Libya's 2014 Budget is finally passed

On 22 June the long awaited 2014 Budget originally submitted to the Congress in January by the then Prime Minister, Ali Zidan, was passed. This came as a surprise to some Congress members who had expected to debate the issue in a session on the 22 June. Having waited almost all day for there to be enough members present to reach 94 - the required number of members present to be able to hold an official consultative session - the Congress was told that the budget had been passed on a technicality.

As Libya Politics & Security – 16.06.14 explained, the Al-Thanni government declared last week that the Congress had 120 days from the budget’s initial submission to debate the law, after which time the government had the right to issue a financial mandate to ratify it. Al-Thanni therefore scored a bit of a coup by getting the law passed in this way, despite the fact that certain Congress members were keen for the budget to be reduced. 

The Central Bank may, however, still object to the budget being passed in this fashion, although it is not clear whether it has a legal right to do so. The budget stands at LD56.5 billion (US$45 billion). Given the crisis in revenues caused by the disruptions at the oil ports, a significant portion of this money is expected to come from a reserve fund at the Central Bank that was set up by Colonel Qadhafi as a fund for future generations. Whether the Central Bank will agree to this fund being used also remains open to question. 

It is clear, however, that Libya cannot fund itself from oil revenues alone. The budget committee in the Congress based the 2014 budget on a projected annual oil production of 600,000 b/d but the country has clearly fallen woefully short of this. Thus drawing on this LD16 billion fund, plus some of the central bank’s foreign reserves, therefore seems to be the only solution.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2014 Menas Associates

Central Bank governor downplays Fitch's recent downgrade of Ghana’s outlook

Central Bank governor downplays Fitch's recent downgrade of Ghana’s outlook from stable to negative while maintaining the key policy interest rate at 18%.

Bank of Ghana (BoG) governor, Dr Henry Kofi Wampah, told reporters in Accra that Fitch's assessment is shallow and too narrowly focused on long-term prospects and that it ignores the more positive outlook for the short and medium term. Answering questions from journalists following Fitch’s latest decision he said he also disagreed with its prediction of a 20% depreciation of the cedi in 2014.

 Last week, the BoG maintained its policy interest rate at 18% following a 200 basis point adjustment in a bid to halt the decline of the local currency, on the grounds that the government's recent monetary policies had yet to make their impact felt.

Analysts argue that, given current investor concerns about the fiscal outlook, it is unlikely that further raising interest rates will do much to attract new inflows and an increase in the policy rate would negatively affect the government’s debt-servicing costs and GDP growth.

The Central Bank has also raised bank reserve requirement to 11 per cent from 9 per cent in a bid to stem the cedi’s fall and rein in inflation, a move which, according to some, would not prevent the local currency from further depreciating but would only increase short-term interest rates.

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2014 Menas Associates

Nigeria: Sanusi suspension becomes test of will for Jonathan

Central Bank of Nigeria (CBN) governor Sanusi Lamido Sanusi is challenging his suspension by President Goodluck Jonathan in the courts, and the case is becoming an overwhelmingly political clash as accusations are traded publicly.

Sanusi submitted a 36-point memorandum to Jonathan on 17 March which containing detailed rebuttals of the allegations against him contained in a Financial Reporting Council of Nigeria briefing note.

Jonathan’s February suspension of Sanusi was preceded by earlier attempts to get the governor to resign before the June 2014 end of his term. Initially, Sanusi said that he would not seek reinstatement to his post but would test the constitutional legitimacy of the suspension in court to establish a legal principle.

Having been sent a list of infractions at the bank under his management, Sanusi has analysed them and seems to have changed his strategy. He is now publicly asking Jonathan to reinstate him for the remaining three months of his tenure.

A long political and legal battle looms but it is certain that Jonathan will use every tactic to ensure that Sanusi does not get access to the governor’s office before his tenure formally ends. 

