NNPC has refused to remit $15.8bn to federation account, says NEITI – The Cable

Nigeria Extractive Industries Transparency Initiative (NEITI) says the Nigeria National Petroleum Corporation is withholding from the federal government, a sum of $15.8 billion belonging to the Nigeria Liquefied Natural Gas.

In an audit report for 2014, NEITI said NLNG paid $1.42 billion to NNPC as dividends, loan and interest repayments for 2014 but the amount could not be traced to the federation account.

According to the report, which was released by Waziri Adio, NEITI’s executive secretary, Nigeria earned $55.5 billion from the oil and gas sector and N55.82 billion from the solid minerals sector in 2014.

“NLNG paid $1.42 billion to NNPC as dividends, loan and interest repayments for 2014 but the amount could not be traced to the Federation Account,” the report read.

“Between 2005 and 2013, there was an outstanding of $12.92 billion of dividends, interest and loan repayment made by NLNG to NNPC but not remitted to the Federation Account;

“The 2014 audit uncovered evidence of $1.5 billion paid by NLNG to NNPC between 2000 and 2004 but also not remitted. This brings the sum of unremitted NLNG dividends, interest and loan repayment to $15.8 billion as at the end of 2014.

NON-OIL AUDIT

In its audit of its non-oil sector, NEITI said “the audit of the solid minerals sector was conducted by Amedu Onekpe and Co, a Nigerian accounting and auditing firm”.

“The following are the highlights of the solid minerals audit report: Total of 498 companies covered, out which only 39 met the materiality threshold payments of N3 million and above. But these 39 companies accounted for 90.89% of total payments for the sector.

“Dangote Cement accounted for 32.18% of the total N1.2 billion paid as royalties for the sector; Of the 36 million tons produced in the sector, limestone and granite accounted for 56.68% and 30.59% respectively; Increase in coal production from 106,456 tons in 2013 to 127, 467 tons in 2014 about 20%.”

Nigeria’s forex reserves decline 11.7 pct to $25.72 bln yr/yr by Dec 28 – Reuters

LAGOS Dec 30 (Reuters) – Nigeria’s foreign exchange reserves fell 11.7 percent to $25.72 billion by Dec. 28, from $29.13 billion a year earlier, central bank data showed on Friday.

However, the reserves showed a 4.2 percent increase month-on-month, up from $24.69 billion on Nov.28 – due to a slight recovery in global oil prices and a rise in the OPEC member’s oil production levels.

Nigeria’s oil production rose to 1.70 million barrels per day (mbpd) in November, up from 1.65 mbpd the previous month, which lifted the West African country forex reserves. (Reporting by Oludare Mayowa; editing by Alexis Akwagyiram)

 

NNPC says airlines can’t pay for aviation fuel – Punch

Okechukwu Nnodim, Abuja

The Nigerian National Petroleum Corporation on Thursday said the hardship in the aviation sector was not due to the scarcity of Jet-A1, but was partly because of the inability of the airlines to pay for the product.

The Group Managing Director, NNPC, Dr. Maikanti Baru, stated that the alleged scarcity of Aviation Turbine Kerosene was not responsible for the hardship being experienced in the aviation sector.

Baru, who spoke in Abuja, clarified that the corporation had taken steps to ensure adequate supply of the product with the importation of over 45 million litres.

He said the challenge had more to do with the inability of the airlines to pay for the product upon the introduction of a cash-and-carry policy by marketers as a result of the huge amounts being owed by the carriers.

Aviation fuel scarcity has been a challenge in the sector, as airlines often complain of the non-availability of the product.

A statement by the corporation quoted the GMD as also expressing the NNPC’s commitment to carry on with its twin gas projects of Brass LNG and Olokola LNG.

He said the two projects were high priority gas ventures, which promised to boost the Federal Government’s revenue.

Baru said monetisation of natural gas was a cardinal mandate of the corporation.

He said, “We are still committed, as the NNPC, to monetising our natural gas. We have the Nigerian Liquefied Natural Gas, which is at the moment monetising about four billion standard cubic feet of gas on a daily basis. We also have plans for the Olokola LNG as well as the Brass LNG.

“We have a little challenge with market windows for these projects, which we are reviewing on a monthly basis. Once the appropriate market window opens up, we will quickly get more shareholders to join us for the projects.”

Baru stated that a meeting of Brass LNG stakeholders had been scheduled for early next year to look for the way forward for the project.

The GMD added that apart from the LNG projects, the corporation was also working on gas monetisation through aggressive enhancement of domestic gas supply for power generation and industrial use.

2016, another turbulent year for air travel business – Guardian

The difficulties suffered by both air passengers and airline operators in 2016 notwithstanding, industry watchers are of the view that the huge potential of the sector should not be lost, writes WOLE OYEBADE.

Year 2016 will go down as one of the most difficult for air passengers and operators in the industry. Except for the fact that no major mishap was recorded, the sector staggered on amid multiple challenges and almost on the brink of collapse.

But it didn’t crash. And like a cat with many lives, the sector pulled through the daunting challenges, with pockets of government’s interventions to keep the industry afloat the economic recession.

For major happenings in the last one year, the sector opened its account on February 3rd with a helicopter crash in Lagos. All 11 occupants, however, survived after the Sikorsky 76C helicopter operated by Bristow Nigeria Limited plunged into the Atlantic Ocean.

The twin problem of aviation fuel shortage and scarcity of foreign exchange (forex) subsequently bit harder, and persisted all year round.

While the problems pre-dated 2016, the consequences in the area of flights delays, multiple cancellations and attendant fare hike on foreign travels left a sore taste in the mouth of air passengers.

The apex regulatory body, Nigerian Civil Aviation Authority (NCAA), in May, looked at the harrowing experiences of travellers at airports nationwide, and declared the fuel situation as “nightmarish”. It was, indeed, a period when total domestic flight operations in the country were down by 50 per cent, said the Chairman of the Airline Operators of Nigeria (AON), Capt. Nogie Meggison.

