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14 BUSINESS A.M. FEBRUARY, MONDAY 05 - SUNDAY 11, 2018 FINANCE & INVESTMENT Wealth S&P sees uncertain outlook.. Page 13 vice Board (IFSB) issued several new standards in 2017 aimed ultimately at smoothing the process of sukuk issuance. For example, the former published a standard for central sharia boards and the latter published one on disclosure requirements for sukuk,” they said. Specifically, they feel market participants still think that standardization is unrealistic and that the market should rather aim for harmonization–defined as having standards that may differ from one jurisdiction to another, leaving some flexibility for implementation. Sukuk issuance in 2017 increased by 45.3 percent, reaching $97.9 billion, up from $67.4 billion in 2016, underpinned primarily by the jumbo issuances of some Gulf Cooperation Council (GCC) countries. Driving this performance, S&P Global Ratings believes, were good liquidity conditions in the GCC and, more generally, globally, as well as activity by some countries with the goal of further developing their Islamic finance industries. Jumbo local and foreign currency issuance by some GCC countries drove the sukuk market higher in 2017. Of specific note, the $9 billion sukuk issued by Saudi Arabia was the largest issued globally to date. The market also attract some Islamic finance noncore countries, with Hong Kong tapping the market for the third time and the first issuance of a Sukuk in Nigeria. The N100 billion Nigeria sukuk bond with a 7-year tenor was oversubscribed, attracting a whopping N105.88 billion. “We expect this trend to continue as Morocco and Tunisia plan to tap the market in 2018 and the U.K. announced its intention to go to the market again in 2019 upon the maturity of the Sukuk it issued in 2014,” S&P noted. Tax seen major constraint on SMEs... Page 13 sence of supportive environment, as well as poor access to finance have reduced the competitiveness of SMEs in Nigeria. She recommends that tax policies should be designed in such a way that they do not only directly affect SMEs but also indirectly push them to grow. Giving an instance, she said provision of finance for SMEs could be encouraged by granting exemptions from business tax for financial institutions that provide guarantee for loans to SMEs. “Policies can also be implemented to ensure that businesses in the informal sector regularize their tax status to have access to finances and tax incentives,” she stressed, adding that this way, business owners are able to see the gains of moving from the informal sector to formal sector. This would also translate to a much wider pool of taxpayers for the government. Nigerian market outlook: Analysts upbeat, entertain no fears of election risk Steve Omanufemi THERE APPEARS a no fears outlook for the Nigerian market and economy despite rising geopolitical tensions and the coming general election, according to a cross section of market and economic analysts who spoke to businessamlive.com. The analysts say growth in the economy is anticipated to strengthen as commodity prices firm up and domestic demand gradually gains ground, adding that the usual downside risk of the 2019 elections would not count for much. According to United Capital analysts, the sustained policy stimulus by the European Central Bank (ECB) and the Bank of Japan (BOJ are seen positive for global financial markets, while a stable outlook for oil prices suggests that the appetite for assets in oilexporting economies like Nigeria is set for another bullish year. “Our outlook on the currency market, the flow of funds and movement of external reserves is medium-term stable amid expected stability in the oil market and supportive policy environment. The risk to this outlook includes outsized exposure to Foreign Portfolio Investments (FPIs) and uncertainties associated with the build-up to the 2019 election,” the United Capital analysts noted. The worry on the election risk to the economy is equally expressed by Bisi Oni, executive director and chief operating officer at Fund- Quest Financial Services Limited. “Preparations for the coming elections will begin in earnest in 2018 and may stand in the way of the CBN in managing price movements and the exchange rate,” he said. He noted that the CBN has been proactive since the past eleven months with a cocktail of policies that has brought to bear on the economy, which has seen the reflation of the forex market and the return of foreign investors to the capital market. On the 2019 elections, Oni said the hawks are already gathering. “My fears are that election spending may decide how far the CBN can go defending the naira. In a year to an election, attention always shifts from the economy. In real terms we just have only six months to put value into the economy before politicking starts,” he pointed out. However, analysts from other investment houses who spoke to businessamlive and who want to be anonymous as they have no authority to speak on the record for their organisations, have played down the impact of the elections. They said international investors seem to be wiser now following the panic which heralded the 2015 elections in Nigeria and the Real estate investment market slows on ambiguous taxes, mispricing Edidi Abdulrafiu THE NIGERIAN real estate investment trust market is bogged down by a lack of assurance on ambiguous ‘tax pass through’ laws, that have not provided comfort to institutional investors, both local and foreign, as well as a traditionally opaque market, which has resulted in mispricing and undermining confidence in real estate assets. These were the views of real estate analysts at a recent West African Property Investment Summit in Lagos, who noted that the Nigeria’s real estate investment trust market (REIT) is one of the most underinvested and marginalised markets of the Nigerian stock market. “Despite its