• Nigeria's liquidity woes worsens, economy totally paralysized as $14bn fresh investment deficit hits oil sector

    21/Nov/2016 // 236 Viewers

     

    PARIS, NOVEMBER 21, 2016: (DGW) CREDIBLE reports say Nigeria's oil sector has been hit by $14 billion fresh annual investment deficit thus worsening the nation’s already precarious liquidity woes.

    Oil producers in Nigeria told this newspaper that until the shortfall is addressed, the 2.2 million barrels production target in the budget will remain “unachievable.”

    The Federal Government had been battling to increase daily oil production to 2.2 million barrels daily to meet the budget benchmark. The 2.2 million barrels per day (bpd) production is the output benchmark set in the 2016 budget, but Nigeria from less than one million barrels bpd few months ago when there were severe attacks on oil installations by militants, has just recently struggled to hit around two million barrels per day.

    Chief Executive of Shoreline Natural Resources, a joint venture with oil and gas interests in southern Nigeria, Dr. Ladi Bada, estimated that $9 billion a year investment currently being put in the oil industry from public and private sources, is still grossly insufficient to raise production volume.

    Nigeria, he said, “needs at least $14 billion a year in new investment over the next five years to raise oil output to 2.2 million barrels a day (bpd) and even higher spending to lift it to 3 million bpd.”

    Shell, Chevron, Exxon- Mobil, Total and Eni had, for the umpteenth time, declared that Nigeria’s oil industry has long suffered from under-investment.

    “If we continue to invest $9 billion, we won’t grow volumes,” Bada said on the sideline of a forum in Lagos. “At least $14 billion a year in new investment was needed for Nigeria to produce 2.2 million bpd of oil, the production level, which the national budget is based on,” he stressed.

    And to boost output to 3 million barrels per day (bpd), Africa’s top oil producer, Bada said, would require investment of between $18 billion and $20 billion every year for the next five years.

    Nigeria, Africa’s largest economy, faces its worst crisis in more than 20 years, triggered by low oil prices, which have slashed the government’s revenues, hammered the currency and caused chronic dollar shortages.

    The Nigerian government has joint ventures with oil companies, but struggles to fund its share of commitments. Bada said the government was in arrears of $5 billion. Another factor hampering output is the lack of an oil industry law.

    The government has said it was working on new oil and gas policies to attract more private investors and boost crude production by 500,000 barrels a day by 2020.

    “The lack of an oil law has held back investments in the sector while the government does not have the funds to operate the joint ventures for which it has a majority shareholding,” Bada said.

    The Petroleum Industry Bill (PIB), stuck in parliament for a decade, aims to tackle everything from an overhaul of state oil company, Nigeria National Petroleum Corporation (NNPC), to taxes on upstream projects in a sector riddled with corruption.

    The Senate aims to almost complete work by year-end on two major areas of long-delayed legislation to tackle problems in managing the nation’s oil wealth.

    Last June, Nigeria said it had signed agreements worth $80 billion with Chinese firms to invest in Nigeria’s oil and gas infrastructure, but no details have emerged yet.

    Bada said the government was considering allowing joint ventures to be self-funding and then possibly incorporating them from 2020, but there isn’t a clear framework yet.

    He said the contracting cycle in Nigeria takes around 24 months, compared to 6-9 months in most other Organisation for Petroleum Exporting Countries (OPEC) countries.

    It cost local producers around $20 to produce each barrel of oil, he said, adding that this could be cut to $12 but for higher security costs in the Niger Delta and funding costs.

    Nigeria also needs to upgrade its gas infrastructure and build new plants for domestic consumption, especially for electricity, which is in short supply. Bada said the West African nation needed at least $6 billion a year in investment to boost gas output.

    Government said last Thursday that it had reached agreement with shell, ExxonMobil, Chevron and other International Oil Companies (IOCs) to pay $5.1 billion debts accumulated from past operating costs with oil.

    The amount, less than the $6.8 billion previously discussed, Minister of State for Petroleum Resources, Dr. Emmanuel Kachikwu said, would be settled through crude-oil sales over five years and will be interest free.


