The Nation Newspaper

Tag: Economy

  • Osun, Ogun, Akwa Ibom, others drive SMEs to grow economy

    Many state governments have made appreciable strides in the development of Small and Medium Scale Enterprises (SMEs). They have not only engaged in capacity building, but also provided funds and an enabling environment for them to thrive. Some of the SMEs, which were at the just concluded Lagos International Fair, acknowledged the efforts of their state governments but asked for more, especially in capacity building and funding, reports OKWY IROEGBU-CHIKEZIE.

    Most state governments seem to have come to the conclusion that Small and Medium Scale Enterprises (SMEs) are key to the economic growth of their states.

    They came to the just-concluded Lagos International Trade Fair to showcase their SMEs activities.

    For instance, the Commissioner for Commerce, Industry, Cooperatives and Empowerment, Ismaila Adekunle Jayeoba-Alagbada, told The Nation at the Fair, that the government has established four departments in the state Micro-Credit Agency for traders, artisans, agriculture and administration.

    He said the government has also acquired 35 hectares of land to establish an academy for training unemployed youths.

    He said the importance the government puts on reliable data for economic planning made it to embark on biometric registration of artisans and tradesmen.

    To assist the SMEs to maintain standards and quality in manufactured products and to help buyers have value for their money, the government, he said, would soon launch standard weights and measures in all markets.

    Jayeoba-Alagbada said the industrial sector was receiving a boost as the state is promoting industrilisation which has attracted private industrial investment to the state with the establishment of the Omoluabi Garment Factory, which, he said, had started production.

    He said: “A Business Support Centre has been established in the state capital in collaboration with the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). The core activities of the centre are the enhancement of the capacity of operators of Micro, Small and Medium Enterprises and entrepreneurial development of unemployed graduates and youths in general. This is sequel to the development of industrial estates across the state.”

    He revealed that the Osogbo Industrial Estate has been developed and allocated to entrepreneurs, saying the Ilesa Industrial Estate has adequate infrastructure. Plots in the estate are being allocated to industrialists while the development of industrial estates in seven other locations across the state is in the pipeline, he added.

    On the government’s assistance to the SMEs, the Commissioner said the state government, in collaboration with the Bank of Industry (BoI), under the OSSG-BoI (MSME) Fund, provides financial support to cooperatives, industrial investors and operators of MSMEs.

    He also said the industrialists have been supported with N445,878,000. Due to the importance the government places on SMEs’ clusters as a means of growth, he said the government has organised them into cooperatives.

    He said: “The people have keyed into this mode of support as 10,509 cooperative societies have registered so far.”

    Jayeoba-Alagbada, said the state government has adopted a holistic measure to ensure effective service delivery and partner private investors for power generation from waste. This is in addition to the on-going construction of an international cargo airport in Egbedore Local Government Area.

    In commerce, he said the state has embarked on massive market development; construction has reached an advanced stage on two international markets – the Ayegbaju and Aje markets in Osogbo, the state capital and Ido-osun in Egbdore Local Government Area.

    He said there were plans to establish an international market in Ikurin, the headquarters of Ifelodun Local Government Area.

    However, the Chairman, Nigeria Association of Small and Medium Enterprises (NASME), Mr Ali Alabi, said a lot still needed to be done, adding that most of his colleagues still have challenges in finance, power supply and succession.

    He urged the government to study the Chinese model of supporting SMEs which is based on the Hand Holding Concept.

    Alasbi said while in China the government makes provision for new businesses, it is not so either in Osun or the country. He called for a policy that would resustitate SMEs that have collapsed, noting that this was the only way the economy could grow. The Asian economy grew through the SMEs because of the government’s policy to support them, he added.

    Alabi maintained that the government could also learn from India where every big firm is made to nurture 10 SMEs in its catchment area until they mature.

    The NASME chief further revealed that the government policy’s in India also favours the patronage of small companies against conglomerates as they help sustain their growth by paying higher for their services and products.

    He argued that until government embarks on such deliberate policies the SMEs will continue to struggle for survival.

    Alabi canvassed capacity building for SMEs. This, he said includes learning new skills, marketing, book-keeping, management and also succession plan, noting that several small businesses have gone under because of the poor knowledge of management skills.

    Managing Director, Dusco-Designers International, Mrs Olufunmilayo Ige, a manufacturer of hand bags, shoes and jewelry from Aso-oke and Ankara fabrics, said the state government still had a lot to do in making affordable finance available for SMEs. She decried the problems she and her colleagues face to access fund.

    She said she was in need of finance to get industrial machines, but could not get it.

    Another entrepreneur and Curator of Genesis Arts Gallery, Mr Adeyinka Fabayo, also asked for financial assistance from the government to purchase some capital-intensive machines, urging the government not to leave them in limbo.

    Another entrepreneur, Mrs Iyabo Oyebamiji, who produces fabrics, also asked for funding to keep her business afloat. She said with enough capital, she and her colleagues could assist the government to create the much-needed employment for its teeming youths.

    Also, Ogun State Governor, Senator Ibukunle Amosun reiterated his commitment to create an enabling environment for trade and commerce to thrive in the state.

    Amosun, who was represented by the Deputy Governor, Prince Segun Adesegun, at the trade fair, said the administration would continue to act as a catalyst for economic activities for SMEs. He explained that the state government had put together an economic reform agenda aimed at correcting the structural weaknesses within the system and establishing an enduring framework for economic growth.

    He promised to lay a solid foundation for a vibrant, research- driven mechanised farming and technologically-induced agro-based industry goals.

    In his keynote address, the state Commissioner for Commerce and Industry, Otunba Abimbola Ashiru, said the state government had concluded plans to set up cluster farm settlements, where producers, processors and other stakeholders in the food chain would be localised in different regions of the state to ensure cost-effectiveness, accessibility, visibility and synergy.

    He said the administration was developing a relationship among ministries, departments and agencies of government towards evolving a holistic and integrated response that would guarantee sustainable progress and development.

    Akwa Ibom State Governor, Godswill Akpabio, said he has instituted sectorial linkages for the economic development of the state.

