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Macro-Economic News

UPDATED: CBN retains MPR at 12.5%

MPR, Cash Reserve Ratio (CRR), Liquidity ratio, and asymmetric corridor remain unchanged.

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MPR, CBN, GTBank, CBN disagrees with IMF, says land border closure boosting local production, Border closure: Emefiele says Benin, others must engage Nigeria before borders are reopened , bvn 2.0, CBN reveals banks’ foreign assets rise to N14.19 trillion in 2019

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria has held the Monetary Policy Rate (MPR) constant at 12.5%.

This was disclosed by Governor, CBN, Godwin Emefiele while reading the communique at the end of the MPC meeting on Monday. Other parameters such as Cash Reserve Ratio (CRR), Liquidity ratio, and asymmetric corridor remain unchanged.

Emefiele explained that eight members of the committee voted in favour of holding the MPR, while two members wanted it reduced. According to the MPC, the decision to hold all rates constant was largely driven by the effect of the outbreak of COVID-19 that has largely disrupted the global economy.

READ ALSO: Forex crisis: Those patronizing parallel market will lose money – CBN Governor

Highlights of the Committee’s decision

MPR was kept at 12.50%

The asymmetric corridor of +200/-500 basis points

CRR was retained at 27.5%

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While Liquid Ratio was also kept at 30%

READ ALSO: Banks to witness low earnings over Coronavirus- Report

Given the plethora of monetary and fiscal measures recently deployed to address the impending economic crisis, Emefiele explained that it would be a relatively cautious option for the MPC to hold the parameters. He said,

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After reviewing our options, the MPC noted that the imperative for monetary policy at the May 2020 meeting was to strike a balance between supporting the recovery of output growth and reducing unemployment while maintaining stable prices. The Committee noted at this meeting that the economic fundamentals have marginally improved by the end of June 2020, following the gradual pick-up of economic activities as the positive impacts of the various interventions permeate into the economy. As a result, the Committee noted that the earlier downward adjustment of the MPR by 100 basis points to 12.5 per cent to signal the loosening monetary policy stance is yielding positive impact as credit growth increased significantly in the economy.”

READ MORE: Late budget cycles, food price hike fuel MPR retention – Experts 

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He added that the Committee also noted the positive impact of the various fiscal and monetary interventions on households, SMEs and manufacturing sectors, which made it believed that increasing MPR at this stage will thus be counter-intuitive and will result in upward pressure on market rates and cost of production.

 

 

Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper.The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference.The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - [email protected]

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Macro-Economic News

Nigeria generates N392.8 billion from company income taxes in Q1 2021

Nigeria’s company income tax revenue increased by 32.84% year-on-year in Q1 2021.

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FIRS could seal your office if you get these two notices

Nigeria generated the sum of N392.8 billion from company income taxes in the first quarter of 2021. This is contained in the quarterly report on company income tax by sectors, recently released by the National Bureau of Statistics (NBS).

This represents an increase of N971 billion (32.84%) compared to N295.7 billion recorded in the corresponding quarter of 2020 and a 32.82% increase compared to N294.72 billion generated in the preceding period (Q4 2020).

Highlights

  • Breweries, Bottling, and Beverages sector generated the highest amount of company income tax with N23.26 billion generated.
  • It was closely followed by Professional Services including Telecoms which generated a sum of N18.17 billion while State Ministries & Parastatals generated N17.35 billion in the review period.
  • Textile and Garment Industry generated the least company income tax in the period under review with N13.49 million closely followed by Mining (N34.4 million) and Automobiles and Assemblies with N73.57 million.
  • Out of the total amount generated in Q1 2021, N152.33bn was generated as CIT locally while N184.59 billion was generated as foreign CIT payment.
  • While the balance of N55.85 billion was generated as CIT from other payments.

READ: Nigeria exempts small businesses from Company Income Tax 

It is worth noting that foreign payments are bulk payments from JP Morgan account which cannot be attributed to any office or sector, while other payments are payments through E-transact, E-tax pay, and remitta (GIFMIS), that is Government Integrated Financial Management Information System.