The trend of claims and counter-claims in the dispute suggests that there will not be an independent and credible effort to investigate the basis of Sanusi’s concerns about the Nigerian National Petroleum Corporation, which has been unable to account for failing to transfer some US$49.8 billion in revenues from January 2012 to July 2013 to the CBN accounts.

Acknowledging that he lacks the constitutional power to remove Sanusi from office, Jonathan says the governor is free to return to office once he disproves the ‘acts of financial recklessness’ allegations against him. These supposedly arose from recently received audits of CBN accounts.

Sanusi’s quick response to Jonathan’s allegations was to allege that there was a conspiracy supported by bank chiefs who are unhappy that they would have to open their books to independent auditors so that the missing billions can be tracked.

This view, relating to the role of Nigeria’s banks as likely intermediaries in corrupt flows of funds, has been voiced by Sanusi and other financial experts. Prior to his appointment as CBN governor, Sanusi was chief executive of First Bank Nigeria, through which billions of state oil earnings are transferred between state agencies and other institutions.

Sanusi will meet Justice Gabriel Kolawole later this week when he attends a rescheduled hearing on the case. 

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2014 Menas Associates

Nigeria: Finance Minister seeks to reassure international community

Minister of Finance Ngozi Okonjo-Iweala has assured the international community of the government's seriousness over the issue of financial accountability.

The political and international nature of the NNPC dispute has become increasingly clear to Ngozi Okonjo-Iweala who is not only Minister of Finance but also a former senior World Bank official and former candidate for Bank leadership. According to some analysts, her position and reputation have been damaged by the affair despite her calls, which preceded Jonathan’s authorisation, for a forensic audit of NNPC financial affairs.  

She has even been accused of instituting a public relations “campaign” to protect her international and domestic reputation. This observation has been bolstered by her alleged use of the expensive US-based Mercury LLC public relations firm which has reportedly been used by President Jonathan’s administration since August 2013. 

This perception was perhaps bolstered by an Okonjo-Iweala piece that appeared in London’s Financial Times newspaper earlier this week. It opened with an assurance that despite “consternation in the markets” following Sanusi’s suspension and foreign exchange reserves below US$40 billion, the Naira has recovered and that the fundamentals are strong.  

Okonjo-Iweala - notably echoing Jonathan and Abati’s references to Sanusi’s three different estimates of the missing oil revenues - criticised him. She observed that Sanusi had first claimed that the figure was US$49.8 billion before he “accepted“ a finance ministry estimate of an unaccounted US$10.8 billion, before he “alleged” a “new figure” of US$20 billion. Besides the details, the minister also called for passage of the much-delayed PIB. It is clear that she was staying on message – even highlighting and supporting Jonathan’s announcement of a forensic enquiry – while also appealing to the international community.

Okonjo-Iweala was not the only senior high profile Nigerian appealing to foreign interests in London earlier this week. A large Nigerian delegation - including governors Isa Yuguda (Bauchi State), Emmanuel Uduaghan (Delta State) and Adams Oshiomhole (Edo State), former president Yakubu Gowon (1966-75) and Minister of Power Chinedu Nebo held court at the Institute of Directors. There they emphasised the attractiveness and openness of Nigeria to foreign investment and the length, admittedly including colonial rule, of the relationship between Nigeria and the UK.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2014 Menas Associates

Nigeria: Bank governor Sanusi keeps tight grip on money supply

Security risks, corruption and unemployment do not seem to have dented foreign optimism about Nigeria's economy. The country's US$1 billion Eurobond was four times oversubscribed at its launch in July and the capital markets continue to attract interest.

Central Bank of Nigeria governor Mallam Sanusi Lamido Sanusi's decision to maintain a tight monetary policy rate in spite of the prevailing favourable economic indices was designed to keep the Nigerian economy attractive as a destination for portfolio investors and raise the volume of foreign exchange.

 

But some analysts think that the hot money being pumped in through portfolio investments could do more harm than good if a stronger regulatory structure is not imposed on fund managers.

