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Nigeria, others face tighter financing as US hikes rate

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Buhari congratulates Biden

Nigeria’s economy, particularly the financial sector is faced with the risk of increased capital outflow in 2022 given the proposed interest rate hike by the United States of America’s Federal Reserve Bank (US Fed), equity researchers have said. 

Additionally, they said the rate hike would increase the cost of foreign borrowing for Nigeria and possibly cause further depreciation of the Naira.

The US Fed has indicated plan to increase interest rate at least four times this year in response to rising inflation with the first hike expected to happen mid-March when the Federal Open Market Committee (FOMC) meets.

US inflation rate had surged 6.8 percent in November last year,  it’s highest since 1982, according to the Labour Department.

The proposed rate increase is the first in three years since the Fed reduced its benchmark borrowing rate to almost zero as the nation confronted a pandemic that threw the global economy into a sudden and shocking tailspin.

Impact on Nigeria

Equity dealers and investment analysts have now indicated that the planned rate hike by the Fed would mean increased attraction of investment to US economy with its fund managers, which constitute the largest foreign investors in the world, pulling their funds out of Nigeria and other emerging markets of the world.

They,  however, recommended a corresponding rate hike in Nigeria in order to stem the impact of the planned increase in the US. 

Commenting on the situation, David Adonri, Vice-chairman, Highcap Securities, said: “Interest rate hike in the US will increase the attraction of investments to the US economy. It will also strengthen the US Dollar. Consequently, capital inflow to most countries will decline drastically in 2022. 

“The Nigerian economy is expected to suffer serious decline in capital importation this year as a result of the US rate hike.

“The Fed rate hike will also increase foreign borrowing cost for Nigeria and possibly cause further depreciation of the Naira. More investors may opt for hard currency as investment option in 2022.”

On the possible impact on the equities market, Adonri posited that the hike would result in reduced portfolio investment inflow. 

Already foreign portfolio inflows into the equities market has been on decline. The latest data on domestic and foreign portfolio investment in the stock market for November 2021 showed that  foreign portfolio inflow saw a 19.4 percent Year-on-Year (Y/Y) decline to N189.42 billion in November 2021 from N226.13 billion in November 2020.

However,   the rate of outflow slowed down, falling by  106.5 percent Y/Y to N209.76 billion from N433.15 billion in the corresponding period in 2020.

The data also indicated that FPI outflows surpassed inflows throughout 2021. For instance, outflows surpassed inflows by 49.9 percent in the first quarter of 2021 (Q1’21) with total outflows standing at N90.12 billion, while inflows stood at N60.11 billion.

In the second quarter (Q2’21) of the year, outflows rose to N116.72 billion, while inflows closed at N105.24 billion, outpacing inflows by 10.9 percent.

The trend continued in the third quarter (Q3’21) with outflows again surpassing inflows by 12.1 percent. For Q3 ’21, outflows stood at N151.811 billion, while inflows were N135.39 billion.

Adonri said: “The equities market is a major platform through which capital is imported into Nigeria via portfolio investment.

“Based on Nigeria’s country risk together with high foreign exchange (forex) risk and negative real return on investment, US Feds rate hike is expected to reduce foreign portfolio investment.

“Capital flight may increase as more funds may actually exit Nigeria in 2022 for the US to take advantage of the rate hike.

“A lot of foreign capital enters Nigeria through the bonds market. With US Feds rate hike, and already existing negative real return on Nigerian bonds and other debt instruments, lesser foreign capital is expected to flow into the bonds market in 2022.

“Foreign investment in Treasury Bills (TBs) is also expected to decline due to US Feds rate hike.”

Agreeing with him, Victor Chiazor, Head, Research and Investments at FSL Securities Limited, an arm of Fidelity Bank Plc, said: “The proposed rate increase by the US Feds if implemented is clearly going to trigger more capital flows out of Nigeria especially given the low interest rate levels in Nigeria currently.

“This will negatively affect both the Nigerian equities market and fixed Income market as investors will exit their positions and move capital back to the US given the higher yield environment and stable currency.”

Also speaking, Emmanuel Onoja, Head,   Research at GTI Group, a Lagos based investment banking firm, noted that higher interest rates in the US and other developed markets would, invariably, increase the cost of capital for the emerging/frontier markets like Nigeria,   increasing debt burden and capital outflows.

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2023: Buhari may meet Osinbajo, Tinubu, Amaechi, others

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President Muhammadu Buhari would this week meet with all the preidential aspirants of the ruling All Progressives Congress (APC).

