Economy

Egyptian Inflation Eases Despite Bread Price Hike

Published

1 month ago

July 10, 2024

Egyptian inflation eased for the fourth consecutive month in June despite a historic increase in the cost of subsidized bread that feeds a significant portion of the population.

Consumer prices in urban areas rose at an annual rate of 27.5%, down from 28.1% in May, according to the state statistics agency CAPMAS.

On a month-to-month basis, prices grew by 1.6%.

This latest deceleration comes after authorities implemented a 300% hike in the price of subsidized bread on June 1, the first such move since the 1970s.

Although some economists had anticipated an inflationary surge, the impact on overall inflation was minimal due to the relatively small weight of bread in the consumer price index, explained Mohamed Abu Basha, head of research at EFG Hermes.

Food and beverage prices, the largest component of Egypt’s inflation basket, increased by 31.9% year-on-year, compared to 31% in May, and rose 2.6% on a monthly basis.

Despite the ongoing challenges, the rate of inflation has been slowing for eight of the past nine months, even after a significant devaluation of the Egyptian pound in 2024, which saw the currency plummet almost 40% against the dollar.

The reduced inflation rate reflects how the lower value of the pound on the now-stabilized local black market had already been factored into retail pricing strategies.

Also, the country’s central bank maintained its interest rates at an all-time high in May, citing expectations for a significant decline in inflation during the first half of 2025.

Further subsidy reductions are anticipated as Egypt continues its economic reforms following a $57 billion bailout from the United Arab Emirates, the International Monetary Fund, and other international supporters.

Cairo-based EFG Hermes is among the institutions predicting a continued cooling of consumer costs throughout the remainder of the year.

Abu Basha noted that the gradual elimination of fuel subsidies and potential increases in power tariffs are expected to have a relatively minor effect on overall inflation.

However, recent shortages in domestic gas supplies, which caused temporary shutdowns at some fertilizer plants and contributed to widespread power cuts, remain a potential wildcard.

Despite the inflation slowdown, the Egyptian central bank is unlikely to reduce interest rates when it meets next week.

The IMF recently affirmed its agreement with Egypt that maintaining a tight monetary policy is crucial in the short term to bring inflation closer to the central bank’s target.

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Samed Olukoya

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

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Economy

Nigerian Refineries’ Crude Needs Jump 24% as Producers Struggle to Meet Demand

Published

22 hours ago

August 12, 2024

Samed Olukoya

Nigerian refineries, including the massive Dangote Refinery, have increased their domestic crude oil requirements by 24% for the second half of 2024 to 597,700 barrels per day (bpd).

This is a significant uptick from the 483,000 bpd requested in the first half of the year.

The increase comes despite ongoing challenges in domestic crude supply, highlighting the widening gap between the needs of local refiners and the capacity of oil producers to meet these demands.

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) revealed these figures in a statement released on Friday, noting that it had managed to secure only 177,777 bpd from oil producers during the first six months of the year.

This shortfall represents a significant challenge for the Nigerian refining sector, which is heavily reliant on steady crude supplies to maintain operations and meet the country’s energy needs.

The demand surge is largely driven by the Dangote Refinery, the largest in Africa, which has been vocal about its struggle to secure sufficient crude oil domestically.

The refinery accused the NUPRC of not adequately enforcing regulations that require oil producers to prioritize domestic refiners in their supply contracts.

As a result, the Dangote Refinery has had to increase its reliance on imported crude, raising its operational costs and potentially affecting its long-term ambitions.

“The lack of sufficient domestic crude supply is a major operational challenge for us,” the Dangote Refinery said in a statement. “The NUPRC’s lax enforcement of supply regulations is forcing us to look abroad, which significantly impacts our cost structure.”

The NUPRC, for its part, has acknowledged the challenges faced by oil producers. Some producers, the regulator explained, are grappling with operational issues, while others have already committed most of their output to international traders who financed their drilling operations.

The commission also cautioned that forcing producers to redirect more crude to local refineries could violate existing contracts, further complicating the situation.

In its statement, the NUPRC projected a national average crude oil production of 1.7 million bpd by December 2024, a slight increase from the 1.57 million bpd it forecasted for the first half of the year—a target that producers failed to meet.

The increase in crude requirements by Nigerian refineries is occurring as eight refineries, including the Dangote Refinery, are expected to be operational from August, with a combined refining capacity of 864,500 bpd.

This means that oil producers would need to supply more than half of this capacity to meet domestic refining needs.

Gbenga Komolafe, head of the NUPRC, emphasized the importance of this data in understanding Nigeria’s energy landscape for the second half of 2024.

“This comprehensive data provides insight into the projected crude oil needs for the refineries, crucial for understanding the energy landscape in Nigeria for the second half of 2024,” Komolafe said.

With 52 oil producers, including major players like TotalEnergies, Chevron, Shell, and ExxonMobil, expected to contribute to the supply, the struggle to meet the increasing demands of local refineries is set to be a critical issue in the coming months.

