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Another Economic Crisis Looms over CBN “Reckless Funding of FG”

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CBN Governor

By Premium Times

Just when Nigerians are celebrating the exit of the economy from recession, a report has warned that another trouble is lurking around the corner.

According to Premium Times, a massive and clearly illegal multi-source funding of the federal government by the CBN could drag the Nigerian economy to its knees, experts familiar with domestic monetary conditions and current happenings at the CBN have warned.

The central bank had, in the last one year, pumped trillions of naira into illegally financing the federal government under different guises: from mass purchase of treasury bills to humongous direct financing of the government through the “window account”.

Insiders say the apex bank is “creating money” to “finance a government that is broke and which does not have economic vision,” in what one of them called a “desperate move by the central bank governor, Godwin Emefiele, to remain in office”.

A former governor of the CBN and a former deputy governor of the bank who spoke with PREMIUM TIMES were both alarmed by the long-term implications of such “direct and reckless financing of government” on inflation and other economic indices, including crowding-out the private sector from the domestic credit creation process.

The Alarming Transactions

The warning whistle was first blown at the last meeting of the CBN’s Monetary Policy Committee, held between July 24 and 25.

In the communiqué of the meeting published on Tuesday, members of the policy advisory committee expressed “concern over the increasing fiscal deficit estimated at N2.51 trillion in the first half of 2017 and the crowding out effect of high government borrowing.”

Some members of the committee, in their respective submissions captured in the 50-page report of the meeting, expressed reservations over the apex bank’s handling of key monetary and fiscal issues that may plunge the economy into a ditch.

However, it was an external member of the committee, Adedoyin Salami, who directly painted a gloomy picture of the extent of the government’s financing by the apex bank and other irregularities.

Mr Salami, an economist and faculty member with the Lagos Business School, literary took the CBN to the cleaners in his assessment of its monetary policy which, he warned, was pushing the country towards a serious economic crisis.

He criticised CBN’s “massive injections of cash” to the government, accusing the bank of serving as a “piggy bank” for the government, against its own rules.

“Monetary data shows a sharp rise in the extent of CBN financing of the government deficit,” he said.

From December 2016, according to the economist, the CBN had variously made cash available to the federal government running into trillions, mostly beyond legal thresholds.

He said the CBN’s claims on the federal government under the period amounts to N814bn, which is “twentyfold higher” than what the law permits.

Ironically, the claim of commercial banks, he said, “rose marginally by 0.4% to N4.6 trillion”.

Another route through which the CBN pumped money to the government, Mr Salami said, was via the bank’s N454 billion spending on purchase of government’s treasury bills, which he said, had risen by 30 percent.

The government’s overdrafts from the apex bank also rose to N2.8 trillion within the period, representing a five percent increase.

But the sharpest rise in the figures, according to Mr Salami, was in the government’s “mirror account” liabilities, which rose “from N3 billion at the end of 2016 to N1.5 trillion in April 2017”.

Authorities at the CBN are yet to contradict Mr Salami’s claims.

Illegalities

A look at the CBN Act 2007 show that the huge direct financing of the federal government is in direct contravention of clear provisions of the Act.

Although Section 38 (1) of the Act empowers the bank to grant “temporary advances to the Federal Government in respect of temporary deficiency of budget revenue” subsection 2 of the same section stipulates, “the amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government”.

Additionally, subsection three of the section provides that such advances should be paid “as soon as possible and shall in any event be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the Bank to grant such further advances in any subsequent years shall not be exercisable, unless the outstanding advances have been repaid”.

By the estimated N6 trillion earned by the government last year, the CBN should have only granted advances to the federal government not exceeding N300 billion, representing five percent of the earnings.

Contracting Private Sector

The conduct of the government and the CBN, according to the economist, may, by limiting the organised private sector’s access to credit, have contributed to the dire straits in which the sector currently finds itself.

“We thus find ourselves at a point where government borrowing from the CBN is neutralised by raising the CRR of banks, thereby limiting private-sector access to credit,” he said.

