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Jumia’s active customers hit 4.8m

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Jumia’s active customers hit 4.8m

E-commerce giant, Jumia Technologies said it has recorded a total number of 4.8 million active consumers as at June 30, 2019. This represented 34 per cent increase over 3.2 million it recorded in the same period last year.

According to the Co-Chief Executive Officers of Jumia Technologies AG, Sacha Poignonnec and Jeremy Hodara, the company recorded a gross profit of 17.3 million, increase for the second quarter of the year which ended on June 30, 2019. The Q2 report showed that company’s Gross Merchandise Volume (GMV) increased this quarter by 69 per cent compared to 58 per cent in the second quarter of 2018.

Jumia noted that strong marketplace growth and robust consumer acquisition and re-engagement momentum contributed to the company’s growth, while its gross profit soared to 17.3 million as against 8.9 million recorded in the corresponding period of 2018.

The report also revealed that its Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortisation) loss as a percentage of GMV improved from negative 21.4 per cent in the second quarter of 2018 to negative 15.8 per cent in the second quarter of 2019.

The company also confirmed the sacking of its three top management staff (names undisclosed) after discovering inflated sales figures in its Nigerian business. “Jumia has continued to deliver on its financial strategy of generating strong growth of its topline drivers while accelerating monetisation, the driving cost efficiencies.

“Developing JumiaPay has remained a key focus area, and is now offered in six countries which include Nigeria, Egypt, Ivory Coast, Ghana, Morocco and Kenya. “Our GMV increased by 69 per cent year-on-year and our gross profit grew by 94 per cent. Our Adjusted EBITDA loss as a percentage of GMV decreased by 562 basis points (5.62 percentage points) and our Operating loss, amounting to 66.7 million, decreased as a percentage of GMV by 148 basis points (1.48 percentage points).

“These results reflect our continued focus on offering a relevant and engaging online shopping and lifestyle destination for consumers while providing our sellers with an attractive value proposition and a platform to grow their businesses. “Despite the challenges in the economy, we remain focused on all aspects of our growth strategy, particularly JumiaPay, as we continue to drive its usage in our markets,” the company stated.

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CBN: Supply of secured credit increased in Q3’19

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CBN: Supply of secured credit increased in Q3’19

T

he Central Bank of Nigeria (CBN) has said that the supply of  secured credit to households increased in Q3 2019 and is expected to increase in the next quarter, adding that the development was due to improved market share. 

 

The apex bank, which disclosed this in its Credit Conditions Survey Report for Q3 2019 posted on its website yesterday, also stated that  the availability of unsecured credit to households increased in Q3 2019, but it is, however,  expected to decrease in Q4 2019.

According to the report,   the overall availability of credit to the corporate sector decreased in Q3 2019 but was expected to increase in the next quarter as a  result of capital market pressure.   

 

The  report  further disclosed  that demand for secured lending for house purchase decreased in Q3 2019, but lenders expect demand to increase in the next quarter.

 

“The proportion of loan applications approved increased even though lenders maintained the credit scoring criteria,” the report stated.

It, however, stated that demand for total unsecured lending from households increased in the current quarter, and is expected to increase in the next quarter.

 

 

“In spite of lenders’ resolve to retain the credit scoring criterion, the proportion of approved unsecured loan applications increased in the current quarter and is expected to further increase in the next quarter,” the CBN said.

In addition, the CBN survey  shows that  lenders reported increased demand for corporate credit from all firm sizes in Q3 2019 and they  also expect increased demand from all firm sizes in the next quarter.

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DMO: Nigeria’s debt hits N25.7trn

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DMO: Nigeria’s debt hits N25.7trn

Rising

Nation’s debt increased by N3.32 trilion in one year

 

 

N

igeria’s total public debt increased by to N25.7 trillion as at the end of June 2019 from N22.38 trillion as of June 2018, the Debt Management Office (DMO)  said yesterday.

This means that the country’s debt increased by N3.32 trilion in one year.

The debt stock, the DMO said, is made up of N8.32 trillion ($27.16bn) external debt and N17.38 trillion borrowed domestically.

 

 

According to latest data posted on the DMO website, the N25.7 trillion debt comprise N20.42 trillion owed by the Federal Government owed as of June 30, 2019, while the 36 states and the Federal Capital Territory had a total debt portfolio of N5.28 trillion.

It would be recalled that the International Monetary Fund (IMF)  in January this year warned Nigeria and other highly indebted countries against  “a legacy of excessive debt”.

 

Also during its meeting last month, the Central Bank of Nigeria’s Monetary Policy Committee (MPC) noted that the rising public debt was one of the factors hindering the  nation’s growth prospects.

 

However,  the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said in August this year that the country did not have a debt problem,  but faced  the challenge of  generating sufficient revenue.

 

She said: “There is a lot of insensitivity around the level of our debt. I want to restate that our debt is not too high — what we have is a revenue problem. Our debt is still very much within a reasonable fiscal limit. In fact, among our comparative countries, we are the least in terms of borrowing.”

