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Government Stalls Revision of 41 Restricted Items’ List

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  • Government Stalls Revision of 41 Restricted Items’ List

Over a year after the Federal Government promised to review the 41 restricted items from accessing foreign exchange (forex) from the interbank rate, the interest charged on short-term funds among banks, indications have emerged that a revised list may not be released anytime soon.

This emerged despite assurances by the government to reduce pressure on the parallel market, an unofficial market for trading currencies, to encourage local production.

The restricted items include Rice, cement, palm kernel/palm oil products/vegetables oils, meat and processed meat products, vegetables and processed vegetable products, poultry chicken, eggs, turkey, private airplanes/jets, cold rolled steel sheets, wood particle boards and panels, textiles, plastic and rubber products, polypropylene granules, cellophane wrappers, soap and cosmetics as well as tomatoes/tomato pastes.

The Central Bank of Nigeria (CBN), the lender of last resort, justified the action saying that such imports led to manufacturing companies closing down their operations as they were local goods were being substituted with seemingly cheap imports while inadvertently exporting jobs and importing poverty to the country.

Indeed, an authoritative source from the CBN stated that while the concerns raised by MAN and the OPS on the 41 items are being reviewed, it discovered that many manufacturers preferred to import rather than produce locally even when obstacles were being removed.

The highly placed source, who prefers anonymity, stated that some manufacturers had accessed facilities to the tune of N3 billion without any form of security, while others who expressed interest to backwardly integrate their processes had no farms but only interested in continued importation of such goods.

The source noted that “despite claims about lack of access to forex, not less than 1,342 manufacturers and allied firms received $660.17 million from the CBN through Deposit Money Banks (DMBs) for importation of raw materials, plants and machinery in September.”

The source argued that government will be doing the economy a disservice if it yielded to pressure to withdraw restriction on some of the restricted items as they can be sourced and produced locally.

Many indigenous manufacturers are already threatening to exit from Nigeria over lack of access to forex and other financial support, but Government accused them of sabotage.

According to Government, those manufacturers threatening to leave the country are unpatriotic and only seek funds to continue importation rather than backwardly integrating their processes to enhance local production.

Reacting to the allegation, the President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, said that while it may be true that some manufacturers are not sincere to their commitments to commence local production having enjoyed certain waivers and privileges, it may not be true to generalise that manufacturers are not sincere to the backward integration agenda.

This is because many members of MAN are already seeking alternative sources for their raw materials locally.

“I may not be able to hold brief for all manufacturers, but I do know that the area where some operators have enjoyed some concession is in the area of tomato production, even though there is not much to show for it. Others are backwardly integrating as that is the only alternative due to the scarcity of foreign exchange,” Jacobs added.

Private individuals under the Organised Private Sector (OPS) and the manufacturers had differed with the apex bank on the classification and definition of some of the products restricted from access to forex market, stating that some of the items are raw materials used in the course of production in their factories.

MAN President, Jacobs, noted that about 680 HS codes were identified following the breakdown and classification of the 41 restricted items by the CBN from the official forex window into HS codes.

Of the 680 HS codes, Jacobs explained that 95 HS codes are raw materials used in the course of production in the factories and they are presently restricted from access to forex market.

This is meant to identify some of the 41 items restricted from the subsidised official forex window that are believed to form part of the raw materials used in local production by manufacturing firms.

Indeed, Vice President, Prof. Yemi Osinbajo, while speaking at the yearly general meeting of the Manufacturers Association of Nigeria (MAN) in Lagos, had noted that negotiations are ongoing with the CBN.

Meanwhile, some of the manufacturers decried the lack of fiscal policy framework by the Government to encourage economic activities through spending and tax incentives, describing it as measures that guarantee their investments in the country.

The Director-General of the non-profit premier chamber of commerce in Nigeria, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, decried the lack of a fiscal policy framework that will guide operations in the real sector.

According to him, if the fundamentals are not right, backward integration will not work as so many linkages in the value-chain are missing.

“We need to build capacity of investors in the value-chain for backward integration to be successful. Except for the big manufacturers with huge capacity, it could be too much for industrialists to embark on the process with little or no support. Government needs to embark on a holistic and integrated approach as some of the raw materials are not easy to get as it is being described,” Yusuf said.

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.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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