Fitch says Ecobank's governance issues flag its regulatory risks

The findings of the Nigerian Securities and Exchange Commission (SEC)investigation into Ecobank Transnational Incorporated (ETI) this month highlight the supervision and corporate governance risks of large pan-African groups, Fitch Ratings says.

Insufficient cross-border supervision  and lower regulatory standards in some frontier markets are constraints on the ratings of pan-African banking groups.
The ratings of many African banks already incorporate operating risks from volatile political and economic environments, and significant credit risks from weak asset quality, high related-party lending and large asset concentrations.

SEC DG, Oteh

Pan-African banks are growing rapidly, but diversification is not always beneficial to their credit profiles, and their ratings are also constrained by the lack of consolidated supervision and collaboration among national regulators.

For example, ETI has operations in 33 countries and is supervised by 21 regulators. The Nigerian regulator took a lead in scrutinising the group'€™s corporate governance following well-publicised allegations of mismanagement in 2013. 

We believe consolidated supervision for pan-African groups would encourage a more cohesive approach to risk management and regulation, and reduce corporate governance risks. 

This is important because these banking groups are becoming systemically important in the region.

We believe the regulators of South Africa, Morocco, Kenya and Nigeria to be the strongest in the continent. Outside these countries, most banks report according to local accounting standards and transparency is weak. 

The overall lack of complexity in the banks'€™ operations means that regulatory standards in many frontier markets are not in line with international ones.

There is often significant variation from one national regulator to another and we believe there is an element of regulatory forbearance for regulatory reporting requirements in some markets. In addition, some risks such as operational risk, exposure to low-rated sovereigns and concentration risks are not always adequately captured in prudential reporting and capital requirements.
Limited coordination between national and regional regulators in some regions, where bilateral memorandums of understanding are relatively few and new, can exacerbate the risks being taken by pan-African banks. We believe that local and regional regulators face difficulties in adequately supervising these groups, despite technical support from multilateral agencies and foreign regulators like that of France.
Regulators face basic challenges, despite continuous efforts to work together such as within the West African Economic and Monetary Union and Central African Economic and Monetary Community. 

These can be as simple as finding experienced individuals with strong credit and risk skills to regulate pan-African operations across multiple and culturally diverse countries.
The lack of regulatory coordination means it is difficult to rely on any single national authority to support a pan-African banking group, if needed. We do not factor in sovereign support to ETI'€™s B-€™ rating for this reason. The low rating partly reflects the group's exposure to more volatile markets. 

We would factor in sovereign support if there were a formal regional support framework between the countries where ETIâ€'s key subsidiaries are based.

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Nigerian company sues Samsung, Total over Egina deepwater oil project

An indigenous Nigerian engineering firm has taken South Korea's Samsung and Total's Nigerian producing unit to court, challenging its exclusion from awards of local content components for the Egina deepwater oil field in the West African country, court papers showed Thursday.
Lagos Deep Offshore Logistics says that the awarding of contracts for the construction and installation of floating, production, storage and offloading vessel for the field, last year by Samsung and Total, violated Nigeria's 's local content law.

Total HQ

The company said in its court filings that both Total and Samsung had submitted commitments to Nigerian oil regulators that a significant proportion of the steel fabrication and the integration of the FPSO topsides would be carried out at its shipyard on an island offshore Lagos, before Nigeria gave the green light for the Egina project in early 2013.
"[LADOL is seeking] a declaration that the Egina FPSO Project contract was also awarded by Total to Samsung on the basis, inter alia, of Samsung's representations and assurances to the Nigerian regulatory authorities that Samsung would build and operate a training facility in the LADOL Free Zone for the training and education of Nigerians," the court papers said.
 Total and Samsung could not be reached for comment.
This is the second dispute over the $3.8-billion Egina FPSO project, after South Korean ship builder Hyundai Heavy Industries last year protested to the Nigerian government, urging it to cancel the award of the contract to build the FPSO to rival Samsung.
The Egina field, operated by Total, is a $15-billion project expected to reach a peak production 150,000 b/d when it goes on stream.

