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Fitch rates Nigeria lower, blames Buharinomics for economy crisis

Fitch, an international credit rating organisation, has downgraded Nigeria’s economic outlook from stable to negative while affirming the B+ rating. #FITCH #+B-RATING



Fitch downgradesS&P downgrades Nigeria, Nigeria’s credit rating faces downgrade by Fitch, Oil price crash, Coronavirus: The trouble that lies ahead for Nigeria, Avoiding 2016: What Nigeria should do to fight the coming economic storm, Fitch downgrades, federal government (FG)

Fitch, an international credit rating organisation, has downgraded Nigeria’s economic outlook from stable to negative while affirming the B+ rating.

In a fresh report obtained by Nairametrics, Fitch stated that the downgrade of Nigeria’s economic outlook is traceable to the disruptive macroeconomic policies under the administration of President Muhammadu Buhari.

According to Fitch, the downgrade of Nigeria’s economic outlook reflects the increasing vulnerability from the current macro policy setting in Nigeria, Central Bank’s complex regulatory measures, rising country’s debt, low fiscal revenue and uncertainty in governance.

Vulnerability in Nigeria’s macro-policy settings

In the report, the American rating firm stated that the increasing vulnerability from the current macro-policy setting has raised risks of disruptive macroeconomic adjustment in the medium terms and continued a real appreciation of the Naira.

  • According to Fitch, a sharp devaluation of the exchange rate under the current policy framework would stoke macroeconomic volatility and significantly weaken some of Nigeria’s key credit metrics, including its GDP per capita.
  • Fitch also noted that the substantial real appreciation of the naira over the last year appeared uncorrelated with macroeconomic fundamentals and was set to continue, driven by high inflation.
  • It was stated that commodity terms of trade had deteriorated somewhat and would decline further, weighed down by lower oil prices.
LDR: Growing the real sector by fiat?, Rapid increase in food prices temporary – Emefiele, CBN and other industry stakeholders establish N1 billion Bankers’ Charitable Endowment Fund , How the CBN’s OMO restriction is affecting the market  , Nigerian economy to grow by 2.38% in Q4 - CBN 

Godwin Emefiele

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[READ MORE: Nigeria’s economic growth lower than non-oil dependent nations- IMF)

Central Bank’s unconventional Policies

While providing further details on the state of the Nigerian economy, Fitch delivered an assessment of the policies on the Central Bank of Nigeria (CBN). According to Fitch, the CBN is striving to maintain a stable nominal exchange rate through an array of unconventional and economically costly policy measures.

  • First, Fitch noted that major risks stemmed from the central bank’s policy of attracting portfolio investments in its short-term Open Market Operations (OMO) bills through high yields and hedging instruments offered to non-resident investors at low cost, despite a wide margin between the naira and dollar interest rates.
  • As a result, non-resident holdings of the CBN’s OMO bills soared to $17 billion by end-August, equivalent to 40% of foreign-currency reserves at the time.
  • The credit rating organization noted that challenges to the durability of the current policy setting were underscored by increasingly complex regulatory measures taken by the CBN to reconcile attracting foreign investments in OMO bills and spurring bank lending.
  • Fitch further noted that the Central Bank has also recently limited operations in the OMO to banks only, and separately imposed a floor on bank loan-to-funding ratios to support credit growth.
  • Hence, it was disclosed that lower OMO market liquidity due to a narrower range of participants is likely to have dampened net portfolio inflows, contributing to a 12% drop in FX reserves in November.

Current Account Deficit to persist hits 24 years low

In order words, Fitch disclosed that the Current Account (CA) balance had shifted to deficit from a long-standing surplus, pointing to deteriorating macroeconomic imbalances and adding to external vulnerability.

  • According to Fitch, the CA would record a deficit of 1.6% of GDP in 2019, its second-weakest level in 24 years, after a surplus of 2.6% in 2018. Meanwhile, Fitch forecasts the CA deficit would moderate to an average of 0.7% of GDP in 2020-2021.
  • The rating firm’s also disclosed that foreign exchange reserves in Nigeria would average 4.7 months of CA payments over 2019-2021, down from 6.1 months in 2018.

