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FG FACES TOUGH CHOICES TO STABILISE ECONOMY AS INFLATION BITES HARDER

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Nigeria Economy

• Inflation rate jumps to 16.8% in April, highest in eight months • Fuel scarcity, insecurity, hike in Jet A1 compound woes • Don’t expect deceleration until September, Adi suggests • MPR may join interest rate hike fray

The Monetary Policy Committee (MPC) could bite the bullet next week when it reconvenes and adjusts the policy rate for the first time since September 2020 as resurging inflation concerns and interest rate hike across the world put Nigeria in a difficult position.

According to the Consumer Price Index (CPI) for April released by the National Bureau of Statistics (NBS), yesterday, the headline inflation rate has climbed to 16.8 per cent, the highest in eight months.

The soaring inflation rate, driven by fuel price increases and accelerating costs for food, including bread and cereals, rose to 18.4 per cent from 17.2 per cent in March.

The jump in fuel and food items is driven by global supply disruptions following Russia’s invasion of Ukraine, analysts have equally pointed out.

Also, shortages of jet fuel have led to airline operators increasing fare prices by nearly 100 per cent or in some cases suspending operations as the price of the commodity rose from N190 to N700 per litre in the wake of Russia invasion.

The hike in inflation means the purchasing power of consumers, some of whom live on a minimum wage of N18,000 per month, is being eroded.

According to Ikemesit Effiong, analyst and head of research at sociopolitical risk advisory firm based in Lagos, SBM Intelligence, “Nigeria is not just dealing with rising inflation, when combined with high levels of unemployment and low growth – public and private – Africa’s largest economy is in the throes of an extended bout of stagflation.”

Increased insecurity across parts of the country and the slow ramp-up of election spending could also combine to ensure that prices will remain high for much of the rest of the year, he added.

While the figure is not out-of-range with the data of the past two years, the month-on-month (MoM) change is disturbingly high at 1.76 per cent.

It was the second time the MoM change in CPI would exceed 1.75 per cent in six months, the first being last December at 1.82 per cent. The MoM change in Nigeria’s inflation has not risen to the December figure in five years. It was 1.88 per cent in May 2017.

The volatility of prices of essential commodities in recent months as demonstrated by the data from December to April, which are in the range of 1.47 and 1.82 per cent, puts household real income and expenditure planning at red alert.

The renewed inflation could also mean that the MPC cannot continue to maintain its static position on inflation control. Since September 2020, the Monetary Policy Rate (MPR), a monetary tool that determines liquidity, has remained at 11.5 per cent and there have been speculation that it would be raised this year.

The hawkish outlook around the globe has sent a strong message to Nigeria, with the International Monetary Fund (IMF) and World Bank advising countries battling with fiscal and monetary headwinds, like Nigeria, to follow the global trend.

At the recent MPC meeting, Nigeria narrowly escaped an interest rate hike with six against 10 member votes. For the first time in over a decade, the United States Federal Reserve System increased the interest rate by 50 basis points. The Reserve Bank of India (RBI), the United Kingdom and many other countries have raised their rates as a necessary option to keep inflation at a manageable level.

The rate hike fever has also spread to Africa, with Egypt and South Africa increasing theirs. To contain fast-rising inflation currently estimated at 23.6 per cent. The Bank of Ghana shockingly increased the lending rate by 250 basis points in one fell swoop, bringing the benchmark to 17 per cent. 

Not many economists expect the MPR, the rate-fixing arm of the Central Bank of Nigeria (CBN) to continue its conservative stance that started after the lending rate was adjusted from 12.5 per cent to 11.5 per cent in 2020.

But an economist and senior lecturer at the Lagos Business School, Dr. Bongo Adi, told The Guardian that rate hike is not a straight-forward decision for Nigeria at the moment, considering that the unaffordable commercial interests are already sending the private sector, especially small businesses to tailspin.

According to figures sourced from CBN database, the maximum lending rate in March stood at 26.61 per cent. In February, it was even higher at 30.73 per cent while prime borrowing averaged 11.77 per cent in the first quarter.

Sadly, the small businesses, which Dr. Muda Yusuf, a former director-general of the Lagos Chamber of Commerce and Industry (LCCI), believes need affordable funding the most, pay the highest rate for capital.

A higher MPR is expected to have a transmission effect on the cost of commercial loans, and Adi said the CBN might see this as a major reason to leave the interest at its current rate.

“The cost of funds is already too high. If we increase the interest rate, it means the situation will be compounded and businesses will suffer more. If you ask me, I don’t see them increasing it. Any attempt to hike the rates will worsen the situation right now,” he said.

