| Nigeria Economy |    2290 VIEWS  |
| Nigeria Economy | |
| 2290 VIEWS | |
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Thursday, December
24, 2020 / 11:34 AM / by FDC Ltd / Header Image Credit: Channels Television
Nigeria needs to compile a solid
economic recovery plan with the right foreign-exchange policies to convince
the World Bank to approve a $1.5 billion loan to support the West African
nation's budget. The government has to assure the lender's shareholders it is
doing all it can to prop up Africa's largest economy amid the devastation
brought by the coronavirus pandemic, according to the World Bank country
director in Nigeria, Shubham Chaudhuri. The nation had expected the loan to be
released earlier this year to help cover a widening budget short-fall. "The way
that our board and our shareholders approach this kind of budget support is to
say: 'Has the country that's requesting the support done all it can to help
itself?" Chaudhuri said in a webinar, when asked about the loan. "There needs
to be a little bit more". The pushback comes after Nigerian Finance Minister
Zainab Ahmed told Bloomberg TV on Nov. 27 that the loan was in the final stages
of approval as the government had fulfilled the bank's conditions.
The country is asking for financial
help to overcome a crisis that could sink an extra 7 million people into
poverty. Solid exchange-rate management and macroeconomic policies are key for
the World Bank to assist the continent's top oil producer, Chaudhuri said. Two
separate loans worth another $1.5billion earmarked for Nigerian states was
recently considered and approved the by the lender's board. President Muhammadu
Buhari's administration has been forced to devalue the naira three times this
year as authorities struggle to curb the demand for dollars. Still, the naira
remains too ex-pensive and a dollar shortage is starting to hurt local
businesses, economists say.
The merger of different exchange rates and allowing
the naira to float more freely would speed up the recovery of an economy that
slumped into a recession in the third quarter and bolster investor confidence,
according to the World Bank.
Covid-19 Update in
Africa - As at December 23, 2020
Fatalities in Africa still significantly
low compared to other regions
Highest Cases in SSA
Lowest Cases in SSA
Nigeria revamps regulation in Fintech
On November 13, Nigerian President Muhammadu Buhari ratified the Banks
and Other Financial Institutions Act 2020. This law is an update to
Nigeria's banking legislation which was last revised in 1991.
The main objectives of the new Banks and Other Financial Institutions
Act are to enhance the resilience of the Nigerian financial system,
improve loan recovery and reduce the high incidence of non-performing loans by
using a credit tribunal. Having a more resilient financial system is only going
to be positive for Nigeria, as it will create a more stable environment for
business loans, and it will aid the economic recovery post-COVID-19.
East Africa moving towards regional digital tax harmonization
The 48th East African Revenue Authorities' Commissioners' general
meeting took place on November 11, with representatives from the Tanzania,
Burundi, Rwanda, Kenya, Uganda, South Sudan and Zanzibar revenue boards and
authorities. Representatives from the East African Com-munity (EAC) secretariat
and the African Tax Administration Forum (ATAF) were also present.
During the meeting, it was agreed by the
EAC that a joint digital tax strategy would be developed, and the integration
of domestic tax systems would be accelerated. The aim is to enhance revenue
collection, compliance and identification of potential revenue, as well as
improve support to taxpayers. The forthcoming digital tax strategy will be
designed by member states' tax commissioners and directors of domestic ICT
authorities, who intend to work closely with and leverage the expertise of the
ATAF. Some EAC states have implemented the digital tax regimes, while some are
still in the process of implementation. However, there are still concerns
regarding transparency, public engagement and business consultations ahead of
the new regulations and the implementation.
East Africa's FDI doubles in size
Foreign direct investment into the East African region doubled in size
in 2019 compared to 2018. Inflows surged to $11.5bn in 2019 from $5.7bn in
2018. This was courtesy the significant boost in Chinese investment ($7bn)
within the manufacturing, construction and services sectors in several East
African countries including Kenya and Uganda (some of the largest economies in
Africa). China was the largest investor in 2019, accounting for 59.7% of the
total FDI inflows into the region. Kenya targeted sizable investment towards
ICT and Health care while Uganda channeled efforts to its extractives sector
and infrastructural projects. The increase in FDIs created an additional
121,207 new jobs from 89,877 in 2018. However, with the lingering problems of
weak institutions and tax regimes in the region, the impact of the increased
FDI inflows has not been significant. Legislators within the region need to
harmonize policy and regulatory measures to harness this investment flow and
boost both country and regional development.
Kenya debt crisis looms large
A crippling public debt crisis continues to fuel de-bate in Kenya, with
the combination of erratic external borrowing and economic pressures coming
from the COVID-19 pandemic means that debt will likely pass the KES 9 trillion
($9bn) ceiling by the 2022/23 fiscal year.
Commercial loans, which make up a significant portion of Kenya's
external debt, have been paused and the government has turned to the IMF to
negotiate a short-term lending facility to ease increasing budget deficits.
Outside of costly loans, poor tax collection levels that have only gotten worse
during the pandemic means that Kenya will have to result to borrowing more,
this will worsen their debt crisis.
In order to weather the pandemic, Kenya
plans to join the G20's Debt Service Suspension Initiative and defer about $690
million in debt payments after it initially declined to do so.
Kenya signs post-Brexit trade pact with U.K. to avoid disruption
Kenya Trade Secretary Betty Maina has announced the ratification of a
post-Brexit trade deal with the UK, its biggest European trade partner. Kenya,
the biggest economy in the East African Community, broke ranks with other
members in forming the bilateral deal be-cause it is seen as a developing
economy and is not eligible for the preferential access granted to least-developed
countries, Maina said in a statement on Thursday.