Breweries & Bottling sector tops list

The breweries, botting, and beverages sector led the list of sectors with the highest company income tax generated in Q1 2021, overtaking professional services, which had led the list in the previous quarter.

  • Breweries, bottling, and beverages generated a sum of N23.26 billion in the review period, representing 5.6% of the total company income tax generated by Nigeria, while professional services and telecoms followed closely with N18.17 billion, hereby accounting for 4.6% of the total.
  • Other sectors, which made the list of top sectors include, State ministries and parastatals with N17.35 billion, manufacturing (N16.25 billion), oil-producing (N15.36 billion), and trading with N13.5 billion.
  • In terms of the increase in sectoral company income tax, the breweries, bottling, and beverages sector recorded an increase of 329.5% year-on-year in Q1 2021 compared to N5.42 billion recorded in the corresponding period of 2020. It also increased by 109.3% compared to N11.11 billion recorded in Q4 2020.
  • Stevedoring, clearing and forwarding businesses was a distant second on the list with N1.6 billion generated as company income tax. This represents a 73.4% increase when compared to N921.92 million recorded in Q1 2020.

READ: Nigeria’s company income tax revenue drops to N1.41 trillion in 2020

Why this matters

Nairametrics had reported a 52.93% year-on-year increase in value-added taxes generated by Nigeria in Q1 2021 as it recorded N496.39 billion VAT. This means that Nigeria has received a sum of N792.1 billion in Q1 2021 from CIT and VAT.

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Revenue generated from these taxes represents 86.1% of the projected tax revenue (N920.14 billion) in the 2021 budget document. With crude oil prices growing in recent weeks and projected to hit $80 per barrel by summer, this revenue is expected to witness a moderate increase in subsequent quarters.

 

 

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Macro-Economic News

How to survive Nigeria’s galloping inflation rate

An undisputed certainty is that individuals that hold a large percentage of their assets in cash will experience a loss because of inflation.

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Nigeria’s inflation rate continues to uptick rapidly. Over the trailing 20 months, the year-on-year inflation rate has increased from 11.02% in August 2019 to 18.17% in March 2021.

  • Notably, March 2021 inflation rate of 18.17% is at the highest since February 2017.

As has been acknowledged by the Central Bank of Nigeria in its Q4-2020 economic report, a major driver of Nigeria’s current inflation is food price inflation which was 22.95% (March 2021). This is the highest level of food price inflation over the past fifteen years.

  • Prior to 2021, the last time food price inflation was over 20% was in July 2008 (20.9%) and prior to that was in October 2005 (24.6%). So, 2021 food price inflation trends are in rarefied territory.

READ: No more N100 a plate meal in Nigeria

The Nigeria Bureau of Statistics (NBS) publishes a Selected Food Price Watch report, which gives additional context to how prices of some food items are changing. Interestingly, popular food items such as Garri, Maize, Rice, Vegetable Oil, Beans are showing significant YoY price increases of more than 20%.

This excessive spike in food is worrisome, especially if you consider that food-related items comprise 57% of the household expenditure incurred by Nigerians.

In other words, Nigerian households allocate N57 out of every N100 spent, to food-related items.

  • This means a 22.95% increase in food prices will result in Nigerians now being expected to spend over N70 out of every N100 on food-related items. Notably, these food price increases are occurring at a faster pace than incomes are increasing.

READ: Nigeria’s inflation rate surges to 18.17% in March 2021

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Why should you be concerned about inflation?

Given that price increases for goods and services continue to outpace income, the question arises about options that exist for Nigerians to mitigate and address the problem of inflation.

Notably, persistently high inflation in an economy creates concerns across the stakeholder spectrum such as:

  • Businesses (investment uncertainty) resulting in capital expenditure constraints
  • Governments (unemployment concerns due to low business investments)
  • Consumers (erosion of purchasing power concerns)
  • Investors (real returns concerns to protect and grow wealth).

