President, Association of Asset Custodians of Nigeria, Mr Abiodun Adebimpe, in this interview previews Nigeria's economic landscape as well as the association's forthcoming annual conference. Excepts
Thank you for making out time to have this conversation. In a few words, how would you describe the Nigerian economic landscape presently?
Such words as tough, hard, difficult, challenging, dire, and grim, among others, have been variously used to describe the current situation in Nigeria. This is irrefutable. Looking at it from major economic indicators, the situation will almost seem hopeless, and possibly unnerving.
With soaring inflation rate, and high price of food items, massive importation, plummeting crude oil prices, a weakened Naira engendered by Dollar shortage, higher cost of refined petroleum products due to subsidy removal, unemployment, infrastructural deficit and insecurity, the outlook is clearly not exciting.
You cannot expect to have stability in an environment ravaged by hunger and poverty. In fact, the early August protest on #EndBadGovernance is an awakening for the government that social unrest may become inevitable, except things take a better turn. A very youthful nation like ours cannot afford to sustain the current level of unemployment, minimum wage for long without some threat to the peace and stability of our dear nation.
At a time, a Bloomberg report described the Naira as the world's worst performing currency. It was concerning undoubtedly. But there are also reasons to be optimistic.
Let us also be mindful of the fact that what we have now is the fallout of cumulative mismanagement, both from the economic, social and political angles in the last decade, which worsened in the last two years due to the Russia-Ukraine war. But I don't see any positives coming out of trading blames or unhelpful propaganda. So, the task at hand is to find lasting solutions to the identified challenges, with all hands on deck, so to speak.
To be honest, the current government is undertaking a lot of bold economic reforms on both fiscal and monetary fronts and it is expected that these reforms would eventually have positive impacts on the welfare of the people.
You as well as your association, the Association of Asset Custodians of Nigeria, are advocates of market-friendly economic environment, with the inherent opportunities that it engenders. Will you say the incumbent government is working towards attainment of this prospect?
Just a little clarification! The market-friendly economic environment that we advocate is still an ideal, though attainable with proper planning and execution. It is a situation where the government creates the right structures and environment that allow the private sector the latitude to initiate and make most business decisions without much hindrance. In essence, the forces of demand and supply are allowed to determine the market outcome. This situation exists in several advanced economies, and has created the inherent capacity to build prosperous economies. In Nigeria, where we hope to see this happen, it still remains a far-flung journey. But we must start from somewhere. The Nigerian economy, given its current structure, is still hugely dependent on government for funding and direction. Not a problem! But in performing its core functions, the government is often encumbered by several extraneous factors that prevent it from focusing on strategic management. I guess you know the factors I mean. It may also be a matter of inaccurate appreciation of the economic levers and drivers. Given the comatose and disorganized economy that the current administration inherited, it consequently launched several policies to remodel the economy and reinstate a macroeconomic environment to ensure stability and propel growth. It is an ongoing process. We have witnessed a mixed grill in terms of the outcome of such policies, though many say the administration is still young and has ample time to restrategise. For instance, the removal of fuel subsidy, which was meant to reduce a major drain on revenue and engender a competitive market, has backfired. The price of PMS in particular has skyrocketed beyond expectations and scarcity persists despite the best efforts of NNPC and its oil sector regulatory entities. It is for now a money guzzler for most Nigerians, with the attendant crunch on purchasing power. We hope to see an elixir when the Dangote Refinery becomes fully operational. Also, the management of the country's currency is yet to produce the rightly-priced currency that every Nigerian expects. The Naira is one of the most talked about issues in the country due to its depreciation and uncertainty around its valuation, especially in exchange for the US Dollar and purchasing power. We are still optimistic that the efforts of the monetary and fiscal authorities will soon yield the expected results.
Yes, talking about Nigeria's local currency, the Naira! It has lost considerable value against the US Dollar in the last 1 year, given an unpredictable foreign exchange market and dwindling revenue. What will be your first take on how the CBN has been managing the FX market so far?