existence for more than ten years, the Nigerian REITs market is underdeveloped with only three established and with a combined market capitalisation of $151 million, or 0.36% of the local stock market,” they noted. They stated that the low investment in the market is a result of a lack of assurance on ambiguous ‘tax pass through’ laws, that have not provided comfort to institutional investors, both local and foreign, resulting in deficit of A-grade real estate compared to similar urbanising environments combined with an inherently volatile and non-diversified economy overly reliant on crude oil. “These factors have created cycles of boom and bust which have negatively impacted the real estate sector and crucially investor confidence,” adding that the REITs market has failed to develop to its potential, which they hope new reforms would address. The analysts, Adeniyi Adeleye, head of real estate elections in Kenya and Ghana, which at the end did not turn out as expected. “Elections come and go but the market remains,” one said, adding that most portfolio investors would make stakes on the market with the hope of reaping big when the elections are done with. They are upbeat that the implementation of a decent list of pro-market policy actions with the fact that the chill of recession has given way to spring and leading indicators turning positive, may sustain investors’ sentiments despite the coming elections. finance for West Africa at StanbicIBTC Capital and Thomas Mundy global commercial real estate provider, in a collaborative white paper on the market, were bullish on a rebound in the market in 2018 provided that regulatory improvements take place coupled with the sustainable creation of assets to reduce the supply gap in Nigeria. Adeleye and Mundy are optimistic that these changes will lead to a vibrant RE- ITs market, which will transform the real estate sector and the larger economy. They predict that an evolving and reformed RE- ITs market will strengthen and deepen capital markets and that it would also assist in providing greater transparency and data to a traditionally opaque market, which has resulted in mispricing and undermining confidence in real estate assets.
BUSINESS A.M. FEBRUARY, MONDAY 05 - SUNDAY 11, 2018 FINANCE & INVESTMENT 15 Governance Is FSS 2020 a missed target? With about three years to the Financial System Strategy 2020 set by the Central Bank of Nigeria, DONATUS ELEKO wonders if the target can be met? With about three years to the Financial System Strategy 2020 set by the Central Bank of Nigeria, Donatus Eleko wonders if the target can be met? The Financial System Strategy 2020 (FSS 2020) was conceptualised in 2006 by the Central Bank of Nigeria (CBN), in collaboration with other key financial sector regulators to fast track and enhance the growth and development of Nigeria’s financial system as an integral part of the national vision 2020. The strategic vision of FSS2020 is “to be the safest and most diversified financial system among emerging markets supporting the real economy by the year 2020.” Also, its strategic themes are to strengthen and deepen the domestic markets, enhance integration with the external financial markets, and promote sustainable economic development. However, as the target year draws closer, analysts are questioning if the regulator can meet the set target or there might be an extension of the target year. Globally, the relationship between the financial system and development remains very critical for any economy to realise its potential. Financial system development depends largely on the flow of funds from the banking system. Patrick Honohan of the Trinity College, Dublin, in a paper titled: “FSS 2020: Finance and Growth – Can the Engine Work for Nigeria?” had pointed out that the financial sector helps growth and lowers poverty. He stressed that Nigeria (as other African financial systems) has much to gain from energetic financial policy development combining modernism. Financial development is clearly an important cause of growth and financial sector development can be a powerful agent for growth and transformation. Based on the recognition of the linkage between financial deepening/growth and economic developments, the vision of the FSS 2020 is to make the Nigerian financial sector the fastest growing financial system among the emerging economies while the mission is to drive rapid and sustainable economic growth primarily in Nigeria and Africa. From the onset, the FSS 2020, which forms an integral part of the national vision was designed and developed with strategic objectives that will enable the Nigerian economy become one of the world safest and fastest growing economies by the year 2020. The CBN has constantly evolved appropriate regulations to achieve its objective. Some of these include policies such as the three-tiered Know Your Customer, gradual phasing out of the commission on turnover (COT), cashless Nigeria, which kicked off yesterday, revised bank charges, creation of a secondary market for the mortgage sector through the Mortgage Refinancing Company amongst others. By the end of 2012, the FSS 2020 was reviewed and refined to strategically make use of the various structures within the financial sector to achieve its goals. Its focus was redirected at the pension, mortgage, and insurance industries as well as medium, small and micro enterprises (MSME), the financial market and the entire populace. CBN’s Position According to Godwin Emefiele, governor of the CBN, the regulator would not pretend that it not going to be a daunting challenge to be able to move from the percent level of financial inclusion the country is presently, to 80 per cent by 2020. “I am happy that we have an array of various agencies of government in the regulatory and also the executive arm of government coming and working together towards seeing to it that we improve the level of financial inclusion saying