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Nigeria Needs Strong Fiscal, Monetary Policies to Exit Recession – CBN

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  • Nigeria Needs Strong Fiscal, Monetary Policies to Exit Recession

The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday warned that the economy might relapse into protracted recession if bold monetary and fiscal policies were not activated immediately to sustain the programmes of the Federal Government.

The committee stated that available forecasts of key macroeconomic indicators pointed to a fragile economic recovery in the second quarter of the year.

Data from the National Bureau of Statistics showed that the contraction in the economy moderated to 0.52 per cent in the first quarter.

The MPC identified the downside risks to economic outlook to include weak financial intermediation, poorly targeted fiscal stimulus and absence of structural programme implementation.

The CBN Governor, Mr. Godwin Emefiele, while reading the communique after the end of the committee’s two-day meeting, called for more fiscal measures to stimulate the economy.

He said there was a need for improvements in economy-wide non-oil exports, especially agriculture, manufacturing, services and light industries.

He also said the expected fiscal stimulus, non-oil federal receipts and other measures that were expected to drive the growth impetus for the rest of the year must be pursued relentlessly.

Emefiele stated, “Available forecasts of key macroeconomic indicators point to a fragile economic recovery in the second quarter of the year. The committee cautioned that this recovery could relapse into a more protracted recession if strong and bold monetary and fiscal policies are not activated immediately to sustain it.

“Thus, the expected fiscal stimulus and non-oil federal receipts, as well as improvements in economy-wide non-oil exports, especially agriculture, manufacturing, services and light industries, all expected to drive the growth impetus for the rest of the year, must be pursued relentlessly.”

He added, “The committee expects that timely implementation of the 2017 budget, improved management of foreign exchange, as well as security gains across the country, especially in the Niger Delta and north-eastern axis, should be firmly anchored to enhance confidence and sustainability of economic recovery.

“The committee identified the downside risks to this outlook to include weak financial intermediation, poorly targeted fiscal stimulus and absence of structural programme implementation.”

Emefiele also said the committee expressed concern over the N2.51tn fiscal deficit of the Federal Government in the first half of this year, adding that it was stifling the growth of the private sector.

He welcomed the move by the fiscal authorities to engage the services of asset tracing experts to investigate the tax payment status of 150 firms and individuals in an effort to close some of the loopholes in tax collection and improve government revenue.

However, the governor said the committee expressed concern about the slow implementation of the 2017 budget and called on the relevant authorities to ensure timely implementation, especially, of the capital portion, in order to realise the objectives of the Economic Recovery and Growth Plan.

He added, “The MPC expressed concern over the increasing fiscal deficit estimated at N2.51tn in the first half of 2017 and the crowding out effect of high government borrowing.

“While urging fiscal restraint to check the growing deficit, the committee welcomed the proposal by the government to issue sovereign-backed promissory notes of about N3.4tn for the settlement of accumulated local debts and contractors’ arrears.

“The committee, however, advised the management of the bank (CBN) to monitor the release process of the promissory notes to avoid an excessive injection of liquidity into the system, thereby offsetting the gains so far achieved in inflation and exchange rate stability.”

On the outlook for financial system stability, the CBN governor said the MPC noted that in spite of the resilience of the banking sector, the prolonged weak macroeconomic environment had continued to impact negatively on the sector’s stability.

He noted that the committee reiterated its call on the apex bank to sustain its intensive surveillance of Deposit Money Banks’ activities for the purpose of promptly identifying and addressing vulnerabilities.

The committee, according to Emefiele, also called on the DMBs to support economic recovery and growth by extending reasonably-priced credit to the private sector.

On the Monetary Policy Rate, the governor said the committee voted to leave the rate unchanged at 14 per cent.

He explained that the six members of the committee agreed to maintain the current monetary policy stance.

He, however, added that two members voted to ease the Monetary Policy Rate.

The governor said apart from the MPR, which was retained at 14 per cent, the committee also retained the Cash Reserves Ratio at 22.5 per cent.

Also retained were the Liquidity Ratio at 30 per cent; and the Asymmetric Window at +200 and -500 basis points around the MPR.

Explaining the reason for holding the rates despite calls by the Minister of Finance, Mrs. Kemi Adeosun, and the Senate President, Bukola Saraki, for a reduction, Emefiele said that inflation rate, expected to fall by August, still had a strong base effect on the monetary policy stance.

