Nigeria’s Finance Minister Says Oil Savings Drained By State Governors

 

Nigeria’s finance minister, Dr Ngozi Okonjo-Iweala, says while some of the money in the country’s excess crude savings was legitimately used to offset revenue shortfalls arising from quantity shocks and to narrow the fiscal deficit, significant portions of it were shared to Governors, against her ministry’s advise.

Nigeria, Africa’s biggest oil producer, is grappling with financial difficulties owing to a 30 percent fall in the price of oil since June, which has added pressure on the government’s already depleted savings from the days of high oil prices.

The Excess Crude Account (ECA) had around $9 billion in December 2012, but it has since fallen to around $4 billion, most which happened during a period of record high oil prices, when oil savings are supposed to accrue.

Okonjo-Iweala told capital market stakeholders in Abuja, that a significant portion of the billions of dollars drained from the Excess Crude Account over the past two years was distributed to governors instead of being saved for a rainy day.

The central bank devalued the naira by 8 percent on Tuesday because it was running out of foreign exchange reserves with which to defend the currency. Nigeria’s oil revenues are the source of around 80 percent of government spending and are distributed each month to the three tiers of government: federal, state and local.

Nigeria naira down 1.7 pct on OPEC decision not to cut output

 

Nigeria's naira fell 1.7 percent in early Friday trade to 177.25 against the dollar as markets reacted negatively to a decision of the OPEC oil exporting group not to cut crude output, dealers said.

Saudi Arabia blocked calls on Thursday from poorer members of OPEC, including Nigeria, to cut output, sending oil prices plunging.

Nigeria's currency touched a record low against the dollar on Wednesday, a day after the central bank devalued it by 8 percent in a bid to halt a slide in its foreign reserves -- 95 percent of which derive from oil sales.

Falling world oil prices and a retreat from emerging markets have put pressure on the currencies of several oil exporters, including Angola, whose kwanza is also in retreat.

The falling oil price has created expectations of further declines which would put further strain on the central bank's currency reserves, weighing on the naira.

Naira falls 0.22 percent on low dollar flow

The naira fell 0.22 percent to 177.40 against the dollar on Thursday, trading lower than central bank’s target band of 5 percent plus of minus 168, as dollar flow was not enough to meet demand, dealers said.

The naira has been volatile and under pressure since the central bank announced a devaluation on Tuesday, although Wednesday’s trading saw it rise on a surge in dollar supply.

SEC unveils 10-year capital market master plan

The Securities and Exchange Commission, SEC, has unveiled its 10-year capital market master plan, which is aimed at ensuring the growth of the Nigeria capital market.

Speaking at the 4th capital market committee retreat in Abuja, the Director General, SEC, Ms Aruma Oteh, said that the master plan which is meant to cover the 10year period from 2015-2025, is aimed at increasing the depth of the capital market and increasing foreign investment, adding that the plan will ensure diversifying source of fund for the country.

Reeling out the plans for the capital market and how it will impact on the economy, Oteh, said the capital market is being reform to meet world class standard and create enabling environment for diversification of investment to the capital market, while the plan will guide the running of the capital market and be more accessed by all Nigerians.

Presenting the non-interest capital market plan, chairman of the committee, Hajara Adeola, said the master plan will build capacity of stakeholders, while ensuring mass entry into capital market.

Finance Minister backs austerity measures

The Minister of Finance and the coordinator of the Nigerian economy, Dr Ngozi Okonjo-Iweala, says the ongoing reforms in the country as part of the austerity measures are necessary to put the economy back on track, following the fallen price of crude all and the recent devaluation of the naira by the Central bank of Nigeria.

Speaking at the annual capital market committee retreat ongoing in Abuja, which heralded the launch of the capital market 10-year master plan, Dr Okonjo-Iweala, said good policies are needed to revive the economy.

She added that the Federal government is not relenting in its effort in ensuring stability and growth in the economy.

 

Oil Prices in Freefall as OPEC Fails to Agree Output Cut

Oil prices fell to their lowest level in over five years Thursday as the cartel that produces one third of the world’s output failed to agree on measures to tackle the current glut.

In what had been billed as their most important meeting in decades, ministers from the Organization of Petroleum Exporting Countries agreed to keep their self-imposed output ceiling at 30 million barrels a day, but promised each other they would cheat less on their agreed quotas.

Such promises have rarely held in the past, and the markets reacted by driving the price of the benchmark crude futures contract down nearly 8% to below $69. Oil hasn’t been that cheap since August 2009. Prices have now fallen by over 30% since the summer, and by 13% in November alone.

Thursday’s decision effectively sets the level of OPEC output for the whole of the first half of next year, news agencies quoted Abdalla El-Badri, OPEC’s Secretary-General, as saying. If that’s true, then any reduction in world output will likely be driven by marginal fields in the U.S.

The decision is a victory for Saudi Arabia, which can better afford to play a long game with U.S. producers than its poorer colleagues in OPEC, such as Venezuela and Iran.

Economic effect of a devaluation of the currency

The Nigerian Naira which over the years have been heavily battered, was for the second time devalued yesterday by the Central Bank of Nigeria after its Monetary Policy Committee meeting, by N13.

This sees the Naira exchanging for N168 to the US dollar. However, financial analysts had long expected this process, after so much pressure no thanks to the continuous fall in the prices of crude oil.

But let's look at the effect of this exercise:

1. Exports cheaper. A devaluation of the exchange rate will make exports more competitive and appear cheaper to foreigners. This will increase demand for exports

2. Imports more expensive. A devaluation means imports will become more expensive. This will reduce demand for imports.

3. Increased AD. A devaluation could cause higher economic growth. Part of AD is (X-M) therefore higher exports and lower imports should increase AD (assuming demand is relatively elastic). Higher AD is likely to cause higher Real GDP and inflation.

4. Inflation is likely to occur because:

    *Imports are more expensive causing cost push inflation.
    *AD is increasing causing demand pull inflation
    *With exports becoming cheaper manufacturers may have less incentive to cut costs and become more efficient. Therefore over time, costs may increase.

5. Improvement in the current account. With exports more competitive and imports more expensive, we should see higher exports and lower imports, which will reduce the current account deficit.