10 Feb

The week ahead – Good news this week presents opportunities

Acting President Yemi Osinbajo has nominated Walter Onnoghen as the substantive Chief Justice of Nigeria, in a move set to usher in the first southern head of the Supreme Court in three decades. The decision was announced in a tweet from President Buhari’s Twitter account shortly before noon on February 8. It came a day after Osinbajo’s office told online newspaper, Premium Times that Onnoghen’s name could still be forwarded before the February 10 deadline stipulated by the Constitution. “Hon. Justice W.S. Onnoghen’s name has been sent to the Senate for confirmation as the next CJN,” the tweet said with an accompanying link to Onnoghen’s biography on the Supreme Court website. The announcement came four months after Onnoghen was first recommended to Buhari as the next head of the country’s judiciary. The delay would have triggered an automatic constitutional provision that could block the president from proceeding with the nomination process by February 10. The president’s delay in nominating Onnoghen as the substantive chief judge despite the National Judicial Council recommendation fuelled allegations of ethnic bias against Buhari. Onnoghen will now await confirmation by the Senate before assuming duty as the substantive chief judge. The Senate is on recess until February 21 and has ruled out convening an emergency sitting as the NJC voted to re-recommend Onnoghen following its own emergency meeting on Wednesday.

The CBN said on 7th February that the monthly supply of dollars at its disposal had dropped to between $600 million and $700 million. While the bank had a stock of up to $3 billion monthly in 2013 and 2014, it said the forex scarcity that hit the country had left it with roughly $700 million. Deputy Governor, Sarah Alade, who appeared before an ad hoc committee of the House of Representatives in Abuja, explained that the forex scarcity was the reason why the apex bank was unable to meet all demands, particularly those coming from importers of petroleum products. The ad hoc committee, which is headed by a member from Imo, Nnanna Igbokwe, is conducting a public hearing on the review of the pump price of petrol from ₦145 to ₦70.04 as proposed by the House. In response to an explanation as to why International Oil Companies got involved in the sale of foreign exchange to importers and petroleum marketers in the country, oil minister, Ibe Kachikwu said it was an arrangement to ease supply to the importers, who received between 35 percent and 45 percent of the available forex. The minister described it as an “intervention scheme,” which was coordinated by the NNPC and the Petroleum Products Pricing Regulatory Agency to ensure that beneficiaries were screened after duly applying for the forex.

Nigerian government officials have successfully wrapped up sales of the country’s Eurobond, after a 4-city roadshow in the US and UK. The $1 billion 15 year tenor Eurobond was oversubscribed. Demand for Nigeria’s Eurobond was as high as $4.5bn of orders for a $1bn 15 year issue; showing that it was oversubscribed by $3.5 billion.

The MTN Group expects to report a full-year loss due to a $1 billion regulatory fine in Nigeria and underperformance there and in its home market of South Africa, it said on Wednesday, sending its shares to a two-month low. Nigeria is MTN’s most lucrative but increasingly problematic market, hobbling its growth outlook. But the appointment of banker Rob Shuter, who starts next month, as chief executive, is expected to bring operational strength and step up Africa’s biggest telecoms company’s hunt for returns, possibly in financial services. MTN, which makes a third of its revenue in Nigeria, said it expects a headline loss, and will issue a further trading statement on the likely range within which its headline loss is expected. A Reuters poll of analysts expects the company to post a 39 percent fall in headline earnings per share to 455 cents. MTN agreed in June to pay Nigeria a ₦330 billion ($1.05 billion at the time) fine for missing a deadline to cut off unregistered SIM cards from its network. The fine, which was originally set at $5.2 billion, shaved off 474 cents per share from headline earnings per share, a primary profit gauge that strips out certain one-off items. In the mix of paying the fine, MTN is being investigated by Nigerian lawmakers for illegally repatriating $14 billion between 2006 and 2016, the second major dispute analysts have said exposes the inherent risk of investing in frontier markets.

Suggestions

  • The Acting President’s action in forwarding Justice Onnoghen’s name has put Nigeria on track to avoid what was sure to have been a major and unnecessary constitutional crisis. The Senate’s reasoning behind not calling an emergency session is predicated on its committees’ currently working on expediting its assessment of the 2017 budget proposal. While that is also commendable, we believe that Bukola Saraki, the Senate President, should activate an emergency Senate procedure and forward Osinbajo’s letter to the upper house’s Committee on Judiciary to assess Onnoghen’s bona fides and issue its recommendation to lawmakers when plenary resumes at the end of the month.
  • It is indeed shocking to hear that the House of Representatives is conducting a public hearing on the review of the pump price of petrol from ₦145 to ₦70.04 at a time when the government is complaining that it is finding it hard to support prices at ₦145. Almost as bad is that the CBN claims the dollars at its disposal have dropped to $700 million monthly from $3 billion monthly in just 3 years (a drop of over 400%). Nigeria has been subsidising consumption for decades and when oil revenues were flowing in the CBN simply dipped into the coffers. The direct result is that the country has become a dumping ground for cheap Asian goods, an outcome that has crippled the local manufacturing sector. Now the CBN does not have enough dollars to fund the importation of raw materials for the lean sector, and the already struggling local manufacturers have to source forex from the black market. This as the government is placing some of the raw materials on the prohibition list. Clearly, there is a lack of understanding and will to truly tackle the issues across the Executive and Legislative branches.
  • There are several reasons why a country may raise money in the Eurobond market. First is to serve as a benchmark for corporates trying to raise foreign currency funds in the Eurobond market, and the other is to raise funds to match foreign currency obligations at a rate cheaper than the domestic market. The last time Nigeria sold Eurobonds was in 2013 and the offer of $1 billion was four times oversubscribed as well. This is good news for the federal government and it shows that despite the challenges facing Nigeria and poor issue rating by credit rating agencies like Fitch which assigned B+ rating to the issue (last rung on investment grade), investors are still willing to accept Nigeria’s sovereign risk albeit at a high yield. However, concerns still remain over the potential use of the proceeds – ideally such borrowing should be used to fund self-paying capital projects rather than on recurrent expenditure, or supporting the naira.
  • On MTN’s loss making year, the results of Nigeria’s fine included MTN losing one third of its share value and losing its number one spot in Africa to Vodacom. When the MTN Chairman announced that it had deferred listing on the Nigerian Stock Exchange to 2018 as opposed to the initially announced 2017, it was clear that this loss might be in the offing. One thing is clear, while the Nigerian government got a windfall with the fine payment, it will lose tax revenue and market watchers will note MTN’s performance.