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Indigenous Oil Firms Default on Local Content Payment

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Made in Nigeria Textile - Investors King
  • Indigenous Oil Firms Default on Local Content Payment

Some indigenous oil companies have failed to make their contribution to the Nigerian Content Development Fund, the Nigerian Content Development and Monitoring Board has said.

The NCDF, which is funded from one per cent being deducted from the value of all upstream contracts, is managed by the NCDMB.

The fund is underpinned by Section 104 of the Nigerian Oil and Gas Industry Content Development Act, which provides that the funds be used for developing capacity in the oil and gas industry.

The Executive Secretary, NCDMB, Mr. Simbi Wabote, said international oil companies were complying reasonably in remitting one per cent of the value of their contracts but some service companies and indigenous operating firms defaulted in their payment.

A statement from the NCDMB quoted him as saying this at the public hearing conducted by the Joint Senate Committee on Petroleum Upstream and Gas in Abuja on Tuesday, with the intent to determine the extent of compliance with the NOGICD Act and the utilisation of the NCDF.

He said the industry would aspire to domesticate the full capacity and capability required for the integration of Floating Production Storage and Offloading vessels between now and year 2027.

Noting the successful in-country fabrication of six modules of the Total Egina FPSO, Wabote said the integration of the modules on the FPSO at the SHI-MCI yard would be done in Lagos in September 2017.

Another major target of the board, according to him, is to establish a local content bank of Nigeria “to focus on establishment of facilities for domiciliation of services with emphasis on optimal use of local resource input.”

Wabote said Nigerian content activities recorded six million training man-hours and had been able to retain $5bn in the local economy from the annual $20bn industry expenditure, which ended up in foreign economies in the past.

According to him, 36 per cent of the marine vessels operating in the Nigerian oil and gas industry are now owned by indigenous players, a marked improvement from total foreign domination of the industry before the implementation of the Act.

He cited the establishment of five world-class fabrication yards as another evidence of Nigerian content implementation, saying 60,000 metric tonnes of fabrication could be done in-country.

The NCDMB executive secretary, however, said the impact of local content in the oil and gas sector had not been sufficiently linked to other sectors of the economy and canvassed the support of key government agencies in deepening local content in the country.

In his welcome address, the Senate President, Dr. Bukola Saraki, represented by the Senate Leader, Senator Ahmed Lawan, highlighted the importance of local content in economic development, saying its full implementation would help create employment and grow the economy.

He said the National Assembly was keen to ensure that oil and gas companies complied with the Nigerian Content Act, especially in the employment of competent Nigerians and utilisation of local good and services in their operations.

Also speaking, the Chairman, Senate Committee on Gas, Senator Bassey Akpan, asked the NCDMB to submit a detailed report on the operations of the NCDF from inception, including information on the beneficiaries, defaulting firms and amount owed.

He expressed disappointment that only three companies had benefitted from the NCDF, saying, “There is no need to warehouse the funds with the Central Bank of Nigeria while Nigerian companies are suffering from lack of capital. There is no way they can build capacity.”

The Chairman, Petroleum Technology Association of Nigeria, Mr. Bank-Anthony Okoroafor, asked the Senate to support the NCDMB to ensure that at least 20 indigenous companies accessed the NCDF every year.

He also proposed guidelines that would ensure that “companies that bid as lead bidders should have the capacity to carry out more than 80 per cent of the required work scope while companies that have not built capacity should bid as sub-contractors.”

Okoroafor added, “Contract execution and distribution strategy should be such that Nigerian companies with proven capacities should be given preference in terms of percentage of work allocation. In addition, Nigerian companies should be given preference when reallocating any scope of work that could not be handled by the incumbent contractor.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Nigeria’s Growth Forecast Lowered to 3% for 2025, Higher than Most Emerging Markets

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IMF global - Investors King

The International Monetary Fund (IMF) has projected a 3% growth rate for Nigeria in 2025, slightly down from the 3.1% forecasted for 2024.

Despite this slight decline, Nigeria’s projected growth remains higher than that of many emerging markets as detailed in the IMF’s latest World Economic Outlook released on Tuesday.

In comparison, South Africa’s economy is expected to grow by 1.2% in 2025, up from 0.9% this year. Brazil’s growth is projected at 2.4% from 2.1% in 2024, and Mexico’s growth forecast stands at 1.6% for 2025, down from 2.2% in 2024.

However, India is anticipated to see a robust growth of 6.5% in 2025, although this is slightly lower than the 7% forecast for 2024.

The IMF’s projections come as Nigeria undertakes significant monetary reforms. The Central Bank of Nigeria has been working on clearing the foreign exchange backlog, and the federal government recently removed petrol subsidies.

These reforms aim to stabilize the economy, but the country continues to grapple with high inflation and increasing poverty levels, which pose challenges to sustained economic growth.

Sub-Saharan Africa as a whole is expected to see an improvement in growth, with projections of 4.1% in 2025, up from 3.7% in 2024. This regional outlook indicates a modest recovery as economies adjust to global economic conditions.

The IMF report underscores the need for cautious monetary policy. It recommends that central banks in emerging markets avoid easing their monetary stances too early to manage inflation risks and sustain economic growth.

In cases where inflation risks have materialized, central banks are advised to remain open to further tightening of monetary policy.

