Reforms implemented by the federal government in the second quarter of 2023 have made this year more challenging than usual for consumers and businesses.
Liberalization of the foreign exchange system as part of economic revitalization measures resulted in a significant devaluation of the naira.
In June, the Central Bank of Nigeria merged all sectors of the foreign exchange market into an investor-exporter window and reintroduced the willing-buyer, willing-seller model.
Since then, the naira has continued to depreciate against the dollar and other major foreign currencies.
The official exchange rate fell from 463.38 Naira/$ to 889.86 Naira/$ as of December 15th. In the parallel market, the Naira depreciated from 762 Naira to 1,186 Naira/USD.
“Currency devaluation has increased government revenue in terms of Federal Account Allocation Committee (FAAC) allocations. It has also allowed us to reduce the gap in government revenue in the budget,” said Optimus by Afrinvest Limited. said Ayodeji Eboh, Managing Director and Chief Business Officer.
He added that if the funds are used properly, it will have an impact on the economy, especially on the state.
“The devaluation has increased revenue and strengthened the government’s ability to deliver on its promises, including interventions, infrastructure development and reduction of state government salary arrears,” said Adeola Adenikinju, a Nigerian economics professor and chairman. . The Economic Association said.
Tax revenue from companies more than doubles in one year
Tax payments from foreign companies have more than doubled the federal government’s corporate income tax revenues. According to data from the National Bureau of Statistics (NBS), total revenue for the third quarter increased by 115.9 percent to N1.75 trillion from N810.2 billion in the same period last year.
It also increased by 14.3% quarter-on-quarter from N1.53 trillion.
Payments from foreign companies increased by 116.9 percent to N1.1 trillion in the third quarter from N505.99 in the second quarter, the highest since 2015. However, the turnover of local companies declined by 36.4% from N1.2 trillion to N651.6 billion, reflecting the country’s challenging business environment.
At the public presentation of the country’s 2024 budget proposal last month, the Minister of Budget and Economic Planning, Abubakar Bagudu, said the federal government had raised a revenue of N8.65 trillion in the first nine months of this year compared to the pro rata target. revealed that it had been achieved. 8.28 trillion naira.
Of the N8.65 trillion revenue, N1.42 billion came from oil revenue while non-oil revenue totaled N2.5 trillion.
“The impact of currency unification continues to have a positive impact on overall government tax revenues,” said Yomi Olugbenro, Partner and West Africa Tax Leader at Deloitte.
Weak Naira increases overseas demand for local products
While the naira continued to fall, the West African CFA franc, the legal tender of Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo, strengthened.
This has made some goods produced in Nigeria cheaper than in other African countries. On the official market, the naira depreciated from 463.38/$ on June 9th to 888.35/$ as of December 18th. The naira fell against the West African CFA franc from 0.76 to CFA1 to 1.31 to CFA1 on June 9th. As of December 18th.
Weemi Industries Limited Managing Director and Chief Executive Officer Paul Odunaiya told Business Day that the weaker currency is helping the company’s business in terms of exports.
“A cheap currency makes goods cheaper and it becomes easier for countries with strong currencies to buy goods. The CFA allowed us to enter the market,” he said.
Increased demand for goods from other African countries creates more naira for manufacturers to source raw materials for production.
“Currency devaluation helps exporters bring foreign exchange back into the country and means more naira for exporters. But we have to remember that the cost of production has gone up,” says Manufacturer Nigeria. Mr. Odili Erewa Meggison, Chairman of the Export Promotion Group,
Trade surplus increases to highest level in five years
Africa’s largest economy’s trade surplus rose to its highest level in five years and three months in the third quarter. A trade surplus occurs when a country’s exports exceed its imports.
According to NBS, the country recorded a trade surplus of 1.89 trillion naira in the third quarter for the fourth consecutive year, an increase of 166.2% from 708.9 billion naira in the previous quarter. This was an improvement from the trade deficit of 409.4 billion naira compared to the same period last year.
Israel Odubola, a Lagos-based research economist, said essentially the increase in trade surplus could be linked to the effect of currency devaluation, meaning the country would earn more naira per dollar of export earnings. He said it would be.
“A positive trade surplus is good for the current account because it helps relieve external pressures. Trade surpluses are very important in the composition of the current account.”
Significant profits for banks
Since the currency devaluation, Nigerian banks with overseas assets have recorded a surge in profits.
According to banking statistics, the combined after-tax profit of eight banks in the first half of this year rose 237.8% to 1.31 trillion naira from 388.8 billion naira in the same period last year, the highest level in at least four years. Latest unaudited financial statements.
The banks analyzed are Zenith Bank, United Bank for Africa (UBA), FCMB Group, Wima, Stanbic IBTC, FBN Holdings, and Fidelity and Guaranty Trust Holding Company (GTCO).
Gbolahan Ologunro, portfolio manager at FBN Quest, noted that banks benefited from currency adjustments by the current administration.
“We’ve never seen a correction this big before. Higher profits are good for banks because they get more dividends per share to pass on to shareholders.”
UBA announced an interim dividend of 50 kobo per share for the first half of 2023, up from 20 kobo per share for the same period in 2022.
GTCO increased its interim dividend from 30 kobo to 50 kobo per share, while Fidelity Bank’s interim dividend jumped from 10 kobo to 25 kobo per share.
Zenith Bank has declared an interim dividend of 50 kobo per share for the first half of 2023, up from 30 kobo per share for the same period in 2022.
In the first nine months, the bank’s profit after tax also increased by 179.4% to N1.76 trillion from N633.26 billion in the same period last year.
FAAC allocation increased 38% in 7 months
Following the foreign exchange reform, FAAC disbursements to the three tiers of government (federal, state and local) increased by 37.9% to N1.08 trillion in November from N786.2 billion in May.
This growth rate is higher than the 32.5% recorded in the same period last year.
In August, the amount allocated exceeded the 1 trillion mark.
Moody’s and S&P raise Nigeria’s outlook rating
A global rating agency has raised its outlook for Nigeria on the back of government reforms.
Earlier this month, Moody revised the country’s outlook to positive from stable, citing the possibility that authorities’ reform efforts could reverse the deterioration in its fiscal and external standing.
The agency also affirmed the long-term foreign currency and local currency issuer ratings of ‘Caa1’.
In August, S&P revised its outlook on government reforms from “negative” to “stable.” The company believes that reforms, if implemented, could benefit the country’s growth and fiscal outcomes.
The agency also confirmed the rating of Africa’s largest economy at ‘B-/B’.