According to him, the MPC believes that at this point, developments in the macro economy suggest the options of either to hold or to ease the monetary policy stance.

He said the committee was not unmindful of the high cost of capital and its implications on the ailing economy, but noted the liquidity surfeit in the banking system and the continuous weakness in financial intermediation.

While easing at this point will signal the committee’s sensitivity to growth and employment concerns by encouraging the flow of credit to the real economy, he stated that the rate of inflation, currently at 16.1 per cent, was capable of retarding growth.

He added that any reduction in interest rate at this time would reduce the cost of debt servicing, which was actually crowding out government expenditure.

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

Gov Emmanuel Attracts $1.4b Fertilizer Plant to Akwa Ibom

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The Governor of Akwa Ibom State, Mr. Udom Emmanuel has signed an agreement for the citing of a multi billion fertilizer plant in his State.

Governor Emmanuel was part of a Nigerian delegation led by the Minister of State for Petroleum Resources, Chief Timipre Sylva, that visited Morocco to set out the next steps of the $1.4 Bln fertilizer production plant project launched in June 2018.

The agreement between the OCP Africa, the Nigerian Sovereign Investment Authority and the Akwa Ibom State Government will birth one of the biggest investments in the fertilizer production industry worldwide.

The signing ceremony took place at the Mohammed VI Polytechnic University (UMP6).

Mr. Emmanuel signed one of the agreements of the partnership, which covers a memorandum of understanding between OCP Africa, the Akwa Ibom State in Nigeria and the NSIA on land acquisition, administrative facilitation, and common agricultural development projects in the Akwa Ibom State.

Speaking while signing the agreement, Governor Emmanuel said, “Our state is receptive to investments and we are prepared to offer the necessary support to make the project a reality.

“With a site that is suitably located to enable operational logistics and an abundance of gas resources, all that is left is for the parties to accelerate the project development process”, Mr. Udom said.

The agreement reached between the Nigerian Government and the OCP further links OCP, Mobil Producing Nigeria (MPN), the NNPC, the Gas Aggregation Company Nigeria (GACN), and the NSIA.

The two partners agreed to strengthen further their solid partnership leveraging Nigerian gas and the Moroccan phosphate.

This project will lead to a multipurpose industrial platform in Nigeria, which will use Nigerian gas and Moroccan phosphate to produce 750,000 tons of ammonia and 1 million tons of phosphate fertilizers annually by 2025.

The visit of the Nigerian delegation to Morocco takes place within the frame of the partnership sealed between OCP Group and the Nigerian Government to support and develop Nigeria’s agriculture industry.

Following the success of the first phase of Nigeria‘s Presidential Fertilizer Initiative (PFI) and the progress of the fertilizer production plant project launched in 2018 by OCP and NSIA, the Moroccan phosphates group and the Nigerian government delegation have agreed on the next steps of their joint project which is rapidly taking shape.

Several cooperation agreements were inked on Tuesday at the Mohammed VI Polytechnic University (UM6P) by OCP Africa and the Nigerian delegation. Through these deals, OCP reaffirms its unwavering support of agricultural development initiatives in Nigeria including PFI.

OCP Africa and the NSIA have agreed, inter alia, to set up a joint venture which will oversee the development of the industrial platform that will produce ammonia and fertilizers in Nigeria.

The OCP has also pledged to supply Nigerian famers with quality fertilizers adapted to the needs of their soil at competitive prices and produced locally.

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ICPC Says Nigeria Loses $10bn to Illicit Financial Flows 

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The Independent Corrupt Practices and Other Related Offences Commission (ICPC) says Nigeria accounts for 20 per cent or 10 billion dollars (N3.8 trillion) of the estimated 50 billion dollars that Africa loses to Illicit Financial Flows (IFFs).

Chairman of ICPC, Prof. Bolaji Owasanoye, said this during a virtual meeting to review a report on IFFs in relation to tax, Mrs Azuka Ogugua, spokesperson for ICPC, said in a statement released in Abuja on Friday.

The ICPC Chairman said, “the African Union Illicit Financial Flow Report estimated that Africa is losing nearly 50 billion dollars through profit shifting by multinational corporations and about 20 per cent of this figure is from Nigeria alone.”

