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Nigeria to Struggle Amid low Oil Prices, Weak Reserves

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  • Nigeria to Struggle Amid low Oil Prices, Weak Reserves

President Muhammadu Buhari on Monday sets up a new committee to review the impacts of low oil prices on the 2020 budget following a 30 percent decline in oil price on Monday, bringing the year-to-date decline to 49.5 percent.

Crude oil plunged from $71.28 per barrel it traded in January 2020 to $31.26 on Monday before pulling back to $36.03 a barrel after Saudi Arabia and other OPEC+ members failed to convince Russia to agree to an additional cut of 1.5 million barrels per day to artificially prop up oil prices as more cases of coronavirus weighs on global oil demand, especially from China, the largest importer of the commodity.

UKOilDaily 7President Muhammadu Buhari had passed a N10.59 trillion budget for the year with oil price benchmarked at $57 per barrel while crude oil production was assumed at 2.18 million barrels per day. The administration estimated that about 35 percent or N3.7 trillion of the N10.59 trillion budget would come from oil revenue while the N2.18 trillion estimated deficit would be financed through foreign and domestic borrowing and the 50 percent increase in Value Added Tax (VAT) and other locally generated revenue would take care of the rest.

But with crude oil trading at $36.03 a barrel, the federal government is losing $20.97 per barrel assuming production level remains 2.18 million barrels per day. That represents a daily decline of $45,715,600 (218,000,000 X 20.97).

However, Nigeria is not producing 2.18 million barrels per day going by OPEC report for December and January. Nigeria’s oil production stood at 1.57 million barrels per day in December and 1.77 mbpd in January, according to an independent oil tracking agency, CEIC. Another report from Bloomberg painted a sad picture of the country’s current position, the report stated that 70 percent of the nation’s April sales have no buyer despite huge discount being offered. The story is not different for Angola and other oil-producing economies. The difference, they have alternatives and effective diversification plans.

In February, the International Monetary Fund (IMF) downgraded the nation’s growth projection for the year from 2.1 percent to 2 percent, citing slow economic recovery amid weak revenue to debt profile. In the same month, Standard and Poor lowered the nation’s credit rating from stable to negative, again citing weak revenue, falling oil price and limited space for stimulus.

The nation’s foreign exchange reserves declined from $45 billion recorded in June 2019 to $36.2 billion in March 2020 as oil price continues to decline so do the nation’s reserves which the main source of funds is crude oil. High importation, capital flight, and weak capital importation are some of the challenges hurting Nigeria’s liquidity.

Inflation rate rose to 12.13 percent in January, eroding consumer spending, retail sales and household income despite a high unemployment rate of 23.1 percent or 20.9 million unemployed people. With the foreign reserves fast declining, credit agencies downgrading the nation’s credit rating and global growth projected to slow down in 2020, the nation would struggle to sell its Eurobond scheduled for September as it did in 2018 when it sold $2.86 billion at a period when crude oil was averaging $70 per barrel.

Even if Mrs. Zainab Ahmed, Minister of Finance, led committee reviewed down the $57 oil benchmark for the year, it still would not address the nation’s low oil production in recent months, rising capital flight, weak capital importation, unclear policy path discouraging investors and the rising cost of servicing debt.

Nigeria spent N2.1 trillion or 22.24 percent of the 2020 budget servicing debt in 2019, that financial obligation continues in 2020 and could surge in subsequent years after the Senate approved an additional $22.7 billion loan for President Muhammadu Buhari.

Despite the aggressive economic diversification approach built around low-interest rates anchor borrowers’ loan of President Muhammadu Buhari administration, Nigerians still crave visible results after years of spending. New job creation remains low with businesses shutting down operations, especially local companies.

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.

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ECOWAS@46: Commission Seeks Trade Partnership With OPS To Deepen Intra-African Trade

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The Economic Community of West African States (ECOWAS) in commemoration of its 46th anniversary has sought partnership with the Organised Private Sector (OPS) to deepen intra-African trade and lift millions out of poverty.

