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More Forex Crisis as Senate Okays N305 to $1 for Budget

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  • More Forex Crisis as Senate Okays N305 to $1 for Budget

The Senate yesterday retained the foreign exchange rate of N305 to the dollar for the 2017 budget. This was part of the key decisions by the upper legislative chamber while passing the Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP).

Adopting the recommendations of its Joint Committee on Finance, Appropriation and National Planning on the document, the Senate however, raised the proposed oil benchmark of $42.50 in 2017 budget to $44.5 per barrel.

The decision to retain a conservative exchange rate benchmark of N305 per dollar could further mount pressure on the naira, especially as the CBN has failed to meet forex demand in recent times. Industry experts had condemned the wide gap between official exchange rate and that of the parallel market, saying it was the reason for the weak naira.

Presenting the report, the joint committee chairman, John Enoh, stated that “a judicious monetary fiscal policy mix and deliberate government policies to expand the productive base of the economy would be expedient to improve the exchange value of the naira relative to the dollar.”

According to him, “it has become obvious that the fixed exchange rate regime as implemented in Nigeria is no longer useful. The sustained and widening gap between the official exchange rate and the parallel market has created several loopholes in the system. However, the recent transition from fixed exchange rate regime to flexible exchange regime appears commendable.”

He commended the recent migration from fixed exchange rate regime to flexible exchange rate regime but tasked the Central Bank of Nigeria (CBN) to put in place measures meant to close the gap between parallel market and the official exchange rate.

Defending its decision to raise the oil benchmark, the committee said international oil industry watchers had forecast that oil prices were gradually heading towards $60 per barrel.

The Senate also approved the recommendation to retain 2.2 million barrel per day oil production volume, observing that the projection is achievable if the Federal Government makes concerted efforts to stem the tide of militancy in the Niger Delta.

The Senate approved the government’s borrowing plan of N2.321 trillion, made up of N1.253 trillion as domestic borrowing and N1.067 trillion external borrowing. It charged the government to be focused and ensure that the loans are used to finance critical projects capable of increasing productivity which will in turn yield revenue to service the debt.

The lawmakers approved government’s independent revenue projection of N807.57 billion as contained in the revised MTEF and FSP just as it approved the projected N5.122 trillion non-oil revenue in 2017. They tasked the revenue collection agencies to “intensify their collections drive to boost the non-oil components of the revenue.”

But Ben Murray-Bruce (Bayelsa East) faulted the approval of N305 exchange rate. He said: “You have pegged the exchange rate at N305 to the dollar. Nobody in this room today can go to the bank and buy the dollar at N305 and so, we have an exchange rate that is ridiculous. The black market is about N500 and it is only about N200 differential. Between 1960 and 1980, despite the civil war, when (Chief Obafemi Awolowo was federal commissioner for finance), the country was moving on without borrowing a penny.

“In the exchange rate between the official and black markets, there was no differential. In 1980, it was $1: 97cents to the naira and the difference between official and black market was N10 kobo.

“When (Shehu) Shagari was overthrown on December 31st in 1983, the official rate of exchange was N3 to the dollar and the black market was N4 to the dollar. So, it was a N1 differential. Three years ago, it was a N10 to N15 differential between the black market and the official rate.

“Today, it is N200 and so, it is better for businessmen to round trip than to manufacture. The exchange rate we have is encouraging round tripping. When the exchange rate encourages round tripping, we will never close the gap because the richest people in Nigeria today are treasurers of banks. The exchange rate is wrong. N305 is unrealistic.”

The House of Representatives also yesterday adopted $44. 5 per barrel as benchmark price for the 2017 budget.The resolution followed the adoption of the report of Ibrahim Babangida- led joint House committees on Finance, Appropriation, National Planning and Economic Development, Legislative Budget and Research and Aids, Loans and Debt Management on the 2017-2019 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) at the plenary presided over by the Deputy Speaker, Sulaimon Yussuf Lasun.

Also, the Senate yesterday resolved to probe ‎the use of about N130 billion donated by international bodies to non-governmental organisations (NGOs) in Nigeria to fund humanitarian relief activities in the North East.

Adopting a motion by Ali Ndume (APC, Borno South), titled “The state of Humanitarian Relief Effort in the North East amidst high level of funding so far”, the upper legislative chamber mandated its Committee on Special Duties to initiate the process of synergising between United Nations, donor agencies, NGOs, federal, state and local governments to ensure effective coordination of the humanitarian response for the benefit of the displaced persons and victims of the insurgency in the North East, and report back in two weeks.

Ndume noted that‎ the United Nations Office for the Coordination of Humanitarian Affairs (UNOCHA) reported that over $426 million or N130 billion had been received as at December 2016. “Although an estimated N36 billion worth of funding for food security has been reportedly donated towards alleviating the food security problem in the north east, malnutrition has reached extreme levels in parts of Borno, Adamawa, and Yobe states,” Ndume 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.

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Commodities

Increased Demand Paves The Way for Expansion of Africa’s Sugar Industry

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Africa, June 2021:  A new focus report produced by the Oxford Business Group (OBG), in partnership with the International Sugar Organization (ISO), explores the potential that Africa’s sugar industry holds for growth on the back of an anticipated rise in regional demand. The report was presented to ISO members during the MECAS meeting at the Organization’s 58th Council Session, on June 17th 2021.

Titled “Sugar in Africa”, the report highlights the opportunities for investors to contribute to the industry’s development by helping to bridge infrastructure gaps in segments such as farming and refining and port facilities.

