Afrexim Bank is reportedly offering oil to traders to fund its $3 billion loan to the Nigerian National Petroleum Company (NNPC) Limited. The loan was secured in August as part of the Nigerian government’s efforts to save the naira.

The agreement between the NNPC and Afreximbank is not a crude-for-refined products swap but an upfront cash loan against proceeds from a limited amount of future crude oil production, according to the company.

However, according to sources cited by Reuters, Afreximbank has reached out to traders to assess their willingness to support an oil-backed loan for Nigeria’s national oil company, NNPC LTD. The bank is currently in the process of determining the terms that it will propose to trading houses for this endeavor.

“There is a lot of interest, but they need to see the conditions,” a senior oil executive with knowledge of the negotiations told sources. The executive noted that increasing oil prices above $90 a barrel would help increase interest, but he asked that his name not be used because he is not permitted to speak publicly on the matter.

The proposed system involves traders receiving actual oil cargoes as payment from financiers. Afrexim Bank is reportedly meticulously calculating the exact quantity of oil that would be allocated to these traders in exchange for their financial assistance.

Cash-upfront traders would be compensated with physical oil cargoes, and the bank is working to establish the specific amount of oil to be allocated to individual traders as part of the funding arrangement.

The Nigerian government is desperately working with its agencies to boost naira’s performance in the FX market. Following the decision of the Central Bank of Nigeria (CBN) to float the naira in June, removing pegs around the dollar as part of reform efforts to create a unified exchange rate, the naira has weakened significantly. The embattled currency has fallen to N1,000/$1 in the parallel market.

Nigeria has outstanding foreign exchange obligations that amount to $7 billion. This, economic experts believe is partly responsible for the woeful performance of the naira in the FX market.

Last week, Finance Minister, Mr. Wale Edun, said the $7 billion backlog needs to be cleared to strengthen the naira.

The collaboration between Afrexim Bank and oil traders presents a unique opportunity to bolster the naira and enhance the country’s financial stability in the midst of the challenging economic situation. The success of this innovative funding approach will ultimately depend on the terms agreed upon and the willingness of traders to participate in the initiative.

The $3 billion is expected to provide a measure of FX liquidity in the Investor & Exporter window. The illiquidity in the official CBN window has driven people to the parallel market, accelerating the rate of the dollar upward.

As of now, neither NNPC nor Afrexim Bank have provided any comments or official statements regarding the development. However, given its potential impact on Nigeria’s currency and economic stability, there is considerable interest and anticipation surrounding this groundbreaking partnership.

Cassava is a very prominent crop in Africa. Nigeria is the world’s largest cassava-producing country. As at 2014, the global cassava production was 215,436,496 tons, out of this, Nigeria accounts for 20.3% making her the largest producer in the world. Cassava is cultivated in over 80 countries of humid tropical regions of the world. Cassava products are rich in carbohydrates, vitamins (mostly vitamins B and C), and essential minerals and low in protein.

The nutrient composition of a cassava plant depends on the variety, age, and prevailing environmental condition including soil characteristics. Cassava is a major source of energy for more than 2 billion people in the world especially in the tropical region. Cassava is consumed by more than 500 million people in developing nations and about 300 million in the tropical countries. In Nigeria, cassava farming and processing into useful food items is a major source of livelihood to several families especially in rural areas.

Cassava peels make up 20% of the whole root, but are discarded during processing. The peels amount to nearly 40 million tons per year in Africa alone, giving cassava a bad name as an environmental polluter with the mountains of waste around processing centers.

Cassava mill effluent (CME), liquid waste generated from cassava processing is noted for its ecological hazard. Due to the acidic nature of CME, it is toxic to households, animals, fisheries and other organisms. Most of the human food resources are found in the environment including water and land. Acidification of water and soil leads to loss of viable food resources. It could lead to decline in abundance and composition of fisheries over a long period of time which could have adverse impact on human who depend on these fishes as source of protein.

