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The successful issuance of the $500 million Eurobond in January has improved Nigeria’s path towards being regarded as an emerging market economy.

The director general of the Debt Management Office (DMO), Abraham Nwankwo, in his keynote address at the two-day workshop on ‘Investments in Bonds and Securities in Emerging Economies’ organised by the Chartered Institute of Bankers of Nigeria in Lagos yesterday, said the debut sovereign bond has created visibility for Nigeria in the international capital market and would provide support for the attainment of Vision 20: 2020 and FSS (Financial System Strategy) 2020.

Both development plans aim to position Nigeria and the financial sector to be among the top 20 globally by the year 2020.

“One of the benefits of this for the country is that it has helped to develop an investor base in the international capital market for securities, including equities to be issued out of Nigeria,” Mr. Nwankwo added.

On January 21, Nigeria issued a 10-year $500 million Eurobond with 7.0 per cent yield which was 2.5 times oversubscribed by investors from 18 countries spanning Europe, the United States, Asia, and Africa.

Global map

Minister for finance, Olusegun Aganga, at the conclusion of the issue, said its success would drive investment into Nigeria.

“This transaction clearly puts Nigeria on the global map. We now have a transparent and internationally observable benchmark against which international investors can accurately price risk,” Mr. Aganga said.

Four emerging economies, namely Brazil, Russia, India, and China are regarded as the next world economic powers, with 11 others namely Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey, and Vietnam are considered the next emerging economic giants and could be important source of growth and opportunity.

According to Mr. Nwankwo, emerging economies have become significant to the world economy and may become even more relevant in future.

“Securities issued by emerging economies will continue to offer superior returns due to their higher risk levels. The margins may narrow as some of the countries in this category become stronger and demand for securities from emerging economies increase,” Mr. Nwankwo said.

He said growing prominence of local bond issuance relative to borrowing from external sources in various forms has led to rapid development of domestic bond markets. This, he said, has helped to encourage development of domestic savings and investment behaviour.

In the nine years between 1999 to 2007, nine corporate issues worth N33.75 billion, averaging N3.75 per annum, was floated while from 2008 and last year, eight issues were concluded worth N92.58 billion, average of N30.86 billion per annum.

The recent chaos and
post election violence in some parts of the north have been described
as a bad signal to investors and the international community.

Assessing the impact
and the implications of the crises, finance experts and industry
analysts said how it affects the economy and the confidence of investors
who may want to invest in the country depends on how the government
handles the situation.

Pockets of violence
had on Monday broken out in some cities in the northern part of the
country following the declaration of the April 16 presidential election
results.

”The next two to
three days are very important days for Nigeria,” Bismarck Rewane,
managing director, Financial Derivatives Company, a finance research and
analysis firm, said yesterday.

According to him,
nothing much is expected to change with the emergence of Goodluck
Jonathan as president-elect because he is expected to continue with his
ongoing policies.

”I don’t expect any
change in economic and government policy. We already have an idea of the
things he would be doing and the things he would not do,” Mr. Rewane
added.

He said there was
really no cause for alarm or anxiety, if every other factor was normal.
“If oil production remains high, and oil prices are high, the economy
would be relatively stable. However, I think it is still too early to
place assumptions and forecast. The next few days, we would be in a
better position to estimate and forecast on various economic variables
and on the economy,” he further said.

The president is
expected, among other things, to reform the power sector, sign the
Petroleum Industry Bill, restructure the Nigerian National Petroleum
Corporation, constitutionally preserve an oil-price based fiscal savings
programme, boost infrastructure development, and improve execution of
public affairs.

Investment implications

Samir Gadio,
emerging market strategist, Standard Bank Plc, said, “In terms of
political risk, we are less worried about who is the president and more
concerned about whether he can muster enough political muscle to deal
with Nigeria’s pressing reform issues. While Nigeria has substantial
natural resources, the authorities have struggled to unlock the
country’s potential over the past decades because of key structural
constraints.”

According to him,
this year’s presidential contest unfolded without any major
irregularities that could undermine the credibility of the vote and the
process appears to have been transparent.

“While some protests
broke out in the northern parts of the country and the Congress for
Progressive Change has rejected the poll results, we do not, however,
foresee a drastic spike in violence across Nigeria in the coming days
and weeks, even if the opposition disputes the outcome of the vote in
court (as it did in 2003 and 2007).

