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Nigeria’s External Reserves and SWF: Why IMF cannot be ignored

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IMF raises Nigeria’s growth forecast, Globat trade tension, US-China trade war, International Monetary Fund IMF, IMF advises Nigeria to keep inflation down, International Monetary Fund, Godwin Emefiele, Nigeria's External Reserves and Sovereign Wealth Fund: Why IMF can't be ignored

Within the last decade, crises in emerging markets have not only underscored the importance of maintaining adequate external reserves, it has also underscored the need to identify its sustainability. In attempts to achieve macroeconomic stabilisation, Nigeria, like other developing economies, have accumulated substantial foreign currency reserves in recent years.

According to the International Monetary Fund (IMF), reserves management is a process that ensures that adequate official public sector foreign assets are readily available to and controlled by the authorities for meeting a defined range of objectives for a country or union.

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It has been argued that the best use of surplus reserves is effective management to maximise profits rather than for liquidity sake. Hence, Sovereign Wealth Funds (SWFs) have a long history of using foreign exchange reserves for profit-seeking investment. This is why SWFs have emerged as a popular institutional blueprint for more active external reserves management.

An overview of SWFs: First established in Kuwait, now a global phenomenon

Essentially, Sovereign Wealth Funds, which was first established by Kuwait in 1953, now serves to protect oil economies from boom and bust. The world’s current largest SWF boasts of assets under management of around $1trn. In 2017, Norway’s sovereign wealth fund exceeded $1 trillion.

Reports have shown that emerging market economies with high levels of international reserves were better prepared to withstand the ripple effects of the 2008/2009 global financial crisis.

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Past and current trends

Before the dominance and adoption of the U.S dollar as a vehicle currency, gold (under the gold standard) was the major component of external reserves as the means of settling international debts.

Now economies of the world have adopted the Guidotti rule, which stipulates that developing countries should hold enough reserves to cover all foreign debts that is short-term or maturing within one year.

Currency Accumulations No  Some controversies

While currency accumulation is not a new phenomenon, recent activities have also stirred debate. SWFs, unlike foreign reserves, typically seek to diversify foreign exchange assets and earn a higher return by investing in a broader range of asset classes.

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However, concerns have been raised about how institutions in the “investing” and “receiving” countries may need to adapt. The issues range from transparent investment approach, information on the type and amounts of assets held, governance structured and how decisions are made on the fund have been mooted as major concerns.

Similarly, critics have expressed worry over currency accumulations managed by the State,  citing tendencies of vulnerability to politically driven investment decisions, cronyism, and even corruption.

Nigeria’s Sovereign Wealth Fund: How Reserves maybe affected?

In Nigeria, there are two Sovereign Wealth Funds: the Excess Crude Account (ECA) and the Nigeria Sovereign Investment Authority (NSIA). Note that these two are funded by the savings earned when oil prices are at peak.

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Hence, as a larger chunk of revenue is appropriated for ECA and NSIA rise, external reserves are likely to fall. For instance, in 2018, the National Economic Council (NEC) reportedly approved fresh injection of $650m from the reserves into SWF, and that improved the SWF to $2.15 bn.

Nigeria has a Sovereign Wealth Fund established which by the Nigeria Sovereign Investment Authority (NSIA) Act 2011. Specifically, the SWF was reportedly established to address the controversies surrounding the Excess Crude Account (ECA).

The fund is usually expected to generate revenue to meet budget shortfalls in the future, provide dedicated funding for development of infrastructure and keep some savings for future generations.

Is the International Monetary Fund’s (IMF) ranking truly flawed?

Following the IMF’s latest ranking of Nigeria as the world’s second-worst country in the use of sovereign wealth funds, Nigerians have become critical of the excesses of the government in the mismanagement of the country’s commonwealth.

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However, the Managing Director, Nigerian Sovereign Investments Authority (NSIA), Mr. Uche Orji, faulted the IMF’s ranking, describing it as a flippant piece of work. According to him, the poor ranking is due to Nigeria’s policy to use part of its SWFs’ funds in domestic investment.

IMF’s Bluff: Should it be celebrated?

Just days after the IMF’s controversial ranking, the IMF’s Senior Resident Representative and Mission Chief for Nigeria, Amine Mati, reportedly tried to provide more explanation on the controversial report.