There is no perfect solution in tackling any challenge. You devise solutions based on identified challenges. After a policy or solution is introduced, it is subsequently reviewed to determine whether it is addressing the desired outcome, otherwise you would have to revise your strategy. It becomes a continuum. We must first understand the Naira's problem. While the GDP is well diversified with Agric, ICT, Trade and Telcom sectors alone contributing about 70% based on Q2: 2024 GDP data from the (National Bureau of Statistics) NBS, Nigeria remains largely a mono-product exporting economy which is majorly dependent on FX revenue from crude oil sales with huge import bills, especially on refined petroleum products. The country makes over 90 percent of its foreign exchange earnings from crude sales. The proceeds from petroleum exports, which are usually in US Dollars, have over the years been used to sustain the value of the local currency. But crude oil is a global commodity dependent on the forces of demand and supply. And for quite a while, the global oil market had been unstable, resulting in prices tumbling considerably. Therefore, the door through which the Dollar was flowing into our treasury, and which kept the Naira fairly stable, was broken, and with that the currency came crashing. In response, the immediate past administration, while pegging the price of the Naira to the US Dollar, also ushered a multiple exchange regime that rather distorted the market and forced the CBN into expending huge amounts of its reserves to defend the Naira. There was never market stability. The policy collapsed with the inauguration of a new administration. President Bola Tinubu, upon inauguration in May 2023, and appointment of new leaders for the CBN, introduced an array of reforms, hallmarked by the unification of FX markets and a market-driven exchange rate. So far the reforms have been bumpy. The value of the Naira is gradually stabilizing though the real value of the Naira against the US Dollar remains a topic of debate. There is no permanent cure in the short term unless there is a major trigger in the oil market that results in higher prices and more income for the country. Therefore, all eyes will remain focused on the CBN on its monetary and exchange rate policies to ensure price stability as well as crude oil production levels.
With inflation in mind, what tips would you be offering the CBN in managing the interest rates going forward?
The NBS has been consistent in reporting the inflationary trends in Nigeria for a while. For the most part, it has been troubling due to the high cost of goods. Something is unmistakable: inflation is something that virtually everyone has an opinion on. The increasing cost of energy and food prices, and the burden it puts on the people, naturally arouses the consciousness of everyone about the causal factors and consequences. Some have said that because Nigeria imports wheat from Russia and Ukraine, the war between the two countries has curbed such imports, resulting in increases in price of the commodity in Nigeria. We have also heard that the oil subsidy removal, devaluation of the Naira and unification of forex windows are contributory factors to the soaring inflation in the country. Of course, there is insecurity ravaging the country with the attendant constraint on farming, particularly in the rural areas. So, there are clear factors responsible for the worsening inflation rate. Some of these factors are within the range of the regulatory authorities - mainly the CBN and the Federal Government - to contain, while others are well beyond their powers. So, they know where to focus. So far, the CBN has focused on monetary policies around hiking interest rates to rein in inflation, returning to orthodox monetary policies. We have also seen efforts by the Federal Government by increasing taxes and encouraging food importation to curtail inflation. A medium to long term approach is to aim for increased local production of the food items on which the country expends considerable foreign exchange. Part of this would entail empowering local farmers with various incentives and security to cultivate and preserve staple crops to curb food inflation. Also, ways must be devised to curtail expenditure on education and medical treatment abroad, as well as foreign trips which consume a considerable amount of foreign exchange. In addition, SMEs should be accorded priority if we are hoping to see the sector become the foundation of the economy.
In some quarters, there is the argument that Nigeria is not quite mature yet to manage a virtual currency and play seamlessly in the crypto market. Where do you stand on this?
