The Nation Newspaper

Tag: recovery

  • Pilgrims pray for economic recovery

    Over 300 pilgrims from Lagos State in Jerusalem yesterday pray to God to help the nation make a quick recovery from the economic recession.

    The pilgrims, who visited most of the sites where Jesus Christ carried out his ministry while on earth, also prayed for peace and prosperity.

    A pilgrim, Reverend James Ogunfolaji, said the exercise was important for Nigerians to unite and pray against the evil affecting the development.

    He said he was astonished to see Israel so developed considering that the place was located on a desert.

    Ogunfolaji said: “What I have seen here has propelled the need for me to pray more for our country. I saw mass farming activities even when they don’t have the right vegetation. These people produce what they eat here in desert but our country is so blessed with natural and human resources yet we still depend on foods imported from other countries.”

    He said there is no way the nation can get it right if it continues like this, noting that not only will the nation remains underdeveloped but the future would be ruined.

    Lagos State Health Service Commission Permanent Secretary Dr Jemilade Longe, told our reporter that prayer for the nation was part of the arrangement for the exercise considering the various challenges in the country.

    He said the experience has been quite fulfilling physical, spiritual and socially.

    “Pilgrimage exercise gives one the opportunity to see all what written in the Bible and that gives a lot of confidence for those things that are yet to be fulfilled in the bible.

    “We have come across so many people from different countries and different denominations and we are all just one trying to project the image of Nigeria,” He added.

    Longe, who said he had visited Israel before on a training programme, said there was a lot that Nigeria has to learn from Israel.

    “I must say that this is my third time of visiting. The first two times I was here as a participant in training. But this is a deeply spiritual one.

    “We look at the significant events of the sites visited and use it as prayer point for ourselves and critically for the country knowing full well that it is scriptural that we should pray for our country”, he said.

    He also added that the experience was also very significant for Lagos State in the area of tourism.

    “Our Governor has done a lot to boost the tourism potentials of the state and by coming here it will give us opportunity to learn more on how to drive tourism in the state,” Longe said.

  • Economy: Moving from collapse to recovery

    It is interesting that almost all stakeholders who have tried to discuss our current economic predicament believe that the Nigerian economy is in “recession”. But is this a correct characterization? If these stakeholders are in error, then, we can conclude that the nature of the problem is not generally understood, and if policy makers are in error in this regard, then policies designed to revive the economy will be ineffective, and may aggravate current problems.

    What economic condition is Nigeria now experiencing? Let us quickly dismiss what it is not. First, it is not depression, where national output, incomes, employment levels and rate of inflation are all negative. Second, it is not deflation, where price levels and interest rates decline as well as aggregate expenditure in the domestic economy, as is now happening in Japan. Third, it is NOT recession which is characterized by negative growth in national income for two consecutive quarters (six months) without incidence of inflation. Fourth, the closest term to describe the current Nigerian situation is stagflation, which is decline in national income combined with inflation. We can argue that while stagflation is the closest description of the present state of the economy, that state is actually worse than stagflation, in the sense that inflation is accompanied by absolute reduction in national income and employment level, as well as a chronic external deficit. If we accept the fact that Nigeria is experiencing something worse than stagflation, then the appropriate package of policies that can revive the economy is significantly different from that being proposed by government, external donor agencies and by the organized private sector to tackle recession.

    Recognizing the causes of the current Nigerian economic predicament is a major step to resolution. Some of these causes are policy mistakes of previous and present governments, wrong attitudes of Nigerians to production and consumption, and a curious tendency of accepting policy advice from stakeholders who place their individual interest over that of the country. We shall be specific.

    1. Failure to refine crude petroleum at home due to constant breakdown of the four refineries;
    2. Excessive importation of food and other agricultural inputs which Nigeria is well suited to produce, due to irrational dependence on shared oil revenue;
    3. Continued depreciation of the naira exchange rate which propels cost-push inflation arising from imports; especially petroleum products, industrial inputs and food;
    4. Sustained tight monetary policy implicit in high and rising interest rates which discourage investment by small and medium-scale enterprises;
    5. Recent trend of introduction of new taxes at Federal and State levels which is a leakage from the national income stream as it discourages production and consumption;
    6. Failure of the National Assembly to pass the Petroleum Industry Bill (PIB) which is expected to liberalize the downstream segment of the Petroleum and Gas sector with huge potential to increase output, incomes and employment;
    7. Failure of the political party in power, past and present, to restore a proper federal structure with considerable devolution of powers to federating states which was destroyed when the military overthrew the First Republic in 1966. All federal governments have resisted the restoration of the federal system that provided a solid foundation for stability, peace and mutual respect during the First Republic. Current political discontent and agitation in oil-producing states resulting in destruction of production and pipeline facilities reduces output of crude oil and gas, in the process destroying the environment, reducing earnings of foreign exchange as well as electricity supply. The solution to the constitutional problem is negotiation among the geopolitical regions, and definitely not the militaristic approach adopted by the Federal Government in 2016.
    8. Shortcomings in the implementation of The Treasury Single Account (TSA) which suddenly drained large sums from the commercial banks with adverse effects on liquidity, lending capacity, employment in banks and solvency, and increased exposure to bank distress.