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Markets give central bankers lessons in humility - Reuters Breakingviews

Outgoing Fed chairman

Markets are teaching central bankers some hard lessons. The monetary authorities in developed economies are learning how hard it is to switch direction. And emerging markets are showing that no policy rate is right when the economy is wrong. The monetary authorities are not directly responsible for all the current market ructions - from a 6 percent decline in the Japanese stock market in a week to a 6 percent fall of the Turkish lira against the dollar in a month. But the U.S. Federal Reserve's slow retreat from quantitative easing is the immediate trigger for much of the turmoil.
Central bankers should feel some doubts about their five years of near-zero policy interest rates and masses of QE. It has yielded nothing better than a slow recovery from a deep recession, with overly excited asset markets and still-weak job markets.
Now investors are teaching emerging market central bankers an even harsher lesson. While disinflation remains the dominant global trend, policy rates have been rising in countries where foreign capital might be on the way out or where poor local policies have created outposts of unacceptably high inflation. Turkey and South Africa have followed Brazil and India down the road of anti-stimulus.
Markets have not yet been impressed by the central bank response. The Brazilian real has fallen by 11 percent against the dollar since April, as Brazil's central bank has gradually increased the policy rate by a total of 3 percentage points. A single rate increase of that magnitude in Turkey this week only stabilised the currency for a day.
Traders may be a fickle lot, but they are basically right to worry. Turkey, for example, has relied too much on foreigners eager for high yields to fund its current account deficit, while Brazil has fiscal issues and has been slow with reforms. And higher rates are likely to reduce domestic GDP growth, worsening already fragile political arrangements.
Investors may eventually punish only the countries with the most serious difficulties. But it looks increasingly like the waning of QE will cause global trouble. Central bankers should feel chastened.

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South Africa joins emerging market peers and raises rates

South Africa's central bank raised interest rates on Wednesday, keeping in step with attempts by Turkey and other emerging market economies to shore up their currencies, but risking the ire of the ruling ANC shortly before an election.
   "Exchange rate pressures are expected to intensify as markets adjust to the new pattern of global capital flows," South African Reserve Bank (SARB) governor Gill Marcus told a news conference.

South Africa Zuma

   "The primary responsibility of the Bank is to keep inflation under control and ensure that inflation expectations remain well anchored."
   Marcus said the rate decision had not been influenced by Turkey's surprise huge rate hike on Tuesday and was not aimed at affecting the exchange rate.
   However, it came as the rand headed towards five-year lows during an emerging market sell-off that began last week.
   Financial markets, however, appeared to view the rate rise as insufficient and the rand was down more than 2 percent after the rate decision at 11.2500 per dollar, getting closer to a five-year low hit last week.
   The Reserve Bank raised the repo rate, at which the central bank lends to commercial banks, to 5.5 percent from four-decade lows of 5.0 percent, the first rate rise in nearly six years.
   Yields on the short-dated 2015 bond rose 30 basis points to 6.99 percent.
   A huge surprise rate hike by Turkey on Tuesday put pressure on South Africa's central bank to tighten policy as emerging market assets are being hit by concerns about reduced U.S. monetary stimulus, large current account deficits - a problem for South Africa - and in the case of Turkey, domestic political concerns.
   South African Forward Rate Agreements (FRAs) due in 12 months jumped to nearly 7 percent on Wednesday, suggesting rates in Africa's biggest economy could go up by as much as 200 basis points this year.
   Interest rates had been on hold since a cut in July 2012.
   The rate rise, however, risks harming already slow economic growth and may cause tensions with the ruling African National Congress (ANC) party and President Jacob Zuma, who faces a tough election in around three months' time due to the struggling economy, typified by chronic unemployment and widespread social and labour unrest.
   In the last two weeks, at least seven people have been killed by police trying to control riots over poor public services in black townships that have seen little improvement in the quality of life since the end of apartheid in 1994.
   The mining sector, a major source of foreign exchange, continues to be plagued by strikes, with many platinum mines at a standstill due to a week of industrial action.
   Unions and management met for a fourth day of talks on Wednesday but there was no sign of a breakthrough.
   Disputes are harming economic growth, which slowed to 0.7 percent quarter-on-quarter in Q3, its slowest pace since a 2009 recession.
   All 34 economists surveyed by Reuters last week - before Turkey's rate hike - said the bank would keep the repo rate on hold.

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-Nigerian oil exports rise to 1.88 million bpd in March

Nigeria will export around 1.88 million barrels per day (bpd)of crude oil in March, up from 1.72
million bpd in February, shipping lists seen by Reuters indicated on Wednesday.
    The final total export level may be slightly higher as some smaller grades had yet to emerge.
    Exports have slowly recovered in recent months as problems of oil theft at the Trans Niger Pipeline feeding the Bonny Light grade of crude oil seem to have abated a little.
    Bonny Light exports were at 155,000 bpd for March compared to 141,000 in February
    However total exports remain below the 2 million bpd levels seen for much of 2012 to 2014.
    March exports will be the highest since September which were revised upwards to 1.94 million bpd after Bonny Light exports were added to the programme.

