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Nigerian Economy at High Risk With Increasing Fuel Subsidy –World Bank

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The World Bank says increasing fuel subsidy puts the Nigerian economy at a high risk as subsidy payments could significantly impact public finance and pose debt sustainability concerns.

The Washington-based lender said this in a new biannual report known as Africa’s Pulse.

According to the bank, Nigeria is projected to have a 3.8 percent growth in 2022, adding that as an oil-dependent country, weak oil production hampers economic recovery.

It added that the increasing fuel subsidy poses a high risk to the country’s economic growth, despite the increase in oil prices.

The bank said, “Growth in Nigeria is forecast to increase to 3.8 per cent in 2022 and stabilise at 4 percent in 2023-24. Real GDP growth was revised up by 1.2 percentage points for both periods compared with the previous forecast. Nigeria’s economy is still dependent on the oil sector. Oil-related revenue contributes 40 to 60 percent of fiscal revenue, while oil and gas account for 80 to 90 percent of total exports.

“Weak oil production, below the OPEC quota, held back the recovery process. Although at a slower pace than the average seven per cent during the boom period, growth prospects for the Nigerian economy are somewhat bright thanks to high oil prices coupled with reforms initiated by the passing of the Petroleum Industry Act and the completion of the Dangote refinery expected in 2023.

“Risk remains high on increasing fuel subsidies, which could weigh heavily on public finance and pose debt sustainability concerns. Nevertheless, public debt as a percentage of GDP is currently moderate.”

According to the World Bank, the high level of oil prices will affect countries that are shielding the impact on their consumers through fuel subsidies, such as Nigeria and Ethiopia.

It added that the high cost of fuel subsidies, due to the increase in oil prices, may deteriorate the country’s fiscal balance.

In 2021, the Nigerian National Petroleum Corporation said fuel subsidy gulped N1.43tn, although there was no record for under-recovery in January.

The National Assembly has approved N4tn as fuel subsidy bill for 2022, which is an increase of 179.72 per cent over the previous year’s subsidy bill.

However, experts have warned the Federal Government that the N4tn fuel subsidy bill would adversely affect the country’s economy.

The Country Director, World Bank, Shubham Chaudhuri, had said Nigeria’s decision to postpone the full deregulation of the downstream sector of the petroleum industry by 18 months might cost the country over N4tn in subsidy payments on petrol in 2022.

The World Bank country director, however, noted that while the World Bank could come up with advice on subsidy removal, its role was certainly not to dictate as it had no ability to do such.

Chaudhuri said, “With economics, really, you are not meant to make a political decision. What you are meant to do is to lay out what are the cons and consequences of different decisions.

“So that is what we are doing, we are just being very clear that this would come with a fiscal cost and the fiscal cost is the number, perhaps N4tn this year.”

He said despite the fact that the price of oil had gone up, the rise in global crude oil prices was not helping Nigeria that much.

Industry figures seen on Sunday showed that the price of Brent, the crude against which Nigeria’s oil is priced, was $118.11 per barrel at 5.06pm Nigerian time, as it traded at the same rate the preceding day.

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Economy

Vice President, Yemi Osinbajo Seeks Collaboration With Vietnam on Agriculture and Technology

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Nigeria’s Vice President, Prof Yemi Osinbajo has sought collaboration with Vietnam in the areas of agriculture and technology. The vice president spoke in Vietnam at a bilateral meeting on Monday. 

During the meeting with his Vietnamese counterpart, Võ Thị Ánh Xuân, Osinbajo acknowledged both countries’ market potentials in the digital economy, telecommunications, and agriculture. 

Speaking at the Presidential Palace in Hanoi, Vice President Yemi Osinbajo noted that telecommunication penetration in Nigeria is one of the deepest in any developing country, stating that about 120 million Nigerians now use one telecom service or the other.

Calling for collaboration on digital economy, Osinbajo said “We have close to 120 million of our citizens who have put to use telecom equipment or devices. And also, broadband connectivity is vastly improved. We hope that by 2025, we will have broadband connectivity for all of our over 200 million people”. 

On the call for collaboration in the area of agriculture, the vice president noted that cashew production is an important area in which both counties can partner. 

He said ” Given the food crisis that the world faces today, and is likely to continue facing even in the coming years, I like to say that the way forward is for our countries to collaborate. For instance, establishing cashew processing plants in Nigeria”. 

