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Foreign Firms Repatriate $5.86 Billion from Nigerian Economy in 6 Months

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The Central Bank of Nigeria has revealed that foreign firms repatriated $5.86 billion from the Nigerian economy during the period between October 2022 and March 2023.

This disclosure comes from the bank’s latest ‘Economic Report, First Quarter 2023.’

The majority of these repatriated funds, approximately $5.13 billion, took the form of dividends paid to foreign investors.

However, this surge in dividend payments to non-residents has led to an expansion of the deficit in the primary income account, which reached $2.69 billion in Q1 2023, up from $2.26 billion in Q4 2022, according to the report.

The primary income account encompasses the compensation of employees and investment income. As the Quarterly Statistical Bulletin (Volume 11, Number 3, September 2022) explains, investment income includes profits, interest, dividends, royalties, and other income received by or paid to both direct and portfolio investors.

It can also comprise interest and commitment charges on loans (Other Investment Income).

Breaking down these figures, the Central Bank stated that the primary income account deficit expanded by 18.7%, largely due to a 34.9% increase in investment income payments to $3.09 billion, up from $2.77 billion in 2022Q4.

Direct investment income in the form of dividends saw a 12.1% increase to $2.71 billion, compared to $2.42 billion in the previous quarter.

Similarly, interest payments on portfolio investments rose to $0.09 billion, up from $0.05 billion in 2022Q4, while interest earnings on reserve assets increased by 35.7% to $0.20 billion, up from $0.15 billion in 2022Q4.

In contrast, interest payments on loans declined slightly by 0.7% to $0.30 billion.

The compensation of employees’ account, on the other hand, remained in a surplus position, rising by 6.2% to $0.06 billion in comparison to the previous quarter.

A 2019 report titled ‘Current Account Balance and Economic Growth in Nigeria: An Empirical Investigation’ highlights that the primary income account has consistently shown a deficit due to increased debt service payments and repatriation of dividends, income, and profits by foreign-owned companies.

This outflow of funds has been a hindrance to the development of the Nigerian economy, diverting foreign exchange resources that could be used for growth and development.

The report notes that profits that should be reinvested for economic growth are being sent overseas by foreign-owned companies operating in Nigeria.

In recent years, there has been a reduction in the net deficit in the income account due to lower outpayments of dividends and distributed branch profit and other interest payments.

A recent report highlighted that foreign airlines managed to repatriate $4.66 billion from Nigeria through ticket sales over 15 months.

However, these airlines still faced challenges in accessing their funds due to the scarcity of foreign exchange supply in the country.

President Bola Tinubu, in his inaugural address, pledged to address these issues, stating, “I have a message for our investors, local and foreign: our government shall review all their complaints about multiple taxation and various anti-investment inhibitions. We shall ensure that investors and foreign businesses repatriate their hard-earned dividends and profits home.”

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Finance

Presidential Committee to Exempt 95% of Informal Sector from Taxes

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The Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) has unveiled plans to exempt a significant portion of the informal sector from taxation.

Chaired by Taiwo Oyedele, the committee aims to alleviate the burden of multiple taxation on small businesses and low-income individuals while fostering economic growth.

The announcement came following the close-out retreat of the PFPTRC in Abuja, where Oyedele addressed reporters over the weekend.

He said the committee is committed to easing the tax burden, particularly for those operating within the informal sector that constitutes a substantial portion of Nigeria’s economy.

Under the proposed reforms, approximately 95% of the informal sector would be granted tax exemptions, sparing them from obligations such as income tax and value-added tax (VAT).

Oyedele stressed the importance of supporting individuals in the informal sector and recognizing their efforts to earn a legitimate living and their contribution to economic development.

The decision was informed by extensive deliberations and data analysis with the committee advocating for a fairer and more equitable tax system.

Oyedele highlighted that individuals earning up to N25 million annually would be exempted from various taxes, aligning with the committee’s commitment to relieving financial pressure on small businesses and low-income earners.

Moreover, the committee emphasized the need for tax reforms to address the prevailing issue of multiple taxation, which disproportionately affects small businesses and the vulnerable population.

By exempting the majority of the informal sector from taxation, the committee aims to stimulate economic growth and promote entrepreneurship.

The proposal for tax reforms is expected to be submitted to the National Assembly by the third quarter of this year, following consultations with the private sector and internal approvals.

The reforms encompass a broad range of measures, including executive orders, regulations, and constitutional amendments, aimed at creating a more conducive environment for business and investment.

In addition to tax exemptions, the committee plans to introduce executive orders and regulations to streamline tax processes and enhance compliance. This includes a new withholding tax regulation exempting small businesses from certain tax obligations, pending ministerial approval.