Though the foreign airlines were not untroubled by the perennial fuel scarcity, their inability to repatriate funds back to their home countries posed more serious challenge to the airlines that were already hit by low patronage.

Since the current administration restricted access to forex in 2015, the airlines have been unable to repatriate funds from ticket sales. The International Air Transport Association (IATA), being the clearing house for over 260 airlines worldwide, estimated the trapped funds to the tune of $600million as at May.

Apparently unable to bear with the system and its depleted market, Spanish national carrier, Iberia, and its United States counterpart, United Airlines, suspended operations indefinitely. Several other airlines scaled down operations; either introducing smaller aircraft like British Airways did or reducing their frequencies and routes, like Emirates, Delta, and Turkish Airlines and a host of others.

The sector heaved a sigh of relief in June, when the Central Bank of Nigeria (CBN), the lender of last resort, introduced the new forex policy and unblocked access to the scarce commodity (dollar).

Details of the new forex regime soon settled in and the initial relief vanished. At the new exchange rate of N330 to $1, the airlines began to lose at least 40 per cent of accumulated revenue.

Federal Government’s inclusion of aviation on the priority list of sectors to get forex concession grants in October, did little to assuage the losses. On every $1million repatriated out of the country, the sum of N80million is lost by the airlines. Consequently, the cost of air fares rose between 50 and 100 per cent on some foreign routes.

Domestic operators were not left out as the new forex policy and attendant hike in exchange rate further stifled the already troubled industry. Immediate effect was the return of aviation fuel scarcity. Aviation fuel, otherwise called Jet-A1, is 100 per cent imported into the country and at the mercy of foreign exchange rates and its availability.

With the exchange rates mounting the roof top, price of aviation fuel rose from N110 to N230-plus per litre. Meanwhile, fuel alone accounts for about 40 per cent of the total operation cost of an airline.

Two domestic airlines during the period ran at 10 per cent of their capacity and had to temporarily shut down operations.

Some airlines could not meet the financial obligations in buying fuel and paying workers’ salary will obviously be incapacitated to carry out routine maintenance on its aircrafts. Others could not indulge in the C-check maintenance mandatory for commercial aircraft every 18 months, which costs between $300, 000 and $500,000 at an average Maintenance, Repair and Overhaul (MRO) facility overseas.

Because of the humongous sum involved, compounded by forex spike, operating domestic airlines grounded some aircraft. Some went for maintenance and never returned as operators do not have funds to foot the bill. The situation, therefore, explains why an airline with over 10 aircraft had just a functional plane on the apron on the day it temporarily shut down operations.

To make matters worse, virtually all the domestic airlines are indebted to banks and regulatory authorities running into billions. While they have no justifiable claim to access another loan from any bank, regulatory authorities like the Federal Airports Authority of Nigeria (FAAN), and Nigerian Airspace Management Agency (NAMA), among others are going gung-ho to force some debts on already financially distressed airlines.

In the year under review, efforts by the Federal Government to address the infrastructure gap at the airports didn’t go unnoticed. The government, through the Ministry of State for Aviation, took a bold step to propose the concessioning of airports and get stakeholders’ buy-in.

The first phase of the proposed concession will cover the international airports in Lagos, Abuja, Port Harcourt and Kano. The remaining 22 airports scattered across the country will be concessioned in the second phase

The Minister of State for Aviation, Hadi Sirika, had argued that concession arrangement is the last option to transform the airport, especially at a time of economic recession with attendant paucity of funds.

He highlighted the gains of concession, saying: “Nigeria is currently doing a total of five million passengers from Abuja and 15 million nationwide. But if we have the best airports, very strong carrier out of Nigeria and a very good leasing company to fund it and a very good financing system to augment the insurance and give confidence, then we will have a new aviation sector.

“Figures from the International Air Transport Association (IATA), International Civil Aviation Organisation (ICAO) and other experts including the World Bank, show that the sector is growing at the rate of five per cent per annum and doubling at every 15 years, but the potential in Nigeria has not been harnessed. The fact is that the figures will quadruple; multiply four times, which means that from the onset, once these airports are in place and the carrier is flying, we will multiply 15 by four and is 60 million passengers. That is what is waiting to be taped into with concessioning of our airports,” Sirika said.

Meggison added that though the current situation was a specific reflection of a troubled economy at large, the aviation sector remained critical to the health of the economy and should get its deserved attention in the New Year.

Aviation fuel marketer, Olasimbo Betiku, agreed that the year had indeed been tough for importers and operators alike, and expressed confidence in a permanent solution in the New Year.

Betiku, who is the General Manager and Chief Operating Officer at CITA Petroleum Limited, said plans by the Federal Government to refine aviation fuel at the Kaduna and Port-Harcourt refineries were already in top gear. Coupled with cooperation of other stakeholders, “the sector is in for a lasting solution to the perennial fuel scarcity in 2017.”

Besides infrastructure development through concession plan and improved aviation fuel supply, Airport Security Consultant, Group Captain John Ojikutu (rtd.) said regulatory agencies should also be alive to their responsibilities for optimal services from the operators.

Ojikutu reasoned that the regulators, especially the NCAA should audit the airlines to determine their debts or financial health and also the sustainability of their operations.

He said: “How can airlines that sell tickets not on credits but always on cash, both on passenger and cargo, be in need of intervention funds than those providing them safety services, which they hardly pay for?

“With the annual statistics on passenger air traffic and cargo freight produced by the Federal Airports Authority of Nigeria (FAAN), you will find out that the revenue generated by all operators in the sector is sufficient to sustain the operation of the industry, with no intervention funds from government.

“The problem is not as complicated as is being portrayed; it requires that these airlines are provided with facts not sentiments. As we go into the New Year, we must act along with the 2017 ‘Budget of Growth’,” Ojikutu said.

High cost ‘stops’ CBN from printing small naira denominations – NAN

The Central Bank of Nigeria (CBN) has not printed the small naira denominations for about a year, causing the scarcity of the notes in the economy, NAN is reporting.

