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World Bank: FG, States Won’t Be Able to Pay Salaries in 2022 If Fuel Subsidy is Retained

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The World Bank yesterday sounded the alarm bells to Nigeria, saying further delay in removing the fuel subsidy which had been described as a major drain and waste on the economy could see the federal and state governments unable to pay salaries from 2022.

The Lead Economist, Nigeria Country office of the World Bank, Marco Antonio Hernandez, painted a gloomy picture of Nigeria if the country decides to continue with the controversial fuel subsidy, while unveiling the Nigeria Development Update (NDU), a bi-annual report of the multilateral institution, at an even that held in Abuja as well as virtual.

Also, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, during a panel session at the event, lamented the huge burden the continuous retention of the subsidy on petrol had been to the corporation, warning that going forward, “the NNPC may have to start invoicing the federation to be able to maintain subsidy.

This is just as the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, reiterated that the government was working on introducing measures that would cushion the impact of fuel subsidy removal on vulnerable Nigerians.

Speaking further, Hernandez, in the report, urged Nigeria to remove subsidy on petroleum motor spirit (PMS) in February 2022, as prescribed by the Petroleum Industry Act (PIA), warning that further delay could worsen the precarious revenue situation confronting the country.

The report also warned that the present fiscal condition of the sub-national governments would take a turn for the worse in 2022 with 35 of the 36 states unable to meet their financial obligations.

Hernandez stated that a situation where N250 billion goes into fuel subsidy monthly was unsustainable as the paucity of revenue confronts the country, especially the sub-national governments.

Hernandez who provided insights into the NDU report, titled “Time for Business Unusual,” stated that should the current revenue challenge continue till 2022, only Lagos State would be able to meet its financial obligations.

The report pointed to mounting fiscal pressures due to lower-than-expected revenues in 2021 and the rising cost of PMS subsidy.

It stated: “Because most states rely heavily on inter-governmental transfers, diminished revenue inflows to the Federation Account are jeopardising fiscal sustainability at the state level.

“For example, in the oil-producing State of Bayelsa federal transfers account for 91 per cent of revenues, and declining transfers caused a 22-percent drop in Bayelsa’s revenues per capita during the year.

“Even in the state of Lagos, which relies the least on Federal transfers, transfers accounted for 29 per cent of revenues in 2020. Most State expenditures cover salaries and administrative expenses, and given their rigid (i.e., nondiscretionary) nature, State-level expenditures are difficult to cut.

“Consequently, lower revenues are likely to intensify pressure on states’ debt stocks and undermine their fiscal sustainability.”

According to the report, in contrast to past periods of high oil prices, the Nigerian government has this time not been able to fully benefit from the oil boom because oil production has fallen below Nigeria’s estimated capacity and the Organisation of Petroleum Countries (OPEC) quota due in part to rising insecurity and the higher cost of the PMS subsidy.

It stated: “In 2022 the federal government plans to spend about 3,000 naira (US$7) per person for health, while the cost of the PMS subsidy for next year could reach 13,000 naira (US$32) per person. Not only is the PMS subsidy costly, but it mainly benefits richer households.

“Nigeria has the opportunity to establish a “compact” with citizens that eliminates the subsidy and uses the savings to provide targeted cash transfers to lower-income-households, invest in job-creating programs, and improve its fiscal position.”

It stated that the insufficient supply of foreign exchange (FX) issues related to the predictability of exchange rate management, the unsustainable subsidy on premium motor spirit (PMS), burdensome trade restrictions, and the sizeable fiscal deficit financing by the Central Bank of Nigeria (CBN) are undermining the business environment, compounding underlying constraints on domestic revenue mobilisation, foreign investment, human capital development, and the delivery of public services.

The report noted that despite a strong initial recovery and resurgent global oil prices, Nigeria’s pre-crisis challenges were threatening its post-crisis recovery, highlighting the need to depart from business-as-usual policies.

“Even though Nigeria’s economy exited a pandemic-induced recession, several challenges persist including double-digit inflation, declining incomes, and rising insecurity.

“While the government took bold policy measures to mitigate the impacts of the COVID-19 crisis, the reform momentum has slowed which hinders Nigeria’s ability to reach its growth potential,” World Bank Country Director for Nigeria, Shubham Chaudhuri said.

The report prescribed policy options for Nigeria, including addressing fiscal pressures.

“Urgent priorities for the next three to six months include reducing inflation, improving exchange-rate management, mobilising additional oil and nonoil revenues, eliminating the PMS subsidy and redirecting expenditures towards targeted cash transfers and other priority investments, fostering competitive markets, and improving infrastructure.

“While Nigeria’s macroeconomic projections have been updated since the previous edition of the NDU, the government’s fundamental policy challenges remain unchanged,” it added.