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NSE: Equities drop 0.16% to reverse gain

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NSE: Equities drop 0.16% to reverse gain

LOW SENTIMENT

GSK Plc led losers with a drop of 9.86 per cent to close at N6.40 per share

 

T

rading activities on the nation’s equities market yesterday closed bearish as negative sentiments reversed the previous day’s gain.

At the close of trading session, market breadth also closed negative, recording seven gainers against 13 losers.

Consequently, the All-Share Index dipped 43.79 basis points or 0.16 per cent to close at 26.513.65 index points as against 26.557.44 recorded the previous day while market capitalisation of equities depreciated by N22 billion from N12.928 trillion the previous day to N12.906 trillion as market sentiments remained on the negative territory.

 

Meanwhile, a turnover of 174.4 million shares exchanged in 2,484 deals was recorded in the day’s trading.

The premium sub-sector was the most active (measured by turnover volume); with 96.3 million shares exchanged by investors in 938 deals.

Volume in the sub-sector was largely driven by activities in the shares of Access Bank Plc and Zenith Bank Plc.

 

Also, the banking  sub-sector, boosted by activities in the shares of GTBank Plc and Sterling Bank Plc, followed with a turnover of31.8 million shares in 358 deals.

 

Further analysis of the day’s trading showed that in percentage terms, Nacho Nigeria Plc topped the day’s gainers’ table with 5.15 per cent to close at N2.45 per share while Cement Company of Northern Nigeria (CCNN) Plc followed with 4.28 per cent to close at N15.85 per share. United Capital  Plc added 3.45 per cent to close at N2.10 per share.

 

On the flip side, GSK Nigeria Plc led the losers with a drop of 9.86 per cent to close at N6.40 per share while Courtville Business Solutions Plc shed 9.09 per cent to close at 20 kobo per share. Union Dicon Nigeria Plc trailed with 8.33 per cent to close at 22 kobo per share.

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2020 budget: Concern mounts over FG’s revenue projections

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2020 budget: Concern mounts over FG’s revenue projections

Widespread scepticism about Federal Government’s ability to realise the  N8.155 trillion revenue projection  in its  2020 budget is casting shadow on the  excitement  generated  by the fact that President Muhammadu Buhari presented  the appropriation bill to the National Assembly much earlier than in previous years, Tony Chukwunyem writes

 

 

I

t clearly appeared to be more than a coincidence that barely 24 hours after President Muhammadu Buhari presented the 2020 Appropriation Bill to  a joint session of the  National Assembly last Tuesday, the International Monetary Fund (IMF) released a statement in which it cautioned the government over the risks of what it described as “Over-optimistic revenue projections.”

 

 

IMF warning

 

 

Specifically, the IMF said in the statement that “over-optimistic revenue projections have led to higher financing needs than initially envisaged, resulting in overreliance on expensive borrowing from the Central Bank of Nigeria (CBN) to finance the fiscal deficit.”

 

 

 

The statement was issued at the conclusion of the latest visit to Nigeria by an IMF staff team, led by the Mission Chief for Nigeria, Amine Mati.

 

The Fund further noted that government’s reliance on central bank for funding was leading to bigger deficits, which make monetary policy complex.

 

Revenue projections

 

 

The 2020 budget proposal of N10.33 trillion unveiled by President Buhari last week represents an 11per cent increase when compared to the 2019 appropriation of N9.12trillion. The President put the Federal Government’s estimated revenue in 2020 at N8.155 trillion and a deficit of N2.18 trillion. The revenue comprises oil revenue of N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenue of N3.7 trillion.

 

 

Other estimates are N556.7 billion for statutory transfers; N2.45 trillion for debt servicing and provision of N296 billion as sinking fund.

The 2020 budget is based on an oil production estimate of 2.18 million barrels per day, oil price benchmark of $57 per barrel and an exchange rate of N305 to a dollar. It projects real GDP to grow at 2.93per cent while inflation rate is projected at 10.81per cent.

Analysts, stakeholders’ reactions

 

 

Apart from the IMF’s statement, Nigerian analysts and industry stakeholders had also questioned government’s revenue projections in the budget.

 

 

For instance, in its preliminary review of the budget obtained by New Telegraph, the Centre for Social Justice (CSJ) faulted the projected revenue to N8.155trillion, contending that it was overly ambitious and unrealistic given the trend the national budget had taken in recent years.

 

 

The CSJ pointed out that over the years, the Federal Government had continued to propose unrealistic revenue projections, thereby  leading to poor implementation  of  budgets as  there were usually no funds to execute projects.

 

 

It noted that in 2016, revenue projections fell short by 23per cent; by 47.73per cent in 2017 and in 2018 by 45per cent.  This, according to the organisation, is an indication that those projections are not based on empirical evidence.

 

 

The CSJ said:“If projected revenue in 2018 was N7.1trillion and we missed the mark by 45per cent and have also missed the mark by 30per cent in the half year of 2019, then  further increase in projected revenue to N8.155trillion in 2020 seems to be hanging in the air. The revenue projections for 2020 should have been greatly influenced by the trend and actuals of 2018 and 2019 except there has been a dramatic change in economic circumstances warranting the new projection.”

