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Naira strengthens to N665/$ at parallel market — days after EFCC raided BDC hub

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Naira-dollar

The naira, on Tuesday, sustained its momentum at the parallel market, appreciating to N665 per dollar a few days after security operatives raided Bureaux De Change (BDC) hub in Abuja.

The development represents N30 or 4.3 percent gain compared to the N695 to a dollar on Monday.

Currency traders known as Bureaux De Change operators (BDCs) at the Ikeja area of Lagos, who spoke to TheCable, quoted the buying rate of the greenback at N650 and the selling price at N665 per dollar.

According to the traders, the gains are largely influenced by increased dollar liquidity in the market.

“Dollar is plenty in the market now. Some oil companies also brought out dollars to sell,” a BDC operator told TheCable.

On the official market side, the naira appreciated by 0.03 percent to close at N428.88 to a dollar on Monday, according to data on FMDQ OTC Securities Exchange, a platform that oversees official foreign-exchange trading in Nigeria.

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Last week, operatives of the Economic and Financial Crimes Commission (EFCC) raided Wuse Zone 4, Federal Capital Territory, Abuja, over allegations that some Bureaux De Change (BDC) operators are mopping up foreign currencies.

“The raid by EFCC in Abuja BDCs last week dampened demand,” a source told TheCable.

“There were large buyers last week that many had to queue up!

“The current situation tells you that if you allow the market to work, it will find its level. We were blaming aboki fx before.”

Aminu Gwadabe, president of the Association of Bureaux De Change (BDC) operators, told TheCable that the “market surveillance” was done in collaboration with the association.

“We have a cordial relationship with the security agencies and ongoing collaboration with the agencies on the exchange rate issues,” he said.

The Central Bank of Nigeria (CBN) regularly intervenes in the official foreign exchange market to maintain stability.

Last week, Osita Nwasinobi, spokesperson of the CBN, said the apex bank would continue to make deliberate efforts in the forex sector to avoid further downward slides in the value of the naira.

He further advised forex buyers not to succumb to speculative activities of some players in the FX market to save the naira from further decline.

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Tight monetary policy threatens FG’s N720bn borrowing plan

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Governor of the Central Bank of Nigeria, Godwin Emefiele

The Federal Government’s plan to borrow about N720 billion through FGN bond auctions in the third quarter, Q3’22, has come under fresh threat following  increasing investors’ appetite for higher yields triggered by the adoption of  tight monetary policy of the Central Bank of Nigeria, CBN.

Recall that the CBN, in response to the five consecutive months rise in inflation rate to 18.6 per cent in June, launched a tight monetary policy regime May, 2022, raising the Monetary Policy Rate, MPR,   first by 150 basis points to 13 per cent in May and again by 100 basis points to 14 per cent in July.

This development effectively spurred increases in money market yields while intensifying investors’ appetite for higher returns across all instruments in all segments of the market.

Consequently, the first under-subscription was recorded in  FGN bond auction this year, as the auction held in July recorded 37 per cent under subscription and as a result, Debt Management Office, DMO could not achieve its sales target.

According to the FGN bond auction calendar for Q3’22 released by the Debt Management Office, DMO, the FG plans to raise between N630 billion and N720 billion during the quarter.

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The calendar shows that  the FG, through the DMO, seeks  to raise between N210 billion and N240 billion in each of the three months in the quarter, through subscription in three tranches of 10-year, 10-year, and 20-year original tenor respectively.

But the N225 billion FGN bond offered by the DMO at the July auction recorded 37 per cent under subscription as total subscription stood at N142 billion.

Though the 20-year bond, 13.00% FGN JAN 2042,  recorded 40 over subscription, as subscription stood at  for N104.92 as against N75 billion offered by the DMO, the 3-years    13.53% FGN MAR 2025 and 10-years 12.50% FGN APR 2032, recorded 84 per cent and 66 per cent under subscription respectively, as subscriptions stood at N11.75 billion and N25.62 billion respectively as against N75 billion offered for each bon tenor.

Consequently, the DMO could only achieve total sales of N123.9 billion, representing 45 per cent of its target for the month.

This was in spite of slight increases in the interest rates on the bonds offered by the DMO.

The auction results showed that the DMO raised the marginal rates for the 3-year, 10-year and 20-year bonds  to 11.0 per cent from 10 per cent, 13.0 per cent from  12.5 per cent and 13.7 per cent from  13.2 per cent  respectively in the June auction.

  Analysts’ insight

Investment analysts however noted that for the DMO to attract investors to future auctions it would have to offer higher rates given the inflation rate of 18.6 per cent and MPR at 14 per cent.

