The Federal government of Nigeria could lose gains on Treasury bills (short-term loans), due to the decision by the central bank to cut foreign exchange access for corn imports.

CBN says the measure aims to support local production, stimulate rapid economic recovery, safeguard rural livelihoods, and increase jobs lost due to the coronavirus pandemic. This initiative will not please investors who target government borrowing.

Nigeria is the second-largest corn producer in Africa with a yield of 1.6 tons per hectare compared to 4.6 tons for South Africa. But it still has to import nearly 400,000 tons to make up its supply deficit. Under these conditions, analysts fear a surge in food prices and consequently pressure on global inflation.

The increase in prices in Nigeria was followed by lower yields on 364-day treasury bills (short-term debt securities). The latest issue (1 July 2020) of this category of financial products, which is highly sought after by investors, resulted in an interest rate of 3.4%.

From a financial point of view, investors are in a net loss position when the level of return is compared to that of inflation, as the difference between gains on one-year maturity bonds and potential losses due to inflation is negative. The situation is no better for longer-term bonds. The 5-year bond offers a yield of 8%. This is still below the level of inflation, which is currently 12.4%.

Idriss Linge