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Inflation Rate May Hit 20% in First Quarter —Experts

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  • Inflation Rate May Hit 20% in First Quarter

Economic and financial experts have said that the country’s inflation rate may rise further to 20 percent during the first quarter of this year from the current 18.4 percent.

They, however, said the inflation rate was expected to reduce significantly as the fiscal and monetary authorities would begin to implement certain policies to better the economy.

The experts made this known in investment notes detailing their outlook for this year on Sunday.

An economic analyst at Ecobank Nigeria, Mr. Kunle Ezun, wrote, “Inflation is likely to accelerate towards 20 per cent by the end of Q1 17, driven by fiscal expansion, energy cost and high FX cost caused by the over 30 per cent naira devaluation in 2016.”

“Slow but steady rise in liquidity arising from projected government spending in 2017 will add to the pressure on the naira owing to higher import demand; this will stoke inflation.”

Speaking further, he said tight monetary policy, higher borrowing and higher inflation rate would continue to put pressure on domestic interest rates.

He said, “Exchange rate uncertainties will persist due to sustained low oil prices, lower FX reserves, and robust import demand; we expect a managed interbank exchange rate of 305.50/dollar and a parallel market rate of 495/dollar in 2017.

“The naira will remain under pressure largely due to a structural imbalance between the dollar supply and demand, which will be reflected in proliferated FX market and rates.”

According to the expert, there will be high but declining banking sector liquidity as structural imbalance between the dollar supply and demand continues to weigh on the economy.

On key risks to the outlook, Ezun said a fall in oil prices would add pressure on external reserves, fuelling more pressure on the naira.

In the same vein, the Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said if the CBN reviewed its foreign exchange policies to enable the market to function effectively, the gap between the official and parallel market rates of the naira would become smaller.

He said, “Forex policies usually complement trade and investment policies. The Nigerian government will in 2017 strive towards greater coordination of these policies, and will move from its current bias for a command economy monetary policy towards a mixed economy.

“I believe that with oil prices at $55 per barrel and production back up to 2mbpd, the naira will slip in the interbank markets to N350-N380/$. It will fall at the parallel market to N520/$ before recovering sharply to N425/$. These projections are based on the assumption that the market will be reformed and that sanity will return to what is now essentially a foreign exchange asylum.”

To escape from what he described as forex trap, Rewane stressed the need for the authorities to understand the importance of a properly functioning market.

He said, “The CBN will need to eliminate or phase out regulations that stifle market activity, create a sense of two-way risk in the market, reduce its market-making role and stop indirect or overt rate determination, and increase market information on the sources and uses of foreign exchange.

“There must be liquidity, transparency and openness, and the CBN as a regulator must be firm in dealing with market infractions.”

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

Stop Maize, Soybean Export to Reduce Scarcity – NIAL

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Stop Maize, Soybean Export to Reduce Scarcity – NIAL

The Nigerian Institute of Animal Science on Tuesday called on the Federal Government to halt the continued export of maize and soybean to reduce the scarcity of the commodities as well curb their price hike in Nigeria.

Registrar and Chief Executive Officer, NIAL, Prof. Eustance Iyayi, told journalists in Abuja that the poultry sector was currently hit by the severe scarcity of maize and soybean.

This, he said, was due to the continued export of the commodities, the COVID-19 pandemic, which had disorganised the international supply chain, lingering insecurity in the North-East, farmers/herders conflict and flooding in some parts of the country.

“Maize and soybean are being exported and this has exacerbated the situation leading to local scarcity and price escalation of the commodities in poultry production,” Iyayi stated.

He added, “The increasing prices of the essential commodities has resulted in the increase in price of finished feeds by about 75 per cent.

“This has led to the closure of small and medium sized poultry farms thereby threatening about 10 million jobs as a result of this scarcity.

“To set the poultry industry from total collapse, the institute urges the government to immediately halt the exportation of soybean and maize and grant import permit to importers at the official foreign exchange rate.”

Iyayi said there was shortage of soybean in Nigeria and other countries, stressing that the little amount being produced across the country should not be exported.

He said the current maize yield of about one to two tonnes per hectare being produced in Nigeria would not be enough to sustain the country.

The NIAL helmsman stated that the country should be producing between seven and 10 tonnes per hectare in order to meet the requirements for humans and animals.

