Global News: U.S-Saudi Petrodollar Pact Ends after 50 Years
Nigerian bank recapitalization drive picks up momentum.
The 50-year-old petrodollar agreement between the U.S. and Saudi Arabia was just allowed to expire. The term “petrodollar” refers to the U.S. dollar’s role as the currency used for crude oil transactions on the world market.
Our thoughts
The world is changing right before our eyes. The deal was Saudi prices their oil in USD and invest surplus oil revenue in US treasury bonds in exchange, US provides military support to the Kingdom! This is an example of a contract that have kept US as an economic power and their bond yields low! I'm not sure how much military support Saudi has benefited from the deal as the world has largely been war less in that period. What does this imply? Saudi - one of the world largest oil producer are now free to sell their oil in any currency. In the near term, this may not mean much as oil traders will still largely trade in USD but in the mid to long term, Saudi (and their BRICS & cronies) will introduce new currencies to trade oil.
This, coupled with news like china making cheap products that are threatening western businesses, will gradually mark a gradual shift in US being the world's foremost economic power.
African News: Startup funding rebounds as Africa secures $187 million in May
Faltering startup funding witnessed a rebound in May, where African players raised fresh capital totaling $187 million. This is according to a report by 'Africa: 'The Big Deal', which monitors deals announced by startups on the continent.
Our thoughts
3 things to highlight:
While this is good news $187 million is really small amount of money and desperately needs to improve!
Data shows that funding largely comes from offshore sources, Africans need to begin to allocate some capital to funding the continent.
The statistics is pretty consistent globally. Only 10-30% of venture capital succeeds. Given the tough and largely broken business environment in Africa, it is tough to see how African statistics will be better!
Always bear that in mind when investing - Diversify.
Nigerian News: Nigerian bank recapitalization drive picks up momentum
Fidelity Bank and Ecobank joined the list of Nigerian banks that have released plans raise capital, as more banks look to meet the 24-month deadline set by the Central Bank of Nigeria.
Our thoughts
The CBN announced new minimum capital requirement in March this year. With that announcement, all commercial banks in Nigeria are required to shore up their capital.
Why do banks need capital? Think of capital as a shock absorber. It is the banks capital that enables it withstand the impact of non-performing loans. If managed properly, a bank's capital base gives a clue to it's stability. Why did the Central Bank make the announcement? To improve the stability of the banking system. What options do banks have to raise this capital? - Public offer: sell more stocks to the public. - Rights Issue: sell more stocks to existing shareholders. Raise private capital from institutions or individuals.
What's the big deal?
The total amount to be raised is heading to 4 trillion Naira. Where is that money going to come from? So all the banks are hustling to come to the market first before money finishes. What happens if the don't meet the deadline?
Some banks will disappear- there will be mergers, acquisitions and license downgrades
Should I buy ahead on the market or wait till the public offers? It depends on the bank, their offer price vs current market price. Then a sprinkle of your expectation of their likelihood of success.
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