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Besides Planned Reversal on Fuel Subsidies, Expect a Reversal on Naira Float

By
Ndubuisi Ekekwe
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0

TheCable reports that the Nigerian government is considering bringing back fuel subsidies, temporarily, as the paralysis caused by high energy costs continues to put the nation into a miry clay. In the last five days, I have made that point many times here. Yes, Nigeria must forget the liturgical purity of campaign promises or manifestos and face governing realities.

Also, the nation must also ignore big banks like Morgan Stanley which just put out a report which has no basis on the current state of Nigeria. That report will work in America but has no chance in Nigeria! We must understand that, unlike the United States, the Nigerian government has limited tools to stimulate consumer demand since consumer lending is largely non-existent.

American multinational investment bank and financial services company, Morgan Stanley, has lauded Nigeria’s president, Bola Tinubu’s reforms to reposition Nigeria’s economy, urging for more sound policies.

In the company’s recent advisory report titled “Tales from the Emerging World Nigeria’s New Dawn?”, it hailed the Tinubu-led administration, for several strategic reforms implemented, to recover the dwindling Nigeria economy.

The report began by stating how the previous administration of President Muhammadu Buhari led Nigeria to suffer eight years of stagnation, despite his claims to tackle corruption.

And if that is the case, the correlation between interest rate and consumer behaviour is weak in the short term. Also, a high cost of fuel will have a devastating impact on production, and that will push inflation high, and in a non-credit economy, welfare losses become rampant since people have limited means to borrow, to compensate for the high costs of items.

In the next few weeks, I expect a reversal on the Naira float because that policy cannot work, based on the fundamental principles of economics. Nigeria still has many core tools, and the government must be bold to use them to bring Naira back to a better position. And this should be a lesson: we must be nuanced on policy formulation, and plan better.

Nigerian Government is Reportedly Considering Providing Temporary Fuel Subsidy

Nigerian Government is Reportedly Considering Providing Temporary Fuel Subsidy

By
Samuel Nwite
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0

The Nigerian government is believed to be making plans to provide a new temporary subsidy regime for Premium Motor Spirit (PMS), according to sources in the presidency and moves being made by the government.

Following the report that petrol pump price is going to hit N720 per liter in the coming weeks, the Nigerian National Petroleum Company Limited (NNPCL), announced that it has no plan to increase fuel prices. The NNPCL assured Nigerians that fuel will continue to sell at N588 and N617 across its stations, even though market indices support marketers’ stance that given the continuous drop of the naira in the forex market, the prices will surely go up.

“It is simple mathematics, once the dollar is going up, have it in mind that the prices of petroleum products would definitely increase because the products are dollar-driven,” the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike said.

However, the crux of the matter is that further increase in pump price will push Nigerians, already overburdened by the subsidy removal-induced high cost of living, to their breaking point.

The Nigerian Labour Congress has already threatened to embark on an indefinite strike if the prices of fuel rise again.

Against this backdrop, the federal government is believed to be working on a plan to provide some subsidy to ensure that petrol prices are not raised above where they currently are.

President Bola Tinubu, who announced the removal of fuel subsidy in May, said on Tuesday that petrol prices will not be increased. He however said that he is committed to maintaining competitiveness in the petroleum industry.

During a press briefing at the State House, Ajuri Ngelale, the spokesperson for the President, said that the President is urging all parties involved to maintain a sense of calm and refrain from jumping to hasty judgments in light of recent threats issued by the organized labor movement.

The removal of fuel subsidy has put the government in a very difficult situation, especially as it came along with the deregulation of the FX market, which has seen the naira perform horribly – dropping to N950 against the dollar.

Though Tinubu affirms the continuation of the deregulation policy – asserting Nigeria’s pump prices as the most cost-effective among West African neighbors, his promise that fuel pump prices will not be increased is believed to be backed by a fresh subsidy plan that the NNPCL will execute.

The temporary subsidy, if implemented, will follow the steps of the Kenyan government which has reinstated its subsidy on petrol due to the overwhelming outcry of Kenyans over the soaring cost of living.

According to Al Jazeera, Kenya’s energy regulatory body, the Energy and Petroleum Regulatory Authority (EPRA), announced that oil marketing companies will receive compensation from the Petroleum Development Fund.