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  • Nigeria’s GDP Falls 2.24% In 3rd Quarter of 2016

    21/Nov/2016 // 153 Viewers

     

    Nigeria’s Gross Domestic Product falls 2.24% in the third quarter of 2016, according to a new set of data released early on Monday by the National Bureau of Statistics.


     
    Africa’s largest economy shrunk by 2.06% in the third quarter as the country is hit by massive revenue shortage, foreign exchange shortage and volatile naria-dollar parity.

    Monday’s data shows Nigeria’s oil sector falls 22.01% in the third quarter ended September, while non-oil sector grew a paltry 0.03%.

    Oil sector contribution to GDP was seen at 8.19% and non-oil sector contribution to GDP was higher at 91.81%.

    During the period under review, Nigeria’s Aggregate Gross Domestic Product in nominal terms was recorded at 26.558 billion naira, or a 9.23% growth.

    It was a similar case earlier in the second quarter of the year.

    Nigeria’s Gross Domestic Product (GDP) had contracted by 2.06% in the second quarter of 2016.

    According to the NBS report, the decline caused the Naira to get weaker while lower oil prices dragged the oil sector down with output shrinking by 0.36 in the first quarter.

    During the quarter, nominal GDP was 2.73% higher at 23.48 million Naira at basic prices.


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  • IMF calls for Nigeria to allow Its Naira currency to drop

    21/Oct/2015 // 95 Viewers

    The IMF is pressing Nigeria to further devalue its naira currency amid uncertainty over the political and economic outlook for Africa’s biggest oil producer and economy.

    Analysts said there’s disappointment that President Muhammadu Buhari’s long-awaited Cabinet list includes no economic stars.

    The naira has lost 25 percent of its value in the past year and the stock market has plummeted because of political uncertainty and halved prices for oil that provides most government revenue

    Nigeria’s Central Bank has defended the naira by restricting access to foreign currency and banning a long list of imports.

    The International Monetary Fund’s Africa director, Antoinette Sayeh, said those measures are “quite detrimental.” At the IMF meeting that ended in Peru this week she called for Nigeria to leave the naira to the marketplace.


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  • CBN Governor Says Naira May Fall To N1000 Per Dollar

    22/Aug/2016 // 6034 Viewers

     

    Regarding the constant depreciation of Naira, a report was published on Nigerian Camera, bearing an interesting statement by Mr. Godwin Emefiele, the Governor of the Central Bank of Nigeria, (CBN), and his prediction of a continuous fall in Naira. Mr Godwin, who has served as Chief Executive officer and Group Managing Director of Zenith Bank Plc and also Deputy Managing Director of same company, gave a lengthy breakdown of why he thinks Naira may fall to N1000 per dollar in the nearest future.

    “It is either I do not understand economics and how exchange rates work or a vast majority of us Nigerians still don’t get how we have wrecked our country with our own curious choices. Just this morning, I was listening to the radio and the lady on air went on and on about how she thought CBN governor, Godwin Emefiele was incompetent and should be sacked because the Naira was now exchanging at 309 or so to the USD.

    “That view pretty much echoes the sentiments expressed by many people I know and it amazes me that there are Nigerians who actually think there is some magic POLICY that can make the Naira strong in the near term. If my economics and my understanding of the way the world works are right, then that is as far from the truth as Jesus Christ is black.

    “The simple fact of the matter is that apart from oil that accounts for over 90% of our revenues, we really don’t have much of an economy. We hardly produce anything, we import even toothpicks, so exactly what policy is going to be implemented that will turn Nigeria into a top exporting economy in the near term? Where are our Apples, IBMs, Disneys, GMs, General Electrics, Coca Colas, Empire State buildings, Statues of Liberties, Lockheeds, Citibanks, JP Morgans, ExxonMobils, NBAs, Super Bowls etc? Let me bring that closer home.

