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Nigeria’s Debt Burden to Hit N19.3tn by December

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  • Nigeria’s Debt Burden to Hit N19.3tn by December

Analysts have cautioned the government against plunging the nation into another debt trap, even as there are plans to raise funds from external sources to finance critical infrastructure.

If the federal and state governments continue to rely heavily on debt instruments for the financing of the country’s infrastructure needs, then, Nigeria’s total debt burden will be hitting the N19tn mark by the end of this year.

Based on figures obtained from the Ministry of Budget and National Planning, the country’s total debt stock is expected to rise by N6.72tn this year from the 2016 figure of N12.58tn, making the total debt liability to rise to N19.3tn by the end of 2017.

The frequency of borrowing by the federal and state governments has become a source of worry to many analysts, who sound a note of caution that the country may be heading for another debt trap if restraint is not exercised.

According to the Economic Recovery and Growth Plan, Nigeria’s public debt has increased in recent years as the Federal Government has increased borrowing to finance budget deficits owing to declining revenue.

The country’s domestic debt profile is expected to rise by N2.34tn to N12.43tn this year from N10.09tn in 2016, while the foreign component is being projected to increase by N4.38tn from N2.48tn to N6.86tn.

The document stated that the focus of the government’s debt would be shifted from domestic borrowing to foreign sources, as loans from international financial institutions are cheaper and have longer repayment periods.

For instance, the ERGP stated that while the proportionate share of foreign financing would increase from the current level of about 28 per cent to almost 72 per cent in 2020, that of domestic financing would decrease gradually from about 54 per cent in 2016 to about 26 per cent by 2020.

The Federal Government is currently seeking $29.96bn in loans from the World Bank, African Development Bank and Japan International Cooperation Agency.

The other international financial agencies the government plans to borrow from are the Islamic Development Bank and China Exim Bank.

Some of the projects to be funded by the loans are the Mambila hydroelectric power, $4.8bn; railway modernisation (Calabar-Port Harcourt-Onne Deep Seaport segment), $3.5bn; Abuja mass rail transit project (phase two), $1.6bn; and Lagos-Kano railway modernisation project (Lagos-Ibadan segment, double track), $1.3bn.

The rest are Lagos-Kano railway modernisation project (Kano-Kaduna segment, double track) $1.1bn; ‘others’, $6bn; Eurobond, $4.5bn; Federal Government Budget Support, $3.5bn; social (education and health), $2.2bn; agriculture, $1.2bn; and economic management and statistics, $200m.

The Budget and National Planning ministry said with the shift in focus to more foreign borrowing, the domestic financing sector would be more available and accessible to the private sector, thus avoiding crowding out.

This, it added, would provide the private sector with a leading role to drive economic growth, create jobs and reduce the rate of poverty in the country.

The ministry noted that the projects that would be financed with external loans would be those that would support non-oil exports, and/or reduce import-dependence such that there would be no risk of external debt overhang.

Reacting to the development by the Federal Government, some financial analysts, who spoke to our correspondent, said borrowing might be a last resort by the government to survive its revenue challenges.

They said there was a need for the government to urgently begin a readjustment of its fiscal position in a way that would enable it generate more revenue from taxes.

The Director-General, Institute of Fiscal Studies of Nigeria, Mr. Godwin Ighedosa, said the expenditure of the government needed to be reduced in a manner that would reflect the rate of revenue decline.

He stated, “We have so much relied on oil revenue in the last 45 years and with the decline in oil revenue, time has come now for us to review our fiscal position.

“There is a need for reform of the country’s tax administration system to enable the Federal Government to raise more revenue from Capital Gains Tax. Our tax to Gross Domestic Product ratio is one of the lowest in the world and we need to address that.”

The Registrar, Chartered Institute of Finance and Control of Nigeria, Mr. Godwin Eohoi, said the need to get the economy back again might have influenced the decision for huge borrowing.

He stated that while borrowing in itself was not a bad economic strategy, the way in which such borrowing was being used was important.

Eohoi said, “I am not worried about borrowing because debt is a leverage, but it depends on what the loan is used for. It must be used for productive purposes and not to finance recurrent expenditure.

“Oil prices are just beginning to bounce back and so I see the borrowing as a last resort to prevent the total collapse of the economy since we had a serious revenue shortfall. When you have a decline in revenue, you have to resort to borrowing.”

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.

Economy

Nigeria, Morocco sign MOUs on Hydrocarbons, Others

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The Federal Government and the Kingdom of Morocco have signed five strategic Memoranda of Understanding that will foster Nigerian-Morocco bilateral collaboration and promote the development of hydrocarbons, agriculture, and commerce in both countries.

The Minister of State for Petroleum Resources, Chief Timipre Sylva, led the Nigerian delegation to the agreement signing ceremony on Tuesday at Marrakech, Morocco, while the Chief Executive Officer of OCP Africa, Mr Anouar Jamali, signed for the Kingdom of Morocco, according to a statement by the Nigerian Content Development and Monitoring Board.

Under the agreement between OCP, NSIA and the Nigerian National Petroleum Corporation, Nigeria will import phosphate from the Kingdom of Morocco and use it to produce blended fertiliser for the local market and export.

The statement said Nigeria would also produce ammonia and export to Morocco.

“As part of the project, the Nigerian Government plans to establish an ammonia plant at Akwa Ibom State,” it said.

