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나이지리아 주나이지리아 대한민국대사 2023/07/10
WEEKLY ECONOMIC TRENDS
Friday, 16/06/2023
Energy Resource & Infrastructure Trends
Energy crisis: Nigeria’s electricity generation drops 37% to 2,649.9MW (Vanguard Newspaper, June 15, 2023)
• Nigeria’s electricity generation, yesterday, dropped by 37 per cent to 2,649.9 megawatts, MW, from 4,207.05 MW recorded on Wednesday, this week. This is even as the Nigerian Gas Association (NGA) backs President Bola Tinubu on Autogas moves to focus on Autogas in the Wake of Premium Motor Spirit (PMS) subsidy removal. Checks by Vanguard indicated the situation occurred because of many factors, including the poor state of plants and low gas supply to thermal plants.
• It showed that this was grossly inadequate for transmission and distribution to households and organisations in different parts of the nation, a development that pushed the Electricity Distribution Companies, DisCos, to embark on load shedding in order to spread the limited electricity to many at different times. Relevant government agencies did not provide details at the time of filling this report. However, the NGA, the umbrella body and the lead voice of the operators and players in the country’s entire gas value chain, said it remains proud to support the Federal Government’s renewed focus on prioritising autogas to cushion the effects of the removal of subsidy on the price of Premium Motor Spirit (PMS).
• In a statement obtained by Vanguard, it stated: “The leadership of the NGA believes that this policy leaning is very apt as it accelerates the domestic adoption and utilisation of gas, a resource that the country is most endowed with. Gas for the transportation sector and also for users of small generators, whether powered by Liquefied Petroleum Gas or Compressed Natural Gas (CNG), is one of the most affordable, available, safe, and reliable fuels that also substantially addresses global carbon emission concerns and the wellbeing of the environment. “To achieve this, the NGA urges the Federal Government to revisit and accelerate the implementation of the Nigerian Autogas Policy launched two years ago as part of the National Gas Expansion Programme (NGEP) under the well-articulated Decade of Gas Policy and Programme.”
• The President of the Association said that the refocus on gas as an alternative fuel for passenger, mass transit vehicles and users of small generators will encourage and stimulate investment, promote capacity building, put more people to work, and engender safety and sustainability in the country’s responsible energy use while helping Nigeria meet her carbon emission reduction goal set before global environmental stakeholders in 2021. Gas is cleaner, safer and more reliable and should naturally be the fuel of first choice. He stated: “We salute the steadfastness of President Bola Ahmed Tinubu, GCFR in his quest to return Nigeria to responsible and sustainable energy utilisation. We are also elated about his recognition of the critical and game-changing role that gas would play in actualising this policy direction and helping build the nation.
• “The members of the NGA are very keen to support the implementation of the autogas policy and stand ready to commence the strategic engagements and enlightenment campaigns to make it happen.” Nwokedi also urged the Federal Government to put in place and fast-track the necessary instruments and regulatory support to address long-standing issues to unlock the full potential of the gas sector be it on market-reflective gas pricing, intervening on legacy issues inhibiting gas investors and investments, gas supply challenges and outlining finance support programmes to encourage the front-end expense of converting millions of vehicles from petrol to gas.
Subsidy Removal: Petrol Price War Imminent as NMDPRA Begins Licencing of More Oil Importers (Thisday Newspaper, June 15, 2023)
• The Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) yesterday disclosed that it had begun the process of licencing additional oil marketers to begin importation of petrol, thereby breaking the monopoly of the Nigerian National Petroleum Company Limited (NNPC). Other things being equal, as the market expands and more entities are allowed to import products, Nigerians are expected to be the ultimate winners as prices of petrol would likely fall due to competition, given that operations do not engage in price fixing.
• Speaking in Abuja after meeting with the marketers at the agency’s headquarters, the Chief Executive of the NMDPRA, Mr. Farouk Ahmed, explained that the industry regulator would not allow businessmen operating in the downstream exploit Nigerians even in a deregulated market. Ahmed noted that as the NNPC starts slowing down on importation in deference to the Federal Competition and Consumer Protection Council (FCCPC) regulation which prohibits one entity or individual from controlling more than 30 per cent of the market, there was need to fill the gap being created by the new development.
• “Like I said, the market is open already. We have to follow the regulation. So we will put out policies that are user-friendly. Some of them (oil marketers) have already started putting their applications in because we don’t want to create a gap. “NNPC is slowing down on their importation, so we need to have someone closing up the gap that NNPC is creating so that we don’t have a shortage in the country.
