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Power, Still in Need of a Leg-up – Coronation Merchant Bank

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Power shortages remain a prominent infrastructure gap in Nigeria. For businesses located in Nigeria, self-generation places pressure on operating expenses. Household wallets are also significantly affected by the same expense. The availability of power is a catalyst to boosting levels of industrial activity for economic development. The FGN estimates national energy demand at c.28,000 megawatts (MW).

Therefore, improving power sector performance, particularly in manufacturing and services will be central to unlocking economic growth post COVID-19. Several African countries suffer from insufficient electricity generation capacity as well as inadequate and poorly maintained transmission and distribution networks that significantly affect their socio-economic activities. Based on data from the International Energy Agency (IEA), in 2019, 81% of the African population had access to electricity in urban areas while only 37% had access to electricity in rural areas.

Turning to the Nigerian electricity landscape, according to the latest Tracking SDG7 report, about 89 million Nigerians (45% of the population) have no access to electricity. The World Bank estimates that Nigeria suffers an annual economic loss due to unreliable power supply at between 5-7% of the country’s GDP.

There is uncertainty around the exact number of back-up generators in the country. Some studies have estimated that Nigeria could have as much as 15,000MW installed capacity of power generators. Other studies have put the installed generator capacity in Lagos alone at around 16,000 MW. These generators range from small 0.5 KVA for a small kiosk to large 75 KVA / 60 kW generators servicing residential estates and industries across the country.

The Transmission Company of Nigeria (TCN) disclosed that the power sector recorded national peak generation of 3,844.3MW on 01 November ‘21, compared with 5,802MW recorded in 01 March ’21.

Metering remains a challenge. To attempt to solve this issue, the FGN plans to provide up to 4 million meters to Nigerians in the second phase of its National Mass Metering Programme (NMMP). The first phase of the initiative has led to the distribution of about 750,000 meters nationwide within eight months. This is an improvement with regards to installation speed given that the preceding Meter Asset Provider (MAP) programme recorded 350,000-meter installations in over 18 months.

According to the Nigerian Bulk Electricity Trading Company (NBET), the electricity distribution companies (DISCOs) remitted revenues totalling N91.3bn to the NBET in Q2’21. This is a 22.6% decline from the N111.8bn recorded in the previous quarter. The decline in revenues from the 11 DISCOs can be partly attributed to poor power supply in Q2 ‘21. The decline in revenue can also be attributed to the high technical and commercial losses that have been exacerbated by energy theft as well as consumers’ apathy to payments under the prevailing practice of estimated billing.

A better energy mix of non-renewable and green energy will accelerate the process of attaining access to power for all. The FGN targets 30% of national energy to come from renewables by 2030. In April 2021, the FGN began implementing its plan to deliver electricity through solar energy to about 25 million Nigerians whose communities are off the national power grid through the Solar Power Naija programme. The initiative aims to create five million connections through a N140bn financing programme.

Furthermore, the European Union granted an additional EUR15m (USD17.4m) to fund the second phase of Nigeria’s renewable energy and energy efficiency sector under the Nigerian Energy Support Programme (NESP). Additionally, the Agence française de développement (AFD) recently invested c.USD70m to fund renewable energy and efficient energy projects in the country to bridge the nation’s power needs and reduce environmental pollution. The AFD fund could guarantee electricity supply to c.80 million Nigerians affected by power shortages.

The lack of reliable power supply has stifled economic activity, private investments, and job creation. An industrial take-off, which will be supported by improved power supply, is required if Nigeria is to achieve sustainable double-digit GDP growth. Forward steps should also be taken to modernise power infrastructure (with particular emphasis on transmission), reduce the Aggregate, Technical, Commercial and Collection (ATC&C) losses, as well as increase transparency and contract enforceability through enhanced regulatory oversight.

Increased investments targeted towards boosting renewable energy generation would also assist with increasing productivity in sectors like agriculture and manufacturing.

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Economy

Nigeria Records Trade Deficit of 8.9 Trillion in Nine Months

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The National Bureau of Statistics (NBS) released a report that showed that Nigeria recorded a trade deficit of 8.9 Trillion Naira between January and September 2021. 

A trade deficit occurs when a country’s imports exceed its exports over a period. Within the period, foreign trade was 35.09 Trillion Naira which comprised imports of 22 Trillion Naira and exports of 13.1 Trillion which led to an 8.9 Trillion trade deficit.

A breakdown of the data by quarters shows that trade stood at 9.76 Trillion Naira in the first quarter, which represented imports of 6.85 Trillion Naira and exports of 2.91 Trillion Naira, this resulted in a trade deficit of 3.94 Trillion during the period.

