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Recession: Analysts Canvass Collaboration Between Regulators, Banks

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Recession

Financial analysts in the country have called for a strong collaboration between financial sector regulators and the banking industry to chart an ideal course, given the receding state of the economy.

They identified huge communication gaps among the parties, saying the gaps must be closed if the country must move forward economically.

According to them, the country is going through hard times, which require a more holistic and thorough approach to check the level of economic decadence.

The analysts made this submission at a panel discussion organised for industries’ leaders held at the Nigerian Stock Exchange.

The Director of Investment Banking, Chapel Hill Denham, Mr. Ayo Fashina, noted that there was no need to borrow money when the country had assets to sell.

According to him, the Assets Management Corporation of Nigeria has over N3tn assets with the Central Bank of Nigeria, adding that the government, the banks and the regulators have to collaborate and help the country out of the current recession.

He said that banks already had liquidity challenges and the CBN needed to unlock liquidity in their balance sheet.

Other stakeholders at the meeting also urged the Federal Government to shelve the idea of borrowing from the international market considering the devaluation of the naira.

The Federal Government had said it would borrow $1bn from the international capital market to fund its expansionary budget and stimulate economic growth as inflation, slow growth and other challenges continued to hit the economy.

Fashina added, “If a foreign investor came in now, the same micro fundamental that happened in 2009 is happening now. Until the CBN issued special analysis of the banks because I am not sure that the assets level is right; for some banks, instead of qualifying their loans, they are putting them into watch list. How long will they continue to keep them in the watch list?”

Fashina attributed the drop in foreign portfolio investment in the country to volatility in foreign exchange, noting that unless the country fixed the exchange rate issues, foreign investors would not come to invest.

“The Nigerian economy is driven by the capital market and hence the NSE is currently constituted by 50 per cent foreign investors and 50 per cent local investors. The market is now coping with only the 50 per cent local investors while the 50 per cent foreign investors have taken flight for safety because of uncertainty of rate of foreign exchange,” he added.

Also, an economist and policy analyst, Dr. Ogho Okiti, said the country had not exited the problem of 2009 when AMCON was created, saying the non-performing loans had continued to increase.

He said, “I don’t know the facts from the banks. The stability and profitability of the banks are very weak. I hope we don’t repeat the same mistake of 2009.

“We have seen the symptoms and we don’t know how deep it will be. I am not saying the CBN is not going to bail out banks, but banks NPLs continue to increase.”

Nigeria officially slid into recession for the first time in more than 20 years as the National Bureau of Statistics recently announced a further contraction in the second quarter of the year.

The NBS said on Wednesday last week that the Gross Domestic Product contracted by 2.06 per cent after shrinking 0.36 in the first quarter.

It said the non-oil sector declined due to a weaker currency, while lower prices dragged the oil sector down.

A slump in crude prices, Nigeria’s mainstay, has hammered public finances and the naira, causing chronic dollar shortages. Crude sales account for around 70 per cent of government revenues.

Compounding the impact of low oil prices, attacks by militants on oil and gas facilities in the southern Niger Delta hub since the start of the year have cut crude production by about 700,000 barrels per day to 1.56 million bpd. The government’s 2016 budget assumed 2.2 million bpd.

The NBS said annual inflation reached 17.1 per cent in July from 16.5 per cent in June – a more than 10-year high – and food inflation rose to 15.8 per cent from 15.3.

Nigeria’s sovereign dollar bonds fell across the curve to their lowest value in more than two weeks after the NBS released its data, according to Reuters.

The NBS figures showed Nigeria attracted just $647.1m of capital in the second quarter, a 76 per cent fall year-on-year and nine per cent down from the first quarter.

Nigeria’s economy was last in recession, for less than a year, in 1991, the NBS data shows. It also experienced a prolonged recession from 1982 to 1984.

President Muhammadu Buhari was in power for some of that period as a military ruler after seizing power in a December 1983 coup and remained head of state until another military coup pushed him out in August 1985.

The office of the vice president, who oversees economic policy, said in a statement it expected a “better economic outlook” for the second half of 2016 “because many of the challenges faced in the first half either no longer exist or have eased”.

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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Gold

Gold Steadies After Initial Gains on Reports of Israel’s Strikes in Iran

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Gold, often viewed as a haven during times of geopolitical uncertainty, exhibited a characteristic surge in response to reports of Israel’s alleged strikes in Iran, only to stabilize later as tensions simmered.

The yellow metal’s initial rally came on the heels of escalating tensions in the Middle East, with concerns mounting over a potential wider conflict.

Spot gold soared as much as 1.6% in early trading as news circulated regarding Israel’s purported strikes on targets in Iran.

This surge, reaching a high of $2,400 a ton, reflected the nervousness pervading global markets amidst the saber-rattling between the two nations.

