Bismarck Rewane is not only the Chief Executive Officer of Financial Derivatives Company Limited, but also a member of the Federal Government’s Economic Advisory Council. So, when he talks, it definitely holds water.
He has warned that the income and purchasing power of Nigerians would be hit in 2020. He attributed his projection to the policies of President Muhammadu Buhari’s administration.
Rewane said the proposed increase of Value Added Tax (VAT), electricity tariff and return of tollgates would negatively impact on the income of Nigerians.
Nairametrics had previously reported that the Federal Government proposed a 7.5% VAT increase. The increase is projected to discomfort a large percentage of Nigerians as the prices of goods and services will jump.
The Minister of Power, Saleh Mamman, had also said there’s a need to increase the electricity tariff, which might make Nigerians start paying more on electricity supply. It was stated that the hike was inevitable due to the rising cost of electricity generation in Nigeria.
Rewane’s concern: The financial expert explained that the economic situation in 2020 would be difficult to ascertain or estimate at the global economy and domestic markets.
He said, “For Nigeria, consumers will groan about the hike in VAT, the restoration of tollgates and cost-reflective electricity tariffs.
“The good news is that the payment of the new minimum wage and the arrears would offer some succour to workers. Investors would also keep a close watch on the stock market and the impact of government policies on their portfolio strategy.”
It is important to note that the Senate is also seeking a legislative action to impose a 9% tax on Communication Services. The communication service tax shall be levied on Electronic Communication Services like Voice Calls; SMS; MMS; Data usage both from Telecommunication Services Providers and Internet Service as well as Pay per View TV Stations.
On monetary policy outlook: Rewane said the CBN would maintain its stance on the Monetary Policy Rate due to the rising inflation and depleting external reserves. But he said the CBN could cut interest rate if “inflation enters a sustained downward trend and falls below the targeted upper limit of 9%.”
He further stated that at the expense of external reserves, the CBN would continue in its aggressive intervention at the foreign exchange market.
Rewane also stated that CBN is likely to impose more forex restrictions rather than devalue the naira in the face of growing external imbalances, adding that unorthodox measures will be applied by CBN to encourage lending as economic growth becomes a stronger consideration.
Meanwhile, FDC analysts said the absence of forex interventions by the CBN was behind the continuous depreciation of the naira which might result into higher prices.
“Further depreciation of the naira is likely to occur in light of depleting external reserves, which could limit the CBN’s ability to intervene in the forex market,” he said.
Hedge funds, institutional investors rush to own stakes in Bitcoin
Hedge funds are firms that offer alternative investments to a specific type of investors (high net worth individuals), in a bid to protect their investment portfolios from market uncertainty, while generating positive returns regardless of market sentiments.
With global economic uncertainty gradually becoming a daily norm, institutional and hedge funds around the world have been rushing to have a stake in crypto assets which all have been outperforming other financial assets in 2020).
Just recently, a popular hedge fund based in New York –Grayscale Investments –caught the investment world by surprise by buying up Bitcoin (BTC) at a great rate in recent months.
Lennard Neo, the head of research at Stack Funds, told Cointelegraph that institutional investors have been seeking for other options, not just to provide returns, but also to hedge their existing portfolio from downside risks. Neo said:
“Similar to Grayscale, Stack has seen an uptick in investors’ interest — almost double that figures of pre-crash in March — in Bitcoin. I would not say they are ‘gobbling up BTC’ blindly but cautiously seeking traditional structured solutions that they are familiar with before making an investment.”
In addition, Paul Cappelli, a portfolio manager at Galaxy Fund Management, explained in detail the reasons for this demand. According to him, “we’re seeing increased interest from multiple levels of investors’ wealth channels, independent RIAs, and institutions.
“The recent BTC halving came at an interesting time amid the COVID-19 outbreak and the growing unease about quantitative easing. He noted: “It clearly demonstrated BTC’s scarcity and future supply reduction as concerns deepened around unprecedented stimulus by the Fed with the CARES Act.”
