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China Ends Year of Stabilization on High as Consumers Spend

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China's Consumer Prices
  • China Ends Year of Stabilization on High as Consumers Spend

China’s economy accelerated for the first time in two years in the final quarter of 2016, cementing an economic stabilization that’s giving leaders a buffer as they transition to neutral policy and prepare for potential trade tensions with Donald Trump.

Gross domestic product increased 6.8 percent in the three months through December from a year earlier, compared with a 6.7 percent median estimate in a survey. The full-year expansion of 6.7 percent was the slowest since 1990, but still landed right in the middle of the 6.5 percent to 7 percent official target.

China powered through a volatile start to the year with strength that surpassed expectations, propelled by robust consumption from an increasingly wealthy middle class. With manufacturing also rebounding and deflation tamed, the central bank is turning to neutral policy to address a debt binge that inflated asset bubbles during a two-year easing cycle.

  • Retail sales increased 10.9 percent from a year earlier in December, the strongest reading in a year and more than the projected 10.7 percent advance
  • Industrial production rose 6 percent in December from a year earlier, compared with and estimated 6.1 percent rise
  • Fixed-asset investment excluding rural areas expanded 8.1 percent for the full year

“As China’s traditional growth drivers of investment and exports have weakened, Chinese private consumption has become the key engine for economic growth,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. “This trend is expected to continue over the medium term.”

That points to continued stable growth ahead of a twice-a-decade Communist Party leadership reshuffle this year. Consumption contributed 64.6 percent to 2016 growth, a statistics official said at a briefing in Beijing. Services, which accounted for more than half of output for the first time in 2015, made up 51.6 percent last year, official data showed.

Yet, behind the solid headline figures, there’s a widening divergence among regions and industries that’s creating winners and losers across the nation of 1.4 billion people.

The full-year expansion in 2017 will edge lower to 6.4 percent, Bloomberg economist surveys show, while the International Monetary Fund has raised its forecast to 6.5 percent. Maintaining growth requires fending off policy challenges including a slumping yuan that posted its biggest annual drop in two decades and increasing capital flight pressure.

Policy makers unleashed more fiscal stimulus last year to help prop up growth, in addition to keeping the old benchmark interest rate at a record low. New money supply management tools are coming to the fore as an alternative to broad easing that could weaken the yuan.

Reflation has been a bright spot as the producer price index snapped four years of deflation. Manufacturing has strengthened with official gauges at or near multi-year highs.

Beyond those promising signals, exports have fallen for months amid tepid global demand. That’s just as China’s government prepares for potential trade tensions with Trump.

While the economic rebalancing toward consumer-led growth continues, reforms of inefficient state-owned enterprises in heavy industries have stalled as the old smokestack economy came roaring back last year, competing more for capital against private firms.

Credit growth remains robust with shadow banking making a comeback, fueling concerns deleveraging isn’t happening despite official pledges. Authorities also are trying to deflate big-city property prices that soared then moderated near year-end on tightening measures.

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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Energy

Africa Renewable Energy Fund II Secures €125 Million First Close With SEFA and CTF Investments

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Solar energy - Investors King

The Africa Renewable Energy Fund II has achieved its first close at €125 million, following a joint investment of €17.5 million from The Sustainable Energy Fund for Africa and the Climate Technology Fund through the African Development Bank.

AREF II, a successor to the original Fund, is a 10-year closed-ended renewable energy Private Equity Fund with a $300 million target capitalization. The Africa Renewable Energy Fund II, managed by Berkeley Energy, invests in early-stage renewable energy projects, thereby not only de-risking the most uncertain phase of power projects, but also promoting increased green baseload in Africa’s generation mix.

The Sustainable Energy Fund for Africa and the Climate Technology Fund will each contribute roughly €8.7 million to mobilize private-sector investment into Africa’s renewable energy sector. The Sustainable Energy Fund for Africa will also contribute financing to the AREF II Project Support Facility, which funds technical assistance and early-stage project support to improve bankability.

Other investors include the U.K’s CDC Group, Italy’s CDP, the Netherlands Development Finance Company (FMO) and SwedFund.

“We are proud to be associated with Berkeley Energy and other like-minded investors, and look forward to AREF’s continued success and leadership in promoting sustainable power development on the continent,” said Dr. Kevin Kariuki, the African Development Bank’s Vice President for Power, Energy, Climate and Green Growth.

In 2012, the African Development Bank selected Berkeley Energy, a seasoned fund manager of clean energy projects in global emerging markets to set up AREF. AREF II has a sharper strategic focus than its predecessor on “green baseload” projects that will deliver firm and dispatchable power to African power systems through hydro, solar, wind and battery storage technologies.

Luka Buljan, Berkeley Energy’s Managing Director, said: “We are very excited to have reached this milestone with strong support from our backers. The catalytic tranche from the Sustainable Energy Fund for Africa and the Climate Technology Fund will assist in mobilising private institutional investors up to full fund size of €300 million. We now look forward to concluding the fundraising and delivering projects that will provide clean, reliable and affordable energy across African markets.”

