African governments are trying to collect more tax - THE ECONOMIST
They can no longer rely on aid or natural resources
WHAT IS IT like being a taxman in Africa? “A lot of sleepless nights,” says Yankuba Darboe, the Gambia’s top revenue official, describing the pressure to meet targets. Politicians across Africa are asking ever more of their tax collectors, with good reason. The biggest hole in public coffers is not money squandered or stolen, but that which is never collected in the first place.
Government revenues average about 17% of GDP in sub-Saharan Africa, according to the IMF. Nigeria has more than 300 times as many people as Luxembourg, but collects less tax. If Ethiopia shared out its tax revenues equally, each citizen would get around $80 a year. The government of the Democratic Republic of Congo is so penurious that its annual health spending per person could not buy a copy of this newspaper.
Governments once turned to aid and natural resources to stay afloat. Historically “we relied on oil,” says Babatunde Fowler, until last month the head of Nigeria’s Federal Inland Revenue Service. “Nobody took taxation seriously.” Lower oil prices are now forcing a rethink, he explains. So too are shifts in foreign aid. As a proportion of Africa’s income, aid flows have halved since the 1990s. Measured as dollars per person, they peaked in 2011 and then fell. Public debt has risen sharply.
Since the 1980s governments have followed an IMF-inspired recipe: slashing trade taxes, reducing top rates on personal and corporate income, and embracing value-added tax. Data from the OECD for 26 African countries show that over half of their tax revenues come from taxes on goods and services. Only a quarter comes from personal income tax and social-security contributions (about the same as in Latin America, but much less than in the rich world). From 2008 to 2017 the ratio of tax receipts to GDP rose by 1.5 percentage points, but in many countries this was offset by falls in non-tax revenues, such as fines, rents and royalties from resource extraction.
Large firms grumble that they are footing the bill. Just 6% of tax-paying firms generate 78% of receipts, according to the African Tax Administration Forum (ATAF), a club of taxmen. But that statistic gives only a partial picture. Analysis of corporate tax returns in Ethiopia by Giulia Mascagni of the International Centre for Tax and Development and Andualem Mengistu of the Ethiopian Development Research Institute reveals that small firms pay the highest effective rate, perhaps because they lack accountants to find gaps in the tax code. In many countries firms which are considered “informal”—because they are not registered, or do not pay income tax—still cough up for licence fees and market dues.
Ordinary Africans complain the system is rigged. Some 56% of those surveyed by Afrobarometer, a pollster, considered it “very likely” that a rich person could pay a bribe or use personal connections to dodge taxes. They are probably right. When Ugandan tax collectors examined records for 71 government officials in 2013/14, they found that just one had paid any personal income tax. Only 5% of directors at leading companies were paying income tax themselves.
Authorities try to manage such tax-dodging through dedicated units that focus on, say, wealthy individuals or large corporations. In Uganda officials built on their earlier research by drawing up a list of 117 rich folk, then meeting them personally. At the time only 13% were filing tax returns; a year later 78% were. One pastor on the list even started preaching about paying taxes. The taxmen also chased government agencies. “It’s a tax morale issue if you ask people to pay their tax and then the government is not paying its taxes,” says Doris Akol, the country’s top revenue official.
Technocratic tax talk often centres on such administrative reforms, which also include things like strengthening IT systems or adopting taxpayer identification numbers. Yet this package only goes so far. “It says build a good tax register, go to electronic filing, and so on,” says Logan Wort, the executive secretary of ATAF. “Those are all right. But you know what the problem in Africa is? It has signed away its tax base.”
One example is bilateral tax treaties. Originally intended to eliminate double taxation, and later to attract investment, their practical effect is to limit taxation of cross-border income, such as royalties or service fees. The IMF estimates that signing treaties with so-called “investment hubs”, like Mauritius, costs African countries an average of 15% of their corporate tax revenue without increasing investment. Some governments, such as Rwanda’s, have wisely renegotiated terms.
Governments also erode the tax base by dishing out generous exemptions. Estimates of “tax expenditures”, or deviations from usual tax rates, put the cost at up to 40% of revenues that African governments collect. Those figures include some sensible allowances, like tax relief on medicines, as well as questionable ones, such as tax holidays for investors. Most businesses say that tax breaks do not affect their decision to invest; in surveys, they tend to put greater weight on things like stability and roads, which a little extra tax might fund.
How much more could African governments collect? The best estimates are that they lose revenues worth 2% of GDP through corporate-tax avoidance, of all kinds, and perhaps another 1-2% through individual wealth stashed offshore. The revenue forgone through tax expenditures is roughly 5% of GDP. It is neither feasible nor desirable to close all those gaps, so the realistic gains are smaller. Other measures, such as increasing compliance or expanding property taxes, could also add a few percentage points.
The IMF models the “tax capacity” of a country using variables such as average incomes, trade openness, and governance. On that basis it thinks that African governments could increase their revenues by 3-5% of GDP, which is more than they receive in aid (see chart). But in the past few years “there has been little progress,” says Papa N’Diaye of the IMF. The challenge is not starting tax reform, he adds, but sustaining it. Africa’s taxmen are in for a few more sleepless nights.
