Oil Still A Major Driver For Nigerian Economy In 2019
As the country journeys through the new year 2019, analysts, industry operators and stakeholders in the Nigerian economic sector examine into the issues that the government should focus on in its drive to grow the lot of the country – Report.
For Nigeria the price of oil at the international market as well as the amount of oil the country can pump into the market remains a major factor for the growth of the nation in 2019. Despite several efforts and policies that are directed at diversifying the revenue stream of the country, oil still plays a major part in its finances.
The President had in December last year presented an N8.73 trillion with oil and borrowings as its major financier. The government is expecting a revenue of N6.966 trillion of which it expects oil income to be N3.688 trillion and non-oil income to be N1.385 billion.
This is based on the projection of oil price at $60 per barrel, an estimation that analysts believe is too optimistic considering the happenings in and around the world.
The global oil market is said to be full of many uncertainties for the year 2019, this more so as the crude oil production cut proposal between OPEC and non-OPEC member faces new threats.
Recent developments suggest that OPEC and its non-OPEC partners – led by Russia, which had earlier agreed that members would formalise a permanent governance architecture to coordinate their efforts, seem to be downplaying such a development.
According to Russia’s energy minister Alexander Novak, the increase in red tape, plus antitrust risks from the U.S. government, make the idea too risky.
“There is a consensus that there will be no such organisation. That’s because it requires additional bureaucratic brouhaha in relation to financing, cartel, with the U.S. side,” Novak told reporters recently.
Instead, Novak said they will continue to cooperate without institutionalising the arrangement. “This won’t be an organisation, this is some mechanism of cooperation: to convene, to discuss, adopt some memorandums, joint resolutions,” he said.
Meanwhile experts are optimistic that oil prices will rebound. Most major investment banks are forecasting a rebound in oil prices in 2019. Price forecasts vary widely, but most have both WTI and Brent above current spot prices.
Bank of America Merrill Lync, for instance, sees WTI averaging $59 per barrel in 2019. Citi is at the bearish end with a $49 price target. For Brent, Barclays says the benchmark will average $72, and a half dozen other investment banks have price estimates within a few dollars of that price.
Bearing in mind the level of Nigeria’s dependence on crude oil both as a source of revenue and foreign exchange earner, the major determinant of how successful the country can be during the year will be the volume of production and the global market price of the commodity.
According to the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) Dr. Maikanti Baru, the nation had maintained a line of consistent year-on-year improvement since 2016. He stated that the country’s crude oil daily production grew from an average daily production of 1.86million barrels in 2017 to 2.09million barrels in outgone 2018, translating to a 9 per cent increment.
Baru is also very optimistic that production will continue to increase as the upstream subsidiary of the NNPC the Nigerian Petroleum Development Company (NPDC), along other operators have put in place structures for incremental growth.
For instance on 29th December, 2018, the Egina Floating Production Storage and Offloading (FPSO), commenced operation resulting in additional 200,000bop to the nation’s daily production.
Experts are however worried that the failure of President Muhammadu Buhari to assent to the petroleum industry governance bill (PIGB) will constitute a setback for the industry in terms of attracting fresh investment.
To the Lagos Chamber of Commerce and Industry (LCCI), the Nigerian economy remains fragile with the high dependence on oil sector for revenue and foreign exchange earnings. Director General of LCCI, Mr. Muda Yusuf noted that although oil revenues increased with recovering oil prices in 2018, the impact on the economy was subdued by the huge foreign exchange commitments to petroleum product importations while the inherent subsidy and the high debt service obligations were also major constraints to the growth of the economy.
He said with the limited progress in the ongoing effort to diversify government revenue sources, the performance of the oil and gas sector would remain a critical factor that would shape the outlook for the economy in 2019. According to estimates by Capital Economics analysts, every $10-per-barrel fall in oil prices will cause a 3-5 per cent decline of GDP in most of the Gulf economies, and a slowdown of 1.5-two per cent of GDP in Russia and Nigeria on an annualised basis.
The outlook will therefore depend to a large extent on developments in the oil and gas sector and the political will to undertake far reaching reforms, beginning with the oil and gas sector.
He explained that “given the challenging economic conditions, key policy reforms would be imperative to support and sustain macroeconomic stability. These include, among others, a foreign exchange management framework that reflects the market fundamentals, the acceleration of the economic diversification agenda, normalisation of Lagos ports environment, the oil and gas sector reform, especially the petroleum industry bill; reduction in the cost of governance at all levels; improvements in the domestic revenue (particularly independent revenue) to reduce volatilities of government revenues, among others”.
