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Economy

Experts, PDP Warn Buhari Against Borrowing $29.96bn

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  • Experts, PDP Warn Buhari Against Borrowing $29.96bn

Economic and financial experts have warned President Muhammadu Buhari to exercise caution over his administration’s plan to borrow $29.96bn from external sources.

Similarly, the opposition Peoples Democratic Party called on Nigerians to stop Buhari from borrowing the amount and moving N180bn appropriated for special intervention to fund critical recurrent and capital items.

It also asked the two chambers of the National Assembly not to approve the request by the President.

Buhari had on Tuesday asked the National Assembly to approve the external borrowing plan to enable his government to raise funds to execute key infrastructural projects across the country between now and 2018.

But experts said on Wednesday that the amount was too huge and that the Buhari-led administration needed to tell Nigerians the specific infrastructural projects in exact locations across the country that the money would be used to finance.

A professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, Sheriffdeen Tella, described the external borrowing plan of the Federal Government as too bogus.

Tella also asked the government to give a detailed breakdown of the proposed projects the funds would be used for, and specific plan of how it intended to pay back.

He said, “The money is too huge. We need to know the breakdown of the projects it will be used for. If it is for project financing whereby it is tied to specific projects in certain parts of the country, then fine. We need to also specify how much will be borrowed each year over the next three years of the borrowing plan.

“To me, the money is too huge. We do not manage our debts properly. We need to specify the repayment plan and what is going to be our income over the next five years or more. We are not good managers of resources; we are going to run into serious problems with this. If all these details cannot be given, then the National Assembly should approve just $10bn from it. Already, we know that we can’t borrow to finance recurrent expenditure. ”

An economic analyst at Ernst & Young, Mr. Bisi Sanda, also said the government needed to carry out reforms of its financial management system before embarking on such a borrowing.

Otherwise, he said it would be tantamount to borrowing to finance the ostentatious living of some corrupt government officials.

Sanda said, “Borrowing, in principle, is not wrong. But if you are using it to finance the corruption or ostentatious lifestyle of public officials, then there is a problem. It has been said some time ago that Nigerians only get 45 per cent value from all government expenditure. This is unlike in the USA where the people get 100 per cent value.

“Our public financial management must be transformed first. Seventy per cent of the budget in Nigeria goes on recurrent expenditure. What about the budget padding allegation and the huge bill of the legislature? We need to address the public financial management system, otherwise, we will find ourselves in the debt trap and leave huge debts for coming generations.”

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said there was nothing wrong with borrowing, but the government must specify the projects the money so raised would be used for.

“We need to tie this borrowing to specific infrastructural projects we know of in the country. We should say this rail line or highway will be financed with such an amount from the borrowing. This money must be tied to specific projects,” he said.

The Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said, “I agree with borrowing, but it must be tied to specific projects. The amount is a huge amount. That is about 140 per cent of our current external reserves.

“It is almost double the amount of the current external debt of the country. We need to know specific projects that the money will be used for. Until we know that, I can’t say it is a right step in the right direction.”

Reject proposal, PDP tells NASS

The PDP asked Buhari to explain to Nigerians what his administration had done with the recovered looted funds and how the 2016 budget was faring.

The spokesperson for the Senator Ahmed Makarfi-led faction of the party, Prince Dayo Adeyeye, stated this in a statement in Abuja on Wednesday.

Adeyeye said that the President must itemise what he intended to finance with the proposed borrowing of almost $30bn instead of lumping everything up in a coded term “and to plunge the nation’s future into a burden of debt”.

He said that the President’s approach could not be the preferred solution to the economic quagmire, which he alleged was created by the present government.

Adeyeye, a former Minister of State for Works, said, “This government budgeted N6.07tn for the 2016 fiscal year with a deficit of N2.22tn, and according to the breakdown, N1.8tn was budgeted for capital expenditure and President Buhari is now seeking to borrow over N9tn ($29.96bn) for ‘critical infrastructure’.

“This is absurd and way outside the government’s budgetary provisions for capital expenditure and must be rejected by all well-meaning Nigerians.

“Nigerians will recall that the Minister of Information and Culture, Alhaji Lai Mohammed, in June  made public through a press statement an account of recovered looted funds between May 2015 and May 2016 amounting to N78.3bn, $185.1m, £3.5m and €11,250m in cash, while others were under interim forfeiture. What happened to the recovered funds?”

