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Nigeria Returns to Crude Oil to Fund Budget as Non-oil Revenue Falters

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  • Nigeria Returns to Crude Oil to Fund Budget as Non-oil Revenue Falters

Following the dismal performance of non–oil mineral revenue in 2016, Nigeria has again turned attention to crude oil to fund the 2017 fiscal plan, as can be gleaned from the proposed plan before the National Assembly, where oil mineral resources are projected to provide the bulk of the revenue.

They have now moved from the 19 per cent they were projected to fund the plan, to 40 per cent, and non-oil revenue, which this year was projected to play the lead role, is now to take the back seat.

The projection for its revenue has cascaded down, with expectation from independently generated revenue cut down from N1.506 trillion in 2016, to N808 billion; taxes from companies income taxes from N867 billion to N808 billion, while only Value Added Tax (VAT), which is a consumption tax, has been slightly moved up from N198 billion to N242 billion.

Accordingly, the 2017 proposal based on the key assumptions and budgetary reform initiatives now envisages the total Federal Government revenue of N4.94 trillion, which will exceed the 2016 projection by 28 per cent.

In the projected revenue, receipt from oil now is N1.985 trillion and that of non-oil is N1.373 trillion. The contribution of oil revenue is 40.2 per cent compared to 19 per cent in 2016, driven mainly by JVC cost reduction, higher price, exchange rate and additional oil-related revenues.

The implication of a resort to the dependency on crude oil by the Nigerian economy is that the GDP will continue to contract as oil mineral resources contribute a negligible percentage to the country’s growth, both in terms of inclusiveness, revenue earnings, employment and local self–sufficiency in most of the items the country spends billion of dollars importing from other countries.

Late last year, as part of a deliberate policy of diversifying the country’s sources of revenue, and insulating the economy from depending largely on crude oil, which fortune is uncertain due to price volatility and quantity shock, managers of the country’s economy toyed with the idea of largely depending on non-oil revenues, largely from non–oil taxes and customs duties as the focal point of dependency to finance the 2016 plan.

Unfortunately, this hope has come crashing as the experiment with non-oil resources as a major funding source of this year’s budget has left a sour taste in the mouth of both policy makers and citizens alike, following the gross underperformance of the non–oil revenue stream of income.

A recent report of the revenue performance by the Minister of Budget and National Planning, Senator Udoma Udo Udoma, said the non–oil revenue stream of income left much to be desired and negatively affected the 2016 budget implementation.

According to him: “The projected independent revenue was N1.1 trillion as against N0.2 trillion realised during the period. The projected revenue from the Nigeria Customs Service was N0.3 trillion as against N0.2 trillion realised, while the projected non-oil tax receipts for the first quarter of 2016 was N0.8 trillion as against N0.5 trillion realised during the period.”

The information above shows that the N500 billion revenue generated by the FIRS from taxes in nine months is nowhere near the N4.9 trillion promised by the helmsman of the tax agency, Mr. Babatunde Fowler, and may eventually turn out to be the worst collection figure in six to seven years.
Mr. Fowler, who made the promise at different fora after assumption of duties including at the opening of the 134th Joint Tax Board meeting in Kano had gone ahead to promise that 80 per cent of the targeted amount would be collected before the end of 2016.

The annual summary of tax collection from year 2000 to last year indicates that the highest collection was recorded during the tenure of Ifueko Omoigui Okauru, with N5.007 trillion in year 2012, following hi-tech and revolutionary reforms introduced by her administration.

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

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Energy

Massive Fuel Station Closures in North-East Nigeria Over Anti-Smuggling Clampdown

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In a significant protest against an anti-smuggling operation, nearly 2,000 petrol stations in Nigeria’s North-East have shut down, causing widespread fuel shortages and forcing motorists to turn to the black market.

The closures began yesterday following a crackdown by the Nigeria Customs Service (NCS), which targeted petrol outlets suspected of smuggling fuel to neighboring countries.

Dahiru Buba, Chairman of the Independent Petroleum Marketers Association (IPMAN) for Adamawa and Taraba states, revealed that the closures were a direct response to the NCS impounding tanker trucks and shutting down some fuel outlets.

This crackdown, known as “Operation Whirlwind,” aimed to curb the smuggling of subsidized petrol to Cameroon, Benin, and Togo—a practice that has thrived for years due to the significant price difference.

Buba explained that the operation initially led to the seizure of tanker trucks belonging to IPMAN members. Although the trucks were released following protests by the association, the continued impoundment of more vehicles and the closure of several petrol stations led to the widespread shutdown.

“We wrote to them [Nigeria Customs] again, but there were no responses. That is why we decided to go on strike,” Buba said, adding that over 1,800 outlets had ceased operations.

“This is our business, and we cannot be quiet when our members are treated this way,” Buba added, emphasizing the association’s frustration with the ongoing situation.

In response to the closures, the black market has surged, with fuel vendors in Adamawa’s capital, Yola, selling petrol at N1,400 per liter—significantly higher than the official pump price of between N650 and N750.

This has placed an additional burden on consumers, who now face inflated costs amid the fuel scarcity.

Mangsi Lazarus, the customs spokesperson for Adamawa and Taraba, defended the operation, stating that the impounded tanker trucks were indeed being used to smuggle petrol.

“We are simply carrying out our duty to prevent illegal activities that harm the economy,” Lazarus said.

The fuel crisis comes as oil prices edged higher globally due to anticipated strong driving demand, geopolitical tensions in the Middle East, and drone attacks on Russian refineries.

