The Manufacturers Association of Nigeria, the Lagos Chamber of Commerce and Industry, the Abuja Chamber of Commerce and Industry and other organised private sectors on Thursday called on the Federal Government to drastically slash interest rate in order to stimulate economic recovery.
Professional bodies such as the Chartered Institute of Finance and Control and the Institute of Fiscal Studies of Nigeria and renowned economists including the Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, advised the government to urgently review its policies and spend more to atttract both local and foreign investors to invest in the economy.
The National Bureau of Statistics had on Wednesday released the Gross Domestic Product figures for the second quarter of 2016, whose growth rate slid from -0.36 per cent in the first quarter to -2.06 per cent.
But speaking to one of our correspondents in a telephone interview on Thursday, the President of MAN, Dr Frank Jacob, said the interest rate should be reduced from over 22 per cent to five per cent.
This, he added, would enable manufacturers to borrow for productive purposes.
He said, “Some of the requests that we’ve been making from the government should be looked into. To reflate this economy, they need to reduce the interest rate on loans to five per cent.
“They can also create a special window for manufacturers to source foreign exchange and make it readily available for them as and when they are needed. And of course, the issue of infrastructure should be addressed, especially power and road.”
Reacting, the Director-General, Nigeria Employers’ Consultative Association, Mr. Olusegun Oshinowo, said most nations that had been in recession embarked on prudent spending as a way out.
He said, “We have to be able to identify critical sectors of the economy that have impact on other sectors, such as infrastructure which is about road, rail, air and sea transportation. This sector makes for easy movement of goods and services from one location to the other and should be given a lot of attention by the government.
“The government should also settle domestic debts. People who have worked for government should be paid. The focus should also be on social infrastructure with initiatives like the National Health Insurance Scheme and others being empowered to promote health care in the nation.”
The Director-General, LCCI, Mr. Muda Yusuf, said what was important was to inspire the confidence of investors and called on more investment in infrastructure, adding that there was a need to fast-track the implementation of the 2016 budget so that funds could be released into the system for infrastructure development.
Another solution, according to the LCCI DG, was on the trade policies and the various tariffs, which he said the government needed to review downwards to drive down costs in the manufacturing sector.
“The rising inflation is cost-driven inflation owing to duties paid by manufacturers who import critical raw and packaging materials. The government should review the shipping charges and charges imposed by terminal operators so that the cost of manufacturing can go down.”
The President, Nigeria Employers’ Consultative Association, Mr. Larry Ettah, warned that the imposition of excessive taxes and levies on businesses is not the best solution to recession.
Rather, he said the role of government regulatory agencies should be to make the business environment conducive for organisations to thrive and create jobs.
While speaking at the 59th Annual General Meeting of NECA in Lagos on Thursday, Ettah said, “We believe that it is okay if regulators regulate but we are averse to a situation where there is overreach of regulation. In which case, you are not trying not to look at the spirit of regulation, which was really to encourage businesses to survive but to see regulation purely from revenue generation perspective.”
The Executive Director, Corporate Finance, BGL Capital Ltd, Mr. Femi Ademola, said the high yield on treaury bills had made banks to be lazy as they now preferred to channel their funds to invest in the T-bills rather than for productive activities.
He said if the CBN could reduce the interest to about eight per cent, more funds would be made available to stimulate economic activities.
He said, “The government needs to start working now by implementing its programmes particularly the capital components of the budget. This is the time for both the monetary and fiscal authorities to come together to stimulate economic activities.
“On the monetary side, the CBN needs to reduce the interest rate from the current rate to eight per cent. Enough of fighting inflation because the inflation that the CBN is fighting is not induced by too much of money in circulation but it’s a structural issue that is outside the control of monetary policy.”
Rewane, in a telephone interview with one of our correspondents, said, “The hole is much deeper than we thought we were initially; so, it is only when you know how deep the hole is, then you know how to climb out of it.
“How do you climb out of recession? You climb out of recession by investing, spending and wooing and courting investors to bring them into the country. That is imperative.”
He said part of what sank the country into recession was the sharp drop in the production of oil.
