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Business News

Balami Hassan explains how US/China trade war could affect Nigeria.

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A member of the CBN’s Monetary Policy Committee (MPC), Balami Dahiru Hassan, has weighed in on the possible effect of the China/USA trade war on the Nigerian Economy.

Balami Dahiru Hassan is a Professor in the Department of Economics at the University of Maiduguri.

According to an excerpt of his personal statement in the MPC communique of May 21/22 2018, the trade war will likely have a negative effect on Nigeria’s crude oil sales.

“The China – US negotiations at the global level has implications for the Nigerian economy. It is likely that China would sacrifice imports from other countries such as Nigeria’s oil in the ongoing arrangement. The Federal Government’s capacity to fund the 2018 budget
would therefore be constrained.”

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Nigeria currently runs a massive trade deficit with China as we import 10 times more from China than we export. According to the National Bureau of Statistics, Nigeria’s export to China was just N62.5 billion in 2018 in the first quarter of 2018 compared to an import value of N530.9 billion in the same period. In fact between 2015-2017 combined import from China stood at N5 trillion compared to an export of N500 billion within the same period. 

China is also not anywhere close to the top 10 countries Nigeria exports oil to thus one wonders if Balami’s claims are not hyperbolic to say the least.

Effects of a trade war.

United States President, Donald Trump, spooked global markets by slamming a tariff on about $50 billion worth of goods from China, he has followed that up with a $200 billion threat. The Chinese are not taking this lightly as they have also threatened to slam reciprocal tariffs on US exports into China.

Understandably, the world doesn’t like this and has shown its disdain with sell-offs across global markets. When the first and second largest economies in the world are tussling on trade, the grass suffers. If the trade wars escalate further, it could trigger reprisals across the world and open a new vista of economic cold war that no one knows for sure how it would pan out.

You might be wondering how this all affects us in Nigeria, particularly our investments.  Nigeria, like most emerging economies, relies on foreign investments for a lot of things, among which includes keeping our exchange rate stable. 

If the trade wars, aka Trumpamania, escalate, then we can rest assured that foreign investors will pull out from emerging markets like Nigeria and take flight to safer havens until the turmoil boils over. The impact will be devastating, as we experienced during the oil price crash, sending our market to an albeit temporary tailspin.

If this does happen, stock prices may crash and could irnonically create interesting buying opportunities for investors who missed out on the great rally of summer 2017.

 

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Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

1 Comment

1 Comment

  1. Anodebenze

    July 10, 2018 at 3:32 pm

    Sometimes I do not recognizes some of my comments,i write from memory,the main reason is there is no excuse for ignorance.secondly i aimed for the nairametric double checks their fact,before putting their prose into the public domain. as I do not want to be seen to deceiving my fellow country men.
    Curiously,for 1 month, some section of Nigerians wanted me to comment on the moslem for the first 1000 yrs a.d.all I can say that the majority of moslem in spain were blacksthey were called the Moors by the arabs,they built university,they introduced windmill to Europe and public library,their building still exists today.their presence in Europe lead to the renaissance of Europe.
    it looks,when the Europeans control ancient Egypt,their educational system regressed.Thales was also initiated into the mysteries of osiri and isis,also the Moors taught a solar system,while the geeks did not

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Economy & Politics

CBN extends Covid-19 forbearance for intervention loans by another 12 months

CBN will continue to charge an interest rate of 5% for its intervention loans for another 1 year.

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New CBN guidelines ban MMOs, PSPs, Operators from receiving diaspora remittances

The Central Bank of Nigeria has announced an extension of its regulatory forbearance for the restructuring of its intervention facilities by another 12 months.

In a circular signed by Dr. Kevin Amugo, the Director of Financial Policy and Regulatory. the apex bank said it will continue to charge its borrowers an interest rate of 5% per annum as against the 9% originally offered. The CBN had on March 20th reduced the interest rates on its intervention loans from 9% to 5% as part of its response to the economic crunch brought on by Covid-19 induced lockdowns.

The CBN also offered to rollover moratorium granted on all principal payments on a case by case basis. All credit facilities had been granted a one-year moratorium starting from march 1, 2020 when the pandemic first gripped Nigeria.

