For post-pandemic financial opportunities, Nigeria must reposition to global realities – Edeh

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TONY EDEH

TONY EDEH, the managing director of Norrenberger financial group speaks to BusinessDay’s HARRISON EDEH on why Nigeria must reposition itself with good reforms to get a good share of the post pandemic financial opportunities.
Excerpts:

COVID-19 has hit the world hard, how much impact do you think it had on Nigeria’s economy?

Due to COVID-19, the Nigerian economy slipped into a recession in the third quarter of 2020 following a GDP contraction of -3.62 percent.

This is the second recession since 2016. Recessions in Nigeria have mostly been caused by a fall in the price of crude oil and the absence of large fiscal/monetary buffers in a structurally weak economy.

The impact of the 2020 recession on individuals and businesses has been more severe due to the nature of the pandemic. With COVID-19, businesses were forced to shut due to lockdowns and social distancing.

This had a toll on individuals’ income, corporate and government finances. Real losses in real output and other disruptions was estimated at N5.8 trillion in 2020.

In nominal terms, this loss is estimated at N11.6 trillion. In addition to direct output loss, there have also been significant job losses, income losses, erosion of monetary value, among others. COVID-19 and other disruptions have reversed the gains achieved prior to 2020.

Due to the perceived impact, the Nigerian government projected revenue flow from oil to decline from 5.5 trillion Naira in 2020 to 1.1 trillion Naira, putting it in a sudden fiscal crisis presenting some pretty immense economic challenges.

How can Nigeria navigate the impact(s) of COVID-19?

A steady reopening of the Nigerian and global economy should improve some of the contraction we saw in Q2-Q4 2020. So, as supply chain networks improve with the reopening of borders and further ease of lockdown within and outside the country, we expect to experience steady improvements. The major part of the services sector and their value chains could still take some time to recover as social distancing protocols are still required. Ultimately, full recovery only seems sure after herd immunity is reached.

However, beyond the challenges from the lockdown, purchasing power of Nigerians continue to decline which is a challenge for manufacturing companies as they are unable to increase prices despite alleviating import costs. Further investments in infrastructure and conducive regulatory environment should improve the operating environment in these sectors and hopefully spur growth.

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Can you give an analysis on the performance of the investment market pre and post COVID-19?

As of 2019, preceding the outbreak of COVID, developments in banks’ deposit rates were mixed, while lending rates trended downwards in the fourth quarter. The average term deposit rate was at an estimated 8.07 percent at the end of the quarter .

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Furthermore, the weighted average prime lending and maximum lending rates were 14.99 percent and 29.98 percent as at December 2019. The total value of money market assets outstanding in the fourth quarter of 2019 stood at N12.76 billion, showing an increase of 2.6 percent, compared with the increase of 2.9 percent at the end of the third quarter of 2019. The development was attributed, largely, to the 3.1 per cent increase in FGN Bonds outstanding during the quarter in review. Developments on the Nigerian Stock Exchange (NSE) were bearish.

Activities on the Nigerian Stock Exchange (NSE) were mixed during the third quarter of 2019, as the All Share Index (ASI) fell, while the aggregate market capitalisation rose at the end of the review period.

The turnover volume and value of traded securities declined by 36.0 percent and 38.1 percent to 16.3 billion shares and N187.7 billion, respectively, in 218,415 deals, compared with 25.5 billion shares worth N303.0 billion in 240,990 deals, recorded in the second quarter of 2019.

In addition, the analysis of Nigeria’s inflation data in the early months of 2020 shows that the month-on-month inflation rate increased from January to June in 2020. This was because the lockdown restriction led to increase in the price of consumer goods as trade borders were closed and inter-state travels where banned which disrupted the distribution of consumer goods across the country.

Also, the percentage change in inflation rate increased from January to March, and from April to June, which indicates a worsening economic situation.
In Q3 2020, (succeeding an ease in the lockdown and the restriction of movement) as a result of the ample liquidity in the banking system, money market rates generally trended downwards. Short-term money market rates traded below the MPR rate of 11.5 per cent for a major part of the period and average prime and maximum lending rates were 11.6 percent and 28.5 percent, respectively. Also, average term-deposit rate was at 2.94 percent .

In summary, the Nigerian Money Market suffered huge losses in 2020 due to the economic impact of COVID-19, however, the stock & equities market rebounded at the end of Q3 2020. The ASI, which had fallen 8.8 percent by mid-year, appreciated by 9.6 percent in Q3 to close at 26,831.76 points at the end of September gaining investors N1.3 trillion.

