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The Bank of Ghana
on Friday cut its policy rate by a further 150 basis points to 13.5 per
cent, citing stable inflation prospects as grounds for pushing the key
rate down to its lowest level since January 2008.

The move was deeper
than market expectations and analysts were divided on whether one of
Africa’s leading investment destinations — which has seen a total 500
basis points of rate cuts since last November — would cut further.

“The anticipated
continued slowdown in inflation in the medium term, together with the
need to restore the growth process, provides scope for monetary policy
easing,” Bank of Ghana Governor Kwesi Amissah-Arthur told a news
conference.

Amissah-Arthur said
he expected inflation, which last month fell into single digits for the
first time in over four years, to remain around the Bank’s central
target of 9.2 per cent.

“Early indications
suggest that the pace of economic activity may have bottomed out and
has begun showing signs of picking up, an early indication of the
restoration of the growth process,” he added.

“The 150 basis
points is much more than we anticipated and we now think that the
easing cycle has come to its end. This should provide further stimulus
to the economy,” said Ridle Markus of Absa Capital.

However, Razia Kahn at Standard Chartered suggested further cuts were possible.

“One hundred and
fifty basis points when there was room to do more clearly signals a
more cautious approach … Markets may now move to price in the
likelihood of further, albeit moderate easing, as this remains a
possibility if inflation does not spike higher in the coming months,”
she noted.

Markus Schneider at
UBA Capital expected inflation to creep up from 9.52 percent in June to
11-12 percent by the end of the year, making further cuts “increasingly
unlikely, while Business Monitor’s Lisa Lewin said the Bank would
reverse some of the latest rate cut with a rate hike by end-2010.

Watershed

Several months
before it sees its first oil output from the Jubilee offshore field,
the Ghanaian economy may have reached a watershed after weak growth,
fiscal consolidation and a strong cedi currency have all firmly kept
the lid on inflation.

Recent cedi falls,
government spending and an expected take-off in growth from around five
percent this year to double digits in 2011 could combine with utility
tariff hikes and public sector wage increases to reverse that trend.

While the impact of
the initial production of 120,000 barrels per day from Jubilee is
likely to be modest, some Ghanaian officials see growth taking off to
20 per cent in 2011, one of the highest rates seen in the world.

Yet the figure is
being taken with a degree of caution, not least because a statistical
rebasing of the economy due to come into effect by year-end to reflect
the growing importance of high-growth sectors is also likely to affect
the figures.

Some analysts say the rebasing could lead to gross domestic product being revised upwards by as much as 50 per cent.

For
the Nigerian economy to reach its potentials, attention must be paid to
the improvement of small and medium scale enterprises (SME) in the
country, some business operators in the United Kingdom (UK) have said.

Stephaney
Andre, operational manager of One Pound Shop, a supermarket in
Manchester, told NEXT that small scale businesses will help any economy
to achieve productivity and industrial growth. “The growth in the
economy of the UK could be attributed to the productive activities of
small and medium scale businesses, which was made possible because the
UK provides favourable environment for businesses to thrive,” Ms. Andre
said. She said developing countries, like Nigeria, only need to focus
on the basic services that small scale businesses need to survive to
achieve productivity.

National shame

A
Nigerian, Toks Adeola, who owns a local food shop at the UK Open
Market, in East London, said the lack of basic infrastructural
facilities in Nigeria is what is “destroying the country’s economy.”
“It’s a shame that Nigerian government cannot provide stable power and
water supply at 50 (years of independence),” he said. “Good roads and
transportation are nothing to write home about. Here (in the UK), small
businesses are the main driver of the economy because the environment
is good for our businesses.” He said irrespective of the taxes business
operators pay in the UK, “we still make gains from the investment,”
adding that Nigeria needs a “real political commitment and drive” to
achieve stable economy.

A
survey, in the UK, of 406 business owner-managers canvassed on behalf
of QBE, a specialist business insurer, revealed that SME dictates the
economic health of the nation. Terry Whittaker, managing director of
distribution at QBE European Operations, recently said, “Small to
medium-sized enterprises form a crucial section of UK business and it
is important that their collective voices is heard on the future of our
economy, because they have a key role to play in its recovery.”