“In other words, the private sector is deliberately “crowded-out”. It is ironic that the government, in need of tax revenues – having in the 1st half of the year accumulated its full-year deficit – is constraining the private sector from which the sorely needed revenues are to be derived.”

Sounding perplexed and perhaps frustrated, Mr Salami said, “Whilst I still wonder what the underlying economics is – I sincerely hopes it works!”

Desperate Measures

To cushion the impact of these mass and illegal financing of the federal government, experts say, the CBN has been scrambling to evolve policies that would counter the destructive effects of its actions.

Some of these measures, PREMIUM TIMES understands, include the regular pumping of forex into the foreign exchange market to cater for high demand due to the attendant rise in naira liquidity.

The apex bank, Mr Salami said, also carries out “special auctions” to help normalise banks’ Cash Reserve Ratios (CRR).

“To prevent the effect of continuous and massive injections of cash to fund the Federal Government showing up in sharply higher inflation and currency weakness, the Central Bank now applies “special auctions” Mr Salami said.

Apart from raising the CRR beyond the 22.5 percent approved rate, Mr Salami said, “the format of these “auctions” recall the dark days of “stabilisation securities”.

Mr Salami also flayed the bank’s “seeming haste to declare “victory” for “fragile” improvements in forex and inflationary statistics, saying the country is far from being out of the woods in some of those areas.

He lamented that “the most challenging of the present characteristics of the economy in Nigeria is the adoption of a quantitative easing stance by the management of the Central Bank”.

Another member of the MPC, Abdul-Ganiyu Garba, also faulted CBN’s monetary policies, accusing it of causing “contradiction or inconsistency problem”.

“The coexistence of high interest rate and growth in money supply are unnatural. Indeed, it generates a contradiction or inconsistency problem. Strong growth in money supply in all countries that adopted quantitative easing pushed down interest rates almost to zero,” he said.

Mr Garba, a professor, also indicted the bank for the significant distortions in “the forex market, the money market, the stock market and domestic prices” due to “strong growth in money supply in 2015 and 2016”.

A former deputy governor of the CBN and well-regarded economist who spoke to PREMIUM TIMES on condition of anonymity described the actions of the apex bank as “reckless” and beyond the parameters set by law.

He accused Mr Emefiele of “hauling cash” to the government in contravention of the set rules and statues of the apex bank.

“CBN governor is a banker and adviser to the government,” he said. “The bank is a monetary authority, not financial authority. Their role does not mean reckless lending to government,” he said.

According to him, the government and the CBN “are setting the economy for a big fall”.

He said both the government and the bank “need to take policy adjustment measures” if they want to change the position of things, otherwise “they will continue to create money which will lead to serious inflation”.

More Troubles

Apart from the huge advances it is illegally taking from the CBN, the federal government has also been ramping up a raft of local and foreign loans.

Another MPC member, Suleiman Barau, also sounded a note of warning on the implication of the payment of N760 billion as Paris Club refunds to states.

Mr Barau, a deputy governor of the CBN, added that the possibility of payment of more money to states in the name of the refunds could further complicate economic recovery.

“The whole idea underlying the deployment of the fund is not completely bad as it could stimulate growth in output in the long run.

“The reality, however, is that the impact of this type of injection on aggregate demand tends to precede the influence on aggregate supply and invariably stoke inflation in the short run. Besides, there is evidence of growing liquidity surfeit in the banking industry in the face of sluggish growth in credit particularly to the private sector.

“It is not unlikely that the current injection may complicate the liquidity surge with potential adverse impact to the foreign exchange markets,” he explained.

CBN Responds

This reporter’s efforts to reach CBN’s acting director of corporate communication, Isaac Okoroafor, for comments, on Sunday, were unsuccessful.

He also did not answer or return calls Monday morning. He however sent a text message requesting an SMS enquiry.

But as at the time of publishing this story, at 10 am on Monday, Mr Okoroafor was yet to respond to the text message enquiry sent to him.

He however responded about an hour later, asking rhetorically; “is it illegal for CBN to fund government activities?”

