IMF Projects 2.1% GDP Growth for 2018, Welcomes Reforms

The international Monetary Fund (IMF) has stressed the need for urgent macroeconomic and structural reforms in Nigeria, in order to place the country on a sustainable growth path as well as help achieve its quest for economic diversification.

This formed part of the recommendations by an IMF staff team led by Amine Mati, that visited Nigeria between December 6-20th, 2017, to conduct the 2018 Article IV consultation.

Following the conclusion of the visit, Mati, who is a Senior Resident Representative and Mission Chief for Nigeria at the IMF, in a statement that was posted on the multilateral institution’s website yesterday, noted that overall growth in the country was slowly picking up, but that recovery remained challenging.

“Economic activity expanded by 1.4 per cent year-on-year in the third quarter of 2017—the second consecutive quarter of positive growth after five quarters of recession—driven by recovering oil production and agriculture.

“However, growth in the non-oil-non-agricultural sector (representing about 65 percent of the economy), contracted in the first three quarters of 2017 relative to the same period last year,” said the IMF.

It pointed out that difficulty in accessing financing and high inflation continued to weigh on companies’ performance and consumer demand. “Headline inflation declined to 15.9 percent by end-November, from 18.5 per cent at end-2016, but remains sticky despite tight liquidity conditions.

“High fiscal deficits—driven by weak revenue mobilisation—generated large financing needs, which, when combined with tight monetary policy necessary to reduce inflationary pressures, increased pressure on bond yields and crowded out private sector credit.

“These factors contributed to raising the ratio of interest payments to federal government revenue to unsustainable levels.

“Reflecting the low growth environment and exposure to the oil and gas sector, the banking industry’s solvency ratios have declined from almost 15 to 10.5 percent between December 2016 and October 2017, and non-performing loans have increased from 5 percent in June 2015 to 15 percent as of October 2017, although with provisioning coverage of about 82 percent.

“The authorities have begun addressing macroeconomic imbalances and structural impediments through the implementation of policies underpinning the Economic Recovery and Growth Plan (ERGP),” it added.

Supported by recovering oil prices, the IMF states that the Investors’ and Exporters’ foreign exchange window had increased investor confidence and provided impetus to portfolio inflows, which have helped to increase external buffers to a four-year high, and contributed to reducing the parallel market premium.

Furthermore, it noted that “important actions under the Power Sector Recovery Program increased power supply generation and ensured government agencies pay their electricity bills.”

The Fund also welcomed steps “taken to improve the business environment and to address longstanding corruption issues, including through the adoption of the National Anti-Corruption Strategy in August 2017.”

It however stressed that in the absence of new policies, the near-term outlook remained challenging.

“Growth is expected to continue to pick up in 2018 to 2.1 per cent, helped by the full year impact of greater availability of foreign exchange and higher oil production, but to stay relatively flat in the medium term.

“Risks to the outlook include lower oil prices, tighter external market conditions, heightened security issues, and delayed policy responses.

“Containing vulnerabilities and achieving growth rates that can make a significant dent in reducing poverty and unemployment requires a comprehensive set of policy measures.

“On the fiscal front, the mission welcomes the recent tax reforms aimed at improving tax administration, planned increases in excises, and latest steps taken to lower debt servicing costs and lengthen maturities.

“However, with oil prices expected to remain lower than in the past, upfront actions to mobilise non-oil revenues, including through reforming the VAT and removing exemptions, are needed while safeguarding priority expenditures, including scaling up social safety nets and infrastructure investment.

“Fiscal consolidation should be accompanied by a monetary policy stance that remains tight to further reduce inflation and anchor inflation expectations. Moving toward a unified and market-based exchange rate as soon as possible while continuing to strengthen external buffers would be necessary to increase confidence and reduce potential risks from capital flow reversals.

“Such a policy package – along with structural reform implementation, including by building on recent successes to improve the business environment, closing infrastructure gaps, and implementing the power sector reform plan – would lay the foundation for a diversified private sector-led economy.

“Strengthening governance and transparency initiatives, and lowering gender inequality and fostering financial inclusion would also be important,” it added.

