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News Economy (107)

The Federal Government of Nigeria has revealed her plan to borrow N2 trillion from the current N10 trillion pension funds to finance the development of infrastructure.

#WorldPressNews learnt that this was disclosed at the National Economic Council (NEC) meeting presided over by the Vice President, Yemi Osinbajo, on Thursday in Abuja.

Briefing newsmen at the end of the NEC meeting in Abuja, Kaduna State Governor, Mallam Nasir el-Rufai, stated that the decision of the Federal Government to pull N2 trillion out of the pension funds was reached by a NEC sub-committee.

According to El-Rufai, the country will never be able to address its road infrastructure deficit with the current budgetary allocation for road construction and maintenance. He explained that with the N200 billion in the 2019 budget and N169 billion in 2020 budget, roads cannot be properly fixed.

“In 2019 budget, N200 billion was budgeted for construction and maintenance of federal highways. In 2020, the budget is N169 billion. If we continue this way, we will never be able to fund highway infrastructure. We need to unlock funds to construct and maintain highways.“We will never be able to construct and maintain highways with N200 billion every year. Highway infrastructure and maintenance can only be done with long term funds.”

Speaking on the rationale to borrow from the N10 trillion pension fund, El-Rufai stated that the decision followed an interim report earlier presented to the council, and the decision to borrow N2 trillion from the pension fund was in compliance with the Pension Reform Act 2004, which empowers the government to borrow 20% of the fund to address national issues.

According to him, various countries of the world such as Chile and South Africa funded their infrastructure growth by borrowing money from workers’ pension funds. El-Rufai also stated that with Nigeria’s pension funds largely dominated by youths in their 30s, who still have several years ahead of retirement, utilising the funds for infrastructure would not generate any problem.

Other infrastructures mentioned by the El-Rufai included rail and power projects. According to him, the committee had identified three areas (rail, road and power) where the pension funds would be invested, He added that the borrowing would be done through bonds with private companies investing in road and rail infrastructure and paying within a period of 20 years.

While lamenting on the moribund state of infrastructures in the country, El-Rufai stated that in the last three years, the Federal Government had invested N1.7 trillion in the power sector, without any meaningful effect. According to him, the committee has thrown open consultations on how to fix the endemic crises plaguing the power sector, by inviting memoranda from the general public.

The latest move by the government shows revenue crisis in Nigeria continues to linger. In spite of Nigeria’s burgeoning debt profile, which currently stands at over N26.2 trillion, the figure is expected to hit a new height in 2020.

The Federal Government’s (FG) hope of achieving a seamless implementation of its 2020 budget suffered a set back Wednesday following the release of the Organisation of Petroleum Exporting Company’s (OPEC) January 2020 Monthly Oil Market Report.

The OPEC’s publication details the position of Nigeria’s crude production for last December, putting the average daily output for December at 1.57 million barrels per day (bpd), down from the November 2019 figure, standing at 1.66 million bpd.

OPEC’s data is rigorously achieved by checking statistics submitted by member nations against findings by secondary sources for the purpose of objectivity and validity.

OPEC’s secondary sources said oil output in the country for the month of November 2020 was in conformity with its quota of 1.77 million bpd. In the wisdom of the FG, Nigeria’s average daily production for December had been slashed by 11.3% of its quota in order to reduce supply.

The idea was to spur an increase in the price of crude in the price in the global oil markets, a path that Iran similarly towed about the same time last year.

Financial think-tanks at Lagos-based Financial Derivatives Company Limited (FDC) said “Nigeria is more sensitive about production than price. A lower oil output would affect the actualisation of budgeted revenue projections as oil revenue accounts for 31.35 per cent of the total revenue projected.”

Considering the significant percentage that revenues from oil receipts constitutes in government’s fiscal plan for this year and government’s counter-productive positioning in global oil market, it is safe to say that executing this year’s budget, would suffer a setback.

Brent, against which Nigeria’s Bonny Light is benchmarked, hit $70.74 on 6 January in the wake of US-Iran conflict but now hovers around $64.45. Equally, West Texas Intermediate (WTI) climbed to as high as $64.72 same day even though it had fallen $58.23 as 0f 07:54 West African Time (WAT) this morning.