    He said at the Fair, “at present, modalities are being worked out to ensure that quality goods and services that meet International Standards Organisation (ISO) standards are produced in the state.

    “This is an assured way of making our economy vibrant and sustainable to help boost the state’s economy and also ensure favourably in the international market.”

    Akpabio, who was represented by the Commissioner for Commerce and Industry, Mr Ufot Tobby Nkangude, harped on the need to harness the economic potential of his state and the country for development.

    He said indigenous participation served as channels through which economic could be transformed to enhance the welfare of citizens.

    He encouraged the exhibitors to compare notes with others and to start doing something irrespective of the size of their businesses today noting that government is poised to support them in material ways necessary.

    The state stand had exhibitors who displayed cooking ingredients, such as ground crayfish, palm oil, groundnut oil, furniture and art works.

    Others were detergents, handmade bags with local fabrics and locally, made blending machines.

    One of the exhibitors at Akwa Ibom stand and Managing Director of Jekon Integrated Farms Nig. Ltd., Mr Godswealth Henry, producers of RIV Pam Red Palm Oil, said his outing was impressive.

    “I am happy to be at the Lagos Trade Fair. The idea of the Akwa Ibom Ministry of Commerce bringing us to participate is being achieved and we commend our state governemnt for their support to the SMEs.

    “We are into edibles, that is, adding value to farm products so that it meets international standards for export.

    “Our presence at the fair is to get investors in Lagos to be able to evaluate the acceptance of the product when we start exporting them,” he said.

  • Voodoo political economy

    Here we go again – with speculations rife that the nation’s finances may actually be in worse shape than citizens could have imagined. Although, it is not as if there was ever a time the economy as a whole could truly have claimed to have been out of the woods. This is despite the quantum earnings of the past decade. But then, the speculations have somewhat heightened in recent months. Before now, the closest indication about the economy being in any form of trouble was the acknowledgment by the federal government of the massive disruptions to oil production by activities of oil thieves said to have taken out a fifth of the nation’s daily output of 400,000 barrels.

    Today, with nearly the whole of the 36 state of the federation – minus the federal government of course – reeling in the after-effects of reducing revenues consequent upon the constricted oil output, with prospects of inability to pay wages of their workers looming and with many of them reportedly putting further implementation of capital projects on hold, things appears to have moved from the realm of speculation to grim reality.

    Of course, the lady in charge of the exchequer, Madam Ngozi Okonjo-Iweala has insisted that the nation is nowhere near insolvency, contrary to the averments by the governors. Her view would be re-echoed by the duo of the Accountant General of the Federation, AGF, Joseph Otunla and Director General of the Budget Office, Bright Okogwu in their joint appearance at the National assembly last week. Both had insisted that whereas cash flow issues are to be expected in normal cycles of business, what the nation is currently experiencing comes nowhere close to being broke.

    To be sure, not even the tell-tale signs of potential crisis would render speculations of an imminent financial Armageddon anything less than an exaggerated at this time. And like this newspaper observed in its editorial of yesterday, the nation does not as yet face the prospect of slipping into the balance of payment crisis as we had in the 80s through the 90s. No doubt, the point could be made that this is hardly on account of what the managers of the economy have done but more out the benevolences of nature and the market – the factors of increased crude output and sustained high prices in a little over a decade. Even at that, the truth is that no one has sufficiently explained the current paradox in which the federal government continues to ratchet new debts at a time of sustained crude oil earnings. That is however a different matter.

    Flowing from that background, the latest squabbling between the federal government and the states over the renditions into the federation account, and which eventuated in two botched meetings of the Federation Accounts Allocations Committee (FAAC) in July and August, and which is held as partly responsible for the cash crunch across the board, would seem at best a storm in a teapot. The issue at stake really is the augmentation being demanded by the states in the face of cutback in oil exports in the situation that the price has held steady over the budget benchmark price. Left to the federal government, the net difference should be warehoused in the excess crude account to save for the rainy day – and this, naturally against the objections by the states. It is therefore clear that the squabble is one over entitlement, a reflection of the ingrained sharing mentality and the fixation at all levels with rent collection. So, the squabbling could as well go on forever.

    What cannot go on is the delusion being championed by the federal government that it pays to do either little or nothing. Clearly, the econometrics of stashing public funds in foreign bank vaults at nominal interest rates of barely two percent is yet to be sufficiently explained let alone appreciated by Nigerians. This is even more so, in the event that the federal government’s promises about giving the private sector the required muscle to thrive have remained undelivered. Today, it is no longer in dispute that after more than 10 years of financial services sector restructuring, businesses still cannot get cheap funds to run their operations, thanks to Sanusi’s central bank for making fetish of inflation-targeting with industry’s reference interest rate pegged at 12 percent. Trust the banks, they have since mastered the art of making money without lifting a finger just as small businesses have long adjusted to coughing out anything between 22 to 27 percent rate on borrowed funds or risk closure.

    Of course, like every other thing, critical financial infrastructures either for direct financing of businesses or those designed to take the pressure of capital acquisition off them, (a good example is infrastructure for leasing) remain underdeveloped. Ditto, for the plan for mortgage development; it remains on the drawing board more than two years after Okonjo-Iweala first served notice of government’s intention to overhaul the sector.

    The story of the operators on the Main Street is one of double whammy. Because the states cannot get enough from the federation account, they swing into overdrive with their tax hounds demanding all manners of taxes from hapless entrepreneurs across the states. Meanwhile, at a time small and medium scale businesses are hardly able to keep their heads above water, the political establishment, together with their bureaucratic allies, continues to gobble more than disproportionate share from the national till.

    I don’t think the question of the country being broke has arisen, yet. The proof is not just in the bazaar going on in Abuja and the 36 state capitals, but in the voodoo economy that thrives in rent as against a day’s honest and productive work. How can the nation be broke when all it takes to join the big league is a one-way ticket to Abuja or wherever for a share of the gravy? Isn’t that why politics has become the most lucrative, the biggest business in town?

    Broke? We aren’t; at least, not yet. Why should we worry when we have enough to finance imports for the next nine months even for doing nothing? Isn’t our membership of the Sovereign Wealth Fund club meant to announce our arrival in the global league? Didn’t the Americans say that if it ain’t broke, you don’t fix? And who says Nigeria needs fixing?

