As political misunderstandings in Nigeria increase, economic costs escalate and US interest rates spike, jittery portfolio investors are beginning to bolt. $4bn of FPI lost since April..
This situation is not being helped by an oil price that has suddenly plummeted 6% to $71pb and oil production stalled at 1.6mbpd. Fortunately, the Naira has appreciated to above the psychological resistance point of N360/$ at the parallel market, whilst simultaneously sliding to 362/$ at the IE window.
At the Nigeria Stock Exchange, the market has lost 4% in 2018 as against a gain of 37% during the corresponding period of 2017. Many corporates including Dangote and MTN are issuing commercial papers and other instruments to reduce financial costs.
The result of this spate of financial disintermediation is that the net interest margin of banks are being squeezed. The CBN is also encouraging this trend by explicitly agreeing to participate in the commercial paper market as a way of increasing the availability of credit. The U.S. Fed did the same thing to complement the TARP (Toxic Asset Relief Program) during the global financial crisis of 2008.
This cocktail of uncertainties and complexities are part of what Bismarck Rewane and the FDC Think Tank analysed at this month’s session of the LBS Breakfast Club as shown in the attached slides.
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