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CBN gives up on its policy of attracting dollars

CBN has given up its policy of attracting ‘hot money’ as it selects an alternative way to fight inflation.

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Godwin Emefiele, CBN expands scope of regional banks in Nigeria, gives compliance timeframe

The Central Bank of Nigeria (CBN) issued a monetary policy communique explaining why it cut its monetary policy rate from 12.5% to 11.5%, the first drop since May 2020 when it slashed MPR from 13.5% t0 12.5%. The cut in rates means it is no longer targeting foreign investor inflow as a basis for keeping the exchange rate stable.

The CBN has held MPR high for years due to high inflationary pressures believing that higher MPRs could lead to a lower inflation rate. However, the Covid-19 pandemic and the increased price of fuel and electricity suggest this is a battle already lost via hawkish monetary policy.

Explore the Nairametrics Research Website for Economic and Financial Data

What they are saying: According to the bank, it believes the higher inflation Nigeria is facing is not due to monetary policy but due to “causal factors” which are outside of its immediate control.

“In the view of the MPC, so far, evidence has not supported the rising inflation to monetary factors but rather, evidence suggests nonmonetary factors (structural factors) as the overwhelming reasons accounting for the inflationary pressure,” the CBN stated.

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READ: CBN offers N1.1 trillion intervention fund to support real, health sectors

The structural factors the CBN is referring to are rising in prices of fuel and electricity as well as cost increases emanating from the devaluation of the naira.

“Accordingly, the implication is that traditional monetary policy instruments are not helpful in addressing the type of inflationary pressure we are currently confronted with,” the CBN added.

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These issues mean the CBN faces a quagmire in how to combat inflation as the traditional measures it has typically deployed might not work effectively.

READ: Nigerian banks have written off N1.9 trillion impaired loans in past 4 years

Forgo hot money:  The apex bank toyed with increased MPR to combat the high inflation rate but opined that doing so could lead to an even deeper recession despite the benefits of attracting foreign capital.

“The Committee noted that the likely action aimed to addressing the rise in domestic prices would have been to tighten the stance of policy, as this will not only moderate the upward pressure on prices but will also attract fresh capital into the economy and improve the level of the external reserves. It however, noted that this decision may stifle the recovery of output growth and thus, drive the economy further into contraction.”

READ: CBN Vs NESG: Waving the white flag for the benefit of Nigerians

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In 2017, the CBN adopted a hawkish monetary policy stand of increasing MPR and offering interest rates as high as 18% via its open market operations bills.

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  • The policy helped attracted billions of dollars in capital rising to as high as $13.4 billion in 2019. It dropped to as low as $332 million in the second quarter of 2020.
  • Foreign investors have basically stopped inflowing forex into the control as yields have crashed and repatriating it is now a major challenge.

READ: Nigeria’s inflation rate jumps to 12.82%, highest in 27 months

The other option: Deciding against increasing MPR means the CBN had to consider a dovish policy, which requires that they cut monetary policy rates and intervene in sectors of the economy that can address the supply side factors it cited. Supply-side factors are price-related increases emanating from high production, storage, and distribution cost of finished goods and services meaning that price will remain high despite stable or lower demand.

“On easing the stance of policy, the MPC was of the view that this action would provide cheaper credit to improve aggregate demand, stimulate production, reduce unemployment, and support the recovery of output growth. Members were of the opinion that the option to lose will complement the Bank’s commitment to sustain the trajectory of the economic recovery and reduce the negative impact of COVID-19. In addition, the liquidity injections are expected to stimulate credit expansion to the critically impacted sectors of the economy and offer an impetus for output growth and economic recovery,” the CBN stated.

READ: Labour sets September 30th as deadline to go on strike

What this means: By dumping inflation targeting from the demand side, the CBN is betting that spending money on stimulus programs will pay off down the road as cheaper long term credit will reduce cost of goods and services and will eventually reflect in the lower inflation rate.

  • The CBN did not state where it sees the inflation rate and when it will drop to its new target by relying on supply-side management as strategy.
  • The downside of this strategy is that there is very little impetus for foreign investors to purchase CBN securities at very low-interest rates.
  • This shuts the door to the reliance of foreign portfolio inflows to shore up dollar reserves leaving us with investors who may want to return to the stock market.
  • If oil prices fail to pick up and foreign investor inflow is not forthcoming, then there will likely be heavy pressure on the CBN effectively worsening things.

Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

2 Comments

2 Comments

  1. Concerned citizen

    September 23, 2020 at 12:24 pm

    From history, wage and price controls don’t work. How can a few dozen people decide what’s best for millions of people? No matter what models are used, dynamics of supply and demand are best decided by the free market, with minimal regulation. This fiat system is going to crash anyway, over 700 fiat currencies have either been hyperinflated or defaulted on.

    More money printed, the more your savings get diluted, and the lower your naira or whatever fiat you have. If you can afford it, save in bitcoin or gold.

