Business

Nigeria’s Budget 2022 And Debt Service Implication [ANALYSIS]

Published

2 years ago

November 9, 2021

Editor

Richard Asoge

In compliance with the section 81 of the 1999 Nigeria Constitution as amended, the President of Federal Republic of Nigeria, Muhammadu Buhari, on October 7, 2021 laid before the National Assembly 2022 budget estimate for the country. Bringing it about three months before the implementation begins creates room for thorough dissecting and as well inviting all critical stakeholders which include ministries, departments and agencies on their take.

The year 2022 drafted budget is N16.39 trillion. Recurrent expenditure without debt service and capital expenditure is respectively to gulp N6.83 trillion and N4.89 trillion. Furthermore, debt service is to take a chunk of N3.9 trillion while statutory transfer is to take the sum of N768.28 billion. Breaking it down to a common man language, of every one hundred naira the country intends to spend in the coming year, about N24 goes on debt services to various organizations, institutions or countries which in the time past, Nigeria had obtained loans. As at August 2021, the records of Debt Management Office showed that Nigeria owed about N35 trillion to internal and external bodies. The country is enmeshed in debt. As if the damage was not enough, we are still asking for more loans like ‘Oliver Twist’. Of course, there is nothing wrong in obtaining a loan to finance a project if it is viable enough in the medium or long term to generate fund to pay the principal with the interest, or such project is capable of improving the living standard of the people. If the latter is the case, tax can be introduced to recoup the investment made on the project. Both debt service and direct statutory transfer are priority for settlement. The more the allocation for these headings in the given sum, the lower the fund available for developmental projects and other government financial responsibilities. It is time for us to think out of the box rather than go for loan or aid at every slight opportunity.

Considering the expected income in the year mainly from oil receipt, VAT and other sources, the total proposed expenditure is far more than that of income which gives room for about N6.26 trillion deficits. In other words, the country is expected to generate N10.21 trillion from various sources of income and borrow the balance. Of this shortfall, N5 trillion is expected to be sourced domestically, N1.2 trillion is to come via drawings from bilateral and multilateral loans while over N90 billion expected from the proceeds of privatization.

Oil receipt which is the largest source of income is benchmarked at $57 per barrel with 1.88 million barrel per day at official exchange rate of $410.15. The parameter used here is good and is more of the conservative side. Past records showed that Nigeria produced over 2 million barrel per day. If all things being equal, the figure will be attained easily and beyond. After a worldwide decline in the spate of COVID-19 spread, global oil market has rebounded and still rebounding. This manifested in the current oil price hovering between $80 and $84 per barrel in the international market. This implies that excess is expected from this sub-heading of the budget.

In the 2022 proposed budget, inflation is anchored within the threshold of 13%. This is a dream taken too far. The present situation of things in Nigeria does not indicate serious crashing in the prices of goods and services from the currently 18% to average of 13% in the coming year. If the statement credited to the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, while given comprehensive analysis of the said budget that subsidy will be removed from fuel and electricity by the mid next year is enforced, then inflation will go far beyond the estimate of 13%. However, if all necessary supports were given to the local refineries (the existing government refineries and the upcoming private refineries) to operate to a reasonable capacity, removal of subsidy will not have substantial effects on the prices of goods and services but save already declined foreign exchange from going down deeper.

The beauty of any budget lies in its implementation or performance. Evidence from past years showed that revenue performance was always low to the expectation. This made implementation difficult. For instance, in year 2020, the proposed revenue was N5.37 trillion while the actual revenue attained for the year was N3.42 trillion. This was a variance of 36.3%. You may say COVID-19 caused. To me, that is not a strong defence. There had been similar trends over the years. In 2018 when there was nothing like COVID-19, projected revenue was N7.12 trillion while the actual revenue attained was N3.48 trillion given a variance of 51.1%. Justification of various spending and cutting down on the allowances and benefits of the political office holders will close the gap between the proposed expenditure and revenue.

It is very clear that development of any nation is proportional to the financial and other commitments made to research and development. Commitment and funding of research institutions in various areas of human endeavor give a nation an insight of what the future holds and makes preparation for it. This is the magic wand of the developed economies in the world.