    Current economic problems arise from WRONG exchange rate policies adopted since 1986 under the Structural Adjustment Programme (SAP). Before then, the country operated a fixed exchange rate regime which provided a stable environment for the country to attain middle-income status during the Gowon Regime. Proponents of SAP and flexible exchange rate system argued that the naira was “over-valued”. From the initial exchange rate of N1= $1 in 1986, the exchange rate has deteriorated to N310.00= $1.00 on the inter-bank market and N475= $1 in the parallel market as at October 5. The orthodox theoretical argument is that depreciation of the national currency raises domestic prices, improves the balance of payments position and increases gross national income. But empirical results of depreciation of the naira indicate that the policy reduces national income as well as worsens the balance-of-payments position. This confirms the position taken by experts that the Nigerian foreign exchange market is unstable. The implication of this is that to obtain the desired results of improved balance of payments position, increased national income and reduction in the rate of inflation, the country should find a way to appreciate (raise the value of) the naira. This would involve devising policies to tackle destabilizing speculation against the naira, increase exports and devise a strategy of taming the parallel foreign exchange market by integrating it with the Bureau De Change and subjecting it to Central Bank control. Appreciation of the naira then results in lower rate of inflation increased national income and improved balance of payments position.

    Nigerian monetary policy has been restrictive since the introduction of SAP. The Central Bank, in its inflation-targeting strategy of monetary policy, regularly mops up so-called excess liquidity by selling securities to banks, resulting in rising short-term interest rates. This discourages lending and makes the structure of lending interest rates prohibitive to investors. This works against increased national output and employment. The assumption of the Central Bank is that lending is for consumption, which would have been tenable if the inflation was demand-pull. In cost-push inflation, rising short-term interest rates, in addition to reducing output, may also compound inflation. In the current Nigerian situation, easy monetary policy is preferred.

    Fiscal policy should be significantly restructured. Government’s commitment to increasing non-oil revenue should continue. The percentage of expenditure on recurrent items should be reduced while capital expenditure is significantly increased to accommodate additional infrastructural facilities. In the short run, budget deficits should be employed to expand national income and employment opportunities. Sale of national assets should not be considered.

    In this era of globalization, application of new technologies, particularly ICT and the development of entrepreneurial capabilities make a country more competitive in world markets as well as increase the productive capacity to satisfy domestic demand. This policy, working closely with fiscal policy, increases national income, improves the balance-of-payments position and reduces inflation.

     

    • Paper delivered by Professor Osagie on behalf of recipients of honorary degree awarded at the 42thgraduation ceremony of the University of Benin, November 26.

  • Why Lagos is key to Nigeria’s recovery, by Utomi

    •Ashafa hails Ambode’s handling of affairs 

    Lagos State is a crucial catalyst, if Nigeria’s economy is to witness a turnaround, renowned economist and financial expert Prof. Pat Utomi said at the weekend.

    Utomi, who spoke at the Executive/Legislative retreat for members of the State Executive Council and lawmakers from the Senate, House of Representatives as well as the House of Assembly, said there were lessons to be learn from Lagos State.

    According to him, the state’s economy is largely driven by its huge investment in infrastructure, vibrant tax collection and an enabling environment for businesses to thrive, with less-dependence on oil revenue.

    Utomi, in his paper, cited Comrade Adams Oshiomhole when, on emerging Edo State governor, said he would learn how Lagos was getting it right and replicate same in Edo State.

    “The first thing he (Oshiomhole) did was to say he needed to learn how Lagos was getting it right. And he came over to Lagos with his core team to understudy the Lagos developmental model. And we can see how that worked well in Edo,” the economic expert said.

    He added that several other states followed suit in emulating how the tax and IGR template works in Lagos State and how the public service was structured to enhance good coordination.

    Utomi said the Lagos State example should be prescribed for other states and for Nigeria, because, according to him, the momentum will be good for the country.

    He canvassed that the Southwest states scale up their economic integration.

    “This is why I have always advocated a Lagos-Ibadan megalopolis. Lagos is already a mega city by virtue of its population. But a deliberate economic integration with other Southwest states can produce even better results.

    “This won’t be a new template. In fact, it will be taking us back to the template of the old federal structure in a way, when the three regions had a healthy competitive spirit that brought about development.

    The Senator representing Lagos East, Gbenga Ashafa, hailed Governor Akinwunmi Ambode for coming up with a platform, “where the executive and legislature meet to deliberate on issues affecting the people with a view to pull human and material resources together in the interest of the people”.

    Ashafa, who chairs the Senate Committee on Land Transport, said he had been assured by Ambode that the rail reform of Lagos was almost ready.

    He added that upon completion, the Light Rail will bring serious dividends of democracy to the people, as well as employment, which in turn, will hasten Nigeria’s recovery from recession.

