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National Carrier Needs $300m Initial Capital — FG

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  • National Carrier Needs $300m Initial Capital — FG

The new national airline, Nigeria Air, will require initial capital of between $150m and $300m, and the Federal Government is seeking a strategic partner to operate the carrier, according to a document seen by Reuters on Thursday.

The Minister of State for Aviation, Hadi Sirika, on Wednesday said the government would not own more than five per cent of the new carrier.

He made the comments while providing details of the airline at the Farnborough air show in London, England.

The government plans to launch the airline in December, making good President Muhammadu Buhari’s election campaign promise.

Decades of neglect and lack of investment have left Nigeria with low-quality infrastructure seen as a hurdle to prosperity. The government has said that upgrading it will require private investment.

“The initial capital is likely to be in the range of $150m to $300m, invested in tranches over time from start up through the first years of operation,” the government document stated.

It noted that the government would provide the initial capital but did not state the sum or give further details.

The government will “facilitate the process for opening up the capital of the airline to private sector financial investors,” the document added.

A private operator, sought through a Public Private Partnership process, would manage the airline without interference, it stated.

Nigeria Air will serve domestic and international markets, and is expected to have a fleet of 30 aircraft in five years with hubs in Lagos and Abuja.

British billionaire, Richard Branson, set up domestic and international carrier, Virgin Nigeria in 2000, but pulled out in 2010 in frustration at what he said was interference by politicians and regulators.

The airline he created, which was later rebranded as Air Nigeria, closed in 2012 after collapsing under about N35bn of debt, which left it unable to pay workers, a former finance director of the company told Reuters at the time.

Nigeria is overhauling its aviation infrastructure and handing over its airports to private managers in order to improve the business environment for the industry to attract investment, according to the document.

It noted that current air traffic in the country was around 15 million passengers, which is expected to grow at five per cent per annum through to 2036.

The government said a majority stake could be available to an overseas backer as it seeks know-how and cash to help the start-up avoid the fate of former flag carriers.

The country has no cap on overseas ownership of its airlines and will be prepared to offer more than 50 per cent of Nigeria Air to a strategic ally, Tilmann Gabriel, who is helping to coordinate the project, said in an interview with Bloomberg on Wednesday at the Farnborough air show.

Sirika held talks at the expo with the chiefs of Ethiopian Airlines Enterprise, Africa’s biggest carrier, and Qatar Airways, which holds a stake in British Airways owner, IAG SA.

Other operators are also interested, according to the executive, who said the new airline would have a fleet of 30 aircraft and operate 80 routes, half of them international, within four years.

In unveiling the plan for Nigeria Air, which will have a tail design featuring an eagle-like swirl in green and white, Sirika said that having once been dominant in African aviation, Nigeria had a “huge need and desire” for a national airline.

The new operator plans to begin flying in December with a fleet of 15 leased aircraft, and has started talks with Airbus SE and Boeing Co on buying new aircraft. The requirement includes short-haul planes for local and domestic flights plus wide-bodies for flights to long-haul locations such as London and New York. Inter-continental services should begin in the middle of next year.

Ethiopian Air’s Chief Executive Officer, Tewolde GebreMariam, said in an interview with Bloomberg on Tuesday that his company was interested in the Nigerian project.

Ethiopian Air, Africa’s only consistently profitable carrier, serves about 70 global cities and 60 across Africa from its hub in Addis Ababa. It already owns stakes in carriers in Malawi and Togo, and is seeking to establish holdings in Zambia, Chad, Mozambique, Guinea and Eritrea, while helping to manage existing operators in Equatorial Guinea and the Democratic Republic of Congo.

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

African Economy Set for Steady Growth: 4% Projected for 2025

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Experts are forecasting a robust growth trajectory of 4% for the continent in 2025.

This optimistic projection was highlighted during the ongoing Afreximbank annual meetings, incorporating the Africaribbean Trade and Investment Forum, held recently in Nassau, The Bahamas.

Yemi Kale, Group Chief Economist and Managing Director of Research and International Cooperation at Afreximbank, presented the 2024 African Trade Report and Economic Outlook, saying the African Continental Free Trade Area (AfCFTA) is significant in driving economic integration and growth.

The projected growth rate of 4% for 2025 reflects a steady recovery path for Africa, building on the expected 3.5% growth anticipated for 2024.

This positive outlook comes at a crucial time when African economies are navigating challenges posed by global economic dynamics, including inflationary pressures and supply chain disruptions.

Kale underscored the resilience of intra-African trade, which expanded by 3.2% in 2023 despite a 6.3% overall contraction in Africa’s trade volumes.

This resilience is a testament to the AfCFTA’s potential to bolster regional trade ties and reduce dependency on external markets.

The Afreximbank report also delved into macroeconomic environments, trade patterns, and sovereign debt sustainability dynamics, providing policymakers and business leaders with actionable insights to navigate complexities in global markets effectively.

Nomusa Dube-Ncube, Premier of Kwazulu-Natal, highlighted Africa’s modest share of global GDP and manufacturing output, emphasizing the untapped potential within intra-African trade.

She noted that while Africa currently accounts for only 3% of world trade, intra-regional trade is steadily increasing, indicating a growing economic ecosystem within the continent.

Pamela Coke-Hamilton, Executive Director of the International Trade Centre (ITC), echoed the sentiment, advocating for enhanced trade between Africa and the Caribbean.