While noting that in spite of the impact of scarcity of funds and increasing appetite triggered by the CBN’s tight monetary policy, on future bond auctions, they expect the DMO to meet its funding target of N3.53 trillion to finance the projected deficit of N7.35 trillion  in the FGN’s 2022 budget.

Speaking in this regard, analysts at FBNQuest Securities, associated company in the First Bank Group, said: “The total amount raised by the DMO this year amounts to N1.7 trillion. If we include sales based on non-competitive allotment, the gross amount rises to N1.96 trillion. This excludes smaller sums raised via other instruments including Sukuk and the FGN savings bond.

“Despite the DMO’s disappointing outing, the sum raised so far by the agency suggests that it is broadly on track to raise its total domestic funding target of N3.5 trillion (including the additional borrowings of N965 billion following revisions to the budget).

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“However, the tight liquidity conditions in the market may continue to negatively affect demand at auctions in the near term.

“There are tougher credit conditions on the international market following monetary policy tightening by most central banks globally. This may force the FGN to turn to the domestic market to source some of the N2.6 trillion in external borrowing highlighted in the 2022 budget.

“The last resort would be for the fiscal deficit to become unfunded, or in other words, funded by ways and means advances from the CBN.

“Given the tight liquidity conditions in the market, we see yields inching up by around 25-50bps across the curve over the coming weeks.”

Similarly, analysts at United Capital Plc, associated company in the First Bank Group, said: “In line with our expectations of an uptick in the yield environment in the sovereign bonds market, marginal rates across all the tenors climbed 90bps, 50bps, and 60bps to print at 11.00%, 13.00% and 13.75%, respectively. Investors opted toward a more relaxed approach in the auction, demanding higher yields, as the expectation of inflation, interest rates, and political risks all begin to crystalise. These follow persistent inflation, monetary policy normalisation globally and the increased perception of political risk as we approach the electioneering season.

“We expect a continued uptick in marginal rates at subsequent bond auctions, as we believe investors will remain standoffish. The DMO will need to reel in higher rates to attract fund managers’ interests.

“Also, the recent hawkish stance adopted by the CBN, hiking rates by 250bps in total (100bps at July’s MPC meeting), will drive investor’s appetite for increased rates.

“Notwithstanding, we maintain the FG’s apparent need to rely on the domestic debt market to fund its fiscal imbalance, as external debt market conditions remain unfavourable.   These factors will further impetus for shifting pricing power away from the FGN/DMO and into the hands of private sector asset managers.”

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Call, Data Costs To Double As FG Invokes New Telecom Tax

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Minister of Communication and Digital Economy, Prof Isa Ali Pantami

Call and data tariffs may increase by as much as 100 per cent if plan by the federal government to hike consumption tax on telecom services scales through, Daily Trust can report.  

Daily Trust reports that the federal government had recently disclosed plan to implement a 5 percent excise duty tax on telecoms services, increasing the total consumption tax on telecom services to 12.5 percent.

The new tax regime, according to industry sources, will not only affect subscribers but also add tax burden on the telcos which would translate into rise in tariffs.

If the 5 per cent increment is eventually implemented, industry experts say, Nigerians will now be paying as much as N40 per minute call, up from about N20. And data tariffs could also go up to about N2,500 per gigabyte. 

The finance minister, who unveiled the plan at a stakeholders’ forum on the implementation of excise duty on telecommunications services in Nigeria organized by the Nigerian Communications Commission (NCC), said the 5 percent excise duty was in the Finance Act, 2020. 

She said the accrued taxes would be remitted on monthly basis, on or before 21st of every month. The move, according to the minister, was part of effort by the government to boost non-oil revenue in the face of dwindling income, especially from the oil sector. 

The proposal has, however, set Minister of Finance, Budget and National Planning, Zainab Ahmed, and the Minister of Communication and Digital Economy, Prof Isa Ali Pantami, on collision course. 

While the Ministry of Finance cites a presidential approval to apply the new excise on telecommunication services, as provided by the Finance Act, the Ministry of Communication and Digital Economy is kicking on the ground that the new tax would be harmful to the sector and to subscribers.

 Telecom stakeholders, experts oppose 

Also, Nigerian telecommunication consumers, under the aegis of the National Association of Telecoms Subscribers, have described the move by the federal government to increase the total consumption tax on telecom services, which include GSM to 12.5 percent as “irresponsible and ill-timed”. 

According to the association, Nigerians are already suffering as a result of harsh economic conditions and another tax on telecom subscribers will further impoverish many especially as telecom services are essential to everyone. 

