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Falling Oil Prices, Threat to Economy — LCCI

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  • Falling Oil Prices, Threat to Economy — LCCI

The Lagos Chamber of Commerce and Industry has said that if the trend of declining global oil price continues, it will pose a major risk to the Federal Government’s economic projections for 2019 fiscal year and adversely impact its Medium Term Expenditure Framework.

The chamber noted also that the situation would further threaten the current minimum wage negotiation between the government and organised labour.

Data from the Organisation of Petroleum Exporting Countries show that oil prices were trending down at $59.96p/bl on November 29 from $88p/bl one month ago. This is below 2019-2021 MTEF benchmark of $60p/bl.

Analysts have described the slump in oil prices as the equivalent of a tax hike and tax cut in oil exporting and importing economics respectively.

According to estimates by Capital Economics analysts, every $10-per-barrel fall in oil prices boosts incomes by about 0.5 to 0.7 per cent in the Gross Domestic Product of major emerging market oil importers.

LCCI noted that the same discount would cause a three to five per cent decline in the GDP of most of the Gulf economies, and a slowdown of 1.5-2 per cent of GDP in Russia and Nigeria on an annualised basis.

“This is not good news for the Nigerian economy which remains fragile with Gross Domestic Product growth of less than two per cent,” it said in a statement signed by its Director- General, Muda Yusuf, on Monday.

Speaking further, Yusuf warned that the domestic foreign exchange market was already responding to recent sharp fall in oil prices, citing the drop in the local currency from N363/$ to N370/$ in the parallel market.

He said, “There are fears that the sharp fall in oil prices if sustained could lead to a shortage of the United States dollar as capital flow reversals intensify, as oil price weakens, and as foreign reserves come under pressure.

“There are worries that the capacity of the Central Bank of Nigeria to sustain the current levels of intervention in the forex market will be tested. Reserves currently stand at $42bn, down from $48bn five months ago.

“The improvement in liquidity and relative stability in forex market witnessed by businesses in 2018 will come under threat due to declining receipts from oil.

“This will have profound impact on the prices of imported goods and services leading to likely increase in the rate of inflation.”

He added that the fiscal operations of government would be adversely affected, further threatening the on-going discussion around new minimum wage.

He added, “Despite sustained efforts by government to improve the business environment, Foreign Direct Investment inflows remain stagnated. The capital account faces significant uncertainty, as external portfolio investors exercise further caution due to developments in the global financial markets and the forthcoming general elections in 2019.”

The LCCI DG listed some key policy reforms that should be adopted by the government to support and sustain the stability of the macroeconomic environment.

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.

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Akinwumi Adesina Says It Is Impossible for Businesses to Survive Without Generator in Nigeria

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The President of the African Development Bank (AFDB), Akinwumi Adesina faulted the lack of reliable power supply in Nigeria as a hindrance to industrial growth in the nation.

Speaking at the 49th Annual General Meeting of the Manufacturers Association of Nigeria in Abuja, Adesina stated that Nigerians spend $14 billion yearly on generators and fuel. He further went on to quote a report by the International Monetary Fund (IMF) which stated that Nigeria loses $29 billion annually, about 5.8 percent of its Gross Domestic Product due to a lack of reliable power supply.

He went on to note the various challenges affecting manufacturing in the country stating that lack of reliable power supply in the country is a major challenge to manufacturers. His words were “To be a manufacturer in Nigeria is not an easy task. You succeed not because of the ease of doing business in the country, but by surmounting multiple constraints that limit industrial manufacturing. Today, the major challenge facing Nigeria’s manufacturing is the very high cost and unreliability of electricity supply. Load shedding and the inconsistent availability of electrical power have resulted in high and uncompetitive manufacturing costs.

He went on saying “Today, no business can survive in Nigeria without generators. Consequently, the abnormal has become normal. Traveling on a road one day in Lagos, I saw an advertisement on a billboard that caught my attention. It was advertising generators with the bold statement, we are the Nation’s number one reliable power supplier!!”

