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Emefiele: It’s Not Rational to Cut Interest Rate



  • With Inflation at 18.3%, It’s Not Rational to Cut Interest Rate

As the Central Bank of Nigeria’s Monetary Policy Committee (MPC) prepare to commence its last meeting for 2016 tomorrow, the CBN Governor, Mr. Godwin Emefiele, has signalled the likelihood of the retention of the monetary policy rate (MPR), the benchmark interest rate.

Emefiele, who gave the indication when he delivered a keynote address at the annual bankers’ dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos Saturday night, pointed out that although interest rates are a veritable tool for curtailing inflation, with inflation at 18.3 per cent; “the CBN would be abjectly failing on one of its cardinal objectives if it cuts interest rates at this time.”

The comment, the CBN governor, however stressed, was solely his opinion and should not be interpreted as those of the board or management of the CBN or those of the MPC.

According to him, although he remains a strong believer in low interest rates, discussions around low interest should be based on facts, rather than politics or emotions.

“For those who say we need a rate cut to spur growth, we need to remind that high inflation is highly inimical to economic growth. Indeed, many empirical studies have estimated the threshold level at which inflation becomes significantly growth retarding to be 11 percent for developing countries.

“With ours at 18.3 per cent, one must question the judgment of cutting interest rates at this time. Finally, I think it is important to underscore that interest rates reflects not just the cost of capital but also the cost of doing business, and so we need to also look at interest rates from the perspective of the lender.

“Given that most banks have decided to individually provide security, power, and other infrastructure, it is not surprising that some of these costs are passed on to customers in the form of high interest rates. Notwithstanding these facts, we will continue to use moral suasion to encourage commercial banks to be more considerate in interest charges on customers,” the CBN governor said.

Emefiele revealed that given the sharp drop in oil prices, Federation Account Allocations to states had dropped by an average of about N2 billion monthly per state, which partly explained their inability to meet some basic recurrent expenditures including payment of workers’ salaries.

Similarly, average inflows of foreign exchange into the CBN have fallen by over $2.3 billion every month over the last 26 months, he said.

In view of the ongoing difficulties in the economy, Emefiele said the country would have been better prepared to deal with the current downturn if the government had managed the resources during the period of economic boom effectively. Pointing out that every economy goes through phases of booms and bursts, peaks and valleys, highs and lows, prosperity and difficulty, Emefiele argued that,”Contrary to correct policy prescriptions during times of boom, we opened up our economy to “all-comers” and dropped all capital controls.” “At some point, we received more than US$23 billion in “hot money” in foreign portfolio inflows (FPIs) in the country in a particular year.

“Monies that could easily evaporate at the slightest hint of an economic slowdown. Recall that in September 2008, Nigeria’s FX Reserves hit a whopping US$62 billion, even after we had spent about US$12 billion settling our external debt obligations. What did we do with the money?

“We set up BDCs and started giving out FX cash to them. At some point, we even had Class A BDCs that could collect as much as US$1 million per week. On average, we sold about US$6 billion per year for frivolous reasons. Over the 11 years that we were practising this, we sold more than US$66 billion.

“None of these monies were used to build factories or to create jobs in Nigeria. None of these were used to build hospitals or schools in Nigeria. Imagine what this money would have meant to us if we had that amount in our FX Reserves today,” he lamented.

Lamenting further, Emefiele said, rather than build on the one-time burgeoning base of agricultural production and manufacturing we had, policy makers then invested less in power, infrastructure, education, and health.

“As our schools began to dilapidate and teachers went on incessant strikes, we sent our children overseas even for primary school education. As doctors preferred to practice in the US and UK and hospitals lacked even hand gloves, we embarked on a medical exodus abroad even for basic diagnosis.

“As our manufacturing companies started closing especially for lack of power, we gladly substituted them with seemingly cheap imports while inadvertently exporting jobs and importing poverty to our country.

“Contrary to what I have heard some commentators and “arm-chair” policy analysts assert, the size of our FX Reserves and the value of the Naira critically depend on our lifestyles and on the value and types of imports we allow into this country. Imagine for a minute that 90 percent of the things you buy in Shoprite stores across the country are imported: the eggs and avocado peers are from South Africa, the meat is from Zambia, and Moet Champagne is from France.

“In fact, Shoprite revealed in June 2013 that it believes Nigeria has space for up to 800 Shoprite stores, and that the seven outlets it already had then sold more Moët & Chandon champagne in 2012 than its South African stores combined!,” he added.