GRADE          CARGOES      BPD
 Bonny          6            155,000
 Forcados       6            177,000
 Ebok           1            21,000
 Brass River    4            107,000
 EA             2            61,000
 Pennington     0            0
 Escravos       3            92,000
 Qua Iboe       12           368,000
 Bonga          4            129,000
 Erha           4            129,000
 Yoho           2            61,000
 Amenam         3            92,000
 Usan           4            123,000
 Okoro*         0            0
 Abo            1            25,000
 Antan          2            34,000
 Okono*         0            0
 Agbami         8            252,000
 Okwori         1            21,000
 Oyo*           0            0
 Olowi*         0            0
 TOTAL          64           1,88000

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S.Africa communications regulator slashes mobile call costs

An MTN Kiosk in Nigeria 

South Africa's telecoms regulator has halved the fees mobile phone companies can charge rivals to use their networks, part of a plan to reduce call costs in Africa's largest economy and enhance competition.
The Independent Communications Authority of South Africa (ICASA) said on Wednesday charges would be cut to 20 South African cents per minute per call from 40 cents from March 1, before being further lowered to 10 cents by March 2016.
Such fees are a vital element of the mobile telecom market because they allow companies to set up on the basis of paying fees to use existing networks. But the regulator argues that if they are too high they deter competition.
Fees for fixed-line calls will also be reduced over the next three years.
"Our beacon is to attract local and foreign investors and position this industry as a sector of choice," the ICASA's acting chairwoman, Nomvuyiso Batyi, said.
Fixed-line provider Telkom and unlisted mobile operator Cell C are likely to be the biggest beneficiaries of the new rates, as their bills for connecting calls to industry leaders Vodacom Group Ltd and MTN Group Ltd drop by 50 percent.
The chief executive of Vodacom, a unit of Britain's Vodafone Plc, said the decision was to the detriment of its customers and business.
"This is a subsidy which in effect means that Vodacom will be charged more to call Cell C and Telkom Mobile," Shameel Joosub said in a statement. "This prejudices Vodacom's customers and rewards those who have not invested in their networks at the expense of those who have."
Officials at the other telecom companies were not immediately available for comment.
Telkom and Cell C have been asking the regulator to slash the rates that were introduced to boost the mobile industry while it was still in its infancy. Both say they have had to pay massive bills to the two telecoms companies as most of their calls are to the two big players.
Some analysts say the new rates will provide a more level playing field for Telkom, Cell C and landline provider Neotel.
"It's probable that the smaller operators are going to become more aggressive on pricing in the next three years as they are going to have a bigger advantage with greater asymmetry than previously proposed," said Greg Cort, telecoms analyst at investment management company Electus.
MTN is unlikely to be hit as hard as Vodacom due to its higher percentage of prepaid customers, who do not typically reduce the amount of money spent on phone bills when prices drop and instead tend to talk for longer.

By contrast, customers with contracts tend to retain their contracts at cheaper rates.

Shares of Telkom rose 1.6 percent to 32 rand at 1017 GMT.

Those of rival MTN were down 1 percent to 202.99 rand, while Vodacom has lost 1.3 percent at 120.72 rand.

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US Fed tapering is flushing out hot money to Nigeria - c.bank

Sanusi, CBN Gov

The withdrawal of U.S. stimulus has removed some potentially destabilising "hot money" flows to Nigeria, but monetary policy needs to stay tight to keep the naira stable, a deputy governor of the central bank said.
While the Nigerian currency has fallen below its 150-160 per dollar trading band, it has remained relatively stable in the recent emerging market sell-off, Kingsley Moghalu told Reuters in an interview in London on Tuesday.
"Fed tapering was bound to lead to some reversals of capital flows, we have factored this in our planning," Moghalu said, adding that quite a large proportion of the country's $43 billion foreign exchange reserves consisted of speculative capital. "There is still hot money in Nigeria."
Like other emerging markets Nigeria's higher yields compared to developed markets attracted some of the cheap money flows unleashed by the U.S. Federal Reserve's stimulus programme, which is now being scaled back.
The African country became a magnet for so-called "carry trades", in which investors borrow money in low-yielding markets to invest in higher-yielding ones.
"The first function of our monetary policy is not to promote the carry trade, it's a by-product," Moghalu said, speaking on the sidelines of an event to launch his book "Emerging Africa".
Concerns that inflows to emerging market assets could now reverse as the Fed trims stimulus have triggered a sell-off in emerging markets in the past few days.
For Nigeria, a weaker naira would run the risk of importing inflation, hence the need for a tight monetary stance, Moghalu said.
"We remain committed to currency stability. If you compare our currency with a number of other emerging market currencies ... our stability performance has been quite good," he said.
"At this point in time, in the near and medium term, it is necessary to maintain a tight monetary policy."
INFLATION TICKS UP 