Beyond oil

Obiageli
Ezekwesili, World Bank Vice-President for the Africa Region, said it is
necessary that the Nigerian government move beyond the oil sector. She
said presently “the energy sector stands in the way of the development
of the small and medium scale enterprises.” Mrs. Ezekwesili said that
in developed countries “it is not the large companies that dictate the
momentum of those nations.” She said Nigeria need small scale
businesses to grow. This according to her, “requires improving the
infrastructural facilities for businesses to thrive because government
organizations cannot build the economy alone.”

Asked
if the economy situation in Nigerian is attractive to foreign
investors, Mrs. Ezekwesili, said, “I think one thing that has become
clear is that foreign investors are always on the lookout for
democratic stability. So nations that understand this are paying a lot
of attention to building political systems that are credible,
legitimate and very accountable to citizens. Nigerian government needs
to pay attention to those kinds of issues; not just to foreign direct
investors but to domestic investors.” She added that “democratic
institutions enable you to improve on the rule of law and it provides
predictable environment for policies that are pro-business friendly.”

Stephen O’Brien, Parliamentary Under Secretary of State for
International Development, said, “It is the private sector that create
jobs and gives the opportunity for all to prosper, which directly boost
any nation’s economy.” Mr. O’Brien added that business success can only
be built on the right environment, which many African nations are yet
to achieve. According to him, “transport costs in Southern Africa are
on the average 75 per cent than in Europe and 40 per cent more from any
of the rest of the countries.”

Is it the case that
the often contentious debate over the direction of domestic prices in
the country,especially the more bothersome questions concerning the
integrity (and reliability) of official data, arise on the back of a
basic confusion? When, as it has been the case for some time now, I
cannot buy today with the same amount of money, the same quantity of
bread that I bought last year, there is a major problem.

Clearly, I am worse
off materially. And even more so, when, as it were, I happen to subsist
at the margin of one of the world’s more poorly run economies. In
response, I could do either of two things: increase my income to
compensate for the adverse movement in prices; or reduce my expenses.
The former option presumes that opportunities abound in my economic
space to find new ways of augmenting my income, either through putting
in more hours in my current employment, or by moving up the job skills
ladder.

Although, in truth,
a much different option, especially in jurisdictions where the
determined may play fast and loose with the criminal justice system,
would be to seek new income sources at the very edge of the law.
However, more likely than not, in an economy such as ours, where the
opportunities for both legal, and illegal augmentation of the take-home
pay have all but evaporated, the only options available to me are
either to eat less bread than I am minded to. In which case I also hope
to bear through other means the health consequences of a much-reduced
nutrient intake on members of my family. Or to buy cheaper
alternatives. This latter option, in truth, makes as much demand on my
family’s adjusted quality of life.

When inflation
statistics excite in Nigeria, it is invariably because of the extent to
which this sense of the price movement impinges on the choices we have
made, are making, or will make. Besides the more obvious consequences
from a fall in the real value of money, uncertainty over the future
direction of prices could force businesses to put off investment in new
productive activity, and massively restock inventory. Consumers mimic
the latter process when they likewise resort to hoarding as a hedge
against anticipated price movements. Okay, because one needs money to
invest in higher levels of inventory, and the average Nigerian is not
presently so endowed, this might not be an immediate worry. But the net
effect of our concerns over inflation is concerns the way that it leads
to a reduction in overall economic productivity.

When the inflation
figures gall, however, it is because official statistics appear to run
in the teeth of the anecdotal. Last week for instance, nearly all the
papers reported that (the) inflation (rate) for June 2010, at 10.3% was
down on the rate for May 2010. The main challenge with reading meaning
into data of this sort, is how to square them with the known fact that
between May and June this year, prices have moved sufficiently across
certain goods and services to such a degree as to have further
imperilled the existence of certain demographic groups in the country.

