Category
🗞
NewsTranscript
00:00 The Nigerian government says it is investigating the 2.4 billion dollars foreign exchange
00:05 allocations and forward contracts with the Central Bank of Nigeria flagged as ineligible.
00:10 Now, Tulewa Adebayo, the Chief Executive Officer of CFG Advisory, joins me now live in our LEGO
00:14 studio to discuss this in much more. Mr. Adebayo, it's good to have you on the show today
00:18 and right here because our last conversation was looking at the highlights of the previous
00:23 MPC meeting which was held in January. Now for you an overview, how much progress did we make
00:28 from the last 400 basis point hike and now 200 basis. This brings us cumulatively to over 600
00:33 near-term impacts. What's your assessment? Well, I think we're in the right spot right now.
00:38 I was expecting the rate to go from 18.75 to 25 percent because what you're seeing now is that
00:46 the signaling by the Central Bank of Nigeria is quite clear. So you're seeing 24.75 base rates
00:54 against targeted inflation of 21. So in terms of the signaling to the markets now, we now have
01:01 real rates that are positive and more importantly we're now seeing that alignment with monetary and
01:07 fiscal policy because you cannot underestimate the contribution of the fiscal side to the stability
01:14 in the rates we're seeing now and now the increase in the foreign portfolio investments because with
01:20 these rates of increase in interest rates, you're now beginning to see a billion dollars worth of
01:27 foreign portfolio investments coming in and if you continue at this run rate you probably see
01:31 close to 12 billion dollars this year. In 2019, we had a high of 25 billion dollars of
01:38 capital inflows of which foreign portfolio investment contributed to about 15 billion
01:45 dollars. So if we can sustain this momentum with the rates now, you're seeing that clearly
01:51 real rates and real yields are now beginning to be positive in Nigeria in terms of the investment
01:57 horizon. So it's a good time for savers now because rates are going up and people can save
02:02 more and get better interest rates on their savings and their investments and even the
02:07 pension funds can also begin to do better. So we're beginning to see in terms of the targeting
02:14 a return of equilibrium in the market and the distortions that inflation had cost
02:19 making real rates and real yield negatives has finally been reserved, reversed. So what we're
02:24 not expecting is that the central bank should hit that target of 21 percent or below by year end.
02:32 By year end and according to the governor of the central bank of Nigeria now is expecting
02:36 that would see economic moderation also happen by May. There's talking about inflation slowing
02:41 down and also the FX volatility also ease. Are you optimistic we'll see that happen within this
02:46 timeline because our earlier conversation point we're looking at inflation peaking at about June
02:51 and that was why questions around whether or not the release of grains to attend to food inflation
02:56 was also the right timing and also talking about timing as well re-entry into the Euro bond market.
03:02 How do we pace ourselves right here? Well first of all we need to get inflation down that's a
03:07 priority because we need to re-establish purchasing power parity especially for
03:11 133 million Nigerians in multi-dimensional poverty and the pensioners. With this sort of interest
03:18 rates now savers are also going to benefit so that's also very important but let's also not
03:23 forget that they're leading indicators and they're lagging indicators in economics.
03:27 As you said this rate increase was only done a month ago. You're not going to see the impact
03:33 of that rate increase until probably the third quarter of the year. So these are the issues that
03:38 we've seen the targeting as I've said we've seen the band and with the tightening that you're seeing
03:43 in the economy it's very important. Don't forget that the ways and means issues have also been
03:48 reconciled. So the 30 trillion ways and means are now on the books. You see it's now on the books
03:54 of the DMO and we've now seen money supply has gone up by 40 trillion from last year to this year
04:01 making money supply M3 at 95 trillion. So that's a lot of money in circulation and that's why you see
04:07 the move towards very aggressive rate tightening. So we'll let's see how things go to a May but like
04:14 I said I don't will not begin to see this impact until the third quarter and I begin to see proper
04:19 stability by first quarter next year but again what is most important is the issue of the FX
04:26 stability and the fact that on the fiscal side they actually begin to weigh in because don't
04:32 forget that this increase in interest rates is going to be born by the federal government.
04:38 They're beginning to give us higher rates on their instruments and their debt costs are going to go
04:42 up. So they have also begin to get credibility with servicing the euro bonds which the yields
04:47 have come down and maintaining the debt profile. So as long as they continue to do that then it's
04:52 good but also don't forget the money that's been shared by the governors have increased. They had
04:57 two trillion in revenues in January and February two trillion and they only shared half of that.
05:04 So at this run rate the on the revenue side on the fiscal side they can end up with 24 trillion.
05:09 Delta state government got 38 billion, Lagos state got 24 billion and rivers got 24 billion. So
05:16 something is happening but we'll see. We'll definitely wait and see apologies but now let's
05:21 narrow down towards the probe into FX racket here and now we've heard the CBN clearly stand its
05:28 ground when it's making reference to the 2.4 billion dollar FX claim which it says is invalid.