Richard Asoge
Clappahouse Analytics
chards001@gmail.com
O8081492614.

Business

BREAKIN: NDIC Increases Maximum Deposit Insurance Coverage

Published

2 days ago

May 2, 2024

Editor

The Nigeria Deposit Insurance Corporation (NDIC) on Thursday increased the maximum deposit insurance coverage levels for Deposit Money Banks from N500,000 to N5 million.

The Managing Director of NDIC, Bello Hassan, announced this in Abuja at a press conference, stating that it takes effect immediately.

He said, “For Deposit Money Banks, the increase of the maximum deposit insurance coverage from N500,000 to N5,000,000, would provide full coverage of 98.98% of the total depositors compared with the current cover of 89.20%.

“In terms of the value of deposit covered, the revised coverage would increase the value of deposits covered by deposit insurance to 25.37% compared with the current cover of 6.31% of total value of deposits.

“The increase of the maximum deposit insurance coverage from N200,000 to N2,000,000, would provide full coverage of 99.27% of the total depositors compared with the current level of 98.76% and would increase the value of deposits covered by deposit insurance to 34.43% compared with 14.38% of total value of deposit, currently covered.

“The increase of the maximum deposit insurance coverage from N500,000 to N2,000,000 would provide full coverage of 99.34% of the total depositors compared with the current 97.98% and would increase the value of deposits covered by deposit insurance to 21.04% compared with 10.77% of total value of deposit, currently covered.”

Hassan also stated that raising the maximum deposit insurance coverage for primary mortgage banks from N500,000 to N2,000,000 would provide full coverage for 99.99% of total depositors and increase the value of deposits covered by deposit insurance to 43.10% of the total deposit value, up from the current 40.60% cover.

The Corporation has also raised the maximum pass-through deposit insurance coverage for subscribers of Mobile Money Operators from N500,000 to N5,000,000 per subscriber.

Business

Dangote Speaks On Devaluation Of Naira

Published

3 days ago

May 1, 2024

Editor

Chairman of Dangote Industries Limited, Aliko Dangote has said that the devaluation of Naira created the biggest mess for the company in 2023.

Speaking at the annual general meeting of Dangote Sugar Refinery, Dangote said this affected lots of companies in the country.

He said: “We are doing whatever it takes to make sure that at the end of the day, we will be paying dividends because if you look at our dividends last year, it was almost 50 percent more so we will try and get out of the mess.

“The biggest mess created was actually the devaluation of the naira from N460 to N1,400. You can see almost 97 percent of the companies, especially in food and beverages businesses, none of them will pay dividends this year for sure but, we will try and get out of it as soon as possible.

“We want to see that at the end of the day, no matter how small, we will be able to pay some dividends, especially if there is a rebound of the naira.”

Business

Customers Panic As CBN Bans Opay, Palmpay, Others’ New Accounts

Published

4 days ago

April 30, 2024

Editor

Some bank customers have expressed panic as the Central Bank of Nigeria bans mobile money operators including fintech firms from onboarding new customers.

However, the Bank Customers Association of Nigeria backed the CBN directive.

The new directive will affect fintech companies such as OPay, Palmpay, Kuda Bank, and Moniepoint, from opening new accounts until further notice.

Reliable sources from three major fintechs who requested not to be mentioned as they were not permitted to speak, confirmed the development to The PUNCH on Monday.

The CBN’s move was linked to an ongoing audit of the Know-Your-Customer process of the fintechs, which have been under scrutiny in recent months over concerns around money laundering and terrorism financing.

It was gathered that the CBN had summoned some of the heads of fintechs to Abuja to discuss issues around KYC last week.

The CBN has not yet publicly commented on the directive to the fintech firms. The PUNCH’s attempts to reach the apex bank for comment were unsuccessful.

Several calls made to the telephone line of the CBN spokesperson, Hakama Ali Sidi, were not responded to as of the time of filing this report.

Also, the directive coincided with the court order that the Economic and Financial Crimes Commission (EFCC) obtained to freeze at least 1,146 bank accounts owned by various individuals and companies allegedly involved in illegal foreign exchange transactions.

The 85-page court order (document), which listed the bank account details suspected to be involved in illicit activities, was obtained by The PUNCH on Monday.

