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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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FG Acknowledges Labour’s Protest, Assures Continued Dialogue

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Power - Investors King

The Federal Government through the Ministry of Power has acknowledged the organised Labour request for a reduction in electric tariff.

The Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) had picketed offices of the National Electricity Regulatory Commission (NERC) and Distribution Companies nationwide over the hike in electricity tariff.

The unions had described the upward review, demanding outright cancellation.

Addressing State House correspondents after the Federal Executive Council (FEC) meeting on Tuesday, Minister of Power, Adebayo Adelabu, said labour had the right to protest.

“We cannot stop them from organizing peaceful protest or laying down their demands. Let me make that clear. President Bola Tinubu’s administration is also a listening government.”

“We have heard their demands, we’re going to look at it, we’ll make further engagements and I believe we’re going to reach a peaceful resolution with the labor because no government can succeed without the cooperation, collaboration and partnership with the Labour unions. So we welcome the peaceful protest and I’m happy that it was not a violent protest. They’ve made their positions known and government has taken in their demands and we’re looking at it.

“But one thing that I want to state here is from the statistics of those affected by the hike in tariff, the people on the road yesterday, who embarked on the peaceful protests, more than 95% of them are not affected by the increase in the tariff of electricity. They still enjoy almost 70% government subsidy in the tariff they pay because the average costs of generating, transmitting and distributing electricity is not less than N180 today.

“A lot of them are paying below N60 so they still enjoy government’s subsidy. So when they say we should reverse the recently increased tariff, sincerely it’s not affecting them. That’s one position.

“My appeal again is that they should please not derail or distract our transformation plan for the industry. We have a clearly documented reform roadmap to take us to our desired destination, where we’re going to have reliable, functional, cost-effective and affordable electricity in Nigeria. It cannot be achieved overnight because this is a decay of almost 60 years, which we are trying to correct.”

He said there was the need for sacrifice from everybody, “from the government’s side, from the people’s side, from the private sector side. So we must bear this sacrifice for us to have a permanent gain”.

“I don’t want us to go back to the situation we were in February and March, where we had very low generation. We all felt the impact of this whereby electricity supply was very low and every household, every company, every institution, felt it. From the little reform that we’ve embarked upon since the beginning of April, we have seen the impact that electricity has improved and it can only get better.”

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Nigeria, China Collaborate to Bridge $18 Billion Trade Gap Through Agricultural Exports

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Institute of Chartered Shipbrokers

In a concerted effort to address the $18 billion trade deficit between Nigeria and China, both nations have embarked on a collaborative endeavor aimed at bolstering agricultural exports from Nigeria to China.

This strategic partnership, heralded as a landmark initiative in bilateral trade relations, seeks to narrow the trade gap and foster more balanced economic exchanges between the two countries.

The Executive Director of the Nigerian Export Promotion Council (NEPC), Nonye Ayeni, revealed this collaboration during a joint meeting between the Council and the Department of Commerce of Hunan province, China, held in Abuja on Monday.

Addressing the trade imbalance, Ayeni said collaborative efforts will help close the gap and stimulate more equitable trade relations between the two nations.

With Nigeria importing approximately $20.4 billion worth of goods from China, while its exports to China stood at around $2 billion, representing a $18 billion in trade deficit.

This significant imbalance has prompted officials from both countries to strategize on how to rebalance trade dynamics and promote mutually beneficial economic exchanges.

The collaborative effort between Nigeria and China focuses on leveraging the vast potential of Nigeria’s agricultural sector to expand export opportunities to the Chinese market.

Ayeni highlighted Nigeria’s abundant supply of over 1,000 exportable products, emphasizing the need to identify and promote the top 20 products with high demand in global markets, particularly in China.

“We have over 1,000 products in large quantities, and we expect that the collaboration will help us improve. The NEPC is focused on a 12-18 month target, focusing on the top 20 products based on global demand in the markets in which China is a top destination,” Ayeni explained, outlining the strategic objectives of the collaboration.

The initiative not only aims to reduce the trade deficit but also seeks to capitalize on China’s growing appetite for agricultural products. Nigeria, with its diverse agricultural landscape, sees an opportunity to expand its export market and capitalize on China’s increasing demand for agricultural imports.

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IMF Urges Nigeria to End Fuel and Electricity Subsidies

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In a recent report titled “Nigeria: 2024 Article IV Consultation,” the International Monetary Fund (IMF) has advised the Nigerian government to terminate all forms of fuel and electricity subsidies, arguing that they predominantly benefit the wealthy rather than the intended vulnerable population.

The IMF’s recommendation comes amidst Nigeria’s struggle with record-high inflation and economic challenges exacerbated by the COVID-19 pandemic.

The report highlights the inefficiency and ineffectiveness of subsidies, noting that they are costly and poorly targeted.

According to the IMF, higher-income groups tend to benefit more from these subsidies, resulting in a misallocation of resources. With pump prices and electricity tariffs currently below cost-recovery levels, subsidy costs are projected to increase significantly, reaching up to three percent of the gross domestic product (GDP) in 2024.

The IMF suggests that once Nigeria’s social protection schemes are enhanced and inflation is brought under control, subsidies should be phased out.

The government’s social intervention scheme, developed with support from the World Bank, aims to provide targeted support to vulnerable households, potentially benefiting around 15 million households or 60 million Nigerians.

However, concerns persist regarding the removal of subsidies, particularly in light of the recent announcement of an increase in electricity tariffs by the Nigerian Electricity Regulatory Commission (NERC).

While the government has taken steps to reduce subsidies, including the removal of the costly petrol subsidy, there are lingering challenges in fully implementing these reforms.

Nigeria’s fiscal deficit is projected to be higher than anticipated, according to the IMF staff’s analysis.

The persistence of fuel and electricity subsidies is expected to contribute to this fiscal imbalance, along with lower oil and gas revenue projections and higher interest costs.

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