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High Port Charges: Nigerian Importers Divert Cargoes to Neighbouring Countries

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Importers in Nigeria are now diverting cargoes to neighbouring countries to avoid undue restrictions at the country’s ports and high custom duties, a report has disclosed.

The Chief Executive Officer of the Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, disclosed this in his monthly economic news and views for September presented at Lagos Business School recently. This, he attributed to higher customs duties, bottlenecks and forex shortages, adding that smuggling activities are expected to increase.

Clearly, this may jeopardise the federal government’s efforts to boost non-oil revenue following the fall in crude oil prices.

Nigeria is officially in an economic recession.

The National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), recently identified lengthy and cumbersome documentation process on export, multiplicity of regulatory/security agencies, high and duplicated terminal/ shipping company charges and process and lack of export infrastructures as major obstacles that affect export process from Nigerian ports.

In a letter to the Executive Director of the Nigerian Export Promotion Council (NEPC) and copied President Muhammadu Buhari, the Nigerian Ports Authority (NPA) and the Nigerian Shippers Council (NSC), NCMDLCA had called on the federal government to take urgent steps to remove the obstacles before it is too late.

The letter signed by its National President, Lucky Amiwero alleged that: “ The federal government agencies duplicate the process of quality inspection with that of the appointed federal government pre-shipment inspection on export. This constitutes serious bottleneck due to lengthy and cumbersome process, procedure and cost, which resulted in attendant delays and high costs that prompted the movement of our product to our neighbouring West African Ports.”

On the duplication of charges by shipping companies, the customs agents said: “The Nigerian Shipping companies in line with the contract of carriage, handle import container that are loaded back to the country of origin as empty container without any charge due to the level of export activities that is still very low in the country. The shipping lines Terminal Delivery Charges (TDC) is a charge that is not tied to service, as such charge is duplicated in the charges of terminal operators. Their charges do not represent any service to exporters in Nigeria in any form.”

Continuing, Rewane in the report pointed out that ships awaiting berth decreased to 41 from 45 last month, adding that ships awaiting berth are expected to decline further.

According to the report, weakness in macroeconomic condition in the country has translated to profitability decline by most quoted companies. He said earnings and profitability fell short of expectations as investor confidence worsened.

For the banking industry, the report pointed out that 74.6 per cent of industry revenues in their recently released half-year results amounted to N1.21 trillion concentrated in tier I banks.

“Industry’s profitability is slowed by high loan loss charge offs and rising operating costs. Impairment charge continues to record high credit losses of N218.9 billion for first half of 2016, from N41.3 billion as at first half of 2014. Size matters as tier II banks struggles to grow profit before tax. Tier II profit before tax as at the first half of 2016 was N50.3 billion, as against the N59.2 billion recorded in the first half of 2014,” it added.

CBN is conducting stress tests as well as routine examinations on banks in the light of growing non-performing loans (NPLs) and deteriorating asset quality due to naira weakness.

This, the FDC boss said raises apprehension on the state of Nigerian banks as the last released financial stability report was for December 2015.

“The economy has found its bottom and the only way is up. But the pace of recovery is dependent on pace of policy response,” it added.

According to the report, the top four fastest growing sectors accounted for only six per cent of new jobs as at the first quarter of this year, adding that sector activity does not mean job creation and employment. It pointed out that growth does not translate into increased consumption and income.

In its review of the real estate sector, it showed that Lekki has the highest vacancy rate at 65 per cent, adding that affordable rents are six to 10 per cent above asking rents of $780psqm in Victoria Island.

Residential index rose by 6.8 per cent quarter-on-quarter as commercial index remained flat at 148. Prime office rent drop by six per cent to $810 per sqm per annum.

“Nigeria in recession increases vacancy rates further. Carrying cost of properties is excruciating as landlords reduce rental payment to annually. Previously, they used to collect two to three years payment. Pedigree of tenants remains important. Replacement cost far in excess of market value,” it stated.

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

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Markets

Black Friday Lull

We’re seeing subdued trading at the end of the week, with the absence of the US leaving markets lacking any notable direction.

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By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

We’re seeing subdued trading at the end of the week, with the absence of the US leaving markets lacking any notable direction.

This isn’t really unusual and at the end of the week too, it really makes sense. Barring a flurry of big headlines from elsewhere, we could now see equity markets just drift into the weekend with investors already having an eye on next week.

Perhaps today people are trading in their charts for some Black Friday deals, the outcome of which will certainly be on everyone’s radar. Going into the holiday season, we’ll get an early idea of the state of play for household spending in the midst of a cost-of-living crisis.

Of course, it will naturally be difficult to distinguish how much of that bargain hunting will prove to be holiday season shopping brought forward in an attempt to get the “best deals”. But if Black Friday shopping takes a hit this year, it won’t bode well for the rest of the holiday period which is so important to retailers.

PBOC cuts the RRR

The PBOC cut the RRR by 25 basis points this morning in a bid to support the economy which is once more going through a difficult period. How effective that will prove to be when cities are seeing restrictions and effective lockdowns reimposed is hard to say. But combined with other measures to boost the property market and ease Covid curbs, the cut could be supportive over the medium term when growth remains highly uncertain.

Oil pares losses as price cap talks continue

Oil prices are higher on Friday, continuing to pare losses after being hit heavily in recent weeks by surging Covid cases in China and discussions around the price cap on Russian crude.

