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COVID-19: Capital Market Recapitalisation Not Desirable Now – Operators

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Capital Market Operators (CMOs) yesterday called on regulators to suspend any fresh plan for recapitalisation of the stockbroking community for now, due to economic realities occasioned by COVID-19 pandemic.

Mr Tunde Amolegbe, President, Chartered Institute of Stockbrokers (CIS), gave the advice at a webinar organised by the Capital Market Academics of Nigeria.

Recall that the Securities and Exchange Commission(SEC) in February hinted of plans for recapitalisation of stockbroking firms ahead of the change of ownership of the Nigerian Stock Exchange.

Ms Mary Uduk, then SEC acting Director-General, said with only 10 per cent of the 255 stockbroking firms controlling 80 per cent of the market activities, there was a need for recapitalisation.

Speaking at the webinar, Amolegbe said regulators should suspend any such move for now due to the coronavirus pandemic.

He said COVID-19 had slowed down NSE demutualisation programme, noting that funding challenge of the CIS would be more aggravated.

The CIS president said that given its importance, the Federal Government should treat the capital market as a priority sector with regard to COVID-19 alleviation strategies.

“In view of the existing major constraints with regard to trading liquidity, the Central Bank of Nigeria should formulate policies that will drive more liquidity into the hands of CMOs, especially equity traders,” he said.

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Amolegbe said that stability and growth of the equity market would catalyse overall market rebound and economic growth.

“We can start with banks giving significant concessions to CMOs through margin facilities and other lines of credit for trading,” he said.

According to him, banking stocks should be restored to marginable stocks list with strengthened guidelines.

Amolegbe also called for industry-wide effort on reducing unclaimed dividend phenomenon, using innovations brought about due to COVID situation.

He said the time-to-market for new debt and equity issues should be reduced in order to get funding to critical sectors of the economy.

The CIS chief also stressed the need for the launch of a derivatives market because it was needed to hedge investments at a time of elevated risks such as this.

He observed that the Nigerian capital market was substantially challenged even before the coming of the coronavirus.

“The equity market, which drives performance of the other market segments had been characterised by low investor patronage and low liquidity ever since the global financial crisis which hit Nigeria in 2008,” he said.

On recommendations for CMOs, he urged them to embrace and elevate use of technology in their operations, especially remote business devices.

He explained that COVID-19 had shown that it was possible to run 100 per cent e-brokerage without the need for a physical location.

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Also speaking, Dr Suleyman Ndanusa, former SEC DG, said regulatory environment must be innovative and as well embrace business continuity plan.

On the role of regulators in mitigating the impact of COVID-19, Ndanusa said modern economy was dependent on sound capital market.

He said that market regulators must ensure ease of doing business to attract more foreign portfolio and direct investment into the country.

Ndanusa said regulators must stay nimble and create regulatory environment for innovation and expect regulatory changes that come with added costs.

He noted that regulatory budgets must be architected for efficiency, savings and value for money.

Ndanusa called for automation of regulatory reporting obligations, Internet of things (IOT) devices and data to automatically prescribe trade malfeasance and remediation.

“The COVID-19 induced crisis is a call to deepen reforms in the Capital Market Regulatory landscape. The future is now, so lets take it,” he said.

Ndanusa tasked regulators on investor protection and transparency to boost confidence in the Nigerian capital market.

Prof. Wilson Herbert, of the Federal University Otuoke, called for introduction of new products that would centre on challenges posed by COVID -19.

BUSINESS

Foreign Inflows Fall by 32%, UK, South Africa, others Slash Nigeria Investments

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The Central Bank of Nigeria has disclosed that capital importation into the country fell by 32 per cent to $500m in October 2021, from $660m recorded in September.

The CBN disclosed these figures in its latest monthly economic report (October) recently released on the bank’s official website.

The decline is a negative turnaround from the increase recorded in September when capital inflow rose by $220m from $440m in August.

The report also shows that there is a corresponding decline in investment inflows from the United Kingdom, South Africa and other countries leading the pack in capital importation into Nigeria.

A breakdown of the inflows recorded in October shows that foreign portfolio investments dominated capital importation with a value of $330m.

The CBN said, “New capital importation decreased by 32.0 per cent to US$0.50bn in October 2021, from US$0.66bn in September 2021.

“Disaggregation of capital importation by type of investment shows that foreign portfolio investment inflow (mainly money market instruments), at US$0.33bn, decreased by 34.0 per cent, relative to the US$0.50bn in September 2021.

“Despite the decline, portfolio inflow remained dominant in total foreign investment, accounting for 65.0 per cent.

“The inflow of other investments, mostly loans, was US$0.14bn or 28.2 per cent of the total, a slight increase from US$0.13bn in September 2021.

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The report also noted that foreign direct investment accounted for only 6.8 per cent of capital inflows in October at $30m.

Considering capital importation by nature of business, the central bank said financing led the chart representing 47.4 per cent, banking stood at 13.8 per cent, shares got 12.9 per cent while trading was 8.9 per cent.

