MPC Postponement, Blessing In Disguise – Uwaleke

The postponement of the MPC meeting for the second consecutive time could be a blessing in disguise, Professor Uche Uwaleke said. The Central Bank of Nigeria had on Monday announced the indefinite postponement of the Monetary Policy Committee meeting. The meeting, early scheduled for Monday and Tuesday, November 20 and 21, has again been postponed for the second time since Dr. Olayemi Cardoso became the governor of the apex court in September. The CBN’s Director of Corporate Communications, Dr Isa Abdulmumin, who gave this hint in a text message, confirmed that “MPC is not holding”. However, in a chat with NIGERIAN ANCHOR, Uwaleke, who is a Professor of the Capital Market at the Nasarawa State University Keffi, noted that had the MPC had held in September, it most likely would have jerked up the MPR thereby further increasing the cost of doing business and reducing access to credit. “This would have been the outcome of the meeting against the backdrop of the pressure by the IMF for an MPR hike to reduce money supply which would not have had any significant impact on the rising inflation,” he said.

Food To Drive Nigeria’s Inflation Trend, Says Firm

CAPE Economic Research and Consulting has stated that food inflation will continue to drive inflation in Nigeria. In its Economic Newsletter for November, which was made available to NATIONAL ANCHOR on Friday, the economic think- tank said headline food and core inflation are expected to rise to 27.41, 31.01, and 22.50 percent respectively. While noting that inflation would heighten though at a moderate pace, the firm said the impact of food prices and exchange rates may play a strong role. “However, housing and utility prices had a more robust impact in October 2023 than in September 2023. This suggests that the impact of an increase in energy prices and exchange rate continues to permeate into the economy and would continue to reflect over a 12-month period at the least, through a base effect,” it said. On the Federal Accounts Allocation Committee (FAAC) allocation, the research firm noted that there may be a moderation in FAAC distribution for October 2023 adding that it may not dampen inflationary pressure significantly. “The Federation Account Allocation Committee (FAAC) distributed the total sum of N903.48 billion among the three tiers of government in the month of October 2023 for revenue collected in September 2023. The amount distributed was lower than the N923.01 billion shared in September 2023 by N19.53 billion representing a decrease of 2.1 per cent. “A further breakdown shows that the Federal Government received N320.54.25 billion; States, N287.07 billion Local Government, N210.90 billion. Thirteen percent derivation fund distributed among beneficiary states amounted to N84.97 billion. Revenue allocation to all the three tiers of government generally declined in October 2023 except for the 13 percent derivation fund. “The decline was driven by the shortfall in non-oil. receipts, particularly, Companies Income Tax (CIT), Import and Excise Duties, and Value Added Tax (VAT). Collections from Petroleum Profit Tax (PPT), and Oil & Gas Royalties increased during the period,” it said.

FG Knocks Peter Obi For Faulting 2023 Supplementary Budget

The Federal Government has lambasted Labour Party’s presidential candidate, Peter Obi, for allegedly distorting facts for political gains.  The Minister of Information, Mohammed Idris said this while disagreeing to Obi’s criticism of the 2023 supplementary budget. Idris, while defending the budget, described it as a “bold and pragmatic response” to Nigeria’s economic challenges.  The minister urged Obi to familiarize himself with the details, highlighting allocations for security, agriculture, wage increases, student loans, and social safety nets.  Idris emphasized President Tinubu’s commitment to supporting government functions and addressing urgent needs for national recovery.  The supplementary budget, he clarified, resulted from extensive consultations to align with the needs of the people.  Peter Obi had described the passing of the 2023 supplementary budget into law by President Bola Tinubu as wasteful, berating the government for being insensitive and uncaring about the suffering of Nigerians while squandering resources on a mysterious presidential yacht and fleets of SUVs. Mr Obi’s criticisms come shortly after Mr Tinubu signed the 2023 supplementary appropriation bill of N2.17 trillion into law on Wednesday. “No item of urgent social welfare has yet featured in the supplementary budget being orchestrated by this government. Instead, the items being made to dominate public discourse on the budget include a mysterious Presidential Yacht, Presidential Jets, the furnishing of already lavishly furnished presidential quarters and offices, fleets of luxury SUVs etc,” Mr Obi said. Speaking further, he said, “this portrays a Government that is totally uncaring and insensitive to the suffering of the majority, and indifferent to the mood of the nation. “The government’s overall attitude does not indicate that it is aware that the country is in a huge crisis, nor is the government in tune with the plight of the generality of our people. Even worse is the fact that most of the funding for these profligate expenditures will be largely borrowed. The least that Nigerians expect from the government at this difficult moment is empathy and realism, not lavish indulgence.”  Some line items, specifically presidential yacht and fleets of SUVs, in the supplementary budget sparked reactions from Nigerians. But Mr Tinubu’s government claimed the past regime of former president Muhammadu Buhari started payment for the presidential yacht for the Nigerian navy. Many Nigerians have voiced their concerns and criticism, with a significant number expressing displeasure about how such a luxury item can find its way into the supplementary budget. The Senate Committee on Navy, under the leadership of Gbenga Daniel, a former governor of Ogun State and the current representative for Ogun East Senatorial District, has called for a probe into the matter.