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CBN Governor Vows to Tackle High Inflation, Signals Prolonged High Interest Rates

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The Governor of the Central Bank of Nigeria (CBN), Dr. Olayemi Cardoso, has pledged to employ decisive measures, including maintaining high interest rates for as long as necessary.

This announcement comes amidst growing concerns over the country’s soaring inflation rates, which have posed significant economic challenges in recent times.

Speaking in an interview with the Financial Times, Cardoso emphasized the unwavering commitment of the Monetary Policy Committee (MPC) to take whatever steps are essential to rein in inflation.

He underscored the urgency of the situation, stating that there is “every indication” that the MPC is prepared to implement stringent measures to curb the upward trajectory of inflation.

“They will continue to do what has to be done to ensure that inflation comes down,” Cardoso affirmed, highlighting the determination of the CBN to confront the inflationary pressures gripping the economy.

The CBN’s proactive stance on inflation was evident from the outset of the year, with the MPC taking bold steps to tighten monetary policy.

The committee notably raised the benchmark lending rate by 400 basis points during its February meeting, further increasing it to 24.75% in March.

Looking ahead, the next MPC meeting, scheduled for May 20-21, will likely serve as a platform for further deliberations on monetary policy adjustments in response to evolving economic conditions.

Financial analysts have projected continued tightening measures by the MPC in light of stubbornly high inflation rates. Meristem Securities, for instance, anticipates a further uptick in headline inflation for April, underscoring the persistent inflationary pressures facing the economy.

Despite the necessity of maintaining high interest rates to address inflationary concerns, Cardoso acknowledged the potential drawbacks of such measures.

He expressed hope that the prolonged high rates would not dampen investment and production activities in the economy, recognizing the need for a delicate balance in monetary policy decisions.

“Hiking interest rates obviously has had a dampening effect on the foreign exchange market, so that has begun to moderate,” Cardoso remarked, highlighting the multifaceted impacts of monetary policy adjustments.

Addressing recent fluctuations in the value of the naira, Cardoso reassured investors of the central bank’s commitment to market stability.

He emphasized the importance of returning to orthodox monetary policies, signaling a departure from previous unconventional approaches to monetary management.

As the CBN governor charts a course towards stabilizing the economy and combating inflation, his steadfast resolve underscores the gravity of the challenges facing Nigeria’s monetary authorities.

In the face of daunting inflationary pressures, the commitment to decisive action offers a glimmer of hope for achieving stability and sustainable economic growth in the country.

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Banking Sector

NDIC Managing Director Reveals: Only 25% of Customers’ Deposits Insured

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The Managing Director and Chief Executive Officer of the Nigeria Deposit Insurance Corporation (NDIC), Bello Hassan, has revealed that a mere 25% of customers’ deposits are insured by the corporation.

This revelation has sparked concerns about the vulnerability of depositors’ funds and raised questions about the adequacy of regulatory safeguards in Nigeria’s banking sector.

Speaking on the sidelines of the 2024 Sensitisation Seminar for justices of the court of appeal in Lagos, themed ‘Building Strong Depositors Confidence in Banks and Other Financial Institutions through Adjudication,’ Hassan shed light on the limited coverage of deposit insurance for bank customers.

Hassan addressed recent concerns surrounding the hike in deposit insurance coverage and emphasized the need for periodic reviews to ensure adequacy and credibility.

He explained that the decision to increase deposit insurance limits was based on various factors, including the average deposit size, inflation impact, GDP per capita, and exchange rate fluctuations.

Despite the coverage extending to approximately 98% of depositors, Hassan underscored the critical gap between the number of depositors covered and the value of deposits insured.

He stressed that while nearly all depositors are accounted for, only a quarter of the total value of deposits is protected, leaving a significant portion of funds vulnerable to risk.

“The coverage is just 25% of the total value of the deposits,” Hassan affirmed, highlighting the disparity between the number of depositors covered and the actual value of deposits within the banking system.

Moreover, Hassan addressed concerns about moral hazard, emphasizing that the presence of uninsured deposits would incentivize banks to exercise market discipline and mitigate risks associated with reckless behavior.

“The quantum of deposits not covered will enable banks to exercise market discipline and eliminate the issue of moral hazards,” Hassan stated, suggesting that the lack of full coverage serves as a safeguard against irresponsible banking practices.

However, Hassan’s revelations have prompted calls for greater regulatory oversight and transparency within Nigeria’s financial institutions. Critics argue that the current level of deposit insurance falls short of providing adequate protection for depositors, especially in the event of bank failures or financial crises.

The disclosure comes amid ongoing efforts by regulatory authorities to bolster depositor confidence and strengthen the resilience of the banking sector. With concerns mounting over the stability of Nigeria’s financial system, stakeholders are urging for proactive measures to address vulnerabilities and enhance consumer protection.

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