For consumers, the concerns about high inflation relate to how to avoid its devastating effects in eroding the purchasing power of individuals.

For investors, it is keenness on ensuring that investments are optimally allocated to continually earn real returns in order to protect existing wealth and grow wealth if possible.

What actions can be taken?

Protect your purchasing power from being eroded by Inflation

From a consumption perspective, purchasing power loss/erosion simply means that the number of goods and services a consumer can buy for a fixed amount continues to decline over time. Declining purchasing power affects the standard of living of individuals and forces them to cut back on items.

E.g. if you previously could buy a cup of rice for N100 and 20% inflation results in a cup of rice being sold for N120, it simply means you can only afford less than a cup of rice with the same N100 (which in this example, would be 5/6th of a cup).

The optimal course of action against the loss of purchasing power is to increase your income as aggressively. You can do this by negotiating a wage increase, starting a side hustle (such as online retailing, tutoring etc.), changing jobs, or obtaining additional qualifications to boost your skills and promote your personal brand.

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  • Nairametrics frequently publishes articles that teach you how to grow your earnings. Some of these articles can be found here, here AND here.

To increase your earnings, you must put as many options as possible in scope as doing nothing is NOT an option.

Protecting and growing your wealth

A key concern for investors is how to protect and grow existing wealth. Investors have a variety of reasons for wanting to protect and grow their wealth. These range from wanting to earn income in retirement, to the desire to transfer wealth to successive generations.

Regardless of the reason, the optimal course of action when seeking to protect and grow wealth is to ensure that your investment portfolio is sufficiently diversified to generate positive real returns (i.e. total returns of your portfolio must at least match or be higher than the rate of inflation).

  • Nairametrics covers the performance of multiple asset classes and highlights top-performing opportunities which investors can key into. Sample articles cut across Stocks; Mutual Funds; and Fixed Income. Investors can also seek to include alternatives such as real estate, commodities and new-age digital commodities such as cryptocurrencies and crowd-investment schemes albeit at levels that match individual risk appetites.

Ultimately, you will do well to engage the services of a qualified financial planner to ensure that your portfolio is tailored to your individual needs and risk appetite.

Nairametrics also interviewed a few traders across asset classes.

Udegbunam Dumebi, Fixed Income Trader at UBA Group made it clear that the DMO’s intentions for more borrowing can only be supported by increasing interest rates due to investor concerns about earning real returns to account for inflation concerns. He however cautioned about the debt servicing ratio worsening as interest rates increase on higher borrowing saying: “Looking at the bond market, we are seeing rates go as high as it was in 2018/2019. Before the last inflation rate release, rates were as low as 10% on the U-curve in the bond market. This makes our debt to servicing ratio more expensive, which is a debt issue. For the Bond market, rates are increasing as inflation increases.”

Pascal Nkwodimmah, Finance Manager of Opera Nigeria postulated that surviving inflation would be a factor of how much real investment is within your portfolio. He said: “Investors can diversify their investment amid rising inflation, directing their savings to real investment such as real estate and gold in order to avoid the impact of hyperinflation.”

Ajibola Akamo, Cryptocurrency Expert and Investment Analyst opined that “there will be a bullish reaction by stocks and cryptocurrency markets, but the bond market will be the exception. Naturally, investors will seek avenues to improve their performances to hedge against inflation. This will lead investors to put more stake on riskier assets such as the stock or crypto market.”

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Ajibola affirmed that the crypto market is a viable alternative for investment saying: “I believe the crypto space is still at its inception and I believe there will be massive adoption in the future which will translate to significant capital gains for long term investors. Bitcoin is a prime example for this scenario.”

Bottom line

Rising inflation reduces the purchasing power of households and businesses over time. Thankfully, there are investment opportunities that allow individuals and businesses to stay ahead of inflation and grow their wealth. For individuals that may not have extra funds to participate in this market, the only viable option will be to increase their earning power through other options like getting an extra job or starting a small business.

An undisputed certainty is that individuals that hold a large percentage of their assets in cash will experience a loss because of inflation.

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