As we commence the sojourn into the final quarter of 2019, we muse on what has
been an eventful third quarter in Nigeria’s fixed income market. The narrative
surrounding the market has been slightly altered in the past couple of months by
emerging headwinds, the most notable being the ongoing battle with Process and
Industrial Developments Ltd. (P&ID), which has impacted investor sentiment in the
fixed income space and poses a dilemma for key policy decision-makers in the
In the months leading up to August, yields in the fixed income space had been
trending downwards, while investor participation at primary market auctions
In addition, the money market was awash with rising liquidity levels as the CBN reduced the frequency of contractionary OMO auctions, a stance which reinforced the dovish posture of the CBN Governor during his re-election speech.
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However, in mid-August, a UK Court passed a ruling in favour of P&ID and awarded
a penalty of USD9.6 billion against Nigeria over the country’s failure to live up to its
contractual obligations with the company. This judgment was significant
considering its expected effect on the country’s foreign reserves and the risk of
seizure of its international assets should it fail to pay the penalty.
Furthermore, the timing of the judgment was ill-fated, as it coincided with the escalation of the U.S-China Trade tensions in August, which kept oil prices below the USD60pb budget
benchmark – a level which negatively impacts Government revenue and threatens
accretion to its foreign reserves. Thus, Nigeria had to contend with a double
whammy of depressed oil prices and a penalty which is equivalent to c.22% of her
In response, there was a downturn in the mood in the fixed income space due to
the heightened risk factors, as yields on securities in the market crept upwards.
Between July 31st and September 30th, the average yield in the secondary market
for Treasury bonds rose by 0.92% and settled at 14.11%, having peaked at 14.48%
on the 22nd of August. The same trend was observed in the secondary market for
Treasury bills where the average yield advanced by 2.52%, from 10.93% to 13.45%
over the same period, also reaching a peak of 15.28% on the same date.
Investors started pricing-in the increased risk associated with the country due to the aforementioned factors, despite the downward trend observed in inflation. Meanwhile, investor participation at Primary Market Auctions began to wane, observed in the under-subscription levels recorded in the August Bond auction, while primary market T-bills auctions in August witnessed lower bid-cover ratios. Consequently, we started witnessing declining system liquidity levels as the CBN intensified liquidity mop-ups at higher rates in order to stem capital outflows.
Nevertheless, Nigeria has received some comforting news in recent times which have allayed concerns regarding the country’s risk profile. First, progress has been made towards overturning the initial court judgment against Nigeria, as the country has been granted permission to appeal the USD9 billion penalty in court.
Secondly, oil prices have recovered, staying above the USD60pd benchmark for the
most part of September. Nevertheless, yields across the fixed income markets are
expected to remain slightly elevated for the rest of the year to keep yields sufficiently attractive for investors and to account for other lingering risk factors such as a delayed conclusion of the P&ID case and an unstable oil price environment.
Emefiele tells economists to stop “overdramatizing” analysis that can create Panic
CBN has assured that the nation’s economy will emerge out of recession in the first quarter of 2021.
The Central Bank of Nigeria (CBN) has assured that the nation’s economy will grow by 2% in 2021. The apex bank is optimistic that its various intervention will make Nigeria emerge out of recession in the first quarter of 2021.
This was disclosed by the Governor, CBN, Godwin Emefiele while delivering his keynote address at the 55th Annual Bankers Dinner of the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos on Friday.
What he is saying
He said, “We expect that growth in 2021 would attain 2.0 percent. It is important to insulate the economy from shocks that may undermine the attainment of the projected 2.0 percent economic growth.
“However, downside risks remain, as restoration of full economic activities, particularly in service-related sectors, remains uncertain until a COVID vaccine is produced and made available to millions of people across the world.
“Second, with the significant rise in cases in advanced markets and the imposition of lockdowns in parts of Europe, concerns remain on the impact this could have on growth in advanced economies, commodity prices and the financial markets.”
He emphasized on the need to find ways to insulate the economy from the impact of these shocks through diversification efforts, while also working to ensure that the nation adheres to safety protocols in order to prevent a surge in COVID-19 related cases, as this could further cripple economic activities.
Stop overdramatizing analysis
Emefiele appealed to economic analysts to stay clear from analysis that can create panic and thus hamper the economic recovery process. “When you overdramatized you create panic in the system and that slows down the process of recovery.
“Our actions in 2021 would be guided by the considerations that emerged from the Monetary Policy Committee meeting of November 23 & 24, 2020, which sought to address the major headwinds exerting downward pressure on output growth and upward pressure on domestic prices,” he added.
