Nigeria’s Global Export Shrinks on Oil Prices Decline

MD, Financial Derivatives, Bismarck Rewane

The sharp fall in crude oil prices last month affected Nigeria’s share of world export as it fell to 0.58 per cent from 0.63 per cent.
Managing Director/Chief Executive Officer, Financial Derivative Company Limited (FDC), Bismarck Rewane, disclosed this in his “Monthly Economic News and Views,” presented at the Lagos Business School’s executive breakfast meeting, a copy of which was made available to THISDAY at the weekend.

According to the economist, the fall in oil price last month, widened the budget deficit above three per cent of Gross Domestic Product (GDP).

He also revealed that whereas China controlled 17.5 per cent of Nigeria’s import in the month under review, United States had a share of  9.1 per cent and importation from India was 4.7 per cent.

World Bank’s Country Manager for Uganda, Mr. Ahmadou Moustapha Ndiaye, had said with Nigeria and other African economies heavily dependent on oil and other commodities, price volatilities would continue to affect their revenue projections and growth.

He had urged policy makers and governments to diversify their source of revenue.

Continuing, Rewane said: “The appreciation of the U.S Dollar is forcing a gradual slide in Nigeria’s terms of trade. The correlation between oil price and forex revenue remains positive, holding production constant.  The economy is highly vulnerable to oil price shocks as $1 decline in oil price has 0.8 per cent impact on revenue.

“If oil price averaged $90 per barrel in July, total revenue will be $2.47 billion from $3.24 billion in April when prices were $118 per barrel. If oil price falls to $90 per barrel, external reserves should decline to $29.98 billion from current level of $36.572 (as at July 5).”

The FDC boss added that oil price declined by five per cent in June, pointing out that as at last month, the year-to-date drop in the value of the Bonny Light was 29 per cent or $35 from its peak of $130 per barrel.

He maintained that the country’s fiscal balance was being threatened by potential decline in revenue and an inelastic expenditure profile, adding that N2.1trillion had so far been spent on fuel subsidy. The amount represented 47 per cent of 2012 budget.

Rewane restated that the subsidy payment was “clearly an unsustainable item” in the budget.

“The impact on revenue for Nigeria is magnified.  In April oil revenue declined 7.1 per cent to $4.72 billon. Net inflow of forex also dropped sharply to $1.49 billion. With naira under speculative attack, forex sales for June were up to $2.75 billion. The United States dollar has gained over 5.97 per cent against the basket of world currencies in the last quarter,” he added.

Naira Gains as Appetite for Forex Declines

The naira appreciated against the United States dollar at both the interbank and  Wholesale Dutch Auction System (WDAS) segments of the forex market last week. This was attributed to the drop in the demand for the greenback at the two segments of the market.

Specifically, at the interbank, the local currency garnered N2.32 to close at N160.80 to a dollar on Friday, compared with the N163.12 to a dollar it stood the preceding Friday.

Similarly, at the WDAS, the naira climbed marginally by 4 kobo to close at N155.90 to a dollar at the end of last Wednesday’s auction, as against the N155.94 to a dollar it was the preceding Wednesday. As a result of the drop in demand, the Central Bank of Nigeria (CBN), last week reduced its supply of the greenback to a total of $601 million last week, as against the $700 million offered the preceding week.

NIBOR Movement
The Nigeria Interbank Offered Rates (NIBOR) climbed slightly to an average of 16.45 per cent on Friday as against the 16.31 per cent it attained the preceding Friday due to cash shortage in the system.

For instance, data made available by the Financial Dealers Association (FMDA), showed that while the overnight tenor climbed to 15.58 per cent on Friday, from 15.08 per cent the preceding Friday, the 7-day tenor stood at 16 per cent on Friday, from 15.58 per cent the preceding Friday.

In the same vein, just as the 30-day tenor jumped to 16.17 per cent as at last Friday, from 16.04 per cent the preceding Friday, the 60-day tenor also increased to 16.50 per cent from 16.37 per cent.

The injection of funds from the federation account the preceding week had lowered the cost of funds among commercial banks.

Dollar Supply to BDCs
In line with its resolve to continue to monitor the flow of forex in the country, the CBN last week cut the amount of dollar supply to bureaux de change (BDC) operators by 33.3 per cent to $50,000 for each firm per week. The volume of forex supplied to the BDCs previously, used to be $75,000 for each operator per week.

The CBN had insisted that the policy would become effective from July 9, 2012. The banking sector regulator had disclosed this in a circular with reference number: “TED/FEM/FPC/GEN/01/017,” addressed to all dealers and BDC operators.

