Diversification of Nigeria’s economy is believed to be the only viable way to survive the current environment of global economic uncertainty with the volatility of oil prices.
It certainly presents an opportunity for the most competitive and strategic option for Nigeria in light of her current developmental challenges. It can only diversify the economy through digital economy, manufacturing and agriculture. Manufacturing actually creates a lot of jobs, creates middle class and also transforms the society. These are areas we need to really focus on.
Nigeria has a readily available market because of its huge population but there is need for government to remove factors that have continued to constrain the manufacturing sector.
In addition, the drop in crude oil prices has lowered the expected open market price of imported petrol below the official pump price of N145 per litre. The outbreak of the deadly coronavirus and its spread across the world has forced the international oil market to a near standstill, leaving crude oil price to crash from around $60 per barrel to about $29.
The drastic fall in the price reduced the expected pump price of petrol to N64.32.
Despite the development, the ex-depot price stood at N125.63 per litre, while government’s approved retail price hovers between N135.00 and N145.00 under a subsidy scheme. The PPPRA disclosed that the country currently has about 2,217,972,763 litres of PMS in stock, expected to last for 39 days in the face of the growing concern as businesses close down across the world over the coronavirus pandemic, there are indications that the Federal Government could save the N450 billion that was budgeted for subsidy in 2020.
Following the fall in the world demand for crude oil and crude oil prices, the OPEC+ meeting and negotiations to cut oil production fell through and spurred a race for market share between Russia and Saudi Arabia.
The refusal of Russia to cut oil production spurred Saudi Arabia to boost production to about 12.3 million barrels per day starting from April 1. Russia, in retaliation, increased its output by 500,000 barrels per day. This disagreement pushed oil prices down by the most, since 1991.
The tit for tat jostle caused a fall in Brent crude by more than 20% on March 9 and led to the biggest one-day calamity of the US Stock Market.
For China, the incidence of coronavirus slashed their oil demand by more than 20% last month, leading to excess crude oil in the global market begging for prospective buyers, and then, a crash in the oil price.
Nigeria could see its economy collapse, while all offshore production would be loss-making if oil prices remain suppressed into the teens over the long term. The nation’s foreign exchange reserves declined from $45 billion recorded in June 2019 to $36.2 billion in March 2020. As oil price continues to decline, so does the nation’s reserves. Nigeria’s main source of funds is crude oil.
High importation, capital flight, and weak capital importation are some of the challenges hurting Nigeria’s liquidity.
Inflation rate rose to 12.13% in January, eroding consumer spending, retail sales and household income despite a high unemployment rate of 23.1% or 20.9 million unemployed people.
With the foreign reserves fast declining, credit agencies downgrading the nation’s credit rating and global growth projected to slow down in 2020, the nation would struggle to sell its Eurobond scheduled for September as it did in 2018 when it sold $2.86 billion at a period when crude oil was averaging $70 per barrel.
BREAKING: CBN reduces MPR to 12.50%, holds other metrics
Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50% and retains CRR at 27.5%, Liquidity ratio at 30%.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50%.
Governor, CBN, Godwin Emefiele, disclosed this while reading the communique at the end of the MPC meeting on Thursday in Abuja. Meanwhile, other parameters such as the Cash Reserve Ratio (CRR) remained at 27.5%, Liquidity ratio at 30%.
Details later …
Just in: Buhari seeks approval from green chamber to borrow fresh $5.5billion
Buhari, is also seeking the approval for the revised 2020-2022 mid-term expenditure framework (MTEF) which became necessary as a result of the crash in crude oil prices and the cut in the production output.
President Muhammadu Buhari is seeking the approval of the House of Representatives to borrow fund to finance capital projects at the federal and state (to support state governors) levels in the 2020 budget.
This request was disclosed via the official twitter handle of the House of Representatives.
The president’s letter, which indicated that the fund would be sourced locally and internationally, was read on the floor of the House of Representatives by the Speaker, Femi Gbajabiamila, during plenary on Thursday, May 28, 2020.
In the letter to the lower chamber, Buhari, is also seeking the approval for the revised 2020-2022 mid-term expenditure framework (MTEF) which became necessary as a result of the crash in crude oil prices and the cut in the production output.
Although the tweet did not contain the total amount of loan that is being requested, reports suggests that the President is seeking approval to borrow the sum of $5.513 billion from external sources to finance 2020 budget deficit and support state governments to meet challenges caused by the coronavirus pandemic.
President @Mbuhari is also seeking the House approval to borrow locally & internationally to finance capital projects as well as finance projects to support state governors in the 2020 budget
The letter was referred to the House Committee on loans & debt management. #HousePlenary
— House of Reps NGR (@HouseNGR) May 28, 2020
CBN’s MPC unlikely to cut rates, as Nigeria’s foreign reserves hit $36.16 billion
Note that Nigeria’s inflation could potentially rise to 14% by the end of the year due to a higher VAT and a weakened naira.
The CBN’s Monetary Policy Committee (MPC) is expected to leave the interest rate of 13.5% unchanged during its meeting later today.
The projection is coming on the heels of macroeconomic fundamentals released by the National Bureau of Statistics (NBS), which showed that inflation rose to 12.34%; its seventh consecutive monthly rise and highest level since April 2018.
Note that Nigeria’s inflation could potentially rise to 14% by the end of the year due to a higher VAT and a weakened naira. Therefore, in order to minimise the risk of exacerbating inflationary pressures, the CBN is unlikely to further cut rates. This possible outcome from the MPC meeting will help stimulate economic growth, just like it did in 2019.
Meanwhile, despite the foreign exchange liquidity crisis being experienced in the currency spot market, data obtained from CBN revealed that the country’s foreign exchange reserves have further increased to $36.16 billion (Gross Estimate) as of 28th of May, 2020.
The surge in Nigeria’s external reserves is due to the fact that the price of crude had gained more than 40% since the deadly COVID-19 pandemic started, coupled with reports that foreign investors are returning to Nigeria. The disbursement of $3.4 billion emergency facility by the International Monetary Fund (IMF) to CBN has also been a contributing factor.
Recall that the CBN Governor, Godwin Emefiele, had promised more liquidity in the currency market, assuring that all genuine dollar demands would be met.
However, an Interest rate expert, Ola Oladele, during a phone chat with Nairametrics, advised that the CBN should keep its word by boosting Nigeria’s Forex supply as the persistent downtrend in the currency black market continues. She said:
“The depreciation of the naira in the parallel market as a result of low supply of FX from official sources and less optimistic outlook on the economy due to falling oil prices.
“The BDCs haven’t received supply from official sources since our borders were closed and the crash in oil prices has made natural sellers of FX more cautious.
“We hope that the recent statements by the regulator will restore confidence and subsequently, supply to the market.”