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Macro-Economic News

Report accuses World Bank of ‘toying’ with Nigeria over $1.5 billion loan

Is the World Bank loan to Nigeria for Nigeria or for Foreign Investors?

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World bank approves $750 million loan to Nigeria for power sector

The World Bank is reportedly toying with Nigeria over the proposed $1.5 billion dollars put forward since February 2020 but yet to be disbursed 6 months after.

Information from Fayer and Fraser an exclusive newsletter edited by Feyi Fawehinmi, a respected Financial analyst, indicates the loan from the World Bank has remained elusive as the multilateral institution has continued to move the “goalposts” through stringent conditions that are unprecedented.

According to Feyi, It is difficult to understand why the World Bank appears to be leading Nigeria on a merry dance over a relatively small loan amount that is less than half of what the IMF already approved and disbursed. One can consider a scenario where the funds were actually to help with Nigeria’s response to the pandemic and it had not yet been released by the end of August. 

READ: CBN sequesters N321.6 billion from banks in new CRR Debits

The World Bank approached Nigeria in February 2020 for a possible loan disbursement as the world envisioned the economic impact of COVID-19 on the global economy particularly emerging markets in sub-Saharan Africa like Nigeria. Yet after several presentations that lasted between March and April, the loan remains un-disbursed. The loan was meant to be disbursed in June 2020.

Several reports at the time indicated that the World Bank had laid out conditions upon which the Apex bank was to lend money to Nigeria among which are a unification of the exchange rate, removal of fuel subsidy, and introduction of a cost-reflective tariff. This is despite being a loan tied to the Covid-19 pandemic.

Rather than approve the loan, the World Bank then came up with a new demand – the CBN had to clear the backlog of foreign exchange demand which it calculated at US$6 billion. The CBN’s own calculations put the backlog at US$2 billion while in a separate calculation, the IMF put the figure at US$2.5 billion. To be clear, the backlog from foreign dividends, such as the one that recently embarrassed Nigeria’s largest bank, as well as those from correspondent banks is not included in CBN’s calculations. Still, it will be a stretch to imagine that even with those numbers included the number would reach the World Bank’s US$6 billion figure.” Faye and Fraser

READ: Why the $1.5 billion World Bank loan to Nigeria is being delayed

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What is the World Bank’s intention?

According to Faye and Fraser One speculation is that the World Bank is unhappy that foreign portfolio investors are now stuck in the country unable to get the dollars they need to exit their positions and leave the country.” 

As Nairametrics has often reported, Nigeria has a foreign exchange pent-up demand between $2-3 billion from both foreign and local portfolio investors. Nevertheless, Faye and Fraser wonders why this is a condition precedent to disbursement of the loan

READ: World Bank predicts Nigeria’s impending recession will be worst in 40 years

“But this is also not the first time the World Bank will lead Nigeria on such a dance that ultimately ends in disappointment. In 2016 there were extensive talks about a loan which went on and on and ended with no funds being disbursed. Most disturbing is that the World Bank now seems to be using the media to selectively leak information to the public designed to paint a picture of the country’s resistance to reforms as the sole reason for the delay,” Fayer and Fraser stated.

READ MORE: Guinness Nigeria finding it hard to refinance its loans due to dollar scarcity

A top-level government official who spoke to Nairametrics on condition of anonymity also wondered why the World Bank was placing so much emphasis on conditionalities that do not relate to the essence of the loan. “They have not asked for things like how many COVID-19 centers have we built? How well are we containing the spread of the virus and what palliatives has the government put in place to alleviate the poor? Have we properly deployed some of the funds and grants already raised by the government” the source asks?

Why this matters: The government, particularly the central bank has been chastised for months for taking too long to meet the conditions of the World Bank. However, with the prolonged delays to disbursement and spurious conditions, it appears there is more than meets the eye. Nigeria is significantly under pressure for a loan and has ruled out on any Eurobond this year. It could reconsider this move if the World Bank continues to delay.

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You can subscribe to Fayer and Fraser Newsletter here.


Article contribution: Abiola Odutola, Chike Olisah

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Blurb

GlaxoSmithKline in big trouble as losses mount

The results were less than impressive with several key indicators showing a year-on-year decline.