All these developments, Emefiele noted, had direct impact on the country’s FX Reserves, recalling that when he assumed office in June 2014, FX Reserves had fallen from the aforementioned high of US$62 billion in 2008 to only US$37 billion!

Yet, demand for FX has reached an all-time high of over US$1.2 billion per week or US$4.8 billion per month.

“What then can we do to remedy this situation? Is it our inflexible destiny or collective decision to rely so much on other countries for her basic needs? What kind of future do we really want as a people? I do not think that one policy decision from any arm or agency of government can answer all these questions,” he said.

To these end, Emefiele prescribed policy options such as investing in basic infrastructure including roads, bridges, airports, railways, and information technology is not only good in terms of immediate job creation; improving power supply in the country; pursuing growth-enhancing fiscal policy; the need to pay closer attention to agriculture and agribusiness; consider attracting selected private sector leaders who will commit themselves to invest in certain agricultural produce on a large scale while government may need to give some incentives to encourage them to invest, explore opportunities for more revenue, among others.

Speaking on recent developments in the global economy, Emefiele said: “You will all agree with me that recently there were two major unexpected outcomes in two countries that were clearly globally dominant both economically and militarily. These countries are also strong supporters of free trade and globalisation.

“The first was the BREXIT vote while the second is the outcome of the recently concluded elections in the United States. These two events and the trends of public discuss raging in France and Germany are bound to change or alter trade policies and international economic cooperation between the countries and the world at large.

“Two very key issues in the British referendum and the USA elections were Immigration and economy ; particularly free trade. The outcome of the referendum and elections centered around the desire of the citizens to take back their sovereignty ; which they believe had been been concessioned away by their past leaders.

“As for the USA election, the President-elect promised to be tough on immigration and to protect US industries to ensure that US jobs are no longer exported to other countries; while , for those industries that had left the US, they would be given incentives and encouraged to return the industries back to the US.

Also the Chair of the US FED yesterday, signalled that interest rate hike will come sooner than later on the back of a strong US economic report. These two countries have no doubt set a tone which may be followed by other countries. The main issue for us as a country is to examine the implications of these actions on not only free trade and dumping in Emerging and Frontier markets but also on the entire world order.

“For Nigeria , the question is: how prepared are we to shield our teaming masses and our country to manage the ultimate fallout? Let me state that we must critically analyse the implications of the anticipated changes and prepare strategies as to the best ways to tap into the opportunities that may be thrown up or minimise the challenges that may arise therefrom.”

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


Electricity Consumers Get 611,231 Meters Under MAP Scheme



power project

Electricity Consumers Get 611,231 Meters Under MAP Scheme

A total of 611,231 meters have been deployed as at January 31, 2021 under the Meter Asset Provider initiative since its full operation despite the COVID-19 pandemic and other extraneous factors, the Nigerian Electricity Regulatory Commission has said.

NERC disclosed this in a consultation paper on the review of the MAP Regulations.

The proposed review of the MAP scheme is coming nearly four months after the Federal Government launched a new initiative called National Mass Metering Programme aimed at distributing six million meters to consumers free of charge.

“The existence of a huge metering gap and the need to ensure successful implementation of the MYTO 2020 Service-Based Tariff resulted in the approval of the NMMP, a policy of the Federal Government anchored on the provision of long-term low interest financing to the Discos,” NERC said.

The commission had in March 2018 approved the MAP Regulations with the aim of fast-tracking the closure of the metering gap in the sector through the engagement of third-party investors (called meter asset providers) for the financing, procurement, supply, installation and maintenance of meters.

It set a target of providing meters to all customers within three years, and directed the Discos and the approved MAPs to commence the rollout of meters not later than May 1, 2019.

But in February 2020, NERC said several constraints, including changes in fiscal policy and the limited availability of long-term funding, had led to limited success in meter rollout.

NERC, in the consultation paper, highlighted three proposed options for metering implementation going forward.

The first option is to allow the implementation of both the NMMP and MAP metering frameworks to run concurrently; the second is to continue with the current MAP framework with meters procured under the NMMP supplied only through MAPs (by being off-takers from the local manufacturers/assemblers).

The third option is to wind down the MAP framework and allow the Discos to procure meters directly from local manufacturers/assemblers (or as procured by the World Bank), and enter into new contracts for the installation and maintenance of such meters.

“Customers who choose not to wait to receive meters based on the deployment schedule of the NMMP shall continue to have the option of making upfront payments for meters which will be installed within a maximum period of 10 working days,” NERC said.

The regulator said such customers would be refunded by the Discos through energy credits, adding that there would be no option for meter acquisition through the payment of a monthly meter service charge.