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President of Association of Licensed Telecom Operators of Nigeria (ALTON) Gbenga Adebayo, described the excise duty as unusual, saying that it will increase the burden on the telecom operators as they already have 39 other taxes that have been imposed on them. 

Adebayo who spoke virtually at a forum last week stated that his association may not absorb the tax on behalf of the subscribers, noting that they will transfer the burden to the subscribers to pay higher prices for services.  

The Executive Secretary of the Association of Telecommunications Companies of Nigeria (ATCON) Ajibola Olude also kicked against the proposed tax, saying that it does not comply with the principles of taxation which include fairness. 

The implementation of the excise duty according to him will cause job loss; stressing that the proposed excise duty on all telecommunications companies is badly intended, he said.   

Also the President of National Association of Telecoms Subscribers (NATCOMS), Chief Adeolu Ogunbanjo, lamented that sector is already heavily taxed with payment made on every recharge card coupled with the existing 7.5 percent VAT.  

According to him, the new excise duty will cumulatively hike the tax to 12.5% including VAT, which will be a huge burden on Nigerians. The move, he said, is “insensitive and unpalatable”. 

Ogunbanjo urged government to reverse its decision to increase the tax in the interest of the people as the telecom industry is the last hope of the common man and should not be destroyed. 

A telecom consumer in Lagos, Mr. Lawrence Abi said that the masses may not feel the impact of the excise duty since it’s not on edible commodity.  

He said, “As essential as communication is , how many people know how much they are charged per minute? More so, we have paid higher amount at the inception of the GSM. So it will not have effect on goods and services. We also have alternative to call such as WhatsApp call. 

“By and large it’s better than additional loans for consumption,” he said. 

However, the Nigerian Communications Commission (NCC) said there was no any immediate plan by operators to increase tariffs.  

The Minister for Communications and Digital Economy had, last Monday, expressed dissatisfaction with efforts by the federal government to introduce excise duty on telecommunication services. 

Pantami in his address at the maiden edition of the Nigerian Telecommunications Indigenous Content EXPO (NTICE) themed ‘Stimulating the development of Indigenous Content through innovation and commercialization’ holding in Lagos stressed the need for government and stakeholders to continue to support the sector, and not unnecessarily put burden on it.  

“The Minister of Communications and Digital Economy is not satisfied with any effort to introduce excise duty on Telecommunications. When VAT was increased to 7.5percent, I was not consulted, I only heard the announcement and I think there is something questionable and I am glad that we are on the same page with our national assembly members. They too have not been consulted despite the fact that they are part of the committee. 

“Beyond, making our position known, we will go behind the scene and go against any policy that will destroy the digital economy sector. This is a sector we cherish so much and we are ready to go to any extent, legitimately and legally to defend its interest.” he said. 

When contacted yesterday, Pantami maintained his lack of support for the planned excise duty hike.  

When asked to comment on why  Pantami is not in support of the new tax hike, his spokesperson Uwa Suleiman directed Daily Trust reporter to contact the NCC for clarification on her principal’s statement on his lack of support for the excise duty on telecom services.  

But when contacted, the NCC’s Director of Public Affairs, Mr Reuben Mouka said the “Minister had made his position public (at the Lagos event). He didn’t hide it.”

 Why communication minister opposed proposed excise 

A senior official of the ministry said Pantami is against the hike in excise duty on telecom services because it could drive away investors and increase hardship among Nigerian as telecoms might increase data and calls tariffs as a result of the tax.  

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In addition, Daily Trust gathered that the minister was bitter due to lack of proper engagement by the finance ministry on the issue. 

“Yes, there was a letter from the Ministry of Finance informing us about the plan to commence the collection of the excise duty, but the minister replied to let them know we were not consulted and also emphasised how this law will increase the hardship of our citizens and is detrimental to the growth of the Digital Economy sector,” he said. 

According to him, there was no proper stakeholder engagement by the finance ministry, including public hearing on the proposed provisions to enable all stakeholder provide inputs. 

“We were not informed and the relevant committees in the National Assembly were also not informed,” he added. Another source at the ministry said the minister had promised the telcos that he would meet with President Muhammadu Buhari on the issue.  

One of the telecom operators’ official told one of our reporters that no date had been communicated to them as the commencement date of the new excise duty.  

“But you they may take us by surprise and start this month; we never can say”, the top telcos official who begged not to be named, told our reporter. 

 We’re consulting on implementation – Finance ministry 

However, a spokesperson for the Minister of Finance said the ministry was in consultation with stakeholders on collection of the excise levies. 