NAN quoted sources at the CBN as saying that for a year now, the apex bank did not award contract for the printing of the notes such as N5, N10, N20 and N50 usually done abroad.

It said it gathered that the recently printed notes in circulation — N200, N500 and N1,000 — were produced by the Nigeria Security Printing and Minting plc (NSPM).

NSPM produces currency notes and coins for the CBN and a wide range of security documents for the federal, state and local government establishments, commercial banks and blue chip companies.

According to the NSPM website, the company has the ability to print over 40 million notes weekly. However, the high cost of printing banknotes forced CBN to refrain from giving contracts for their production.

“The cost of printing N50 is almost the same as N1,000. Printing small denominations costs more than the value and with the present economic situation, it makes sense to print higher notes which can be done locally by NSPM.

A worker at the First Bank Plc, told NAN that throughout the 2016 festive seasons, there were hardly smaller currency notes to give to customers.

“We usually request for cash from the CBN through our Cash Management Centre, but recently we have not been able to get mints of N100 and below,” the worker, who also asked not to be named, said.

“We had N50 at one point but it wasn’t in the quantity we are used to getting. We have been telling our customers who call to request for mints that the smallest currencies they can get is N200.”

Jude Ndukwe, a political economist, said the implication of the situation was that prices of goods were likely to increase since there were no smaller currencies in circulation.

“A bread seller is likely to increase the cost of bread from N350 to N400 simply because he does not want to deal with the difficult task of getting change,” he said.

“The same goes to a bus conductor and so forth. This act alone is enough to add to the hardship of the average Nigerians.

“N10, N50 may not mean anything to some, but it means a whole lot to millions of Nigerians living in poverty. So the government should do something about this.”

But Isaac Okorafor, the CBN acting director, corporate communications, denied the allegation that the apex bank had not contracted the printing of smaller denomination currencies since 2015.

“There is no scarcity of smaller denomination in the market. People are complaining because we did not make provision for mints to be supplied in smaller denomination during the festive season.

“You see, people are fond of abusing these denominations by spraying them to be stepped on during weddings and other ceremonies.

“The abuse is even worse during the festive season, so we decided to make scarce the denominations. But it’s not that we have not been printing them. Yes we haven’t printed abroad, but we also print locally, which we have been doing.”

When asked the last time Nigeria actually had these smaller denominations printed, he promised to get the details.

He reiterated that it is still a crime to hawk or sell mint notes in the country, saying there is still an enforcement committee, comprising CBN and the security agencies, to check the menace and arrest culprits.

Okorafor said that the CBN was collaborating with the police to ensure that the Nigerian currencies are not abused.

Naira among four worst global currencies in 2016 – Today

A report by Bloomberg LP has rated Nigeria’s naira as one of the world’s four worst performing currencies in 2016.

The naira is said to have lost 36.68% of its spot returns for the year. The Egyptian pound dropped 58.84%, Suriname dollar lost 46.68% and Venezuela’s bolivar went down 37% in the period.

The Russian ruble, Brazilian real, the palladium, the Iceland krona, and silver, which appreciated by 21.31%, 20.96%, 20.08%, 14.42% and 14.41% respectively, ended the year as the best five performing currencies of the world.

Two Africa currencies, the Zambian kwacha and South African rand, appreciated by 11.96% and 11% respectively, to emerge as the sixth and seventh best performing currencies of the world.

The report stated: “It was a particularly bad year for any currency called the ‘pound’. The Egyptian version was the worst performer in 2016 as the nation took the dramatic step of allowing it to trade freely in an attempt to stabilise an economy struggling with a dollar shortage and concerns over social unrest. Britain’s pound tumbled after the Brexit and never recovered.”

It added, “When it comes to currencies issued by governments and central banks, the Russian ruble has been the best performer of the year as the oil market rebounded.

“While the UK currency’s slide didn’t match those in some emerging markets, it did tally the worst performance among major currencies.”

African Markets – Factors to watch on Dec 30 – Reuters

NAIROBI, Dec 30 (Reuters) – The following company announcements, scheduled economic
indicators, debt and currency market moves and political events may affect African markets on
Friday.
– – – – –
EVENTS:
*NIGERIA – The central bank to release its latest figures on
the state of its foreign exchange reserves.
*UGANDA – The statistics office to release consumer
inflation data for December.
*MAURITIUS – The central bank to auction 91-day, 182-day and
364-day Treasury bills worth a total 700 million rupees.

GLOBAL MARKETS
Asian stocks looked set to end 2016 on an upbeat note, while
profit-taking weighed on the dollar and the euro held near a
two-week high after spiking early in the
day.

WORLD OIL PRICES
Oil prices rose in early Asian trade on Friday shrugging off
a second consecutive week of U.S. crude oil inventory
builds, with a U.S. Energy Information Administration (EIA)
report late on Thursday indicating an unexpected rise in
crude stocks.

EMERGING MARKETS
For the top emerging markets news, double click on

AFRICA STOCKS
For the latest news on African stocks, click on

AFRICA CURRENCIES
Kenya’s shilling and Zambia’s kwacha are seen holding steady
against the dollar in the next week to Thursday, while
Nigeria’s naira will likely weaken, traders said.

SOUTH AFRICA MARKETS
South Africa’s rand strengthened for a fourth consecutive
session on Thursday and shares rose to a two-week high as
emerging markets rallied on the back of a softer
dollar.

NIGERIA MARKETS
Nigeria’s central bank sold about $1 billion on the forward
market last week to clear a backlog of dollar obligations in
selected sectors, traders said on Thursday, its largest
special auction since a currency peg was removed in
June.

KENYA MARKETS
Kenya’s shilling was steady on Thursday and traders
said it was seen weaker due to dollar demand from sectors
like telecoms and manufacturing, while tight liquidity would
limit its losses.

UGANDA CURRENCY
The Ugandan shilling UGX= lost ground on Thursday, pressured
by strong importer and commercial bank dollar demand and
scant inflows of the U.S. currency.

