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Nigeria, SSA Countries’ Debts Rise by 550% to $200bn – Report

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Forex Weekly Outlook October 31-November 4
  • Nigeria, SSA Countries’ Debts Rise by 550% to $200bn – Report

The total borrowing from the international debt markets by Nigeria and other countries in the sub-Saharan African countries has jumped to over $200bn, from $30bn in 2007, data from the Bank for International Settlements have shown.

This represents an increase of over 550 per cent within the period.

Governments across sub-Saharan Africa including Nigeria are hitting international debt markets hard and fast to try to beat rising borrowing costs, pushing the region’s debt levels to new highs, Bloomberg reported on Tuesday.

While Nigeria has raised $5.5bn over the past three months, Kenya wants to borrow at least $1.5bn, and Angola, Ivory Coast, Ghana and Senegal are all queuing up.

The flurry of bond issuance adds to an already-record debt tally for sub-Saharan Africa, which has ballooned to over $200bn from less than $30bn in 2007.

“If you have a lot of issuance in a short period of time, that tells you something,” an asset manager at Standard Life Aberdeen, Kevin Daly, said.

“Maybe these guys are realising that their borrowing costs are going to potentially go higher over the course of the year if we get a continued rise in Treasury yields and further rate hikes by the Fed.”

With investors busy assessing where the United States Federal Reserve interest rates are headed, the focus is now on just how vulnerable the region may be to such an increase, especially with a large pile of repayments also looming.

Rating agency, Moody’s, calculates Ghana has $4.5bn of bonds due between 2020 and 2026, Gabon has $2bn maturing between 2022 and 2025 and Zambia has $3bn between 2022 and 2027.

Meanwhile, Kenya’s first Eurobond payment of $750m, representing roughly one per cent of its annual economic output or Gross Domestic Product, is due in June next year followed by $2bn in 2024.

“For sovereigns which do not have long track records of repaying international bonds, this will represent a significant test,” Moody’s said in an e-mailed statement.

The increase in international debt issuance means “sub-Saharan African borrowers are now more exposed to shifts in global risk sentiment and external financing conditions,” if added, stressing the risk of rising borrowing costs.

Nigeria, Africa’s largest economy, is pushing ahead regardless. The country’s 2018 provisional budget has laid out plans to raise some $2.8bn this year.

The Minister of Finance, Kemi Adeosun, also wants to lift the proportion of dollar debt to 40 per cent from its current level of 27 per cent, to replace expensive naira bonds with 10-year interest rates as high as 14 per cent.

“Nigeria is focused on reducing the cost of our debt portfolio and ensuring we have the optimal mix between domestic and international debt,” she told Reuters.

“The proceeds of the dollar issuance – will be used to re-finance domestic debt, which is high-cost and short-term, with lower-cost international debt with a longer tenure.”

Debt levels in the SSA region are still low compared to many other parts of the world. Sub-Saharan Africa’s average public debt level surpassed 50 per cent of the Gross Domestic Product in 2017, according to The Institute of International Finance.

But there has been an explosion since 2005 when rich countries, for a second time in a decade, wrote off billions of dollars to help the continent out of its debt trap.

Part of the recent big run up in debt levels came as commodity exporters such as Nigeria, Zambia or Angola were forced to fill the gaps in coffers left by a 75 per cent slump in oil and some key metal prices between 2014 and 2015.

Combined with the related hit to growth rates, this triggered an outsized fall in sovereign credit ratings in the region which only now looks to be levelling off.

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.

Finance

Total Currency in Circulation Increased by N56.44bn in September

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Central Bank

Currency in Circulation Rose by N56.44bn in the Month of September to N2.426 trillion

The total currency in circulation increased to N2.426 trillion in the month of September, the Central Bank of Nigeria (CBN) report has shown.

In the report released on Wednesday, the apex bank said the total currency in circulation stood at N2.369 trillion as of the end of August.

The amount then rose by N56.44 billion in September to N2.426 trillion.

A further breakdown of the report revealed that currency in circulation declined by 6 percent in the first quarter of the year to N2.29 trillion, about 7.5 percent below the same quarter of 2019.

The figure stood at N2.35 trillion in May, then rose to N2.39 trillion by the end of July.