“In view of recent local media reports, I would like to clarify that the reference to the Sovereign Wealth Funds (SWF) included in Figure 2.16 of the IMF’s Fiscal Monitor showing a low ranking for Nigeria does not refer to the Nigerian Sovereign Investment Authority.”

$2.53 Sovereign Wealth Fund: Connecting some dots

Nigeria has reportedly grown SWFs up to $2.53 billion in the last 10 years. Also, Nigeria’s external reserves have continued its bullish run, edging towards $45 billion thresholds. This was last recorded six months ago.

The Naira has has been relatively stable because of CBN’s injections. However, this is only a short term fix which requires appropriate policy restructuring.

“Foreign accumulation is only meant to be  a support, not a policy in itself.”

Also, there have been several reported cases of mismanagement of the excess crude accounts. Chief among all is the reported $1.68 billion the Federal Government removed from the ECA in 2018, with claims that the fund was used to offset the last tranche of the Paris Club obligations to states.

There have also been reported cases of accruals being shared every month during the Federation Accounts Allocation Committee (FAAC) across the three tiers of governments in Nigeria.

Way Forward: IMF can’t be ignored

It was recently reported that Nigeria’s external debt stood at $25.2 billion. With external reserves at $44.7 billion, it suggests Nigeria’s external debt is 56% of foreign reserves.

Also, Nigeria’s Debt-GDP ratio, which reportedly stood at 21.1 percent in 2018, appears good. Yet, there has been concern that the economy is treading a risky path.

As recalcitrant as IMF’s fiscal policy stance may appear, corruption and policy somersaults as noted by the Bretton woods organisation, are major banes that must be addressed if the Nigerian economy must fulfil its growth potentials.

Patricia

Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

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Corporate Press Releases

Customers to win salary-4-life, business grants, rent advance and cash rewards in Diamondxtra quarterly draw

The DiamondXtra Reward Scheme is the most rewarding way to save.

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Access Bank, Scam Alert: Access Bank issues warning to customers over fraudulent acts , Director, West Africa region, IE, Onyekachi Eke, Access Bank lists N30 billion bonds on NSE , Access Bank, Zenith Bank Plc, Access Bank Plc and United Bank for Africa Plc, Zenith Bank Plc, Access Bank Plc and United Bank for Africa Plc, A new BVN guideline to curb e-fraud is coming soon - CBN announces , Access Bank donates 66 laptops to children in underserved communities, Access Bank postpones closed period for 2019 Year-End financial statement, Access Bank dispels rumour about its CEO being arrested, Access Bank set to establish subsidiary in Cameroon after acquiring Kenyan bank, Access Bank finally acquires Kenyan bank, Transnational Bank Plc, Herbert Wigwe: We are clamping down on malaria with the Malaria-To-Zero Initiative, Access Bank to list N15 billion green bond on Luxembourg Stock Exchange 

Leading retail bank in Nigeria, Access Bank Plc is set to reward more than 1,000 DiamondXtra customers with various grants and cash prizes in the second DiamondXtra quarterly draw of Season 12 scheduled to hold on Wednesday, July 15, 2020.

According to Adaeze Umeh, Head, Consumer Banking, Access Bank Plc, “We are gearing up for the DiamondXtra quarterly draw this month and we will be rewarding more than 1,000 lucky customers with various cash prizes, business grants, family health insurance, rent advance and other exciting rewards. It is the bank’s little way of rewarding its loyal customers and creating more value to meet customer needs during these trying times.  We rewarded ten customers last month with N1million each at the monthly draw and we are here again to reward more customers in the quarterly draw.”

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To join the winning train, all you need to do is keep saving if you have a DiamondXtra account already. “If you don’t have an existing account, simply dial *901*5# to open a DiamondXtra account with just N5, 000 and save multiples of ₦5,000 to increase your chances of winning,” Adaeze told newsmen in Lagos.

