macroafricaintel | Nigeria: Why not a market solution to fuel shortages?

By Rafiq Raji, PhD
Twitter: DrRafiqRaji

Nigerians were in for a rude shock last Christmas. Fuel, hitherto abundant, suddenly became scarce. It was artificial, of course. With the political cycle in high gear, myriad negative events have been on the rise. President Muhammadu Buhari blames saboteurs; perhaps a vieled reference to opponents eyeing the presidency in 2019. While he did not say who they were, there is a consensus, amongst the top echelons of the government, at least, that the shortages were contrived. Senate president Bukola Saraki called it an “artificial scarcity” in remarks when the committee put to task to unearth the causes of the fuel shortages and recommend measures to ensure such misery would no longer be meted out to the citizenry again, presented its report. Typically calm, Mr Saraki’s response was a little emotion-laden; reflective of inflamed passions around the issue. Controversy has always trailed the very politically-sensitive issue of fuel supply in Nigeria. Once a subsidised commodity, it was one of the few benefits citizens could claim to get from the government. Verner Ayukegba, principal analyst for Sub-Saharan Africa at London-based IHS Markit suggests why the Buhari administration would be reluctant to raise fuel prices like other countries have done in tandem with crude oil price movements: “It is one of the few ways in which the government can reach a broad set of Nigerians, especially the struggling masses, with subventions.” John Ashbourne, Africa economist at London-based Capital Economics adds thus: “Raising fuel prices is obviously always quite painful – both economically and politically. The government might be hesitant to raise prices now, given that the economic recovery is still fragile and inflation has only just started to come down.” But there is a greater fear for the government should it choose to increase fuel prices at this time: “The potential fallout is negative public opinion against the government in the run-up to next elections”, opines Mr Ayukegba. Could the government mitigate this, though? “In theory, the optimal policy would be to provide targeted grants to lower income people”, says Mr Ashbourne. [But]…poverty alleviation initiatives – social programs – in Nigeria have often come up short”, Mr Ayukegba adds. There are other ways the government could manage to keep the current fuel price of 145 naira unchanged without paying a subsidy to marketers or at least, prevent a steep price hike in the event it decides to be bold. Capital Economics’ Ashbourne makes a suggestion: “In the short run, the government could reduce landing fees and taxes on importers and hope they pass on the savings.” This was also one of the proposals made by state oil minister Ibe Kachikwu when he made a presentation to the Senate committee in January. Mr Kachikwu also suggested that foreign exchange could be made available to fuel marketers at a rate that makes up for any difference between the landing cost and retail price. Another suggestion he made was for a multiple pricing regime whereby marketers would be able to import fuel and sell at any price that suits them while the state oil company sells its own imported fuel at the government approved price. All three suggestions imply some form of subsidy or in the third case, an average price increase.

Cheap fuel, shady deals
Upon the assumption of the Buhari administration, subsidies were stopped. Even so at about 50 US cents for a litre, Nigeria’s petrol is very cheap. Inevitably, savvy entrepreneurs have been making a good trade of either hoarding the commodity or smuggling it to neighbouring West African countries where petrol is dear. Umar Ajiya, chief executive of PPMC, the state oil company’s distribution arm, reeled out the statistics in a media interview in January to support this supposition. Nigeria’s typical daily consumption of petrol is less than 30 million litres. His firm, the PPMC, supplies about 40 million litres a day. During festive periods, the daily supply could be as much as 60 million litres. Mr Ajiya also asserted that at least one ship cargo of 50 million litres is imported by the PPMC daily. Ordinarily, the PPMC should be a marginal player in a supposedly quasi-deregulated market: although the fuel price is set by the authorities, a reasonable margin is incorporated to make the venture profitable for marketers. Considering the price of crude oil and its distillates in the international markets tends to be volatile, marketers would only be able to make a profit if the set price is adjusted with almost as much frequency as the crude oil price changes. Unfortunately, this is not the case; especially when the price rises. In the recent past, the Buhari administration was able to make upward adjustments to the petrol price, when it still had much goodwill. Now in re-election mode, it has become more cautious. To increase the fuel price at this time would be considered very bold indeed. And it could not now say that it has resumed subsidies on fuel products; after having campaigned to remove them in the first place. It used to be a major conduit for corruption.

