Stories by Blaise Udunze
Worries that Nigeria’s economy is fast sliding into full recession heightened recently after it shrank in the first half of the year, in response to falling oil output and revenue. This was as the manufacturing, financial services and real estate industries declined significantly, worsening unemployment rate in the country.
The economy always has its ups and downs, but while it is easy to coast through the good times, coming out of the tough times unscathed is usually a challenge. With adequate preparations like cutting costs and making sure you are still having some income, you can emerge out of a recession just as strong as you were before it.
Preparing for a recession
•Create an emergency fund. If you don’t already have an adequate emergency fund set aside, specify a goal for how much money you want to add to it every month. Your fund should be kept in a savings account with your bank.
While normally it’s recommended that a two-income couple keep three months’ worth of expenses in an emergency fund, during a downturn the recommended amount is six months’ worth instead, especially if you’re in an industry that gets hit hard by a recession (construction, financial services, food) and if you are a one-income family.
Dual-income families may be safe with three or four months’ worth. If you’re self-employed, you should set aside up to a year’s worth of expenses.
•Pay off debts. You should always work to be debt free but when a recession is coming, it is even more important to do so. Focus first on paying off your debt with the highest interest rate, which is usually your credit card debt. From here, pay off debts with lower interests rates as you can, working to lower your debt as much as possible. Reducing your debts will lower your monthly expenses and give you a better chance of surviving a recession if you lose your job or need to cut down on spending.
Money saved from not having to pay debt repayments can then be saved for your emergency fund or otherwise saved. Saved money can be invested in securities when their prices drop during a recession.
•Create additional income streams. In a recession, there’s always the chance that you might lose your job. Your primary focuses should be to keep your current job and be ready to enter the market again for a new one if you lose it (keep an updated resume, investigate job opportunities, etc.). However, you can also increase your financial security by creating separate income streams. These can be a second job, an online business or any form of passive income.
Even if you can only make an additional N5000 or N10,000 per month, this extra income can help you get through tough time if your primary source of income dries up.
•Diversify your investments. During a recession, stock prices will usually fall dramatically, which means your investment accounts could be hit hard. While many companies and their stock prices will recover out of the recession, some will enter default and cause you to lose money. You can reduce the risk of this happening by spreading out your investments. Think about buying bonds, investing in securities from other countries or investing in precious metals. These investments, particularly the last two, may move independently of the market and can protect your assets in a recession.
You can also look outside the market to invest in real estate like land or apartments that will usually appreciate in value over time, sometimes even through recessions.
Surviving a recession
•Talk it over. Sit down with every member of your household and go over your finances. How you resolve differences in your approach to money will have a profound effect on your relationship’s chances of succeeding.
Now is the perfect time to set an example for your children and show them how a family can pull together during tough times and everyone can chip in.
•Reduce expenses. There are many ways to cut expenses during a recession. In many cases, you can maintain your same quality of life while focusing on living lean and cutting out extravagant and unnecessary expenses.
•Cut discretionary spending. Buy nothing if you don’t need it to live. Resist sales pitches. Don’t even think about using that new credit card offer in the mail, even if it does have a low APR and no payments for two years; you should evaluate it carefully.
•Transportation: Carpool as much as you can. Consider commuting by bicycle or even living without a car. But if that’s not practical, look for ways to save money on fuelling your car.
•Food: Stop going out to eat; instead, try to cook at home from scratch more often. Consider the benefits of the slow food movement. If you don’t have enough time to cook, try doing it just once a month. Find good deals at a local farmers’ market.
To be continued next week
Banks introduce maximum resale premium on dollar spreads
Financial Market Dealers Association (FMDA), on Monday, introduced a maximum resale premium on dollar trades on the interbank market to boost liquidity after the naira touched a record low in thin trade on Friday.
The naira traded without a pre-determined premium – or spread – at the weekend, a source at one of the 15 primary market dealers revealed. Traders under the umbrella of the Financial Market Dealers Association (FMDA) set the spread at a ceiling of 0.50 naira per dollar on Monday.