Investors King understands that Vietnam is the world’s second-largest cashew processor with an annual processing capacity of 1.2 million tons representing up to 40 percent of the world’s total capacity. 

Speaking at the event, the Vietnamese Vice President commended Nigeria’s leadership role in the ECOWAS sub-region and Africa generally, especially in the peaceful resolution of disputes. 

She also commended Nigeria’s handling of the Covid 19 pandemic while reposing confidence in Nigeria’s ability to resolve challenges confronting the African continent and the West African region in particular. 

Conclusively, she added that her country would continue to work with Africa to meet its aspirations in agriculture, clean energy and digital penetration.

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Economy

Togo, Benin, and Niger Republic Owe Nigeria N4.1 Trillion in Electricity Debts

Nigeria currently supplies electricity to the Republic of Benin, Togo, and Niger through the Nigeria Bulk Electricity Trading, NBET Plc

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The House of Representatives on Public Account has disclosed that Nigeria’s neighbouring countries, Togo, Benin, and Niger Republic owe the country about N4.1 trillion in electricity bills.

The revelation was contained in a letter sent by the committee to the Managing Director of Nigeria Bulk Electricity Trading, NBET Plc, Dr. Nnaemeka Eweluka.

According to the letter which was signed by the Chairman of the Committee, Hon. Oluwole Oke, the Managing Director of NBET is expected to appear alongside Dr. Marilyn Amobi, who served as MD/CEO from 2016 to 2020. 

The house committee has accused the former MD, Amobi of non-rendition of the Audited Accounts for the years 2014, 2015, 2016, 2017, 2018, and 2019.

Investors King understands that Nigeria currently supplies electricity to the Republic of Benin, Togo, and Niger through the Nigeria Bulk Electricity Trading, NBET Plc. About 6 percent of the electricity generated in the country is sold to the neighboring countries. 

Meanwhile, according to the managing director of NBET, the federal government is working on structures that will enhance power distribution in the country, stating that most of the power-generating companies are currently located in the southern part of the country. 

“Most of the power generation companies are located within the south-south and south-west largely because of gas with one in the south-east, of course, we have the hydros in Niger state,” he said.

The MD added that Nigeria could generate up to a capacity of about 14,000 megawatts. He however noted that the distribution capacity is only between 4,000 to 5,000 megawatts per day.

Eweluka nonetheless sounded a note of hope, making references to the intervention projects that are currently ongoing such as the partnership with Simens.

“To address this gap between what is available and what the system can currently carry; there are a number of intervention projects that the government is currently pursuing, that include the presidential power initiatives in partnership with Siemens,” he concluded.

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Economy

No Plan to Increase Fuel Price; Says FG

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NNPC - Investors King

The Federal Government has stated that it has no plan to increase fuel price during the yuletide period.

This assurance is coming amid the nationwide fuel scarcity which has pushed the price of petrol above N250 in many retail stations.

Investors King learnt that fuel is being held for N250 per litre in Abuja and several other cities across the country while black marketers are charging between N400 and N450 per litre.

The scarcity and the high price of fuel are however becoming unbearable for many Nigerians, especially those who have reasons to embark on business travel for the December festivals.

According to the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria (IPMAN), Chief Ukadike Chinedu, most of the association members, who owned the bulk of the filling stations across the country, were now subjected to purchasing PMS at about N220/litre, which was why many outlets currently dispensed at about N250/litre and above.

He noted that the cost of the commodity has been on the rise due to its unavailability and other concerns in the sector. 

He added that the price of fuel could be sold from N350/litre to N400/litre before the end of the year. 

Meanwhile, a number of senior officials at the NNPC had stated that the subsidy was becoming too burdensome on the national oil company, as this was another reason for the scarcity of PMS.

According to a source who is familiar with the development as reported by Punch News, “How can we continue to import 60 million litres of petrol daily and keep subsidising it, while millions of litres are either diverted or cannot be accounted for? The burden is too much, as you rightly captured in that story”. 

Investors King understands that NNPC is the sole importer of petroleum into the country and it pays billions of naira every month to subsidise the product to N147 per litre. 

Reuters News reported that in August 2022, NNPC paid more than $1 billion as fuel subsidy while the federal government earmarked N3.6 trillion as fuel subsidy in the 2023 budget proposal. 

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