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13042018 - Herdsmen kill 66 in Benue, Taraba; scores in Zamfara

Vanguard Newspaper 13042018

20 — Vanguard, FRIDAY,

20 — Vanguard, FRIDAY, APRIL 13, 2018 Vanguard Economic Discourse: Impact of policies, analysts’ positions to drive conversations By Emeka Anaeto, Business Editor AS the Vanguard Eco nomic Discourse is set to roll out the trajectories and pitfalls of the Nigeria’s rebounding economic indicators as well as recommendations for a resetting, reactions in the different market segments appear diffused. Also some analysts have given clue to why markets reactions would not sustain positive sentiments despite the heart-warming reports from the National Bureau of Statistics, NBS, and the Central Bank of Nigeria, CBN. CBN released its Purchasing Managers’ Index (PMI) report for the month of March, showing sustained improvement in manufacturing and nonmanufacturing activities during the month. Specifically, both manufacturing and nonmanufacturing PMIs expanded to 56.7 and 57.2 respectively, indicating faster pace of growth compared to the preceding month. The latest data suggest positive output growth in the first quarter of 2018 (Q1-18), hence the likelihood of improved corporate performance in the three months to March. The CBN’s Monetary Policy Committee (MPC) held its first meeting of the year last week. In line with expectation and consensus, the MPC again held the line across all its policy variables, retaining the Monetary Policy Rate (MPR) at 14.0%, Cash Reserve Requirement (CRR) at 22.5%, liquidity ratio at 30.0%, and the asymmetric corridor around the MPR at +200 and -500 basis points. CBN Governor, Mr Godwin Emefiele, said the rates were retained because the economic recovery was still too fragile to support a downward review of the rates. Analysts at Cordros Capital Limited, a Lagos based investment house stated: “We look for a stronger case for a rate cut in July, when headline inflation rate would have dropped at least 200 bps below the MPR.” Capital Market Equities At the backdrop of both actual and expected improvement in corporate performance, the equities market reverted to a loss this week, with all major sector indices closing in the red. This, according to analysts indicated that investors are not yet ready to bait on the expected improved corporate performance. However, there seems to be optimism in the horizon as the analysts at Cordros Capital stated: “We reiterate our positive outlook for risky assets, on the backdrop of still-positive macroeconomic fundamentals; downtrend in yields on debt instruments; and lower stock prices, which is expected to drive bargain hunting ahead of Q1-18 corporate releases.” Fixed Income and Money Market In line with expectations, the overnight lending rate eased further to 4.00%, representing a 408 bps w/w contraction, against last week’s close of 8.08%. The system was awash with liquidity. Analysts believe the overnight money market rate is likely to expand in the coming week, as outflows are likely to outweigh the inflow of maturing Open Market Operations (OMO) bills worth N476.21 billion But activities in the Nigerian Treasury Bills (NTB) market were bullish, in line with analysts’ projections on the continuing surplus liquidity. Expectations of an interest rate cut by a few market players also stoked bullish sentiments. However, yields are expected to be pressured due to anticipated squeeze in liquidity position next week Similarly, trading in the bond market was bullish, amid the higher liquidity levels, as average yield contracted in all but one session of last week. Banks’ treasury executives expect reduced activity at the end of this week due to anticipated squeeze in liquidity position. A few of them however said they expect lower yields in the short to medium term, reflecting falling inflation rate, strengthening expectation of monetary easing, and the FGN’s new debt management strategy. Foreign Exchange The naira remained stable over the period since April 2018 despite the absence of the CBN’s conventional intervention. The USD/NGN exchange rate traded flat at NGN362 throughout the period in the parallel market, while it strengthened marginally by 0.01% to NGN360.01 in the I&E FX window. Oil revenues continued to shore up the foreign reserves (+0.75% to USD46.55 billion), amidst continued stability in oil prices (currently USD68.14/ barrel) and production. Foreign exchange dealers in banks told Vanguard that they expect Naira to continue trading within current bands, as the healthy accretion to the reserves further supports the apex bank’s interventions in the forex market. External Reserves. Unlike the case in 2015 and 2016, wherein every headline about the reserves contained such words as “decline”, “drop”, “fall” etc., the situation thus far in 2018 has been underpinned by “steady accretion”. Earlier this week, the CBN spokesman, Isaac Okoroafor, added more colour to the picture, issuing a statement that the reserves had hit a 5-year high of USD46 billion as at the close of business on Friday, March 9, 2018. But the veracity of the statement has became a subject of debate. It is safer to conclude that the reported figure refers to the actual number for the referenced date, hence the variation from the available data on the CBN’s website which captures the 30-day moving average of the reserves. From whatever perspective, the external reserves is growing, due to the following factors: Rising oil earnings (higher oil prices and production volume have been supportive); Strengthening foreign portfolio inflows, catalyzed by the stable operations of the I&E FX window; Proceeds from external borrowings (recall the USD2.5 billion Eurobond that was issued last month; Slower pace of CBN intervention in the currency market (USD1.45 billion monthly average thus far this year, compared to USD2 billion monthly average within March-May 2017); The apex bank’s continued efforts at discouraging unnecessary imports; Decent inflows from nonoil exports. Clearly, the