To create a business opportunity out of this undesirable byproduct, the International Institute of Tropical Agriculture (IITA) developed a high-quality cassava peel (HQCP) feed ingredients from wet peels. This innovation enables rapid water removal and accelerates the elimination of hydrocyanide. The intermediate product (60% dry matter, up from 30% in fresh peels) is safe for livestock to consume and stable for up to a week and can be sun-dried or heat toasted to a storable product (90% dry matter). This can be done any time of the year in a small- and medium-scale setup or flash-dried in a more industrial case.

Since three tons of fresh peels yield about one ton of HQCP, Africa’s cassava peel waste could generate at least 12 million tons of HQCP annually – equivalent in metabolizable energy (ME) to 8 million tons of maize thus spared for direct human consumption. In addition, there is willingness to pay for HQCP; for example, when maize prices reached $300, HQCP was being purchased for $150. This ratio holds for wide price bands. The huge value creation of this high-impact innovation provides an alternative source of feedstuff, protects the environment, and provides new income sources to smallholders producing cassava.

The innovation has been supported by the CGIAR Research Program (CRP) on Root Tubers and Bananas (RTB), and it leverages the expertise of several private and public partners in Nigeria, such as the National Office for Technology Acquisition and Promotion (NOTAP), Raw Material Research and Development Council (RMRDC), Bank of Industry, and SingleSpark from the Netherlands, makers of FeedCalculator.

Source:

Iheanacho Okike, International Institute of Tropical. Agriculture (in.) The Innovation Revolution in Agriculture: A roadmap to Value creation. Hugo Campo (editors.). Springer.

Reducing the number of Bureau de Change (BDC) operators in Nigeria will not fix our forex crisis and Tope Fasua should not advocate for that. Nigeria needs to focus on the root cause of this problem, and the number of BDC is not one. The root cause is lack of parity between the supply and demand of US dollars in Nigeria, and floating Naira which I think is a bad policy, did not model that asymmetric imbalance.

Nigeria’s forex crisis, which has thrown the country’s economy into disarray – pushing the government to the limits in its search for a solution, has seen varying degrees of suggestions from experts, state and non-state actors proffering solutions.

Consequently, the Nigerian Presidential Adviser on Economic Affairs, Tope Fasua, has recommended a significant reduction in the number of Bureau de Change (BDC) operators in the country. He suggests reducing the current number of over 5,000 BDCs to approximately 200, which would amount to a 95% reduction.

He made this call while speaking at an economic policy event organized by the Abuja Chamber of Commerce and Industry. The event’s theme was “Unification of foreign exchange and the effect of fuel subsidy removal on the business community.”

Unless you bring parity to the demand and supply, Naira will continue to struggle, to settle at an optimal equilibrium. On the day this policy was announced, I wrote here that it was not well designed, just as I noted that Nigeria will return to fuel subsidies if we have not already done so, since as FX and international crude oil price continue to increase, the local price of petrol has largely remained the same, meaning that the government is paying the variance. In a full subsidy regime, we would have seen an increase at the pump price!

When you are struggling to balance your budget, you do not ask your bank for a thinner cheque book, to save cost. And Nigeria cannot think it can float Naira without controlling the air Naira operates. That “air” is production which includes old and modern factories. They supply the air for Naira to breathe and float.

When the leaders are clueless, they apply cosmetics and the barest minimum to challenges with obvious solutions.

How many times will it be repeated, that an unproductive country will have their economic managers to blame for a stuttering growth?
They will still argue –

— Chukwunedum Ekwenibe (@MiriEnweIlo) September 27, 2023

Comment on Feed

Comment 1: Ndubuisi Ekekwe , I understand your view which should be the core of our solution to Nigeria FX issues. Ndubuisi Ekekwe , what will be your short term, medium term and long term strategy.

Strategy to reduce unnecessary demand, strategies to improve supply.

Prof, our supply from production might not happen overnight, but reduction of unnecessary demand might be a feasible and viable short term stray.
Ndubuisi Ekekwe , what is your take

My Response: “what will be your short term, medium term and long term strategy.” – return back to the status quo as at May 29. Use the next 6-9 months to deepen production capacity, then begin to implement these new policies. Sometimes, not doing anything may be a better solution. Yes, NOT floating Naira, immediately. I have put my ideas and I do not need to repeat them in all posts. Sure, any person can question my positions – that is demoracy.