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N77trn Debt: IMF warns Nigeria against more foreign loans

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N77trn Debt: IMF warns Nigeria against more foreign loans

 

 

NaijaNews reports that with rates rising globally and investors moving funds out of emerging economies, Nigeria, which plans to fund a large part of its 2023 budget through borrowings, may find it hard to get foreign loans.

 

 

This was stated by the deputy divisional chief of the International Monetary Fund (IMF), Wenjie Chen, during a keynote presentation at the IMF Regional Economic Outlook in Lagos.

 

 

Nigeria is currently grappling with a huge debt overhang of over N77 trillion and the need to increase revenue generation to meet expenditure requirements.

 

 

Nigeria’s total public debt stock hit N46.25 trillion at the end of December 2022, data by the Debt Management Office (DMO) indicates.

 

With N23.77 trillion in ways and means and other planned borrowings to fund the 2023 budget, the debt overhang continues to rise.

 

 

This is even as the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, affirmed that emerging markets are finding it difficult to access foreign loans.

 

 

Chen had noted that borrowing costs, high interest rates, and the increasing value of the dollar have continued to put a strain on Nigeria’s economy and that of its sub-Saharan African counterparts, adding that, due to the uncertainties surrounding the global economic environment, loans from China as well as other advanced economies to Africa have been on the decline.

 

 

The IMF deputy divisional chief stated that, “in terms of the funding squeeze, the three main manifestations that many countries are facing are: the rise in borrowing costs. You can see that virtually all the frontier markets have been shut out of the Eurobond markets since the spring of 2022. What that means is that they cannot raise financing on these international markets.

 

 

“The eurobond market has been a large component of financing for these countries. What this has meant in terms of the global economy’s reaction to the Russia-Ukraine war in terms of rises in price and the cost-of-living crisis has placed very high interest rates.

 

 

“Not only were interest rates rising, but the value of the dollar rose to a 20-year high last year. For many African countries, the cost of servicing these debts has also gone up. Inflation is still a major concern for many African economies. Many countries are still going through recovery after the pandemic.”

 

 

To address the many issues confronting the Nigerian economy, Chen said the IMF’s policy advice to Nigeria is based on four key policy priorities: fiscal policy, monetary policy, exchange rate policy, and structural reforms.

 

 

She said the new emphasis on addressing the current liquidity squeeze should focus on reducing off-budget commitments (extra-budgetary spending, arrears, guarantees, etc.), enhancing debt management, and mobilizing domestic revenue.

 

 

On forex-related challenges, Chen said significant exchange rate pressures in the past year largely reflect global factors such as terms of trade changes and monetary policy normalization. Noting that the scope of forex interventions is limited in many cases by low foreign reserves, she said Nigeria and its counterparts would have to adjust to new fundamentals.

 

 

Also, IMF representative for Nigeria, Ari Aisen, said with the funding squeeze, it would be critical for Nigeria to rely on internally-generated funds, adding that for Nigeria’s economy to react positively to this funding squeeze, the private sector needs good macroeconomic policies to thrive.

 

 

The IMF, he said, remains confident in its earlier projection that Nigeria’s economy will grow by 3.2 percent this year. “In Nigeria, we always believe that growth has the potential to be much higher, but because of the shocks since the pandemic and the food price shock because of the Russia-Ukraine war, the economy managed to grow by three per cent. We are forecasting 3.2 this year.

 

 

“It could be higher. It’s helped by services, which are the main driver of growth on the supply side of the economy. The oil sector has not also contributed as much as it should have, partly because of investments in the sector and partly because of leakages, particularly oil theft. These issues are gradually being addressed, and we are hopeful that it will continue, so we are now projecting 3.2 percent growth,” he said.

 

 

Economic analyst Stephen Kanabe said the warning from the IMF is a cautionary call on the federal government to adjust to a shrinking global economy.

 

 

Kanabe said at a time of such economic meltdown as is currently being experienced, Nigeria needs to look inward, get more innovative, and expand revenue generation sources to brace for the shortfalls.

 

 

“Nigeria has borrowed enough from local and foreign markets. The IMF warning should come to us as a call to look inward and find a way around revenue generation without necessarily causing much stress on Nigerians. We are already overstretched.