I still remember the euphoria that accompanied the introduction of the e-Naira in October 2021, making Nigeria one of the first countries in the world to develop a central bank digital currency. The expectation was that the country would derive enormous benefits from the initiative. The then Governor of the CBN announced that the virtual currency was the fruition of a four-year research conducted by the apex bank, and designed to serve as a medium of exchange and store of value. A sum of N500 million was reportedly minted for the currency's inauguration. In summary, I will say the e-Naira was introduced in response to the breakout of the COVID-19 pandemic which prompted swift progression in financial technology. For the apex bank, it was an opportunity to broaden the payment possibilities in Nigeria, and bolster digital financial inclusion. The digitization of money and finance fell in line. However, recent issues with Binance have changed the whole landscape completely. Both the CBN and the Securities & Exchange Commission (SEC) are working to arrive a good landing for our country as far as digital currencies and assets are concerned.
On the other hand, the crypto market is here to stay with its general acceptance globally. You can hardly discuss the financial market without mentioning crypto currencies. Bitcoin, Ether and Binance have become household names in the world. In Nigeria, cryptocurrencies are legal but organizations must register in order to operate in the country. Nigeria is one of the world's biggest cryptocurrency markets. Cryptocurrency transactions in the country, according to several reports, are estimated in billions of Dollars, with Bitcoin and Ether as the most-traded. BNB and Dogecoin are also other popular options in Nigeria. The allegation by the CBN that Binance Nigeria moved a whopping USD26 billion worth of undetectable funds is a pointer to the size of the market. The suspension of cryptocurrency firms by the incumbent administration, as part of measures to stabilize the Naira and the FX market, has its advantages and disadvantages.
How would you assess the current situation regarding the Ease of Doing Business, protection of investments and building a burgeoning capital market in Nigeria?
The government and other regulatory agencies are doing their best to create a conducive environment for businesses to thrive, including the financial services industry. Confidence in a system is a principal determinant of the decision to invest in any economy or a capital market.
Ordinarily, Nigeria boasts of the fundamental elements required to be a top investment destination. When you look at our huge and rapidly growing population, abundant natural and human resources, accommodating spirit, arable landscape and waterways, you will agree that the country presents a strong case for profitable investment. For instance, Nigeria ranked 9th out of 31 African countries reviewed and ranked across various metrics in Rand Merchant Bank's 2024 annual Where-To-Invest-In-Africa (WTIIA) report recently published. Nonetheless, we shall not overlook such bottlenecks as poor infrastructure, epileptic electricity supply, bad roads, and insecurity. The government is aware of these hindrances.
The COVID-19 pandemic ended with an attendant deepening of technological solutions and innovations across the board. Looking at your industry, are there still some areas where you think further finetuning is required or even strengthened?
Good and hard lessons were learnt from the pandemic. Prior to its outbreak, the banking sector, at least here in Nigeria, was already moving towards enhanced innovation and digitization, which was aimed at meeting customer expectations of modern banking. The banking landscape, based on studies and customer feedback, took note of the growing strength of millennials and other tech-savvy groups that you may describe as the digital generation. Their yearnings almost pushed traditional banking to the precipice and prompted the need for change of course. The industry went back to the famous drawing board. While this was ongoing, COVID 19 struck and took the world to largely uncharted waters. The global economy was not just disrupted, it was devastated. Rapid responses were needed; a shift in operational frameworks across sectors became imperative. So, COVID 19 undoubtedly accelerated and deepened innovation and digitization in the banking industry and indeed other sectors of the economy and society at large. As to the issue of some areas in banking needing further finetuning or strengthening, I will say that that depends on each institution and how they want to serve and be seen by their clientele. But I don't see any organization abandoning the lessons of COVID-19, which has become a global new normal. Can technological advancements be reversed? No.
In an interview last year, you were reported to have said that the Nigerian economy has adapted to evolving changes in the macroeconomic space, with its fundamentals remaining very strong. Do you still hold this view?
I still hold the view to a large extent. As I mentioned somewhere in the course of this interview, Nigeria did not become the largest economy in Africa and one of the largest economies in the world for nothing.
