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Revving Up Liquidity, Capital Inflows

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  • Revving Up Liquidity, Capital Inflows

The Central Bank of Nigeria (CBN) has systematically evolved innovative policies aimed at revving up liquidity and energetic capital inflows to impact economic activities towards building a healthy and balanced economy. Liquidity is crucial in business and economy and is defined as “a measure of the extent to which a person or organisation has cash to meet immediate and short-term obligations, or assets that can be quickly converted to do this.’’

It engenders a high volume of activity in a market which ultimately impacts the Gross Domestic Product (GDP).

A healthy economy is where unemployment and inflation are in balance. Experts posit that the natural rate of unemployment in a healthy economy would be between 4.7 per cent and 5.8 per cent and the target inflation rate would be two per cent.

A healthy growth rate would be between two and three per cent. GDP growth above four per cent for several quarters would overheat the economy and create asset bubble and investor ‘madness’ which would eventually throw the economy into recession and finally to a record low before the ‘madness would stop.

Unemployment rates in USA, UK, China, Germany and India are 3.90 per cent, four per cent, 3.8 per cent, 3.4 per cent and 3.52 per cent respectively, and the corresponding inflation rates are 2.9 per cent, 2.5 per cent, 2.1 per cent, 2.1 per cent and 4.96 per cent respectively.

The figures for Nigeria are a long way from home which tells the health of the economy. Unemployment rate is at 18.80 per cent up from 16.20 per cent in Q2 2017, and inflation rate at 15.37 per cent at end December 2017, having dropped consistently from 18.72 per cent at end January 2017, thanks to CBN tight monetary policy and other factors.

CBN monetary policy, exchange rate policy and development actions contributed to the positive economic development in 2017.

The World Bank in its 2017 report commended the central bank policies and called for sustenance.

Business mogul and Africa’s richest man, Alhaji Aliko Dangote had also noted that ‘’ the policies of the Central Bank contributed in saving the economy.’’

Also, Lagos Chamber of Commerce and Industry (LCCI) had noted that ‘’CBN has been consistent in its interventions in the foreign exchange market. This has helped to reduce exchange rate volatility. With the interventions, we have seen improved liquidity of the foreign exchange and stability of the naira against the dollar. Confidence is gradually returning to the market and we hope that this would be sustained.’’ Consumer confidence is crucial for a healthy economy and is one of the five major indicators. Others are, GDP, Money supply (M2), Consumer price index, Producer price index and current employment statistics.’’

CBN’s new policy is the currency swap deal with the Peoples Bank of China (PBoC) which aim to fix the liquidity challenges faced by Nigerian traders and Chinese manufacturers. A currency swap is a ‘’contract to exchange at an agreed future date principal amounts in two different currencies at a conversion rate agreed at the outset.’’

Currency swaps were introduced by the World Bank in 1981 to obtain Swiss franc and German marks by exchanging cash flows with IBM in a deal reportedly brokered by Salomon Brothers with a notional amount of $210 million and a term of over ten years. The US Fed used currency swap transaction during the global financial crisis in 2008 to establish central banks liquidity swaps to provide liquidity in US dollars to overseas markets.

Besides Nigeria, other countries that have swap deals with China include South Africa, Malaysia, UK, Thailand, Hong Kong, European Union etc. In 2011, Nigeria was the largest trading partner of China in Africa, and in the first eight months in 2012, it was the third. Overall, Nigeria was rated the most pro-Chinese nation in the world by a poll conducted by BBC World Service.

Eighty per cent Nigerian expressed positive sentiment for China and 20 per cent otherwise.

It is noteworthy that the flooding of the economy with cheap Chinese goods has affected domestic industries especially textile mills with the closure of 65 mills and lay-off of about 150,000 workers, but CBN has noted that the new swap deal would be mutually beneficial to both economies.

According to the central bank, “the deal which is purely an exchange of currencies will make it easier for Chinese manufacturers seeking to buy raw materials from Nigeria to obtain enough naira from banks in China to pay for their imports from Nigeria. Indeed, the new deal will protect Nigerian business people from the harsh effect of third currency fluctuations.”