• “But NNPC being a responsible organisation, is also monitoring what other replacements they have, so we agree that NNPC will continue to import until such a time when we have a critical mass of other importers. “The licences, we are processing them. Some or about two to three marketers already came to us last week to say that they have already booked cargoes to come in July. So, these are some of the very interesting things that we have received propositions for, which are very interesting and we are fast-tracking the licenses to make sure they import. “We are interacting with the NNPC every day to ensure that the market is well supplied and there’s no gap in importation,” he stated.
• On the availability of foreign exchange (FX) for importation, Ahmed stated that since the market had been deregulated, marketers could begin to source for FX where it is available without resort to the government. “For FX, the market is deregulated, so, I don’t believe we should subsidise our FX or that they should go to the Central Bank of Nigeria (CBN). The price that NNPC rolled out which they sell now, took cognisance of the exchange rate, not at the NNPC rate. “So, if exchange rate is N650 to a dollar, if the naira improves, the price will change, so it can go either way,” he argued.
• President Bola Tinubu had during his inauguration on May 29, announced that fuel subsidy had been removed, with the NNPC thereafter rolling out its projected prices in several locations in the country ranging from N488 to N557. Ahmed maintained that the issue of standardisation of products had become imperative in order to avoid situations where consumers will be short-changed when products that are of lower quality are imported into the country. He also said that during the meeting, the oil marketers agreed to improve their level of collaboration with security agencies to ensure the smooth movement of petroleum products.
• “We called for this engagement so that we can align and also roll out our policies in terms of requirements for importation of Petroleum Motor Spirit (PMS). Of course, we have been engaging and directing all through, but we thought it was necessary to meet again for more clarity regarding the way forward,” he added. He noted that the NMDPRA was giving priority to transparency in the importation of petrol, both by oil marketers and the national oil company to ensure that consumers get value for money.
• “We discussed the issue of quality of products importation, which is a very important aspect as well. So we deliberated on how products distributed locally meet the requirements so that the consumer is not negatively affected,” he said. Due to logistics reasons, Ahmed noted that the prices of petrol would not be the same nationwide, explaining that bridging or equalisation fund has now been expunged. He added that there would be no price capping by NMDPRA to ensure that the price is reflective of the market, but that blatant exploitative tendencies will be frowned upon.
• “Prices will not be the same all across the country because of local transportation logistics. For example, the price in Lagos being the main receiving location for imports will not be the same thing, the same price in Ibadan, Sokoto or Maiduguri,” he pointed out. Besides, he said that a small team will also be raised to look at the PIA amendment which currently screens out certain entities from bringing in the product into the country.
FUEL SUBSIDY: Oil marketers plan petrol import as CBN floats forex (Vanguard Newspaper, June 15, 2023)
• Oil marketers in Nigeria have intensified efforts targeted at importing petrol from the world market following the latest liberalization of foreign exchange rates by the Central Bank of Nigeria, CBN. The prevalence of multiple foreign exchange rates and other problems had prevented the marketers from importing the product, forcing them to depend on the NNPC Limited for domestic supplies. But with the CBN’s action, the oil marketers, who spoke with Vanguard, expressed optimism that their first shipment would arrive in Nigeria in the coming weeks.
• The Chief Executive Officer/ES, Major Oil Marketers Association of Nigeria, MOMAN, Clement Isong, said: “We intend to import in the next few weeks.” Similarly, the Managing Director/CEO of 11 Plc, Adetunji Oyebanji, said: “We will take a look. I think we are getting closer than ever.” In another interview with Vanguard, the National President of the Independent Petroleum Association of Nigeria, IPMAN, Elder Chinedu Okoronkwo, said the association is currently considering importation.
• The Chairman of Depots and Petroleum Products Marketers Association of Nigeria, DAPPMAN, Dame Winifred Akpani, who led stakeholders to visit President Bola Tinubu had tasked him to adopt measures capable of ending the fuel crisis while achieving stability in Nigeria’s downstream sector. She said: “Our further humble request to the President is that all dues and levies to government agencies particularly the NPA Plc and NIMASA be reduced to the barest minimum and payable in naira. This will drastically reduce the pressure on our foreign exchange rate reserve and keep in check the pump price of petrol.
• “All charges and taxes imposed by the regulator, NMDPRA as stipulated in the Petroleum Industry Act, PIA 2021 be suspended until we achieve market stability. The 2.5 per cent security deposit requested by NNPC Limited for all purchases be scrapped as they never overload marketers. The government should revise the clause in the PIA 2021 which restricts importation to only companies with active local refining licenses and /or proven track records of international crude oil and petroleum products trading.