Reminded that such funding were far off the legal boundaries, he responded: “I can’t respond to rumours or speculation. All I want to say is that there’s no illegality in the advances CBN has made to the Federal Government.”

Optimistic Emefiele

However, in his personal statement contained in the MPC meeting report, the CBN governor, who is also chairman of the committee expressed cautious optimism on the economy.

He also acknowledged the effect of the government’s undue mopping of money from the system, although in a subtle and passing manner.

Mr Emefiele noted: “The growth in government credits due to expanded fiscal operations evokes the crowding-out of productive private sector in the short-run.

He however expressed optimism that “if the government succeeds in reducing the infrastructure deficit through its fiscal operation, I expect a favourable crowding-in of the private sector in the medium- to long-term.”

The CBN governor also blamed inflation and foreign exchange crisis on other factors other than he and the CBN’s roles.

“As I had noted earlier, the underlying deterrents include: foreign exchange scarcity (due to low crude oil receipts and inadequately diversified economy); constrained fiscal space; infrastructural bottlenecks; high energy prices; and depressed domestic demand (partly attributable to sizeable salary arrears owed to some civil servants),” he said.

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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Economy

Awe Urges Corporate Firms to Adopt Sound Sustainability Reporting

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Sustainability Reporting

By Aduragbemi Omiyale

Corporate organisations operating in the country have been charged by the chief executive of the Nigerian Exchange (NGX) Regulation Limited, Ms Tinuade Awe, to adopt sound sustainability reporting as it would help investment decisions of investors.

At an event held on Tuesday themed Unlocking ESG for Boards from Strategy to Disclosure, Ms Awe said investors have the right to know the impact of businesses on the environment, especially at a time people are conscious of it.

She encouraged companies to adopt best practices in their disclosure on Environmental, Social, and Governance (ESG) issues by ensuring that their sustainability reports capture relevant sustainability disclosures that are relevant to their stakeholders.

“Our world today is facing major sustainability challenges including inequality, overpopulation, climate change, and several environmental risks. By recognizing that capital allocation makes a real impact on the environment and society at large, investors can reap sustainable long-term investment decisions through investments in ESG-themed investments.

“Furthermore, adopting an ESG-lens in our approach to investment is critical for investors to identify businesses that implement a forward-looking approach to managing long-term risks and leveraging opportunities that ensure long-term ensure economic, environmental, and social responsibility,” the NGX Regulation CEO said at the webinar hosted by Corporate Secretaries International Association (CSIA).

The organisation put hosted the gathering to explore how businesses and organisations can carry a full 360 approach to ESG, from integrating into business strategies to complying with regulations and standards.

In recommending critical disclosures that should be included in a sustainability report, Ms Awe said, “historically, sustainability reports cover the address a company’s approach to managing the Triple Bottom Line (TBL) of people, profit and planet.”

“However, disclosures in sustainability reports have evolved over the years to address the needs of a wide array of stakeholders. In publishing their sustainability reports, companies should consider a number of relevant disclosures including materiality, sustainability risks, and opportunities as well as a detailed explanation of how companies are addressing the risks and levering the opportunities.

“In addition, a sustainability report should include disclosures on how sustainability is governed by the Board, Executive Management, and designated officers responsible for managing the organisation’s impact footprint,” she added.

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Economy

60 Startups to Share $4m Google’s Black Founders Fund

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Google Black Founders Fund

By Dipo Olowookere

The sum of $4 million will be distributed to 60 startups established by Africans in the second edition of the Google for Startup Black Founders Fund for Africa.

In the maiden edition, the tech giant shared $3 million to 50 eligible black-founded startups across Africa as part of efforts to support innovation in underserved areas.

This year, eligible entrepreneurs will receive between $50,000 and $100,000 non-dilutive cash awards and up to $200,000 per startup in Google Cloud credits, support in the form of training, and access to a network of mentors to assist in tackling the challenges unique to each startup.

Application for the initiative has opened via http://goo.gle/BFFAfrica and will close on May 31, 2022, with winners announced on July 29, 2022.