The Executive Secretary of NCDMB, Mr Simbi Wabote, and the Group Managing Director of NNPC, Mallam Mele Kyari, were part of the delegation and they confirmed that their organisations would take equity in the ammonia plant when the Final Investment Decision would be taken, the statement said.

Sylva said the project would broaden economic opportunities for the two nations and improve the wellbeing of the people.

He added that the project would also positively impact agriculture, stimulate the growth of gas-based industries and lead to massive job creation.

He said the President, Major General Muhammadu Buhari (retd.), had mandated the Ministry of Petroleum Resources and it agencies and other government agencies to give maximum support for the project.

“He mandated me to ensure that at least the first phase of this project is commissioned before the expiration of his second term in office in 2023,” he added.

According to the statement, the MOUs were for the support of the second phase of the Presidential Fertiliser Initiative; Shareholders Agreement for the creation of the joint venture company to develop the multipurpose industrial platform and MOU for equity investment by the NNPC in the joint venture and support of the gas.

Other agreements are term sheet for gas sales and aggregation agreement and MOU for land acquisition and administrative facilitation to the establishment of the multipurpose industrial platform for gas sales and aggregation agreement.

The NCDMB boss described the bilateral agreement as significant to the Nigerian economy as it would accelerate Nigeria’s gas monetisation programme through establishment of the ammonia plant in the country.

The agreement would also improve Nigeria’s per capita fertiliser application through importation of phosphate derivatives from Morocco, he added.

Wabote challenged the relevant parties to focus on accelerating the FID, assuring them that the NCDMB would take equity investment for long-term sustainability of the project.

He canvassed for the setting up of a project management oversight structure to ensure project requirements and timelines are met.

“There is also need to determine manpower needs for construction and operations phase of the project and develop training programmes that will create the workforce pool from Nigeria and Morocco and design collaboration framework between research centres in Nigeria and Morocco to develop technology solutions for maintaining the ISBL and OSBL units of the Ammonia complex,” he said.

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Dangote Fertiliser Plant to Commence Shipment of Urea in March 2021

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Dangote to Sells Petrol in Naira, Plans to Commence Urea Shipment in March 2021

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, has said Dangote Fertiliser Plant will commence shipment of Urea in March 2021.

The CBN governor disclosed this during an inspection tour of the sites of Dangote Refinery, Petrochemicals Complex Fertiliser Plant and Subsea Gas Pipeline at Ibeju Lekki, Lagos on Saturday.

Emefiele further stated that Dangote Refinery would sell refined petroleum products in Naira when it starts production.

This he said would save the country from spending 41 percent of the nation’s foreign exchange on importation of petroleum products yearly.

Based on agreement and discussions with the Nigerian National Petroleum Corporation and the oil companies, the Dangote Refinery can buy its crude in naira, refine it, and produce it for Nigerians’ use in naira,” Mr Emefiele said.

That is the element where foreign exchange is saved for the country becomes very clear. We are also very optimistic that by refining this product here in Nigeria, all those costs associated with either demurrage from import, costs associated with freight will be totally eliminated.

Emefiele explained that this will make the price of Nigeria’s petroleum products affordable and cheaper in naira.

If we are lucky that what the refinery produces is more than we need locally you will see Nigerian businessmen buying small vessels to take them to our West African neighbours to sell to them in naira.

“This will increase our volume in naira and help to push it into the Economic Community of West African States as a currency,” Mr Emefiele said.

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Economy

UK Budget 2021: Will Sunak’s Budget Run Into Unintended Consequences?

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Rishi Sunak’s Budget will encourage higher earners to consider their “international financial options” and will drive businesses away from the UK, warns the CEO of one of the world’s largest independent financial advisory and fintech organizations.

The warning from Nigel Green, chief executive and founder of deVere Group, comes as the Chancellor delivered his 2021 Budget in the House of Commons, his second since he took on the role.

Mr Green says: “The Chancellor has got an extraordinarily difficult hand to play as he tries to stem the economic damage caused by the pandemic, support jobs and businesses and, crucially, rebuild the public finances.

“Whilst Mr Sunak is being hailed a hero for the continued and unprecedented levels of support, it should also be remembered that he is – in a stealth move – dragging more people firmly into the tax net.

“He is raising taxes under the radar.

“Yes, there is no income tax rise. However, he is freezing personal tax thresholds, meaning as incomes rise and thresholds don’t, he is able to raise money by fiscal drag.”

Earlier this week, the deVere CEO noted: “Those most impacted by this stealth move will be looking at the financial planning options available to them, including international options, in order to grow and protect their wealth.”

Rishi Sunak also confirmed that corporation tax will increase to 25% from 2023, up from the current level of 19%.

Of this tax hike, Mr Green goes on to say: “Lower corporation tax helps job and wealth-creating business to survive and thrive. It also helps attract business to move and invest in the country.

“Instead of increasing taxes, Mr Sunak should have relentlessly focussed on growth and stimulus policies for businesses.  This would have been of greater help to firms, the economy, jobs and, ultimately, the Treasury’s coffers.”

He adds: “Again, this corporation tax hike is likely to serve as a prompt for businesses to consider their overseas financial options.”

The deVere CEO concludes: “The Chancellor had to perform a tough juggling act.  But stealthily dragging more people into the tax net and raising corporation tax might have negative, unintended consequences for the Treasury’s bottom line.”

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