    The lawmaker, who also spoke on kidnapping, hailed Lagos State for the way the crime has been handled.

  • Loot, recovery, and re-use

    Loot, recovery, and re-use

    For example, it is still not clear how much of what was recovered from the Abacha loot had been used wisely or how much had been sucked up by new looters of old loot

    With so much to hear in the news about how much cash and other assets have been recovered from Nigeria’s thieves of state, it cannot but be tempting to join the debate from the perspective of development journalism on how to use whatever is taken back from looters.

    It is too soon to guess how much money would come to the country’s common purse, particularly since the federal government is not certain about how much exactly has been recovered so far. But it is not premature to start thinking about how best to use whatever is recovered while counting what comes in from week to week. For example, only a few days ago, the Minister of Transportation claimed in London that the government had recovered N3.4 trillion in cash and assets so far while his Information and Culture counterpart reported that only N78 billion and $3 million dollars had been recovered outside non-cash assets but that $9 billion has been blocked while pursuing final release of such funds in court. The Minister of Information added that what has been retrieved from looters so far cannot affect the country’s development in any noticeable way, as what is in so far is not enough to pay 50% of the federal government’s monthly wage bill of N165 billion, not to talk of the debt of N2 trillion owed to contractors presumably from past governments.

    Given the religious attachment of President Buhari to fighting corruption to death before corruption itself kills the country, it is expected that more funds will roll in as the fight against corruption heats up. In addition, given the fact that for decades Nigeria was a poster child for political and bureaucratic corruption, Nigerians and their international friends must be confident that more money and assets will be sighted and liberated from the clutches of roguish political and bureaucratic leaders. More patient observers are likely to invoke the Yoruba proverbial: Emi niimomaajeori, iwoni o maajeiru, kogbodosiwajueran pipa (I will eat the head and you will take the tail of the game must not come before the game is caught). But past experience with loot recovery in the country suggests otherwise. For example, it is still not clear how much of what was recovered from the Abacha loot had been used wisely or how much had been sucked up by new looters of old loot.

    Therefore, the recent pact signed in Abuja between the Minister of Justice and Attorney-General and the British Minister of State for Immigration on conditions for Britain to release the loot in Britain is in order. On the British side, the United Kingdom would release loot in its custody only if the Nigerian government pledged to spend the money judiciously. On the Nigerian side, the Justice Minister was remarkably forthcoming in his response: “Today, we are determined to change the narrative, regardless of who is involved. I want to assure the international community that all funds recovered within and outside Nigeria would be judiciously utilised for projects that will benefit the poorest segment of the Nigerian society as well as enable us support reform in the justice sector.…The position of the law in Nigeria today is that all funds recovered should be paid directly into the Consolidated Revenue Account. Unfortunately, that has not always been the case under the previous administration.”

    The focus of today’s column is on the first part of the two areas the Justice Minister prefers to apply money stolen from all Nigerians by past leaders. It is not too soon to cry out loud and clear that using recovered loot to pay for judicial reform is not a wise way to spend the trillions that citizens expect will come back to the public treasury at the end of the protracted fight against corruption. More importantly, spending such money on reforming the judiciary is not as citizen-oriented as the minister’s first choice of line of expenditure: “projects that will benefit the poorest segment of the Nigerian society.” The need for judicial reform is an urgent one that ought not be made to wait for recovery of loot. If anything, waiting for loot before reforming a judicial system that is perceived by many citizens as too compromised is more likely to frustrate the executive’s current spirited effort to recover stolen funds.

    The Justice Minister’s suggestion on spending recovered funds on “projects that will benefit the poorest of Nigerians” ought to be encouraged. And such projects should be ones that are concrete and tangible and whose impact are measurable and verifiable.  Such projects are not hard to identify. One way to use funds accruing from loot recovery is to energize the electricity sector. One way to do this is for the federal government to engage in a public private partnership with producers of megawatts of electricity, to save citizens from what has almost become a jinx: fluctuation between 2,500 megawatts in the dry season and 4,000 megawatts in the rainy season. Even in the last few weeks that electricity supply has improved in the country, it has been mostly in areas with pre-paid meters. This improvement is perfunctory as it affects just about 1% of the population with pre-paid meters, even three years after privatisation of the energy sector.

    Another way to spend the windfall from loot is to put more funds into overhauling the antiquated transmission system, which has been seeing some positive changes from intervention from the new government, according to reliable media experts close to the government. To this this better, a PPP that engages in building new capacity for transmission will benefit the poor and the middle-class alike. A related way to use recovered stolen funds transparently and cost-effectively is to invest it in a PPP project with reputable solar panel builders who are willing to establish their factories in Nigeria. This will make solar panels less expensive and will put the country in a good stead to increase its energy mix and set the country up for benefit from renewable energy technology. It will also increase non-grid or off-grid energy provision and consumption.