Some of the DiamondXtra rewards for the quarterly draw include:

  • Salary4Life (N100,000 every month for 20 Years)
  • Rent for a Year for 21 lucky customers
  • One Year Family health coverage for 7 lucky customers
  • N1Million business grant for 6 lucky customers
  • ₦500,000 for 15 lucky customers
  • ₦100,000 for 45 lucky customers
  • ₦50,000 for 300 lucky customers
  • ₦20,000 for 300 lucky customers
  • ₦10,000 for 300 lucky customers

The DiamondXtra Reward Scheme is the most rewarding way to save, don’t miss out on this opportunity to become a millionaire or a star prize winner.  To participate; simply open a DiamondXtra account, save in multiples of ₦5,000 and you stand the chance to win amazing prizes in the quarterly draw this month.

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Hospitality & Travel

FG bars aides of VIPs from airport terminals, to grant loans to airlines, others at 5%

The minister insisted that face masks must be worn at all times inside the airport and airplane.

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international passengers, Coronavirus: FG enforces immediate screening of travellers at airports with new directive

The Federal Government has barred all non-travelling aides of public office holders and very important personalities (VIPs) from gaining access into the Airport terminal. 

This is part of the measure and aviation protocol designed to contain the spread of the coronavirus disease and ensure safety of the passengers and workers in the aviation sector. 

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This was disclosed by the Minister of Aviation, Hadi Sirika, during Monday’s briefing of the Presidential Task Force (PTF) on COVID-19. 

Sirika said that this measure applies especially to Governors, Ministers, National Assembly Members, Judicial officers and Military officers as the practice of having their Personal Assistants and Special Assistants, who they insist on seeing them off up to the aircraft though not travelling with them, would be stopped. 

The Aviation Minister in his statement said, ‘’Henceforth, all VIPs will no longer be permitted to bring non-travelling aides into the Airport Terminals. This especially applies to Governors, Ministers, NASS members, Judiciary and Military officers.’’ 

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While speaking on the new procedures during this COVID-19 era, the minister said that mandatory temperature and symptoms checks will be carried out at the airport terminals and frequent washing of hands should be done at the airports. He also said that face masks must be worn at all times inside the airport and airplane and anyone who does not do that will not be allowed inside the airport terminals. 

He pointed out that physical distancing will be maintained at all times just as unruly passengers will not be allowed to board the aircrafts or fly as no pilot will be allowed to fly a plane carrying an unruly passenger. 

He revealed that the processes of compression, heating, cooling and filtration that aircraft cabin air is subjected to, takes out 99.9% of all organisms including viruses etc. that’s why cabin air is safer than most other environments.  

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The aviation minister also stated that operators in the aviation sector including airlinesground handling firms and others, will be given loan at 5% interest rate with effect from 2021. He, however, noted that the modalities for the loan is being worked out with the Central Bank of Nigeria and the Federal Ministry of Finance, Budget and National Planning 

It can be recalled that Sirika stated this in an interactive session with the senate committee on Aviation where he said that any VIP coming into the airport this time around as a personality, minister or even members of the national assembly will not be carrying their aides into the airports anymore. 

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Appointments

Vodacom Nigeria gets new MD

Vodacom Business is a leading pan-African telecommunications provider wholly-owned by the Vodacom Group.

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Vodacom Nigeria gets new MD

Vodacom Business (Nigeria) Limited has appointed Mr Valentine Chime as the Managing Director of its operations. According to a statement from the company on Monday, the appointment is at the instance of the board of directors.

He will now drive the company’s vision of becoming Africa’s leading cloud and digital service provider, the statement read.

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Prior to this appointment, Valentine Chime was with Aruwa Capital, a private equity company investing across West Africa. He also worked at Kaizen Venture Partners, a private equity company focused on distressed assets. He has held various C-suite positions in a number of portfolio companies in different sectors.

READ ALSO: Africa seeking extra $44 billion to deal with COVID-19 pandemic

Chime expressed his enthusiasm to take up the position and challenge of building the Vodacom brand in the country. He said:

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“Vodacom Business Africa (Nigeria) Limited is well-known and very respected in the industry, and I look forward to taking up this mission.

“Covid-19 has accelerated digital transformation, and we are perfectly positioned to deliver intelligent connectivity through seamless delivery of cloud and digital services and technologies to our clients.”

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Vodacom Business is a wholly-owned subsidiary of the Vodacom Group, and a leading pan-African telecommunications provider that came into Africa since 1992.

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