Analyst at FXTM, Lukman Otunuga noted that global trade tensions presents a significant risk to Nigeria, especially considering how the United States and China remain its biggest trading partners.
With a trade war threatening global economic growth and demand for commodities, this presented challenges to Nigeria which remained heavily depended on earnings from oil exports. While there was scope for the CBN to cut interest rates to boost growth, this window of opportunity was missed when inflationary pressures returned.
“Focusing on macro fundamentals, the picture looks somewhat encouraging with GDP expected to rise two per cent in 2018. Signs of Non-Oil sectors contributing to growth will be a welcome development that highlights how Nigeria remains on a quest to break away from oil reliance.
With Nigeria’s economic resilience potentially stimulating investor risk appetite, the Nigerian Stock Exchange has the opportunity to rebound in 2019. Although manufacturing production decreased 1.7 percent in September, a rebound could be in the cards as increased government spending ahead of the presidential elections boosts economic growth.
“In regards to CBN policy, falling oil prices are seen weighing on the Naira’s peg against the Dollar on the official exchange. This may complicate the CBN’s effort to defend the Naira on the parallel markets in 2019. While a weaker Dollar could limit capital outflows, falling oil prices are poised to shave government revenues.”
Speaking to LEADERSHIP, the President, Shipowners’ Association of Nigeria (SOAN) Engr. Greg Ogbeifun said his expectation for the year is for government to listen, continue listening to the yearnings of stakeholders in the maritime sector.
He said, “my expectations is the same, we will continue to talk. We will continue to call on the authority till we get it right because towards the end of 2018, we are beginning to get signs that the government increased listening to some of the issues raised in the past. You can see gathering of critical stakeholders brainstorming and talking seriously and I think if we continue in that direction we will continue to see tangible result to tell us we are getting it right.
“But we will continue to engage, talk and encourage government agencies to keep thinking in the right direction, taking the right steps and engaging the right stakeholders so that our country which has the potential of being a huge maritime nation can actually come of age.”
Also speaking, the President, Nigeria Shipowners Association (NISA), Alhaji Aminu Umar urged the federal government to invest in security architecture to wade off insecurity especially piracy and sea robbery.
“We need the government to invest in ship and naval fleet and we want Navy to work together with maritime agencies like NIMASA to be able to assist merchant shipping because merchant shipping has no direct access to the navy.
“We don’t have direct access to the Navy so we need NIMASA to be the go between us and the Nigerian Navy so they need to come together to be able to help out because in every country in the world there is relationship between the maritime agency that is handling regulation and the navy of that country in order to curb piracy so we have to see that synergy in this new year.”
In aviation sector, improvements in airport infrastructure are expected to boost economic growth. This is also expected to make air travel more affordable and subsequently lead to the creation of jobs by the air transport service value chain as well as increase revenues for the government.
With the commissioning of the new terminal at the Nnamdi Azikiwe International Airport (NAIA) , Abuja and that of Port Harcourt, Nigeria is said to be moving towards achieving and meeting global aviation standards in facilitation, passenger processing and service delivery in tandem with international best practices.
According to the President Muhammadu Buhari during the commissioning of Abuja new terminal, aviation, being a catalyst for economic growth, the airport is expected to continue to encourage and support the actualisation of projects that will place Nigerian Airports amongst the best in the world.
“Nnamdi Azikiwe International Airport Terminal is the first airport terminal to be connected to rail transport system in the Country and indeed in the region. This has provided passengers and other airport users with a choice in the mode of transport to and from the city centre”, he said.
Beyond the airport infrastructure, more airlines are needed to meet up with the large increase in the national population with a consequent surge in air passenger traffic. As at today, the nine domestic carriers seem not to be adequate for the teeming population of air travellers in the country.
For the capital market, analysts at Vetiva Research said “we see three major drivers for the Nigerian equity market in 2019: the local political landscape, global sentiment towards emerging markets, and domestic macro-economic fundamentals.”
They said that “on the political front, we anticipate a rocky start to trading in the equity market as elections draw near. Historically, the periods before major elections in Nigeria have been characterised by a “steer clear and monitor” approach by foreign investors and local investors.
“Unsurprisingly, the ASI shed four per cent on average in first quarter (Q1), 2011 and Q1, 2015, the previous election years. We expect a similar trend in Q1, 2019, particularly as foreign investors monitor developments in the global oil market and Sino-American trade negotiations.
