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Local Production Suffers Setback on Dollarisation of Raw Materials

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  • Local Production Suffers Setback on Dollarisation of Raw Materials

The Federal Government’s efforts at diversifying the economy and reducing dependence on importation are being undermined by value-chain operators, farmers and providers of key raw materials who would rather export raw commodities for foreign exchange than sell to local producers at market prices.

The hot chase for forex by farmers and other raw material providers outside of government control will lead to higher prices, especially as scarcity and demand from neighbouring countries put pressure on local supply.

Local manufacturers say raw commodities like cotton, grains and natural gas, among others are being offered to local manufacturers at prevailing international market prices and payment being demanded in foreign exchange even as the materials are being harvested and produced domestically.

Operators noted that successes recorded by government intervention in some key industries might be eroded if access to raw materials was not guaranteed. This means that consumers may pay more for even locally-produced goods if the ugly trend is not checked.

The Senior Special Assistant on Media and Publicity to the President, Garba Shehu, had raised the alarm that the country currently risks famine from early next year due to the huge export of the country’s grains to attract foreign exchange, even when local demands have not been met.

With the exception of organisations that deployed out-grower schemes to develop their value-chain capacity, other operators have had to depend on imports subject to availability of foreign exchange or depend on open market where prices are arbitrarily determined by farmers and value-chain operators.

The President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, explained that manufacturers have begun to look inwards for raw materials sourcing since access to foreign exchange has become limited. The idea of ‘looking inwards’ for raw materials is to sustain operations, leading to poor capacity utilisation. He argued that suppliers’ penchant for across-the-border sales is frustrating manufacturers looking to source raw materials locally.

Manufacturers are worried that government, which recently reported glut in grains and farmers’ inclination to sell to foreigners, has not evolved an efficient interventionist policy to mop up the excess and guarantee future supplies in event of famine.

The Ministry of Agriculture could not confirm immediate plans to revive marketing boards. The Guardian could not reach Minister Audu Ogbeh on his mobile phone. His media aide, Dr. Olukayode Oyeleye, instead offered to provide details on Monday (today). Marketing board is a stop-gap mechanism to ensure supplies and stabilize price between planting seasons.3w

The President of the Nigerian Textile Manufacturers Association (NTMA), Mrs. Grace Adereti, canvassed the revival of the Commodities Board as a measure to ease textile manufacturers’ access to raw materials for production.

Lamenting the present situation, Aderetin said: “When we contacted the farmers, they said that they are not ready to supply to us at the price negotiated by the ginners. Further inquiry showed that farmers based their price on what they will generate from exporting the cotton. They want to sell at 40 cents per kilogramme of cotton.

“If we accede to the price, our output will become uncompetitive considering the infrastructural deficit in the country, which affects the cost of production. We are in a fix. Some factories have suspended production because they do not have cotton for production.

“In the past, there was a market board and government had control over the price of cotton. We want the government to intervene in this matter and save manufacturers. We have the machinery and the workforce and we are ready to produce, but we are hindered by the present situation.”

The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, decried the lack of a fiscal policy framework to 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.

The Director-General of NTMA, Hamma Kwajaffa, also alleged that rivalry among government agencies contributed to the challenges hindering the growth of the textile industry.

“The former Minister of Agric initiated the creation of the cotton corporation, but he had a rivalry with the Minister of Trade that said establishing the corporation falls within his domain. That was how the whole matter was stalled at the Federal Executive Council.

“The absence of regulation makes everyone to fix prices that they want across the value chain. If you go to Chad, you cannot just buy cotton. It is regulated by their government. We will prefer that local usage of cotton is given preference before export,” Kwajaffa said.

The Chairman, MAN Gas Users Group, Dr. Michael Adebayo stated that dollarisation of materials needed for production is a disincentive for local producers, adding that the trend has affected gas pricing, with many operators struggling to keep their factories running.

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

Mixed Ahead of Fed Minutes

A mixed start to trade in Europe after a more promising session in Asia overnight where stocks may have been boosted by talk of more pro-growth policies in China.