• “In conclusion, we would add that stability in the petroleum industry will ultimately lead to the much-needed energy transition. We anticipate less dependence on fossil fuels which will result in more investment and faster development of gas and electricity as alternative sources of energy. We thank you once again for this opportunity and pray that our beloved nation will experience sustainable growth and economic prosperity under your astute leadership may god bless the Federal Republic of Nigeria.”
TotalEnergies Discovers Oil, Gas in Offshore OML 102 (Thisday Newspaper, June 14, 2023)
• French oil major, TotalEnergies, yesterday, announced the discovery of oil and gas in Ntokon, offshore Oil Mining Lease (OML) 102 Nigeria. The President in-charge of Exploration and Production at TotalEnergies, Mr. Nicolas Terraz, made the disclosure in a statement issued yesterday in Paris, France. “The Ntokon discovery opens a promising outlook for a new tie-back development.
• “After the start-up of production of the Ikike tie-back on OML99 in 2022, this new success in the area further demonstrates the potential of nearby exploration to create value within our low cost, low emission strategy,” Terraz said. Located in shallow waters, 60 km off the Southeast coast of Nigeria, the Ntokon-1AX discovery well, according to the statement, encountered 38 meters of net oil pay and 15 meters of net gas pay, while its side-track Ntokon-1G1 encountered 73 meters of net oil pay, in well-developed and excellent quality reservoirs.
• The international oil company (IOC) explained that Ntokon-1G1 tested successfully up to a maximum rate of about 5,000 barrels per day of 40° API oil. “Located 20 km from the Ofon field facilities on OML102, Ntokon is planned to be developed through a tie-back to these existing facilities. “OML 102 is operated by TotalEnergies EP Nigeria with a 40 per cent interest, alongside partner NNPC Ltd with the remaining 60 per cent,” the statement added.
FG issues two oil export terminal licences, eyes $11bn (The Punch Newspaper, June 14, 2023)
• The Federal Government, on Tuesday, issued and signed licences for the establishment of two crude oil export terminals, capable of generating $11bn revenue annually for the country. It issued the licences through the Nigerian Midstream and Downstream Petroleum Regulatory Authority to Belema Sweet Export Terminal Limited and NNPC Exploration and Production Limited in Abuja. Speaking at the event in Abuja, the Chief Executive, NMDPRA, Farouk Ahmed, said the signing of the terminal establishment licences for the two crude export terminals would lead to the addition of more than four million barrels of oil capacity to Nigeria’s export storage. “Our activities today are pursuant to the provisions of the PIA (Petroleum Industry Act), which has stipulated new provisions for the establishment of new export terminals.
• “According to PIA Section 174(1) (a) ‘Except in accordance with an appropriate licence issued by the Authority, a person shall not undertake the following activities with respect to midstream petroleum liquids operations — (a) establish, construct or operate a terminal or other facility for the export or importation of crude oil or petroleum products.’
• “The authority has processed and hereby approves Terminals Establishment Licences for: (a) NNPC Exploration and Production Limited to establish 2,179,747 barrels Crude Oil Terminal at Offshore Akwa Ibom State within the waters of the Exclusive Economic Zone Nigeria. “(b) Belema Sweet Export Terminal Limited to establish a 2,000,000 barrels Crude Oil Terminal at 20 Nautical Miles of Kula Southern Part of Exclusive Economic Zone Nigeria,” Ahmed stated. He noted that subsequent to these licences, terminal establishment notices were to be published in the Federal Government gazette. “The terminals are required to operate within the provisions of the conditions of the licences as contained in the licence documents. Kindly note that the authority is committed to ease of doing business in the industry,” the NMDPRA boss stated.
• The President and Founder Belema Oil Producing Limited, Tien Jack-Rich, said the facilities would generate over $11bn annually for Nigeria, adding that Belema Oil would work hard to get its terminal ready within six months. “Nigeria will benefit through the revenue earnings from the facility. This terminal has the capacity to generate over $11bn to our national revenue every single year, and that’s 400,000 barrels of crude every single day,” he stated. He added, “With the establishment of Belema Sweet Crude Export Terminal, Nigeria now ranks number one in the world to establish a crude oil export terminal that is climate-conscious, where traditional energy and renewable energy integration is operated through a virtual power plant model.
Nigeria’s production hits 1.2m b/d as Total announces oil discovery (The Guardian Newspaper, June 14, 2023)
• Nigeria’s oil production edged slightly, last month, to regain its leading position in Africa, while, yesterday, the Organisation of Petroleum Exporting Countries (OPEC) pegged the country’s oil production in May at 1.2 million barrels. Still far below the 2023 budget benchmark of 1.6 million barrels per day (bpd) and OPEC’s quota of 1.8 million bpd, the figure provided by the global body, once again, differs from statistics revealed, yesterday, by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), which put daily production at 1.4 million barrel.