    “There was a time long ago when Nigeria had a truly strong economy and the naira was one to the dollar – even exchanged for higher than the USD, but that Nigeria is not this Nigeria. Sadly that Nigeria was laid by the British, and this Nigeria (if you don’t believe in the nonsensical imperialist conspiracies like me) – fueled by the DAMAGING Indigenization Decree, has been the creation of us Nigerians. Back then we had a booming economy.

    We were either the top, or among the top exporters, of timbre, cocoa, groundnuts, rubber, palm oil, etc, in the world. Nigerians not only holidayed at home in their villages, at Yankari Games Reserve, at Obudu Cattle Ranch, at Oguta Lake, at Ikogosi springs, at Gurara Falls, at Mambilla Platueau, etc, we attracted international tourists who brought in loads of foreign exchange. Even Nigerian schools were foreign exchange earners because they attracted foreign students.

    “We had different car assembly plants – Peugeot, Volkswagen, Anamco etc. Nigerian government officials only bought vehicles assembled in Nigeria for official cars. We had a thriving sports industry. We were not Man United or Chelsea fans, we were Rangers or IICC fans. We had the Nduka Odizors, people made money from sports. We also had companies like Lennards and Bata producing school shoes in their thousands, we had the thriving Nigerian Airways and the Aviation School in the north that produced some of the best pilots in the world.

    In those days if you were brilliant you were respected much more than the crass money-miss-road contractors of today. Most of the Aje Butters I knew had fathers who were university dons. Back then it meant something to ‘know book’. Our textile industry was alive and well. Just recently I watched a news report on the textile industry in Nigeria on CCTV News. Though the main focus was on the comatose status of the industry, I was stunned by the gigantic Kaduna Textile Mill built in 1957. I could go on and on.
     
    “Today however, no thanks to our parents (and we must call them out the way Wole Soyinka did his generation) and many of us (and we should be remembered for failing our children if we continue like this), we have destroyed everything. Today for instance Nigerian football (which comes easy to me obviously) doesn’t appeal to us, we have to fly across thousands of miles to watch ‘our’ clubs play. Every year we collectively burn billions of Naira being fans of clubs that give us nothing back, but some ‘entertainment value’ – simple pleasures for which we are ready to destroy the future of our children.

    “Well people, payback time is here. Even with our ta-she-re money we all want to wear designer clothes and carry designer bags, Armani, Givenchy, Louis Vuitton etc. We all want to drive jeeps with American specs, our children must now school overseas and acquire the necessary accents to come back home and bamboozle their ‘bush and crass’ contemporaries that they left behind. Who holidays in Nigeria anymore, is there Disneyland here? No one buys made-in-Nigeria school bags for their children, after all no Superman or Incredible Hulk or Cinderella on them.

    “We are no longer top exporters of anything and the demise of oil means we have zilch… zero. A country of 170M fashion-conscious people has no textile industry. We take delight in showing how our made-in-Switzerland Aso Ebi is different class to everyone else’s. When we help our musicians grow and pay them millions, they repay us by immediately shipping the monies overseas to produce their “i-don-dey-different-level” music videos. It makes no difference that distinctly Zulu dancers are dancing to a Nigerian highlife song.

    “As stars concerned they also wed and holiday overseas to impress us all. All the musicians who acknowledge their Ajegunle roots now speak in a cocktail of strange accents to symbolise how much they have blown their monies overseas. Were we a more serious people, the highly popular Kingsway Stores of the past would probably have a thousand outlets pan Nigeria today supporting a massive agriculture industry among others, but today we have the likes of SPAR, Shoprite, dominating the retail industry while Kingsway is dead.

    “And we Nigerians make it a special point to shop from the Oyinbos who have ‘cleaner shops’, ‘better this and better that’. For our personal pleasure we don’t mind them dominating us in our own backyard and shipping proceeds overseas. I could go on and on, but I don tire. Even as you are reading this, stop for a moment and look around you. What you see will probably explain why we are lucky it is not N1000 to the USD yet. And don’t think for a moment that it cannot get there.