The IMF team stated that they held productive discussions with senior government and central bank officials. They also met with members of parliament, representatives of the banking system, private sector, civil society, and international development partners. The team thanked the authorities and those with whom they met for the open and productive discussions, excellent cooperation, and warm hospitality.

Here’s 48 Hedge Fund Terms Every Investor Should Know

JEFF DESJARDINS 

Banks lose N1trn current account deposits in February

By Babajide Komolafe

This was one of the highlights of the Depository Corporation survey for February 2017 recently published by the Central Bank of Nigeria (CBN). Among other things, the survey revealed that total demand (current account) deposit of banks fell by 10.75 per cent to N8.6 trillion in February from N9.636 trillion in January. Similarly, currency outside the banks declined month-on-month (m-o-m) by 1.16 per cent to N1.61 trillion. Consequently, Narrow money supply declined m-o-m by 9.36 per cent (and 11.35 per cent year-to-date, y-t -d) to N10.21 trillion.

According to the report, broad money supply, M2, moderated month-on-month by 4.34 per cent to N22.37 trillion following a 0.46 per cent increase in Net Domestic Assets (NDA) to N13.82 trillion and an 11.21 per cent decline in Net Foreign Assets (NFA) to N8.55 trillion.  The increase in NDA followed a 0.54 per cent  m-o-m increase in Net domestic credit to N26.77 trillion which more than offset a 0.62 per cent increase in other liabilities (net) to N12.95 trillion.

Breaking: CBN Revalues Dollar Rate for Invisibles to N357, Orders Banks to Retail At N360

According to a tweet from the CBN, and a statement from its spokesperson Isaac Okorafor, the CBN will sell forex to banks at N357/$1, while banks will sell to their customers at N360/$1 for invisibles (BTA, medicals, fees, etc).

All customers requesting forex for their personal and business travel allowances (PTA and BTA), tuition and medical fees, should buy at a rate not more than N360 to the dollar. “Banks are to post the new rates in their banking halls of their branches immediately,” he said.

This rate change only affects invisible transactions for retail users. The interbank rate, which trades at a band around the N307/$ mark still remains, however.

As a form of monitoring, Okorafor also mentioned that examiners will be sent out to ensure compliance and erring banks will be punished. This is coming on the back of complaints by Bureau de Change operators about the large profit margins that commercial banks are afforded by accessing FX at CBN rates.

This move by the CBN is expected to further push down the rates in the parallel market – where the exchange rate closed at about N390/$1 last week – especially if the CBN can maintain its interventions. This leads towards the exchange rate unification that Governor Emefiele hinted at in recent weeks. As at 20th February, the Naira was selling at about N522/$1 in the parallel market but has risen 38% within a month after the CBN pumped nearly $2.5 billion into the market.

#NAIRAMETRICS

Reminiscences of a Stock Operator; an Investment Classic by Edwin Lefevre

Reminiscences of a Stock Operator is a 1923 roman à clef by American author Edwin Lefèvre which is the thinly disguised biography of Jesse Lauriston Livermore. The Wall Street Journal described the book as a “classic”, it was ranked #15 on ‘Fortune’s 75 The Smartest Books We Know’, and Alan Greenspan said it is “a font of investing wisdom.”

The Art of Speculation
First published in 1923, Reminiscences is a fictionalized account of the life of the securities trader Jesse Livermore. Despite the book’s age, it continues to offer insights into the art of trading and speculation . In Jack Schwager’s
Market Wizards, Reminiscences was quoted as a major source of stock trading learning material for experienced and new traders by many of the traders who Schwager interviewed.

Plot
The book tells the story of Livermore’s progression from day trading in the then so-called “New England bucket shops ,” to market speculator, market maker, and market manipulator, and finally to Wall Street where he made and lost his fortune several times over. Along the way, Livermore learns many lessons, which he happily shares with the reader.

Quotes
“ It took me five years to learn to play the game intelligently enough to make big money when I was right. ”
“ It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.”

