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Africa Slump Not Grounds for ‘Excessive Pessimism,’ Lagarde Says

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Christine Lagarde, managing director of International Monetary Fund
  • Africa Slump Not Grounds for ‘Excessive Pessimism’

The student is halfway through her question to Christine Lagarde when the power cuts — a reminder of the obstacles facing Africa’s poorest nations.

The head of the International Monetary Fund doesn’t miss a beat.

“As you can see, building better infrastructure — roads, the Internet, electricity — is important,” she tells the university students who came to hear her speak in a sweltering classroom in Bangui, capital of the Central African Republic. Save for a few flickers, the rest of the event, also attended by President Faustin-Archange Touadera, proceeds in darkness.

Five years ago, sub-Saharan Africa was being hailed by Time magazine as the world’s “next economic powerhouse.” The growth of economies such as Kenya and Ethiopia fed the idea of ‘Africa Rising,’ the title of an IMF conference held in Mozambique in 2014, and raised hopes that the continent was beginning to succeed in fighting extreme poverty.

The outlook is much dimmer now. Growth in sub-Saharan Africa likely fell to its lowest level in more than two decades last year, according to the Washington-based fund. While it’s expected to pick up this year to 2.9 percent, that’s a far cry from the 6.6 percent pace the region averaged in the five years before the global financial crisis.

The slump in commodity prices has been the strongest headwind, sideswiping the region’s three biggest economies: Nigeria, South Africa and Angola. Other factors have played a role, such as drought in east and southern Africa and unrest in countries that had been on the rise, such as Ethiopia, where foreign investment has dropped after anti-government protests.

Civil War

Civil war has undermined development in countries such as South Sudan and Central African Republic. In Bangui, Lagarde and her staff traveled in armored convoys protected by United Nations troops alert for any further outbreaks of fighting between militias.

Still, Lagarde warns against writing Africa off. “We should guard against swinging from the strong optimism of recent years about sub-Saharan Africa’s prospects to excessive pessimism,” she said in an interview in Uganda’s capital, Kampala, on her way to meet with President Yoweri Museveni.

Lagarde stressed the importance of strong government institutions on her trip last month, which also took her to Uganda and Mauritius. She urged African countries to reduce inequality even as they strive for growth. And at a time when protectionist sentiment is sweeping the developed world, she argued that regional economic integration might help countries like landlocked Uganda, which is preparing to tap its oil reserves.

The region’s slowdown masks vasts differences in economic fortune, according to Lagarde, sensitive to the fact that her own institution has promoted the Africa Rising narrative. “We cannot really talk about sub-Saharan Africa as a single entity,” she said in the interview. “We have to talk about each and every country.”

Stopgap Measures

Adjustment has been slow in the hardest-hit nations, which have relied too much on stopgap measures such as monetary easing and falling into arrears on payments, according to the IMF. Instead, countries should let their currencies adjust to the shock and take steps to balance budgets, the fund says.

In the Central African Republic, where income per person is among the lowest in the world, even collecting taxes is a challenge. Tax revenue amounts to only slightly more than 7 percent of gross domestic product, compared with more than 25 percent in South Africa.

IMF staff have been advising the government on everything from collecting taxes to gathering and reporting economic statistics as part of a three-year $116 million concessional loan the fund committed last year.

Maintaining security will be crucial to recovery. At a Catholic church in the capital, more than a hundred refugees live in the courtyard in UN-issued tents. Most fled the area known as PK-5 amid fighting between Christian and Muslim militias.

“There’s peace, but people doubt it will last,” said Magloire Malissagba, coordinator of the refugee camp. “No one trusts the government to make things better.”

In such situations, the IMF’s role is closer to that of an emergency-ward doctor, said Lagarde. “We try to help them rebuild capacity, because generally, the capacity of the country has been destroyed.”

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

Crude Oil Pulled Back Despite Joe Biden Stimulus

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Crude Oil Pulled Back Despite Joe Biden Stimulus

Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.

Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.

On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.

OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”

Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.

The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.

Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.

But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.

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Crude Oil

OPEC Says Uncertainties Remain High in 2021

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Nigeria's economic Productivity

OPEC Says Uncertainties Remain High in 2021

The Organization of the Petroleum Exporting Countries (OPEC) on Thursday said global uncertainties remained high going forward in 2021 but kept its oil demand forecast unchanged.

In the cartel’s latest oil outlook for 2021, oil demand is expected to increase by 5.9 million barrels per day year on year to 95.9 million barrels per day. The prediction was unchanged from December’s assessment.

However, OPEC and allies, said: “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.

Crude oil rose to $57 per barrel this week after incoming US President Joe Biden announced it would inject $1.9 trillion stimulus into the world’s largest economy.

But the recent rally in the commodity and stimulus announcement is expected to boost US crude oil output and disrupt OPEC+ production cuts strategy for the year.

The 2021 supply outlook is now slightly more optimistic for U.S. shale with oil prices increasing, and output is expected to recover more in the second half of 2021,” OPEC said.

Still, OPEC, in its forecast “assumes a healthy recovery in economic activities including industrial production, an improving labour market and higher vehicle sales than in 2020.”

“Accordingly, oil demand is anticipated to rise steadily this year supported primarily by transportation and industrial fuels,” the group said.

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Brent Crude Oil Rose to $56.25 Per Barrel

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Brent Crude Oil Rose to $56.25 Per Barrel

Oil price surged following the declaration of Joe Biden as the President-elect of the United States of America last week after Trump’s mob invaded Capitol to disrupt a joint Senate session.

Also, the large drop in US crude inventories helped support crude oil price to over 11 months despite the second wave of COVID-19 crushing the world from Asia to Europe to America.

Brent crude oil, against which Nigerian Crude oil is priced, rose to $56.25 per barrel on Friday before pulling back to $55.422 per barrel on Monday during the London trading session.

Experts attributed the pullback to the rising number of COVID-19 cases in Asia with about 11 million people already locked down in Hebei province in China.

Covid hot spots flaring again in Asia, with 11 million people (in) lockdowns in China Hebei province… along with a touch of FED policy uncertainty has triggered some profit taking out of the gates this morning,” Stephen Innes, chief global market strategist at Axi, said in a note on Monday.

China, the world’s largest importer of crude oil, has joined the United Kingdom and others declaring full or partial lockdown to curb the second wave of COVID-19.

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