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GSK Consumer Nigeria Plc records 3.34% increase in 2020 9M revenues.

GlaxoSmithKline Consumer Nigeria Plc (“GSK Plc” or “the Company”) is a public limited liability company with 46.4% of the shares of the Company held by Setfirst Limited and Smithkline Beecham Limited (both incorporated in the United Kingdom), and 53.6% held by Nigerian shareholders.

The ultimate parent and controlling party is GlaxoSmithKline Plc, United Kingdom (GSK Plc UK). The parent company controls GSK Plc through Setfirst Limited and SmithKline Beecham Limited.

The Company recently published its unaudited first quarter (Q1) 2021 consolidated financial statements for the period ended 31 March 2021.

READ: GSK Consumer Nigeria Plc records 3.34% increase in 2020 9M revenues

The results were less than impressive with several key indicators showing a year-on-year decline. For example, Group revenue (turnover) declined from ₦4.99 billion in Q1 2020 to ₦3.46 billion in Q1 2021 a drop of over 30.66%. The revenue drop was due to a sharp decline in the local sale of its healthcare products.

Total loss after tax as of Q1 2021 was ₦238.07 million compared to a profit after tax of ₦113.47 million for the same period to Q1 2020.

The company is essentially divided into two segments viz: Consumer Healthcare and Pharmaceuticals. While the Healthcare segment was largely profitable in Q1 2021 (making a profit before tax of ₦ 8.73 million by March 31, 2021, the pharmaceuticals segment made a loss of ₦262.93 million in the same period.

READ: GlaxoSmithKline Nigeria announces changes in its board

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The Consumer Healthcare segment of the company consists of oral health products, digestive health products, respiratory health products, pain relievers, over the counter medicines, and nutritional healthcare; while the pharmaceutical segment consists of antibacterial medicines, vaccines, and prescription drugs. While goods for the consumer healthcare segment are produced in the country, the pharmaceuticals are all imported.

The largely imported pharmaceutical products are thus exposed to the vagaries of foreign currency fluctuations coupled with a negligible to no revenue from the foreign sale of its healthcare products (same as in Q1 2020) as it barely exports its products out of the country.

The cost of importing the antibacterial, vaccines and prescription drugs, and the significant local operating expenses wiped off the marginal gross profits made by the pharmaceutical segment of the company. In effect, the gross profit of ₦508.12 million made by the pharmaceutical segment of the company was eliminated by an operating expense of ₦735.7 million and this resulted in a net loss for the pharmaceutical segment of the business.

READ: Nigerian Breweries posts N7.66bn as Q1 2021 profit, shares gain 2.2%

Apart from the impact of imported pharmaceutical products as already discussed, other issues that affected the company’s Q1 2021 results and are likely to continue to affect its performance in future include:

  1. A limited product mix that has only the likes of Macleans and Sensodyne (Oral Healthcare); Pain relievers (Panadol and Voltaren); Digestive Health (Andrews Liver Salt); and Respiratory Health (Otrivin and Panadol Cold and Catarrh) all within the Consumer Healthcare segment.
  2. Increased competition, particularly from local pharmaceutical manufactures of similar over the counter medicines and other prescription medications and vaccines.

In addition, in October 2016, GSK Plc divested its drinks bottling and distribution business that manufactures and distributes Lucozade and Ribena in Nigeria, and other assets including the factory used for the drinks business to Suntory Beverage & Food Limited. The loss in revenue from these popular brands continues to impact its topline.

GlaxoSmithKline (GSK) is a global healthcare company and is well-known and acknowledged for its pioneering role in discovering and distributing vaccines for the likes of hepatitis A and B, meningitis, tetanus, influenza, rabies, typhoid, chickenpox, diphtheria, whooping cough, cervical cancer and many more.

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It is also renowned for its manufacture and distribution of prescription medicines such as antibiotics and treatments for such ailments as asthma, HIV/AIDS, malaria, depression, migraines, diabetes, heart failure, and digestive disorders.

Perhaps GSK Plc’s fortunes may change if the company is able to obtain the parent company’s licence to manufacture GSK-owned vaccines and prescription medicines within the country while also exploring the possibility of extending the sale of its products outside the shores of the country.

