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South Africa Moving Closer to Recession

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New Rand Banknotes

South Africa is moving closer to a recession and possible credit-rating downgrade to junk after the rand collapsed and as investors lose faith in the ability of President Jacob Zuma’s government to stem the slide.

The currency of Africa’s second-largest economy crashed to a new record low of 17.9169 against the dollar early on Monday as market turmoil in China and a drop in U.S. stocks deterred risk-taking. The 9.9 percent slump in the rand was the most since 2008 and the biggest of emerging-market and major currencies tracked by Bloomberg.

Policy makers are running out of options on how to ease the crisis. Rising inflation risks stemming from the rand may force the central bank to take more aggressive action in tightening policy at a time when the economy is barely growing. Worsening debt levels and the threat of credit-rating downgrades mean Finance Minister Pravin Gordhan has limited room to veer from his budget targets by boosting spending.

“With large parts of the economy already in recession, it looks like a certainty” that the economy will contract, George Herman, head of South African investments at Citadel Investment Services, said by phone from Cape Town on Monday.

“I have no doubt in my mind that we will be downgraded to sub-investment grade,” he said. “The reality is that our fundamentals, which were already under pressure last year, have now been pushed over the tipping point by the dramatic weakening of the exchange rate.”

While South Africa’s economy narrowly avoided a recession in the third quarter, growth has been under pressure because of electricity shortages, weak global demand, plunging metal prices and drought.

“The big problem is, now that we’re moving into this sub-investment grade environment, just how much can the Reserve Bank put through in terms of its rate hikes,” Matthew Sharratt, an economist at Bank of America Merrill Lynch in Cape Town, said by phone. “If you’re going to grow at 0.4 percent, the risk of fiscal consolidation being delayed further is exceptionally high.”

Standard & Poor’s cut the outlook on South Africa’s BBB- credit rating to negative from stable last month, indicating it may downgrade the nation’s debt to junk. Fitch Ratings Ltd. has an equivalent rating of BBB- with a stable outlook, while Moody’s Investors Service rates South African debt one level higher at Baa2 rating.

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 market.

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Economy

Nigeria’s Main Refineries Record N406.62bn Loss in Two Years

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modular refinery

Port Harcourt, Kaduna, Warri Refinery posts N406.62bn Deficit in Two Years

Nigeria’s three main refineries recorded N406.62 billion loss in two years, according to the audited financial statements from the Nigerian National Petroleum Corporation (NNPC).

The three refineries located in Port Harcourt, Kaduna and Warri have a combined installed capacity of 445,000 barrels per day, however, the refineries have continued to function below the installed capacity.

The audited report showed the Kaduna refinery posted N64.34 billion loss in 2018, better than the N111.89 billion loss reported in 2017.

While Warri refinery filed N44.44 billion loss for 2018, also better than the N81.60 billion loss posted in 2017.

Port Harcourt refinery reported N45.59 billion loss in 2018, down from N55.76 billion loss posted in 2017.

The Nigerian government has spent billions of US dollars in maintaining and trying to improve the dilapidated refineries over the years. However, because of the inability of the three refineries to meet daily petrol demands of the Nigerian people, the Federal Government resulted to importation that has eroded the nation’s foreign reserves.

A recent report from the NNPC showed that Nigeria spent N2.37 trillion on petrol importation between May 2019 and May 2020 despite the nation struggling with falling foreign reserves due to low oil prices.

The weak foreign reserves has disrupted the nation’s economic outlook and weighed on the Nigerian Naira. The Naira has been devalued by 15 percent this year and was recently adjusted from N360 per US dollar exchange rate to N380/US$ for importers and investors to ease pressure on the nation’s foreign reserves.

Last week, at a summit organised by Seplat, Mallam Mele Kyari, the Group Managing Director, NNPC, said the three refineries were all idle despite the money being spent on them.

In Nigeria today, we are importing practically every petroleum product that we consume in this country.

“We are working to make sure that we are able to fix our refineries,” Kyari stated.

All hopes are now on Dangote’s refinery.

Aliko Dangote, Africa’s richest man and the world’s richest black man, is presently constructing a 650,000 barrels per day refinery.

