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Exchange Rate Unification Will Instill Confidence In Nigeria Economy- FSDH Reports

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FSDH Group- Investorsking

A report by the First Securities Discount House (FSDH) Research has described the recent move by the Central Bank of Nigeria (CBN) to achieve exchange convergence a positive impact regulation, saying it would ensure clarity and improve market confidence in the economy.

The report also stated that the move would enable Nigeria to unlock funding from several multilateral organisations such as the International Monetary Fund (IMF) and the World Bank and ease the pressure on the exchange rate in the medium term.

It further stated that the central bank’s current move towards a unified exchange rate was expected to ensure flexibility and market-determined rate, which is stated to a large extent would, reduce arbitrage, round-tripping, and could move the naira towards its fair value.

“However, exchange rate unification is not a sufficient factor in attracting significant capital into the country. What should follow the CBN’s recent actions, in our view, are a set of consistent forex policies that seek to improve market liquidity and prevent every form of forex arbitrage and unnecessary forex subsidies.

“The CBN will also need to clear forex backlogs to further instill confidence in the market. In February 2021, the IMF estimated backlogs at US$2 billion. We believe this will be done gradually,“ FSDH explained.

“The CBN’s move is expected to instill confidence in the market as foreign investors are more likely to participate in a less fragmented market that can be fairly predictable.

“Given this framework, the options available for the CBN include raising the interest rates to incentivize inflow of capital into the economy that may hurt economic recovery in subsequent quarters or relax capital control rules/restrictions and simultaneously increase market interventions to prevent significant depreciation of the naira that may result in external reserves depletion,” the report stated.

The report, which was titled “Nigeria’s Foreign Exchange Policy Note- Navigating through the Tides of Uncertainty,” adding that: “As much as Nigeria needs effective management of foreign exchange and unification of exchange rate to boost confidence, the supply shortage of foreign exchange is still a major problem.

“Increasing foreign exchange supply from non-CBN sources is vital in maintaining exchange rate stability in the I&E window and reducing speculative activities.”

The report predicted that the CBN would be faced with, “policy trilemma” to explain Nigeria’s foreign exchange and monetary choices.

The ‘trilemma’ refers to the trade-offs a government faces when making crucial monetary policy decisions because only two out of the three objectives could be achieved at a time.

It added: “With COVID-19, Nigeria maintained the two objectives of having a fixed/managed official exchange rate and monetary autonomy at the expense of free movement of capital. This was evident in the capital controls and forex backlogs.

“The recent move by the CBN to adopt the I&E market rate as the official rate will enable the CBN to control interest rate while capital controls can be relaxed, but the exchange rate will have to be flexible.

“Whether the naira appreciates or depreciates will depend on the level of capital inflows and outflows, CBN’s involvement in the market and the external reserves position.

“This means the only way to maintain a stable exchange rate is to attract even more capital into the economy or intervene heavily in the forex market using the external reserves.”

It added that the planned issuance of Eurobond by the government would provide some relief in the market and boost external reserves in the short term.

“From the fiscal and trade perspective, Nigeria will need to leverage the African Continental Free Trade Area (AfCFTA) Agreement to boost non-oil exports and increase forex inflows. Providing direct incentives for businesses to produce for exports, implementing port reforms as well as developing comprehensive industrial and trade strategies are important steps that the government must take.

“We believe that the Naira will settle around N430 per dollar in the latter part of 2021. Forex inflows are expected to also improve, especially when the Eurobond is issued, but increasing demand pressures from imports and other payments will continue to exert pressure on the rate,” FSDH stated.

FSDH further reported, “Our 2021 forecasts for key indicators include real Gross Domestic Product (GDP) growth of 1.3 percent, an average exchange rate of N430/$ and an inflation rate of 16.6 percent.”

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Economy

Nigerians Pay N210 Billion For Electricity in Three Months

Nigerian electricity consumers pay N210 billion to power distributors in three months

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Nigerian electricity consumers pay N210 billion to power distributors in three months.

Nigeria Electricity Regulatory Commission (NERC) disclosed that Nigerians used N210 billion to buy electricity from distribution companies (Disco) between October and December of 2021. 

According to the 2021 fourth quarter (Q4) report of the commission which was released yesterday, electricity distribution companies otherwise known as “Discos” released a bill of N303.11 billion to consumers in Q4 2021 while a sum of N210.17 billion was retrieved. This means that N92.94 billion were left uncollected within the period under review.

NERC further stated that total billing by Disco increased by N30.12 billion if Q4 2021 is compared with Q3 2021. This represents an increase of 11.03 percent. Similarly, revenue collected in Q4 2021 increased by N16.64 billion when compared with Q3 2021. 

Although there was a slight increase of N16.64 billion in the revenue collected in Q4 2021, the increase in revenue did not however match up with the increase in electricity billing which was N30.12 billion, leaving a difference of N13.48 billion. 

Meanwhile, Nigeria Electricity Regulatory Commission (NERC) conceded that there is a huge metering gap for end-user customers. The commission acknowledged that metering deficiency is a perennial challenge that has critically hampered revenue generation in the industry.

The commission, therefore, disclosed a decrease in the number of meters installed in Q4 2021. 