Why Most Economists Are So Worried About Trump by Justin Wolfers

If the November election was intended as a rejection of elites, of expertise and of the sort of technocratic advice that economists often give, it’s a punch that has landed.
In somber analyses, huddled hallway conversations and pointed asides during endless panel sessions at the annual
conference of economists last weekend in Chicago, the major theme was a sense of anxiety about the incoming Trump administration. This foreboding was evident in roughly equal measure among conservative and liberal economists. But it is in direct contrast with the feelings of small-business owners and Wall Street traders.

Most of my fellow economists remain convinced that university-trained economists can offer useful insight to the new administration. Few believe it will matter. The life force that animates the econ tribe — that what they’re doing matters — has been drained away. Few see useful channels for influence. Partly this reflects President-elect Donald J. Trump ’s legislative plans. On issues like restricting trade, directly intervening to assist specific industries or corporations, targeting tax cuts to the wealthy, his agenda stands as a rejection of the advice that mainstream economist have typically offered. And partly this reflects Mr. Trump’s appointments. Few of his key economic advisers have any economics training, and the only official who identifies as an economist — Peter Navarro, who earned a Harvard Ph.D. in economics and will head up the newly formed National Trade Council — stands so far outside the mainstream that he endorses few of the key tenets of the profession.

Profiting from bear market – New Telegraph Nigerian Newspaper

The current low prices of stocks occasioned by the downturn of the economy present bargain hunters investment opportunities. CHRIS UGWU writes

A bear market refers to a market-wide decline in stock prices of at least 15-20 per cent coupled with a pessimistic sentiment about the market. Clearly, these times are nothing to look forward to and fighting back can be dangerous. However, according to Investopedia, bear markets can provide great opportunities for investors.

“The trick is to know what you are looking for. Beaten up, battered, and underpriced: these are all descriptions of stocks during a bear market. Value investors such as Warren Buffett often view bear markets as buying opportunities because the valuations of good companies get hammered down along with the poor companies and sit at very attractive valuations. Buffett often builds up his position in some of his favorite stocks during lessthan- cheery times in the market because he knows that the market’s nature is to punish even good companies by more than they deserve,” said Investopedia.

MMM: 7 reasons real entrepreneurs are not interested BY ENYIOMA MADUBUIKE

MMM is trending here in Nigeria. Every week, I get an average of five invites across all social media platforms to join the MMM ‘movement’.  In the unlikely event that you have not heard of MMM having just emerged from a cave to miraculously run into this article, MMM is a platform which in summary, claims to operate a mutual aid programme requesting participants to provide money to others and promising returns of 30% of such monies after 30 days. It is a global platform touted as a Ponzi scheme (as it obviously is) and reported to be operated by Sergei Mavrodi, a Russian jailed in his home country in the late 1990’s when his earliest schemes ripped Russians millions of Dollars and led to many suicides. The Nigerian adaptation is an ingenious creation displaying an understanding of the culture, beliefs and thought processes of the typical Nigerian. Its model stands out as a lesson for all entrepreneurs looking to push their products into new markets.

Apart from these lessons however I have had the opportunity to disuss the platform with colleagues and there seems to be no debate on the status of the platform as a Ponzi Scheme as it does tick all  boxes. See http://nairametrics.com/how-to-know-if-its-a-ponzi-scheme/ for hints. Regardless of its status as a Ponzi scheme however, I still get people telling me how it is still a useful source of quick cash before it crashes. For the following reasons, this position as pragmatic as it sounds does not quite resonate with me and I believe with a lot of entrepreneurs out there trying to build a product.

Promise of big money consistently with little work. Entrepreneurs know that there are of course things that you can do to make money without having to work all that hard. But, it’s just not possible for everyone who joins a business to be able to make so much returns without working. Making money takes work. Entrepreneurs also know that NO business on earth can consistently provide such returns. Businesses have ups and downs simple.

The Principle of value. Real entrepreneurs understand that real wealth is generated from the creation of value and not from instantaneous windfalls resulting from concocted trade-offs. They understand the paradox of the lottery winner…money minus value does not equal wealth.

