A Review of the Nigerian Energy Industry

Nigeria’s external reserves fall to $30.794bn


*Inflation Inches to 9.3%
*Global economy on edge as US Fed weighs rate hike

15 September 2015, Lagos – Nigeria continued to reel from the impact of the decision by US investment bank JP Morgan & Chase to phase out Nigerian bonds from its indexes, as the country’s external reserves fell to $30.794 billion.

The value of the country’s reserves obtained from the CBN website monday represented a $425 million or 1.6 per cent drop, compared with $31.219 billion as at September 1.

Checks showed that the reserves, which are made up mainly of receipts from crude oil earnings, fell when JP Morgan made its announcement.

The fall reflected the exit of foreign portfolio holders of Nigerian government bonds and CBN’s resolve to meet their demand.

Since July 4, Nigeria’s foreign reserves have inched up from $30.845 billion to $31.460 billion on July 31, they continued to climb to $31.537 billion on August 7, rose to $31.632 billion on August 14, then fell to $31.510 billion on August 14.

On August 21, they fell again to $31.398 billion, dropped for the third successive week to $31.219 billion, before declining to $30.794 billion on September 11.

The fall in foreign reserves occurred just as the National Bureau of Statistics, NBS, released its report on the Consumer Price Index, CPI, for the month of August, showing that inflation rose to 9.3 per cent in August compared to 9.2 per cent in the previous month.

It attributed the 1.09 per cent uptick to slower increases in alcoholic beverages, tobacco and kola; health, transport; and recreation and culture divisions.

The sub-core index also increased by nine per cent up by 0.2 per cent from the rate recorded in July while month-on-month, the index increased at the same rate for two consecutive months at 0.6 per cent, the NBS stated.

The largest increases were recorded in kerosene as a result of tight market conditions as well as in the solid fuels group which include charcoal and firewood used as substitutes for liquid fuels. It said other notable increases were in books and stationery as a result of the start of the new school year and catering services.

According to the NBS, the food sub-index rose by 10.1 per cent (year-on-year) in August, slightly higher from 10 per cent in July.
Increases were observed in major groups within the index consisting bread and cereals, meats and fish. The index was weighted upon by a slower increase in the fruit, vegetables, and potatoes, yams and other tubers groups, it said.

According to the statistical agency, of the items which contributed to the core sub-index, housing water, electricity, gas and other fuels; education, restaurants and hotels; and miscellaneous goods and services divisions, recorded the largest pressure while the pace of increases slowed in the health, transportation, recreation and culture divisions.

NBS added that the average price paid monthly by Nigerian households for a litre of petrol across the country increased to N109.91/litre in August compared to N107.40/litre in July.

It was recorded at N112.13 in June and N118.36 in May.
The official pump price of petrol is N87 and figures provided showed that on the monthly average, Nigerians continued to purchase petrol above the official rate in August.

According to the Petrol Price Watch for last month, Bayelsa State, which ironically is an oil producing state, recorded the highest average monthly price of N132.43 compared to N153 the previous month.

Yobe State recorded the second highest monthly average of N119.63, from N120.50 in July, followed by Kogi with N114.33 in the month in review.

The lowest monthly average price for petrol bought by households in August was recorded in Oyo State at N88.13 from N99.16 in the previous month.

The state was followed by Kano, which recorded N92.57 in the period under review compared to N91.50 in the previous month.
Abuja and Lagos recorded N94.60 and N96.50 respectively in August.

Others were Abia – N110.25; Adamawa – N105.17; Akwa Ibom – N106; Anambra – N102.62; Bauchi – N109.86; Benue – N113; Borno – N107.50; Cross River – N97.32; and Delta -N96.63.

In Ebony, petrol averaged at N106.43 per litre in August; Edo – N97.88; Ekiti – N107.44; Enugu – N112.73; Gombe – N98.33; Imo – N110.93; Jigawa – N106.50; Kaduna – N97; Katsina – N96.64; Kebbi – N105.21; and Kwara – N98.80.

But as Nigeria contends with depressing key data, economic policy maker’s in Africa’s largest economy may also have to grapple with the possibility that that the US Federal Reserve might raise interest rates for the first time in over nine years this week, effectively injecting new levels of anxiety in the global economy.

With markets still in turmoil from China’s economic downturn and sensitive to any added uncertainty, calls from economists for the Fed to hold off are being countered by pushes from emerging economy officials to get the long-awaited move over and done with, reported the Economic Times of India.

The fierce debate underscores the complexity of the challenge facing US central bankers when they meet tomorrow and Thursday.
The issue is whether to pull the benchmark federal funds rate up from zero percent, where it has been frozen since the financial crisis of 2008.

The Fed itself is anxious to get off that extraordinarily low level, and US economic growth is strong enough to handle a quarter-point rate increase, a number of Fed officials have suggested.

But the turmoil in global financial markets for the past month has not eased, and there is still much to be known about how China’s problems will affect the rest of the world.

A Fed rate increase threatens to raise the borrowing costs of many governments and companies, including for holders of Nigerian issued Eurobonds — though analysts point out that that has already happened in anticipation.

A rate hike could also lead to a further exit of foreign portfolio investors from the Nigerian economy already faltering from falling oil prices and the decision by JP Morgan to phase out Nigerian bonds from its indexes.

Both the World Bank and the International Monetary Fund, worried about slowing global growth, have suggested the Fed can stand pat.
But others say it is time to pull away from seven years of extremely easy-money policies.
“We are at historically low rates right now, we’ve got to have a return to normal,” argued Robert Morgan of the American Bankers Association.

For months the policy-setting Federal Open Market Committee, FOMC, under Fed Chair Janet Yellen has been eyeing the September 16-17 meeting for a rate increase.
The move would signal the Fed is ready to “normalise” monetary policy with a slow series of increases over the coming two years.

FOMC members base their decisions primarily on the jobs market and inflation. The former has been strong, the unemployment rate falling to 5.1 per cent in August, the lowest since April 2008.

Inflation, which the Fed wants to see climb to around 2 per cent as a sign of steady economic growth, has sagged.

The main reason has been the drop in the prices of oil and other commodities, rather than weak US growth. But the slowdown in China and other emerging economies, and the strong dollar, continue to pull prices lower.
*Obinna Chima, James Emejo – with agency report

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