Minister of  Finance, Ngozi Okonjo Iweala

By Obinna Chima

Renaissance Capital (RenCap) has predicted that inflation rate may likely breach the upper band of the Central Bank of Nigeria’s (CBN’s) target of between 11 and 14.5 per cent by the second half of 2012.

The international investment and research firm stated this in a report titled: “Nigeria: Trip notes -High Interest Rates Likely to Persist,” made available to THISDAY Thursday. It however forecast that inflation may stay around 13 and 14 per cent by the end of 2012.

“We hold this view despite the challenge of forecasting Nigeria’s consumer price index (CPI), given that the weights published by the National Bureau of Statistics (NBS) are not the final weights used to calculate CPI. The final weights are adjusted by population across Nigeria’s 37 states. This uncommon practice explains why the sub-indices do not add up to the published CPI, if one computes CPI using only the published expenditure weights.

“Nevertheless, we think a spike in inflation is likely in second half of 2012, but we are of the view that the Central Bank of Nigeria (CBN) will refrain from tightening, given that this increase is likely to be temporal,” RenCap argued.

The report also revealed that the petroleum import bill had fallen by 40 per cent since the partial removal of the petrol subsidy. It however pointed out that the non-transparent subsidy process and overstatement of subsidy payments exerted downward pressure on forex reserves and placed a significant burden on fiscal resources.

According to RenCap, half of the 2012 budget allocation for the petrol subsidy had already been spent, adding that there had been significant concern that maintaining the petrol subsidy was not sustainable, particularly in a relatively high oil price environment.

RenCap added: “If we go by the latest trade numbers for the year to September 2011 and assume a 40 per cent reduction in total fuel imports, which were equivalent to 16 per cent of total imports, this implies a six to seven per cent decline in the value of total imports.

“We think the partial removal of the subsidy partly explains the $4.1 billion increase in forex reserves year-to-date to $36.5 billion and naira stability, compared with 2011’s depreciation trend.

However, there are other factors in play. The drop in the value of petroleum imports may also partly reflect the impact of oil marketers holding off fuel imports with the intention of observing how the subsidy issue would unravel.

“This implies that as import demand picks up, the growth of forex reserves may slow, which is negative for the naira. We think there is a risk that a pick-up in petroleum import demand may slow the build-up of forex reserves in the short term, but not reverse it.”

Given the identified risks, RenCap also predicted that interest rates would remain high. According to the firm, moderating oil price and flat production implied that interest rates would remain elevated.

“In our view, slowing fiscal revenue implies upside risk to interest rates if borrowing rises to finance the deficit and as monetary policy remains firm to counter inflation due to fiscal spending and stem naira weakness.
“If the current rate of consumption of petrol continues, the government will have to tap into the excess crude account, thus undermining the rebuilding of savings and be contrary to the aim of fully incorporating the subsidy in the N4.88 trillion budget,” it warned.

Caption: Minister of Aviation, Stella Oduah
‘Air Transport Sector ’ll Generate over N500bn by 2017”
By Chinedu Eze
Industry experts have projected that by 2017 the air transport sector will be generating over N500 billion, thus doubling the present revenue that accrues to the industry presently and in addition the passenger movement will grow to over 22 million from the present 14 million annually.

Vice-President Flight Operations, Arik Air, Captain Ado Sanusi, told THISDAY that he was optimistic that the aviation sector would generate over N500 billion in the next five years because it would grow from less than 1.00 per cent to 1.5 to 2.00 per cent during the period under projection.

“This means that more people would choose flying to other means of transport and as airlines are expanding their operations to airports where they were not operating before, more people who hitherto were not traveling by air before would choose that mode of transportation.

“I can see the growth in terms of the fact that we would grow from present less than one per cent to 1.5, to 2.00 per cent. I agree with that project as more Nigerians travel by air. We are going to achieve that figure,” Sanusi added.

Also, the CEO of Belujane Consult Limited, Mr. Chris Aligbe, who agreed with the projection said the N500 billion mark might even be exceeded if there is a marked economic improvement in the country with increase in the income of Nigerians.

“If Nigerians record higher economic growth and there is more money available, more Nigerians will start travelling by air and this will boost passenger movement. Take a country like Turkey, its national carrier is dependent for its revenue on domestic operations because there is money in that country; they are recording economic boon now.”

Aligbe also said in the next five years, Nigeria might likely have about two to three strong national flag carriers, which would take up significant segment of the international passenger market.
These, according to him, are airlines that operate as national carriers but owned largely by private investors instead of government.

In her last address to stakeholders, Minister of Aviation, Mrs. Stella Oduah, said the industry generated N225 billion in one year and about 90 per cent of that amount of money came from Lagos and Abuja airports but lamented that many airports in the country are under-utilised.

But an industry insider told THISDAY that for this project to be realised, there must be remarkable improvement in infrastructure at the airports.

The source said that at a time many other countries are expanding their airports and upgrading facilities to accommodate the largest aircraft in the world, Airbus A380 and Boeing 747 800, the nation’s airports were still in the state they are now.

“There should be modernisation of infrastructure at the airports. For you to realise that projection you have to expand the airports, upgrade facilities because it is aircraft like A380 that can move such number of passengers. It is the same problem with cargo; infrastructure in that area is not being expanded, so for Nigeria to realise that projection, it has to improve infrastructure at the airports,” the source added.