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Global Outlook Not Supporting Strong Growth in Nigeria –FSDH

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  • Global Outlook Not Supporting Strong Growth in Nigeria –FSDH

The FSDH Research, an arm of FSDH Merchant Bank Limited, has said, the short-term outlook of the global economy does not support strong growth in the crude oil price.

It disclosed this in its report on Economic and Financial Markets Outlook (2019 – 2021), titled ’Bumpy road ahead –policy options and strategies.’

In the report, it stated that, “This has implications for crude oil-exporting countries like Nigeria. There are indications that severe weather events will raise the possibility of large swings in international food prices.

“FSDH Research is of the view that this development may accelerate inflation rate and increase the imported inflation in Nigeria. The Central Bank of Nigeria will have to adopt tight monetary policy stance to counter the negative impacts of these developments.”

The FSDH Research expects the Federal Open Market Committee of the United States Federal Reserve to raise the Federal Funds Rate three times in 2019 to a range of three per cent to 3.25 per cent.

It, however, added that it did not expect a rate hike at the January 2019 meeting.

“The FOMC will have its first 2019 meeting on 29-30 January 2019,” it noted.

While explaining the implications for the Nigerian economy, it stated that the expected increase in the US Fed Rate could have a negative impact on foreign capital inflows into Nigeria and foreign exchange rate.

It added that the increase in the interest rate in the international financial market might lead to higher interest expense on Federal Government’s borrowings from the international market than the existing loans; and the yields on fixed income securities might also rise leading to increase in interest expenses for corporates.

It also added that there could be rising global yields and increase in interest rates on foreign debt; monetary policy challenges and pressure on foreign currency; decrease in global financial liquidity, which could affect financial flows into the Nigerian financial market; portfolio realignments among global portfolio managers in favour of fixed income; increase in Eurobond yields; and decrease in global financial liquidity.

The FSDH Research expects the average crude oil price to drop in 2019 compared with that of 2018.

“A significant decline in the crude oil price will have negative fiscal and monetary implications for the Nigerian economy,” it noted.

It stated that the US and China trade war might also lead to a drop in the demand for crude oil-leading to a drop in price.

The report noted that China and US accounted for about 33 per cent of the global crude oil demand.

It stated, “The OPEC production cut may reduce the Nigerian government’s revenue if crude oil price does not rise to compensate for the output cut. This will increase fiscal deficit, also put pressure on exchange rate, inflation rate and interest rates.”

While speaking on policy options, it stated that Nigerian policy makers must implement policies that would diversify the Nigerian economy, create sustainable foreign exchange stability, and also assist in lifting aggregate demand in the domestic economy.

The FSDH Research stated, “Investment in critical infrastructure will grow the key sectors of the economy and allow for stronger buffers against external shocks. It is also important to invest in human capital, quality education and healthcare in order to increase productivity in the country.

“Tight monetary policy in the form of increase in the yields on government securities will be appropriate. Adjustment in the value of the exchange rate toward N390/$.”

The report also said that corporates should limit the issuance of debt instruments to short-term tenor.

It stated, “Companies should reduce foreign exchange liabilities or hedge their positions where they have to have foreign exchange exposure. This is very important for companies with no foreign exchange receivables. Investors with foreign exchange liquidity should invest in Eurobond.”

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.

Economy

Nigeria, Morocco sign MOUs on Hydrocarbons, Others

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The Federal Government and the Kingdom of Morocco have signed five strategic Memoranda of Understanding that will foster Nigerian-Morocco bilateral collaboration and promote the development of hydrocarbons, agriculture, and commerce in both countries.

The Minister of State for Petroleum Resources, Chief Timipre Sylva, led the Nigerian delegation to the agreement signing ceremony on Tuesday at Marrakech, Morocco, while the Chief Executive Officer of OCP Africa, Mr Anouar Jamali, signed for the Kingdom of Morocco, according to a statement by the Nigerian Content Development and Monitoring Board.

Under the agreement between OCP, NSIA and the Nigerian National Petroleum Corporation, Nigeria will import phosphate from the Kingdom of Morocco and use it to produce blended fertiliser for the local market and export.

The statement said Nigeria would also produce ammonia and export to Morocco.

“As part of the project, the Nigerian Government plans to establish an ammonia plant at Akwa Ibom State,” it said.

The Executive Secretary of NCDMB, Mr Simbi Wabote, and the Group Managing Director of NNPC, Mallam Mele Kyari, were part of the delegation and they confirmed that their organisations would take equity in the ammonia plant when the Final Investment Decision would be taken, the statement said.

Sylva said the project would broaden economic opportunities for the two nations and improve the wellbeing of the people.

He added that the project would also positively impact agriculture, stimulate the growth of gas-based industries and lead to massive job creation.

He said the President, Major General Muhammadu Buhari (retd.), had mandated the Ministry of Petroleum Resources and it agencies and other government agencies to give maximum support for the project.

