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Nigeria’s Economy Needs Visionary Leadership- Bloomberg

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Africa and the world cannot afford a failing economy in the continent’s most populous nation. Yet that is exactly what Nigeria might be getting: Its economy is on track to shrink by 1.7 percent this year, the official unemployment rate has more than doubled over the last two years, and inflation is at an 11-year high.

One concrete step President Muhammadu Buhari could take to address the crisis would be to eliminate the country’s disastrous foreign exchange controls. Instead, Buhari has made no secret of his desire to defend Nigeria’s currency.

And the central bank has mostly gone along. Despite allowing the devaluation of the naira in June, it is continuing to manipulate the exchange rate — discouraging foreign investors, creating a crippling shortage of dollars for businesses that need to import, and feeding a currency black market. To keep down the street price of vanishing dollars, Buhari’s government has arrested informal money-changers. More capital controls are in the works.

Dismantling Nigeria’s foreign exchange controls will doubtless cause at least a short-term rise in inflation. Yet doing so will not only draw foreign investment and make the economy more productive and competitive, but also cut off a conduit for corruption. Buhari can cushion the blow for Nigeria’s poor through targeted cash payments — an approach Nigeria has used in electronically delivering subsidies to poor farmers. That same mechanism could also shield the poor from the regressive impact of an increase in Nigeria’s value-added tax — which is relatively low but a potentially valuable source of additional government revenue.

There are other ways to stimulate the economy, of course. But Nigeria’s Senate rejected Buhari’s three-year spending blueprint and an ambitious campaign to borrow $30 billion abroad because they lacked details. Meanwhile, his reluctance to sell off state-owned assets has undermined other efforts to raise revenue.

To be sure, Buhari faced ugly circumstances when he took office in May 2015. The plunge in oil prices had left the economy reeling and government coffers bare, and attacks by Boko Haram were ravaging the country. Yet while some progress has been made fighting both terrorism and corruption, Buhari’s rigid leadership style has made the country’s economic problems harder to solve.

Buhari’s election and pledges of good governance rightfully raised expectations across Africa. To fulfill those hopes, however, he will have to demonstrate more flexibility.

Credit: bloomberg

Nigerian Banking Industry Seen In ‘Full-Blown’ Credit Crisis – Bloomberg

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Nigeria’s banking industry is experiencing a “full-blown financial crisis” as failed fiscal and monetary policies lead to a credit crunch, according to Arqaam Capital.

Unity Bank Plc and Skye Bank Plc are close to being insolvent, while lenders FBN Holdings Plc and Sterling Bank Plc “will need a dilutive capital hike,” Jaap Meijer and Tarek Sleiman, analysts at the Dubai-based investment bank and brokerage, said in an e-mailed note on Monday.

Capital ratios are set to worsen because of currency depreciation and souring loans, they said. Calls to Unity weren’t immediately returned and Skye didn’t reply to questions.

The central bank in July replaced the management of Skye after the lender breached liquidity thresholds, spurring concerns about the health of small- and medium-sized lenders, and reviving memories of bank rescues by the government after the financial crisis in 2009.

Nigerian banks are grappling with a devaluation of the naira, rising bad loans and an oil-dependent economy that’s set to record its first annual contraction in more than two decades.

“Our acid test reveals seven under-capitalized banks” with a deficit of as much as 1 trillion naira ($3.2 billion) in the financial system, Meijer and Sleiman said. A stress test identified FBN as the most under capitalized lender with Unity, Diamond Bank Plc, Skye, FCMB Group Plc, Sterling and Fidelity Bank Plc also showing deficits if they were to fully provide for non-performing loans, according to Arqaam.

“Our bank is strong,” Ikechukwu Mike Omeife, a spokesman for Diamond Bank, said by phone from Lagos. “Our capital-adequacy ratio and non-performing loans are within the statutory requirements.”

Common Challenges

Moody’s Investors Service said on Monday that Nigeria’s five biggest banks share common credit challenges related to the economic slowdown.

Moody’s expects non-performing loans to increase to about 12 percent over the next 12 months. The ratio of non-performing loans to total credit rose to 11.7 percent at the end of June from 5.3 percent at the end of 2015, the Abuja-based Central Bank of Nigeria, which requires banks keep the measure below 5 percent, said in a report on its website.

The five largest lenders, which together hold 57 percent of the country’s banking assets, “are able to absorb all losses under our severe stress scenario,” Moody’s said. Guaranty Trust Bank Plc showed “the greatest resilience” and the other four banks were Zenith Bank Plc, Access Bank Plc, United Bank for Africa Plc and First Bank of Nigeria Ltd., the ratings company said.

To create a capital buffer, Sterling Bank is planning to issue a 27 billion-naira bond and “if the interest rate looks better, we will do it this year,” Abubakar Suleiman, the lender’s chief financial officer, said by phone. “We will do it if the rate goes down to around 15 percent or 16 percent. We don’t want to raise it at a very high rate. If we do it, it will take our capital adequacy ratio to over 15 percent.”