You may say that the productive base remains weak, but Nigeria possesses those fundamentals that attract such investments to propel the economy forward. Take the population for instance; it is not just the largest in Africa and the black world, but it is also dominated by the youth. This means that apart from being a huge consumer market, it is endowed with the energy and manpower to drive economic growth. Another example is the vast endowment of natural resources in such areas as agriculture and mining. Petroleum is already well-documented. All these are game-changing sectors with proper management.
No doubt, there are several structural obstacles, such as inadequate infrastructure, trade barriers, erratic power supply and insecurity. I believe that large scale agriculture and industrialization will put Nigeria on the road to achieve its full economic potential. Strategic reforms are required to trigger this transformation.
What is the current state of the Nigerian custody industry considering that confidence is a critical anchor in the success of the industry as this enables investors to determine the safety of their assets?
The unprecedented volatility that heightened operational and business risks for global and sub-custodians and their operating models is now a thing of the past. The industry has since recovered from macroeconomic disruption caused by COVID-19. Stability has since returned to the markets and optimism steadily on the rise. As part of the capital market ecosystem and the economy in general, we have regained our poise to offer best-in-class services to our clients.
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Regarding your flagship event, the Nigerian Investors Conference, can you avail us of some insight about what to expect in this year's edition?
The 2024 conference will take place in London, England at the Double Tree by Hilton London - Docklands Riverside on Thursday, 19 September 2024 at 8:30 am GMT with the theme "Nigeria: Open to the World". The conference will project the Nigerian capital market as the leading driver of the country's economic development. It will also, in line with its tradition, focus on driving sustainability and growth in the financial market, and showcase the continued positive impact the political transition has had on the development of the capital market. The Central Bank of Nigeria's (CBN) Deputy Governor, Economic Policy, Mr. Mohammed Abdullahi, will present a keynote address on the CBN's role in maintaining monetary policies and stability and its current initiative for attracting foreign investment in the capital market. As part of the conference objectives, we hope to present Nigeria to the world as an attractive investment destination despite the prevailing global economic challenges, while affording participants the opportunity to enhance their knowledge and confidence in the Nigerian capital market. The 2024 conference also aims to raise the visibility of Nigeria in the international market, boost investors' confidence in Nigeria and create a networking platform for custodians, fund/asset managers, broker-dealers, registrars, regulators, Government Officials, local and international investors in the Nigerian market.
AACN will be 15years this year. Considering this upcoming anniversary, how has AACN evolved over the past 15 years? What has been the major achievement/ success so far and what are the AACN's goals for the future?
It has been a journey. AACN has really evolved over the past 15 years. At the beginning, we comprised of five-member institutions but now we are 11. AACN has made the Nigerian Capital Market more suitable for investors and facilitate the growth of global best practices in our market. We regulate and harmonize the activities of our members and enhance the exchange of information for their benefit and that of the industry. Over the past 15 years we have had several notable achievements, some of which are: Worked with the Central Bank of Nigeria in developing the guidelines for custody of money market and other fixed income instruments; Electronic certificate of capital importation (e-CCI); our collaboration with Securities and Exchange Commission (SEC) on Securities Lending & Borrowing; the mandatory appointment of custodians to registered Collective Investment Schemes as well as privately managed products. We are currently working with the CSCS on reducing the settlement timeline of equities from T+3 to T+2. The Association is represented on SEC disciplinary Committee, SEC Capital Market Retreat Planning Committee, on the Board of FMDQ Depository, NQX dealing Clerk interview panel. Our goal for the next future is to remain relevant in the capital market by continuing to grow with the global best practices in our market.
In what ways has the association supported the local community? Does the association currently have any active CSR projects?
AACN believes in giving back to the community. We participate actively in supporting community initiatives. Part of our social responsibility is to mentor teenagers/students in government owned schools in Lagos State. We know we can't change the world at once, but we can change the world of one person at a time.
How is the association commemorating its 15th anniversary on this momentous occasion? What unique activities or events are scheduled for the anniversary?
To celebrate this year's 15th anniversary, the AACN is looking at a number of activities. The capital market will be notified once the plans have been finalized.