• This came as TotalEnergies announced the Ntokon oil and gas discovery on Oil Mining Licence (OML) 102, offshore Nigeria. Amid uncertainties in the global economy, OPEC, in its Monthly Oil Market Report released, yesterday, maintained its position that global oil demand this year would rise by 2.35 million bpd or 2.4 per cent. While NUPRC’s data show that Nigeria’s production stood at 1.18m barrels, with additional blended condensate (0.065m barrels) and unblended condensate (0.18m barrels), bringing production to 1.4 million bpd, OPEC put the figure at 1.2 million. The development, however, showed improvement in production, which OPEC had reported as falling below one million barrels in April.
• OPEC had, in the report, expressed worry, saying: “There are rising uncertainties regarding economic growth in the second half of 2023, amid ongoing high inflation, already elevated key interest rates, and tight labour markets. “Moreover, it is still unclear as to how and when the geopolitical conflict in Eastern Europe (Ukraine) might be resolved.” Yesterday, oil prices bounced back with about 3.55 per cent increase, after dropping on Monday by $3 per barrel. The rebound was linked to projected expectations of the U.S. Fed meeting. Meanwhile, Total, in a statement, noted that its discovery in Nigeria was made in shallow waters, 60 kilometres, off the southeast coast of Nigeria.
• It said its Ntokon-1AX discovery well encountered 38 metres of net oil pay and 15 metres of net gas pay, while its sidetrack, Ntokon-1G1, encountered 73 metres of net oil pay, in well-developed and excellent quality reservoirs. Ntokon-1G1 tested successfully up to a maximum rate of about 5,000 bpd of 40° API oil. Located 20 kilometres from the Ofon field facilities on OML102, Ntokon is planned to be developed through a tie-back to existing facilities. President, Exploration and Production at TotalEnergies, Nicolas Terraz, said: “The Ntokon discovery opens a promising outlook for a new tie-back development. After start-up of production of the Ikike tie-back on OML99 in 2022, this new success in the area further demonstrates the potential of nearby exploration, to create value within our low cost, low emission strategy.”
Other Economic Trends
Inflation Rises for 5th Consecutive Time, Climbs to 22.41% (Daily Trust Newspaper, June 15, 2023)
• Nigeria’s inflation rate rose to 22.41%, according to the recently released Consumer Price Index (CPI) report of the National Bureau of Statistics (NBS). In the report released on Thursday, inflation marked the fifth consecutive increase in May. The development comes amid the hike in fuel prices as a result of the removal of fuel subsidies. Food and non-alcoholic beverages (11.61%) contributed the most to pressure, followed by housing water, electricity, gas and other fuel, and clothing and footwear.
• Others are Furnishings & Household Equipment & Maintenance (1.13 percent) Education, (0.88 percent), Health (0.67 percent), Miscellaneous Goods & Services (0.37 percent), Restaurant & Hotels (0.27 percent,) Alcoholic Beverage, Tobacco & Kola (0.24 percent), Recreation & Culture (0.15 percent) and Communication (0.15 percent).
• Food prices increased by 24.82% in May 2023, with notable rises in oil/fat, yam, bread/cereals, fish, and vegetables. “Looking at the movement, the May 2023 inflation rate showed an increase of 0.19 percent points when compared to April 2023 headline inflation rate. Similarly, on a year-on-year basis, the headline inflation rate was 4.70 percent points higher compared to the rate recorded in May 2022, which was (17.71 percent),” it said. Core inflation stood at 20.06% in May 2023, driven by higher gas prices, air transport costs, and medical services.
OPEC projects Nigeria’s economy recovery in coming months (The Punch Newspaper, June 15, 2023)
• The Organisation of the Petroleum Exporting Countries has said, although Nigeria’s economy faced challenges in the first half of the year, it may recover in the coming months. The group in its latest report on the Monthly Oil Market Report for May said the recovery would be hinged on Nigeria’s Purchasing Manager Index for April, which recovered strongly to 53.8 compared with only 42.3 in March. “Despite the challenges, April’s Stanbic IBTC Bank Nigeria PMI recovered strongly to 53.8, compared with only 42.3 in March, indicating a potential near-term recovery,” it stated.
• The report further explained part of the challenges faced by Nigeria’s economy in May, saying that business activities and consumers’ purchasing power remained low, in addition to high input-cost inflation and lower employment levels compared with 2022. “Nigeria’s economy faced challenges in gaining momentum in 1H23, with business activity and consumer spending remaining subdued, in addition to high input-cost inflation and lower employment levels compared with the previous year,” the report further indicated.