The naira tumbled 4.3 percent to N295.25 per dollar on Friday before recovering slightly to close at N290. On the black market, the naira was quoted at 365 per dollar on yesterday
On Monday the first trade of $780,000 was done at N292.40 to the dollar at 1116 GMT, more than three hours after the market opened. Another source said activity was slow pending intervention by the Central Bank of Nigeria.
“There is a lot of demand,” the source said. “We can buy at any rate but resale spread should not be more than 0.50 naira,” he said, quoting an email from the FMDA.
Traders were permitted to set their own spreads on Friday to try to attract liquidity, he said.
With primary dealers required to resell 70 percent of any dollars bought from CBN on the day of purchase, low turnover on the interbank currency market has the effect of driving down the value of the naira.
Any resale of dollars must be backed by a specific customer order to avoid currency speculation.
The apex bank said last month when unveiling currency reforms that the naira would trade with no pre-determined spreads.
It ditched its 16-month old peg on the naira in June to allow the currency to trade freely on the interbank market but thin liquidity has hampered activity, traders say, leaving CBN as the main supplier of hard currency.
Other past suppliers of dollars, including oil firms, are now selling part of their hard currency directly to petrol importers under an arrangement with the government, traders said.
Some $697 million the apex bank sold in one-month forward contracts fall due later this month, traders said, with contracts for July delivery quoting the naira at N279.
On non-deliverable forward markets, the one-month naira-dollar forward was quoted at N314. The one-year contract fell as low as N351 per dollar.
IGR, services: Kogi re-appoints Skye Bank as lead collecting bank
Less than a week after Lagos State government directed all its agencies, ministries and parastatals to increase business relationship with Skye Bank, Kogi State has re-appointed the bank as its lead collecting bank for its state Internally Generated Revenue and Services.
The news of the re-appointment of Skye Bank was contained in a letter signed by the state’s Accountant General, Alhaji Momoh Jibrin, and addressed to the Group Managing Director and Chief Executive of the bank, Tokunbo Abiru.
Dated July 18 with reference number KSG/TRY/2/S.07/VOL.II/20, the four paragraph letter entitled: Re-appointment as Lead Collecting Bank for Kogi State Internally Generated Revenue (IGR) and Services lauded the track record of the bank in meeting its obligations and responsibilities, which informed the decision of the state government to re-appoint the lender, even as it promised continued patronage of the bank by the state.
It stated: “We wish to inform you of the state government’s decision to re-appoint your bank as lead collecting bank for the Kogi State IGR and Services. Please accept the assurance of the state government’s highest regards and continued patronage.”
Kogi State, popularly called to as Confluence State, has in its labyrinth confluence of River Niger and River Benue with its capital, Lokoja, being the first administrative capital of modern Nigeria.
Historically, agriculture is the mainstay of the state’s economy, with abundance of other mineral resources like coal, steel and other mineral industries. There are many farm produce from the state notably coffee, cocoa, palm oil, cashew, groundnut, maize, cassava, yam, rice and melon.
Mineral resources include coal, limestone, iron, petroleum and tin. The state is home to the largest iron and steel industry in Nigeria known as Ajaokuta Steel Company Limited and one of the largest cement factories in Africa, the Obajana Cement Factory, owned by Africa’s richest man, Aliko Dangote.
Recall that last week the Lagos State government had commended Skye Bank management, promising to partner the financial institution on business development, mandating all ministries, parastatals and agencies to continue to transact business with the bank.
The Lagos State government had expressed its confidence on the board and management and leadership of Skye Bank, noting that the bank is safe and in good financial health.
Quoting a circular released and endorsed by the Permanent Secretary, Ministry of Finance/Accountant General, A. S. Umar (Mrs.), and circulated to the state’s MDAs, ministries and local governments, the media alluded to the state government’s assertion as a major stakeholder in Skye Bank; and therefore enjoined its public servants to desist from panic withdrawals as negative rumours making rounds against the bank were unfounded.