10 Ways to invest in stocks while on a budget - THE GUARDIAN
The purpose of investing in stocks is centred around the accumulation of wealth while the investor is busy with life and to have money that works for the investor with minimal effort so that the benefits can be reaped at a later stage.
Money is put away in investments with the hope that it can be grown over time, but to achieve this, investors will need some capital to start off with and when preparing to invest in stocks, setting a budget is one of the crucial steps.
Buying stocks cannot be compared to purchasing items such as a home, or a car, there is no significant down payment involved but with constantly changing economies and financial markets, investors with small budgets may seem intimidated.
It may require that some investors take some time in saving up cash that can be put towards investing in stocks and it will take a considerable amount of discipline and patience, and despite a very tight budget, anyone can put capital towards stocks.
- Determine how much you currently have to invest Traders will need to evaluate their finances in great detail to determine how much they can invest, keeping in mind different prices on stocks along with fees pertaining to brokers along with compensating for any losses incurred. It is imperative for investors to consider whether they will be managing their own investments, or whether they will need someone to aid them in doing so. Despite the prices on shares, investors will need to evaluate different brokers to determine which brokers cater for their budgetary limitations.
- Create a budget Investors can create a budget along with a budget sheet to have a clearer idea of what they can put towards investment in addition to having a comprehensive layout of expenses. The importance of this is to be able to see what funds can be put towards investment and if the investor is serious about investing, what can be done and where to minimize expenses in an effort to add onto existing capital.
- Every penny counts
To manage existing capital and to save towards larger investments over time, investors can consider opening an automatic savings account, which is offered by an array of banks and financial institutions.
While doing routine banking, the banking institution rounds every purchase made with a debit card to the nearest dollar, or currency equivalent, with the change being deposited into the savings account.
It may seem like an insignificant notion but keeping in mind that small amounts contribute to more substantial ones that can be added to the investor’s investment pool which can be used in the foreseeable future towards buying larger stocks.
- Conduct research on companies A crucial step towards investment is to research companies to get an idea of their financial and stock performance, to determine whether it would be a good investment and whether the investor will get sufficient return on their investments. By finding several companies that seem favourable to the investor, the investor can contact their investor relations department, or view their investor relations section on their website for e.g. MTN. Through this, the investor can obtain information pertaining to sales, the company’s cash on hand, debt, the history on stock prices along with dividend pay-outs. Working on a limited budget will mean that the investor cannot afford to make the wrong investment choice by choosing a company that offers little return on dividends.
- Companies that offer stocks below $100 When investing at stocks, to start off, the investor will have to work with the budget that they have while working on an investment pool that will allow them larger investments, or investments in larger companies. Some popular companies that have stocks at $100 per share include, but is not limited to: CVS Health Corporation (CVS) – $66.56 Ford Motor Co. (F) – $5.85 Express Scripts Holding Co. (ESRX) – $70.37 HP Inc. (HPQ) – $15.01 Newell Brands Inc. (NWL) – $13.58 Share prices indicated are as per the NASDAQ Stock Exchange on the date and at the time that this article was written.
- Get some professional help Investors who are unsure about investing on a budget can consult professional stock and investment experts on how they can go about investing, which companies to start off with and how they can build towards a larger investment pool. Being on a budget should not stop investors from buying stocks, it should be seen as an early lesson in managing funds with smaller capital so that investors will more efficiently manage their money as their capital increases.
- Making an initial investment
A lot of companies have an investment program in which investors can enrol once they have decided on a company with stocks that suit their budget, alternatively, investors can buy stocks by using a stockbroker.
Investors need to keep in mind that stockbrokers have their set fees with regards to minimum account deposits, fees pertaining to investments, deposit, withdrawals, and other fees.
When working on a budget, it may be more cost-effective to enrol in investment programs as they are still done through brokerages, but the company normally covers the brokerage and administrative fees for stock purchases.
- Consider investing in ETFs Exchange traded funds, or ETFs, trade a lot more like stocks and it may seem a lot less intimidating to investors who are not yet quite prepared, skilled, or experienced enough to select several individual stocks on their own. ETFs also provide investors with the chance to diversify their portfolio and mitigate risks simultaneously. Due to diversification, should the stock of one company within the ETF perform poorly, it will not affect the investor’s entire portfolio so significantly.
- Make use of Robo-Advisors Robo-Advisors help to simplify investments along with providing more accessibility. It may help the investor who is investing on a budget cancel out unnecessary fees and minimize potential losses that they cannot compensate for with their limited capital. Automated financial planning platforms are driven by algorithms with the benefit of extraordinarily little to no human contact. The companies behind Robo-Advisors work to collect the investor’s information, goals, and budget, and then offer advice. Should the investor be happy with the offer and the parameters set based on their investment needs, the Robo-Advisor invests assets automatically while tracking the investments in the background, eliminating additional fees.
- Pay attention to your investment Should the investor prefer to handle their own investment, it is necessary to track them. Any investments made in the stock market should be done with a long-term goal in mind, for a minimum of three years. Over this course of time, investors will need to track the progress of their investment, monitor stock market conditions, and identify potential events that may impact on their investment so that they can take the necessary steps to avoid losses. Should any events or circumstances indicate a direct impact on the investment, the investor will have to decide whether to keep their investment or sell it and invest somewhere else.
