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Capital Budget Implementation Raises Concerns on Inflation



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  • Capital Budget Implementation Raises Concerns on Inflation

As disbursements for the capital projects would begin in earnest following the signing of the 2017 budget into law by Acting President Yemi Osinbajo, concerns have been raised on the impact of increased liquidity in the economy on declining inflationary trend. The ability of the Central Bank of Nigeria to manage excess liquidity arising from capital budget implementation has, however, been acknowledged.

The National Bureau of Statistics, which recently released report on the Consumer Price Index for May 2017, disclosed that the index, which gauges inflation increased by 16.25 per cent (year-on-year) in May 2017, representing 0.99 percent points lower than 17.24 per cent in April. The decline is the fourth since January 2017.

NBS also revealed that, on a month-on-month basis, the headline index increased by 1.88 percent in May 2017, 0.28 percent points higher than the rate of 1.60 percent recorded in April 2017, indicating persistence pressure on prices despite the general decline in year-on-year inflation. Month on Month inflation has cumulatively risen by 7.7 per cent since January 2017

Food Inflation increased by 19.27 per cent (year-on-year) in May 2017, down by 0.03 percent points from the rate recorded in April of 19.30 per cent. But on a month-on-month basis, the food sub-index increased by 2.54 percent in May, up by 0.50 percent points from 2.04 per cent recorded in April.

According to NBS, “The Food index in May whether on a year on year basis on month on month basis therefore indicates sustained pressure on food prices since then beginning of the year following high food prices recorded the whole of 2016.”

While analysts attributed the improvement in macroeconomic indices to the decline in CPI year-on-year, liquidity surge into the economy, which is still volatile could adversely affect the inflationary trend, if not well managed. But the CBN armed with its instruments of controlling excess liquidity has been deemed capable to rise to the occasion.

According to analysts at Eczellon Capital Ltd, “The execution of capital projects in the 2017 budget will increase the level of liquidity in the economy and this may lead to an increase in inflation rate. Conversely, excess liquidity in the economy may be mopped by judicious application of monetary policies.”

The analysts argued that, “The war against inflation rate has not been fully won as inflation rate may increase due to excess liquidity bolster by the execution of capital projects in the just released 2017 budget. The CPI is still very high at 16.25 per cent, thus, inflation rate has not been fully tamed.” But they acknowledged that the CBN had been able to reduce the increase in inflation rate.

The analysts pointed out that the decline in the CPI could be related to “the base rate which has priced in an already volatile economy, hence the improvement in some macroeconomic indicators has helped to reduce the CPI.”

They enthused that, “The drop in the CPI will boost the purchasing power of the local currency as the prices of goods and service decline. Hence, the value of naira will gradually rebound as more economic activities unfold. Also, the decrease in the CPI will resuscitate confidence in the economy as purchases of goods and services bounced back at lower rates.”

In his view, Director, Union Capital Ltd, Egie Akpata, noted that, “There is a risk that the recently passed budget and its expansionary focus could drive up inflation. However, the ability of the Federal Government to fund the deficit and the CBN strategies in the second half of the year will be instrumental in keeping inflation on a downward trend.

Nevertheless, Akpata posited that, “The big drop in CPI is welcome but not unexpected,”, stating, however, that the increase in month-on-month inflation continued to give cause for concern.

Pointing out that the figures in the CPI report suggested that the CBN policies were pushing inflation down, Akpata, contended that, “The CBN is not likely to reduce interest rates on the near term as cost pressures as shown in the month-on-month increase are not moving in the right direction.”

Similarly, CEO, Global Analytics Consulting Ltd, Tope Fasua, pointed out that the recent release of the budget will lead to more liquidity and a further increase in inflation – “if we follow the theory.”

Fasua therefore believed, “We have to be more circumspect to discombobulate the drivers of inflation in Nigeria. A lot of the inflation is driven by perception and expectations, rather than a calculated response to economic situations. I have had to note elsewhere that food vendors are getting smarter than before and getting their own back from a perceived ‘opulent’ society.”

The economist, however, argued that, the role of taming inflation, though chiefly that of the CBN, had to now be viewed from a multi-sectoral, multi-stakeholder perspective.

According to him, “Monetary policies have their own shortcomings, and in a country such as ours where data is suspect, the reliance on monetary policies alone to achieve these objectives is inefficient. Regarding the recently released data, it is noteworthy that food inflation is still on the rise, and this is where it pinches the common man the most. Whose role is it to ensure that food prices don’t continue to increase? Certainly not a matter for only the CBN because if it is we are only further promoting extra-monetary interventions of which we have a surfeit for now. It is also dangerous to leave all the levers of an economy to a single agency which already has intervention funds for Agric, Aviation, Manufacturing, SMEs and the rest.”

