Partner and Chief Economist, PricewaterhouseCoopers, Nigeria, Dr Andrew S. Nevin; Chairman and Chief Executive Officer, Elizade Nigeria Limited, Chief Michael Adeojo, Partner and CIPS Leader, PwC Nigeria, Edafe Erhie and Dr Oseme Oigiagbe, Chairman, Automobile and Allied Sectorial Group at the 2015 Symposium/Luncheon of the Automobile and Allied Products Group of the Lagos Chambers of Commerce and Industry in Lagos… recently
ECONOMIC and financial experts have expressed divergent views on the plans by two international rating organisations, JP Morgan and Barclays Bank to delist Nigerian bond from their bond index.
While many attributed the development to action to weak Nigerian economy, others urged the Federal Government to ignore the foreign threat, saying it was a gang up because of Nigeria’s refusal to comply with foreign exploitative policies.
The United States (US) investment banker, JP Morgan and co. announced the plan to delist Nigeria from its Government Bond Index for Emerging Market (GBIEM). Few weeks later, Barclays Bank announced plans to take similar action against Nigeria, when it said it would consult with index users on whether Nigeria’s sovereign debt should remain in its emerging market local currency government bond benchmark.
Both index providers said they would drop Nigeria from its index, citing lack of liquidity and currency restrictions as reasons for their action.
Already, Barclays has listed Nigeria’s eligibility for inclusion in the emerging market local currency government index among the primary topics to be considered in its yearly review process, according to recent reports.
On the heels of the threats, experts have urged the government to take more proactive measures to restore confidence in the country’s economy, stressing the need to work out modalities that would help to avert further actions against the country, no matter the reason for debasing Nigeria’s bond.
The President, Chattered Institute of Stock Brokers, Oluwaseyi Abe blamed the decision by JP Morgan and other rating organisations to delist Nigeria’s bond on the lack of certainty surrounding Nigeria’s economy, due to lack of policy direction.
“The lack of strategic direction from the central government might have caused the action against Nigeria. If you argue with me, nothing is happening or has happened in Nigeria this year. From all indication, we have been running a sole administratorship like government.
The President promised to give us ministers in October, this is November, we don’t have the ministers. If you are talking about credit, we need to talk about the ability to pay credit. In Nigeria, there are no indices for rating. We don’t have any direction. The inflation rule has gone up. We tried to fix it at single digit. This is counter-productive on bond. It means what you earn today, cannot be earned tomorrow. Everything depends now on the government. We don’t know what will happen next year. All these affect rating of an economy.
For an Economics lecturer at the University of Lagos, Bayo Adedokun, “delisting Nigeria because of her tight monetary policies is uncalled for. The Central Bank of Nigeria (CBN) is on point with its decision for a number of reasons. Its policies on foreign exchange will checkmate round tripping and arbitrage in the market, commonly practiced by both domestic and foreign investors. Since it is now easy to trace legitimate forex deals online, no one wants to be apprehended by the long hand of the law.”
“The decision by the international rating agencies will have little effect on Nigeria’s economy since Federal Government bond only represents a portion of public debt instruments open to international investors. Domestic investors can fill the gap. Delisting Nigeria by JP Morgan or any other agency does not affect the ability of businesses to raise equity or debt at the stock exchange. The only challenge is the loss of confidence by Nigerians on the stock exchange,” he said.
Continuing, he said, “the Nigerian economy can survive perfectly without patronage of government bond by foreign investors as the total number of the bond held by foreigners is less than three billion Dollars. So they can totally de-invest if they wish. That is why we advocate caution in international capital movement into emerging countries like Nigeria. Surge in capital inflows have been documented to lead to systemic failure of financial sector in several economies, particularly when such capital is suddenly moved out of the economy.”
The decision by the international rating agencies will have little effect on Nigeria’s economy since Federal Government bond only represents a portion of public debt instruments open to international investors. Domestic investors can fill the gap. Delisting Nigeria by JP Morgan or any other agency does not affect the ability of businesses to raise equity or debt at the stock exchange. The only challenge is the loss of confidence by Nigerians on the stock exchange
President, Manufacturers Association Of Nigeria (MAN) Frank Jacobs said, JP Morgan and other rating agencies were political in their decisions. According to him, their position against Nigeria might have been informed by the refusal to adopt Economic Partnership Agreement (EPA) being initiated by European Union. “I believe that the decision by JP Morgan may have been politically motivated. Remember that the West is not happy with Nigeria for our position on the EPA. So they will do anything they can to coerce us to submit to the partnership agreement. Some of these statements are made to coerce us into signing the EPA. In fact, recently, when they held a forum for Small and Medium Scale industries in Kaduna, someone tried to ask government to open up the borders for all manner of products to come into the country, that is not in the best interest of manufacturers. What I would advise the president to do is to ignore those people, and let us have a homegrown economy. We have a lot of human and material resources.”
Chief Executive Officer, Consolidated Management Consultants Ltd, Mr. Dele Oguntebi, attributed the decision by the rating organisations to the uncomfortable nature of the country’s recent monetary policies.
The truth is that they are wary because our policy direction hasn’t been defined, and that is what investors want to know, and that is why some of them are taking this decision. Government institutions are almost paralysed. Even those in the civil service don’t understand the Treasury Single Account (TSA). We need to deal with these issues before we go back to the index.
Mr Yemi Agbaje of RTC Advisory Services attributed decision to imbalance in trade between Nigeria and other countries. “The fundamental issue lies in the structure of our foreign trade. As imports are stable, exports are volatile. Nigeria knew that the rules on the JP Morgan index is the same for all countries. We wanted to invest our bonds, JP Morgan specified how they wanted to operate their market and we signed to it. So, it is not a case of blackmail because the JP Morgan index has a responsibility to investors and the country they operate in. The only issue is that Nigeria has a crisis and could not sustain the free inflow and outflow of Dollars.” He said there is need to improve the structure of our export.
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