Since different expertise is required for vaccines and prescription drug manufacture and distribution as compared to manufacture and sale of consumer healthcare products, perhaps another alternative may be for the company to create two separate companies with one company being a 100% vaccines and prescription drug pharmaceutical manufacturing and distribution company while the second company specializes entirely in the manufacture and sale of consumer healthcare products.

As a result of the Q1 2021 performance, the company’s earnings per share (EPS) dropped to -20 kobo compared to the 9 kobo earnings per share reported in Q1 2020. At the start of 2021, GSK Plc’s share price was ₦6.90 but the company has since lost over 10% of its price valuation as the company’s share price closed at ₦6.20 on April 30, 2021.

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Business

Is 5% returns on mutual funds enough? Here are 5 things you need to know this morning

2021 has been a slow year for mutual fund investors as the best performing fund could only return 4.87%

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Last week was another interesting week with a series of activities and events making the rounds in the economy and markets. These events have an effect on your money, and we will be breaking down what it all means.

Joe Biden’s Tax Plans

Biden’s tax plans last week had a strong effect on the market and led to a sell-off in many asset classes – especially crypto. The rumours were that Treasury Secretary Janet Yellen wanted to institute an 80% crypto capital gains tax. The market did not react well to this with over $200 billion dollars lost in cryptocurrencies on Friday as a result.

President Biden plans to fund his ambitious infrastructural plan with the capital gains tax which targets people who earn over $1 million dollars a year.

Many investors are still bullish on the long-term with cryptocurrencies, perhaps this is a good time to ‘buy the dip’ and for those unaware, capital gain tax can only be applied when the asset is sold.

READ: Nigerians can now invest in more mutual funds

CBN vs Exporters

Last week, the CBN assured exporters of unhindered access to their dollar earnings. The backstory here is that the CBN had in January 2021, announced that all Nigerian exporters who are yet to repatriate their export proceeds, will be barred from banking services effective from January 31, 2021.

The exporters instead prefer to sell their forex to the parallel market where it can be exchanged for a higher naira value, boosting their gains on foreign currency conversions. They also avoid regulatory squabbles by opening foreign bank accounts where most of the export proceeds are warehoused and then sold at the black market.

READ: How to avoid paying excessive taxes in Nigeria

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Nigerian Mutual funds take a 4% dip in Q1 2021

Mutual Funds are traditionally a good investment vehicle for many Nigerians. However, so far, 2021 has been a slow year for mutual funds as the net asset value of the funds declined by 4.01% from N1.57 trillion as of 31st December 2020 to N1.51 trillion as of 1st April 2021.

The highest return for the quarter stacked 4.87% and has a minimum investment of $2,500. However, the question is will investors be satisfied with this return especially with inflation heading to 20%. Considering this particular fund invests in debt instruments an almost 5% ROI should attract a number of investors.

READ: Best Nigerian Stocks in 2020 based on dividend yield

Bitcoin peer to peer trading surges 27% after CBN crypto ban

CBN’s restriction on banks facilitating cryptocurrency exchanges has enabled Nigerians to find other ways to buy crypto through P2P (peer to peer). Data reveals that Nigerians have moved over $103 million.

Cryptocurrency adoption in Nigeria is still on the rise and there seems very little the regulators can do about it. The Nigerian central bank is not the only regulator trying to control cryptocurrency adoption, last week, the CBRT (Central Bank Republic of Turkey) also announced a ban on cryptocurrency citing excessive volatility and lack of regulation.

Hyundai & Kia to set up an assembly plant in Ghana in 2022

Ghana has proven to be a prime investor location for Foreign Direct Investment in Sub-Saharan Africa. This announcement is just a few weeks after Twitter announced its plans to open its first African office in the country.

An official statement from Alan John Kyerematen, Ghana’s Minister of Trade and Industry reads “The local assembly of vehicles, 3,600 direct and indirect jobs would be created in Ghana, and the addition of components and parts manufacturing will also add about 6,600 direct and indirect jobs.”

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It has become more glaring that attracting investment into Nigeria is increasingly difficult due to regulatory uncertainties and macro factors.

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