The regulator has directed that the uppermost retail cost for a liter of petrol remain steady at 194.68 shillings ($1.35) throughout the upcoming month. This measure aims to protect consumers from a potential rise of 7.33 shillings ($0.05).

It is not yet clear how the Nigerian government intends to implement its own. some believe that the plan includes stabilizing the naira in the FX market and by extension – offering oil importers subsidized FX rates.

Tinubu has called for patience, promising to remain transparent about the issues, including foreign exchange illiquidity due to past mismanagement of the Central Bank of Nigeria.

Beyond IMF’s Previous Recommendations on Fuel Subsidies, FX Unification; Current Realities in Nigeria

By
Ndubuisi Ekekwe
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1

For years, the IMF has maintained that Nigeria must remove fuel subsidies and also float its Naira currency, for it to advance economically.  Some have gone back to some of those statements as Nigeria has implemented the policies, with some challenging short-term results (could still work in the long-term). I will quote some previous press releases:

Case 1: “The IMF urged the Nigerian authorities to remove fuel subsidies by mid-2023, and to increase well-targeted social spending. The International Monetary Fund (IMF) has urged the Nigerian government to deliver on its commitment to remove fuel subsidies by mid-2023”.

Case 2: “IMF recommends establishing a market-clearing unified exchange rate with the near-term focus on allowing greater flexibility and removing the backlog of requests for foreign exchange.”

But what if I tell you that the IMF is not actually wrong even in the short-term. If you read their reports, they always put something like this: The IMF recommends a “multi-step approach to exchange rate unification and flexibility.” In other words, both the fuel subsidies and exchange rate removals cannot be one-time events, rather, extended and cascaded series of events, before they’re removed. Nigeria’s playbook was different.

This is important because everyone, in the long-term, expects fuel subsidies to go and the Naira floated, as the economy matures. What that long-term means  varies; it could be 2 years, 5 years or 10 years!

But right now, Ndubuisi Ekekwe maintains that fuel subsidy in Nigeria is not a wrong policy; what is wrong is the corruption in Nigeria’s fuel subsidy management. In my position, Nigeria has to reform that process and remove that corruption, and if it does, it can advance economically. In the United States, the US postal service has not made a profit in the last 20 years because it subsidizes the US supply chain to drive productivity in the economy. If you check the top 10 largest economies in the world, more than 80% subsidize energy.

And on floating Naira, it makes no sense since basic economics will always work.  Nigeria does not “produce” enough US dollars even as it needs tons of it. So, if you float it, without fixing that lack of parity, the equilibrium point will shift, and Naira will lose value. 

In AO Lawal’s Economics textbook for secondary schools, he postulated “floating” companies and industries as means towards economic development, as he discussed location and localization of industries, and their associated benefits. Nigeria must focus on floating companies over just Naira, as floating firms provide paths to a sustainable economic future, by improving US dollar supply via exports, and reducing demand for it via local substitution of import.

The IMF recommended a multi-step approach to exchange rate unification and flexibility. While such an approach carries some implementation and credibility risks, it seems appropriate given the need for monetary policy to support the economy and steps needed to move from the current system to a well-functioning exchange rate system. At the same time, it will be crucial to follow through with reforms without delays and not to backtrack, to ensure maximum effect. Likewise, clear and timely communications of the FX strategy to the private sector are also important to instill confidence.

Comment on Feed

Comment 1: Ndubuisi Ekekwe with the recent result posted by CBN, how long can Nigeria subsidize forex?

I read a write-up today that states that about 90% of stock fish produced in Norway is exported to Nigeria market. When we aren’t producing enough, should we spend the little we have on such imports?

We abandoned the important things like Education, Healthcare, etc. to attend to less important things. We don’t even acknowledge that government is subsidizing many of these things. It is their responsibility.

Nigeria economy is very dominant in the west African sub-region. Our subsidy on fuel is a blessing to many of our neigbouring countries. To me it’s a major indicator that as much as we are protecting our economy, we also influence many other countries’ economy. Like you said, how do we remove the corruption of subsidy? I am sure Nigerians will gladly endure a N500 per litre PMS price till the government can sort itself out but unfortunately, nobody can vouch for NNPlc’s calculation of what the landing cost is and thus it has created trust issues.

I hope the forensic auditor to CBN, NNPlc, etc. will conclude its job on time and the ministers will be given portfolio as soon as possible. We need all hands on deck to drive this economy.

