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Sluggish Economy Haunts Nigerian President at Ballot Box

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  • Sluggish Economy Haunts Nigerian President at Ballot Box

Timi Soleye returned home to Nigeria from the United States to set up a gas logistics business six years ago, encouraged by predictions of growth and an expanding middle class.

Three years later, Nigeria plunged into its first recession in a generation following a sharp fall in the price of oil, which accounts for 90 percent of its foreign exchange earnings.

Infrastructure projects on which Soleye’s business relied were shelved. He kept afloat by doing consultancy work, but others weren’t so lucky.

“I know lots of people whose companies shut and laid people off,” said Soleye, a 31-year-old Harvard graduate and president of CRYO Gas and Power.

Soleye didn’t bother to vote in 2015. But this year, he says he has a reason to do so: he doesn’t want President Muhammadu Buhari to win a second term on Feb. 16. “Enough is enough,” he said.

Buhari’s critics accuse him of failing on a number of issues, including promises to tackle corruption and defeat an Islamist insurgency that has killed thousands since he took the helm of Africa’s most populous nation. But his handling of the economy could cost Buhari more votes than any other issue.

Although Nigeria returned to growth in 2017, the economy expanded by 1.9 percent in 2018, compared with 5.5 percent when Soleye returned to Nigeria in 2013.

Inflation has been in double digits for the last three years, rising to a seven-month high of 11.4 percent in December. And nearly a quarter of the workforce – 23.1 percent – is unemployed, up from 18.1 percent a year earlier.

“People are still worse off after four years in power,” said Charles Robertson, chief economist at Renaissance Capital.

“It’s not all Buhari’s fault. It’s mainly to do with oil. But nonetheless, it’s made it difficult for people to be positive about the economy.”

For Clement Nweke, who sells electrical appliances in a Lagos street market, the last few years have been hard. Inflation and a weaker currency mean 100,000 naira ($330) will only buy one of his air conditioning units, compared with three back in 2015.

“The purchasing power from the public is lower,” he said. “It affects my own business because I don’t push out the many (units) I used to.”

Buhari’s main rival, businessman and former vice president Atiku Abubakar, has zeroed in on the issue.

“Get Nigeria working again,” is his campaign slogan.

He has vowed to double the size of the economy to $900 billion by 2025, mainly by giving a larger role to the private sector.

Buhari argues that the way to bigger growth is through infrastructure development, touting railway and road construction.

But many business leaders doubt he can fix the economy, saying their companies have been hurt by government efforts to help the poor.

“In their quest for what they call affordability, they have essentially price regulated a huge bevy of things, and they do not see that, ironically, it makes things more expensive,” said Soleye.

He said a decision to fix energy tariffs for three years meant that while customers were getting cheap electricity, crippling debts were piling up in Nigeria’s power sector.

Those debts have held up construction of new plants for which Soleye’s company would have provided gas storage and pipelines.

IMPORT RESTRICTIONS

Another often-cited example is the government’s decision to ban rice imports through its land borders in 2015. Instead, the government subsidised tractors, mills and fertiliser and arranged cheaper loans to boost domestic rice production.

But farmers struggled to meet demand, hampered by poor roads to bring their harvest to market and inadequate power for storage facilities. Prices soared.

The only people who did well were smugglers, said Rotimi Williams, who owns a rice farm in the central state of Nasarawa.

“The cost of production of local rice has increased, which means that people are going for cheaper imported rice,” he said.

He blames protectionist policies for Nigeria’s galloping inflation.

The government says it is trying to wean the economy off its reliance on oil sales by encouraging domestic production of everything from wheat to cars.

Some local businesses have profited. Etop Ikpe, CEO of Cars45, an online marketplace for used vehicles, said a decision to increase a tariff on imported vehicles from 20 to 70 percent in 2015 “provided an opportunity”.

“People couldn’t afford brand new cars or imported used cars,” he said.

But as with rice, the Nigerian ports authority reported a surge in car smuggling from neighbouring Benin, and local assembly did not pick up.

GOOD TERM?

Buhari’s supporters point out that Nigeria rose 24 places to 145 in the World Bank’s ease of doing business ranking in 2017, largely due to government efforts to cut red tape, including issuing visas on arrival and establishing a centralized electronic system to pay federal taxes.

