• Oil Prices Rise as Chinese Demand Offsets Weak Japan Data

    25/Sep/2015 // 232 Viewers

    Oil prices rose on Friday as investors weighed comments by U.S. Fed Chair Janet Yellen on a rate rise by year-end and supply-side developments in the market.

    A weekly decline in U.S. oil stockpiles had boosted benchmark prices in the last session, and an indicator of oil drilling activity in the U.S. due later on Friday will be closely watched for signs of further pullback by oil producers.

    But oil price gains remain capped by an unrelenting global glut and comments by Iran on Thursday that it will increase its exports have put further pressure on the market.

    Brent crude, the global oil benchmark, rose 0.2 % to $48.94 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.7% at $45.23 a barrel.

    Both benchmarks are roughly down 50% from a year ago and 15% lower year-to-date.

    In her speech on Thursday, Ms. Yellen argued in favor of raising interest rates later this year, providing more clarity to investors as markets have been volatile amid uncertainly around the increase in rates.

    Most market participants still project the Fed will raise rates this year, which will be bearish for oil and commodities in the longer term as it will boost the U.S. dollar. As oil is priced in dollars, it becomes more expensive for holders of other currencies as the greenback appreciates.

    Meanwhile, Iran said it expects to boost its oil exports by 500,000 barrels a day by late November or early December, mostly with sales to Asia, a top Iranian oil official told The Wall Street Journal on Thursday.

    This would allow Iran to exceed its current oil exports by 1 million barrels a day by mid-2016, the official said, even before most western sanctions are lifted, putting pressure on oil prices.

    Later on Friday, oil services firm Baker Hughes Inc. will publish the latest U.S. oil drilling rig count, which many on the market see as proxy for activity in the shale industry. The number of rigs has fallen sharply since oil prices headed south last year.

    While the rig count had increased for six consecutive weeks over the summer as a consequence of higher oil prices, it fell again in the past three weeks. There are now about 60% fewer rigs working since a peak of 1,609 in October last year.

    Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 0.4% to $1.36 a gallon. ICE gas oil changed hands at $466.50 a metric ton, up $1.25 from the previous settlement.

    Write to Jenny W. Hsu at jenny.hsu@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com

    Source: Fox Business


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  • Will Nigeria Be Forced To Devalue The Naira?

    26/Feb/2016 // 171 Viewers

     

    Colin Lloyd

    *Colin Llyod

    The Nigerian government met the World Bank to discuss its deficit - loans pending.

    The Bank of Nigeria cut rates in November - bond prices suggest further cuts are imminent.

    Foreign exchange controls tightened further in December.

    President Buhari states he won't "kill the naira".

    I last wrote about Nigeria back in early June - Nigeria and South Africa - what are their prospects for growth and investment? My favoured investment was long Nigerian bonds - then trading around 13.7%. They rose above 16% as the naira exchange controls tightened. Here is a chart showing what happened next:

    Source: Trading Economics, Central Bank of Nigeria

    The catalyst for lower yields was an unexpected interest rate cut by the Central Bank of Nigeria. This is how it was reported by Reuters back on 25th November:

     

    Nigeria's central bank cut benchmark interest rate to 11 percent from 13 percent on Tuesday, its first reduction in the cost of borrowing in more than six years.

    …The stock market, which has the second-biggest weighting after Kuwait on the MSCI frontier market index, erased seven days of losses to climb to 27,662 points following the rate cut. The index has fallen 20.4 percent so far this year.

    READ: INTERVIEW: Reconstructing Edo State; who does the cap fit? 

    "On the back of the reduction in policy rates ... investors are reconsidering investment in the equities market to earn higher return," said Ayodeji Ebo, head of research at Afrinvest. "We anticipate further moderation in bond yields."

    He expected stocks in the industrial sector such as Dangote Cement and Lafarge Africa to gain from the liquidity surge as infrastructure projects boom. Ebo said the rate cut may hurt bank earnings as consumer firms reel from dollar shortages.

    Yield on the most liquid 5-year bond fell 264 basis points to a five-year low of 7 percent while the benchmark 20-year bond closed 150 basis points down at 10.8 percent on Wednesday, traders said.

    Bond yields had traded above 11 percent across maturities prior to Tuesday's rate decision, with the 2034 bond trading at 12.30 percent.

    The central bank has been injecting cash into the banking system since October in a bid to help the economy. Banking system credit stood at 290 billion naira ($1.5 bln) as of Wednesday, keeping overnight rates as low as 0.5 percent .