“In our view, the
relatively smooth electoral cycle in most of the country will be
positively perceived by international investors, with the potential to
mitigate previous concerns over Nigeria’s short-term political outlook.
We think Jonathan’s decisive win will ease investor concerns, both
domestically and Internationally,” Mr. Gadio said.

He added that the
transparent presidential election will boost Nigeria’s institutional and
democratic credentials, but the key test will be the extent to which
Mr. Jonathan’s administration is able to reform the power sector and
other critical areas.

“Such policy steps are urgently needed to unlock the country’s significant investment and economic potential,” he said.

Since May 2010 that
Mr. Jonathan has been the nation’s president, he has embarked on a few
policies which include the series of power reforms, and the recently
launched gas revolution which would require millions of dollars as
foreign direct investment.

Nigeria’s Eurobond was also launched under his government and the
Sovereign Wealth Fund, for ‘economic restoration’. It is anticipated
that he would be able to accomplish the policies he started before the
end of his tenure, when he is eventually sworn-in this quarter.

Respite is in view
for the naira which has suffered consistent weakening due to elections
triggered speculations over the months.

With the
presidential elections behind, the naira is expected to appreciate over
the next few weeks and foreign portfolio inflows are expected from
multinational companies who may have otherwise been reluctant to sell
off the coveted dollar at the forex market due to elections anxiety.

“The considerable
increase in Forex demand over the past two months was mainly of a
speculative nature, notably if one factors in the surge in demand from
the Bureaux de Change,” Samir Gadio, emerging Market Strategist,
Standard Bank Plc, said.

“As a result, we
expect the naira (which is currently trading at 154.9 to a dollar) to
appreciate over the next fortnight, as domestic investors somewhat
unwind their long dollar positions and foreign portfolio inflows
progressively resume, coupled with the usual end-month Forex sales by
oil companies,” Mr. Gadio said, adding that the forecast is based on the
assumption that the current disturbances in the north do not escalate.

He said that this
trend will also be reinforced by the Central Bank’s desire to maintain
exchange rate stability and possibly by some fiscal restraint in the
post-electoral period, if the government is able to reverse the upward
revision in spending recently put forth by the National Assembly.

“Although local
currency bond and T-bill rates are driven by endogenous macroeconomic
fundamentals and supply-demand dynamics (even as foreign participation
remains marginal), the positive offshore sentiment and expectations have
already translated into a rally in the Nigerian Eurobond whose yield
fell 65 basis points to a record low of 6.29 per cent on 18 April, from
6.94% on 25 March.

“In practical terms,
we see further upside potential for the Nigerian Stock Exchange, which
rallied 1.6 per cent today as local sentiment improves and also because
international investors had reduced their exposure to the country in
recent weeks,” Mr. Gadio said.

However, Renaissance
Capital, an investment bank, says, “In our view, investors can enhance
their returns by picking up banking stocks that are still trading cum
dividend, as we expect these counters to retrace most of the dividend
mark-down loss in the short term.”

Renewed optimism anticipated

Afrinvest, a
finance, research, and investment advisory firm, says it expects renewed
optimism to positively impact on the direction of the market, following
the successful conduct of the presidential elections.

It, however, says early profit booking might negatively impact market momentum this week.

“As political
uncertainties wane in the aftermath of the concluded presidential
elections, we do not expect strong demand for the dollar in the coming
week.

“We foresee an
increased level of supply of the greenback by multinationals for
month-end transactions; hence a mild appreciation in the value of the
naira is anticipated in that segment of the market. We expect increased
activity in the market this week, hence a decline in yields, on the back
of renewed political optimism,” the firm said.

The firm said the
DMO bond auction for April should also buoy activities in the primary
segment of the market, just as the release of March inflation figures
this week is expected to shape the direction of the market in the short
term.

Last week, valid
dollar demand was 44.5 per cent above the amount sold by the Central
Bank, higher than the excess demand of 36.3 per cent recorded in the
previous week.

The naira subsequently weakened at the interbank market owing to
reduced dollar supply by multinationals and the regulatory body, which
exerted an upward pressure on the naira-dollar rates.

