Risk Committee Update: October 2024

Nigeria 

Nigeria’s Central Securities Clearing System (CSCS) was on the Risk Committee’s agenda in September as the country overtook South Africa to become Africa's largest economy. This feat was achieved after Nigeria revised its GDP calculation method in April, resulting in an 89% increase to US$510bn.  

The statistical update does not change the real economy. But it does provide a more accurate picture of Nigeria’s economic size by properly accounting for growing sectors like telecoms, banking, and the film industry. 

President Bola Ahmed Tinubu’s All Progressives Congress party (APC) administration, which came to power in May 2023, has been implementing bold economic reforms aimed at stabilising the economy and promoting growth. 

Reforms include partial elimination of the petrol subsidy and foreign exchange market unification. GDP grew by 2.98% year-on-year in Q1 2024 (up from 2.31% in Q1 2023), and efforts are being made to tighten monetary policy and refocus the Central Bank on maintaining price stability. 

Security and infrastructure challenges 

The measures have not been wholly successful, however. High inflation and sluggish growth have pushed millions into poverty. 

Inflation reached a 24-year high of 31.7% in February 2024, compounding existing economic hardship. Amnesty International estimates that the widespread protests against Tinubu’s policies have claimed at least 22 lives so far.  

The instability adds to Nigeria’s security issues, which include banditry, kidnappings, insurgency in the north-east, and separatist agitations in the south-east. 

Nigeria’s infrastructure still lags behind South Africa's, with frequent power cuts and traffic congestion posing particular challenges to the market’s operational resilience. At least one new disaster recovery centre is under construction, but questions remain over whether that will be sufficient to protect Nigeria’s vital digital assets. 

Egypt 

Like almost every other nation, Egypt has faced economic challenges since the outbreak of the Russia-Ukraine war, including capital outflow and a foreign liquidity squeeze. 

And, as tensions near its borders continue to increase as Israel expands its attacks on its neighbours, experts had diverging views on Egypt's economic future. Some predict turmoil and others expecte greater international support. 

Enter the Mega Deal 

Announced in February 2024, ‘the Mega Deal’ involves a US$35bn investment from the UAE’s large sovereign wealth fund, ADQ, in Egypt's Ras Al-Hikma region. 

The deal includes US$24bn in fresh flows and US$11bn swapped from existing UAE deposits. It significantly improves Egypt's external financing situation, potentially covering financing needs into 2025. It represents about 7% of Egypt's GDP and has positively affected market perceptions. 

Egyptian bonds rallied, with yields decreasing significantly, and the domestic currency market reacted favourably, with the USD/EGP rate appreciating in the black market. 

The deal has the potential to accelerate privatisation and economic reforms in Egypt. However, questions remain about whether this time will be different from previous economic interventions and depreciation episodes. 

Central Bank reports profits for banks in Egypt 

Banks in Egypt achieved net profits of EGP 595 bn E in the first half of 2024, according to a report released by the Central Bank. This represents a significant increase of 102.5% compared to the same period in 2023. 

Egypt’s foreign currency reserves increased to $35.22 billion at the end of July 2024. This is a remarkable turnaround as at the end of last year, the country was in the grip of a liquidity crisis. 

Banks maintain high capital adequacy ratios, exceeding both local and international requirements. A particularly encouraging sign, especially given the challenging global economic conditions, is that the non-performing loan ratio decreased to 3.5% of the total loan portfolio. 

More: 

https://findevlab.org/the-impact-of-the-surprise-mega-deal-impact-on-egypts-financial-prospects/ 

https://www.zawya.com/en/markets/equities/banks-operating-in-egyptian-market-achieve-net-profits-worth-595bln-in-h1-2024-cbe-hewgt1en  

Finance faces the future: The role of automation in post-trade operations 

In issue 13 of the TNF Journal, Derek Duggan, Head of Banks at Thomas Murray, offered his views on how artificial intelligence is changing post-trade operations within the finance industry. He highlighted the need for financial institutions to modernise their processes to meet client and regulatory expectations, and the benefits to be gained from embracing new technology. If you didn’t catch it, you can read the full piece on our website. 

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