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Nigeria plans to
raise just under N127 billion ($843.8 million) in 91-day, 182-day and
364-day treasury bills next week, the Central Bank of Nigeria said on
Monday.

The regulator said
it would issue N31.57 billion in 91-day bills, N45 billion in 182-day
bills and N50 billion in one year paper using the Dutch Auction System
on Thursday.

The results of the auction would be released the following day, the
bank said. Bond dealers said they expected a significant rise in yields
in line with last week’s increase in the benchmark interest rate to
6.25 percent from 6.0 percent.

Nigerian interbank
lending rates eased to 3.5 percent on average last week from 4.0
percent the previous week due to an increase in liquidity, traders said.

Dealers said the
disbursement of large budgetary allocations to the three tiers of
government — federal, state and local government — had raised
liquidity levels and pushed the cost of borrowing among banks down.

“What would have
happened is that rates would have dropped significantly to around 1.0
percent due to the huge cash inflows from budget disbursement but for
the increase in the benchmark interest rate on Tuesday by the central
bank,” one dealer said.

The
world economic growth has remained unbalanced, making global economic
forecast for this year and next difficult, a report from the
Organisation of the Petroleum Exporting Countries (OPEC) has said.

The OPEC, in its
Oil Market Report, September 2010, said the persisting impact of the
recent global recession, as well as “the ongoing effects of the
unprecedented government-led stimulus” have created a significant
amount of uncertainty in forecasting gross domestic product (GDP)
growth for most countries.

“The world economic
growth in 2010 remains unchanged since the previous report at 3.9 per
cent, while 2011 has been revised down slightly to 3.6 percent. The
imbalance in global growth has intensified, with a deceleration
becoming apparent in most of the Organisation for Economic Co-operation
and Development (OECD) countries, while developing countries continue
to expand,” the report said.

Repeated revisions

According to the
report, repeated revisions to world economic growth – a key driver of
oil demand – has made forecasting oil market developments in 2010
particularly difficult.

“This is in
addition to other highly uncertain factors, such as the sectorial
distribution of growth, the price of oil relative to its substitutes
and weather conditions, which also impact oil consumption,” it said,
adding that as a result, the forecasts for oil demand are subject to
frequent revisions.

It also said the
main driver behind these revisions has been the stronger-than-expected
impact of fiscal and monetary stimuli enacted by governments and
central banks across the globe.

The OPEC said the present economic condition in most developed countries is discouraging.

“The economic
recovery is not only slow, but is also facing turbulence. The fact that
some OECD countries can no longer afford stimulus plans is likely to
pressure their economies in the second half of this year, leading to
weaker oil demand compared to the first half,” it said.

Nevertheless, the
report said the global economic recovery that started during the second
half of 2010 is projected to continue throughout 2011, however, at a
slow pace. It added that the recovery in oil demand next year will take
place in approximately all quarters, although with more strength in the
second half of the year.

‘Nigeria can improve’

Akinbade Ibisiola,
head, research team at Resource Cap, a portfolio management company,
said the current growth of the Nigerian economy can be improved upon.

“Since Nigerian
economy is a developing market, the much acclaimed GDP growth, which is
presently in the region of 7 percent, can be improved upon if our
country embarks on more developmental projects that can boost the
nation’s economic performance,” Mr. Ibisiola said.

Meanwhile, the
governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi,
last Friday, said most emerging market economies have been known to use
the domestic financial institutions to execute real sector “big ticket
projects” and financial institutions in Nigeria should not be an
exception, if the country hopes to achieve its developmental objectives.

“The CBN is focusing attention on ensuring that the financial
system, in general, and the banking system, in particular, begins to
serve the needs of the Nigerian economy so as to make the Nigerian
economy to be resilient,” Mr. Sanusi said.

Wal-Mart is in
talks to buy South Africa’s Massmart, a $4 billion deal that would give
the U.S. retailer a big presence in fast-growing Africa and boost its
emerging markets strategy. The world’s largest retailer has been hit by
weakness in the United States where low-income shoppers are
particularly vulnerable to unemployment and higher gasoline prices. It
has responded by focusing on cost cuts and international growth.

Buying Massmart,
South Africa’s third-largest listed retailer by value, would give
Wal-Mart a considerable network in Africa’s biggest economy and a
foothold in 13 other countries in sub-Saharan Africa. “Massmart is a
very good fit with their business,” said Bryan Roberts, global research
director at industry research firm Planet Retail in London.

