MENU

Business
Category

Kenya’s Tech Renaissance: Nairobi Set to Become Africa’s Key Technology Hub

27 November 2015 Comments (2) Africa, Business, Featured

nairobi

Mobile and internet penetration, a mobile economy, developing tech ecosystems, and government support are set to make Nairobi Africa’s key technology hub.

Over the last half-decade, Kenya has rapidly developed into a country of digital innovation, and its capital Nairobi, dubbed Silicon Savannah, looks set to become Africa’s key technology hub. With a fast-growing urban economy and a young and digitally savvy population, it is already easier to pay for a taxi by mobile phone in Nairobi than it is in London or New York. Since 2002 Kenya’s technology services sector has grown to more than £300 million (2013) up from just £11 million. And VC funding for African startups, which hit more than $400 million in 2014, is projected to grow to at least $1 billion by 2018. Google, Intel, Nokia, Vodafone, and Microsoft have already opened sites in Nairobi. And IBM has chosen the city for its first African research lab (a $100 million Innovation Centre).

A mobile economy 

At root, this technology renaissance has been spurred by mobile phone penetration. Back in 1999, Kenya, as with most of the Africa region, had a rudimentary telecommunications infrastructure and counted only 300,000 landline telephones. Over the last decade, it has proved easier and cheaper for the country to bypass the analogue age entirely and instead move directly to installing mobile phone networks. Mobile phones are also easily accessible, cheap, and practical, especially when compared with a computer. And unsurprisingly in just a few years mobile phone penetration in Kenya has grown from less than 20% to 85% (it’s 89% in the US).

At the same time, Kenya lacks a traditional banking infrastructure. Until recently, for example, the high proportion of Kenya’s urban population working to support family members in the countryside relied on hand delivery or sending cash through bus drivers. And the combination of these two elements has created the perfect setting for a mobile payments-based economy.

In 2007, state-owned telecoms company Safaricom launched M-PESA, the SMS-based money-transfer system (pesa is Swahili for “money”). Converting even the most basic phones into roaming banking devices, M-PESA spread at speed. And by 2012, more than 17 million Kenyans (70% of the adult population) were using mobile payments, the highest percentage of any country in the world. Now more than $320 million dollars are transferred via Kenyan mobile phones each month as huge swathes of previously unbanked customers join the digital economy. Safaricom also sells solar-powered charging equipment to expand the market.

mpesaGovernment support

With a 40% unemployment rate to solve, the Kenyan government is also supporting the country’s technology renaissance, determined to leverage the opportunity to create jobs and drive sustainable economic growth for the next generation.

In 2009, the East African Marine system, backed by the Kenyan government, laid a 5,000 km fiber-optic undersea cable linking the coastal town of Mombasa with the UAE. And since this time, internet penetration has grown to just under 67% of the population. This is a significant growth from 2010 when internet penetration was around just 14%.

It has created a fertile marketplace for e-commerce and tech businesses, in which the government continues to invest. In 2013 the government formed an Information Communication Technology (ICT) Authority. It laid out a policy roadmap, Vision 2030, focusing on digital infrastructure (e.g. a new fiber-optic network). And it is currently building a multi-billion dollar “techno city” called Konza with aims to create 200,000 jobs by 2030. Located 60 km south of Nairobi, a 2,000-hectare plot will offer office parks for science and technology firms, a university, retail outlets, and residential facilities. Tax breaks are also being offered to companies willing to move to the new city.

A tech ecosystem

A tech ecosystem is also starting to emerge. Where traditional ecosystems may be lacking, Silicon Savannah is filling the gap with innovation hubs and accelerators. The trend has been led in part by Ushahidi co-founder Erik Hersman who considers the future of tech in Kenya reliant on hubs to bring together technology entrepreneurs, young programmers, creative professionals, and investors, along with their ideas and innovation. “Hubs in major cities with a focus on young entrepreneurs… Part open community workspace (co-working), part investor and VC hub and part idea incubator. The nexus point for technologists, investors, [and] tech companies,” says Hersman. Ushahidi established the iHub innovation Centre in 2010, and since then it has been part of creating 152 startups and counts 15,000 members. iHub has also partnered with the ICT Authority on several initiatives, has hosted speakers including Yahoo’s Marissa Mayer, and has driven an upsurge in different types of innovation hubs across the continent.