Liberalise, deregulate and diversify
But it is abundantly clear that the official price of 145 naira for a litre of petrol is not realistic, having been set when the crude oil price was much lower than current levels of above $60. At a landing cost of 171 naira for a litre of petrol, the authorities take a loss of 26 naira on each litre of petrol sold to the public. Marketers complained the authorities were not making up for the difference and insisted on being paid before resuming imports. With the authorities unyielding, in light of the complication that doing so would also imply an acknowledgement that subsidies were being paid, PPMC became the sole importer of petrol. But if it were still selling at 145 naira and importing at a higher cost, how then was it funding the difference? When pressed hard during the earlier mentioned TV interview, Mr Ajiya classified it as an operating cost. Since PPMC is wholly-owned by the government, that operating cost is borne by taxpayers. Simply put, the authorities have been paying subsidy on petrol. As such payments are extra-budgetary and an infraction by the executive branch, Mr Buhari could ideally be impeached because of them; not that this is likely, though. Another suggestion made by Mr Kachikwu is for the country’s moribund refineries to be repaired and perhaps new ones built. As a lot of resources has been wasted in the past to do so, it is probably a bad idea. They could be sold to private investors instead. Incidentally, this was done before; during the administration of former president, Olusegun Obasanjo. Africa’s richest man, Aliko Dangote, was one of the buyers. The sale was revoked by the next administration, however. Instead, Mr Dangote is now building his own refinery from scratch. It is perhaps why the authorities likely reckon they could continue to take losses on fuel imports to ensure the retail price for petrol remains unchanged at 145 naira in the hope that the Dangote refinery would become operational as scheduled in 2019. When completed, the refinery would be able to refine 650,000 barrels of crude oil into petroleum products daily; enough to supply all of the country’s fuel needs with extra to export. But is this a wise strategy? “I would worry about putting so many eggs in one basket”, says Capital Economics’ Ashbourne; “from a pure efficiency perspective, the best option would be to liberalise prices and then deregulate the import stream to allow more competition.

Postscript
Since the publication of the above article by African Business magazine in early February 2018, which I authored, the Nigerian government has since admitted paying subsidy on fuel imports: “an under-recovery of N774 million [$2.2 million] every day.” At the African Development Bank Annual Meetings in Busan, South Korea, which concludes today (25 May), a former central bank governor put the figure at about 1.4 trillion naira (circa $3.9 million). And even as the authorities refused to call it what it is, the legislature has since given it the proper nomenclature. Sadly, with the Muhammadu Buhari administration already in election mode, the principal of which is actively seeking a second term, the likelihood that market forces would be allowed to determine fuel prices anytime soon is very slim. The opportunity cost of this supposed “political necessity” is sobering indeed.

#Africa #Markets | 25 May

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Asian shares shaky after Trump ditches summit with North Korea
  • South Korean shares down 0.65 pct
  • Vix at 4-mth low as investors used to Trump tactics
  • Oil dips on speculation output cuts may be relaxed

Oil Markets

  • Oil prices ease after Russia says it may gradually raise output
  • Russia has been withholding supply with OPEC since 2017
  • OPEC, non-OPEC producers to meet in June to discuss production
  • Russia says supply restrictions could be eased “softly”
  • Brent crude futures down 1 cent at $78.78 per barrel (0024GMT)
  • US WTI crude futures down 2 cents at $70.69 a barrel

Precious metals

  • Gold prices slip but hold above $1,300
  • Spot gold down 0.2 pct at $1,302 per ounce (0100GMT)
  • US gold futures for June delivery down 0.2 pct at $1,301.90 per ounce

Grains

  • Wheat set for weekly gain pct as dry weather threatens global output
  • Most active CBOT wheat futures up 0.2 pct at $5.31-1/2 per bushel (0038GMT)
  • Most active corn futures up 0.1 pct at $4.04-1/2 per bushel
  • Most active soybean futures up 0.3 pct at $10.38-1/2 per bushel
  • Most active rice futures down 0.5 pct at $11.51 per hundredweight

Soft commodities (24 May)

  • Sugar at 8-week highs as truckers strike in Brazil
  • July raw sugar settled up 0.2 pct at 12.38 cents per lb
  • August white sugar settled up 0.6 pct at $351.40 per tonne
  • July arabica coffee settled up 1 pct at $1.2055 per lb
  • July robusta coffee settled up 0.2 pct at $1,755 per tonne
  • July London cocoa settled down 0.9 pct at £1,865 per tonne
  • July New York cocoa settled down 0.6 pct at $2,603 per tonne

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • African Liberation Day today
  • Final day of AfDB Annual Meetings in Busan, South Korea, today

