Recently, the maiden Breakfast Meeting of the treasurers of the non-bank corporate sector held in Lagos with the theme “The Economic Outlook for 2017”. The Meeting organized by the Association of Corporate Treasurers of Nigeria (ACTN) had panel discussions on Currency, Funding and Liquidity Management. The gathering was very apt given the current state of the global and domestic economies. Global economic growth has stalled while the Nigerian economy has been expressing sluggish growth and been in recession since the first quarter (Q1) of 2016.
The keynote address was delivered on behalf of the Deputy Governor, Economic Policy, Central Bank of Nigeria (CBN), Sarah Alade, by the Director of Monetary Policy, Central Bank of Nigeria, Moses Tule. The panel discussants were experienced practitioners drawn from the Nigerian financial markets.
The keynote address alluded to the fact that the external environment was fraught with so many uncertainties – ranging from oil prices, foreign exchange, outcome of the US elections and the impact on the Asian economy – and the Nigerian situation worsened by poor infrastructure, a fallen price system, depreciation of the currency, low fiscal capacity, weak commodity prices, etc. which have left monetary authorities with very difficult choices in the trade-off between tackling inflation, supporting growth and exchange rate stability.
The address emphasised the need for focus on building strong financial institutions that can withstand these shocks and uncertainties, noting also that the era of cut throat competition was over for good and the survival of the financial system and the economy rest on the collective effort of treasurers by ensuring increased financial intermediation.
The address also observed that the rising fiscal activities in the country had put pressure on the exchange rate. Therefore, while the CBN is working on tackling inflation, poor economic growth and foreign exchange, the Bank regardless, needs to keep a keen eye on prices, stability and the quality of financial intermediation. A call was also made to corporate treasurers to promote the treasury function through transparency, professionalism, corporate governance and ethics.
A focal discussion point at the breakfast meeting was on the impact and implication of policies on corporates.
Highlights of key areas that might be impacted by economic policies that corporates are advised to watch out for in 2017 are: Liquidity of the institution – This is fundamental to the treasury function and particular attention should be placed on ensuring its adequacy; Access to liquidity especially by medium size corporates – This becomes critical in a regime where interest rates are high and the economy is tightening; More aggressive pricing terms by corporates (commissions, fees/cost of services, interest rates etc.); The changing macroeconomic environment – the ability to accurately forecast these likely changes will be one of the biggest challenges for corporate treasurers in 2017; Pricing process clarity; and Higher cost of borrowing.
Speaking also on the impact of politics on policy, and the measures put in place to check the negative impact, participants observed that policy and politics both work in harmony. To this end, the following were advised: Build democratic institutions; Develop strong political institutions as macroeconomic policies can only be effective when political institutions are strong; Government must provide a forward-looking policy framework that economic builders can key into; and Promote collaboration among stakeholders.
The panellists emphasised the need for government to accurately articulate the key economic issues, adding that the economic cash flow issue needed to be addressed and that the government needed to encourage and boost production to tackle stagflation.
There was also a call to relieve the banks of the pressure of funding to enable corporates access funds from other sources, as this would promote competitive rates.
Considering counterparty risk, corporates were therefore advised to plan with the resources at their disposal, while ensuring their cashflow is able to support funding.
Corporate Treasurers were advised to always articulate their problems while banks and investment banks are to think of possible solutions. FMDQ, on the other hand, is developing and will be publishing Rules for Private Companies’ Bonds in 2017. This is anticipated to open the debt capital market to private companies.
A major problem identified for 2017 at the breakfast meeting, was the lack of confidence in the ability of the Central Bank of Nigeria to implement its policies.
Given the harsh impact of the foreign exchange disparity in the economy, measures that could be taken to reduce the disparity were identified to include; promoting liquidity in the capital market, focusing on the productive sector and producing quality finished products that are price competitive in the global market.
There was also a call to the government to consider restructuring the economic team to encompass a more diverse calibre of representatives in terms of skills and expertise as this would be a major foundation for addressing the current structural issues in the economy.