Accelerators are also part of the emerging ecosystem. A particularly successful example is Nailab, which launched in 2011 to work with early stage globally scalable startups. So far it has incubated 30 companies, and in 2013 it partnered with the government to launch a $1.6 million technology program providing entrepreneurs with access to capital, education, and contacts within the industry. Tech competitions are also emerging. For example, the IPO48 startup competition brings together over 100 Kenyan entrepreneurs, programmers, designers, and project managers at a time, to build a new mobile or web service over the course of two days.

In Kenya, the stars of mobile and internet penetration, a mobile economy, developing infrastructure, and government support have aligned, and there are great opportunities ahead. And as its global reputation for innovation continues to grow, the country has the chance to future-proof itself both as an economic driver and Africa’s key technology hub.

Read more

Egypt’s central bank saviour faces tricky balancing act

27 November 2015 Comments (0) Business, Latest Updates from Reuters, Middle East

CAIRO (Reuters) – From bankers to carmakers, Egypt’s business community will breathe easier when Tarek Amer takes charge at the central bank on Friday, with hopes high he will revamp a monetary policy that has undermined investment and growth.

Announced last month, the leadership change unleashed anger against outgoing governor Hisham Ramez, who capped dollar deposits at $50,000 a month, starving businesses of hard currency and paralysing trade as he sought to defend the country’s pound.

Amer, the well regarded former head of commercial lender National Bank of Egypt (NBE), has already been working hard behind the scenes to inject fresh funds into a sclerotic financial system, and he is widely expected to lift the cap.

But with inflation high and the pound propped up by unsustainable central bank dollar sales, he will also need to tread a fine line between allowing the currency to settle lower while avoiding the sharp devaluation that would worsen the imbalances he is trying to correct.

“There is a belief that Tarek Amer will cancel the cap on dollar deposits at banks,” said an under-the-counter currency trader. “There is an optimistic atmosphere among clients of exchange companies and in the parallel market.”

Black market traders, bankers and businesspeople also expect Amer to work with the government to dampen demand for dollars by regulating imports and supporting exports — a source of hard currency battered by the capital controls.

Egypt’s economy has struggled since the 2011 uprising that ended Hosni Mubarak’s 30-year rule drove away investors and tourists, robbing it of foreign currency and putting the pound under severe pressure.

Fearing runaway inflation, the central bank has maintained the pound within a narrow band, but pressure has persisted.

In February, Ramez imposed the deposit caps and forced banks to prioritise food and medicine when supplying scarce dollars.

But the measures made it hard for companies to get credit to pay for imports and, as goods mouldered at ports and some factories stopped production, exports slumped by 19 percent in the first nine months.

To the business community’s relief, President Abdel Fattah al-Sisi announced in October that Ramez would not renew his term as governor when it expired on Nov. 26.

“As long as in the central bank of Egypt there are people who are managing wisely… you should never have a foreign exchange crunch,” Raouf Ghabbour, chief executive of GB Auto, told Reuters in a recent interview.

As well as cancelling Ramez’s preventative measures, Amer should also raise interest rates, he said.

BEHIND THE SCENES

A veteran banker credited with reviving state-owned NBE, Amer began meeting with captains of industry in October.

Within two weeks, banks had supplied $1.8 billion to clear the import backlog. [ID:nL8N12Y3D0]

The following week, state banks raised interest rates on certificates of deposit to 12.5 percent from about 10 percent aiming, economists said, to limit dollarisation ahead of a potential devaluation.

Amer’s next move came on Nov. 11, when the central bank strengthened the pound by 20 piastres and supplied $1 billion to banks to cover 25 percent of dollar overdrafts they had opened for companies.

Some economists criticised the revaluation but others said it was aimed at shaking out speculators making downward bets on the pound, with a view to eventually allowing a downward drift.