• According to the report, the country’s inflation data for March showed an ongoing acceleration, with an annual rate of 22 per cent year-on-year, up from 21.9 per cent year-on-year in February and 21.8 per cent in January. OPEC said food inflation had been a key factor in the rise, reaching about 25 per cent year-on-year in March, adding that the Central Bank of Nigeria had kept the policy rate unchanged at 18 per cent, following a 50 basis points hike in March and a 100 basis points hike in January.
• The group, however, said despite the challenges, Nigeria’s PMI recovered strongly to 53.8, compared with only 42.3 in March, indicating a potential near-term recovery. The development comes on the heels of recent removal of fuel subsidies, which had cost the country a whopping N12tn. President Bola Tinubu’s inaugural speech which announced the end of the petrol subsidy regime immediately sent prices of petrol skyrocketing from between N179 and N200 per litre to above N500 per litre.
What to expect after Nigeria floats naira (Business Day Newspaper, June 15, 2023)
• With the unification of the foreign exchange (FX) market, foreign investors of all categories can now come in with their money to invest in Nigeria, said Ayodele Akinwunmi, relationship manager, of corporate banking at FSDH Merchant Bank Limited. He said exporters will now earn more money on their exports. Government can now speak with Nigerians in the diaspora to invest in Nigeria. In the short term, prices of goods will increase until a new equilibrium will be attained,
• FX liberalisation is expected to unlock the huge potential for investment, jobs and capital flows, and investors’ confidence would be positively impacted, said Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise. The Central Bank of Nigeria (CBN) on Wednesday collapsed all segments of foreign exchange markets into the Investors and Exporters (I&E) forex window.
• According to Yusuf, a unified exchange rate regime offers other benefits for the economy, such as it enhances liquidity in the foreign exchange market, reducing uncertainty, enhancing the confidence of investors, and showing more transparency as a mechanism for forex allocation. It minimizes discretion in the allocation of forex and reduces corruption vulnerabilities. It reduces opportunities for round tripping and other sharp practices.
• It would increase disclosures with respect to export proceeds and compliance with non-oil export declarations, especially the non-oil export documentation (NXP). It would boost government revenue by a minimum of N4 trillion through additional remittance of exchange rate surplus to the federation account by the CBN. The use of naira cards for limited international transactions would be restored in the short to medium term.
• It would facilitate the mopping up of naira liquidity in the economy in the short to medium term. This would impact positively on the inflation outlook. It would deepen the autonomous foreign exchange market through the liberalization of inflows from export proceeds, Diaspora remittances, multinational oil companies, diplomatic missions, among others, said Yusuf. On the other hand, Nigerians should expect two to three months of difficult moments and a slight rise in inflation of up to 30 percent, following the liberalisation of the FX market, according to Olisa Agbakoba, Nigerian human rights activist, maritime lawyer.
• “Nigerians should prepare for difficult moments in the next two to three months after which there will be normalcy. “The Nigerian economy is structurally defective. Structural defect is what economists call asymmetry. Asymmetries are like police checkpoints from Onitsha to Enugu so that you can’t travel effectively. Nigeria has had economic asymmetry in the last six years, which means you have rent seekers who use information they get because they are close to the government.
• “For me, removing the checkpoint between the CBN dollar control and the street dollar control is brilliant news because it could make dollar and naira flow effectively. “In all, removal of fuel subsidy, and correction of naira/dollar value is good news for the Nigerian economy,” Agbakoba said. Uche Uwaleke, professor of capital market at the Nasarawa State University Keffi, said, “I support the unification of exchange rates which makes for a more transparent forex market. “But I think that the CBN should implement that in a way that does not cause massive distortions in the general price level.
• “In this regard, a sudden free float of the naira is not advised given that the economic fundamentals required to support a naira float are still very weak especially in relation to sources of forex. “It’s rather early to bank on sustainable capital inflows from foreign direct investments due in part to insecurity and the overall unconducive environment of doing business in Nigeria.” He said the sudden naira devaluation may draw foreign portfolio investments which is part of the reason the stock market is surging. “But we also know that portfolio investments are hot money and do not represent a sustainable source of forex inflows.
• “In consideration of this therefore, I would advise that the unification of exchange rates should not be a one step process but should be implemented over a period of time however short it may be,” Uwaleke said. According to him empirical evidence suggests that reforms are more successful when they are sequenced and implemented in phases. This is against the backdrop of the oil subsidy removal which, taken together, can result in galloping inflation and rising poverty level. “So, while fiscal and monetary policy reforms are welcome, absolute care should be taken to strike the right balance and minimize their unintended consequences.”
