CBN to stop forex sales to banks not issuing LCs

Henceforth, any bank in Nigeria that deliberately refuses to issue Letters of Credit (LCs) to manufacturers would be denied access to the official foreign exchange window.

The Central Bank of Nigeria (CBN), at an emergency meeting of the Bankers’ Committee, took this decision last Monday in Lagos.

The Bankers’ Committee is an association of Chief Executive Officers (CEOs) of banks, discount houses, the CBN and other financial institutions such as the Nigeria Deposit Insurance Corporation (NDIC), which meets bi-monthly to discuss the state of affairs of the industry.

At the emergency meet-ing, which was called last Sunday by the CBN governor, Godwin Emefiele, he was said to have registered his displeasure over the rate at which lenders were refusing to open LCs for their customers, particularly manufacturers. But some bankers said the acute forex scarcity in the system had forced them to stop opening LCs.

A letter of credit is a document issued by a bank to another bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

A top official of a first tier bank, who spoke on condition of anonymity, said that the lender stopped opening new LCs because it had a huge backlog of LCs that it had not been able to process due to the forex scarcity.

He said: “There is just no forex in the system. We already have a huge backlog of LCs that we cannot process because forex is not easily available, so there is no point opening new LCs when the forex situation is becoming more difficult.”

He said that the CBN had not been able to meet all legitimate forex demands despite the dwindling external reserves, which stood at $27.143 billion as at March 1st, 2016.

The Federal Government is shielding the naira after the 42 per cent decline in the price of crude in the past year has decimated Nigeria’s revenues.

The naira has been pegged at N197-199 per dollar since March last year, while in the unofficial parallel market, otherwise known as the parallel market, the naira is some 43 per cent weaker, and traded at about N320 per dollar last Friday.

With far fewer dollars circulating in the country, the lenders are struggling to access enough foreign exchange to facilitate imports, settle accounts with correspondent banks, keep up with customers’ use of credit cards internationally and meet maturing debt obligations, according to Adesoji Solanke, Renaissance Capital’s head of research in Nigeria in a recent report.
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Moody’s Investors Service said in a recent report that with 24 per cent of banks’ loans to oil and gas companies and rising credit costs, banks face lower profits in the next 12 months to 18 months.

“It will become increasingly difficult to source enough forex to service debt repayments and a default will trigger a banking crisis,” said Robert Besseling, a Johannesburg-based executive director at business risk consultancy Exx Africa.

“If a default is going to happen, it will probably happen this year. It only takes one bank to hit the wall to create panic.

“Nigeria remains Africa’s most populous country and its biggest economy. Even though its growth has slowed, the economy may expand 3.2 per cent this year and 4.9 per cent in 2017 if the government prioritizes infrastructure investment, the International Monetary Fund (IMF) said penultimate Wednesday.

“Investors may be reconsidering their presence in Nigeria, but those with a longer-term view won’t withdraw completely, Besseling,” said.

“Looking from the outside, it’s a highly underpenetrated market and valuations on assets like the banks are pitiful – they’re so cheap you could buy them without having to get board approval,” Gadhia said.

“But it boils down to a need for clarity. So far, President Buhari seems to have ad-hoc policies and you would need a lot more clarity before investors gain confidence again.”

Also, in a chat with this newspaper, financial analyst and Principal Consultant, Henates & Associates, Mr. Henry Atenaga, said while it is obvious that the country is passing through tough times, banks have to adequately account for the utilisation of forex purchased from the CBN for industry watchers to believe that they cannot meet legitimate demands for dollars.

He said: “It is quite possible that given importers’ current desperation to obtain foreign exchange, they will want to open as many LCs as possible.

The fact is that if the CBN had not introduced forex restrictions, by now there will be no dollars to sell to anybody.”

The IMF had called on Nigeria to stop pegging its currency and to remove curbs on access to foreign exchange.

To try and conserve declining reserves and boost local manufacturing, the CBN last year imposed restrictions on access to foreign currency, but businesses dependent on imports suffered and foreign portfolio inflows waned.

Adding to the pain is inflation at 9.6 per cent in January, which is above the banking watchdog’s 6-9 per cent target range As part of measures to check sharp practices in the forex market, the CBN directed banks to start publishing their returns on the utilisation of forex exchange purchased in the newspapers.

Africa's richest man Aliko Dangote, eyes Morocco phosphate deal, rice production

Dangote Group, the company owned by Africa's richest man Aliko Dangote, said on Monday it plans to buy phosphate from Morocco and potash from Congo-Brazzaville to feed a planned fertilizer plant.