This was revealed yesterday by the president of the ECOWAS Commission, Mr. Jean-Claude Brou, at a webinar organised in collaboration with the Lagos Chamber of Commerce and Industry (LCCI) yesterday.

The theme of the webinar is “Optimising Sustainable Trade, Investment and Regional Economic Integration through Effective Partnership between ECOWAS Institutions and the Organised Private Sector”.

Jean-Claude, represented by Mr. Kolawole Sopola, Acting Director, Trade, ECOWAS, said the commission, in recognition of the private sector’s role, created a stronger framework to boost the sector’s capacity for enhanced trade.

He said that the commission had also adopted more than 100 regional standards with 70 others under development on some products.

Brou listed mango, cassava, textile and garments as well as information and communication technology among such products.

“The growing importance of informal trade compels the ECOWAS to create a framework expected to engender more availability and reliability of up to date information on informal trade.

“The framework also seeks to implement reform that is essential to eliminate obstacles to informal trade among others.

“It is important to improve investment, particularly, private investment, in all sectors and I stress that digitalization must be at the center of activities for economic recovery.

“Infrastructural deficit must be addressed as well as sustainable and cheaper energy for the competitiveness of products.”

“The commission is developing projects on roads, renewable energy and education, needed for private sector development; all these to lift millions in the sub-region out of poverty,” he said.

Dr. George Donkor, President of, ECOWAS Bank for Investment and Development (EBID) said that many western states showed numerous hurdles to overcome as countries continue to export raw materials, therefore maintaining low levels of development.

Donkor, however, said that reforms were already underway to accelerate the capacities of the Micro, Small and Medium Enterprises (MSME) to spur private sector development for intra-African trade.

He noted that the EBID 2025 strategy was aimed at ensuring that the private sector benefitted up to 65 percent of the $1.6 billion available facilities.

“A vibrant private sector is key in driving regional integration and securing its active participation and has the potential to create a win-win situation for all participants.

“Increasing credit to the private sector will enhance capacity and the EBID is ready with strategies to ensure that the sector’s capacity is boosted,” he said.

Also, Otunba Niyi Adebayo, Minister of Industry, Trade and Investment, said that collaboration across societal sectors had emerged as one of the defining concepts of international development in the 21st century.

He stressed the need for ECOWAS member states to work together as a bloc to take advantage of the opportunities in the African Continental Free Trade Area.

“Since the establishment of ECOWAS in 1975, various protocols and supplementary protocols regulating member countries conduct have been signed.

“Our world has limited resources — whether financial, natural, or human — and as a society we must optimize their use.

“The fundamental of a good partnership is the ability to bring together diverse resources in ways that we can together achieve more impact, greater sustainability and increased value for all.

“This is so because it emphasises the need to work together as a bloc to leverage and take advantage of the opportunities offered by the African Continental Free Trade Area.

“My Ministry will do everything possible to ensure that the vision of the commission is taken to the next level,” he said.

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IMF Retains 2.5 Percent Economic Growth Estimate For Nigeria

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The International Monetary Fund (IMF) has retained Nigeria’s 2.5 percent economic growth forecast for 2021.

The institution said this in its World Economic Outlook (WEO) for July titled “Fault Lines Widen in the Global Recovery” released on Tuesday in Washington DC.

According to it, the slow rollout of vaccines is the main factor weighing on the recovery for Low-Income Developing Countries (LIDCs) which Nigeria is part of.

It also retained its 6.0 percent growth forecast for the global economy for 2021 and 4.9 percent in 2022, adding that though the global forecast was unchanged from the April 2021 WEO, there were offsetting revisions.

The IMF had at its 2021 Virtual Spring Meetings in April, projected a 2.5 percent growth for Nigeria’s economy in 2021, up from 1.5 percent it projected in January.

It said that in LIDCs, the overall fiscal deficit in 2021 was revised up by 0.3 percentage points from the April 2021 WEO, mainly because of the re-emergence of fuel subsidies as well as the additional COVID-19 and security related support in Nigeria.