OPEC, together with its partners – Russia and OPEC+, had concluded to slash production by another 500,000 bpd in addition to the current 1.2 million bpd between January and March.

The country’s quota fell to 1.75 million bpd this month under the OPEC+ partnership agreement to intensify Nigeria’s production cuts through March, S & P Global Platts revealed.

According to the OPEC report, a surge in oil demand growth this year will be neutralised by a sharper increase in non-OPEC supply, another fact the Nigerian government should take a cue from.

It mentions that “continued accommodative monetary policies, coupled with an improvement in financial markets, could provide further support to ongoing increases in non-OPEC supply.” Cuts by OPEC+ are needed to achieve stability in the market, the report further says.

Dangote Group is said to be targeting a turnover of $30 billion for its businesses in the next two years.

Speaking with the media, weekend, Aliko Dangote, owner of the Group, noted that though the company’s annual turnover was about $4 billion before now, but with the completion and running of the refinery, fertilizer, petrochemicals and other businesses, the company’s turnover would be in the region of $30 billion in the next two years.

Dangote lauded the Federal Government’s efforts in the agricultural sector, saying “We have massive arable land; we have water; we have the right climate, so the population growth does not really make me nervous.

“I think the government is doing well by focusing more on the agricultural sector. We just have to tilt towards agriculture and manufacturing as against our oil-reliant economy.”

He praised the government’s drive in getting more revenue from taxes, noting that the restructuring of the nation’s tax system will generate more revenue for the government.

According to him, “60 per cent of the government revenue is coming from oil but the government is doing quite a lot to diversify the economy by trying to restructure the tax system because we need to make more money from taxes because as it is now, the tax generation in Nigeria is a bit low but the government is on the right track with these innovations.”

Expressing optimism that Nigeria will be certified a polio-free nation by April, he said: “We have done quite a lot. The progress has been very tremendous in the last three years, we haven’t really had any wild virus of polio and by April, we will be certified to be a polio-free country, which means the entire, African continent will be polio-free.”

It will be recalled that Dangote, was recently said to be $4.3 billion richer in 2019 with his business investments in cement, flour and sugar.

Asian shares slipped on Friday, erasing early gains, while gold shone and oil prices spiked after U.S. airstrikes in Iraq killed a top Iranian commander, heightening geopolitical tensions.

Iranian Maj.-Gen. Qassem Soleimani, head of the elite Quds Force, and top Iraqi militia commander Abu Mahdi al-Muhandis were killed early on Friday in a U.S. airstrike on their convoy at Baghdad airport, prompting Iran’s Supreme Leader Ayatollah Ali Khamenei to vow harsh revenge.

MSCI’s broadest index of Asia-Pacific shares outside Japan. MIAPJ0000PUS had touched its highest point since June 15, 2018, in early trade, but fell after reports of the airstrike emerged. It was last down 0.16 per cent.

European shares were set to follow their Asian counterparts lower.
Pan-region Euro Stoxx 50 futures STXEc1 shed 0.66 per cent to 3,757, German DAX futures FDXc1 were down 0.6 per cent to 13,303.5 and FTSE futures FFIc1 gave up 0.42 per cent to 7,514.

China’s CSI300 index, one of the world’s best-performing indexes last year, struggled to stay in positive territory but was last down about 0.2 per cent.

Australian shares finished up 0.64 per cent, but off earlier highs.

“It remains very unclear exactly what impact (the U.S. strikes) could have on the equity market,” said Tapas Strickland, director of economics and markets at National Australia Bank.

“It is significant that one of Iran’s top military generals was reported to have been taken out … but it all hinges on what Iran does in terms of retaliation,” he said.

Middle Eastern tensions upset a rally for the MSCI index, which finished at its highest close in more than 18 months on Thursday.

It had been lifted by a New Year’s Day announcement from China’s central bank that it would cut the amount of cash that banks must hold as reserves, releasing around 800 billion yuan (114.87 billion dollars).

Against the backdrop of a thaw in trade tensions between the United States and China, global markets had seen the renewed appetite for risk assets.

“You have from both a policy and trade perspective a favourable framework for … risk assets for the weeks to come,” said Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong.

“The issue in our view, and that is the central scenario, is beyond these few weeks – where could we see a further correction?” he said, noting that the United States is unlikely to enjoy further fiscal stimulus before the presidential election in November.

