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FG May Hike Pump Price, Devalue Naira, Others This Year

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FSDH Research, trusted providers of market intelligence has said that certain key events, both at the global level and in Nigeria, will influence economic and business activities in 2019.

 

FSDH Research examines a few of these events and discusses the implications for businesses and investments in Nigeria.

 

The expected hike in interest rates in major advanced countries will lead to an increase in global yields and may put pressure on currency in Nigeria.

 

There are strong indications that the US Federal Reserve, Bank of England and European Central Bank will increase interest rates in 2019. The expected increase in the interest rate in the international market may also lead to an increase in the interest rate in Nigeria because of monetary policy adjustments to reduce capital flight.

 

Nigeria may lose a substantial amount of its projected crude oil revenue due to a limit on crude oil production and the drop in the global crude oil price. This may also lead to a drop in the supply of foreign exchange into Nigeria, resulting in a possible depreciation or devaluation of the Naira.

 

Nigerian businesses should look for local alternatives, where possible, for the raw materials needed for their production process.

 

They should also limit or eliminate foreign debt, particularly if they do not have foreign exchange receivables to mitigate the possible foreign exchange risk.

 

FSDH Research also advises that businesses should put in place appropriate foreign exchange hedging strategies. The Q3 2018 Balance of Payment (BoP) report that the Central Bank of Nigeria (CBN) published shows that earnings from crude oil and gas accounted for 94.4 percent of total export earnings during the period.

 

The external trade report that the National Bureau of Statistics (NBS) published for Q3 2018 shows that crude oil exports accounted for 85 percent of total exports. Therefore, any adverse movement in crude oil price or production has high negative implications on the Nigerian economy.

 

Although FSDH Research expects the general election in 2019 to be peaceful, its outcome will determine economic activity and business in Nigeria.

 

A peaceful election will ensure stability of the Nigerian economy and pave the way for the flow of investments, both Foreign Direct Investments (FDIs) and Foreign Portfolio Investments (FPIs) into Nigeria. Certain longterm business and investment decisions may be taken immediately after the election if the current government retains power.

 

However, if there is a change in power, investors may wait until after the presidential inauguration on May 29 before they take long-term investment decisions, to give them enough time to access details of the policies of the incoming government.

 

There are certain macroeconomic realities that the Nigerian government must contend with in 2019.

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FSDH Research believes the fiscal deficit in 2019 may be higher than in 2018, and higher than what is projected for the year 2019. In order to execute certain plans that will move the economy forward, government may have to increase borrowing or partner with private sector operators on key projects.

 

An increase in borrowing will increase the interest rate, while partnership with the private sector will expand economic activity and create new job opportunities.

 

Already, the ratio of government’s debt service to revenue is high and at an unsustainable level. Therefore, additional debt, in an environment of rising interest rates, may reduce government’s ability to execute critical programmes that will improve the business environment.

 

While fixed income investors may enjoy higher yields in 2019 than in 2018, businesses may suffer under rising interest costs.

 

FSDH Research analysis shows that electricity and the pump price of Premium Motor Spirit (PMS) are two key prices that government will need to adjust in 2019 to free up funds for developmental purposes.

 

The adjustment may increase the inflation rate in the short-term, but it will benefit the economy in the long-term. More investments are required in the power sector than are currently available.

 

However, the sector may not attract investment in the absence of a cost-reflective tariff. Government already allows an off-grid power supply arrangement based on ‘willing buyer, willing seller’. The tariff at which this arrangement is settled is higher than the tariff for the power from on-grid supply. Appropriate policy responses from government and strategies from the business community may ameliorate the likely negative impacts of these key events in 2019.

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E-Financial

Banks Set Up Special Funds for ICT, Other Sectors

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Bankers Committee has said it is setting aside special funds to provide capacity and support to the creative and the ICT industries.

 

The initiative will be funded from at least 5 percent of the Agriculture/SME Investment Scheme (AGSMEIS) fund.