“Still, at 5.2 percent of Gross Domestic Product (GDP), the overall fiscal deficit remains well below that of advanced and emerging market economies, reflecting financing constraints, about 60 percent of LIDCs are assessed to be at high risk of or in debt distress.

“The public debt-to-GDP ratio for 2021 is projected at 48.5 percent.

“Several LIDCs have announced an intention to restructure their debts and some have sought debt relief under the G20 Common Framework (Chad, Ethiopia, and Zambia),” it said.

On the global scene, the IMF said that uncertainty surrounding the global baseline remain high, primarily related to the prospects of emerging market and developing economies.

It added that although growth could turn out to be stronger than projected, downside risks dominated in the near term.

“On the upside, better global cooperation on vaccines could help prevent renewed waves of infection and the emergence of new variants, end the health crisis sooner than assumed, and allow for faster normalisation of activity, particularly among emerging market and developing economies.

“Moreover, a sooner-than-anticipated end to the health crisis could lead to a faster-than-expected release of excess savings by households, higher confidence and more front-loaded investment spending by firms.”

On the downside, it said growth would be weaker than projected if logistical hurdles in procuring and distributing vaccines in emerging markets and developing economies led to an even slower pace of vaccination than assumed.

The report added that such delays would allow new variants to spread, with possibly higher risks of breakthrough infections among vaccinated populations.

“Emerging market and developing economies, in particular, could face a double hit from tighter external financial conditions and the worsening health crisis, further widening the fault lines in the global recovery.

“Weaker growth would, in turn, further adversely affect debt dynamics and compound fiscal risks.

“Finally, social unrest, geopolitical tensions, cyber-attacks on critical infrastructure, or weather-related natural disasters, which have increased in frequency and intensity due to climate change could further weigh on the recovery.”

On ensuring a fast-paced recovery, the IMF said the highest priority was to ensure rapid, worldwide access to vaccines and substantially hasten the timeline of rollout relative to the assumed baseline pace.

According to it, the global community needs to vastly step up efforts to vaccinate adequate numbers of people and ensure global herd immunity.

This, it said, would save lives, prevent new variants from emerging and add trillions to the global economic recovery.

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FG to Put an End to N360 Billion Annual Electricity Subsidy Payments in 2022 – Osinbajo

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Electricity - Investors King

Vice President Yemi Osinbajo on Monday said the Federal Government will end an estimated N360 billion annual subsidy payments in the electricity sector in 2022. This represents a monthly subsidy payment of N30 billion.

Osinbajo disclosed this while speaking at the 14th Nigerian Association for Energy Economics/IAEE conference in Abuja on Monday.

At the conference titled “Strategic responses of energy sector to COVID-19 impacts on African economies“, the vice president, who was represented by Engr. Ahmad Zakari, the Special Assistant to the President on Infrastructure, said the federal government would be investing over $3 billion in the sector to strengthen distribution and transmission infrastructure across the nation.

He stated that the numerous efforts of President Muhammadu Buhari at ensuring the power sector plays a critical role in the growth of the nation’s social and economic well-being will materialise fully once the ongoing reform in the energy sector is complete.

He said: “Electricity tariff reforms with service-based tariff has led to collections from the electricity sector by 63 per cent, increasing revenue assurance for gas producers and stabilizing the value chain.

“It is anticipated that all electricity market revenues will be obtained from the market with limited subsidy from next year as reforms in metering and efficiency with the DISCOs continue to improve.

“Accelerated investment in transmission and distribution, over $3 billion will be out into this sub-segment of the electricity value chain that will put us on the path to delivering 10 gigawatts through the interventions of the Central Bank of Nigeria, Siemens partnership, World Bank and Africa Development Bank, and others.”

He said as the electricity sector continued to be stabilized, more power was needed for the country’s large population.

“That is why this administration continues to invest in generation to cater for our current and future needs,” he said.

Osinbajo charged the participants to come up with solutions to key energy challenges facing the country, especially with the COVID-19 pandemic and energy transition.

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