    “Just continue to wear your Armani gear and Swiss-made lace, continue to spend your money on Man United, Arsenal, Chelsea and Barca and encourage your children to do same. (My article tomorrow in my Saturday column in This Day is on the Nigerian champions Enyimba FC – Nigeria’s most successful club – not having a sponsor, yet Nigerian brands pay over N600m to Man United and Arsenal for sponsorship to impress us.) Ehhh, no problem, continue to tell me the NPFL is rubbish or the clubs should clean up their act if they want sponsorship, mo gbo .

    “Don’t curtail your interest in choice wines ( we were the number one champagne consumers in the world in 2015), continue to love your American specs, cheer the education ministry for letting schools sink to pitiable levels, don’t fight them to improve our schools, don’t chide them for letting schools drop Nigerian history and embrace British, America and whatever else curricular.

    “Carry on with your love of French wines and Chinese silk, don’t bother about Jamiu Alli when there is Roger Federer. Stock up on your Italian, American, British products which you cannot live without, including the ‘baby soft’ toilet rolls produced only in that small unique village in England – the days are long gone since you were a broke student who used wet newspapers to wipe your butt.

    “Don’t even consider holidaying in Nigeria, it’s too dangerous – you have to fulfill your dream of being Nigeria’s Henry Ford. Don’t listen to people like me who have a wardrobe full of only cheap adire that is actually cheaper than just one of your Tom Ford blazers. Please keep dressing in fine silk made in some exotic place so you can be addressed accordingly.

    “Finally keep letting corrupt leaders who have looted your commonwealth and shipped all the monies overseas get away because to attack them does not fit your political narrative. Let us continue with the fine life, let us all continue to work for Oyinbo. But don’t forget that there is payback time and Emefiele is not your problem. Time for us all to look in the mirror and take responsibility. - THENEWS.NG


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  • JUST IN: Investors desert Nigeria as economic recession worsens

    22/Nov/2016 // 205 Viewers

     

    Nigeria’s Gross Domestic Product (GDP) shrunk by 2.24 per cent in the third quarter of 2016, worsening the country’s chances of getting out of its current recession in 2016.

    According to the National Bureau of Statistics (NBS), the country’s GDP fell deeper than recorded in the first and second quarters of 2016, leading to the economy shrinking by 0.36 per cent in the first quarter, and 2.06 per cent in the second quarter of 2016.

    But experts say that for the country to get out of recession in 2016, it must record a GDP growth of at least 4.32 per cent in the last quarter of 2016.

    Meanwhile, the oil sector contributed 8.19 per cent of total real GDP, down from figures recorded in the corresponding period of 2015 and the preceding quarter of 2016 at 10.27 per cent and 8.26 per cent respectively, NBS said.

    On the other hand, the non-oil sector grew by 0.03 per cent in real terms in the third quarter of 2016, reversing the last two quarters of negative growth recorded in Q1 and Q2 2016.

    The sectors of the economy, which recorded growth include crop production, fishing, metal ores, textile and footwear, human health and social  services, public administration, technical services, financial institution, arts, entertainment and recreation.

    Those that recorded decline were livestock, forestry, oil and gas, coal mining, quarry and other minerals, real estate, food and beverage, motor vehicle and assembly, iron and steel, electronic, chemical and pharmaceuticals, wood and wood products, cement, education, insurance and telecommunication.

    Air transport also recorded a decline, while every other means of transportation in the country recorded an increase.

    According to the report, “real agricultural GDP growth in the third quarter of 2016 stood at 4.54 per cent (year-on-year), an increase of 1.07 per cent points from the corresponding period of 2015.

    “Growth basically remained the same when compared with the previous quarter, which was recorded as 4.53 per cent. The contribution of agriculture to overall GDP in real terms was 28.65 per cent in the quarter under review, higher by 1.86 per cent from its share in the corresponding quarter of 2015, also higher from the second quarter of this year by 6.10 per cent.”

    The Federal Government had initially projected a three per cent growth rate for the country in 2016, while the International Monetary Fund (IMF) projected a 1.8 per cent decline.