However, as the day progressed, media reports from both countries appeared to downplay the impact and severity of the alleged strikes, contributing to a moderation in gold’s gains.

Analysts noted that while the initial spike was fueled by fears of heightened conflict, subsequent assessments suggesting a less severe outcome helped calm investor nerves, leading to a stabilization in gold prices.

Traders had been bracing for a potential Israeli response following Iran’s missile and drone attack over the weekend, raising concerns about a retaliatory spiral between the two adversaries.

Reports of an explosion in Iran’s central city of Isfahan further added to the atmosphere of uncertainty, prompting flight suspensions and exacerbating market jitters.

In addition to geopolitical tensions, gold’s rally in recent months has been underpinned by other factors, including expectations of US interest rate cuts, sustained central bank buying, and robust consumer demand, particularly in China.

Despite the initial surge followed by stabilization, gold remains sensitive to developments in the Middle East and broader geopolitical dynamics.

Investors continue to monitor the situation closely for any signs of escalation or de-escalation, recognizing gold’s role as a traditional safe haven in times of uncertainty.

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Commodities

Global Cocoa Prices Surge to Record Levels, Processing Remains Steady

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Cocoa futures in New York have reached a historic pinnacle with the most-active contract hitting an all-time high of $11,578 a metric ton in early trading on Friday.

This surge comes amidst a backdrop of challenges in the cocoa industry, including supply chain disruptions, adverse weather conditions, and rising production costs.

Despite these hurdles, the pace of processing in chocolate factories has remained constant, providing a glimmer of hope for chocolate lovers worldwide.

Data released after market close on Thursday revealed that cocoa processing, known as “grinds,” was up in North America during the first quarter, appreciating by 4% compared to the same period last year.

Meanwhile, processing in Europe only saw a modest decline of about 2%, and Asia experienced a slight decrease.

These processing figures are particularly noteworthy given the current landscape of cocoa prices. Since the beginning of 2024, cocoa futures have more than doubled, reflecting the immense pressure on the cocoa market.

Yet, despite these soaring prices, chocolate manufacturers have managed to maintain their production levels, indicating resilience in the face of adversity.

The surge in cocoa prices can be attributed to a variety of factors, including supply shortages caused by adverse weather conditions in key cocoa-producing regions such as West Africa.

Also, rising demand for chocolate products, particularly premium and artisanal varieties, has contributed to the upward pressure on prices.

While the spike in cocoa prices presents challenges for chocolate manufacturers and consumers alike, industry experts remain cautiously optimistic about the resilience of the cocoa market.

Despite the record-breaking prices, the steady pace of cocoa processing suggests that chocolate lovers can still expect to indulge in their favorite treats, albeit at a higher cost.

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Crude Oil

Dangote Refinery Leverages Cheaper US Oil Imports to Boost Production

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Crude Oil

The Dangote Petroleum Refinery is capitalizing on the availability of cheaper oil imports from the United States.

Recent reports indicate that the refinery with a capacity of 650,000 barrels per day has begun leveraging US-grade oil to power its operations in Nigeria.

According to insights from industry analysts, the refinery has commenced shipping various products, including jet fuel, gasoil, and naphtha, as it gradually ramps up its production capacity.

The utilization of US oil imports, particularly the WTI Midland grade, has provided Dangote Refinery with a cost-effective solution for its feedstock requirements.

Experts anticipate that the refinery’s gasoline-focused units, expected to come online in the summer months will further bolster its influence in the Atlantic Basin gasoline markets.

Alan Gelder, Vice President of Refining, Chemicals, and Oil Markets at Wood Mackenzie, noted that Dangote’s entry into the gasoline market is poised to reshape the West African gasoline supply dynamics.

Despite operating at approximately half its nameplate capacity, Dangote Refinery’s impact on regional fuel markets is already being felt. The refinery’s recent announcement of a reduction in diesel prices from N1,200/litre to N1,000/litre has generated excitement within Nigeria’s downstream oil sector.

This move is expected to positively affect various sectors of the economy and contribute to reducing the country’s high inflation rate.

Furthermore, the refinery’s utilization of US oil imports shows its commitment to exploring cost-effective solutions while striving to meet Nigeria’s domestic fuel demand. As the refinery continues to optimize its production processes, it is poised to play a pivotal role in Nigeria’s energy landscape and contribute to the country’s quest for self-sufficiency in refined petroleum products.

Moreover, the Nigerian government’s recent directive to compel oil producers to prioritize domestic refineries for crude supply aligns with Dangote Refinery’s objectives of reducing reliance on imported refined products.

With the flexibility to purchase crude using either the local currency or the US dollar, the refinery is well-positioned to capitalize on these policy reforms and further enhance its operational efficiency.

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