes in 2022 should start to reassert themselves.

The dollar index traded in a frenzied 100 point range overnight between 95.50 and 96.50, before closing 0.31% lower at 95.89, rising slightly to 95.95 in Asia. 95.50 to 96.50 will probably cover the rest of the week, at least until the next omicron headline. EUR/USD rose 0.40% to 1.1330, but its rally looks fragile. USD/JPY and USD/CHF plummeted on haven buying, with USD/JPY testing 112.50 intra-day before closing at 113.20. The cross looks very overdone at 112.50 and I will stick my neck out and say that will be the week’s low.

The US Dollar has strengthened this morning, notably against the majors, perhaps as risk sentiment has recovered. That is evidenced by the 0.40% rise by AUD/USD and NZD/USD today, which are key barometers of market risk sentiment. Both currencies remain vulnerable to headline risk though and a move below their 2021 lows at 0.7100 and 0.6800 remains the path of least resistance.

Asian currencies rallied sharply overnight with SUD/CNY falling 0.405 to 6.3940, USD/MYR falling 0.90% to 4.2000 despite oil plummeting, and USD/KRW falling 0.70% to 1182.70, a pattern repeated across the Asia FX space. I believe month-end flows, as well as the fall of the USD/JPY, helped drive the EM outperformance. Asian currencies have continued to book more gains today in Asia, driven by improved risk sentiment after the vaccine efficacy story from Israel gained wider circulation. With Asia FX rallying on positive virus news, its stands to reason that the next negative headline will see them about-face. With Jerome Powell setting a hawkish tone overnight, I would urge caution about the longevity of the Asian FX rally.

Oil has another virus slump.

In a high-volatility week, oil markets are in a league of their own. The Moderna CEO’s vaccine efficacy comments yesterday triggered another massive slump in oil prices. Brent crude finished 4.50% lower at $70.15 a barrel, having traded below $68.00 intraday. WTI slumped 4.40% to $66.95 a barrel, having tested $64.50 intraday.

With risk sentiment improving slightly, and the fall in prices irresistible to physical bargain hunters, Brent and WTI have rallied by 0.85% to $70.8- and $65.65 in Asia. It must be noted, however, that the gains this morning are only a slight dent in the scale of the falls seen in the past four sessions. While positive virus headlines provide an excuse for fast-money buying, the weaker side still seems to be lower.

With panicked tail-chasing blowing out volatility this week, the full OPEC+ meeting tomorrow cannot come soon enough, with the grouping cancelling the JMMC meeting earlier this week to evaluate omicron. With oil’s slump overnight, it is almost certain that OPEC+ will pause its scheduled production hikes for December to allow it to assess the impact of omicron more fully on the world economy. President Biden won’t be happy, but it does seem to be the more sensible move right now.  If OPEC+ postpones hikes tomorrow, oil prices may stabilise around present levels.

Technical levels and indicators are fairly useless in markets such as this, driven by panicked swings in investor sentiment and low liquidity. However, for what it is worth, the relative strength indexes (RSIs) on both Brent and WTI are now heavily oversold, indicating markets are vulnerable to a short squeeze. The overnight lows should provide some support ahead of OPEC+. Until OPEC+ announces its decisions though, we can expect more blood-bath range trading.

Gold is in trouble.

Gold’s price action continues to underwhelm, as it finished the overnight session down 0.55% at $1775.00 an ounce, before eking out a 0.20% gain to $1778.70 an ounce in Asia, almost a rerun of the price action yesterday. There are zero signs of any safe-haven bids emerging to shelter from virus volatility, and it is falling despite both US yields and the US Dollar also falling. Gold has now recorded its 3rd successive daily close below its 50,100 and 200 DMAs clustered between $1791.00 and $1792.20 an ounce, yet another bearish signal.

Gold will have resistance at $1800.00 and $1815.00, while yesterday’s low at $1770.00 an ounce, has traced out a double bottom support level. Failure of $1770.00 now signals a retest of $1760.00 and $1740.00 an ounce. I do not rule out a move lower to $1720.00 this week, especially if the Non-Farms puts the Fed taper front and centre after yesterday’s hawkish tone to the Powell testimony.

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