“We note that foreign investors accounted for 49.38 per cent of market activity in 2018, despite sizable capital outflows. Finally, we expect currency pressure to persist through the year and forecast only modest economic performance (2019 GDP growth: 2.7 per cent year-on-year) and do not expect macroeconomic developments to provide much market joy in 2019.
Coupled with our expectation of adverse external conditions in 2019, we anticipate modest post-election equity market performance and project a market return between five per cent loss and five per cent gain, with a point estimate of 2.5 per cent.
Speaking on the aviation sector, considering last year and the ripple effect on 2019, President of the Aviation Safety Round Table Initiative (ASRTI), Gbenga Olowo said “2018 witnessed modest effort by government, its agencies and practicing stakeholders. These efforts should translate more into good results during 2019 in spite of being the election year faced with strong apprehension.
“Since 2014 aviation business outcome in Nigeria has been on the decline year on year (YOY) basically due to economic recession and yet to improve difficult environment of doing business despite effort of government to ease the process. No thanks to the bureaucrats and their different agendas especially hinged on security. Nevertheless, the Nigerian aviation market remains strong and good for Investment.
“Government at the centre should remain focused at stimulating private sector driven aviation sector during 2019. Airport concessioning remains only in statement over four years, action is required against existing airport government monopoly.
Lagos Airport deserves much more attention in terms of growth strategy, intermodal connectivity and top of the rank security and technology apparatus because Lagos comes as a natural West African hub and currently generates 60 to 65 per cent revenue , sustaining the remaining unviable Nigerian airports.
“The new international airport in Abuja delivered by government as a Christmas gift must not be one of those commonwealth wastes consequent upon poor/ lack of schedule maintenance. ACs, toilets, baggage conveyor belts, etc must function in 2019 as they did in 2018 when it was commissioned. Airport, Airlines, Airspace growth must grow simultaneously.”
In terms of building transport infrastructure, the Minister of Transportation, Mr Rotimi Amaechi, said the Federal Government is working on the construction of a coastal rail line from Lagos, through Ijebu Ode, Ore and Benin City, to Onne Port in Rivers State.
According to Amaechi, the Federal Government would soon connect the Federal Capital Territory and the capitals of the 36 states with rail lines. “We are looking at the coastal rail lines that the previous government of President Goodluck Jonathan awarded that connects from Lagos to Ijebu-Ore-Benin, then from Benin to Agbor-Asaba back to Benin to link Sapele-Warri-Yenagoa-Onne Port,” he said.
The minister also disclosed that work had commenced on Idu- Kaduna standard gauge rail line. Amaechi added that work was ongoing in other parts of Nigeria, including the Damaturu-Maiduguri rail line, Makurdi-Enugu rail line, Jos-Bauchi and Gombe rail line and Itakpe-Ilorin rail line, Itakpe -Ajaokuta -Warri rail line and Owerri -Port-Harcourt rail line among others.
Amaechi further said there were plans by the ministry to establish the Federal Universities of Transportation in Katsina and Rivers States, as well as deep seaports at Bonny in Rivers State and Warri in Delta State.
For the insurance sector, the Managing Director, NSIA Insurance Limited, Mrs. Ebelechukwu Nwachukwu, said the sector grew significantly in terms of the quality of products insurers rolled out, the quality of channels of distribution, the quality of people they engaged and the commitment of insurers to grow the people, thereby, increasing insurance penetration in the country.
“If we can push all of these over and over in 2019, I have no doubt at all that penetration will increase and premium will rise also. Today, the industry is paying better salary and so people are better; operators study more than any other industry I have engaged with, they are dedicated to writing examinations, attending seminars, conferences and workshops, they want to be heard and an insurance person wants to be heard intelligently.”
The Chairman, Nigerian Insurers Association(NIA) Mr. Tope Smart, said, the nation’s economy has been projected to expand by about 2.5 per cent in 2019, promising that insurance industry will take advantage of this expected growth.
“We have figures of the growth of about 20 per cent when you compare the figure for 2017 and 2018 and I hope 2019 will be better. By the time we have the end of the year result, we will be having what I call a very positive result. The industry will continue to pioritise claims settlement and both regulator and operators are working together to put insurance companies on their toes to pay genuine claims through NIA and NAICOM complaint bureaus.”
Smart, who is also the Managing Director and Chief Executive of NEM Insurance PLC, pointed out.
SOURCE: Opera news.com
