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Dollar Scarcity: Fitch Downgrades Nigeria’s Outlook to Negative

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  • Fitch Downgrades Nigeria’s Outlook to Negative

Fitch Ratings has revised the outlook on Nigeria’s long-term foreign and local currency Issuer Default Ratings to negative from stable and affirmed the IDRs at ‘B+.’

The issue ratings on Nigeria’s senior unsecured foreign currency bonds have also been affirmed at ‘B+’, while the ‘Country Ceiling’ was affirmed at ‘B+.

According to a statement by Fitch, the short-term foreign and local currency IDRs have been affirmed at ‘B.’

The revision of the outlook on Nigeria’s long-term IDRs reflected the following key rating drivers.

These include the tight foreign exchange liquidity and low oil production contributed to Nigeria’s first recession since 1994.

The economy contracted through the first three quarters of 2016 and Fitch estimate the Gross Domestic Product growth of -1.5 per cent in 2016 as a whole.

The statement read in part, “We expect a limited economic recovery in 2017, with growth of 1.5 per cent, well below the 2011-15 annual growth average of 4.8 per cent.

It added, “The non-oil economy will continue to be constrained by tight foreign exchange liquidity. Inflationary pressures are high with year-on-year Consumer Price Index inflation increased to 18.5 per cent in December.

“Access to foreign exchange will remain severely restricted until the Central Bank of Nigeria can establish the credibility of the interbank foreign exchange market and bring down the spread between the official rate and the parallel market rates.

“The spot rate for the naira has settled at a range of 305-315 per United States dollar in the official market, while the Bureau de Change rate depreciated to as low as 490 per dollar in November 2016.”

In an effort to work with the CBN to help the parallel market rates converge with the official, the BDC operators had a few weeks ago adopted a reference rate of 400 per dollar.

Fitch, however, noted that the dollar had continued to sell on the black market at rates well above N400.

The global rating agency forecasts that the Federal Government’s cost of debt servicing in 2017 will reach 1.4 per cent of the GDP, up from an average of 1.1 per cent over the previous five years.

According to the agency, the Nigerian banking sector has experienced worsening asset quality as a result of the weakening economy, problems in the oil industry, and exchange rate pressures on borrowers to service their loans.

It added, “The CBN reported that industry non-performing loans grew to 11.7 per cent of gross loans at the end of June 2016, up from 5.3 per cent at the end of December 2015. Tight foreign currency liquidity has also led to some Nigerian banks experiencing difficulty in meeting their trade finance obligations which were either extended or refinanced with international correspondent banks.”

On the current rating on Nigeria, statement said, “Fitch does not currently anticipate developments with a material likelihood of leading to an upgrade.

“However, the following factors could lead to positive rating action: A revival of economic growth supported by the sustained implementation of coherent macroeconomic policies; reduction of the fiscal deficit and the maintenance of a manageable debt burden; increase in foreign exchange reserves to a level that reduces vulnerability to external shocks; successful implementation of economic or structural reforms, for instance raising non-oil revenues, increasing the execution of capital expenditures and passing the Petroleum Industry Bill.”

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, 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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