    Meanwhile, the Federal Government yesterday, said that despite the economic recession reflected in the latest release by the National Bureau of Statistics (NBS), its policies have been evidently effective and responsive to pulling the country out of the woods.

    Reacting to the latest NBS release, the Special Adviser to the President on Economic Matters, Dr. Adeyemi Dipeolu, explained that the report revealed a consistent growth in agriculture and solid mineral sectors, indicating the success of the Buhari administration’s economic policies even though overall economy is still in recession.

    According to him, the third quarter results just released by the NBS show that the Nigerian economy is still in recession as growth in Gross Domestic Product (GDP) fell by -2.24 per cent in the third quarter as compared to the decline of -2.07 per cent experienced in the second quarter of the year.

    He further noted that the slight deterioration in national economic performance owes largely to the continued poor performance of the oil and gas sector, which worsened to -22.01 per cent in the third quarter as compared to -17.48 per cent in the second quarter of 2016.

    The Special Adviser said, “the Strategic Implementation Plan (SIP) for the implementation of the 2016 Budget of Change prioritised capital expenditures for power, roads and rail as well as social investments.
    “In addition to creating jobs and promoting social inclusion, these expenditures will also provide a stimulus by putting money in the hands of people.

    “The usual economic activity that takes place in the Yuletide season will also likely have a positive impact on the wholesale and retail trade sector.

    “Overall, therefore, it is expected that these factors which will be underpinned by the policies to be unveiled in the Economic Recovery and Growth Plan (ERGP), to be adopted before the end of the year, will lend further momentum to ongoing efforts to revitalise and reposition the economy,” he said.


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  • : See how much the NAIRA exchanged for on Friday at the black market

    22/Oct/2016 // 2611 Viewers

     

    PARIS, OCTOBER 22, 2016: (DGW) AS  the scarcity of foreign exchange continues the Naria again  exchanged outrageously high with all major currencies particularly, the US dollar, the Euro, and the pound sterling.  Trading at the parallel market saw the naira exchanging at N450, N545 and N495 to the dollar, pound sterling and the Euro, respectively.

     The naira , reports say exchanged for as high as N385 to the dollar, while the pound sterling and the Euro traded at N550 and N504, respectively at the Bureau De Change window. 

    Traders at the market expressed optimism that the licensing of additional 20 International Money Transfer Operators (IMTO) would bring more liquidity to the market.

    NAN reports that in a bid to conserve the nation’s foreign reserve and to liberalise the foreign exchange market, the CBN is interfacing with IMTOs to sell the proceeds of Diaspora remittances to BDCs.

    The decision of the CBN has borne very positive fruits as the naira continues to appreciate at the forex market.


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  • Nigerians wail, loses confidence in Buhari as external reserves drop further to $24bn

    22/Sep/2016 // 351 Viewers

     

    The country’s external reserves have depleted further to a record-low of $24.8bn, according to the latest data posted on the Central Bank of Nigeria’s website.

    The foreign exchange reserves fell by $600m in two weeks before shedding $1bn in four weeks, the CBN statistics showed.

    Specifically, the reserves fell from $25.8bn on August 16 to $24.8bn on September 16. It decreased by $600m from $25.4bn recorded on August 31 to $24.8bn on September 16, the current CBN data revealed.

    The spate of decline in the external reserves follows the CBN’s almost daily interventions at the interbank/official foreign exchange market in recent weeks, as chronic dollar shortage continues to weigh on the economy.

    In its efforts to defend the naira and prevent it from falling further at the official interbank market, the central bank has been selling dollars there more frequently.

    The naira had fallen to an all-time low of 365.25 to the dollar at the interbank market on August 18 before making a gradual recovery.

    On Tuesday, the local currency traded at 307.25 against the greenback.

    At the parallel market, the naira, which has been under persistent pressure, closed at 424 to the dollar on Tuesday, after trading at 425 against the United States currency on Monday.

    The external reserves fell by 2.86 per cent to $25.45bn on August 29, 2016, up from the $26.2bn it recorded at the end of July.

    Year-on-year, the reserves have fallen by 18.9 per cent. They had fallen by 0.4 per cent at the end of July, down from the $26.34bn recorded on June 29.

