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FG Urged to Abolish Fuel Subsidy Over Forex Pressure

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Analysts at CSL Stockbrokers Limited, have advised the federal government to end the fuel subsidy, which currently makes up a significant proportion of Nigeria’s import bill. They reasoned that removal of the subbing will help reduce demand for dollars and reduce pressure in the foreign exchange market.

Besides’ they argued that ending the fuel subsidy regime would save the government about N1.2 trillion in expenditure in 2016, the analysts also revealed. The naira has been under pressure in the past few weeks as low crude oil prices continue to hit Nigeria’s external reserves. Presently, the nation’s currency goes for about N270/$1 on the parallel market.

However, a report by the Lagos-based investment and research firm obtained by THISDAY, also pointed out that beyond the short-term, ending the fuel subsidy regime would be positive for the currency, saying that it would likely stimulate refining of domestically- produced oil, which may then substitute imports of petroleum.

“Experience of other emerging markets suggests that removal of fuel subsidies positively impacts the balance of payments. This said, our pre-existing base case is that some currency depreciation will be necessary on a six to nine month time horizon to keep the economy stable and the external accounts on a sustainable footing,” the report stated.

Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, had stated that the federal government would begin a gradual withdrawal of the fuel subsidy in 2016. The comment came months after President Muhammadu Buhari ruled out the need for removal. Kachikwu, citing a shortage of funds, had said the subsidy put at over N1 trillion ($5billion) in 2015 was no longer sustainable.

Crude oil (Brent) which has been hovering around $37.3/bbl, is already below the pessimistic oil price benchmark of $38/bbl assumed in the 2016 budget.

Nigeria’s long-standing fuel subsidies were partially removed in 2012 and consequently, the pump price of petrol was increased to N97 per litre from N65 per litre. This was reduced to N87 per litre earlier this year due to the drastic fall in oil prices but is expected to revert to N97 per litre following subsidy removal during 2016, with full removal due in 2017. The country has however witnessed severe fuel shortages for most of this year. Despite measures by the Nigerian National Petroleum Corporation (NNPC) to ensure adequate petroleum supply nationwide, long queues have persisted in petrol stations across major cities with the result that petrol has been selling for significantly higher than the N87 per litre. The scarcity of petrol has largely been blamed on delayed payment of subsidy claims.

To this end, CSL Stockbrokers argued that the removal of the subsidy was a critical free-market reform, adding that it would be beneficial to the economy and to government finances, “though it will almost certainly put pressure on consumers and small businesses.”

“Apart from augmenting government revenues, the removal of the subsidy removes disincentives to refine petroleum product, and may improve the balance of payments through import substitution. It is widely acknowledged that the subsidy system was open to abuse and that only a relatively small number benefited from it as petroleum has always sold for higher than the pump price in most other states outside Lagos.

“We, however, believe there still remains some political risk in implementing the change. The subsidy on petroleum is widely seen as a form of social security in a country where health and social security provision is limited. Its partial removal provoked negative reactions and street demonstrations in 2012.

“The cost of the subsidy is put at over N1trillion in 2015, in comparison with the N5 trillion budget for 2015 (20% of the 2015 budget). Removing the subsidy should save the government about N1.2trillion in expenditure in 2016. However, it should be noted that, as we state above, it is widely believed that the main beneficiaries of the fuel subsidy were a relatively small number of intermediaries, so eliminating their profits benefits the majority. Therefore, perhaps the most positive impact of this reform will be to introduce clarity into the complicated world of petroleum pricing, and advance this government’s pro- market reform agenda.,” it added.

Furthermore, they argued that the stock market may react positively to subsidy removal, adding that investors would be in favour of the move, with the view that it will curb leakages and enable the government re-allocate the funds possibly to infrastructure development.

“However, removal of subsidies is likely to put more pressure on the hard- pressed consumer, and therefore on consumer product companies and even food manufacturers. To the extent that subsidy removal will lead to increases in infrastructure spending, we expect subsidy removal to benefit cement manufacturers,” they added.

ThisDay

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Netanyahu Stands Firm as US Halts Bomb Shipment Over Rafah Invasion Warning

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Netanyahu

Amidst escalating tensions between Israel and the United States, Israeli Prime Minister Benjamin Netanyahu has adopted a defiant stance following the US decision to halt a shipment of bombs and warned against Israel’s potential invasion of the southern Gaza city of Rafah.

In a bold statement, Netanyahu declared, “If we have to stand alone, we will stand alone,” emphasizing Israel’s resolve to pursue its objectives despite opposition.

The Prime Minister’s comments, delivered via social media and a subsequent interview with American talk show host Dr. Phil, underscore Israel’s determination to address security threats posed by the Gaza Strip, particularly by Hamas militants operating in Rafah.

Netanyahu reiterated the necessity of military action in Rafah to eliminate the remaining Hamas battalions, condemned Hamas’s history of violence and reiterated Israel’s commitment to achieving victory and ensuring the safety of its citizens.

The US administration, led by President Joe Biden, expressed concerns over the potential humanitarian impact of an Israeli invasion of Rafah, prompting the decision to withhold additional offensive weapons shipments to Israel.

Biden’s statement echoed broader international apprehensions about the escalation of violence and civilian casualties in the conflict-stricken region.