    In addition, revenue from anti-corruption fight can also be invested in provision of water in major cities in the six geo-political zones. For too long, poor people who cannot afford to construct boreholes have been living without potable water. In most cases such people have been drinking unsafe water at the risk of the health of their young ones in particular. If potable water supply to citizens has to be in the form of a PPP, it will achieve two things: stop the current method of selling untreated water to citizens in the country’s large cities and stop the proliferation of boreholes with dangerous seismic consequences that country’s visionless leaders in the past had ignored.

    Finally, while keeping recovered cash in interest-yielding accounts, all non-cash assets ought to be sold immediately to prevent depreciation and to avoid having them re-looted by future governments that may not have the vision of President Buhari about nurturing a corruption-free polity. With the ferocious way corruption has been fighting back with the hope of convincing victims of past brigandage that the current economic hardships are caused by a government saddled with cleaning the mess it inherited, it is not inconceivable that a new government can come back to the country in the future, to return to the era of impunity, to the extent of finding reasons to give unsold physical property recovered from looters back to their looters, all in the name of a new politics of reconciliation.

  • FMBN seeks EFCC’s assistance on debt recovery

    The Federal Mortgage Bank of Nigeria (FMBN) has solicit the support of the Economic and Financial Crimes Commission (EFCC), in the recovery of its huge bad debts from developers and others, who obtained housing loans from it but misappropriated the fund.

    Acting Managing Director of the apex mortgage bank, Richard Esin, made the request when he paid a courtesy call on the chairman of the EFCC, Ibrahim Magu, at the weekend, in Abuja.

    Esin informed the anti-graft boss that, but for the resilience of the bank, it would have been unable to meet the financial requests of thousands of Nigerians including members of staff of the commission because of defaulting developers.

    He disclosed that the concerned developers have a huge debt overhang with the bank, explaining that they obtained construction finance from the bank to build estates, but diverted the funds into other non-productive and non-regenerative activities.

    According to him, some developers completed the estates, sold the housing units and failed to remit the proceeds to the bank.

    Esin said some Primary Mortgage Banks, which obtained funds from the bank for Mortgage Finances, for on-lending to qualified National Housing Fund (NHF) contributors, declined to disburse the funds to the applicants; while others obtained equity contribution from would-be mortgagors, but refused to deploy same in the provision of mortgage finances to the applicants’ benefit.

    Esin expressed worry that despite the revocation of their operational licences, some of the operators of the Primary Mortgage Banks (PMBs) are still deceptively encouraging innocent and unsuspecting mortgagors to continue to repay their mortgages to them through fictitious accounts with no intention of remitting same to FMBN.

    He appealed to Magu to assist in the recovery of bank funds from contractors and vendors who were mobilised to execute various contracts for the bank, but failed to execute same and misappropriated the bank’s money.

    “These activities are fraudulent, and constitute financial crimes. We, therefore, seek the EFCC’s kind assistance in the recovery of these funds which belong to the Nigerian workers,” he said.

    Speaking further, Esin informed Magu that his management remains committed to helping members of staff of the commission own houses, noting that after the historic MoU between both organisations, the FMBN has disbursed N3 billion in 10 batches to 156 staff members of the commission.

    He further disclosed that N1.6 billion worth of NHF loans for 113 members of staff of EFCC packaged by FGMB are currently awaiting board approval, while N1.3 billion has been approved as NHF loans for EFCC staff, but not disbursed because the targeted houses are no longer available.  “FMBN will work with other interested PMBs to revive the scheme once they are able to provide the bank with a suitable and acceptable security,.” he said.

  • AMCON, debt recovery and national interest

    Debt recovery is as daunting atask as anything. Ask anyone with banking experience, he/she will tell you how staff in debt recovery departments are loathed by bank debtors. This is what we are witnessing today: the loathing of Asset Management Corporation of Nigeria (AMCON) by some recalcitrant debtors in the wake of its heightened activities in debt recovery.

    It is tempting in Nigeria to side with a debtor narrating his ordeal at the hands of debt collectors because of the picture such encounter evokes in our minds due to the experience we all share of the bad reputation rent collectors acquired in our communities due to the manner they employed to recover their debt including subjective use of law enforcement agents. It is even more tempting to believe when such narratives are told in our news media with a measure of sophistry. But reading between the lines will show a strenuous effort to stand truth on its head. But the reality isover the years, there has been developed a body of laws to ensure fair dealings in debt collection in Nigeria and globally. So, that portrayal of the debt collector as reprehensible villain out to wreck lives of a struggling debtor— either as an individual or a business concern—belongs to the past or in the warped imagination of the portrayer.

    Therefore, before a statutory body in the league of Asset Management Corporation of Nigeria (AMCON), established and operating with the purview of law and under a regime committed to laid-down rules, is seen in open dispute with a debtor, all amicable options must have been exhausted. This aside, if truth must be told, no company or individual is forced to borrow money in the first place. Ultimately, if companies owe a debt, it’s because they chose to borrow money. Their lenders made that loan, or offered the credit line, contingent upon a documented pledge to pay it back. This means creditors do have a right to their money, and a debt collector is simply trying to reclaim what is legally and ethically owed by the debtor.

