- 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.
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.”
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.”
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.
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.”
Gov Emmanuel Attracts $1.4b Fertilizer Plant to Akwa Ibom
The Governor of Akwa Ibom State, Mr. Udom Emmanuel has signed an agreement for the citing of a multi billion fertilizer plant in his State.
Governor Emmanuel was part of a Nigerian delegation led by the Minister of State for Petroleum Resources, Chief Timipre Sylva, that visited Morocco to set out the next steps of the $1.4 Bln fertilizer production plant project launched in June 2018.
The agreement between the OCP Africa, the Nigerian Sovereign Investment Authority and the Akwa Ibom State Government will birth one of the biggest investments in the fertilizer production industry worldwide.
The signing ceremony took place at the Mohammed VI Polytechnic University (UMP6).
Mr. Emmanuel signed one of the agreements of the partnership, which covers a memorandum of understanding between OCP Africa, the Akwa Ibom State in Nigeria and the NSIA on land acquisition, administrative facilitation, and common agricultural development projects in the Akwa Ibom State.
Speaking while signing the agreement, Governor Emmanuel said, “Our state is receptive to investments and we are prepared to offer the necessary support to make the project a reality.
“With a site that is suitably located to enable operational logistics and an abundance of gas resources, all that is left is for the parties to accelerate the project development process”, Mr. Udom said.
The agreement reached between the Nigerian Government and the OCP further links OCP, Mobil Producing Nigeria (MPN), the NNPC, the Gas Aggregation Company Nigeria (GACN), and the NSIA.
The two partners agreed to strengthen further their solid partnership leveraging Nigerian gas and the Moroccan phosphate.
This project will lead to a multipurpose industrial platform in Nigeria, which will use Nigerian gas and Moroccan phosphate to produce 750,000 tons of ammonia and 1 million tons of phosphate fertilizers annually by 2025.
The visit of the Nigerian delegation to Morocco takes place within the frame of the partnership sealed between OCP Group and the Nigerian Government to support and develop Nigeria’s agriculture industry.
Following the success of the first phase of Nigeria‘s Presidential Fertilizer Initiative (PFI) and the progress of the fertilizer production plant project launched in 2018 by OCP and NSIA, the Moroccan phosphates group and the Nigerian government delegation have agreed on the next steps of their joint project which is rapidly taking shape.
Several cooperation agreements were inked on Tuesday at the Mohammed VI Polytechnic University (UM6P) by OCP Africa and the Nigerian delegation. Through these deals, OCP reaffirms its unwavering support of agricultural development initiatives in Nigeria including PFI.
OCP Africa and the NSIA have agreed, inter alia, to set up a joint venture which will oversee the development of the industrial platform that will produce ammonia and fertilizers in Nigeria.
The OCP has also pledged to supply Nigerian famers with quality fertilizers adapted to the needs of their soil at competitive prices and produced locally.
ICPC Says Nigeria Loses $10bn to Illicit Financial Flows
The Independent Corrupt Practices and Other Related Offences Commission (ICPC) says Nigeria accounts for 20 per cent or 10 billion dollars (N3.8 trillion) of the estimated 50 billion dollars that Africa loses to Illicit Financial Flows (IFFs).
Chairman of ICPC, Prof. Bolaji Owasanoye, said this during a virtual meeting to review a report on IFFs in relation to tax, Mrs Azuka Ogugua, spokesperson for ICPC, said in a statement released in Abuja on Friday.
The ICPC Chairman said, “the African Union Illicit Financial Flow Report estimated that Africa is losing nearly 50 billion dollars through profit shifting by multinational corporations and about 20 per cent of this figure is from Nigeria alone.”
The ICPC boss explained that taxes played “very strategic role in the nation’s political economy.”
He said the objective of the meeting was to improve on the awareness on IFFs, especially in the areas of taxation.
The ICPC boss added that the meeting would give participants the opportunity to openly discuss how to effectively use the instrumentality of taxation to curb IFFs through risk-based approach.
