Business
Argentina to Ease Currency Controls After Devaluation
NEW YORK – Argentina scrapped some of its currency controls a day after devaluing the peso as policy makers sought to stem a financial crisis and restore investor confidence by reversing measures that drove foreign reserves to a seven-year low.
Bonds fell and the cost to insure the South American nation’s debt against default soared to a three-month high as traders bet the move could backfire and lead to further dollar outflows. The peso dropped 1.9 percent to 8.0307 per dollar at 12:57 p.m. in Buenos Aires, extending its plunge this week to 18 percent, the worst selloff since a devaluation that followed the country’s record sovereign default in 2001.
The currency market overhaul is the latest, and boldest, measure tried by President Cristina Fernandez de Kirchner as she seeks to win back investors, regain access to international debt markets, shore up a faltering economy and curb inflation that soared to 28 percent last year. The increase to 23.8 percent in the annual cost to protect the nation’s debt against default makes it the most expensive in the world.
The easing of controls is an attempt to stem panic among Argentines, said Siobhan Morden, head of Latin America fixed income strategy at Jefferies Group LLC. “They are hoping it creates less panicky demand for dollars.”
She said the country needs to implement additional measures such as curbing money supply growth to make the foreign-exchange policy changes effective.
“Markets will give them a day or two,” Morden said. “But if there’s no follow-up, the prices trade lower again.”
Black Market
Cabinet Chief Jorge Capitanich, who was appointed in November to help reshape government policies, unveiled the currency market changes in Buenos Aires today.
Argentines will be able to buy dollars in proportion to their income, and a 35 percent redeemable tax on buying foreign currency will be cut to 20 percent, he said. Currently, Argentines are often denied requests to buy dollars from the central bank, fueling illegal street trading in which the peso has changed hands at as little as half the value. Policy makers are trying to close the gap between the two exchange rates.
“Our administered currency policy has reached an acceptable level of convergence for our economic objectives,” Capitanich said at the presidential palace.
After a surge in economic growth fueled by rising commodity export prices following the default, the government has implemented a series of unsustainable measures and is being forced to reverse tack, Nobel laureate economist Joseph Stiglitz said.
Forced Changes
“Reality will clearly force some changes: you have to live within your means, if your currency is going down, it means you’re going to be paying more for your imports,” Stiglitz, a Columbia University professor, said in an interview today on Bloomberg Television. “They will have to change their policies and the question is when and how.”
Fernandez’s policies of printing money to fund social spending on subsidies while freezing utility rates amid accelerating inflation are unraveling as the budget deficit widens and funding from the treasury and pension fund grows. Investment in South America’s second-largest economy has tumbled amid import controls and delays in approving company dividend repatriations.
The International Monetary Fund, which censured Argentina last year for misreporting inflation, predicts economic growth will slow to 2.8 percent this year, about half the 5.1 percent average across developing nations.
Yield Spread
The cost to insure Argentine debt against default for five years soared the most since August, climbing 1.94 percentage points to 23.76 percentage points, according to data compiled by Bloomberg.
The extra yield investors demand to buy Argentine bonds instead of U.S. Treasuries widened 16 basis points, or 0.16 percentage point, to 1,012 basis points, according to data compiled by JPMorgan Chase & Co. The peso’s plunge to a record low has made it the world’s worst performer this year.
“Those who wanted us to believe that the dollar was worth 1 peso now want us to believe that it’s worth 13,” Economy Minister Axel Kicillof said today.
Capital Flight
After winning re-election in 2011, Fernandez began to restrict access to foreign currency amid capital flight that surged to a record $21 billion that year. Since then, the government has implemented more than 30 measures to cut access, including taxes on credit card purchases and limits on online spending, that have failed to curb dollar demand.
Reserves have tumbled at a rate of $1.1 billion a month over the past year to a seven-year low of $29.3 billion. Energy imports increased 23 percent to $11.4 billion in 2013 while exports fell 24 percent to $5.3 billion.
Reserves have fallen about $18 billion since October 2011, when the government began to limit access to foreign currency.
In the first three quarters of 2013, the nation posted a current account deficit of $1.27 billion, the largest for that period since its economic crisis. Argentina’s trade surplus narrowed 27 percent to $9 billion in 2013 as fuel imports rose and soy prices dropped 28 percent, while producers withheld stocks of the oilseed waiting for the peso to weaken further.
The easing of restrictions may allow the government to stabilize currency imbalances and promote investment, former central bank president Mario Blejersaid in an interview in Davos.
“All measures that seek to reduce the chaos and intervention” in the currency market “would tend towards stabilizing the situation,” Blejer said. “A devaluation was needed because the exchange rate policy has been erratic in the past years.”