“One good term deserves another,” says an electronic billboard for Buhari in the Lagos business district of Victoria Island.

How voters respond may depend on whether they believe they will be better off with Atiku, who as vice president from 1999 to 2007 oversaw the liberalisation of Nigeria’s telecommunications industry.

Foreign investors have welcomed his pledges to float the naira, overhaul the central bank, privatise the state oil company and create a $25 billion fund to support private sector infrastructure investment.

The central bank, with Buhari’s backing, imposed currency restrictions in 2015 to defend the naira, rejecting bankers’ advice to float the currency as some other oil exporters had done. The following year, the naira lost a third of its value, and many investors fled.

Capital imports into Nigeria, which stood at $21.32 billion in 2013, fell to $5.12 billion in 2016, before rising to $12.2 billion as the country emerged from recession in 2017.

“If we want to see the unemployment rates coming down and certain initiatives that will boost growth, primarily it will be private sector driven,” said Boye Olawoye, group managing director of investment bank Primera Africa.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Top Five US Oil and Gas Firms Lost $307bn in Market Value Amid COVID-19 Crisis

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Crude oil

Market Value of US Five Largest Companies Decline by $307bn in 2020

Even before the coronavirus pandemic, the oil and gas industry was faced with slumping prices. However, with a record collapse in oil demand amid the coronavirus lockdown, the COVID-19 crisis has further shaken the market, causing massive revenue and market cap drops for even the largest oil and gas companies.

According to data presented by StockApps.com, the top five oil and gas companies in the United States lost over $307bn in market capitalization year-over-year, a 45% plunge amid the COVID-19 crisis.

Market Cap Still Below March Levels

Global macroeconomic concerns such as the US-China trade war and the oil overproduction set significant price drops even before the coronavirus outbreak. A standoff between Russia and Saudi Arabia in the first months of 2020 sent prices even lower.

After global oil demand plunged in March, Saudi Arabia proposed a cut in oil production, but Russia refused to cooperate. Saudi Arabia responded by increasing production and cutting prices. Shortly Russia followed by doing the same, causing an over 60% drop in crude oil prices at the beginning of 2020. Although OPEC and Russia agreed to cut oil production levels to stabilize prices a few weeks later, the COVID-19 crisis already hit. Statistics show that oil prices dropped over 40% since the beginning of 2020 and are hovering around $40 a barrel.

Such a sharp fall in oil price triggered a growing wave of oil and gas bankruptcies in the United States and caused a substantial financial hit to the largest gas producers.

In September 2019, the combined market capitalization of the five largest oil and gas producers in the United States amounted to $674.2bn, revealed the Yahoo Finance data. After the Black Monday crash in March, this figure plunged by 45% to $373bn. The following months brought a slight recovery, with the combined market capitalization of the top five US gas producers rising to over $461bn in June.

However, the fourth quarter of the year witnessed a negative trend, with the combined value of their shares falling to $367bn at the beginning of this week, $6.2bn below March levels.

Exon Mobil`s Market Cap Halved in 2020, Almost $155bn Lost YoY

In August, Exxon Mobil Corporation, once the largest publicly traded company globally, was dropped from the Dow Jones industrial average after 92 years. As the largest oil and gas producer in the United States, the company has suffered the most significant market cap drop in 2020.

Statistics indicate the combined value of Exxon Mobil`s shares plunged by 52% year-over-year, falling from almost $300bn in September 2019 to $144bn at the beginning of this week.

Phillips 66, the fourth largest gas producer in the United States by market capitalization, witnessed the second-largest drop in 2020. Statistics show the company`s market cap dipped by 49.6% year-over-year, landing at $22.9bn this week.

The Yahoo Finance data revealed that EOG Resources lost over $21bn in market cap since September 2019, the third-largest drop among the top five US gas producers.

Conoco Phillips witnessed a 42% drop in market capitalization amid the COVID-19 crisis, with the combined value of shares plunging by almost $30bn year-over-year.

Statistics show Chevron witnessed the smallest market cap drop among the top five companies. At the beginning of this week, the combined value of shares of the second-largest US gas producer stood at $141.5bn, a 36.9% plunge year-over-year.