Shares had received further support from data on Thursday showing factory activity in China continued to grow at a solid pace in December, and that business confidence improved.

Markets in Japan remain closed for a national holiday. Overnight, Wall Street’s major indexes notched record highs in their first session of the decade.

The Dow Jones Industrial Average. DJI rose 1.16 per cent to 28,868.8.

The SP 500 .SPX gained 0.84 per cent to 3,257.85 and the Nasdaq Composite .IXIC added 1.33 per cent to 9,092.19.

But U.S. stock futures pointed to a grim day on Friday after the airstrikes, with SP e-minis ESc1 shedding 0.84 per cent.

U.S. Treasury futures also rose TYc1 reflecting an implied yield of 1.74 per cent.

While equity markets turned lower, oil prices surged on news of Soleimani’s death, which ramped up supply worries as the geopolitical situation deteriorated.

The global benchmark Brent crude LCOc1 shot 2.97 per cent higher to 68.22 dollars per barrel and U.S. West Texas Intermediate crude CLc1 jumped 2.81 per cent to 62.90 dollars per barrel.

The strikes came after U.S. Defense Secretary Mark Esper said on Thursday there were indications Iran or forces it backs may be planning additional attacks after Iranian-backed demonstrators hurled rocks at the U.S. embassy in Baghdad.

In currency markets, the dollar weakened as investors snapped up safe-haven yen. The greenback fell 0.42 per cent against the Japanese currency to 108.11 Japanese yuan.

The dollar was little changed against the euro at 1.1167 dollar.

The dollar index .DXY, which tracks the dollar against a basket of six major rivals, was down 0.04 per cent at 96.808.

The U.S. strikes in Iraq and recent dollar weakness combined to burnish the value of gold, driving the precious metal 0.84 per cent higher on the spot market XAU= to 1,541.73 dollars per ounce, around four-month highs.

The Federal Government has so far generated a revenue of N4.25 trillion in 2019, the Minister of Finance, Budget and National Planning, Hajiya Zainab Ahmed said on Wednesday.

According to Ahmed, this represents a performance of 81 per cent, adding that while the Gross Domestic Product (GDP) planned for 2019 was 3.5 per cent, the third quarter GDP performance was reported as 2.28 per cent.

The minister stated this while briefing State House correspondents after the Federal Executive Council (FEC) meeting, at the Presidential Villa, Abuja.

Ahmed added that the federal government has so far released 1.2 trillion in capital expenditure, representing a 50 per cent capital performance for the 2019 fiscal year.

According to her, on expenditure, the finance ministry had been able to release all that was required for personnel cost while debt service was also on course.

“On overhead, we have able to release eight months overhead for general MDAs and 11 months overhead for some MDAs that we classify as critical and this include the security services, the Federal Government Unity Colleges as well as NYSC and Nigerian Correctional Service.

“So, a few agencies that we classify as critical have received 11 months and we are working on the 12 month over head release for these categories of MDAs.

“So, far as at last week, we have released up to N1.2 trillion in capital expenditure and that is a 50 per cent performance of the capital for the whole year, 2019.

“And now that the president has assented to the 2020 which is a major achievement for this government; it is clear that the 2019 budget is also a six-months budget; so we achieved 50 per cent capital release for 50 per cent performance of the 2019 budget,’’ she said.

Nigeria’s Minister of Foreign Affairs, Geoffrey Onyeama has said that Nigeria will strengthen bilateral ties with Brazil to boost its economy through increased trade relations, agricultural initiatives, multilateralism, and tackle insecurity.

Onyeama made this known on Tuesday in Abuja when he received Mr Ernesto Aranjo, Brazilian External Relations Minister of Brazil who is on a working visit to Nigeria.

Onyeama who said that both countries had a lot in common, added that Nigeria would leverage on the expertise of Brazil to grow the economies of both countries.

He said that the Federal Government would embark on a lot of initiatives to improve the ease of doing business in Nigeria to make the country more attractive to Foreign Direct Investment (FDI).

The minister said that Nigeria had a lot to offer in terms of return on investment.

“There are numbers of important initiatives that we are pursuing such as the Green Initiative, a very promising initiative that will be a game-changer in the agricultural sector.