Also, Michael Sonnenshein, the Managing Director of Grayscale Investments, explained briefly why his firm uses Bitcoin as an option in hedging its firm’s portfolio position.
“All three are facing issues this time around. Bitcoin has emerged as an alternative hedge, operating independently of the dramatic monetary policies enacted by central banks,” he said.
What you need to know about Hedge Funds
They are firms that offer alternative investments to a specific type of investors (high net worth individuals), in a bid to protect their investment portfolios from market uncertainty, while generating positive returns regardless of market sentiments.
Measures introduced by Nigeria to ensure transparent use of the $3.4 billion IMF loan
Most of the critics of the government’s borrowing pattern have often expressed serious doubt about the judicious use of these funds, as they believe most of them might end up being embezzled.
Following the approval and disbursement of $3.4 billion Rapid Financing Instrument (RFI) to Nigeria, which is the largest COVID-19 emergency financing package so far released by the International Monetary Fund (IMF), the multilateral financial institution now expects transparent and accountable use of the funds.
The IMF’s financial assistance to Nigeria is meant to support the healthcare sector, stabilise the economy, and protect jobs and businesses that have been severely impacted by the pandemic.
The Bretton wood institution has been disbursing funds to work closely with member countries to ensure transparent and judicious use of the financial support, while making sure they are used for the intended purpose.
The IMF’s mission chief for Nigeria, Amine Mati, during a conversation, pointed out the measures to be taken by Nigeria in order to enhance transparency and governance in the use of the $3.4 billion IMF emergency financing.
According to the IMF chief, the Nigerian Government had committed to undertake an independent audit of crisis mitigation spending and related procurement processes, as well as to publish procurement plans and notices for all emergency response activities which include the names of companies that were awarded the contracts and the beneficial owners.
Mr. Mati also disclosed that special budget lines are to be created to record all crisis emergency response measures, which are published daily on Nigeria’s treasury online portal. These measures will not only ensure that financial assistance received as part of the COVID-19 response is used for its intended purposes, but will also significantly strengthen the oversight of the entire budget used for the government’s crisis response.
— IMF (@IMFNews) May 31, 2020
Implementing these measures will help to drastically reduce the governance and transparency challenges as well as corruption vulnerabilities of a country like Nigeria. Most of the critics of the government’s borrowing pattern have often expressed serious doubt about the judicious use of these funds, as they believe most of them might end up being embezzled.
Brent crude drops, as traders focus on OPEC+ meeting
OPEC+ agreed in April to reduce output by an unprecedented 9.7 million barrels per day in May and June after the deadly COVID-19 pandemic weakened demand.
Brent crude price dropped by around 0.77%, to $37.55 a barrel, on the first trading session of June.
The slump in the price comes after it posted its strongest monthly gains since 1999.
“The focus is very much on OPEC+,” OCBC economist, Howie Lee, told Reuters referring to OPEC and its allies including Russia. OPEC+ agreed in April to reduce output by an unprecedented 9.7 million barrels per day in May and June after the deadly COVID-19 pandemic weakened demand.
“We might see a cautious pullback in (crude) prices given that downstream prices haven’t caught up … but if OPEC+ does come up with a three-month extension, there’s a possibility that prices may hit the $40 level,” Howie Lee added.
Algeria, which presently holds the OPEC presidency, has started a move that an OPEC+ meeting scheduled for June 9-10 be brought forward to ease oil purchases for countries such as Saudi Arabia, Iraq, Kuwait, and Russia, who raised no objection.
“It’s been widely interpreted as likely to lead to an extension of the current production cuts,” CMC Markets’ chief market strategist, Michael McCarthy, said.
“Oil prices have come down slightly in our session but they’re still at elevated levels. I suspect that’s the key driver of prices on Friday night and should keep prices reasonably well supported today,” McCarthy added.