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Capital Market Investors Reject New FRCN Corporate Governance Code

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  • Capital Market Investors Reject New FRCN Corporate Governance Code
  • Says directive is anti-investment, high-handed

Investors in the nation’s capital market have rejected the new, National Code of Corporate Governance, prescribed by the Financial Reporting Council of Nigeria, FRCN, saying it is inimical to further investments, while also being high-handed.

After due considerations of the new regulation, which became effective on October 17th, the investors insisted that the FRCN did not incorporate the inputs made to it in a position paper and the three public hearings before the Code was enacted.

Speaking more on the contentious Code at a press conference yesterday, in Lagos, the National Coordinator, Independent Shareholders Association of Nigeria IISAN), Sunny Nwosu, insisted that its introduction should have been more democratic.

He said: “Yes, we were invited to make our input and we presented a position paper, which we submitted to the Council as well as participated in the three public hearings on the Code. But what we have now is a unilateral decision, and we will not support any legislation that conflicts with the Companies and Allied Matter Act, CAMA.
“As much as we will not support company managers to be reckless, we will also not support overbearing regulators. We will support any corporate governance that will encourage investors, not one that will pull them down. And we say that this FRCN Code, which is made compulsory, will not encourage returns on investment.”

The Financial Reporting Council recently released a set of codes, which it claimed was: “In accordance with Section 50 of the FRCN Act, 2011, which among other things, requires the Directorate of Corporate Governance to develop the principles and practices of Corporate Governance applicable in Nigeria.”

Accordingly, the Council came up with three separate regulations, tagged: the National Code of Corporate Governance, effective 17th October 2016, which stipulated: The Code of Corporate Governance for the Private Sector is mandatory; The Code of Governance for Not-for-Profit entities is “Comply or Justify non-compliance” and the Code of Governance for the Public Sector will not be applicable immediately until an executive directive is secured from the Federal Government of Nigeria. This is due to the fact that the enabling laws that set up most government establishments already carry some form of governance structure that will require an umbrella legislation to unify the different provisions of those laws to synchronise with this Code.

But reacting to specific provisions for the respective Code, ISAN insisted it would have a “suffocating effect on entrepreneurial aspirations and initiatives of Nigerians and persons seeking to establish business in the country.”

Apart from the perceived negative implications of over regulation of Nigeria’s corporate world, the shareholders also maintained that the code contained “noticeable contradictions and conflict with the subsisting CAMA, as amended.”

Elaborating on the stifling effects of the Code, Nwosu blamed it for the inability of the Board of Directors of StanbicIBTC Plc to publish its financial performances since 2015. He pointed out that even the auditors of the bank, KPMG, had even withdrawn its suit against the FRCN due to the stringent penalties against any company challenging its authority in court.

Furthermore, any sanctions or fine imposed on a company, as in the case of STanbicIBTC, which was fine N1billion last year for accounting irregularities, impacts directly on investors’ return, as such will be netted off as part of the operation cost rather than profit.

According to Nwosu, some of the grey areas identified in the Code include the provisions that “companies shall have not less than five directors,” which he said is “unnecessarily expansionary and costly,” particularly for the Micro, Small and Medium Enterprises (MSMEs).

Besides, he noted, the FRCN is flouting its own rule, as it was yet to constitute its own board, saying, that the Council “…must provide leadership in the nation’s corporate world by constituting its board in line with its new corporate governance code.”

Furthermore, he noted that the code “allows executive directors of the companies to be appointed board members of another company or companies.” He also picking holes with the “cool off period” for former chief executives, saying the seven to 10 years ban are too long and should be reduced to at least three years.

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.

Crude Oil

Oil Prices Decline on Rising India COVID-19 Cases, U.S Inflation Concerns

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Global oil prices extended a decline on Friday following a 3 percent drop on Thursday as coronavirus cases rose in India, one of the world’s largest oil consumers.

Brent crude oil, against which Nigerian oil is priced, declined by 35 cents or 0.5 percent to $66.70 a barrel at 5 am Nigerian time on Tuesday while the U.S West Texas Intermediate (WTI) fell by 28 cents or 0.4 percent to $63.54 per barrel.

The commodity super cycle rally just hit a hard stop and the energy market doesn’t know what to make of Wall Street’s fixation over inflation and the slow flattening of the curve in India,” said Edward Moya, senior market analyst at OANDA.

The crude demand story is still upbeat for the second half of the year and that should prevent any significant dips in oil prices,” he added.

Prices dropped over a series of key economic data that stoke inflation concerns and forced experts to start thinking the Federal Reserve could raise interest rates to curb the surge in inflation.

An increase in interest rates typically boosts the U.S. dollar, which in turn pressures oil prices because it makes crude oil more expensive for holders of other currencies.

This coupled with the fact that India, the world’s third-largest oil consumer, recorded more than 4,000 COVID-19 deaths for a second straight day on Thursday, dragged on the oil outlook in the near term.

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Brent Crude Rises to $69 on IEA Report

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Oil prices rose after the release of the International Energy Agency’s (IEA)  closely-watched Oil Market Report, with WTI Crude trading at above $66 a barrel and Brent Crude surpassing the $69 per barrel mark.

Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.

The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said yesterday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.

However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.

Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.

“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s COVID-19 demand shock have returned to more normal levels,” the IEA said in its report.

In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.

“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.

The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.

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OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply

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The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.

This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.

According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.

The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.

OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.

The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.

On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.

Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.

On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.

This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.

However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.

“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.

The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.

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