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Analysts React as IMF Says Threats to Nigeria’s Economic Recovery High

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  • Analysts React as IMF Says Threats to Nigeria’s Economic Recovery High

The International Monetary Fund has predicted that the Nigerian economy will be out of recession this year with growth of 0.8 per cent though it says risks to the recovery remain high.

It, however, said the growth would not be sufficient to reduce unemployment and poverty in the country.

It said its staff team, led by the Senior Resident Representative and Mission Chief for Nigeria, Mr. Amine Mati, visited the country from July 20 to 31 to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.

After shrinking by 1.5 per cent in 2016, the nation’s economy contracted by 0.52 per cent in the first quarter of this year, which is the fifth consecutive quarter of contraction.

According to Mati, the economic backdrop remains challenging despite some signs of relief in the first half of 2017.

He said following four quarters of negative growth, the non-oil economy grew by 0.6 per cent (year-on-year) on the back of a rebound in manufacturing and continued strong performance in agriculture.

He stated that various indicators suggested an uptick in activity in the second quarter of the year, adding that the headline inflation, which decreased to 16.1 per cent in June, remained high despite tight liquidity conditions.

Mati said, “Preliminary data for the first half of the year indicate significant revenue shortfalls, with the interest-payments to revenue ratio remaining high (40 per cent at end-June) and projected to increase further under current policies. High domestic bond yields and tight liquidity continue to crowd out private sector credit.

“Given Nigeria’s low growth environment and the banking system’s exposure to the oil and gas sector, non-performing loans increased from six per cent in 2015 to 15 per cent in March 2017 (eight per cent after excluding the four undercapitalised banks).”

He noted that the government had started implementing a number of important measures, with the Economic Recovery and Growth Plan driving the diversification strategy, and security in the Niger Delta improved through strengthened engagement.

He said the new Investor and Exporter FX window of the Central Bank of Nigeria had provided impetus to portfolio inflows, helped increase reserves above $30bn, and contributed to reducing the parallel market premium.

Mati added, “However, near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated.

“Concerns about delays in policy implementation, a reversal of favourable external market conditions, possible shortfalls in agricultural and oil production, additional fiscal pressures, continued market segmentation in a foreign exchange market that remains dependent on central bank interventions, and banking system fragilities represent the main risks to the outlook.”

According to him, in the near term, a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues will be needed to create space for infrastructure spending, social protection and private sector credit.

He said this should be simultaneously accompanied by a monetary policy “that avoids direct financing of the government and is kept sufficiently tight, a unified and market-based exchange rate, and rapid implementation of structural.”

“Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy,” Mati added.

Reacting to the IMF’s position, the Board Chairman, Nigerian Economic Summit Group, a private sector think tank and policy advocacy group, Mr. Kyari Bukar, said the NESG had, at the start of the year, predicted that the economy would grow by 0.8 per cent.

He stated, “But we still have lack of clarity of the foreign exchange policy; we still have not coordinated our fiscal and monetary policies; and there is the debt burden.

“It is not just the borrowing that is the problem; if you’re borrowing for investment, that’s fine. We need to pay attention to our debt servicing, which is increasing.”

The Managing Director, Financial Derivatives Limited, Mr. Bismarck Rewane, said, “Even though the recovery has started, and we are going to have positive growth, the economy is still vulnerable to many domestic and exogenous variables.

“One major risk is the exchange rate falling below a particular level, and we are leaving the question of growth, the question of output and the question of economic activity, and those things are potent. It is one-dimensional diagnosis, and exchange rate being the critical variable.”

According to him, the government is aware of the risks and it has a team of people who can respond to them.

A professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, Sheriffdeen Tella, said the delay in the passage of the budget had contributed in slowing down the recovery of the economy, adding that inflation had not fallen at the rate it should.

“Also, the Central Bank of Nigeria still retains high interest rate, which is inimical to the demand for credit in the economy; most businesses are still borrowing at very high interest rates, and, therefore, they will not borrow as much as they need to. So, the economy cannot expand on the basis of that,” he said.

He stressed the need for the harmonisation of the fiscal and monetary policies, adding that the CBN needed to bring down the interest rates to “enable investors who want to borrow money to run their businesses properly.”

The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said nothing fundamental had changed about the Nigerian economy to give one the assurance of a sustained growth or recovery.

He said the recovery of the economy so far was largely driven by the price of crude oil and volume of oil production, which he described as major risks.

“We know that even the Niger Delta militants are threatening again that they may resume bombing; so that is a major threat to the oil production volume. Once we begin to see growth in the oil and gas sector, which has been on the decline, then the economy should continue to grow.” he added.

Last month, the Monetary Policy Committee of the CBN said available forecasts of key macroeconomic indicators pointed to a fragile economic recovery in the second quarter of the year.

But the committee cautioned that the recovery could relapse into a more protracted recession if strong and bold monetary and fiscal policies were not activated immediately to sustain it.

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

Electricity Consumers Get 611,231 Meters Under MAP Scheme

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Electricity Consumers Get 611,231 Meters Under MAP Scheme

A total of 611,231 meters have been deployed as at January 31, 2021 under the Meter Asset Provider initiative since its full operation despite the COVID-19 pandemic and other extraneous factors, the Nigerian Electricity Regulatory Commission has said.

NERC disclosed this in a consultation paper on the review of the MAP Regulations.

The proposed review of the MAP scheme is coming nearly four months after the Federal Government launched a new initiative called National Mass Metering Programme aimed at distributing six million meters to consumers free of charge.

“The existence of a huge metering gap and the need to ensure successful implementation of the MYTO 2020 Service-Based Tariff resulted in the approval of the NMMP, a policy of the Federal Government anchored on the provision of long-term low interest financing to the Discos,” NERC said.

