The chairman, Board of Directors of New Nigeria Development Company (NDDC) limited, Alhaji Bashir Mohammed Dalhatu yesterday said the full implementation of Treasury Single Account (TSA) aimed at blocking leakages of government revenue, fight against corruption, and removal of oil subsidy as well as efforts made in stabilising the exchange rate resulted in liquidity squeeze in the economy.
He stated this at the 21st Annual General Meeting (AGM) of the company’s BOD which held at the headquarters of the company in Kaduna.
According to Dalhatu; “ the economic and business environment in which the company operated during the period could be described as severe, which he said is evidence by the continuous decline in the international price of crude oil which led to a sharp decline in government revenue resulting in a significant reduction in foreign earnings and unabated devaluation of the Naira against other major foreign currencies, adding that, “there was a sharp decline in Foreign Direct Investment (FDI).”
He further said that the volatile business environment under which the company operated during the period impacted on the performance, “the company recorded decline of 3% in operating income from N923.9m in the previous year to N898.6 which was attributed to lower dividend income.
“This was further worsened by the activities of the Niger Delta militants which has continued to impact negatively on the level of oil production for export.
“Also, a 29% decrease in operating profit before tax from N237.2m to N167.9m was recorded. The company was able to improve its net assets per share by 1.7% from N18.5 to N18.8 when compared with results of the year ended 31st March, 2015 respectively.”
The MMM financial scheme caught on like wildfire in Nigeria but it has frozen its transactions, leaving many investors unsure what will happen to their savings. The BBC’s Stephanie Hegarty explains how the Ponzi scheme found its way to the most populous nation in Africa and how it managed to survive.
What is MMM?
Well, that depends on who you speak to. According to MMM itself, it is a “social financial network of people providing help and getting help from each other”.
Members are supposed to receive 30% back on their investment in just 30 days. It launched in Nigeria in November 2015 and according to its founders, has three million members.
But it has a murky history. It started in Russia in the 1990s and collapsed a few years later losing an estimated $100m (£80.3m) belonging to its members.
The Russian government outlawed the scheme and founder Sergey Mavrodi was jailed for four years.
It made its way to China where it was also banned. But in the past two years, the scheme has appeared in South Africa, Zimbabwe, Kenya, Uganda and Nigeria.
Nigeria’s financial regulator, the Securities and Exchange Commission (SEC), say it is a Ponzi scheme.
That means money paid in by new members is used to pay back previous members. It doesn’t generate any profit but relies on new members to keep going, which means that sooner or later it will collapse.
“No profit is being created,” says economist Tunji Andrews. “And the people that are going to pay for all your profit right now are the people that are going to get stuck when MMM finally crashes.”
How does it work?
Members either sign up online or with the help of a “guider” – a member who gets commission to recruit more investors.
To start, one can invest as little as 15,000 naira (£32; $40). That money gets paid directly to another member.
The idea is that after 30 days, every member reaps their profits. “Guiders” get a 10% cut of the new members’ investment.
Over the past few months, MMM Nigeria has undertaken an aggressive advertising campaign and used community forums and church meetings to recruit members.
Why are people talking about it?
On 13 December, the scheme was frozen. Members who expected a pay-out since Tuesday have been disappointed.
MMM claims it froze the scheme to deal with heavy traffic that it experienced in the run-up to the Christmas holidays.
It says it will re-open in January and though many people are sceptical, others have staunchly defended the scheme.
Nigeria is in the middle of its worst recession in decades. Banks are not lending and so many people are hailing MMM as a source of capital.
Since it first appeared in 2015, authorities have issued warning to Nigerians against investing. In a country that does not have a huge amount of trust in its government, millions ignored that advice.
Seven people, who do not wish to be named, explain how they got involved in the scheme. We will call them by different names.
Margaret, a farmer from Port Harcourt told me that MMM was “a blessing”. She used it to pay rent when her business slowed due to the recession.
Similarly Yinka from Ilorin described MMM as “beautiful”. He was able to pay his school fees and buy a printer. Both are optimistic the scheme will work again.
Most of the people who spoke to our team had initially made good returns on their investments, compelling them to invest huge amounts later. Unfortunately for them, the company froze its operations.
Isaac invested 50,000 naira in the scheme and got his returns. Two days later he invested 950,000 naira. He was supposed to get his money back on 14 December. So far, he has received nothing.
MMM say it is up front about the risks. A warning on its website reads: “The only rule is no rules… “Win” might not be paid without any reasons or explanations.”