Despite Slight Appreciation, Naira Still Weak – Report

In spite of the slight appreciation of the Naira at the weekend, the World Bank has listed Nigeria’s local currency as being among the worst-performing currencies in Sub-Saharan African in the first ten months of 2023. According to figures obtained from Aboki forex, the naira was bought and sold for 1,140/$ and 1,150/$1 at the weekend on the parallel section of the foreign exchange market as against the 1,310/$ on Thursday. Over the past two weeks, the Naira has been hitting new lows, as it sold as low as N1300/$ at the black market, and N848/$ at the official market. However, within the past few days, the currency has been on an upward swing, as it appreciated to N789.84/$ on Friday. But in a report by the World Bank the Nigerian Naira has posted a year-to-date depreciation of about 40 per cent, making it the weakest currency in Sub-Saharan Africa, alongside the Angolan Kwanza. Other currencies with significant losses include the South Sudanese pound which has depreciated by about 33 per cent YTD, the Burundian Franc which has depreciated by 27 per cent YTD, the Congolese Franc (18 per cent), Kenyan Shilling (16 per cent), Zambian Kwacha (12 per cent), Ghanaian Cedis (12 per cent), and Rwandan Franc (11 per cent). In the report, it highlighted that between March 2020 and June 2023, there was a widening disparity between the parallel market exchange rate and the official exchange rate. The disparity widened to as much as 80 per cent in November 2022 and dropped to 60 per cent in June 2023. The prioritization of strategic sectors and the imposed price ceilings and trade restrictions pushed transactions to the parallel market, which started to account for a large share of the foreign exchange transactions in the country, including for remittances, tourism, and exports of non-oil products. After the unification and liberalization of the exchange rates in June 2023, the NAFEX rate converged to the parallel one, closing the gap. However, resistance toward the increasing pressure on the Nigerian naira coupled with limited supply of FX at the official window has led to the reemergence of the parallel market premium. Figures obtained from the Central Bank of Nigeria on movement of foreign reserves showed that the country’s external reserves recorded $76.82m accretion in one week, after it moved up from $33.249bn on October 19, 2023 to $33.326bn as of the end of October 26, 2023. It had earlier lost $841.75m in three months after it fell from $34.07bn as of July 7, 2023, to $33.23bn as of October 5, 2023. Meanwhile, an economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, attributed the naira appreciation to the Supreme Court judgment that brought finality to the litigation around the presidential election. He said the judgment removed uncertainty in the economy. “The pronouncement that the President made about efforts to boost the liquidity in the forex market may have also affected the level of confidence and influenced expectations because if people have expectations that liquidity will improve and the naira will appreciate, they would quickly begin to offload the dollars they have at a lower rate. “We need to seize the opportunity to push down the demand for foreign goods. We must reduce the demand for the dollars. We can have the naira appreciate better.”