The meeting was called with a view to reducing the number of presidential hopefuls and also ensuring that all of them pledge to accept the outcome of the primary as was done during the APC presidential primary in 2014.

“The President will meet with the aspirants a few days to the primary with a view to ensuring that there is unity and harmony. He will also meet with the governors separately. The date is not fixed yet, but it should be this week if INEC doesn’t extend the deadline for the primary as we are all hoping,” said an APC chieftain who wished to remain anonymous.

“The President has a candidate. How to present the idea to the likes of Tinubu will be the challenge,” he added.

Buhari’s most senior spokesman, Mr Femi Adesina, had said last week that the President indeed had a preferred candidate.

He stated, “In a previous interview when the President was asked whether he had a favourite candidate, he answered yes; but he will not mention him because mischief may happen to that person.

“That shows you that the President himself is interested in the process and he has a preferred candidate; but whether he will impose his candidate is what you cannot determine at the moment.”

When contacted on the telephone, the Senior Special Assistant to the President on Media and Publicity, Garba Shehu, said he was not aware of any meeting the President would be having with the aspirants.

“I am not aware of any meeting as of now,” he said.

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Gunmen behead abducted Anambra lawmaker from Governor Soludo’s constituency, hang head in motor park

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Gunmen who abducted a member of the Anambra State House of Assembly, Okey Okoye, have beheaded him.

After beheading him, his head was reportedly displayed at a motor park in Nnobi, Idemili South Local Government Area of the state.

The incident, which happened on Saturday, created panic in the community, which had been witnessing a series of violent killings since last year.

Sources added that his body was not there and indications were that the killers removed the body.

“The Anambra lawmaker representing Soludo’s constituency, Okechukwu Okoye who was earlier kidnapped, has been beheaded by gunmen; the late lawmaker’s head was mounted at Chisco Park in Amichi community,” a military source said on Saturday.

Gunmen had last Sunday abducted the lawmaker who was representing Aguata II state constituency in Aguata alongside Cyril Chiegboka, his campaign director.

Governor Charles Soludo had said during the week that efforts were ongoing to rescue the Anambra lawmaker from his abductors.

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MC Oluomo allegedly demands N100million to support re-election of Oshodi Rep member

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Chairman of the Lagos State Parks Management Committee, Musiliu Akinsanya, popularly called MC Oluomo, is allegedly demanding N100 million to support the re-election of the member representing Oshodi Federal Constituency 1 in the House of Representatives, Hon. Bashiru Dawodu.

Dawodu, a medical doctor, rode on the back of MC Oluomo to win the election in 2019 after series of attempts in the past.

Dawodu presenting his Certificate of Return to MC Oluomo

Both, however, fell apart few months after Dawodu was elected due to irreconcilable differences .

MC Oluomo is said to be angry with Dawodu for not honouring agreements he (Dawodu) had with him prior to his victory in 2019.

MC Oluomo, who is seen as de-facto leader of the All Progressives Congress (APC) in Oshodi was said to have vowed to work against Dawodu’s re-election in 2023.

He is believed to be working for the emergence of a former Chairman of Oshodi/Isolo Local Government, Afeez Ipesa Balogun to emerge as the APC’s candidate for the House of Representatives election in the constituency.

However, party leaders in the local government including the Chairman of the council, Kehinde Oloyede Almoof had appealed to MC Oluomo to tone down his opposition to Dawodu and support his re-election.

It was gathered that MC Oluomo did not turn down the fence-mending approach because he said he did the same with Oloyede who was his former arch-enemy.

It was further gathered that MC Oluomo demanded N100 million from Dawodu before he gets his support.

The money according to MC Oluomo is to settle his aides and loyalists, who supported Dawodu in 2019 but were abandoned by the Rep member.

According to sources at the various fence-mending meeting, appeals to MC Oluomo to reduce the amount were rebuffed.

Another dimension has, however, been added to the involvement of Oloyede in the matter.

The sources revealed that the council chairman, Oloyede is supporting Dawood because of his own interest.

Oloyede has been eyeing the Rep seat before his election as the council chairman.

Oloyede’s calculation according to the sources is that should Dawood gets the second term, it would be easy for him (Oloyede) to contest for the seat in 2027.

One of the sources who does not want his name in print because of backlash said : “Oloyede is supporting Dawood because of his own personal interest. He believes supporting Dawood may work for him in 2027.

Continuing, the source noted that Oloyede would rather support Dawodu over any other candidates because others eyeing the seat are first timers, who may want to seek for re-election in 2027.

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