Rewane said, “If the oil and gas production doesn’t come back up; if we do not bring down interest rate, as long that the central bank thinks that it is going to push up interest rate, this economy will not recover. They have to bring down interest rate immediately.”
“The earlier they do that, the better for everybody. When you do that, the currency will drop some more. But it doesn’t matter. The lower the currency, the more the investors will come in.”
The Monetary Policy Committee of the CBN had at the end of its last meeting raised the monetary policy rate (benchmark interest rate) to 14 per cent from 12 per cent.
The Chairman of the Board, Nigerian Economic Summit Group, Mr. Kyari Bukar, said, “One of the fundamental things that I strongly believe in is that to get out of recession, government has to spend. Liquidity has to be in the economy.
“You don’t spend for the sake of spending; you invest. So, the capital side of the equation needs to be enhanced, even if it means in the short term, we are going to borrow, we have to spend on infrastructure that will be catalysts or enablers for many of the things that we need to grow our economy and get us out of this recession.”
A professor of financial economics at the University of Uyo, Akwa Ibom State, Leo Ukpong, said, “Definitely, we need a clear economic policy. It is bad economic policy that led to a recession, and to get out of it, we need a good economic policy.”
“I think the first thing that the government has to do is to design policies that will keep people in employment. We must have a very strong short-term and long-term economic growth policy. Short term is to start implementing the budget, especially the part that has to do with construction and privatisation.”
Leo said the CBN should reduce the benchmark interest rate “so that businesses can borrow and stay alive”, adding, “I think the central bank has to rethink its interest rate policy.”
Africa Renewable Energy Fund II Secures €125 Million First Close With SEFA and CTF Investments
The Africa Renewable Energy Fund II has achieved its first close at €125 million, following a joint investment of €17.5 million from The Sustainable Energy Fund for Africa and the Climate Technology Fund through the African Development Bank.
AREF II, a successor to the original Fund, is a 10-year closed-ended renewable energy Private Equity Fund with a $300 million target capitalization. The Africa Renewable Energy Fund II, managed by Berkeley Energy, invests in early-stage renewable energy projects, thereby not only de-risking the most uncertain phase of power projects, but also promoting increased green baseload in Africa’s generation mix.
The Sustainable Energy Fund for Africa and the Climate Technology Fund will each contribute roughly €8.7 million to mobilize private-sector investment into Africa’s renewable energy sector. The Sustainable Energy Fund for Africa will also contribute financing to the AREF II Project Support Facility, which funds technical assistance and early-stage project support to improve bankability.
Other investors include the U.K’s CDC Group, Italy’s CDP, the Netherlands Development Finance Company (FMO) and SwedFund.
“We are proud to be associated with Berkeley Energy and other like-minded investors, and look forward to AREF’s continued success and leadership in promoting sustainable power development on the continent,” said Dr. Kevin Kariuki, the African Development Bank’s Vice President for Power, Energy, Climate and Green Growth.
In 2012, the African Development Bank selected Berkeley Energy, a seasoned fund manager of clean energy projects in global emerging markets to set up AREF. AREF II has a sharper strategic focus than its predecessor on “green baseload” projects that will deliver firm and dispatchable power to African power systems through hydro, solar, wind and battery storage technologies.
Luka Buljan, Berkeley Energy’s Managing Director, said: “We are very excited to have reached this milestone with strong support from our backers. The catalytic tranche from the Sustainable Energy Fund for Africa and the Climate Technology Fund will assist in mobilising private institutional investors up to full fund size of €300 million. We now look forward to concluding the fundraising and delivering projects that will provide clean, reliable and affordable energy across African markets.”
“AREF is intertwined with the Sustainable Energy Fund for Africa’s history and success, and we have worked closely over the last decade to create precedents in difficult markets and challenging technologies. We look forward to continued collaboration to accelerate the energy transition in Africa,” said Joao Duarte Cunha, Manager for Renewable Energy Initiatives at the African Development Bank and Coordinator of the Sustainable Energy Fund for Africa.
FG Earned $34.22B From Crude Oil and Gas in 2019 – NEITI
The Nigeria Extractive Industries Transparency Initiative (NEITI) on Thursday released its 2019 oil and gas industry audit report, which shows that Nigeria earned N34.22 billion from the oil and gas industry in 2019.