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Impact of fighting on civilians in Libya’s Derna ‘devastating’ – UN
  • Algeria’s Sonatrach hopes for Exxon Mobil deal on shale gas
  • Egypt state security orders prominent blogger Wael Abbas detained for 15 days
  • Morocco’s Rif protest leader on hunger strike, father says
  • Burundi opposition push to annul vote extending president’s term
  • Nigeria’s Bodo community claims win over Shell after latest UK court ruling
  • South Africa authorities halt flights of state-run SA Express
  • Militia attacks Banro Corp’s east Congo gold mine – geologist
  • South African central bank holds repo rate at 6.5%, sees upside risks to CPI
  • US raises concerns over Egyptian activists’ arrests – W.House
  • Yields on Kenya’s 91-day, 182-day and 364 day t-bills dip at auction
  • South Africa probe into influence peddling to start hearings in August
  • Angola central bank holds benchmark rate at 18 pct
  • South African child who was kidnapped for bitcoin is found
  • Tunisian parties discuss cabinet reshuffle, exit of prime minister
  • Infection alert after dying Ebola patients taken to Congo prayer meeting
  • China applauds Burkina Faso decision to cut ties with Taiwan
  • Kenya’s treasury avoids dealing with rate cap in draft law
  • Kenya aims to issue green sovereign bond in 2018/19
  • Sudan says committed to Yemen military campaign, weeks after signalling doubts
  • South Africa confirms Hadebe as CEO of struggling Eskom
  • Kenya’s treasury wants to regulate ‘predatory lending’ – official
  • Kenya’s central bank sells dollars to the market after shilling weakens – traders

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 25 May

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Time Data/Event Previous Consensus
0800GMT Germany Ifo Business Climate MAY 102.1 102.7
0830GMT UK GDP Growth Rate QoQ 2nd Est Q1 0.4% 0.1%
0830GMT UK GDP Growth Rate YoY 2nd Est Q1 1.4% 1.2%
1130GMT India Foreign Exchange Reserves 26/MAY $417.7B
1130GMT India Deposit Growth YoY 12/MAY 8.2%
1130GMT india Bank Loan Growth YoY 12/MAY 12.6%
1230GMT US Durable Goods Orders MoM APR 2.6% -1.4%
1400GMT US Michigan Consumer Expectations Final MAY 88.4 86.9
1700GMT US Baker Hughes Oil Rig Count 25/MAY 844

#Africa #Markets | 24 May

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Asia markets lower on renewed US-China trade concerns
  • Trump says ‘different structure’ needed in US-China trade talks
  • US Federal Reserve minutes reassure on rate rises
  • Oil prices flat after Wednesday falls in US inventory build

Oil Markets

  • Oil prices drop on potential increase in OPEC output
  • Brent crude futures down 0.2 pct at $79.65 per barrel (0103GMT)
  • US WTI crude futures down 0.1 pct at $71.74 a barrel

Precious metals

  • Gold prices extend gains after dovish Fed stance
  • Spot gold up 0.1 pct at $1,294.58 per ounce (0046GMT)
  • US gold futures for June delivery up 0.3 pct at $1,294 per ounce

Grains

  • Soybeans firm, hit 20-day as China to buy US supplies
  • Most active CBOT wheat futures up 0.2 pct at $5.32-1/4 per bushel (0137GMT)
  • Most active corn futures up 0.1 pct at $4.09 per bushel
  • Most active soybean futures up 0.4 pct at $10.43-1/2 per bushel
  • Most active rice futures down 0.2 pct at $11.90 per hundredweight

Soft commodities (23 May)

  • Sugar extends gains to highest in more than 6 weeks
  • July raw sugar settled up 1.7 pct to 12.35 cents per lb
  • August white sugar settled up 1.9 pct at $349.90 per tonne
  • July New York cocoa settled up 1.1 pct at $2,618 per tonee
  • July London cocoa settled up 1.4 pct at £1,882 per tonne
  • July arabica coffee settled down 1.2 pct at $1.1935 per lb
  • July robusta coffee settled down 2.2 pct at $1,751 per tonne

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • AfDB annual meetings continues in Busan, South Korea (21-25 May)
  • South Africa’s central bank to decide interest rates [fcst. 6.25%, prev. 6.5%]