Understanding Money. Real entrepreneurs understand that money is really not valuable in itself. It is valuable because people agree to make it a medium of exchange for REAL value. Its utility lies in its use as current (hence currency) for the movement of value thereby obviating barter. A system running merely on the exchange of money for profit is nothing but a SCAM. Participating in a system like that is lending credence to the scam.

Not an investment: I have heard people liken the MMM system to investing in shares.  The comparison is laughable. When an investor buys shares, he is taking real risks to contribute into an entity that undertakes in the creation of some sort of value. Investing in shares takes careful thought, analysis, and assessment. He does not expect consistent returns. By buying shares, the investor expresses faith in the vision of the company and faith in the management to execute the vision. It takes knowledge to avoid serious burns. So NO, MMM is not comparable to investing in shares.

The issue of focus: Entrepreneurs are busy trying to create and perfect systems, solve problems, devise innovative answers to challenges. They are going to look at a get rich quick scheme as mere distraction in terms of the time and resources to be expended into chasing a venture that provides no ultimate value addition to themselves or the society.

The Moral question: If you are sure that a system is a scam propped up by the resources of naïve but trusting participants being manipulated by experienced “confidence men” with an uncanny understanding of human greed and a history of taking advantage of it, would you still support it with your money?

The understanding of risk: Proponents of the scheme tout the cliché; “Nothing ventured, nothing gained” because it paints the contrarian picture of a daring risk taker. Entrepreneurs however understand the difference between gambling and enlightened risk taking.  A gamble is taken without understanding or control of the variables which are to determine the desired outcome. Investing involves enlightened risk taking which entails an understanding of key variables and a reasonable grasp of possible eventualities. If I commit to give my money to a scheme over which I have no control, because of returns of which I have no sight, I am not investing, I am gambling.

The times are hard. Nigerians are seeing the MMM scheme as some sort of christ which will save us from the harsh realities of the current recession despite the obvious signs that it is not. To all those who cannot resist the temptation of quick easy cash, please proceed with extreme caution. To all those who do not participate in the scheme as a matter of principle, know that you are not alone.

Enyioma Madubuike is a lawyer, writer and entrepreneur. Join him on Twitter where he engages in public interest discussions @philkingenyioma

FMDQ Suspends Spot FX Closing Rate, Confirming Flexible Exchange Rate Is Broken

The FMDQ OTC, the official market for bonds, treasury bills and forex trading has approved the suspension of the FMDQ Spot FX Closing Rate with immediate effect.

The FMDQ in a press release signed by Jumola Olaniyan, the Divisional Head Market Development & Regulation, explained the reason for the suspension was due to the “transparency and liquidity challenges, and prevalent disequilibrium currently being faced in the Nigerian Foreign Exchange”.

Rather than publish the daily Spot FX closing rates, the FMDQ will now reference the last available executed trade on the Thomson Reuters NGN=D1 module at 2:00 PM and will be referenced the “CBN Closing Rate”.

This remarkable development is perhaps the first official sign that the flexible exchange rate introduced by the Central Bank of Nigeria is broken. The Managing Director of the FMDQ, Koko Onadele, had rebuked the CBN for fragmenting the exchange rate market with its tight control of forex prices and supply.

This latest press release follows a situation where the country now has about 7 official/unofficial exchange rate making the FMDQ spot quote basically irrelevant.

A New Perspective on the Active–Passive Investing Debate by Paul Smith CFA

Here’s a fact that doesn’t get enough attention: By some counts, up to 86 percent of active funds underperform their benchmark, but by definition 100 percent of truly passive funds underperform theirs. Why is this? Because — unless they are taking some type of an active bet or have zero management and administration costs — they have to fall short of their benchmark.

As the debate over active versus passive investing continues, investors and regulators alike are overlooking a key point: Passive investing wouldn’t make anybody any money without active investing. Passive investors are essentially free riders, piggybacking off active managers at a fraction of the expense it takes to research investment positions. No one in the investment press focuses on this moral hazard or on whether or not this is fair to active investors, who effectively subsidize their passive brethren.

The media question the value of active management, but they never bother to acknowledge that without it passive investment wouldn’t exist, let alone thrive. Passive investors only make money if markets move, and active managers are responsible for those movements.