 

 

In addition, Lead Director of the CSJ, Eze Onyekpere , faulted the $57 benchmark projected for revenue accruing from oil, arguing that it was “overtly optimistic” considering the  dynamics of the international oil market.

 

 

Similarly, he questioned the oil production estimate of 2.18 million barrels per day, stressing that it seems overly optimistic.

 

 

He said: “The revenue framework projects that Nigeria will produce 2.18mbpd. This is less than projections in previous years of 2.3mbpd. However, in 2018, the actual was 1.86mbpd while data from the first half of 2019 indicates actual production as at June 2019 of the same 1.86mbpd.  Further, Nigeria’s quota from the Organisation of Petroleum Exporting Countries (OPEC) is currently 1.774mbpd.

 

 

“This projection of 2.18mbpd also seems overly optimistic and may not materialize. There has been no change in circumstance to warrant the new production volume. Oil revenue was below target by 41per cent  as at June 2019 and in 2017, it had a negative variance of 47per cent and in 2018, it fell short by 23per cent. Thus, the expectation from oil revenue seems not to be founded on empirical evidence and may need to be downwardly reviewed.”

 

 

Corroborating Onyekpere, a financial analyst, Mr. Victor Oluoma, told New Telegraph he was certain the Federal Government would not be able to realise N8.155 trillion as revenue projection in 2020.

 

 

He said: “Let’s begin with oil revenue projection of N2.64 trillion; the fact is that we cannot produce and sell 2.18 million barrels per day. We have never achieved that and there is nothing on the horizon that suggests  oil production will suddenly surge not when reports suggest that there is an increase in incidents of pipeline vandalism.

 

 

“If  you go back and analyse the  2016, 2017 and 2018 budgets you will find out that, the Federal Government’s revenue projections were not achieved.”

 

 

According to him, “in 2018, actual revenue collected was N3.48 trillion. So how would this jump to N8.155 trillion by next year?”

 

 

On its part, even though it commended the return to the January to December budget cycle, the Lagos Chamber of Commerce and Industry (LCCI) in its reaction to the budget proposals stated: “We note that the total budget size is N10.3trillion.  The recurrent component is N4.88 trillion, debt service is N2.45 trillion.  Together, these two budget items amount to 7.33 trillion, which is 90per cent  total revenue estimates.  And from the track record of revenue performance, the percentage may be much higher when related to the actual numbers.  All of these indicate that the hope for an impactful investment in infrastructure is dim and would remain so for some time to come.”

 

 

The LCCI, which spoke through its Director-General, Muda Yusuf, also described the  exchange rate assumption of N305 to the dollar as unrealistic, arguing that it was difficult to justify this assumption, especially when the country’s earnings were declining.

 

He said: “The key assumptions underpinning the budget are realistic except for the exchange rate assumption of N305 to the dollar.  This is one assumption that is difficult to justify, especially at a time when declining revenue has become a major issue both for the government and the citizens.”

 

 

However, in his contribution, Dr Boniface Chizea said: “The foreign exchange rate of 305 to the dollar assumed in the budget is cautionary as this is the Base Exchange rate and, therefore, exchange rate above this rate would be a bonus as it generates greater dollar inflows. But with the newly inaugurated economic council, this rate might not survive for too long.”

 

 

The general consensus among analysts seems to be that the government would again struggle to fund the 2020 budget as it did with previous years’  due to lower oil output and an inability to boost non-oil exports.  It would thus have to rely on borrowing at high costs from the CBN.

 

 

Commenting on the situation in its aforementioned statement, the IMF said: “The increasing CBN financing of the government reinforces the need for an ambitious revenue-based fiscal consolidation that should build

 

 

on the initiatives laid out in the Strategic Revenue Growth Initiative. A tight monetary policy should be maintained through more conventional tools. Managing vulnerabilities arising from large amounts of maturing CBN bills—including those held by non-residents—requires stopping direct central bank interventions, the introduction of longer-term government instruments to mop up excess liquidity and moving towards a uniform market-determined exchange rate.”

“Structural reforms, particularly on governance and corruption and in implementing the much-delayed power sector recovery plan, remain essential to boosting prospects for higher and more inclusive growth.”

 

In the same vein, analysts at Cowry Asset Investment Limited said: “We opine that the fiscal authority should focus more on policies that will stimulate engagement of private capital in infrastructural development in order to save it the avoidable pressure of increasing its debt profile (and the attendant onerous high debt service) – it could engage private investors in arrangements such as, build-operate-transfer (BOD).

 

“Hence, while we note that Nigeria needs increased budget to fund critical infrastructural projects in order to facilitate ease of doing business, the pressure of increasing consumption tax amid low disposable income could further hamper economic growth which the current administration is struggling to boost,” they added.

 

Last line

A financial consultant, who did not want his name in print, however, told New Telegraph that until the country’s entire budgeting process was overhauled, various administrations would continue to produce budget proposals that, according to him, would be completely out of touch with reality.

 

He said: “If you carefully study the 2020 budget and previous ones, you will discover that the civil servants who put them together are simply doing what we know as ‘cut and paste’. There are many vested interests that need to be flushed out of the system if the country really wants to have a real budget.”

