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$2.5bn Currency Swap’ll Boost Reserves — Experts

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  • $2.5bn Currency Swap’ll Boost Reserves — Experts

As the Central Bank of Nigeria begins the implementation of the $2.5bm currency swap agreement, financial experts have said that the deal would rapidly boost Nigeria’s foreign reserves position within the next few weeks.

The analysts said this during separate telephone interviews with our correspondent on Friday.

Those that spoke are the Head, Banking and Finance Department, Nasarawa State University, Keffi, Prof Uche Uwaleke; a former Managing Director of Unity Bank Plc, Mr Rislanudeen Mohammed; and a former Director-General, Abuja Chamber of Commerce and Industry, Dr Chijioke Ekechukwu.

The CBN on Friday commenced its intervention in the sale of foreign exchange in Chinese Yuan under the agreement.

The implementation signalled the consummation of the Bilateral Currency Swap Agreement signed with the People’s Bank of China on April 27, 2018.

Uwaleke said the transaction, valued at Remnibi 16 billion, or the equivalent of about $2.5bn, would provide adequate local currency liquidity to Nigerian and Chinese industrialists and others.

This, he noted, would help to reduce the difficulties encountered in the search for third currencies in the execution of business transactions between Nigerian and Chinese industrialists.

Among other benefits, Uwaleke, a professor of finance, said the agreement would improve the speed, convenience and volume of transactions between the two countries

He said, “With Chinese exports accounting for about 80 per cent of the total bilateral trade volume, it has been argued in some quarters that Nigeria does not stand to reap any commensurate benefit from the deal given the large trade imbalance in favour of China.

“Nonetheless, it is pertinent to observe that asymmetric trade in favour of China can be tackled within the framework of the agreement. It is safe to conclude that the swap arrangement is being established in the context of the rapidly growing bilateral trade between China and Nigeria. Therefore, the currency swap would boost trade between China and Nigeria.

“It is also expected to bolster Nigeria’s foreign exchange reserves at a time weak export revenues, occasioned by the drastic fall in oil price, have put the country’s foreign reserves under intense pressure.”

When asked if the agreement could help in strengthening the naira, he said the pressure from Nigeria traders on demand for dollars would reduce, thus improving the value of the naira.

Uwaleke said, “The currency swap deal is also expected to strengthen the naira since Nigerian traders, who import mainly from China, can now conclude their transactions in the yuan instead of the dollar.

“And from China’s point of view, the currency swap will increase the demand for the yuan as it marches toward establishing its currency as a reserve currency in the future.”

Without doubt, a currency swap deal with China, as the experiences of other countries have proved, is a win-win situation, according to him.

“It is not for nothing that many developed and developing countries are queuing up to sign currency swap agreements with China – the second biggest economy in the world,” he added.

Mohammed said the implementation of the agreement would minimise foreign exchange denominated risks for Nigeria.

He stated, “In the context of minimising concentration risk of having our foreign exchange denominated in the United States dollar alone, this is a positive development. Secondly, in view of our huge imports from China, this agreement will help in reducing the time as well as transaction costs by eliminating third-party currency deals.

“Reduced transaction costs will make goods imported from China cheaper to both importers and ultimately Nigerian consumer.

“This may negatively impact on our diversification efforts by making Chinese imports cheaper. However, there is no impact on the economy as far as the balance sheet of the central bank is concerned.”

Also, Ekechukwu said the agreement would help to reduce the exchange rates between both countries.

He said, “It is an agreement to exchange currency between two foreign countries or parties. The agreement involves swapping principal and interest payments on a loan made in one currency for principal and interest payments of equal value in another currency.

“In the case of Nigerian and Chinese currency swap agreement, it is a win-win situation for the two countries as it will foster seamless business relationships between them.

“The exchange rate volatility will be reduced with this agreement, especially at the point of repayment. Country or sovereign risk will also be mitigated by this agreement.”

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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Economy

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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Economy

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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