    …The rate cut also weakened the naira on the unofficial market, which fell 0.8 percent to 242 to the dollar. The currency is pegged at 197 naira on the official market.

    Non-deliverable currency forwards, a derivative product used to hedge against future exchange rate moves, indicated markets expected the naira's exchange rate at 235.56 to the dollar in 12 months' time - the strongest level in five months - and compared to 245.25 at Tuesday's close

    "Our economists still believe a devaluation will happen in a couple of quarters but I think they have had opportunities," said Luis Costa, head of CEEMEA debt and FX strategy at Citi. - Seeking Alpha


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  • Brexit aftermath: Read how it affects Nigeria

    26/Jun/2016 // 748 Viewers

     


    Some of the wider implications of Britain’s decision on Thursday to leave the European Union, commonly called Brexit, have started manifesting. The country left the EU after 51.9 per cent of voters backed the exit in a referendum with serious consequences for the British and global economies.

    As a foretaste of what is to come, at the weekend, Britain’s credit rating was downgraded.

    The rating, which was done by Moody’s, one of world’s foremost credit ratings agency downgraded the UK Government’s bond rating from stable to negative in light of Britain’s decision to leave the European Union.

    Moody’s warned that Britain’s economic growth would be weaker, its economic policymaking may be diminished and the government’s fiscal strength reduced.

    “Moody’s expects a negative impact on the economy unless the UK government manages to negotiate a trade deal that largely replicates its current access to the Single Market.

    “However, at the moment there is substantial uncertainty over the type of trade agreement that could be achieved,” the rating agency said.

    The agency also affirmed Britian would remain on the AA+ rating, three years after it cut Britain’s AAA rating.

    Brexit is already having effects on Africa, particularly, Nigeria. Nigeria, a former British colony and member of the Commonwealth, is Britain’s second largest trading partner in Africa after South Africa, with £6 billion (about N2.4 trillion or $8.52 billion) in bilateral trade volume last year.

    As a fallout of the Brexit also, the pound sterling, the British currency, fell against major currencies, including the naira, the Nigerian currency.

    The pound sterling plummeted about 11 per cent to $1.3305, on course for its worst day on record.

    In Nigeria, on the day the result of the referendum was announced, the pound sterling exchanged for N386.26 at the interbank market, a significant fall from N414.70 it exchanged the previous day. The implication, experts believe, is that goods and services from the United Kingdom may be cheaper for Nigeria.

    Also, the NSE All-Share Index (NSE-ASI), which rose by 3.13 per cent to 31071.25 on Thursday from 30,127.82 on Wednesday, fell by 1.35 per cent on Friday to 30,649.66 from 31,071.25 the previous day. However, overall for the week, the NSE-ASI and Market Capitalisation appreciated by 4.79 per cent to close the week at 30,649.66 and N10.527 trillion respectively.

    According to the Group Managing Director, Access Bank Plc, Herbert Wigwe, “There are a couple of things. First of all, Brexit itself has introduced volatility in the market place and what we have seen is a huge crash in prices internationally, both in terms of the equities market, the currency. The pound sterling has devalued against virtually all major currencies, and I think it will affect all assets prices in the UK.

    “But if you come to Nigeria, on the face of it, what you see is that it will make importing goods from UK to be relatively cheaper. That is what devaluation, ideally, should do.”

    However, Wigwe said, “But we didn’t know that it was going to play out exactly like that at a very short time because as a starting point, what you see is that most investors are extremely worried and are looking for a safe haven right now for their assets. So you find that people are investing in gold, people are moving to more stable markets.

    “In the case of Nigeria, I don’t believe that we are going to see an inflow of investors just yet because of risk sensitivity that has developed from what has happened.”

    The Access Bank managing director added, “So you now have a double whammy effect. First of all, you have been downgraded as a country at a time that people are risk sensitive. With Brexit they are running away from all those risks and now to find out that you have been downgraded. It could even put a lot of pressure on the currency, if you like. Because you are not likely to see the inflow which we are expecting given the liberalisation we had seen at the beginning of the week (last week) as a result of moving towards a market oriented policy.”

    Fitch Ratings had last week downgraded Nigeria’s long-term foreign currency Issuer Default Rating (IDR) to ‘B+’ from ‘BB-‘ as well as the country’s long-term local currency IDR to ‘BB-‘ from ‘BB’.