Wal-Mart has made a
non-binding proposal of 148 rand per Massmart share, valuing it at
around 30 billion rand, a premium of nearly 10 percent over Thursday’s
close of 134.75 rand. Massmart said it has granted the U.S. firm an
exclusivity period and there is no certainty of a formal offer. But
Massmart’s share price jumped 11 percent to 150 rand, above the value
of the proposed offer.

Wal-Mart’s shares
fell 0.4 percent to $53.85 and some analysts said the acquisition might
not be the best use of Wal-Mart’s cash. “Wal-Mart should be allocating
its capital first and foremost to developing U.S. urban stores and then
returning cash to shareholders,” Wall Street Strategies analyst Brian
Sozzi said in a note to clients.

Wal-Mart would
become the first major international retailer to enter South Africa,
but others could soon follow by targeting one of Massmart’s local
competitors, Roberts said. “There’s no shortage of good businesses that
could be acquisition targets — Shoprite, Woolworths and the like.”

Home to some of the
world’s fastest growing markets, Africa also boasts an emerging middle
class and roughly 1 billion consumers, making it an increasingly
attractive target for overseas investors. The deal would be Wal-Mart’s
biggest acquisition since it bought British supermarket operator Asda
in 1999.

The bid values
Massmart at 26.3 times its 12-month adjusted earnings per share,
according to Thomson Reuters data. That compares to 21.5 times for
Shoprite and 15.5 times for Woolworths. A deal is also likely to boost
South Africa’s rand which would benefit from an inflow of currency. The
rand hit a 2-1/2 year high of 6.9776 against the dollar.

Vote of Confidence

Massmart sells
general merchandise, electronics and food via a low-margin, high-volume
model. It runs nearly 290 stores and nine different retail and
wholesale chains.

It has also been
one of the most aggressive of South Africa’s retailers in expanding
into the continent. The company has 24 stores on the continent outside
of South Africa, including Nigeria, Africa’s most populous nation.
Revenue totalled 47.6 billion rand in the year to end-June, having
grown more than fourfold in 10 years. Operations outside of South
Africa now account for about 8 percent of its revenue.

The behemoth
eventually bestirred itself. Except that this elephant could only give
birth to a mouse. The decisions reached last week by Central Bank of
Nigeria’s rate setting committee wrong-footed every pre-meeting
commentary. It was a pre-general election meeting, and giving the
uncertainty surrounding the elections, who knows, it may be the last
before the elections. Thus, election-related spending was expected to
entertain Monetary Policy Committee members. Although for the most
part, reports on the economy indicate that it is ticking away at a
decent pace (if not the furious gallop required to meet the Millennium
Development Goals) key sectors are barely keeping afloat. Incidentally,
the CBN’s remit is one of the most straitened of these ailing sectors:
too many dead men walking! Accordingly, since August last year, the
apex bank has struggled to ensure that the zombies do not hurt the
living, including through offering guarantees on all transactions on
the interbank market.

However, while this
“de-risking” has put a floor beneath a floundering industry, its
unintended consequence has been to constrain the process of financial
intermediation. Now, everyone agrees that this process is a basic need
if this economy must save at the levels consistent with its need for
investible funds, and thereafter, allocate such savings optimally. The
CBN has tried to meet this latter bill by arranging to clean up the
industry’s balance sheets, in such a way that the living-dead receive
fresh infusions of capital, and along with their better situated peers,
are then able to resume lending to the economy – preferably the private
sector. Unfortunately, its best efforts have been frustrated by a
lengthy legislative procedure, and the Asset Management Corporation set
up to take over the industry’s bad loans will, on the best assumptions,
now take-off sometime next year. In between, the apex bank has owned-up
to its impotence insofar as it comes to tinkering with the economy’s
short-term interest rates, and with respect to the surfeit of bank
liquidity that has pushed rates in the industry to unprecedented lows.
We’ve also heard that the “focus of the reform measures in the banking
sector is to impact the overall efficiency and stability of the system
in a manner that will ensure that banks play their appropriate roles as
transmission channels for resources to the real sector.” It is, on this
argument, therefore, government’s responsibility to ensure a conducive
environment for real sector growth.