Diminishing Naira Will Push Inflation To 18-Year High Of 27.67% – Rewane

Chief executive Officer of Financial Derivatives Company Limited, Bismarck Rewane has projected that inflation is set to rise to 27.57 per cent due to a weak naira. This is the ninth consecutive rise in inflation rates.Analysts say it would represent the highest figure ever reached since September 2005.“Nigeria’s headline inflation is expected to increase again in September, rising to 27.57 per cent from 25.80 per cent in August. “Price increases were most notable in the food basket, predominantly commodities with high import content such as flour, semovita, noodles, and sugar. “With prices rising, fingers are pointing towards the exchange rate as the major inflation culprit. The naira crossed the psychological threshold of N1,000/$ in the parallel market, pushing up imported inflation despite the relative stability in global food prices. The Food and Agricultural Organisation of the United Nations (FAO) food price index was relatively flat at 121.5 points (pts) in September.”, said Rewane. Apart from the weak naira, drivers of inflation includes higher logistics costs and money supply growth (36 per cent year-on-year (y-o-y), saying the price of diesel, the major fuel used by trucks for logistics and distribution purposes, surged to a record high of N1,030/litre during the period. “Notably, month-on-month inflation, which is a more current measure of price movement, is expected to decline marginally to 2.78 per cent from 3.18 per cent in August, largely due to the harvest season impact. This suggests that inflation is likely to reach an inflection point and could begin to taper in the first quarter of 2024.

Nigeria’s Q2 Capital Importation Decreases By 32.9% – NBS

In the second quarter of 2023, total capital importation into Nigeria stood at $1,030.21 billion, lower than $1,535.35 billion recorded in the second quarter, indicating a decrease of 32.90 per cent, the National Bureau of Statistics (NBS), has said. The bureau noted in its Nigeria Capital Importation Q2 2023, when compared to the preceding quarter, capital importation fell by 9.04 per cent from $1,132.65 billion in Q1 2023. The statistics agency stated that Other Investment ranked top accounting for 81.28 per cent ($837.34 million) of total capital importation in Q2 2023, followed by Portfolio Investment with 10.37 per cent ($106.85 million) and Foreign Direct Investment (FDI) with 8.35 per cent ($86.03 million). “The production sector recorded the highest inflow with $605.04 million, representing 58.73 per cent of total capital imported in Q2 2023, followed by the banking sector, valued at $194.58 million (18.89%), and Shares with $68.63 million (6.66%). “Capital importation during the reference period originated largely from the United States with $271.92 million, accounting for 26.39 per cent, followed by Singapore and the Republic of South Africa with $177.44 million (17.22%) and $136.95 million (13.29%) respectively. “Lagos state remained the top destination in Q2 2023 with $778.06 million, accounting for 75.52 per cent of total capital, followed by Abuja (FCT), with $194.28 million (18.86%). “First Bank of Nigeria Limited received the highest capital into Nigeria in Q2 2023 with $323.13 million (18.23%), followed by Citibank Nigeria Limited with $187.77 million (12.23%) and Rand Merchant Bank with $126.03 (6.47%), the bureau said.  

Analysts Forecast Increased Pressures On Economy As Naira Depreciates By 23%

With the naira losing 23 per cent value in the third quarter of 2023, plummeting from N770/$1 at the end of the second quarter to over N1000/$1 by the end of the third quarter at the parallel market, analysts expect further pressure on the currency in the fourth quarter of 2023. Meanwhile, the official exchange rate at the end of the third quarter was N755.27/$1, a noticeable drop from N769.25/$1 at the end of the second quarter. The widening gap between the official and unofficial rates reflects the persistent scarcity of foreign exchange in the country, as well as the divergent policies of the CBN and the market forces. The Central Bank of Nigeria (CBN) has blamed the forex backlog estimated at between $6 billion to $10 billion as the major reason for the currency depreciation. At the recent Senate confirmation of the CBN governor, Yemi Cardoso stated that he intends to establish the exact unsettled obligations and find ways to “take care of it” confirming that progress will not be made without clearing the backlog. He said it would be naive to think that the CBN will be able to make progress if it don’t handle that side of the foreign exchange. “But definitely, the immediate priority will be to verify the authenticity and extent of the unsettled obligation and once we do that, we need to look for a way to take care of it. The naira’s weakness has had negative impacts on the Nigerian economy, as it has increased the cost of imports, fuelled inflation, eroding purchasing power, and discouraged investment. According to the Head of Macro Strategy at FIM Partners UK Ltd, Charlie Robertson, the CBN may have to devalue the official rate again to align it with the market reality and conserve its dwindling external reserves, which fell from $34.1 billion at the end of June to $33.2 billion at the end of September. He noted that further devaluation might be avoided if the apex bank is able to meet its obligations to clear forex backlogs, adding that achieving this might require the government tap new loans from friendly countries. Stears Africa FX Monitor, a data and intelligence company, also has predicted a continued naira volatility. The company highlighted fiscal policies, external trade, and global market trends, including inflation rates, interest rates, policy events, and geopolitical factors as key factors affecting the naira’s performance. Fadekemi Abiru, Head of Insights at Stears, expressed concerns about the naira volatility. “The continued unpredictability of the naira underscores the importance of timely and informed decision-making for businesses and investors in Nigeria,” she said. The CBN had removed trading restrictions on the official market in June which drove the naira to a record low of N750 to the Dollar on the official market, down from the previous N477 to the dollar it traded for. This was the first time since 2016 that the naira had recorded a big fall on the official market before the CBN introduced a managed exchange rate in 2017.