    Wigwe said, “Because we’re downgraded in the course of the week (last week), it has now made us risky in the perception of the investing public, and even to borrow money becomes much more expensive. The whole situation is exaggerated by the fact that investors are actually now seeking a safe haven particularly given the Brexit situation.

    “So what you are likely to see is that the capital flows that you expected to come into Nigeria which would have supported us and lead to the strengthening of the currency or perhaps more dollars for investment in different Eurobonds issued by the Nigerian corporates, is not likely to happen. That is what you are likely to see. Some people are likely to sell off Nigerian assets as well.”

    The ripple effect was also felt in other parts of Africa. For instance, in South Africa, shortly after the referendum was concluded, the value of the South African Rand decreased by four per cent against the Dollar.

    Nevertheless, analysts have said Brexit will affect Nigeria’s finances in two ways. First, it will expose the Naira to currency volatility. But fortunately, the Central Bank of Nigeria has already floated it, having adopted a flexible forex policy the previous week. In the new forex regime, Nigeria has seemed to manage the situation with its intervention in currency markets.

    Speaking on Brexit’s consequences also, former Director-General, Nigeria Institute of International Affairs (NIIA), Prof. Bola Akinterinwa, said, “With the Brexit, the Pound Sterling has fallen as against the U.S. Dollar; the Euro too has fallen.

    “Investors, immediately, for fear of the unknown began to move their investments, thinking of relocation and that immediately affected the value of the Pound and it began to fall. So, the parity of the Naira to the Pound Sterling, if the Pound Sterling is falling, is good for Nigeria; it is a welcome development at that level.”

    In the area of trade, Britain and Africa have enjoyed excellent trade relations, but this may be impaired consequent upon the referendum. The way trade deals, essentially European Union’s trade deals with Africa, are done would definitely not be the same again since they would have to be renegotiated. Specifically, Nigeria and some African countries, including Ghana, Kenya, and South Africa, are members of the Commonwealth with Britain. Nigeria has been enjoying the privilege of a free trade tariff access of the British to EU, but with Brexit, it may become a little bit difficult for Nigeria to continue to leverage such opportunity.

    He said Brexit would negatively impact Nigeria’s economic relationship with the EU. For instance, it would jeopardise the Economic Partnership Agreement (EPA) with the EU.

    “With the withdrawal of the British from the EU, now the EPA will no longer apply to Nigeria within the framework of Nigeria’s bilateral relationship with the British,” noted Akinterinwa.

    With the current scenario, being an oil-dependent country, Nigeria would also have to contend with the slowing recovery of crude oil prices.

    Should the Brexit trigger a recession in Europe, demand for oil in the world’s second-largest oil market will fall even more. The decline would resonate in the world’s fastest-growing oil markets, India and China, because lower British demand would mean slackened demand for oil overall, prolonging the global oil price recovery.

    If prices were to fall much below $30 per barrel, Saudi Arabia and other Gulf Cooperation Council members would reconsider production cuts or freezes. If prices remain comfortably above $40 per barrel, on the other hand, they could continue with their current strategy, maintaining market share and waiting out a price correction. Weaker oil prices will ultimately impair revenue, hitting oil exporters’ currencies even harder and forcing them to draw on reserves, maintain austerity and issue more debt than expected.

    Investment, Remittances, Aid

    At a time when the Nigerian government is trying to fix an economy on the brink of a recession by removing strict currency controls and also liberalising oil prices, the immediate effect of Brexit will test the nerves of Nigeria’s economic managers as global markets plummet. Bilateral trade between Nigeria and the UK, currently valued at £6 billion (about $8.3 billion) and projected to reach £20 billion by 2020, will be disrupted as trade agreements made under the auspices of the EU have to be renegotiated.

    Data from the National Bureau of Statistics shows that the UK was Nigeria’s largest source of foreign investment in 2015. A slowing British economy and its reverberating effects could signal a drop in investment, trade, and also remittances from the Nigerian diaspora who sent home $21 billion in 2015.

    Reduced trade and investment from Britain will not necessarily be plugged by the rest of the EU. The EU will be looking to strengthen its internal ties, amid cheaper oil from Iran, cheaper labour from China and the Eastern bloc. There is little Nigeria has in competitive advantage over the aforementioned right now.

    Brexit can bring about a weakened European economy. A weakened Europe would affect Nigeria in terms of aid donations to the country. It will be weakened in various respects because Britain accounts for about 15 per cent of EU’s operational budget.