Kingsley Moghalu

Nigeria's central bank left its benchmark interest rate at 12 percent for the 14th time in a row last week but tightened the cash reserve requirement on public sector deposits to 75 percent, from 50 percent, to support the naira.
The naira fell 1.7 percent on Monday to its weakest level against the U.S. dollar in four months at 162.50, defying central bank actions to defend it.
But Moghalu said Nigeria's currency had remained relatively stable compared with currencies such as the South African rand, and that the removal this week of restrictions on the amount of dollars that banks could sell to bureau de change outlets would help it return to its target band.
Inflation is ticking up in Nigeria, reaching 8 percent year-on-year in December, but Moghalu said he expected inflation to end the year within the central bank's 6-9 percent target range.
"By end-2014, I would still hope we can keep inflation under 9 percent," he said.
"By 2015-2016, we hope inflation will come down to about 5 percent."
The central bank forecasts that Nigeria's economy will grow 6.8 percent this year, Moghalu said, in line with the government's forecast in its budget.
In addition to global factors, investors have become more nervous about Nigeria due to uncertainty surrounding presidential elections next year.
Highly respected central bank governor Lamido Sanusi is also to stand down in June at the end of his term, adding to worries about a power vacuum.
Moghalu is one of several names suggested as Sanusi's successor. He declined to comment on his possible candidacy, but said worries about the succession were unfounded. 

"Governors will come and serve their term ... the central bank remains committed to discharging its responsibilities, especially in the area of monetary policy."

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Nigeria court rules Chevron cannot sell assets pending dispute - lawyer

A Nigerian court upheld an order on Monday barring Chevron from selling its onshore assets until a legal dispute with local firm Brittania-U is resolved, Brittania-U's lawyers said outside the court.
Brittania-U alleges it had a deal with the U.S. oil major to buy the assets, which Chevron denies.
"The court upheld the interim order in favour of Brittania to protect the assets while the substantive case is still being determined," lawyer Rickey Tarfa said.
"The judge said that the order needs to be in place until the case is decided. The order restrains Chevron from transferring the asset or doing anything with the assets."
Chevron's lawyer at the Federal High Court in Lagos declined to comment.
The Nigerian firm, run by former Chevron executive Catherine Uju Ifejika, was the highest bidder at over $1 billion for the biggest cluster of blocks - OML 52, 53 and 55 - and Chevron began discussions with the company over the sale.
Chevron decided to look at alternative bids after Brittania-U failed to prove it could muster the sum promptly, banking and oil industry sources said.
Among the challenges being heard are whether or not the court even has jurisdiction in the case.

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Nigeria's central bank lifts dollar sales limit for bureau de change

Nigeria's central bank has lifted the restriction on the amount of dollars banks can sell to bureau de change in its bid to shore support for the local currency and narrow the gap between official foreign exchange rate and the parallel market.

Sanusi, CBN Gov

In a notice to banks dated Jan. 24, but released on Monday, the central bank said, bureau de change operators could now buy as much dollars from banks as long as they comply with its other rules of foreign exchange.
"The limit of $250,000 as the maximum weekly forex sales to a BDC -bureau de change- is hereby removed in order to shore up liquidity in that segment of the foreign exchange market," the central bank said in the circular.
Nigeria's central bank limited the amount of dollars that bureau de change firms can buy from banks to $250,000 a week in September in order to curb demand for the U.S. currency.
The local currency has hovered around 159-160 against the dollar so far this year but has traded nearer 170 at bureau de change (BDC) outlets, creating an opportunity for speculation.
However, the naira weakened to its lowest in more than four months on Monday and dealers said this was due to demand pressure from bureau de change operators after the central bank lifted the cap.
"There was expected some pressure on the naira today due to the latest  action by the central bank lifting the cap on amount of dollars banks could sell to a bureau de change per week, leading to the naira depreciating," one dealer said.
The local unit was trading at 163.10 to the dollar on the interbank market on Monday at 1204 GMT, weaker than the 160.50 it closed on Friday.