In his contribution, Kyari, pointed out that while all over the world, subsidies are introduced to bring cost control and less pains to citizens, in Nigeria, fuel subsidy has become a major fiscal burden that must be eliminated.

The NNPC boss explained: “Today, we are evacuating about 60 million litres of gasoline from all the depots in the country. It is not national consumption and it is very understandable because of issues such as cross-border smuggling.

“As long as you have arbitrage, traders don’t see it as a crime, they just take advantage of that and exploit it. What we are dealing with is about N243 billion of fuel subsidy monthly. So, there is no magic around that.

“This is the reality that we are facing. Going forward in 2022, we simply cannot afford this, we just don’t have the resources. As a matter of fact, the NNPC may have to start invoicing the federation to be able to maintain subsidy.

“When you take out N243 billion from your total income every month, you are not able to fund your operations and so you can’t meet your other fiscal obligations. Clearly, there is a challenge in the ability to pay. So, there is a reform going on, particular in the energy sector and no one can stop.”

Also, the Governor of Kaduna State, Mallam Nasir El-Rufai wondered why the country would continue to allocate more monies to fuel subsidy compared with the allocations to education, roads and the health sectors.

“Is subsidising petrol more important than our health as even in a year we spent significant amount on health due to the pandemic, the budget for subsidy was still higher? Does it make sense?

“Is subsidising petrol about thrice as educating our children and preparing them for the future more important? The capital budget for roads is five times less than our budget for subsidy. We have to ask ourselves as Nigerians whether this makes sense at all,” he added.

According to El-Rufai, “this is the first time in Nigeria that oil prices are rising globally, yet, there is no windfall. In fact, we are getting less. Why? Because according to Kyari, subsidy is taking N250 billion per month.”

He disclosed that this month, what the NNPC paid to the federation account, as part of its contribution to the amount to be shared by the Federation Account Allocation Committee (FAAC), was only N14 billion as against the N120 billion stipulated in the budget, and, “with the threat that next month they would ask the federation account to give them a cheque to cover subsidy.”

“So, we have to ask ourselves if this subsidy still makes sense. Who is benefiting from it other than the smugglers and neighbouring African countries and some rich people? We have to stop this thing that will bring Nigeria to its knees,” the state governor added.

Earlier, in her opening remarks, Ahmed expressed optimism that recent developments in the oil sector, such as the Petroleum PIA 2021, the full reactivation of the four public refineries in the country, and the completion and coming on stream of the three private refineries under construction in 2022, would significantly boost contribution from the sector to economic growth.

According to her, subsidies’ regime in the sector remained unsustainable and economically disingenuous.

She disclosed that ahead of the target date of mid-2022 for the complete elimination of fuel subsidies, the government was working with its partners on measures to cushion potential negative impact of the removal of the subsidies on the most vulnerable at the bottom, which she estimated to be 40 per cent of the population.

“One of such measures would be to institute a monthly transport subsidy in the form of cash transfer of N5,000 to between 30 – 40 million deserving Nigerians.

“As a government, we remain committed to our broad objectives of stimulating broad-based growth through diversification and the active participation of the private sector to ensure that our growth is inclusive.

“We will continue to prioritise investment in critical infrastructure needed to unlock production and supply constraints, to create adequate productive employment and preserve jobs, and to ensure macroeconomic stability and promote poverty reduction and equity.

“I agree with the Report that with the expansion of social protection policies during the pandemic, the government has an opportunity to phase out subsidies such as the PMS subsidy while utilising cash transfers to safeguard the welfare of poor and middle-class households.

“Towards this end, we intend to accelerate our structural reforms, particularly in the power sector, in governance, in business environment to unlock the huge potentials of the economy, scale up social safety net and deepen financial inclusion to reduce poverty and inequality gaps. We will carefully calibrate the sequencing of these reforms to manage their attendant political fallouts,” she added.

Ahmed pointed out that digital revolution was looming in Nigeria and waiting to happen spontaneously.

“I agree that Nigeria’s digital economy can transform economic activities by unleashing new productivity gains, offering new services, and improving the government’s efficiency. We see enormous opportunity for our theming youth population in this sector which has largely remained unharnessed with isolated progress and possibilities.

“We need greater investments in newer and competitive technologies to be made for the provision of critical infrastructure in the telecoms sector to unleash potentials.

“To protect such investments, government has been mobilising national security outfits, and even local ‘vigilantes’ to provide added layers of security for the infrastructure, while at same time engaging local communities towards addressing the likely root causes of cases of infrastructure vandalisation,” she added.

Economy

Value Addition is new Standard in Mining Operations – Alake

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The Minister of Solid Minerals Development, Dr Dele Alake has declared value addition as the new indispensable standard for mining operations in the country.

Alake made the declaration in a statement issued by his Special Assistant on Media, Mr Segun Tomori, on Tuesday in Abuja.