The ITC projects trade in goods and services between these regions to reach $1 billion by 2028, underscoring the mutually beneficial opportunities for economic expansion.

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Nigeria Sees 95% Surge in Food Imports Despite Emergency on Food Production

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Nigeria’s food import bill has surged to a five-year high in the first quarter of 2024, despite the federal government declaring a state of emergency on food production.

Data from the National Bureau of Statistics (NBS) reveals a 95.28 percent increase in food imports to N920.54 billion from January to March, compared to N471.39 billion in the same period last year.

This alarming rise comes amid soaring food inflation, which hit a record 40.5 percent in April, reflecting a 15.92 percent year-on-year increase.

The sharp inflation has left many Nigerians struggling to afford a balanced diet, exacerbating the food security crisis in Africa’s most populous nation.

In March, President Bola Ahmed Tinubu emphasized the government’s commitment to self-sufficiency in food production, stating that Nigeria would not rely on imports to stabilize prices.

“We will not allow the importation of food but rather turn the lack in the country into abundance,” Tinubu declared. However, the latest import figures suggest that this goal remains elusive.

The NBS Foreign Trade Statistics report highlights that the value of food imports via maritime, air, and land routes surged 29.4 percent from N711.4 billion in the fourth quarter of 2023.

Major agricultural goods imported included durum wheat from Canada and Lithuania, valued at N130.26 billion and N98.63 billion, respectively. Frozen blue whitings from the Netherlands accounted for N16.67 billion.

Wheat imports alone constituted N519.75 billion of the total food import bill. The average cost of wheat imports, a significant driver of the food import value, increased by 33 percent compared to the previous quarter’s value of N391.01 billion.

The rising importation of wheat reflects its popularity among Nigerian consumers amid skyrocketing prices of close substitutes like garri and rice.

Overall, Nigeria’s total imports for Q1 2024 amounted to N12.64 trillion, representing a 39.65 percent increase from N9.05 trillion in Q4 2023 and a 95.53 percent rise from N6.47 trillion in Q1 2023. Food imports accounted for 7.3 percent of total imports during the period under review.

The bulk of Nigeria’s imports came from Asia, China, Europe, America, and Africa. Mineral fuels topped the import category with N4.44 trillion, representing 35.09 percent of total imports.

Machinery and transport equipment followed with N3.17 trillion, contributing 25.08 percent, and chemicals and related products at N1.79 trillion, making up 14.13 percent of total imports.

Despite the federal government’s initiatives to boost local food production and reduce dependency on imports, the latest data underscores the persistent challenges facing Nigeria’s agricultural sector.

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Ethiopia Boosts Spending by 21%, Eyes IMF Program for Economic Relief

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Ethiopia has announced a 21% increase in its 2025 budget, marking the first budget since defaulting on a Eurobond payment and committing to economic reform discussions with the International Monetary Fund (IMF).

The nation’s Finance Minister, Ahmed Shide, revealed the new budget details to lawmakers on Tuesday, outlining plans to spend 971.2 billion birr ($16.9 billion) in the fiscal year starting July 2024.

The increased budget reflects Ethiopia’s commitment to addressing its economic challenges head-on. Despite the heightened expenditure, the fiscal deficit is projected to remain stable at 2.1% of gross domestic product (GDP), unchanged from the current fiscal year.

Financing the Deficit

Minister Shide outlined a plan to cover the 358.5 billion-birr deficit through a combination of local and foreign borrowing.

The domestic borrowing component will be managed via government treasury bills and medium-term bonds. Shide emphasized that until substantial external donor support is secured, Ethiopia will continue to rely heavily on its domestic markets to finance budget deficits.

“While the government has secured some external financing from the World Bank and the European Union, negotiating an IMF program will be crucial to alleviate pressure on local banks and secure overall debt relief,” said Giulia Filocca, a senior analyst at Standard & Poor’s for sovereign and international public finance ratings.

IMF Program and Economic Reforms

An agreement with the IMF is seen as a pivotal step for Ethiopia. The nation failed to remit a $33 million coupon payment for its $1 billion bond in December 2023, leading to agreements with some creditors, including the Paris Club, to suspend debt repayments.

In exchange, Ethiopia is expected to reach a staff-level agreement with the IMF, which will likely include economic reforms such as devaluing the birr currency.

“Our expectation is that an IMF program will be signed this year, but the timeline remains unclear due to ongoing political developments and challenges over foreign-exchange reforms,” added Filocca.

Budget Highlights

The new budget includes 451.3 billion birr for recurrent spending, 283.2 billion birr for capital expenditure, and 236.7 billion birr allocated for regional subsidies.

The government projects income of 612.7 billion birr, with tax revenue expected to contribute 502 billion birr and non-tax income 61.6 billion birr. Sector budget support is anticipated to bring in 7.3 billion birr, with aid and grants expected to add 41.8 billion birr.

Economic Outlook

Ethiopia’s economy is forecasted to expand by 8.4% in the coming fiscal year, up from an expected 7.9% growth rate in the current period. The budget increase is designed to support this growth trajectory by enhancing public investment and stimulating economic activity.

“Our partnership with the IMF and other international financial institutions will be key to ensuring Ethiopia’s economic resilience and sustainable growth,” Minister Shide concluded. “We are committed to implementing the necessary reforms to secure a brighter economic future for our country.”

As Ethiopia navigates its economic challenges, the government’s proactive approach to increasing spending and engaging with the IMF reflects a strategic effort to restore fiscal stability and drive long-term economic development.

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