ANGOLA LENDING RATE
Angola’s central bank kept its benchmark lending rate
unchanged at 16 percent, it said on Thursday, citing falls
in headline inflation.

,

Dollar to Naira Rate Black Market December 30 2016

Dollar to Naira Rate Black Market December 30 2016. Today’s Naira Black Market Exchange Rates. Dollar to Naira. Pounds to Naira. Euros to Naira.

These are the prevalent rates for Lagos. Actual rates may vary slightly based on vendor. Rates are updated during the day as they change.

NAIRA (N)

USD ($)

EURO (€)

GBP (£)

BUY/SELL

BUY/SELL

BUY/SELL

30/12/2016

485/490

497/502

585/590

29/12/2016

485/490

497/502

575/580

28/12/2016

485/490

497/502

575/580

27/12/2016

480/485

485/490

575/580

26/12/2016

480/485

485/490

575/580

Click Here for BDC Rates

Click Here for Western Union Money Transfer Rates

Exchange rate crisis: An endless gamble – The Nation

The Central Bank of Nigeria’s (CBN’s) decision to adopt the flexible foreign exchange (forex) policy on June 20, which devalued the naira by 40 per cent against the dollar, has come with dire consequences on the economy. With 10 different exchange rates in operation, businesses declaring huge losses, dwindling consumer purchasing power, rising inflation and dearth of the much-needed foreign capital inflows to ease dollar scarcity, the future of the local currency looks dim, writes COLLINS NWEZE.

In mid-November, Angelina Michael, a Lagos-based banker, decided to take her annual vacation in the United States. She applied for $4,000 Personal Travel Allowance (PTA) which her bank approved immediately. She got the foreign exchange (forex) at N315 to the dollar, using airline booking document as proof of her scheduled flight.

Within the same week, she made a second request of $4,000 from another lender which was also approved at N315 to dollar. As she considered the cost of the trip against her salary and her wedding coming up in just few weeks, she decided to suspend the trip, hopping that her fiancée will absorb the bill during her next holiday.

With $8,000 in her purse and no regulatory searchlight on her trail, she headed to the parallel market where the naira was exchanging at N485 to dollar. That seamless transaction fetched her N1.36 million profit.

Despite being serious financial crime, round-tripping has become rampant after the Central Bank of Nigeria (CBN) introduced the flexible foreign exchange (forex) policy which devalued the naira by over 40 per cent against the dollar and created huge gap between the official and parallel market rates.

Today, holidaymakers, pilgrims, manufacturers and even banks, are daily tempted by the huge gap between both markets which has widened as the naira faces huge depreciation against the dollar. The depreciation has stripped the local currency of all respect it enjoyed for years in the eyes and hearts of Nigerians.

The flexible forex policy, which removed the 16-month N197 to dollar peg against the dollar, restored the automatic adjustment mechanism of the exchange rate to enhance efficiency, liquidity and transparent forex market. It also allows only one single market structure where rates are expected to be determined by market forces, boost investors’ confidence and attract more dollars into the economy.

But, more than six months into its implementation, the naira has remained pressured in both the official and parallel markets, with little or no dollar available to defend the local currency. Throughout last week, the illiquidity in virtually all segments of the market pushed the naira/dollar exchange rate at the parallel market to an all-time low of N485 to the dollar. The naira exchanges at N305.5 to dollar in the official market, representing N184.5 gap between both markets.

The local currency might before close of the year or early next year, decline further to between N490 and N500 to the dollar in the parallel market as forex scarcity persists and the CBN cuts supply to operators.

The possibility of the naira hitting the N500 mark against the dollar has unsettled the Finance Minister, Mrs. Kemi Adeosun. She has been talking tough against forex speculators and parallel market operators as according to her, transactions parallel market transactions were behind the naira woes. The naira crisis, Mrs Adeosun said, was killing the economy. She has directed the CBN to eliminate the parallel market, which she claimed, has pushed the naira to dollar exchange to current status.

The Bureau De Change Operators of Nigeria (ABCON) President, Aminu Gwadabe, confirmed the claim that the parallel market has been turned to a conduit pipe where speculators and non-compliant commercial banks and Bureaux De Change (BDCs) engage in currency round-tripping.

According to him, some banks take advantage of the gulf between the official and parallel markets given that about 20 to 25 per cent of forex traded in the country come from independent sources like inflows from international oil companies, international money transfer operators, Nigerians in the Diaspora among others which are usually diverted into the parallel market.

Gwadabe took the minister’s call for scrapping of the parallel market as part of government’s plan to sanitise the market because of high level of proliferation of exchange rate. No fewer than 10 operational exchange rates exist, depending on the purpose and the market where the dollar is bought or sold.

He listed them as the budget exchange rate (N305/$); Form ‘M’ processing rate (N285/$); Inter-bank rate (N315/$) and International Money Transfer Operators (IMTOs) rate (N375/$)

Also, the BDCs rate (N399/$); Western Union (N450/$); Airline intervention rate (N355/$); pilgrimage rate (N197/$); parallel market rate (N485/$) and the CBN rate (N305.5/$).

The ABCON chief said there is currently a total dysfunction of the forex market, which became more pronounced after the June 20 implementation of the flexible forex policy, calling for the immediate harmonisation of the rates to give foreign investors the confidence to invest in the economy.

“I suggest a weighted average rate of between N350 and N400 to dollar to bring calmness to the market and attract dollar inflows into the economy. Once the exchange rate is harmonised, the parallel market will shape up,” he said.

Gwadabe insisted that there is currently no dollar liquidity for exiting foreign investors adding that in countries where the flexible forex policy succeeded, the government had control of over 90 per cent of dollar supplies and also had the political will to freely float the currency.

Speaking further, he said the gap between the official and parallel market rates was very worrisome.

His words: “As a Nigerian, anytime I see the gap increasing, I’m worried and I say that this gap has to be reduced. The rising gap between both markets is fueled by compromise. Nigeria is an economy where you see compromise. Speculators are the biggest challenge facing the naira.