Adeyeye added that the Chairman of the Economic and Financial Crimes Commission, Mr. Ibrahim Magu, recently said that the commission had recovered more money in the last eight months than it did in 12 years.

He said that Nigerians needed to know how much revenue the government had been able to generate from crude oil, non-oil and independent revenue sources since assumption.

The PDP leader said that the clarification would boost the confidence of Nigerians on the management of their resources, especially in this period of recession, and was necessary before thinking of engaging in external borrowing.

“The APC-led Federal Government is again taking Nigeria prior to year 2005 when the external debt burden derailed the growth of Nigeria’s economy and weakened the GDP before the total cancellation of her debt,” he added.

Adeyeye also said that the proposed action of the Federal Government would be a great injustice to the citizens now and in the future if they were plunged back into debt.

He said, “Let us state unequivocally that history will not forgive this APC government and its collaborators if they allow this injustice and maladministration of our economy and citizens to stand.

“We, therefore, call on the two chambers of the National Assembly to reject this anti-people request by an anti-people government that has no genuine interest for the growth and development of the people of this country.

“We again call on all Nigerians to speak with one voice and stop President Buhari from further destroying of our great nation, Nigeria, and by extension, Africa.”

DMO sets borrowing limit

Meanwhile, the Debt Management Office has said the maximum amount that Nigeria can borrow in 2017 from both local and foreign sources without breaching the debt threshold it has set for itself is $22.08bn.

The DMO said in its debt sustainability report that Nigeria could afford to borrow $22.08bn next year, equivalent to 5.89 per cent of the projected Gross Domestic Product, if it wanted to keep the overall borrowing under the limit of 19.39 per cent of the GDP that had earlier been set.

For this year, the total public debt-to-GDP ratio is projected at 13.5 per cent, the DMO said in the report, seen by Reuters on Wednesday.

It said the total public debt stood at 28.10 per cent of revenue in 2015, slightly above the 28 per cent threshold set by the government.

As of June 2016, Nigeria’s public debt stood at N16.29tn, up from N12.60tn at the end of last year.

The DMO said, “Although the level of debt stock is still appreciably low relative to the country’s aggregate output, the debt portfolio remains mostly vulnerable to the various shocks associated with revenue, exports and substantial currency devaluation.

“This highlights a potential risk to the debt portfolio, which could be exacerbated by the developments in the international oil market, as further decline in global oil prices would exert undue pressures on the already fragile economy, including the debt position.”

It proposed that the new borrowing next year be split as $5.52bn from the domestic markets and $16.56bn from offshore, subject to local market conditions and the options available abroad, adding that foreign borrowing should have a minimum maturity of 15 years.

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.

Economy

Manufacturing Firms Borrowed N570bn from Banks in 2020 – CBN

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Manufacturing firms borrowed a total of N570bn from Nigerian banks last year amid the economic fallout of the COVID-19 pandemic.

Banks’ credit to the manufacturing sector rose to N3.19tn as of December 2020 from N2.62tn at the end of 2019, according to the sectoral analysis of banks’ credit by the Central Bank of Nigeria.

The sector received the second biggest share of the credit from the banks after the oil and gas sector, which got N5.18tn as of December.

“The manufacturing sector, which is the engine of sustainable growth, is still struggling with the debilitating impact of the pandemic and is yet to recuperate,” the Director-General, Manufacturers Association of Nigeria, Mr Segun Ajayi-Kadir, said in January.

MAN, in a January report, revealed that most manufacturers said commercial banks’ lending rates were discouraging productivity in the sector.

The report said 71 per cent of Chief Executive Officers interviewed “disagreed that the rate at which commercial banks lend to manufacturers encourages productivity in the sector.”

It said the cost of borrowing in the country remained at double digits even amidst the reforms meant to culminate in lower rates to engender the country’s economic recovery process.

The report said, “Special single digit loans offered by development banks are still hard to leverage as conditionalities to assess the loans through commercial banks are often overwhelming and laden with additional charges that will eventually make the interest rate double digit.

“Seven per cent of respondents were, however, of the opinion that the rate at which commercial banks lend to manufacturers encourages productivity in the sector while the remaining 22 per cent were not sure of the impact of the rate of lending on productivity in the manufacturing sector.”

The report showed that 64 per cent of respondent disagreed that the size of commercial bank loan to manufacturing sector had encouraged manufacturing productivity.

