Oil price has dropped as there are fresh concerns over the threat of a military response to attacks on Saudi Arabian crude oil facilities.
Note that the attacks cut the country’s oil output by 50% and sent oil prices to a three-decade jump of 20%.
Following the attacks on Saudi’s oil facilities, the U.S President, Donald Trump threw frenzy in the windy, after his tweet indicated that Iran was the likely culprit behind the attacks. This has slightly built pressure on oil prices, as Brent crude dropped to $67.31 a barrel on Tuesday. Equities and other markets were also pressured.
Saudi Arabia oil supply was attacked. There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!
— Donald J. Trump (@realDonaldTrump) September 15, 2019
According to New York Times, the U.S government has released satellite photographs showing what officials said were at least 17 points of impact at several Saudi energy facilities from strikes they said came from the north or northwest.
While Yemen’s Houthi rebels are reportedly claiming responsibility for Saturday morning’s attacks, recent reports stated that Saudi Arabia had declared Iran as directly responsible for the drone attacks on an oil field and refinery at the weekend, with satellite photos revealing how precise the strikes were.
Oil Price Reactions: Following the attacks, Oil prices ended nearly 15% higher on Monday, with the Brent benchmark seeing its biggest jump in about 30 years. Basically, the rise came after two attacks on Saudi Arabian facilities on Saturday knocked out about 5% of global supply.
- Brent crude initially surged 20% at the start of Monday’s trading but eased back to end at $69 a barrel, up 14.6% while the US oil prices finished up 14.7%, the biggest jump since 2008.
- Specifically, the attacks which led to global crude output 5% drop caused the biggest surge in oil prices since 1991.
- Meanwhile, oil fell more on Tuesday morning as the market hung on tenterhooks over the threat of a military response.
- Brent crude dropped 5.4% at $67.31 a barrel, and West Texas Intermediate was down 87 cents, or 1.4%, at $62.03 a barrel.
On the other hand, energy experts are split over the reactions of the oil prices to the recent attacks. Some have stated that while a production shortfall from an attack on one pipeline or refinery could often be offset by others, a return to full capacity might take months and this might drive prices up further.
Dragan Vuckovic, president of Mediterranean International, an oil service company that works in Egypt and Iraq stated:
“This changes the oil markets psychologically for a couple of years for sure now that everything is shown to be vulnerable. One drone can hit a refinery or an oil-field installation and that causes fires, destruction and stops all production. It means less oil on the market and higher oil prices.”
“If a full-fledged war between Iran and Saudi Arabia breaks out, there would be no limit to how high prices could go,” Jay Hatfield, portfolio manager at InfraCap MLP, an exchange-traded fund that invests in oil pipelines stated.
City Index analyst, Fiona Cincotta had a slightly contrary view. According to Fiona as quoted by Reuters, “With the U.S. ‘locked and loaded’ awaiting signs from Saudi Arabia that Iran was involved, tensions in the Middle East could get worse before they get better. Under these circumstances, the price of oil could remain elevated for some time yet.
“However, let’s not also forget that the demand picture isn’t great right now, which will dampen the oil price quickly. Most recently China’s industrial production figures disappointed overnight.”
Saudi’s Defiance: Despite Saturday’s attack, Saudi Arabia’s state oil giant, Aramco, has informed some of its major Asian customers that they would receive all the oil supply they had contracted — although lighter grades would likely be replaced with heavier crude, according to sources.
The U.S is also in the stand, as Donald Trump disclosed that he had authorized the release of oil from the Strategic U.S Petroleum Reserve, if needed, in a to-be-determined amount to keep the market well supplied.
Based on the attack on Saudi Arabia, which may have an impact on oil prices, I have authorized the release of oil from the Strategic Petroleum Reserve, if needed, in a to-be-determined amount….
— Donald J. Trump (@realDonaldTrump) September 15, 2019
The bottom line: While there are early indications that oil prices may hit $100 per barrel high, the surge in oil prices following attacks on Saudi’s facilities may just be short-lived. It should be noted that while the US stands as one of the few countries that would be able to increase exports in the short term, Saudi Arabia still has vast quantities of crude in storage, which has been estimated to equal about 26 days of current crude exports along with other strategic storage facilities.
In the meantime, the longer the processing facility remains disrupted, the larger the potential impact on actual crude flows will be.
How foreign exchange risks and others affect the Nigerian pension industry
A report has analysed risks militating against the Pension industry in Nigeria.
Despite being one of the fastest-growing sectors in the Nigerian financial services industry, the Nigerian pension industry has been affected by various risks, such as the volatility in the foreign exchange and other factors.
However, these risks have harsh consequences on the retirement income of contributors. For example, in Nigeria, whilst the pension assets in the last decade have grown by 21% annually, the growth in the value of assets when converted to USD, has been about 11% over the same period.
This is according to a recent report released on Pension Sector Forum by ARM Pension, with the theme “Pension Assets Risk Management in the Face of Uncertainties”
All other things being equal, the findings revealed that the Defined Contribution Pension scheme assets on a 10- year time frame, grew faster than Defined Benefits (CAGR 8.4% pa vs 4.8% pa). Increased member coverage and higher contributions were probable factors responsible for the growth. In addition, most retirees might not have enough funds to maintain a decent standard of living, as retirement risk has been transferred to them.
Other risks outlined in the summit include; interest rate risk, political risk, operation risk, and key macroeconomic risks such as unemployment, GDP, inflation, currency among others.
With regards to who bears the retirement risk, 68% of the risk is borne from one’s sources, while 38% is from outside sources.
The report also stated that the total pension contributions received in the industry from 2017- 2019, was almost equally split between the private and public sectors at the end of Q3 2019.