“AREF is intertwined with the Sustainable Energy Fund for Africa’s history and success, and we have worked closely over the last decade to create precedents in difficult markets and challenging technologies. We look forward to continued collaboration to accelerate the energy transition in Africa,” said Joao Duarte Cunha, Manager for Renewable Energy Initiatives at the African Development Bank and Coordinator of the Sustainable Energy Fund for Africa.

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Crude Oil

FG Earned $34.22B From Crude Oil and Gas in 2019 – NEITI

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Crude oil - Investors King

The Nigeria Extractive Industries Transparency Initiative (NEITI) on Thursday released its 2019 oil and gas industry audit report, which shows that Nigeria earned N34.22 billion from the oil and gas industry in 2019.

The audit, conducted by Adeshile Adedeji & Co. (Chartered Accountants), an indigenous accounting and auditing firm, reconciled payments from 98 entities. They include 88 oil and gas companies, nine government agencies and the Nigerian Liquefied Natural Gas (NLNG).

The 2019 figure is an increase of 4.88 percent over the $32.63billion revenue realised from the sector in 2018. A breakdown of the earnings showed that payments by companies accounted for $18.90billion, while flows from federation sales of crude oil and gas accounted for $15.32billion.

The report further showed that 10 years (2010-2019) aggregate financial flows from the oil and gas sector to government amounted to $418.544billion, with the highest revenue flow of $68.442 recorded in 2011, while the lowest revenue flow of $17.055 was recorded in 2016.

According to NEITI, the total crude oil production in 2019 was 735.244mmbbls, representing an increase of 4.87 percent over the 701.101mmbbls recorded in 2018. Production sharing contracts (PSCs) contributed the highest volumes of 312.042mmbbls followed by Joint Venture (JV) and Sole Risk (SR) which recorded 310,284mmbbls and 89.824mmbbls respectively. Others are Marginal Fields (MFs) and Service Contracts (SCs) which accounted for 21,762mmbbls and 1,330mmbbls respectively.

The report also showed that total crude oil lifted in 2019 was 735.661mmbbls, indicating a 4.93 percent increase to the 701.090 mmbbls recorded in 2018, with companies lifting 469.010mmbbls, while 266.650mmbbls was lifted by the Nigeria National Petroleum Corporation (NNPC) on behalf of the federation.

Analysis of crude oil lifted by NNPC showed that 159.411mmbbls was for export, while 107.239mmbbls was for domestic refining. 97 percent of the volumes for domestic refining (104.475mmbbls) was utilised for the Direct Sale Direct Purchase (DSDP) programme while the remaining 3 percent (2.764mmbbls) was delivered to the refineries.

NEITI reported that the value of the 2019 domestic crude oil earnings was N2.722 trillion. Of this figure, N518.074billion was deducted for Petroleum Motor Spirit (PMS) under-recovery by the NNPC.

This figure was N213.074billon above the approved sum of N305billion for under-recovery in 2019. Similarly, the sum of N126.664billion was incurred by the Corporation as costs for pipeline repairs and maintenances which showed a difference of N96.378billion from the approved sum of N30.287billion for that purpose.

The report also pointed out that N31.844billion was also deducted for crude and product losses due to theft.

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Crude Oil

Oil Prices Drop on Stronger U.S Dollar

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Crude oil - Investors King

The strong U.S Dollar pressured global crude oil prices on Thursday despite the big drop in U.S crude oil inventories.

The Brent crude oil, against which Nigerian oil is priced, dropped by 74 cents or 1 percent to settle at $73.65 a barrel at 4.03 am Nigerian time on Thursday.

The U.S West Texas Intermediate crude oil depreciated by 69 cents or 1 percent to $71.46 a barrel after reaching its highest since October 2018 on Wednesday.

Energy markets became so fixated over a robust summer travel season and Iran nuclear deal talks that they somewhat got blindsided by the Fed’s hawkish surprise,” said Edward Moya, senior market analyst at OANDA.

The Fed was expected to be on hold and punt this meeting, but they sent a clear message they are ready to start talking about tapering and that means the dollar is ripe for a rebound which should be a headwind for all commodities.

The U.S. dollar boasted its strongest single day gain in 15 months after the Federal Reserve signaled it might raise interest rates at a much faster pace than assumed.

A firmer greenback makes oil priced in dollars more expensive in other currencies, potentially weighing on demand.

Still, oil price losses were limited as data from the Energy Information Administration showed that U.S. crude oil stockpiles dropped sharply last week as refineries boosted operations to their highest since January 2020, signaling continued improvement in demand.

Also boosting prices, refinery throughput in China, the world’s second largest oil consumer, rose 4.4% in May from the same month a year ago to a record high.

This pullback in oil prices should be temporary as the fundamentals on both the supply and demand side should easily be able to compensate for a rebounding dollar,” Moya said.

 

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