Some Buys

Arqaam rates FBN, Skye, Sterling, Stanbic IBTC Holdings Plc, Unity and Ecobank Transnational Inc. as sell, according to the analysts’ report. Zenith, Access and United Bank are rated buy.

Central Bank of Nigeria’s spokesman Isaac Okorafor didn’t immediately answer his phone or respond to text messages. Diamond, Unity and Fidelity didn’t answer calls. Moses Obajemu, a Lagos-based spokesman for Skye, didn’t immediately reply to questions sent to him by text message, as per his request.

Diamond, Fidelity, Wema Bank Plc, FCMB Group Plc, United Bank and Skye recorded declines in Lagos, with Zenith ranking as the most traded stock among the 171 securities on the Nigerian Stock Exchange All Share Index.

Diamond Bank fell 5.5 percent, Fidelity dropped 4.3 percent, Skye Bank slid 4.6 percent and Unity slipped 4.1 percent. Union Bank Nigeria Plc, which is part owned by London-based Atlas Mara Ltd., was the second-biggest gainer, rising 5 percent.

Naira Is Worst Performing Currency- Bloomberg

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The naira is the worst performing currency this year among more than 150 currencies globally, the Bloomberg media has said.
It has depreciated 37 percent against the dollar since the central bank abandoned its peg on June 20, while bond yields have jumped to more than 20 percent. The naira strengthened 4.6 percent to 315 per dollar on Tuesday after falling to a record 350.25 on Aug. 19.

“The cheap naira is attracting foreign investors,” said Lutz Roehmeyer, a money manager at Landesbank Berlin Investment, which oversees about $12 billion of assets. “At 325 per dollar, the naira is too weak” and Landesbank anticipates a rebound, he said.
More than two months after Nigeria allowed its currency to devalue, the country is starting to reap some dividends.
In the past two weeks, Exotix Partners LLP and Standard Bank Group Ltd. have told clients, most of whom fled after the country started imposing capital controls from late 2014, that they should start buying naira assets again.
Roehmeyer’s funds have doubled their holdings of naira debt, albeit in the form of bonds issued by the World Bank’s International Finance Corp. rather than the Nigerian government, to the equivalent of around $9.2 million this month, he said.
Nigeria’s central bank Governor Godwin Emefiele fixed the currency in February 2015 at 197-199 per dollar to stop it plunging amid the decline in the price of oil, on which Nigeria depends for 90 percent of exports and the bulk of government revenue. He relented after 16 months as the country stumbled toward a recession  and foreign reserves fell to their lowest level in 11 years .
The naira has now weakened more than any other major oil currency since mid-2014, when crude prices started retreating. It’s lost almost half its value against the dollar in that period, compared with 46 percent for Kazakhstan’s tenge and 35 percent for the Colombian peso.
That makes it a good time to buy Nigerian one-year Treasury bills with yields of about 22 percent, Stuart Culverhouse, chief economist at Exotix in London, wrote in an Aug. 9 note. The potential return is more than 33 percent if the naira strengthens to its fair value of 290 against the greenback, he said. In April, one-year T-bills yielded just 10 percent.
Investors are also yet to be convinced that the naira truly floats. The central bank sold dollars at 309 last week and may be trying to keep the rate stronger than 320, according to Craig Thompson of Continental Capital Markets SA, based in Nyon, Switzerland. The naira trades at 395 on the black market, 20 percent weaker than the official rate.
Nigerian local-currency bonds have lost 17 percent in dollar terms this quarter, through yesterday, compared with the 3 percent average return for 31 developing nations monitored by Bloomberg indexes. The yield on benchmark government naira notes due January 2026 has climbed 226 basis points since June to 15.08 percent.
“We haven’t come back in to the local market yet, but we’re looking at it closely,” Bailey-Smith said. “If you can get a yield above 20 percent and hedge the FX risk, it’s not a bad trade at all. The futures market is intended to help you do that, but it’s difficult to buy them.”

Credit: DailyTrust

Dangote Makes Bloomberg’s 50 Most Influential People In The World

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Africa’s richest man, Aliko Dangote, has been named among the 50 most influential personalities in the world by Bloomberg, a business and financial news media in the US. The list consisted of CEOs, world leaders as well as religious leaders.

According to Bloomberg, those who made the list are businessmen & women who “build companies and assemble fortunes. They run banks, or hope to disrupt them. They shape economies and spread ideas. They manage money and wield the clout that goes with the billions of dollars they invest.” Read what was written about Dangote below:

He’s feted like royalty. He has businesses ranging from cement to sugar to energy in a dozen sub-Saharan countries. He’s a fixture at elite gatherings such as the World Economic Forum in Davos, Switzerland. No ?African has ridden the continent’s halting march out of poverty toward potential prosperity as spectacularly as its richest person, the Nigerian industrialist Aliko Dangote.