All the investors we spoke to admitted that they had been aware of the warnings but thought the risk was worth taking.
Have people lost their money?
At the moment, it is unclear whether investors will get their money back but authorities in Nigeria believe that it is inevitable that people will lose out. There is not enough money in the system to carry on forever.
Folusho Awosanya claims to be the spokesperson for MMM. I found his number after browsing the MMM website.
He told me in a phone interview that the earnings of investors “are being calculated but will be paid to them when MMM Nigeria unfreezes its activities”.
He however, was unable to indicate exactly when that will happen.
Even if MMM reopens in January as it claims, it is likely that the scheme would collapse at some point.
Is MMM breaking the law?
According to the privacy laws of SEC, once a scheme like this gets a certain level of investment it must be registered.
MMM is not registered with the financial regulator so technically, it could be breaking the law.
But the SEC has not yet taken any active steps to prosecute it.
What happens next?
Members have to wait until January to see if MMM is as good as its word.
Until then its investors can only hope to get their money back.
But MMM is under no legal obligation to return it.
If the scheme does “unfreeze”, that might encourage more people to invest.
And that means even more people are at risk of losing their savings.
Central Bank of Nigeria (CBN) has noted that the survival of the financial system rests squarely on the shoulders of Corporate Treasurers.
Recognising this, the apex bank urges Corporate Treasurers to collectively fine-tune the effectiveness of the monetary policy transmission mechanism to ensure increased financial intermediation.
A keen financial mind and an understanding of an organisation’s day-to-day business demands are key to the role of a corporate treasurer. A corporate treasurer plays an important role in improving or maintaining the financial health and success of a business.
Sarah Alade, deputy governor, economic policy, CBN, noted these at the maiden breakfast meeting of the Association of Corporate Treasurers of Nigeria (ACTN) held in Lagos, last week, with the theme “The Economic Outlook for 2017 and its impact on the Corporate Sector.”
“As treasurers, you are in a vintage position to know where the shoes pinches and you can collectively address the nuances in the system. The weather ahead is not so friendly, but dogged determination by your good selves would help ride the stormy headwinds,” Alade, who was represented by Moses Tule, director, monetary policy, CBN, said. “As Treasurers, you all know that stability is a key business objective.”
She noted that achieving appropriate macro-economic policies had continued to be a great challenge to the monetary authorities, saying, “The monetary authorities are currently faced with very difficult choices in the trade off between tackling inflation, supporting growth and exchange rate stability.”
The ACTN was launched on December 12, 2012, to foster the interests of corporate treasurers of the buy-side and non-bank sell-side of the Nigerian financial markets by providing the platform for policy advocacy, discussions on issues of mutual interest, education/enlightenment and standards development of the corporate treasury function.
The breakfast meeting had panel session on currency, funding and liquidity management. Speaking during the panel session, Akin Dawodu, CEO, Citi Bank Nigeria, one of the discussants at the panel session, said, “2017 is really just another year. Corporate treasurers must be concerned about the liquidity situation of their institutions. That is an important factor they must all be concerned about. For Medium to Small sized corporates, they should expect to see liquidity challenges within a tight monetary policy environment. They have to keep a focus on liquidity of their corporates.”
Also speaking, Bola Onadele.Koko, MD/CEO, FMDQ OTC Securities Exchange, urged corporate treasurers to always articulate their problems and think of solutions to them from the bankers and investment bankers. “In 2017, private company bond rules will be published by FMDQ. This will enable the private companies tap from the debt capital market,” Onadele.Koko said.
On the outlook for 2017, Onadele.Koko noted: “If this government continues and maintains status quo, I don’t think this planet should be as cosy as we expect in 2017. For us to close the widening foreign exchange gap there has to be liquidity at the interbank market. That gap will not shrink as long as the interbank market is not liquid. ”
Zeal Akaraiwe, CEO, Graeme Blaque Advisory, said, “The challenge in the FX market, a sub-sect of the economy, has not been addressed. Regulators are crowding out the corporate sector from assessing fund. As long as this continues, we cannot produce as a nation, and when we don’t produce as a nation a lot of people will continue to lose jobs. We need to focus on the productive sector of the economy.”
Another discussant, Yinka Edu, partner, Udo Udoma & Belo-Osagie, noted, “liquidity is a big issue and will continue to be a big issue in 2017.”
According to Edu, the widening disparity between official FX rate and that of the parallel market is having a huge effect on investments.