Lockdowns in all but name appear to be popping up in major Chinese cities in an attempt to get a grip on record cases which will weigh heavily on economic activity once more and in turn demand. It’s now a question of how long they last but clearly investors’ enthusiasm toward the relaxation of Covid restrictions was a bit premature.

Talks will continue on a price cap but it seems it won’t be as strict as first thought, to the point that it may be borderline pointless. That’s hit oil prices again this week as the threat to Russian output from a $70 cap, for example, is minimal given it’s selling around those levels already.

Gold establishing a range ahead of key data releases

Gold is marginally lower today but has been quite choppy throughout the session, and broadly lacked any real direction. We could be seeing a little profit-taking as the dollar edges higher following the relief rally that followed the Fed minutes.

The yellow metal is trading roughly in the middle of what may be a newly established range between $1,730 and $1,780, potentially now awaiting the next catalyst ahead of the December Fed meeting. With another jobs and inflation report still to come, a lot could change between now and when the FOMC next meets.

Bitcoin still extremely vulnerable

Bitcoin is edging lower again today after recording three days of gains. That dragged it off the lows but didn’t really carry it that far from them. It’s trying to stabilize around the $15,500-$17,000 region and weather the storm but I’m not sure it will be that easy. There’s likely more to come from the FTX collapse and the contagion effects, not to mention potentially other scandals that could be uncovered. This may continue to make crypto traders very nervous and leave the foundations supporting price extremely shaky. ​

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Lack of Inflows, Revenue Shortage Plunge Nigeria’s Excess Crude Account By 89%

The ECB balance declined from $4.1 billion recorded in November 2014 to $472,513

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Weak foreign revenue inflow amid fluctuations in the global oil market has plunged Nigeria’s Excess Crude Account (ECA) by 89% in the last eight years.

The Excess Crude Account (ECA) is an account used to save excess crude oil revenue by the Nigerian government.

The ECB balance declined from $4.1 billion recorded in November 2014 to $472,513 in the same period of 2022, according to a statement from the Ministry of Finance, Budget, and National Planning.

Economists attributed the substantial decline to the nation’s persistent depreciation in foreign revenue inflows and the struggle with crude oil production amid global uncertainty.

According to Jonathan Aremu, professor of economics at Covenant University in Ogun State, the decline was a result of constant withdrawal without replenishment.

“For you to increase the ECA, the oil price must rise above the budgeted price. If it does not, nothing goes in.  Also, if what you are spending is higher than what goes in, it depletes. This is the situation,” he noted.

On Thursday, crude oil prices declined following the Group of Seven (G7) nations’ proposed plan to cap Russian oil at $65-70 a barrel.

Brent crude oil, against which Nigerian oil is priced, declined to $85 a barrel while the West Texas Intermediate (WTI) crude fell by 0.6% to $77.48 a barrel.

Despite the fact that the benchmark price for oil in the 2022 budget was $57, the price of oil today is still about $30 higher. In spite of higher oil prices, the ECA has been on a decline since early 2022, suggesting that the issue is internal.

“Nigeria’s crude production plunged below 1 million barrels per day (mbpd) for the first time since Buhari became President this year and has averaged about 1.2 mbpd most part of 2022. Therefore, it is impossible to take advantage of the Russian-Ukraine war inflated oil prices like we did during the Gulf war under former president Ibrahim Babangida,” Samed Olukoya, CEO/Founder Investors King Ltd stated.

The government needs to address internal issues, revamp refineries, reduce oil theft and diversify the economy to reduce overexposure to global oil fluctuations.

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Crude Oil Opens at $85 as G7 Nations Move to Cap Russian Oil

The Group of Seven (G7) proposed to cap Russian crude oil at $65-$70 a barrel

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Crude oil opened lower on Thursday, declining to a two-month low following the Group of Seven (G7) proposal to cap Russian crude oil at $65-$70 a barrel.

A greater-than-expected build in U.S. gasoline inventories and widening COVID-19 controls in China added to downward pressure.

Brent crude dipped 50 cents, or 0.6%, to $84.91 a barrel, while U.S. West Texas Intermediate (WTI) crude fell by 46 cents, or 0.6%, to $77.48 a barrel.

Both benchmarks plunged more than 3% on Wednesday on news the planned price cap on Russian oil could be above the current market level.

The G7 is looking at a cap on Russian seaborne oil at $65-$70 a barrel, according to a European official, though European Union governments have not yet agreed on a price.

A higher price cap could make it attractive for Russia to continue to sell its oil, reducing the risk of a supply shortage in global oil markets.

That range would also be higher than markets had expected, reducing the risk of global supply being disrupted, said Vivek Dhar, a commodities analyst at Commonwealth Bank in a report.

“If the EU agree to an oil price cap of $65‑$70/bbl this week, we see downside risks to our oil price forecast of $95/bbl this quarter,” Dhar said.

Oil and gas exports are forecast to account for 42% of Russia’s revenues this year at 11.7 trillion roubles ($196 billion), according to the country’s finance ministry, up from 36% or 9.1 trillion roubles ($152 billion) in 2021.

The G7, including the United States, as well as the whole of the European Union and Australia, are planning to implement the price cap on sea-borne exports of Russian oil on Dec. 5.

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