The Power Holding
Company of Nigeria (PHCN), Baboko Business Unit, Ilorin, Kwara State,
has said it is being owed an estimated N2, 586,784,870.90 as at April
this year.

This was disclosed by its business manager, Shina Ayandokun, in Ilorin, during the unit’s first consultative council meeting.

According to him,
the debt was being owed by government, companies, and individuals. The
breakdown of the debt as at March are as follows: Private
N2,145,073,405.82; Police N1,976,7l2.30; Customs N284,368.50; Prison
N244,170.28; state government NI8,30,997.17.

Others are local
governments N1, 873,435.36; Nigerian Army N336, 237,628.72; Air Force
N82, 794,152.65, all amounting to N2, 586, 784,870.80.

How to pay

The business
manager, who was represented by technical engineer, Bashir Osho,
explained that “while customers are encouraged to settle their bills
through all the designated banks, the service units are also equipped
with cash receipting machines to facilitate prompt bill settlement by
customers. With that, customers can now pay at any bank or service unit
nearest to them.”

“The customer care
centre, located within the business unit, is fully equipped with capable
staff and facilities to render prompt services and assistance to
customers who may be faced with one challenge or the other,” he added.

The chairman,
Customer Consultative Council (CCC), Hameed Ajimati, advised consumers
to always pay their bills regularly to enhance productivity and
profitability. He, however, urged all stakeholders to cultivate the
habit of protecting properties belonging to PHCN, stressing the need to
guide against vandalism.

“I appeal to individual, groups, and association to stop tampering
with PHCN properties; it is against the law. Any erring offender caught
violating the rules guiding the operations of PHCN would be arrested
and handed over to the law enforcement agents for prompt prosecution,”
Mr. Ajimati said.

The
federal government yesterday named a former leader of the Nigeria Labour
Congress (NLC), Hassan Sunmonu, as Chief Negotiator/Conciliator over
the lingering feud between it and the organised labour over unresolved
issues concerning the attempt to fully privatise the Power Holding
Company of Nigeria (PHCN).

The
appointment of the respected labour leader appears a major move to
forestall a possible negative impact the nationwide industrial action
proposed by the umbrella workers group might have on the country’s
economy if allowed to go ahead come May 1.

The
organised labour, under the aegis of National Union of Electricity
Employees (NUEE) and Senior Staff Association of Electricity and Allied
Companies (SSAEAC), has already issued a threat to plunge the nation
into darkness from next month if government fails to release the White
Paper on the report of the House Committee on Power, which investigated
the $16 billion scam involving the National Integrated Power Projects
(NIPP).

The
unions, which gave a 14-day ultimatum, had also asked government to
immediately respond to a number of issues affecting their members’
welfare with regard to the ongoing privatisation of the Power Holding
Company of Nigeria (PHCN).

Government acts

However,
presidency sources said yesterday that government was compelled to move
swiftly to avert any crisis capable of frustrating the run-up to
peaceful inauguration ceremonies of the new administration later next
month.

Head,
public communications, Bureau of Public Enterprises (BPE), Chukwuma
Nwokoh, said in Abuja yesterday that Mr. Sunmonu’s appointment was to
ensure that all unions affiliated to the NLC are carried along in the
power sector reform process towards a peaceful and speedy resolution of
all labour-related issues affecting the privatisation exercise.

Mr.
Sunmonu, who is currently the secretary general of the Organisation of
African Trade Union Unity (OATUU), said he had accepted the appointment,
in spite of his busy schedule, “because of the strategic importance of
the power sector on the socio-economic development of Nigeria.”

The
former NLC boss, who is currently based in Accra, Ghana, is expected
back in Nigeria early this week to meet with all the stakeholders, to
discuss details and modalities of his assignment, as well as work out
the plan to achieve its mandate.

Following
allegations that government was determined to go ahead to wind down the
company when issues concerning the workers’ entitlement were yet to be
resolved, the aggrieved PHCN staff, on January 7 this year, decided to
take their case before the Federal High Court in Abuja, accusing the
Attorney General of the Federation (AGF), Mohammed Adoke, of gross
insensitivity and negligence.

