‘What Nige­ria stands to gain from a floated cur­rency regime?’

Mr. Tolu Osinibi is the Ex­ec­u­tive Direc­tor of First City Mon­u­ment Bank (Cap­i­tal Mar­kets). In this in­ter­view, he speaks on the na­tion’s fi­nan­cial sec­tor and his bank’s strate­gic growth. Ex­cerpts:

Daily Trust - - BUSINESS - From

Mo­hammed Shosanya & Sun­day Michael Ogbu, La­gos

The na­tion’s cur­rency was re­cently floated by the Cen­tral Bank of Nige­ria. What is the im­pli­ca­tion of this on the econ­omy?

What im­plies es­sen­tially is an ac­knowl­edge­ment that the fixed for­eign ex­change rate model we ran prior to float­ing the Naira was un­sus­tain­able. This un­sus­tain­abil­ity had been clear for a while to prag­matic and ob­jec­tive ob­servers, but pre­sum­ably other so­cio-po­lit­i­cal con­sid­er­a­tions of the gov­ern­ment had the up­per hand. Un­for­tu­nately, the cur­rency peg cou­pled with the eco­nomic re­al­i­ties put the coun­try in a sit­u­a­tion where nearly all the only eco­nomic dis­cus­sions be­ing had for about a year was naira de­val­u­a­tion with much less at­ten­tion be­ing paid to other equally im­por­tant mat­ters such as fis­cal, mone­tary and eco­nomic pol­icy is­sues.

By float­ing the cur­rency and also in­tro­duc­ing a for­ward and fu­tures mar­ket, a large part of the mar­ket un­cer­tainty re­gard­ing ex­change rate has been re­moved and I ex­pect that it should be­come eas­ier for for­eign cur­rency de­mands to be met as the in­ter­bank mar­ket set­tles and the sup­ply side.

It’s safe to as­sume that the CBN will be the sig­nif­i­cant seller, maybe only seller, of for­eign cur­rency for the first few weeks but, hope­fully, with a trans­par­ent mar­ket and clear rules, with con­sis­tent ap­pli­ca­tion of the rules, the ex­change rate will be­come largely de­mand and sup­ply driven and bring more sell­ers to the mar­ket.

We shouldn’t see this ma­jor step for­ward on ex­change rate as a magic bul­let though. That alone will not be­gin to turn around Nige­ria’s econ­omy. There are plenty of big is­sues that have a huge im­pact on the ease of do­ing busi­ness and I’m not sure the gov­ern­ment, both at fed­eral and state level, have be­gun to ad­dress these. it

On the ease of do­ing busi­ness, what should be done to im­prove it?

In some ar­eas, it’s about just mak­ing things more ef­fi­cient. In oth­ers, there may be need to re­visit the en­abling laws. Other mat­ters will re­quire a mod­i­fi­ca­tion of the law.

The re­cent minidereg­u­la­tion of the oil in­dus­try with im­porters sourc­ing for forex them­selves, what are your con­cerns over it?

The float of the naira has now su­per­seded that ac­tion and im­porters of pe­tro­leum prod­ucts will also have to source for for­eign cur­rency in the in­ter­bank mar­ket. How­ever, there is still some lack of clar­ity on the cur­rent pe­tro­leum prod­ucts pric­ing regime. For ex­am­ple, the price cap of N145 per litre on petrol as­sumes a max­i­mum cost of buy­ing US dol­lars at around N285. What isn’t clear is what hap­pens if im­porters of petrol buy US dol­lars at an av­er­age cost of say N300. Is the gov­ern­ment go­ing to sub­si­dize them, are they ex­pected to sell at a loss, or is there a tacit un­der­stand­ing that the price cap will be ig­nored or ad­justed pe­ri­od­i­cally by the gov­ern­ment?

The gov­ern­ment has taken a big step to­wards dereg­u­lat­ing en­tirely the down­stream sec­tor; it should be bold to go fur­ther and fin­ish the job.

The diesel seg­ment of the down­stream sec­tor was dereg­u­lated years back and we seem to have coped with it.

The idea of a sub­sidy is a no­ble one but the fact of Nige­ria’s re­al­ity is that, for ex­am­ple, in the past decade petrol was sold at well above the sub­si­dized price in most towns and cities of the coun­try. Also, we now clearly know that the en­tire sub­sidy regime was rid­dled with fraud of a mon­u­men­tal scale. Fi­nally, the coun­try can­not af­ford the sub­sidy.

Are you wor­ried about the de­lay in im­ple­ment­ing the 2016 bud­get?

My view is that we should be talk­ing about 2017 now. Hope­fully, the gov­ern­ment will try to do a thor­ough job in plan­ning for 2017. We are al­ready in July, by Oc­to­ber, the spend­ing/plan­ning for 2017 should be clear. As I said ear­lier, my con­cern re­mains that, as we speak, I am not aware of the com­pre­hen­sive so­cio-eco­nomic poli­cies that will drive the 2017 spend­ing plan and the fis­cal regime that will drive the rev­enue side.

Clearly set out poli­cies must al­ways drive the spend­ing plans; not do­ing that re­sults in in­ef­fec­tive spend­ing and waste. Re­gard­ing 2016, the best I think can hap­pen is rapid tac­ti­cal ac­tions to drive ac­tiv­ity.

How would you eval­u­ate the per­for­mance of FCMB in 2015 and the pe­riod so far?

We had a fair, prof­itable year in 2015. We ad­vised on and com­pleted some sig­nif­i­cant deals in the year and we won a few awards for some of those deals, for ex­am­ple, the Azura-Edo IPP and Ac­cu­gas fi­nanc­ing deals. We also got recog­ni­tion from EMEA Fi­nance mag­a­zine, a UK-based fi­nan­cial jour­nal, as the best lo­cal in­vest­ment bank in Nige­ria. These awards are great for our team as it is sat­is­fy­ing to also get in­de­pen­dent recog­ni­tion beyond our clients.

Though a slow start to the year, for­tu­nately the first quar­ter of 2016 was pos­i­tive for us and we hope that trend ex­tends into the sec­ond quar­ter. We are be­gin­ning to see an in­crease in en­quiries from our clients and they are also re­spond­ing to and con­sid­er­ing ideas we’re pre­sent­ing to them; these sug­gest some level of con­fi­dence in the mar­ket how­ever slim. We ex­pect that the eco­nomic en­vi­ron­ment re­mains chal­leng­ing and un­cer­tain for the rest of 2016.

L-R: Im­me­di­ate past chair­man, Nige­rian In­surance As­so­ci­a­tion (NIA), God­win Wig­gle, dec­o­rat­ing the Man­ag­ing Direc­tor, Con­sol­i­dated Hall­mark In­surance Plc, Mr Ed­die Efekoha, as new NIA Chair­man, with Direc­tor Gen­eral, NIA, Sun­day Thomas, dur­ing the 45th An­nual Gen­eral Meet­ing of NIA held in La­gos last Thurs­day.

Mr. Tolu Osin­nibi

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