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2020 budget: Concern mounts over FG’s revenue projections

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2020 budget: Concern mounts over FG’s revenue projections

Widespread scepticism about Federal Government’s ability to realise the  N8.155 trillion revenue projection  in its  2020 budget is casting shadow on the  excitement  generated  by the fact that President Muhammadu Buhari presented  the appropriation bill to the National Assembly much earlier than in previous years, Tony Chukwunyem writes

 

 

I

t clearly appeared to be more than a coincidence that barely 24 hours after President Muhammadu Buhari presented the 2020 Appropriation Bill to  a joint session of the  National Assembly last Tuesday, the International Monetary Fund (IMF) released a statement in which it cautioned the government over the risks of what it described as “Over-optimistic revenue projections.”

 

 

IMF warning

 

 

Specifically, the IMF said in the statement that “over-optimistic revenue projections have led to higher financing needs than initially envisaged, resulting in overreliance on expensive borrowing from the Central Bank of Nigeria (CBN) to finance the fiscal deficit.”

The statement was issued at the conclusion of the latest visit to Nigeria by an IMF staff team, led by the Mission Chief for Nigeria, Amine Mati.

 

The Fund further noted that government’s reliance on central bank for funding was leading to bigger deficits, which make monetary policy complex.

 

Revenue projections

 

 

The 2020 budget proposal of N10.33 trillion unveiled by President Buhari last week represents an 11per cent increase when compared to the 2019 appropriation of N9.12trillion. The President put the Federal Government’s estimated revenue in 2020 at N8.155 trillion and a deficit of N2.18 trillion. The revenue comprises oil revenue of N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenue of N3.7 trillion.

 

 

Other estimates are N556.7 billion for statutory transfers; N2.45 trillion for debt servicing and provision of N296 billion as sinking fund.

 

 

The 2020 budget is based on an oil production estimate of 2.18 million barrels per day, oil price benchmark of $57 per barrel and an exchange rate of N305 to a dollar. It projects real GDP to grow at 2.93per cent while inflation rate is projected at 10.81per cent.

 

 

Analysts, stakeholders’ reactions

 

 

Apart from the IMF’s statement, Nigerian analysts and industry stakeholders had also questioned government’s revenue projections in the budget.

 

 

For instance, in its preliminary review of the budget obtained by New Telegraph, the Centre for Social Justice (CSJ) faulted the projected revenue to N8.155trillion, contending that it was overly ambitious and unrealistic given the trend the national budget had taken in recent years.

 

 

The CSJ pointed out that over the years, the Federal Government had continued to propose unrealistic revenue projections, thereby  leading to poor implementation  of  budgets as  there were usually no funds to execute projects.

 

 

It noted that in 2016, revenue projections fell short by 23per cent; by 47.73per cent in 2017 and in 2018 by 45per cent.  This, according to the organisation, is an indication that those projections are not based on empirical evidence.

 

 

The CSJ said:“If projected revenue in 2018 was N7.1trillion and we missed the mark by 45per cent and have also missed the mark by 30per cent in the half year of 2019, then  further increase in projected revenue to N8.155trillion in 2020 seems to be hanging in the air. The revenue projections for 2020 should have been greatly influenced by the trend and actuals of 2018 and 2019 except there has been a dramatic change in economic circumstances warranting the new projection.”

 

 

In addition, Lead Director of the CSJ, Eze Onyekpere , faulted the $57 benchmark projected for revenue accruing from oil, arguing that it was “overtly optimistic” considering the  dynamics of the international oil market.

 

 

Similarly, he questioned the oil production estimate of 2.18 million barrels per day, stressing that it seems overly optimistic.

 

 

He said: “The revenue framework projects that Nigeria will produce 2.18mbpd. This is less than projections in previous years of 2.3mbpd. However, in 2018, the actual was 1.86mbpd while data from the first half of 2019 indicates actual production as at June 2019 of the same 1.86mbpd.  Further, Nigeria’s quota from the Organisation of Petroleum Exporting Countries (OPEC) is currently 1.774mbpd.

 

 

“This projection of 2.18mbpd also seems overly optimistic and may not materialize. There has been no change in circumstance to warrant the new production volume. Oil revenue was below target by 41per cent  as at June 2019 and in 2017, it had a negative variance of 47per cent and in 2018, it fell short by 23per cent. Thus, the expectation from oil revenue seems not to be founded on empirical evidence and may need to be downwardly reviewed.”

 

 

Corroborating Onyekpere, a financial analyst, Mr. Victor Oluoma, told New Telegraph he was certain the Federal Government would not be able to realise N8.155 trillion as revenue projection in 2020.

 

 

He said: “Let’s begin with oil revenue projection of N2.64 trillion; the fact is that we cannot produce and sell 2.18 million barrels per day. We have never achieved that and there is nothing on the horizon that suggests  oil production will suddenly surge not when reports suggest that there is an increase in incidents of pipeline vandalism.

 

 

“If  you go back and analyse the  2016, 2017 and 2018 budgets you will find out that, the Federal Government’s revenue projections were not achieved.”