The data went on to show that the majority of the goods imported in the first quarter were from China (valued at 2 Trillion), the Netherlands (valued at 726.09 Billion) the United States (valued at 608.12 Billion), India (valued at 589.1 Billion), and Belgium (valued at 238.5 Billion) while the majority of exports were to India (valued at 488.1 Billion), Spain (valued at 287.2 Billion), China (190.1 Billion), the Netherlands (160.0 Billion) and France (133 Billion).

In the third quarter, Crude oil dominated exports with 78.47% of exports, this was followed by natural gas with 9.5%. Imports were mainly motor spirit with 12.91% of imports, Durum wheat with 3.87%, gas oil with 2.77%, and used vehicles with 2.27%.

A renowned economist, Pat Utomi said the country’s huge appetite for imports was because of insufficient domestic production which is driven by worsening insecurity and stringent government regulations. He went on to say that although there were interventions introduced by the Government and the Central Bank of Nigeria to reduce imports and increase exports, the initiatives are fraught with inconsistencies and corrupt practices that prevent any real impact.

He went on to say that it was scandalous that Nigeria’s top imports were food products and motor spirits as those are products the country should be exporting because Nigeria is a food-producing nation and has oil in abundance.

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World Bank Calls on Nigeria to Impose Special Taxes on Alcohol and Tobacco

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The World Bank Group has made a call to the Federal Government of Nigeria, urging the government to impose special taxes on alcohol, cigarettes and beverages that are highly sweetened in order to improve primary healthcare conditions in the country.

Shubham Chaudhuri, who is the Country Director for Nigeria in the World Bank Group, said that an improvement in healthcare in Nigeria will come by taxing the things that are “killing us.” He said that the economic rationale for the action is quite strong if lives are to be saved and a healthier Nigeria achieved.

Chaudhuri made the call on Friday, at a special National Council on Health meeting which was organized by the Federal Ministry of Health in Abuja. Chaudhuri stated that placing special taxes on tobacco, sweetened beverages and alcohol would reduce the health risks which come with their consumption and expand the fiscal space for universal health coverage after COVID 19.

The country director also said that investing in stronger health systems for all would make significant contributions to the fight against inequality and the rising poverty situation in the country. He went on to add that increasing health tax would provide an extra advantage of reducing healthcare cost in the future, by hindering the growth of the diseases which are caused by tobacco, alcohol and sugar-sweetened beverages.

The representative of the WHO in Nigeria, Dr Walter Mulombo said that he could confirm the large health needs of Nigerians, as well as the efforts being made to meet those needs. He said this was based on the fact that he had been to over half of Nigeria’s states in less than two years of being in the country.

Mulombo then noted that although the coronavirus exposed weaknesses in the global economy (not excluding health), it could be considered as a unique opportunity for a thorough examination of existing resources and mechanisms to prepare for a more resilient future.

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Economy

Nigeria’s VAT Revenue Falls to N500 Billion in Q3 2021, Manufacturing Sector in the Lead

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In the third quarter of 2021, Nigeria generated a total sum of N500.49 billion as value-added tax which represents a 2.3% decline when compared to the N512.25 billion recorded in the second quarter of the year.

This is as seen in the VAT report which was recently released by the National Bureau of Statistics (NBS). The report revealed that the manufacturing sector was in the lead as it remitted a total of N91.2 billion, representing about 30% of the total local non-import value added taxes in that period.

In spite of the quarter-on-quarter decline of VAT collections in the reviewed period, it grew by a further 17.8% when compared to N424.7 billion generated in the same period of the previous year. The report also shows that an amount of N1.5 trillion has been generated from value added taxes from January 2021 to September 2021.

That is 40.2% higher than the N1.08 trillion recorded in the same period of 2020, and 72.3% higher than what was recorded in the same period of 2019.

To break it down, the Value Added Tax collected in the first, second and third quarter of 2021 was recorded at N496.39 billion, N512.25 billion and N500.49 billion respectively. It is higher than the corresponding figures of 2020, which sat at N324.58 billion, N327.20 billion and N424.71 billion for the first, second and third quarters respectively.

In the third quarter of 2021, the Manufacturing activity accounted for the largest share of total revenue collected across sectors, with a huge 30.87% (N91.2 billion) coming from that sector. The Information & Communication sector came in second with 20.05% (N53.9 billion) contributed, while the Mining & Quarrying sector came in third with 9.62% (N28.4 billion).

Nigeria has continued to ramp up its efforts to increase revenue from non-oil sectors by increasing its tax collection rates, which has recorded largely significant growth since the federal government increased the VAT rate from 5% to 7.5% in the 2019 Finance Act, which was signed and made effective in 2020.

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