Markets

Kenya Growth Outlook Cut by World Bank Over Credit, Spending

Published

6 years ago

December 7, 2017

Kenya Growth Outlook Cut by World Bank Over Credit, Spending

The World Bank lowered its economic growth forecasts for Kenya as delays in spending cuts, weak credit extension and political uncertainty curb expansion prospects.

East Africa’s biggest economy may grow 4.9 percent this year, the slowest pace since 2011, the Washington-based lender said in a report released Thursday. That compares with an April forecast of 5.5 percent, slower than last year’s gross domestic product expansion of 5.8 percent.

A government-imposed cap on commercial lending rates, a drought and two disputed elections have weighed on growth this year in the world’s largest black-tea exporter. The Treasury had to increase its budget-deficit forecast for the year through June and is looking to return to international debt markets for a possible $2 billion Eurobond sale to try to plug the fiscal gap.

“There is a need to consolidate the fiscal stance in order not to jeopardize Kenya’s hard-earned macroeconomic stability,” the World Bank said. Kenya must also “jump-start the recovery of credit growth to the private sector” and should “mitigate weather-related risks by climate-proofing agriculture” to support growth, it said.

The bank reduced the 2018 growth forecast to 5.5 percent from 5.8 percent in April, and cut the estimate for 2019 to 5.9 percent from 6.1 percent, it said.

‘Downside Risks’

Despite the downgraded forecasts, the World Bank’s forecasts may still be too bullish given the series of obstacles the economy faces including the rate caps and new accounting rules for banks, said Jared Osoro, director of research at the Kenya Bankers Association.

“There are a number of downside risks that have been identified, which if taken into consideration will put into question the bullish outlook,” he said.

Public debt has burgeoned to about 57 percent of GDP, from about 45 percent eight years earlier. The Treasury sees the budget deficit at 8.5 percent of GDP by June 30, unchanged from a year earlier. It previously said the gap would narrow to 6.8 percent.

In September, the nation amended its 2.6 trillion-shilling ($25.3 billion) budget to include “austerity measures” for the current fiscal year to accommodate unplanned spending such as the Oct. 27 election rerun, Treasury Secretary Henry Rotich said.

Austerity Needed

Austerity is “precisely what we want to see,” Allen Dennis, the World Bank’s chief economist for Kenya, told reporters before the report’s release. That would reduce the borrowing requirement, and move credit to the private sector, spurring growth, job creation and consumption, he said.

Kenya needs to lower the public-sector wage bill, which accounts for about 49 percent of tax income, and must improve revenue collections to help trim the deficit, the World Bank said. The country has a tax gap of about 5 percent of GDP arising from exemptions that it should eliminate, the lender said.

The nation should also remove a cap on bank-lending rates that has exacerbated dwindling private-sector credit, which was already slowing because of tighter industry regulations and the collapse of three lenders in eight months, the lender said.

The ceiling limits charges on loans to 400 basis points above the central bank’s rate and was started by President Uhuru Kenyatta in August 2016 to spur credit access. Instead, banks have been investing in safer government securities.

It’s “clearly not helped to instill a sense of confidence in the economy and has not had the intended consequence of making credit more affordable,” said Rajiv Daya, a consultant at the World Bank.

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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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Crude Oil

Dangote Mega Refinery in Nigeria Seeks Millions of Barrels of US Crude Amid Output Challenges

Published

2 days ago

May 16, 2024

Samed Olukoya

The Dangote Mega Refinery, situated near Lagos, Nigeria, is embarking on an ambitious plan to procure millions of barrels of US crude over the next year.

The refinery, established by Aliko Dangote, Africa’s wealthiest individual, has issued a term tender for the purchase of 2 million barrels a month of West Texas Intermediate Midland crude for a duration of 12 months, commencing in July.

This development revealed through a document obtained by Bloomberg, represents a shift in strategy for the refinery, which has opted for US oil imports due to constraints in the availability and reliability of Nigerian crude.

Elitsa Georgieva, Executive Director at Citac, an energy consultancy specializing in the African downstream sector, emphasized the allure of US crude for Dangote’s refinery.

Georgieva highlighted the challenges associated with sourcing Nigerian crude, including insufficient supply, unreliability, and sometimes unavailability.

In contrast, US WTI offers reliability, availability, and competitive pricing, making it an attractive option for Dangote.

Nigeria’s struggles to meet its OPEC+ quota and sustain its crude production capacity have been ongoing for at least a year.

Despite an estimated production capacity of 2.6 million barrels a day, the country only managed to pump about 1.45 million barrels a day of crude and liquids in April.