To what extent has COVID-19 has affected Nigeria’s foreign investment inflows?

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Foreign Direct Investments and Foreign Portfolio Investments in Nigeria had declined even before the pandemic, and continue to remain weighted towards the oil and gas sector. Nigeria attracted the third-largest foreign direct investment (FDI) inflows of any African country in 2019.

Also, in 2020, the most visible and immediate spill over of COVID-19 was the drop in the price of crude oil, which dropped from nearly US$60 per barrel to as low as US$30 per barrel in March. During the pandemic, people were no longer travelling and this led to a sustained fall in the demand for aviation fuel and automobile fuel, which affected Nigeria’s net oil revenue, and eventually affected Nigeria’s foreign reserve. As the oil sector accounts for the bulk of Nigerian government revenue, this collapse in prices had profound implications for the economy.

Can the effects be quantified in terms of how much Nigeria has lost?

As at the end of Q3 2020, The total value of capital importation into Nigeria stood at $1,461,490,000. This represents an increase of 12.86 percent compared to Q2 2020 and -74.03 percent decrease compared to the third quarter of 2019, with total capital importation of $5.62 billion. This amounts to a loss of $4,158,510,000 compared to 2019.

The largest amount of capital importation by type was received through Other investments, which accounted for 43.75 percent ($639.44m) of total capital importation, followed by Foreign Direct Investment (FDI), which accounted for 28.38 percent ($414.79m) of total capital imported and Portfolio Investment which accounted for 27.87 percent ($407.25m) of total capital imported in Q3 2020.

How can Nigeria’s economy survive this challenge, knowing that foreign investment inflow is one of the ways Nigeria gets foreign exchange?

Nigeria has been in search of ways of stemming the economic decline before Covid-19 pandemic. While Nigeria’s economic, fiscal, and financial struggles resulting from the decline in income have been conspicuous, measures such as unlocking liquidity, rejuvenation of fiscal, financial, and foreign exchange streams will help break the dependence on volatile oil revenue and costly deficits.

In other words, we must ensure that our policies are well-aligned with unfolding global realities by repositioning to get a good share of the post pandemic financial opportunities. We must push for large foreign direct investments & remittance inflows as our main source of external liquidity, and deploying those into transport and energy infrastructure to boost stability, growth, and trade.

Can you share insights on the potential impacts of the Finance ACT that allows the Federal Government to borrow funds from dormant accounts and unclaimed dividends?

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The Finance Act 2020 recently signed into law by President Muhammadu Buhari clearly provides that the Federal Government can borrow from the unclaimed dividends and dormant account balances under the Unclaimed Funds Trust Fund.

As reported by “MarketForcesAfrica”, total unclaimed dividends are currently estimated at NGN168.44 Billion, and funds from dormant accounts projected at a significant balance (based on bank deposits are pegged at about NGN50 Trillion)

Before the act was passed by the lawmakers and signed by President Buhari, there was opposition by shareholders and other members of the capital market community. They claimed that the government lacks the power to manage funds belonging to private sector investors, and more stakeholders, including politicians and rights activists, have raised their voices against the move, urging the government not to go ahead with the plan. In addition, they felt that the decision was unnecessary because capital market regulators and operators had leveraged technology to put in place many initiatives that are already addressing the issue of unclaimed dividends.

Imperatively, with the Federal Government having access to these funds, it provides an avenue for an increased financial capacity to manage cost-intensive projects and infrastructural developments that could have a drastic and beneficial impact on the daily lives of people in Nigeria.

The unclaimed funds could also be used to provide loans to MSMEs and other entities, which could generate employment and alleviate some of the negative impacts of COVID-19 on the economy. However, this greatly depends on how the funds are managed and utilized.

How is Norrenberger Financial Group charting a new course for Finance in Nigeria?

At Norrenberger, we are guided by our mission to positively unlock the opportunities in the society for our clients and stakeholders. We are passionate about the strength of our brand and our vision – to simplify wealth creation for our clients and our people, through the benefits we bring and the results we achieve. To do this, we work by a set of values that enable us to live out our purpose of empowering the people and organization we work with.

We unlock opportunities in our society by providing cutting edge investment options and access to alternative financing which in turn allows people to bring their innovative ideas to life and expand their existing businesses. Our focus is to continue to create financial asset classes targeting the need of every single household in Nigeria. By 2025, we hope to have delivered at least one financial solution to every household.

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