Mohammed al-Naggar, head of research El Marwa Brokerage, said he believed Amer could strengthen the pound again.

“The market expects the central bank to increase the value of the pound by 10 piastres in the first (dollar) auction under Tarek Amer,” he told Reuters. “There are expectations for a big surprise.”

Expectations of change received a boost on Thursday, when Farouk al-Okda was appointed to a central bank committee of government ministers and economic experts tasked with setting the monetary agenda.

Okda, who led the central bank from 2003-2013, was credited with helping stabilise the pound within a managed floating exchange rate, and helping establish an interbank foreign exchange market that helped curtail the black market.

The revival of the central bank’s coordination council has raised hopes of greater collaboration between the central bank and the government –neglected under Ramez.

“The central bank is semi-independent but in these circumstances it will have to work hand in glove with the (government)… to come up with solutions,” said Angus Blair, chairman of Signet Institute, an economic think tank.

NO EASY ANSWERS

While an eventual devaluation looks unavoidable, turning around Egypt’s monetary policy will be a tricky balancing act.

An emerging market rout has left the pound overvalued, despite a depreciation of about 10 percent this year. Yet a sharp devaluation would stoke inflation in an import-reliant country where millions live hand to mouth, fuelling the kind of street protests that helped unseat two presidents in three years.

The government announced this week it would control the prices of 10 essential commodities — a move some read as an effort to protect vulnerable Egyptians from inflation unleashed by an eventual devaluation.

In the meantime, reforms to address the ballooning trade deficit could strengthen the economy ahead of any shocks.

Egyptian Federation of Industries head Mohamed El Sewedy told Reuters recently he expected the government to implement an indicative pricing mechanism for imports before the end of the year, curtailing the common practice of avoiding customs duties by undervaluing imports on bills.

“If I regulate trade, the appetite for dollars … will become more orderly,” said El Sewedy, adding that Amer had promised to cover the remaining $3 billion of banks’ credit exposure.

Egypt’s benchmark overnight lending rates are already high at 9.75 percent, but with foreign reserves languishing at $16.4 billion – enough for just three months of imports – economists believe borrowing costs will have to rise further to avert inflation and dollarisation. The victim of high rates could be much-needed growth.

“It’s a lot to do for a new central bank governor,” said Blair. “I don’t envy him but it is a great shame he wasn’t appointed earlier.”

 

(By Lin Noueihed. Additional reporting by Nadia El Gowely and Ehab Farouk; editing by John Stonestreet)

Read more

Nigeria’s Oando plans $350 mil gas processing plant

27 November 2015 Comments (0) Africa, Business, Latest Updates from Reuters

LAGOS (Reuters) – Nigeria’s Oando plans to build a gas plant for up to $350 million as it focuses on integrating gas production with its supply business, the head of the gas and power unit said on Thursday.

Bolaji Osunsanya, Managing Director of Oando Gas and Power said the plant, with a capacity to process 300 million standard cubit feet a day (scfd), will take 24 months to complete and cost $300 million to $350 million.

He said Nigeria had room to ramp up gas plants as current capacity was around 2 billion scfd, adding that its project was at the development stage to be launched in the first quarter.

London-listed Nigerian firm Seplat is also boosting gas capacity. It plans to increase gross output from around 120 million to 400 million scfd by 2017, as demand grows.

“We have done transport in the past, we are getting into (gas) processing right now,” Osunsanya told Reuters in an interview. “We are working ourselves up the chain.”

Oando’s gas and power unit reported a net income of $19 million for the nine months to September, down from $22 million the previous year.

Lagos-listed parent Oando, with interests in oil exploration, terminals and oil trading, has said it was seeking approvals to sell its gas and power investment to cut debt and raise up to 80 billion naira from shareholders.

Two years ago, Africa’s biggest economy broke up its monopoly on power generation and distribution by privatising the sector, hoping to attract foreign investors.

But the amount of power produced has stagnated since, failing to reach a 2012 peak of 4,500 megawatts of electricity due to gas constraints, plant outages and tripped circuits, according to Transmission Company of Nigeria.