According to the CBN deputy governor, “the macroeconomic environment in 2017, given the imperative to finance growth and take the economy out of recession, would be quite challenging for monetary policy. We foresee strong fiscal injections arising from increased fiscal activity leading to pressure on the exchange rate and upward price trends against the environment of global financial repression in the advanced markets.”
She further added that Corporate Treasurers hold the key to financial stability in 2017 “through professionalism and out of the box unusual professional financial engineering through reinvesting and harnessing our positive energies and ingenuities.”The CBN expects its intervention to remain squarely measured, but largely tilted towards price stability conducive to growth.
At the meeting, the apex bank drew the attention of participants to “the seeming disconnect between monetary policy and the real economy.” “Dwindling credit to private sector in spite of the liquidity surfeit in the banking system remains a puzzle contrary to conventional wisdom. The headwinds I see tells me that only when you act together would you survive the tsunami.
‘Thus, while transparency, professionalism, corporate governance and ethics draw you closer to each other, destructive cut-throat competition and oligopolistic dominance sure prepares a nesting place for failure of our banking institutions as was the case in our recent past,” Alade said.
Few days to Christmas and New Year celebrations, importation of luxury items like SUV vehicles and jewels, industrial supplies, foods and non-African fabrics that characterised importation in most Christmas season, has reduced drastically as consumers demand remained low over dollar scarcity and poor purchasing power.
As a result, the volume of import through the nation’s seaports in the month December this year, witnessed about 76 percent drop, when compared with the volume the same period in the year 2014 and 2015.
This, according to analysts, is trigged by the inability of importers to have access to foreign exchange together with the lingering economic recession and high rate of inflation that hiked the market prices of goods, and limiting the purchasing power of consumers who now invest their little income on household supplies, food items and less luxury items.
According to the Nigerian Ports Authority (NPA) daily shipping position, the cargo throughput in the Lagos Pilotage District, which stood at 700,852.6 metric tons in December 2014, reduced to 435,428.96 metric tons in December 2015, and in the same period this year, it further dropped to 163.452.89 metric tons.
The NPA shipping position further disclosed that container throughput, which stood at 12,520 twenty equivalent units (TEUs) in 2014, dropped to 7,447 TEUs in 2015 and further declined to 5,903 TEUs in December 2016. The number of ships traffic into the Lagos Pilotage District, which was 60 in 2014, reduced to 38 in 2015 and 21 in 2016.
The shipping position however listed containerised cargoes, premium motor spirit (PMS), bulk gypsum, bulk salt Automated Gas Oil (diesel), JET A1 (aviation fuel), bulk wheat, bulk fertilizer, frozen fish, bulk rice and bulk sugar as commodities that are expected to be in the port before Christmas.
“There are drop in ship traffic and the volume of containers coming into the seaports despite the fact that Christmas and New Year celebrations are few days away. Many businesses including individuals were not able to raise finance to go into importation due to high dollar rate, and the most affected are industrial supplies like raw materials and construction goods,” Tony Anakebe, managing director of Gold-Link Investment Limited, a Lagos-based clearing and forwarding company, said.
According to Anakebe, items that are coming in gradually are goods tagged ‘personal effects’ owned mostly by Nigerians in Diaspora, who want to reach out to their families in Nigeria.
Continuing, Anakebe said: “The importation culture of Nigerians has changed following the Central Bank of Nigeria (CBN) monetary policy that does not allow importers free hand to import. With the CBN policy restricting importers of 41 selected items from accessing foreign exchange at interbank rate, many importers, including manufacturers, no longer import.”
Comparing the current importation business with what it used to be in the past, Emmanuel Nwabunwanne, a Lagos-based importer, who deals on imported exotic jewelleries, said sales had been low throughout the year and this month of December was no exception to the reality on ground.
“I am not surprise that Nigerian seaports are presently empty. In the past, we used to have Christmas rush but now my company has not been able to sell off the inventories that we managed to stock earlier in September this year. This is unlike the previous Christmas seasons that we stock our sales outlets many times from the time we enter the ‘ember months’ till January the following year,” Nwabunwanne said.
Jonathan Nicole, president, Shippers’ Association of Lagos State, confirmed that the issue of foreign exchange and the restriction placed on 41 selected items had affected the volume of goods coming into the country.
The port, he pointed, is operating at its lowest ebb because it is only few importers that are taking the risk despite the odds, because they believe that they can still sell the goods based on the rate at which the foreign exchange is obtained.
“Most manufacturing companies were no longer importing their critical input as it used to. Investors that used to bring imports are no longer doing so due to the current economic situation and people are not sure of how to invest and make profit,” he said.