Dangote’s clout extends beyond the boardroom and the high-flier dinner circuit. In March, as votes were tallied in Nigeria’s presidential election, Dangote, 58, served as an intermediary between the camps of the incumbent, Goodluck Jonathan, and his ultimately victorious rival, Muhammadu Buhari. “There’s no question that he is quite an exceptional person—not only in Africa but globally,” says Mark Mobius, chairman of the emerging-markets group at Franklin Templeton Investments.

Today, Dangote is seeking to export his business empire and his influence beyond his terror-racked and corruption-riddled home country. Nigeria is responsible for about 85 percent of his fortune, which stood at $13.9 billion as of Sept. 9, according to the Bloomberg Billionaires Index. He’s planning new cement factories across Africa and as far afield as Nepal and Brazil.

He’s considering taking Dangote Cement public on the London Stock Exchange and has even floated the idea of buying his beloved Arsenal, a top-ranking soccer club in the English Premier League. “I’m surprised I’m getting even four hours of sleep a day,” Dangote says. “We’re going ahead full steam.” The wealth Dangote has amassed is particularly conspicuous in a country as poor as Nigeria, which the International Monetary Fund ranked 122nd in the world in gross domestic product per capita last year. “You ?really see the inequalities,” then-president Jonathan said in May last year at a World Economic Forum conclave in Abuja, the Nigerian capital. Citing Dangote by name, Jonathan said, “Income distribution is skewed toward a few people.”

Dangote says his critics are being churlish. “Instead of studying how Dangote succeeded, they’re busy complaining,” he says. When he says that, he’s speaking above the thrum of his private jet as it makes its way back home to Lagos from Addis Ababa after an hourlong meeting with Ethiopian Prime Minister Hailemariam Desalegn. But compared with the lifestyles of some tycoons, Dangote’s is understated. Divorced from his wife, the mother of his three adult daughters, he lives on Lagos’s Victoria Island. It’s one of Africa’s most expensive neighborhoods, but the home is far from lavish. Adjacent to a Mitsubishi dealership, the house is sparsely decorated, with a modest half-moon-shaped swimming pool set in a small garden.

Dangote grew up in the city of Kano on the edge of the Sahara, raised by his maternal grandfather, a wealthy rice and commodities trader. In his early 20s, he left for Lagos in search of fat profits buying and selling sugar, textiles, and cement in the fast-growing city. Soon, he was earning enough “to buy a Mercedes 200 every day,” he says. These days, he’s fallen on what are for him hard times. His net worth has tumbled by some $10 billion in the past two years because of the crash in the price of crude and unrest in Nigeria. Even so, he remains characteristically upbeat. His setback? “An accident,” he says. “I’m very confident that in the next two years, you won’t even remember it.”.

Jonathan’s Exit Is Needed Spark To Ignite Nigeria’s Stocks Market – Bloomberg

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A new Bloomberg report that features an analysis of Nigeria’s stocks market and foreign investment concludes that a loss for president Goodluck Jonathan at Saturday’s presidential polls may be necessary to stimulate the economy.

The report gives a not so encouraging overview of the present state of the market in a paragraph thus:

“Since rising to a five-year high in July, Nigeria’s benchmark stock index has plummeted 30 percent and is now only 11 percent higher than when Jonathan took office in May 2010. Stocks in South Africa and Kenya rallied 90 percent in the period, while those in Zambia and Ghana more than doubled. The naira fell to a record in February, and domestic government bond yields of almost 16 percent are the highest among 31 emerging markets monitored by Bloomberg indexes.”

The report details interactions with different stockbrokers and investors, many of whom are of the view that a new government will be needed to ignite the spark and build confidence.

A particularly instructive response from one Holger Siebrecht who works with Bolton-based Acadian Assets Management hints at an economy boost if General Muhammadu Buhari of the All Progressives Congress (APC) wins the presidential election.

“We think the market may welcome a win by General Buhari,” Siebrecht, who helps oversee $360 million of emerging-market debt at Acadian, said in an e-mailed response to questions on Tuesday by Bloomberg.

“Buhari is likely to be more effective than Jonathan” at tackling corruption and Boko Haram, and managing the government’s finances amid falling earnings from oil, he said.

The report continued on a similar note, quoting responses from other players in Nigeria’s stock market. It ended thus:

“Nigerian stocks trade at 7.9 times forward earnings, the lowest level after Zimbabwe among African bourses tracked by Bloomberg. They will probably rally whoever wins the election, but will be more buoyant if Jonathan is voted out, according to Lanre Buluro, head of research at Lagos-based Primera Africa.”

“If Buhari comes in we believe the rally will be much more sustained,” said Buluro. “It would be a breath of fresh air. The country’s been ruled by the same party for 16 years.”

With just one day to the presidential election, I doubt very much this is the kind of analysis or report the People’s Democratic Party (PDP) members and president Jonathan’s loyalists want to see.