The Federal Government subsidy on Premium Motor Spirit, popularly known as petrol, has risen to N47.5 per litre, as the crude oil price increased to $67.86 per barrel yesterday, data from the Petroleum Products Pricing Regulatory Agency disclosed.
The data disclosed that PPPRA’s PMS pricing templates for December 12, 16, 17, 18, 19 and 23 put the expected open market prices of petrol per litre at N172.92, N177.33, N177.32, N174.81, N177.92 and N180.78.
But the ex-depot price for collection of petrol, as captured in the templates, remained at N133.28 per litre, indicating that the NNPC subsidised the commodity by an average of N47.5 per litre during the review period.
The NNPC has been the sole importer of petrol into Nigeria for more than two years after oil marketers stopped importing the commodity due to crude price fluctuations and the halt in the payment of subsidy to oil dealers by the Federal Government.
What CBN says
The Central Bank of Nigeria, in its economic report for November 2019, confirmed the appreciation in crude oil price.
It stated that the average spot price of Nigeria’s reference crude oil, the Bonny Light (37° API) at end-November 2019, was $66.11/b, compared with $61.10/b recorded in October 2019, representing an increase of 8.2%, relative to the level in the preceding month.
The bank also confirmed that the rise in crude oil price was due largely to the news of anticipated production cut by the OPEC+ and the adoption of a more stringent export control system for Nigeria and Iraq.
Impact of high oil price on subsidy
Industry operators argued that the development in the international crude oil market would impact on the petrol subsidy in the country.
National Operations Controller, Independent Petroleum Marketers Association of Nigeria, Mike Osatuyi, explained that the rise in oil price meant that petrol subsidy would increase.
According to him, if the price of oil increases to $90, as long as the pump price of petrol remains at N145 per litre, the government must continue to subsidise the product.
He said, “We are waiting for government policy; whatever government decides, we are going to comply because we need to move forward. With Dangote refinery coming on stream, we should expect some radical policy changes in the oil industry, especially in the downstream sector.”
A Call for deregulation
Chief Executive Officer, Major Oil Marketers Association of Nigeria, (MOMAN) Clement Isong, described the subsidy on petrol as a drag on the downstream sector of the nation’s oil and gas industry.
“We are consistent in our view that the subsidy payment or subsidy in the petroleum downstream sector degrades operational efficiency and economics of the downstream sector. We don’t think it is good for the industry as a whole. We believe it is only deregulation that can help us clean up the industry and bring back efficiency.”
But IMF frowns at increasing subsidy
The International Monetary Fund, in its latest Regional Economic Outlook, called on Nigeria to reduce fuel subsidy in order to boost productive government spending.
It said, “Fuel subsidies tend to be poorly targeted, foster over-consumption, curtail investment and maintenance in related sectors, and crowd out more productive government spending. Some countries need to take the opportunity afforded by low oil prices to reduce fuel subsidies to free up additional fiscal space (Cameroon, Nigeria, Senegal), as was done in Mozambique and South Sudan and are being pursued by Burkina Faso.”
Lagos discloses strategies to best manage revenue in COVID-19 era, reduces land use charge
Dr. Rabiu Olowo disclosed strategies adopted by the state to keep its finances intact and optimize the revenue potentials
The Lagos State Government has announced strategies adopted by the state to keep its finances intact and optimize the revenue potentials in the face of the devastating effect of the coronavirus pandemic on the economy.
This was disclosed by the Lagos State Commissioner for Finance, Dr. Rabiu Olowo, while presenting the scorecard of his ministry at the ministerial press briefing to make Governor Babajide Sanwo-Olu’s first year in office at Alausa, Ikeja.
Dr. Olowo said that Lagos state achieved a 106% performance with respect to revenue against the budget in the first quarter of 2020.
He said that, although the direct impact of the pandemic has led to a drop in the State’s internally generated revenue and Federal Allocation, potential decline of Foreign Direct Investment (FDI) and increased pressure on income and purchasing power of Lagosians, the present administration had in a swift response re-ordered the 2020 Budget and re-prioritized it’s Capital Expenditure to reflect current realities.
The review of the 2020 budget assumptions was due to the devastating effects of the coronavirus pandemic and the dwindling oil prices.
The Commissioner explained that, apart from the re-ordering of the 2020 budget, the government has also initiated and adopted some other strategies to manage the impact of the pandemic.
These strategies include the principal and Interest moratorium for Small and Medium Scale Enterprises (SMEs) with loans from the Lagos State Employment Trust Fund (LSETF); Extension of Tax Filling; management and control of dedicated funds for COVID-19 response; timely payment of hazard allowance and arrangement of Special Peril Insurance for frontline health workers and volunteers.
Dr. Olowo also said that the government had succeeded in restructuring all existing internal loan facilities previously at the rate of 18%-20% to 14%, bringing about huge savings on the State’s loan repayments, thereby increasing cash flows.
On Revenue Optimization, the Commissioner revealed a number of initiatives put in place in the last one year by the present administration such as F.O.R.C.E (Focus On Revenue Creation Everywhere), an initiative conceived to monitor, review and drive innovative revenue performance whilst providing revenue assurance and the deployment of E-Tax platform for tax operations and administration matters, aimed at improving convenience in the payment of taxes to promote compliance.
He also pointed out that the automation of the operations of Lagos State Lottery Board is among the improvements that will guarantee sustainable revenue optimization to aid the finance infrastructural projects that will improve the lives of Lagosians, create jobs, and stimulate the economy through government spending.
On Land Use Charge (LUC), Dr. Olowo stated that the LUC reform is necessary to accommodate the agitations of Lagosians and to reduce the financial pressure on citizens.
