E-Financial
What does Brexit Mean for the Nigerian Economy
By Lukman Otunuga, Senior Research Analyst at FXTM
After more than 1200 days after Britain voted to leave the European Union, the country still remains in the trading bloc, pondering exactly how to leave. Although the October 31 “do or die” Brexit deadline has been extended to January 2020, this is simply kicking the can further down the road. With the United Kingdom set for general elections on December 12, this will certainly not be a quiet Christmas for Britain and the Pound.
It will be unwise for investors to rule of the possibility of the United Kingdom crashing out of the European Union next year given the unpredictable nature of Brexit. The seismic tremors created from such an unfavorable development will ripple far beyond the borders of Britain, with everyone across the globe feeling the heat including those in Africa.
Given how Brexit adds to the growing list of geopolitical risk factors straining investor confidence, appetite for emerging market may diminish if the UK leaves the European Union without a deal. It is not only appetite for emerging markets that will be under threat but trade and diplomatic relations with Britain and Europe following the divorce. It must be kept in mind that trade deals with the UK and African countries are negotiated through the EU which plays a middle man. With the agreement becoming void when Britain departs from Europe, this presents significant disruptions and economic risk to African nations who trade with the UK.
Britain’s top trading partners like Nigeria, Kenya and Egypt will most likely be punished by a no-deal Brexit. The UK was Nigeria’s 6th largest trading partner last year with total trade roughly $5 billion. In 2018, Nigeria exported £2.23 billion worth of Oil to the UK, an improvement over the level of £1.1 billion in 2017. But with the UK’s economy exposed to downside risks, the outlook for Nigeria’s Oil sales appears less promising.
Nigeria’s Oil sales in the UK and Europe face another challenge. Over and above the UK’s declining economic circumstances is increased competition from the US Light Sweet Crude Oil industry. In August, Oil sales slowed to their lowest level of the year because US Shale Oil flooded European markets. In July, Nigeria’s Oil sales to the US fell to zero as US president Donald Trump’s administration powered up its energy dominance policy. It is essential for Nigeria to regain market share in the UK and Europe, which accounts for 46% of its crude Oil sales.
As demand and supply side challenges grow, Nigeria could benefit from closer relations with the UK government, which points out that it has extensive experience in building and managing oil industry infrastructure. A trade deal which secures the UK as a guaranteed buyer of Nigerian crude Oil could certainly support demand in the long term.
As part of its post-Brexit strategy, the UK government hopes to revive its relationships with the Commonwealth markets and has already begun talks with Nigeria to improve bilateral ties. In one example, the UK provided credit and finance worth £1.25 Billion to facilitate British companies to export goods to Nigeria, resulting in £76.5 billion worth of trade in the last 10 years.
During the second quarter of 2019, British Foreign Minister Jeremy Hunt visited Nigeria promising a big pool of funds which could be invested in infrastructure. In other developments, the two countries launched an economic forum to explore mutual investment interests. The governments are already discussing the introduction of Naira-backed financial instruments in the UK and expanding cooperation in the insurance sector.
To wrap up, Nigeria’s post-Brexit relations with the UK are faced with several headwinds which could blow off course the priority to maintain and increase investments in the development of its Oil-and-Gas industry infrastructure. On the upside, it is positive that trade talks with the UK are deepening and there are pre-existing diplomatic and trading relationships which go back many decades.
E-Financial
Lagos State Appoints MoneyMaster as Payment Partner for “Ounje Eko” Programme
“Ounje Eko”, the food price discount initiative of the Lagos State Government, has appointed leading payment service bank, MoneyMaster Payment Service Bank Limited (MMPSB), as its collaborator in the bid to ensure ease of payments at the market.
MoneyMaster is one of the Central Bank of Nigeria-licensed Payment Service Banks (PSBs) to promote financial inclusion across Nigeria.
Under the partnership, MMPSB will apply its cutting-edge payment solution to engender easy payment and reconciliation in order to make the experiences of Lagosians who will be getting their food supplies from the markets pleasurable. Its payment solution is also all-encompassing and ensures real time value to payment destinations.
The mobile bank was appointed as the collection and payment partner for “Ounje Eko” Food Markets programme which is a government initiative serving the five divisions of Lagos State. Consequent on this, MoneyMaster Payment Service Bank will collect payments in 57 LCDAs in the state.
The partnership gives credence to the quality of payment solutions that MoneyMaster is reputed for in its services to its growing business clientele in private and public sectors.
E-Financial
CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering
Central Bank of Nigeria (CBN), is investigating irregular foreign exchange transactions and forward contracts valued at approximately $2.4 billion.
The inquiry follows an extensive audit by Deloitte, which scrutinized $7 billion in dollar debts accumulated under the bank’s previous leadership.
In the aftermath of the 294th Monetary Policy Committee meeting in Abuja, Yemi Cardoso, governor of CBN, disclosed to journalists that the investigation, supported by the Economic and Financial Crimes Commission, among other security bodies, aims to clarify the legitimacy of these FX allocations identified as problematic by the audit.
“It was determined that a number of these transactions did not qualify…they were outright illegal. The law enforcement agencies are now looking into those transactions that as far as we are concerned, are not valid to be paid,” Cardoso detailed, emphasizing the unlawful nature of these forex deals.
The crux of the investigation lies in the audit findings that a significant portion of the scrutinized transactions lacked proper documentation and, in many instances, were deemed outright illegal.
However, the unfolding investigation has raised concerns within the organized private sector, with some entities contemplating legal action against commercial banks for unresolved forex bids.
Despite these tensions, Governor Cardoso reassures that the foreign exchange market remains open and transparent, inviting stakeholders to address their forex needs through the official channels.
Furthermore, Cardoso clarified the distribution of fertilizers to farmers as a one-off measure and not indicative of a shift back to direct interventions by the CBN, underscoring a commitment to strategic, regulatory governance rather than direct market involvement.
E-Financial
CBN Urges Banks to Expedite Action on Recapitalisation
Central Bank of Nigeria (CBN) has directed deposit money banks in the country to expedite action to increase their capital base from the current ₦25bn.
Olayemi Cardoso, governor of CBN, stated this during the apex bank’s 294th meeting of the Monetary Policy Committee (MPC) on Tuesday in Abuja, when the MPC hiked the interest rate by 22.75% to 24.75%.
The apex bank chief said the MPC examined developments in the banking sector and expressed satisfaction that the industry remained stable. The committee, however, said to guard against risk, commercial banks in the country should accelerate their recapitalisation efforts.
Cardoso said, “The MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines.
“The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”
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