• 10 major implications of Naira exchange rate unification, by Taiwo Oyedele, head of tax and corporate advisory services at PwC Nigeria with the Nigerian Naira now exchanging in the official forex market at market determined rates, a significant market distortion has been removed. Expectedly this will come with both positive and negative implications.
The major impacts will include:
1. Significant rise in government debt in naira terms by about N12 trillion to N90 trillion, that is external debt of $42bn will increase by the difference between the old and new rates.
2. As a result of the above, the debt to GDP ratio will increase by about 5 percent.
3. There will be a corresponding increase in debt service cost with respect to foreign debt service
4. Government’s revenue will increase in naira terms resulting in a higher tax/revenue to GDP ratio. Corporate tax collection may however decline as many businesses crystallize forex losses due to the higher exchange rate.
5. Possible reduction in budget deficit if government’s forex revenue exceeds foreign currency obligations, an increase in budget deficit will arise if otherwise
6. Possible impact on the pump price of petrol which could inch closer to the current pump price of diesel
7. There should be some cost savings as government discontinues with the various FX interventions like Naira4Dollar, RT200, and others which cost tens of billions of naira
8. The country will attract FX inflows especially from portfolio investors, foreign direct investment, and exporters proceeds. Impact on diaspora remittances would be marginal.
9. The capital market will benefit as it is likely to appreciate further as foreign investors take position
10. There should be negligible impact on the general prices of goods and services as products already factored in parallel market rates to a large extent.
• Overall, this is a positive move. However, the government needs to manage the dynamics to restore confidence. The backlog of forex demands need to be addressed and the government should be ready to supply forex to stabilise the exchange rate in the short term. Also relax capital control and administrative bottlenecks including unbanning the list of items prohibited for fx (and complement with higher import duties), remove the need for certificate of capital importation etc to prevent the parallel market rate from simply moving further away from the official market rate.
• Stop the demand for certain taxes and levies in foreign currency, it creates unnecessary FX demand without adding to supply. The aggregate demand for FX across markets should reduce as round-tripping incentives are removed, for instance people who fake foreign travels just to get FX at discounted rates. Also, Nigeria’s sovereign credit rating should improve if this is complemented with the right fiscal and monetary policies thereby attracting more FX inflows and lowering the cost of borrowing.
Nigeria officially floats naira as I&E rate hits N755/$ (Business Day Newspaper, June 15, 2023)
• Nigeria has officially floated its naira currency after years of sticking with a hard peg that spooked investors and drained dollars from the economy. The development means buyers and sellers of foreign currency in the official FX market are now allowed to quote rates they find comfortable in the FX market, as against previous practice where rates were dictated by the Central Bank of Nigeria (CBN). The Investors & Exporters (I&E) window is now quoting a range of between N750 and N755/$, according to customers who cited emails received from their banks.
• That implies a 21 percent decline in the naira compared to the previous rate of N463/$ which the Central Bank of Nigeria (CBN) is still quoting as the I&E rate on its website. However, the last time the CBN updated the rate was June 9. The latest move by the CBN follows President Bola Tinubu’s suspension of CBN governor Godwin Emefiele whose unorthodox monetary policies had become a stumbling block to investors and the economy. The exchange rate could go as high as N800 by the end of today, according to some bankers, who say an initial knee-jerk reaction could cause the naira to weaken sharply before recovering some lost ground.
• “Given that this new rate in the official market is the same as the parallel market, there is no incentive for people and businesses with genuine transactions to patronize the parallel market, hence FX trading activity in the parallel market will slow down significantly,” Abiola Rasaq, an economist and former head of investor relations at United Bank for Africa. “Subsequently, the official market should attract more FX supply and rate should gradually ease in the I&E window, and such would cause rates in the parallel market to also ease,” Rasaq said. The CBN’s next move should be to prioritise supply of dollars to support the naira float.
• “The convergence of the rates is only the first step, the next step is the most crucial and that is to boost supply into the market,” a source told BusinessDay. “No foreign investor will come without a hedge and that can only come when there is assurance of supply. That’s the hard work,” the source said. Another knowledgeable source is of the view that allowing the market to determine the FX rate is only the first of six steps to fixing Nigeria’s broken FX market. The second step must be to provide a hedge mechanism that is priced in line with the market while the third step is to ensure market yields are attractive to Foreign Portfolio Investors (FPI).
• The next steps are to ensure transparency and remove all controls around domiciliary accounts. Finally, there is also a need to clear the dollar backlog in the market in order to attract FPIs. “The focus is on supply,” the source said. Expectations are high after the initial move to fix Nigeria’s broken FX market. Chidi Uzo, a fund manager at Stanbic IBTC Pension Managers Ltd, said the move was “a bold step in the right direction.”