The situation underscores the ongoing challenges in Nigeria’s oil sector, where balancing domestic needs with international obligations remains a complex and pressing task.

Economy

Saudi Economy Contracts for Fourth Quarter; Oil Sector Decline Continues

Published

2 weeks ago

July 31, 2024

Samed Olukoya

Saudi Arabia’s economy has experienced its fourth consecutive quarterly contraction due to continued declines in the oil sector.

According to preliminary data released by the General Authority for Statistics on Wednesday, the kingdom’s gross domestic product (GDP) shrank by 0.4% on an annual basis during the April-June period.

This contraction, while slightly better than the previous quarter’s 1.7% decline, underscores the persistent challenges facing the world’s top oil exporter.

The oil sector, which remains a crucial component of Saudi Arabia’s economic framework, contracted by a significant 8.5%.

This decline marks a continuation of the negative trend driven by ongoing OPEC+ production cuts aimed at stabilizing global oil prices.

In contrast, Saudi Arabia’s non-oil economy demonstrated resilience, growing by 4.4% during the same period, an improvement from the previous quarter’s 3.4% growth.

This robust performance in the non-oil sector aligns with the government’s long-term strategy to diversify the economy and reduce its dependence on oil revenue.

The Vision 2030 plan, spearheaded by Crown Prince Mohammed bin Salman, emphasizes the expansion of the non-oil economy to generate employment opportunities for the Saudi population.

However, the overall economic growth remains vital to the success of this ambitious plan, which requires substantial investments.

Economists predict that the overall economic expansion is likely to accelerate as the impact of oil production cuts diminishes.

On a quarterly basis, Saudi Arabia’s economic output remained steady at 1.4% during the second quarter.

Carla Slim, an economist with Standard Chartered Plc, expressed optimism regarding the future. “We expect this to be the last quarter of deeply negative hydrocarbon sector growth,” Slim said before the data release, noting that the base effects are starting to dissipate.

The Organization of Petroleum Exporting Countries (OPEC) and its allies, including Saudi Arabia, have been limiting oil supplies for almost two years in an effort to support prices.

Despite these efforts, Brent crude has averaged around $83.5 per barrel this year, which is below the $96 per barrel price that Saudi Arabia needs to balance its budget, according to the International Monetary Fund (IMF).

Bloomberg Economics estimates that when domestic spending by the kingdom’s sovereign wealth fund is considered, the break-even price rises to $109 per barrel.

The IMF recently revised its estimate for Saudi GDP growth this year, lowering it to 1.7% from the 2.6% forecasted in April.

This adjustment reflects the ongoing difficulties in the oil sector and the broader economic challenges facing the kingdom.

Ziad Daoud, chief emerging-markets economist at Bloomberg Economics, highlighted the interconnectedness of Saudi Arabia’s non-oil sectors and oil prices.

“Despite their label, Saudi non-oil sectors depend on oil prices,” Daoud explained. “With high oil prices, authorities hire more people, raising government services, a non-oil activity.”

As Saudi Arabia continues to navigate the complexities of a global oil market and strives to achieve its Vision 2030 objectives, the country’s economic landscape remains in a delicate balance.

The resilience of the non-oil sector provides a glimmer of hope, but the road to sustained growth and diversification remains challenging.

Economy

Bank of Ghana Maintains Key Interest Rate at 29% Amid Inflation Concerns

Published

2 weeks ago

July 27, 2024

Samed Olukoya

The Bank of Ghana has announced it will maintain the benchmark interest rate at 29% for the third consecutive time to rein in rising inflation.

Governor Ernest Addison highlighted the uncertainty surrounding the inflation outlook due to recent exchange rate pressures and rising utility tariffs.

Despite a slight slowdown in annual inflation to 22.8% in June from 23.1% in May, the rate remains significantly above the central bank’s target range of 10%.

This persistent inflation is exacerbated by the cedi’s depreciation, which has reached a record low of 15.5000 per dollar.

The cedi’s weakness is primarily driven by increased dollar demand for imports and a sharp decline in cocoa earnings, a crucial export commodity.

Ghana, the world’s second-largest cocoa producer, has seen revenue from cocoa exports plummet by 48% to $760 million in the first half of the year.

Adverse weather conditions and crop diseases have severely impacted production.

The decision to maintain the current rate reflects the bank’s cautious approach to navigating economic uncertainties.

“The risks are tilted slightly to the upside,” Governor Addison remarked, indicating a vigilant stance towards potential inflationary trends.

With the cedi losing over 5% of its value against the dollar since the last rate decision, the Bank of Ghana is keenly aware of the need to stabilize the currency while addressing inflation.

As the global economic landscape remains volatile, the central bank is expected to monitor developments closely, ready to adjust monetary policy as necessary.

This steadfast approach aims to provide some stability in the face of economic pressures, with hopes that external factors such as improved cocoa output and favorable weather conditions might offer some relief in the coming months.