My Response: “Ndubuisi Ekekwe with the recent result posted by CBN, how long can Nigeria subsidize forex?”  – Nigeria generates close to $100 billion yearly from crude oil, agro, etc yearly. And we import about the same with refined fuel taking $77 billion. Largely, we should not have a real issue. The problem is “corruption”. Some of these subsidies are not bad if you eliminate corruption. But if you think you do not want to face it, you will bring the house down (the masses) when fighting the issues. If you think any manufacturer will absorb a 4X increase in the cost of energy, I will respectfully argue that you are wrong!

My Response 1: “Nigeria economy is very dominant in the west African sub-region. Our subsidy on fuel is a blessing to many of our neigbouring countries. ” – you made the case. Why not fix your border?

Comment 2:  Ndubuisi Ekekwe , floating the naira is a bad for the Nigerian economy. The IMF should back off IMF policies are evil to our economy. They don’t mean well for us at all. Floating naira when our useless politicians don’t even buy made in Nigeria cars etc. If it continues like this the Naira will be dead. I see the naira going down as low as 1,500 to 2,000 naira to a US dollar before the end of 2023. Mark my words

Cybersecurity Company Secureworks, Lays Off 15% Staff to Implement Cost Optimization Actions

By
Ojukwu Emmanuel
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0

Secureworks, an American cybersecurity company has announced plans to lay off 15% of its employees, to implement certain real estate-related cost optimization actions.

In a regulatory filing, Secureworks disclosed that, following the layoff of some workers, the company intends to rebalance investments cross-functionally in alignment with the company’s current strategy and growth opportunities.

This includes focusing on the higher value, higher margin Taegis Solutions, optimizing the company’s organization’s national structure to increase its scalability, and other priorities to better position the company for continued growth with improving operating margins over time.

In connection with the plan, Secureworks currently estimates that it will incur expenses up to approximately $14.2 million, the substantial majority of which are expected to result in future cash expenditures.

These expenses are anticipated to consist primarily of severance and other termination benefits, as well as real estate-related expenses.

The company expects to recognize these anticipated expenses during the second quarter of fiscal year 2024 and to substantially complete the plan during the third quarter of fiscal year 2024, although the timing of workforce reductions may vary by country based on local requirements.

Secureworks’ restructuring comes six months after a previous round of layoffs that hit 9% of its workforce at the time, or about 200 employees. The job cuts recently announced are believed to affect about 300 staffers, which would depart the company on the 25th of August.

While U.S. and U.K. employees will be informed immediately about their employment status, employees in the Middle East and Select European countries will be notified through mid-September, due to country-specific regulatory processes.

The workforce reduction announced by SecureWorks comes two months after it posted fiscal first-quarter results that fell short of analyst expectations.

During the three months ended May 5, the company logged an unexpectedly large loss and a year-over-year revenue decline. But while Secureworks’ total sales dropped, revenue from Aegis surged 68% in the same time frame.

SecureWorks is just one of the growing number of companies in the cybersecurity space that have implemented workforce reductions so far in 2023.

The company is a global cybersecurity leader with Dell Technologies, which enables customers and partners to outpace and outmaneuver adversaries on the dark web with precision, so they can rapidly adapt and respond to market forces to meet their business needs.

With a unique combination of cloud-native, SaaS security platforms, and intelligence-driven security solutions, informed by 20 years of threat intelligence and research, no other security platform is grounded and informed with this much real-world experience.

The company was founded as a privately held company in 1998 by Michael Pearson and Joan Wilbanka and is headquartered in Atlanta, Georgia, with over 5 offices worldwide.

It has approximately 4,000 customers in more than 50 countries, ranging from Fortune 100 companies to mid-sized businesses in a variety of industries.

Since its inception, SecureWorks has grown to 3000 employees. Diverse employees at SecureWorks have rated Manager, Leadership, and Executive Team as the highest categories they have scored.

Notably, on January 4, 2011, Dell announced that it would acquire SecureWorks to be part of Dell Services. Dell SecureWorks officially began operating as a Dell subsidiary on February 7, 2011.

Dell SecureWorks expanded into Australia and New Zealand region in 2013. It further opened an operations center in Sydney to meet demands from local Australian businesses, the most in-demand services in this area being Penetration Testing, forensic investigations, and ongoing monitoring of environments for attacks.