• “However this should go in tandem with the lifting of capital restrictions for investors waiting on the sidelines to repatriate their funds. We expect foreign investor participation to be swayed by the extent to which capital is allowed to flow freely,” Uzo said. “Overall, the effective harmonization of Nigeria’s multiple exchange rates by allowing market forces to determine the fair value of the naira should immediately reverse the multi-year widening spreads between the official exchange rate and the parallel market exchange rates,” he said.
CBN publishes operational guidelines for deregulated FX market (Business Day Newspaper, June 14, 2023)
• The Central Bank of Nigeria (CBN) has published its operational guidelines governing transactions on the FX market after the floatation of the Naira early Wednesday. The guidelines addressed to authorized dealers and the general public confirmed that the controversial multiple exchange rate windows had been abolished. According to the apex bank, changes to operations in the Nigerian Foreign Exchange (FX) Market are as follows-
• Abolishment of segmentation. Al segments are now collapsed into the investors and Exporters (I&E) window. Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks. Re-introduction of the “Willing Buyer, Willing Seller” model at the 18E Window. Operations in this window shall be guided by the extant circular on the establishment of the window, dated 21 April 2017 and referenced FMD/DIR/CIR/GEN/08/007. Al eligible transactions are permitted to access foreign exchange at this window.
• The operational rate for all government-related transactions shall be the weighted average rate of the preceding day’s executed transactions at the I&E window, calculated to two (2) decimal places. Proscription of trading limits on oversold FX positions with permission to hedge short positions with OTC futures. Limits on overbought positions shall be zero.
• Re-introduction of order-based two-way quotes, with bid-ask spread of A1. Al transactions shall be cleared by a Central Counter Party (CCP).
• Reintroduction of Order Book to ensure transparency of orders and seamless execution of trades.
• The operational hours of trades shall be from 9am to 4pm, Nigeria time. 1
• Cessation of RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme, with effect from 30 June 2023. The CBN said further guidance on these matters shall be communicated in due course.
FG eyes N124bn from new import tax (The Punch Newspaper, June 14, 2023)
• The Federal Government is set to make about N124.26bn in a year from the imposition of a 0.5 per cent import tax on goods introduced in Finance Bill 2023. The Finance Bill 2023 which was signed into law on 28 May 2023 by former President, Muhammadu Buhari imposed a 0.5 per cent levy on goods imported into Nigeria from outside Africa. According to the law, a 0.5 per cent levy will be imposed on goods imported into Nigeria from outside Africa.
• It read in parts, “In addition to extant customs duties and other approved charges, a levy of 0.5 per cent is imposed on all eligible goods imported into Nigeria from outside Africa to finance capital contribution, subscriptions, and other financial obligations to the African Union, African Development Bank, African Export-Import Bank, ECOWAS Bank for Investment and Development, Islamic Development Bank, United Nations, and other multilateral institutions as may be designated by regulation issued by the Minister responsible for Finance.”
• Nigeria imported N24.85tn worth of goods from outside Africa in 2022 according to data from the National Bureau of Statistics. When a base tax of 0.5 per cent was applied to total non-African imports, it translated to N124.26bn. It remains to be seen if the 0.5 per cent import tax will be added to all goods.
• According to the Federal Government, this revenue source will help it meet and ensure the sustainability of its obligations to multilateral organisations. The Hong Kong Trade Development Council, in a blog post-dated January 3, 2023, stated that the import levy may help Nigeria lower its public debt profile. It also noted that customers might be at the receiving end of the policy, with the cost of imported goods rising. It said, “The import levy aims to lower Nigeria’s public debt, which ballooned from N39.56tn ($88.6bn) in December 2021 to N42.84tn in June 2022.
• “While the import levy will boost government revenues, according to some experts it may also raise the costs of imported goods to end consumers, and so add to inflationary pressures which saw the inflation rate grow from 15.60 per cent in January 2022 to 21.47 per cent by November 2022.” In a report titled, ‘Tweaking the 2023 Finance Bill and Options for Unlocking revenues’ in 2023, the Director of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, argued that the 0.5 per cent levy on all imports coming from outside of Africa will be an additional burden on both businesses and the citizens.
• He stated that this will escalate operating expenses, production costs, and fuel inflation in the economy. He said, “Most equipment, machinery, ICT equipment, and medical equipment are all imported from outside of Africa. Imposing a levy of 0.5 per cent on this group of items will be inimical to investment, economic growth, and the welfare of the citizens.” According to an Abuja-based economist, Chris Uwadoka, who spoke with The PUNCH earlier, the new tax is a fiscal measure within the government’s capacity. He noted that since the government does not want to fail with its debt obligations, it had to devise measures to ensure it meets all its obligations.
