Saturday, August 18, 2018 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @ 170818
From the Editor’s Desk
During the week, we released the which took an in-depth study into the systemic shock that led to the formation of the Asset Management Company of Nigeria (AMCON), while examining the economic value added since the establishment of the company.
Our findings revealed that AMCON is a child of consequence, one born with the intent to detoxify the system, such that it is responsible for taking away bad loans out of the financial system in order to calm nerves around the standing lending facility corridor. In addition, AMCON was given the responsibility of restructuring the re- discounting capital base of banks to nil. Thus, it acted as a leg room for the economy by bolstering credit to the private sector, eventually ensuring that money not dented by the shock.
However, the huge leverage position of the firm has continued to put net income of the Corporation under severe pressure, thereby resulting into a negative net interest position. The limited fee due to the diminishing scale, macro imbalances and the tight monetary policy has made the gulf between interest free and interest expense inevitable. This scenario clearly points out the damage of huge leverage position coupled with high cost of debt and transferred macro imbalances on net interest income. Although other income is a major source of income, given its wide mandate. The buffering in net trading, accretion in fair gain value and bolstering net gain, crystallized a departure from the norm of net operating loss.
Though, the corporation has served as a macro stabilizer, the opportunity cost to the firm has been rising losses. It also shows that for an AMC birthed to detoxify the financial system, there is a very dim possibility of the corporation having positive Economic Value Added (EVA). Therefore, the Economic Value Added so far has been negative, while the corporation is dwindling its balance sheet and reducing its losses - a more aggressive approach so as to diverge from the usual trend of accumulating loss.
Considering whether or not the AMC should be wind down, a two-case scenario is presented. First, the tail scenario is one where the AMCON ends up been an arm of the NDIC, just like Resolution Trust Corporation which later became a division of the Federal Deposit Insurance Corporation. On the other hand, the head scenario revolves round the corporation becoming more independent and winding down its balance-sheet. Moreover, rather than reward moral hazard, it must restructure its capital and be more profit oriented. Anything less will be self-injurious in the long term.
The total foreign exchange turnover for the month of July 2018 stood at $12.16 billion. Thereby putting foreign exchange turnover at the OTC hitting at a twelve month low. At the same time underlining a 36.16% decline compare to the previous month.
The dynamic was largely due to the dip in oil revenue coupled with depressed activity in the import and export window, as inflows from the import and export window slipped from $3.393 billion in June to $3.93 billion in July, reflective of 15.9% fall in inflows from the import and export window.
Fig 1: Import and Export Window
Holistically, the relative lean activity in foreign exchange turnover have led to increased intervention by the Central Bank, therefore underlining the budding time inconsistency in the current exchange rate policy. As such lean activity has piled pressure on the foreign exchange reserves, at the same time widening the premium on the Naira. The recent policy by the fiscal authorities to introduce a new minimum wage or high base pay pitches monetary policy up against a second round effect. While high base pay tend to revive consumption, however it ignores the macro imbalances and strong export concentration which causes a dent in consumption.
In the same vein, fixed income turnover for the month of June also dip by 21.4% from N7.85 trillion to N6.16 trillion. The decline was due to a slip in both Treasury bill turnover and federal government bond. However, the spread between the 3 month bill and 10 year federal government bond stood at 193 basis to close at 3.25%.
The increase refinancing of short term instrument via long term instrument underline government policy as it tilt toward more long term demand leading finance policy, evolving maturities left the market a flush with liquidity.
Fig 2: Fixed Income Turnover
Monday, August 20, 2018
The July 2018 Producer Price Index for Germany will be released this day.
Tuesday, August 21, 2018
Switzerland’s Trade Balance Statistics for July 2018 will be released this day just as New Zealand and Canada releases its Retail Sales Q2 2018 and Wholesale Sales June 2018 Report, respectively.
Wednesday, August 22, 2018
The National Bureau of Statistics will this day release the Nigerian Capital Importation Report for Q2 2018
Japan’s All Industry Activity Index Report for June 2018 will be released this day just as the United States releases its Retail Sales and Industrial Production Existing Home Sales Report for July 2018.
Thursday, August 23, 2018
The Institute of Directors will this day hold the Independent Directors Masterclass in Lagos, while the Association of Enterprise Risk Management Professionals Workshop holds its MCRE (Mandatory Continuing RISK Education) Workshop in Abuja.
Japan’s Inflation Report for July 2018 will be released this day.
Friday, August 24, 2018
The 25th Annual Lapo Development Forum and the 2018 Annual Seminar of the Employment and Industrial Law Committee of the Section on Business Law of the Nigeria Bar Association will hold this day.
France’s Consumer Confidence Report for August 2018 will be released this day, just as Germany releases its Gross Domestic Product Report for Q2 2018.
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