“Central banks should refrain from easing too early and should be prepared for further tightening if necessary,” the report stated. “Where inflation data encouragingly signal a durable return to price stability, monetary policy easing should proceed gradually to allow for necessary fiscal consolidation.”

The IMF also highlighted the importance of avoiding fiscal slippages, noting that fiscal policies may need to be significantly tighter than previously anticipated in some countries to ensure economic stability.

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Nigeria’s Inflation Rises to 34.19% in June Amid Rising Costs

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Food Inflation - Investors King

Nigeria’s headline inflation rate surged to 34.19% in June 2024, a significant increase from the 33.95% recorded in May.

This rise highlights the continuing pressures on the nation’s economy as the cost of living continues to climb.

On a year-on-year basis, the June 2024 inflation rate was 11.40 percentage points higher than the 22.79% recorded in June 2023.

This substantial increase shows the persistent challenges faced by consumers and businesses alike in coping with escalating prices.

The month-on-month inflation rate for June 2024 was 2.31%, slightly up from 2.14% in May 2024. This indicates that the pace at which prices are rising continues to accelerate, compounding the economic strain on households and enterprises.

A closer examination of the divisional contributions to the inflation index reveals that food and non-alcoholic beverages were the primary drivers, contributing 17.71% to the year-on-year increase.

Housing, water, electricity, gas, and other fuels followed, adding 5.72% to the inflationary pressures.

Other significant contributors included clothing and footwear (2.62%), transport (2.23%), and furnishings, household equipment, and maintenance (1.72%).

Sectors such as education, health, and miscellaneous goods and services also played notable roles, contributing 1.35%, 1.03%, and 0.57% respectively.

The rural and urban inflation rates also exhibited marked increases. Urban inflation reached 36.55% in June 2024, a rise of 12.23 percentage points from the 24.33% recorded in June 2023.

On a month-on-month basis, urban inflation was 2.46% in June, slightly higher than the 2.35% in May 2024. The twelve-month average for urban inflation stood at 32.08%, up 9.70 percentage points from June 2023’s 22.38%.

Rural inflation was similarly impacted, with a year-on-year rate of 32.09% in June 2024, an increase of 10.71 percentage points from June 2023’s 21.37%.

The month-on-month rural inflation rate rose to 2.17% in June, up from 1.94% in May 2024. The twelve-month average for rural inflation reached 28.15%, compared to 20.76% in June 2023.

The rising inflation rates pose significant challenges for the Central Bank of Nigeria (CBN) as it grapples with balancing monetary policy to rein in inflation while supporting economic growth.

The ongoing pressures from high food prices and energy costs necessitate urgent policy interventions to stabilize the economy and protect the purchasing power of Nigerians.

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Economy

Inflation to Climb Again in June, but at a Reduced Pace, Predicts Meristem

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Nigeria's Inflation Rate - Investors King

As Nigeria awaits the release of the National Bureau of Statistics’ report on June 2024 inflation, economic analysts project that while inflation will continue its upward trajectory, the pace of increase will moderate.

This comes after inflation rose to a 28-year high of 33.95% in May, up from 33.69% in April.

Meristem, a leading financial services company, has forecasted that June’s headline inflation will rise to 34.01%, a slight increase from May’s figure.

The firm attributes this persistent inflationary pressure to ongoing structural challenges in agriculture, high transportation costs, and the continuous depreciation of the naira.

Experts have highlighted several factors contributing to the inflationary trend. Insecurity in food-producing regions and high transportation costs have disrupted supply chains, while the depreciation of the naira has increased importation costs.

In May, food inflation grew at a slower pace, reaching 40.66%, but challenges in the agricultural sector, such as the infestation of tomato leaves, have led to higher prices for staples like tomatoes and yams.

Meristem predicts that food inflation will persist in June, driven by these lingering challenges. Increased demand during the Eid-el-Kabir celebration and rising importation costs are also expected to keep food prices elevated.

Core inflation, which excludes volatile items like food and energy, was at 27.04% in May. Meristem projects it to rise to 27.30% in June.

The firm notes that higher transportation costs and the depreciation of the naira will continue to push core inflation up.

However, they also anticipate a month-on-month moderation in the core index due to a relatively stable naira exchange rate during June, compared to a more significant depreciation in May.

Cowry Assets Management Limited has projected an even higher headline inflation figure of 34.25% for June, citing similar concerns.

The firm notes that over the past year, food prices in Nigeria have soared due to supply chain disruptions, currency depreciation, and climate change impacts on agriculture.

This has made basic staples increasingly unaffordable for many Nigerians, stretching household budgets.

As inflation continues to rise, analysts believe the Central Bank of Nigeria (CBN) will likely hike the benchmark lending rate again.

The CBN’s Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MPR) by 650 basis points this year, bringing it to 26.25% as of May 2024.

At a recent BusinessDay CEO Forum, CBN Governor Dr. Olayemi Cardoso emphasized the MPC’s commitment to tackling inflation, stating that while the country needs growth, controlling inflation is paramount.

“The MPC is not oblivious to the fact that the country does need growth. If these hikes hadn’t been done at the time, the naira would have almost tipped over, so it helped to stabilize the naira. Interest rates are not set by the CBN governor but by the MPC committee composed of independent-minded people. These are people not given to emotion but to data. The MPC clarified that the major issue is taming inflation, and they would do what is necessary to tame it,” Cardoso said.

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