FG generates N709bn VAT in Q1’23 – NBS (Vanguard Newspaper, June 13, 2023)
• The National Bureau of Statistics (NBS) said that the federal government generated N709.59 billion as Value Added Tax (VAT) in the first quarter of 2023. The bureau disclosed this in its “Sectoral Distribution of Value Added Tax” report for Q1 2023, released on Tuesday. According to NBS, the figure represents a growth rate of 1.75 per cent on a quarter-on-quarter basis from N697.38 billion in Q4 2022.
• Out of the total amount generated, it said local payments stood at N436.10 billion, foreign VAT payments were N151.13 billion, while import VAT contributed N122.37 billion in Q1 2023. The bureau noted that on a quarter-on-quarter basis, the activities of households recorded the highest growth rate at 349.86 per cent, followed by construction with 95.64 per cent.
• “On the other hand, activities of extraterritorial organisations and bodies had the lowest growth rate with –53.54 per cent, followed by real estate activities with –47.01 per cent,” the report said. Regarding sectoral contributions, the report said the top three largest shares in Q1 2023 were manufacturing with 29.65 per cent, information and communication with 19.29 per ce,nt and mining & quarrying with 12.24 per cent.
• Conversely, it said activities of extraterritorial organisations and bodies recorded a minor share with 0.02 per cent, followed by activities of households as employers, undifferentiated goods and services-producing activities of households for own use with 0.03 per cent and water supply, sewerage, waste management, and remediation activities with 0.04 per cent. However, NBS said that on a year-on-year basis, VAT collections in Q1 2023 increased by 20.56 per cent from Q1 2022.
Phone, generator imports gulped $3.5bn in 2022 – Report (The Punch Newspaper, June 13, 2023)
• Nigeria spent $3.47bn importing phones, generating sets, electrical transformers, and a host of other electrical equipment in 2022. This is based on data culled from the International Trade Center. The ITC gets its data from the National Bureau of Statistics and the United Nations COMTRADE. According to the multilateral agency, which has a joint mandate with the World Trade Organisation and the United Nations, Nigeria’s electrical importation bill grew by 11.90 per cent from the $3.09bn it was in 2022. Also, over the last three years, Nigeria has spent $10.26bn importing electrical equipment amid falling foreign exchange reserves. Imports under the electrical machinery and equipment category on the ITC portal include, but are not limited to, electric motors and generators, electric generating sets, electrical transformers, vacuum cleaners, electric shavers, hair clippers, and telephone sets which include smartphones, facsimile machines for line telephony, teleprinters, and parts of telephone sets.
• Total phone imports in 2022 was put at $773.56m, a 0.17 per cent year-on-year increase from $772.25m as of 2021. $468.65m worth of electric motors and electric generating, and $357.36m worth of electrical transformers were also imported. Cumulatively, the three products constituted 46.06 per cent of total electrical equipment importation in 2022. Most of the equipment were imported from China, India, Germany, Türkiye, Sweden, United States of America, United Kingdom, Austria, Italy, Vietnam, and France. Despite the liberalisation of its telecommunication sector over 20 years ago, Nigeria does not locally manufacture phones and most of the equipment needed in the telecom sector.
• According to the Nigerian Communications Commission, about 63 million technology devices are sold in Nigeria yearly. Nigeria’s phone market is dominated by foreign players like Tecno, Samsung, Apple, and Itel. Despite having the seventh-highest number of phones in the world, buoyed by its large mobile subscribers, according to the World Population Review, the country’s local phone manufacturing industry is non-existent. Recently, the IDC said, “Nigeria’s smartphone market declined 32.1 per cent YoY in Q4 2022 due to sustained high inflation and a shortage of U.S. dollars in the country.” Nigeria’s smartphone market declined 32.1% YoY in Q4 2022 due to sustained high inflation and a shortage of US dollars in the country.
• In an earlier interview with The PUNCH, the Chief Operating Officer, Association of Telecommunications Companies of Nigeria, Ajibola Olude, said poor electricity supply, lack of regulatory enforcement, disdain for local content, and a lack of technical know-how were reasons affecting local phone manufacturing in the country. Lamenting on the continued dependence on imported electrical equipment in an earlier interview with The PUNCH, an associate professor of Economics at the Pan Atlantic University, Olalekan Aworinde, said, “The implication of this is many. For instance, foreign exchange management, all those goods were paid for in dollars.
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| 이전글 | 나이지리아 주간 경제 뉴스(6월 4주차, ENG) | 2023-07-10 |
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