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DMO and Strategy for Economic Recovery

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US economy
  • DMO and Strategy for Economic Recovery

Perhaps at no time in the history of Nigeria has the federal government come under such intense pressure to deliver on the economy as now, and this is understandable. 2016 closed with Nigeria recording its worst GDP figure in 25 years as low oil prices, tight monetary liquidity and militant attacks on oil infrastructure rocked the economy.

The Consumer Price Index, which measures inflation also increased by 18.72 January this year. National budgets have continued to run into deficits as oil revenue dwindles. The federal government and many state governments find it increasingly tough paying salaries of their workers.

The private sector has not fared better. Since the government is the biggest spender in the economy, a drastic cut in revenue means less money in the system. Many companies that depend hugely on government patronage are bearing the brunt of the recession and laying off staff to reduce overhead. The result is that more Nigerians are finding themselves in the unemployment market with no hope of immediate engagement.

President Buhari came to power on the promise of change, and he is under an unprecedented pressure to deliver economic change at a time the country faces its worse economic challenges. In economic matters, there are no miracles, but conscious, calculated and strategic intervention through policies and measures that can bring the economy out of recession.

All eyes are on the government to stimulate the economy by doing whatever is needed to bring it quickly out of a debilitating recession. That is why institutions such as the Debt Management Office, DMO, the Security and Exchange Commission, SEC, and the Nigerian Economic Summit Group, NESG, among others, are increasingly in the headline news.

The DMO is a government agency established to coordinate the management of Nigeria’s debts in such that is healthy for the economy. Anyone who has followed developments in that office will readily admit the DMO has been a work horse for this admiration. Watching Dr. Abraham Nwankwo, Director General of the DMO talk on Nigeria’s debt management is like listening to a lecture in an ivory tower.

The man seems to be at his best when defending some of the interventions of this administration, especially when talking about the government’s borrowing plan to finance the growing budget deficit. But this is to be expected from the head of the debt management office since he is also an important part of the equation. It is like a man defending his own actions before a sceptic audience.

What has fascinated me about this man is how he breaks complex economic issues down into bits and pieces that can be easily digested by the lay man. For instance, the Buhari administration’s plan to seek loan to finance development projects in the country as a result of shortfall in government revenue. Nwankwo has tried to convince Nigerians on why borrowing is good for the economy; why loan properly utilised is a sort of investment that is capable of reflating the economy of any country.

A three year Debt Management Strategy (2016-2019) initiated by the DMO better illustrates how debt management has become a key component of Nigeria’s economic recovery effort. It is a broad-based strategy that inspires confidence in the economy and in the managers of the economy. One major aspect of the strategy is that over the medium term, Nigeria will strive to remix the public debt portfolio from 84% domestic and 16% external to 60% domestic and 40% external. And the reason, which may not be obvious to many, is that external loans seem to come cheaper than domestic borrowing.

The DMO DG said during one of his interviews that for Nigeria to pull the economy out of recession, government must embrace what he called a “conventional public borrowing” to fund critical infrastructures. This is not a loan to be disbursed at the whims and caprices of the presidency; it is loan tied to specific and strategic projects to give the economy a rebound. This he said could easily be tracked by the public and the legislature.

This thinking informed the decision by the Buhari administration to decide on a three-year borrowing plan to fund deficits in the budget from 2016-2019. In the words of President Buhari, it is a “prudent” borrowing plan to bridge the financial gap created in the budgets, stressing that the funds would largely be applied to key infrastructure projects namely power, railway and road project amongst others.

The DMO recently facilitated the approval of the issuance of $1 billion Eurobond and appointment of six transaction parties for the bond by the Federal Government. The bond is part of the country’s plans to borrow a total of N1.8 trillion ($5.8 billion) from abroad and locally to fund an estimated 2016 budget deficit of N2.2 trillion. Apart from the fact that it is a good deal for the country, it will also prevent the emasculation of local investors.

Now, the DMO is in the news again. This time it is promoting a novel product and one that benefits majority of Nigerians. This is the newly floated Federal Government Savings Bond, (FGSB). This is the first time one has heard about this type of bond. Of course bonds are debt instruments in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. The owners of such a bond are creditors or debt- holders.

Although the federal government regularly churns out bonds to raise fund from the capital market, this one is different. The FGSB is a retail savings product accessible to all income groups, and it will enable all citizens participate in and benefit from the favourable returns available in the capital market which had hitherto been an exclusive preserve of big players. Every Nigerian who has N5,000 can subscribe to this bond that will be issued monthly for a tenure of two to three years.