 

According to him, “in 2018, actual revenue collected was N3.48 trillion. So how would this jump to N8.155 trillion by next year?”

 

On its part, even though it commended the return to the January to December budget cycle, the Lagos Chamber of Commerce and Industry (LCCI) in its reaction to the budget proposals stated: “We note that the total budget size is N10.3trillion.  The recurrent component is N4.88 trillion, debt service is N2.45 trillion.  Together, these two budget items amount to 7.33 trillion, which is 90per cent  total revenue estimates.  And from the track record of revenue performance, the percentage may be much higher when related to the actual numbers.  All of these indicate that the hope for an impactful investment in infrastructure is dim and would remain so for some time to come.”

 

The LCCI, which spoke through its Director-General, Muda Yusuf, also described the  exchange rate assumption of N305 to the dollar as unrealistic, arguing that it was difficult to justify this assumption, especially when the country’s earnings were declining.

 

 

He said: “The key assumptions underpinning the budget are realistic except for the exchange rate assumption of N305 to the dollar.  This is one assumption that is difficult to justify, especially at a time when declining revenue has become a major issue both for the government and the citizens.”

 

 

However, in his contribution, Dr Boniface Chizea said: “The foreign exchange rate of 305 to the dollar assumed in the budget is cautionary as this is the Base Exchange rate and, therefore, exchange rate above this rate would be a bonus as it generates greater dollar inflows. But with the newly inaugurated economic council, this rate might not survive for too long.”

 

 

The general consensus among analysts seems to be that the government would again struggle to fund the 2020 budget as it did with previous years’  due to lower oil output and an inability to boost non-oil exports.  It would thus have to rely on borrowing at high costs from the CBN.

 

 

Commenting on the situation in its aforementioned statement, the IMF said: “The increasing CBN financing of the government reinforces the need for an ambitious revenue-based fiscal consolidation that should build   on the initiatives laid out in the Strategic Revenue Growth Initiative. A tight monetary policy should be maintained through more conventional tools. Managing vulnerabilities arising from large amounts of maturing CBN bills—including those held by non-residents—requires stopping direct central bank interventions, the introduction of longer-term government instruments to mop up excess liquidity and moving towards a uniform market-determined exchange rate.”

 

“Structural reforms, particularly on governance and corruption and in implementing the much-delayed power sector recovery plan, remain essential to boosting prospects for higher and more inclusive growth.”

 

In the same vein, analysts at Cowry Asset Investment Limited said: “We opine that the fiscal authority should focus more on policies that will stimulate engagement of private capital in infrastructural development in order to save it the avoidable pressure of increasing its debt profile (and the attendant onerous high debt service) – it could engage private investors in arrangements such as, build-operate-transfer (BOD).

 

“Hence, while we note that Nigeria needs increased budget to fund critical infrastructural projects in order to facilitate ease of doing business, the pressure of increasing consumption tax amid low disposable income could further hamper economic growth which the current administration is struggling to boost,” they added.

 

 

Last line

 

 

A financial consultant, who did not want his name in print, however, told New Telegraph that until the country’s entire budgeting process was overhauled, various administrations would continue to produce budget proposals that, according to him, would be completely out of touch with reality.

 

 

He said: “If you carefully study the 2020 budget and previous ones, you will discover that the civil servants who put them together are simply doing what we know as ‘cut and paste’. There are many vested interests that need to be flushed out of the system if the country really wants to have a real budget.”

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Why Nigerian capital market needs derivatives

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Why Nigerian capital market needs derivatives

Developing derivatives will help to reduce the current problem of shallowness and lack of breadth in the capital market. Chris Ugwu writes

 

 

A

ccording to reports, trading in derivatives has a 10,000-year-old history. In humanity’s financial history, derivatives have always had a place. From Babylonians to the medieval era to the current electronic age, derivatives have existed all this while.

 

In 8,000 B.C., to deliver a number of goods by a certain date, clay token was exchanged in envelopes. The time frame was decided by the imprint on the envelope and the tokens themselves. This process functioned like that of a forward’s contract.

 

 

The contract got once settled as soon as the seller delivered the goods as per the imprints on the token. By 1700BC they became written contracts. Currently many stock exchanges across the globe who are predominantly equity driven has taken to leverage on this products in order to hedge against risks or diversify market offerings.

 

 

The Nigerian Stock Exchange remains a predominantly equities-driven market with certain sectors dominating trading and market capitalisation. On the Main Board, the Financial Services sector leads the pack of the board’s total market capitalization while consumer Goods are a close-second.

 

 

However of recent, bond trading has been on the rise through the issuance of bonds by the Federal Government. But it is clear, especially since the slide in the values of the Exchange in 2008, that efforts, including more instruments like derivatives, are required to improve the fortunes, attraction, and experience of investors in the Nigerian stock market.

 

 

This will also help to reduce the current problem of shallowness and lack of breadth in the capital market as currently, less than 30 per cent of listed equities are actively traded, while the NSE offers only basic products.

