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Nigeria’s Annual Inflation Rate Up After Eight-Month Decline

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Nigeria’s Annual Inflation Rate Up After Eight-Month Decline

Inflation rose to 15.63 per cent in December 2021 compared to 15.40 per cent in November, the National Bureau of Statistics announced Monday.

Olushola Okunlade Writes

Nigeria’s annual inflation rate rose the first time in eight months after recording a consecutive fall for that long.

Inflation rose to 15.63 per cent in December 2021 compared to 15.40 per cent in November, the National Bureau of Statistics announced on Monday.

The statistics office said the prices of goods and services, measured by the Consumer Price Index, increased by 15.63 per cent in December 2021 when compared to December 2020.

“This is 0.13 per cent points lower than the rate recorded in December 2020 (15.75) per cent,” it said.

“This is showing a slowing down in the rate when compared to the corresponding period of 2020.

Nigeria’s Annual Inflation Rate Up After Eight-Month Decline

But comparing the rate to the year-on-year performance in the previous months shows that the rate has increased.

Also, comparing the rate of price change between December and November (month-on-month) shows that the headline index rose by 1.82 per cent in December 2021. The November figure was 1.08 per cent.

The rise was in part driven by a continued surge in food inflation.

The NBS said food inflation, which is the composite food index, rose by 17.37 per cent in December 2021, down by 2.19 per cent points when compared to 19.56 per cent in December 2020.

According to the NBS, this rise in the food index was caused by increases in prices of bread and cereals, food products, meat, fish, potatoes, yam and other tubers, soft drinks, and fruits.

It added that on a month-on-month basis, the food sub-index increased by 2.19 per cent in December 2021, up by 1.12 per cent points from 1.07 per cent recorded in November 2021.

“The average annual rate of change of the Food sub-index for the twelve months ending December 2021 over the previous twelve-month average was 20.40 per cent, 0.22 per cent points lower from the average annual rate of change recorded in November 2021 (20.62) per cent,” it said.

Economy

LCCI Applauds Nigeria’s Economic Growth Performance

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This action also has implications for economic growth, job creation, and revenue generation for the government

…Highlight some threats to future growth that need special attention

Olushola Okunlade Writes

The Nigerian economy has recorded an impressive recovery from the recession induced by the COVID-19 pandemic in 2020.

The economy has consistently recorded growth rates breaking many analysts’ predictions of expected lower growth rates. However, the economy has continued to struggle with many inhibiting burdens like inflation, weak revenue generation, degenerated infrastructure, forex challenges, unsustainable cost profile seen in debt services and subsidy payments, and the daunting threats of worsening insecurity.

LCCI is concerned that if we continue in this trajectory, the economy may bleed away into stagflation which will impact production costs, job losses, worsened forex crisis, and dampened growth in the medium term.

The National Bureau of Statistics (NBS) announced that Nigeria’s Gross Domestic Product (GDP) grew in 2022Q2 by 3.54% year-on-year in real terms. This is the seventh quarter of positive growth. This rate is lower than the 2021Q2 rate which was at 5.01% decreasing by 1.47%. Quarter-on-Quarter, it was an increase of 0.44% points relative to 3.11% recorded in 2022Q1.

While we celebrate the latest growth figures, the Chamber wishes to highlight some threats to future growth that need special attention:

The oil sector has consistently recorded negative growth for the ninth consecutive quarter, contracting again by -11.8% y/y in Q2 2022 following a higher contraction of -26% y/y in Q1. The average daily crude oil production in Q2 was 1.43mbpd even lower than the 1.49mbpd produced in Q1. If oil revenue makes up more than 80 percent of government revenue, we expect the Government to tackle the menace of oil theft and pipeline vandalism with a sterner approach. 

The non-oil sector grew by 4.8% y/y in Q2 ’22 against 6.1% y/y in Q1 ‘22. Key drivers within the non-oil economy include transportation and storage (51.7% y/y), finance and insurance (18.5% y/y), telecommunications (7.7% y/y), trade (4.5% y/y), real estate (4.4% y/y), construction (4.0% y/y), manufacturing (3% y/y), and agriculture (1.2% y/y). Combined, these sectors account for 78.3% of the total GDP in Q2. We urge the government to continue with the non-oil campaigns and interventions to sustain the targeted financing towards boosting non-oil export for enhanced foreign exchange earnings.

The growth of 1.2% recorded for agriculture and 3% for manufacturing are comparatively low when compared with other sectors that grew above 5%. This is also indicative of the threats facing these sectors that power Nigeria’s real sector. The woes in these two sectors are responsible for the frightening rise in our inflation rate. And with the excruciating burden of debt service, subsidy payments, and worsening insecurity, many more production activities may be constrained in the coming months. 

The Federal Government needs to sustain its targeted interventions in selected critical sectors like agriculture, manufacturing, and export infrastructure, tackling insecurity, and freeing more money from subsidy payments. It is also worrisome that the 2023 budget estimations indicate that there may not be any significant allocation to capital projects in 2023. We urge the government to tackle oil theft to earn more foreign exchange, borrow from cheaper sources to reduce the burden of debt servicing, and take a decisive step toward removing fuel subsidies.

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Economy

Economy: Dangote Petrochemical Plant To Position Nigeria As Polypropylene Hub In Africa

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Economy: Dangote Petrochemical Plant To Position Nigeria As Polypropylene Hub In Africa

…As Godwin Emefiele commends the effort, says timely and appropriate

Olushola Okunlade Writes

The Dangote’s $2 billion Petrochemical Plant located in Lagos when fully operational will position Nigeria as one of Africa’s largest petrochemicals hubs and boost non-oil export earnings for the country, according to the Dangote Group President, Aliko Dangote.