    The foreign exchange reserves stood at $26.42bn on May 28, down by 9.2 per cent year-on-year.

    The CBN had on June 20 lifted its 16-month-old currency controls and auctioned about $4bn on the spot and futures market to clear a backlog of dollar demand and help boost interbank market trading.

    The global plunge in oil prices has caused the reserves to be depleting very fast. The development had forced the CBN to introduce foreign exchange controls, which were abandoned in June.

    The CBN’s Monetary Policy Committee announced plans to adopt a flexible exchange rate policy after the external reserves fell to $26.56bn on May 23.

    The external reserves have lost over $2bn this year. The nation recorded a balance of payments deficit of 1.4 per cent in its Gross Domestic Product at the end of 2015 owing largely to its first current account deficit (three per cent of the GDP) in over a decade.

    The nation’s external reserves reduced by $6.7bn within a period of 21 months, the Minister of Budget and National Planning, Senator Udo Udoma, said on March 23.


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  • Again, Naira falls all-time low on Thursday against US dollars, other major currencies, new rate outrageous!

    22/Sep/2016 // 1573 Viewers

     

    PARIS, SEPTEMBER 22, 2016: (DGW) THE Naira, Nigeria's domestic currency has fallen again to an all-time low  against the United States dollars and other world's major currencies.

    However, it exchanged for N436 to the US dollar at the parallel market on Thursday as the scarcity of the US dollar hits the foreign exchange market.

    The British pound, and the European flagship currency, euro, exchanged for N555 and N472 respectively, at the parallel market.

    Similarly, Nigeria's foreign exchange reserve recorded a new 11-year low of $24.76 billion on Wednesday, the lowest since June 2005.

    However, the inter-bank market was comparatively stable. The naira exchanged for N305.5 to the dollar, while the British and European currencies went for N399 and N343 respectively.

    Reacting, Nigeria's Apex Bank boss Godwin Emefiele, dismissed complaints saying  the parallel market rate could not be used to evaluate the true value of the local currency.

    His words: “It is unfair to use the shallow market as a basis for determining the value of our currency. No one uses the Travelex rate at Heathrow to determine the exchange rate for the pound in the United Kingdom,” Emefiele said.

    “So it is unfair to use that to determine the value of our currency. Those who are dealing in the market are doing so illegally. We should not be encouraging the tendencies of those people who are involved in capital flight, or those who want to conduct foreign exchange business without providing necessary documentation.”


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  • APC, Buhari silent as PDP finally breaks silence, releases astonishing facts and figures of economy he inherited

    23/Aug/2016 // 9804 Viewers

     

    The Peoples Democratic Party, PDP, has said that it handed a better Nigeria to President Muhammadu Buhari after he won the 2015 general elections.

    The party also insisted that all the gains it recorded while in charge of the governance of the country, have all been reversed by the All Progressives Congress-led, APC, administration.

    However, President Buhari is yet to comment on the allegations against his government.
    The PDP stated this on Saturday, August 20, while responding to a statement credited to the National Chairman of the APC, John Oyegun, that the PDP lacked the moral right to comment on the current state of the Nigerian economy, insisting that the party brought the current economic crisis upon the nation.

    Earlier, Oyegun had accused the PDP-led administration of former President, Goodluck Jonathan, of not being able to account for N33 trillion it received as revenue.

    Reacting, PDP in a statement said: “We read the statement by Chief John Oyegun, Chairman of APC, to the effect that PDP has no right to speak about President Buhari’s economic failures, and felt compelled to respond for record purposes.

    “First of all, Section 39 CFRN guarantees all Nigerians the right to freedom of expression. Chief Oyegun and his party would do well to stop its many attempts at violating this right.

    “Secondly, we will not follow Chief Oyegun’s path by responding with an invective rejoinder.

    “However, as lawyers say, we will let the facts speak for themselves. For the avoidance of doubt, these are some of the economic indices inherited by the Buhari administration:

    “a. No 1 destination for Foreign Investment in Nigeria with $395m in investments in Q1 2015 alone.