 

 

“The government can take the issue of expansion of the tax net seriously, deal with the issue of oil theft, and even sell some of the properties that were forfeited to the Economic and Financial Crimes Commission (EFCC),” Kanabe said.

 

 

Earlier at the third edition of the RT200 Export Summit on Tuesday, CBN governor Godwin Emefiele said there had not been any significantly successful eurobonds in the past year as investors pulled out over $100 billion from emerging markets.

 

 

“Due to the global financial conditions in which we find ourselves today, where rates at the global market rose, we saw almost about $100 billion move from emerging markets back to the United States (US). Rates had gone high, and there had been tremendous difficulty for emerging markets in their ability to source foreign exchange.

 

 

“I am not sure that in the whole of 2022 we saw any significantly successful Eurobonds because of the tight financial market, and that is the reason we continue to appeal that a lot of work still needs to be done here in Nigeria,” Emefiele said.

 

 

Looking at the implications of accumulating foreign loans, the director of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, stated that the implication of Nigeria’s debt profile is the burden of servicing the debt, which has been on the rise, adding that “this means that less resource is available for the development of the economy, investment in infrastructure, and investment in social services.”

 

 

He also said it had a crowding out effect in the financial market for the private sector, saying, “The implication of high debt service is that the level of borrowing will be increasing, and most of the borrowing is done domestically.

 

 

“Also, it creates a visual circle of indebtedness or a debt trap because, as the debt profile is increasing, the burden of debt service is also increasing also. Already, close to 80 percent of our revenue is used to service debt. If the debt continues to increase, that means more of our resources will be used to service debt.”

 

 

According to Yusuf, “this is a challenging situation, and the way out of this is for us to see how we can pursue more rigorous fiscal consolidation. Looking at how we can boost our revenue, the level of revenue coming to the government is extremely low for the size of our economy.

 

 

“We need to do a lot more, and one of the things we can do is unlock more revenue by addressing the issue of subsidy. With this, we should be able to unlock about $7 trillion or more.

 

 

“Also, by putting an end to foreign exchange subsidies, we should be able to unlock some revenue of about N4 trillion, increase oil output, and address the issue of corruption.”

 

 

He explained that “this will enable us to use our money in a transparent and productive manner. We need to check the quality of our spending. This is not only a revenue issue but also an expenditure issue. We need to cut down on the cost of governance.”

 

 

Similarly, the national president and chairman of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), Ide Udeagbala, said, “It is now obvious that the current levels of debt servicing payments are considerably too high and unsustainable given the dwindling government revenues. We call for urgent structural reforms of our economy towards a transformational production economy and effective and efficient management of our debt profile to enhance the productivity level of the country.”

 

 

Udeagbala added that “as the leading member of the organized private sector, NACCIMA strongly advocates once again for less dependence on debt financing and ensures effective implementation of the budget to address the productivity challenges of the economy.”

 

 

He stressed the need for fiscal policies and public expenditure controls at various government levels to keep the nation’s debt profile in check and make available resources to fund other government priority projects.

 

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Dangote Refinery to set up terminal in the Caribbean for export of petroleum products

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Dangote Refinery to set up terminal in the Caribbean for export of petroleum products

Dangote Refinery to set up terminal in the Caribbean for export of petroleum products

Dangote Refinery is planning to set up a terminal in the Caribbean to export petroleum products to countries in the North American region.

Aliko Dangote, the president and CEO of the refinery, made this disclosure on Wednesday at Afreximbank’s Trade and Investment Forum in The Bahamas.

The business mogul said the company can easily supply petroleum products to the region within 18 to 20 days.

According to Africa’s richest man, the company will sign a bilateral agreement with the region to construct the terminal for the exportation of its petroleum products.

“I know the price in the Caribbean in terms of petroleum products is very high. We produce it cheaply. We can always bring it here. We can set up a terminal and we’ll be able to fix their needs.

“We will have a bilateral agreement with them and also bringing in stuff from there is not more than 18 to 20 days maximum. And then we need to set up a terminal.

“Once we set up a terminal, they will have a very cheap oil. They will have cheap energy. And by having cheap energy, their own economy will grow faster,” Dangote said.

