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Pressure to Devalue Naira Grows Amid CBN Resistance

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CBN

The persistent weakness of the naira, occasioned by low oil price in the international market, calls for devaluation of the currency sooner than later, industry experts have said, urging the Central Bank of Nigeria to review its restrictive foreign exchange polices.

The price of crude oil, the nation’s biggest source of foreign exchange, dropped below $35 per barrel last week, the lowest level since July 2004.

The naira took a further beating at the parallel market, trading near its lowest of N280 against the dollar on Thursday. It had on December 17, 2015 crashed to 280 against the greenback on the unofficial market.

Declining oil prices and the unwillingness of the CBN to devalue the naira amid constrained external reserves had continued to worsen the foreign exchange liquidity position of Nigerian banks, Renaissance Capital, a London-based investment bank, said in a report last month.

The naira had been devalued twice since the drop in global oil prices began, first in November 2014, when the central bank lowered the midpoint of the official peg by eight per cent to 168 per dollar.

In February 2015, the CBN also scrapped its twice-weekly auctions at which the naira was sold at a subsidised rate, a move that resulted in an effective weakening in the exchange rate of the currency by about 15 per cent.

The currency had lost 28 per cent of its value in the six months to February 2015 before the central bank fixed the exchange rate at N198 per dollar and tightened capital controls.

Since then, the central bank has sought to prop up the ailing naira with several measures, including stopping importers of around 40 items from toothpicks to glass and wheelbarrows from buying foreign exchange; restricting the use of local debit cards overseas; lowering Automatic Teller Machine withdrawal limits; and barring Nigerians from depositing hard currencies into their domiciliary accounts.

The Managing Director and Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, said the restrictions the CBN had recently put in place in the wake of the shortage of foreign exchange had been counter-productive.

He said, “The way forward to a sustainable exchange rate is to attract foreign investment. There is no country that can sustain a stable exchange rate if all you rely upon is what you earn from exports.

“My big issue with the way the central bank has chosen to manage the naira is that the it speaks about the reserves and exchange rate situation as if it is only about trading, and I think they get it wrong in that regard. It is not all about trading; capital flows matter.”

Teriba said the restrictive policies had scared capital away from Nigeria and eroded confidence of wealth holders in holding naira-denominated assets.

He added, “Countries that get comfortable reserves positions are countries that have regard for capital flow. They solicit and court capital flows and encourage people who bring their money into their jurisdiction to retain confidence in their ability to manage it. That is the neglected dimension in the face of the increased demand for forex; the CBN was announcing list of items that you cannot source official forex to import, and that is very wrong.

“By the time you start telling people that they cannot use their debit cards abroad, do you think that is going to encourage them to hold more money in naira? It is going to scare them to even flee the naira the more.”

The Financial Derivatives Company Limited, headed by renowned economist, Mr. Bismarck Rewane, in its latest Economic Bulletin, noted that the next meeting of the Monetary Policy Committee of the CBN in two weeks would come up at a time when there were mixed signals on the direction of the monetary policy in the country.

“The CBN is expected to announce a new forex policy, which will give it the flexibility to bring the external and domestic economic variables into equilibrium,” they added.

This may include the announcement of a new exchange rate band, with a floor of N185 and a ceiling of N220, during the first quarter of the year, the FDC said.

“Nigeria’s external reserves are below $29bn. The anticipated adjustment in the exchange rate band is expected to slow-down the rate of depletion, as the demand pressure eases. However, with oil prices still soft at $37 per barrel, the likelihood of an accretion is slim,” the FDC analysts said.

The Global Chief Economist at Renaissance Capital, Charles Robertson, said he said in an emailed response to questions from our correspondent, “Given that oil producers around the world are devaluing, from Azerbaijan to Angola, investors do expect a similar move in Nigeria.

“Indeed, letting the market set the currency rate could help President Buhari achieve his anti-corruption goals.”

The Head, Investment Research, Afrinvest West Africa Limited, Mr. Ayodeji Ebo, said, “The challenges we see around the naira have continued to compound, and they show that several policies that the CBN has introduced have refused to yielded any positive results and that call for a review of the policies.

“The pressure we have seen in recent times, especially last week, can still be linked to the fact that the demand for the dollar has not been reduced. It is just that it has been shifted from the interbank to the parallel market.

“It further buttresses what the IMF boss has reiterated in terms of being flexible regarding our foreign exchange policies, which simply put means devaluation, to reflect the current reality that we are seeing in terms of global oil prices that have been on the downward trend.”

Ebo said for the CBN to be able to close the gap between the parallel market and the interbank rates, it would need to devalue the naira by a minimum of 25 per cent.

He added, “But beyond the devaluation, they also need to watch the policies so that we don’t see an immediate increase in the spread between the interbank and the parallel market after the devaluation.

“So, it is more of policy-driven than just devaluing. If we continue to hold on to these restrictive policies, then you create arbitrage and round-tripping and other unethical practices.”

The Managing Director, International Monetary Fund, Ms. Christine Lagarde, had last week during her visit to Nigeria, said the goal of achieving external competitiveness required a package of policies, including business-friendly monetary, flexible exchange rate and disciplined fiscal policies, as well as implementing structural reforms.