Yet, this conflict
is not as irreconcilable as it seems. It apparently arises from the
fact that, on one hand, official number crunchers are looking at the
annualised percentage change,

over time, in the
National Bureau of Statistics’ (NBS) general price index. While on the
other hand, as consumers we feel the loss in the purchasing power of
our disposable income because of the erosion in the real value of the
naira. For evidence, look no further than the NBS’ data on inflation
for last month.

The All Items Index for June 2010 stood at 225.8, as against 204.7
in June 2009. In this sense, the index confirms our experience: prices
are up. But June-on-June, inflation rose by 10.3 per cent. We may
disagree with this rate, only because the composition of our daily
spend is not represented by the basket of commodities (and the weights
attached to them) in the NBS’ index. But when the inflation rate is
reported to have dropped, all that is said is that inflation
(year-on-year) is not growing as fast as it was last month, and not
that absolute prices are falling.

Industry regulators
and finance experts have said that though it is a laudable step that
Nigerian banks should adopt the International Financial Reporting
Standards, it is not an end in itself and cannot take the place of good
corporate governance.

The Central Bank
governor, Sanusi Lamido Sanusi, said that other issues would need to be
put in place to achieve the results of improving the industry’s
reporting standards. “No accounting/reporting standards can take the
place of good corporate governance,” he said, during the International
Financial Reporting Standards (IFRS) conference organised by Access
Bank last Monday.

He urged banks to
henceforth ensure that they report their numbers correctly, adding that
they should learn from their past mistakes, which led to the challenges
the banks faced last year.

The International
Financial Reporting Standards (IFRS) are accounting standards and
framework adopted by the International Accounting Standards Boards
(IASB), which is now becoming the global standard for the preparation
of public quoted companies’ financial statements.

IFRS reporting
demands that Nigerian banks must give a true and fair view of their
financial accounts. Experts say banks’ books, which averagely stands at
about 30 pages, would be increased to about 90 pages.

The CBN governor
said it would boost investor confidence through full disclosure, lower
the cost of investment capital, develop a more efficient capital
market, aid a robust regulation and supervision, and aid the
availability of useful data, among others.

Other participants
from finance regulatory bodies said major issues such as reporting the
right figures in the first place need to be addressed by the banks
before they can enjoy the benefits of improving their reporting
standards, as the regulators are not expected to do everything for them.

The 2009 audit of
the Central Bank revealed significant corporate governance failures and
lax risk management in several banks, despite the attempts made by the
regulators towards improving the quality of corporate governance.

Lax risk management

According to
analysts from Ciuci consulting, a management consulting firm that
provides business improvement solutions to its clients, “it was
discovered that chief executives of several banks occasionally flouted
laws by approving loans without recourse to laid down loan approval
processes. They also allocated funds to projects without proper
consultation with their boards and other stakeholders.

In some cases,
boards were found to be complicit in these malpractices, as personal
interests were put ahead of the interests of stakeholders.
Consequently, the issue remains how to ensure that banks adhere to best
practices in corporate governance in order to safeguard the investments
of shareholders and enhance the value creation process.”

Weak governance,
inappropriate incentive structures, and poor risk management systems
were among some of the main causes of the collapse of the global
financial system. Nigerian banks were not left out as most of them
failed to adhere to established risk management procedures, resulting
in massive loan losses.

Reports from the
consulting firm stated that the Central Bank’s special audit report
indicated that the total deposit liability of the eight affected banks
stood at 3 trillion, while aggregate non-performing loans stood at over
1.5 trillion, representing 61 percent of industry total. The full
disclosure revealed huge losses of unprecedented proportions in the
history of Nigerian banking.

Finance experts say
risk management failures are generally attributed to frameworks and
technologies adopted by the banks, but are actually largely affected
more so by the executives at the helm of affairs. The average
non-performing ratio for the 24 banks in 2009 stood at 34.4 percent
against the 2008 figures, which stood at 5.6 percent.