In mitigating the risks inherent in the Nigerian pension industry, experts at the summit called for increased collaboration among stakeholders, engagement with all regulators, increased advocacy for corporate governance, increased awareness, and sensitization of contributors by stakeholders among others as viable options going forward.
- As of June 2020, only 11.3% of the Nigerian labour force had opened retirement savings accounts (RSAs), while pension assets stand at less than 10% of GDP.
- The total number of funds under management currently stands at N11.1 trillion.
- There are currently over 9.04 million subscribers and 32 operators.
To view the report, click to download HERE
Nigerian fintech companies raised $600 million in five years – McKinsey Report
McKinsey report has revealed that Nigeria’s fintech companies have raised over $600 million in funding in the last six years.
In a space of five years, Nigeria’s fintech companies have raised over $600 million in funding, attracting 25% ($122 million) of the $491.6 million raised by African tech startups in 2019 alone – second only to Kenya, which attracted $149 million. The period under review is 2014- 2019.
This information is contained in a recently published report by McKinsey titled “Harnessing Nigeria’s Fintech Potential.” The report highlighted the combination of youthful demographic, increasing smartphone penetration, and concerted efforts to driving financial inclusion as factors that interplay to produce conducive and thriving enabler or platform for the fintech firms in Nigeria.
The report outlined some of the feedback against fintech companies ranging from poor user experience, underwhelming value-added from using some of the financial products, low returns on savings, and limited access to investment opportunities.
The report also showed that Nigerian fintech companies are primarily focused on payments and consumer lending, having allotted an aggregate of 39% on payments to consumers, SMEs, and corporate FSP, and an additional 25% to consumer lending. The breakdown is depicted below.
Source: McKinsey report, 2020.
On the driving factors behind the increasing choice of payment and consumer lending as an area of concentration by fintech companies, a part of the report read thus;
“The factors driving growth in each of these segments vary. Payment-focused solutions have surged over the past two years, spurred in part, by the central bank’s financial inclusion drive and favorable regulatory policies, including revised Know Your Customer (KYC) requirements for lower-tier accounts and incentives, to accelerate development of agent networks across the country. Paga, OPay, Cellulant, and Interswitch’s QuickTeller compete with mobile banking applications and bank unstructured supplementary service data (USSD) channels to send and receive transactions and bill payments.
“Fintech activity in lending is picking up, thanks to the fact that fintechs are able to leverage payment data to determine lending risk more easily, and utilize smartphones as a distribution channel. For example, fintech startups such as Carbon and Renmoney have successfully leveraged alternative credit-scoring algorithms, to provide instant, unsecured, short-term loans to individuals. A few fintechs, such as Migo, have also stepped up to offer unsecured working-capital loans to SMEs with minimal documentation. Banking fintech solutions have been fast followers here, with leading banks launching digital lending platforms like Quick Credit by GTBank and Quickbucks by Access Bank.”
In general, access, convenience, and trust have all played key roles in the increasing use of fintech products. For example, in the last six months, 54% of consumers have reported increased usage of their fintech products
Why this matters
In line with the National Financial Inclusion goals of 2020, and owing to the fact that despite the remarkable progress recorded by traditional banking institutions, the vast majority of consumers are underserved. Hence, the issue of accessibility especially in remote areas, affordability, and user experience have been a front-burner issue.
The aforementioned issues have created an opening that fintechs have been quick to take advantage of, providing enhanced propositions across the value chain, to address major points in affordable payments, quick loans, and flexible savings and investments among others.
Fintech accounted for only 1.25% of retail banking revenues in 2019, signaling a room for development. Despite recording a growth of fintech investments in Nigeria to the tune of approximately $460 million in 2019, majority of these investments were from external investors. This was only a small fraction (1.27%) of the $36 billion invested in fintech globally.
The report opined that full optimization of fintech companies in Nigeria can stimulate economic activity, by creating a multiplier effect, and can drive progress towards development goals. Economic impact will primarily come from expanding revenue pools and attracting foreign direct investment to the country. The sector can unlock a plethora of economic benefits by driving increased fintech productivity, capital, and labour hours through digitization of financial services.
PenCom recovers N17.51billion from defaulting employers, imposes penalties
N17.51 billion was recovered by PenCom from employers who refused to remit pensions from workers’salaries
The National Pension Commission has recovered N17.51 billion from employers that refused to remit deducted monthly pensions from their workers’ salaries to their Retirement Savings Accounts with the respective Pension Fund Administrators.
This was disclosed by the Commission in its 2020 second quarter report which was released on Friday.
Out of the N17.51 billion, the principal contribution was N8.89 billion, while the penalty imposed on the employers was N8.63 billion.
The report read, “Following the issuance of demand notices to some defaulting employers whose outstanding pension contribution liabilities had been established by the recovery agents, 16 of the affected employers remitted the sum of N261.33 million representing principal contribution of N152.79million and penalty of N108.54million during the quarter. This brought the total recoveries made from inception as at June 30, 2020 to N17.51billion.”
According to the report, one batch of NSITF lump sum payment application totalling N225,442.72 was however received on behalf of five NSITF members during the quarter.
It said the application was processed and five members’ contributions were transferred to their bank accounts.
Consequently, it added, the cumulative sum of N2.94billion had been paid into the bank accounts of 36,551 NSITF contributors as lump sum/one off payment from inception to June 30.
For the quarter ended June 30, the commission said it processed monthly pension payments totalling N62.25million in respect of 3,629 NSITF pensioners.
As of June 30, it said the total pension payment to NSITF pensioners amounted to N4.73billion.
The commission added that it reviewed the request for the payment of attributable income to eligible NSITF members and granted a “no objection” for payment of N2.92billion to 165,954 eligible NSITF members whose NSITF contributions were refunded to their RSAs or bank accounts as of December 2018.