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Exchange Rate Unification not Happening Soon, Say Analysts

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  • Exchange Rate Unification not Happening Soon, Say Analysts

The possibility of having a single exchange rate for the naira is not likely to be achieved any time soon, analysts at FBN Quest, the research arm of FBN Holdings have said.

Nigeria has at least, four exchange rates, which include one for Muslim pilgrims going to Saudi Arabia, another for oil marketers, rate for foreign travel and school fees, in addition to the official market rate.

The International Monetary Fund (IMF) has continually insisted that to ensure further stability in the foreign exchange market, Nigeria needed to unify her exchange rates. Nigeria had battled a currency crisis brought about by low oil prices, which tipped her economy into recession and created chronic dollar shortages.

According to a report released ahead of the Monetary Policy Committee (MPC) July meeting slated for next week, FBN Quest analysts said although one member of the committee called for the apex bank to pursue exchange rate convergence at different market segments, the possibility of realising the goal is slim.

“On the naira exchange rate, one member called for the CBN to pursue the convergence of the different segments of the market. Such a trend is not evident on NAFEX or from the CBN’s rate for preferential transactions (N305) although it could be discerned from the rates at the CBN’s wholesale auctions. We still do not see the unification of rates anytime soon,” they said.

The report titled: ‘A restatement of Caution’, analysed the personal statements of MPC members released last week by the apex bank and gave their verdict.

“The CBN last week released the personal statements arising from the last meeting of the monetary policy committee (MPC) in late May. Eight members of the committee voted for no change, and one for a hike in the policy rate of 50 basis points. We would have welcomed the start of easing but accept that the latest statements suggest otherwise. Their main concerns are that the macro-economy will be distorted by fiscal challenges and that the offshore portfolio community will rush for the door marked exit en masse,” the report stated.

On inflation, one member acknowledged that the policy rate was finally positive in real terms. Another noted that staff forecasts pointed to single-digit core inflation year-on-year in June.

“Those same forecasts see upward trending pressures in second half of 2018, which the committee explains in the context of fiscal developments: the late passage of the 2018 budget (signed off since the committee met), the expansionary nature of the N9.12 trillion budget, and the determination of the Federal Government of Nigeria to disburse undrawn capital releases from the 2017 budget before moving onto those projected for 2018. This is the single largest risk identified in the statements. Additionally, several members made the point that politicians generally inject cash into the economy ahead of Nigerian elections.

“In our view the MPC’s fears are overstated because projected FGN spending in 2018 is no more than eight per cent of forecast Gross Domestic Product, and, based on precedent and the late passage of the budget, is most unlikely to be released in full.As a broader point, we have examined the data for the run-up to the 2011 and 2015 elections, and have not found macro turmoil in the series for money supply, inflation and the public finances.”

One member was of the view that contractors should see the settlement of 40 per cent to 70 per cent of their arrears within the 2018 budget.

“Our expectation is that because of its stated concerns, the MPC will again make no change when it meets next week. Almost out of hope, however, we still see a rate cut by end-2018 and point to the statement in the communique that it would be prudent to analyse the national accounts for second in detail and assess the Federal Government of Nigeria’s fiscal stance once the 2018 budget had been approved before revising its own stance,”the report added.

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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NCDMB and NEXIM Sign $30 Million Agreement to Support Oil and Gas Services Firms

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The Nigerian Content Development Monitoring Board (NCDMB) and the Nigerian Export-Import Bank (NEXIM) yesterday signed a $30 million agreement on working capital and capacity building fund to support oil and gas services firms.

Simbi Wabote, Executive Secretary, NCDMB and Managing Director, NEXIM Bank, Abba Bello, signed the funding agreement at the Abuja office of the Nigerian content monitoring agency.

Wabote said the Oil Producers Trade Section, Independent Petroleum Producers Group and Petroleum Technology Association of Nigeria had raised concerns over funding challenges confronting oil services firms, as this had made most of the companies to consider downsizing their staff.

He said, “The OPTS and IPPG had at some point raised before the NCDMB the inability of most indigenous contractors to provide services to them due to challenges of funding.