 

 

Between 2008 and 2016, the stock market has seen a reduction in its value by over 50 per cent. However, significant underlining progress has been made in terms of strengthening the process in the capital market. This development is essential, because it helps the foundation and the platform on which investors rely to make reliable judgments on their investments.

 

 

There have been arguments, though, to the effect that the NSE’s product offering has only reflected the domestic economy’s financing needs.

 

 

However, on account of the economy’s radically changing financing needs, including the recourse to the public private partnership (PPP) arrangement as a solution to the nation’s infrastructure dearth, finance experts are at the opinion that opportunities should now abound for a broadening of the exchange’s product offerings to include key derivative categories, expansion of listed mutual funds, index funds, among others.

 

 

In an effort to strengthen the Nigerian capital market and make it compete favourably with other exchanges across the globe, some experts have in various fora called on the regulators to create more products that would broaden deepen and  inject liquidity to the market.

 

 

In pursuit of its drive to deepen the stock market, both the Nigerian Stock Exchange and the FMDQ Securities Exchange have said it would intensify efforts create more products like derivatives to offer investors other alternative investment platforms.

 

 

What are derivatives?

 

A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, index or security. Common underlying instruments include: bonds, commodities, currencies, interest rates, market indexes and stocks, according to Invetopedia.

 

 

Futures contracts, forward contracts, options, swaps and warrants are common derivatives. A futures contract, for example, is a derivative because its value is affected by the performance of the underlying contract. Similarly, a stock option is a derivative because its value is “derived” from that of the underlying stock.

 

 

Derivatives are used for speculating and hedging purposes. Speculators seek to profit from changing prices in the underlying asset, index or security. For example, a trader may attempt to profit from an anticipated drop in an index’s price by selling (or going “short”) the related futures contract. Derivatives used as a hedge allow the risks associated with the underlying asset’s price to be transferred between the parties involved in the contract.

 

For example, commodity derivatives are used by farmers and millers to provide a degree of “insurance.” The farmer enters the contract to lock in an acceptable price for the commodity; the miller enters the contract to lock in a guaranteed supply of the commodity. Although both the farmer and the miller have reduced risk by hedging, both remain exposed to the risks that prices will change. For example, while the farmer locks in a specified price for the commodity, prices could rise (due to, for instance, reduced supply because of weather-related events) and the farmer will end up losing any additional income that could have been earned. Likewise, prices for the commodity could drop and the miller will have to pay more for the commodity than he otherwise would have.

 

 

The derivatives market however is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. The market can be divided into two, that for exchange-traded derivatives and that for over-the-counter derivatives.

 

 

Derivatives to boost capital market

 

 

First Vice President of The Nigerian Stock Exchange (NSE), Mr. Abimbola Ogunbanjo, said that Nigeria’s Exchange Traded Derivatives (ETDs) would boost the nation’s stock market.

Ogunbanjo  in a keynote address he delivered in Lagos on training  on  ‘Legal & Risk Aspect of Derivatives and Central  Counterparty Clearing (CCP) Transactions,’ said: We believe that Nigeria’s ETD initiative will eventually develop into a robust market place that can support our growth ambitions as a nation, using South Africa as an example of Africa’s first derivative market.”

 

He noted that South Africa’s derivatives market had grown rapidly in recent years, which has supported capital inflows and helped market participants to price, unbundle and transfer risk.

 

 

“Their market comprises two broad categories of derivatives, namely options and futures. Within these two categories, a wide range of instruments may be identified: warrants, equity futures and options, the agricultural commodity futures and options, interest rate futures and options, currency futures and fixed income derivatives.

 

 

“The fixed income derivatives are made up of bond futures, forward rate agreements (FRAs), vanilla swaps, and standard bond options. Notwithstanding the foregoing, South Africa has had to manage the risks associated with misuse of complex financial products via continuous improvement and enhanced enterprise risk frameworks.  Accordingly, as innovation drives interest in any product, the market will require continuous advancement to risk frameworks, technology and critical thinking to bringing about competition which is a basic driver towards development and growth in the market,” he said.

 

 

Ogunbanjo noted that the concept of derivatives remains relatively novel in the Nigerian financial market space and has only been noticeable within the Over-The-Counter (OTC) segment of the market.

 

 

“The frontiers of the Nigerian financial market is expected to grow exponentially due to enhanced liquidity arising from the development of new and intricate financial instruments. Given the open and transparent financial market place the NSE offers to a wide range of domestic and international investors,” he said.

 

 

Tinuade Awe, Executive Director, Regulation, NSE, noted that the frontier of the Nigerian financial market is expected to grow exponentially due to enhanced liquidity arising from the development of new and intricate financial instruments.

SEC’s recent efforts

 

 

The Securities and Exchange Commission (SEC) recently said that the rules on derivatives would be ready soon.

 

 

The Acting Director General of SEC, Ms. Mary Uduk, noted that the Commission had been building capacity in-house in partnership with South Korea for the development of derivatives.

 

 

“We have a knowledge sharing programme with them, they have been to the country twice now and our staff are scheduled to travel to their country for more training. Even their ambassador has been to the commission and all of that is part of building capacity and training the staffs.

