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Expect Huge Election Spending, Slow Economic Activities in 2019 – Experts

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  • Expect Huge Election Spending, Slow Economic Activities in 2019 – Experts

The N8.83tn 2019 budget predicated on the oil price of $60 per barrel was only presented to the National Assembly late December and has been generating a lot of concerns.

The Federal Government, in the budget, had expected production of 2.3 million barrels per day, while it still has a current output of about two million barrels per day.

As of the time the budget was being prepared, the global benchmark crude rose to $86 per barrel in October 2018, which led to the expectation that the high price could be sustained, before it started falling, and currently now at $55 per barrel.

This is further generating worries on how realistic it will be to achieve the set targets, as the oil sector generates the highest revenue to the government.

Also, given that 2019 is a year of the general elections; foreign investors would be keen on knowing if there would be consistency or abortions of government policies.

The outcome of the elections, if the incumbent government would remain, would determine their investment decisions in the country.

Elections

The Director-General, Chartered Insurance Institute of Nigeria, Mr Richard Borokini, said that 2019 was a year of elections, and things were usually a bit uncertain.

He said, “In an election year, things are usually a bit uncertain at the government level. People don’t know whether there will be a change in the government, and if there is a change in the government, economic policies will have to change.

“And these are the things that investors will look at and it will make them become a little bit patient to know whether there will be consistency or change in policies.”

In the first half of 2019, he said, the government spending would be linked to politics and mostly, sectors that were directly related to elections would benefit. For instance, he said the communications industry would attract a lot of adverts and the automobile sector because there would be purchases of vehicles for the electioneering.

According to him, the slow pace of passing the 2019 budget will have an overall effect on economic growth.

The Registrar/ Chief Executive Officer, Institute of Credit Administration of Nigeria, Prof Chris Onalo, said there would be a lot of concentration on the election process by the government and the economy would suffer for it.

“If that persist through the first quarter, it will affect the outcome of the economy in terms of positive expectations,” he added.

While speaking on the impact of the oil price, he said, “The one product that we rely on, which is oil, will be highly constrained because of the singleness of that product in terms of revenue drive.

“Quite significantly, it is not going to increase the credit rating curve at the upward direction because we are dealing with one single product that is not strong enough to carry the weight of the Nigerian economy against the backdrop of other sectors.”

He observed that though the government was paying greater attention to the development of the agricultural sector, it had not yet come to a level where it could be an export industry.

“So we still have a weak agriculture sector and that will seriously depress the oil outlook,” he said

He noted that the low capacity condition of the Nigerian labour market was still a significant factor.

Even if there was a huge amount of revenue from credible export products, oil and others, he said there was still weak internal capacities of the managers of the economy, which would constrain the economic outlook significantly.

Onalo said, “I think it is even further compounded by the threat of a strike in private and public sectors of the economy. So when you add up all these, needless to remind ourselves of the comatose manufacturing sector that we have, the industry that was once flourishing has gone into extinction. And if we can’t have them back, that condition continues to depress the manufacturing sector.”

Budget

A former President, Association of National Accountants of Nigeria, Dr Samuel Nzekwe, having looked at the 2019 budget presented by President Muhammadu Buhari, observed some defects.

He said, “I would have loved the government to bring down the benchmark of the oil price to between $45 and $48 because that is more realistic. You don’t know when the price will go up.

“If they had brought it down to $45, it is going to affect the budget seriously, but that notwithstanding, we know that we have a supplementary budget so that in case the oil goes up, there could be provision for those areas that were not covered in the budget.”

He lamented that most budgets prepared in the past lacked cash backing and that was why the implementation was very slow and low.

He urged the government to bring one price down from $60 per barrel, but with the hope that the price would go up later.

Nzekwe observed that one other big problem was the debt servicing which was more than the capital expenditure, which meant that about a quarter of the budget would be used to service debt.

He said, “That is terrible. They have to look at the loans they are taking and in most times, they say the loans are directed at one aspect of the economy or the other. But what we discover is that they take these loans but they have no impact on the economy.

“When they take the loans, there is no local content inside it. All the things they use here to implement the projects from the loans are from other countries like China. So technically, you have paid up the money back to them and you still owe them.

“The government needs to look at the loans they are borrowing, and they should ensure they don’t continue to take loans that have no local content so that debt servicing will not be so much.”

While observing that the implementation of the budget which was presented in December was too late, he said it should have been presented around September and the implementation should have started this month.