– BLOOMBERG
The need for stronger regional collaboration, government-private sector synergy, and innovative market solutions to unlock Africa’s economic potential has been brought to the fore.
Group CEO of the Nigerian Exchange Group Plc (NGX Group), Temi Popoola, shed light on the transformative potential of Africa’s capital markets at the launch of the Ethiopian Securities Exchange (ESX).
The NGX Group’s strategic investment in ESX underscores its leadership in advancing Africa’s capital market infrastructure. “The launch of ESX represents a pivotal moment for Ethiopia and the broader African financial landscape,” Popoola stated. “ESX will serve as a crucial mechanism for capital formation and market liquidity, driving sustainable economic growth.”
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Expounding on NGX Group’s investment rationale, Popoola highlighted Ethiopia’s immense market potential and the shared vision of fostering economic growth through innovation. “Our partnership transcends traditional investment parameters,” he explained. “It is about ensuring that ESX evolves into a key player in Africa’s financial ecosystem, enabling cross-border investments and setting benchmarks for market development.”
Popoola also drew parallels with global success stories like India, which has leveraged its capital markets to achieve significant economic transformation. He emphasized the importance of responsible market opening to attract local and continental capital. “By following this path, Ethiopia can become a financial hub in Africa,” he remarked.
Prime Minister Abiy Ahmed lauded the launch of ESX as a transformative milestone in the country’s journey toward economic modernization. “Today, we have officially rung the bell to launch the Ethiopian Securities Exchange, our nation’s first stock exchange,” the Prime Minister announced on X. “This is a call to global investors: Ethiopia offers immense potential, a fast-growing economy, and a clear trajectory toward shared prosperity.”
CEO of the Ethiopian Securities Exchange, Tilahun Esmael Kassahun, expressed confidence in the partnership with NGX Group. “We are pleased to welcome NGX Group as a strategic partner, building upon the existing support we continue to receive from them,” he said. Kassahun also emphasized the value of NGX Group’s expertise in shaping ESX’s growth and success.
Drawing from NGX Group’s six decades of experience, Popoola shared insights on diversifying financial instruments and expanding access to investment opportunities. “With the right mix of innovation, policy support, and regional collaboration, Ethiopia’s capital market can play a transformative role in driving economic development and establish itself as a leader in Africa’s financial ecosystem,” he concluded.
With the ESX poised to redefine Ethiopia’s financial landscape, NGX Group’s involvement highlights the critical role of partnerships and shared expertise in advancing Africa’s economic narrative.
The Office of the Auditor-General of the Federation has uncovered financial irregularities amounting to ₦514 billion in the 2021 operations of the Nigerian National Petroleum Company Limited (NNPC Ltd).
The revelations were contained in a comprehensive audit report highlighting non-compliance and internal control weaknesses within Ministries, Departments, and Agencies (MDAs) during the 2021 financial year.
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Breakdown of Infractions
The audit detailed four major financial discrepancies within NNPCL:
“Irregular Deductions: A total of ₦343.64 billion was deducted from domestic crude oil sales at source without proper documentation.
“Sinking Fund Deposits: ₦83.66 billion, categorized as miscellaneous income, was retained in a sinking fund account.
“Unauthorised Refinery Deductions: ₦82.95 billion was deducted from federation revenue purportedly for refinery rehabilitation.
“Unsubstantiated Payments: ₦3.75 billion was flagged for transactions related to petrol sales that lacked proper verification.
The Auditor-General’s report stated that these financial activities violated the 1999 Constitution and the Financial Regulations Act of 2009, underscoring significant lapses in compliance with statutory guidelines.
According to the report, NNPCL generated ₦484.73 billion from domestic crude oil sales in March and May 2021.
However, ₦343.64 billion was deducted for various purposes, including “Value Shortfall,” “Strategic Stock Holding Cost,” and “Pipeline Maintenance.”
The deductions were made unilaterally by NNPCL without adequate documentation or justification.
Additionally, the report flagged ₦50 billion of the net payable amount for May 2021 as unaccounted for, creating a significant gap in the federation’s revenue.
“Audit observed from the review of NNPC SAP payment record for March and May 2021 payments that the sum of ₦484.73bn was the gross amount generated for the sale of domestic crude for the months of March and May 2021.
“The sum of ₦343.64bn from the gross amount was unilaterally deducted from the gross domestic crude sales as NNPC Value shortfall, Strategic Stock Holding Cost, Crude Oil and Products Pipeline Losses, as well as the pipelines maintenance and management costs.
