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Nigeria Faces Weak Investor Confidence Amid Reforms Delay

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Dr. Okechukwu Enelamah
  • Nigeria Faces Weak Investor Confidence Amid Reforms Delay

Economists in the country have warned that the failure of the government to implement key reforms will discourage Foreign Direct Investment and portfolio inflows.

Speaking on some of the risks the country will encounter as a result of inconsistent policies, the Chief Economist, PricewaterhouseCoopers, Andrew Nevin, noted that some of the major reforms required to attract investors were in the energy sector and the foreign exchange market.

He said that regardless of an increase in oil price forecast, excess capacity in the market and downside risks to global growth would defeat the projection.

The economist warned that the inability to meet revenue targets in the budget would require an expenditure adjustment, in which capital expenditure would be impacted.

As such, Nevin said there was a need to keep real interest rates positive and improve the interest rate differential, adding that global interest rates increase would suggest that the Monetary Policy Rate would remain high.

“A failure to implement key reforms, in particular, the energy sector and the foreign exchange market, could keep investor confidence weak and limit Foreign Direct Investment and foreign portfolio flows,” he said.

According to Nevin, data on tax payment in 2015 showed that about 992 organisations out of 994 that paid taxes above N10m were in Lagos.

He said the lopsided tax payment could be fixed by bringing more people into the tax net.

Also speaking on taxation, an economist with the Lagos Business School, Bongo Adi, urged the government to defer the reduction in corporate tax rate for 18 months, while there should be renewed focus on widening the tax net and effective tax enforcement.

In the oil and gas sector, Adi said the basic policies required were full downstream petroleum sector deregulation and provision of incentives for building private refineries.

He stated, “The CBN should immediately restore 95 HS Code items (out of 680 HS Codes under the 41 banned items list) identified by MAN as critical raw materials for industry to “valid for FX” status

“Government should launch a new economic reform programme and signal a bold commitment to investor-friendly economic direction based on attracting private capital from domestic and international investors,” he added.

The International Monetary Fund had pointed out in recent a report that Nigeria needed to introduce immediate changes to its exchange rate policy.

The Fund warned that the country risked worsening forex reserves and exchange rate depreciation if it refused to remove foreign exchange restrictions and unify the exchange rates.

Efforts by the Federal Government to obtain loans from the World Bank and the African Development Bank to fund the infrastructure investment deficit had stalled over economic reforms.

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

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Crude oil

Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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opec

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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