See excerpt from Circular

“The Central Bank of Nigeria reduced the interest rates on the CBN intervention facilities from 9% to 5% per annum for one-year effective March 1, 2020, as part of measures to mitigate the negative impact of COVID-19 Pandemic on the Nigerian economy.”

Credit facilities, availed through participating banks and OFIs, were also granted a one-year moratorium on all principal payments with effect from March 1, 2020.

Following the expiration of the above timelines, the CBN hereby approves as follows:
1) The extension by another twelve (12) months to February 28, 2022 of the discounted interest rate for the CBN intervention facilities;

2) The roll-over of the moratorium on the above facilities shall be considered on a case by case basis.

What this means

Companies who secured intervention funds from the CBN or through any of its on-lending banks will continue to service the loans at an interest rate of 5% per annum instead of 9%.

  • They can also get another year of not needing to pay back the principal sum collection. However, they will need to apply.
  • Whilst this move helps the small businesses continue to manage their cash flow, it means the CBN will record a reduction in its income extended under such facility.
  • Regulatory forbearance is a widely adopted concept during an economic crunch and it is meant to help stimulate businesses. These pronouncements if implemented will only affect those who borrow from the CBN or BOI but those who do not will miss out.
  • Download the circular here.

 

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Energy

LNG boss tasks FG to begin the monetization of Nigeria’s gas

Mr Attah has urged the FG to take the gas sector more seriously as the future of Nigeria’s energy lies with it.

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The MD and CEO of Nigeria LNG Limited Mr. Tony Attah has tasked the Federal Government to begin the revamping and monetization of the Gas sector in Nigeria.

He made this statement while making his presentation at the 2nd virtual Nigerian Gas Association (NGA) Industry Multilogues, with the theme: “Powering Forward, Enabling Nigeria’s Industrialization via Gas.”

Mr. Tony Attah drew the attention of the audience to the hidden treasure in the Nigerian Gas industry which he believes is not getting enough attention from the government.

On the future of gas as an alternative energy source, Mr. Attah stated that the developed world is already keying into gas as an alternative to crude oil. Gas has proven to be a cleaner and more sustainable alternative.

He exclaimed that Nigeria is very rich in gas and yet poor in energy. Nigeria is the 9th country with the largest gas reserves in the world but makes very little use of it.

Mr. Attah went further to paint a clear picture of the promise of investing in gas using the success achieved by Qatar. Qatar is currently the largest LNG exporter in the world.

We just touched on a quick case study of Qatar. Someone mentioned Qatar already from a poor fishing country to a gas giant and it took just 10 years, which is why we, as Nigeria LNG, firmly believe in the conversation and the narrative about the declaration of the decade of gas.

“We believe it is possible. If you look at Qatar from 1995, when they really went into gas development, we were just two years behind Qatar. So, Qatar’s first LNG was in 1997.

Nigeria’s first LNG was in 1999, just two years behind. But then, within 10 years, because of the deliberateness of the government and focus on gas, they have gone to 77 million tonnes and we are at best, 22 million tonnes,” Attah said.

Mr. Attah stressed further the importance of the gas sector in Nigeria’s future. He recalled that the Nigerian Government declared 2021-2030 as the decade of gas. He pleaded with the government to take the sector more seriously as the future of Nigeria’s energy lies with it.

Gas is the future. That future is now, and just as the Minister of State has made us to realize, gas is food in fertilizer. Gas is transport as you saw in the Auto gas project that was declared.

Gas is life, as a matter of fact, for cooking, for heating, for existence. Gas is development in manufacturing, gas is power. Gas is everything. “We think it’s time for gas. It’s time for Nigeria to diversify and that is why we fully support the decade of gas,” he said.

What you should know

  • Early last year, the director of the Department of Petroleum Resources (DPR) Mr Sarki Auwalu confirmed that Nigeria’s proven gas reserve stood at 203.16 trillion cubic feet.
  • Nigeria has the 9th largest gas reserves in the world. It is also the 6th largest exporter of gas.
  • The Federal Government declared the year 2021–2030 as the “Year of the Gas“. It pledged to finally kick start the development and commercialization of Nigeria’s huge gas reserves.

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