ASSOCIATION OF CORPORATE TREASURERS OF NIGERIA BREAKFAST MEETING COMMUNIQUE

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BACKGROUND

The maiden Breakfast Meeting of the treasurers of the non-bank corporate sector was held at The Intercontinental Hotel, Lagos on Thursday, 14th December, 2017. The theme of the Breakfast Meeting was “2017 Economic review and Prospects for 2018”, with panel discussions on Impacts of the Business Environment and Ways of Restoring Confidence in the Financial Markets.

The keynote address was delivered by Dr. Doyin Salami, Member, Monetary Policy Committee of the Central Bank of Nigeria while the Panel Discussants were experienced practitioners drawn from the Nigerian financial markets, Market Organisers and the Corporates. It was generally noted that the Breakfast Meeting was very apt given the need to review the Nigerian economic situation and its impact on businesses in the face of its recovery from recession during the second quarter of year 2017 as well as ensuring that Corporates are well prepared for the year 2018.

2017 Economic Review & Prospects for 2018

According to Dr. Doyin Salami, despite the GDP growth of 1.4% recorded in Q3 2017, up from 0.55% as at Q2, the economy remains fairly fragile as major sectors; manufacturing, telecoms, trade and real estate are contracting and this recorded growth in the oil sector can be attributed to two main factors which remain unsustainable:

• Higher Oil Prices
• Calmness in the Niger Delta

In his opinion, Nigeria is yet to grow at the required rate given the recent acclaimed recovery from recession. To this end, the three ways to recover from a recession were put forth:

• Grow the economy
• Accelerate growth
• Recover

Growth for Nigeria implies getting growth back to 6.4% as it was in Q2, 2014 which is a far cry from this figure. A brief review of 2017, brought to light the following:

• Costs are high and rising, especially food cost which is rising at about 20% YoY.
• Inflation stands at about 15.98%
• Only two of the big six sector appear to be growing; oil 26% and agriculture 3.06%
• Nigeria still faces a multiple foreign exchange challenge, which impacts negatively on reserves
• There seem to be political pressure to bring interest rate down as the top 100 borrowers are responsible for about 44% of loans.
• Government budget assumptions seem not realistic. E.g non-oil revenues to grow by 30%

It was further opined that 2018 will be driven majorly by 3 impulses:

• Oil prices - this will be constrained by shale oil production which is likely to revolve around USD55/58 per barrel. With production quantities projected at 1.85 million barrels. Nevertheless, oil prices will also be prone to two likely possibilities
  • Outcome of the anti-corruption war in Saudi Arabia (e.g; stability will lead to an upside)
  • A couple of unfortunate tweets to instigate the market
• Impact of foreign policies. Two key policies to look out for include;
  • James Powell becomes the US Fed Peace in 2018 and revenue goes down
  • US President spends USD3 trillion on infrastructures which further widens the market
• Election
  • Naira weakens in response to the election
  • Inflow of FDI should be expected by Q2
  • If APC continues in power, policies are likely to remain the same

If APC continues in power, policies are likely to remain the same

• State budgets for the period are worrisomely high
• The fiscal space is likely to create a bit of problem
• Growth is likely to revolve around 3%
• Downward pressure on Inflation between 13-15%
• Exchange rate to revolve around plus/minus 5% of the current rate
• Central bank to reduce MPR by 200bps or less
• Fragility of the economy will ease because staff salaries will be paid
• Interest rate to remain stable

Implication for Corporate

Rates are still high, given the fact that Nigeria is unable to fund the economy (Compared to South Africa, which is able to fund her economy about 10 times) resulting in high interest rate. Also, foreign exchange is likely to pose a bit of challenge for Corporates due to oil volatility. To this end, it was recommended that expanding the size of the Nigeria financial sector and lower government domestic borrowing will shrink interest rate. The Association of Corporate Treasurers (ACTN) was further implored to evolve a framework for naira management.

Panel Session

The panel session brought to the fore a number of deliberations and was strategic in addressing pressing issues as they relate to the Corporates.
It was recommended that to achieve stability in the management of foreign exchange, the Central Bank should allow forces of the market to dictate and stabilize the naira. Also, it should put in place a framework that is internally consistent.
Other options asides borrowing from foreign markets were stated as issuing Commercial Papers and bonds, which calls for creativity, proactiveness and deepening skills to face the changing environment.
As part of the deliberations, Manufacturers anticipate a predictable market that aids planning through the elimination of multiple foreign exchange rates, dollar leakages, crowding out interest rates and inability of the government to fund the economy.
Key areas of focus for Treasurers in this clime as they manage liquidity, risk and pricing were put forward to include:

• Taking advantage of the capital market, which will be influenced by interest rate.
• Taking advantage of hedge products. FMDQ plans to build a functioning derivative market to support Corporates also.
• Proactively manage business by considering interest and exchange rates
• Timing is crucial and the capital market needs to be accessed within the first quarter of 2018.

Corporates were further encouraged to be forward looking, plan based on forecast exposures and take advantage of the association to engage and compel the government on policies of interest.