  2. Kelechi

    September 23, 2020 at 6:46 pm

    This is amazing

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Business

Nigeria records lowest remittances from abroad since 2008

Nigeria recorded the lowest remittances from abroad since 2008 as Covid-19 affected the income of Nigerians living abroad

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Nigeria received $96 billion diaspora remittances inflow in 6-years

Second-quarter data from the CBN shows Nigeria recorded the lowest remittances from abroad since 2008 as Covid-19 affected the income of Nigerians living abroad and looking to snd money to loved ones back home.

According to the data, remittances fell to $3.3 billion in the second quarter of the year way lower than the average of $5.8 billion per quarter remitted to the country. The drop can be attributed to the Covid-19 pandemic.

Explore Data on the Nairametrics Research Website

The data highlights just how bad the global economic crunch has affected the income of people across the world especially Nigerians in diaspora looking to send money to their families. Most have either lost their jobs or seen their earnings tumble due to the global lockdowns.

READ: South South States lead in Nigerian unemployment

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Nigeria also relies on dollar inflows from remittances to improve on its balance of payment position, a critical economic indicator used in determining a country’s foreign exchange position.

READ: Is Zenith Bank thriving on the strength of sound financial indices?

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Total foreign remittances into the country rose to $23 billion in 2019 one of the highest on record helping boost income and investments in Nigeria. Poor countries like Nigeria rely heavily on these inflows to soften the low income paid to citizens while also funding millions of families from education to healthcare.

Nigeria  Remittances only came second to oil as Nigeria’s top export earner much more than foreign portfolio and direct investments into the country.

READ: 150 million to fall into extreme poverty by 2021 – World Bank

Third-quarter numbers are likely to improve as the unemployment rate dropped in the third quarter of the year particularly in the US. For example, the US unemployment rate was as high as 14.7% in April at the height of the lockdowns but has since dropped to 7.9% in September 2020. It was 4.4% in March this year.

Why this matters: Apart from helping to stabilize the exchange rate, remittances are a critical source of cushion for millions of families in Nigeria.

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READ: Nigeria’s dollar earnings fall by over $7 billion due to Covid-19

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  • The global economic impact of the COVID-19 pandemic remains pervasive in most developed countries despite the easing of lockdowns.
  • In fact, some countries, particularly in Europe are going through the second phase of lockdown meaning more jobs could be lost as we approach winter.
  • Nigerians also look forward to the ember months for remittances and is also a useful tool at stabilizing the exchange rate. In the 4th quarter of 2019 and 2018, Nigerians in diaspora remitted $5.9 billion and $6.24 billion respectively.

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Exclusives

Leo Stan Ekeh denies being behind HealthPlus “takeover”

Mr. Ekeh has addressed suspicions of his alleged involvement in the crisis that has rocked HealthPlus Limited.

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Leo Stan Ekeh

“Mrs. Bukky George is A miracle child” – Leo Stan Ekeh.

The news making the rounds is that the billionaire tech entrepreneur, Leo Stan Ekeh, Chairman of Zinox, is allegedly the man behind the takeover of HealthPlus in Nigeria. The rumours come amid a well-publicised management tussle over the soul of the business. Is this real or mere speculation?

READ: Chevron to sack 25% of its workforce in Nigeria

Above the frenzy of social media controversies, it is always good to investigate and ascertain the true facts of any case.
In a telephone conversation with the serial entrepreneur, Mr. Ekeh said that when he read the news, he did not give it much thought and dismissed it as one of those social media noises. But to his astonishment, few clips of the news have been sent to him by friends.

Explore the Nairametrics Research Website for Financial Data

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Hear him:
I have the highest regards for Mrs. Bukky George. I see her till tomorrow as a miracle child like myself. She is extremely brilliant with great energy and passion to succeed in her sector and there are few such women in Africa and my wife is one of them, so it will be spiritually wrong for me to be against her. I know both parties and simply put, they are all credible parties in partnership. I have known her investors – Alta Sempta Capital for some time before I met Mrs. George and we have had preliminary engagement relating to their potential investment in one of my companies and my ambition to roll out across Africa.

But till date, I do not have a kobo share in any of their different investment vehicles including a kobo in HealthPlus, though anyone has a right to invest in any company of his or her choice without clearance from the general public including investing in any of my companies. I have great passion for the health sector and those around me know my investment and support in that sector locally. It is my prayer they resolve their challenges soonest. I want to keep the several discussions I had with Mrs. George private because she is an amazon. I have my highest regards for successful African women and my Group is possibly the only one in the world with five certified women as Managing Directors. You can now understand!”

READ: Minister denies approving NIPOST license fee increment 

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What do you advise Nigerian companies looking for foreign investors?

‘‘Looking for foreign investors is like taking a bank loan locally. You must keep your promises. When you talk about knowledge economy, it means you should be knowledgeable enough to understand what you are going into or pay quality corporate law firms to advise you, but you must listen to them. The money the bank lends to you belongs to depositors and investors and you must do everything to keep to the terms of the loan. Same with foreign investors. They are here to help you build and make money and in the process, you make more than you would have made. They help you alter your destiny. They are not charity organizations. Sincerely, they add huge value to help you institutionalize corporate governance and make more money than you would have made.