The minimum subscription amount is N5,000.00 with additions in multiples of N1,000.00, subject to a maximum ofN50,000,000.00. And there is no fee or charges for subscription. No matter the tenure of the bond, interest will be paid quarterly to holders. The payment will go to the Central Securities Clearing System (CSCS) Accounts of investors and text alerts will be sent to investors on Settlement Day.

The purpose of this bond, aside being a source of diversified funding for government, is to also help deepen the national savings culture. Anyone who earns income is able to participate in this unique investment opportunity.

This is an alternative for many Nigerians who have taken to the Ponzi schemes as investment option. The FGSB, like all government bonds, is backed by the full faith and credit of the Federal Government of Nigeria. It is a scheme Nigerians must take advantage of to help themselves and their country. It is another innovation from the rich bag of the country’s economic managers.

Isaac wrote in from Ilorin

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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Crude Oil

Goldman Sachs Revised Down Brent Oil Forecast for Q3 2021

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Brent crude oil - Investors King

Goldman Sachs Group, an American multinational investment bank and financial services company, has revised down its Brent oil price projection for the third quarter (Q3) of 2021 by $5 from $80 per barrel previously predicted to $75 a barrel following the surge in Delta variant COVID-19.

The investment bank predicted that the surge in Delta variant COVID-19 cases will weigh on Brent oil price in Q3 2021 even with the expected increase in demand.

However, the bank projected a stronger second half of 2021, saying OPEC+ adopted slower production ramp-up will offset 1 million barrel per day demand hit from Delta.

Goldman said, “Our oil balances are slightly tighter in 2H21 than previously, with an assumed two-month 1 mb/d demand hit from Delta more than offset by OPEC+ slower production ramp-up.”

The leading investment banks now projected a deficit of 1.5 million barrels per day in the third quarter, down from 1.9 million barrels per day previously predicted.

Therefore, Brent crude oil is expected to average $80 per barrel in the fourth quarter, a $5 increase from the $75 initially predicted and the bank sees 1.7 million barrels per day in the fourth quarter.

The oil market repricing to a higher equilibrium is far from over, with the bullish impulse shifting from the demand to the supply side,” the bank said.

Goldman added that even if vaccinations fail to curb hospitalisation rates, which could drive a longer slump to demand, the decline would be offset by lower OPEC+ and U.S. shale output given current prices.

Oil prices may continue to gyrate wildly in the coming weeks, given the uncertainties around Delta variant and the slow velocity of supply developments relative to the recent demand gains,” it said.

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Crude Oil

Oil Extends Gains on Thursday on Expectations of Tighter Supplies

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Crude Oil - Investors King

Oil prices rose about $1.50 a barrel on Thursday, extending gains made in the previous three sessions on expectations of tighter supplies through 2021 as economies recover from the coronavirus crisis.

Brent crude settled at $73.79 a barrel, up $1.56, or 2.2%, while U.S. West Texas Intermediate (WTI) settled at $71.91 a barrel, rising $1.61, or 2.3%.

“The death of demand was greatly exaggerated,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. “Demand is not going away, so we’re back looking at a very tight market.”

Members of the Organization of the Petroleum Exporting Countries and other producers including Russia, collectively known as OPEC+, agreed this week on a deal to boost oil supply by 400,000 barrels per day from August to December to cool prices and meet growing demand.

But as demand was still set to outstrip supply in the second half of the year, Morgan Stanley forecast that global benchmark Brent will trade in the mid to high-$70s per barrel for the remainder of 2021.

“In the end, the global GDP (gross domestic product) recovery will likely remain on track, inventory data continues to be encouraging, our balances show tightness in H2 and we expect OPEC to remain cohesive,” it said.

Russia may start the process of banning gasoline exports next week if fuel prices on domestic exchanges stay at current levels, Energy Minister Nikolai Shulginov said, further signalling tighter oil supplies ahead.

Crude inventories in the United States, the world’s top oil consumer, rose unexpectedly by 2.1 million barrels last week to 439.7 million barrels, up for the first time since May, U.S. Energy Information Administration data showed.

Inventories at the Cushing, Oklahoma crude storage hub and delivery point for WTI, however, has plunged for six continuous weeks, and hit their lowest since January 2020 last week.

“Supplies fell further by 1.3 million barrels to the lowest level since early last year, theoretically offering support to the WTI curve,” said Jim Ritterbusch of Ritterbusch and Associates.

Gasoline and diesel demand, according to EIA figures, also jumped last week.

Barclays analysts also expected a faster-than-expected draw in global oil inventories to pre-pandemic levels, prompting the bank to raise its 2021 oil price forecast by $3 to $5 to average $69 a barrel.