However, Netanyahu remained resolute in Israel’s approach, asserting the country’s right to defend itself against security threats. He emphasized Israel’s efforts to minimize civilian casualties and facilitate the evacuation of civilians from Rafah before any military action.

Despite the US’s decision to pause the bomb shipment, Netanyahu affirmed Israel’s commitment to its longstanding alliance with the US. He acknowledged past disagreements between the two nations but expressed optimism about resolving current tensions through dialogue and cooperation.

In response, White House officials reiterated the US’s support for Israel’s security while urging restraint and emphasizing the need to avoid actions that could exacerbate the humanitarian crisis in Gaza.

The administration clarified that the decision to halt the bomb shipment was aimed at preventing potential civilian casualties in Rafah.

The confrontation between Israel and the US underscores the complexity of navigating regional conflicts and balancing strategic interests. As tensions persist, both nations face the challenge of reconciling their respective security imperatives with broader humanitarian concerns, seeking to avert further escalation while addressing the root causes of the conflict in the Middle East.

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EFCC Declares Former Kogi Governor, Yahaya Bello, Wanted Over N80.2 Billion Money Laundering Allegations

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Yahaya Bello

The Economic and Financial Crimes Commission (EFCC) has escalated its pursuit of justice by declaring former Kogi State Governor, Yahaya Bello, wanted over alleged money laundering amounting to N80.2 billion.

In a first-of-its-kind action, the EFCC announced Bello’s wanted status in connection with the alleged embezzlement of funds during his tenure as governor.

The commission, armed with a 19-count criminal charge, accused Bello and his cohorts of conspiring to launder the hefty sum, which was purportedly diverted from state coffers for personal gain.

The declaration of Bello as a wanted fugitive came after a series of failed attempts by the EFCC to effect his arrest.

Despite an ex-parte order from Justice Emeka Nwite of the Federal High Court, Abuja, mandating the EFCC to apprehend and produce Bello in court for arraignment, the former governor managed to evade capture with the reported assistance of his successor, Governor Usman Ododo.

This latest development shows the challenges faced by law enforcement agencies in holding powerful individuals accountable for their actions.

However, it also demonstrates the unwavering commitment of the EFCC to uphold the rule of law and ensure that justice is served, irrespective of the status or influence of the accused.

In response to the EFCC’s declaration, the Attorney General of the Federation and Minister of Justice, Lateef Fagbemi, issued a stern warning to Bello, stating that fleeing from the law would not resolve the allegations against him.

Fagbemi urged Bello to honor the EFCC’s invitation and cooperate with the investigation process, saying it is important to uphold the rule of law and respect the authority of law enforcement agencies.

The EFCC’s pursuit of Bello underscores the agency’s mandate to combat corruption and financial crimes, sending a strong message that individuals implicated in corrupt practices will be held accountable for their actions.

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Concerns Mount Over Security as National Identity Card Issuance Shifts to Banks

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NIMC enrolment

Amidst the National Identity Management Commission’s (NIMC) recent announcement that the issuance of the proposed new national identity card will be facilitated through applicants’ respective banks, concerns are escalating regarding the security implications of involving financial institutions in the distribution process.

The federal government, in collaboration with the Central Bank of Nigeria (CBN) and the Nigeria Inter-bank Settlement System (NIBSS), introduced a new identity card with payment functionality, aimed at streamlining access to social and financial services.

However, the decision to utilize banks as distribution channels has sparked apprehension among industry stakeholders.

Mr. Kayode Adegoke, Head of Corporate Communications at NIMC, clarified that applicants would request the card by providing their National Identification Number (NIN) through various channels, including online portals, NIMC offices, or their respective banks.

Adegoke emphasized that the new National ID Card would serve as a single, multipurpose card, encompassing payment functionality, government services, and travel documentation.

Despite NIMC’s assurances, concerns have been raised regarding the necessity and security implications of introducing a new identity card system when an operational one already exists.

Chief Deolu Ogunbanjo, President of the National Association of Telecoms Subscribers, questioned the rationale behind the new General Multipurpose Card (GMPC), citing NIMC’s existing mandate to issue such cards under Act No. 23 of 2007.

Ogunbanjo highlighted the successful implementation of MobileID by NIMC, which has provided identity verification for over 15 million individuals.

He expressed apprehension about integrating the new ID card with existing MobileID systems and raised concerns about data privacy and unauthorized duplication of ID cards.

Moreover, stakeholders are seeking clarification on the responsibilities for card blocking, replacement, and delivery in case of loss or theft, given the involvement of multiple parties, including banks, in the issuance process.

The shift towards utilizing banks for identity card issuance raises fundamental questions about data security, privacy, and the integrity of the identification process.

With financial institutions playing a pivotal role in distributing sensitive government documents, there are valid concerns about potential vulnerabilities and risks associated with this approach.

As the debate surrounding the security implications of the new national identity card continues to intensify, stakeholders are calling for greater transparency, accountability, and collaboration between government agencies and financial institutions to address these concerns effectively.

The paramount importance of safeguarding citizens’ personal information and ensuring the integrity of the identity verification process cannot be overstated, especially in an era of increasing digital interconnectedness and heightened cybersecurity threats.

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