Now, as we
approached last week’s meeting of the monetary policy, not only had
nothing changed in this dynamic, but the spectre of an election year
hung over all. Most people who cared to reflect on these issues were
thus justified in their reduced expectations of the committee’s
meeting. The MPC duly surprised, by tightening monetary policy!
Remarkably, the main tool for this is not the 25 basis points (one
hundredth of a percentage point) increase in the policy rate (MPR).
There is no known relationship between this rate, and the rates at
which banks reward depositors and price their risk assets. Instead, the
policy rate hike reinforced the central bank’s concern with rising
inflation. Ahead of the meeting provisional figures showed the consumer
price index moving from 13 per cent year-on-year in July this year to
13 per cent in August.

There is also good
reason to worry that both election-related spending this year, and the
liquidity-boosting activities of the Asset Management Corporation
(AMC), sometime next year, could exacerbate inflation going forward.How
does the tokenism implied by the MPR rise help anchor inflation
expectations? The jury is not likely to come in soon on this question,
at least until the apex bank has a handle on the channel(s) through
which changes in the policy rate bring about changes in real variables
in the economy. Still, there is much more clarity on the effect of the
2% increase in the returns banks expect to earn from overnight funds
kept with the central bank. Given that this is the new opportunity cost
of transactions in the money market, it is a safe bet that interbank
rates will go up.

Banks that currently lend in the market should witness an increase
in their interest income. And the only reason why borrowers in the
market will continue to have credit extended them is the fact of the
existing CBN guarantee.However, if other rates (deposits, bonds,
treasury bills) rise, then banks could have more problems.

Bank officials said the closure of bank
branches not performing optimally is not a sign of distress since banks
usually monitor operations to ensure they are not operating below their
running costs.

Some banks are planning to close
branches which they consider unprofitable but they require the approval
of the Central Bank of Nigeria which, as the regulator of the banking
sector, has to authorise such closure before it can be effected.

“It is not an issue of worry when banks
access their bank branches periodically and take management decisions
on whether to close those performing under expectations and/or open new
branches as the case may be” said a source at Spring Bank.

“We issued a communiqué about
four-months ago when we closed some branches that were not yielding
revenue and were performing below expectation. The rent you pay for
some locations are not realistic when you compare it to the revenue
generated from such branches and the proper thing to do is to close it
down. For instance, it does not make economic sense now to have about 3
branches in a single street. It is called branch optimisation, not
closure, because another branch could be opened elsewhere”.

The unplanned delay in the take-off of
the Asset Management Corporation of Nigeria (AMCON) and the fate of
rescued banks have continued to fuel speculations that another round of
staff layoffs and branch closures loom.

However, rescued banks have repeated
that nothing of the sort is on their agenda, and that closing down non
performing branches is not really a crime.

“That is not true”, a source at
Intercontinental Bank said. “We have not closed down any branches. I
have just done a nationwide investigation and all our branches are
functioning and there is no intention for any one to be closed. Rather
than close branches, we have just opened two again. All our branches
are operating and undergoing good business”.

Another source at Oceanic Bank, also
one of the rescued banks, said it is not true that the bank is closing
its branches as it has no reason to do so.

However, a staff at Union Bank said banks’ closing some of their branches is not an unlikely possibility in the nearest future.

“This is not utterly unavoidable, but
it is just that there are stages and procedures that need to be
approved by the industry’s regulatory body, the Central Bank of
Nigeria. The thing is just that branches are not just closed down like
that. It’s a long process, because you need to convince the Central
Bank why it is expedient for you to do that and other processes that
have to be followed” the Union Bank staff said.

The way forward

Experts from
various finance institutions in Nigeria and abroad have pushed for
branchless banking; even though they have expressed concern over
security and the level of risk exposure that could be expected from the
implementation of this system.

Major challenges
however remain for the establishment of an effective branchless banking
system; a system where banks’ strategy for delivering financial
services does not necessarily depend on branches. In the Nigerian
banking environment, there’s the need to find alternative ways of
conducting face-to-face interviews or identity checks.

For branchless
banking to develop, experts have suggested that governments need to
continue to work with service providers to find flexible solutions that
meet policy and business requirements.

Consultative Group
to Assist the Poor (CGAP), a global resource centre for microfinance
standards, operational tools, training, and advisory services in one of
its programmes in Nigeria said “Branchless banking has great potential
to extend the distribution of financial services to poor people who are
not reached by traditional bank branch networks; it lowers the cost of
delivery, including costs both to banks of building and maintaining a
delivery channel and to customers of accessing services”.