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Policy Distortions, High Inflation, World Bank Cuts Nigeria’s Growth

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  • Policy Distortions, High Inflation, World Bank Cuts Nigeria’s Growth

The World Bank on Monday lowered Nigeria’s growth projection for 2019, citing stagnant crude oil production, high inflation rate and policy distortions.

Nigeria’s economy is now expected to grow at 2.1 percent in 2019, down from 2.2 percent previously projected.

The projection was released in the World Bank’s bi-annual analysis of the state of African economies, Africa’s Pulse.

The report read: “Growth in Nigeria is projected to rise from 1.9 percent in 2018 to 2.1 percent in 2019 (0.1 percentage point lower than last October’s forecast). This modest expansion reflects stagnant oil production, as regulatory uncertainty limits investment in the oil sector, while non-oil economic activity is held back by high inflation, policy distortions, and infrastructure constraints. Growth is projected to rise slightly to 2.2 percent in 2020 and reach 2.4 percent in 2021, as improving financing conditions help boost investment.”

Analysts at Investors King, however, sees better growth in 2019 given improved oil outlook and the likelihood of the two world’s largest economies to reach an agreement ahead of Trump’s second term campaign.

Nigeria is currently producing above OPEC’s reference level while Brent crude, Nigeria’s type of crude, has risen more than 40 percent this year and presently trading above $70.98 a barrel. Despite producing below 2018, higher oil prices in 2019 will compensate for the deficit in barrels.

Also, Nigeria’s foreign exchange reserves rose to a 5-month high of $44 billion in March, giving room for additional forex intervention by the Central Bank of Nigeria. This should enhance business confidence and boost economic growth in 2019.

Again, Excess Crude account will continue to improve in the near-term since oil benchmark was $60 a barrel in the 2019 proposed budget.

On the issue of high inflation, inflation has been on the decline in the last 24 months and stood at 11.31 percent in February. While this is still above CBN’s single-digit target, prices continue to moderate lower nevertheless and with positive macro fundamentals, this should continue in the second half of the year.

Still, President Muhammadu Buhari’s administration needs to be clear on economic policy as investors, especially those at the Nigerian Stock Exchange, are holding back due to uncertain economic path following the general elections.

The Nigerian Stock Exchange’s year-to-date return declined to -5.8 percent last week and if not checked, may drive investors further away from the economy as it is one of the key indicators of a healthy economy.

In a related report, the World Bank also reduced its projection for sub-Saharan Africa to 2.8 percent in 2019, down from 3.3 percent initially announced.

The report stated: “Growth in Sub-Saharan Africa is forecast to recover to 2.8 percent in 2019 from the slowdown to 2.3 percent in 2018 and rise to 3.3 percent in 2020. This upturn is supported, on the demand side, by exports and private consumption and, on the supply side, by a rebound in agriculture, an increase in mining production, and steady growth in the services sector in some countries. These forecasts are 0.5 and 0.3 percentage points lower than last October’s forecasts, respectively, reflecting slower growth in Nigeria and Angola, due to challenges in the oil sector, and subdued investment growth in South Africa, due to low business confidence. Regional growth is expected to improve slightly to 3.4 percent in 2021 as activity strengthens in the region’s three largest economies.

“The external environment for the region remains challenging, as global growth continues to decelerate, and global uncertainty related to trade disputes between the United States and China remains high. Although commodity prices improved in the first quarter of 2019 they are below their peak in 2018 and the oil market outlook remains highly uncertain.

“Despite the rebound, growth in the region will remain well below its long-term average. Per capita growth–projected to rise from -0.3 percent in 2018 to 0.7 percent in 2021–will be too low to achieve poverty reduction goals, particularly among oil-exporting countries and metals exporters. However, there is significant heterogeneity in growth performances, with over one-third of the countries expected to grow at more than 5 percent in 2019 to 2021.”

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

Gov Emmanuel Attracts $1.4b Fertilizer Plant to Akwa Ibom

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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.

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Economy

ICPC Says Nigeria Loses $10bn to Illicit Financial Flows 

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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)

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Economy

African Development Bank, Egypt Signs Agreements Worth €109 Million to Transform Sewage Coverage in Rural Areas

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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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