Lagos State economy with a population of about 21 million, with four million in the middle class, has been described by local and international agencies as Africa’s fifth largest economy in GDP, which is estimated at about $131 billion.
Skye Bank has track record and pedigree of providing financial and innovative solutions to the economy of Lagos State – providing pivotal role in the transformation of the state and its constituent’s local councils, MDAs, ministries and several agencies of government and the other two arms of government.
Over 150 of the more than 400 branches and business centres of the bank across Nigeria are located in Lagos providing the needed financial backbone for the growth of institutions, businesses and residents of the mega city.
Diamond Bank expends N4bn to fast-track financial inclusion
Diamond Bank has disclosed that it has invested about N4billion so far in the drive to boost the Central Bank of Nigeria’s initiative on financial inclusion, thereby encouraging savings culture in the country.
The bank’s Head, Consumer Banking, Aisha Ahmed, who said this recently at the DiamondXtra Season 8 Mid-Year Draw, disclosed that the scheme in the past seven-year has increased the flow of funds to support SMEs, accelerate employment generation and development of indigenous entrepreneurship as well as encouraged saving culture among Nigerians.
She explained that at the Season 8 edition of the promo, N600million had been earmarked to reward loyal customers.
However, the first draw held at the Ikeja Cantonment, the SavingsXtra produced 30 winners of N1 million each in an electronic draw, in Lagos. The process, supervised by the Consumer Protection Council (CPC), KPMG and other regulators, the bank also rewarded customers from Ikeja Cantonment in a “special draw.”
For special draw, three cantonment residents won N200,000 cumulatively, as the bank said it is a way of appreciating service men who sacrificed family lives for the nation.
She further explained, “As a bank, we feel that it will stimulate the saving culture and we all appreciate what happens when individuals save for the future.
It can be used for businesses support, change the life style of the family and for children’s education.”
“So, we have monthly draws, where we announce 30 winners of N1 million each, but what we have done differently this year is the special draws, like New Year. We also have the Independence Day draw.
“We look at different clusters like the cantonment and get them open account, start saving and then create a draw just specifically for them.
We are assuring Nigerians that this promo is real and that is why we will always bring our past winner to come and testify , so that people will see that they are real people.”
A representative of CPC, Onifade Afide said that the initiative had remained firm despite the challenging economy, adding that the bank was committed to delivering quality innovative services to customers.
He, however, assured that the scheme was insured by the Council to ensure that the “promo is free and fair.”
Cashless: Heritage Bank launches Pay Attitude
In a bid to continually give her customers a vast variety of payment solution options, Heritage Bank has launched the Pay Attitude mode of payment.
The Pay Attitude is a Chip and Pin tag-type contactless solution based on Near Field Communication (NFC) technology, which converts a customer’s mobile phone handset to an NFC device and links the handset to the customer’s debit or prepaid account plus ePurse account, enabling the subscriber or customer to debit his accounts for different payment transactions.
Managing Director/CEO of the bank, Mr. Ifie Sekibo, said that Pay Attitude was included as part of the bank’s collection of payment solutions because of its plus functionality, which guarantees subscribers the confidence and comfort of successful proximity or contactless payment for goods and services at merchant locations at all times, notwithstanding problems or challenges of telecommunication or unavailability of network of the merchant or customer’s bank.
He said that such transactions are authorised offline up to the value of plus functionality that the customer subscribed to with the bank.
Sekibo listed the benefits of Pay Attitude as zero percentage transaction failure for the holder; instant issuance at the branches and agent locations; protection of issuers and holders against fraud and unauthorised usage because of its Chip and Pin features which suit the lifestyle of mobile phone users and it is convenient for retail transactions by tapping the phone against the PoS terminal.
He added other benefits as Mobile Network Operator (MNO) Neutrality, which makes it usable on any phone network; handset neutrality, ensures an automatic conversion of handsets to NFC compatibility, making it compliant with all phones and interoperability, which makes it possible to be used across different bank platforms and agents leveraging the switching and shared service capabilities of unified payments.