Sabi-Business Dec 14, 2015- Olatunde Gboyega

Sabi-Business Dec 14, 2015- Olatunde Gboyega

The week in Review

The Exchange Rate Saga: What goes up, must…

The dollar exchange rate closed at N260/$1? It was N220/$1 a few week ago so what changed? Well, The Central Bank of Nigeria, (CBN) suspended 1,600 out of the 2,800 BDC’s a few weeks ago. Remember CBN sells $60,000 dollars to BDC’s weekly – therefore 2,800 * $60,000= $168m. The suspension reduced the amount of dollars sold weekly in the parallel market from $168million to $72million which created a scarcity of dollars.

Though CBN has lifted the suspension on some BDC’s and resumed sales to all BDC’s, there are reports that CBN is considering stopping sales to BDC’s altogether – which could lead to hoarding by BDC’s. Expect the exchange rate to go HIGHER!!!

Now if you add the fact that CBN is considering an official devaluation of the Naira moving the official rate from (about N200/$1 to maybe N230-240 /$1) – the dollar exchange rate could be N300/$1 soon. Let’s just hope what goes up… must come down.

Sabi Business 1

$38 budget benchmark is no longer realistic or is it?

The Government has set a benchmark price of $38 per barrel in the proposed 2016 budget. This creates a problem already because:

(1) Crude oil price is now $37.93 which is lower than the budgeted price.

(2)70% of our budget income and 85% of our foreign exchange income is from crude oil sales.

(3) Remember Crude Oil Sale price – Budgeted Price = Savings in the Excess Crude Account. Lower prices mean no savings for a rainy day or transfers to our Sovereign Wealth Fund.

(4) International prices are low because OPEC did not reduce production (from 31.5m barrels). Too much supply with no increase in demand in the near future will cause oil prices to fall – which is already happening. Remember we produce about 2.2m barrels per day.

Subsidy Payment Wahala.

The Government paid $2.1 billion (N407 billion) during the week as subsidy to Oil marketers. A total of N628 Billion has been paid to marketers so far this year. Remember that there is still a N109 billion for the rest of the year that we expect the FG to pay at some point.

The Calculations:

Total Subsidy to be Paid in 2015 = N (221 + 407 + 109) = N737 Billion

2015 Budgeted Subsidy Payment = N102.5 Billion

Excess Amount Paid not accounted for in 2015 Budget = (525.5 + 109)= N634.5 Billion

Subsidy per litre as at Dec 10, 2015 = N9.10/litre

CHANGE MUST HAPPEN!… SUBSIDY MUST….?????

Lastly

Customers to pay more for Power as electricity tariffs are expected to increase.

How can you pay more for power (light) that you hardly have? – Apologies to NEPA or PHCN or EKEDC? or whatever they are called now. Please raise your hand if you are running a generator as you are read this article?

Yet we are expected pay more for power to make it more attractive for investors to come to Nigeria. Have we forgotten that despite all the investments in electricity generation (GENCO’s) and distribution (DISCO’s) nothing has happened (very little investments have been made in the Transmission Company of Nigeria (TCN) (not TRANSCO). Thus no matter how much power we generate, transmission still remains a problem. Remember we need investments of about N15 billion yearly for the next 3 years to increase transmission from 5300 to 8000MW.

Thus we should pay more for power now, so that investors can see we have capacity to pay and invest more in our power sector – unfortunately give us the light (power) first – let light (power) not blink for 3 months uninterrupted… then I’ll become a believer…

We are back next monday

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