 

The AGSMEIS is a special fund that sees the banks’ reserve 5 percent of their profits after tax to fund agriculture and small businesses.

 

The fund was tipped to reach N90bn by the end of 2018.

 

Briefing journalists at the end of 342nd Bankers Committee meeting held in Abuja Mr. Herbert Wigwe, MD/CEO Access Bank, said the intervention would be specially set aside for the music, movies, fashion and ICT sectors.

 

“The Bankers Committee after a lot research identified the ICT and the creative sectors as critical sectors to support social and inclusive growth in Nigeria. We found out that that sector will generate significant amount of jobs and contribute to GDP growth’’ he said while explaining the reasons for the direct interventions in those areas.

 

He also said that the funding would be under a reasonable interest rate and structure until they become profitable, adding that hopefully Nigeria should begin to see the impact in the next quarter.

 

Also commenting, Dr. Mudashiru Olaitan, director Development Finance, CBN, said with the support, the 37 million MSMEs in Nigeria will be able to support more jobs.

 

The Bankers Committee is also looking at providing shared power facilities to power the MSMEs for productivity he said adding that already the pilots have commenced in Aba, Kano, Lagos and Ibadan.

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E-Financial

FIRS Lifts Ban on Bank Accounts of Tax Defaulters

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Federal Inland Revenue Service (FIRS) has written to banks, directing them to lift the lien on tax defaulters’ bank accounts for 30 days.

 

The directive, which takes immediate effect, was contained in a letter from Tunde Fowler, chairman, FIRS, to bank managing directors.

 

The FIRS explained that it issued the directive because of the large number of taxpayers, who have besieged its offices in their bid to regularize their tax positions and the inconveniences they are going through.

 

In September 2018, Tunde Fowler, FIRS chairman, said the service was going after 6,772 tax defaulters, stating that they would have their account frozen till they pay due taxes.

 

“So, all these ones of TIN and no pay and no TIN and no pay, to the total of 6772 will have their accounts frozen or put under substitution pending when they come forward,” Fowler had said.

 

KPMG, one of the Big Four auditors in the world, said on Thursday that the Federal Inland Revenue Service (FIRS) has gone draconian by giving fiats to banks to freeze accounts of suspected tax defaulters.

 

KPMG said “nothing in the CITA or FIRSEA authorises the FIRS to impose a freeze order on a taxpayer’s bank account beyond the amount of tax proven to be due and payable by that taxpayer”.

 

It added that the move was in contravention of CITA, and breaches the confidentiality between the banks and their clients.

 

“Generally, a bank has a fiduciary obligation to maintain the confidentiality of its customers and their transactions, and to prevent third-party access to the customers’ account information,” KPMG had said.

 

 

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E-Financial

CBN Orders Banks to Send Politically Exposed Persons Data to NIBSS

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Godwin Emefiele, Governor of the Central Bank of Nigeria

Central Bank of Nigeria (CBN) has directed Deposit Money Banks (DMBs), Micro-Finance Banks (MFBs) and other financial institutions to send data fields on Politically Exposed Persons (PEPs) as part of the Industry Customer Account Database (ICAD) submitted to the Nigeria Interbank Settlement System (NIBSS).

 

Mr. Dipo Fatokun, director, Banking Services Department, in circular posted on its website, said that the need for the additional information was due to: “the growing demand for more detailed information on bank accounts, for economic intelligence analysis.”

The CBN stated: “Please recall that the Management of Central Bank of Nigeria (CBN) directed all the Deposit Money Banks (DMBs) to forward customers account details in a specified format to the Nigeria Inter-Bank Settlement System (NIBSS), with a view to maintaining an Industry Customer Account Database (!CAD). The initiative contributed immensely towards improving the efficiency and safety of electronic payments in Nigeria.

 

“In view of the growing demand for more detailed information on bank accounts, for economic intelligence analysis, it has become necessary to expand the coverage of the required data on customers’ accounts. Consequently, two new data fields, covering Politically Exposed Person – PEP (Y/Nl and Sector code have been added to the existing fields on ICAD. “

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