While reserve money expanded by 5.9 percent to N12.96 trillion when compared to a 20.7 percent growth recorded in April 2020.

The report also noted that at N10.61 trillion, liabilities to other depository corporations grew 70.5 percent above the previous month’s growth rate of 59.7 percent.

The report said, “The heightened uncertain outlook due to the lockdown encouraged more cash to be held by the public.

“This was evident from the increase in currency in circulation, compared with the level in the preceding month.

“Currency in circulation rose by two per cent to N2.35tn at the end of May 2020, compared with the increase of 0.5 per cent at the end of April 2020.”

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Finance

CBN Directs Banks to go After COVID-19 Financial Criminals

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Godwin Emefile

Central Bank Asks Banks to Stay Abreast Frauds and Rising COVID-19 Financial Crimes

The Central Bank of Nigeria has directed all financial institutions in Nigeria to update alert protocols in their Anti-Money Laundering/Combating the Financing of Terrorism monitoring tools, in accordance with emerging trends of rising COVID-19 related financial crimes.

In a circular titled, ‘Administrative letters to all banks and other financial institutions’ issued on Monday and signed by J.M. Gana, the Director, Financial Policy and Regulation Department, the apex bank said changes in business activities and financial transactions due to the shift caused by COVID-19 pandemic have led to the surge in financial crimes globally.

Therefore, it said financial institutions must now adapt quickly and keep abreast of the new emerging financial risks and other developments to arrest this new and emerging ML/TF.

According to the circular, this includes strategic investment in data mining and artificial intelligence software to monitor financial transactions effectively and report as quickly as possible.

The central bank said the Nigerian Financial Intelligence Unit, the central repository of suspicious transactions and other financial information, had released a comprehensive report on STRs and others.

It stated that the NFIU had identified cybercrimes, frauds, counterfeiting and substandard goods, diversion of public funds and misuse of non-government organisations funds as some of the ongoing crimes that banks across the nation need to stay abreast and report.

Other suspicious transactions and red flags identified in the report were some e-commerce companies with little or zero history or internet presence suddenly receiving multiple payments from unrelated third parties.

Similarly, it said individuals with zero or little history of financial transactions receiving multiple payments from unrelated third parties. It also noted that customers who suddenly start delaying in the supply or purchases of medical supplies and payment of goods linked to known brands, yet the beneficiary is an individual, not a corporate company should be flagged.

The measures, the apex bank said were necessary due to the rising numbers of unusual transactions from banks’ customers and unscrupulous individuals.

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Finance

Union Bank Secures US$40 Million Facility from IFC Global Trade Finance

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Union Bank Secures US$40 Million Facility from IFC Global Trade Finance

Union Bank of Nigeria Plc said it has secured a US$40,000,000 finance guarantee facility from the IFC, a member of the World Bank Group.

In a note to the Nigerian Stock Exchange, the lender said the facility would help boost access to finance for local businesses and enable increased international trade for Nigeria.

It explained that the facility “will support Union Bank to establish working partnerships with nearly 300 major international banks within the GTFP network, thereby broadening access to finance and reducing cash collateral requirements for Nigerian businesses.

“The facility will enable the continued flow of trade credit into the Nigerian market at a time when imports are critical, and the country’s exports can generate much-needed foreign exchange.

Under the IFC’s Global Trade Finance Program (GTFP) terms of the agreement, GTFP offers benefiting banks partial or full guarantees covering payment risk on Union Bank’s trade-related transactions.

Accordingly, these guarantees are transaction-specific and may vary depending on underlying instruments like letters of credit, trade-related promissory notes, guarantees, bonds, and advance payment guarantees.”

Emeka Emuwa, Chief Executive Officer of Union Bank, said, “Union Bank is pleased to join the IFC’s Global Trade Finance Program. This is a significant achievement as we continue to expand our trade financing offerings to our
customers. Even in these peculiar times, we remain focused on contributing to economic growth by developing tailored solutions that help our customers harness the teeming opportunities that still exist in the Nigerian market.

Eme Essien Lore, IFC’s Country Manager for Nigeria, said, “Keeping trade moving is essential to growth and job creation, especially during the challenging economic times we are living through today. We welcome Union Bank to IFC’s Global Trade Finance Program and value a partnership that will make a positive impact on Nigeria’s economy.

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