Dangote has raised a $3.3 billion loan to develop a $9 billion oil refinery and petrochemical complex in Nigeria, Africa's biggest economy and top oil producer. The group has invested $3.5 billion of its own equity.

Dangote told a business forum in Lagos his firm was close to sign a deal with a Moroccan firm to supply phosphate, without giving details.

He also said his planned oil refinery would have a capacity of 650,000 barrels a day, up from an initial plan of 400,000 bpd.

"We can actually build ... 30 percent cheaper than previously," Dangote said, referring to lower construction cost as a result of cheap global steel prices.

The refinery and petrochemical complex will go online around 2018, company officials have said.

He said Dangote Group was also constructing a gas pipeline beneath the sea to link Nigeria's oil-producing Delta region to West Africa.

The pipeline will be able to transport 1.5 billion standard cubit feet of gas per day, he said, without giving more details.

Dangote Group, which is active in cement, oil, food and sugar business, is also expanding into farming. 

Dangote said his firm planned to produce one million tonnes of rice within five years. Nigeria so far imports anually 2.8 million tonnes of rice, majority of which is smuggled into the country, he said.

"Our projects are mainly import substitution." he said. "We are working to be self-sufficient."

Nigeria emerged Africa’s second-largest importer of kerosene from U.S in 2015: Reports

Nigeria emerged as the second-largest importer of kerosene from the United States last year, according to a new report released by the Energy Information Administration, the statistical arm of the US Energy Department.

The country, which is Africa’s biggest crude oil producer, also took in the third-largest volume of the US jet fuel in 2015.

The report said Nigeria imported 1.25 million barrels of the US kerosene from January to December.

Other products imported from the US by Nigeria include Liquefied Petroleum Gas, lubricants, petroleum coke, fuel ethanol and finished motor gasoline.

The country imported 1.72 million barrels of the LPG; 290,000 barrels of lubricants; 121,000 barrels of petroleum coke, 161,000 barrels of fuel ethanol and 616,000 barrels of finished motor gasoline, the EIA data showed.

Nigeria bought a total of 1.427 million barrels of the US kerosene in 2014. In 2013, 1.040 million barrels were imported; 272,000 barrels in 2012; 1,000 barrels in 2009; 4,000 barrels in 2008, and 1,000 barrels in 1995.

Canada remained the top US kerosene importer, with 3.3 million barrels imported last year. After Nigeria came Finland, which bought 12,000 barrels.

Panama imported 6,000 barrels; Netherlands bought 5,000 barrels, and Colombia imported 4,000 barrels. Venezuela, China and Japan bought 3,000 barrels each, while the United Arab Emirates, Singapore and Ecuador purchased 2,000 barrels each.

Ghana, Honduras, Hong Kong, Chile, South Korea, Dominican Republic, Turkey, Israel, Belgium, Bahamas and Peru bought just 1,000 barrels each, the report also stated.

Nigeria depends largely on importation to meet its domestic fuel demand, creating a lucrative market for refiners in the US, Europe and other African countries such as Cameroun and Cote d’Ivoire.

The country’s four refineries have over the years operated far less than their combined nameplate capacity of 445,000 barrels per day.

The Nigerian National Petroleum Corporation in January announced that it had shut down the Port Harcourt and Kaduna refineries, owing to crude supply challenges arising from recent attacks on vital crude oil pipelines.

The 150,000bpd refinery in Port Harcourt and the 110,000 bpd Kaduna refinery had resumed operations in December after several months of shutdown.

Warri, Kaduna and Port Harcourt refineries, which had resumed production of refined petroleum products in July last year after undergoing rehabilitation, were shut down in August, September and October, respectively before resuming in December.

The NNPC had earlier in January announced that the nation’s three refineries in Kaduna, Port Harcourt and Warri had attained a combined daily production of over 6.76 million litres of petrol per day, which is projected to increase to over 10 million litres per day by the end of January 2016.

The Organisation of Petroleum Exporting Countries had, in its 2015 World Oil Outlook released in December, highlighted the need for more refining facilities in Nigeria and other African countries to meet their growing demand for petroleum products.

Oil price rises above $40

Oil prices extended gains on Monday that have lifted crude benchmarks by more than a third from this year’s lows, as tightening supply and an improving global outlook strengthened the sentiment for a market recovery.

Front-month Brent LCOc1 crude futures were trading at $39.37 a barrel at 0945 GMT, up 65 cents from their last settlement. In January, prices fell to levels not seen since 2003.