Brent crude futures for August delivery rose by 0.9% to $86.04 a barrel, while US crude gained 1.1% to $81.63 per barrel.

“The chief underlying reason behind the price strength … is the growing confidence that global oil inventories will inevitably plunge during the summer in the northern hemisphere,” said Tamas Varga of oil broker PVM, referring to seasonal demand for oil products.

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Crude Oil

Oil Prices Inch Down Amid Dollar Strength and Interest Rate Concerns

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Crude oil prices declined on Monday as the U.S. dollar strengthened and concerns over potential interest rate hikes resurfaced.

Brent crude oil, against which Nigerian oil is priced, slipped marginally by 3 cents to settle at $85.21 per barrel following a modest 0.6% decline on Friday.

Similarly, U.S. West Texas Intermediate (WTI) crude oil saw a minimal decrease of 2 cents to close at $80.71 per barrel.

Market analysts pointed to the robust performance of the U.S. dollar, which gained ground after the release of positive Purchasing Managers’ Index (PMI) data on Friday.

Tony Sycamore, a markets analyst at IG in Sydney, noted, “The U.S. dollar has opened bid this morning and appears to have broken higher following better U.S. PMI data on Friday night and political concerns ahead of the French election.”

A stronger dollar typically makes dollar-denominated commodities like oil less attractive for holders of other currencies, putting downward pressure on prices.

Last week, however, both Brent and WTI crude contracts managed to gain approximately 3% each.

This was largely driven by increasing signs of demand recovery for oil products in the U.S., the world’s largest consumer of crude oil. Additionally, ongoing supply constraints enforced by OPEC+ further supported market sentiment.

According to ANZ analysts, U.S. crude inventories continued their decline while gasoline demand recorded a seventh consecutive weekly rise.

Moreover, jet fuel consumption has rebounded to levels last seen in 2019, indicating a robust recovery in travel-related fuel demand.

Speculative activity in the oil market has also been notable, with analysts from ING observing an increase in net-long positions in ICE Brent as traders adopt a more positive outlook heading into the summer months.

“We remain supportive towards the oil market with a deficit over the third quarter set to tighten the oil balance,” they stated.

Despite these bullish indicators, geopolitical tensions persisted, providing a floor for oil prices.

Escalating conflicts in the Middle East, including the Gaza crisis and increased drone attacks on Russian refineries by Ukrainian forces, continued to underpin market sentiment.

In South America, Ecuador’s state oil company Petroecuador declared force majeure on deliveries of Napo heavy crude for exports due to severe weather conditions.

Heavy rains led to the shutdown of a critical pipeline and oil wells, impacting production and exports.

Meanwhile, in the U.S., the number of operating oil rigs fell by three to 485 last week, marking the lowest count since January 2022, according to Baker Hughes’ weekly report.

Looking ahead, the interplay between the U.S. dollar’s strength, geopolitical developments, and economic indicators such as PMI data will likely dictate short-term oil price movements.

Investors and analysts remain vigilant for any shifts in these factors that could influence global oil market dynamics in the coming weeks.

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Gold

First Commercial Gold Transaction Nets Nigeria $5 Million in Foreign Reserves

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The Ministry of Solid Minerals Development has concluded its first commercial transaction under the National Gold Purchase Program (NGPP), bolstering the nation’s foreign reserves by $5 million.

Minister of Solid Minerals Development, Dele Alake, announced the successful sale of over 70 kilograms of gold, refined to meet the stringent London Bullion Market Association Good Delivery Standard.

Speaking at the presentation ceremony, Alake emphasized the economic significance of the transaction, stating that it injects approximately NGN 6 billion into the rural economy.

He lauded President Tinubu for his unwavering support for reforms in the solid minerals sector, highlighting the pivotal role of the NGPP in enhancing Nigeria’s foreign reserves and bolstering the value of the Naira.

“This transaction represents a strategic move to use the Nigerian Naira to acquire a liquid asset denominated in United States Dollars, demonstrating a viable strategy for fiscal and monetary stability,” Alake stated.

He further expressed confidence in the NGPP’s ability to contribute to Nigeria’s economic diversification agenda, fostering greater economic confidence and attracting foreign investment.

Executive Secretary of the Solid Minerals Development Fund, Fatima Shinkafi, explained that adherence to the London Bullion Market Good Delivery Standard ensures that Nigeria’s gold exports meet global trading requirements.

She emphasized that only gold bars meeting these standards are acceptable in the settlement of Loco London contracts, reinforcing Nigeria’s credibility in the global gold market.

President Tinubu, upon receiving a symbolic gold bar, commended the Ministry for achieving a crucial milestone in the nation’s economic diversification efforts.

He described the transaction as a concrete step towards realizing the objectives of the Renewed Hope Agenda, aimed at reducing economic dependence on oil and gas revenues.

Through initiatives like the NGPP, Nigeria aims to further enhance its gold reserves, promote economic stability, and create an environment conducive to sustainable economic growth.

The successful completion of the first commercial gold transaction marks a pivotal moment in Nigeria’s journey towards becoming a key player in the global gold market, driving economic prosperity and resilience.

The Ministry of Solid Minerals Development continues to advocate for supportive policies and regulatory frameworks that promote transparency, efficiency, and sustainability in the mining sector, laying the groundwork for future economic growth and development.

As Nigeria moves forward with its gold refining and export initiatives, stakeholders anticipate continued progress in diversifying revenue streams and strengthening the nation’s economic resilience on the global stage.

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