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Economy

Petrol Landing Cost Jumps to N186, Oil Hits $64

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Petrol Landing Cost Jumps to N186, Oil Hits $64

Against the backdrop of the rising price of oil prices, the landing cost of Premium Motor Spirit (petrol) imported into Nigeria has increased to N186.33 per litre.

Investors King had exclusively reported on February 9 that the landing cost of PMS rose to about N180 per litre on February 5 from N158.53 per litre on January 7.

Crude oil price accounts for a large chunk of the final cost of petrol, and the deregulation of petrol price by the Federal Government last year means that the pump price of the product will reflect changes in the international oil market.

Going by the petrol pricing template of the Petroleum Products Pricing Regulatory Agency, the landing cost of petrol rose to N186.33 per litre on February 16, with the pump price of the product expected to be N209.33 per litre.

The international oil benchmark, Brent crude, closed at $63.96 per barrel on February 16, up from $59.34 per barrel on February 5.

The rising price of crude oil pushed the cost of petrol quoted on Platts to $560.75 per metric tonne (N163.08 per litre, using N390/$1) on February 16 from $543.25 per metric tonne (N157.99 per litre) on February 5.

Other cost elements that make up the landing cost include freight (N10.29), lightering expenses (N4.57), insurance cost (N0.25), Nigerian Ports Authority charge (N2.38), Nigerian Maritime Administration and Safety Agency charge (N0.23), jetty throughput charge (N1.61), storage charge (N2.58), and financing (N1.33).

The freight cost increased to $35.41 per MT (N10.29 per litre) last Wednesday from $30.04 per MT (N8.74 per litre) on February 5.

The pump price is the sum of the landing cost, wholesale margin and the distribution margins. The wholesale margin is N4.03 while the distribution margins comprise transporters allowance (N3.89), retailer (N6.19), bridging fund (N7.51), marine transport average (N0.15), and admin charge (N1.23).

Apart from the changes in global crude oil prices, the exchange rate of naira to the dollar also affects the cost of imported petrol.

The cost of petrol would be higher if the 410/$1 rate at which the naira closed on Monday at the Investors’ and Exporters’ Foreign Exchange Window was used. The naira closed at 480/$1 at the parallel market.

The Nigerian National Petroleum Corporation, which has been the sole importer of petrol into the country in recent years, is still being relied upon by marketers for the supply of the product despite the deregulation of the downstream petroleum sector.

Oil marketers said recently that they were ready to resume importation of petrol if the foreign exchange was made available to them at a competitive rate.

“The discussion we should be having today is how best to maximise the benefits of the removal of price controls and subsidies while minimising the adverse effects of this action on our citizens,” the Chairman, Major Oil Marketers Association of Nigeria, Mr Adetunji Oyebanji, said at a virtual press briefing.

Brent crude, against which Nigeria’s oil is priced, rose by $1.67 to $64.58 per barrel as of 6:08pm Nigerian time on Monday.

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Economy

FG to Lift 100 Million People Out of Poverty With Gas Expansion Project

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FG to Lift 100 Million People Out of Poverty With Gas Expansion Project

The Federal Government has said about 100 million Nigerians will be lifted out of poverty through the National Gas Expansion Programme (NGEP).

The Minister of State for Petroleum Resources, Chief Timipre Sylva, disclosed this on Monday during the inauguration of the NGEP in Ado Ekiti, Southwest.

Sylva said the project was “a practical demonstration of President Muhammadu Buhari’s commitment to lift 100 million Nigerians out of poverty by using gas value chain as catalyst for social and economic development in Nigeria”.

The minister said, “The programme has its main objective to reinforce and expand gas supply as well as stimulate demand in Nigeria through effective and efficient mobilisation and utilisation of all available assets, resources and infrastructure in the country.

“The programme is geared towards the implementation of Mr President June 12, 2019 promise to take hundred million Nigerians out of poverty within the current decade by ensuring that locally produced, available, accessible and affordable fuel is sufficiently supplied across the country”.

Sylva added that Nigeria was richly endowed with mineral resources, specifically, hydrocarbons, crude oil and natural gas with proven gas reserves of over 200 trillion cubic feet of natural gas, which he said had presented the country with opportunity to use gas as a catalyst for social economy renaissance.

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