It said the very high presence of the government in the money market, particularly through the sale of treasury bills, had been crowding out the private sector from the market.

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Economy

Nigeria Earns Extra N318.4 Billion as Crude Oil Hits $67/Barrel

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FG Generates Additional Income of N318.4 Billion as Crude Oil Hits $67/Barrel

The Federal Government earned an additional N318.36 billion in February following the surge in crude oil price above $60 per barrel.

Brent crude oil, against which Nigerian oil is priced, average $60 throughout the month of February.

In March, it rose to $67 per barrel.

According to the Minister of Finance, Budget and National Planning, Zainab Ahmed, Nigeria’s crude oil price was retained at $40 per barrel for 2021.

However, she said the nation is presently producing below its 2.5 million barrel per day capacity at 1.7mbpd. This, she said includes 300,000bpd condensates.

“Although Nigeria’s total production capacity is 2.5mbpd, current crude production is about 1.7mbpd, including about 300,000bpd of condensates, which indicates compliance with OPEC quota,” the finance minister stated.

Going by the number, Nigeria is producing 1.4mbpd of crude oil without condensates, but with an additional $20 revenue when compared to the $40 per barrel benchmark for the year. It means the Federal Government realised an additional income of N318.360 billion or $20 X 1.4mbpd X 30days in the month of February.

Crude oil jumped to $68.54 per barrel on Friday following OPEC+’s decision to role-over production cuts.

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Nigeria, Morocco sign MOUs on Hydrocarbons, Others

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The Federal Government and the Kingdom of Morocco have signed five strategic Memoranda of Understanding that will foster Nigerian-Morocco bilateral collaboration and promote the development of hydrocarbons, agriculture, and commerce in both countries.

The Minister of State for Petroleum Resources, Chief Timipre Sylva, led the Nigerian delegation to the agreement signing ceremony on Tuesday at Marrakech, Morocco, while the Chief Executive Officer of OCP Africa, Mr Anouar Jamali, signed for the Kingdom of Morocco, according to a statement by the Nigerian Content Development and Monitoring Board.

Under the agreement between OCP, NSIA and the Nigerian National Petroleum Corporation, Nigeria will import phosphate from the Kingdom of Morocco and use it to produce blended fertiliser for the local market and export.

The statement said Nigeria would also produce ammonia and export to Morocco.

“As part of the project, the Nigerian Government plans to establish an ammonia plant at Akwa Ibom State,” it said.

The Executive Secretary of NCDMB, Mr Simbi Wabote, and the Group Managing Director of NNPC, Mallam Mele Kyari, were part of the delegation and they confirmed that their organisations would take equity in the ammonia plant when the Final Investment Decision would be taken, the statement said.

Sylva said the project would broaden economic opportunities for the two nations and improve the wellbeing of the people.

He added that the project would also positively impact agriculture, stimulate the growth of gas-based industries and lead to massive job creation.

He said the President, Major General Muhammadu Buhari (retd.), had mandated the Ministry of Petroleum Resources and it agencies and other government agencies to give maximum support for the project.

“He mandated me to ensure that at least the first phase of this project is commissioned before the expiration of his second term in office in 2023,” he added.

According to the statement, the MOUs were for the support of the second phase of the Presidential Fertiliser Initiative; Shareholders Agreement for the creation of the joint venture company to develop the multipurpose industrial platform and MOU for equity investment by the NNPC in the joint venture and support of the gas.

Other agreements are term sheet for gas sales and aggregation agreement and MOU for land acquisition and administrative facilitation to the establishment of the multipurpose industrial platform for gas sales and aggregation agreement.

The NCDMB boss described the bilateral agreement as significant to the Nigerian economy as it would accelerate Nigeria’s gas monetisation programme through establishment of the ammonia plant in the country.

The agreement would also improve Nigeria’s per capita fertiliser application through importation of phosphate derivatives from Morocco, he added.

Wabote challenged the relevant parties to focus on accelerating the FID, assuring them that the NCDMB would take equity investment for long-term sustainability of the project.

He canvassed for the setting up of a project management oversight structure to ensure project requirements and timelines are met.

“There is also need to determine manpower needs for construction and operations phase of the project and develop training programmes that will create the workforce pool from Nigeria and Morocco and design collaboration framework between research centres in Nigeria and Morocco to develop technology solutions for maintaining the ISBL and OSBL units of the Ammonia complex,” he said.

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