    “b. Inflation at single digit interest rates for several years. It was 9.6% at the inception of the Buhari administration.

    “c. A GDP that had grown at an average of 8% p/a in the last 10 years. Nigeria is currently experiencing its first negative GDP growth since the return of Democracy in 1999.

    “d. A telecoms sector that has received more than $32b in investment since 2001.

    “e. The largest economy in African valued at over $500b.

    “f. An economy that was managing successfully dealing with its unemployment challenges

    “g. An economy that had successfully increased per capita income from $299.4 in 1999 to $2640 in 2015.

    “h. A stock market valued at N11.66t. The Nigerian Stock market has lost more than N1.3t of its value since the inception of the Buhari admin.

    “i. An economy that had reduced its food import bill from well over N1t to N684.7 billion as at December 2013 & and was on target to meet its target of producing 20million MT of food annually.

    “j. An economy that was diversifying by exponentially increasing non-oil revenue for the federation.

    “k. A successfully unbundled power sector with an inductive environment for investment.

    “l.An economy that had successfully reduced its personnel cost over the last 5 years.

    “m.Several tools for combating corruption such as IPPIS, TSA, GIFMIS, EFCC & ICPC.

    “In the past year, the APC-led FG has detained and publicly accused Col. Sambo Dasuki & members of our party for corruption. We find it surprising that the FG is asking for secret trials for the accused persons.

    “We urge the FG to try them openly & in respect for the rule of law.

    “We feel compelled to remind Chief Oyegun that not all monies generated from crude oil sales accrue to the Federal Government.

    “Monies from crude sales accrue to Nigeria & its various JV partners. What accrues to Nigeria is then shared between the FG, States & LGAs subject to the deduction of operational expenses.”


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  • Forex Policy: Nigerian economy collapses as South Africa set to overtake Nigeria as Africa’s biggest economy

    23/Jun/2016 // 874 Viewers

     

    Going by the recent value attrition of the naira against the United States’ dollar due to the floatation of the currency, Nigeria could be upstaged by South Africa as the largest economy on the continent.

    Nigeria’s 2015 Gross Domestic Product (GDP) at $521.8 billion prior to Wednesday’s trading at the inter-bank foreign exchange market may have lost about $157 billion or 30 percent of its value due to the drastic drop of the naira rate against the dollar from N197 to N282. This has threatened Nigeria’s position as the leading and biggest economy in Africa.

    Specifically, at Monday’s dealing, the first in the wake of the new forex policy, the naira crashed 30 percent to N280 to the dollar, with dealers and market watchers admitting there is yet room for the currency to weaken further. And this played out on Tuesday when the value further dipped to N284.
    With a 30 percent loss in value of the naira, the country’s GDP would have shaved off about $157 billion to a new level of $365.3 billion, just $14.7 billion ahead of South Africa’s national output of $350.6 billion.
    Nigeria’s economy surpassed South Africa’s as the largest on the continent in 2014 after a rebasing exercise of its GDP for the first time in two decades.

    Should the naira depreciate further, Nigeria may fail to lay claim to the position of it being the continent’s biggest economy midway into the next rebasing as it would have been overtaken by South Africa with a more stable currency where a US dollar is purchased with 14.8 rand.

    “Though the GDP is really not tangible as it is only an index of the growth of the economy, the $510 billion GDP is at the risk of been eroded and we stand to be upstaged by South Africa, which is currently the second largest  economy”, says Henry Boyo, an economist and industrialist.

    But Ikechukwu Kelikume, Head of Department of Accounting, Banking and Finance of the Lagos Business School (LBS), disagrees.

    According to him, even South Africa is experiencing some contraction and thus poses no threat to Nigeria’s claim as Africa’s biggest economy.
    “The changes in the economy notwithstanding, the second largest economy in Africa (South Africa) is currently experiencing contraction in GDP hence they will not overtake Nigeria in anyway”, he says.