Rising Oil Prices Good For FG, Bad For Nigerians, Says Rewane

Goldman Sachs has predicted oil price will likely rise to $100 again, citing lower production output from the Organization of Petroleum Exporting Countries (OPEC), amongst others. Chief Executive Officer of Financial Derivatives Company (FDC) Limited, Bismarck Rewane, says it will only increase revenue to governments but will not benefit Nigerians. “Globally, oil prices trade at $95/b and are projected to hit $100/b by year-end due to supply shortages. While government revenue, Federal Account Allocation Committee (FAAC) could increase in naira terms, Nigeria’s reliance on imported energy products (LPG, diesel, petrol and kerosene) amid a falling naira means higher food and transport costs, exacerbating inflationary pressures”, said Rewane in a statement Sunday. He said, these will be major considerations for the MPC at its next meeting, whenever that will be. Nonetheless, we expect the MPC to remain hawkish. Rewane in its FDC Prism Sunday however said, some form of looking inward could solve Nigeria’s economic woes. “Viable options would be improving the value addition of top agricultural traded products like cashew and cocoa, as well as mineral resources like steel. More importantly, Nigeria needs to show its political will, improve access, and encourage local businesses, particularly SMEs, to participate in the AfCFTA by removing non-tariff barriers, he said. Also meanwhile, oil and gas companies keep reporting meaty profits and investors are rediscovering their love of hydrocarbons. At the recent World Petroleum Congress (WPC) in Calgary, oil executives and government officials both warned against the continued push to discourage investment in new hydrocarbon production. “There seems to be wishful thinking that we’re going to flip a switch from where we’re at today to where it will be tomorrow,” Exxon’s chief executive said during the event. “No matter where demand gets to, if we don’t maintain some level of investment industry, you end up running shorter supply which leads to higher prices,” Darren Woods also said. This is exactly what we are currently witnessing in Europe and the United States. Because of the transition push, oil producers are being extra cautious with production growth. Also, they are prioritizing shareholder returns to keep shareholders on, so it pays for them to be cautious. In Europe, the supermajors are being squeezed by windfall profit taxes, activist pressure, and increasingly restrictive legislation, so they are turning elsewhere. Shell is tapping billions of potential barrels in Namibia, and Total is considering a $9billion commitment to oil exploration in Suriname. Meanwhile, Nigeria’s oil output could increase to 2.1 million barrels per day by December 2024 after the country secured $13.5 billion in investment pledges over the next twelve months from oil majors. The companies agreed to invest a total of $55.2 billion by 2030 – including the $13.5 billion over the next twelve months – to lift crude production, according to a statement from the president’s office.Nigeria’s oil output stood at 1.18 million bpd in August 2023, according to the Organisation of Petroleum Exporting Countries (OPEC), meaning production would nearly double by the end of next year. Nigeria is the top oil producer in Africa but large-scale oil theft has over the years cost the country billions of dollars, while dwindling investment in the sector has also curtailed output.The losses from theft and a lack of new projects have reduced oil exports sharply, eroding foreign currency earnings in Africa’s biggest economy.

