Connect with us
iubh
Advertisement
Alpha
Advertisement
Hotflex
Advertisement
british airways
Advertisement
Advertisement
UBA
Advertisement
Patricia
Advertisement
app

Business

Why Egypt attracts more FPIs than Nigeria

Egypt’s high real interest is an upspring of combating inflation as far back as 5 years ago.

Published

on

Why Emefiele’s interest rate policy is ‘great’

The Monetary Policy Committee (MPC) of Egypt on 18th March 2021, held the deposit rate at 8.25% and the lending rate at 9.25% which maintains its position as the world’s highest real interest rate. The MPC rationale was that “Global economic and financial conditions are expected to remain accommodative and supportive of economic activity over the medium term.”

Egypt’s attractive yields and a stable currency have made them the most preferred option for foreign investors aiming for emerging markets. Egypt’s Treasury bills and bonds reached $28.5 billion at the end of February, the highest ever recorded. The appetite for this security was driven by the high real interest rate, which is second only to Vietnam.

However, Egypt’s high real interest is an upspring of combating inflation as far back as 5 years ago. The success of Egypt’s MPC policies may seem attractive to emerging economies like Nigeria but there may be some associated negative impact, which some economist view as a necessary evil to propel growth.

Popularly known as the ‘Volcker effect’, increasing interest rates would lead to a recession initially, and reduce inflation massively, eventually leading to stable prices and a growing economy as seen in the economies like the United States in the 1980s and Egypt’s interest rate hike in 2016.

Other economists mostly from the structuralist school of thought believe that this policy would only cause more harm than good in Nigeria.

In a chat with Nairametrics, Dr. Ifeoluwa Israel Ogunrinola, lecturer of Economics at Covenant University, Ota, Ogun State postulates that with the Egyptian central bank’s decision to maintain her current high-interest rate, the economy is set to take full advantage of the supply-side policy to avoid a further spike in prices to achieve its planned inflation target of 7% at +/- 2 basis points in the fourth quarter of 2022.

He said, “Egypt’s current annual inflation stands at 4.5% which is a 0.2%increase from the former 4.3% recorded in February, 2021. While this current rate competes favourably with the targeted rate, Egypt’s central bank hopes that the high-interest rate regime will attract more foreign investments into her local debt market and that currently, restrained demand due to the covid-19 pandemic could help keep rising prices checked.”

He added that the fundamental lessons Nigerians can learn from the Egyptian story are; to keep the supply-side policy active, and also increase access to FX. This will help boost the purchasing power of the naira. Furthermore, the Current MPR stands at 11.5%. Either maintain this rate to avoid aggregate contraction or reduce the rate to keep at par with inflation target (single-digit inflation).

Sigma Pensions

Dr. Ogunrinola also believes that keeping inflation low in Nigeria rests on the government’s ability to stabilize upward pressure on the FX.

“With imported inflation currently being experienced, attendant overvaluation of the naira under a tightly managed multiple FX window further misaligns the domestic currency relative to its fundamentals. With current inflation standing at 17.3 percent, a protracted FX restriction will further weigh down on the value of the naira while the current account deficit worsens and international reserves remain strained.

british airways

“Consequently, a bleak outlook is perceived for FDI and FPI inflows as international investor confidence is not guaranteed; production is hampered and inflation will further rise. Possible (short-term) solutions are; Unify the FX windows as recommended by the IMF, weigh heavily on round-tripping and unhealthy arbitraging activities within the FX space, take advantage of rising oil prices to boost oil revenue,” he added.

Nigeria’s central bank mentioned in one of its monetary policy committee communique that it was abandoning fighting inflation with monetary policies, citing supply-side constraints such as insecurity, social unrest, logistic gridlocks as the major factors contributing to the galloping inflation rate. In addition, the recent hike in electricity prices and the call for the removal of fuel subsidies are also major factors out of the hands of the CBN that are weighing on inflation.

Outlook

  • Inflationary concerns may have a significant impact on the Nigerian economy as unemployment only affects a fraction of the population while rising prices affect everyone.
  • Looming stagflation as Fitch Ratings raised concerns about CBN’s N13.2 trillion funding of Government expenditure.
  • Low rates may be unaffected for portfolio investors but entail the capacity to spur real growth.

Stanbic 728 x 90

Ubah,Jeremiah ifeanyi is a PhD candidate of Economics in Covenant university. He has held positions as the financial manager in Opera and is also a research ambassador in M&S research Hub. Ifeanyi is currently the financial market analyst for Nairametrics. Follow Ifeanyi on Twitter @ubahjc

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Business

NPA suspends Electronic Call-up for trucks at APM terminal, Apapa

This follows a fallout of the dispute between members of the Maritime Workers Union and the management of AP Moller Terminals.

Published

on

 Onitsha River Port Set To Receive 1000 Containers from Lagos Next Week

The Nigerian Ports Authority (NPA) has announced the suspension of the Electronic Call-up for trucks (ETO) for cargoes bound for the AP Moller Terminal (APMT) in Apapa.

This follows the disruption of operations at the terminal which is a fallout of the dispute between members of the Maritime Workers Union and the management of AP Moller Terminals.

This disclosure is contained in a series of tweet posts by NPA on its official Twitter handle on Thursday, April 15, 2021.

The NPA said that while it is working towards resolving the dispute between both parties, APMT will not receive or exit cargoes for the next 24 hours.

The tweet from NPA reads, ”Following a dispute with the management of AP Moller Terminals at the Lagos Ports Complex, Apapa, members of the Maritime Workers Union have today, April 15, disrupted operations at the terminal.

While the NPA is working toward resolving the dispute between the two parties, APMT will not be able to receive or exit cargoes for the next 24 hours.

The authority hereby urges stakeholders to please take note, as ETO tickets will not be issued to APMT bound cargoes.’’

What you should know

  • There were earlier reports that the Maritime Workers’ Union of Nigeria (MWUN) on April 15 shut down AP Moller Terminal (APMT) in Apapa.
  • The President-General of MWUN, Mr Adewale Adeyanju, disclosed that the grounding of activities at the terminal is due to the expiration of the one week plus notice given to the management of the terminal to adhere to the laws of the land.

Sigma Pensions

 

british airways
Continue Reading

Business

NCC issues NIN enrollment guideline for foreigners living in Nigeria

All legally resident foreigners are required to obtain a NIN just like Nigerian citizens.

Published

on

Nigerian Communication Commission (NCC) has issued NIN enrollment guidelines for foreigners living in Nigeria.

According to NCC, all persons in Nigeria who use mobile networks are required to register their SIM cards and link them with the NIN database.

This was disclosed by the commission via its Twitter handle on Thursday.

READ: Here are 6 directives NCC gave MTN, Airtel, others on SIMs without NIN

It tweeted, “All persons in Nigeria who use mobile networks are required to register their SIM cards and link them with the NIN database.

All legally resident foreigners (i.e. non-Nigerians living and working in Nigeria) are to obtain a NIN just like Nigerian citizens. They can do this by submitting valid resident/work permits at NIMC enrolment centres.

However, foreigners on tourist or visiting visa are to tender their international passports to acquire a SIM. But where such a visiting foreigner or tourist’s immigration status changes to residency or work permit, he/she will be required to obtain NIN and link the registered SIM.”

READ: Beware of fake NIN app, NIMC warns Nigerians

Sigma Pensions

It added that the NIN does not confer citizenship on foreigners but only serves to identify a person (citizens and legal residents).

british airways

 

Continue Reading

  





Nairametrics | Company Earnings

Access our Live Feed portal for the latest company earnings as they drop.