Final Thoughts Despite working with financial constraints that limit the capital that can be invested, with little effort and some diligence, anyone can invest and be successful in doing so. The importance is to get started, conduct research and not to settle for the first, best share that may present itself. The aim is to get a start on the investment, and to grow capital slowly and steadily, some of which can be used towards larger investments.
China to allow limited US passenger flights - THE GUARDIAN
China on Thursday said foreign airlines blocked from operating in the country over virus fears would be allowed to resume limited flights, lifting a de facto ban on US carriers, a day after Washington ordered the suspension of all Chinese travel into and out of the US.
The apparent decision to step back by Beijing comes as tensions between the world’s two superpowers are sent soaring by a series of issues including Donald Trump’s accusations over China’s handling of the pandemic, Hong Kong and Huawei.
The latest spat was rooted in the Civil Aviation Authority of China (CAAC) deciding to impose a limit on foreign airlines based on their activity as of March 12. Because US carriers had suspended all flights by that date their cap was set at zero, while Chinese carriers’ flights to the US continued.
On Wednesday the US said it would block Chinese passenger flights from June 16, raising concerns of another front being opened up in the economic titans’ standoff.
But the CAAC on Thursday said all foreign airlines not listed in the March 12 schedule would now be able to operate one international route into China each week.
Relations between Washington and Beijing have become increasingly strained in recent months after Trump accused China of causing the virus intentionally, while a plan to impose a strict security law on Hong Kong has increased tensions substantially.
The US has also imposed restrictions on Chinese telecom giant Huawei and ordered a probe into the actions of Chinese companies listed on American financial markets.
For its part, Beijing has mocked the US stance on Hong Kong in light of civil rights protests across the US following the police killing in Minneapolis of George Floyd, an unarmed African-American man.
At the same time, China has gradually relaxed strict air travel caps on some foreign firms as the coronavirus outbreak in the country appears to be under control.
Beijing said last week it would almost triple the number of permitted flights to and from China in June following an outcry from Chinese stranded abroad.
China has also set up fast-track entry procedures for business travellers from several other countries, including Singapore and South Korea.
Passengers must be tested for COVID-19 upon arrival in China.
The CAAC said Thursday that routes whose passengers all test negative for three consecutive weeks will be allowed to operate an additional flight each week.
Routes with five or more passengers testing positive will be suspended for at least one week, CAAC said.
Private Creditors Form Group to Negotiate Africa Debt Relief - BLOOMBERG
By Alonso Soto
- Creditors warn against blanket approach to relief on continent
- Group represents $9 trillion of assets under management
Private creditors representing more than $9 trillion of assets under management formed a group to negotiate debt relief for African nations, warning of the risks of a blanket approach to the process.
The so-called Africa Private Creditor Working Group will assist African countries and other debt providers to cushion the economic impact of the coronavirus pandemic on the continent, it said in a statement Friday. The group represents 25 asset managers and institutions that financed countries and corporates via Eurobond, syndicated loans and trade finance.
African countries are asking official and private creditors to temporarily suspend $44 billion in debt payments this year in order to channel scarce resources to contain the spread of the coronavirus. Some investors are concerned that countries could unilaterally halt payments, locking them out of debt markets and hurting creditors as well, said Lars Bane, director of Farallon Capital Europe LLP and a member of the group.
“There is a bit of concern in terms of a growing narrative pushing for this blanket standstill and even more concerning, debt forgiveness in Africa,” Bane said in a phone interview. “There is genuine consensus that you do have to have a case-by-case approach to have the best outcome for both the borrowers and lenders.”
The group’s members include Aberdeen Asset Management Plc, Amia Capital LLP, Ninety One U.K. Ltd., Pharo Management LLC and Greylock Capital Management LLC.
An understanding with investors that clarifies debtors’ positions on future payments could reduce sovereign-bond yields and help governments return to international capital markets soon. “Until this issue is clarified, none or very few African issuers will have market access in the near future,” Bane said.
Specter of Default
The pandemic has raised the specter of a slew of debt defaults in developing countries that had to shut down their economies to try and stop the spread of the virus. Demand for the raw materials many of the nations produce has plummeted.
For debt-relief advocacy group Jubilee Debt Campaign, private creditors will have to take losses as poor countries ramp up spending on health and social protection measures.
“Private creditors lent at high interest rates to poor countries because they claimed loans were high-risk,” said Tim Jones, head of policy at the campaign. “The risk has come home to roost and lenders need to accept they cannot make large profits from these loans.”
Diplomatic intrigues stall evacuation of Nigerians from Canada - THE GUARD
By Wole Oyebade, Bridget Chiedu Onochie and Joke Falaju, Abuja
• May Arrive Monday
• Evacuees From Thailand To Pay N162.3million For Hotel Accommodation, Feeding
• ‘Govt. Does Not Have Capacity To Foot The Bill’
Diplomatic intrigues and conflict of interest over the choice of operating carrier might explain why the scheduled evacuation of 200 Nigerians from Canada was stalled last Wednesday. While the Nigerian government-designated local carrier, Air Peace, for the special operation, the Canadian government preferred Ethiopian Airlines, though at more expensive fares for the travellers.