Liquidity, Supply Constraints Responsible For Naira’s Devaluation –Report

A new report by Comercio Partners, has revealed that the depreciation of the naira is due to the complex interplay of various factors including liquidity and supply constraints. It said that within Nigeria’s financial system, liquidity constraints posed a formidable challenge as liquidity levels fluctuated, so did the naira stability add to the uncertainties in the forex markets. The August 2023 Nigeria Macroeconomic and Market an investment banking firm focused on trading global and local fixed income securities and equities, The report also noted that the dollar’s entrenched position in global transactions and foreign exchange reserves makes it challenging to replace with another currency, despite its flaws, as a result, the Naira and other frontier market currencies continue to face pressure amid the dollar’s dominance. According to the report, the depreciation of the Naira during the month of August was exacerbated by the incapacity of Nigerian banks to meet the surging demand for dollars, leading buyers to resort to the parallel market. The report noted that in the official market, August started with a bang as the Naira reached a high of N789.08/$1 on August 1st, and then later appreciated to N738.18/$1 by August 30th. “This marked a depreciation of roughly 0.76 per cent from the July closing rate of N756.94/$1, eventually settling at N762.71/$1 by month-end. The Naira’s erratic behaviour left both investors and market observers scratching their head They added that the naira faced a sharp decline, weakening to N930 to 1 dollar in the unofficial foreign exchange market, known as the parallel market, as the US dollar steadied near six-month highs. The report also noted the report from JP Morgan which revealed a startling revelation about Nigeria’s net foreign exchange (FX) reserves. “The report unveiled a complex web of financial instruments, including foreign exchange forwards, securities lending, currency swaps, and outstanding contracts, which had eroded Nigeria’s net external reserves to an alarming low of $3.7 billion by the end of 2022. “This revelation sent shockwaves through the market, resulting in a short-term repricing of Nigerian international bonds and exacerbating the Naira. They added with the revamped framework, BDC operators are now restricted to a permissible range of -2.5 per cent to +2.5 per cent of the Nigerian Foreign Exchange market window’s weighted average rate from the preceding day “This move aims to address the significant backlog of unmet foreign exchange demand, estimated at a staggering $10 billion. These FX backlogs have inflicted heavy losses on many firms and disrupted the economic ecosystem.” According to experts at Commercio Partners, CBN’s efforts to address liquidity challenges and enhance transparency via the revised BDC operational framework may bring stability, adding that vigilance and adaptable strategies are advised for navigating potential foreign exchange landscape shifts.

Nigeria’s H1 2023 foreign trade data raises questions about economic balance

In the first half of 2023, Nigeria engaged in trade amounting to N24.79 trillion in goods and services with global partners, resulting in a N2.2 trillion trade surplus, as reported by the National Bureau of Statistics (NBS). While these figures indicate a -12.68% decline compared to the N28.39 trillion traded in the same period of 2022, they also signify a significant +258% year-on-year (Y-o-Y) increase in trade surplus, highlighting a potential enhancement in Nigeria’s international net trade. Total imports for H1 2023 amounted to N11 trillion, with total exports reaching N13.50 trillion, contributing N2.2 trillion to the country’s foreign exchange earnings. The data reveals that crude oil remains Nigeria’s dominant export product for H1 2023, constituting approximately 79.50% of exports, while other oil products make up 10.57%, manufacturing 2.54%, and agriculture 4.15%. This suggests that despite reduced crude oil production, oil still heavily influences the nation’s exports, indicating a lack of comparative advantage in non-oil products. In contrast, Nigeria’s imports for H1 2023 predominantly comprised manufactured products at 47.99%, oil products at 33.17%, agriculture at 8.21%, and raw materials at 9.95%. Analysts believe that due to substantial domestic productivity gaps, reliance on imported fuel is likely to continue undermining the country’s foreign exchange position. A breakdown of trading partners reveals that Nigeria’s largest trading partners are Europe (46% of total exports) and Asia (25%), while intra-African trade accounts for a modest 19%. Likewise, Nigeria’s primary sources of imports are Asia (42%) and Europe (38%), with other African nations contributing 15% to imports. The relatively limited trade relations with other African countries in favor of India (Asia), the Netherlands (Europe), and the United States (America) may restrict Nigeria’s ability to maximize the benefits of the African Continental Free Trade Agreement (AfCFTA). *Culled from Proshare