THURSDAY MAY 10, 2018 ˾ T H I S D AY
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NEWSEXTRA
Renewed Investor Confidence Raises Foreign Portfolio Investments in Nigeria to $16bn Moody’s: Higher oil prices to moderate banks’ foreign currency risks Obinna Chima The value of foreign investors’ holdings of Nigeria’s local debt instruments rose significantly to $16 billion as of the end of March, signposting the renewed investor confidence in the country. The International Monetary Fund’s Mission Chief to Nigeria, Mr. Amine Mati, who disclosed this while making a presentation at the Moody’s Investors Service Fourth Annual West Africa Summit titled: ‘Nigeria’s Recovery: Slow and Sturdy,’ that took place in Lagos yesterday, put the value of foreign investors’ holdings in domestic debt instruments in Nigeria previously at about $4 billion. In addition, he said Nigeria’s equities market has also seen increased interest by foreign investors. “The number of investors that keep coming to my office (to make enquiries about investing in Nigeria) keeps rising. “Last year, foreign holdings of local debt was about $4 billion, as at the end of March this year, foreign holdings of local debt was $16 billion, which shows a lot of interest in the country,” he explained. Mati added: “The good news is that Nigeria is out of recession. Another good news is the stability in the foreign exchange market. February 2017 was the peak when we had the exchange rate at N520 to a dollar, the official rate at N305 to a dollar and we had different windows.” He commended the Central Bank of Nigeria (CBN) for introducing the Investors’ and Exporters’ (I & E) foreign exchange window in April last, which he said also contributed to the increased investor confidence in the country and the accretion recorded by the country’s forex reserves currently at a four-year high of about $48 billion. Nevertheless, he reiterated the position of the IMF that Nigeria was exposed to oil price volatility as well as its high debt level. Furthermore, Mati expressed concern about the slim Gross Domestic Product (GDP) growth of 0.8 per cent recorded by the country in 2017. He pointed out that save for the oil and gas as well as the agric sectors, other sectors had not picked. He stressed the need to enhance non-oil revenue mobilisation in the country, that in Nigeria, Debt-toGDP ratio is not an issue, but the high level of debt service. Meanwhile, Moody’s Investors Service in a report published yesterday stated that the outlook
for the Nigerian banking system remains stable as banks’ foreign currency liquidity risks moderate due to rising oil prices and a more liberal forex policy. It rating agency stated this in a report titled: “Banking System Outlook -Nigeria; Liquidity risks have eased but earnings pressure and loan quality risks remain.” It stated that despite the stabilisation in banks’ foreign currency funding and liquidity profiles, Moody’s expects bank earnings to come under pressure. It projected that capital metrics would also decline marginally over the 12 to 18 month outlook period. Additionally, asset quality was estimated to remain weak, adding that a further deterioration in loan performance would be marginal as operating conditions slowly improve. “Operating conditions for the Nigeria’s banks will continue to gradually improve over the next 12 to 18 months, but remain challenging,” Vice President and Senior Credit Officer, at Moody’s, Akin Majekodunmi said. He added: “Nigeria’s growth prospects remain vulnerable to global oil prices, as crude oil will remain the country largest export commodity and its main generator of foreign currency for the foreseeable future.” Moody’s anticipated a recovery in Nigeria’s real GDP growth over the next two years, up from 0.8 per cent last year. This, is expected to boost lending to around 10 per cent after a 15.4 per cent contraction in 2017. “Nigerian banks’ profitability will nevertheless decline on account of lower yields on government securities, as well as a likely reduction in income from derivatives. However, these pressures will be partially offset by a recovery in loan growth and transaction income from the expansion of digital platforms. “Meanwhile, nonperforming loans and associated provisions in the banking system will increase marginally in a delayed response to sluggish economic growth experienced last year, and Moody’s expects them to range between 15.5 per cent and 18 per cent of gross loans over the outlook period,” it added. However, in a separate report titled: “Oil-driven recovery supports modest improvements in credit profiles; fiscal pressure persists,” also released yesterday, noted that persistent and growing fiscal deficits were largely responsible for Nigerian states
Lagos Vision Zero Conference Kicks off June 26 Activities are in top gear towards a successful hosting of the Lagos Vision Zero Conference scheduled to hold from June 26 to 27t at the Landmark Center, Victoria Island. Part of the activities include several meetings being held by the Planning Committee while Sub Committees are being set up by the Lagos State Safety Commission towards a successful hosting of the significant event. It is expected to be the biggest
safety and health conference in Nigeria with technical presentations from safety experts from all over the world. The Vision Zero Conference with the theme: ‘A Mind-set Change towards Zero Harm’, is a fallout of the health and safety congress held in Singapore in September 2017 which aims to bring about zero accidents, injuries, diseases, and death at the workplace.