On December 17, 2015, Secureworks filed to go public. Subsequently, on April 22, 2016, announced its IPO, raising $112 million after pricing its IPO at $14 per share.

However, the company was expecting the initial price to be between $15.50-$17.50. This was the first tech IPO in the U.S. in 2016. In August 2017, Secureworks rebranded its logo and changed the capitalization of the ‘W’ in its name to lowercase.

Secureworks products help protect organizations from today’s most pervasive cybersecurity threats. With Secureworks, even the most mission-critical safety and security assets can be kept safe from threat actors.

The company believes that bad actors will continue to get smarter, stealthier and obtain better technology to meet their goals. Therefore, it is their mission to constantly remain steps ahead of their adversaries.

Morgan Stanley Hails President Tinubu’s Reform to Reposition Nigeria’s Economy, Urges For More Sound Policies

By
Ojukwu Emmanuel
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0

American multinational investment bank and financial services company, Morgan Stanley, has lauded Nigeria’s president, Bola Tinubu’s reforms to reposition Nigeria’s economy, urging for more sound policies.

In the company’s recent advisory report titled “Tales from the Emerging World Nigeria’s New Dawn?”, it hailed the Tinubu-led administration, for several strategic reforms implemented, to recover the dwindling Nigeria economy.

The report began by stating how the previous administration of President Muhammadu Buhari led Nigeria to suffer eight years of stagnation, despite his claims to tackle corruption.

Under the Buhari-led administration, the economy veered off the rails during his two terms, starting in 2015, with Nigeria’s annual real GDP growth, averaging a paltry 1.4% during his tenure.

Buhari’s failure to remove fuel subsidies and the implementation of foreign currency control hobbled the private sector, while a lack of economic growth exacerbated the level of extreme poverty.

Today in Nigeria, some 71 million people live below $1.90 a day, a significant jump from 61 million in 2016. During Buhari’s tenure, the average Nigerian saw their annual income shrink by nearly one-third from $3,222 to $2,200, one of the steepest declines recorded by any country over that period.

The unprecedented hardship during his tenure saw the rise of migration among Nigerians referred to as “Japa”. According to UN data, Nigeria witnessed its biggest-ever net migration of people over eight years.

After Buhari’s tenure ended, then came the tenure of President Bola Tinubu. From the start, President Tinubu did not hesitate to tackle some challenges that hindered Nigeria’s growth.

During his inaugural speech in May 2023, Tinubu declared the removal of subsidies, which cost the country a whopping $10 billion in 2022.

Morgan Stanley in the report, stated that the removal of subsidies is likely to prove painful in the near term, especially as it will likely erode consumer confidence, send inflation higher, and hurt consumption.

The investment company however believes that Tinubu’s actions could potentially mark a turning point and deliver medium-term growth, which will spur the emergence of a mass consumer market in one of the faster populations in the world.

Part of the statement reads,

“The removal of subsidies is likely to prove painful in the near term, especially as it will likely erode consumer confidence, send inflation higher and hurt consumption. We believe Tinubu’s actions could potentially mark a turning point and deliver medium-term growth which will spur the emergence of a mass consumer market in one of the largest growing populations in the world.

“As incomes rise, the demand for many consumer products typically rises even higher, as goods become affordable, exhibiting an “s-curve” of consumption. Delivering economic development will be key.  High investment and rapid industrialization, often viewed as pathways to economic prosperity or emerging economies, have proven difficult for all but a handful of developing countries. Nigeria is probably not going to replicate East Asia’s manufacturing success anytime soon, but perhaps it could do more to boost services exports”.

While there was a mass exodus of Nigerians in the Buhari-led administration, Morgan Stanley is placing a bet on Nigeria’s human capital potential, the country’s greatest asset, taking into consideration its huge population. It has tasked the Tinubu-led administration to devise sound policies to unleash the potential of Nigeria’s human capital.

The investment bank suggests that President Bola Tinubu’s administration focuses on investments in educational outcomes and skill development, everything from improving too-low literacy rates to prioritizing STEM fields. The investment bank believes that bridging the gap in outcomes between the North and South of the country will be key.

Morgan Stanley concluded that Nigeria’s current administration reforms are a positive step but more needs to be done to ensure momentum is not lost. It therefore, noted that Tinubu and his team of technocrats have a unique opportunity to free up the economy and attract foreign investors looking for sustained growth.

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