Dangote to also export Cement to the Region
In addition, the CEO of the $20 billion refinery mentioned that the conglomerate is not only seeking to invest in petroleum products in the region but also in cement.

Dangote stated that the company’s cement production capacity is nearly 52 million tons and will increase to about 62 million tons by the end of next year.

He added that the firm can meet the demand of the Caribbean market, creating a win-win situation for both parties.

“It’s not only about the oil. We now have a capacity of almost 52 million cement capacity. By the end of next year, we will be at 62 million of cement capacity. We are not only saying that we can bring in from Nigeria or from Africa.

“If they have limestones, we can also produce what can satisfy them. We’ve done that before in Africa and we should be able to free them up from the shackles of other people.

“If we the ingredients like the limestones etc, it’s a 28 months maximum. They can all be self-sufficient. It will be a win-win between us and them,” Dangote said.

What you should know
The Dangote refinery with a 650,000 barrel refining capacity has been described as the “game changer” of the oil and gas sector.
The refinery will be the largest in Africa and Europe once it begins full operation later next year.
According to reports, the $20 billion petroleum facility is expected to disrupt the $17 billion Africa-European market and reduce the continent’s dependence on imported petroleum products from Europe.
In addition, Dangote stated that the company is also eyeing the Brazilian market and other North American countries to supply refined products from the refinery.
“Our capacity is too big for Nigeria. It will be able to supply West Africa, Central Africa and also Southern Africa,” Dangote said in a panel discussion in Rwanda a few weeks ago.

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Dangote Refinery Mulls Lagos, London Stock Exchange Listings

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Dangote Refinery to set up terminal in the Caribbean for export of petroleum products

Dangote Refinery Mulls Lagos, London Stock Exchange Listings

The Dangote refinery is aiming for a dual listing on the London and Lagos bourses, a senior executive at the firm, Devakumar Edwin, has told Reuters.

Africa’s richest man and Chairman of the group, Aliko Dangote was earlier on Tuesday, quoted as saying he could try to list the company in Nigeria by the end of the year.

It is coming about six months after Dangote, also told the Financial Times of his intentions to publicly list the subsidiary of the Group, Dangote Petroleum Refinery on the Nigerian Exchange Limited.

At the time, Dangote stated that the company had resolved challenges about crude oil supply and was prepared for the listing.

The billionaire businessman already has some companies listed on the NGX, including Dangote Cement, Dangote Sugar Refinery and Nascon Allied Industries.

The refinery managers said there was need to approach the London Exchange because the Nigerian bourse may not have the capacity to handle it exclusively.

Asked to comment on Dangote’s statement to local media, Edwin told Reuters: “We have listed all our businesses. The NSE (Nigerian Stock Exchange) will not have adequate depth to handle exclusively the petroleum refinery. We would have to take it to LSE (London Stock Exchange) but also list in NSE.”

The refinery, Africa’s largest, built on a peninsula on the outskirts of the commercial capital Lagos at a cost of $20 billion, was completed after several years of delay.

It can refine up to 650,000 barrels per day (bpd) and will be the largest in Africa and Europe when it reaches full capacity this year or next.

Dangote has been trying to secure crude supplies for his refinery. He has interests in Dangote Cement, Dangote Flour Mills and Dangote Sugar, all listed on the Nigerian bourse.

In May, the company reached its first supply deal with TotalEnergies, after it put out a tender for 2 million barrels of West Texas Intermediate (WTI) Midland crude every month for a year starting in July, according to tender documents.

The company since earlier in the year, has been refining diesel, jet fuel and other petroleum products and is expected to begin the production of petrol in June.

Meanwhile, the Nigerian National Petroleum Company Limited (NNPC) has said it recorded 310 cases of crude oil theft in the past week.

In its weekly update on the activities of the national oil company, the NNPC said that the cases were discovered between May 18 and May 24.

“Between May 18 and 24, 310 cases were recorded across the Niger Delta region by several incidence sources,” the NNPC stated.

