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Mixed Oil Markets and Q2 Slowdown Signal Economic Warnings to Nigeria

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By Lukman Otunuga, Senior Research Analyst at FXTM,

Another recent escalation in the trade dispute between the US and China has punished crude Oil prices and set off warning signals for Oil-producing countries like Nigeria.

At the same time, Nigeria’s GDP slowed down to 1.94 percent in the second quarter from 2.1 percent in the first quarter, following the trend seen in several economies such as Germany and the UK.

It is becoming quite clear that as long as oil dependence remains one of Nigeria’s biggest risks, this will continue weighing heavily on the economy for the rest of 2019. While the GDP data should nudge the Central Bank of Nigeria (CBN) to cut interest rates for the second time this year in September in an effort to stimulate growth, this is a temporary fix to a bigger problem

What trade disputes mean for Nigeria’s economy

Persistent trade disputes between the world’s two largest economies is set to fuel fears over a global slowdown or even recession. Oil prices declined on the basis that a decelerating global growth may result in lower demand for the commodity Nigeria relies on for 90% of its export earnings.

In the context of a trade dispute, tariffs are like bombs exploding on trading relationships, supply deals and eventually on company profits.

Trade tensions also remain a direct threat to Nigeria’s economy. The risk factors are escalating along with the probability that the world may see an economic slowdown in the short-to-medium term.

Under the current circumstances, there are three main challenges Nigeria must navigate. They are China’s slowdown, lower oil prices, and the need for fast and adaptive monetary policy to handle local and external shocks.

Will China impact Nigeria’s growth prospects?

China’s growth slowed to 6.2% in the second quarter, its weakest expansion in three decades. 

Most recently, China’s backing in the form of loans reached $16 billion and its vested interest is seen as a key support for the current production level of 1.85 million barrels per day. 

However, Nigeria aims to reach three million barrels per day and needs more investment from China, which may prove to be more difficult going forward if China’s economy continues to decline.

The high level of debt to China is also proving to be a weight on fiscal revenues because Nigeria spent 50% of its 2018 government revenues on debt repayment.

Indeed, the IMF has urged Nigeria to curb its large appetite for Chinese loans as the country struggles with a €70 billion debt burden. That’s up from €62 billion in 2017, representing a year-on-year rise of 12.25 percent.

Lower oil prices remain a threat to Nigeria’s recovery

The prospect of high debt levels to China amid lower oil prices is something that must not be overlooked.

At the time of writing, Oil benchmarks come under continuous pressure from demand-side concerns, including recession fears stemming from trade disputes.

The money from Oil sales is the lifeblood of the Nigerian economy. In the worst-case scenario, if Oil prices start drifting lower there could be unwelcome consequences such as even slower GDP growth, job losses, sovereign debt defaults, less money in the fiscal budget for development, and constrained consumer spending. 

Reduced crude Oil sales would affect government revenues and reserves, meaning the capacity to fund projects will be weakened. Stock markets together with investor sentiment domestically and externally would be impacted and possibly even trigger capital outflows.

Can Monetary policy handle downside shocks?

One would have expected economic momentum to pick up from Q1 after CBN cut interest rates in March and forced lenders to dish out more credit in a bid to boost growth.

While lower rates have the potential to keep the economy running, the answer to Nigeria’s woes can be found in diversification. The level of progress the nation has made in breaking away from the shackles of oil reliance remains a question for many with even the International Monetary Fund urging the nation to diversify revenues.

Another concern is friction over a recent UK court decision allowing a natural gas company to take over nine billion USD worth of Nigerian sovereign assets in London. The government has refused to accept the ruling and plans to appeal but the CBN may still need to step in to defend the Naira.

There is still some light at the end of the tunnel for the Nigerian economy if the right steps are taking in breaking away from oil reliance to other sustainable sources of economic growth. However, if Oil prices continue to send warning signals to Nigeria’s economic policy makers by trading sideways or declining, fiscal measures combined with monetary policy easing measures may become urgently needed to accelerate economic diversification.

Ugo Onwuaso is an ICT enthusiast. He believes technology should be used for general good. He holds a Master of Public Administration (MPA) degree from the Lagos state University.

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E-Financial

AfDB says $1.8trn Available for Investments in Africa

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The African Development Bank (AfDB) has said the total assets under management alone by pension funds, sovereign wealth funds and the insurance sector in Africa is about $1.8 trillion; monies that can be leveraged on to develop infrastructure in Africa.

The President of the Bank Dr. Akinwumi A. Adesina, also said the institutional investors hold a large pool of capital that need to be mobilized and channeled into financing of infrastructure.