I had warned severally in conferences that the failure rate of startups in Nigeria is unbecoming of a nation and an embarrassment. We should respect agreements signed in this 21st century. That is the only way this country can grow. I am a child of trust economy, so I must keep strictly to agreements to grow. We have world class locally owned legal firms to guide us in these partnerships. I have had at least one major public quoted company as foreign investor and the experience is rewarding. They remain my best friends till today and can vouch for me on major international transactions and they have done this severally even though I bought them out few years ago. We need these people to scale. Nigeria doesn’t have the real financial capacity to build globally rated companies. Trust me on that. Thank you.’’

READ: Why Nigeria’s external reserves is stuck at $35 billion

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Exclusives

Exclusive: I put up my house as collateral to save HealthPlus – Bukky George

Bukky George sits with Nairametrics to discuss the crisis that has rocked HealthPlus Limited.

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HealthPlus: More facts emerge as Bukky George reveals she owns 48.9%

The founder and ‘CEO’ of HealthPlus Ltd, Mrs. Bukky George, revealed she put up her house as collateral to help fund operations of the company she founded in 1999. She revealed this to Nairametrics, in an exclusive interview granted to our Analyst, at Southern Sun, Ikoyi, Lagos.

The Nairametrics’ Lead Analyst sat with Mrs. George, to get a first-hand account of her side of the story, that has pit Private Equity investors from the UK, against the Founder of a business seeking cash to expand their operations.

READ: Meet Bukky George, The CEO of HealthPlus who just raised $18 million

Nairametrics asked a range of questions, some of which she preferred not to respond to as the matter was still in court. However, in one of the remarks, she confirmed that she had to put up her house as collateral, to get funding from a financial institution. She also implied that the Private Equity firm’s modus operandi was to starve her company of funds, so they can watch the business falter, allowing them to buy on the cheap.

“When the funds stopped coming, I had to put my house as collateral, and my personal guarantee is also collateral too. Apart from the money they invested, they don’t have much to lose, but I have everything to lose. When the funding never came, I invested my life savings.”

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She emphasized that the modus operandi of some of these investors is, “They come, they pledge, give you some money, and stop. When the business dies, they buy at peanut.”

READ: Just in: FG bars Air France, KLM and other foreign airlines

According to Mrs. George, the failure of the private equity firm, Alta Semper, to disburse the balance of the $18 million, hampered the operations of a once-thriving business. They paid less than half of the total sum.

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“The agreement is to fund our operations without delay. The objectives are the premise of the balance funds. However, 18 months on, the balance is still outstanding. We could not meet our target, because more than half of the funds has not been released to us. We were doing well in the first year of the deal, but the DNA changed after 1 year,” she said.

She also hammered on how Alta Semper starved them of working capital, resulting in their inability to stock their shelves with drugs. Saying, “We had board meetings, they are the financial gurus. They saw the working capital and our cash flow and made no comment. I would not fight if I am not sure of winning the case. They were watching us dwindle. We needed to buy drugs on our shelves, but we couldn’t get the fund. We spoke every week, but they kept promising that they will fund me in two weeks. Our agreement indicates that we were joined at the hips, that is, they can’t make decisions without my consent and vice verse.”

READ: HealthPlus: More facts emerge as Bukky George reveals she owns 48.9%

Mrs. George insisted that the technical agreement she had signed with Alta Semper, required that they perform certain obligations, which they have failed to fulfill, leading to her decision to go to court.

“We signed a technical agreement, they had obligations but failed to achieve one. I can’t go into details, because we are in court. When I put it down in writing, they compelled me to retract it. When I complained about what is not going right, they stayed mute. I had no choice but to go to court,” she stated.

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She also provided her own view of why the other two directors, former Chairman, Dr. Ayo Salami, and Mr. Deji Akinyanju had resigned from the board.

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READ: NCR to leverage MSMEs lending by over N1.23 trillion

Saying, “The Chairman resigned last week Thursday, another Director resigned 5 weeks ago (that is my nominee Director). A day after the Chairman resigned, they swooped in when we didn’t have a constituted board. They had asked the banks to hijack our account, but they denied it, requesting board resolution, and approved minutes for the meeting. They have not been able to provide that.”

Mrs. George also claimed that the employees of HealthPlus were on her side because she is a ‘good boss’, which is why they avoided meeting with representatives of Alta Semper.

“When they called staff for a meeting on Friday, everybody ignored the call. They tried a zoom meeting, everyone ignored it. If I am not a good boss, don’t you think they would have rushed to the meeting?” she asked.

Nairametrics maintains a neutral stance in this matter. We have also reached out to the representatives of Alta Semper to get their own side of the story. We will keep you updated, as it unfolds in the coming days.

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