 

Even Kingsley Moghalu, the CBN Deputy Governor for Financial Stability, seemed to agree. "The monetary policy rate at this point in time is reasonably high," he recently said.

 

Tope Fasua, the chief executive officer of Global Analytics Consulting Limited in Abuja, thinks the reliance on foreign funds is a possible risk - the money could flee as quickly as it is now pouring in.

 

"In 2008/9 we had a crash in our stock market of about 70%, from which the market is still recovering," Fasua told Nigeria Politics & Security. "A lot of the market recovery is actually from foreign portfolio investment, which may also disappear in a jiffy" if conditions turn sour.

 

A lot of the monies playing in that market are from foreign portfolio managers.

 

The influx of foreign portfolio investments increases the reserves level and strengthens the naira, which means the central bank has to intervene in the market less often, Fasua said. Meanwhile, many Nigerian investors are watching the market from the sidelines, having been burnt in the past.

 

"When these investors are leaving they will demand foreign currency," said Fasua. "There is a huge risk that the naira will fall if these guys, for any reason, decided to exit their investments en masse, and we would be in a much worse shape than ever. The reserves we have accumulated may therefore be a mirage."

 

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2013 Menas Associates

Ghana: Cedi remains under pressure

The Ghana cedi fell further against the US dollar which has led to illiquidity on the interbank market with hardly any activity late last week. As reported in Ghana Politics & Security last week the cedi has declined steadily over the past few months, falling more than 11% this year, because of strong demand for the US$, in most part from local manufacturing and telecommunications firms. Three weeks ago the Bank of Ghana raised its policy rate to 14.5% in an attempt to stem the cedi's slide and also slackening the banks' net open position requirements - the difference between their assets and liabilities in a particular currency - to boost their foreign exchange flows to the market.

The Central Bank announced further measures on Sunday 29 April to help stabilise the cedi. In order to strengthen the government's monetary policy and restore stability and transparency in the foreign exchange market the Bank had decided to reintroduce 30, 60 and 270-day bills; a requirement that banks hold the obligatory 9% reserve requirement on domestic and foreign deposit liabilities in cedis only; and the requirement that banks provide 100% cedi cover for vostro balances. The requirements came into effect on 1 May.

The continuation of the depreciation of the cedi against the dollar could force the government to increase fuel prices, because Ghana imports both crude and refined oil. National Petroleum Authority (NPA) CEO Alex Mould said: “If we don't pass it on to consumers then government will have to forego some projects… We have also experienced crude oil prices above US$120 per barrel… and also the exchange rate has increased and we should have experienced an increase in petrol prices of over 20%-22%, but that did not happen because the government decided to subsidise it.”

According to Databank's Africa Quarterly Report, which ranks the performance of Africa's stock markets in terms of returns to investors in dollars, Accra had Africa's third worst performing market for the first quarter. The Ghana Stock Exchange (GSE) ranked third after Mauritius and Zambia.

Databank's head of research, Nii Ampa-Sowa, said that poor market performance was due to the cedi's decline and told Joy FM that “As a global investor you come in with dollars which you would convert to cedis and then you would invest here. But if you were to take your money out of the Ghanaian market it would mean that you would sell the cedi denominated investment and then repatriate that money. But in taking it outside the country, you would have to change back the cedi into dollars. Meanwhile, in dollar terms the money has actually declined.”

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2012 Menas Associates

Libya: Bringing the militias to heel?

Maj Gen Mohamed Al-Mangoush certainly has his work cut out. His main task is to build the Libyan army into a credible force that can bring the militias under its control. Doing so will not be easy. As things currently stand, with its handful of small units, the army is a David to the militias' Goliath. Convincing powerful revolutionary leaders to hand in their weapons or to come under the command of national military officers is an uphill struggle and, unless the army gets some serious clout behind it, unlikely to succeed.