The Trade Pact means that Kenyan exports such as tea, flowers, fruit and
vegetables will continue to have duty- and quota-free access after the U.K.
leaves the European Union. The U.K. accounted for almost one-third, or 40
billion shillings ($359 million), of Kenya's 133 billion shillings worth of
exports to the EU last year, ac-cording to data from the trade department.
Kenya, the world's biggest producer of black tea, ex-ported $150 million
worth of tea leaves to the U.K. in 2019, while shipments of flowers amounted to
$105 million, Maina said. It imported 35 billion shillings of goods from the
U.K. or about 15% of total purchases from the EU. Such items included
machinery, autos, pharmaceuticals, and electrical and electronic equipment. The
U.K.-Kenya Trade Pact comes into effect on January 2021 and will be re-viewed
every five years.
DRC declares end to Ebola epidemic
The Democratic Republic of Congo (DRC) Ministry of Health has officially
declared an end to the Ebola outbreak in the North-Western Equateur province;
the outbreak began in June 2020 and resulted in 130 cases and 55 deaths. The
response, which received significant help from the WHO, could result in the DRC
being better equipped in their fight against COVID.
Like the potential COVID-19 vaccines, the Ebola vaccine must be stored at very cold temperatures. Despite this, Ebola responders were able to vaccinate over 40,000 people, travelling across challenging terrains to remote regions of the country. Through the Ebola response, the government has also been able to improve its testing and tracing capacity.
New Covid-19 variant, second wave & restrictions in South Africa
The new strain of Covid-19 has been detected in South Africa and is
driving the current resurgence in cases. Due to this, Germany and Switzerland
have banned flights from South Africa. This came after the President of South
Africa, Cyril Ramaphosa, announced new lock-down measures at both the national
and district levels. The country recorded 10,000 daily new cases on December
16. Total cases are now over 890,000 while fatalities are about 24,000.
According to the president the spike in infections could be due to social
gatherings and parties as social distancing measures are not strictly observed
in these events. The four provinces leading the second wave of cases are the
Western Cape, Eastern Cape, KZN and Gauteng. The restrictions im-posed affect
parks, beaches and alcohol sales. Alcohol will be sold only between 10 am and 6
pm from Monday to Thursday. The health minister urged South Africans adhere
strictly to covid-19 measures and stay protected at all times.
South Africa's financial system could be hit by severe instability
The South African Reserve Bank (SARB) has warned that unless the
government succeeds in fiscal consolidation, the country could face severe
financial instability. It was revealed in October that South Africa's public debt
is expected to be 82% of GDP in the current fiscal year and will reach 95% in
2026.
In SARB's Financial Stability review,
published on November 24, it stated that the decline in public finances will
have a negative impact on the credit worthiness of South Africa's financial
institutions. It also stated that any government intervention to resolve an
insolvency crisis would only create more financial strain. Any successful and
effective fiscal consolidation will be contingent on the health of the broader
financial sector. The rising costs of borrowing also make private investment
less attractive to potential investors. On a positive note, South Africa's
banks are still highly capitalized, with banks having entered the pandemic with
sufficient capital and capital buffers.
South Africa's Q3'20 GDP recovery must still survive the second wave
South Africa has recorded an impressive economic bounce-back in Q3 2020
(July-September) following four consecutive periods of contraction. South
Africa in Q3 recorded an annual growth of 66.1%, mainly because of the easing
of lockdown restrictions that stimulated economic activity. Substantial growth
in the manufacturing (210.2%), mining and quarrying (288.3%), trade catering
and accommodation (137%), transport, storage and communication (79.3%) drove
the sizeable economic growth rate.
While these growth rates are commendable, South Africa's economy was
always expected to re-bound following the reduction in Covid-19 restrictions.
The true test of the economy will come during the second wave, where
restrictions are likely to be put back in place.
Ethiopia pushes telecoms privatization despite security worries
Despite the pressures of an ongoing conflict with Tigray and the
economic slowdown brought by the Covid-19 pandemic, Ethiopia has decided to go
ahead with a multi-billion dollar privatization of its telecoms sector. The
minister in charge of the privatization called it "a once-in-a-century reform" in a country that has, until this year, had almost two decades of near
double-digit growth, and was home to the biggest telecoms industry monopoly in
the world. Bankers and other people interested in the telecoms industry have
said that government restrictions will limit the value of the sale.
The Ethiopian government is offering a 40%
equity stake in Ethio Telecom, the existing monopoly, which has 44mn
subscribers, as well as spectrum for two new telecoms licenses. The
privatization is expected to be completed by April. However, people privy to
the details of the privatization say that the potential attractiveness of the
deal has been reduced by two important factors. Firstly, mobile financial
services, which are common in Africa and are often among the most profitable
part of an operator's business, have been restricted to only existing
providers, acting as a barrier of entry to new entrants. Secondly, companies
would have to lease towers from Ethio Telecom, the state pro-vider, and would
not be able to invite third parties to build new infrastructure, which happens
often on the continent, although they would be allowed to build it themselves.
Telecoms operators such as Etisalat, Axian, MTN, Orange, Saudi Telecom Company,
Telkom South Africa, Liquid Telecom, Snail Mobile, Vodacom and Safaricom, have
all expressed an interest in buying the stake.
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