In
the suit filed on their behalf by 16 plaintiffs through their legal
Counsel, Bamidele Aturu, the workers sought the determination of four
key issues, namely an order of perpetual injunction restraining the
“defendant whether by himself, privies, agents, subordinates or
otherwise howsoever, or by whomsoever, from privatising the successor
companies to the Power Holding Company of Nigeria, or otherwise
divesting the shares in those successor companies held on behalf of all
Nigerians.”

Similarly, the workers also asked the court to grant a perpetual
injunction restraining the government, through the AGF, from
transferring workers and members of the PHCN to the successor companies
created under Section 8 of the same Act without the consent of the
workers, amongst five other declarative reliefs.

Now that we have
chosen our president for the next four years, we will do well to think
through what we can expect to feature on his to-do list, every day,
until this stage is reached again at the start of the next election
cycle. Ordinarily, it would help to start with the different planks on
the party platform of our preferred candidate. Trouble is, even when
these were bruited about on the campaign trail, they did not amount to
much. Even as sound bites, these policy platforms always sounded
hollow. Apparently, all the candidates were sure that no section of the
electorate was going to interrogate their manifestoes (and the numbers
behind them) too seriously.

Still, there are
reasons why any election pledge in this country should be taken with a
liberal dollop of salt. Across sectors, the economy’s need is so
substantial and so fundamental. Especially with infrastructure, where
promises to remedy the dearth must contend with the 48 months lag
between the contract award ceremonies and when the projects come on
stream. In the absence of low-intensity, high-impact solutions, it thus
means that any genuine investment today, will only begin to yield
fruits after the first four-year term. This is one of the more perverse
incentives of representative democracy: it forces executive focus on
near-term upside gains with medium-term downside consequences.

This does not,
however, obviate the need for such investment, or the equally important
need for the incoming government to deliver on a few low-hanging
fruits. The Petroleum Industry and Nigerian Sovereign Investment
Authority bills are two versions of the latter type of investment.
Because of the unconscionable delay in passing the former bill,
investment in the upstream sector of the oil and gas industry has
tailed off considerably. Desirable though it might be to cap the oil
wells as part of a radical response to the failure of our fiscal
federalism, we cannot run away from the size of hydrocarbon export
revenues’ contribution to the national budget.

Prompt passage of
the bill is also consistent with acknowledging what the International
Monetary Fund (IMF) describes in its latest comments on the global
economy, as “long implementation lags for discovery, exploration, and
capital investment in minerals industries”. In addition, there are
significant gains to be had in the current environment. The signals
from current elevated market prices for crude oil would seem to
indicate that, along with the pressures from new demand from newly
industrialising economies in Asia, there have been significant
“downshifts in trend (crude oil) supply growth”.

Moreover,
macroeconomic policy has fallen behind the curve over the last two
years. Despite strong terms-of-trade gains, as commodity prices firmed,
we have not accumulated reserves as rapidly as would have been
expected. Instead, the central bank has run down these inflows in
support of an inflexible exchange rate regime. Has this moderation of
domestic exchange rate movement been beneficial to strengthening
domestic demand? Another question touched by the domestic demand worry
is, “What is holding back private investment in this economy?” Soft
final domestic demand is one answer. But there’s another argument. If
our policy is to support the growth of private investment, shouldn’t it
aim to boost net capital formation within the economy, while reducing
the domestic cost of doing business?

The needed
structural reforms go further than this though. The central bank’s
quasi-fiscal interventions in the economy in the last two years have
been anomalous. Returning the funds on to the public balance sheet is
essential for fiscal transparency and in order to clean up the balance
sheet of the Central Bank of Nigeria (CBN). The trouble with this
course of action is that the public debt profile is rising. Adding
debits from the CBN’s balance sheet would further reduce government’s
room for fiscal manoeuvre. Nonetheless, fiscal consolidation is key to
the economy’s medium-term fiscal outlook. Rising inflation is one (but
scarcely the only) reason. Fiscal support was necessary to keep the
banks from going under and to a lesser extent to keep domestic demand
ticking away despite second-round pressures from the global financial
and economic crisis.

But the banks have begun to post healthy results. And it is doubtful
(because of the infrastructure constraints) that domestic demand did
indeed respond to the fiscal stimulus. Thus, it is important for a
positive medium-term fiscal outlook to return immediately to the oil
price-based fiscal policy rule!