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

A mixed start to trade in Europe after a more promising session in Asia overnight where stocks may have been boosted by talk of more pro-growth policies in China.

That followed disappointing data late last week and early this from the world’s second-largest economy so the comments came at a good time. Still, we’re not seeing investors getting too carried away by comments alone, action needs to follow and small rate cuts from the PBOC don’t really fall into that category.

More misery for the UK as prices rise by the most since the early 80s

UK inflation hit its highest level in 40 years last month, with the annual CPI jumping 10.1% and the core reading 6.2%, both faster than expected. Double-digit inflation was inevitable but it has come earlier than expected which will leave households and businesses worrying about what that ultimately means for peak inflation later this year and how sustained it will be.

The data today has probably locked in a 50 basis point hike from the Bank of England as a minimum, especially when combined with yesterday’s wage growth numbers. Real incomes are still falling at a rapid rate but the central bank will have little choice but to persevere regardless and the economy will suffer the consequences.

RBNZ committed to tackling price rises as it raises the cash rate peak

The New Zealand dollar is trading a little lower on the day but the session has been quite volatile. We’ve seen some big swings in response to the RBNZ announcement despite the rate decision itself falling in line with expectations. The central bank now expects the cash rate to peak higher and earlier than previously anticipated, hitting 4.1% in the second quarter of next year, compared with 3.95% in Q3.

The RBNZ still firmly believes though that the actions it’s taken will both return inflation to the midpoint of its 1-3% target range in 2024 and not trigger a recession, although it did caution that the country will likely experience sub-par growth. That all sounds very hopeful but BoE aside, that appears to be the view of central banks still.

Fed minutes eyed as traders seek dovish pivot clues

There’s plenty more to look forward to today but the FOMC minutes naturally stand out. What’s interesting about them is that despite the supposed “dovish pivot” from the Fed, the commentary since has been anything but. Rather than talking up the prospect of falling inflation allowing for slower tightening, the message remains hawkish. What’s more, policymakers are continually pushing back against the policy u-turn next year that markets have been flirting with the idea of.

I expect any hawkish components of the minutes will be overlooked today and instead traders will dissect them for any additional dovish concessions that could further fuel the stock market recovery. That’s very much what we’ve seen in recent weeks and the decline in CPI last week only encouraged it.

Oil rebounds off support as JCPOA talks continue

Oil prices are edging higher on Wednesday, bouncing off technical support over the last 24 hours as Chinese Premier Li pushed for more pro-growth measures from local officials. There are growing downside risks as a result of the growth outlook and ongoing uncertainty around Chinese Covid restrictions.

What’s more, talks between the US and Iran are continuing around the nuclear deal which, if it gets over the line, could be a big positive for oil supply and therefore a negative for prices. There is no shortage of scepticism around the prospects for the JCPOA to be revived though but we may be reaching a point where that will become clear. For now, Brent appears to have decent support around $92.

Gold flat after a pullback

Gold is marginally lower on the day with focus fully on the Fed minutes later in the day. The yellow metal has been knocked back in recent days after briefly breaking through $1,800 resistance. It’s remained quite resilient though against the backdrop of a strengthening dollar and the FOMC minutes later could potentially reward that.

Could Fed minutes be the catalyst bitcoin needs?

Bitcoin rallies have struggled to generate much momentum of late, with $25,000 proving to be a strong barrier to the upside. What’s interesting is how shallow the pullback has so far been from that level which could be a bullish signal. Traders may be struggling to get on board with a break higher but they’re perhaps not keen to cash out either. The FOMC minutes later may be the catalyst it needs, one way or another.

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Crude Oil

Weak Chinese Data Drags on Crude Oil Prices

Oil prices extended their declines on Monday as weak Chinese data suggested possible slow demand

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Oil prices extended their declines on Monday as weak Chinese data suggested possible slow demand for the commodity in the world’s largest importer of crude oil.