  • ‘FDI in oil, gas’ll grow economy’

    ‘FDI in oil, gas’ll grow economy’

    The Nigerian Investment Promotion Council (NIPC) has said the gap between demand and supply in the oil and gas sector can only be bridged when there is effective Foreign Direct investment (FDI) into the sector.

    It said the nation has continued to attract major international oil companies due to the conducive economic environment and condusive regulatory framework that would promote competition and ensure transparency.

    The Head, SouthWest Zone of NIPC, Isaac Idowu, told The Nation that the Federal Government has designed laws that make for enterprise promotion as the economy is private sector driven, with over $130 billion investment.

    He said the strength of the economy lies in the fact that it has predictable investment climate and a huge population where foreigners can own 100 per cent enterprise.

    In his words: “ Nigeria has proven to be among the most investment-friendly nations for International Oil Companies (IOC), not only because of the geological configuration of its terrain, but the relative security of investments in the economy. Also, the government is putting in place a regulatory framework that would promote competition and ensure transparency in the industry.”

    Other reasons why one should invest in the sector, Idowu added, are the abundant and growing reserves of crude oil and gas, effective regulatory framework that promotes private sector as engine of growth, partially-deregulated downstream subsector with determination to fully deregulate the sector.

    He said the existence of oil and gas free trade zones for downstream manufacturing activities, high return on investments, unhindered repatriation of profit, capital and dividends, in addition to investment protection against expropriation and nationalisation, are some of the pecks government has made available for investors.

    On the investment opportunities in the sector, the NIPC chief said there has been search for development of local substitutes for such items as medium pressure valve, pumps, shallow drilling equipment, drilling mud, bits fittings and drilling cement and any investor that ventures into such areas will prosper.

  • Economy groans under oil theft

    These are not the best of times for oil companies and the nation. The increasing rate of oil theft is taking its toll on the economy and the companies. Forced shut down of production and declaration of force majeure have been the lot of some oil firms in recent times due to pipeline vandalism by the thieves. The nation, which depends largely on the oil sector, is losing billions of dollars daily. This has led to some firms to divest from onshore to deepwaters. AKINOLA AJIBADE writes on the threats to the economy and the need to halt the illicit trade.

     

     

     

    Crude oil theft, pipeline vandalism, oil shut-ins, divestment from onshore to offshore infrastructure and, sometimes, outright sale of oil production infrastructure. These are some of the now familiar expressions in the oil sector.

    For sometime now, oil majors such as Chevron, Mobil, Total and Shell have been battling the scourge of oil theft while the nation has been losing huge revenue.

    Stakeholders, including the government, oil sector and human right groups, are not happy with the development. They have protested the unwholesome practices, as well as tried to proffer solutions to the problems. But with each passing day, the problems are gaining momentum as no solution seemed to have stemmed the trend.

    Though the Federal Government constituted the Joint Task Force (JTF) to combate the challenge, the success of the military team still leaves much to be desired as oil thieves keep bleeding the economy dry with impunity.

    Not too long ago, the Shell Petroleum Development Company (SPDC) shut down its Trans Niger Pipeline (TNP) because of fresh leaks barely 10 days after it was repaired. The closure, which was the second within two weeks, came with devastating effects on the industry. About 150,000 barrels of crude oil and 500 million cubic feet of gas daily were deferred because of the development.

    Shell’s spokesman, Precious Okolobo, said the company loses an average of 80,000 barrels daily to oil theft. He said the pipelines have been repeatedly targeted and closed down five times since June 2013, due to multiple leaks from illegal points from where thieves siphon crude oil.

    He said the leaks were reported at B-Dere, NowanTai, and Bodo West in Ogoni land, adding that the closure was part of the precautionary measures taken by the company to safeguard its assets.

    Prior to this, Shell had on July 16, this year shut the 24-inch trunk line. The line, which is part of a broader pipeline, route that carries 150,000 barrels of oil daily through the Niger Delta to the Bonny Terminal, was another major blow to the company’s operations. Also, the SPDC suspended loadings at Bonny and Forcados in October last year because of theft, flooding and damage to the supply pipelines. Though Shell lifted the suspension a few days after, it could not compensate for the losses suffered by the company and the economy in particular.

    Industry observers have blamed crude oil theft and associated crimes on militants and the communities where major companies are exploring oil. They said the initial problems Shell and other companies faced were resentment from host communities and its attendant destruction of oil facilities. They said crude oil theft came because the oil majors were not showing enough commitment to tackling ecological problems in the industry.

     

    Fiscal ‘effects’ of crude oil theft

     

    Rising oil theft and pipeline vandalism, volatile oil prices and massive discoveries of shale gas are beginning to impact on Nigeria’s fiscal revenue, as well as making it difficult to meet some of its domestic obligations. An estimated whopping $10billion have been lost to crude oil theft in the last two years. This has adversely affected the sector’s addition to the gross domestic Product (GDP).

    The Minister of Petroleum Resources, Diezani Alison-Madueke said the disruption of exploration in the Niger Delta is posing threat to the growth of the oil industry.

    She said the government is concerned with providing conducive environment for the companies, adding that the industry could only grow when the right environment is put in place.

    She said crude oil theft has resulted in huge loss of revenue for the companies and he government, adding that efforts have been made to arrest the situation.

    A report by Ecobank Group warned that Nigeria’s debts would make the country to remain vulnerable to any unexpected large drop in oil prices. The report also pointed out that Nigeria’s debt would remain susceptible to other macroeconomic shocks, even as it urged the government to properly manage the situation.

    The Ecobank report read: “Nigeria’s debt situation will remain vulnerable to any unexpected large drop in oil prices or other macro-economic shocks to the economy; this could lead to a renewed debt distress.

    “This factor will continue to weigh on the country’s sovereign credit rating. Amid this and other factors, Nigeria’s sovereign foreign currency long-term credit ratings remain below investment grade, albeit with a stable outlook.”

    The report, however, noted that the outlook for Nigeria’s ratings compared more favourably to that of South Africa, which has a negative outlook.