Factors contributing to this decline include crude theft, aging oil pipelines, low investment, and divestments by oil majors operating in Nigeria.

To address the challenge of local supply for the Dangote refinery, Nigeria’s upstream regulators have proposed new draft rules compelling oil producers to prioritize selling crude to domestic refineries.

This regulatory move aims to ensure sufficient local supply to support the operations of the 650,000 barrel-a-day Dangote refinery.

Operating at about half capacity presently, the Dangote refinery has capitalized on the opportunity to secure cheaper US oil imports to fulfill up to a third of its feedstock requirements.

Since the beginning of the year, the refinery has been receiving monthly shipments of about 2 million barrels of WTI Midland from the United States.

Crude Oil

Oil Prices Hold Steady as U.S. Demand Signals Strengthening

Published

3 days ago

May 16, 2024

Samed Olukoya

Oil prices maintained a steady stance in the global market as signals of strengthening demand in the United States provided support amidst ongoing geopolitical tensions.

Brent crude oil, against which Nigerian oil is priced, holds at $82.79 per barrel, a marginal increase of 4 cents or 0.05%.

Similarly, U.S. West Texas Intermediate (WTI) crude saw a slight uptick of 4 cents to $78.67 per barrel.

The stability in oil prices came in the wake of favorable data indicating a potential surge in demand from the U.S. market.

An analysis by MUFG analysts Ehsan Khoman and Soojin Kim pointed to a broader risk-on sentiment spurred by signs of receding inflationary pressures in the U.S., suggesting the possibility of a more accommodative monetary policy by the Federal Reserve.

This prospect could alleviate the strength of the dollar and render oil more affordable for holders of other currencies, consequently bolstering demand.

Despite a brief dip on Wednesday, when Brent crude touched an intra-day low of $81.05 per barrel, the commodity rebounded, indicating underlying market resilience.

This bounce-back was attributed to a notable decline in U.S. crude oil inventories, gasoline, and distillates.

The Energy Information Administration (EIA) reported a reduction of 2.5 million barrels in crude inventories to 457 million barrels for the week ending May 10, surpassing analysts’ consensus forecast of 543,000 barrels.

John Evans, an analyst at PVM, underscored the significance of increased refinery activity, which contributed to the decline in inventories and hinted at heightened demand.

This development sparked a turnaround in price dynamics, with earlier losses being nullified by a surge in buying activity that wiped out all declines.

Moreover, U.S. consumer price data for April revealed a less-than-expected increase, aligning with market expectations of a potential interest rate cut by the Federal Reserve in September.

The prospect of monetary easing further buoyed market sentiment, contributing to the stability of oil prices.

However, amidst these market dynamics, geopolitical tensions persisted in the Middle East, particularly between Israel and Palestinian factions. Israeli military operations in Gaza remained ongoing, with ceasefire negotiations reaching a stalemate mediated by Qatar and Egypt.

The situation underscored the potential for geopolitical flare-ups to impact oil market sentiment.

Crude Oil

Shell’s Bonga Field Hits Record High Production of 138,000 Barrels per Day in 2023

Published

3 days ago

May 16, 2024

Samed Olukoya

Shell Nigeria Exploration and Production Company Limited (SNEPCo) has achieved a significant milestone as its Bonga field, Nigeria’s first deep-water development, hit a record high production of 138,000 barrels per day in 2023.

This represents a substantial increase when compared to 101,000 barrels per day produced in the previous year.

The improvement in production is attributed to various factors, including the drilling of new wells, reservoir optimization, enhanced facility management, and overall asset management strategies.

Elohor Aiboni, Managing Director of SNEPCo, expressed pride in Bonga’s performance, stating that the increased production underscores the commitment of the company’s staff and its continuous efforts to enhance production processes and maintenance.

Aiboni also acknowledged the support of the Nigerian National Petroleum Company Limited and SNEPCo’s co-venture partners, including TotalEnergies Nigeria Limited, Nigerian Agip Exploration, and Esso Exploration and Production Nigeria Limited.

The Bonga field, which commenced production in November 2005, operates through the Bonga Floating Production Storage and Offloading (FPSO) vessel, with a capacity of 225,000 barrels per day.

Located 120 kilometers offshore, the FPSO has been a key contributor to Nigeria’s oil production since its inception.

Last year, the Bonga FPSO reached a significant milestone by exporting its 1-billionth barrel of oil, further cementing its position as a vital asset in Nigeria’s oil and gas sector.