    I once argued that the world economy is supported by debt. This means that we are operating a debt-dependent economy. In essence, therefore, debt in itself is not always a bad thing. The problem of debt arises when there is default. So the question is how do we avoid defaults, and if they eventually happen, how do we manage the crisis that follows? There is no one-size-fits-all answer to these questions. Every nation studies its economic peculiarities and adopts the best approach that will mitigate the potential for a catastrophe.

    We all can recall that Nigeria has had its own fair share of the impact of the 2008 global financial meltdown on its banking sector. And we adopted some innovative measures to prevent systemic collapse of our banking system. Three prominent ones stand out – bailout, bridge banking and, perhaps the most significant of all, the establishment of Assets Management Corporation of Nigeria (AMCON) in 2010.

    Lest we forget, AMCONwas created to be a key stabilizing and re-vitalizing tool to revive the financial system. It went ahead to efficiently resolve the non-performing loans (NPL) assets of the banks in the Nigerian economy. Its objective include: assist eligible financial institutions to efficiently dispose of eligible bank assets; efficiently manage and dispose of eligible bank assets acquired by it; and obtain the best achievable financial returns on eligible bank assets or other assets acquired by it.

    So far AMCON has acquired about 13,774 Non-Performing Loans (NPLs) worth N3.6 trillion from 22 commercial banks in Nigeria and provided financial accommodation of N2.2billion, protected N4.7trillion of depositors’ funds and interbank takings as well as saved approximately 14,000 jobs. No one can deny the fact that, through AMCON’s intervention, the Federal Government successfully managed our debt crisies and saved our banking system from imminent systemic collapse. But this achievement will not be complete until and unless it recovers those bad debts, which it uses taxpayers’ money to purchase.

    Lest we also forget, the debtors AMCON is dealing with now have passed through all the three stages of a normal debt recovery process.  They have failed to settle their debts with their initial creditor’s internal collectors (bank loan recovery teams) referred to as first-party agency, which is the first stage in the process. The second stage is when a third party is introduced to play the role of debt collector. The third stage is for the original creditor to write off the debt and sell it, which is where AMCON came in. AMCON has acquired the Non-Performing Loans of the banks using taxpayers’ money; so it is in the national interest that it recovers these loans from the debtors and to do so in order to turn a profit on its purchase.To do otherwise is to short-change toiling Nigerian taxpayers.

    To help it in this recovery task, AMCON has recently inducted successful firms that qualified as its Asset Management Partners (AMPs). The AMPs are consortiums with specialist skills required to ensure recovery and debt resolution from banking, legal, valuation and accounting backgrounds. The move is AMCON’s strategy to resolve over 6,000 accounts with loan balances of N100million and below.

    I believe these AMPs are familiar with all the provisions of the Nigerian laws and with global best practices that advocate for fair treatment of debtors. Perhaps they are aware or even belong to professional associations such as ACA International, the world’s largest non-profit trade group representing collection agencies, creditors, debt buyers, collection attorneys and other industry service providers.

    The ACA requires its members to abide by all laws and regulations, as well as its own codes of ethics and operations. For example, the ACA requires its members to “treat consumers with consideration and respect” and “communicate with consumers with honesty and integrity.” It also prohibits collectors from engaging in “dishonorable, unethical or unprofessional conduct likely to deceive, defraud, or harm a consumer.”

    Indeed, debtors are in safe hands with the current Managing Director/CEO of AMCON Ahmed Lawan Kuru. His vast experience as a risk management expert is widely acknowledged. He knew his onions well, having played at the top echelon of the defunct Bank PHB as executive director overseeing critical areas like Risk Management, Compliance, Commercial Banking, Northern Operations, Public Sector, Multilateral Agencies and the West Coast, East and Central Africa expansion programme of the bank. Before assuming his current position of MD/CEO at AMCON, Ahmed was the MD/CEO of Enterprise Bank Limited. He was also Executive Vice Chairman, Emeritus Capital Limited, a financial service firm with speciality in international business development focusing in sub-Saharan Africa.

    Surely, he is the type of chief executive who knows that loans are the engine of progress of modern economy; so he will never see debtors as enemies as insinuated in some quarters. On the contrary, he is committed to supporting businesses with a view to enhancing their productivity. And, more than that, he wants tohelp them transform their NPLs to RPLs (Re-performing loans). Doing this, Ahmed believes, will provide liquidity to the banks, which will help them meet their own obligations as well. So he knows how to balance his act between giving a breather to debtors to meet their obligations and the need for AMCON to realise its own mandate.

    So what we are seeing today in heightened AMCON activities is nothing short of adoption of an aggressive recovery strategy that has led to increased repayment from hitherto recalcitrant obligors. As said earlier, AMCON is simply trying to reclaim what is legally and ethically owed by the debtor. Period. There is no room for any sentiments here. It is business, pure and simple.

     

    • Hassan is a business and financial analyst.

  • Concern on oil price recovery

    There are fears that oil demand has fallen short of expectations as production increases and rig counts rise, dampening hope of price recovery in the short term.

