By Obinna Chima
The Central Bank of Nigeria (CBN) further expressed its commitment to its objectives of price stability and liquidity management last week as it withdrew a total of N132.05 billion from circulation through the sale of short-dated Treasury Bills.
Dealers said that yields of the instrument dropped marginally against the trend in the last two consecutive auctions.
Specifically, the apex bank N39.27 billion of 91-day Treasury Bills at a 15 per cent, down from a 15.29 percent marginal rate at the preceding auction, N45 billion in 182-day paper at 16.20 percent, against 16.29 percent the preceding week. Similarly, the regulator auctioned N37.78 billion in 364-day bills at 16.34 percent, compared with the 16.49 percent it stood the preceding week.
Total subscription at the auction was N241.42 billion, compared with N236.57 billion at the preceding auction, just as about N127.06 billion treasury bills matured last week.
Dealers argued that the various monetary policy auctions adopted by the CBN had resulted into a spike in yields on fixed income instruments, saying that the market was still adjusting the current market position. They also revealed that yields on long-dated bonds on the secondary market were lower last week compared with the preceding week.
Interbank Rates Movement
Nigeria's interbank lending rates reduced to an average of 15.71 per cent on Friday, compared with the 17.71 per cent it stood the preceding Friday as funds from the Federation Account Allocation Committee (FAAC) hit the system during the week.
Traders also attributed the drop in rate to low cash outflow due to the public holidays that were observed on Monday and Tuesday last week in commemoration of the Eid-el-Kabir celebration for Muslims.
The FAAC had in the preceding week, shared a total of N611 billion. The budgetary allocation to the three tiers of government – federal, states and local governments, provides liquidity into the banking system. It also triggers a reduction in the cost of borrowing among banks.
For instance, data from the Financial Market Dealers Association (FMDA) showed that whereas the overnight tenor fell to 13.58 per cent on Friday, compared with the 16.67 per cent it attained the preceding Friday, the 7-day tenor also dropped to 14.21 per cent on Friday, compared with the 17 per cent it stood the preceding Friday.
In the same vein, just as the 30-day tenor decreased to 15.17 per cent on Friday, from 17.42 per cent the preceding Friday, the 60-day tenor also reduced to 15.62 per cent on Friday, from 17.75 per cent. Dealers argued that the cost of borrowing may record slight increase this week due to outflow to forex purchases and bonds.
The naira dipped against the United States at both the CBN’s bi-weekly auction and the interbank market last week due to the inability of the regulator to meet huge demand for the greenback.
THISDAY had reported that demand for the greenback increased significantly by $154 million to $417.18 million last Wednesday compared with the $263 million recorded the preceding Wednesday. The regulator also reduced its supply of the greenback by $80 million as it supplied $100 million to the market, compared with the $180 million it sold the preceding Wednesday.
Consequently, the local currency fell by N2.1 against the dollar to N152.82 to a dollar last Wednesday, as against the N150.72 to a dollar it stood the preceding Wednesday.
The naira had closed at N158.30 to a dollar at the interbank market, down from Friday's close of N158.575 to a dollar at the interbank on Friday, lower than the N157.55 to a dollar it attained the preceding Friday. It also closed at N160 to a dollar at the parallel market on Friday.
Investment in Nigeria
President Goodluck Jonathan last week said that the country was a “global investment destination” with the growth rate of the economy in spite of the global meltdown. He had promised that power sector privatisation would be completed next year. He had said that his administration was doing everything legislatively to make the country very fertile for return on investments, pointing out that world opinion was already rife that Nigeria presents the best opportunity for investors to put their money on.
Jonathan had explained that the security agencies were acquiring the needed expertise and technology to tackle the emerging security challenges, admonishing old and potential investors not to be frightened.
He had called on global partners to see the reality and partner the country for progress, adding that with all the policies and actions of the government in place, more investors should be attracted to the country.
The president said noted that terrorism was new to the country- a situation, he had argued, accounted for the perception in some quarters that security agencies were not doing enough to checkmate the activities of terrorists. According to him, many countries of the world, including advanced nations like the United States of America had faced the challenges of terrorism and was still confronted by the realities of the problem in spite of their superior technologies.