Responding to Daily Trust’s enquiry yesterday, the spokesman, Dr Yunusa Tanko, said the new tax regime said the excise collection ought to be with effect from June 1, 2022, which was the end of a three month moratorium provided by the ministry.   

He said the minister had, “vide Circular dated 1st March, 2022 informed the Nigeria Customs Service and other Heads of Government Ministries, Departments and Agencies (MDAs), including the Federal Ministry of Communication & Digital economy on Mr. President’s approval of the implementation of the 5% excise duty on telecommunication services with effect from 1st June, 2022. The circular provided a ninety (90) day moratorium with effect from 1st March, 2022 before the implementation of the excise tax”. 

Dr Tanko said the new provison is yet to be implemented due to “the need to ensure reasonable transition period before the implementation of the new tax, as well as provide clarity to all stakeholders on implementation modalities”. 

He reiterated that the excise was hinged on the provisions of Finance Act, 2020 which “introduced “Telecommunication Services” provided in Nigeria to be liable to excise duty under Section 21 (2) of the Customs and Excise Tariff Etc. (Consolidation) Act, CAP. C49, LFN 2004. It, therefore, means that all stakeholders have by that singular provision aware of the Act”. 

He said the ministry was working with stakeholders including Manufacturers Association of Nigeria (MAN) and Association of Telecom Operators of Nigeria (ALTON) on modalities for implementation of the excise duty. 

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Subsidy: FAAC demands petrol consumption records from NNPC

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Group Managing Director of NNPC, Mele Kyari

The Federation Account Allocation Committee (FAAC) has asked the Nigerian National Petroleum Company (NNPC) to submit state-by-state consumption of Premium Motor Spirit (PMS), otherwise known as petrol, to its committee.

The directive is contained in the FAAC Post Mortem Sub-Committee (PMSC) final report submitted to the whole house at its July 2022 meeting in Abuja

The members noted: “Consumption of PMS has been a major concern to members and it was raised severally at the FAAC plenary.

“Therefore, in order to ascertain the consumption, the Sub-Committee also requested the relevant Agencies to submit the state by state consumption of PMS in the country for the year 2021.”

A FAAC member told The Nation: ”The state governments have had enough of NNPC’s shenanigans and arrogance in its handling of revenue meant for the Federation Account.”

The NNPC has not remitted a kobo into the federation account since the beginning of this year.

The company has reported to the committee that it cannot make the expected remittances because it spends all its revenue funding subsidy.

The Nation learnt that the last FAAC meeting was explosive as the state members took on the NNPC on the issue of subsidy.

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An ad-hoc committee was asked “to examine state by state consumption of PMS because of continuous deduction of the shortfall from the Federation Account; scrutinise Value Shortfalls (subsidy) deductions, and make appropriate recommendations to the FAAC Post Mortem Sub-Committee.

Before last month’s meeting, NNPC was asked “to furnish stakeholders with details of the Sinking Fund Account and to pay interest accruable on the amount withheld in respect of Miscellaneous, Gas, Ullage, Osubi and WHT inflows from 2014 to 2021 (if any)”.

The ad-hoc committee demanded to know from the NNPC why it kept revenue due to the Federation Account in a Sinking Fund Account for five years (2016- 2021).

In its response, the NNPC said: “In 2015, Mr. President approved the utilisation of dividend stream and all recovered outstanding legacy debt from the operations of AFAM IV and Okpai JV Independent Power Projects (IPPs) by NNPC Gas and Power Investment Company (NGPIC) for funding of future investments in other power projects.

“In 2016 She’ll Petroleum Development Company (SPDC) was advised with NNPC’s Sinking Fund Account pending the incorporation of NGPIC.”

The NNPC added that “all Proceeds from AFAM IV IPP being operated by SPDC were paid into this account in bulk.

“In the 2019 NEITI Audit exercise, it was realised that the proceeds received from AFAM IPP include other streams of revenue belonging to the Federation. After the Audit exercise, NNPC liaised and agreed with SPDC to segregate all payments made from 2016 into various streams.”

In 2020 NNPC said it “secured management approval and transferred what belonged to Federation Account.

NNPC advised SPDC to route all proceeds accruable to the Federation to the Oil and Gas Revenue Account with CBN while Power sales proceeds go into the NGPIC’s Account”.

It was also disclosed that “the National Economic Council (NEC) reviewed the impact of terminated Strategic Alliance Agreement entered into by Nigeria Petroleum Development Company (NPDC) in 2011 and 2013”.

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