Google will select winners from 13 countries with active tech and startup ecosystems and they are Botswana, Cameroun, Côte d’Ivoire, Ghana, Ethiopia, Kenya, Nigeria, Rwanda, Senegal, South Africa, Tanzania, Uganda and Zimbabwe. However, strong applications from other African countries will also be considered.

It was gathered that businesses eligible for selection for the cohort include early-stage startups with black founders or diverse founding teams, startups benefiting from the black community, operating and headquartered in Africa, startups with a diverse founding team with at least one black founding member; those having a legal presence on the continent and building technology solutions for Africa and the global market; and those who have the growth potential to raise more funding and create jobs.

The Head of Startup Ecosystem for sub-Saharan Africa for Google, Folarin Aiyegbusi, stated that, “The Black Founders Fund Africa demonstrates our commitment to supporting innovation in underserved areas.

“Black-led tech startups face an unfair venture capital funding environment and that is why we are committed to helping them thrive, grow to be better and ensure the success of communities and economies in our region.

“The fund will provide cash awards and hands-on support to 60 Black-led startups in Africa, which we hope will aid in developing affordable solutions to fundamental challenges affecting those at the base of the socio-economic pyramid in Africa.”

“We are hopeful that the support received by the black founders will enable them to grow their business and in turn drive economic growth in Africa as they create solutions and give back to their communities,” Aiyegusi added.

The Google for Startups Black Founders fund was launched in the wake of the 2020 Black Lives Matter movement as part of the platform’s racial equality commitments.

The initiative is a pledge toward driving economic opportunity for Black business owners, providing support to startups in the region in the form of equity-free cash assistance that helps them take care of immediate needs such as paying staff, funding inventory, and maintaining software licenses.

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Economy

Stocks Shed 0.35% as Flour Mills, GSK, Others Fall

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flour mills

By Dipo Olowookere

Profit-taking continued on the floor of the Nigerian Exchange (NGX) Limited on Tuesday, with the bourse shedding 0.35 per cent at the close of transactions.

The decline occurred amid a resurgence of negative investor sentiment as the market breadth was bearish with 21 price gainers and 27 price losers led by Flour Mills, which fell by 9.20 per cent to N37.00.

GlaxoSmithKline went down by 8.39 per cent to N6.55, NPF Microfinance Bank dropped 8.02 per cent to N1.95, Japaul depreciated by 6.25 per cent to 30 kobo, while Champion Breweries slacked by 6.09 per cent to N3.70.

On the flip side, PZ Cussons topped the gainers’ chart after it gained 9.96 per cent to close at N13.25, Berger Paints rose by 9.72 per cent to N7.90, Northern Nigerian Flour Mills improved by 9.63 per cent to N11.95, McNichols appreciated by 9.52 per cent to N1.61, while Abbey Mortgage Bank grew by 9.49 per cent to N1.50.

Only the industrial goods counter closed higher yesterday as it gained 0.05 per cent. The consumer goods, banking, energy and insurance sectors lost 0.54 per cent, 0.39 per cent, 0.31 per cent and 0.21 per cent respectively.

At the close of trades, the All-Share Index (ASI) went down by 187.47 points to 52,756.62 points from 52,944.09 points, while the market capitalisation reduced by N101 billion to N28.442 trillion from N28.543 trillion.

Business Post reports that the volume of trades rose by 253.76 per cent to 1.3 billion from 374.2 million, the value of transactions increased by 55.62 per cent to N7.7 billion from N5.0 billion, while the number of deals went down by 5.91 per cent to 6,449 deals from 6,854 deals.

The significant increase in the trading volume was due to an off-market deal in FCMB yesterday and it topped the chart with the sale of 775.1 million units of stocks valued at N3.0 billion.

Jaiz Bank transacted 172.2 million shares worth N151.8 million, Transcorp sold 140.1 million stocks valued at N202.1 million, GTCO exchanged 50.4 million equities worth N1.2 billion, while International Breweries traded 21.0 million shares valued at N165.1 million.

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