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Nigeria seeks to overturn South Africa's economic leadership

Nigeria's Jonathan

South Africa could soon lose its status as Africa's biggest economy to Nigeria, but in the race to be the continental powerhouse being biggest may not be everything.
Nigeria, Africa's No. 1 oil producer, will complete a rebasing of its gross domestic product (GDP) by next month, its statistics office says, which economists estimate could expand the size of its economy by between 20 and 60 percent.
This exercise, which has missed a string of previous deadlines, looks set to transform Nigeria into the continent's most important economy measured in terms of GDP size.
With a current economic output of around $290 billion, the West African country - whose population is more than three times the size of South Africa's 51 million - already boasts faster growth.
While it has expanded by an average of 7 percent annually over the past decade, South Africa has averaged 3 percent growth, held back by rigid employment laws and recurring labour unrest.
But even if it slips from the top spot, South Africa can still claim the crown of being the more diversified and sophisticated economy. Its financial markets are among the world's most advanced and while its $350 billion economy is smaller than Mexico and Indonesia, its stock market is larger.
For Nigeria, the aim of the rebasing exercise is to change the base year for calculating output to 2008 from 1990 to reflect sectors of the economy that have since grown in importance, such as telecoms and IT.
However, it is still heavily reliant on oil exports, accounting for some 80 percent of government revenue, and an enlarged GDP will do little to immediately improve life for nearly 100 million of its citizens who live on less than $1 a day.

South Africa's Zuma

While agriculture and power sector reforms would improve Nigeria's fortunes, turbulent politics and a resilient and bloody Boko Haram insurgency in its north take some of the shine off its positive growth story.
Whenever it happens, Nigeria overtaking South Africa as Africa's economic top dog is "kind of everything and nothing," said David Cowan, Citigroup's Africa economist.
"It is everything because you are then the largest economy in Africa so there's a lot of kudos attached to that. But the reality remains that, on the ground, for every Nigerian there's no difference ... South Africa can still call itself the most sophisticated economy in Africa."
South Africa's expected retreat in the GDP ranking will nevertheless be a big psychological adjustment for a country that has often taken its lead position for granted.
It may also have geopolitical implications, raising questions about whether South Africa should be the sole African representative in the G20 and the BRICS group of the most powerful emerging economies, which includes Brazil, Russia, India and China.
Nigeria has been included in the freshly coined MINT group of emerging economic giants, along with Mexico, Indonesia and Turkey.
INVESTOR APPEAL

Michael Power, investment strategist at Investec Asset Management, likens South Africa's situation to that of the United States, whose economic power is expected to be superseded by faster-growing and more populous China eventually.
"Just as the United States is contemplating the prospect of what it's going to be like to be No. 2 in the world, South Africa (will) have to contemplate what it's going to be like to be No. 2 in Africa," he said.
The rise of Nigeria has taken many South Africans by surprise, said Kevin Lings, chief economist at Stanlib, as the country, burdened with an image of corruption and violence, is often portrayed negatively in the media.
"Every time I've raised this discussion in the last year, that it looks inevitable that Nigeria will become Africa's biggest (economy), most audiences are shocked," he said.
"People have had a certain mindset about the role of South Africa. They haven't updated that in terms of more recent developments."
The GDP rebasing is likely to enhance Nigeria's appeal to investors looking for high growth and alternative markets, while South Africa, with its anaemic economy and faltering currency may appear less compelling, analysts say.
"South Africa's good infrastructure and sophisticated services industries provide a much easier business environment for investors than Nigeria, but relatively low growth rates, market size and saturation are areas of concern that may turn investment to Nigeria," said Dianna Games, chief executive of business advisory Africa @ Work.
Still, Simon Freemantle, a senior analyst at Standard Bank, believes multinationals looking for a base from which to expand into the continent will continue to choose South Africa given its effective financial and legal systems.
For investors who may need to seek redress when things go wrong, its enduring, more independent and transparent institutions are a plus.
Decades from now, the gap in size between the two economies will be even wider. By 2050, Nigeria's GDP will be just under $6 trillion in today's money as its population heads towards 400 million, predicts Charles Robertson of Renaissance Capital.
South Africa, by contrast, would have 57 million people and a $1.5 trillion economy.
Yet that would give Nigeria a per capita GDP of about $15,000, to South Africa's $27,000, underscoring the huge development challenges faced by the former.
"Even with the very good trajectory that we see for Nigeria it's going to take a long time for 170 million people to benefit from this," said Robertson. "It's the same in China. You've still got hundreds of millions earning virtually nothing and that's after an extraordinary 30 years." Culled from Reuters

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