Brent crude, against which Nigerian oil is priced, declined by $1.14, or 1.2%, to $97.01 a barrel after shedding 1.5% on Friday. The U.S. West Texas Intermediate crude oil depreciated by $1.06, or 1.2% to $91.03 a barrel, after a 2.4% decline in the previous session.

The unexpected slowdown in the Chinese economy in the month of July weighed on refinery output. Refinery output slipped to 12.53 million barrels per day, the lowest since March 2020.

“The official data suggests that oil demand is weakening as domestic logistics and consumer demand are deterred by the record high oil pump prices,” said Heron Lin, an economist at Moody’s Analytics.

Oil demand could stay on the downtrend for the rest of the year as the threat of COVID-19 restrictions encourages precautionary savings and reduces oil consumption, he added.

Saudi Aramco stands ready to raise crude oil output to its maximum capacity of 12 million bpd if requested to do so by the Saudi Arabian government, Chief Executive Amin Nasser told reporters on Sunday.

“We are confident of our ability to ramp up to 12 million bpd any time there is a need or a call from the government or from the ministry of energy to increase our production,” Nasser said. He added that China’s easing of COVID-19 restrictions and a pickup in the aviation industry could add to demand.

Oil prices rebounded more than 3% last week after a damaged oil pipeline component disrupted output at several offshore Gulf of Mexico platforms and as investors pared back expectations for interest rate increases in the United States.

Producers had moved to reactivate some of the halted production after repairs were completed late Friday, a Louisiana official said.

Energy services firm Baker Hughes Co (BKR.O) reported on Friday that U.S. oil rig count rose by 3 to 601 last week. The rig count, an early indicator of future output, has been slow to grow with oil production only seen recovering from pandemic-related cuts next year.

Global oil markets remained supported by tight supplies in the run-up to EU sanctions on Russian crude oil and refined product supplies this winter. read more

More supplies could come if Iran and the United States accept an offer from the European Union to revive the 2015 nuclear deal, which would will lift sanctions on Iranian oil exports, analysts said.

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Commodities

Price of 5kg Cooking Gas Jumps Over 100% Year-on-Year

The price of Cooking Gas has witnessed a continual increase despite Nigeria’s huge deposit of the commodity.

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In the past few months, the price of Liquefied Petroleum Gas (LPG) popularly known as Cooking Gas has witnessed a continual increase despite Nigeria’s huge deposit of the commodity.

The average retail price of a 5kg cylinder of cooking gas has increased over 100% in the last 12 months.

As at August 2021, cooking gas was sold at N2,250 per 5kg cylinder and now sells for N4,500 today, representing an increase of 100%.

A report from the Nigerian Bureau of Statistics (NBS) revealed that the average retail price for refilling a 5kg Cylinder grew by 7.57% on a month-on-month basis from N3,921.35 recorded in May 2022 to N4,218.38 in June 2022.

And on a year-on-year basis, the price of the commodity increased by 103.92% from N2,068.69 in June 2021.

Further analysis of the data revealed that prices are not uniform across the country. In Adamawa, a 5kg cylinder was refilled at N4,650.00, the highest in the country, according to the NBS report. Gombe followed with N4,566.67 and Niger came third with N4,540.

The states with the lowest average prices as of June were Zamfara with N3,700; Yobe at N3,820 and Kano at N3,875, respectively.

In addition, the North-Central recorded the highest average retail price for refilling a 5kg Cylinder of LPG (Cooking Gas) with N4,378.95, followed by the North-East with N4,301.48, while the North-West recorded the lowest with N3,994.57.

The continued surge in the price of cooking gas was not unique as prices of other deregulated petroleum products like kerosene and diesel also increased during the same period.

A local gas dealer in the Aboru area of Lagos States, Boluwatife Andero, who spoke with our correspondent, on Monday, said the price of cooking gas changes every two to three days.

He said, “The market is unpredictable. A kg of cooking gas was selling for N850 per kg as at Friday but this morning, it’s selling for N900 per kg”.

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