    “Amid growing efforts to reduce external financing risk, the Federal Government’s domestic debt has emerged as the bigger share of total debt, reflecting increased efforts by the Federal Government to finance a larger proportion of its deficit from the domestic capital market rather than from international creditors.

    “The Federal Government’s domestic debt has risen from $10.4 billion (11.7 per cent of GDP) in 2004 to $43.4 billion (16.6 per cent of GDP) in 2012. The stock of domestic debt is likely to remain much higher than external debt, although the government’s recent effort to exercise fiscal prudence should see domestic borrowing fall, remaining well below the Federal Government’s target of 30 per cent of GDP.

    “Already, growth in domestic debt has slowed to 21.7 per cent, down from 40 per cent in 2010. However, despite the downward trajectory in domestic debt, debt-servicing costs remain high (amounting to $4.4 billion; nearly two per cent of GDP in 2012), reducing the fiscal space for investment in otherwise core areas of priority,” it added.

    Also, the Chief Executive Officer, Financial Derivatives Limited, Bismark Rewane, said the country’s economy has been made more vulnerable to macroeconomic shocks by a fall in revenue as a result of crude oil theft in the Niger Delta estimated at 400,000 barrels a day. He said the loss to theft translates to 20 per cent of the country’s output, which amounted to about $14 billion a month.

    “This implies that 20 per cent of Nigeria’s revenue is being lost to crude oil theft. But it does not just stop at that, because the people who are stealing the crude oil have to sell it at a discounted price in the black market, so as long as they do not get full value and it cannot be invested in the national economy, it also amounts to a drop in our Net National Income (NNI),” Rewane said.

    He added that a third danger is that the proceeds from crude oil theft could end up in the hands of Nigeria’s enemies. “It poses a national security risk because the proceeds could be used to buy arms and ammunition by enemies of the state, which could be used to fight and terrorise Nigerians,” he warned.

     

    NEITI’s position

     

    According to the Nigeria Extractive Industry Transparency Initiative (NEITI), oil theft and bunkering constitute a major source of environmental pollution in the Niger Delta region. Its spokesman, Orji said massive public enlightenment and stringent regulations are required to bring national and international attention to the dangers which crude oil theft posed to host communities and the people living along the coastal waters. It said the job of NEITI is more of whistle blowing, adding that it is collaborating with various government agencies on how to tackle oil theft.

    He said: “We believe that environmental hazards arising from oil exploration activities can be checked if relevant agencies such as National Oil Spill Detection and Response Agency (NOSDRA), Ministry of Environment, Department of Petroleum Resources, Ministry of Petroleum Resources and its key parastatals can work together with the security agencies and the companies to enforce the law on environmental pollution.”

    He said rancour among bidders would reduce, when oil licenses are awarded in an open, transparent manner under international best practices.

    NEITI maintains the position that award of oil licenses should be subject to open, transparent and international competitive bid process. This international competitive bid process (ICB) will guarantee that only companies with requisite competencies, professionalism, business integrity and financial capability win OPLs. This would be good for our country in terms of inflow of foreign investments, global competitiveness and good corporate governance which ultimately results in high revenue flows to the federation,’ he added.

    The Petroleum and Gas Senior Staff Association of Nigeria (PENGASSAN) said there are immediate and remote causes of crude oil theft. Its spokesman, Seyi Gambo said the IOCs have lost money to crisis in the Niger Delta, adding that kidnapping of expatriates, pipeline vandalism and crude oil theft are dominant activities in the area.

    He said Shell and other firms have spent huge amount of money in repairing terminals and pipelines, noting that the development has impacted negatively on their operations. Gambo said the terminals always breakdown no sooner had they been fixed.

    He said IOCs are divesting their shares because of high fiscal regime, insecurity of oil and gas installations and unsafe maritime environment.

    From our own pint of view, IOCs have suffered crude oil theft from three angles. The economic effects include reduction in income from sale of oil, running the economy below the fiscal estimate, putting Nigeria in a competitive advantage with other countries, especially those on the continent. He added that there will be increased unemployment, creation of powerful cartels and individuals who can undermine the whole polity such as the Colombian drug cartels. Often times , the cartels stockpile large cache of arms ammunition which they use to terrorise the country. The industry effects are reduction in crude production, lack of new investment by the oil companies operating in Nigeria, increase in oil theft from wells that are not readily taken over by new operators, entrance of new operators especially from China and India, he added.

    The effects on host communities, he said, are reduction in the royalties or other forms of compensation paid to host communities, and lack of social amenities in those communities.

    On labour, Gambo said over 30,000 jobs have been lost to oil theft in the past two years.

    “Job losses as a result of redundancy are one of the problems. Shell, Chevron and Agip are on the part of retrenching their staff. Besides this is the issue of increase in contract/casual form of employment,” he added.

  • Nigeria’s economy gets Fitch’s ‘BB’ rating

    Nigeria’s economy gets Fitch’s ‘BB’ rating

    Fitch Ratings has affirmed Nigeria’s long-term foreign and local currency IDRs and senior unsecured bond ratings at ‘BB-’ and ‘BB’ .

    The outlook is stable, according to the agency, which also affirmed Nigeria’s short-term foreign currency IDR at ‘B’ and Country Ceiling at ‘BB-’.

    The affirmation reflects the following key rating drivers: Gross Domestic Product (GDP) growth slowed to 6.4per cent in last quarter 2013, but has shown resilience in the face of exogenous shocks: severe floods in 2012, which hit agricultural output; security problems, especially in the North earlier this year; and increased oil theft and vandalism and the consequent repair shutdowns which have caused oil output to contract for the second year in a row.

    The non-oil economy has slowed but still grew by 7.9per cent in 2012 and 7.6per cent in H113. Non-oil growth should pick-up in H213 as normal weather has resumed and the authorities have responded to security problems.

    Reforms to the electricity and agriculture sectors could start to boost potential growth. Inflation has been in single digits all year – the lowest in five years and the longest stretch of single digit inflation since 2008. Policy rates are also unchanged.