Dr. Akinwumi gave the indication in a keynote speech at the UK-Africa Investment Summit, on “Sustainable Infrastructure Forum.” The side event was organized as part of the UK-Africa Investment Summit.

“Total asset under management alone by pension funds, sovereign wealth funds and the insurance sector in Africa is about $1.8 trillion. Tapping just a fraction of this into infrastructure will go a long way to close the infrastructure financing gap,” he said.

He however noted that for that to effectively happen, many reforms are needed.

“One is to designate infrastructure as an asset class for institutional investors. Meeting their infrastructure allocation targets would require them to hire quality staff who understand infrastructure,” he said.

The AfDB president also noted that “a critical constraint to investments in infrastructure is the high level of risks, ranging from project risks, financial risks, operational risks, and political risks.”

Thus “de-risking instruments such as partial risk and partial credit guarantees are quite effective in leveraging private sector investments.”

According to him, there’s so much to do to help close the infrastructure financing gap in Africa. But “progress is being made as Africa witnessed an increase in infrastructure financing to $100 billion in 2018, an increase of 24 percent over 2017 and 38 percent over 2015-2017 on average.”

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Quickteller Launches “Everything is Possible” Campaign

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Quickteller, a leading consumer payment platform of Pan-African integrated digital payments company – Interswitch – known for providing seamless payment solutions, has launched a new campaign themed “Everything is Possible”. The campaign demonstrates the ubiquitous nature of the Quickteller platform.

The commercials, which have just been released, are in two versions: ‘The Big Idea’ and ‘Possibility’. Both versions are in furtherance of the previous Quickteller campaign – “One less thing to worry about” – and reiterate the ease and universality of the Quickteller platform.

The commercials deploy the use of humour and creativity to subtly drive in the point that on Quickteller, a user can pay for almost anything they can imagine.

Both commercials are a body of great creative thinking and drive home the overarching message that everything is possible on the Quickteller Platform. The commercials both depict the importance of a platform that makes payment possible irrespective of person, location and needs. Quickteller enables everyone to make transactions on the go, with a few clicks.

Speaking on the launch of the campaign, Olawale Akanbi, Group Head, Quickteller Marketing, highlighted the importance of transacting on a platform that provides a vast number of services in the digital payment space.  He said: “It’s amazing to know that you can pay for almost anything on Quickteller.

At Quickteller, we are committed to making all payments possible on our platform.  This is why we are continuously expanding the services available on Quickteller. From just a platform where you could transfer money, customers can now perform more transactions that speak to their lifestyle, businesses, passion and even their careers”.

According to Akanbi, “This campaign illustrates the compelling point that Quickteller makes almost anything possible.

Both versions of the campaign are a natural flow from the previous campaign and consistent with our messaging that payments are easier and most convenient on the Quickteller platform. It is simply a visual metaphor for everyday payments made easy by Quickteller”.

The commercials feature well-known celebrities like Bovi (a leading Comedian), Ini Dima Okojie (Nollywood actress) and Eric Omondi (a Comedian based in Kenya, who is one of the best comedians in Africa).

Services available on the platform include: payment of toll fees, state government payments, purchase of airtime, flight tickets, funds transfer, payment of cable bills (TV), quick loans, event tickets, online shopping from over 100 global stores, JAMB ePins and every other thing you can think of.

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E-Financial

NOVA Merchant Bank Picked to Collect Customs Duty

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In fulfilment of its commitment to constantly find new ways to serve its customers better, NOVA Merchant Bank has been appointed as a designated collecting bank for Import, Excise and other duties by the Nigeria Customs Service.

NOVA Merchant Bank Picked to Collect Customs Duty

This will enable the Bank handle duty payments for its clients in addition to process and issue custom bonds along with guarantees on their behalf.

According to the Mr. Anya Duroha, MD/CEO, “We are excited about this appointment because it would enhance efficiency and improve turnaround time for duty payments and other services offered by the Nigerian Customs Service for our clients”.

“This development is in line with the commitment of the Bank to be a one-stop solution shop for all trade and financial needs of its clients. The Bank is positioned to provide end to end quality banking services to our clients. I commend the management for obtaining and delivering on this mandate within a short period of time” stated Mr Phillips Oduoza, chairman,.

NOVA Merchant Bank offers an integrated suite of financial solutions covering Wholesale Banking, Investment Banking, Asset Management, Wealth Management, Trade Services, Transaction Banking, Cash Management and Digital Banking.

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