A Week in Nigeria: 22 March
Highlights from Reuters coverage of Nigeria over the last seven days
In this week’s round-up: central bank devalues the naira, government seeks to cut budget by $4.9bn, petrol pump prices are lowered, and international airports are closed in bid to stop coronavirus spread.
- It was a busy week, even by Nigeria’s standards. The impact of the coronavirus outbreak on the global economy, coupled with an oil price war, was evident for all to see. The central bank devalued the official currency rate by 15% on Friday, in a move to converge a multiple exchange rate regime which it has used to manage pressure on the naira, traders said. Only a week earlier, the bank had said “market fundamentals” did not warrant a devaluation. The currency in Nigeria, which is Africa’s biggest economy and relies on crude sales for 90% of foreign exchange earnings, has come under pressure after oil prices plunged following a disagreement between Russia and Saudi Arabia over a deeper production cut. The coronavirus outbreak has also hit global demand for oil. The central bank on Friday sold the U.S. dollar to local Jaiz Bank at 360 naira on the official market, weaker than the 306 where it was previously pegged for more than two years, traders said. The adjustment comes after the impact of the oil price plunge spread across asset classes in Nigeria, causing investors to widen spreads on the bond market, sell stocks and weaken the country’s dollar reserves. Currency analysts at one Nigerian asset manager said Friday’s adjustment signalled that the central bank favoured a convergence of its multiple exchange rates in order to realign the currency as an effective tool for resource allocation. Nigeria has operated a multiple exchange rate regime for years, which it has used to manage pressure on the currency. On the over-the-counter spot market few trades were done on Friday at 380 naira on thin liquidity, against 370 in the previous session, traders said. The bank also adjusted the forex rate for exchange bureaux to 380 naira per dollar from 360, in a sign it wanted to achieve a uniform exchange rate for the currency. Central bank governor Godwin Emefiele, who supports a strong currency, backed by President Muhammadu Buhari, has resisted calls for a devaluation, saying that market fundamentals do not support such move. But he has been burning through its reserve of $36 billion, which is now down 16% from a year ago, to prop up the naira. The bank’s move, of course, prompted much debate.
- The move by the central bank came at the end of a week in which Emefiele said the bank would create a 50 billion naira ($163 million) fund to combat the impact of the coronavirus pandemic on Africa’s biggest economy and allow banks to give their customers more time to repay loans. He said the credit support for the health sector aimed to meet “potential increase in demand”. It was intended for loans to pharmaceutical companies planning to expand or establish drug manufacturing plants in Nigeria and to health companies that wanted to build hospitals and clinics. Other measures announced include cutting interest rates on some central bank loans to 5% per annum, down from 9%, for one year. Two days later, in another announcement, the bank said it would inject 1 trillion naira ($3.27 billion) into local manufacturing and import substitution to stimulate the economy.
- Nigeria is looking at reducing its budget by 1.5 trillion naira ($4.90 billion) as the global spread of the coronavirus takes a massive toll on Africa’s largest economy and one of the continent’s biggest oil producers, the finance minister said. Zainab Ahmed’s comments came a week after she said the 2020 budget would have to be cut. The spending plan, which was calculated assuming crude production of 2.18 million barrels a day at a price of $57 per barrel, was passed in December. International benchmark Brent crude on Wednesday, when the minister addressed journalits, reached a 16-year low of about $25 a barrel, dragged down by concerns about the impact of the coronavirus on the global economy, a collapse in oil demand and a supply glut. “We are working on a worst-case scenario of an oil benchmark of $30 per barrel and a production of 2.1 million (barrels a day),” said Ahmed.
- Officials said Nigeria will cut government-capped gasoline pump prices and allow global oil prices to affect the cost of that fuel. The move will allow citizens to benefit from the deep slide in international crude markets, but at the risk of adding to the country’s budget worries. Fuel prices are contentious in Nigeria, where riots can break out at rumours of increases. The country has faced international pressure for years to deregulate its fuel price — and to let its currency, the naira, float — because of the cost and the distortions it creates in the economy. Prices had been kept artificially low at 145 naira ($0.48) per litre. President Muhammadu Buhari approved a gasoline pump price cut to 125 naira ($0.4085) a litre from 145 naira during Wednesday’s cabinet meeting (yes, the same one in which the budget was cut). Timipre Sylva, minister of state for petroleum, later issued a statement saying Nigerians should benefit from falling fuel costs, which were “a direct effect of the crash in global crude oil prices”. “This action is being taken to cushion the economic impact of COVID-19 on our people,” he said. Also on Wednesday, Nigeria introduced a “modulation mechanism” that will allow a reduction in petrol costs if there is a decline in crude prices, a presidency aide said. “Nigeria has now introduced a modulation mechanism — if crude oil prices go down we will see a reduction in petrol prices. If prices go up we will see an increase,” Bashir Ahmed said in a tweet. He attributed his remarks to Sylva. While oil prices are the largest factor in gasoline, the two do not always move in tandem. Demand for gasoline can outstrip or lag demand for oil. Shipping, insurance and other costs also fluctuate, making it tough to capture a cost-reflective fuel price based on oil alone. State oil company NNPC imports nearly all the gasoline in Nigeria, Africa’s largest economy and a major oil producer, because of price caps that mean marketers would lose money if they imported themselves. The price cap typically costs the government millions because prices fluctuate on the international market and rarely stay at the capped level. In the first half of 2019, the World Bank estimated the price caps cost the government 294 billion naira ($960.8 million), or nearly 0.2% of annual GDP. In a week filled with big announcement on fiscal and monetary policies, there was widespread interest in the steps taken.
- Nigeria will close its two main international airports in the cities of Lagos and Abuja from Monday night, its civil aviation regulator said, as the number of coronavirus cases in the country almost doubled. The airports, which join three others around the country, will be shuttered for one month, the Nigerian Civil Aviation Authority said in a statement. The closure comes as Nigeria’s number of confirmed coronavirus cases rose on Saturday from 12 to 22, three of them in Abuja, the capital’s first positive identifications. “All airports in Nigeria are closed to all incoming international flights with the exception of emergency and essential flights,” the authority said. Nigeria said on Thursday it would close all schools and universities in the country due to coronavirus outbreak.
- Annual inflation in Nigeria rose for the sixth straight month to a near two-year high, as the impact of the country’s closed borders continued to be felt. Inflation stood at 12.20% in February, compared with 12.13% in the previous month. It is the highest inflation rate since April 2018, when it stood at 12.48%. A separate food price index showed inflation at 14.90% in February, compared with 14.85% in January.
- And an explosion at a gas processing plant killed at least 15 people and destroyed about 50 buildings after a fire broke out in a suburb of Lagos, Nigeria’s commercial capital. The Nigerian National Petroleum Corporation (NNPC) said the explosion was triggered after a truck hit some gas cylinders stacked in a gas processing plant near the corporation’s pipeline in Abule Ado area of Lagos state. The impact of the explosion led to the collapse of nearby houses, damaged NNPC’s pipeline and caused the corporation to halt pumping operations on the Atlas Cove-Mosimi pipeline, the state-owned oil company said in a statement.