Osunsanya estimated Nigeria will need around $55 billion over the next seven years to develop gas infrastructure to meet growing demand, which would include building new pipelines, processing plants and drilling of new wells.

He estimated demand at 5 billion scfd, of which 3.5 billion was needed for power and the rest for other uses. However, half the 7.5 billion scfd gas generated was flared or reinjected into the ground due to inadequate pipelines for distribution.

 

(By Chijioke Ohuocha. Editing by David Evans)

Read more

Glencore sees Tripoli-based NOC as sole legal seller of Libyan oil

26 November 2015 Comments (0) Business, Latest Updates from Reuters, Middle East

LONDON (Reuters) – Commodities trader Glencore said on Thursday it recognises Libya’s Tripoli-based National Oil Corp. (NOC) as the sole legal marketer of the country’s oil, after securing an export deal earlier this year with the state-run company.

The NOC has said it operates independently of either the rival government that controls the capital city or the internationally recognised government based in the east of the country, which earlier this year set up a separate NOC.

“International oil companies and the international community fully support NOC’s position,” said Alex Beard, head of oil at Glencore.

“They have made it very clear there is no alternative to the NOC at its legal address in Tripoli as the only recognised marketer of Libyan oil,” he said in a statement.

Bloomberg reported last week the government in the east would prevent any tanker operated by Glencore from loading oil at Libyan ports if it did business with the Tripoli-based NOC.

Under the arrangement with the existing NOC, which began in September, Glencore loads and finds buyers for all the Sarir and Messla crude oil exported from the Marsa el-Hariga port near the country’s eastern border with Egypt.

While Libyan oil exports peaked at 1.6 million barrels per day, battles between rival factions seeking to control the country, as well as strikes and blockades by local tribes, have kept production under 0.5 million bpd for most of the past year.

Mustafa Sanalla, the chairman of the Tripoli-based NOC, on Thursday reiterated comments told to Reuters in an interview earlier this month, that Libya’s oil partners and the international community fully backed the company, despite attempts by the recognised government in the east to set up a parallel oil payments system.

“The NOC, at its legal address in Tripoli, remains the only legally empowered oil contracting authority of the Libyan state,” Sanalla said.

“It remains the seat of contracts for all the production, transportation and sale of Libyan oil. The board of NOC is committed to protecting the integrity and viability of the NOC.”

 

(Reporting by Dmitry Zhdannikov, writing by Amanda Cooper; Editing by David Evans)

Read more

Zambia’s Lungu says won’t take over struggling mines

26 November 2015 Comments (0) Africa, Business, Latest Updates from Reuters

LUSAKA (Reuters) – Zambia does not plan to take over mines that have shed jobs after a sharp fall in global copper prices, President Edgar Lungu said on Thursday, backtracking from a warning earlier this month that the state would take over such mines.

Lungu said the economy would grow at a slower pace than previously estimated due to the struggling mining industry and electricity shortages, but that government would implement austerity measures to cope with the decline.

“The government can run the mines but we have no intention to take over the mines,” Lungu said, adding that government tried its best to keep the job losses to a minimum and that the troubles in the sector would lower economic growth.

On the job losses in the mines, Lungu said during a speech from his office that the government had tried its best to keep the job losses to the barest minimum.

“We would have lost all the jobs if we insisted on no job losses. The mines have told us why these jobs are being lost. The challenges in the mining sector are bound to continue. The government can run the mines but we have no intention to take over the mines,” he said.

Lungu earlier this month warned that he would not allow Glencore’s local unit to lay off workers.

The company has been cutting its copper output to support flagging global prices.

Vedanta Resources’ Zambian unit Konkola Copper Mines KCM) said it would mothball its loss making Nchanga underground mine by the end of the month.