“He mandated me to ensure that at least the first phase of this project is commissioned before the expiration of his second term in office in 2023,” he added.

According to the statement, the MOUs were for the support of the second phase of the Presidential Fertiliser Initiative; Shareholders Agreement for the creation of the joint venture company to develop the multipurpose industrial platform and MOU for equity investment by the NNPC in the joint venture and support of the gas.

Other agreements are term sheet for gas sales and aggregation agreement and MOU for land acquisition and administrative facilitation to the establishment of the multipurpose industrial platform for gas sales and aggregation agreement.

The NCDMB boss described the bilateral agreement as significant to the Nigerian economy as it would accelerate Nigeria’s gas monetisation programme through establishment of the ammonia plant in the country.

The agreement would also improve Nigeria’s per capita fertiliser application through importation of phosphate derivatives from Morocco, he added.

Wabote challenged the relevant parties to focus on accelerating the FID, assuring them that the NCDMB would take equity investment for long-term sustainability of the project.

He canvassed for the setting up of a project management oversight structure to ensure project requirements and timelines are met.

“There is also need to determine manpower needs for construction and operations phase of the project and develop training programmes that will create the workforce pool from Nigeria and Morocco and design collaboration framework between research centres in Nigeria and Morocco to develop technology solutions for maintaining the ISBL and OSBL units of the Ammonia complex,” he said.

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Economy

Dangote Fertiliser Plant to Commence Shipment of Urea in March 2021

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Dangote to Sells Petrol in Naira, Plans to Commence Urea Shipment in March 2021

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, has said Dangote Fertiliser Plant will commence shipment of Urea in March 2021.

The CBN governor disclosed this during an inspection tour of the sites of Dangote Refinery, Petrochemicals Complex Fertiliser Plant and Subsea Gas Pipeline at Ibeju Lekki, Lagos on Saturday.

Emefiele further stated that Dangote Refinery would sell refined petroleum products in Naira when it starts production.

This he said would save the country from spending 41 percent of the nation’s foreign exchange on importation of petroleum products yearly.

Based on agreement and discussions with the Nigerian National Petroleum Corporation and the oil companies, the Dangote Refinery can buy its crude in naira, refine it, and produce it for Nigerians’ use in naira,” Mr Emefiele said.

That is the element where foreign exchange is saved for the country becomes very clear. We are also very optimistic that by refining this product here in Nigeria, all those costs associated with either demurrage from import, costs associated with freight will be totally eliminated.

Emefiele explained that this will make the price of Nigeria’s petroleum products affordable and cheaper in naira.

If we are lucky that what the refinery produces is more than we need locally you will see Nigerian businessmen buying small vessels to take them to our West African neighbours to sell to them in naira.

“This will increase our volume in naira and help to push it into the Economic Community of West African States as a currency,” Mr Emefiele said.

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Economy

UK Budget 2021: Will Sunak’s Budget Run Into Unintended Consequences?

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Rishi Sunak’s Budget will encourage higher earners to consider their “international financial options” and will drive businesses away from the UK, warns the CEO of one of the world’s largest independent financial advisory and fintech organizations.

The warning from Nigel Green, chief executive and founder of deVere Group, comes as the Chancellor delivered his 2021 Budget in the House of Commons, his second since he took on the role.

Mr Green says: “The Chancellor has got an extraordinarily difficult hand to play as he tries to stem the economic damage caused by the pandemic, support jobs and businesses and, crucially, rebuild the public finances.

“Whilst Mr Sunak is being hailed a hero for the continued and unprecedented levels of support, it should also be remembered that he is – in a stealth move – dragging more people firmly into the tax net.

“He is raising taxes under the radar.

“Yes, there is no income tax rise. However, he is freezing personal tax thresholds, meaning as incomes rise and thresholds don’t, he is able to raise money by fiscal drag.”

Earlier this week, the deVere CEO noted: “Those most impacted by this stealth move will be looking at the financial planning options available to them, including international options, in order to grow and protect their wealth.”

Rishi Sunak also confirmed that corporation tax will increase to 25% from 2023, up from the current level of 19%.

Of this tax hike, Mr Green goes on to say: “Lower corporation tax helps job and wealth-creating business to survive and thrive. It also helps attract business to move and invest in the country.

“Instead of increasing taxes, Mr Sunak should have relentlessly focussed on growth and stimulus policies for businesses.  This would have been of greater help to firms, the economy, jobs and, ultimately, the Treasury’s coffers.”

He adds: “Again, this corporation tax hike is likely to serve as a prompt for businesses to consider their overseas financial options.”

The deVere CEO concludes: “The Chancellor had to perform a tough juggling act.  But stealthily dragging more people into the tax net and raising corporation tax might have negative, unintended consequences for the Treasury’s bottom line.”

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