    The Central Bank of Nigeria (CBN) has the twin aims of achieving single-digit inflation and maintaining exchange rate stability. Public finances remain comfortable. Fitch estimates a general government deficit of around 1.8per cent of GDP this year and next. Both oil and non-oil revenues are under-budget and the Excess Crude Account (ECA) has been tapped to compensate. Capital spending also remains under budget. The draft 2014 budget plans ambitious fiscal consolidation, with lower oil production and benchmark oil prices and lower spending than the 2013 budget.

    However, Fitch expects that oil production will likely fall short again, and the final budget that emerges from the National Assembly (NA) is likely to be more expansionary. Nevertheless, Fitch expects general government debt to remain stable at just over 20per cent of GDP.

    Nigeria’s sovereign and overall external balance sheets, current account surplus, debt service ratio and external liquidity are all stronger than ‘BB’ category medians. Foreign reserves rose steadily in early 2013 but have been falling since May due to reduced oil output, prompting ECA drawdown, and global market turbulence, which has reduced foreign appetite for NGN paper (though net inflows have continued). The CBN intervened to support the naira when it came under pressure mid-year after Fed-tapering turbulence, although reserves have held up much better than many large emerging markets.

    Nigeria effectively re-opened the Eurobond market in July, raising $1billion in its second issuance. Reform progress remains mixed. Electricity privatisation has passed a key milestone with generators and distributors now in private hands. Output seems to be on a rising trend, although it has been affected by gas pipeline damage and an impact on GDP growth is hard to discern. Agricultural reforms are also gaining traction.

    The most obvious benefit to the economy has been a fall in imports last year, due to reduced oil subsidy payments, a crackdown on fraud in the oil subsidy system and substitution in the agricultural sector.

    However, the Petroleum Industry Bill (PIB) remains stalled in the National Assembly. Strong vested interests will make structural reform a continual struggle, especially with elections in 2015.

    Nigeria’s ratings remain constrained by weak governance, low per capita income and vulnerability to oil price volatility. The government is responding to the Boko Haram insurgency mainly with security measures. Data weaknesses hamper the monitoring of economic and fiscal performance and reform progress.

    The Stable Outlook reflects the fact that in Fitch’s view, upside and downside risks are well balanced. The main factors that individually or collectively might lead to rating action are as follows: Positive: – Continuing structural reforms that brought faster, more diverse and inclusive growth and higher employment and per capita incomes. – A longer track record of low single-digit inflation. – Improved external buffers, either in the ECA or the new Sovereign Wealth Fund (NSIA). – Improved governance as reflected in World Bank and anti-corruption indicators. Negative: – A sustained period of lower oil prices or oil production and an inappropriate policy response, leading to serious reserve loss and deterioration in the fiscal position. – Reversal of key structural reforms. A serious deterioration in domestic security, whether stemming from terrorism or election-related violence.

  • Sanusi reads riot act against dollarisation of the economy

    Sanusi reads riot act against dollarisation of the economy

    The Central Bank Governor, Mr. Sanusi Lamido Sanusi, has declared that it is illegal for any Nigerian to insist that payment for a transaction should be in the United States dollars.

    He spoke in Washington DC, United States at the on-going IMF|World Bank Annual Meeting.

    “Anybody that refuses to accept Nigerian naira as the legal tender is committing an offence. Anybody that refuses and says I will not accept naira as a payment is committing an offence.”Sanusi warned.

    He argued that there was nowhere in the world where a customer receiving a transfer in foreign currency receives same in his country. According to him, monies sent to beneficiaries are paid in their national currency which is the legal tender.

    “The interesting thing about our country (Nigeria) is that we intend to create things and we intend to be an island in the world. If you are in the UK and someone transfers money to you from the United States, in what currency do you get paid in London? Pounds!

    “There is nowhere in the world where you got to your bank, because you have a transfer and insist on being paid in that currency. If you are in the UK, you get paid in pounds, if you are in Japan, you get paid in Japanese Yen and if you are in China, you get paid in Yuan. We have this sense of entitlement. The Central Bank did introduce this policy of asking the banks to pay dollars, because there was a time the banks were cheating people. Now we’ve said the exchange rate must be the interbank rate of the date of exchange and the banks are required to display that rate in their banking halls,” he emphasised.

    Sanusi continued, “I don’t see how we are going to continue with the policy that is not consistent with global practices and continue importing dollars and basically saying that we don’t have confidence in our own economy.

    “Tell me one country in the world that distributes its resources in dollar. Why should Nigeria be the only one? What is the logic? Why are we different? If you go to Ghana, you get paid in Cedi; if you go to the other French region, you get paid in CFA.”

    In another development, Sanusi said he has built a legacy in the nation’s banking system that would outlive him when he quits his job as the regulator’s helmsman next year.

    Addressing Nigerian journalists yesterday in Washington DC at the on-going International Monetary Fund/World Bank meeting, the CBN boss said he was comfortable that whoever will succeed him would retain the policies and measures the apex bank has put in place.

    He said he was more concerned with building an enduring institution than in perpetuating himself in office.

    “No individual should consider himself indispensable; an institution is far more important than an individual,” he said and added, “It is part of the strength of a leader to build an institution that believes in your vision.”

    He said further that if he is confident enough to quit at the end of his first-term next year, it would be because, he is “comfortable enough” that the policies he initiated will be carried through after his exit.

    “Nobody wants his legacy wiped out after he leaves. So if you are comfortable enough to walk away from the job, it’s because you feel you’ve built an institution that has been sufficiently influenced by the thinking and the strategy to continue after you,”he declared.

    He argued that the “CBN has established its credibility as being committed to price stability in the system” which he cautioned, “should not be toyed with.”

     

     

  • Can’t Nigeria diversify its economy?

    Can’t Nigeria diversify its economy?

    MUSA ODOSHIMOKHE  writes on the importance of the diversification of the economy to Nigeria in its search for economic growth, development and stability.

    Since independence, Nigeria has evolved from agro economy to oil economy. The abundant mineral resources , including limestone, lead, zinc, iron ore, coal, and uranium copper, bitumen have made significant contribution to the Gross Domestic Product (GDP).

