Debt Rising Cost May Increase Cost Of Borrowing – PwC

Cost of funding increase in debt concerns which has led to lowering of credit ratings may lead to increase in the cost of international funds, PricewaterhouseCooper (PwC) has said. In its Nigeria bi-monthly Economic Outlook released on its website titled “Impact of global economic trends on Nigeria’s foreign exchange and the way forward”, the professional services firm said it may increase the demand pressure on forex to meet future FX debt service obligations. According to the firm, it is evident in the decline in capital importation from $24 billion in 2018 to $5.3 billion in 2022.   “The increase in the global Central Bank’s policy rate may lead to capital reallocation away from Nigeria’s financial market to other markets with more attractive yields on investment. This may reduce FX flows to the economy “The Nigeria MSCI index recorded a significant decline of 113%, from 23.5% in 2020 to -3.02% in 2022, reflecting capital reallocation to other economies A marginal trade surplus may lead to an increased pressure on FX threatening liquidity in the forex market. In Q2 2023, Nigeria recorded a positive balance of trade of $2.3 billion. The positive trade balance could be attributed to the growth of total export by 9% (y/y) to $12.5 billion “The decline in remittance flows may reduce FX flows to the economy. Though remittances to Nigeria accounted for 38% of the total flows to the region, it increased by only 3.3% to $20.1 billion “Lower credit ratings due to Nigeria’s widening fiscal deficit, debt service to revenue ratio may reduce confidence in the Nigeria economy. This may lead to reallocation of funds from the Nigerian economy and reduction in FX flows,” it said. Over time, the company observed that there has been a rise in the inflows of FX from autonomous or non-CBN sources, which has led to the widening divergence between the official and parallel market rates. “Since 2007, the FX inflows from autonomous sources exceeded inflows from the CBN “The implication of official interventions may not accurately reflect the market demand and supply dynamics as annual inflows are skewed towards unofficial sources,” it said. To address this imbalance, there is a need for authorities to boost investors’ confidence by deepening the financial markets, ensure longer term sectorial policy to maximise exports or deepen domestic consumption, and roll out short-term fixes to enhance foreign exchange liquidity.

IBEDC Decries N28bn Debt Owed By Ogun Customers  

The Ibadan Electricity Distribution Company (IBEDC) has disclosed that customers in the Sango and Ota axis of Ogun state owed the company N28 billion. The Lead Media Relation, IBEDC, Mrs. Busolami Tunwase, stated this during a stakeholders’ meeting in Joju, Ota, Ogun state recently. Tunwase, who represented the Chief Executive Officer of IBEDC, Mr. Kingsley Achife, said the N28 billion electricity debt was owed by residential customers and not industries. “We are appealing to customers to urgently pay their bills for the company to survive and effectively carry out our business operations. The accumulation of debts is hampering the operations of the company because we have requests and obligations to fulfill.Not paying for electricity consumed is energy theft, which is punishable and attracts jail term,” she said. Tunwase said the new electricity bill signed into law by President Bola Tinubu gave room for punishment to anyone caught stealing electricity. She admonished customers to refrain from bypassing, illegally removing, or moving the meter to another location, damaging the meter to avoid paying the bill, illegal connections, among others. Tunwase noted that payments received provided the electricity value chain with the needed revenue to improve service. She advised them to desist from using substandard meters, which are prone to serious dangers to the people. Tunwase added that such erring customers with illegal meters should be reported to the appropriate channel as using illegal meters was an offence. She also warned customers against assaulting its officials in the course of discharging their duties to avoid the wrath of the law. A customer, Mr. Tunde Adeyemi, said there was a need for IBEDC to redouble its efforts to provide stable electricity for residents. Adeyemi lamented that the epileptic power supply in Sango and its environs was affecting the livelihoods of people negatively, adding that IBEDC also needed to address higher electricity bills to prevent shortchanging the public. Adeyemi also appealed to IBEDC to make pre-paid meters available to customers to enhance its operation.

Naira Devaluation: Dangote, 8 others take N113.63bn hit

Dangote Cement led eight other companies on the NGX in foreign exchange losses recording a significant foreign exchange loss of N113.63 billion, representing a 179.47 per cent year-on-year increase, the highest in the past five years as a result of the devaluation of the Naira. The Naira went from N465/$ at the end of May 2023 to N756/$ in June 2023, resulting in a net exchange loss of N116.1 billion on third-party loans and payables within the Nigerian entities. While some companies experienced significant declines in some performance indicators, others performed relatively better. A review of the financial performance of Berger Paints, Beta Glass, BUA Cement, CAP, Dangote Cement, MEYER, Notore, and WAPC, reveals that among these companies, Dangote Cement, Notore, and BUA Cement, reported a combined foreign exchange losses of -N129.811 billion, while Beta Glass, CAP, and WAPCO reported an aggregate foreign exchange gain of N3.49 billion. However, when considering the cumulative impact of foreign exchange fluctuations, it led to an overall reduction of 8.19 per cent in their total pre-tax profit, which amounted to N372.573 billion in the first half of 2023 Dangote Cement led in foreign exchange losses recording a significant foreign exchange loss of N113.63 billion, representing a 179.47 per cent year-on-year increase, the highest in the past five years. According to the first half of 2023 financial notes, the net exchange loss on foreign-denominated transactions was primarily attributed to the sharp devaluation of the Nigerian Naira in June 2023. These losses had a direct effect on the decline in pre-tax profit, which decreased from N264.89 billion to N239.86 billion during the reviewed period. Notore also reported a substantial foreign exchange loss of N14.05 billion in the first half of 2023. Coupled with low revenue and a significant increase in finance costs, this contributed to a pre-tax loss of N38 billion, representing a 1,558 per cent decline. The company managed to generate revenue of N7.92 billion, a substantial decline of 68.97 per cent for the first half of 2023. BUA Cement reported a foreign exchange loss of N2.137 billion in the first half 2023, marking a significant year-on-year increase of about 103 per cent. Coupled with elevated interest expenses, this dampened pre-tax profit, resulting in only a marginal increase of 2.75 per cent to N76.425 billion when compared to the first half of 2022. WAPCO – Lafarge led the foreign exchange gainers, recording a N2.237 billion gain in foreign exchange. This contributed to a growth of 18 per cent in pre-tax profit. However, despite this positive performance, the company experienced a year-on-year decline of 5.16 per cent in profit after tax, primarily due to high-income tax expenses.