monetary authority is walking the talk of deliberating growing the foreign reserves – which it expects to hit USD60 billion in 2019 under prevailing anchors. The analysts at Cordros Capital had reflected on these scenarios and stated as follows: “Our base case outlook scenario – as highlighted in our Nigeria 2018 Outlook report, ‘Looking Beneath the Surface’ – for the Naira in 2018 assumes an external reserves position of USD47 billion (on a 30-day moving average basis). “We were of the view that under this scenario, the CBN is unlikely to implement material changes to its FX policy, and forecast the local currency will hover around N360-N365/ USD and N363-N368/USD in the I&E FX window and parallel market respectively. “But at the current run rate of average cumulative monthly growth of 4.84%, we estimate the reserves to hit our forecasted target during H1-18, thus making the case for our 2018 best case reserve projection of USD56 billion, at which level we expect the central bank to adopt more market friendly FX reforms. The big question then is “will the naira reflect the steady accretion to the reserves by way of notable appreciation”? Continues on page 21 C M Y K

Vanguard, FRIDAY, APRIL 13, 2018 — 21 Vanguard Economic Discourse: Impact of policies, analysts’ positions to drive conversations Continued from page 20 “Our expectation is for the LCY (local currency) to strengthen to N340/USD and N345/USD in the I&E FX window and parallel market respectively, under a USD56 billion external reserves. “For that to happen, we highlighted the following conditions (1) stable oil price and domestic production continue to impact on trade balance, (2) the FGN raises the USD portion of the proposed borrowings for the fiscal year to fund the deficit in the budget, and (3) investors’ confidence in the I&E FX window strengthens amid sustained economic growth and further FX reforms, thereby bolstering portfolio inflows. Are the aforementioned conditions likely? Our answer is in the affirmative. “However, we reckon the abovementioned as a necessary condition for Naira appreciation. A sufficient condition will be more direct efforts by the central bank to increase the volume of USD supplied (we estimate at an average of USD2.5-USD3 billion monthly, from current average of USD1.4 billion) at its frequent interventions. “Such move, in our view, should help channel a proportion of parallel market demand to the official window. For instance, we are Kemi Adeosun, Finance Minister aware manufacturers still get less than 50% of their total legitimate FX needs via the official window while the balance is sourced at alternative sources. “That said, we note recent indications from the CBN governor that there is a deliberate attempt by the bank to keep the naira exchange rate in the I&E FX window at current levels. In our view, the aim of that is to (1) keep local assets attractive to foreign investors and further support the CBN’s efforts at growing the reserves, and perhaps (2) further stimulate exports. “The possibility of that stance changing anytime soon remains to be seen, particularly amid the non-confirmation of nominees to the Monetary Policy Committee (MPC) by the National Assembly – which has made it difficult for the Committee to meet, as it cannot form a quorum. More so, the Udoma-Udo-Udoma CBN chief appears to have achieved his desired level of exchange rates convergence in the economy, hinting that, the fact that most transactions are being settled around the N360/USD levels suggests rates unification. “Over the rest of 2018, we weigh political-related risks to the stability of the naira as modest. While we do not totally rule out the likelihood of (1) a number of foreign investors staying on the sideline towards the final quarter of the year, as the race for the 2019 general elections gathers momentum, and (2) increased naira liquidity – on election-related spending – increasing demand for the dollar, we see the apex bank in a comfortable position to continue its support for the LCY via its interventions in the currency markets. That will bode well for the business environment (particularly manufacturers, service provid- Business activities show positive outlook in March — CBN By Elizabeth Adegbesan THE Central Bank of Nige ria, CBN, said that the volume of business activities in the economy showed positive outlook standing at 69.2 index points in the month of March. This was revealed in the CBN’s monthly Business Expectation Survey (BES) report of March 2018, released yesterday. According to CBN, the firms surveyed expect the naira to appreciate next month. The firms highlighted insufficient power supply, high interest rate among other constraints as major setbacks on business activities during the month under review. The apex bank however noted that the firms’ access to credit was restricted as it declined by -12.2 index points from the 7.2 index point recorded in February. The report stated: “The positive outlook in the volume of business activities (69.2 index points) and employment (27.9 index points) indicated a favourable outlook in the next month. “Furthermore, the positive outlook by type of business in Godwin Emefiele, CBN Governor March 2018 was driven by businesses that are import and export-oriented (29.1 points), those that are neither import nor export-oriented (25.9 points), businesses that are export-related (23.5 points), and those that are import oriented (17.7 points). “Respondents’ outlook on the volume of total order, business activity and financial conditions (working capital) stood at 16.0, 13.3, and 7.6 index points respectively, indicating an improvement in relation to its outlook in February 2018 which was 2.2, 7.1, and 3.8 respectively. The average capacity utilization (CUI) index rose to 16.5 points in March 2018 from 8.3 in February 2018, which can be attributed to the positive outlook on business activity and financial conditions.” The report further stated: “Majority of the respondent firms expect the naira to appreciate in the current