• ‘CBN’s FX policies have exceeded expectations’
The crude production target of 2.3 million barrels per day proposed in the 2018 budget will not be achieved because of acts of sabotage in the lead-up to the 2019 elections, FBNQuest Capital has predicted. FBNQuest, which made this assertion in its newly-released Economic Outlook, projected that oil output will average 2.07mbpd this year, as against 1.90 mbpd of 2017, due to expected disruption in production as activities towards the 2019 elections rev up.
It, however, acknowledged that production had been in the upswing since mid-2017 with the federal government’s fruitful effort to settle volatile issues in the Niger Delta.
“We see average output (including condensates) this year at 2.07 mbpd, compared with 1.90 mbpd in 2017 and the assumption of 2.30 mbpd in the 2018 budget proposals,” FBNQuest, which is an arm of FBN Holdings Plc., stated. “We have made allowances for some acts of sabotage in the run-up to elections. However, the broad trend in production has been upwards since mid-2017, and the FGN is maintaining its conciliatory approach in the delta. Also, Total’s deep offshore Egina oilfield is due to start production in Q4 at 200,000 b/d.”
It stressed, “There is metering of production in operation but it is carried out at export terminals by several agencies employing different methodologies. Consequently, there is no single unified official data source for production. This makes Nigeria unique among large-scale oil producers. It also places question marks around the value of all official planning and budget activity.
“We have, therefore, to choose from a number of data sources, including the NNPC, the CBN, Reuters, Bloomberg, the EIA in the US, and OPEC. Our favourite is the data series in the corporation’s monthly Financial and Operations Report.”
FBNQuest emphasised that on the basis of the expected further rise in crude output, to an average of 2.07mbpd, from the previous year’s 1.90 mbpd, it predicted a GDP growth of 2.4 per cent this year. Besides, the investment banking firm stated that it saw the non-oil economy in “better shape” in the second half of this year, marked by less restricted household budgets.
Stating that its call for 2018 would not be complete without a view on the naira exchange rate, FBNQuest stated, “The CBN’s unorthodox FX policies, which were first outlined in a circular in February 2017, have exceeded expectations (including its own).”
According to the firm, “On the parallel market, the naira has appreciated from south of N500 per US dollar at the start of 2017 and has settled at about N362 for nine months. It is now rarely quoted in the local media. FX is widely available for manufacturers, services sector operators and retail. There is a spring in the collective step of the CBN and we do not expect an adjustment/unification ahead of the elections. It suits the authorities to have a rate for priority transactions and the internal, and much of the external pressure for unification of rates has eased.”
On the plans for the industry bill, FBNQuest said, “We have argued that the institutional agenda of the assembly acts as a brake on development. This was made in the context of the budget process but applies to the Petroleum Industry Governance Bill (PIGB) (formerly the Petroleum Industry Bill (PIB)) equally. Vested interests in the industry have played their part in the delays in its passage. The current administration is opposed to an ‘omnibus’ bill for the industry on the grounds that it has proved too contentious, and so has favoured the passage of the bill in smaller components. In January, both houses of the assembly passed a governance bill, which awaits the signoff of the president.
“The Senate president said earlier this month that he hoped the three remaining components (covering fiscal and administrative issues, and host communities) would be passed before the start of the assembly’s long summer recess in July. This strikes us as an optimistic timeline. The administration has its clear plans for the industry.”
FBQuest argued, “The administration will be judged on its fiscal performance because it has pushed an expansionary agenda with ambitious capital spending plans (when governments in Ghana, Angola and elsewhere in similar circumstances have opted for austerity). The expansionary budgets are the FGN’s contribution to returning Nigeria to solid per caput growth. The aim is to boost capital expenditure on the infrastructure and so remove many of the well-documented roadblocks to inclusive growth and job creation. “
It recalled, “The robust GDP growth through to 2014 was based in expenditure terms on robust household demand. Consumption growth has slowed dramatically as a result of the direct and indirect impact of the slide in the oil price, insecurity in the North-east, and currency devaluations (in November 2014, February 2015 and June 2016).”
FGNQuest believed, “The FGN’s reforms have been diluted by institutional and other vested interests as well as overly centralised decision-taking. Several ministries, notably power, works and housing, have fallen short of the high expectations placed upon them, for which we hold bureaucracy and political oversight from above to be responsible.
“We might add the ill-health of the president but acknowledge the argument that ‘more got done’ during his extended absences in 2016 and last year.
There are some achievements to note since the formal handover of power to Buhari in May 2015. These include the recapture of territory held by Boko Haram, changes at the NNPC, its planned experiment with self-financing JVs, the launch of the treasury single account (TSA), the fuel price reform in May 2016, some recoveries and, arguably, the CBN’s FX reforms in March/April 2017.”