Rising debts and weak reforms 

Fitch further disclosed that debt remains on an upward path in Nigeria while particularly low fiscal revenues and public fund mismanagement constrain the sovereign’s ability to support a rising debt burden.

  • Fitch predicts that debt/revenue ratio which is particularly high, at 333% (Federal government (FGN), debt: 777%) in 2019, will rise close to 400% (FGN debt: 922%) in 2021, well above the forecast ‘B’ median of 248%.
  • Weaknesses in public fund management are illustrated by rising monetary financing, a large and uncertain amount of government arrears, and a multitude of contingent liabilities on which transparency is poor.
  • Fitch forecasts that as Nigeria’s low non-oil fiscal revenues linger, the government deficit will deepen.
  • Also, inflation is high and poised to accelerate. Fitch projects Nigeria will average 13% in 2020-2021 from 11.3% in 2019, well above the forecast ‘B’ median of 5% and inflation rates in Nigeria’s main trade partners.
  • According to Fitch, the acceleration in inflation will be driven by a host of recently enacted policy measures which include the upcoming raise of the VAT rate, 66.7% hike of the minimum wage, as well as the recent closure of land borders to foreign trade and tightening restrictions on FX financing for a wide range of imports.
Minister of Finance Zainab Ahmed, VAT

Zainab Ahmed

[READ ALSO: Nigeria’s Inflation rate drops to 11.02% in August 2019 despite border closures)

In conclusion, Fitch projects average GDP growth of 2.4% in 2019-2021, well below the ‘B’ median of 3.4% and the five-year average demographic growth rate of 2.7%.

Fitch noted that the prospects for supply-side, fiscal and exchange-regime reforms that could tackle the major constraints for Nigeria’s credit profile are weak, as reflected by the record in recent years.

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

1 Comment

1 Comment

  1. onlooker

    December 20, 2019 at 11:03 am

    Thank you ooh Fitch. We Don Hear.

    The primary problem in Nigeria is institutionalized Rent-seeking, this scam created by Lawyers and Accountants for monopoly access to unregulated 3rd party fees is what has stagnated Nigeria. simple and short.

    To fix this problem every single legislation,regulation and policy existing in Nigeria that has to do with prosperity needs to be reviewed. easier said than done when there are people working deliberately every day against the prosperity of Nigerians. This is why i have even suggested in the past that this is a matter of national security that should also be over seen by security agencies.

    One of the most powerful repairs i have seen so far are the highlights of the finance bill (even though we cant find the actual document anywhere), once it becomes law Nigeria should see a boost in economic activity.

    But because these problems are often interlinked across multiple agencies we usually do not get the full out come/potential of a fix.

    For example finance Bill makes a big fix in the tax laws, but it forgets about CAC or CAMA which reads like a landmine for SMEs while CAC is also trying to treat private businesses like public held companies. CAC also failed to fall in line with VAIDS at a time.

    Then you also have the issue of agencies over-complicating processes, which we now know its only to facilitate rent-seeking. Why is FIRS or any state agency requiring people and small organisations to file anything? and why do they have to do it every month?

    Sometimes you have to ask if these people are completely mad, are you paying this companies? or you are expecting them to burden the extra cost out of thing air? as cost that can be sometimes as high as half of their share capital?

    and that is assuming they dont have anything better to do.

    If everyone can open/have a bank account, why cant they opt to have their taxes deducted automatically from deposit?

    Why do you have to have so many taxes for people and businesses to pay? why cant federal and state government agree a fixed percent of deposit that should be deducted as tax that covers every goddamn tax?

    You can not tell me all these legal and accounting professionals do not know this with all their stupid qualifications that they have been using to rob Nigeria in daylight. instead they provide stupid advice that has cost so much damage to this country and loss of life.

    Yes, some people with complex transactions will prefer to manually file especially large corporations, but that’s only a small percent (especially if you’re not just stealing their money) and those people can be effectively audited by FIRS.

    Again simple and short. but rent-seekers dont want simple and short they want to institutionalize rent-seeking that why they create complexity at the end of the day they will confuse you so you dont know they are robbing you.

    And look, if we want to protect against rent-seeking in the future we can not have shields and bubbles for civil-servants, because as it is today every Nigerian civil servant lives in a bubble that protects them from the reality of their action in office, even when they are dismissed in the middle of service or from office for wrong doing.