 

(Reporting by Chris Mfula; Writing by Mfuneko Toyana; Editing by James Macharia)

Read more

Zambia’s 2016 economic growth seen below 4%

26 November 2015 Comments (0) Africa, Business, Latest Updates from Reuters

LUSAKA (Reuters) – Zambia’s economic growth will fall below 4 percent in 2016 due to a combination of domestic and international pressures but expansion in Africa’s second-largest copper producer will pick up in subsequent years, the World Bank said on Thursday.

“We expect growth to fall below 4 percent in 2016 and an improvement in growth in 2017 and 2018,” World Bank senior economist Gregory Smith said at a media briefing.

Severe electricity shortages, a plunge in global copper prices to record lows and a faltering currency have hurt the southern African country’s economy. The government forecasts growth at 4.6 percent in 2015.

 

(Reporting by Chris Mfula; Writing Mfuneko Toyana; Editing by James Macharia)

Read more

Doing Business amidst Terrorism

25 November 2015 Comments (0) Africa, Business, Featured, Middle East

lagos

Despite the odds, the Middle East and Africa show improved business environments.

On June 1, 2015 the World Bank Group published its 13th annual Doing Business 2016 report, a virtual check-up on the health of 189 different economies and each one’s environment for small and medium sized businesses. By monitoring domestic business regulations, the World Bank Group attempts to analyze the shifting horizons for international entrepreneurs, hoping to usher in a firm-friendly future in light of the ever-globalizing world economy.

The rise of cross-border terrorism has caused concern for many business leaders and potential investors in the region. Though the state of presumed instability may suggest a weakened business environment in the Middle East and Africa, contrary to media sensationalism these regions have made massive strides in improving the economic conditions for business owners alongside the threat of potential conflict. As always, there is much more than meets the eye.

A Binary Opposition between Appearance and Reality

In light of this, though most foreign policy surrounding terrorism concerns blunt force and combat, there is a need to not just strengthen the fighting power of our African and Middle Eastern allies, but also strengthen the structures that support them. The dangers portrayed by mainstream media are a bite-sized vision of the entire reality at play, as the emotional nuances of warfare footage packs a more memorable punch than the hard numbers Doing Business presents.

The toll of a nearby enemy is evident in the World Bank’s report. The Middle East and North Africa (MENA) is still held as the least transparent region internationally, and with the exception of Morocco there is little public engagement in forming regulatory policy. The region’s governance carries a relatively low regulatory quality but with great efficiency.

Improved Business Conditions as the Norm

Despite the multiplicity of issues these policy makers face, almost all nations within the Middle East and Africa have made huge strides to improve their business environment. This region currently represents half of the twelve nations that implemented four or more reforms, specifically Rwanda, Madagascar, Senegal, Morocco, and the United Arab Emirates. Across the board, low income economies have made much bigger improvements than high-income economies: Sub-Saharan Africa alone accounted for over 30% of all regulatory reforms made between 2014-2015.

In addition, Sub-Saharan Africa represents half of the top-ten improved economies as ranked by Doing Business, with Uganda, Kenya, Mauritania, Senegal and Bahrain implementing major economic reform. Within this region Rwanda also stands out, boasting a massive reduction in the number of days required to transfer property from 370 to a mere 32, and jumping from a score of 2 to 19 out of 20 on an index that rates the ease and efficiency of attaining credit.

The thirteen years of data collection has afforded the World Bank group several conclusions about the relationship between regulation, efficiency, and performance, and in this year’s Doing Business report they found that transparency during policy making was “highly and significantly” related to greater regulatory quality as well as efficiency. Currently in Mozambique, proposed regulations are published in a federal journal and distributed to stakeholders to encourage dialogue. In Ethiopia, Niger, and Afghanistan, public meetings are held so that the public and business leaders can be a part of the process of reform. In Kenya they even have a website for proposed regulations, where anyone at any time can weigh in on economic policy.

And Kenya’s not the only place that’s gone online- Rwanda made electronic tax filing and payment compulsory in 2014/15, and the time required for businesses to prepare and file taxes fell by 10 hours. Uganda introduced an online system for obtaining trading licenses, and other economies introduced systems where trade-related documents could be processed, including Benin, Côte D’Ivoire, Ghana, Madagascar, Mauritania, Suriname, Tanzania, and Togo. Currently, 25% of MENA nations have online systems for tax filing and payments, reducing the scope for bureaucratic discretion and corruption while increasing the system’s transparency, simplicity, efficiency, and cost-effectiveness.