 

 

“Even in the market NSE is doing a lot in the area as well as the FMDQ who are taking some people to India this month on capacity building. All stakeholders including the CBN have been joining hands to ensure that we get it right,” she said.

The Commission identified derivatives as one of the investable products that would enhance the liquidity of the Nigerian capital market.

 

Uduk stated this at the Final Reporting Workshop of the Knowledge Sharing Programme (KSP) recently in Lagos.

 

 

The KSP is centred on “Capacity Building on Operation and Development of Financial Derivatives Markets in Nigeria.” It is aimed at tapping from the Korea’s expertise and excellence towards developing the derivatives market in Nigeria. The Nigerian capital market will not remain the same at the conclusion of this workshop as it has derived tangible benefits from this partnership.

 

According to Uduk, there is no doubt that the KSP has presented a good opportunity for addressing some of the market’s challenges in setting up a strong and functioning derivatives market, especially in terms of having the required market infrastructure, regulatory framework and surveillance system for the derivatives market in Nigeria which are the target areas of research.

Last line

 

 

Derivatives are essential in markets with significant low product to investor ratio like the Nigerian capital Market. However, the regulators and fund managers have key roles to play in ensuring the right products are introduced to the market and that product proliferation does not lead to investor abuse.

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Improved security drowns illicit drug deal at seaports

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Improved security drowns illicit drug deal at seaports

Asian and South American drug smugglers who used to explore Nigerian and other ports in West African countries as transit routes for illicit drugs are having difficulties plying their trade due to improved security apparatus, BAYO AKOMOLAFE reports

 

 

S

muggling of illicit drugs from South West Asia via East and West African ports once gained prominence within Nigerian and other West African seaports.

Seizure data revealed that cocaine smuggling through the Atlantic route to various ports was huge in comparison with Pacific smuggling.

 

The United Nations Office on Drug and Crime (UNODC) said that Brazil played an important role in the global cocaine market as a destination and transit country for consumers in Africa and Europe.

 

 

Also, it added that Ecuador had emerged as an important hub in South America for maritime trafficking of West Africa. The UNODC added that the number of users had reached 1.6million people.

Port records

 

 

For instance, In 2017, the National Drug Law Enforcement Agency (NDLEA)  explained that it seized over 15,064 kilogrammes of cocaine and heroin at the Tin Can and Apapa ports since 2006 with an estimated value of N225 trillion.

The drugs included 14,813.40kg of cocaine and 251.22kg of heroin.

 

 

The agency noted that drug barons were targeting the ports for their illicit drug activities.

 

Some of the spectacular drug seizures made at the ports included 14.2 metric tonnes of cocaine imported from Chile and impounded in June 2006 at the Tin Can Island Port Lagos.

The drug was concealed in a shipment of white cement and was rated the single largest seizure of cocaine in Africa and fifth largest in the world.

The agency also seized 450.400kg of cocaine hidden in processed wood.

 

The drug imported from Chile by a Taiwanese and a Chinese drug baron was intercepted at the Tin Can Island Port, Lagos in July 2010.

 

In addition, 137.73kg of heroin was intercepted at the Tin Can Island Port, Lagos in November 2010.

The heroin hidden in industrial equipment and sewing threads was imported from the Republic of Iran.

The cocaine weighing 165kilogrames was packed in 150 square parcels inside 38 cartons of floor tiles imported from Bolivia to Tin Can Island Port in January,  2011.

 

A week later, 110kg of cocaine was detected inside 25 packs of floor tiles containing four parcels each which originated from Bolivia also at Tin Can port.

 

In May 2012, 113.49kg of heroin industrially concealed in three moulding machines imported from Islamabad, Pakistan in a 20 feet container was intercepted at the Tin Can Island Port Lagos.

The shipment was monitored and intercepted in a private warehouse by NDLEA officials at Okota area of Lagos.

 

Convention

Miffed by the influx of drugs into the country, UNODC advised Nigeria and other countries in West Africa to apply the Vienna Convention on Narcotics Substances to tackle the massive illicit drugs coming into their  ports by sea.

The UN office explained that high-purity crystalline methamphetamine originating in various West African countries started being seized in East Asia, with Japan, Malaysia, the Republic of Korea and Thailand being some of the main destination countries since mid-2009.

 

The UN office explained massive drugs such as tramadol and cocaine were entering the ports from the sea.

 

It said that coastal countries should apply article 17 of the convention so that they could board a vessel of another flag.

 

Further, it said that the convention could be put into national legal framework.

 

 

The UNODC added: “West Africa continues to be a region of particular concern in the global drug phenomenon; it is facing the threat of organised crime, including drug trafficking, which may in turn have a spillover effect on the extent of drug use.

Efforts

 

 

Already, the Federal Government has signed into law, the Suppression of Piracy and other Offences Act, which it said gave a comprehensive framework to tackling the issue of piracy and other maritime crimes.

 

 

The Representative of UNODC Nigeria, Oliver Stolpe, who was worried over the influx of illicit drugs into the country, said that in 2014 Nigeria Customs Service (NCS) seized about eight tonnes of Tramadol smuggled into the country.