Justice Emeka Nwite, in a ruling on the ex-parte motion, moved by counsel for the anti-graft agency, Ekele Iheanacho, also granted the commission’s application to conclude the investigation within 90 days.

Part of the court document read, “That the applicant’s (EFCC) application is hereby granted as prayed.

“That an order of this honorable court is hereby made freezing the bank accounts stated in the schedule below, which accounts are owned by various individuals who are currently being investigated in a case involving the offenses of unauthorised dealing in foreign exchange, money laundering, and terrorism financing, to the extent that the investigation will be for a period of 90 (ninety) days.”

The EFCC, in the motion marked FHC/ABJ/CS/543/2024 dated and filed April 24 by Iheanacho, was heard by the judge the same day in the interest of national interest.

“The motion was brought pursuant to Section 44(2) and (K) of the 1999 Constitution; Section 34 of the EFCC Establishment Act 2004; Section 7(8) of the Money Laundering Prevention and Prohibition Act, 2022; and under the inherent jurisdiction of the court.”

The President of the Bank Customers Association of Nigeria, Uju Ogubunka, backed the CBN’s move to suspend new account opening on the affected platforms.

He told The PUNCH that the strict regulations that govern deposit money banks must apply to fintechs, and microfinance banks in order to ensure the integrity of the financial institutions.

He said, “Anything that can disrupt the system should not be permitted. If the platforms are being used for things that are against the regulations, I think the CBN decision is OK. I don’t see anything wrong with that. It behoves on the companies now to get their KYC right.

“Let them do what they are supposed to do. KYC applies to banks and other financial institutions that deposit money. It should also apply to them so that the regulators can understand what is going on and hold them accountable.”

On the other hand, Emmanuel Odunsi on X (formerly Twitter) welcomed the move, citing the need for better KYC processes to prevent scams and fraudulent activities.

“Their KYC isn’t that great. Lots of scammers are using their apps to defraud people.

“Most of the accounts were created by mining phone numbers, with subscribers’ permission. Almost every phone number has been linked to an account,” Odunsi said.

In October 2023, Fidelity Bank blocked transfers to OPay, Palmpay, Kuda, and Moniepoint due to concerns around KYC processes.

In response, the CBN introduced new KYC rules for all financial institutions in November 2023, which appeared to target fintech startups.

A source from Moniepoint said the company had complied with the directive, effectively halting new account creation on their platform. However, the source denied having anything to do with KYC.

“It’s just a regulation from the CBN, and we’ve complied. The real question is, why are fintechs always targeted,” he source argued.

“It has nothing to do with KYC; I am aware that the CBN communicated, but this particular issue dwells on accounts related to cryptocurrency transactions,” the source revealed.

The CBN has an ambitious target to increase overall financial inclusion to 95 per cent of the adult population by 2024.

With the new order, the target may be affected, as the company processes about 100 new accounts every day.

The source argued that fintechs had played significant roles in deepening financial inclusion in the country.

The company had deployed robust and reliable digital payment infrastructure that has facilitated an average monthly transaction value of $12bn for about 1.6 million businesses, it said last year.

A senior employee of PalmPay confirmed to The PUNCH that there was a CBN directive for fintechs to reassess their KYC processes.

This is causing a temporary pause in onboarding new customers, the source stated.

She clarified that the KYC review was a collaborative effort with the CBN, and fintechs were awaiting further instructions without a specified timeline for resolution.

Another source at OPay, who also declined to be named, said they were following the CBN’s directive and could not comment further.

“We don’t really have anything to say. It’s just a directive that we are following. The CBN has issued their directive.“

Fintech companies have faced increased regulatory scrutiny over their account opening processes.

Customers worry

However, some customers have also used social media, both on X (formerly Twitter) and Facebook, to express their worries and opinions on the matter.

Some customers are anxious about the safety of their funds, with Warisenibo Jumbo suggesting it’s best to transfer their money out of Opay.

Oye Niran wondered if their Moniepoint account was safe, stating, “Hope my Moniepoint account is safe.”

Larry Leanz questioned the rationale for keeping money on these platforms.

“But is it still safe to keep money there?, Leanz questioned.