- Adeosun Seeks Interest Rate Reduction to Boost Growth
Iyobosa Uwugiaren, James Emejo in Abuja and Obinna Chima in Lagos with agency report
The federal government plans to raise $2 billion through the concession of the existing Lagos-Kano/Port-Harcourt-Maiduguri rail line, the Minister of Budget and National Planning, Senator Udoma Udo Udoma, has said.
He spoke in Abuja just as the Minister of Finance, Mrs Kemi Adeosun, called for the lowering of interest rate to boost economic growth.
Udoma, who also explained that the federal government had released N400 billion out of the budgeted N1.8 trillion capital vote for the year, said discussions were on with General Electric (GE) to take over the rail line as part of the efforts to multiply revenue sources to fund the budget.
“We are working on all fronts at the same time. One is to get oil production back – it is very important. Two, is the asset sales, concession and all that. We are discussing with General Electric, and I will give that as a practical example,” Udoma said in a document released to THISDAY monday, adding that the firm had already committed to bring in $2 billion into the concession arrangement.
He said that the concessionaire would take over the rail lines, revamp them and build coaches in the country, explaining that the process of getting the thing through would however take some time.
“We have to wait for the various government agencies because there are certain procedures we have to go through. This is why we met and said, is there a way we can fast track some of these things? Because we need the money today, not in three or four months’ time,’’ Udoma explained.
The minister said the recurrent budget, as contained in the 2016 Appropriation Act, had been “virtually fully’’ implemented.
“As far as the recurrent is concerned, the 2016 budget has been virtually fully implemented. The emoluments have been paid in full. We’ve released all the money. At the federal level, all salaries have been released. We have met that in full,’’ Udoma stated.
He added: “We have also met all debt service in full. With regards to overheads, we have not met that in full but we are almost there. The problem has been capital. In the capital budget, we planned to spend about N1.8 trillion, but we’ve only spent about N400 billion.
“So, we have not been able to meet up with the level of capital releases. The reason for that is that if you look at the first six months of the year, the revenue performance was N1 trillion less than we projected.’’
The minister added that given that rate, it meant that at the end of the year, there would be N2 trillion less revenue than the country expected, saying there is no economy and person that could manage that without being where the country is tuesday.
On how soon Nigerians are likely to see some activities against the background that many analysts at the Economic (Ministerial) Retreat said recently that the federal government should pump a lot of money into the economy and see some busy activities happening, Udoma said the federal government completely agreed with that, stating that the Economic Management Team had been meeting for the last months over the fiscal stimulus to see how it could raise additional revenues.
He added: “We need to raise additional revenues. To release more money, you need to get the money first. So, we have a fiscal stimulus plan, which we have been developing over the last months. We intend to do a number of things. We are looking at assets sales, concession, and getting advance payments from licensing rounds and all that.
“We are targeting to raise between $10 billion to $15 billion and we have started that process. Why are we looking for dollars? It is because what we need to charge this economy is actually foreign currency. It is foreign currency shortage that is really responsible for where we are today. So, we have to look for foreign currency. We have a plan already.
“We have prepared a bill because we want to fast track some of these processes in order to be able to get the money from concession and all that. There are two sources of getting these additional funds. One is getting more crude oil production. At that time, we still thought we will be able get more oil production and get back to 2.2mbpd.’’
The minister further stated that the federal government was also looking at a strategy to contain the militant activities, adding that the government didn’t expect it to be as prolonged as it has been.
He said that the federal government, with the help of all stakeholders in the region, is still working to reduce the militant activity through dialogue and other strategy.
“If we can reduce them, we can take oil production immediately to 2.2mbpd. If we do that, we will be able to pump this additional money into the economy,’’ he stated.
On whether Nigeria is still producing around 1.1m barrel per day, the minister said it is now moving up because Qua Iboe Terminal had started operating.