“Risk-based approach, that is: monitoring and audit; due process in tax collection; structured tax amnesty framework skewed in public interest; data privacy; timely resolution of audits and payment of tax refunds and intelligence sharing among revenue generating, regulatory and law enforcement agencies,” he said.
Owasanoye also stated that for the contemporary tax man to remain relevant, he must build his capacity in areas of technology management, solution architects and an astute relationship manager.
The Executive Chairman of Federal Inland Revenue Service (FIRS) Mr Muhammad Nani, expressed concerns that IFFs posed a serious threat to the Nigerian economy as the act robbed the nation of resources that were needed for development.
Nani declared that tackling IFFs would expand the country’s tax base and improve revenue generation, which was required for development.
He consequently pushed for policy reforms that would make it difficult for “capital flights” from occurring so that the country would be placed on the path of growth.
Other discussants at the event identified weak regulatory framework, opacity of financial system and lack of capacity amongst others as some of the factors that fuelled IFFs.
The discussants emphasised the need for capacity building of relevant stakeholders as one of the ways to stamp out illicit financial flows.
They commended ICPC for leveraging its corruption prevention mandate to open a new vista in IFFs discourse in Nigeria. (NAN)
African Development Bank, Egypt Signs Agreements Worth €109 Million to Transform Sewage Coverage in Rural Areas
The African Development Bank Group has signed financing agreements of €109 million with the Government of Egypt to improve sanitation infrastructure and services for rural communities in Luxor Governorate in Egypt’s Upper Nile region.
The financing consists of a €108 million loan from the Bank, and a grant of €1 million from the Rural Water Supply and Sanitation Initiative (RWSSI) – an Africa-wide initiative hosted by the African Development Bank.
The funding, provided in a challenging global context, will help meet the Egyptian government’s financing requirements in the light of the COVID-19 pandemic, and support a sound water and sanitation infrastructure base, a key enabler for the country’s inclusive development.
The Integrated Rural Sanitation in Upper Egypt-Luxor (IRSUE-Luxor) project is set to boost sewage coverage in the region from 6% to 55%, improving the quality of life of citizens, including women and children, who are most affected by poor sanitation.
“Promoting efficient, equitable and sustainable economic development through integrated water resources management is a priority for the Government of Egypt. The IRSUE-Luxor initiative unlocks the socio-economic development potential for inclusive and green growth,” said Rania Al-Mashat, Minister of International Cooperation, who signed the agreements on behalf of the Egyptian government.
About 22,000 households (240,000 inhabitants) will benefit from on-site and off-site facilities, through an integrated system of sewerage networks, sludge treatment and wastewater treatment plants.
IRSUE-Luxor contributes to the National Rural Sanitation Program established by the Ministry of Housing, Utilities and Urban Communities, which aims to expand nationwide access to sanitation services from 34% currently to 60% in 2030.
The project also complements the national Haya Karima (Decent Life) initiative that aims to help rural communities across Egypt access essential infrastructure services to improve their living conditions and livelihoods.
Furthermore, the project includes a staff training component to strengthen performance within the Luxor Water and Wastewater Company.
“This intervention is not just about infrastructure development. An essential part of the project is supporting ongoing sector reforms,” said Malinne Blomberg, the Bank’s Deputy Director General for North Africa.
One of several initiatives supported by the African Development Bank in Egypt to optimize the use of the country’s water resources, IRSUE-Luxor will enable about 30,000 cubic meters of treated wastewater per day to be discharged into drainage and irrigation canals and re-used to enhance agricultural output.
The initiative is in line with the Bank’s water sector policy, which promotes efficient, equitable and sustainable development through integrated water resources management. In addition, the operation supports tariff regulation to achieve full cost recovery, which is one of the basic principles of the Bank’s water sector policy.
The partnership between Egypt and the African Development Bank Group dates back more than half a century. More than 100 operations have been deployed, mobilizing more than $6 billion across multiple strategic sectors.
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