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CBN pays $4.45 billion external debt to World Bank, others in 2-month

Latest data obtained from the CBN reveals that Nigeria paid a whopping sum of $4.45 billion as external debt service/payment in the first two months of 2020.

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Debt servicing may constitute a major setback for the Nigerian economy in the year 2020, as the latest data obtained from the Central Bank of Nigeria revealed that Nigeria paid a whopping sum of $4.45 billion as external debt service in the first two months of 2020.

According to the data obtained from the CBN covering January and February 2020, the sum of $4.45 billion was paid Year-to-Date (YTD) in 2020 as external debt service, representing a 240% rise compared to the cumulative total debt service payment recorded in 2019.

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Debt Service payment hits all-time high

In 2019, the CBN record showed that a total sum of $1.34 billion was paid as external debt service payment. Meanwhile, a closer look at the CBN data showed the sum of $125.4 million was recorded in January, while $4.43 billion in February 2020.

A closer look at the historical trend of external debt service showed that the $4.55 billion paid in February 2020 to service external debt represents the biggest single tranche of payment recorded in Nigerian debt history.

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[READ MORE: Nigeria spends $1.31 billion to service external debt in 2019)

It should be noted that Nigeria is obligated to pay lump sum as external debt obligations to various world organizations like World Bank, African Development Bank, Exim Bank of China, Exim Bank of India and so on. Data from the Debt Management Office (DMO) shows that Nigeria paid over $134.3 million to the World Bank in just Q3 2019.

External debt rose by 616% in 14 years

External debt service continues to hit deep on Nigeria, and this is due to the rising external debt accumulation. Following the successful Paris Club debt deal and the exit from the London Club debts, Nigeria’s external debt stock dropped to US$3.54 billion in 2006. Fast forward to 2019, the country’s external debt rose to $26.94 billion, representing 616% rise in 14 years.

At the end of Q3 2019, data obtained from the DMO database showed that the country’s total debt stock stood at $85.39 billion. Since 2006, Successive government in Nigeria have approached both local and foreign debt market obtain loans to finance their operations.

In terms of GDP, the country’s debt to GDP ratio remains relative sustainable for now at c.18% based on latest DMO debt data, however, the cost of servicing the debt may further put Nigeria in difficult financial strain. In 2019, debt servicing gulped over 50% of the country’s total revenue.

Foreign Reserves extend free fall as revenue source plunge

The outlook for Nigeria’s revenue in 2020 faces a huge problem as the country’s main revenue source (Oil) currently trades at a twenty-year low of $28pb. It should be noted while the drop in oil price significantly affects Nigeria in terms of revenue, debt service obligations is paid regardless and this is sometimes moved from the foreign reserves.

In 2019 (YTD), the foreign reserves dropped by $2.36 billion, a decline that has been largely attributed to the continued fall in oil price due to global headwinds arising from Pandemic COVID 19 and oil price war between one of the two largest oil producers in the world.

[READ ALSO: Nigeria pays $1.09 billion to service external debt in 9 months)

What next for the Nigerian economy?

Bearing current realities of revenue crisis, the Nigerian government slashed the price of PMS (Petrol), a move targeted to easing off revenue decline pressure and controversial subsidy payment in the country.

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The continued spread of pandemic COVID continue to dampen growth outlook world over, and Nigeria ranks top among countries suffering worst hit in terms of the trickledown effect.

The Group Managing Director, NNPC, Mele Kyari, recently disclosed that as a result of the coronavirus pandemic, Nigeria has about 50 cargoes of crude oil that have not found a landing and this implies that there are no off-takers for them for now due to the drop in demand.

READ MORE: Debt servicing gulps N7.04 trillion under President Buhari’s administration

Without mudslinging the current administration at the wheel, Nigeria cannot afford more external debt borrowing.  Recall, that the CBN has just embarked on what was described as “exchange rate adjustment or unification”, by collapsing both inter-bank rate and Parallel markets, making them trade at the same rates. While the CBN has said this is not a devaluation, one thing obvious is that this is only an old while in a new bottle. That is, Naira has just been partially devalued.

What it means: With the partial devaluation of naira, it implies for every external debt service obligation Nigeria pays, it will cost more in terms of the dollar value, a luxury Nigeria can no longer afford.

 

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Around the World

US government to ban WeChat and TikTok from app stores

Chinese-owned social media apps are facing a ban in the US over national security concerns.

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The United States government says it will ban the services of Chinese tech giants, WeChat and TikTok, from online mobile application stores in the U.S. It also plans to prohibit any funds transfer/payment services through the WeChat mobile application.

This was announced by the U.S Commerce Secretary, Wilbur Ross, in a statement on Friday, following President Donald Trump’s Executive Orders (E.O.) 13942 and E.O. 13943, on the 6th of August.

“In response to President Trump’s Executive Orders signed August 6, 2020, the Department of Commerce (Commerce) today announced prohibitions on transactions relating to mobile applications (apps) WeChat and TikTok to safeguard the national security of the United States,” said Wilbur Ross.

He added that the Chinese Communist Party (CCP), has proven it has the means and the motive to use Chinese tech apps, to threaten America’s national security foreign policy, and the economy of the U.S.

He said the following transactions will be prohibited from September 20th for WeChat and November 12th for TikTok

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  • Any provision of service to distribute or maintain the WeChat or TikTok mobile applications, constituent code, or application updates, through an online mobile application store in the U.S.
  • Any provision of services through the WeChat mobile application, for the purpose of transferring funds or processing payments within the U.S.

Mr. Ross said that with the Executive Order, the US government has taken a ‘significant action’ in fighting China’s malicious personal data breach on American citizens, and also promote democratic rule-based norms, and aggressive enforcement of U.S. laws and regulations.