Debt Ceiling
The House of Representatives last week considered gave a 90-day ultimatum to President Goodluck Jonathan to set a debt ceiling for the country.

The lower chamber had warned that it would no longer attend to executive bills if at the expiration of the deadline, Jonathan failed to announce a debt ceiling for the country in compliance with the Fiscal Responsibility Act (FRA).

Minority Leader of the House, Hon. Femi Gbajabiamila (Lagos/ACN), had recalled that three months ago- that is, April-  the House had passed a similar resolution, which the executive arm of government ignored. Gbajabiamila had said the matter was not a mere motion but an attempt by the House to ensure that the executive complied with the FRA.

He had also argued that it had become necessary for the legislature to employ some retaliatory tactics to ensure that the executive complied with the laws and directive of the National Assembly.

PoS Merchants and Clearing
Point of Sales (PoS) merchants in the country last week called on the Nigerian Interbank Settlement Scheme (NIBSS) to move from transaction day plus one clearing day currently in place to same-day clearing process to enable the cashless policy of the Central Bank of Nigeria (CBN) work effectively.

The merchants had said the delay in having transactions cleared was frustrating their efforts at selling the policy to the ordinary man on the street, which were yet to embrace the policy.

One of the merchants, Mr. Francis Okeke of Bahali Stores, had decried the slow start of the cashless policy and blamed it on the attitude of the uneducated who more in number than the enlightened ones willing to use cards for transactions.

He had also called on telecommunications firms to put in more effort to transform the poor network situation that most users of PoS were complaining about.

“We are not able to use the device as often as we want because of network problems. Also people find it difficult to operate the PoS device because there are several menus on it that are hard for even the educated customers to operate,” he had said.

Currency in Circulation
The CBN last week said the total value of currency-in circulation fell slightly by 0.7 per cent to N1.422 trillion as at April this year, as against the N1.412 trillion it was the previous month.

The apex bank had said the development reflected, wholly, the 2.7 per cent decline in currency outside banks. It had also showed that relative to end-December 2011, currency in circulation fell by 9.2 per cent.

It had added: “Total deposits at the CBN amounted to N5.986 trillion, indicating an increase of 7.1 per cent above the level at the end of the preceding month. The development reflected, largely, the increases in all its components, namely Deposit Money Banks (DMBs), “others” and federal government deposits.

“Of the total deposits, the percentage shares of the federal government, banks and “others” were 69.7, 19.5 and 10.8 per cent, respectively, compared with 70, 20 and 10 per cent in the preceding month.”

2013 Budget
The Federal Ministry of Finance and the Budget Office of the Federation (BOF) last week disclosed plans to engage the general public, particularly the Organised Private Sector (OPS) and civil society groups in order to securing their input in the preparation of the 2013 federal budget.

To this end, an event tagged: “Budget 2013 Consultative Forum”, is to be hosted by the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, in Lagos and Abuja this week.

BOF Director-General, Dr. Bright Okogu, had said the consultative session was part of the work needed to ensure compliance with President Goodluck Jonathan’s directive that the 2013 budget should be ready for submission to the National Assembly by September, 2012.

Okogu had added that his office was open to views, opinion and relevant contributions from all stakeholders that would enhance the quality of the budget. He had also said  the forum was in line with the provision of the Fiscal Responsibility Act 2007.

Fuel Subsidy Probe Report
President Goodluck Ebele Jonathan last week established a presidential committee to verify and reconcile the findings of the technical committee set up by the Federal Ministry of Finance to conduct a detailed review of all subsidy claims and payments made in 2011.

The 15-member committee, headed by the Managing Director, Access Bank Plc, Mr. Aigboje Aig-Imoukhuede, is expected to turn in its report by July 13. Providing clarification into the establishment of yet another committee on the management of the subsidy scheme, presidency sources had informed THISDAY that since the president received the report of the technical committee set up by the finance ministry, he had studied it and its recommendations.

Treasury Bills Yields
The anticipated growth in lending by banks is being inhibited by high yields or returns they realise from treasury bills in the market, analysts at Renaissance Capital (RenCap) said last week.

RenCap had pointed out that commercial banks have become risk averse, thus showing a preference for investment in fixed income securities such as treasury bills.

The financial advisory firm had reviewed downward, its forecast of between 25 to 30 per cent banking sector loan book growth, to between 15 and 20 per cent. It listed Access Bank Plc, First Bank of Nigeria Plc, Guaranty Trust Bank Plc (GTB), United Bank for Africa (UBA) Plc and Zenith Bank Plc as the ‘big five’. According to the report, increasing competition for blue-chip corporate account from the tier 2 banks was also affecting the loan book growth of the top five banks