“This was especially when we got struck by the COVID-19 pandemic. I recall receiving several letters particularly from IPPG trying to see how we can support this.”

He added, “I also recall receiving similar letters from PETAN when the COVID-19 struck and most of their members had nothing to do anymore.

“This is because companies were shut down and their members were threatening on how to downsize and take Nigerians off their payrolls.

“Based on this, we then set up a committee to say how do we support these firms with the provision of working capital.”

Wabote noted the roll-out date for the fund would be July 1, 2021 and that the fund size of $30m would be boosted by matching funds of the same amount to be provided by NEXIM in naira (to be converted at prevailing official exchange rate).

“The scheme shall cover loans for working capital support and capacity building, oil service contracts, invoice discounting including acquisition of low-end equipment to service short-term contracts/service obligations,” he stated.

He said the target market comprised Nigerian oil service providers which belonged to a professional association in the Nigerian oil and gas industry and commercially viable with a business relationship with either an international oil company or a major Nigerian oil firm.

“Maximum amount that can be borrowed by a single obligor is $1m or its naira equivalent at the official exchange rate prevailing at the time of borrowing,” Wabote said.

He added, “Tenor shall be up to 12 months for working capital loans and up to three years for capacity building loans with moratorium of up to 12 months.

“The applicable interest rate shall be five per cent per annum all-in for dollar-denominated loans and eight per cent all-in per annum for naira-denominated loans and the rate shall be fixed throughout the tenor of the loan.”

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LivingTrust Mortgage Bank Appoints Mr. Timothy Olorunsogo Gbadeyan as Company’s Secretary

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LivingTrust Mortgage bank has appointed Mr. Timothy Olorunsogo Gbadeyan as company secretary/head of legal services.

The bank disclosed in a statement signed by Ikechukwu Omuku, the Finance Officer/Head, Investor Relations, LivingTrust Mortgage Bank Plc.

The statement reads “We wish to notify The Nigerian Stock Exchange and the investing public of the appointment Mr. Timothy Olorunsogo Gbadeyan as Company Secretary/Head, Legal Services of LivingTrust Mortgage Bank Plc.

“Mr. Gbadeyan is a consummate corporate attorney with experiential background in deals advisory, real estate finance, facioring, general commercial transactions, corporate governance, company secretarial services and regulatory compliance. Until his appointment, he was the Head of Legal Services of Infinity Trust Mortgage Bank Plc.”

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Farmforte, Others Signs MoU To Strengthen and Sustain Growth in Agricultural Sector

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Farmforte Limited has signed a strategic Memorandum of Understanding with the Agricultural Fresh Produce Growers and Exporters Association of Nigeria; HYBR, a pan-African innovation firm; and ALTS, a consulting and strategy development firm.

The firm said in a statement on Sunday that the partnership would strengthen common interest cooperation and stimulate inclusive and sustainable growth within the agricultural sector, by capitalising on the synergy and comparative advantage offered by each organisation.

Speaking during the signing ceremony, Farmforte Co-Chief Executive Officer, Osazuwa Osayi, said, “Our mid to long-term strategic goals are further reaffirmed, as this partnership will facilitate the sharing of knowledge, ideas, and expertise across the agricultural sector.

“We will collectively address initiatives and approaches concerning agricultural investments, food security, and the overall robustness of the value chain.”

He said the collaboration would also unlock the full potential of the sector and place it on a renewed path for success, especially within a post-pandemic economy.

The President of AFGEAN, Tajuddeen Dantata, said, “By creating dialogue and fostering investment in the horticulture sector, this partnership will endeavor to support Farmforte in its exporting efforts by improving operational efficacy and cost-savings, while ultimately driving socio-economic growth in the country.”

The Chief Executive Officer, HYBR, Charles Ojei, said to drive inclusion, sustainability, job creation, and Nigeria’s overall economic growth, the optimisation of the agriculture value chain was critical.

“This collaboration is a fusion of the complementary capabilities of all partners to move a bigger agenda forward.”

The Managing Partner, ALTS, Akintunde Sawyerr, said, “The goal of this partnership is to support Farmforte’s vision of becoming the largest agribusiness by 2035 via scalable and world-class innovation across its enterprise.”

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