To the CEO, The CFG Advisory Ltd, Adetilewa Adebajo,the development did not come as a surprise as the economy’s exchange rate had been relatively stable at N305/$ with forex supply on the increase and high interest rates maintained at 14 per cent. “We hope that the downward trajectory continues at faster pace. Falling inflationary pressures is indicative of the possibility that interest rates could be revised at the next MPC meeting which will the n help to stimulate economic growth,” he added.

Professing strong belief in CBN’s strategies for tackling inflation, Adebajo stated: “There is a greater level of certainty regarding the CBN’s approach towards taming inflation as year-on-year inflation has fallen for the five consecutive months from 18.72 per cent (Jan) to 16.25 per cent(May) by 2.47 percent points.”

“ The decline by almost a 100 basis points from April to May CPI figures can help restore confidence in the naira. We can strongly say CBN’s efforts to tackle inflation are finally reaping some benefits,” he posited.


Forex Market

The Central Bank of Nigeria on Monday intervened yet again in the inter-bank foreign exchange market to the tune of $413.5 million to further shore up the international value of the naira. The latest intervention underscored the apex bank’s resolve to sustain liquidity in the foreign exchange market. “The CBN offered the sum of 100 million dollars to dealers in the wholesale window, while the Small and Medium Enterprises window was allocated a total of 28 million dollars. The invisibles segment was allocated the sum of 25.5 million dollars to meet the needs of those requiring forex for business and personal travel allowances, school tuition, medicals, etc.,” the apex bank explained.


Nigeria generated N204.77 billion as Value Added Tax in the first quarter of 2017. The National Bureau of Statistics said this in a Sectoral Distribution of VAT Data for first quarter of 2017. The report showed that the N204.77 billion generated in the quarter was lower than N207.35 billion generated in the fourth quarter of 2016. The decline in the amount generated represented 1.25 per cent decrease quarter-on-quarter. The manufacturing sector generated the highest amount of VAT with N28.73 billion.


The Federal Airports Authority of Nigeria conducted a test-run on an upgraded baggage scanner machine that can detect explosives, narcotics and other prohibited items at the Murtala Mohammed International Airport, Lagos. A statement by Henrietta Yakubu, the agency’s spokesperson, said the initiative was put in place to boost safety and security programmes around the country’s airports. FAAN also explained that the scanner was intended to complement the Executive Order recently issued by the acting president, Professor Yemi Osinbajo.

Tax Evasion

Nigeria ratified multilateral conventions on tax-related treaties to end profit shifting and tax evasion by multinational companies. The ratification of the treaties followed the approval of a memo submitted by the Minister of Finance, Kemi Adeosun, in an effort to widen the country’s tax base and improve revenue generation. Adeosun said the ratified conventions would enable Nigeria evaluate, amend and cancel existing treaties that were not beneficial to the country. Signing of the convention would also curtail illicit financial flows from and into the country.


The Consumer Price Index, which measures inflation, dropped from 17.24 per cent in April to 16.25 per cent year-on-year in May, according to the National Bureau of Statistics. The NBS in the report stated that on a month-on-month basis, the headline index rose by 1.88 per cent in May, representing 0.28 per cent points higher than the rate of 1.60 per cent recorded in April.

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

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Banking Sector

Guaranty Trust Holding Plans N500 Billion Share Offering



Guaranty Trust Holding Company Plc (GTCOPLC) has announced plans to raise up to N500 billion through a new share offering, according to a preliminary prospectus filed with the Securities and Exchange Commission (SEC).

This move aims to support the company’s ambitious growth and expansion strategy.

GTCOPLC’s proposed offering will involve the subscription of ordinary shares of 50 kobo each, although the exact number of shares and the price range are yet to be determined.

The offering includes a concurrent filing of a preliminary universal shelf registration statement, allowing the company to issue various types of securities, potentially raising up to $750 million in multiple currencies.

Purpose of the Offering

The funds raised from this offering will primarily be allocated towards:

  1. Business Growth and Expansion: GTCOPLC plans to invest significantly in technology infrastructure to enhance its current operations. Additionally, the company intends to establish new subsidiaries and make selective acquisitions of non-banking businesses.
  2. Recapitalization of Guaranty Trust Bank Limited: Part of the proceeds will be used to strengthen the capital base of its banking subsidiary.

Target Investors and Structure

The offering is structured to attract both institutional and retail investors. It will be divided into two main tranches:

  • Nigerian Tranche: An institutional and retail offering aimed at eligible investors within Nigeria.
  • International Tranche: A private placement targeting qualified institutional buyers outside Nigeria.

Listing and Trading

GTCOPLC has also filed an application with the Nigerian Exchange Limited (NGX) to list and admit the new ordinary shares for trading on the NGX Official List.

The company anticipates opening the offering by July 2024.

Financial Strategy

The universal shelf registration will enable GTCOPLC to issue a variety of securities over time, with a total value of up to $750 million (or its equivalent in Nigerian Naira).