05:33 We've also heard from organized private sector also calling for a comprehensive audit based on
05:40 the fact that they think otherwise and we've also heard from the aviation part as well foreign
05:47 airlines in terms of the tallying of what's right and what's not. For you how do we make headway
05:52 with this probe? Let's make it make sense at this point. Well first of all I think you have to
05:58 understand the process. This was legacy issues that was inherited over time and what the central
06:05 bank governor did then or this new central bank was to get Deloitte to do a forensic audit
06:13 of the backlogs and based upon the forensic audit they decided that 2.4 billion was invalid. Yes.
06:20 So what they said was they had written to all the people that said their effects were invalid
06:25 that they should bring their valid documents to resort to their claim. So I do not think that we
06:32 should begin to doubt what that central bank what the central bank is saying at this moment or the
06:39 governor has already said publicly yesterday if you think that your claim is invalid bring
06:46 the necessary documents to do the reconciliation. So I think we should follow that process but if
06:51 you think that maybe you've had a claim well five years ago and you're thinking that the rate of
06:56 exchange rent was 300 and you want to get 300 today I think that's just working our way so
07:02 everything has to go through the the I&E and the NAFEM system. So I think that is really where
07:08 people are looking at that confusion. Yeah Mr Adebajo wrapping up the conversation now I would
07:13 also like to have your take on what we're seeing here the gradual appreciation of the Naira as well
07:18 whether or not we're going to quickly see the Naira gain lost ground and hit 1,200 in a fortnight
07:24 after the January the February meeting was the big discussion earlier but now looking at the 2024
07:31 budget for example Naira pegged at 800 Naira against the greenback when we're looking at
07:36 budget deficit debt financing a debt servicing cost and the appreciation how do you see us going
07:42 forward especially when we are funding a budget with high deficits? First of all I'm very concerned
07:47 about one thing to be honest with you the rate at which the Naira was being devalued was not there
07:56 was no basis for it okay the only reason why your currency will be devalued at that point in time
08:02 is if the US carrier fleet put a blockade on Lagos and the ports of the Gulf of Guinea to tell us not
08:08 to export at all and they also declare no fly zone that wasn't the case the rate started to move when
08:14 the banks decided that they had to reverse their net open positions and the banks have to be blamed
08:21 for this directly they were the ones responsible I'm going to say that without any fear or favor
08:28 and that's what we need to look at we need to stop profiteering that was what it was so when you make
08:34 that correction and what is the basis of the increase there is no there's no basis so the
08:39 adjustments you're seeing now is because of the realignment of fiscal and monetary policy coming
08:46 through instruments are coming through the system now and the people who want to save are now
08:51 beginning to get better rates on their investments and we can begin to see real rates being negative
08:59 so what we need to wait for is that at the bank at the institute of bankers dinner the central bank
09:05 governor did say that they're coming up with a new foreign exchange system which will be backed by
09:10 legislation I believe that is work in progress so I think we need to query the central bank
09:15 on when this when when this will happen so that we can have a new set of rules but in the interim
09:22 I think we've looked at nothing to be able to guide the markets but if you take a look at nothing
09:28 and the FMDQ markets you know those trades within three days are what we need to query as to why the
09:36 rates rates went haywire so I think this distortion was was not necessary and I think we see rates now
09:43 returning to normal whether it's going to get to 1200 or what we don't know but we need to have
09:48 what you call stability and I think this is what we're seeing now that we're going to a process
09:54 of if you could have a whisper ahead of the next meeting which would happen in May as well what
09:58 are the reforms effects reforms would you also expect to come through because we have the raft
10:04 and the latest which was the sale donna sale to bdcs as well yes it's a willy by a willing seller
10:12 market okay so the central bank was the willing seller and the bdcs were the willing buyers so
10:19 they have decided that that's what they're going to do their transactions at so why should it
10:23 concern the rest of the markets so if I have a deal with you and we do that so people tend to
10:29 mistake what this willy by a willing seller is you know because everybody has been used to the free
10:34 dollars from the central bank so the central bank will say these are my dollars and I'm all I'm a
10:39 willing seller and if I can find a willing buyer which are my bdcs I'll do that so all of a sudden
10:45 is sending the signal to the markets and to the speculators that so what's going to happen
10:50 the markets are going to go towards the bdcs now looking for those lower rates on the dollars so
10:56 that is what you call a market you know so willing by a willing seller you know so it's a trading
11:02 place a unique dynamics come to that we'll leave the conversation here for now mr adivajo thank
11:06 you so much for your time on the show today that was tilly adivajo the chief executive officer of
11:10 cfg advisory