    There may be complications concerning the amount development grants Nigeria benefits from. The UK was one of the biggest supporters of EU aid programmes in Africa, both politically and financially. While the UK will most likely continue to honour its own aid commitments, a changing attitude to aid could evolve within a UK-less European Union.

    Zeroing-in on the UK itself, it has pledged 0.7% of its Gross National Income (GNI) to development aid. While it probably won’t go back on that promise, if the UK goes into recession and the GNI falls, that reduces the amount of money for aid in real terms and possibly prolongs the time frame in fulfilling its promises.

    Immigration

    Much of the debate running up to Brexit was on immigration. With the exit confirmed, Nigerians and other Africans living in the UK, as well as those hoping to go to the UK will be concerned about their status. It’s unclear what exactly a post-Brexit immigration policy would look like. Some analysts believe that controls are bound to be tighter.

    However on the flip side, in order to boost trade relations with several African countries, the UK could make immigration for Commonwealth citizens slightly easier, especially as the IMF predicts that by 2019 the Commonwealth will contribute more to the world’s economic output than the EU.

    So, Nigerians and other African citizens whose countries are members of the Commonwealth may have an easier time immigrating to the UK than those from non-Commonwealth African states.

    Political implication

    Thursday’s decision by Britain to leave the European Union is replete with political implications for Nigeria and Africa. It may potentially heighten nationalistic pressures among Nigeria’s disparate ethnicities. Already, the Indigenous People of Biafra, a group in the Igbo South-east agitating for an independent state of Biafra, has launched a campaign slogan, ‘Biafrexit, to give a fillip to its cause.

    Spokespersons of IPOB, Mr. Emma Nmezu and Dr. Clifford Chukwuemeka Iroanya, announced the new campaign motto yesterday in a statement titled, “There must be ‘Biafrexit’ in line with the just concluded ‘Brexit’,” released shortly after the result of the UK referendum was made public. They said, “The British government, which is the closest ally of the Nigerian government, must, as a mark of exemplary leadership, guide Muhammadu Buhari and his colleagues to organise a Biafrexit akin to the recently organised Brexit.

    “The Indigenous People of Biafra congratulates the government and people of Britain for organising the Brexit vote and applauds the British government for respecting the wishes of her citizens.”

    Similar agitations may also be triggered in other heterogeneous African countries.

    At the continental and sub-continental levels, too, states may feel more disinclined to take active part in multilateral unions.

    The African Union, which was established on May 26, 2001 in Addis Ababa and launched on July 9, 2002 in South Africa to replace the Organisation of African Unity, was modelled after the EU. The 54-member continental body – with only Morocco as a non-member – may lose its appeal and importance before member states, with more tendencies to toe the Moroccan line. Morocco withdrew from AU following the union’s recognition of the Sahrawi Arab Democratic Republic (Western Sahara) as a member state. - This Day

     


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  • Investors take to their heels from Nigeria as Naira hits all-time low at parallel market. [see new rate!]

    27/Aug/2016 // 548 Viewers

     

    The Naira reached at an all-time low of 412 per dollar on the parallel market on Friday.
    This may not be unconnected to suspension of some banks from forex trading by the Central Bank of Nigeria, CBN.

    Traders said some bureau de change operators have been finding it difficult to access their forex account and get dollar supply.


    On Thursday, the naira had closed at 409 per dollar on the parallel market. On the inter-bank market, it traded at 315 compared with 305 the previous day.

    Shares in some of the banks dropped by up to 7.8 percent.

    Bank executives have been meeting central bank officials to resolve the forex issue as investors continued to dump their shares second day.

    On the inter-bank market, the currency gained 0.2 percent to close at 305 naira to the greenback with traders attributing the rise to central bank dollar sale to prop up the unit.


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  • Buhari not qualified to lead Nigeria, only experimenting pet economic theories - Ibrahim Zikirullahi

    27/Jul/2016 // 915 Viewers

     

    Chairman of the Transition Monitoring Group, TMG, Ibrahim Zikirullahi has stated that the continued depreciation of Nigeria’s economy is an indication that President Muhammadu Buhari-led Federal Government has no effective strategy to address the problem.

    Speaking with journalists in Abuja, Zikirullahi stressed that though the current economic situation was created by the immediate past administration of the Peoples Democratic Party, PDP, the current administration has no well-articulated policy that will address the problem.

