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Despite Surge in Oil Prices, Foreign Reserves Decline by $129.210 Million in 7 Days

Weak foreign revenue generation despite the surge in oil prices continues to drag on Nigeria’s foreign reserves.

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Not even the recent surge in global oil prices could halt Nigeria’s dwindling foreign reserves from extending its decline. Foreign reserves in Africa’s largest economy dipped by $129.210 million in seven days, according to the latest data from the Central Bank of Nigeria (CBN).

The foreign reserves stood at $39.871 billion on March 4, 2022 before dropping to $39.768 billion on March 9, 2022. This decline continues even with Brent crude oil, the international benchmark for Nigeria’s type of crude oil, trading at a 14-year high of $130.68 a barrel.

By March 10, 2022, the reserves had taken another hit to $39.755 billion and presently hovering around $39.742 billion.

Experts have attributed Nigeria’s weak foreign reserves to the nation’s economic structure. As an import-dependent economy, Nigeria depends on foreign revenue from crude oil to service its 200 million population economy.

Why Nigeria’s Foreign Reserves Remains Weak

Despite being the largest crude oil-exporting nation in Africa, Nigeria does not have a functioning crude oil refinery. Therefore, it has to import finished petroleum products and subsidize them to enable the largely unemployed Nigerians to afford them. Please note that the Federal Government had appropriated 17.5% or N3 trillion ($7.2 billion) of the 2022 budget for subsidy.

This amount, as expected, has now risen given the over 100% surge in crude oil prices from $62 a barrel it was pegged in the budget. It means Nigeria has been using her expected gain from crude oil to subsidize finished petroleum products for the masses.

The huge forex being spent on subsidies has made it impossible to efficiently service sectors that depend on imported raw materials to operate. These businesses had to resort to the black market for their forex needs — they sustain that unregulated section of the forex market.

Also, the fact that Nigerians spend an estimated N499.200 billion or $1.2 billion on medical tourism per year is a big issue. This does not include the amount spent on overseas education, etc. All these payments are made via the money generated from crude oil sales.

Two weeks ago, in an effort to lure exporters to sell their export proceeds at the Investors and Exporters Forex Window at N416/$, the CBN launched a N65/$ rebate scheme. This was because the black market goes for between N570/$ to N580/$. It also points to the fact that the apex bank may be struggling with low forex generation, especially with the nation’s crude oil production below its OPEC quota for months.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Focus More on Port Rehabilitation, Nigerian Ports Authority Tells FG 

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The Nigerian Ports Authority (NPA) has said the quay walls of the Tin Can Island port require a complete rehabilitation, saying the port is on the verge of collapse.

Managing Director of NPA, Mr. Mohammed Bello-Koko,  while speaking over the weekend stated that the agency had taken a holistic review of the decaying parts of the ports.

“Tin-Can Island Port is practically collapsing. We need to focus our budget on the rehabilitation of those quay walls at the Tin-Can port. We have taken a holistic review of decaying infrastructures at our ports and have decided that it is very important that we rehabilitate Tin-Can and Apapa port,” Bello-Koko stated.

He said the agency had resorted to borrowing in order to sustain the port. It had begun discussions with some lending agencies to lure them into investing in the rehabilitation of ports.

“What we have done is to start talking to lending agencies, even though we don’t intend to lend. We are asking how much money they will invest in the port terminals,” said Bello-Koko, saying the introduction of the Infrastructure Concession Regulatory Commission Act meant that the renewal of concession agreements for terminal operators was no longer done the way it used to be done.

He said the agency had requested for investment companies to invest in the ports.

Bello-Koko also stated that before the agency would also renew the concession agreement of some terminal operators, an agreement must be reached on how to develop the port.

“For us to renew these concession agreements that have expired, about five of them, we need to have categorical commitment from the affected terminal operators on the development of these port terminals. If the terminal operators cannot give us such commitment, then we either give the terminals to someone else or go and borrow money to rehabilitate those ports.”

“However, if we go and borrow money to rehabilitate those ports, then what the terminal operators are paying will have to change. The rates will have to go up. If we don’t do that, these terminal operators will keep managing those places, and the ports will keep collapsing. Because of their financial interest, these terminal operators don’t want us to re-construct the affected port terminals because that will mean stopping them from operating.

“We have had interest from the World Bank, amongst others. Surprisingly, it was the World Bank that actually gave money to the NPA to construct part of Apapa port so many years ago. The World Bank has come again to tell us that if we need funding, they will give it to us.”

He also stated that the agency is watching five terminals to make sure that they are committed to their responsibilities as provided by the port concession agreement.

“Affected terminal operators had been given temporary six-month renewal with conditions to meet before they would have their concession agreement renewed permanently,” Bello-Koko revealed.

“At the point of expiration of any concession agreement, the then Legal Agreement says that the terminal operators can apply for renewal and we will renew. It was after the concession agreement that the ICRC Act came onboard. The ICRC Act requires that there should be a new owner, a new bid and so on and so forth,” he added.