The Best and the Worst

Countries’ ability to govern and enhance opportunities for citizens despite attacks from groups like ISIS and Boko Haram is commendable and demonstrates that optimism is in fact realistic. Turkey, though overrun with refugees, was able to streamline the process of obtaining construction permits. Saudi Arabia, with ISIS only 30km from their borders made property transfers faster by updating to a computerized registry system.

Nigeria and Kenya, the top two sub-Saharan nations affected by terrorism in the last year were still able to make their business environments healthier, with Nigeria reducing fees for property transactions and increasing the protection of minority investors by requiring external review. Kenya significantly reduced the time it takes to start a business by eliminating procedural inefficiencies, improved electronic document management for land registry, and improved access to credit, electricity, and proposed policy dialogues.

During a time of growing cross-border terrorism, with sensationalized militias such as Boko Haram and the Islamic State, as well as lesser known groups such as the al-Nusra Front or the Fulani militia, the significance of the stability a strong economy offers has never been so important. The relative security a growing economy offers provides the resources and willpower to combat terrorists, supports the persecuted, ensures justice, and dissuades the sympathetic from joining the extremists. Like many other groups branded with violence that preceded them, this generation of extremists will fall from within once they realize that peace is a more profitable reality.

Read more

Gold extends gains on geopolitical tensions but US rate view drags

25 November 2015 Comments (0) Africa, Business, Latest Updates from Reuters

SINGAPORE (Reuters) – Gold added to overnight gains on Wednesday on a softer dollar and heightened tensions after Turkey shot down a Russian warplane, but the rally was capped on expectations of a U.S. rate hike next month.

Turkey shot down the Russian jet near the Syrian border on Tuesday, saying the plane had violated its air space, in one of the most serious publicly acknowledged clashes between a NATO member country and Russia for half a century.

U.S. President Barack Obama and French President Francois Hollande, meeting in Washington, urged against an escalation, while NATO Secretary-General Jens Stoltenberg said the military alliance stood in solidarity with Turkey.

The tensions triggered a sell-off in equities and the dollar, while boosting the safe-haven yen, gold and government debt.

Spot gold edged up 0.3 percent to $1,078.61 an ounce by 0645 GMT, following a 0.6 percent gain on Tuesday. U.S. gold rose 0.5 percent, after a near 1 percent gain in the previous session.

“Gold rose on flight-to-quality as investors sought protection from volatile financial markets in the wake of global stresses,” said HSBC analyst James Steel.

“While we think gold may be supported, we are not anticipating a robust rally, and look for only moderate gains, with a lot of upside resistance,” he said.

Despite the gains, gold wasn’t too far from a near-six-year low of $1,064.95 hit last week on increasing views that the Federal Reserve will hike U.S. rates next month for the first time in nearly a decade.

Gold tends to benefit from ultra-low U.S. rates, which lower the opportunity cost of holding non-yielding bullion.

Data on Tuesday supported views of a December rate hike. The U.S. economy grew at a healthier clip in the third quarter than initially thought.

Traders will be eyeing more U.S. data due later on Wednesday, including weekly jobless claims and October new home sales, to gauge the strength of the economy.

Liquidity, however, could be thin ahead of the U.S. Thanksgiving holiday on Thursday.

Among other precious metals, silver rose for a second session after dipping to a six-year low of $13.86 earlier this week, while platinum was trading just above a seven-year low.

Palladium rose nearly 1 percent to $540.65.

 

(Reporting by A. Ananthalakshmi; Editing by Richard Pullin and Subhranshu Sahu)

Read more

South African rand steadies but looming U.S. rate hike poses risk

25 November 2015 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand was largely unchanged against the dollar in early Wednesday trade but analysts said the short-term prognosis was for the currency to weaken as U.S. interest rates look set to rise.