Considering the fear that Nigeria risks losing capital to other markets, Adi said no decision would be an easy one for the CBN.

“The debt servicing to revenue ratio of the government is already too high. So, government will suffer from a higher interest rate because the interest on loans will be higher. It is extremely going to be a difficult choice,” the economist said.

But there is no full-proof interest rate hike that would have any reasonable impact on prices as some economists have argued that the country’s inflation is largely imported and cost-push.

For instance, the cost of diesel, a major component of production cost, has increased by over 200 per cent year-to-date (YTD), which has distorted the domestic supply chain and increased unit costs for many manufacturers.

Sadly, Adi said the uptick in inflation could continue in the next four months as “we have just entered planting season and harvest will not be due till August.”

He said the food component would continue to cause a major upset, at least, in the meantime.  Volatile food prices have a major distortion in the country’s inflation dating back to August 2019 when the land borders were closed. At some points, the differential between core and food inflation was over six per cent. That has narrowed but stood at 4.19 per cent in April. The coming months could see the gap expanding reasonably, especially with no solution yet to the flour supply shock triggered by the Russia invasion of Ukraine.

Speaking to The Guardian, Prof. Sheriffdeen Tella, an economist, said the steep inflation rise was expected following a continued increase in prices of fuel. Tella said it was also expected because the exchange rate has weakened with serious consequences for the majorly import-dependent economy.

He said: “The inflation rate is likely to go higher as we get close to election year. Even though election year is around the corner, the prices of fuel and diesel are not abating; the cost of food and other goods are equally rising.

“However, when the campaigns start, there are indications that they will bring back more dollars, which may reduce the value of dollar against the naira and bring down inflation.”

Tella advised poor Nigerians to immediately begin to adjust their consumption pattern if they must overcome the current challenges.

Another professor of economics at the University of Uyo, Akpan Ekpo, said: “We have rising inflation and unemployment coupled with the higher exchange rate. All these are not helping the matter when you consider the effects of COVID-19 and the war between Russia and Ukraine.”

Dr. Tope Fasua, an economist and former presidential candidate, argued that the reckless importation of goods that could be manufactured in the country is a major driver of inflation.

“I am not a supporter of inflation targeting. I am a supporter of productivity targeting. What we need to do to tackle inflation without production is to tactically find a way to close the economy to encourage local production of things we import. Perhaps, that will take care of imported inflation to a large extent.” 

He submitted that Nigeria’s inflation is multidimensional, adding: “The economy is not a productive one and that is where the challenge is. From the supply side, producers, retailers and even importers have to mark up their prices to reflect the cost of production or importation.”

THE GUARDIAN

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UGWUANYI SENDS 260 ENUGU YOUTHS TO KEFFI FOR AGRIC TRAINING

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Governor Ifeanyi Ugwuanyi’s administration has sent another batch of 260 youths selected from the 17 Local Government Areas of Enugu State, who have a passion for farming, including Reverend Sisters, to Keffi, Nasarawa State, for a two-week agricultural training at CSS Global Farms.

The first batch of 260 youths was successfully trained recently at CSS Global Farms, Keffi, under the sponsorship of Gov. Ugwuanyi’s administration. 

Addressing the new participants before their departure for Nasarawa State, yesterday, the Special Adviser to the Governor on Agriculture, Engr. Michael Ogbuekwe, said that Gov. Ugwuanyi was committed to his mission of producing “the next generation of agriculture businessmen and women in Enugu State”.

Engr. Ogbuekwe added that the participants are “the people that will go, acquire the skills, technology transfer, come back to Enugu State and become influencers, innovators and people that will change the narratives in the agriculture sector of Enugu State”.

According to him, “The first set went and came back successfully and what we have seen is that there is a need to keep training more and more people.

“Consequently, our dear Governor, His Excellency, Rt. Hon. Ifeanyi Ugwuanyi, decided to send our 260 youths for the second batch of training, to learn about food production, processing, packaging, and marketing of agricultural products. 

“They will see agriculture economics in place. They will see how agriculture businesses are set up from the scratch so that when they come back they will utilize and maximize every opportunity around both in the urban and rural areas to earn a living and contribute to the GDP of Enugu State”.

Engr. Ogbuekwe, therefore, commended Gov. Ugwuanyi for his steadfastness and visionary approach to empowering the youth of the state through agricultural ventures and other lucrative endeavours. 

“Gov. Ugwuanyi has made a mark in achieving food sufficiency and food production in Enugu State. And the way we can achieve this in fullest is by training people to acquire experience in agricultural farming in line with international best practices, to increase our production capacity.