    Analysts said price recovery may take a year or more in the future because findings show that the demand response has been slower than bulls had hoped. U.S. drivers have covered fewer miles than expected this summer, and as they speed toward the Labor Day holiday in September, the overhang of gasoline in storage may put downward pressure on crude and refined product prices.

    “Right now, the only thing that would drive prices higher is robust demand,” said John Paisie, executive vice president at Stratas Energy Advisors, a Houston-based consultancy. The growth must be across the board, for products including distillates like diesel and jet fuel, as well as gasoline.

    “Demand just can’t be made up by one product,” he said, and demand for diesel has been lagging.

    Instead of seeing $60 a barrel, which would support an increase in production, the demand questions, and ongoing supply concerns, mean oil could fall further. “Demand is growing very moderately,” said veteran oil economist and independent consultant Phil Verleger. “There’s no real surge to it, call it the great moderation.”

    While gasoline prices have declined, the lower cost at the pump has only a moderate effect on consumer’s buying habits, Verleger said. Instead of racing out to fill their tanks, consumers are using the savings to pay down debt, he said.

  • OPEC output up by 300,000 bpd on Nigeria’s recovery

    OPEC output up by 300,000 bpd on Nigeria’s recovery

    Organisation of the Petroleum Exporting Countries’ (OPEC) oil production increased by 300,000 barrels per day (bpd), with Nigeria contributing additional 150,000 in June.

    OPEC’s overall output of 32.73 million bpd shot the body’s output to an eight-year high with Libya tentatively recovering along with steady increases from Saudi Arabia and Iran, according to an S&P Global Platts survey of OPEC, said oil industry officials.

    “OPEC’s 300,000-barrel-per-day output rise, sends a strong message over its unwavering market share strategy,” said Eklavya Gupte, Senior Editor for S&P Global Platts.

    “If the situation persists, the case for a return to some kind of production cap may gain traction,” he added.

    Venezuela acted as a check on the overall level though, as the crisis-hit country’s production continues to hit fresh lows. The bloc’s top producer, Saudi Arabia, increased its output further to produce an average 10.33 million bpd in June in order to meet domestic demand. Last summer, Saudi Arabia produced as much as 10.45 million bpd.

    A spike in air-conditioning demand has traditionally boosted the volume of crude burned directly in the kingdom’s power plants during the summer months. In addition, domestic refining also picked up.

    The sharp increase in OPEC’s June production affirms a continuation of its market share strategy.

    Meanwhile, OPEC added a new member in the month, Gabon, and next month Nigeria’s Mohammed Barkindo will take over as the group’s secretary-general.

    This comes at a critical juncture for OPEC, after a spate of infighting and disagreements. Analysts said these two decisions which were taken at the June meeting could lay the groundwork for future cooperation on bigger issues.

    The largest rise in output came from Nigeria, where production rose 150,000 bpd to 1.57 million bpd, due largely to the return of its largest export grade, Qua Iboe, as production and exports resumed at the end of May.

    Nigerian production hit 30-year lows in May as militancy continued in the country’s oil rich Niger Delta.

    The situation remains volatile. Barely 10 days after a 30-day ceasefire deal with the Federal Government, militants claimed a round of fresh attacks in the Niger Delta at the start of July, marking a major setback after weeks of respite.

    Libyan oil production rose 60,000 b/d to 310,000 b/d in June as exports from the eastern port of Marsa el-Hariga resumed in late May after a three-week blockade caused by a dispute between the country’s two rival national oil company factions.

    The North African country’s production remains less than a quarter of its 1.6 million bpd production capacity, but early in the month Libya’s National Oil Corp agreed to unify its rival administrations under one management structure, a positive step for the country’s beleaguered oil sector.

    Analysts, however, said production could only see a sustained increase if the new national unity government unites with several other factions to reopen the country’s two largest oil terminals — the 340,000 bpd Es-Sider and 220,000 bpd Ras Lanuf facilities.

    Iranian output in June climbed to 3.63 million bpd, its highest since June 2011, and very close to pre-sanctions levels, according to Platts OPEC survey data.

    Iran’s oil output rise has been swift since sanctions were lifted on January 16, increasing 740,000 bpd compared with last December.

    The decline in Venezuelan crude output accelerated further, with production falling by 120,000 bpd in June to 2.15 million bpd, the lowest since February 2003, S&P Global Platts data showed.

  • Road to economic diversification, recovery

    Road to economic diversification, recovery

    The three-year debt management strategy unveiled last week by the Federal Government  is aimed at boosting the diversification of the economy. The strategy, which runs from this year to 2019 with a marginal increase in external borrowing, would increase commitment to capital projects execution. The policy is expected to generate job, reduce poverty and increase the living standard of Nigerians, writes COLLINS NWEZE.

    Drop in crude oil prices, which constitutes over 85 per cent of Nigeria’s export earnings, means several things for the economy. With oil revenues still low, and the government’s commitment to deliver on its infrastructure development plans unshaken, a three-year debt management strategy unveiled last week by the Federal Government seems a viable option for the economy recovery.