“We look forward to cooperating with you in implementing this very ambitious agricultural project which is based on the success and experience of Brazil in the field of Agriculture.

“We also look to have closer and deeper ties, security-wise. We face some security challenges, terrorist challenges for a number of years now.

“And Brazil is one of the countries we also look to explore areas of cooperation in the military field and we hope that this could be something that we can achieve.

“Brazil is one of the largest economies in the world and one of the largest country population-wise and Nigeria is the largest economy in Africa and the most populous country so we have a lot of similarities.

“For such too large economies, we feel that we should be doing a lot in trade between our two countries and the level can be increased much more.

“We have relations in the oil and gas sector and agriculture as well, but we can do a lot more and we are delighted that there is a business group that has come with you from Brazil to explore possibilities,” Onyeama said.

Onyeama also told his Brazilian counterpart that there is a lot of advantage for Brazil for coming to Nigeria and there is a lot of economic advantage that the ECOWAS is able to offer and now.

He told the Brazilain envoy that with the African Continental Free Trade Agreement (ACFTA), Africa could be one of the largest global integrated common markets which should be of major interest to Brazil.

Onyeama said that Nigeria would, in close collaboration with Brazil strengthen multilateralism at the level of the United Nations.

He said that the High Level Strategic Dialogue meeting holding in March 2020 between both countries Vice Presidents would be an opportunity to look into the issues of pending Memorandum of Understanding (MoUs).

Also speaking, Aranjo said that Brazil seeks to have strong and new engagements with Nigeria basically on three pillars; Economic, trade and investment, in the area of Defense and security and on human connection and values.

He expressed conviction on the realization of the set pillars between both countries within a short time frame.

“The Green Imperative Initiative is a wonderful project and we are committed to making it happen.

“Brazil has an enormous potential in term of agricultural technology and Nigeria has potentials in agriculture that totally match.

“Brazil is in a new circle of development after many years of stagnation and the reasons Brazil survived through the difficult years of its economy has been mainly through Agric business.

“The Defence and security area is also promising, we share concerns on the need to fight terrorism and organised crimes.

“In the multilateral sphere, we want to also coordinate with Nigeria to foster a common vision for those organisations in the multilateral dimension,” Aranjo said

Aranjo said that he hopes the strategic meeting between the Vice Presidents of Brazil and Nigeria will set a good roadmap for both countries to achieve the listed areas of cooperation.

The World Bank has said the number of Nigerians living in extreme poverty may increase by more than 30 million by 2030 and the country will be home to 25 per cent of the world’s destitute people if the government fails to revive economic growth and create jobs.

It warned that the country could slide back into recession if crude prices fell by 25 per cent to $50 a barrel.

The international oil benchmark, Brent crude, traded around $61 per barrel on Monday.

The bank gave the warning in its 2019 Nigeria Economic Update Report, which was released on Monday.

It said, “Economic and demographic projections highlight the urgent need for reform.

“With population growth (estimated at 2.6 per cent) outpacing economic growth in a context of weak job creation, per capita income is falling. Today, an estimated 100 million Nigerians live on less than $1.90 per day.

“Close to 80 per cent of poor households are in northern Nigeria, while employment creation and income gains have been concentrated on central and southern Nigeria.”

According to the report, Nigeria’s economy is expected to grow by 2.1 per cent in 2020 and 2021, compared to an annual population growth rate of 2.6 per cent.

It noted that Nigeria’s economy was recovering gradually from the 2016 recession, with growth projected to pick up from 1.9 per cent in 2018 to two per cent in 2019.

The World Bank, however, warned that the projected growth outlook “is vulnerable to external and domestic risks, including geopolitical and trade tensions that may affect inflows of private investment.”

“Nigeria has the opportunity to advance reforms to mitigate these risks amid growing public demand for greater economic opportunities,” it said.

The World Bank urged President Muhammadu Buhari to increase domestic revenue, remove trade restrictions and improve the predictability of economic policy.

It also advised the Nigerian government to remove expensive fuel subsidies and reduce lending to targeted sectors “that crowd out banks.”

Failure to take actions would see more Nigerians falling into extreme poverty, the bank warned.