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EFCC Grills Suspended Accountant-General of The Federation, Discovers 17 Properties 

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The Economic and Financial Crimes Commission (EFCC) said it has traced not less than properties to the Accountant-General of the Federation, Ahmed Idris. 

On Wednesday, the Minister of Finance, Budget and National Planning, Zainab Ahmed, announced the suspension of Idris who is currently being grilled by the EFCC for fraud amounting to N80bn.

The letter titled: ‘Letter of Suspension’, read in part: “Following your recent arrest by EFCC on allegations of diversion of funds and money laundering, I write to convey your suspension from work without pay effective May 18, 2022.”

Investors King can confirm that an anonymous EFCC official revealed that the 17 properties linked to the former AG of the Federation are located in the UK, Dubai, Abuja, Lagos, and Kano. 

However, he said preliminary investigations showed that the nation’s chief accountant allegedly used proxies to buy some of these properties. The commission would therefore need to invite some of the proxies of the accountant-general.

The official added that from all indications, these properties were purchased while Idris was in office and did not declare them before the Code of Conduct Bureau as stipulated by law.

 “About 17 houses in London, Lagos, Kano, Abuja and Dubai have been traced to him. In Abuja, some of the houses are located in serviced estates,” he added.

Investors King reported earlier in the week that EFCC had arrested the suspended Accountant-General, saying “the AGF raked off the funds through bogus consultancies and other illegal activities using proxies, family members and close associates.”

“The funds were laundered through real estate investments in Kano and Abuja.

“Mr. Idris was arrested after failing to honour invitations by the EFCC to respond to issues connected to the fraudulent acts.

“It further alleged that the funds were laundered through real estate investments in Kano and Abuja,” EFCC added. 

REcall that Ahmed Idris had been under surveillance since last year following allegations that he offered huge sums of money to a family in order to secure the marriage of their 16-year-old daughter.

 

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Economy

Nigeria’s Trade Deficit Rises to $765m in Q1 2022  – CBN

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The Central Bank of Nigeria (CBN) has said the value of Nigeria’s international trade deficit rose by 175.13 percent from $152.94m recorded in January 2022 to $420.79m in March 2022. 

The International Trade Summary on the CBN’s website reports that the total value of international trade as of the first quarter (Q1) of 2022 was $28.77bn. Imports stood at $14.77bn while exports accounted for $14.01bn, reflecting a total trade deficit of N764.69m.

In January 2022, export was $4.74bn and import was $4.89, with a trade deficit of $152.94m.

The value of the trade deficit increases further in February 2022 to hit $190.96m, with exports at $4.70bn and imports at $4.89bn.

There was a massive increase recorded in March 2022 as the trade deficit jumped to $420.79m, with exports at $4.57bn and imports at $4.99bn.

In June 2021, Godwin Emfiele, the CBN Governor has said Nigeria would reduce its imports bill by the first quarter of 2022, especially with the Dangote refinery projected to resume operations. This, he said would help reduce the importation of finished petroleum products.

“Of course for petroleum products, by the time the refinery goes into production by the first quarter of next year and the petrochemical plants we would have reduced our importation by about at least close to 35 per cent,” he said. 

However, Nigeria has failed to cut down on its import bill and the Dangote refinery is yet to be completed and operational. In fact, a recent Fitch report estimated that the refinery won’t be operational until 2024, and that is if Aliko Dangote raises the needed $1.1 billion (N900 billion) necessary for its completion.

In its recent report titled ‘Reforms Towards Resolving Foreign Exchange Challenges in Nigeria’, the Nigerian Economic Summit Group (NESG) explained how a rising trade deficit caning impact the nation’s economy.

According to the NESG, Nigeria will continue to rely on foreign loans via Eurobonds and multilateral financial institutions to bolster its foreign reserves as long as the nation’s trade balance continues to decline.

In part, the report stated: “Owing to the deteriorating trade balance position, the country is increasingly exposed to external borrowing through Eurobonds and multilateral loans to shore up its external reserves. In 2021, the trade deficit widened to N1.9tn from N178.3bn in 2020.

“The country had persistently recorded a trade deficit since the fourth quarter of 2019 when the land borders were shut. However, maintaining a trade surplus consistently coupled with adequate inflows of foreign investments will contribute significantly to improving the net flows of forex through the economy – which crashed from $100.8bn in the first three quarters of 2014 to $44.5bn in the corresponding period of 2021.”

“Huge dependence on imports has limited the CBN’s ability to effectively manage the demand for foreign exchange,” it stated. 

NESG further said, “Meanwhile, the massive dependence on imports has constrained the CBN’s ability to manage forex demand by prohibiting certain commodities that could otherwise be produced locally from accessing forex at the official market since 2015.

“The result of this policy action has heightened demand pressures in the parallel market, leading to a wide gap between the official exchange rate (now the I&E Window exchange rate) and the parallel market exchange rate. The parallel market premium averaged N104.7/US$ in 2021, 64.9 per cent higher than the average premium of N63.5/US$ in 2020.”

 

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