    The debt plan, to be managed by Debt Management Office (DMO), would run from 2016 to 2019 with a marginal increase in external borrowing, increased commitment to capital projects execution and long term borrowing plan.

    The DMO Director-General, Dr. Abraham Nwankwo, who unveiled the debt management strategy in Abuja, said the plan was approved by the Federal Executive Council, and would boost economic recovery and diversification.

    The DMO boss explained that the focus of the new initiative is to develop a debt management strategy that would ensure that in the face of macroeconomic and other financial constraints, the cost and risk profile of the public debt portfolio remains within acceptable limit over time.

    The plan is also in line with President Muhammadu Buhari’s vision to generate maximum employment, reduce poverty and increase the living standard of Nigerians. Dr. Nwankwo further stated that for this to be effectively achieved, the government is making positive efforts in diversifying the economy as against the backdrop of structural collapse in oil prices and oil revenue.

    “The Debt Management Strategy we are going to pursue over the next four years takes into account the fact that for now, Nigeria’s public debt portfolio is dominated by domestic debt. After the Paris and London Club exits between 2004 and 2006, the country took a deliberate decision to develop its domestic bond market and to do most of the public borrowing from domestic sources so as to develop the domestic bond market, that objective has been sufficiently achieved,” he said.

    “And therefore taking into account that external financing sources are on the average cheaper than domestic sources, it becomes more necessary to slant more of the borrowing in favour of external sources. Therefore, one of the major elements of this strategy is that over the medium term, we will strive to remix the public debt portfolio from 84 per cent domestic and 16 per cent external to 60 per cent domestic and 40 per cent external.

    “In addition taking into account other factors, the fact that over the next four years public borrowing proceeds will be devoted to capital expenditure an element of the strategy is to ensure that we remix the current status of about 31 percent short-term and 69 percent long-term to a maximum of short-term 25 per cent and the minimum of long-term 75 per cent.

    He said Nigeria is remixing between external and domestic; and also remixing within the domestic, between short and long-term.

    Justifying the  decision to remix in favour of external debt, he said the country will be able to achieve cheaper cost of funds, lower debt servicing and avoid the risk of crowding out the private sector from accessing the domestic market, adding that the private sector is still expected to play the lead role to complement government’s effort.

    While dismissing concerns on government’s decision to focus on external borrowing in a country currently facing foreign exchange constraints and harsh macroeconomic environment, he disclosed that the new strategy is the best for the economy as the government is presently making sustained efforts on diversifying the economy.

    He projected that in the next five to seven years, export proceeds accrued to the economy will rise, making the exchange rate favourable. While encouraging Nigerians that the future will be sustainable, the DMO boss further stated that the citizens should take advantage of the current challenges as a stepping stone to actualise their vision and achieve their dreams.

    “One of the questions that will naturally arise and which many of you have asked us, has to do with the challenge of foreign exchange constraints. At this point, our exchange rate is not very favourable and our reserves are not as buoyant as they used to be and people are raising the question while would you go for external borrowing when you have foreign exchange constraints,” Nwankwo said.

    He explained that a closer look at the issue shows that the strategy the government has chosen is still the optimum strategy and the secret to arriving at that conclusion is simply to differentiate between a short-term static situation and a long-term dynamic situation.

    “If we are simply focused on the challenges we have currently, there will be undue concerns about our ability to service external debt, however if you take into account that everything we are doing now are for the purpose of diversifying our economy in a sustained manner, so that in the next five to seven years, we will be exporting a variety of processed and primary products. We have all it takes in terms of variety of opportunities in agriculture and in solid minerals for example. The efforts being made by the government and private sector is to ensure that many of the products we now import will be provided locally, such as rice, sugar, flour, wheat, fruit juice, we can produce in abundance to satisfy our domestic needs and also have surplus to export,” he said.

    Nwankwo was upbeat that in the next few years, there will be significant improvement in employment generation, poverty reduction and living standard of the people, adding that as part of the new strategy, the DMO will develop new products particularly the Federal Government saving bond and also diversify the sources of raising funds domestically.

    The Director-General of West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, agreed with Dr. Nwankwo. He explained that with declining government revenues from oil, budgetary allocations alone may not be enough to finance the infrastructure deficit in the country.

    Prof. Ekpo admitted that the debt option is still the most viable at this time. He said Nigeria’s rebased $510 billion Gross Domestic Product (GDP) economy gives it more room to borrow more to bridge infrastructure gap.

    For Prof. Expo,  Nigeria could borrow up to 40 per cent of its GDP externally, adding that the DMO has in the past, demonstrated good negotiation skills in dealing with the country’s debt matters, either with internal or external creditors.

    He believes the viable option for government to take is to borrow from the World Bank or African Development Bank (AfDB) to fund the key developmental projects.  Government can also borrow internally to achieve the feat, but disclosed that internal borrowing is always short term while external borrowing has longer tenor.