“A total of 81,084 meters were installed in 2021/Q4 as compared to the 288,154 meters installed in 2021/Q3. The reduction in the number of meter installations in 2021/Q4 was largely driven by the winding down of the NMMP phase zero (0). The Commission’s records indicate that, of the 10,514,582 registered energy customers as at December 2021, only 4,773,217 (45.40%) have been metered compared to 42.93% metering as at September 2021” the report stated.

On electricity generation capacity, NERC noted that the average generation capacity for Q4 2022 was 5,465.72MW, with 4,294.02MWh/h generated per hour while the total power generated in Q4 2021 from 25 generating plants across the country was 9,480.21GWh.

 

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Economy

Severe Flood Ravage Farmlands in Nigeria, Experts Raise Concerns of Looming Food Shortage

The persistent rain being recorded in Nigeria lately has resulted in severe flooding that has ravaged farmlands as experts warn about food shortage in the coming months.

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The persistent rain being recorded in Nigeria lately has resulted in severe flooding that has ravaged farmlands as experts warn about food shortage in the coming months.

Due to torrential rainfall in recent weeks, with no sign of slowing down, almost all 36 states of the federation have experienced one form of flooding or the other.

The Nigeria Hydrological Services Agency (NIHSA) had recently warned that flooding will persist till the last quarter of 2022, which will take a great toll on farming.

In the North-Eastern part of the country, more than 150,000 hectares of land have been destroyed. Farmers in the region have expressed concerns over the large-scale destruction of produce, stating that the damage caused by the rainfall could be estimated at N30 billion.

They have therefore called for urgent interventions to mitigate the effects of the flooding, so as to reduce hunger and enhance food security.

Kenechukwu Onuorah, an expert at Global Rights, an international human rights capacity-building non-governmental organization, stated that one major consequence of persistent flooding is the huge impact it will have on agricultural output.

According to him, persistent flooding will make basic foodstuff scarce and expensive if nothing is done urgently to mitigate it.

His words, “The persistent rain may be good because it creates swampy lands that are good for the plants but flooding is a disaster.

“It comes with erosion, especially in the South, and washes away the plants. It destroyed the crops and even livestock will have nothing to feed on.

“There is so much we could do that we are not doing. We must ensure appropriate urban planning and drainage systems.

“Government at all levels must work to set Nigeria on the path towards greener renewable energy in order to reverse the effects of climate change. Unfortunately, the government is not working in that direction yet”.

Also speaking on the issue, The  Nigeria Hydrological Services Agency (NIHSA), an agency that provides services required for the assessment of Nigeria’s surface and groundwater resources, disclosed that flooding would persist, noting that the River Niger and Benue system had started building up.

The agency said, “As we are aware, Nigeria is located within the River Niger Basin, which is occupied by nine countries, namely: Benin, Burkina Faso, Cameroun, Chad, Cote D’Ivoire, Guinea, Mali, Niger, and Nigeria. Our country is at the lowest portion of the Basin.

“This means that once the upper catchment of the Basin gets flooded, Nigeria should be prepared to experience flooding”.

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Economy

Nigerian Lawmakers Express Concerns As Crude Oil Theft Increases Nation’s Debt

Lawmakers in Nigeria have expressed concerns over the incessant crude oil theft witnessed in the country as Nigeria’s debt reaches an all-time high of N42.84trn.

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Oil prices - Investors King

Lawmakers in Nigeria have expressed concerns over the incessant crude oil theft witnessed in the country as Nigeria’s debt reaches an all-time high of N42.84trn.

The Speaker, of the House of Representatives, Hon. Femi Gbajabiamila, while delivering his welcome remarks after the house resumed from a recess, stated that the continuous oil theft witnessed in the country has so far sabotaged Nigeria’s economy as there is a massive decline in the volume of crude oil exports.

He further stated that this act carried out by unscrupulous people is nothing but treason against the country, for which they must be severely dealt with.

He described those who carry out such dastardly acts as not being different from terrorists and insurgents.

In his words: “Due to theft and various acts of economic sabotage, we are experiencing a massive decline in the volume of crude oil exports.

“Our crude oil export of 972,394 BPD for August is the lowest we have recorded in the last two decades. 

“At a time when we are already experiencing severe financial constraints, there are mechanisms in place to prevent these sorts of bad actors, and the government spends significant amounts of money each year to protect oil and gas resources in the country. 

“Evidently, these existing arrangements do not suffice. As such, there is an urgent need to review them and make the necessary improvements. 

“It is also of particular importance that the perpetrators of these crimes against the state are identified, prosecuted, and subjected to the stiffest penalties the law allows. 

“Those who seek to impoverish our country in this manner have declared war against the Nigerian people. The government’s response must be sufficient to convince them of the error of their ways and deter others who might be tempted to join in their treason.   

“I met with the Finance Minister and the DG Budget and made it clear to them that enough of crude oil theft. Nigerians don’t want to hear that again. What do you intend to do about it? That’s the important question.” 

According to the managing director of the Nigerian National Petroleum Corp. (NNPC) Mele Kyari, he had disclosed that thieves from all levels in the country steal 200,000 barrels of crude oil per day.

It should be recalled that in 2021, Investors King reported that Nigeria lost $3.5 billion to crude oil theft.

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