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Why China Withholds $20b Concession Loan to Nigeria

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  • Why China Withholds $20b Concession Loan to Nigeria

Multiple negative growth recorded in the economy in 2016 has been identified as one of the reasons the Chinese government withheld a $20 billion concession loan earlier promised Nigeria upon due verification.

A top Presidency source privy to the development said the Federal Government had been hopeful that the Chinese government would release the loan last year, given the relationship between the two countries, but expressed disappointment that the money was withheld.

The action of China may well be an indication of the loss of confidence in Nigeria’s credit worthiness by the global financial community. Analysts have predicted that the current economic downturn would dent the country’s credit worthiness. The situation has increased the concern over Federal Government’s ability to borrow the $30billion for infrastructure development, which the National Assembly has refused to approve.

According to the source, government immediately swung into action after the President’s return from a visit to China as well as the follow-up visit of the Budget and National Planning Minister, Udo Udoma, to immediately fulfill the conditions for accessing the loan.

“We were very hopeful that we would secure that loan and other levels of assistance from the Chinese government. This is not to say we have given up though. We had set up an inter-ministerial committee working closely with the Chinese government officials as well as the China Exim Bank experts.

They may have their reasons, but we are determined to fulfill our end of the bargain, and the Federal Government has already appropriated large sums for payment of counterpart funds on key projects to enable us to commence work proper,” the source said.

In 2015, China had, at a summit of the Forum on China-Africa Cooperation (FOCAC) held in Johannesburg, South Africa, pledged a $60 billion assistance to countries on the continent, including Nigeria, to develop and grow their infrastructure and human development capacities.

The move was not surprising as China had remained the continent’s top trade partner for six consecutive years.

The Chinese government said $35 billion had been set aside for concessionary loans, out of which about $10 billion was to go into the China -Africa Fund for Production Capacity. About $5 billion each was earmarked as non-interest grants for China-Africa Development Fund, and special loan schemes for the development of Small and Medium-Scale Enterprises (SMEs) among qualified African countries. The funds were said to have been on ground for prompt disbursement.

The Federal Government had last year planned to raise a total of N2.2 trillion through external borrowings from China and other foreign finance institutions to fund the deficit in the 2016 budget, the implementation of which it said would continue till May 2017.

Unexpectedly, the nation’s Gross Domestic Product (GDP) – which measures the market value of all final goods and services produced in a period, suffered a steady decline from quarter to quarter in 2016, sending negative signals to investors and lowering Nigeria’s credit worthiness in the international financial market.

In the first quarter (Q1) of 2016, the Nigerian economy contracted by -0.36%, followed by further contraction by -2.06% in Q2, even as the slide continued in Q3 to -2.24%.

Hopeful that the concession loan and other categories of financial assistance from China would be approved early, President Muhammadu Buhari led a delegation to Beijing in April last year to make a strong case for the country.

This was, however, not to be, as the Chinese government was advised by its economic experts who visited Nigeria for physical assessments to exercise caution, citing the shrinking economy and falling value of the naira.

They also alluded to high risks in diverting the loan to projects not specified in the agreement and requested a direct monitoring of the projects, in addition to the need for full compilation of all current trade agreements between the two countries till date.

A team of experts from China Exim Bank had also expressed fear of possible mismanagement of the funds and requested an overhaul of some of the priority areas presented by the Federal Government for closer study on their viability and sustainability.

The Chinese financial experts, it was further learnt, expressed reservations about some areas the Federal Government was keen on investing the loan, saying they did not fall in line with the FOCAC vision.

However, a ministry official, who pleaded anonymity said, “All appropriate loan prospecting options by the Federal Ministry of Finance are on course, and are undergoing normal process of negotiation,” without giving further details.

The National Assembly has refused to approve the $30 billion worth of loans until the executive provides details of what they are meant for, even as there are speculations that the refusal was more political than economic as the executive had opposed the provision for constituency projects in the budget.

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

COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020

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COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020

Nigeria’s oil revenue declined by 41.44 percent in the first nine months of 2020 to $2.033 billion, according to the latest data from the Nigerian National Petroleum Corporation, NNPC.

This represents a decline of 41.44 percent from $3.47 billion filed in the same period of 2019 when there was no COVID-19.

In the September 2020 edition of NNPC’s Monthly Financial and Operations Report (MFOR), revenue from oil and gas rose by 16 percent to $120.49 million in the month of September, a 66 percent or $234.81 million drop from $355.3 million posted in the same month of 2019.

The global lockdowns caused by the COVID-19 pandemic plunged Nigeria’s crude oil sales and global demand for the commodity. This was further compounded by Nigeria’s high cost of production compared to Saudi Arabia, Russia and others that were offering discounts to boost sales during one of the most challenging periods in human history.

Experts like Prof. Yinka Omorogbe, President of Nigeria Association of Energy Economics, NAEE, were not surprised with the drop in earnings given the effect of COVID-19 on the world’s economy.

She, however, called for the revamp of the nation’s petroleum sector laws and diversification of the economy away from oil revenue dependence. She said “Covid-19 made 2020 a very hot year and it battered the oil industry internationally and we are not an exception; so we could not have been unaffected”.

She also said the effect of the fall “is definitely a wake-up call; we have to diversify, strengthen our other resources and capabilities”.

Omorogbe, a former NNPC Board Secretary, urged the government and the operators in the sector to look inward and think strategically, stating: “think medium term, think of where they want to be and the government, above all, must think of how best we can utilize our resources, so that we can achieve our objectives once we know and define them.

“It is a clear wake-up call, if not we will just sit here and find that we have become one of the poorest nations in the world”, she noted.

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Commodities

Crude Oil, Other Commodities Closing Price for Monday

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Crude oil

Crude Oil, Other Commodities Closing Price for Monday

Brent crude oil, Nigeria’s crude oil benchmark, gained 47 cents to $55.88 per barrel on Monday, while the US crude oil expanded by 50 cents to $52.77 per barrel.

Gold for February delivery fell $1 to $1,855.20 an ounce. Silver for March delivery fell 7 cents to $25.48 an ounce and March copper was little changed at $3.63 a pound.

The dollar fell to 103.80 Japanese yen from 103.83 yen. The euro fell to $1.2139 from $1.2167.

Wholesale gasoline for February delivery rose 1 cent to $1.56 a gallon. February heating oil rose 2 cents to $1.59 a gallon. February natural gas rose 16 cents to $2.60 per 1,000 cubic feet.

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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.

The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.

According to Michael McCarthy, the Chief Market Strategies, CMC Markets, the surged in gold price is a result of the projected drop in dollar value or uncertainty.

He said, “The key factor appears to be the (U.S.) currency.”

As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.

Also, the effectiveness of the vaccines can not be ascertained until wider rollout.

Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.

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