    He urged the APC-led federal government to stop experimenting pet economic theories.

    According to TMG Chairman, “So far, it is clear that the All Progressives Congress (APC) government of change has no effective strategy to clear the economic mess that was created by the immediate past Peoples Democratic Party (PDP) led government.

    “The reality of the absence of a well-articulated and coherent strategy to bring Nigeria out of its current economic doldrums would be seen in the excruciating crunch that is currently subjecting Nigerians to untold hardships.

    “Rather than abate, the current economic realities have further accentuated the poverty, which millions of Nigerians in 2015 voted to keep at bay. Demeaning stories of Nigerians who are now forced to engage in theft of cooked food in desperate moves to deal with hunger, calls for urgent attention.

    “TMG calls on the Federal Government to discard the endless experimentation based on pet economic theories, which do not reflect the realities of the Nigerian condition. Nowhere is this more apparent than in the current instability and chaos that have characterised the management of the foreign exchange market.

    “With so much uncertainty and confusion, the Central Bank of Nigeria has shown very little acumen in being able to stabilise the system. Beyond knee jerk experimentation, the nation’s monetary policy is yet to get any nuanced intervention aimed at calming the market.

    “So with each new approach almost on a weekly basis, the Naira on the watch of the current monetary policy makers, slides further, with dire implications for the purchasing power of Nigerians.”


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  • Nigeria's battered economy improving, I'm working hard to restructure it - Buhari

    27/Jun/2016 // 359 Viewers

     

    President Muhammadu Buhari has said his administration is working very hard to restructure the economy, which, he said, was battered by several years of mismanagement.

    A statement issued by the President’s Special Adviser on Media and Publicity, Mr Femi Adesina, said Buhari stated this in Abuja yesterday quoted him as speaking while receiving the Chief Global CEO of Unilever, Mr Paul Polman.

    The statement quoted the President as saying that Nigeria is paying dearly for the incompetent management of the massive revenue that accrued to the nation from oil.

    Buhari said the country was  paying dearly for over a decade’s decay of critical infrastructure.

    ‘’We refused to save for the rainy day. Now the rain is beating us. No money, no savings, nothing. And we are thoroughly wet from the rains,” he said.
     
    Buhari said Nigeria was paying the price for turning itself into a mono-economy. He assured that the country would soon be able to feed its citizens and even export, given his administration’s focus on the development of the agriculture sector.

    He assured that the Federal Government would fast-track the implementation of strategies to ease doing business and to attract more investors to Nigeria.

    Buhari said: “We want to create jobs, and supporting manufacturing is one way to do it. As soon as we have stabilised our budget, I would personally be interested in the manufacturing sector, particularly in the generation of essential raw materials.’’

    The Chief Global CEO of Unilever said: “Our products are more Nigerian than other Nigerian brands. Despite the economic downturn, there are opportunities to further advance our business here. The situation to invest and continue to invest here is very encouraging.”

    Unilever, he said, has invested at least N15 billion in Nigeria in the past three years.

     

     


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  • JUST IN Again, Naira sinks, exchange rate outrageous!

    27/Nov/2016 // 1406 Viewers

     

    The Nigerian domestic currency has again fallen abysmally low against other major currencies as forex scarcity continues, information gleaned across the country from Bureau De Change operators reveal.

    On the parallel market,  the   naira fell further to N475 against the dollar yesterday from N471/$ last Wednesday, as the weekly amount that Travelex and selected banks are allowed to sell to Bureaux De Change (BDCs) was reduced from $15,000 to $8,000. This is even as the naira seems to have stabilised against the dollar at between N304 and N305.50 on the official interbank market.

    The local currency gained 50k to close at N304.50 last Wednesday on the interbank market compared to N305 it traded last Tuesday. At the official market yesterday, the naira closed at N305/$. President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, told New Telegraph that the reduction in dollar sales to BDCs was as a result of the need to ensure that more BDCs in the country are able to access dollars.

    He said: “The amount of dollars sold had to be reduced so that it can get to more BDCs across the country. Dollars are now being sold to BDCs in Awka and Onitsha. Also, the total amount that Travelex brings to sell has not increased.”

    He pointed out that the supply of dollars available to BDCs was limited because many would-be operators are reluctant to commence operations on the grounds that they are not pleased with the CBN’s controlled rates. While BDCs continue to sell the naira at the CBN controlled rate of N400/$ forex dealers predict continued decline of the naira on the parallel market due to raids by agents of the State Security Service (SSS) on operators in that market.