According to him, “As we are aware, in 2018, there was an increase in LUC rate and at the same time a revaluation of property; this twin-shock had a sporadic increase in LUC assessment. The soon to be revealed reform will among other things, reverse the rate to pre-2018 rate”.
He explained that the intention of the State government is to keep economic activities going, without necessarily causing any untold hardship that will further aggravate the present financial hardship confronting all sectors of the State’s economy.
The finance commissioner also recalled that Governor Babajide Sanwo-Olu had in January this year, signed the Issuance of N100bn Series III Bond (the largest Bond Issuance ever raised by any Sub-National entity in the country) under its N500 Billion Bond Issuance Programme, to assist the State meet its huge infrastructure needs in critical sectors across Health, Environment and Roads, among others.
Forex turnover drops by 28.3% as naira depreciates against the dollar at I&E window
Naira improved against the dollar by N1.35, closing at N386.33 to a dollar, as against the indicative rate of N387.68 to a dollar that it opened with.
The naira has depreciated to N386.33 to a dollar at the Investors and Exporters (I&E) window, as the volatility of the foreign exchange market continues. The local currency was weakened by N0.83 against the dollar, when compared to the N385.50 to a dollar that it traded on Tuesday, June 2, 2020.
The exchange rate at the I&E window is different from the Central Bank of Nigeria’s published exchange rate, which currently stands at N360/$1. This is also different from the exchange rate at the parallel market, which is still stable at N445/$1, according to information on AbokiFX as of Wednesday, June 3, 2020.
Available information from the daily trading at FMDQ (where FX is traded by importers and investors) shows that the naira improved against the dollar by N1.35, closing at N386.33 to a dollar, as against the indicative rate of N387.68 to a dollar that it opened with on Wednesday.
Further analysis of the information from the FMDQ shows that the turnover for the day declined by about 28.3% at $24.64 million. This is against the $34.35 million turnovers that was recorded the previous day.
(READ MORE:Naira appreciates at parallel market)
The foreign exchange market seems to have stabilized at the parallel market, following the reduction in demand for dollars especially by currency speculators, and improved liquidity. The rebound of crude oil prices appears to have eased the concerns of investors over possible devaluation of the naira.
The gap between the CBN official rate and the parallel market rate, also known as the black market, has been greatly reduced as the naira appreciated to N445 to a dollar from N460 to a dollar last week, following CBN’s intervention.
According to data compiled by Bloomberg, the Naira spot market rate is overvalued by 10% when measured by its current real effective exchange rate relative to the 5-year average.
Manufacturing PMI slide into recession territory
This is the first clear data-driven sign that Nigeria is in a recession.
The much-awaited Purchasers Managers Index (PMI) was released on May 29th by the Central Bank of Nigeria. According to the latest data, Manufacturing PMI in the month of May stood at 42.4 index points, indicating contraction in the manufacturing sector for the first time after recording expansion for thirty-six consecutive months.
The figure compares to 51.1 and 49.2 index points in March 2020.
The latest number now falls squarely within recession numbers and this is a clear sign that Nigeria is closer to recording a major contraction in the second quarter of the year.
Meanwhile, the nation’s PMI’s number hit a year low in April 2016 of 43.7, before plummeting further to 41.9 in June 2016. Nigeria subsequently fell into a recession by the end of the second quarter of 2016 and remained in recession throughout the course of the year.
The nation’s non-manufacturing PMI fell for a consecutive month to an all-time low of 25.3. The decline in manufacturing PMI was significant following thirty-six consecutive months of expansion, while the non-Manufacturing PMI contracted for the second consecutive month.
A further look into the report shows that the manufacturing sector employment level index stood at 24.5 points in May, a decline compared to 47.1 points recorded in March and 56.4 points in February 2020.
This downturn is mostly attributed to the halt in economic activity as businesses in Nigeria result in layoffs and pay cuts in order to survive the effect of the lockdown.
Also, all 14 subsectors of the manufacturing sector, reported lower raw material inventories, consequently contracting the inventories index to 37.4 points in May 2020. An effect of the supply chain bottleneck associated with the lockdown measures implemented in most countries of the world.
Specifically, this figure translates the effect of lockdown procedures and trade restrictions implemented by Nigeria’s major trade partners in response to the COVID-19 pandemic. Note that Nigeria’s major trade partners; China, USA, Spain, and the Netherlands account for about 45% of our import.
What you need to know: PMI is a survey that is conducted by the Statistics Department of the Central Bank of Nigeria. The respondents are purchasing and supply executives of manufacturing and non-manufacturing organizations in all 36 states in Nigeria and the Federal Capital Territory (FCT).
In his reaction to the data, the Central Bank Governor, Godwin Emefiele, in the Monetary Policy Communique, highlighted how dire the situation.
He said, “The contraction in the manufacturing and non-manufacturing PMIs was attributed to slower growth in production, new orders, employment level, raw materials, and input prices.
“The employment level index for the manufacturing and non-manufacturing PMIs also contracted further to 25.5 and 32.0 index points, respectively, in May 2020 compared with 47.1 and 47.3 index points in March 2020.
“Generally, the purchasing managers’ activities in May 2020, were largely affected by the lockdown of the global economy to curtail the spread of the COVID-19 pandemic.”
The CBN thereafter reduced its monetary policy rate from 13.5% to 12.5% for the first time since March 2019.
What this means: This survey is a bellwether for economic growth in Nigeria and helps the central bank gauge the mood of businesses in the economy.
PMI above 50 typically indicates a positive mood for the manufacturing and non-manufacturing sectors. Two major causes for concern in the data are the new orders and employment levels.
At 42.8 points, the new orders index declined after thirty-sixth consecutive months of growth, indicating declines in new orders in May 2020. Three subsectors reported growth, 2 remained unchanged while 9 recorded declines in the review month.