Meanwhile, Nigerian evacuees from Thailand are expected to pay about N162.3million for hotel accommodation and feeding. The Guardian learnt that each of the evacuees was expected to pay N240, 000 as hotel accommodation for the period of 16 days and N57, 600 for feeding for the same period, making a total of N297, 600.
The federal government, after the arrival of the evacuees at the Nnamdi Azikiwe International Airport in Abuja, had handed them over to the Nigeria Centre for Disease Control (NCDC) to properly quarantine for 14 days period to ensure they are COVID-19 free.
Although the government did not disclose where the evacuees were being quarantined, The Guardian learnt that the federal government had negotiated with some hotels in the Federal Capital Territory (FCT) to accommodate them, including Bolingo Hotel (300 rooms); Apo Apartments (61 rooms); Chida International Hotel (200 rooms); Belvior Hotel (30 rooms) and Barcelona Hotels (300 rooms).
The evacuees had been concerned about who was to pay their hotel bills, but a letter by the Nigerian Embassy in Bangkok, Thailand, dated May 14, this year and signed by the Head of Chancery, Nicholas Uhomoibi, read: “I am directed to bring to your attention that due to the measure that are beyond control of the COVID-19 local organising team in Nigeria, all evacuees going to Nigeria henceforth are to now pay for the quarantine, isolation, accommodation centre or hotel before departure and arrival in Nigeria.
“In this regard, all prospective evacuees are to take note of the negotiated rate- accommodation, N15, 000 for 16 days, equals N240, 000; feeding is N3, 600 multiplied by 16 days, making N57, 600, making a total of N297, 600.”
The letter urged the evacuees to be informed that the embassy had been instructed not to airlift any evacuees who did not pay the fees. The Ministry of Foreign Affairs, which confirmed the government position yesterday in Abuja, stated that the decision was due to its inability to foot the bill. “The explanation for that is that the government does not have the capacity to foot the bill,” stated a ministry source, who confirmed the amount.The ministry, however, said the government was still negotiating to see how the amount could be reduced, as it was seeking cheaper hotels for the prospective evacuees.
The Guardian yesterday reported that Air Peace was denied landing right permits; hence had to delay the evacuation exercise till Nigerian and Canadian governments resolved the grey areas. But sources from the Ministry of Foreign Affairs yesterday disclosed that the Canadian High Commission had opened talks with Ethiopian Airlines for the evacuation of Nigerians. Ethiopian Airlines (ET) has been airlifting Canadian citizens from different parts of Africa lately. The federal government, through the ministries of Aviation and Foreign Affairs, has, however, waded into the matter, insisting that the Nigerian carrier has to operate the flight, in tandem with its new position that all evacuation flights must be conducted by Nigerian carriers. It was learnt that ET is charging $2, 500 per voluntary returnee for the flight already planned for Monday, May 18, while Air Peace charged $1,134 for the same trip. To date, 319 passengers have paid to the Nigerian airline, which has concluded plans to operate full flight to the North American country.
Some of the Nigerians, who had booked and paid Air Peace for the flight, were already complaining about the insistence of the Canadian High Commission to choose a foreign airline over a Nigerian carrier.
Shocked by the decision of the Canadian High Commission, an official of the Nigerian carrier said Air Peace had successfully flown to 40 countries, including Canada, the United States (US) and the United Kingdom (UK), noting that it was the airline that evacuated Israeli citizens from Nigeria in March. 2
The official added: “We have done many international flights, including landing in Canada. We have made 19 flights to the US since 2014. We have flown to Tel-Aviv several times and in March, we evacuated over 200 Israelis from Nigeria back during this COVID-19 lockdown. We have scheduled flight operations to United Arab Emirates (UAE), UK, Ireland, China, Turkey, Germany, Iceland, Switzerland and other countries.
“We have IATA Operational Safety Audit (IOSA) certification and we are a member of IATA. We have also evacuated Nigerians from South Africa during the xenophobic attack of Africans there.”
Reacting to the incident, former director general of the Nigerian Civil Aviation Authority (NCAA), Benedict Adeyileka, described the action of the Canada High Commission as political, urging the federal government to stand firmly on its position that a Nigerian carrier should conduct the airlift.
“I am a nationalist to the core. Anything Nigerian is good enough as long as it is qualified to carry out the operation, and Air Peace has international operation experience.
“I insist that the Nigerian government should put its foot down on this. Nigerian carriers should not be stopped from conducting international operations,” he said
Buyers crash Nigeria’s multi-million dollars liquefied gas demand - NEW TELEGRAPH
BY Adejumo kabir
Buyers at the weekend deferred deliveries of multi- million dollars Liquefied Natural Gas (LNG) from Nigeria, one of Europe’s key LNG suppliers. This cause by crater in the coronavirus pandemic has seen demand for Nigeria’s cargoes in Europe crash, which has created a fleet of tankers carrying LNG that are now just floating storage, according to commodity tracking firm Kpler, cited by an online news portal, Bloomberg.
Over the past two months, Nigeria continued to send LNG cargoes to one of its main markets, Europe, but with many major European economies in lockdown, demand has plunged, and customers with options to defer have been postponing the offloading of the cargoes.