“The details of each of the cost components deducted were not provided for audit review. Hence, the reasons for the deductions could not be justified by the management.”
On the unremitted ₦50 billion from May 2021, the report noted: “In the month of May, the net payable that could have been remitted ought to have been ₦127.075bn, but only the sum of ₦77.075bn was remitted, leaving an unremitted balance of N50bn to the Federation Account, which has remained unaccounted for.”
The report attributed these anomalies to weaknesses in NNPCL’s internal control systems, warning of the risks they pose to public funds.
It read, “The above anomalies could be attributed to weaknesses in the internal control system at NNPC, now NNPC Ltd. This is a potential loss of Federation revenue, diversion of public funds, or misapplication or misappropriation of funds.”
The success of the maiden edition of the Lagos Shopping Festival (LSF), Africa’s first 72-hour non-stop commerce and entertainment event has been credited to the Governor of Lagos State, Babajide Sanwo-Olu.
This is the view of Managing Director/Chief Strategist of Chain Reactions Africa Ltd, Israel Jaiye Opayemi, one of the main organisers of the event.
According to Opayemi, though Chain Reactions Africa conceptualised the event, the festival could be rightly described as the Governor’s baby and owes its success to his leadership. “Firstly, the Lagos Shopping Festival could not have come to fruition if the Governor did not buy into our audacious plan when we first presented the idea to him during the Covid-19 pandemic in 2020. Secondly, it was the Governor’s exemplary leadership of the project as its Chief Marketing Officer which attracted the buy-in of key sponsors like Zenith Bank, Tolaram Group, First Bank Plc, and Guinness Nigeria Plc,” Opayemi revealed.
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While the duo of Zenith Bank and First Bank provided their bank on wheel platforms for buyers at the Lagos Shopping Festival, they also supported the Vendors with special Point of Sale Machines with which to process payments from buyers. The banks were also seen marketing their diverse banking products to guests within the shopping arena.
For Tolaram, it was a time to support the citizens and give back to society. Guests at the Lagos Shopping Festival were freely given some of the products of the group such as PowerOil, Indomie and Kellogg’s packaged into goodie bags and given out to prospective buyers at the shopping arena. The Children’s Arena was however activated by Indomie with the children entertained by Santa Claus within a well-equipped arena manned by the Indomie Brands team and the Lagos State Safety Marshalls. The children were daily treated to free Indomie meals daily and given various gifts to go home with.
On its part, Guinness Nigeria came through as the real life of the Nigerian party by organizing product sampling activation for the teeming guests at the festival using brands such as Singleton, Johnnie Walker, Ciroc, Don Royale and Captain Morgan to deliver pleasant experiences to guests aside from Guinness and Malta Guinness.
While unveiling the identity of the festival last month, Governor Babajide Sanwo-Olu had thanked the management of Zenith Bank Plc, Tolaram Africa Group, Guinness Nigeria Plc and First Bank of Nigeria for supporting the idea of a Lagos Shopping Festival, describing it as a value addition on the state’s tourism calendar and the overall efforts to grow the State’s GDP. The Governor further said, “I must specially acknowledge your pioneering sponsorship role. It is easy for a corporate sponsor to jump on the sponsorship band wagon of an already established festival and fund it. But you are supporting the maiden edition of this Lagos Shopping Festival with us. The competition is watching you now. Do not build this brand with us and yield the space for the competition to take over. I do hope you would all commit long term to this brilliant initiative.”
On his part, Girish Sharma, CEO Guinness Nigeria Plc, expressed enthusiasm for the initiative. “Lagos is the commercial heartbeat of Nigeria and Africa’s entertainment capital, and the Lagos Shopping Festival captures its essence. We see opportunities in this initiative because it is a creative fusion of commerce and entertainment. This partnership reflects our dedication to fostering economic opportunities and support the nation’s vibrant entertainment industry.”
A first-of-its-kind, the festival was a convergence of commerce and entertainment, bringing together buyers and sellers in the MSME ecosystem, and hordes of fun-seekers who were entertained with thrilling performances by A-list entertainers, including Adekunle Gold, Wande Coal, Teni, Young Jonn, BNXN, Ayo Maff, SB Live and EmmaOMG. The list also included some of Nigeria’s most sought after DJs such as DJ Neptune, DJ YK Mule, DJ Baddo while Gbenga Adeyinka the 1st and Larry J dished out rib-cracking comedy performances.
Held from 23rd to 25th Day of December 2024, at the iconic Mobolaji Johnson Arena, Onikan Stadium, Lagos, the Lagos Shopping Festival saw thousands of fans throng the main venue and select Lagos malls during the three-day period to bag the latest bargains from local and top global brands.
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