    In the early sixties, the regions took advantage of their economic viability to project the country to heights that attracted the envy of other counties, not only in Africa, but across Asia, Europe and the Caribbean.

    But, with the discovery of oil, the country gradually shifted from agriculture and other allied products to the oil,which has now become its undoing in its quest for economic stability.

    House of Representatives member Hon. Lanre Odubote said: “Talking about Nigeria’s economy, since we got independence in 1960, it is quite unfortunate that we are still where we are today. If Nigeria has been able to get its act together, it would have been one of the economically advanced countries in Africa. Unfortunately, the military incursion distorted our philosophy, struggle and aspiration.

    “By the time we deviated into what I call unitary system of government, instead of federalism, where there will be competition among the units or states, this was not so. That is where we started missing the point. Now, we are moving into an area where we have one single source of revenue, which is oil. By the time we moved to oil, instead of the agricultural sector, which was the benchmark of our economic development at independence, we killed the dream of our founding fathers.

    “For instance, it was through agriculture that the Cocoa House at Ibadan was built; the Independence House in Lagos and other landmark structures were achieved through agriculture. I really want to say that the oil economy has been a curse to the country and not a blessing it was supposed to be”.

    Pro-National Conference Organi-sation (PRONACO) chieftain Comrade Linus Okoroji said Nigeria has gradually denied itself the blessing, which nature has bestowed on her.

    He said: “Look at all the mineral resources that are all over the country, today nobody is talking about them. They have rather concentrated on oil money and everybody is thinking in that direction. Those who leave school are now only interested in working in the oil sector as if that is where they can only earn a living. “This is because the government has not encouraged the development of the other sector. States of the federation have abandoned their mineral resources and they now look up to the federal government for their monthly allocations.

    “This trend must change because the oil will dry up some days and it will be too late to cry then. The government must go into mechanized farming, build infrastructure that will assist other sectors to grow.

     

    Agriculture

     

    This is one of the oldest sectors of the economy that has supported the country’s growth. In the First Republic, the groundnut pyramid in the North contributed to the development of the northern region. The region’s abundant hide and skin was equally of immense value. In the West, cocoa, rubber boosted the region’s economy while palm products in the East were handy to help their growth. If government can channel enough resources into agriculture, the economy will pick up again instead of depending of crude oil for its major income earner. In the northern part of the country, the land remains is largely arable and is still lying fallow. Yet, government has continued to push the people to the wall by over concentrating on petroleum for its revenue. Through Fadama agriculture, farming all season can be achieved. So it is no longer the tradition that people would have wait for particular season of the year before they could plant their crops. Through the export of cash and food crop most states of the federation would not need to get too bothered about federal allocation of efforts are geared in this direction.

     

    Fisheries

     

    The country is blessed with two major rivers; Rivers Niger and Benue, which flow throughout the year. There are other inland water ways which can supply fish, crabs and other sea foods. The country can tap into this area and made huge money, which it can use to sustain other sectors of the economy that are begging for attention. A lot of unemployed graduates and other job seekers, are already tapping into fish farming as a way to earn a living. The government on its own can look into this area, create the enabling environment for investors to tap into. This will enhance the economy.

     

    Telecommunication

     

    The sector used to suffer from the absence of competition in the past. But with the deregulation of the NITEL, other private communication outfits came into the sector. This has not only help in increasing the volume of trade in the country but has assisted in opening avenue of information through which public policies are explained. The telecoms is a money spinner for the advanced economy and this could also help in the Nigerian situation. The sector has provided employment opportunities for Nigerian. Those engaged in the sector are ranked among those who earn good wages in the country, apart from oil workers. The country will make progress, if the sector is made to grow beyond the position it is through public and private partnership. Most of the fish that are produced are not well preserved; locals who engage in fish farming have no reservoirs where they could store the quantities that are not immediately needed for sale or consumption. The country has lost millions of money in the process.

     

    Real estate investment

     

    Real estate investment is one of the lucrative businesses in the country. The sector comprise of two major properties; the low end and the high end. The low end is for low development, which is driven by investments from individuals and corporate bodies, mostly in form of residential buildings. The high comprised high valued investment. The sector has redefined the face of investment in the country; it attracted most of those who invested shares which crashed due to unstable economic policy. The sector has widened the scope of investment for those in the public service through government monetisation policy, which had increased the volume of cash in their hands.

     

    Manufacturing

     

    Manufacturing sector includes cement production, detergent, beverages productions, toiletries, textile etc. The industry engages Nigeria’s skill and unskilled personnel. The sector has made unquantifiable monetary contribution to the economy since independence. It has helped mopped up the labour market that has been infested with an army of unemployed youths. This sector is still begging for government intervention, this could be achieves through the provision of the basic amenities that can help build the industry. The textile industry, for instance, is dying because of government policy, which has made most of them to close shops. The industry has laid off many employees, who are still roaming the streets in search for employment. The provision of good road, stability of the power sector and provision of pipe borne water will bring life to the manufacturing industry.

     

    Finance and insurance

     

    Financial institutions have attracted both local and international investors. Though capital flight is common here, the volume of money, which still circulates in the economy is encouraging. Government has not completely left the sector in the hands of private or foreign bodies. However, government’s constant intervention through its fiscal policy has driven many banks aground while some have merged. When the country was passing through financial crisis, the Central Bank of Nigeria (CBN) introduced the Asset Management Company of Nigeria (AMCON), which has brought some level of sanity to the financial system. Stakeholders still believe that government needs to do more to encourage interested investors in the sector. The financial institution, if well positioned, will redouble its income earnings for the country.

     

    Mining and extraction

     

    The abundant mineral resources in the country have not been adequately tapped. Unfortunately, the industries which would have been making use of the mineral are fading aware for lack of access to the products. For instance Niger State is very rich in gold yet they have not been well utilized, the coal in Enugu State is gradually taking the back stage as all attention now shift to petroleum products. In the country some of them include; granite, colimbite, marble, tin, phosphate, zinc, kaoline, clay, tourmaline asbestos, etc. If these resources are utilized the through the establishment of companies that make use of them. The country stands to benefit if these resources are embrace and used adequately.

