- Nigeria Requires Urgent Structural Reforms, Says Citibank Boss
The Citi Country Officer for Nigeria, Mr. Akin Dawodu has stressed the need for structural reforms in Nigeria.
Dawodu said this during a panellist session on the theme: “Citi in Frontier and Emerging Markets,” at a Middle East and Africa Media and Community Summit organised by the bank in Dubai recently.
According to the Citi Nigeria boss, structural reforms would be very critical in finding the right balance for the Nigeria
“There is need for greater transparency in the oil and gas sector. Some work has been done there and there is a lot work that needs to be done,” he said.
Dawodu viewed how policymakers in the country responded to the shock that the country felt when crude oil price declined few years ago, from three dimensions.
This he listed to include fiscal responsibility; trade balance and exchange rate response and structural reforms.
“The oil price drop was a major shock for Nigeria because the government earns about 70 per cent of its revenue from oil and that meant that it was a big blow on the budget. “The reality also is that Nigeria’s tax to Gross Domestic Product (GDP) is one of the lowest in the entire world, at about six per cent. That is about a quarter of what you find in the world, even in emerging countries.
“So, it is extremely low and there is this constant contradiction that the Nigerian government is very active in economic activity, but in reality, the Nigerian government is quite small in terms of its share of GDP,” he said.
Dawodu acknowledged efforts by the government to increase tax collections, despite the challenges of revenue collection.
“But what we have seen in the short-term is that while spending has quite increased, because of the oil price drop, revenue shrank and attempts at diversifying revenue has not paid off and so the deficit is larger.
“So, the revenue challenge is the first part. The fiscal part meant more borrowings and debt to GDP, which now up to about 19 per cent, which is very low.
“But because of the low revenue base of the government, debt service to revenue is much higher at about 60 per cent, which is not sustainable.
“So, the revenue has to come up. And there are attempts at diversifying the revenue source through better tax collection, whether in terms of income tax, personnel tax or Customs Duties,” he added.
In terms of exchange rate, he noted that the country has in place a managed float exchange rate system.
“People have argued that devaluation does not automatically bring about export competitiveness and that was a major argument as far the issue of devaluation in Nigeria.
“The truth is that devaluation is a necessary and not sufficient condition for competitiveness. So, devaluation was necessary and it happened, but it is not sufficient to get the right balance in terms of competitiveness.
“In Nigeria, we are obsessed about imports. We talk about importation a lot and that we are import-dependent. But I never believed that is true. Nigeria’s import to GDP is about 10 per cent and one of the lowest in the world.
“But there is the perception in the country that Nigeria is import-dependent. The real balance has to be on exports. We have to find a way to diversify our export base away from oil and that is where we can find the right balance.
“We need a certain amount of import and a certain amount of trade to grow and you need to import the right things and we need to diversify,” he said.
Brent Crude Oil Approaches $70 Per Barrel on Friday
Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension
Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.
Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.
Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.
While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.
According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.
“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”
Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.
“The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.
“I do believe we’re headed for a much healthier supply and demand environment” she said.
Oil Jumps to $67.70 as OPEC+ Extends Production Cuts
Oil Jumps to $67.70 as OPEC+ Extends Production Cuts
Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.
OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.
Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”
Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.
Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.
Experts have started predicting $75 a barrel by April.
“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”
Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin
Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges
Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.
The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.
The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.
“We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.
Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.
Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.
In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.
The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.
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