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Just in: Lagos approves resumption of full services for churches, mosques

Resumption of full services in churches and mosques has been approved by the Lagos State Government.



Lagos dismisses levy on audio and visual contents, suspends LSFVCB boss, Lagos SEC meeting goes virtual as full lockdown commences, Partial lockdown guidelines for businesses from May 4

The Lagos State Government has announced the approval of churches and mosques to resume full services in the state. This disclosure was made by the Lagos State Governor, Babajide Sanwo-Olu, during a press briefing on Saturday, September 19, 2020, in Lagos.

According to a monitored media report, the government said mosques can hold their prayers 5 times daily, while churches can also resume weekly services. This is against the initial announcement, where worship centres were restricted to just one gathering weekly, after they were allowed to reopen on August 7, 2020, following the lockdown to contain the spread of the coronavirus disease.

Sanwo-Olu, however, warned that all safety protocols that had been announced by the government must be strictly adhered to.

Details later….

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Hospitality & Travel

COVID-19: Transcorp Hotel loses about N1 billion every month – CEO

Transcorp Hotels has seen its revenues ravaged by COVID-19 induced lockdowns and implementing measures to save itself from further losses.



COVID-19: Transcorp Hotel loses about N1 billion every month- CEO

Transcorp Hotels, owners of one of Nigeria’s largest hotel Transcorp Hilton reports it loses about N1 billion every month due to the Covid-19 pandemic.

This was disclosed by the Managing Director/CEO of Transcorp Hotel Plc, Dupe Olusola, during an interactive session on Thursday. According to her, the management of the hotel met and decided to ensure that it kept costs down by restructuring its business strategy, diversifying into asset-light business models, and reducing the workforce, among others.

Olusola further disclosed that the company had suspended further commitment to buy fixed assets and operating equipment, as well as reduced its energy consumption and maintenance costs. She also confirmed Transcorp will be cutting back on all capital investments this year and in the foreseeable future until the outlook for the economy improves.

READ: Nigerian hotels count revenue losses due to pandemic-induced plunge

The hospitality sector has been one of the hardest-hit since the Covid-19 broke in late February. Data from the National Bureau of Statistics also reveal the sector contracted by as much as 40% in the second quarter of 2020, officially falling into recession.

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Nairametrics participated in the stakeholder’s session and noted a few critical remarks from the interview.

Below is the excerpt of the interview session:

How much has COVID-19 eaten into the fabric of Transcorp Hotels?

We had a drastic decline of over N9 billion. In March alone, we witnessed a N456 million loss. We have to remember that in March, there was a partial lockdown when everyone was trying to figure out what was happening. We were at N1.03 billion loss in April alone and this has continued to be the story every month. In June, we dropped by about N840 million.

READ: As Hotels resume operations, how prepared are they?

How will this development (loss) affect your staff strength?

We struggled to ensure that we would not ask people to go initially, that was our priority. We paid staff that did not work during lockdown 50% of their salaries and the ones that worked then were paid full salary. To keep the business running, we definitely have to let go of at least 40% now.

We engaged the staff Unions, both the Junior and Senior staff, before the implementation of that. We will ensure that employees are properly taken care of. The occupancies we have now are below 30% and with that, it’s impossible to have everyone around.

What is important to us is that we must ensure we are able to keep the hotel running as a national asset, because it has been in existence for over 30 years.

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Explore the Nairametrics Research Website for Economic and Financial Data

We have ensured that we keep as many jobs as we can within this time frame, so this is an opportunity for us to engage the media and carry you along before such exercise. We have engaged actively with our employees and other key stakeholders. At the occupancy level that we are seeing, it is impossible for us to sustain the employees that we have to keep our doors open.

Precisely, how many will you lay off?

It is definitely a great burden to even consider a lay-off but we don’t have a choice but to keep the business afloat. We have over 1,000 staff and it appears we will not need more than 400 staff to ensure we keep the hotel running. What is happening is beyond everybody and it is just a situation we have found ourselves in.

What is your outlook for 2020, any hope of returning to the pre-COVID era?