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Nigeria’s military committed war crimes, crimes against humanity – Amnesty
  • Libya cuts oil output by up to 120,000 bpd due to power problems – official
  • Algeria to expel 105 Malians over Ansar Eddine militant group – source
  • South Sudan peace talks end without deal – mediators
  • US to send experimental ebola treatment to Congo – official
  • Voltalia signs power sale contract in Kenya
  • Egypt and Russia sign 50-yr industrial zone agreement
  • France to push Libya accord at new Paris meeting, diplomats say
  • South Africa’s Ramaphosa sets up inquiry into tax service under Zuma
  • Libyan oilfield suffers ‘distribution delay’ amid protest threat
  • Ebola patients slip out of a Congo hospital as medics try to control outbreak
  • Africa Crude – HPCL takes Nigerian, more programmes emerge
  • Kenya central bank 15-yr bond yield at 13.078 pct in auctions
  • Protesters urge workers at Libya’s eastern Wahan oilfield to stop production
  • Zimbabwe army won’t allow opposition to rule – minister
  • Nigeria’s Trans Forcados crude oil pipeline ramping back – sources
  • Irregular expenditure almost doubles at South African municipalities – Auditor General
  • Libya ships first cargo of propane gas to Italy in four years – NOC
  • Freeing Congo’s Mokoko must be condition for IMF deal – opposition lawyers
  • Zuma ally resigns after anti-graft protests in South African province
  • Guinea parliamentary majority rejects calls for Bollore inquiry
  • AngloGold plans 2,000 job cuts in South Africa
  • Egypt detains prominent blogger, latest in arrest series
  • Botswana court reverses ruling to end Tati Nickel’s liquidation
  • Ethiopia opens up telecoms sector to limited competition
  • Change policy to scale up climate-smart farming in Africa – experts
  • Royal Air Maroc, Alitalia sign code sharing deal
  • Shell says Nigeria’s Bonny Light crude still under force majeure
  • Rwanda signs tourism sponsorship deal with Arsenal
  • Algeria’s Sonatrach says no plans to buy more foreign refineries
  • South African provincial premier steps down after anti-graft protest
  • Ghana producer inflation rises to 6.4 pct in April
  • Storm in Somaliland kills dozens, wipes out farms, livestock
  • Crisis-hit Steinhoff repays $2.3 bln African debt
  • South Africa’s CPI jumps in April to 4.5 pct as VAT pain, fuel hikes kick-in
  • Cholera outbreak kills 12 in northeast Nigeria
  • South Africa kidnappers demand ransom in bitcoin to free teenager
  • Egypt tourism revenue jump 83 pct to $2.2 bln in Q1 – govt official
  • UK court convicts pensioner for raping girls in Kenya

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 24 May

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Time Data/Event Previous Consensus
0500GMT Japan Coincident Index Final MAR 116 116.3
0500GMT Japan Leading Economic Index Final MAR 105.9 105.6
0600GMT Germany GfK Consumer Confidence JUN 10.8 10.8
0600GMT Germany GDP Growth Rate QoQ Final Q1 0.6% 0.3%
0600GMT Germany GDP Growth Rate YoY Final Q1 2.9% 2.3%
0830GMT UK Retail Sales MoM APR -1.2% 0.7%
0830GMT UK Retail Sales YoY APR 1.1% 0.1%
1230GMT US Continuing Jobless Claims 12/MAY 1707K 1754K
1230GMT US Initial Jobless Claims 19/MAY 222K 220K
1300GMT South Africa Interest Rate Decision 6.5% 6.5%
1300GMT US House Price Index MoM MAR 0.6% 0.5%
1400GMT US Existing Home Sales MoM APR 1.1% -0.2%
1400GMT US Existing Home Sales APR 5.6M 5.57M
1430GMT US EIA Natural Gas Stocks Change 18/MAY 106Bcf 92Bcf
1500GMT US Kansas Fed Manufacturing Index MAY 33.0
1700GMT US 7-Year Note Auction 2.95%

#Africa #Markets | 23 May

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Asian shares pressured as Trump tempers Sino-US trade optimism
  • Trump says not pleased by recent trade talks with China
  • Turkish lira tumbles after rating agency warnings
  • Oil prices near 3 1/2 –year high on supply concerns

Oil Markets

  • Oil dips after rally, OPEC may ease supply curbs
  • Brent futures down 4 cents to $79.53 a barrel (0006GMT)
  • US WTI crude futures down 2 cents to $72.18 a barrel

Precious metals

  • Gold rises, market eyes US-China trade talks, Fed minutes
  • Spot gold up 0.2 pct at $1,293.53 per ounce (0112GMT)
  • US gold futures for June delivery little changed at $1,292.50 per ounce

Grains

  • Wheat firms to linger near 18-day high on fears for global production
  • Most active CBOT wheat futures up 0.6 pct at $5.24-3/4 a bushel (0100GMT)
  • Most active corn futures up 0.2 pct at $4.05-1/2 per bushel
  • Most active soybean futures down 0.1 pct at $10.29-3/4 per bushel
  • Most active rice futures unchanged at $12.33 per hundredweight

Soft commodities (22 May)