“I, therefore, urge you, the beneficiaries, to show dedication to the training programme, make Enugu State proud and acquire knowledge that would help you enhance and rebrand your skills in the modern agricultural value chain, in your interest and overall interest of the state”.    

In his goodwill message, the State Chairman of the Christian Association of Nigeria (CAN), Rev. Emmanuel Ede, expressed gratitude to Gov. Ugwuanyi for his vision, benevolence, forthrightness, peace, and good governance initiatives, and driving principles in empowering the people of Enugu State. 

Rev. Ede, who doubles as the Chairman of Enugu State Christian Pilgrims Welfare Board, prayed to God to grant the participants the protection, good health, and wisdom to accomplish the task ahead, saying: “I wish you a safe journey as you are going and coming back”. 

Reacting, one of the participants, Rev. Sister Amarachukwu Nwaka of Daughters of Divine Love Congregation, Enugu, described the training as “God’s design”, stressing that it is a worthy step towards the fulfillment of her passion for agriculture.

The participants who spoke on behalf of others, Kingsley Sunday Odo and Joy Nneoma Ojile, thanked Gov. Ugwuanyi for the rare opportunity he gave them to expand and enhance their skills in modern agriculture and promised to make him and the state proud. 

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FRESH WORRIES FOR OIL, GAS PROJECTS OVER ESG STANDARDS

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• ARDA Seeks Options For Nigeria, Africa Downstream Oil Sector • Stakeholders Raise Alarm Over Protection Of Energy Infrastructure

Oil and gas experts are worried over the impacts of Environmental, Social, and Governance (ESG) issues on financing for oil and gas projects, insisting that unless borrowers like Nigeria and other African oil producers quickly adapt, securing necessary funding for the sector may remain very difficult.

In the face of huge refining, storage and supply deficits, over $15.7 billion (+/- 50%) is reportedly needed to upgrade the existing refineries on the African continent alone to produce cleaner, AFRI-6 fuels (10 ppm sulphur content), and a clear focus on the ESG contributions of such projects is imperative.

Indeed, over $160 billion projects are currently under financial threat in Nigeria’s upstream oil sector even as the Organisation of Petroleum Exporting Countries (OPEC) said oil nations might find it difficult to raise over $12.6 trillion needed for oil and gas investment before 2045.

Speaking on the ‘Implications of ESG Standards on Global Oil & Gas Project Financing,’ Executive Secretary of African Refiners and Distributors Association (ARDA), Anibor Kragha said attracting funding into Nigeria and other African oil producing countries may become tougher without strong consideration for emissions reduction, social development and governance.

Kragha reiterated that financing of oil and gas sector is in a state of transition, a development which is forcing closure of traditional sources of capital, especially from the World Bank and other national and international development finance institutions (DFIs).

The impacts of the ESG, according to him, mean that projects seeking funding must account for enhanced health, safety and environment standards with due diligence and reporting requirements, as well as updated Equator Principles (EP4), which all combine to impact financing costs.

Speaking virtually at ARDA Work Group Workshop Series on HSE & Quality on May 31, Kragha insisted that investors must now demonstrate how their HSE and Corporate Social Responbility (CSR) practices contribute to return on investment and business performance.

Disclosing that green projects have increasingly attracted more funding than fossil fuel projects since the Paris Climate Agreement was signed in 2015, he urged professionals, especially in the HSE segment, to assist the sector in complying with global ESG best practices, particularly in the area of environmental issues.

“COVID-19 and the war in Ukraine have more than ever highlighted the need for refining of petroleum products in Africa. We can’t expand our capacity without finance. For us to get sustainable finance, we must prioritise HSE,” Kragha noted.

The Executive Secretary said HSE operational excellence remained fundamental to success in downstream oil industry and inextricably linked to productivity, risk and cost, adding that all employees, including boardroom members and frontline operators must understand how their decisions impact the business.

Also speaking at the event, Executive Chairman of Energy & Natural Resource Security, Inc. (ENRS), Derek Campbell said Nigeria and other countries have more to worry about on the security of energy infrastructure.

While speaking on “Energy Security: The Protection of Critical Energy Infrastructure and Natural Resource Assets,” Campbell decried persistent vandalism of infrastructure in the Niger Delta.

Stating that cases of security attacks, including drone attack on oil facilities in Saudi Arabia, METCALF Power Station sniper attack, ransomware attack on Sonangol in 2019 cost the sector huge loses, Campbell said there is lack of domain awareness in the sector,

According to him, the energy must now prioritise physical and cyber risk mitigation solutions for critical energy infrastructure and natural resource assets.

Campbell sees Energy Security Risk & Resiliency Assessments (ESRRAs) as a practice that countries must now prioritise to avert growing dangers to critical energy infrastructure.