“Don’t forget that speculation is on its own a business. Once the CBN follows one road, they will find a way to frustrate the policy and ensure the survival of their business. But with increased transparency and liquidity, the activities of speculators will be reduced and volume of parallel market operators will also be reduced. We should move from the era of dollar allocation to think of how to bring in the dollars”.

A chief Executive officer in one of the Tier-1 lenders likened the forex crisis to economic war. The bank chief said there are saboteurs ensuring that whatever policy introduced by the CBN to fix the forex crisis, was neutralised by those benefiting from the old order.

The bank official said: “They are the big currency speculators and financial sector operators profiteering from the crisis. They are the banks involved in round-tripping. Hence, no matter how genuine and well thought out the CBN’s polices were, its full and successful implementations always met a brick wall.”

The ongoing crisis in the forex market runs contrary to CBN Governor, Godwin Emefiele promises when he assumed office in 2014 to restore exchange rate stability and bring sanity to the troubled naira.

Chief Executive Officer, FMDQ Over-the-Counter Securities Exchange, Bola Onadele, who accused the CBN of using strong moral suasion to prevent the naira from depreciating to a market-related level, called on the regulator to let the currency float freely.

Onadele said the market’s dysfunction is hindering the country’s economic recovery by deterring inflows from foreign investors and hurting manufacturers dependent on imports.

Onadele said: “What’s happening now, it’s not even a managed float. I’m not sure what we’re doing. I don’t know the objective, the strategy and success benchmarks. The dealers and bank chief executive officers don’t want to be reprimanded. If they quote rates freely, they may be reprimanded by the CBN.”

“The average daily turnover in the spot market used to be $1 billion and now it’s less than $100 million,” said Onadele, a former chief dealer at the local unit of Citigroup Inc. in Nigeria.

“I don’t believe the parallel market is illegal any more. We have inadvertently legitimised it through some of our actions. It may no longer be as a small market as we used to think. If you have $1,000 to convert to naira, will you sell it at N305.5? No rational person will do that. You’ll sell to a Bureau de Change operator and get N485.”

Nigeria has been grappling with economic crisis since crude oil prices dropped by about 43 per cent from $100.35 throughout 2014 to $57.20 for the first six months of last year. It closed at $56.29 per barrel at the weekend.

Specifically, the drastic fall in crude oil prices, which constitutes the largest component of forex reserves has cut dollar earnings from about $3.2 billion monthly to about a billion dollars for the same period. The naira has also taken a beat, losing over 70 per cent of its value since January, and may continue to depreciate in both markets as dollar shortages persist.

The fall in crude oil prices has reduced Nigeria’s dollar earnings, making it difficult for the apex bank to fund imports. Record oil prices had helped Nigeria to build the largest currency reserves in sub-Saharan Africa, which peaked at $63 billion in September 2008. But, after attaining a record-high of $147 in July of that year, Nigeria’s crude oil prices – Bonny Light, have plummeted.

Goldman Sachs recently agreed oil could tumble as low as $20 a barrel, a level that would decimate the already heavily damaged economies of Nigeria, Saudi Arabia and Russia. The Organisation of Petroleum Exporting Countries (OPEC) predicts the price will not go back above $100 until 2040.

Managing Director, Afrinvest West Africa Limited, Ike Chioke, said the CBN’s attempt to centralise the inflow of forex to official channels through registered International Money Transfer Operators (IMTOs) and the interbank by suspending unregistered IMTOs while threatening to sanction individuals operating as international money transfer agents continues to constrain supply of forex to the parallel market.

He explained that the exchange rate at the interbank has remained broadly stable as a result of frequent interventions by the CBN. The naira/dollar spot rate opened the week at N305.50 to dollar as the CBN intervened with dollar supply. The interbank spot rate closed the week at N311.62 to dollar.

“In the futures market, investors continue to take advantage of the Over-the Counter (OTC) Forex Futures to hedge exposures to the Nigerian market in a bid to limit currency movement risk.

“In the interim, we expect that the exchange rate will remain pressured in the parallel market as activities seem to have a speculative form, whilst the CBN continues to exclude 41 items from access to the official forex market. Accordingly, we expect the CBN to continue daily interventions at the interbank,” he predicted.

Dollar scarcity has also been linked to market uncertainty, with many dealers not sure how low it will fall in the near term and are therefore holding on to their hard currencies to watch the market direction.

These weak economic indicators and forecasts have continued to put the local currency under severe pressure from internal and external factors but the CBN is not giving up, except that its measures seem overboard, with varied implications on the economy. The continuous decline in the value of the naira has also been fueled by other unfavourable economic variables including the rise in the country’s import bill, inflation figures which rose for 13 straight months to 18.48 per cent in November and the unwillingness of foreign investors to inject fresh capital into the economy.

 

Why are investors elusive?

Former CBN Governor and now Emir of Kano, Sanusi Mohammadu II, said it will be difficult to invest in an economy with multiplicity of exchange rates.

“There is one rate for petroleum marketers, there is interbank rate, there is another for money market operators such as Western Union, MoneyGram, there is BDC rate and there is a special rate you get when you call the CBN for a transaction and so on,” he said.

Gwadabe agreed with Sanusi. Recalling when the crisis started: “It started in June 2016 when the flexible exchange rate was introduced. Today, 2,500 BDCs get $8,000 weekly from the IMTOs’ funds, which is about $20 million. However, the level of liquidity needed to boost the forex market and stabilise the naira is $50 million weekly.

“What is needed to rescue the naira is return of investors confidence and recovery in crude oil prices. Like Sanusi explained, with multiplicity of exchange rates, no investor will come into the country.”

An economist, Bismark Rewane, explains why the naira is on the downside. “As oil prices dipped, the CBN has prioritised stability of exchange rate in the official market. It has drawn an exclusion list of avoidable imports from being funded in the official market. With the forex demand for the items transferred to the parallel market, rates in that market have soared”.