“The cost of inaction is significant. Under a business-as-usual scenario, where Nigeria maintains the current pace of growth and employment levels, by 2030, the number of Nigerians living in extreme poverty could increase by more than 30 million,” the bank said.

About 50 per cent of Nigeria’s almost 200 million people live in poverty, according to the World Bank.

Last year, Nigeria overtook India as the country with the highest number of people in extreme poverty.

A report by the Brookings Institution said data from the World Poverty Clock showed that Nigeria had over 87 million people living in poverty.

The World Bank report, titled ‘Jumpstarting Inclusive Growth: Unlocking the Productive Potential of Nigeria’s People and Resource Endowments’, showed that Nigeria created about 450,000 new (net) jobs in 2018, partially offsetting the loss of 700,000 jobs in the previous year.

“Nigeria’s labour force is growing rapidly, and in 2018, over five million Nigerians entered the labour market, resulting in 4.9 million more unemployed people in the last year,” it said.

The report stated that “positive news are emerging from some states that are creating enough jobs to keep up with the growth of their labour forces.”

It said, “In the year following the recession (between the first quarter of 2017 and the first quarter of 2018), 10 states saw some positive job creation, but the number of new jobs was not enough to absorb the new entrants into the labour force.

“The situation improved by the third quarter of 2018, as four states (Lagos, Rivers, Enugu, and Ondo) created more jobs than the entrants to the labour market, and as a result, these states reduced unemployment.”

According to the report, the signing of the Africa Continental Free Trade Area agreement shows that Nigeria is now more willing to become a driver of continental growth and integration.

The World Bank Country Director for Nigeria, Shubham Chaudhuri, said, “Reforms would help achieve faster, more inclusive, and sustained growth with jobs.

“Building on recent efforts, going forward, we recommend actions in priority areas, such as increasing fiscal revenues and improving the quality of spending to manage oil-sector volatility, investing in much-needed human capital and infrastructure, and improving the business climate to unlock private investment and tackle Nigeria’s jobs challenge.

“Investing in people and removing barriers that make it difficult for new firms to compete and grow will encourage entrepreneurship and innovation, spur job growth, and ultimately reduce poverty.”

Shedding its value in Quarter 3 in response to its perennially strong import culture, which far outpaces its exports, is high, a financial pundit has observed. In the second quarter, Nigeria posted a current account deficit in the sum of $2.9 billion and there are worries among industry experts that the development could recur in Q3, with the implication that government might be compelled to modify the exchange rate lower to suit the sentiments of foreign investors.

Lukman Otunuga, a research analyst with the financial planner, FXTM, gave the outlook while noting that the Central Bank of Nigeria (CBN) might be similarly strained to offer palliatives to the current inflationary pressures on the economy.

“While a deficit is not necessarily bad, it does suggest that a country’s liabilities exceed its foreign assets. Given how Nigeria imports more than it exports, there is a risk of the nation experiencing another deficit in Q3 – an outcome that could prompt foreign investors to call for Naira devaluation.”

“There will be a strong focus on the interest rate decision on Tuesday (today). Given how inflationary pressures are making an unwelcome return, the CBN may think twice before cutting interest rates from 13.5 per cent. Should the CBN governor adopt a cautious tone and express concerns over the Nigerian economy, investors may re-evaluate the possibility of monetary policy easing during the first half of 2020,” Mr Otunuga noted.

Nigeria’s Capital importation figure for Q3 2019, released earlier this week, put the value of capital importation into the country during the period at $5.368 million, representing a 7.78% plunge from the amount posted at Q2. However, it was an 87.99% increase over the amount posted in the corresponding period of 2018. Generally, the contraction in the size of Nigeria’s capital importation on quarter on quarter basis as detailed above is a timely indication that the nation is increasingly losing its appeal as investment hub among foreign investors.

According to Said Adejumobi, Director for Southern Africa (SRO SA), Economic Commission for Africa (ECA), the blue economy can be a site of economic production, which through its value chain process, can link small, medium and big production firms and thereby promote the alleviation of poverty, reducing inequality and ensuring better living standards for the people of our region.

Adejumobi said this on Monday at a high-level policy dialogue on the “The Blue Economy, Climate Change and Environmental Sustainability” in Windhoek, Namibia.