     

    Transportation and aviation

     

    These are critical sectors that can yield revenue to the government, if they are properly organised. Their impact on the economy has been felt the world over. These include air, water and roads transport.

     

  • Governors to Okonjo-Iweala: resign or manage economy well

    Governors to Okonjo-Iweala: resign or manage economy well

    • Pro-Jang governors shun NGF meeting

    The Nigeria Governors Forum led by Rivers State Governor Rotimi Amaechi yesterday urged Finance Minister and Coordinating Minister of the economy Dr. Ngozi Okonjo-Iweala to resign or manage the economy well.

    The Forum said her non-compliance with the revenue projection of the 2013 budget was a direct breach of the Appropriation Act.

    The governors also pointed out that the National Economic Council (NEC) is the right body to manage the economy and not the Economic Management Team (EMT).

    Reading the communique at the end of the meeting yesterday, Amaechi said: “The non compliance with the revenue projections of the Federal Government of Nigeria 2013 Budget is a direct breach of the provisions of the Appropriation Act 2013. Members expressed concern in the management of the economy by the Minister of Finance and Coordinating Minister of the Economy and called for a strict adherence to the Appropriation Act 2013, failing which she should resign.

    “Forum observed that National Economic Council (NEC) is constitutionally responsible for the management of the economy and should be used for that purpose as opposed to the Economic Management Team (EMT) constituted by the Presidency.

    “We reiterate our earlier call to the National Assembly for the separation of the office of the Accountant General of the Federation from that of the Accountant General of the Federal Government for accountability and better management of the economy.”

    He added: “After review of the Polio situation in the country, members recognised that some progress has been made in 2013 compared to 2012. Forum enjoined all governors to remain focussed and continue to drive the programme in their respective states until polio is completely eradicated.”

    “Members expressed condolence to Dame Patience Jonathan for the loss of her mother, Governor Fashola for the loss of his father and the family of the late Dr. Olusegun Agagu, former Governor of Ondo State.”

    “Finally, it was resolved that the Forum will hold a Nigeria Governors’ Forum Retreat in November, 2013.”

    But indications emerged yesterday night that reconciliatory efforts to resolve the crisis in the Peoples Democratic Party (PDP) was not yielding results as governors loyal to Plateau State Governor, Jonah Jang’s led faction stayed away from the Nigeria Governors’ Forum (NGF) meeting chaired by Rivers State Governor, Rotimi Amaechi.

    The governors who attended the meeting last night included Aliyu Wamako (Sokoto), Rabiu Kwankwaso (Kano), Abdulaziz Yari (Zamfara), Abdulafatah Ahmed (Kwara).

    Others include Babangida Aliyu (Niger), Abiola Ajimobi (Oyo), Rotimi Amaechi (Rivers), Babatunde Fashola (Lagos), Ibikunle Amosun (Ogun), Sule Lamido (Jigawa).

     

     

    Also at the meeting last night were Rauf Aregbesola (Osun), Murtala Nyako (Adamawa), Kayode Fayemi (Ekiti)

    Deputy governors from Edo, Borno and Nasarawa also attended the meeting.

     

  • ‘It’s the economy, stupid’

    The economy is a reflection of a country’s development. If a country is doing well, it shows in its economy and if it is otherwise, it also shows. So, the economy is the pivot on which every other thing rests, especially the core elements of the economy, such as manufacturing, banking, finance and insurance, transport, oil and gas and human development.

    Every nation strives for a productive economy and not a consuming economy because of its derivative benefits. In a productive economy, the per capital income is good and the people live well. A nation’s economy says a lot about it. Its strength and ‘’vulnerabilities’’, to borrow the word of the all – knowing Coordinating Minister of the Economy, Dr Ngozi Okonjo – Iweala, are the determinants of how well an economy is doing. How well is our economy doing?

    Okonjo – Iweala answered this question in an interview in ThisDay on Sunday four days ago. Her answer : ‘’Our economy is strong, with vulnerabilities’’. Yes, we are all vulnerable in one way or the other; so in that wise, Madam Minister was not saying anything. What she should have told us in simple and plain language is either that the economy is doing well or it is not doing well. Rather than do that, she chose to talk from both sides of the mouth.

    That same Sunday, the African Development Bank (AfDB), answered the same question and chose to shoot straight from the hip. Without mincing words like Okonjo – Iweala, AfDB said the Nigerian economy did not do well last year, quoting its African Economic Outlook (AEO) report. The government fought back swiftly, dismissing the report as ‘’false and political’’. Can AfDB play politics with such matters? What will be its gain in being political in a report that covers all countries on the continent?

    Our government is alleging that AfDB was biased against it when statistics showed otherwise. The only basis on which it can sustain the bias argument is to prove that the statistics used is not correct. If the government cannot do that, the best it can do in the circumstance is to look through that report once again and see how it can work with it to improve the economy. There is no need to grandstand over this very serious issue if the government has the interest of the governed at heart. Even in the United States (US). which is far developed than Nigeria, the issue of the economy is taken seriously. This was why in 1992, former President Bill Clinton, who was then campaigning for office, focused on reviving the ailing American economy. The catch phrase of his campaign, coined by master strategist James Carville, was : ‘’It’s the economy, stupid’’. Till today, whether in America or any other country for that matter, it’s still the economy, stupid.

    The AfDB as the continent’s leading financial institution owes it a duty to make its owner member – states to be alive to their responsibilities whenever their economies are not doing well. If it does not do that, it means that it is not doing its job. What then will be the essence of having the AfDB if it cannot comment on the economies of countries under its purview? If the government must know, the AfDB is not there to make life comfortable for countries on the continent whose economies are not doing fine. No, its job is not to praise sing governments, but to ensure that they do the right thing for their people by developing a robust economy. An economy can only become strong when it is properly managed and those at the helm are not stealing as some leaders are doing in Africa.