and next months as the confidence indices stood at 26.7 and 40.8 points, respectively. “The surveyed firms identified insufficient power supply (70.7 points), high interest rate (61.0 points), unfavourable economic climate (53.8 points), unclear economic laws (52.7 points), financial problems (50.5), insufficient demand (48.1 points), and unfavourable political climate (43.7 points) as the major factors constraining business activity in the current month. “Respondents were however pessimistic on access to credit in the review month with an index of -12.2 points, which is a decline from the 7.2 point recorded in the preceding month.” CBN said the March 2018 BES was carried out during the period March 12-22, 2018 with a sample size of 650 businesses nationwide, with a response rate of 91.8 per cent, adding that the sample covered the services, industry, wholesale/retail trade and construction sectors. The respondent firms were made up of small, medium and large organisations covering both import- and export-oriented businesses, the report noted. ers, and traders) and investing community. “By implication, we look for Nigerian economy still on the brink of recession “Quantum Global Research Lab, an independent research arm of Quantum Global, has ranked Nigeria as the 14th most attractive economy for investments flowing into the African continent.” healthy activities in the equities market and fixed income space.” By Dele Sobowale ADDRESSING the 6ti edition of the African CEO Forun in Abidjan, Cot d’Ivoire, Professor Mthuli Ncube revealed that the top ten nations are: Morocco,Egypt, Algeria, Botswana, Cote d’Ivoire, South Africa, Ethiopia, Zambia, Kenya and Senegal. On every continent the most attractive economy for investment is also the largest. The USA leads in investment attraction North America; Brazil in South America; China in Asia and Germany in Europe. Only in Africa do we have the anomaly of the acclaimed economic giant not being the most attractive for investors. Nigeria is not even second or third. The giant of Africa is ranked 14th. It was once ranked as low as 29th. This means that Nigeria is never the first port of call when business people are seeking for investment opportunities in Africa. Some of the reasons are not difficult to discover. Annual Gross Domestic Product, GDP, growth is one of the most important variables foe determination of a nation worthy of attention. In that regard, the World Bank’s recent release of projected global GDP growth should help explain some of the reasons. The World Bank recently released its 2018 economic growth forecasts for nations all over the world. Global Gross Domestic Product, GDP, is supposed to grow by 3.1 per cent during this year. Sub-Saharan Africa will grow marginally faster – up by 3.2 per cent. But, Nigeria, the presumed largest economy on the continent will manage only 2.5 per cent growth – if it succeeds. By contrast Kenya will jump by 5.5 per cent, Tanzania 6.8, Senegal 6.9, Cote d’Ivoire is expected to expand by 7.2 per cent and Ethiopia by a whopping 8.2. Even in Africa, Nigeria is not top ten; add the nations of Asia like China, India and South Korea, among others, and you can see that our 2.5 per cent only drags down the global average. How on earth does the nation reducing the average rank as topmost attraction? Just last week, the Central Bank of Nigeria, CBN, warned the Federal Government that we need to work hard to prevent Nigeria from sliding back into recession. CBN has it reasons. The GDP growth for 2017 was a mere 0.8. Despite the penchant for making a mountain out of two grains of sand by politicians, most economists know that the euphoria which officially accompanied the modest growth was totally unjustified. An economy growing at 0.8 per cent is on the brink of another recession or what is referred to as the double dip. One factor which might trigger a return to recession is the annual failure to pass the national budget on time. Despite the enormous efforts of the Minister for Budget and National Planning, to get the budget to the National Assembly in early November, it is again being delayed and might not be signed until mid May – if not later. No nation classed among the top twenty anywhere in the world ahs had leaders who are so collectively irresponsible as Nigeria’s leaders in Abuja. The budget gets delayed year-after-year making it difficult for people in the private sector to plan for the year and votes are released so late in the year that they make very little impact on GDP growth. In 2018, Nigeria is proving once more to the world that it lacks the leaders to manage a great economy in the new millennium. The sense of urgency and purpose is totally lacking in Abuja. The only redeeming possibility lies in the fact that war drums are sounding in the Middle East again. This time, the United States and Russia are rattling sabers. Any direct confrontation between the world’s mightiest military powers will drive up the price of crude oil. Nigeria might still be saved from her the folly of her leaders by bloodletting in the Arab world. Another oil windfall might be divinely on the way. If that occurs, it will provide respite for only a few months and we will have to face the harsh reality that Nigeria’s population is now closer to 200 million and we have more mouths to feed in a nation which failed to feed 150 million. The Economic Recovery and Growth Project, ERGP, notwithstanding, the nation which had not grown at anything close to 5 per cent since 2013, will need to grow at seven per cent or more from now on – otherwise the per capita income will continue to drop and Nigerians will continue to sink into poverty. Forget 2018, the GDP growth for this year will hardly reach 2 per cent. At the end of this year, Nigerians will be poorer than they were in 2006. The economic outlook for the short and medium terms is bleak. Nigeria lacks the leadership and the ideas required to move the nation as fast as it should. Four more years of this will constitute a monumental disaster. C M YK