LNG prices at their lowest in years have forced traders to keep LNG on the tankers, waiting for demand to improve. But prices are not set to improve in the summer, according to Manas Satapathy, managing director for energy at Accenture. “The worst is yet to come, we will likely see super low prices in late June, July, August,” Satapathy told Bloomberg.
The crash in LNG demand in Europe during the pandemic and the high storage levels will likely mean that the continent will struggle to act as a sponge to absorb excess LNG supply this year as it did in 2019, Rystad Energy said in an analysis last week. Last year, Europe became the “de facto global LNG sink,” when milder winter in Northeast Asia slowed down LNG demand growth there, the energy research firm said.
In 2019, Europe’s total LNG imports surged by 80 per cent compared to 2018, while in January and February 2020 – before the European lockdowns and when the coronavirus hit Asia – Europe’s LNG imports jumped 35 per cent, thanks to the UK, Spain, and Belgium.
“We still don’t have an end date for when Europe will completely re-emerge from lockdown, and the impact will probably be deeper coming into the summer months. “With gas storage tanks already almost filled to the brim, Europe’s capacity to import and actually use the same amount of LNG as in 2019 seems like a tall order, especially if we see another mild winter,” Rystad Energy said.
Africa’s largest economy braces for big hit as oil prices plummet - CNBC
- The International Monetary Fund (IMF) on Thursday said it will be working closely with the Nigerian authorities in the coming days to assess any vulnerabilities which may be exposed by the sharp decline in crude prices.
- Nigerian dollar bonds sank to record lows stocks on Thursday hit a new four-year low, as fears grow over the devaluation of the naira currency.
The Egina floating production storage and offloading vessel, the largest of its kind in Nigeria, is berthed in Lagos harbor on February 23, 2017. Stefan Heunis | AFP | Getty Images
With oil prices plunging amid concerns over a price war between Russia and Saudi Arabia, and the coronavirus outbreak obliterating stock markets, Africa’s largest economy is in a precarious position.
The International Monetary Fund (IMF) on Thursday said it will be working closely with the Nigerian authorities in the coming days to assess any vulnerabilities which may be exposed by the sharp decline in crude prices, as Nigerian and Angolan dollar bonds sank to record lows.
Nigerian stocks on Thursday headed for their fifth straight day of losses to a new four-year low, and a fall in oil prices to just over $30 per barrel, rising external debt and a depreciating currency pose a threat to economic stability in the country of more than 190 million people. Nigeria is Africa’s largest economy in terms of GDP (gross domestic product).
While markedly lower oil prices will undoubtedly have broad adverse consequences for the Nigerian economy, the country is not quite as dependent on oil exports as the likes of Angola, which analysts expect to suffer a substantial blow this year.
However, a prime concern for economists is Nigeria’s managed naira exchange rate, since even prior to the fallout from OPEC’s failure to reach an agreement with Russia on oil production cuts, the country’s foreign exchange reserves were in steady decline.
After the official exchange rate was devalued in 2016, foreign exchange reserves were approaching $25 billion, and the move failed to stop the slide of the parallel market exchange rate, which meant the Central Bank of Nigeria (CBN) was forced to act again the following year when the Nafex (Nigerian Autonomous Foreign Exchange Rate) was implemented. Reserves held just below $30 billion during this period.
“Extrapolating the trajectory observed thus far this year (the foreign exchange buffer shrunk by $2.3 billion during the first two months of 2020) suggests reserves could fall below the $30 billion mark by Q3 (the third quarter) and end the year just above $25 billion,” NKC African Economics Chief West Africa Economist Cobus de Hart said in a note earlier this week.
Oil dependent countries facing fiscal and social strain, IEA’s Birol says
Capital Economics Senior Emerging Markets Economist John Ashbourne on Wednesday echoed this projection, suggesting that reserves will soon fall below the $30 billion mark, which Nigerian policymakers had identified as a key benchmark.
Ashbourne predicted that the naira will end the year down 8% to 400 NGN against the U.S. dollar. He added that in Nigeria’s case, a weaker currency will not provide a boost to competitiveness, since the country does not have significant non-oil exports or the “domestic manufacturing base needed to substitute for imported goods.”
Reuters reported Thursday afternoon that the naira was being quoted at 370 to the dollar on the over-the-counter spot market.
‘Severe adverse consequences’
Parliament recently green lighted President Muhammadu Buhari’s request for $22.7 billion in foreign borrowing, but while external debt accumulation would usually be expected to support reserves, de Hart suggested that the sharp fall in global oil prices could potentially “more than offset” the boost.
“Firstly, should Brent crude oil prices average roughly $40pb (per barrel) for the remainder of the year, it would reduce Nigeria’s goods export receipts by roughly $14 billion (as opposed to our February baseline for oil prices to average $62.4 billion in 2020) — this may also be a conservative estimate, as it does not take into account any adverse impact on non-oil exports,” he said in the note Monday.
What’s more, Nigeria may have difficulty accumulating external debt following the fall in oil prices and its impact on the macroeconomic outlook, while the jittery investment environment raises the risk of a capital flight, de Hart highlighted.