Mr. Emefiele has often accused “armchair” economists of making exaggerated comments when expressing their views on the economy.
Explore Data on the Nairametrics Research Website
55th Annual Bankers Dinner https://t.co/WROvaYq8Cg
— Central Bank of Nigeria (@cenbank) November 27, 2020
What you need to know
On November 23, 2020, Nairametrics reported that the Minister for Finance, Budget and National Planning, Mrs. Zainab Ahmed, said the country will exit recession by the first quarter of 2021 as the government is working towards reversing the declining economic trend in the country.
- The Finance Minister said the COVID-19-induced recession followed the pattern across the world, where many countries had entered an economic recession.
Nigeria edges closer to getting World Bank loan, in the final stages of talk
The Finance Minister has disclosed that Nigeria has fulfilled the conditions and is in the last stages of securing a World Bank loan.
Nigeria is set to achieve its plans of getting the $1.5 billion World Bank loan package as it is in the closing stages of the deal following its fulfilment of the conditions set by the international multilateral organization.
This disclosure was made by the Minister for Finance, Budget and National Planning, Zainab Ahmed, during an interview on Friday, November 27, 2020, with Bloomberg Television.
While pointing out that Nigeria’s senate approved the borrowing plan from the World Bank in June, Ahmed said the board of the multilateral institution will discuss the loan package at their next meeting.
What you should know
It can be recalled that the World Bank loan which had been sought by Nigeria in the wake of the devastating impact of the coronavirus pandemic, was being delayed by the Brettonwood institution due to concerns over reforms as it feels that Nigeria has not shown enough commitment towards achieving them.
Some of the reforms include the unification and flexibility of the exchange rate, removal of fuel subsidy, increase in electricity tariffs amongst others.
However, it seems that with the recent deregulation of the downstream sector of the oil industry with the attendant removal of fuel subsidy and increase in electricity tariff, some of those concerns of the World Bank are gradually being sorted out.
Ahmed also said that Nigeria is considering joining the G-20 debt-relief initiative and is talking to commercial lenders to secure their backing.
She said, “We will consider joining as long as it is safe for us to do so. Nigeria couldn’t participate initially because some of the conditions were unfavourable for existing loan commitments with bilateral lenders and other international borrowings.”
On the increased gap between the official rate and parallel market rate, the minister said the government is concerned about the widening gap in the naira’s exchange rate on the official and parallel markets.
She said, “We have been taking measures to close the gap. We hope to get to an even level very soon so the impact of the exchange rate will become moderated.”
Nigeria generates N416.01 billion from Company Income Tax in Q3 2020
Total company income tax generated increased by 3.48% in Q3 2020, compared to N402.03 billion recorded in Q2 2020.
Nigeria generated the sum of N416.01 billion from Company Income Tax (CIT) in the third quarter of 2020. This was revealed in the Company Income Tax by Sectors report, recently released by the National Bureau of Statistics (NBS).
According to the report, the total CIT generated increased by 3.48% in Q3 2020, compared to N402.03 billion recorded in the previous quarter (Q2 2020). It reduced by 20.13% compared to N520.89 billion recorded in the corresponding quarter (Q3) of 2019.
- Company income tax generated year-to-date sums up to N1.11 trillion as against N1.26 trillion in the comparable period of 2019.
- Professional Services including Telecoms generated the highest amount of CIT with N55.52 billion generated, closely followed by Other Manufacturing with N42.03 billion.
- Banks & Financial Institutions generated a sum of N24.05 billion.
- Mining generated the least, closely followed by Textile and Garment Industry and Local Government Councils with N120.93 million, N167.51 million, and N321.72 million generated respectively.
Out of the total amount generated in Q3 2020, N244.70 billion was generated as CIT locally, while N70.34 billion was generated as foreign CIT payment. The balance of N100.97 billion was generated as income taxes from other payments.
Automobiles and Assemblies grows CIT by 994%
In terms of sectors with the highest increase in company income tax remittances, the Automobiles and Assemblies sector grew its CIT by 994%, from N81.6 million in Q2 2020 to N892.7 million. It was closely followed by the Gas sector, which grew its CIT by 626% to stand at N4.76 billion from N655.5 million.
On the flip side, transport and haulage services recorded the highest decline in company income tax, as it reduced by 76% to stand at N7.35 billion from N31.1 billion. This is closely followed by Banks and financial institutions, which declined by 51% to stand at N24.1 billion.
The rise in company income tax is an indication of the Nigerian government’s move to improve the generation of revenue from the fiscal side as against oil exportation. However, the halt in economic activities due to the COVID-19 pandemic contributed to the year-on-year decline in company income tax.