“Where meters have already been deployed under the meter service charge option, Discos shall make one-off repayment to affected customers and associated MAPs. Such meters shall be recognised in the rate base of the Discos,” it added.

NERC urged stakeholders to provide comments, objections, and representations on the proposed amendments within 21 days of the publication of the consultation paper.

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Nigeria’s Economy Moving in Right Direction but Slow – Amina Mohammed



Banana Island

Nigeria’s Economy Moving in Right Direction but Slow – Amina Mohammed

Nigeria is moving in the right direction economically but its movement is not fast, the United Nations stated on Thursday.

Deputy Secretary-General of the United Nations, Amina Mohammed, said this during a meeting at the headquarters of the Federal Ministry of Industry, Trade and Investment in Abuja.

She said the challenges in Nigeria were huge, its population large but described the country’s economy as great with lots of opportunities.

The UN scribe stated that after traveling by train and through various roads in the Northern parts of Nigeria, she discovered that the roads were motorable, although there were ongoing repairs on some of them.

Mohammed said, “This is a country that is diverse in nature, ethnicity, religious backgrounds and opportunities. But these are its strengths, not weaknesses.

“And I think the narrative for Nigeria has to change to one that is very much the reality.”

Speaking on her trips across parts of Nigeria, she said, “What I saw along the way is really a country that is growing, that is moving in the right direction economically. Is it fast enough? No. Is it in the right direction? Yes it is.

“And the challenges still remain with security, our social cohesion and social contract between government and the people. But I know that people are working on these issues.”

She said the UN recognised the reforms in Nigeria and other nations, adding that the common global agenda was the Sustainable Development Goals.

Mohammad commended Nigeria’s quick response to the COVID-19 pandemic, as she expressed hope that the arrival of vaccines would be the beginning of the end of COVID-19.

On his part, the Minister of Industry, Trade and Investment, Adeniyi Adebayo, told his guest that the Federal Government was working hard to make Nigeria the entrepreneurial hub of Africa.

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N10.7tn Spent on Fuel Subsidy in 10 Years – MOMAN



petrol Oil

N10.7tn Spent on Fuel Subsidy in 10 Years – MOMAN

Nigeria spent a total of N10.7tn on fuel subsidy in the last 10 years, the Chairman, Major Oil Marketers Association of Nigeria, Mr Adetunji Oyebanji, has said.

Oyebanji, who was the guest speaker at the 18th Aret Adams Lecture on Thursday, said N750bn was spent on subsidy in 2019.

He highlighted the need for a transition to a market-driven environment through policy-backed legislative and commercial frameworks, enabling the sustainability of the downstream petroleum sector.

“Total deregulation is more than just the removal of price subsidies; it is aimed at improving business operations, increasing the investments in the oil and gas sector value chain, resulting in the growth in the nation’s downstream petroleum sector as a whole,” he said.

The managing director of 11 Plc (formerly Mobil Oil Nigeria Plc) said steps had been taken, “but larger and faster leaps are now required.”

According to him, deregulation requires the creation of a competitive market environment, and will guarantee the supply of products at commercial and market prices.

“It requires unrestricted and profitable investments in infrastructure, earning reasonable returns to investors. It requires a strong regulator to enable transparency and fair competition among players, and not to regulate prices,” Oyebanji said.

He noted that MOMAN had recently called for a national debate by stakeholders to share pragmatic and realistic initiatives to ease the impact of the subsidy removal on society – especially on the most vulnerable.

He said, “A shift from crude oil production to crude oil full value realisation through deliberate investment in domestic refining and refined products distribution, creates the opportunity to transform the dynamics of the downstream sector from one of ‘net importer’ to one of ‘net exporter’, spurring the growth of the Nigerian economy.

“Effective reforms and regulations are key drivers for the growth within the refining sector. Non-functional refineries cost Nigeria over $13bn in 2019. If the NNPC refineries were operating at optimal capacity, Nigeria would have imported only 40 per cent of what it consumed in 2019.”

Full deregulation of the downstream sector remains the most glaring boost to potential investors in this space, according to Oyebanji.

He said, “As crude oil prices will fluctuate depending on the prevailing exchange rates, it will be astute to trade in naira to avoid inevitable price swings.

“There needs to be a balance between ensuring the sustainable growth of the crude oil value chain (upstream through downstream) and providing value for the Nigerian consumer and the Nigerian economy.”

He said the philosophy should be for the government to put the legislative and commercial framework in place and let the market develop by itself.

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