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Will Oil Prices Help or Harm Nigeria’s Economy in Q3?

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By Lukman Otunuga, FXTM Research Analyst,

Global Oil prices looked tired, exhausted and ready for an early summer break during the second quarter of 2019 as global growth fears overshadowed supply disruptions and ongoing OPEC supply cuts. At the time of writing, Oil prices remain shaky and vulnerable despite OPEC+ latest decision to extend production cuts until March 2020.

The crucial question is whether Oil prices will ever recover and trade back towards the $70+ levels. That depends less on geopolitical tensions in the Middle East and more on whether the US and China can reach a trade deal, settling disputes over tariffs and opening the door to continued global growth. In this case, it’s likely that Oil prices will be injected with a renewed sense of confidence on the back of boosted global growth expectations and demand for Oil. But what if the current circumstances persist and the US-China trade disputes continue throughout the second half of 2019?

Taking each scenario one-by-one, starting with the upside for Oil prices, Nigeria’s economy could benefit considerably if a US-China trade deal is reached and global growth expectations become brighter. The manufacturing sectors in the US and China are the Oil-gobbling engines which drive demand for international Oil suppliers. China is the world’s top crude Oil consumer, importing more than 50 percent of its consumption, part of which comes from Nigeria. In the fourth quarter of 2018, Nigeria exported N23.5 billion worth of crude Oil to China and remains a major trading partner to the Asian giant. It’s likely that if China’s economy roars back to life, Nigeria’s growth would see more long-term support, benefiting foreign exchange reserves and the Naira. Although unlikely, if a trade deal were to be announced early in the quarter, it’s possible the nation’s 2019 budget would also see ample support from increased Oil revenues from China. This argument doesn’t apply to the US which has considerably reduced its crude Oil imports from Nigeria as it heads towards energy independence, relying instead on domestic production to meet its own needs.  

If you take the negative outlook on Oil, it’s more likely the rise in Oil prices is a temporary result of supply shortage fears and the prevalent trend in Q3 will be downward pressure from concerns over a global recession. In this unfavorable scenario, the world’s two largest economies do not reach a trade deal in the third quarter and aggregate demand for Oil continues falling as it tracks economic weaknesses in China and the US. As demand for Oil is whittled away, Nigeria’s foreign exchange reserves may be negatively impacted, along with the Naira, the 2019 budget and most importantly GDP growth. In terms of the national budget sheet, expenses like the petrol subsidy may take the limelight as they drag on revenues, overshadowing growth and threatening fiscal stability.

There’s another factor we haven’t talked about so far but it’s significant in terms of Oil market economics. Oil sales are denominated in US Dollars. Recently, the currency has weakened against its rivals, meaning that Oil is more affordable and possibly giving traders an incentive to snap up contracts at current levels before they rise further. If the Dollar bears have their way and the currency keeps declining, Oil price benchmarks could see further support in the third quarter. The impact of a weaker USD might not be as strong as a US-China trade deal, but it could feed positively into Nigeria’s Oil revenues and go some way to counter possible losses from ongoing global recession fears.

To sum up, Nigeria’s foreign exchange reserves, currency, growth and budget will face headwinds should trade disputes persist. However, provided the USD keeps weakening there’s scope for support from higher Oil prices based on bargain hunting. There’s always the possibility that the US and China could decide on a trade deal, if this happens sooner than later, Nigeria’s economy would benefit accordingly.


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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. Dear Reader, Your support matters. But we believe that technology makes life more exciting and helps improve the lives of people around Nigeria and indeed the world. That is why, we have devoted our energy to independent reportage of technology and finance and how they affect lives. Our incisive and analytical view of how technology news affects the daily life help individuals and organizations make up their minds. Quality journalism costs money. Today, we're asking that you support us to do more. Kindly support our effort to deliver technology and finance journalism to everyone in the world. Donate as little as N1,000. Bank transfers can be made to: UBA Plc 1017156876 Communication Week Media Ltd

E-Financial

Lagos State Appoints MoneyMaster as Payment Partner for “Ounje Eko” Programme

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“Ounje Eko”, the food price discount initiative of the Lagos State Government, has appointed leading payment service bank, MoneyMaster Payment Service Bank Limited (MMPSB), as its collaborator in the bid to ensure ease of payments at the market.

MoneyMaster is one of the Central Bank of Nigeria-licensed Payment Service Banks (PSBs) to promote financial inclusion across Nigeria.

Under the partnership, MMPSB will apply its cutting-edge payment solution to engender easy payment and reconciliation in order to make   the experiences of Lagosians who will be getting their food supplies from the markets pleasurable. Its payment solution is also all-encompassing and ensures real time value to payment destinations.

The mobile bank was appointed as the collection and payment partner for “Ounje Eko” Food Markets programme which is a government initiative serving the five divisions of Lagos State. Consequent on this, MoneyMaster Payment Service Bank will collect payments in 57 LCDAs in the state.

The partnership gives credence to the quality of payment solutions that MoneyMaster is reputed for in its services to its growing business clientele in private and public sectors.

 


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E-Financial

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

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Central Bank of Nigeria (CBN), is investigating irregular foreign exchange transactions and forward contracts valued at approximately $2.4 billion.

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

The  inquiry follows an extensive audit by Deloitte, which scrutinized $7 billion in dollar debts accumulated under the bank’s previous leadership.

In the aftermath of the 294th Monetary Policy Committee meeting in Abuja, Yemi Cardoso, governor of CBN,  disclosed to journalists that the investigation, supported by the Economic and Financial Crimes Commission, among other security bodies, aims to clarify the legitimacy of these FX allocations identified as problematic by the audit.

“It was determined that a number of these transactions did not qualify…they were outright illegal. The law enforcement agencies are now looking into those transactions that as far as we are concerned, are not valid to be paid,” Cardoso detailed, emphasizing the unlawful nature of these forex deals.

The crux of the investigation lies in the audit findings that a significant portion of the scrutinized transactions lacked proper documentation and, in many instances, were deemed outright illegal.

However, the unfolding investigation has raised concerns within the organized private sector, with some entities contemplating legal action against commercial banks for unresolved forex bids.

Despite these tensions, Governor Cardoso reassures that the foreign exchange market remains open and transparent, inviting stakeholders to address their forex needs through the official channels.

Furthermore, Cardoso clarified the distribution of fertilizers to farmers as a one-off measure and not indicative of a shift back to direct interventions by the CBN, underscoring a commitment to strategic, regulatory governance rather than direct market involvement.

 

 

 

 

 

 

 

 


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CBN Urges Banks to Expedite Action on Recapitalisation

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Central Bank of Nigeria (CBN) has directed deposit money banks in the country to expedite action to increase their capital base from the current ₦25bn.

CBN Urges Banks to Expedite Action on Recapitalisation

Olayemi Cardoso, governor of CBN

Olayemi Cardoso, governor of CBN, stated this during the apex bank’s 294th meeting of the Monetary Policy Committee (MPC) on Tuesday in Abuja, when the MPC hiked the interest rate by 22.75% to 24.75%.

The apex bank chief said the MPC examined developments in the banking sector and expressed satisfaction that the industry remained stable. The committee, however, said to guard against risk, commercial banks in the country should accelerate their recapitalisation efforts.

Cardoso said, “The MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines.

“The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”

 

 

 

 


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