how do we ensure that we move from what I describe as if today five out of 10 are those that have access to financial services, how do we ensure that by next three years, eight out of 10 are able to have access. “I am sure at the end of this session we would provide roadmap that will help us achieve that. It is daunting assignment but I think what is important is even if you achieve 80 percent financial inclusion, how do we as under auspices of FSS2020, see to it that all these agencies in the financial and regulatory sector contribute towards the growth and development of our country,” he added. As part of efforts to ensure that the country meets the FSS 2020, Emefiele also revealed that the bill for the establishment of financial Godwin Emefiele, Governor, Central Bank of Nigeria consumer ombudsman would be re-submitted to the National Assembly. The bill, if passed into law, is expected to address the challenges of protection of consumers of financial services as well protect the integrity of the financial system. Emefiele, also stressed the need for increased collaboration among government agencies and other institutions involved in the FSS 2020. This, he said was necessary to move the country from about 50 per cent success in financial inclusion presently, to 80 per cent in the next three years. “FSS 2020 will be resubmitting to the National Assembly a Bill for establishment of specific financial consumer ombudsman to address the challenges of protection of consumers of financial services as well as the protection of the integrity of the financial system,” he explained. Continuing, Emefiele pointed out that Nigeria has made significant progress since 2007 in actively reforming its financial system. He noted that despite the global economic meltdown in 2008, the FSS 2020 Transformation Programs and initiatives provided the platform for fundamental changes in the country’s economic and financial landscape. Central Bank Upbeat statement STRATEGIC VISION of FSS2020 is “to be the safest and most diversified financial system among emerging markets supporting the real economy by the year 2020. He explained: “Under financial market, Pension, MSME, Insurance and Mortgage sectors, FSS2020 has introduced some far-reaching initiatives which have helped to deepen the economy. “For example, our Payment System has tremendously improved. There is now a Central Bank of Nigeria Immediate Transfer Service (CBSITS) and an interbank platform for effecting payment transactions, Electronic Cheque Clearing (ECC) system allowing for a same day cheques-clearing process, Nigeria Electronic Funds Transfer (NEFT) as an alternative means for interbank funds transfer among others including the Real time gross settlement system. “In the Mortgage sector, one of the initiatives of FSS2020 is the establishment of Mortgage Refinancing Company (NMRC), an initiative which the Federal Ministry of Finance embraced and drives.” NMRC is a public private partnership arrangement between the federal government and the private sector with substantial take-off contribution from CBN to bridge the funding cost of residential mortgages and promote the availability as well as the affordability of good housing to Nigerians by increased liquidity in the mortgage market through commercial banks, primary mortgage banks, insurance companies, private equity investors and international financial institutions. In the medium, small and micro enterprises (MSME) sector of FSS2020, he pointed out that the central bank midwifed the establishment of the National Collateral Registry (NCR). Furthermore, Emefiele disclosed that the FSS 2020 Insurance Sector was collaborating with NAICOM to promote insurance penetration in Nigeria with the introduction of micro insurance program, Takaful, increase access to insurance and diversifying of products into financial services for long term financing. According to him, a number of bills had been initiated by FSS2020 to strengthen and deepen the financial system including the financial ombudsman bill for consumer empowerment. On his part, the outgoing CBN Deputy Governor, Corporate Services, Alhaji Suleiman Barau, who has been the coordinator of the FSS 2020, in his assessment, said the FSS 2020 members have done well, even as he ruled out a possible extension. “Strategy development or reform document development is not a problem, it is keeping it alive. For us to be alive after 10 years is the first measure of assessment. In the context of things we have done in specifics, we are not where we want to be and that is the essence of this review so that we can see what we can do in three years that we have not done in the last 10 years. I think we have done moderately well,” he added. Notwithstanding the milestone, Barau pointed out that there are some challenges still militating against the achievements of FSS2020 objectives. These includes but not limited to the following: funding and logistics;technical challenges; human capital development, especially the inability to attract talent from abroad to Nigeria; delays in the passage of the identified financial sector bills by the national assembly; policy inconsistency; and lack of continuity. Speaking on what should be done to boost the implementation of the initiative, Barau stressed the need to initiate policies that would ease Doing Business in Nigeria and encourage investment within the country. “There is need to ensure that there is enabling infrastructure and guarantee maximum peace and security in the country. Also, the development plan of government must have bearing with the needs and realities of the citizenry especially issues of unemployment, microeconomic stability and capacity building in all sectors of the economy.” Well, beyond rhetorics, those involved in the process should speed up their acts while carrying the public along on timelines and achievements.
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