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Biggest African Economies Stall on Politics, Commodity Slump

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Nigeria inflation hits six-year high

Africa’s two largest economies are stalling amid slumping commodity prices and political infighting that’s hampering decision making.

A government report on Wednesday will probably show Nigeria contracted for a second consecutive quarter in the three months through June as the price and output of oil, its main source of revenue, were squeezed. While South Africa may have avoided falling into a recession, according to the median estimate of five economists surveyed by Bloomberg, the continent’s most-industrialized economy will not grow this year, the nation’s central bank said last month.

The global slump in commodity prices and weak demand from the continent’s main export partners have hit Nigeria, Africa’s second-largest oil producer, and South Africa, where mining produce accounts for about half of export earnings, weighing on both economies. A shortage of foreign currency in Nigeria after the central bank held a currency peg for more than a year, curbed imports, further limiting output, while political uncertainty in South Africa increased in the last week.

“Both countries’ economies are on a declining path,” Manji Cheto, senior vice president at Teneo Intelligence in London, said by phone. “That’s being led by politics in South Africa, and government policies that are reactive in Nigeria and might not work in the short term.”

Nigeria’s economy probably shrank 1.6 percent in the three months through June, according to the median of 15 economist estimates compiled by Bloomberg, following a 0.4 percent year-on-year contraction in the first quarter. Gross domestic product may decline by 1.8 percent for the year, according to the International Monetary Fund.

Nigeria delayed the approval of its record spending plans of 6.1 trillion naira ($19.4 billion) as President Muhammadu Buhari’s administration haggled with lawmakers over budgetary allocations. Militants have destroyed energy installations in the Niger River delta, cutting the nation’s oil output to an almost three-decade low, and further reducing earnings from an industry hit by a more than 50 percent drop in price since the middle of 2014.Nigeria relies on oil for two-thirds of government revenue and 90 percent of foreign-currency earnings.

Commodity Prices

“Both countries are adjusting to the decline in commodity prices,” said Sizwe Nxedlana, chief economist at Johannesburg-based First National Bank. “The nice thing about South Africa is that we are significantly more diversified as an economy than Nigeria.”

Nigerian central bank Governor Godwin Emefiele increased borrowing costs by 200 basis points last month to fight inflation that reached 16.5 percent in June and lure investors to help prop up the naira. The currency has lost more than a third of its value against the dollar since the central bank removed a currency peg on June 20.

Diversified Economy

While South Africa’s rand strengthened more than 10 percent against the dollar between the start of the year and early August, helping the economy to temporarily replace Nigeria as the continent’s largest in dollar terms, the currency slumped more than 5 percent since reports a week ago that Finance Minister Pravin Gordhan may be arrested. Gordhan, 67, said on Aug. 24 his attorneys received a letter from the Hawks, a special police unit, asking him to come to their office. He did not comply with the request.

“It’s a foregone conclusion that Nigeria is in recession,” Cheto said. “Revenue growth has been positive in South Africa, but if the political situation deteriorates, it will show negatively in the economy.”

The naira was unchanged at 314.75 per dollar by 9:01a.m. on Lagos on Tuesday. The rand strengthened 0.3 percent to 14.3682 per dollar.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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Oil

The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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