Besides, other factors like terms of trade, inflation differential, public debt, current-account deficits, interest rates, political stability and the overall economic health determine the exchange rate of a currency.

 

Financial losses deepen policy pains

The Manufacturers Association of Nigeria (MAN) lamented that its members lost N500 billion to the flexible forex policy.

Its local Chairman in Apapa, Babatunde Odunayo,  who spoke during the branch’s 45th Annual General Meeting (AGM) in Lagos, said Letters of Credit (LCs) and Form ‘Ms’ approved to manufacturers at N197 to dollar before the policy implementation, are now expected to be redeemed at N305.5 to dollar.

“Unfortunately, this unfolding situation poses a great burden on manufacturers since the pricing of the related manufactured goods was made at N197 or N198 to dollar when it was approved. Manufacturers currently face up to N500 billion in exchange difference between the approved Form M and LCs established rates and the flexible market rate of N305.5 to a dollar. This is a huge loss that manufacturers are expected to bear,” Odunayo said.

“Many of our members are in the middle of factory projects execution, but the viability of such projects is now questionable due to the forex developments,’’ he added.

But instead of the manufacturers bearing the financial burden as predicted by Odunayo, it is the consumers that are now paying through higher prices, leading to higher inflation and reduced consumer purchasing power.

Dangote Group President Aliko Dangote also said his company lost N50 billion to the flexible forex policy. He spoke when Vice President Yemi Osinbajo toured the project sites of Dangote Fertiliser and Dangote Refinery in Lekki, a Lagos suburb.  “We have been badly affected like any other company,” he said, arguing that operational costs totaled $100 million each month due to recurring expenses, such as the purchase of parts for cement production and running a fleet of 9,000 trucks.

Dangote said the decline had pushed up costs. “This devaluation alone, we have lost over N50 billion ($176 million),” he said.

“The gas, which is our main source of power, is priced in dollars. If there is 40 per cent devaluation, your price will go up by 40 per cent. Every single aspect of the production will go up by that percentage,” he said.

Interswitch Limited, a debit card company, suspended plans to raise $1 billion in an Initial Public Offering (IPO) as investors fret over further potential weakness in the naira and forex shortage.

The company had last year, met with Bank of America, Barclays Plc and Standard Bank Group about a potential 2016 share sale in Lagos and London.

Interswitch Chief Executive Officer, Mitchell Elegbe said the IPO would have enabled London-based private equity group Helios Investment Partners LLP, a shareholder, to return some money to investors.

“The macroeconomic situation in Nigeria has led to the IPO delay. Potential investors are jittery about the naira exchange rate and whether they will be able to buy forex to get their money out of the country when they want to exit,” he said.

 

Household spending dips

The economy was on crutches in the first and second quarters Gross Domestic Product (GDP) by expenditure data released by the National Bureau of Statistics (NBS) late last month. For the two quarters, decline in household consumption expenditure which contributes more than 60 per cent to normalised aggregate spending in the economy accounted for much of the GDP contraction in the period under review.

In the first half of the year, household and government consumption expenditure fell by 21.5 per cent and 18.6 per cent year-on-year in real terms to N18.9 trillion and N1.6 trillion respectively. The sharp contraction in consumption spending reflects weak fiscal revenue and steep increase in consumer prices pressuring household disposable income.

Net export also outperformed in real terms, growing nine per cent year-on-year to N6.2 trillion in June 2016, although mostly due to high prices of crude oil captured in benchmark base year of 2010 currently being used for real GDP measurement. In nominal terms, net export was in deficit as imports exceeded exports. However, the policy has helped Nigeria’s trade deficit to narrow following increased exports in June, the NBS data have shown.

 

BDCs also hit

The state of the local currency is also adversely affecting BDC businesses. On June 20 when the flexible forex policy was introduced, N6 million could buy $30,000. Today, it can hardly buy $10,000. The capital base of BDCs has been eroded by the rising cost of dollar.

Gwadabe said the BDCs needed more capital to continue and remains in the business. Speaking on dollar hoarding going on in the economy, he said: “Many Nigerians are buying and storing dollar in their bank accounts waiting for the rate to rise.

He said that investors have refused to invest in the country despite the devaluation of the naira adding that it would have been better, had the June 20 devaluation not done.

He said: “It was a hard trick. The foreign investors want the naira to exchange at N600 to the dollar. The banks are not transparent on dollar disbursements. The big question is how do we bring in new investors? They seem to be elusive. If the foreign investors come, that will be the end of currency speculation. But they have refused to come”.

 

More stakeholders speak

Sub-Saharan Africa Economist at Renaissance Capital (RenCap), Yvonne Mhango, said in a report titled: “Nigeria: Winds of change- more flexible forex policy” predicted that the naira would not be allowed to fully float on the interbank market.

“This view is informed by the partial deregulation of petrol prices on May 11, and Nigeria’s history of managing the forex rate. The ideal scenario would be for the CBN to let the market set the new interbank forex rate without restriction, and in so doing, allow for an appropriate level to be found.”

Mhango predicted that consumption expenditure will continue to underperform (and weight on aggregate GDP in the near term due to declining real wage and increasingly thrifty consumers wary of uncertain economic outlook and also taking advantage of high interest rate environment to save.

“We believe policy measures to ease supply side shortages in the economy – particularly for forex – and subsequent easing of monetary policy will go a long way in stimulating investment and consumption spending to support aggregate economic performance and naira’s recovery,” she said.

Managing Director/Chief Executive Officer, Tempo Paper & Packaging Limited, Seun Obasanjo, said the flexible forex policy implementation has increased energy prices and Customs duties.

Obasanjo said consumers of local goods should prepare to absorb a rise in cost of products, as higher cost of energy and Value Added Taxes (VAT) are incorporated into the prices of goods.

He said that the policy has eroded the people’s purchasing power, adding that the country is not out of the woods. He said the Customs calculate duties on imported raw materials using the official rate which moved from N197 to dollar to N305.5 to dollar.