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Gold Hit 26.8% ROI YTD, the Highest Increase in Value Among Top Assets

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Gold Delivers 26.8% Return on Investment Year-t-Date

As the world’s earliest form of currency, gold has long been considered a reliable store of value. Unlike banknotes, stock, or other assets, the precious metal managed to preserve the investors’ wealth throughout the years, especially in times of turmoil in the financial markets.

According to data presented by AksjeBloggen, gold hit a 26.8% YTD return on investment, the highest increase in value among top assets.

Gold Return Rate 8.5% Higher than in 2019

Investors tend to focus on gold in times of market volatility, considering it to be a ‘safe haven’ in crises like the coronavirus. In 2019, the value of gold increased by 18.3%, revealed the Blackrock data. The precious metal continued the impressive performance in 2020 with a 26.8% YTD return, 8.5% more than in 2019.

Statistics show that last year, the S&P 500 index increased in value by 31% but was outperformed by Nasdaq, which grew by 35.2%. The MSCI Europe index rose by 26.1% in 2019. China A-shares followed with a 22.3% ROI.

However, the COVID-19 crisis had a massive impact on popular assets, causing a sharp fall in their values during the first half of 2020. The Blackrock data revealed the Nasdaq YTD return hit 23.9%, 11.3% below the 2019 performance. China A stocks reached 10% ROI YTD, much under the 22.3% return in 2019.

Statistics show the S&P 500 index had an 8.4% value increase in the nine months of 2020, almost four times less than in 2019. MSCI Emerging Market Index reached a 4.9% value increase in the same period, compared to 13% in 2019.

The Blackrock data show that crude oil, FTSE 100, and MSCI Europe index witnessed the most significant drop in the nine months of 2020, with their values falling by 34.6%, 22.4%, and 11.5%, respectively.

Global Demand for Investment Gold Surged by 100% YoY

Although many investors value gold as an important portfolio asset, the economic downturn caused by the COVID-19 pandemic led to a surge in global demand for the precious metal.

The World Gold Council data showed the global demand for investment gold increased significantly since the beginning of the year.

In the fourth quarter of 2019, it amounted to 279.2 metric tons. By the end of March, this figure jumped by more than 93% to 539.6 metric tons. The increasing trend continued in the second quarter of the year, with global demand for investment gold hitting 582.9 metric tons, an almost 100% jump year-over-year.

Statistics indicate the global demand for gold for investment purposes hit a record-breaking 1,152 metric tons in the first half of 2020, the highest figure so far.

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Oil Prices News: Oil Gains Following Drops in US Crude Inventories

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Oil Prices Gain Following Drops in US Crude Inventories and OPEC High Compliance Level

Global oil prices extended their 2 percent gains on Thursday after data showed U.S crude oil inventories declined last week.

The price of Brent crude oil, against which Nigerian oil is measured, gained 0.2 percent or 7 cents to $43.39 a barrel as at 12:10 pm Nigerian time. While the U.S. West Texas Intermediate (WTI) crude appreciated by 8 cent or 0.2 percent to $41.12 barrels.

Oil prices extended their three days gain after the American Petroleum Institute said the U.S crude inventories declined by 5.4 million barrels in the week ended October 9.

The report released after the market closed on Wednesday revealed that distillate stockpiles, which include diesel and heating oil, declined by 3.9 million barrels. Those stated drawdowns almost double analysts’ projections for the week.

Much of the fall is due to the effects of Hurricane Delta shuttering U.S. production in the Gulf of Mexico, and as such, will be a transitory effect,” said Jeffrey Halley, senior market analyst, Asia Pacific at OANDA.

“Therefore, I am not getting too excited that a turn of direction is upon markets, although both contracts are approaching important technical resistance regions.”

Also, the report that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, referred to as OPEC+ attained 102 percent compliance level with their oil production cuts agreements bolstered global oil outlook. Suggesting that demands for the commodity are likely not growing and could drag down prices in few weeks, especially when one factor in the reopening of Libya’s Sharara oil field, workers returning to operation in Norway and the Gulf of Mexico.

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