The commission had in March 2018 approved the MAP Regulations with the aim of fast-tracking the closure of the metering gap in the sector through the engagement of third-party investors (called meter asset providers) for the financing, procurement, supply, installation and maintenance of meters.

It set a target of providing meters to all customers within three years, and directed the Discos and the approved MAPs to commence the rollout of meters not later than May 1, 2019.

But in February 2020, NERC said several constraints, including changes in fiscal policy and the limited availability of long-term funding, had led to limited success in meter rollout.

NERC, in the consultation paper, highlighted three proposed options for metering implementation going forward.

The first option is to allow the implementation of both the NMMP and MAP metering frameworks to run concurrently; the second is to continue with the current MAP framework with meters procured under the NMMP supplied only through MAPs (by being off-takers from the local manufacturers/assemblers).

The third option is to wind down the MAP framework and allow the Discos to procure meters directly from local manufacturers/assemblers (or as procured by the World Bank), and enter into new contracts for the installation and maintenance of such meters.

“Customers who choose not to wait to receive meters based on the deployment schedule of the NMMP shall continue to have the option of making upfront payments for meters which will be installed within a maximum period of 10 working days,” NERC said.

The regulator said such customers would be refunded by the Discos through energy credits, adding that there would be no option for meter acquisition through the payment of a monthly meter service charge.

“Where meters have already been deployed under the meter service charge option, Discos shall make one-off repayment to affected customers and associated MAPs. Such meters shall be recognised in the rate base of the Discos,” it added.

NERC urged stakeholders to provide comments, objections, and representations on the proposed amendments within 21 days of the publication of the consultation paper.

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Nigeria’s Economy Moving in Right Direction but Slow – Amina Mohammed

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Nigeria’s Economy Moving in Right Direction but Slow – Amina Mohammed

Nigeria is moving in the right direction economically but its movement is not fast, the United Nations stated on Thursday.

Deputy Secretary-General of the United Nations, Amina Mohammed, said this during a meeting at the headquarters of the Federal Ministry of Industry, Trade and Investment in Abuja.

She said the challenges in Nigeria were huge, its population large but described the country’s economy as great with lots of opportunities.

The UN scribe stated that after traveling by train and through various roads in the Northern parts of Nigeria, she discovered that the roads were motorable, although there were ongoing repairs on some of them.

Mohammed said, “This is a country that is diverse in nature, ethnicity, religious backgrounds and opportunities. But these are its strengths, not weaknesses.

“And I think the narrative for Nigeria has to change to one that is very much the reality.”

Speaking on her trips across parts of Nigeria, she said, “What I saw along the way is really a country that is growing, that is moving in the right direction economically. Is it fast enough? No. Is it in the right direction? Yes it is.

“And the challenges still remain with security, our social cohesion and social contract between government and the people. But I know that people are working on these issues.”

She said the UN recognised the reforms in Nigeria and other nations, adding that the common global agenda was the Sustainable Development Goals.

Mohammad commended Nigeria’s quick response to the COVID-19 pandemic, as she expressed hope that the arrival of vaccines would be the beginning of the end of COVID-19.

On his part, the Minister of Industry, Trade and Investment, Adeniyi Adebayo, told his guest that the Federal Government was working hard to make Nigeria the entrepreneurial hub of Africa.

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N10.7tn Spent on Fuel Subsidy in 10 Years – MOMAN

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N10.7tn Spent on Fuel Subsidy in 10 Years – MOMAN

Nigeria spent a total of N10.7tn on fuel subsidy in the last 10 years, the Chairman, Major Oil Marketers Association of Nigeria, Mr Adetunji Oyebanji, has said.

Oyebanji, who was the guest speaker at the 18th Aret Adams Lecture on Thursday, said N750bn was spent on subsidy in 2019.

He highlighted the need for a transition to a market-driven environment through policy-backed legislative and commercial frameworks, enabling the sustainability of the downstream petroleum sector.

“Total deregulation is more than just the removal of price subsidies; it is aimed at improving business operations, increasing the investments in the oil and gas sector value chain, resulting in the growth in the nation’s downstream petroleum sector as a whole,” he said.

The managing director of 11 Plc (formerly Mobil Oil Nigeria Plc) said steps had been taken, “but larger and faster leaps are now required.”

According to him, deregulation requires the creation of a competitive market environment, and will guarantee the supply of products at commercial and market prices.

“It requires unrestricted and profitable investments in infrastructure, earning reasonable returns to investors. It requires a strong regulator to enable transparency and fair competition among players, and not to regulate prices,” Oyebanji said.

He noted that MOMAN had recently called for a national debate by stakeholders to share pragmatic and realistic initiatives to ease the impact of the subsidy removal on society – especially on the most vulnerable.

He said, “A shift from crude oil production to crude oil full value realisation through deliberate investment in domestic refining and refined products distribution, creates the opportunity to transform the dynamics of the downstream sector from one of ‘net importer’ to one of ‘net exporter’, spurring the growth of the Nigerian economy.

“Effective reforms and regulations are key drivers for the growth within the refining sector. Non-functional refineries cost Nigeria over $13bn in 2019. If the NNPC refineries were operating at optimal capacity, Nigeria would have imported only 40 per cent of what it consumed in 2019.”

Full deregulation of the downstream sector remains the most glaring boost to potential investors in this space, according to Oyebanji.

He said, “As crude oil prices will fluctuate depending on the prevailing exchange rates, it will be astute to trade in naira to avoid inevitable price swings.

“There needs to be a balance between ensuring the sustainable growth of the crude oil value chain (upstream through downstream) and providing value for the Nigerian consumer and the Nigerian economy.”

He said the philosophy should be for the government to put the legislative and commercial framework in place and let the market develop by itself.

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