The 900,000 metric tons per annum capacity Plant, which is being built alongside the 650,000 barrels per day Dangote Petroleum Refinery will produce polypropylene strategically positioned to cater to the demands of the growing plastic processing downstream industries not only in Africa but also in other parts of the world.

Dangote who made this disclosure at the 2022 Zenith Bank International Trade Seminar on Non-oil Export recently in Lagos, said the refinery and petrochemical projects will ensure petroleum products’ sufficiency and security for Nigeria.

He emphasized the need for government to unlock the potential of petrochemical export by completing the OB3 pipeline to make gas available to manufacturers. “There is a need to prioritize financing gas infrastructure, gas allocation to the domestic market, and adjustment of fiscal framework to make the supply of gas to domestic market attractive for oil companies,” he added.

Dangote disclosed that the refinery reputed to be the largest single train greenfield petroleum refinery in the world is at an advanced stage of completion and that on completion, it is expected to export much more than 8 million tons of Petroleum products annually after meeting domestic consumption, while about 900,000 tons of polypropylene is also expected from the petrochemical plant.

The business mogul revealed that the recently commissioned 3m mtpa Fertilizer Plant has “commenced export to India, North America, and Latin America. At steady state, will export two million tons per annum after meeting domestic consumption.”

He explained that the Dangote Fertiliser regarded as the second largest urea fertilizer plant in the world is leveraging Nigeria’s abundant gas reserves as raw material for the production of Urea.

Stressing the need for Nigeria to encourage non-oil export, Dangote said that Nigeria’s non-oil export is quite low compared to other African top oil producers. “This exposes the economy to oil price and production risks. Export opportunities abound in Nigeria but there are two main routes import substitution and export-oriented industries. Import substitution is ideal for economies like Nigeria which has a large domestic market and a huge import bill”, he added.

Dangote said that investors can build industries, which initially target the domestic market, then subsequently target export markets as they build scale and competitiveness.

He then urged the Federal Government to build on the country’s competitive advantage to develop industries that are primarily geared toward export. “Nigeria LNG Limited (NLNG) in Bonny is a good example of an export-oriented investment (though would be good to get a model where such revenues are sold in the I&E window”, adding that some countries have gone a step further to create special economic zones to achieve this objective.

In his goodwill message, the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele described the theme of the seminar “Unlocking Opportunities in Nigeria’s Non-Oil Export Business” as timely and appropriate.

The CBN Chief reasoned that the theme was apt because “the global economy and structure are changing rapidly before our eyes. The previous world economic order underpinned by globalization and seamless trade possibilities seems to be suffering major disruptions lately. We believe Nigeria has a lot of potential, and we can harness this for the good of our people and country.”

He pointed out that the CBN had undertaken several initiatives to promote the non-oil export sector because of its firm belief that the non-oil export sector holds enormous potential to contribute to employment generation, wealth creation, and economic growth of the country.

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Business

CBN Interest Rates Mean Less Credit To Private Sector, Reduced Investment, And Constrained Production In Economy – LCCI

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This action also has implications for economic growth, job creation, and revenue generation for the government

…CBN action has implications for economic growth, job creation, and revenue generation for the government – LCCI

Olushola Okunlade Writes

LCCI Statement on Monetary Policy Rate Hike by the Central Bank of Nigeria (CBN)

The Lagos Chamber of Commerce and Industry (LCCI) has stated that the recent hike in Monetary Policy Rate (MPR) by the Monetary Policy Committee of the Central Bank of Nigeria (CBN) from 11.5% to 13% was well expected by the Lagos Chamber following the recent fundamentals in the economy.

LCCI has also noted the trend around the rising inflation rates across many economies globally. It is well understood that the hike was meant to control the rising inflation rate feared to assume a galloping trend soon.

“The CBN has always maintained that Nigeria’s high inflation rate was due to non-monetary factors outside its purview. We have consistently pointed at factors responsible for the rising inflation including an epileptic supply of Premium Motor Spirit (PMS), high cost of Automotive Gas Oil (AGO/Diesel), electricity tariff hikes, insecurity, and the illiquidity crisis in the foreign exchange market. These factors have continued to put pressure on the cost of production translating to higher prices or cost-push inflation. These headwinds must be tackled head-on for the inflationary pressure to be tamed sustainably.”

LCCI stated that the hike in the interest rates will normally mean less credit to the private sector and that can translate to reduced investment and constrained production in the economy, at least in the short term. This action also has implications for economic growth, job creation, and revenue generation for the government. When the MPR was 11.5% some credit lenders charged as high as 25%  maximum rate to small companies. With the benchmark interest rate at 13%, we may likely have rates climb beyond 30% for SMEs.

While we agree with the proposition that a lower interest rate in Nigeria compared with higher rates in developed economies would lead to capital flight, we must restate our recommendation that interest rate hikes will not on their curb inflationary pressures.  The supply-side challenges like insecurity, forex scarcity, and uncertainties from the inconsistent policy environment must be tackled to curb the rising inflation. This is the more sustainable solution to the rising inflation in Nigeria.

In the coming months and into the third quarter, the CBN should expand its targeted intervention schemes to support the productive sectors of the economy to reduce the cost of production. Beyond the role of price stability, the CBN must pay attention to sustaining economic growth that can create jobs and boost government revenues. Again, we reiterate that hikes in rates alone will not tackle the near-galloping inflation trend in Nigeria. We need interventions to boost the supply of goods and services, build critical supportive infrastructure, and resolve the illiquidity crisis in the forex market.

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