Offering Manager for Honeywell UOP’s thermal oxidizers business, Janet Ruettiger, stated that UOP’s new nViro technology would provide solutions to help the refining sector achieve emission specifications more efficiently and more economically with less environmental impact.

With the approach, Ruettiger said organisations could rethink the way waste management is approached across refineries, stressing that it enables waste management to be integrated with the design of the Process Units, thereby providing opportunity for optimization and improvements.

THE GUARDIAN

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DIESEL PRICE MAY HIT N1,500/LITRE, 75% FILLING STATIONS CLOSED – MARKETERS

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About 75 per cent of filling stations across the country are currently out of business due to their inability to purchase diesel required to power their tankers and transport Premium Motor Spirit, popularly called petrol, to their various outlets, oil marketers stated on Tuesday.

Marketers also stated that the cost of diesel would keep increasing and might hit N1,500/litre in the next two weeks if nothing drastic was done to curtail the current challenge faced by importers of the deregulated commodity.

Dealers under the aegis of the Natural Oil and Gas Suppliers Association told journalists in Abuja that this was also the reason why petrol scarcity had failed to abate in Abuja and neighbouring Nasarawa and Niger states, among others.

Speaking on behalf of the marketers, the National President, NOGASA, Bennett Korie, explained that the only solution to the current challenge was for the Federal Government to raise the pump price of petrol a little in order to reduce the huge foreign exchange used in PMS imports.

This, he said, would eventually free up some forex for diesel imports, a development that would impact positively on the rising cost of diesel, stressing that the product was currently sold at N850/litre.

He said, “If you go round now you will see that about 75 per cent of filling stations in Nigeria have gone out of business. There is no diesel to take fuel to their stations. All of them are going down.

“And it is not that the fuel is not there, but the cost of bringing it to the stations is too high. We know that the crisis between Ukraine and Russia has contributed badly, but the government has to do something fast, otherwise we are going to buy diesel in the next two weeks at N1000 to N1500/litre.”

Asked whether anything was being done to address the challenge, Korie replied, “As far as I am concerned nothing for now. The only way out, if you want to know, is that they (the government) should increase the price of fuel a little to reduce the money spent on PMS subsidy.

“I know Nigerians will not be happy to hear this, but this is the only solution. They should increase the price of fuel a little so that the savings will enable the Central Bank of Nigeria to have enough foreign exchange.

“You and I know that we import everything now in Nigeria. Diesel is an imported product and it is fully deregulated. So the importers are not getting dollars at the official CBN rate to import diesel. Everybody is going to the black market to get dollars to import their products and so you expect the price of diesel to be high.”

Korie states that if the government could bring down the rate at which it spends foreign exchange on PMS imports, this would will help other businessmen who import diesel to bring in products at low prices.

“So you need to increase fuel price a little in order to ensure that the dollars spent in importing petrol is reduced and there will be enough forex for importers of diesel and this will cut down the price of diesel.”

He also stated that this was the major reason why fuel queues had failed to clear in Abuja, as many filling stations lacked the funds to buy diesel at a high cost to run their trucks, transport petrol to the capital city and would still be made to sell PMS at N165/litre.

He explained that Lagos, Port Harcourt, Warri and other states closer to these areas had no queues because the three named cities had seaports and large depots for loading and distributing petroleum products.

Korie said, “The reason why you are having scarcity of petroleum products particularly in Abuja is as a result of the high cost of diesel. The price of diesel today in the market is N850/litre. You will also agree with me that the money being paid as bridging claims to transporters is not enough.

“The price is N850/litre and you are giving your driver 1,200 litres from Lagos to Abuja, if you do the calculation you will find out that the landing cost (for transporting the fuel) is about N40/litre.

“So if you add that to PMS, buying at the depot price and selling here, it is too high. So if your cost of bringing it in is at N40/litre and you bought it at N155/litre, when you add this you will get N195/litre. But you are to sell at N165/litre. So who will do that kind of business? It is already a loss-making business.”

Economic experts and operators in the oil sector had repeatedly called on the Federal Government to stop subsidising petrol in order to halt the humungous foreign exchange spent on its imports.

A former President, Association of National Accountants of Nigeria, Dr. Sam Nzekwe, told our correspondent that petrol subsidy was eating deep into the finances of Nigeria.

“Petrol subsidy is eating deep into our national treasury. It is affecting almost every aspect of the economy, because so much forex is used for its imports. It has to be stopped, but we must get our refineries working,” Nzekwe said.

Also, the Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, has also told our correspondent that subsidy in petrol should be cautiously and gradually removed based on its depleting effects on both federal and state governments’ revenues.

PUNCH

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