Udoma also made some clarifications on the monies recovered and lodged in the Treasury Single Account (TSA) and looted funds recovered by the Economic and Financial Crimes Commission (EFCC).
“On the TSA, what we talk about is a flow. It is not that the TSA has recovered a surplus. The TSA is a mechanism for making sure that all payments go through a central point so they can be tracked, but those funds belong to various agencies and they end up being paid into the national treasury,’’ he stated.
“So, the issue of maybe N3 trillion lying idle in TSA is not correct. The money that has been flowing through, the cumulative amount is what is being spoken about. That money is not lying there idle for us to take. This has been clarified so many times. The Minister of Finance has said so on several occasions and I can’t understand why the issue isn’t still clear,’’ he said.
On the funds recovered by the EFCC, he said that until the legal processes were completed, the federal government could not spend them.
Adeosun seeks interest rate reduction
Meanwhile, as the Central Bank of Nigeria’s (CBN) monetary policy committee (MPC) members are set to announce the outcome of their two-day meeting today, the Minister of Finance, Adeosun, has expressed her preference for a reduction of the benchmark Monetary Policy Rate (MPR).
The minister, who said this while speaking on CNBC Africa, argued that the focus of policy makers in the country at this time should be on stimulating growth.
The Nigerian economy is in recession. The NBS recently revealed that the country’s gross domestic product (GDP) contracted by 2.06 per cent in the second quarter of 2016, compared to the negative growth of 0.36 per cent recorded in the first quarter of 2016.
“I would rather seek growth, we can manage inflation – let’s stimulate the economy, we need lower interest rates,” she said.
The finance minister wants the central bank to lower interest rates so that the government could borrow domestically to boost the economy, which is stuck in recession, without increasing its debt-servicing costs.
Adeosun said she was working with the Debt Management Office (DMO), Nigeria Sovereign Investment Authority (NSIA) and the pension industry to issue an infrastructure bond to raise money for road and housing projects, although she did not elaborate.
She said she wanted the central bank to reconsider its July interest rate hike, which it implemented to help support the naira and attract foreign investment inflows.
“We need lower interest rates because when we are borrowing and interest rates go up, it increases our cost of debt service and it reduces the amount of money that is available to spend on capital projects,” she told CNBC Africa.
“The attempt was to manage inflation and the trade off for the economy right now is what a bigger problem is: Is it growth or inflation? For me it is growth. I would rather seek growth. We can manage inflation. I think for us at the moment in the Nigerian economy, growth is the most important thing,” she said.
Adeosun said the government was working with the parliament to cut procurement timelines to get contractors back to work and inject money into the economy.
Nigeria has said before that it plans to set up a $25 billion infrastructure fund to invest in the transport and energy sectors.
She said some adjustment was needed to narrow the spread between the official and black market currency rates, which is running at 25 per cent after the central bank floated the naira.
“We still need to make some necessary adjustment to ensure that the spread is narrowed so that we have true price discovery,” she said.
At the last MPC meeting held in July, the Monetary Policy Rate (MPR) was raised to 14 per cent from 12 per cent, and the Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) were both retained at 22.50 per cent and 30 per cent respectively.
The spot rate of the naira appreciated marginally to N307.25 to the dollar on the interbank forex market yesterday, up from the N308.69 to the dollar it closed last Friday. But on the parallel market, the naira remained unchanged at N425 to the dollar monday.
NBS Updates Capital Import Figures
Nigeria’s total value of capital imported into the country was estimated at $1.04 billion in the second quarter of the year (Q2 2016), representing an increase of 46.58 per cent compared to $710 million in the previous quarter, according to updated figures by the National Bureau of Statistics (NBS), which were released monday.
However, the new figures represented a decline of 60.91 per cent relative to the corresponding quarter of 2015, and contrasted with the preliminary estimate which was based on the first two months of the quarter, which indicated a quarter-on-quarter decrease of 8.98 per cent.
The release by the NBS came just as the Minister of Finance, Mrs Kemi Adeosun, called for reduction in interest rate to boost growth.