The audit, conducted by Adeshile Adedeji & Co. (Chartered Accountants), an indigenous accounting and auditing firm, reconciled payments from 98 entities. They include 88 oil and gas companies, nine government agencies and the Nigerian Liquefied Natural Gas (NLNG).
The 2019 figure is an increase of 4.88 percent over the $32.63billion revenue realised from the sector in 2018. A breakdown of the earnings showed that payments by companies accounted for $18.90billion, while flows from federation sales of crude oil and gas accounted for $15.32billion.
The report further showed that 10 years (2010-2019) aggregate financial flows from the oil and gas sector to government amounted to $418.544billion, with the highest revenue flow of $68.442 recorded in 2011, while the lowest revenue flow of $17.055 was recorded in 2016.
According to NEITI, the total crude oil production in 2019 was 735.244mmbbls, representing an increase of 4.87 percent over the 701.101mmbbls recorded in 2018. Production sharing contracts (PSCs) contributed the highest volumes of 312.042mmbbls followed by Joint Venture (JV) and Sole Risk (SR) which recorded 310,284mmbbls and 89.824mmbbls respectively. Others are Marginal Fields (MFs) and Service Contracts (SCs) which accounted for 21,762mmbbls and 1,330mmbbls respectively.
The report also showed that total crude oil lifted in 2019 was 735.661mmbbls, indicating a 4.93 percent increase to the 701.090 mmbbls recorded in 2018, with companies lifting 469.010mmbbls, while 266.650mmbbls was lifted by the Nigeria National Petroleum Corporation (NNPC) on behalf of the federation.
Analysis of crude oil lifted by NNPC showed that 159.411mmbbls was for export, while 107.239mmbbls was for domestic refining. 97 percent of the volumes for domestic refining (104.475mmbbls) was utilised for the Direct Sale Direct Purchase (DSDP) programme while the remaining 3 percent (2.764mmbbls) was delivered to the refineries.
NEITI reported that the value of the 2019 domestic crude oil earnings was N2.722 trillion. Of this figure, N518.074billion was deducted for Petroleum Motor Spirit (PMS) under-recovery by the NNPC.
This figure was N213.074billon above the approved sum of N305billion for under-recovery in 2019. Similarly, the sum of N126.664billion was incurred by the Corporation as costs for pipeline repairs and maintenances which showed a difference of N96.378billion from the approved sum of N30.287billion for that purpose.
The report also pointed out that N31.844billion was also deducted for crude and product losses due to theft.
Oil Prices Drop on Stronger U.S Dollar
The strong U.S Dollar pressured global crude oil prices on Thursday despite the big drop in U.S crude oil inventories.
The Brent crude oil, against which Nigerian oil is priced, dropped by 74 cents or 1 percent to settle at $73.65 a barrel at 4.03 am Nigerian time on Thursday.
The U.S West Texas Intermediate crude oil depreciated by 69 cents or 1 percent to $71.46 a barrel after reaching its highest since October 2018 on Wednesday.
“Energy markets became so fixated over a robust summer travel season and Iran nuclear deal talks that they somewhat got blindsided by the Fed’s hawkish surprise,” said Edward Moya, senior market analyst at OANDA.
“The Fed was expected to be on hold and punt this meeting, but they sent a clear message they are ready to start talking about tapering and that means the dollar is ripe for a rebound which should be a headwind for all commodities.”
The U.S. dollar boasted its strongest single day gain in 15 months after the Federal Reserve signaled it might raise interest rates at a much faster pace than assumed.
A firmer greenback makes oil priced in dollars more expensive in other currencies, potentially weighing on demand.
Still, oil price losses were limited as data from the Energy Information Administration showed that U.S. crude oil stockpiles dropped sharply last week as refineries boosted operations to their highest since January 2020, signaling continued improvement in demand.
Also boosting prices, refinery throughput in China, the world’s second largest oil consumer, rose 4.4% in May from the same month a year ago to a record high.
“This pullback in oil prices should be temporary as the fundamentals on both the supply and demand side should easily be able to compensate for a rebounding dollar,” Moya said.
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