This approach provides the company with flexibility to raise capital in different markets during the programme’s validity period. The current proposed offering will be the first issuance under this new programme.

Regulatory Compliance

GTCOPLC emphasized that this notice does not constitute an offer of securities for sale in the United States or to U.S. persons, as defined under Regulation S of the U.S. Securities Act of 1933.

The offered shares have not been, and will not be, registered under the U.S. Securities Act or any state securities laws, and cannot be sold in the United States without proper registration or an applicable exemption.

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China Maintains One-Year Policy Loan Rate at 2.5%, Avoids Excessive Liquidity




China’s central bank, the People’s Bank of China (PBOC), has decided to keep the key interest rate steady for the tenth consecutive month.

On Monday, the PBOC announced that the rate on one-year policy loans, known as the medium-term lending facility (MLF), will remain at 2.5%.

This decision aligns with the forecasts of a Bloomberg survey, reflecting the bank’s priority to maintain financial stability amid a fragile economic recovery.

The central bank also took measures to manage liquidity, withdrawing a net 55 billion yuan ($7.6 billion) from the banking system.

This action aims to prevent excessive liquidity, which could lead to further depreciation of the yuan. By maintaining a cautious stance on monetary easing, the PBOC underscores its focus on currency stability over lowering borrowing costs.

This move comes as China grapples with mixed economic signals. While exports exceeded expectations in May, inflation rose less than anticipated, and factory activity saw an unexpected contraction according to an official survey.

Despite these challenges, the PBOC’s restraint reflects a strategic choice to prioritize the strength of the yuan, even as calls for a rate cut grow louder.

Last week, the onshore yuan weakened to its lowest level since November, driven by a wide interest rate gap between the US and China.

The PBOC’s decision to hold rates steady is seen as an effort to prevent further devaluation of the yuan, which remains a “powerful currency” according to financial authorities.

Sufficient market liquidity has also influenced the central bank’s decision to refrain from outright rate cuts.

This is evidenced by the declining borrowing costs of popular debt instruments, such as one-year AAA-rated negotiable certificates of deposits, which have dropped to around 2%, compared to the MLF’s 2.5%.

The influx of funds from savings to wealth management products and other higher-yielding assets has bolstered the financial system’s liquidity, allowing the PBOC to adopt a more conservative stance.

China’s economy has experienced a patchy recovery, with government bond sales accelerating to boost infrastructure spending amidst a prolonged property slump.

Despite these efforts, the central bank remains cautious, opting for stability over aggressive monetary easing.

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Banking Sector

Fidelity Bank Launches N127.1bn Public Offer and Rights Issue on June 20



fidelity bank - Investors King

Fidelity Bank Plc, Nigeria’s sixth-largest bank, is set to open its public offer and rights issue to investors on Thursday, June 20, 2024.

In preparation for this significant financial event, Fidelity Bank will host a “Facts Behind the Offer” presentation at the Nigerian Exchange Group (NGX) on the same day.

This presentation is expected to provide detailed insights into the bank’s strategy and the opportunities presented by the public offer and rights issue.

Under the rights issue, Fidelity Bank will offer 3.2 billion ordinary shares of 50 kobo each at N9.25 per share. These shares will be available to existing shareholders in the proportion of 1 new ordinary share for every 10 ordinary shares held as of January 5, 2024.

In addition to the rights issue, the bank will also offer 10 billion ordinary shares of 50 kobo each to the general investing public at N9.75 per share. This dual approach is part of the bank’s comprehensive strategy to raise a total of up to N127.1 billion.

The acceptance and application period for the rights issue and public offer will commence on Thursday, June 20, and close on Monday, July 29, 2024.

This timeline provides investors ample opportunity to participate in the bank’s capital expansion.

Fidelity Bank has engaged Stanbic IBTC Capital as the lead issuing house for the combined offer. The joint issuing houses include Iron Global Markets Limited, Cowry Asset Management Limited, Afrinvest Capital Limited, FSL Securities Limited, Futureview Financial Services Limited, Iroko Capital Market Advisory Limited, Kairos Capital Limited, and Planet Capital Limited.

These firms will play a crucial role in managing the offer and ensuring its success.

The bank’s initiative to raise N127.1 billion is seen as a strategic move to bolster its capital base and ensure compliance with the CBN’s revised capital requirements, which were introduced on March 28, 2024.

This capital raise is expected to enhance the bank’s capacity to support its growing customer base and expand its operations across Nigeria and beyond.

In recent years, Fidelity Bank has demonstrated robust financial performance and growth, positioning itself as a key player in Nigeria’s banking sector.

The successful completion of this public offer and rights issue will further solidify its standing and enable it to pursue new opportunities in the competitive financial landscape.

Investors and stakeholders are keenly anticipating the outcome of this capital-raising exercise, which is poised to mark a significant milestone in Fidelity Bank’s journey toward sustained growth and stability.

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