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Energy

RES4Africa, Enel Green Power and the European Investment Bank Encourage African Youth to Find Green Energy Solutions to Community Challenges

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European Investment Bank - Investors King

The second Micro-Grid Academy Young Talent of the Year Award today acknowledged energy innovation from across Africa that can accelerate the green transition and improve economic opportunities.

Backed by the RES4Africa Foundation, Enel Green Power and the European Investment Bank the yearly competition encourages young energy entrepreneurs from across the continent to develop projects that expand enegy access, enable greater use of renewable eneryg and accelerate sustainability.

Young finalists from across West, East and Southern Africa presented their innovative ideas to expert judges from the RES4Africa Foundation, Enel Green Power and the European Investment Bank.

The 2021 edition of the Micro-Grid Academy Young Talent of the Year Award has arrived to its final steps. Today, the eight young African innovators selected as finalists out of nearly 50 applicants presented to the international public their disruptive projects for the first time. The presentation took place during the event Public Competition for the MGA Young Talent of the Year 2021 finalists, and represents a preparatory step for the announcement of the three winners, that will be held the 28th of September in the framework of the Precop26.

The three entities strongly believe that renewables and innovation will be the response to the climate changes and energy deficit that Africa faces. In this deeply needed path towards its just energy transition, the continent can and must rely on one of its most precious resources : its youth. With this joint initiative, RES4Africa, Enel Green Power and the European Investment Bank put together their efforts to support those young people from all Africa countries who are committed and motivate to create a real change in their communities.

These are the finalists identified by the selection committee, who publicly presented their project ideas and among which there are the three future winners:

• Adekoyejo Ifeoluwapo Kuye, 26 years old from Nigeria, introduced a project focused on a sustainable cold chain for food;

• Alex Makalliwa, 31 from Kenya, presented his initiative of electrical tricycles for heavy loads in Nairobi;

• Benson Kibiti, 34 also from Kenya, performed an overview on an PV-powered trolley for heating up food and providing power;

• Lucas Filipe Tamele Junior, 24 from Mozambique, focused on waste management, biofertilizers and biogas;

• Matjaka Ketsi from Lesotho is 28, and presented an initiative aiming at building solar-powered Learning Centres for rural communities;

• Shedrack Charles Mkwepu is instead 26 and comes from Tanzania: he designed a system that allows farmers to control irrigation and other soil parametres from a mobile phone;

• Carol Ofafa, 32 from Kenya, proposed the installation of a PV system for health facilities;

• Kumbuso Joshua Nyoni, 34 from Zambia, envision an integrated Water-Food-Energy model for PV power and a water pumping system.

The webinar benefitted from the presence of Salvatore Bernabei, President of RES4Africa and Head of Enel Global Power Generation, as well as of Maria Shaw Barragan, Director of Lending in Africa, Caribbean, Pacific, Asia and Latin America, European Investment Bank. They introduced the objectives of the MGA Young Talent of the Year Award, while reflecting upon youth’s impact on the just energy transition.

Moreover, after the finalists’ presentation, a final feedback was provided, with closing remarks, by Roberto Vigotti, Secretary General at RES4Africa Foundation, Carmelo Cocuzza, Head of Corporates Unit, European Investment Bank, and Silvia Piana, Head of Regulatory Affairs Africa, Asia and Australia Area at Enel Green Power.

“The ability to generate innovation will be a fundamental driver to pave the way for a transformation that goes well beyond the dynamic of the Energy sector” commented Salvatore Bernabei “We are here give voice and visibility to young talents, innovators, entrepreneurs promoting the best innovative ideas to stimulate socio-economic progress from within and free the creativity of the younger generations in designing the Africa of tomorrow”.

Increasing energy access and enabling more sustainable energy use is crucial to unlock opportunities for communities across Africa. The finalists in this year’s Micro-Grid Academy Young Talent Awards all demonstrate inspirational and innovative thinking that combined world-class energy expertise with unparalleled understanding of local energy needs and all deserve to win. The European Investment Bank is pleased to join RES4Africa and Enel Green Power to support talented young innovators and encourage them to become green energy leaders of the future.” said Maria Shaw-Barragan, European Investment Bank Director for Global Partners.

RES4Africa Foundation (Renewable Energy Solutions for Africa) envisions the sustainable transformation of Africa’s electricity systems to ensure reliable and affordable electricity access for all, enabling the continent to achieve its full, resilient, inclusive and sustainable development. The Foundation’s mission is to create favourable conditions for scaling up investments in clean energy technologies to accelerate the continent’s just energy transition and transformation.

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