The minister had earlier said that the federal government had resolved to ensure compliance to value addition before permitting investors to operate.

He said that his seven-point agenda for the ministry had placed the mining sector on the global front burner since assuming office, which had generated renewed interest from the international community in Nigeria`s mineral resources.

According to the statement, the minister lauded a mining company, African Natural Resources and Mines Ltd.

(ANRML), during an inspection tour in Kaduna State, for its 600 million dollar facility dedicated to the mining and processing of magnetite iron-ore.

He described the move as in line with the government`s resolve for value addition, which is especially apt given President Bola Tinubu`s quest to develop the solid minerals, to boost Nigeria`s economic profile and to meet the global upsurge in energy transition.

“The company aligns with our vision of value addition and beneficiation through its processing of iron-ore, and I urge other mining companies to take a cue from them, “ he said.

He reiterated the government`s commitment to abstain from granting mining licenses to companies that lack the necessary plans for value addition.

The minister acknowledged that resilience, courage and laying a solid foundation were critical in contributing to the company success.

He added that such factors also serve as guidelines for President Tinubu`s administration in its efforts for economic transformation.

“ We have set our minds in this administration and invariably in Nigeria to achieve success, that is why Mr President is restructuring the economy.

“When this company (ANRML) started seven years ago, we saw one of the foundations through the video documentary, the amount of concrete that went in to erect a foundation, just to carry a giant edifice.

“That is what we are going through. When we get through the gestation period, the results will manifest, and it will herald prosperity, “he said.

The minister had stated that no license would be granted to companies wishing to enter the mineral sector without presenting a plan for value addition, such as processing and refining which has multiplier effect on the economy. (NAN)

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Economy

Life Insurance Records 95% Net Claims in Q4 2023-NAICOM

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The National Insurance Commission (NAICOM) says Life insurance business recorded about 95 per cent net claims of the total claims in the fourth quarter of 2023.

A report by NAICOM in Abuja on Tuesday hinted that the record was due to the direct reflection of the ongoing regulatory measures by the Commission regarding claims settlements.

NAICOM said the insurance market average stood at about 71.

4 per cent of the N536.
5 billion gross claims reported at the close of the fourth quarter.

The Commission said the market also recorded retention of about 87.7 per cent for the life business, 54 per cent for non-life while the aggregate market average retention stood at 66.

7 per cent for the period.

It showed that the insurance industry sustained its progressive trend of positive market performance at the close of 2023 fourth quarter.

According to NAICOM, the insurance market recorded a milestone growth to close at N1.003 trillion, representing about 27 per cent growth compared to the N790 billion recorded in 2022.

”Major growth drivers in the non-life segment of the market were oil and gas and fire Insurances contributing 27.3 per cent and 24.1 per cent respectively.

”In a direct reflection to the “no-premium no-cover” policy of the Commission, the outstanding premium continues to decline.

”The premium posted 1.6 per cent as outstanding of all the premiums generated in the market during the period.

”Statistics also shows that the market recorded total assets of about N2.67trillion and capitalisation of N851billion in 2023,” NAICOM said. (NAN)

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Economy

No Mining License without Mineral Value Addition Plans-Alake Warns

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The Minister of Solid Minerals Development, Dr Dele Alake has warned that no mining license would be issued to prospective investors without requisite plans for value addition on minerals.

Alake gave the warning in a statement  by his Special Assistant on Media, Segun Tomori on Tuesday.

He said the Federal Government had resolved to ensure compliance before permitting investors to operate.

He said that his Seven -Point Agenda for the ministry had placed the mining sector on global front burner since assuming office, which had generated renewed interest from the international community in Nigeria’s mineral resources.

He said the support of the executive and the legislature had enabled the ministry to showcase the solid minerals sector globally, resulting in his election as the Chairman of the Africa Minerals Strategy Group (AMSG) at the Future Minerals Forum in Riyadh, Saudi Arabia.

According to him, with the pact that led to the formation of the AMSG, there is now unity of purpose on the African continent regarding the issue of local value addition.

“We are no longer going to allow anybody or license any company that wants to go into the mineral sector without giving us a plan for local value addition,  like processing, refining and this has a multiplier effect on the economy.

“It instantly generates employment rather than a few people carting away lithium, gold, and the likes to other countries to sell.

“These minerals must now be processed in Nigeria, creating more value and beneficiation for local communities where they are sourced, ” he said.

Reports says that the minister had earlier received members of the House Committee on Solid Minerals who were on oversight visit to his office.

The minister commended the lawmakers for their support in repositioning the mining sector, stressing that boosting the economic profile of Nigeria required joint task by both the executive and legislature.

He acknowledged the significant contribution of sub-nationals to mining development, emphasising that state chairmen of  Mineral Resources and Environmental Management Committee (MIREMCO) and five committee members were nominated by state governments. (NAN)

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