The manufacturer said the Customs has already adjusted its template of duties, which means more revenues for government. “Customs revenues will continue to jump in the months ahead but manufacturers are going to pass the higher duties’ to consumers. It is painful but we have no other choice,” he said.

Continuing, he said that although the policy was meant to attract Foreign Direct Investment (FDI), but it may not come. “FDI may not come. Even if there are FDI inflows, that will not save the economy. Diversification of the economy is the answer and people should start patronising Made in Nigeria goods,” he said.

He believes that to get the local industry into the league of players where it can begin to act with full capacity in the production of goods and services, government needs to step in big time by providing the needed infrastructure.

“It is not a one direction approach. All hands must be on deck to get Nigeria to its desired destination of being an industrilised nation. By fixing power alone, the cost of production of goods and services will drop significantly, helping the operators to compete in the global market. The same thing applies to low interest rate which is needed to make the manufacturers also compete favourably by reducing the cost of their operations,” he said.

Continuing he said: “If I am producing everything in Nigeria, it means Nigerians will be employed starting from drivers, cooks, secretaries, cleaners, gardeners and even security personnel. That is a major contrast if the goods are imported. By producing goods locally, so much value will be added to the domestic economy.

“If the farmers are producing locally, it will improve their capacity overtime and also creates job. It will help Nigeria to leapfrog from consumption-based economy to production-based economy. We can even become a net exporter of several items”.

On other benefits to local production, he said that being the net exporter of goods and services, places the country in a vintage position to earn huge forex. Hence, instead of scrambling to buy dollars, the manufacturers can earn dollars and boost the domestic currency.

But achieving this, Obasanjo said, will require the co-operation and support of all stakeholders. “It has to be a coordinated effort and the policy needs to be encouraged. The support should come from all stakeholders. Although some people are going to lose out in the short-term because they are importing these items, but if we boost the local production capacity, in the long-run, we will all be better off,” he promised.

 

Exporters, expatriates benefit

 

The Managing Director, SilverPoint International Limited, Adebola Akindele, who exports cashew nuts to Turkey and United Kingdom (UK), said the flexible forex policy and the devaluation that came with it meant that dollars earned from exports enjoy greater value at home.

“Naira devaluation is creating more millionaire-exporters than ever before. We now have more naira after exchanging our dollar earnings,” he said.

Akindele said that although value from dollar inflows have risen, but exporters are not immune to rising cost of production, especially energy prices which not be passed to foreign buyers because of the controlled global pricing mechanism.

Also benefiting from the devaluation are multinational oil companies and their expatriate workers, whose salaries are in dollars. People who receive forex through Western Union and MoneyGram are also to benefiting from the naira woes and Nigerians in the Diaspora who send dollar remittances home are benefiting from the naira slide. Already, dollar remittances from Nigerians living abroad rose from $21 billion in 2015 to $35 billion this year following depreciated naira value but many of the funds came in through unofficial means.

 Currency devaluations in other countries

Many other countries have in recent years, devalued their currencies to enable them wriggle out of harsh economic realities. Russia, Egypt, South Africa, Uganda, Brazil and Kenya have all devalued their currencies. But while the exercise has been rewarding to some economies, it has failed woefully in others. Chief Economist at RenCap, Charles Robertson urged Nigeria to emulate the strategy adopted by Egypt in devaluing its Pound Sterling. He said that Russia devalued its Ruble in 2014; Argentina devalued Peso in 2015. There have also been currency depreciations in South Africa and Brazil while Egypt devalued its Pounds Sterling.

“In an ideal world, Nigeria will let its currency float too in 2017 – but that is not a story for today.  No investor will put money into Nigeria, unless it copies the currency reform story that Egypt and Russia have both done. South Africa raised a few questions because the South African Rand (ZAR) rally this year helped its market so much.  A reasonably decent value ZAR remains the positive for the country as we head into 2017 but the sovereign downgrade is one of the negatives,” Robertson said. He said although ZAR remains attractive, but the country’s GDP, rating, credit growth are not interesting.

The chief economist said the Central Bank of Egypt (CBE) shifted in November the currency rate to Egypt Pound (EGP) 13 to dollar which is a 20 per cent discount to fair value based on long-term average Real Effective Exchange Rate (REER) model.

He said the CBE is allowing 10 per cent bands on either side of that central rate, then those bands will be removed, and the float will be full, and this, he wants Nigeria to emulate. “Nigeria may become a great trading centre in 2017 – assuming the currency policy changes,” he said.

Equally, Mhango, sees currency appreciation potential in Uganda, stability in Kenya and how 2017 could become West Africa’s year, with at least 10 per cent appreciation of the naira if the currency is allowed to freely float.

Speaking on the theme: “African currencies: Getting cheaper”, she said the naira is now undervalued but will become cheaper in the short-term. She said that a crisis of confidence in the naira implies it may get cheaper. The Kenya Shilling (KES) is not cheap, on our estimates, but stronger buffers are likely to keep it stable in the short term.

“We expect the interbank forex rate to fall further, despite the naira being undervalued, partly due to low market confidence. The widening gap between the parallel forex rate of N480 to dollar and the interbank rate of N305.5 to dollar implies the market thinks the interbank rate should be lower. However, we do not think the ‘market-clearing rate’ is as low as the parallel rate suggests, because that market is illiquid,” she said.

On Kenya, she named three reasons why the country’s central bank is in a stronger position to keep the shilling stable than it was in 2015.

Mhango said: “First, forex reserves have improved to 5.2 months of import cover, from 4.2 months a year ago. Second, Kenya has access to a $1.5 billion International Monetary Fund (IMF) ‘insurance facility’, which it can draw upon if the economy experiences an exogenous shock that undermines the balance of payments. Third, Kenya’s positive real interest rates, even following this year’s 1.5 percentage point cut in the policy rate, to 10 per cent, are likely to be supportive of the shilling in the short term. We see scope for another 50-basis point cut before 2016 year-end.