    The SSS commenced the action on November 9, raiding BDCs, parallel market street traders and instructing them to cap their rates at N400 per dollar.

    As a result, people are hoarding dollars rather than selling at an artificially low rate, forex dealers said. However, the Governor of the apex bank, Mr. Godwin Emefiele, has thrown his weight behind the raids, saying last Tuesday : “The security agencies should sustain their checks on the activities of illegal foreign-exchange operators in order to bring sanity to that segment of the market.”

    A Bloomberg report yesterday stated that the raids are beginning to push the operators underground thereby creating a parallel market within the black market, according to analysts at Afrinvest West Africa Ltd.

    The news agency quoted an analyst at Afrinvest, Omotola Abimbola, as saying: “The black market will go further underground. The fact they went as low as getting security forces on the streets shows a new level of desperation.” JPMorgan Chase & Co. was reported as saying that the development is another signal to foreign investors that Nigeria’s currency policy is broken.


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  • Mobile roaming charges to be banned across EU

    27/Oct/2015 // 172 Viewers

    © Andrew Burton / Getty Images / AFP | Roaming charges vary between telecom operators and many users have ended up paying exorbitant rates to make calls when travelling in the EU

    European lawmakers on Tuesday approved an end to loathed mobile phone roaming charges in the EU by 2017 and adopted rules to ensure open internet access.

    "This abolition of roaming surcharges has been long awaited by everybody: ordinary people, start-ups, SMEs and all kinds of organisations," said Pilar del Castillo, the Spanish MEP who helped steer the legislation through the European Parliament.

    Roaming charges vary enormously between telecoms operators and many users have ended up paying exorbitant rates -- often without knowing in advance -- to make calls when travelling within the 28-nation European Union.

    Also included in the telecoms package were rules to ensure what is known as "net neutrality," meaning unfettered access to the Internet, although critics said they do not go far enough.

    Earlier this year, the US telecoms regulator put in place "open Internet" rules to prevent operators offering different rates of access depending on fees or the services offered.

    The EU rules are largely the same but they do offer some leeway to operators to market different services.

    "Thanks to this agreement, Europe will also become the only region in the world which legally guarantees open internet and net neutrality," del Castillo told parliament in the eastern French city of Strasbourg.

    "The principle of net neutrality will be applied directly in the 28 member states. It also ensures that we will not have a two-speed internet," she said in a parliament statement.

    Critics said both measures were welcome but more should be done, especially on internet access.

    Monique Goyens, head of the European Consumer Organisation, said that while "access to the open Internet is now a legal right for all EU consumers ... deficiencies remain."

    (AFP with DAILYGLOBEWATCH)


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  • JUST IN: Again Naira falls against major currencies on Monday, see new rate

    28/Nov/2016 // 735 Viewers

     

    PARIS, NOVEMBER 28, 2016: (DGW)NIGERIA'S domestic currency recorded another free fall against all major currencies on Monday thus facing the  new pressure on the parallel market as it has depreciated to N473 per dollar.

    This is coming , according to reports, after the  Central Bank of Nigeria (CBN) decided to slash dollar sales to Bureau De Change (BDCs) by 46%.

    However, the US dollar exchanged  for as high as N473:00 while the Euro exchanged for N505:00. The Pound Sterling reportedly exchanged N585 on the parallel market.

     


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  • German prosecutors launch investigation into ex-Volkswagen CEO

    28/Sep/2015 // 189 Viewers

    Johannes Eisele, AFP | Former Volkswagen CEO Martin Winterkorn 

    German prosecutors launched an investigation on Monday into former Volkswagen boss Martin Winterkorn over the rigging of vehicle emissions tests, as the carmaker suspended three top engineers in an attempt to tackle the crisis.

    The investigation into Winterkorn, who quit on Wednesday after almost nine years at the helm of Europe’s largest carmaker, is into “allegations of fraud in the sale of cars with manipulated emissions data,” the prosecutor’s office said.

    Volkswagen, which has admitted to cheating diesel emissions tests in the United States, is under huge pressure to get to grips with the biggest business scandal in its 78-year history.

    It named company veteran Matthias Mueller on Friday as chief executive and agreed to appoint a U.S. law firm to conduct a full investigation.

    Sources familiar with the matter said on Monday it had also suspended the heads of research and development at its core VW brand, luxury division Audi and sports car maker Porsche.

