These are three things playing in the Nigerian economy.
#1 – Senate Expands Federal Government Borrowing from CBN
The Nigerian Senate has amended the Central Bank of Nigeria (CBN) Act to enable the government to take more loans from the apex bank: “The Senate on Wednesday amended the Central Bank of Nigeria (CBN) Act to increase the borrowing limit the bank can offer the federal government from five per cent to 10 per cent. The borrowing, popularly called Ways and Means, is a loan facility through which the CBN finances the federal government’s budget shortfalls.”
My Comment: with this expanded window, Nigeria will likely cancel any impact the recent CBN rate hike was expected to provide as the nation fights inflation. You raise the interest rate on companies, you flood the economy with free cash via loans to the government.
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#2 – MTN Nigeria Records Biggest Half-year Loss On Record
MTN Nigeria broke loss records with a half-year hit of N519 billion: “MTN Nigeria (MTNN), the local subsidiary of Africa’s largest mobile network operator MTN Plc, reported a sixfold surge in loss after tax to N519 billion in the first half of the year. According to its earnings report issued on Wednesday, this represents its biggest half-year loss on record. The loss for the six-month period is already roughly three times the loss it recorded for the whole of last year, complicating an ordeal dating back to the period Nigeria’s devaluation of the naira led to a massive foreign exchange loss for the wireless carrier.”
Comment: MTN may not pay tax to the Nigerian government possibly in the next two years. The implication is that some agencies like NITDA which depend on the percentage of profits from telco will struggle.
#3 – Banks FX-Related Profits Begin to Vanish
Nigeria’s banks made enormous profits as a result of changes in FX policies. We’re going to tax the realized FX gains to balance the economy.
Banks now: few of the gains are realized, and most have been provisioned for impairments: “[bank CEO] has stated that only about 10% of the bank’s foreign exchange gains recorded in 2023 are realized. …[he] made the statement while referring to the 70% windfall tax which has been on the bank’s realized FX gains from 2023…The Group CEO noted that most of the group’s revaluation gains have been provisioned as impairments.”
Comment: In the next quarter, I expect most of the profits which have been reported by banks to be reversed. One bank has already reversed its gains, noting that the profit was not later realized. In other words, Nigeria may not even receive much from this 70% windfall tax policy.
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That’s 100% increase from the CBN alert. This translates to about trillion naira of unproductive and worthless cash being pumped into the economy. Yea, the people who on one hand jerk up interest rate in the name of fighting inflation, and on the other hand create inflation by printing free money. This is the scam they have been doing with the economy, but they are still assuring you that they are determined to grow the economy and improve living standards. The more things change, the more they remain same.
For MTN and its runaway losses, those looking for every opportunity to attack the company should be reading, the shareholders fund is now in the negative. It’s not just taxes and alerts to NITDA that will pause, the Onitsha-Enugu expressway is being financed by MTN, so with this financial hiding, that road won’t be completed anytime soon.
As for unrealized forex gains from banks, well, it couldn’t have been any other way. Hoping that all those fat amounts are liquid would be a serious joke, those who think trillions will flow from there will be lucky to see N600 billion that is in one piece. The supplementary budget is simply a deficit, nothing miraculous coming from there.
You all will be alright, either here or over there.