The Chief Executive Officer, Economic Associates, Dr Ayo Teriba, said the outlook of the Nigerian economy depended on the price of oil.

“If the price of oil improves, the Nigerian economy will improve but if the price of oil falls, the Nigerian economy will fare worse,” he said.

By announcing a price of $60 per barrel, he said the government was hoping that the price of oil was going to be stronger in 2019.

If that happens to be the case, he said, the economy would be fine but there was a possibility it might not be the case.

He said, “I think it is more or less a gamble of the price of oil in 2019 and Nigeria should do better than that. We should not leave 200 million people at the mercy of the price of oil. We should have a contingency or alternative plan.”

According to him, the government is not forthcoming over what can happen if the oil price goes as bad as it did in 2016 or worse.

Teriba said, “The sooner we start to look at how we can correct negative downside of oil price, the better. This is what the government is not talking about because in the event of a negative downside, prepare for the worse.”

Foreign influence

According to a report by the FSDH Merchant Bank on the outlook for 2019, the expected hike in interest rates in major advanced countries will lead to an increase in global yields and may put pressure on currency in Nigeria.

It noted that there were strong indications that the US Federal Reserve, Bank of England and European Central Bank will increase interest rates in 2019.

The expected increase in the interest rate in the international market might also lead to an increase in the interest rate in Nigeria because of monetary policy adjustments to reduce capital flight, it noted.

According to the report, “Nigeria may lose a substantial amount of its projected crude oil revenue due to a limit on crude oil production and the drop in the global crude oil price. This may also lead to a drop in the supply of foreign exchange into Nigeria, resulting in a possible depreciation or devaluation of the Naira.”

It stated that Nigerian businesses should look for local alternatives, where possible, for the raw materials needed for their production process.

They should also limit or eliminate foreign debt, particularly if they did not have foreign exchange receivables to mitigate the possible foreign exchange risk, it added.

The FSDH Research also advised that businesses should put in place appropriate foreign exchange hedging strategies.

While noting that there were certain macroeconomic realities that the Nigerian government must contend with in 2019, the report said the fiscal deficit in 2019 might be higher than that of 2018, and higher than what was projected for the year 2019.

Economic policies

While speaking on the outlook and policy thrust for 2019, the Central Bank Governor, Godwin Emefiele, said the global growth projections both for 2018 and 2019 had been revised downward to 3.7 per cent from the 3.9 per cent earlier projected.

He said, “Growth momentum in the US is projected to remain strong as fiscal stimulus continues into 2019. In emerging markets, growth forecasts are revised downward for Argentina, Brazil, Iran, Turkey, and South Africa reflecting country-specific factors, uncertainties in the financial conditions, and rising geopolitical tensions as well as higher oil import bills.”

In light of the current developments in both the global and domestic economies, and based on extensive simulations, he said the CBN was of the view that the short-term outlook of the Nigerian economy remained good.

He said, “We expect that monetary policy stance will remain judicious, research-driven, adequate and supportive of the real economy subject to underlying fundamentals. The current tight stance is expected to continue in the near-term, especially in view of rising inflation expectations and exchange market pressures.

“Though we will act to appropriately adjust the policy rate in line with unfolding conditions and outlooks, the CBN will continue to ensure that the policy interest rate is delicately set to balance the objectives of price stability with output stabilisation.”

According to Emefiele, inflation expectations are rising on the backdrop of anticipated politically-related liquidity injections.

He said, “For the rest of 2018 and towards mid-2019, Nigeria’s rate of inflation is projected to rise slightly to about 11.4 per cent and then moderate thereafter.”

On the exchange rate, he said, “Though the CBN has so far managed to maintain exchange rate stability, the current capital flow reversals from emerging markets is expected to continue to exert considerable pressure on market rates. This pressure could be amplified by the forthcoming elections, especially as the political marketplace heats up. Notwithstanding these pressures, the CBN is determined to maintain its stable exchange policy stance over the next few months given the relatively high level of reserves.”

He noted that gross stability was projected in the FX market given increased oil-related inflows and contained the import bill.

He said, “I will like to make it categorically clear that sustaining a stable exchange rate is of overriding importance to us even as we continue to put measures in place to shore up reserves.”

The CBN governor said the overall balance of payments was expected to remain positive in the short-term.

“Hoping that oil prices continued to recover, we expect the current Account Balance to strengthen even further. This will be supported by improved non-oil performance as diversification efforts begin to yield results to reduce undue imports.”

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

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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