Meanwhile the violence continues. It is true that the militias have a reduced presence on the ground and that the number of checkpoints has been cut back. This does not mean, however, that the militias have stopped throwing their weight around. As the clashes that erupted this month demonstrate, in the absence of a strong authority rival militias continue to take the law into their own hands.

Moreover, the presence of so many armed young men with little else to do does not bode well for future security. Despite the schemes currently being devised by the new authorities to absorb militia members – such as the

Planning Ministry's recent proposal to pay those who join the official security structures a salary of LYD600 a month – there is still no indication that the national army is proving any more attractive than the militias.

As one young man from Benghazi who is still holed up in Tripoli explained, "It [the fighting] was really exciting and fun most of the time and I made some great friends!" The fact that hundreds of uniformed soldiers took to the streets this month and staged a demonstration outside the Central Bank branch in Benghazi to demand their salaries can have done little to help matters. The demonstrators declared that the new government should focus its attention on building a new army and not on giving cash rewards to the revolutionaries.

The police are doing little better than the army in the effort to recruit revolutionaries. According to one report, 24 hours after the police force opened its doors for militia members to sign up only 100 had done so.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2012 Menas Associates

Nigeria to invest N679 billion into three nationalised banks

Nigeria's government is planning to invest ?679 billion ($4.5bn, £2.8bn) into three banks that were nationalised last week. The country's Central Bank took control of Afribank, Bank PHB and Spring Bank following a realisation that it was unable to raise fresh capital they required.

Control of the three banks has now passed to the State-run Asset Management Corporation of Nigeria (AMCON). It is thought that the company is aiming to raise the funds needed through bond issues. AMCON has also appointed new management to oversee the three banks.

The company released a statement saying: "The newly appointed boards are entrusted with the mandate to manage these banks along best commercial practice, to compete effectively in the Nigerian banking sector and provide quality service to customers…Depositors are again assured that their deposits are safe and employees are also assured of seamless continuity of business operations and job functions."

Trading in the shares of Afribank, Spring Bank and Bank PHB has been suspended.

Sources: BBC News, Reuters, Bloomberg

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

Brazil's Central Bank ups key interest rate to 11.25 per cent

Brazil's Central Bank has upped its key interest rate from 10.75 per cent to 11.25 per cent in a bid to stabilise inflation. The committee meeting was headed by the newly appointed Central Bank president, Alexandre Tombini, who assumed office on 1st January. Tombini replaced his one-time mentor Henrique Meirelles who had been in the post a record breaking eight years, the longest term since the Bank opened in 1964.

Shortly after the meeting, the committee warned that the increase in the interest rate was likely to mark a new phase of monetary tightening to combat inflation amid steady economic growth. Inflation stood at 5.91 per cent in 2010, and is expected to drop below 5 per cent in 2011.

The committee said it sought a rate hike, "as the start of a process of adjustment to the base interest rate", and added that the Bank was going to monitor inflation very closely under the monetary tightening initiative and the expected governmental budgetary cuts.

Brazil's economy grew by more than 7 per cent in 2010 and is estimated to grow between 4.5-5 per cent in 2010. Inflation has been one of the key worries for Brazil in recent months. Its inflation target for 2011 is 4.5 per cent, meaning the Bank has its work cut out if it intends to reach the target figure.

The surge in inflation has been attributed to soaring food prices, but also to increasingly high consumer demand. Retail sales in November 2010 rose by 1.1 per cent from the previous month of the same year, and 9.9 per cent from November 2009.

Higher interest rates have a tendency to attract short-term foreign investment, but they can also hurt economic growth and exports. A rise in the appreciation of the Brazilian Real of more than 30 per cent against the dollar, since 2009, has been detrimental to domestic manufacturers due to fierce competition from cheaper imported goods.

Sources: BBC News, Wall Street Journal, FT, Reuters, Bloomberg

For more news and expert analysis about Brazil, please see Brazil Focus.