They also say for a
risk management structure to be effective in delivering its benefits,
it requires the full involvement and ownership of the executives and
must begin with a genuine determination by the leadership to comply
with risk management policies and procedures, as well as letting their
decisions and actions be driven by the interest and safety of all
stakeholders.

The consulting firm
urged that limits and other controls must be respected by top
management of any bank, if risk management is to be given its rightful
place.

In addition to
strategic renewal and operational transformation, implementation of
rules and regulations at the banks will come at a cost. However, this
cost is necessary to come to a more solid, efficient, effective and
lasting banking system.

Clearing the mess

The governor of the
Central bank of Nigeria has stated that the Asset Management
Corporation (AMCON) is set up to do three major things: it would
purchase non-performing loans, after buying the loans, the rescued
banks remain largely undercapitalised; it would also be in a position
to inject capital into these banks for ordinary shares (ownership), and
also manage the loans for recovery post capital injection.

AMCON would be a
permanent structure with a life span for 10 years. It would remain a
part of CBN regulatory infrastructure, going forward to reduce
non-performing loans levels in banks. For capital market operations,
experts say the AMCON is going to take over these loans, while some
operators may be given debt forgiveness, except there is evidence of
fraud or industry malpractice.

The newly nominated
commissioners at the Nigerian Communications Commission (NCC), will
today, face the Senate Committee on Communications for a formal
screening exercise, in Abuja.

The presidency had
last week submitted the names of the new board members to the senate
for approval. These include Eugene Ikemefuna Juwah, the Executive Vice
Chairman/Chief Executive Officer; Peter Egbe Igho, the Chairman, and
three others. The commission has been without an operational board
following the end of the tenure of the former boss, Ernest Ndukwe, and
board Chairman, Ahmed Joda, in April, 2010. Over the last four months,
the presidency had appointed two NCC commissioners to act as the
executive vice-chairmen of the commission.

Appointment compensates delay

President of the
Association of Telecommunications Companies of Nigeria, Titi Omo-Ettu,
said the choice of Mr. Juwah has compensated the delay in the
replacement of the commission’s helmsman because the nominee is an
industry expert. “Mr. Juwah, I know is a fitting and very ready
material for the job,” he said. “Intellectually and in industry
equipment, he is rounded. If the time it has taken to find the
candidate was meant to get one of the fine guys around, I think we can
forgive the uneasy delay that has come to a good end. This is the kind
of candidate Nigerians say is ‘a round peg in a round hole.'”

Kenneth Ugbechie,
Secretary of Africa Telecoms Development Initiative, a non-governmental
organisation, said, “This is what we have been asking the president to
do. Appoint a substantive executive vice-chariman of the commission.
Mr. Juwah is experienced; not a new person in the industry and he is a
very knowledgeable person in the telecom industry.”

The nominees

Mr. Juwah, the
chief executive officer of Cititel Networks Communications Limited, has
over 30 years experience in Information Technology and
Telecommunication. He is said to have played his part in the major part
of modern telecom development in Nigeria when he served as chief of
operations of Nigeria’s first mobile phone network, MTS First Wireless
in early 1990s, and later as vice president of the company when it
re-launched a CDMA network in 2003. Mr. Juwah is also credited with the
expertise in GSM technology when he deployed the CIL GSM network which
later metamorphosed to today’s Globacom. He is from Delta State.

Peter Egbe Igho is a retired Permanent Secretary from North Central.

Mohammed Bintube, from North East, was nominated as a commissioner.

Okechukwu Itanyi, former Deputy Governor of Enugu State, was also nominated as commissioner from the South East.

The nominees, when confirmed, will complete the legal requirements
for the nine-member Board of Commissioners of the NCC, with all the
geopolitical zones represented.

The Egyptian unit
of Vodafone may have overtaken Mobinil, last quarter, as the country’s
largest provider of mobile phone subscriptions, data shows.

Egypt’s three mobile operators, the third is a subsidiary of Abu
Dhabi-based Etisalat, are locked in a pricing spiral as they seek to
grab market share before saturation. Total subscriptions in the most
populous Arab country in May declined to 58.3 million in the first
monthly drop in seven months, government data released last week
showed. Vodafone Egypt, which had 25.79 million subscriptions at the
end of June, gained almost 1.2 million during the second quarter,
according to its latest figures.