The new deal has been applauded by some captains of industry.

In a recent report, the Director General LCCI, Mr Muda Lawal, noted among other things that “it will impact on trade positively between Nigeria and China because it would make the payment system easier.’’

Prior to the currency swap deal, CBN established the Investors’ and Exporters’ (I&E) FX Window which boosted liquidity with a turnover of $22.85 billion at end December 2017 and kick-started production which hitherto was moribund in the wake of economic recession and dollar scarcity.

CBN reported that the aggregate foreign exchange inflow increased by 45 per cent to $91 billion in 2017, compared to $62.75 billion in 2016.

Inflow through CBN was $42.17 billion, accounting for 46.30 per cent, while autonomous sources accounted for $48.33 billion or 53.70 per cent.

Overall net inflow in 2017 was $57.32 billion compared to $37.19 billion in 2016. CBN net inflow in 2017 was $11.62 billion as against a net outflow of $2.10 billion in 2016.

The increased inflow was attributed to the central bank’s interventions in the interbank and Bureau de Change segments of the FX market.

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 long experience in the global financial market.

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Warren Buffet to Give Out Another $2.9bn, Total Donations Now $37bn

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Warren Buffett's Donations

Warren Buffet Gives Away $2.9bn, Total Donations Now $37bn

Oracle of Omaha, Warren Buffet, has announced his yearly charitable donations to the five philanthropies he picked to donate most of his fortune to.

The billionaire plans to give out 15.9 million class B shares of Berkshire Hathaway worth $2.9 billion to the five philanthropies. This will bring his total philanthropic donations to $37 billion since 2006.

Warren Buffett

Buffet, who has promised to give away about 99 percent of his fortune, still hold 248,734 Class A shares of Berkshire valued at around $67.5 billion.

However, before he began given out his shares, Oracle of Omaha held 474,998 Class A shares of Berkshire, which would have worth about $129 billion as of today.

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UBA Appoints Ayoku Liadi, Oliver Alawuba as Deputy Managing Directors

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UBA Appoints New Deputy Managing Directors for its Growing Business

United Bank for Africa Plc (UBA) announced the appointments of Ayoku Liadi and Oliver Alawuba as the Deputy Managing Directors in charge of UBA’s Nigeria and Africa businesses, respectively.

In a statement issued by the bank and released on the Exchange’s website, the bank said the creation of the new positions represents further strategic recognition of the bank’s pan-African business growth.

The lender explained that its pan-African business now accounts for over 40 percent of its Group revenue, while Nigeria remains the bank’s largest market.

According to the bank, the new Deputy Managing Directors will report directly to the Group Chief Executive Officer (CEO), Kennedy Uzoka.

Speaking on the new appointments, Tony O. Elumelu, Group Chairman, said “In 2005, we set out our pan-African vision. Fifteen years later, we are present in 20 African countries, serving over 20 million clients, leveraging our service culture and technology platform, to provide an integrated and seamless customer offering across the continent.

“In Africa, we lead in innovation and service, whilst our International Business, operating from New York, Paris and London, provides global and African clients access to treasury, trade finance and corporate banking products, uniquely tailored to the African opportunity. These senior appointments represent our commitment to optimise our management structure to best serve our clients and drive our business success.”

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West African Consumer Sentiment Reflects Global Uncertainty

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Ghanaian Consumer Confidence Declines by 15 Points

Lagos, 7 July 2020 – Against the backdrop of the unprecedented COVID-19 pandemic, West African consumer sentiment has experienced a sharp drop in the Nielsen Consumer Confidence Index (CCI) for Quarter 2, 2020. Ghana’s figures show a substantial decrease of 15 points to 104, while Nigeria’s CCI has decreased by 14 points to 108.

Looking at Ghana’s performance, Yannick Nkembe, Market Lead for Nielsen West Africa Expanded Market, comments; “The latest consumer sentiments reflect the market reality. With the global pandemic affecting the economy and causing general uncertainty all around, consumers have readjusted their confidence levels and are also more cautious with their spend.”