The U.S government announced that further prohibitive measures, relating to both companies may be announced in the future.

“Should the U.S. Government determine that WeChat’s or TikTok’s illicit behavior is being replicated by another app somehow outside the scope of these executive orders, the President has the authority to consider whether additional orders may be appropriate to address such activities.”

President Trump has given until November 12, to resolve the TikTok security concerns of the US. He added that the prohibitions may be lifted, if they are addressed.

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Companies

GMD, 2 Executive Directors buy 5 million additional units of Zenith Bank Plc shares

In three separate transactions, major stakeholders purchased 5 million units of Zenith Bank’s shares.

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Executive Director buys 2 million additional Units of Zenith Bank Plc Shares.

Zenith Bank Plc, Group Managing Director, Mr Ebenezer Onyeagwu, and two Executive Directors, Messrs. Dennis Olisa and Ahmed Umar Shuaib, have purchased an aggregate of 5 million units of additional Zenith Bank Plc shares.

This was disclosed by the bank, in a notification sent to the Nigerian Stock Exchange, and seen by Nairametrics.

According to the notification, signed by the Company’s secretary, Michael Osilama Otu, the purchase was made in the bourse, over three transactions on the 16th and 17th of September, 2020.

As part of the regulatory requirements, the disclosure must be reported to the Nigerian Stock Exchange, especially when the trade is executed by a major shareholder or director of a listed firm.

Breakdown of the deal

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According to the details of the deal verified by Nairametrics, Mr. Dennis Olisa pulled the highest deal as he purchased 2,000,000 additional units of Zenith Bank Plc’s shares at an average of N17.18 per unit, totaling N34.36 million. Mr. Ahmed Umar Shuaib also purchased 2,000,000 additional units of the Bank’s share, at an average price of N16.99 worth N33.98 million. Completing the trio was, Mr. Ebenezer Onyeagwu who purchased 1,000,000 additional units at an average of N17.05 worth N17.05 million.

This major purchase boosted the total number of trade deals (Volume) posted by the Bank in the NSE market, as the deals contributed about 11.61% of the Bank’s total deals between 16th and 17th of September, 2020.

(READ MORE: Zenith Bank rewards customers with massive giveaways in the “Zenith Beta Life” weekly promo)

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What this means

Based on the recently released H1 2020 Financial Results of Zenith Bank, Mr. Ebenezer Onyeagwu had 45,500,000 direct shares as of June 30, 2020. Mr. Ahmed Umar Shuaib had 7,577,343 direct shares, while Mr. Dennis Olisa had 7,122,316 direct shares. All these remained unchanged from their reported shares in H1 2019.

With the addition of 1,000,000 shares, Mr. Ebenezer Onyeagwu’s stake increased to 46,500,000, indicating an increase of 2.19%. Mr. Ahmed Shuaib’s shares also leaped by 26.39% to 9,577,343, while Mr. Deniss Olisa’s shares increased by 28.08% to 9,122,316 direct shares.

This deal may signify that the Bank’s insiders expect an increase in share price. It is a positive signal to outsiders, coming from top insiders who are abreast with latest information on the Bank’s prospects.

This can play a vital role in stimulating a bullish trend. Zenith Bank’s share price is currently trading at N16.70 on the NSE.

Conclusion

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Regardless of the impact of the pandemic on the income and revenue of banks, Zenith bank still remained one of the high-flying financial organizations in Nigeria. For example, the tier-1 bank’s gross earnings grew by 4.37% from N331.5 billion in H1 2019 to N346.1 billion in H1, 2020. Its Profit After Tax increased by 16.81% from N111.7 billion to N114.1 billion within the period under review. The aforementioned factors might have been the reason behind the recent bullish trend for its stock.

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Business

FG apologizes, says Self-Certification directive is not for everyone

The Federal Government has made clarifications concerning earlier announced Self-Certification Forms.

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FG apologizes, says Self-Certification directive is not for everyone, FIRS introduces stamp duty on house rent and C of O transactions

The Nigerian government has backtracked on its earlier issued guidelines on the new banking Self-Certification Forms, saying the notice does not apply to everyone.

On Thursday, the Nigerian government ordered all persons holding accounts across financial institutions and insurance firms, to complete and submit self-certification forms to their respective financial institutions.

Explore the Nairametrics Research Website for Economic and Financial Data

It stated, “This is to notify the general public that all account holders in Financial Institutions (Banks, Insurance Companies, etc.) are required to obtain, complete, and submit Self – Certification Forms to their respective Financial Institutions. Persons holding accounts in different financial institutions are required to complete & submit the form to each one of the institutions. The forms are required by the relevant financial institutions to carry out due diligence procedures, in line with the Income Tax Regulations 2019.”

However, on Friday morning, after receiving expected backlash on social media, FG attempted a clarification stating, “We apologize for the misleading tweets (now deleted) that went up yesterday, regarding the completion of self-certification forms by Reportable Persons,” and that, “the FIRS will clarify Nigerians on the objectives of the directive.”

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READ: CBN automates trading system, introduces electronic form to facilitate exports 

The FIRS earlier today made a statement, that the guidelines are only for non-residents, and people paying tax in more than one country.

READ: Tax implication of IFRS adoption in Nigeria: key issues

“The Self Certification Form is basically to be administered on Reportable persons, holding accounts in Financial institutions, that are regarded as “Reportable Financial Institutions” under the CRS. Reportable persons are often non-residents and other persons, who have residence for tax purposes in more than one jurisdiction or Country.”

“The information that indicates an account holder is a resident for tax purposes in more than one jurisdiction, is expected to be available to Financial Institutions during account opening processes, for the KYC and AML purpose.” the statement read.

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