Petroleum explorer
Heritage Oil must pay the full amount of tax on earnings from the sale
of assets in Uganda before the government fully endorses the deal, the
country’s energy minister told Reuters on Sunday.

The Ugandan
government said, on July 6, it had given Heritage conditional approval
to sell its exploration assets in the country to Tullow Oil after
months of delay caused by a dispute over tax on earnings from the sale.
Under the conditional approval, Heritage was to deposit 30 percent of
the disputed $404 million capital gains tax with the Uganda Revenue
Authority (URA) and give the a bank guarantee for the remaining 70
percent, which would be redeemable on completion of an arbitration
process. “Heritage is evasive. They have been doing all sorts of things
to avoid paying the tax but they will have to pay the full amount and
the earlier they pay the better,” Energy Minister Hilary Onek told
Reuters on Sunday. Uganda discovered oil in 2006 in the Albertine Rift
basin along the border with the Democratic Republic of Congo and
reserves are estimated at about 2 billion barrels. Commercial
production is expected to start in the last quarter of 2011.

Taxation question

On July 7, Heritage
issued a statement saying it had received advice that the disposal of
the assets was not taxable in the east African country. “Look, these
guys are making super-normal profits,” Minister Onej said. “They just
invested a tiny little figure of $150 million and now they are going to
earn $1.5 billion, why don’t they want to pay taxes on that money? They
pay taxes in their own country, why not here in Uganda?”

Onek decline to
comment on whether the government had scrapped the conditional approval
given to Heritage on July 6 and nor whether Uganda would go for
arbitration in London to resolve the tax dispute. However, two sources
told Reuters on Sunday the URA had advised President Yoweri Museveni to
reject arbitration because Uganda was unlikely to be able to match
Heritage’s legal resources in such a process and was almost certain to
lose the case.

“URA has told the
president that the law is very clear on capital gains tax and that
there’s no need for arbitration and the president has already given
instructions to the energy minister to demand full payment, or else the
government uses other means to get what is due to it,” one of the
sources said.

Once Tullow has acquired Heritage’s stakes in blocks 1 and 3A for up
to $1.5 billion, it plans to bring in China’s CNOOC and France’s Total
to develop the fields and turn Uganda into a top-50 oil producer.

The African
Development Bank (AFDB) has approved a $150 million line of credit for
Afreximbank, the Tunis-based bank said in a statement.

“This line of credit will be used to finance trade and trade-related
projects across the participating states of Afreximbank in Africa,” the
statement said. Afreximbank is a trade finance bank headquartered in
Cairo which was set up by African states and international
organisations.

South Africa’s
logistics group, Transnet, has shut down its iron ore rail line after a
train carrying ore was derailed, the company said on Saturday,
threatening to slow exports of the raw material.

Transnet’s freight arm’s spokesman, Sandile Simelani, said it would
take some time to clear the line between Kumba Iron Ore’s Sishen mine
and the port of Saldhana following the derailment. Kumba, a unit of
global miner Anglo American and the world’s 10th-largest iron ore
producer, uses the line to export the steel-making ingredient to
overseas markets. Mr Simelani said the cause of the derailment of the
train, which had 124 wagons carrying the raw material, had not yet been
established but workers were busy clearing the site.

Dredging of the
N7.8 billion Nworie River project in Owerri, has resumed after many
months of inactivity at the site. Work resumed at the site following
the repairs of one of the dredging equipment which was grounded at
Assumpta Cathedral, Owerri, the site of the project.

The project is
being executed by the Niger Delta Development Commission (NDDC) in
partnership with the Imo government. An engineer with RUODO Nigeria
Limited, the company handling the project, said more dredging machines
will be mobilised to complement the four on ground.

The engineer, who
prefers anonymity, said full-scale dredging had commenced and that the
contract had three-year lifespan from 2009 when the company mobilised
to site.