Mr Adejumobi stressed that the dialogue is focusing on the potential threats and dangers to the blue economy sector from climate change and environmental challenges. “If the blue economy is to serve as a viable mechanism for powering our industrialization process, the threats to the realization of such goal need to be urgently addressed”, he added.

Adejumobi further emphasised the importance of oceans which are at the heart of the planet, covering over two-thirds of the earth’s surface, being home to over 80 per cent of life on the earth, supplying nearly half of the oxygen we breathe, and serving as the largest carbon sink on the planet by regulating the earth’s climate through absorbing carbon dioxide that we produce.

“A recent report by the World Wildlife Fund estimated that the value of key ocean assets to be US$24 trillion, which is indeed a conservative estimate; the actual value is likely to be much higher because many key ecosystem services are difficult to quantify, with an annual value of goods and services estimated at US$2.5 trillion,” he added.

Adejumobi further observed that the blue economy is Africa’s “hidden treasure”, which if well and sustainably tapped, can make a difference in Africa’s economic transformation and development. “In realization of the immense benefits of the blue economy, sustainable development goal (SDG) 14 commits member States to conserve and sustainably use the oceans, seas and maritime resources for purposes of development”, he said.

Speaking at the same event, Namibia’s United Nations Development Programme (UNDP) Resident Representative, Ms Alka Bhatia noted that the desired outcome of a blue economy is to achieve “improved human well-being and social equity, while significantly reducing environmental risks and ecological shortages – an outcome which is at the center of UNDP’s work in Namibia, and globally.”

Ms. Bhatia further highlighted that Namibia’s fisheries is the third largest income earner and contributes about 15 per cent of total exports, “about 16,800 people were directly employed in the fisheries sector as per estimates in 2017,” she added.

It was Ms. Bhatia’s considered view that the blue economy concept moves nations away from the business as usual “brown” development model where the oceans are for free resource extraction and waste dumping, – “the concept allows us to internalize costs in economic calculations,” she emphasised.

The two-day policy dialogue offers a great opportunity for stakeholders to share ideas and opportunities, raise awareness on climate change and environmental stewardship, create innovative new partnerships and work together towards effectively addressing climate-related changes in order to realize the full potential of the blue economy.

A quarterly survey report titled Inflation Attitudes Survey Report for Q3 2019 released by the Central Bank of Nigeria (CBN) has shown that Nigerians would rather have a lower interest rates than lower inflation.

The Survey report which was released on Tuesday, measured Households’ perception/expectations of price changes in the past one year/next one year, Households’ perception/expectations of interest rate changes in the past one year/next one year, Households’ opinions on the impact of interest rate changes in households and on the Nigerian economy, Households’ perception of the impact of interest rate changes on prices in the short and medium-term, and Households’ assessment of CBN’s role in controlling inflation.

The survey was conducted in 2,070 households that were randomly selected across Nigeria, with a response rate of 98.3%.

Inflation

When respondents were asked what would happen to the Nigerian economy if prices started to rise faster than they are now, 52.9% believed that economy will grow weaker, 6.4% said it will grow stronger, while 19.5% thinks there will be little difference. 21.2% did not respond.

This suggests that Nigerians prefer stability in prices. This supported the notion that inflation constrains economic growth.

On price changes over the next one, majority of the respondents think inflation will rise by 2.7%.

Interest Rates

The survey showed that 47.6% of the surveyed households knew nothing about interest rates.

Out of the remaining 52.4%, 28.2% believed interest had risen in the last 12 months.

On expected change on interest rates for bank loans and savings, 21.4% think rates will rise, while 14.7% believed that rates will fall. However, 63.9% of the respondents were indifferent or had no idea.

On whether if it would be best for the economy if interest rates fall or rise, 37.9% indicated that a fall in interest rates will favour the economy. 6.5% opted for a rise in rates, 14.6% were indifferent. However, a large percentage (40.6%) had no idea.

This indicates that while some Nigerians would prefer a fall in interest rate, the majority have no idea on interest rates.

Interest rates vs inflation

When asked whether they will prefer a high-interest rate or high inflation, 33.7% preferred a rise in prices (high inflation), 22.5% preferred higher interest rates, while 43.4% had no idea.

This suggests, when given a trade-off, Nigerians will prefer higher interest rates to higher inflation. This is also suggestive of support for bank’s price stability objective.

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