He then went on to proffer potential solutions to the problem, saying that Nigeria should invest in different means of energy generation to ensure the efficiency of the local industries. He suggested there should be massive investment in variable energy mixes, including gas, hydropower resources, and large-scale solar systems to ensure stable baseload power for industries to direct power preferentially to industries and to support industrial mini-grids and concentrate power in industrial zones. In addition, he suggested the development of more efficient utilities which would reduce the technical and non-technical losses in power generation, transmission and distribution systems.

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World Bank Says Nigeria’s Economy is Static, Per Capita Income Unchanged in 40 Years

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The World Bank claims Nigeria’s per capita income has been static since 1981, which is a total of 40 years.

The Country Director of the World Bank, Shubham Chaudhuri said this at the breakout panel session of the 27th Nigerian Economic Summit on Lightning Nigeria: Solution framework for power recovery held in Abuja.

He further went on to advise Nigeria’s economic managers to quickly assemble potent strategies to harness the robust potential of the country.

He went on to say that the medium-term development plan for 2021-2025 is set on the development agenda for sustainable growth driven by new and emerging sectors. He claimed about three million Nigerians come of working age yearly, but surveys have shown that they aspire to go abroad to earn a better standard of living.

Per Capita Income is an Economic indicator that indicates the average income earned per person in a country in a specified year. It is calculated by dividing the country’s total income by its total population. In 1981, according to World Bank data, Nigeria’s per capita income was $2,180.2 and per capita income was $2,097 in 2020, meaning there has been no significant change in four decades.

 Earlier in the session, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed called for a paradigm shift in running the country’s economy through comprehensive and targeted reforms, a reorientation of national values, and a radical shift in attitudes to taxation and public financial management. 

She said, “This is consistent with the focus of this administration on targeted investment in critical infrastructure and social development.

 The Nigerian Economic Summit is the flagship event of the Nigerian Economic Summit Group (NESG) and it is organized in collaboration with the National Planning Commission (NPC). The Nigerian economic summit has consistently focused on job creation, small and medium-sized enterprises (SME) growth, competitiveness, dismantling the pillars of corruption, encouraging sustainable growth and development, and aligning home-grown long-term agenda with the UN sustainable development goals. The 27th Nigerian Economic Summit has the theme Securing our Future: The Fierce Urgency of Now.

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East African Countries to Discuss Economic Recovery and Investments Promotion this Week in Kigali

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More than 100 decision-makers and economic stakeholders will gather in Kigali this week to discuss the road to social and economic recovery and how to attract investments in East Africa. The meeting known as the 25th session of the Intergovernmental Committee of Senior Officials and Experts (ICSOE), will take place from 27 to 29 October 2021. 

The ICSOE is the annual gathering of the office for Eastern Africa of the UN Economic Commission in Africa (UNECA) organised in collaboration with the Rwanda Ministry of Finance and Economic Planning. The theme of this year’s meeting is: “Strengthening resilience for a strong recovery and attracting investments to foster economic diversification and long-term growth in Eastern Africa”.

Dr Mama Keita, Director of UNECA in Eastern Africa said that the Covid-19 pandemic has weakened the economic conditions of all countries in the region. She stressed that the ICSOE meeting will provide a platform for various stakeholders from governments to have a conversation with experts and private sectors on the needed economic recovery and on how to re-ignite the engines of trade and investment.

Dr Uzziel Ndagijimana, Minister of Finance and Economic Planning said that this meeting is timely and significant. “This is the time for Rwanda to discuss with other countries of the region the potentials and the ability to rise and be responsive to the socio-economic challenges, exacerbated by the Covid-19 crisis.

According to Ms Keita, the African Continental Free Trade Area (AfCFTA) is undoubtedly critical to support the recovery from the severe adverse impacts of the Covid-19 pandemic, increase the economic multiplier in the region and will help countries to build back better, grow their economies and create jobs that foster inclusive growth.

The participants at the meeting will discuss thematic issues such as deepening Regional Value Chains, environment for investment Opportunities and Interlinkages between peace, security and development.

The subregional office for East Africa of UNECA serves 14 countries: Burundi, Comores, RD Congo, Djibouti, Eritrea, Ethiopia, Kenya, Madagascar, Rwanda, Seychelles, Somalia, South Sudan, Tanzania and Uganda.

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