In Grey Creek, Akwa Ibom state, it said a fuel station selling illegally refined fuels into cans and drums was uncovered in the past week, revealing that 122 illegal refineries were also uncovered in Bayelsa and Rivers states

According to the company, they were spotted in Tombia II, III, IV, and Umuajuloke, in Rivers state; Iduwini, Biogbolo, and Ajatiton, in Bayelsa state, while 65 illegal connections were discovered across several locations in Akuwa Odoka, Umuajuloke, and Watson Point, also in Rivers state as well as along Soku Sand Barth pipeline in the state.

It added that vandalised wellheads were discovered in Tombia IIII in Rivers state and Egbema in Imo state, where a pit filled with crude oil from a vandalised wellhead was discovered.

In Ndoni, Rivers state, NNPC said it uncovered a vandalised pipeline channelled to a nearby oil pit, while five illegal storage sites were spotted in sacks, pits, cans, and in a fuel station.

The NNPC stated that 20 vehicle arrests were made in Delta and Imo states while 48 infractions were reported at sea. Also, 39 wooden boats conveying stolen crude or illegally refined products were seized and confiscated across several creeks in Bayelsa and Delta states, it said.

NNPC said 48 of the incidents occurred in the deep blue water, 40 in the western region, 134 in the central region, and 88 in the eastern region.

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Tinubu approves $100m investment in African Energy Bank

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Tinubu approves $100m investment in African Energy Bank

Tinubu approves $100m investment in African Energy Bank

President Bola Tinubu has approved a $100m investment by Nigeria for class A shares in the proposed African Energy Bank, the Federal Ministry of Petroleum Resources announced on Friday.

It said the approval now positions Nigeria favorably to win the bid to host the multilateral $5bn Africa Energy Bank, which will finance Africa’s hydrocarbon deposits of oil, gas, and condensates and support energy transition and net zero 2060 commitments.

Announcing this in a statement signed by the Permanent Secretary, FMPR, Nicholas Ella, the ministry said, “President Bola Tinubu has approved a $100m investment from four agencies of the Ministry of Petroleum Resources, exceeding the minimum equity requirement of $83.33m for class A shares.

“This decision positions Nigeria favorably to win the bid, potentially reshaping the country’s oil and gas ecosystem.”

The ministry further stated that on Friday, the technical inspection team from the African Petroleum Producers Organisation, and Afrexim Bank – the joint promoters for the establishment of the African Energy Bank, completed their mission to validate Nigeria’s readiness to host the headquarters of the bank, set to be established in July 2024.

Following the first bidding round in early 2024, Nigeria, Ghana, Benin, and Algeria were pre-qualified to proceed to the final round of bidding.

These countries will compete for the right to host the supranational multilateral $5bn Africa Energy Bank.

“In our preparation for the bid, the Ministry of Petroleum Resources sought and obtained expert opinions from the Federal Ministry of Justice and consultants in January 2024,” the FMPR stated.

It added, “They reviewed and approved the bank’s proposed Charter, Establishment Agreement, ‘The Treaty,’ and Headquarters Host Agreement. This approval provided the impetus to proceed, and the Federal Executive Council and National Assembly are currently finalising the ratification process. This will ensure that the AEB receives the necessary privileges and immunities to operate in line with its global vision.

“To demonstrate the country’s commitment, Nigeria has identified a prestigious building in Abuja for the temporary headquarters and opened a secured data room for the technical team’s review. The application form for land for the permanent headquarters in the Central Business District of Abuja has been submitted for approval.”

The ministry also confirmed that the Federal Government was working diligently with Nigerian National Petroleum Company Limited, and the Nigerian Content Development Monitoring Board, to meet all eligibility criteria.

“Thus, the $5bn Africa Energy Bank, when headquartered in Nigeria, shall be the largest single foreign direct investment inflow into Nigeria in over two decades with its benefits including:

“The Africa Energy Bank ecosystem shall rank as the third largest bank in Africa and shall be the most prominent bank in Nigeria in terms of shareholders’ funds. It will significantly boost Nigeria’s Gross Domestic Product, employment, financial architecture, inclusion, and propel our economic diversification while supporting foreign exchange management strategies,” the ministry stated.

It said the bank would pivot the development exploration and investment initiatives by independent petroleum producers, commercial service providers, legal and local content drivers, and technology and skills development that would leverage the bank’s proximity to the market and scale up production and capacity.

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