    Besides, the Nigeria Trust Fund with the AfDB can be used as leverage while borrowing from the bank, adding that borrowing from the International Monetary Fund (IMF) will be expensive because Nigeria is now classified as a Middle Income Country on the Fund’s list.

    Ekpo said the DMO has the capacity and constitutional role to advise the government on these choices. “The World Bank rates are cheaper with longer term. The DMO can also leverage on the Nigeria Trust Fund with the AfDB to get better deal on new loans needed to fund developmental projects,” he said.

    A report by FBNQuest titled: ‘A planned pick-up in FGN external borrowing’, said: “The DMO has set a medium-term target of a 60/40 blend for the FGN’s domestic and external obligations in its Debt Management Strategy, 2016 to 2019. The blend as at end-2015 was 84/16. The target is unchanged from the previous strategy for 2012-15, and is driven by relative servicing costs and the DMO’s determination not to crowd out the private sector”.

    On the costs, the DMO shows the weighted average interest rates for domestic and external obligations at 13 per cent and 1.74 per cent respectively at end-2015. Naira rates are far higher than dollar rates.

    More significantly, the difference in the weighted averages reflects the fact that the FGN’s external debt is predominantly contracted on concessional terms from the World Bank Group and the African Development Bank (AfDB). This burden amounted to $10.73 billion at end-2015, and the only substantial borrowings on market terms are Eurobonds totalling $1.5 billion.

    FBNQuest said the strategy was prepared before the liberalisation of exchange-rate policy by the Central Bank of Nigeria (CBN).

    It said the 2016 budget projects net domestic and external borrowing of N940 billion and N900 billion respectively. A figure of N1.20 trillion for the domestic element in an earlier version was reduced for fear of crowding out.

    “For the external element, the Federal Ministry of Finance has suggested a possible Eurobond issue in the third quarter. We assume that it would be mostly concessional, and are waiting for news of the FGN’s negotiations with the World Bank and the AfDB,” it said.

     

    Senate on debt management advocacy

    The Senate has called for more advocacy on debt management and servicing to enable Nigerians understand the benefits and impact of government’s plans to raise funds from the capital and bonds’ market for development purposes.

    The Chairman, Senate Committee on Local and Foreign Debts, Senator Shehu Sani, spoke during a three-day retreat organised for members of the committee by the DMO in Minna, Niger State.

    Sani said if there was aggressive advocacy on what such debts were taken for, Nigerians would support such initiative aimed at driving development and engendering development.

    According to him, it was imperative for the DMO to develop a framework in the major languages in the country to get the citizens to understand why debts are taken, for what purpose and what the society stands to benefit from such borrowing.

    He said: “There is need for strategy mix anchored on proper advocacy on what debt management is all about. Nigerians want to know why governments borrow, to what purpose such debts are taken and I can say that once it is well explained, the people will key into the programme.

    “I, therefore, hope that the DMO will rev up its advocacy especially in the major languages because a whole lot of Nigerians don’t seem to understand why their state governments will take loans and they cannot see why the loan was taken in the first instance.”

    Dr. Nwankwo said the workshop with the theme: Processes and procedures for external and domestic borrowing and settlement, became imperative given the funding of the 2016 budget from loans.

    According to him, the Federal Government does not just borrow for borrowing sake but to address the challenge of development and infrastructure growth. He explained that the workshop was not only to keep the lawmakers abreast of developments in the debt sector but to get their buy-ins in DMO’s drive to seek for funding from the capital market.

    The DMO chief also said states have not been barred from raising funds but rather, the National Economic Council (NEC) was against borrowing from commercial banks, adding that it supports states seeking for capital from bonds, which is cheaper and more sustainable in the long run.

  • NLNG disowns link to looted funds recovery

    NLNG disowns link to looted funds recovery

    Nigeria Liquefied Natural Gas Limited (NLNG) said its attention has denounced  the alleged link with the reported N115 billion loot published in the media, saying it was in bad taste to taint its image.

    According to its General Manager, External Relations Division, Kudo Eresia-Eke, the said media report titled: “N115 billion loot: Ex Air chiefs, politicians top refund list”, was said to have quoted an unnamed public official,  that “$3.1 billion was intercepted in the accounts of NNPC and NLNG and was yet to be moved to the Central Bank of Nigeria in line with the Transaction Single Account (TSA) policy”, defied the ethics of the profession..

    He said: “NLNG views this statement with utmost seriousness and wishes to denounce it as misleading and untrue.

    “To our knowledge, no NLNG’s accounts are the subject of any recovery effort by the EFCC or any other similar authority, more especially as NLNG is a private company and not a government agency or parastatal.

    “We are surprised that these misleading reports continue to be rehashed despite categorical statements by ourselves and third parties, including the Nigerian Extractive Industries Transparency Initiative (NEITI) to the effect that NLNG has no outstanding obligations to government.

    “We wish to use this medium to appeal to all concerned stakeholders to take the necessary care of checking the accuracy of information before publication.”