The updated version supersedes the preliminary report published in which capital importation for June 2016 was only an estimation as figures were not readily available then.
Nevertheless, the NBS said it deemed it necessary to provide an update having laid hands on the real figures for June, which appeared to reset the calculations that earlier put total capital importation at about $647.1 million for Q2.
The NBS said a sharp increase in June outweighed the low values recorded in April and May as the level of capital imported in June was the highest monthly value in 2016.
It added that the value of capital importation rose to $610.77 million in June, more than the previous three months combined due to a surge in loans, and helped by a significant change in exchange rate policy as the Central Bank of Nigeria (CBN) opted to move to a more flexible regime.
Specifically, the NBS said analysis showed that “the sharp rise in June in particular and Q2 2016 over Q1 2016 in general was due to a 115.12% quarter-on-quarter and 239.48% year-on-year rise in loans predominantly to the oil and gas (862.02% quarter-on-quarter rise and 4,023.25% rise year on year) and telecoms sectors (783.25% quarter on quarter and 14.22% rise year on year)”.
In May, the value of capital imported was the lowest since August 2009, it added.
According to the statistical agency, quarter on quarter, the foreign direct investment (FDI), portfolio investment and other investments all recorded increases, with other investments recording an increase of 96.09 per cent and accounting for $520.57 million, or 49.95 per cent of the total share of capital imported relative to the previous quarter.
Portfolio investment, which was the second largest component recorded an increase of 24.45 per cent and accounted for 337.31 million, or 32.37 per cent of total capital imported.
Furthermore, portfolio investment was dominated by equity, which accounted for 82.95 per cent, a slightly lower share than a year previously when the share was 84.56 per cent but higher than in the previous quarter when it accounted for 74.41 per cent.
On the other hand, FDI recorded an increase of 5.64 per cent in the period under review and accounted for a total of $184.29 million, representing 17.68 per cent of the total figure. Equity accounted for the vast majority of FDI, leaving only $0.08 million as capital imported in the form of other capital.
Providing a sectoral breakdown of capital imported in Q2, the NBS stated that the value of share capital imported into the country was $347.99 million, a significant increase relative to the first quarter of 42.89 per cent. Year on year, while share capital declined by 72.83 per cent.
It said: “Despite the large quarterly increase, the proportion of total imported capital that shares accounted for in the second quarter was 33.39%, slightly lower than the proportion of 34.25% recorded in the first quarter. It is also less than half the proportion it accounted for in the same quarter of 2015, which is 70.41%. Nevertheless, share capital still accounts for a larger proportion of total imported capital than any individual sector.
“For the first time on record, the sector to import the largest amount of capital was Oil and Gas, which accounted for $200.39 million, or 19.23% of the total. In all previous quarters, the sector to import the most capital had been either Banking, Financing, Production or Telecommunications. The Oil and Gas sector is characterised by occasional high levels of capital importation, interspersed with periods in which very little capital is imported. This sector imported $20.83 million in the previous quarter, and only $4.86 million a year previously.”
Continuing, it said: “The sector to import the second largest amount of capital was Servicing, which imported capital worth $119.75 million in the second quarter, or 11.49% of the total. This represents a large increase relative to both the same quarter the previous year when capital worth $12.83 million was imported, and the previous quarter in which the value was $55.05 million.
“There were five sectors to record no capital importation in the second quarter of 2016 (Marketing, Hotels, Tanning, Transport and Weaving), one more than in the previous quarter. In addition, half of the 20 sectors recorded either a decline in the amount of capital imported relative to the previous quarter, or no change.
“The largest fall was in the Electrical sector, which recorded $57.31 million less. By contrast, Oil and Gas recorded the largest increase, and imported $179.56 million more than in the previous quarter, but Telecommunications also recorded a notable increase of $105.27 million, from $13.44 million in the first quarter, to $118.71 million in the second quarter of 2016.”