The JSE securities exchange’s Top-40 futures index was up 0.6 percent, indicating the actual index would open 265 points higher.

At 0648 GMT the rand traded at 14.0250 versus the dollar, barely moved from Tuesday’s New York close at 14.0370.

The rand was aided by broad-based dollar losses as investors cut crowded long positions in the lead-up to the U.S. Thanksgiving holidays.

“The rand will continue to be vulnerable for further depreciation as we approach the start of U.S. monetary policy normalisation – widely expected to happen in mid-December,” NKC African Economics said in a note.

“Higher local interest rates will not remedy this situation as the rand remains at the mercy of broader emerging market sentiment.”

The rand has given up most of last week’s gains after pushing to 2-1/2 week highs following a surprise 25 basis point hike in rates by the South African Reserve Bank.

Government bonds edged higher on Wednesday, and the yield for benchmark debt due in 2026 dipped 2 basis points to 8.43 percent.

 

(Reporting by Stella Mapenzauswa; Editing by Ed Cropley)

Read more

Nigeria central bank cuts rates for first time in six years

24 November 2015 Comments (0) Africa, Business, Latest Updates from Reuters

ABUJA (Reuters) – Nigeria’s central bank surprisingly cut the benchmark interest rate to 11 percent from 13 percent on Tuesday, its first reduction in the cost of borrowing in more than six years, in an effort to stimulate growth in Africa’s biggest economy.

The bank also reduced the cash reserve ratio for commercial banks to 20 percent from 25 percent, another move to try to inject liquidity into the banking system and encourage lending.

The central bank has been injecting cash into the banking system since October in a bid to stave off recession in Africa’s top oil producer, which has been hit hard by the sharp fall in crude prices over the last year.

“We must stimulate growth,” Governor Godwin Emefiele said, adding that committee members had voted by a margin of eight to two in favour of the reduction.

He said the step was taken “in consideration of the weakening fundamentals of the economy, particularly the low output growth, rising unemployment and the uncertainty of the global economic environment”.

The move took many in the market by surprise. In a Reuters poll, 15 of 23 analysts had predicted the central bank would hold the monetary policy rate at 13 percent, while four expected a 100-basis point cut.

The bank also broadened its interest rate corridor to 200 basis points above the benchmark rate and 700 basis points below, which means it will borrow from commercial lenders at four percent and lend to them at 13 percent.

The regulator hopes the measures will provide an incentive to banks to lend to local manufacturers such as food producers – in line with President Muhammadu Buhari’s policy of boosting output of rice and other basic food items.

Nigeria’s benchmark 20-year bond yield fell 95 basis point between Monday and Tuesday as some traders had expected the central bank to lower rates.

Emefiele said fresh liquidity from the cash reserve rate cut would only go to banks that were ready to channel it into “employment generating activities” such as infrastructure projects, the agricultural and minerals sectors.

He rapped those banks which had used a cut in the cash reserve ration in September to invest in bonds rather than lend to households and businesses.

“Unfortunately what we have found out is that rather than banks redeploying that liquidity… what the banks do is just dump their money on CBN (the central bank) and earn 11 percent – and I use the words – for doing nothing,” Emefiele said.

Standard Chartered’s chief Africa economist Razia Khan said the easing of monetary policy was aimed at boosting the real economy but their success would also depend on the availability of foreign exchange.

The central bank has restricted access to foreign currency to stop a slide in the naira, effectively pegging it at 197 to the dollar. Emefiele said the restrictions, which importers say is crippling their operations, were working well.

“Nigeria has sacrificed free movement of capital in order to keep the NGN at 200 (per dollar) while cutting interest rates to help the budget,” Charles Robertson, head of research at Renaissance Capital.

“Unfortunately this will not produce budget revenue growth…It also reduces the return for owning naira, which will presumably encourage more purchasing of U.S. dollars instead,” he said.

(By Julia Payne and Camillus Eboh. Additional reporting by Lagos newsroom; Writing by Alexis Akwagyiram and Ulf Laessing; Editing by Ed Cropley and Richard Balmforth)

Read more