U.S. West Texas Intermediate (WTI) futures fetched $36.57 a barrel, up 65 cents from the last close and 40 percent above February lows.

The May WTI contract settled on Friday at $35.92 a barrel, up 3.91 percent.

While data showed late last week that U.S. energy firms cut oil rigs for an 11th week in a row to the lowest since December 2009, as producers slashed costs, there is still a glut of physical oil that some warned could again weigh on prices.

“The past days’ oil price rally was from our perspective less related to a shift in fundamentals but a recovery of sentiment,” said Norbert Ruecker, head of commodities research with Julius Baer, adding the bounce did not yet herald a long-term recovery.

China imposed a cap on its energy consumption by 2020, marking the first time the world’s second-biggest economy has set such a target and casting doubt on its consumption growth. The National People’s Congress, or parliament, opens its annual session this week.

Traders said shifting sentiment was lifting prices as large amounts of short positions were being closed and bets on rising prices opened.

Nigerian equities gain N546b in dividend rally

Nigerian equities sustained an all-week rally last week as dividend recommendations tickled a scramble for quoted equities. Key indices at the Nigerian Stock Exchange (NSE) showed the stock market with its biggest rally so far this year, with a week-on-week gain of 6.57 per cent, equivalent to a gain of N546 billion.

With more advancers than decliners, the market showed widespread gains across the sectors as investors sought to lock in into equities with prospects for high dividend yields. The momentum of trading was boosted by dividend recommendations by three companies, especially the N136.3 billion dividend announcement by Dangote Cement Plc.

The board of Dangote Cement said shareholders would receive a dividend per share of N8. Africa Prudential Registrars also announced a dividend per share of 43 kobo. Greif Nigeria Plc also declared a dividend per share of 60 kobo during the week.

The dividend recommendations and expectations that other companies might announce their results and dividends quickened investors’ appetite. Aggregate market value of all quoted equities rose from the week’s opening value of N8.336 trillion to close at N8.882 trillion, representing a gain of N546 billion.

The benchmark index for the Nigerian stock market, the All Share Index (ASI), rallied to close at 25,820.10 points as against its week’s opening index of 24,228.79 points, indicating a week-on-week gain of 6.57 per cent.

Akwa Ibom To Collect Tax For Alcohol Consumption – Commissioner

Mr Akan Okon, the Akwa Ibom Commissioner for Finance in Akwa Ibom state, said the state would begin to tax consumption of alcohol in hotels and beer parlours.

Okon who spoke to newsmen in Uyo on Saturday said the people who consumed alcoholic drinks would begin to pay a token as tax.

“Some people who lodge in hotels and consume alcohol will henceforth pay taxes to the state government. The focus is to look inward to see how the various opportunities that are available in the state can be harnessed to raise the Internally Generated Revenue (IGR)”.

The commissioner, however, decried the attitude of some businessmen in the informal sector of the economy who failed to pay tax to government. Mr Okon stated that if those in the informal sector paid their taxes, government of Akwa Ibom would pull resources together to provide social amenities in the state. He said that property tax and entertainment tax were not collected in the state in order for tax uniformity in the state.

He further explained that the state government had put measures in place to ensure that revenue opportunities were tapped to boost its internally generated revenue and that new tax consultant had been appointed to block leakages associated with revenue collection.

“We have in place a new consultant that is working closely to ensure that we block all the leakages associated with revenue collection system in the state,’’ he said.

NNPC reopens Port Harcourt refinery

The Nigerian National Petroleum Corporation (NNPC) has reopened the Port Harcourt refinery, six weeks after it was shut down due to crude oil supply challenges caused by pipeline attacks.

This was disclosed by Group Executive Director, Commercial and Investment, Victor Adeniran during a tour of petrol stations in Abuja over the weekend.

“We want to appeal to Nigerians to bear with us. Part of what the NNPC has done was making sure the refineries are back on stream. The reasons the refineries are not working today is because the pipelines that are supposed to supply crude oil to them are not working. We are almost there,” Adeniran said, according to Vanguard.

“You can imagine if we have been able to put the Escravos – Warri pipeline into use, Warri refinery would have been up and running and part of this problem would have been alleviated.

“Port Harcourt is working because we have been able to fix the Bonny – Port Harcourt line. As I am talking to you, we are transporting crude oil from Bonny to Port Harcourt refinery. Kaduna cannot work because Warri also supplies Kaduna with product," he added.

Adeniran also said that the NNPC had made arrangements for intervention trucks, with a carrying capacity of 60,000 litres of petrol, to boost supply in a bid to resolve the current fuel scarcity.