Other sectors such as telecommunication and service contributed 7.4 per cent and 3.8 per cent, production/manufacturing accounted for 3.6 per cent while agriculture contributed 2.1 per cent.

The CBN added that, “Capital importation by country of origin indicates that the Republic of South Africa led the pack (46.1 per cent), followed by the United Kingdom (16.4 per cent) and Singapore (10.0 per cent). The Netherlands contributed 9.5 per cent, the United States of America (9.4 per cent), Guinea (2.0 per cent), Mauritius (1.8 per cent), United Arab Emirates (1.0 per cent), Czech Republic (0.9 per cent), and Denmark (0.9 per cent). Others accounted for the balance.

“Analysis of capital importation by destination (states), reveals that Lagos and Abuja were the main recipients with US$0.44 billion (or 88.3 per cent) and US$0.06 billion (or 11.7 per cent) of the total, respectively.”

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FIRS Loses N5.8bn to MDAs Tax Evasion, Others – Report

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The non-remittance of tax deductions by ministries, departments and agencies of government as well as the House of Representatives and Senate led to the loss of tax revenue of N5.8bn by the Federal Inland Revenue Service in 2019.

The Office of the Auditor General of the Federation disclosed this in its 2019 Annual Report on non-compliance, internal control, and weakness issues in MDAs of the Federal Government of Nigeria for the year ended December 31, 2019.

The MDAs are the Federal Ministry of Agriculture and Rural Development; Federal College of Freshwater Fisheries Technology, New Bussa; Advertising Practitioners Council of Nigeria; Nigerian Civil Aviation Authority; Nigerian Communications Satellite Limited; Hussaini Adamu Federal Polytechnic, Jigawa State; Federal Medical Centre, Keffi, Nasarawa State’ Department of Petroleum Resources; National Assembly Service Commission; and Nigerian Correctional Service.

The report said between 2018 and 2019, the MDAs failed to either remit one per cent stamp duty, value added tax, withholding tax or Pay As You Earn tax deducted from awarded contracts, thereby contravening sections of the Financial Regulations and Treasury Circular issued on December 29, 2015.

According to the report, Paragraph 234(I) of the Financial Regulations states that ‘it is mandatory for accounting officers to ensure full compliance with the dual roles of making provision for the Value Added Tax and withholding tax due on supply and services contract and actual remittance of same’.

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It quoted Paragraph 235 as saying, “Deduction of VAT, WHT, and PAYE shall be remitted to Federal Inland Revenue Service at the same time the payee who is the subject of deduction is paid.”

According to the report, the Treasury circular Ref No. TRY/A12&B12/2015 and OAGF/CAD/VOL.II/390 dated December 29, 2015 states that “1% Stamp Duty chargeable on contract awards and the remittance be made to the relevant tax authority (Federal Inland Revenue Service).”

It said, “The audit observed that the sum of N5,828,621,715.06 was the amount of taxes not remitted by 12 Ministries, Departments and Agencies.

“The Nigerian Civil Aviation Authority has the highest amount of N2,984,887,250.00 while Federal College of Freshwater Fisheries Technology, New Bussa has the least amount of N1,021,011.13.”

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BUSINESS

Customs Targets N4.1trn Revenue in 2022

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The Nigeria Customs Service (NCS) says it has a revenue target of N4.1 trillion in 2022.

NCS had said it generated N2.3 trillion revenue in 2021, exceeding the target by N63 billion. The FG had set a 2021 revenue target of N1.

67 trillion for the agency last year.

Yusuf Malanta, customs area controller (CAC), Apapa Command of NCS, disclosed this during a press briefing in Lagos yesterday.

According to Malanta, the command gathered N870.4billion from importers in 2021.

Furthermore, he said the revenue profile of the command increased significantly by 68 percent in 2021, compared to N518.

4 billion collected in 2020.

He also said the Apapa command was ready to achieve the 2022 revenue target.

“The revenue target of the NCS has been increased to N4.1 trillion,” he said.

“For us in Apapa Area Command, we have already boarded and fastened our seats towards the realization of this revenue target.

“We hope that the service will surely leverage the deployment of digital transformation of Customs business processes which will further take care of many control mechanisms through its risk management system.”

Speaking on the revenue collected for 2021, Malanta said despite COVID-19, gridlock, and other challenges, they were able to overshoot their target.

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“Despite the enormous challenges faced in the trade supply chain; occasioned by Covid-19 pandemic still ravaging economies around the world, high cost of freight, incessant traffic gridlock, rail construction through the port, as well as ensuring an increase in compliance level from stakeholders, the Command between January and December 2021 was able to collect a revenue of N870,388,340,650.65 and remitted to the federation and non-federation accounts of the Federal Government, respectively,” he added.

“This clearly shows that the revenue profile of the command has significantly increased by about 68% when compared with the collection of N518.4 billion in the year 2020.”

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