  • Raw sugar at 5-wk high on India buffer stocks plan
  • July raw sugar settled up 0.4 pct at 12.15 cents per lb
  • August white sugar settled up 0.9 pct at $343 per tonne
  • July New York cocoa settled down 1 pct at $2,589 per tonne
  • July London cocoa settled down 0.3 pct at £1,857 per tonne
  • July arabica coffee settled up 0.5 pct at $1.2085 per lb
  • July robusta coffee settled down 0.3 pct at $1,790 per tonne

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • AfDB annual meetings continue in Busan, South Korea (21-25 May)
  • South African inflation data for Apr-18 due [fcst. 3.9% yy, prev. 3.8%]
  • South Africa’s Ramaphosa presents budget for presidency in parliament today
  • Zimbabwe’s Mugabe could testify before parliament today in $15 bln diamond revenue loss probe

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Ghana president demands criminal probe into soccer body chief
  • Rights group accuses Egypt of mass demolition of homes in Sinai
  • Two more die of Ebola in Congo; seven new cases confirmed
  • UN criticizes Algeria for mass deportations of migrants
  • Clashes intensify in east Libya as car bomb kills two
  • Shell’s oil spill dispute with Nigeria’s Bodo villagers back in UK court
  • Former PM says Libya risks partition if it rushes to elections
  • Africa Crude – Nigeria market struggles with unsold cargoes
  • With Nigeria’s central bank holding rates, doubts arise over cuts
  • Nigeria’s central bank keeps benchmark lending rate at 14 pct.
  • Barry Callebaut to boost Ivory Coast cocoa grinding capacity
  • South Africa land reform unlikely to mean constitutional change – analysts
  • Burkina Faso forces kill 3 suspected Islamist militants in early morning raid
  • South Africa’s ANC to “test constitution” on land expropriation
  • Ivory Coast grinding up 2 percent by end-April – exporters
  • Yields rise in weekly South African govt bond auctions
  • South Africa’s finimin Nene says outlook for tax revenues unchanged
  • Kenyan shilling weakens on increased importer demand
  • Ugandan shilling unchanged, weakened by fuel importer demand
  • ATON raises stake in South African target Murray & Roberts to 40 pct
  • Egypt sets deadlines for oil and gas exploration bids
  • Africa’s green revolutions stumbles at Congo project to solve food shortages

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 23 May

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Time Data/Event Previous Consensus
0030GMT Japan Nikkei Manufacturing PMI Flash MAY 53.3 53.6
0130GMT Australia Construction Work Done QoQ Q1 -19.4% 1.1%
0430GMT Japan All Industry Activity Index MoM MAR 0.4% 0.1%
0730GMT Germany Markit Composite PMI Flash MAY 54.6 54.7
0730GMT Germany Markit Manufacturing PMI Flash MAY 58.1 57.8
0730GMT Germany Markit Services PMI Flash MAY 53.0 53.0
0800GMT Euro Area Markit Composite PMI Flash MAY 55.1 55.0
0800GMT Euro Area Markit Manufacturing PMI Flash MAY 56.2 56.0
0800GMT Markit Services PMI Flash MAY 54.7 54.6
0800GMT South Africa Core Inflation Rate YoY APR 4.1% 4.5%
0800GMT South Africa Inflation Rate YoY APR 3.8% 4.7%
0800GMT South Africa Inflation Rate MoM APR 0.4% 0.8%
0830GMT UK Core Inflation Rate YoY APR 2.3% 2.2%
0830GMT UK Retail Price Index YoY APR 3.3% 3.4%
0830GMT UK Retail Price Index MoM APR 0.1% 0.5%
0830GMT UK Inflation Rate YoY APR 2.5% 2.5%
0830GMT UK Inflation Rate MoM APR 0.1% 0.5%
1100GMT US MBA Mortgage Applications 18/MAY -2.7%
1100GMT US MBA 30-Year Mortgage Rate 18/MAY 4.77%
1345GMT US Markit Composite PMI Flash MAY 54.9 55.0
1345GMT US Markit Manufacturing PMI Flash MAY 56.5 56.5
1345GMT US Markit Services PMI Flash MAY 54.6 54.9
1400GMT Euro Area Consumer Confidence Flash MAY 0.4 0.4
1400GMT US New Home Sales MoM APR 4.0% -2.0%
1400GMT US New Home Sales APR 0.694M 0.679M
1430GMT US EIA Crude Oil Stocks Change 18/MAY -1.404M -2.5M
1430GMT US EIA Gasoline Stocks Change 18/MAY -3.79M -1.508M
1700GMT US 5-Year Note Auction 2.84%
1800GMT US FOMC Minutes
2300GMT Japan Reuters Tankan Index MAY 21
2350GMT Japan Foreign Bond Investment 19/MAY ¥827B
2350GMT Stock Investment by Foreigners 19/MAY ¥126.3B