“Additional exchange rate flexibility, both up and down, can help soften the impact of external shocks, make output and employment less volatile, and help build external reserves. It can also help avoid the need for costly foreign exchange restrictions, which should, in any case, remain temporary,” she said.

The CBN may revise its target for the naira by more than 20 per cent to 240 to 250 per dollar as oil continues its decline, a London-based economist at Exotix Partners LLP, Alan Cameron, said in a research note last week.

Africa economist at Capital Economics, John Ashbourne, said in a note to clients last Wednesday that Nigeria would be forced to devalue the naira to around 240 per dollar in the first half of 2016, adding, “Cumbersome foreign exchange restrictions are strangling economic growth.”

Punch

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

Investors Oversubscribed for FGN Bonds by N205.87 Billion in October

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bonds

FG October Bonds Oversubscribed by N205.87 Billion

The Debt Management Office (DMO) has said investors oversubscribed for the Federal Government’s October bonds by N205.87 billion.

The DMO stated this after concluding the monthly FGN bonds auction on Wednesday.

Two instruments of 12.5 per cent FGN March 2035 re-opening 15-year bond and 9.8 per cent FGN July 2045 re-opening 25-year bond were auctioned.

The two bonds of N15bn each with a total auction figure of N30bn received a subscription of N235.87bn.

The 15-year tenor and 25-year tenor bonds received 99 and 67 bids but recorded 21 and 26 successful bids respectively.

The amounts allotted for each of the bids were N20bn and N25bn respectively.

According to the DMO, successful bids for the 15-year tenor bond and 25-year tenor bonds were allotted at the marginal rates of 4.97 per cent and six per cent respectively.

However, it added, the original coupon rates of 12.5 per cent for the 12.5 per cent FGN March 2035 bond and the 9.8 per cent for the 9.8 per cent FGN July 2045 bonds would be maintained.

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Lafarge Africa Sustains Growth in Third Quarter, Reports N53.3bn Revenue

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Lafarge Africa

Lafarge Africa Grows Revenue by 31.4 Percent to N53.3bn Revenue in Q3 2020

Lafarge Africa Plc, a cement manufacturer headquartered in Lagos, sustained its strong growth in the third quarter (Q3) ended September 30, 2020.

In the company’s financial results released on the Nigerian Stock Exchange on Friday, the cement manufacturer’s revenue rose by 31.4 percent from N45.172 billion posted in the third quarter of 2019 to N59.337 billion in the third quarter of 2020.

Similarly, operating profit grew by 7.2 percent from N7.746 billion in the corresponding quarter to N8.302 billion in the quarter under review. This strong performance continues across the board as net income expanded by 2.8 percent to N4.867 billion, up from N4.734 billion posted in the third quarter of 2019.

Lafarge earnings per share rose by 2.8 percent to 30 kobo in the third quarter, again up from the 29 kobo posted in the same period of 2019.

On the outlook for the company going forward, the company said:

 Market demand is expected to remain strong in Q4.
 Naira devaluation and inflation remain a concern in Q4.
 The implementation of our “HEALTH, COST & CASH” initiatives would continue to deliver
improvement in our performance.
 We will maintain a healthy balance sheet.

Speaking on the company’s performance, Khaled El Dokani, CEO, Lafarge Africa Plc, said “Our robust results for the first 9 months reflect the strong recovery of the demand in Q3 and the successful implementation of our “HEALTH, COST & CASH” initiatives. Both have delivered considerable improvement in recurring EBIT, net income and free cash flow, despite the impact of the COVID-19 pandemic and Naira devaluation, particularly in Q3.

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Despite COVID-19 Pension Assets Hit N11.4 Trillion

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Total Pension Assets Expand to N11.35 Trillion

The National Pension Commission has revealed that the total pension assets rose to N11.35 trillion as of the end of August 2020 despite the COVID-19 pandemic that disrupted businesses and economic productivity.

According to the latest figures from the National Pension Commission,  the commission assets expanded from N11.08 trillion in June 2020 to N11.3 trillion in July.

The report noted that 66.27 percent or N7.51 trillion of the funds had been invested in the Federal Government’s securities.

While some of the funds were also invested in domestic and foreign ordinary shares, corporate debt securities, local money market securities and mutual funds.

In the commission’s second quarter (Q2 2020) report, it said that following “the issuance of demand notices to some defaulting employers whose outstanding pension contribution liabilities had been established by recovery agents, 16 of the affected employers remitted N261.33 million during the period.

“PenCom said this represents a principal contribution of N152.79 million and penalty of N108.54 million during Q2 2020.”

In the commission’s Q2 2020 report, it said “the pension fund administrators (PFAs) 2,839 contributors under the micro pension plan, remitted a total of N7.4 million to the RSAs as pension contributions.

Also in the same quarter, it said the PFAs recaptured 56,990 RSA holders and uploaded their data to the enhanced contributory registration system (ECRS).

PenCom further said the growth in the industry’s membership was driven by the RSA scheme, which had an increase of 41,147 contributors, representing 0.46 percent.

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