    After expressing support for the new forex regime, which he says will technically address the lapses in the old dispensation (the dirty float exchange rate management system) that gave room for rent seekers, arbitragers and speculators to control the foreign exchange rate market, Kelekume gave a comparison of the two economies.

    “Currently, Nigeria’s GDP contracted to $490 billion while South Africa is currently $313 billion. In terms of GDP growth, annual GDP growth for Nigeria fell from 6.5% in 2014 to 2.7% in 2015 while for South Africa GDP growth rate declined from 1.5% in 2014 to 1.3% in 2015 (IMF World Bank Outlook 2016).

    “For Nigeria Q1:2016, GDP growth saw the country posting a negative GDP growth rate of -0.36% with the possibility of the country posting a negative GDP in Q2:2016 thereby officially entering a recession.”

    He expressed optimism that the “new liberal exchange rate regime will strengthen the Nigerian economy and usher in the much needed FDI to drive the economy”, while reminding us that “what triggered the Nigerian economic crisis was low and unstable oil price” and that “oil price has since risen to $49 per barrel and I believe this will impact positively on the Nigerian economy if the current Niger Delta crisis is addressed”.
     
    Even if Boyo agreed that devaluation can lead to an influx of foreign capital, he says the value of inflow may not be worth the devaluation, saying that an index foreign investors use to gauge an economy is the stock market index, which he noted has lost 50 percent of its value with naira depreciation.

    “By Friday, the value of stocks on the Nigeria Stock Exchange was N9 to N10 trillion. At $200, it was about $50 billion but by Monday, the value had plummeted to $25 billion.

    “The argument has always been that by devaluing we are going to attract foreign investment. But foreign investment expected is no more than $15 billion. The loss as a result of devaluation is more than what is expected as investment and the value of your exchange is a determinant of the capital you attract”.

    Boyo noted that there are several other immediate problems arising from floating the naira including the erosion in the value of the budget, pension fund and minimum wage.

    According to him, with a 50 percent devaluation “the budget is hit, particularly the capital part of the budget because of the imported components. It is now practically half of that. So any hope that physical infrastructure will improve is gone”.

    In a similar vein, he said that recurrent expenditure is now also 50 percent less and this can lead to more wage increase agitation.
    Commenting on the pool of pension funds, he said, “The N5 trillion pension funds was $25 billion but is now $12.5 billion. Meanwhile you are creating expectations that pensioners will get their benefits down the line, which is unrealistic”.

    Boyo who is the founder of Cocosheen, a beauty product, said that as a result of devaluation, “all foreign loans will need 50 percent more naira value to liquidate them. That is 50 percent more naira to payback.

    And that minimum wage at N18, 000 is 50 percent less and because of this, people who will fall below the poverty line will increase”.

    “N1000 is now equivalent to just $3; we may be needing higher denominations like N5000 or redenominated. Devaluation will trigger higher petrol and diesel prices and affect business of industrialists; industrialists will pay 50 percent higher. Even electricity tariffs will have to go up as a result”, he noted.

    Boyo surmised that any hope that the system will improve or get better is unrealistic because the market is looking at demand and supply of dollar but ignoring demand and supply of the naira.
    “If we continue to have surplus of naira and ration of the dollar, the value of the naira will continue to slide. Because the agency that supplies the naira continues to auction dollar to the people, meaning that even the CBN is betting against the naira”.
    Earning more dollars will not help, Boyo, who has written extensively on the matter, said.

    “In a market where the naira is already superfluous, it is false to hope that by earning more dollars, the naira will appreciate.”
    He, however, recommended that the dollars that the CBN keeps be allocated to government beneficiaries and let them convert to naira within the system. “In that way, you have liberalised, changed the dynamics; banks now increase cash reserve ratio and reduce their ability to use the funds”.

    A big winner of the new floating exchange regime is South Africa’s telecommunication company MTN, recently fined N330 billion by the Nigerian Communication Commission (NCC).

    A 30 percent depreciation in value against the dollar means a gain by that margin as the company would pay only 70 percent of that value or N231 billion, thereby effectively saving a whopping N99 billion. - Today.ng


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