The report considers the benefits that the African Continental Free Trade Area (AfCFTA) could deliver by supporting fair intra-African sugar trade efforts and bringing regulatory frameworks under a common umbrella, which will be key to improving competitiveness.

The increased international focus on ESG standards is another topical issue examined. Here, the report charts the initiatives already under way in Africa supported by green-focused investment with sustainability at their core, which will help to instil confidence in new investors keen to adhere to ESG principles in their decision-making.

In addition, subscribers will find coverage of the impact that Covid-19 had on the industry, with detailed analysis provided of the decrease in both worldwide sugar production and prices, as movement restrictions and social-distancing measures took their toll on operations.

The report shines a spotlight on sugar production in key markets across the continent, noting regional differences in terms of output and assessing individual countries’ roles as net exporters and importers.

It also includes an interview with José Orive, Executive Director, International Sugar Organisation, in which he maps out the particularities of the African sugar industry, while sharing his thoughts on what needs to be done to promote continental trade and sustainable development.

“The region is well advanced in terms of sugar production overall, but several challenges still hinder its full potential,” he said. “It is not enough to just produce sugar; producers must be able to move it to buyers efficiently. When all negotiations related to the AfCFTA have concluded, we expect greater investment across the continent and a clearer regulatory framework.”

Karine Loehman, OBG’s Managing Director for Africa, said that while the challenges faced by Africa’s sugar producers shouldn’t be underestimated, the new report produced with the ISO pointed to an industry primed for growth on the back of anticipated increased consumption across the continent and higher levels of output in sub-Saharan Africa.

“Regional demand for sugar is expected to rise in the coming years, driven up by Africa’s population growth and drawing a line under declines triggered by the Covid-19 pandemic,” she said. “With sub-Saharan Africa’s per capita sugar consumption currently standing at around half of the global average, the opportunities to help meet increasing domestic need by boosting production are considerable.”

The study on Africa’s sugar industry forms part of a series of tailored reports that OBG is currently producing with its partners, alongside other highly relevant, go-to research tools, including a range of country-specific Growth and Recovery Outlook articles and interviews.

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Gold

Global Demand for Investment Gold Plunged by 70% YoY to 161 Metric Tons in Q1 2021

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Last year, investors flocked to gold as stock markets crashed on a gloomy economic outlook due to the spread of the COVID-19 pandemic. In the second quarter of 2020, global demand for investment gold surged to over 591 metric tons, the second-highest level since 2016. However, the investors’ demand for gold has dropped significantly this year.

According to data compiled by AksjeBloggen, global demand for investment gold plunged by 70% year-over-year to 161 metric tons in the first quarter of 2021.

The Lowest Quarterly Figures after Record Gold Investments in 2020

In 2016, the global gold demand amounted to 4,309 metric tons, revealed Statista and the World Gold Council data. By the end of 2019, this figure rose to 4,356 metric tons. Investment gold accounted for 30% of that amount. Worldwide gold jewelry demand volumes reached 2,118 metric tons that year. Central banks and technology followed with 648 and 326 metric tons, respectively.

Statistics show the global demand for investment gold surged amid the COVID-19 outbreak, growing by 35% YoY to almost 1,800 metric tons in 2020. Demands for gold used in technology also rose by 17% to 383.4 metric tons, while central banks and other institutions bought 326.2 metric tons of gold in 2020, a 50% plunge in a year.

However, after record gold investments in 2020, the global demand for gold for investment purposes dropped to the lowest quarterly level in years.

The Price of Gold Dropped by 5% Since January

The average gold value tends to increase during a recession, making it an attractive investment in uncertain times. In February 2019, a troy ounce of gold cost $1,320.07, revealed the Statista and World Gold Council data. By the end of that year, the price of gold rose to $1,479.13.

The gold price continued growing throughout 2020, reaching an all-time high of over $2,000 in August. By the end of the year, the precious metal price slipped to $1,864 and then rose to over $1,950 in January 2021.

However, the first quarter of the year brought a negative trend, with the price of gold falling to $1,684 by the end of March. Statistics indicate the price of gold stood at around $1,860 last week, a 5% drop since the beginning of the year.

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Gold, Other Safe Haven Assets Plunge Ahead of Fed Rate Hikes

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Gold and Bitcoin - Investors King

Gold and other safe-haven assets plunged last week as the Federal Reserve signals the possibility of raising interest rates twice in 2023 given the ongoing economic recovery post-COVID-19.

The price of gold dropped by 6.04 percent last week as investors rushed to move their funds out of safe-haven assets including the new gold, cryptocurrency.

The entire crypto space sheds $898 billion in market value to hover around $1.625 trillion last week, down from $2.523 trillion recorded on Wednesday 12, 2021. Its highest market capitalisation till date.

The Federal Reserve raised inflation expectations to 3.4 percent and shifted the year it is expected to increase interest rates from near-zero to 2023 from the previously projected 2024.

The new hawkish stance of the central bank led to capital outflow from safe havens and subsequently boosted dollar attraction.

The United States Dollar gained across the board with the dollar index that tracks its performance against six major currencies, rising by 0.63 percent to 91.103 last week.

However, on Monday morning the gold showed signs of recovery, gaining 0.5 percent to $1,772.34 per ounce following the retreat in U.S. treasury yield that boosted the attraction of non-yielding metal.

Bitcoin, the most dominant cryptocurrency coin, pared losses to $33,245 per coin, up from the $32,658 decline it posted last week.

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