Ghanaians have significantly dropped their outlook around  their job prospects, with less than half (45%) saying they will be good or excellent in the next 12 months – a 16 point decrease from the previous quarter. In terms of the state of their personal finances over the next 12 months, 60% say they are excellent or good, again a substantial 16 point drop from the previous quarter.

Ghanaians propensity to purchase has also seen a considerable decrease quarter on quarter, with the number of those who think now is a good or excellent time to purchase what they want or need drop from 52% to 33% in the second quarter.

Only 43% of Ghanaians say they have spare cash, down 13 points from the previous quarter. Once they meet their essential living expenses, the highest number of consumers (74%) put their spare cash into savings, followed by 73% on home improvements/decorating and 56% who would invest in stocks and mutual funds. One of the most significant drops in discretionary spending is on holidays down from 58% to 27% – a clear indicator of consumers’ mindset shift away from non-essential services and their desire to avoid unnecessary travel.

Reality bites

When asked whether they had changed their spending to save on household expenses compared to this time last year, 75% said yes, up seven points from the previous quarter. To reduce expenses, 53% said they spent less on new clothes, 52% on out of home entertainment, with the same figure deferring on the replacement of major household items.

When looking at the real-life factors that are affecting their outlook, the top consumer concerns over the next twelve months were increasing food prices (29%), followed by work/life balance (23%) and their children’s education (22%). Nkembe comments; “Ghana has previously experienced strong business prospects and with the relatively earlier easing of restrictions to stimulate its economy, recovery in Ghana is likely to rebound sooner. We expect consumers to revert to previous consumption behaviours, although some of their attitudes will have fundamentally or permanently changed post the pandemic.”

Subdued sentiment in Nigeria

In tandem with the rest of the world, Nigeria’s CCI figure dropped by 14 points. Commenting on the reasons for this, Nielsen Nigeria MD Ged Nooy says; “As Africa’s largest economy and the largest exporter of oil, Nigeria’s economy was already under immense pressure before the COVID-19 lockdown due to the collapse in international oil prices. Based on the additional economic pressure as a result of the COVID-19 pandemic, Nigeria, therefore, instituted a fairly early easing of its 5-week lockdown in early May due to the adverse financial effects on its economy and population.”

Looking at the consumer picture during this time (Quarter 2, 2020) Nigerian job prospects declined with less than half viewing them as excellent or good, a 14 point drop from the previous quarter. Nigerians’ sentiment around the state of their personal finances also showed a decline with 59% who think they will be excellent or good over the next year, having decreased 19 points from the previous quarter. Immediate-spending intentions also declined, with only a third of the respondents saying “now is a good or excellent time to purchase” what they want or need, a 14 point drop from the previous quarter.

In terms of whether Nigerians have spare cash to spend, 32% said yes, versus 50% in the previous quarter. When we look at Nigerians spending priorities, once they have met their essential living expenses, 81% said they would put their spare cash into savings, 73% said home improvements and decorating and 66% would invest in shares/mutual funds.

Seventy-six per cent of Nigerians said they had changed their spending to save on household expenses compared to this time last year. To reduce expenses, 67% said they had delayed the replacement of major household items (a 10 point increase on the previous quarter). Sixty-four per cent said they would spend less on new clothes and 56% said less out of home entertainment – both of which are understandable given ongoing restricted living patterns.

In the next 12 months, Nigerians said their top concern would be attaining a work/life balance (31%), which has seen the biggest increase of eight points compared to the previous quarter. This is followed by increasing food prices (23%) and concerns over the economy (19%).

Elaborating on these results, Nooy says; “Economic recovery has been sluggish and will remain severely constricted due to the oil price crash amidst and beyond the pandemic. For Nigeria’s manufacturing and retail sectors to rebound will require a sharp focus, as trade opportunities and execution remains severely constrained, having further deteriorated during the partially restricted living period.”

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