“We forecast forex of KES 103 to dollar and KES 106 to dollar at 2016 year-end and 2017 year-end, respectively. The downside risks to our forecasts include unfavourable weather, unstable elections and a sharp oil price increase.”

Stakeholders proffer solution

Chioke believes the incorporation of a long-term diversified strategy in fiscal policy is required to cushion shocks in various segments of the economy.

To him, the persistent pressure on the naira could have been minimised if a counter fiscal policy had been developed, as the CBN cannot continue to defend the naira with foreign reserves. “To reduce this pressure, an inward looking policy (tax incentives, infrastructure development and production subsidy) should be emphasised to reduce the dependence on imported goods”, he said.

He explained that asides from oil receipts, the development of the agricultural sector will in the short-term reduce the forex burden of food imports and on the long run, enhance foreign receipts if its comparative advantage in the sector is efficiently deployed.

Head Currencies Market at Ecobank Nigeria, Olakunle Ezun, said the solution was not in policy change but in boosting dollar liquidity.

Ezun said: “There is a limit to how far a policy can support naira. Demand for dollar is huge because the economy is import dependent. A lot of industries still depend on importation of raw materials and finished goods making our import bills to go up. The CBN disburses about $600 million monthly to manufacturers and other real sector operators, representing about 25 per cent of the monthly demand of $4.8 billion.”

He said the CBN does not have the capacity to support the naira. “The only solution is for crude oil prices to rise. But that is beyond us. We are also contending with the Niger Delta disruption of oil production, which has also adversely affected dollar inflows,” he said.

CBN Director, Research and Development, Uwatt Uwatt, said that growing the non-oil sector of the economy is key in restoring the value of the local currency.

The CBN director said the drop in prices of crude oil in international markets has rekindled the need to revamp the non-oil sector.

“Declines in global crude oil prices have triggered major headwinds for the economy. Continued dependence on oil poses a big threat to economic stability. The nation is now trying to retrace its steps from over dependence on oil for major part of its revenues,” he said.

Uwatt said that between 2011 and 2015, the contributions of oil sector to GDP stood at 12 per cent and that the federal allocations reports for August this year showed that non-oil sector contributes 57.5 per cent to federally-collected revenues. He said that government has adopted protectionism policies, trade libralisation, export promotion policy and privatization to drive non-oil export.

Gwadabe said the country has not been able to build strong buffers, so that when crisis of this nature occurs, as seen in other countries, the economy would be protected.

He said: “The United Arab Emirates has over $400 billion in their reserves and that is a very big buffer for them as it protects their local currency at any given time and that is what I would want to see in Nigeria. Don’t forget that without the buffers, there is no way one can defend the local currency.”

It is the absence of such buffers at a period of global crude oil crash that has remained the bane of the naira.

Naira’s fall and the future

The misfortune of the naira began early November 2008, when it first crashed from N118 to N120 to the dollar. By the middle of that month, it fell to about N134 to the dollar. The free fall continued in early 2009. By the end of the first week of January 2009, the naira had fallen to about N144 to the dollar and the inter-bank forex market.

The situation worsened at the parallel market as the currency exchanged for N147 to the dollar. It later fell to N160 to the dollar, causing greater shocks for international trade. The local currency had weakened to N215 to the dollar in early January and continued to depreciate till date.

In its assessment of the Nigerian situation, Goldman Sachs described January 2006 – December 2008 as a period dominated by a stable trading and appreciation of the naira. It, however, warned that the past performance does not guarantee future returns.

Despite promises by successive CBN governors to bring sanity to the troubled currency, its misfortunes continue to multiply. From Prof. Charles Soludo, Sanusi to Emefiele, the naira has endured broken promises.

And now, with 10 exchange rates to contend with, and little confidence that crude oil prices will recover to 2014 levels in the nearest future, naira’s woe is just beginning, and not even the flexible forex policy can fix it.

Nigeria sells $1 bln to help clear backlog in biggest dollar sale since June – Reuters

By Oludare Mayowa

LAGOS Dec 29 (Reuters) – Nigeria’s central bank sold about $1 billion on the forward market last week to clear a backlog of dollar obligations in selected sectors, traders said on Thursday, its largest special auction since a currency peg was removed in June.

Outstanding dollar demand was about $4 billion before June, when the 16-month-old peg was removed. Efforts to cut dollar demand have been largely unsuccessful due to low oil prices.

Crude sales account for about 90 percent of Nigeria’s foreign exchange earnings.

Traders said the central bank told banks to prioritise airlines, manufacturing firms, petroleum products importers and agriculture sectors, the sectors worst hit by the dollar shortage, in the auction.

“The central bank sold $1 billion at last week’s special forex auction and directed banks to issue fresh letters of credit to reflect the amount sold in favour of the affected sectors,” a senior currency trader told Reuters.

Traders said the central bank sold 30-day and 60-day forwards at the auction.

On Dec. 19, the central bank instructed commercial lenders to submit their backlog of dollar demand from fuel importers, airlines, raw materials and machinery for manufacturing firms and agricultural chemicals for the special forex intervention.

Nigeria is in its first recession for 25 years, caused by the oil price drop which has cut the supply of dollars needed to fund imports. Attacks by militants on pipelines in the Niger Delta since January have cut crude output, further reducing dollar inflows.

The dollar shortage in the OPEC member, whose crude sales make up two thirds of government revenue, has caused many companies to halt operations and lay off workers, compounding the economic crisis.

Some foreign airlines have closed down or reduced their operations over an inability to repatriate the proceeds of their earnings due to the dollar shortage.

An acute shortage of jet oil in the last few months – caused by the inability of importers to secure the dollars needed to buy the fuel – has led to many operators refuelling in neighbouring countries.

Flight cancellations by local airlines have become commonplace as a result of the shortages.

The naira was trading at about 305.25 to the dollar on the interbank market on Thursday and was quoted at 490 a dollar on the unofficial market. (Editing by Alexis Akwagyiram and Louise Ireland)