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Economy & Politics

COVID-19 could save naira from depreciating further

The global spread of COVID-19 and fear of another surge later in the year could limit travel plans for dollar-hungry Nigerians, easing pressure on the already troubled naira.

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COVID-19 could save naira from depreciating further, Many odds against the naira, Naira forwards and parallel market crash puts pressure on official exchange rate, Naira appreciates to N386.94 to $1 at investor and exporters window. , Naira set for recovery as ABCON issues guideline to members for forex sales resumption, Naira falls against the Euro, British pound sterling but gains against the U.S dollar

The Nigerian economy is melting away from the combined pressure of the COVID-19 pandemic and the fall in crude oil prices. It is barely one month since the heat started and we have seen one round of naira devaluation, a spike in consumer good prices and a dent in government revenues. Ironically, things could get better.

In a rather twist of fate, the global spread of the virus and a fear for another surge later in the year could limit travel plans for dollar hungry Nigerians easing pressure on the already troubled naira.

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Reports from several health research organizations predict there could be another wave of Coronavirus contagion even as reported cases subside in some of the hardest-hit countries. This suggests travel restrictions could remain for the foreseeable future.

What the data says

Data from the Central Bank of Nigeria (CBN) statistical bulletin reveals Nigerians spent a whopping $12 billion on personal and business travel allowances in 2019, higher than the $7.6 billion spent in 2018. Nigerians also spent another $6 billion on education-related expenditure during the year. Nigeria’s dollar demand is mostly from the services sector accounting for a total of $33.7 billion in 2019, compared to $26 billion in 2018. This demand could fizzle away if prediction from health experts come through, even as the world gears up for another contagious economic crisis.

The irony

This could thus present a surprise boost for Nigeria, as the lack of demand could help cushion the impact of the crash in oil prices, which has severely dented the government’s revenue earnings. With the exchange rate already devalued, economists expect a significant rise in inflation rate further denting the purchasing power of consumers.

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[READ MORE: Naira under pressure, as crude oil hits $21 per barrel)

A recent bit of irony has already been experienced after the government twice reduced the price of petrol as global crude oil prices crashed and demand for oil plummeted due to COVID-19.

 

Why it’s possible

A recent report by Mckinsey on the impact of COVID-19 on the Nigerian economy also reveals consumer demand will be weakened by “reduced household and business consumption due to restricted movement, travel ban, and the knock-on effects of reduced government expenditure.”

The report also opines that the “Reduction in number of people travelling because of health concerns” will resort in weaker consumer expenditure.

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Job losses are also likely to rise in the coming weeks and months as employers stare at another round of weak economic growth that could once again lead to another recession or worse still, stagflation.

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Stagflation is when a country is witnessing weak economic growth yet inflation is rising. Nigeria faced this situation in 2016 when it fell into a recession. Mckinsey also weighed in on job losses. “Actual (and expected) health costs and job losses could lead to deep cuts in discretionary spending and trade downs in non-discretionary spending.”

Another critical factor that could go the way of the naira is the huge supply chain disruptions expected to subsist over the next few months and post-Coronavirus pandemic. Importers have complained bitterly of a major disruption to their supply chains as they cannot import critical goods and inputs required for local manufacturing and assemblage. This bit of a problem could also impact on the demand for the dollar helping the central bank to hold on to its reserves.

The elephant in the rooms still remains; with foreign investors yet to sell-off their entire holdings of debt and equity securities, there could still be downward pressure on the exchange rate. Nigeria’s central bank governor will surely welcome this pressure if it is the only one, he has to deal with in this trying times.

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.

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Economy & Politics

Output cut: Nigeria leads in OPEC non-compliance with 50 unsold cargoes of crude

Nigeria and Iraq were reported not to have kept to their commitment to the huge production cut deal that had promised to reduce output by 9.7 million barrels of crude oil per day.

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As opinions continue to differ on whether OPEC will extend its current oil output cut beyond June, available information has shown that not all members of the oil cartel complied fully with their agreed quotas for the month of May. This is despite the fact that the oil output by OPEC member countries reached its lowest in almost 20 years.

Available data from oilprice.com showed that OPEC members cut their output by 5.91 million barrels per day from the April level, producing 24.77 million barrels per day. This figure also showed a 4.48 million barrel per day of the agreed output cut, thereby representing a 74% compliance level.

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Nigeria and Iraq were reported not to have kept to their commitment to the huge production cut deal that had promised to reduce output by 9.7 million barrels of crude oil per day.