Bloomberg | Getty Images
Having previously backed the authorities to ride out the storm and maintain its foreign exchange rate at current levels in the immediate future, NKC analysts now believe that the naira’s prospects have “deteriorated markedly” and remains set for a “sharp fall” this year if current conditions persist.
The CBN will again be faced with the choice of whether to let the Nafex buckle or continue to artificially prop it up.
“We believe the CBN will continue to provide support in the near term, with a more drastic adjustment more likely in Q3,” de Hart projected.
“If the Nafex is not permitted to buckle, then the black-market rate should, and this might hold more severe adverse consequences for an economy that is now facing a gloomier outlook on multiple fronts.”
Can Palm Oil Demand Be Met Without Ruining Rainforests? - BLOOMBERG
By Anuradha Raghu
Workers sort bunches of palm fruit at a palm oil mill in Malaysia. Photographer: Sanjit Das/Bloomberg
Palm oil is one of the world’s most widely used and controversial commodities. Cheap, efficient and extraordinarily versatile, it’s found in thousands of everyday products, from cookies to shampoo to fuel. Yet surging cultivation of oil palm trees is linked to burning of tropical rainforests and the destruction of wildlife habitats in Southeast Asia. Environmental concerns have spurred the introduction of so-called sustainable palm oil, but its credibility has been questioned and it’s not clear yet whether there’s adequate market demand for the “greener” version.
1. Why is palm oil so controversial?
The use of palm oil in food products has doubled worldwide in the past 15 years. About half of all items in a supermarket are now likely to contain it, and global consumption could climb to more than 100 million tons per year by 2025, 50% more than in 2016, according to researcher Gro Intelligence. To meet the demand, critics say, some growers in Indonesia and Malaysia, which together account for 85% of global production, use “slash-and-burn” land clearance techniques that routinely blanket parts of Southeast Asia with stinging smoke. In 2015, forest fires in Indonesia alone pumped out more greenhouse gases per day than all sources in the U.S. The fires not only spew carbon dioxide into the atmosphere but also destroy significant carbon-absorbing forests and ground cover.
Fires in Sumatra and Borneo have sent smoke to neighbors
2. What’s being done about it?
In an effort to reduce demand for palm oil, the European Union is restricting the types of biofuels made from palm oil that can be counted toward the bloc’s renewable-energy goals and aims to phase out palm oil-based biofuel entirely by 2030. Indonesia and Malaysia have called the act discriminatory and vowed to challenge it at the World Trade Organization. Another approach is to promote environmentally-sound palm oil cultivation. That’s the purpose of the Roundtable on Sustainable Palm Oil, an alliance of buyers and sellers formalized in 2004 that promulgates standards for “certified sustainable” palm oil products. Among its rules: Primary forests cannot be cleared to make room for new palm plantations and growers must abide by fair labor practices. The organization’s 4,000 members include farmers, traders, processors, manufacturers, retailers, investors, and environmental and social groups.
3. How is the push for sustainability going?
Currently, about one-fifth of global palm oil is compliant with the Roundtable’s sustainability standards. However, the value of the label is somewhat disputed. In early November, Greenpeace called eco-friendly palm oil “a con” because some Roundtable members are still cutting down forests. More than a dozen environmental advocacy organizations also endorsed a new report concluding that violations of the agreed-upon standards by Roundtable members are “systematic and widespread.” The Roundtable refuted many of the report’s findings, saying that the organization is still the best global system “to tackle the issues in the areas of the world when oil palm is grown.” A year and a half earlier, an academic study that used data from Indonesian Borneo had found no significant difference between certified and non-certified oil palm plantations on measures of sustainability.
Smoke rises from a forest fire in South Sumatra, Indonesia in 2015.
Photographer: Dimas Ardian/Bloomberg
4. Does sustainable palm oil have a future?
Beyond the credibility issues, there are challenges to expanding the market. Part of the problem lies in the industry’s complex supply chain, with output from enormous plantations and hundreds of thousands of small farmers -- many too poor to bear the cost of compliance audits -- ending up in products made all over the world. Tracking oil from the field to the grocer’s shelf requires significant monitoring and added costs to prevent, for instance, the mixing of sustainably-grown oil with product that doesn’t meet the standard. Certified oil sells on average for about 5% more than the regular kind. Producers report that they’re only able to sell about half their certified oil as such because buyers balk at the premium; sellers dump the rest as conventional oil and forfeit the price difference. The Roundtable in November rolled out a program to spur the market by encouraging members who buy palm oil to increase their purchases year over year.
5. What’s being done to help small producers?
One challenge that has plagued the Roundtable is how to draw in small growers, known as smallholders. The rules to meet sustainability requirements can threaten the viability of these farmers, who make up about 40% of production in both Indonesia and Malaysia. To ease their burden and encourage compliance, the Roundtable in November introduced a new, separate standard for smallholders that allows them to meet sustainability regulations in phases and provides training and support along the way.