Commenting on the Transformation Agenda as well as efforts towards attracting the much needed Foreign Direct Investment (FDI), the president had said the government needed to be courageous and do what was right, assuring them that his administration would toe this path. On the Sovereign Wealth Fund (WF), had Jonathan explained that the matter was a constitutional issue, adding that federal revenue belongs to the three tiers of government and that the support of the state governments was necessary to ensure a harmonious relationship in managing the SWF just as he allayed fears over the possible mismanagement of the SWF.
He had assured that; “No president, as long as it is civilian, will tamper with the Sovereign Wealth Fund.” The president had also stated that the several knotty issues delaying the power sector privatisation were expected to be sorted out by the first quarter of next year, adding that many mistakes were made in the past as some government companies were given to investors who lacked the know-how to manage them.
He had noted that the power sector was a different ball game, saying that due diligence had to be put into the entire process to avoid pitfalls of the past. He had stressed that the generation and distribution aspects of the power sector had been privatised, leaving transmission, which is very critical, sensitive and deserving of utmost circumspection. He had assured Nigerians that his administration would ensure that the privatisation programme, including that of the power sector, was done in a transparent manner.
President Jonathan last week directed that a template for public sector projects valuation be set up to drive down the cost of contracts in the country, which he said was higher than what obtains in other parts of the world.
He had directed the Economic Management Team headed by Minister of Finance, Dr. Ngozi Okonjo-Iweala, to liaise with other stakeholders in the country to draw up the template so that Nigerians could get good value for the money spent on such projects.
Minister of Information, Mr. Labaran Maku, who dropped this hint, had revealed that Jonathan, had insisted that he did not want any of the projects initiated under his administration to be abandoned as such not only traps money belonging to the country but also denies them the use and benefit of such projects. Premium will also be placed on completing projects started by other administrations, the president was said to have promised.
Standard & Poor’s
Standard & Poor's Ratings Services (S&P) last week revised its Banking Industry Country Risk Assessment (BICRA) on Nigeria to group ‘8’ from ‘9’, noting also that regulation had become stronger since 2009.
The firm had also said Nigeria had a very high risk in terms of “economic imbalances” and credit risk in the economy. S&P had also revised the country's economic risk score to '8' from '9', as well as assigning an industry risk score of '7'.
The New York-based agency to had explained: “We have reviewed the banking sector of the Federal Republic of Nigeria (B+/Stable/B) in light of our updated BICRA methodology. Our economic risk score of '8' reflects our opinion that Nigeria has a very high risk in economic resilience, a high risk in terms of economic imbalances, and a very high risk in credit risk in the economy, as our criteria define those terms.”
The agency had insisted that the slow recovery of the domestic economy had slowed credit growth and kept the stock market muted. It had said credit risk in the Nigerian economy was very high because of low wealth levels, banks' track record of relaxed underwriting standards, industry concentrations, and a weak payment culture.
S&P had however noted that the Central Bank of Nigeria's (CBN) 2009 intervention as well as the recapitalisation exercise was positive, insisting that the banking industry’s “regulatory track record before 2009 was weak”.
Nigeria’s GDP Computation
The National Bureau of Statistics (NBS) last week disclosed plans to change the base year for the country’s Gross Domestic Product (GDP) computation to 2008 from 1990. The move was expected to raise the country’s $247 billion GDP to almost as big as South Africa, the continent's top economy, with a GDP of $422 billion, Reuters said.
Reuters had quoted the Statistician of the Federation, Dr. Yemi Kale, who dropped this hint in an interview, to have said that the move could lead to a "huge jump" in the estimated size of the country’s GDP.
Kale had said that the adjustment, scheduled for January, would aim to better capture the current real economy, taking into account the growth of sectors like the telecommunications.
Kale had explained: “When Ghana made a similar move to recalculate its GDP last November, its estimated output shot up by 60 percent, catapulting it into the ranks of the middle income countries. When we do it next year, we expect a huge jump in GDP because we have been using the 1990's and the structure of the Nigerian economy has changed since then.”
According to him, if Nigeria's $247 billion economy was revised up by as much as Ghana's, it would be almost as big as South Africa, the continent's top economy, with a GDP of $422 billion.