We expect to get to the pre-COVID era by 2024 globally, because it requires the gathering of the people in preparing for events, etc. The new normal is real. We expect things to go back to what they used to be in Nigeria by 2024 also. We are not expected to do more than 30% of our occupancy this year and that is significantly low, and by this time next year, we don’t expect to see anything more than that. So, this is our trying time.

Strategy to sustain Balance Sheet before the end of 2020

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We are a hotel business, the food, room and the events we hold are our sustainers. We are definitely going to end at a loss in 2020. As I said, COVID will still be around in 2024. We will try as a business to be innovative, to look at different ways. We are reporting losses of almost N1 billion on a monthly basis and this is significant to us. We hope they can come up with some vaccination to help reduce the impact of the pandemic so that businesses can begin to pick up.

READ: Transcorp Hotels Plc Retains Positive A- (NG) GCR Rating


Any palliatives from the government to hotels?

Governments across the world have given palliatives to hotels, but here there is no such package for big hotels in Nigeria. We have engaged at all levels of government on payroll support, tax rebate, support for employees, actively and widely as possible. Yet, these have not yielded any support, unfortunately. This is really why we have gotten to the point of disengaging our own staff. We have not seen any support from the government to actually help us.

How do you aim to restructure your loans and are there plans to raise funds?

This year is really just about losses. We have met with our stakeholders and lenders to work out how we can restructure our loans, considering some palliatives CBN brought on board like interest rate of 5%. We met the Bank of Industry (BOI) to get interest rates on our loan reduction. Some of these got a couple of positive responses. We are also considering raising funds through the right issues. We are raising N10 billion in order to pay off some of our existing obligations.

How will virtual tools affect your business model and future plans?

We are working round the clock to bring in solutions in line with the new normal to our guests and customers. How do we provide what they are looking for? How do we provide physical and virtual conferencing? We have also come up with Drive-in Movie Cinema, among others. We are going to ensure we run asset-light strategies to bring in new initiatives that can continue to help us remain standing in the business.

On our future plans, we have suspended our expansion plans. For instance, we initially planned to set up hotels in Port-Harcourt, Rivers State, which has been suspended for now. Also, we suspended further commitment to buy fixed assets and operating equipment as well as reduced our energy consumption and maintenance costs.

Bottom Line: The hotel faces a tipping point and as things stand survival is what is its priority.

  • To do so the hotel will have to make tough decisions some of which as job cuts, reduction in overheads, and suspension of capex related activities.
  • This will be a very painful restructuring process for the hotel group but it appears this is the only way it can survive.

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Financial Services

CBN grants Greenwich Trust Limited operational license for merchant banking

CBN has upscaled Greenwich Trust Limited to the status of a merchant bank.



CBN grants Greenwich Trust Limited operational license for merchant banking, NSE Market Data, NSE records total transactions of N121.99 billion in August , 2019 events in the Nigerian capital market and outlook for 2020, Why you might need a capital market lawyer

The Central Bank of Nigeria (CBN) has upscaled Greenwich Trust Limited and granted it, operational license for merchant banking in the country.

According to an official statement released by the firm, the entity would be known as Greenwich Merchant Bank Limited. This license allows Greenwich Merchant Bank to upscale and offer such diverse services as corporate banking, investment banking, financial advisory services, securities dealing, treasury wealth and asset management, etc., making it possible to provide increased value to stakeholders beyond its previous scope.

Explore the Nairametrics Research Website for Economic and Financial Data

Recall that the minimum capital requirements for establishing a merchant bank according to Merchant Banking Licensing Regulations in 2010 are N15 billion

(READ MORE: CBN debits banks N216.1 billion for CRR compliance)

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With the addition of Greenwich Merchant Bank, Nigeria now has six merchant banks. The others are; FBN Quest, Coronation Merchant Bank, DSH Merchant Bank, Nova Merchant Bank and Rand Merchant Bank.

About Greenwich Trust Limited

Greenwich Trust Limited is an investment banking firm duly registered with relevant authorities such as the Nigerian Securities and Exchange Commission (SEC). It is a diversified firm with subsidiaries such as Asset management, GTL Properties, GTL Securities Limited, Cedar Express Limited and Meyer Plc.

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