    But the crisis shows no sign of dying down.

    Two German newspapers said on Sunday Volkswagen’s own staff and one of its suppliers had warned years ago about the illegal use of so-called “defeat devices” to detect when a car was being tested and alter the running of its diesel engine to conceal their emissions of toxic nitrogen oxides.

    Environmental campaign group Transport & Environment (T&E) published new data on Monday showing that some new Mercedes , BMW and Peugeot cars use 50 percent more fuel than laboratory tests show, saying this was evidence of a wider industry problem.

    T&E, which works closely with the European Commission, said its data did not prove other firms were using defeat devices.

    But it said the gap between lab results and road performance had grown to such an extent for emissions of both carbon dioxide and nitrogen oxides that further investigation was needed to discover what carmakers were doing to mask emissions.

    “The Volkswagen scandal was just the tip of the iceberg,” said Greg Archer, clean vehicles manager at T&E, adding the gap between lab tests and real-world performance cost a typical driver 450 euros ($504) per year.

    ACEA, the European Automobile Manufacturers’ Association, which represents top carmakers, has said there is no evidence the use of defeat devices is an industry-wide issue.

    In a statement on Monday, it said it supported the development of updated testing.

    U.S. and European regulators have said they are working on tighter rules.

    The right choice?

    Volkswagen shares have plunged about 35 percent since it admitted to cheating U.S. emissions tests, wiping more than 25 billion euros from its market value. It faces investigations and potential fines from regulators and prosecutors, as well as lawsuits from cheated customers.

    The crisis is an embarrassment for Germany, which has for years held up Volkswagen as a model of the country’s engineering prowess and has lobbied against some attempts to tighten regulations on automakers.

    The German car industry employs more than 750,000 people and is a major source of export income.

    The scandal has also rocked the wider car market, with manufacturers fearing a drop in diesel car sales and more costly regulations, and customers furious that Volkswagen has not given more details about what might happen to their cars.

    The company has said 11 million cars worldwide had defeat devices installed. On Monday, Audi said 2.1 million of these were its own models, including the A1, A3, A4, A5, A6, TT, Q3 and Q5.

    But it has still not said whether the affected models would have to be recalled and refitted.

    “VW is in a dramatic situation. It will be far from easy to restore the reputation of the company and win back trust from customers,” new CEO Mueller, a former boss of Porsche sports-cars, said in a letter to the division’s staff seen by Reuters.

    Some analysts question whether he is the right man for the job, given his more than three decades at the company.

    “It seems that VW has known for years about these manipulations. It badly needs a new company culture but Mueller is anything but a perfect pick to drive change,” said Commerzbank’s Sascha Gommel. “He has made a career within the VW system, so how could he credibly argue that all will change to the better now? Those doubts are weighing on the stock.”

    Shareholder advisory firm Hermes EOS said it was also concerned about the appointment of “corporate insiders” to top jobs as Volkswagen reshuffles its management.

    At 1115 GMT, Volkswagen shares were down 6.9 percent at 107.60 euros.

    Sources close to the matter told Reuters on Monday the company had suspended VW brand development chief Heinz-Jakob Neusser; Audi’s R&D boss Ulrich Hackenberg, who also oversees technical development across the group; and Porsche’s Wolfgang Hatz, also head of group engine and transmissions development.

    One source said Hackenberg was taking legal action against the decision. Volkswagen and Audi declined to comment, while the suspended executives could not immediately be reached.

    Switzerland said on Friday it was banning sales of Volkswagen cars affected by the scandal, while the company’s Italian arm has also told dealers to stop selling them, Italy’s Corriera della Sera newspaper reported on Sunday.

    Independent Polish car brokerage North Invest said on Monday it would stop selling Volkswagen cars with 2.0 TDI engines until the company sorted out its problems.

    Diesel engines use less fuel and emit less carbon - blamed for global warming - than standard gasoline engines. But they emit higher levels of toxic nitrogen oxides, blamed for deaths from lung and heart disease.

    In most of the world, including the United States, diesel engines in passenger cars are a niche product. But their fuel economy and low carbon emissions have made them popular in Europe, where they now account for half of vehicles sold.

    Volkswagen and other European manufacturers have promoted “clean diesel” technology, benefiting from diesel’s fuel economy but meeting stringent tests for emissions of toxins. The suggestion that this was achieved by cheating on tests could affect the viability of the entire diesel sector.

    Daily Globe Watch with REUTERS


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