The ICPC boss explained that taxes played “very strategic role in the nation’s political economy.”

He said the objective of the meeting was to improve on the awareness on IFFs, especially in the areas of taxation.

The ICPC boss added that the meeting would give participants the opportunity to openly discuss how to effectively use the instrumentality of taxation to curb IFFs through risk-based approach.

“Risk-based approach, that is: monitoring and audit; due process in tax collection; structured tax amnesty framework skewed in public interest; data privacy; timely resolution of audits and payment of tax refunds and intelligence sharing among revenue generating, regulatory and law enforcement agencies,” he said.

Owasanoye also stated that for the contemporary tax man to remain relevant, he must build his capacity in areas of technology management, solution architects and an astute relationship manager.

The Executive Chairman of Federal Inland Revenue Service (FIRS) Mr Muhammad Nani, expressed concerns that IFFs posed a serious threat to the Nigerian economy as the act robbed the nation of resources that were needed for development.

Nani declared that tackling IFFs would expand the country’s tax base and improve revenue generation, which was required for development.

He consequently pushed for policy reforms that would make it difficult for “capital flights” from occurring so that the country would be placed on the path of growth.

Other discussants at the event identified weak regulatory framework, opacity of financial system and lack of capacity amongst others as some of the factors that fuelled IFFs.

The discussants emphasised the need for capacity building of relevant stakeholders as one of the ways to stamp out illicit financial flows.

They commended ICPC for leveraging its corruption prevention mandate to open a new vista in IFFs discourse in Nigeria. (NAN)

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Economy

African Development Bank, Egypt Signs Agreements Worth €109 Million to Transform Sewage Coverage in Rural Areas

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The African Development Bank Group has signed financing agreements of €109 million with the Government of Egypt to improve sanitation infrastructure and services for rural communities in Luxor Governorate in Egypt’s Upper Nile region.

The financing consists of a €108 million loan from the Bank, and a grant of €1 million from the Rural Water Supply and Sanitation Initiative (RWSSI) – an Africa-wide initiative hosted by the African Development Bank.

The funding, provided in a challenging global context, will help meet the Egyptian government’s financing requirements in the light of the COVID-19 pandemic, and support a sound water and sanitation infrastructure base, a key enabler for the country’s inclusive development.

The Integrated Rural Sanitation in Upper Egypt-Luxor (IRSUE-Luxor) project is set to boost sewage coverage in the region from 6% to 55%, improving the quality of life of citizens, including women and children, who are most affected by poor sanitation.

“Promoting efficient, equitable and sustainable economic development through integrated water resources management is a priority for the Government of Egypt. The IRSUE-Luxor initiative unlocks the socio-economic development potential for inclusive and green growth,” said Rania Al-Mashat, Minister of International Cooperation, who signed the agreements on behalf of the Egyptian government.

About 22,000 households (240,000 inhabitants) will benefit from on-site and off-site facilities, through an integrated system of sewerage networks, sludge treatment and wastewater treatment plants.

IRSUE-Luxor contributes to the National Rural Sanitation Program established by the Ministry of Housing, Utilities and Urban Communities, which aims to expand nationwide access to sanitation services from 34% currently to 60% in 2030.

The project also complements the national Haya Karima (Decent Life) initiative that aims to help rural communities across Egypt access essential infrastructure services to improve their living conditions and livelihoods.

Furthermore, the project includes a staff training component to strengthen performance within the Luxor Water and Wastewater Company.

“This intervention is not just about infrastructure development. An essential part of the project is supporting ongoing sector reforms,” said Malinne Blomberg, the Bank’s Deputy Director General for North Africa.

One of several initiatives supported by the African Development Bank in Egypt to optimize the use of the country’s water resources, IRSUE-Luxor will enable about 30,000 cubic meters of treated wastewater per day to be discharged into drainage and irrigation canals and re-used to enhance agricultural output.

The initiative is in line with the Bank’s water sector policy, which promotes efficient, equitable and sustainable development through integrated water resources management. In addition, the operation supports tariff regulation to achieve full cost recovery, which is one of the basic principles of the Bank’s water sector policy.

The partnership between Egypt and the African Development Bank Group dates back more than half a century. More than 100 operations have been deployed, mobilizing more than $6 billion across multiple strategic sectors.

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