    We are where we are today in Africa because of the thieves in power on the continent. Many of them know next to nothing about the economy, so they find the criticism of their economic policies hard to swallow. As I said, the AfDB was only doing its job by presenting its report on the African economy and a wise government will take a look at the document and make amends where necessary. It is not for the government to bellyache and impute motives to what the bank did. Despite the bank’s low rating of our economy, it noted that the future is bright if we do the right things. So, it was not condemnation all the way as government officials have been painting it. The AfDB noted that the economic growth last year did not translate into job creation and poverty alleviation, adding that unemployment rose from 21 percent in 2010 to 24 percent in 2011. ‘

    The report said : ‘’The Nigerian economy slowed down from 7.4 % growth in 2011 to 6.6 % in 2012. The oil sector continues to drive the economy, with average growth of about 8 %, compared to -0.35 % for the non – oil sector. Agriculture and the oil and gas sector continue to dominate economic activities in Nigeria. The fiscal consolidation stance of the government has helped to contain fiscal deficit below 3.0 % of gross domestic product (GDP). This, coupled with the tight monetary policy stance of the Central Bank of Nigeria (CBN), helped to keep inflation at around 12.0 % in 2012. Short and mid – term downside risks include security challenges arising from religious conflicts in some states, costs associated with flooding, slower global economic growth (particularly in the United States and China) and the sovereign debt crisis in the euro area.

    The AfDB could not have done that because it is supposed to aid the growth of the same economy.

    So, it refrained from throw

    ing the baby away with the

    bathwater in its assessment. Proffering the way out, it said : ‘’There is a high need to diversify the Nigerian economy into the non – oil sector. This will help expand the sources of growth and make it broad based, both socially and geographically. Further development of agriculture, manufacturing and services could broaden growth, create employment and reduce poverty’’.

    Monday, Mr Labaran Maku, Information Minister, faulted the AfDB report, saying it was based on old data. ‘’The AfDB report based on 1996 – 2010 statistics is therefore behind time and does not reflect the real achievements/results of this administration in tackling poverty and unemployment in Nigeria in the last three years. This government has undertaken significant policy reforms targeted at addressing the challenges identified in the report. These policy interventions have contributed positively to turning things around beyond the picture painted in the report. Poverty is a national challenge that transcends the whole country cutting across party divides. In reality, the responsibility of fighting poverty does not rest solely with the Federal Government. States and local governments share in this responsibility too. Dealing with poverty as a partisan phenomenon will be trivialising the problem’’. This is the problem with our leaders. They view every criticism from the political prism.

    They see nothing constructive in any criticism of their policies and actions. Their belief is that their political foes sponsor such criticisms against them. Unfortunately, this is the light in which the government is seeing the AfDB report. It is imputing political motive to the AfDB action. I will not be surprised if the government accuses the opposition of sponsoring the report instead of taking a critical look at it in order to make use of the salient findings therein. Will we ever grow if we continue to think like this? May God give us leaders with large hearts, who will not see every criticism as a ploy to bring them down. By the way, Mr Maku, where are the jobs?

  • Global Economy: Seeking European signs of sturdier global rebound

    Atentative view that the global economy is emerging from its lull could harden into conventional wisdom by the end of this week if, as expected, data show the euro zone’s lengthy recession has ended.

    While Europe is still the world’s biggest trading region, some of its recent major exports – financial market panic, banking scares and political uncertainty – have dragged on the world economy over the last three years.

    There are now signs of a nascent recovery, led by Germany and perhaps Britain.

    Wednesday’s data are expected to show the euro zone economy grew 0.2 percent in the second quarter, according to a Reuters poll. That would mark an end to the recession that took hold in late 2011.

    That won’t change the U.S. position as the main engine of economic growth in the world, at least until next year, with Chinese growth still slowing and India wracked by a currency in free-fall.

    But even the smallest sign of a recovery in Europe augurs well for the rest of the year.

    “Add it all up, and it’s a more positive picture for the global economy late this year and next,” Mark Zandi, chief economist at Moody’s Analytics, said.

    “It feels like the global economy is stabilizing, and by year’s end, certainly as we move into next year, growth will be accelerating, led by the U.S.”

    “But I also anticipate some growth out of Europe and stable growth out of the emerging world.”

    Business surveys last week supported that view as companies in the United States and Britain prospered, while there were signs Chinese firms might have passed the worst of their mid-year lull.

    In the past, however, similar indications of global recovery have emerged, only for that recovery to be trampled.

    Europe’s major economies showed signs of improvement in early 2011, even while the sovereign debt crisis in the euro zone was worsening.

    Two interest rate hikes from the European Central Bank midway through the year led to a chokehold on credit, especially in southern Europe, and turned the risk of another euro zone recession into an inevitability.

    Guide to the furture

    Central bank policymakers are determined not to repeat that mistake, as evidenced by the adoption of forward guidance at the Bank of England and European Central Bank.

    Minutes from the BoE’s August meeting on Wednesday will shed more light on Governor Mark Carney’s plan to link its policymaking to an unemployment rate threshold of 7 percent, subject to caveats on inflation and financial stability.

     

     

    “Much like the ECB, the BoE is worried about the effect of tighter global financial conditions on the fragile recovery taking root in its jurisdiction,” said Gustavo Reis, global economist with Bank of America-Merrill Lynch.

    “With the Federal Reserve likely to start reducing the pace of asset purchases this year, European forward guidance aims to anchor market expectations and mitigate the impact of negative policy spillovers.”

    There are risks to forward guidance, too.

    In June, U.S. Fed Chairman Ben Bernanke signaled the Fed was thinking about easing off the pace of its monetary stimulus later in the year.

    That talk prompted a reaction in financial markets that really amounted to an unexpected de facto monetary tightening, with government bond yields rising and the dollar rising sharply in the second half of June.

    Fed officials have been more careful in their language since then.

    That won’t be lost on ECB President Mario Draghi, who has refused to elaborate on his guidance that the bank intends to keep interest rates low “for an extended period of time”.

    Zandi from Moody’s Analytics said that forward guidance will prove critical in allowing the European recovery to take hold.

    “I think the BoE did the right thing in adopting unemployment thresholds similar to the Fed’s thresholds, and I think the ECB eventually will get there,” he said.

    “I think it’s difficult for Draghi to go down the path Carney has, but he’ll go down the path – it’ll just take him longer to get there.”