6. Why is palm oil so popular?
Oil pressed from the fleshy fruit that grows near the trunks of oil palm trees has a neutral taste, long shelf life and high smoking temperature. It’s used mainly for edible purposes such as cooking and confectionery-making, as well as for biofuel and animal feed. Oil pressed separately from the kernels inside the fruit is more saturated -- and thus semi-solid at room temperature -- and is used to make soaps, cosmetics and detergents. Oil palms can grow on a variety of soil, are resilient to short spells of drought or floods, and bear fruit year-round for decades. Palm oil also has a much higher yield per acre than alternatives -- up to ten times more than rapeseed, soybean, olive and sunflower oils. Its cultivation uses only about 7% of the world’s farming land but accounts for about 40% of total vegetable oil production, according to Oil World. That means that if palm oil were replaced with alternatives, more land would be needed to produce similar volumes.
The Reference Shelf
- The World Wildlife Fund’s report on palm oil.
- The Roundtable on Sustainable Palm Oil certification process.
- Green Palm Sustainability report on certified palm oil.
- Reports from Greenpeace and the Environmental Investigation Agency on palm oil.
- The Guardian identifies 10 things you need to know about sustainable palm oil.
- A Bloomberg QuickTake on Indonesian forest fires.
- The European Union’s delegated act on palm oil.
Sterling surges as Boris Johnson’s Conservative Party is projected to win UK election - CNBC
- The pound jumps more than 2% versus the U.S. dollar after publication of a U.K. election exit poll.
- The Conservative Party would win 368 seats if the poll proves accurate, granting a comfortable majority in Parliament.
- Markets have largely priced in a majority for Prime Minister Boris Johnson’s Conservative Party, with speculative sterling shorts significantly reduced in recent months.
The U.K. general election will be held on Thursday, December 12th, 2019.
Ken Jack | Getty Images News | Getty Images
The U.K. pound jumped more than 2% after an exit poll projected an 86-seat majority for the Conservative Party in the U.K. general election.
Shortly after 10 p.m. London time, a survey of thousands of people who had just left the voting booth indicated that the Conservatives were on course to gain around 50 seats, ensuring a healthy majority.
In reaction the pound rose to $1.3451, more than 2% higher than before the poll was announced, and touched its highest level against the greenback since June 2018. Sterling also jumped against the euro, up 1.4% to 83.265 pence.
The exit poll by Ipsos Mori is commissioned by Sky News, the BBC and ITV and is generally considered more accurate than polls leading up to election day.
How do UK elections work?
The Conservative Party is tipped to gain around 50 seats in the election, while Labour would lose 71 seats from its performance in 2017. In Scotland, the Scottish National Party is forecast to win as many as 55 seats, tightening its grip north of the border.
In a snap research note, Paul Dales, chief U.K. economist at Capital Economics, said the result, if accurate, would free the path for Prime Minister Boris Johnson to push through his Brexit plan.
“If the Conservatives do win a majority, passing a Brexit divorce deal in the coming weeks would remove any risk of a no-deal Brexit on 31st January, reduce the immediate uncertainty and lift business investment at least a bit,” said Dales.
The analyst added that if a big majority over all other parties is realized then Johnson may now have the scope to “ignore the Brexiteers in his party and provide businesses with some certainty by quickly extending the transition period.”
The transition period is currently scheduled to begin as soon as the Withdrawal Deal is passed through Parliament and Britain officially leaves the European Union. That is expected to happen at the end of January. As it stands, the U.K. and EU would then only have until December 2020 to negotiate their future relationship.
Largely priced in
Markets had largely priced in a majority for Johnson’s Conservative Party, with speculative sterling shorts significantly reduced in recent months.
Having fallen below $1.20 in early September after Johnson lost his working majority in Parliament, the pound had recovered around 10% of its value to trade above $1.32 as voters headed to the polls on Thursday, with a final YouGov poll suggesting a 28-seat majority for the ruling party.
The recovery began when Johnson agreed to a new Brexit deal with the EU on Oct. 17. Positive sterling moves ahead of the election suggested that markets were hoping for certainty in the event of a Conservative majority, which would mean Johnson could likely take the U.K. out of the bloc on that withdrawal agreement ahead of the Jan. 31 deadline.
The pound has yet to fully recover from the historic plunge suffered after the U.K.’s landmark vote to leave the EU on June 23, 2016. Before results began to emerge that night, cable had risen as high as $1.50 as traders banked on a vote to remain.
By the time the result became clear, it was down at just above $1.32, around the same level reached on Thursday morning as voters headed to the polls three and a half years later.
South Africa's growth forecasts slashed, recession risk high - REUTERS
JOHANNESBURG (Reuters) - Forecasts for South African growth were slashed in a Reuters poll of economists taken as rolling power shortages got worse, suggesting the poll’s median 40% chance the country has sunk into a recession may be too low.
South Africa’s economy has struggled in the nearly two years since President Cyril Ramaphosa took office. It shrank 0.6% last quarter, the second quarterly contraction in three quarters, and the poll conducted in the past week predicted 0.9% growth this quarter, much slower than the 1.4% forecast a month ago.
While the poll was being conducted, the country has been suffering its most severe blackouts in a decade, indicating the risk to forecasts is likely to be to the downside.
Barclays analysts wrote that they see clear downside risks in South Africa, given the ongoing decline in the South African Reserve Bank’s leading indicator for economic activity.
However, the economy is expected to grow 1.0% next year and 1.4% in 2021, better than this year’s 0.4%, according to the poll of 20 economists.
December will probably show this year’s average change in consumer prices slowed to 4.2%, 0.4 percentage points slower than in 2018.