carrying a substantial debt burden. According to the report, Nigerian states receive approximately half of their revenue from the federal government, which in turn is heavily dependent on oil and gas revenue. “Because own-source revenue remains relatively weak, we expect state governments to remain dependent on federal government transfers. “The extra oil revenue generated by higher oil prices and production will mainly be used by states and local governments to repay some of the existing stock of arrears accumulated over the last few years. “Capital spending, which accounts for almost half of the regions’ total spending, is likely
to remain constrained. And we expect healthcare-related spending pressures to offset lower capital spending at the regional level, which will keep regional governments’ deficits and debt levels elevated,”it stated. Moody’s also anticipated that corporates would expand capital spending on the back of improving access to US dollars as well as the recent $2.5 billion currency swap agreement between Nigeria and China. According to the firm, many Nigerian corporates using Chinese equipment and inputs would benefit from this dedicated currency window when it comes to meeting their capital expenditure needs. “We expect Dangote Cement
Plc to expand its activities given returning demand for cement in Nigeria and increasing demand in neighbouring West African countries and easier access to US dollars required for expansionary capital equipment. “Dangote Cement uses Chinese trucks and other Chinese equipment in its operations. Based on 2017 trend lines, but also factoring in the increase in US dollar linked capital expenditure in naira terms, we expect that the fast-moving consumer goods firms will likely continue to expand to increase capacity or consolidate recent years of expansion. “This sector includes corporates such as Dangote Flour Mills Plc (unrated), Dangote Sugar Plc (unrated) and Nestle Nigeria Plc
(unrated). Similarly, given the high average realized oil price and the prospect of increased investment in exploration and production (E&P), we expect that the indigenous independent E&P companies, such as Seplat Petroleum Development Company Plc (B2 stable), will look to expand their activity. “Such companies are likely to grow both organically and through acquisitions. Despite the improved outlook for the overall sector, challenges remain. “We expect an eventual drop in demand for the US dollar after 2020, as more refined oil-related products are sourced domestically, which may lead to the eventual unification of the different foreign exchange windows at the central bank,” the report added.
PROJECT INSPECTION
Speaker of the House of Representatives, Hon. Yakubu Dogara (middle), flanked by the Acting Chairman, Economic and Financial Crimes Commission (left), Ibrahim Magu; and Chairman, House Committee on Financial Crimes, Hon. Kayode Oladele, at the new EFCC Headquarters in Abuja when the Speaker inspected the project.....yesterday.
Osinbajo: Most States Can’t Survive Without Federal Allocation Ndubuisi Francis in Abuja The Vice President, Prof. Yemi Osinbajo, has declared that most states of the federation cannot survive without monthly allocations from the Federation Account. Speaking in Abuja yesterday at the 20th annual tax conference of the Chartered Institute of Taxation of Nigeria (CITN), Osinbajo said prior to the discovery of oil, many regions in the country generated adequate revenue through taxes from agricultural produce to the extent that they still contributed money to run the government at the centre. He said, “Today, the states in the whole Western region, apart from Lagos do not even earn enough in taxes to pay salaries let alone do any major project. “Without federal allocation, most states cannot survive. Lagos State alone takes as much Internally generated IGR as 31 states combined. This tells you how little the other states generate in IGR.” Lamenting the low level of tax
payment among Nigerians, he regretted that at six per cent, Nigeria has one of the lowest tax-to- GDP ratio in the world. According to him, as at May 2017, only 14 million of the country’s 70 million economicallyactive citizens paid taxes to the government. Osinbajo noted that through deliberate strategies to ensure voluntary tax compliance, the Federal Inland Revenue Service (FIRS) had been able to raise the population of taxpayers from 14 million in May last year to 19 million currently. Out of the total taxpayers in the country, the VP added that only 943 of them paid self assessment taxes of N10 million and above, adding that of the 943 taxpayers who paid N10 million and above, 941 of them reside in Lagos while the remaining two are resident in Ogun State. Osinbajo noted that when people pay their taxes, they tend to hold government more accountable on how the country’s resources are
being managed. He argued that the mismanagement of funds thrived in the past because oil revenue was readily available thereby reducing the need for people to pay taxes. The current administration, Osinbajo added, had put in place measures to check the mismanagement of government resources, noting that through the implementation of the Treasury Single Account (TSA), about N4 billion monthly bank charges are being saved by the government. In addition, he said the audit of government payroll through the Presidential Initiative on Continuous Audit had saved the government over N200 billion personal costs. According him, the amount would have been paid to ghost workers if the government had not sanitised its payroll. “When people pay taxes, they are more inclined to hold government accountable and they tend to be less passive in governance,” he added. The CITN conference which is the single largest gathering of tax
practitioners in the country has as its theme: “Institutionalising tax paying culture in a developing economy’. In his speech at the event. which was declared open by Osibanjo, the CITN President, Dr. Cyril Ikemefuna, said the conference was vital in view of the efforts of the government to boost tax revenue. He said during the conference, tax practitioners would review the implementation of the Economic Recovery and Growth Plan (ERGP) Voluntary Assets and Income Declaration Scheme (VAIDS), transfer pricing, and arbitrary tax incentives as a disincentive in a tax system, among others. He stated: “The heartbeat of any economy is its deft use of taxation for promoting economic growth and development. “Through taxation, government ensures that resources are channeled towards important and critical activities in the society. “Thus the imposition of taxes is essential to economic and social development in any given economy.”