He noted the latest data revealed that the volume of seized Tramadol from the country’s ports rose  to 150 tonnes in 2018.

 

 

Challenge

Stolpe said: “Nigeria is on good part, but the big issue is specific follow up with prosecutions because that has been lacking. One of the challenges in the Gulf of Guinea countries is basically the extremely fragmented legal framework when we look at all the countries in the region.

 

“At the moment, that is a crucial gap but the UN office  is actually working very extensively with Nigerian government and governments of other countries in the region to assist them in terms of legal reforms and capacity building for judges, prosecutors and law enforcement agencies.”

Also, Programme Officer for UNODC, Guiseppe Sernias,  said that Cape Verde,  for instance, recently seized 10 tonnes of cocaine, which is a huge amount in the market while Guinea Bissau Authority recently seized large quantities of cocaine that mainly come by sea.

The UN body in a report also revealed that added maritime smuggling had  posed a particularly knotty challenge for the authorities.

 

 

The report stressed: “The amount of heroin seized in Africa remains small relative to other regions, but has increased fivefold since 2009. The vast majority of those seized are made at sea borders or ocean seaports.”

Effect

 

The report stressed that the estimated raw number of users of any illicit substance had increased, saying that users with a dependency or disorder has also remained stable.

 

In the case of both cocaine and heroin, the UN office stated that trafficking activities had contributed to a supply-driven increase in use, notably in Nigeria, where the annual prevalence rate was believed to be significantly higher than the global average.

 

It said: “The number of cocaine users in West and Central Africa is estimated at 1.6 million. Owing to the paucity of data, however, the uncertainty regarding this number is particularly pronounced, with a corresponding range of 570,000 to 2.4 million cocaine users.”

 

 

According to the report, maritime trafficking of drugs could be quite lucrative for traffickers,  who could invest both the time and the money needed to organise large, high-value shipments to lucrative consumer markets, either under the cover of licit, containerised trade or in unregulated traffic over the open seas and waterways.

Last line

Government should beef up security to track the influx of hard drugs into the country.

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Report: FDI inflows into Africa remain steady

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Stable

United States, France, United Kingdom were largest investors in the continent

 

T

he latest edition of EY’s (formerly Ernst & Young) Africa Attractiveness report shows that Foreign Direct Investment (FDI) to Africa remained generally steady last year.

 

 

The report, which describes trends and opportunities in Africa’s economic growth and in FDI to the continent, reveals that while FDI flows were small by global standards, the ratio of FDI to Gross Domestic Product (GDP) was high, signaling the importance of FDI to the continent’s economic growth.

 

 

Specifically, the report shows that the largest investors by number of projects in Africa were the United States, France, and the United Kingdom, respectively. Notably, China was the largest investor in terms of total capital, investing more than twice the dollar amount of France or the U.S.

 

 

The report states that FDI flows from traditional investors are partially driven by strong historical relationships: France, for instance, is a key investor in francophone Africa. Emerging partners, including China, the United Arab Emirates (UAE), and India, are playing an increasingly important role in Africa, accounting for 34 percent of total projects and over 50 percent of jobs created and capital investments. Additionally, intra-African investment continued to grow in 2018: South Africa remained the most extensive investor in other African countries, and Kenya and Nigeria contributed significant FDI to East and West Africa respectively. Egypt and Morocco are major investors in North Africa.

 

 

In addition to describing the major sources and destinations of FDI, the report additionally analyzes FDI by sector. While extractives attracted a large portion of inbound capital in 2018 (36 percent), the majority of projects and jobs created were actually in the services and industry sectors. For instance, the telecoms, media, and technology (TMT) and consumer products and retail (CPR) sectors gained increased prominence in 2018.

 

 

The report states that FDI in the consumer segment has been driven by the demands of Africa’s rapidly urbanizing population with rising income levels, while investment in TMT has been driven by a rise in investment for technology and the increasing trend of global technology companies establishing a presence in Africa.

 

 

Emphasising the importance of both economic growth and reform in attracting FDI, the report recommends that African governments take steps to diversify their economies in order to reduce susceptibility to macroeconomic shocks and provide a better environment for investors. It also states that trade may become a key enabler of future growth, as the African Continental Free Trade Agreement (AfCFTA) should facilitate quicker, more efficient, and cheaper trade as well as stimulate economic activity.

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LIRS launches Enterprise Tax Administration System

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T

he Lagos State Internal Service (LIRS) has announced the launch of its Enterprise Tax Administration System (eTax).

 

 

In a statement, the agency described the eTax as a digital tax administration solutions that captures all aspects of taxation from end to end. it is a multi-channel tax and levies payment solution that enables payment of all forms taxes via the web and mobile.

 

 

According to the statement, “the introduction of eTax is in furtherance of LIRS’s commitment to build convenience into the payment of taxes, whilst reducing compliance cost and increasing the effectiveness of tax administration in the State. Its self-service feature reduces turnaround time for tax processes.”

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Inflation rises in September

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The consumer price index, that measures the rate at which the prices of goods and services in increase, stood at 11.24% in September.
This is a 0.22 percentage point increase from the 11.02% recorded in August.

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