Iraq was able to achieve just 38% compliance of its agreed output cut for the month of May, while Nigeria, which achieved a much lower compliance of the agreed output cut, recorded 19% compliance of what was agreed. Saudi Arabia showed the highest compliance, recording 96% of the agreed output cut.

Some have attributed the noncompliance of some members of OPEC to the agreed output cut, to the contractual obligations and commitment to buyers, given the short timeframe between when the agreement for the output cut was made and its implementation.

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Meanwhile oil exports from Angola and Congo remained steady at high prices on Friday, while Nigerian oil fared lower amid huge inventory of unsold cargoes.

Nigeria continues to face some difficulty in the oil market, primarily due to sluggish demand from Europe; it has around 50 unsold cargoes of crude oil yet to be sold for the months of June and July.

Meanwhile, India has become one of the few buyers for the Nigerian oil. Indian oil firms bought about 5-6 million barrels of Nigerian crude oil last week and has bought about 2 million barrels as at Thursday this week.

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Business News

President Muhammadu Buhari reshuffles NNPC’s board of directors

Note that the former board included the late Chief of Staff to the President, Abba Kyari as a member. Stakeholders have since expected the President to reconstitute a new board to take over.

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President Muhammadu Buhari to address Nigerians on Monday, receives update and recommendations from PTF

President Muhammadu Buhari has approved the reconstitution of the board of the Nigerian National Petroleum Corporation (NNPC) after the expiration of the tenure of the current board.

The newly constituted board members are expected to serve for a tenure of three years, effective immediately. They will take over from the last board, whose 3-year tenure officially ended in 2019. Information about this development is contained in a State House press release that was published on the official twitter handle of the Nigerian Presidency on Saturday morning.

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READ ALSO: CBN and NIPOST open pilot microfinance branches

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The newly constituted NNPC board is made up of six members from each of the geo-political zones in the country. The members include the following individuals:

  • Mallam Mohammed Lawal, representing the North West
  • Dr Tajudeen Umar from North East
  • Adamu Mahmood  Attah from North Central
  • Senator Magnus Abe from the South-South
  • Dr Stephen Dike from the South East, and
  • Chief Pius Akinyelure from the South West geo-political

READ MORE: Boko Haram: A protracted battle yet to be won?  

Of the six members, three are returning members on the board – Chief Pius Akinyelure, Mallam Mohammed Lawal, and Dr Tajudeen Umar from North East.

Note that the constitution of the new board is considered a welcome development, as it balances the representation of the six geo-political zones on the board. The previous constitution of the board was faulted for not being “balanced”.

READ ALSO: Full text of President Muhammadu Buhari’s 58th Independence day broadcast

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Note that the former board included the late Chief of Staff to the President, Abba Kyari as a member. Stakeholders have since expected the President to reconstitute a new board to take over.

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Coronavirus

CBN extends timeframe for submission of banks’ audited financial statements

“Therefore, the deadline for submission has been extended by three months. For the avoidance of doubt, all Other Financial Institutions are required to submit the 2019 Audited Financial Statements on or before July 31, 2020.”

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In recognition of the effect of the economic lockdown across major cities in the country due to the Coronavirus pandemic, the Central Bank of Nigeria (CBN), has announced the extension of the timeframe for the submission of 2019 audited financial statements of banks and other financial institutions (OFIs).

This was disclosed in a letter to OFIs that was signed by CBN’s Director of Other Financial Institutions Supervision Department, Nkiru Asiegbu, as seen by Nairametrics.

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READ ALSO: CBN announces new policy measures, reduces interest rates for financial institutions

In the letter, which was dated April 30th, 2020, the CBN extended the timeframe for submission of its audited financial statement by 3 months to July 31st, 2020, as against the initial timeframe of April 31st, 2020.

The decision by the apex bank is in recognition of the fact that the lockdown of most of the cities in the country and movement restrictions have seriously affected the operations of the external auditors and all other financial institutions across the country. Part of the letter said:

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Pursuant to the provisions of section 27 (1) (a) of BOFIA, all the banks and OFIs are required to forward the audited financial statements of each financial year to the CBN for approval before the end of the fourth month following the year to which they relate. Accordingly, the 2019 Audited Financial Statements should have reached the CBN on or before April 30, 2020.

“However, we have observed that the lockdown of most cities in the country due to the coronavirus pandemic has restricted the engagement of External Auditors and the daily operations of all OFIs across the country.

“Therefore, the deadline for submission has been extended by three months. For the avoidance of doubt, all Other Financial Institutions are required to submit the 2019 Audited Financial Statements on or before July 31, 2020.”

The CBN also threatened to sanction defaulters as they would monitor the compliance to the extended date.

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