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Osinbajo Says FG Plans to Create 5 Million Jobs

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Buhari and Osinbajo

FG to Create 5m Jobs from Strategic Investments in Manufacturing, Agriculture

Vice President, Prof. Yemi Osinbajo, has said the Federal Government plans to create at least 5 million jobs in the next few years.

Osinbajo, who spoke at the Virtual Presidential Policy Dialogue Session organised by the Lagos Chamber of Commerce and Industry (LCCI), said the Buhari-led administration is focused on job creation.

He, therefore, stated that this would be achieved with strategic investments in key sectors like the manufacturing and agriculture sectors.

The Vice President said, “We are to create jobs and boost our national housing programme. We would be intentional in the support of manufacturers in using our local raw materials. We are seriously engaging the use of cement in building our roads, as it will be cheaper for us and more durable.

“We are targeting electrification of five million households with solar power, and we are supporting SMEs, especially in the pharmaceuticals to enhance the production of personal protective equipment.”

Mrs. Toki Mabogunje, the President of LCCI, who also spoke at the event, expressed concerns over the failure of the Nigerian Customs Service to adhere to the Executive Order which forbids Customs checkpoints around the ports and within given geographical delimitations in the country.

She also noted the slow pace of reforms in the oil and gas sector, one of the nation’s main sectors. According to her, the oil and gas sector was another cause for worry, saying up till now the PIB passed has not been signed by President Muhammadu Buhari.

According to her, “Closure of the land borders has enormous implications for cross border economic activities around the country. The indications are now that the closure is indefinite. While we share the concern of government on issues of security and smuggling, we believe that the indefinite closure of land borders is not the solution to the problem.

“We are excited about the signing of the AFCTA. But we need to get ourselves ready for the pressure of competition inherent in the continental economic integration agenda. A number of commitments were made about the creation of an environment that would enable the private sector to be competition ready. But not much has happened in this regard so far.

“We are aware of the efforts of government to fix our infrastructure, including roads and railways, but funding has remained a major challenge. We would like to see a new funding model with much bigger focus on private sector capital within a Public Private Partnership [PPP] framework for infrastructure development in the country.

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Fuel Scarcity: NUPENG to Commence Strike on Monday

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Petrol Importation

Lagosians Should Brace for Fuel Scarcity as NUPENG Embarks on Strike

Nigerians should brace for fuel scarcity as the national leadership of the Nigeria Union of Petroleum and Natural Gas (NUPENG) directed all petroleum tanker drivers to withdraw their services from Lagos State starting from Monday, 10 August 2020.

In a statement released by NUPENG on Friday, the union said the directive followed the failure of various authorities in Lagos State to address three major issues that had impacted the operations of petroleum tanker drivers in the state for several months.

The statement signed by the National President, Williams Akporeha and the General Secretary, Olawale Afolabi, NUPENG and titled title ‘NUPENG leadership directs withdrawal of services by petroleum tanker drivers in Lagos State with effect from Monday, August 10, 2020,’ noted that members of the union are frustrated and pained by the barrage of challenges faced while carrying out their activities in Lagos State.

NUPENG said, “The entire rank and file members of the union are deeply pained, frustrated and agonised by the barrage of these challenges being consistently faced by petroleum tanker drivers in Lagos State and are left with no other option but to direct the withdrawal of their services in Lagos State until the Lagos State Government and other relevant stakeholders address these critical challenges.

“It is sad and disheartening to note here that we had made several appeals and reports to the Lagos State Government and the Presidential Task Force for the decongestion of Apapa on these challenges but all to no avail.

NUPENG listed the major challenges faced by petroleum tanker drivers in Lagos State as extortion and harassment by various security agents and, area boys’ (miscreants).

This menace must stop and the leadership of these security operatives in Lagos State must go all out to call their men to order with immediate effect.

The Union added that it is sad that the security agents who were expected to ensure the free flow of traffic and protection of road users were the same people using their uniforms and arms to intimidate, harass and extort money from petroleum drivers in Lagos State.

Therefore, it said it had embarked on an indefinite strike to force the Lagos State Government to address the situation.

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