Business
Nigeria’s ‘rented foreign reserves’ increase risk perception
ABUJA – The continued reduction in the accretion to Nigeria’s foreign reserves, currently at $41.5 billion, and foreign portfolio investments (FPI) accounting for about $20 billion of this amount raises the risk perception about Nigeria’s economy, BusinessDay interaction with economy watchers has revealed.
“The over $20.0 billion of the total foreign reserves being inflow from FPIs calls for concern, in view of the gradual phase-out of the US Fed stimulus programme in 2014,” say Afrinvest analysts. “Based on this development, it becomes imminent that the ‘rented reserves’ may depart the country sooner than we anticipate.”
Consequently, any portfolio reversal as a result of the United States quantitative easing will leave the country with no option than to borrow, with the resultant effect of higher yields on the Federal Government bonds and, consequently, increase in the level of recurrent expenditure.
For instance, government interest on domestic debt has been on the increase, from N495.1 billion in 2011 to N559.5 billion in 2012, to N591.8 billion in 2013 with N712 billion projected for 2014, in addition to the N300 billion CBN interest on T-Bills and Open Market Operations (OMO).
Some other analysts argue that the sustenance of foreign reserves on portfolio investments or ‘hot money’ portends more vulnerability of the economy to the whims and caprices of investors who may take advantage of the opportunities provided by the easing in the US market to embark on reversals.
Doyin Salami, a member of the Monetary Policy Committee (MPC) of the CBN, said at a recent meeting of the committee that he sees the deterioration in foreign reserve position as a reflection of a slowdown in inflows from foreign portfolio investors (FPI), adding that “FPI inflows, at $19.182 billion in 2013, accounted for approximately 82 percent of capital importation in 2013”.
Afrinvest analysts further say that if this happens, and coupled with the reduction in the accretion of the foreign reserves, then the risk perception about Nigeria would rise drastically.
“In addition, the reserves ($21.5 billion, assuming it remains at present level) may cover below three months of imports (below global requirement). This would also increase the country risk premium placed on Nigeria, hence an increase in the yields on FGN bonds,” say Afrinvest analysts.
“This increase will raise the cost of borrowing to the government, further snowballing its re-current expenditure (over 65.0 percent in 2014). The country may also find it challenging to raise additional funds through Eurobonds and may be lured to raise the coupon to what is commensurate with perceived risks,” they add.
Samir Gadio, emerging markets analyst at Standard Bank, London, observed that the accumulation of FX reserves in 2012 and early 2013 was a function of increased portfolio inflows which subsequently dried up and even turned negative recently.
Gadio wondered why Nigeria has been unable to rebuild its fiscal buffers despite the robust oil price over the past few years, which appears to reflect a moderate drop in oil output, stressing that possible revenue leakages and prior to this, the fuel subsidy scam, could be responsible.
“On top of the regular budget augmentation disbursements, the ECA funds have also been shared among the three tiers of government to fund ‘people-oriented projects’, but there is little tangible investment to account for,” said Gadio.
Gadio sees this as a serious problem as, according to him, the balance of the ECA declined to a low of USD2.5 billion in January, which is less than 1 percent of GDP (vs a median of 65 percent of GDP among major oil producing countries).
“Should this trend persist,” he added, “Nigeria will remain vulnerable to long-run oil boom and bust cycles, and a potential prolonged decline in the oil price below the USD100 pbl level at some stage in the future would seriously threaten the country’s macroeconomic position.”
Uche Chibuike, a member of the MPC, at the recent committee meeting, observed that recent international developments had already ensured a slowdown in the inflow of such speculative capital.
“Despite this, I find it prudent to continue to express my concern about speculative capital. This is because the vulnerability of the value of our currency in recent times has at least in part been as a consequence of the unstable nature of such speculative FDI. The earlier we begin to discourage such capital flows, the better. While FDI is desirable, it only makes sense when it is invested in the real sectors of our economy,” he said.
Ganiu Garba, also a member of the MPC, at the recent meeting attributed the problem to a non-forward-looking and non-strategic management of oil and gas resources with the consequent inability to sustain inflows of forex revenue to support and sustain some of the economic buffers.
“A strategic and forward-looking management of oil and gas resources is critical to building the forex reserves required to support a stable currency,” Garba said.
– BUSINESS DAY
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.
The Nigerian Naira experienced mixed movements in the foreign exchange markets on Monday, as it depreciated to N1,665 per dollar in the parallel market, down from N1,660 per dollar recorded over the weekend.
In contrast, the official exchange rate saw the Naira appreciate to N1,534.56 per dollar, improving slightly from N1,535 per dollar last Friday, according to data released by the Central Bank of Nigeria (CBN).
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This reflects a marginal gain of 44 kobo in the official Nigerian Foreign Exchange Market (NFEM).
As a result, the gap between the parallel market rate and the NFEM rate widened to N130.44 per dollar, compared to the N125 per dollar margin recorded over the weekend.
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