The South Africa Reserve Bank kept its repo rate unchanged at 6.5% in a close decision last month, saying it wanted to see inflation expectations closer to the midpoint of its 3% to 6% target range.
The central bank will wait until May to cut rates by 25 basis points to 6.25%, which would be only the second cut in two years, the poll said.
The rand has lost over 3% since the year began, but retailers have found ways to avoid passing the cost of falling prices to their consumers.
“Add this to expectations for a benign commodity price outlook (such as oil), inflation is expected to remain moderate during next year,” said Thea Fourie, senior economist, sub-Saharan Africa at IHS Markit.
Consumer inflation will average a little higher at 4.6% in 2020 and 4.7% in 2021, the poll said. But 11 of 15 economists said the central bank overestimated the inflation pass-through from the rand over the past two years.
“SARB models have consistently overestimated this pass-through, thereby overestimating inflation,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered.
A separate Reuters poll last week suggested emerging-market currency gains would probably be dominated by high-yielding currencies rather than low-risk bets next year as economic growth finally recovers in response to lower interest rates.
However, the high-yielding rand might not even be part of that theme next year because its central bank has not stimulated the economy as much as other emerging-market central banks.
(Other stories from the December Reuters global long-term economic outlook polls package:)
Editing by Larry King
Factbox: Key figures in Nigerian President Buhari's second cabinet - REUTERS
LAGOS (Reuters) - Nigeria’s President Muhammadu Buhari on Wednesday swore in a new cabinet, three months after starting his second term as leader of the country with Africa’s biggest economy.
Here are some of the key figures in the government led by the 76-year-old former military ruler:
TIMPIRE SILVA - PETROLEUM MINISTER
As minister of state for petroleum, Timpire Silva holds arguably the most powerful ministerial post outside of the presidency due to the key role played by oil in Africa’s largest economy.
President Muhammadu Buhari opted to keep the portfolio of petroleum minister for himself, just as he did in his first term. Buhari took a largely hands-off approach and left Silva’s predecessor - former ExxonMobil executive Emmanuel Kachikwu - to oversee the ministry.
He is widely expected to maintain that approach, which would see Silva represent Nigeria at OPEC meetings and oversee the ministry.
Silva is a veteran of politics in the southern oil-producing Niger Delta region, having served as governor of Bayelsa state in 2007 and as an elected official in the Rivers State House Assembly in the early 1990s.
Prior to his elevation to the cabinet, Silva chaired the governing board of the Oil and Gas Free Zone Authority, a national regulatory body set up to foster public-private partnership investments in Nigeria’s oil and gas free zones.
ZAINAB AHMED - FINANCE MINISTER
Zainab Ahmed was promoted to finance minister in the latter stages of Buhari’s first term, in September last year, having previously served as the junior minister for budget and national planning.
Prior to entering the government, Ahmed burnished her anti-corruption credentials as head of the Nigeria Extractive Industries Transparency Initiative (NEITI). She occupied that role from 2010 until her appointment in 2015 at the budget and national planning ministry.
Ahmed did not deviate from the policies put in place by her predecessor, Kemi Adeosun. And she has signalled that she is unlikely to plot a different course in the near future.
In April, she said Nigeria had no intention of removing costly subsidies on petroleum products after the International Monetary Fund (IMF) advised the country to eliminate them to protect public finances.
Unlike Adeosun, whose role was only that of finance minister with no responsibility for the budget, Ahmed’s role encompasses budget and national planning with the merger of previously separate ministries.
BASHIR MAGASHI - DEFENCE MINISTER
Addressing multiple security problems in Nigeria is one of the main priorities of Buhari’s second term.
In Magashi, Buhari has selected a retired major general who is just two years his junior. The hope is that Magashi’s military background will help with the fight in the northeast against Boko Haram insurgents and militants with ties to Islamic State.
Magashi started his military career as a second lieutenant in 1968. He also served as the commander of a brigade in the northwestern state of Sokoto.
Buhari once referred to himself as a “converted democrat”.
Just as he pursued a career in politics after the military, Magashi also entered politics after retiring as a major general in 1999 and unsuccessfully ran for governor in the north’s commercial hub, Kano state, in 2007.
OTUNBA ADEBAYO - INDUSTRY, TRADE AND INVESTMENT MINISTER
Otunba Adebayo takes control of the trade and investment ministry at a time when Nigeria will need to overcome the apparent inconsistencies of its protectionist policies and being a signatory to the African Continental Free Trade Agreement.
His ministry will also seek to attract new investment after currency controls and multiple exchange rates, in place since 2015, prompted many oversees investors to flee.
Adebayo, whose first career was as a lawyer, is steeped in Nigerian politics. He was deputy national chairman of Buhari’s ruling party in the south of the country. And, prior to that, he was elected governor of southwestern Ekiti state in 1999.
He has replaced one of the few technocrats in Buhari’s first cabinet. Okechukwu Enelamah, Adebayo’s predecessor, was a private equity investor Lagos who co-founded investment and financial advisory firm Africa Capital Alliance.
Reporting by Alexis Akwagyiram; Additional reporting by Felix Onuah in Abuja; Writing by Alexis Akwagyiram and Alison Williams