Foreign flights to Nigeria forced to refuel elsewhere

Foreign airlines flying to Nigeria have started to refuel abroad to bypass pricey, and increasingly scarce, jet fuel as the oil producer battles a hard currency shortage that has made fuel available only at a very high price.

It is the second blow for airlines operating in Africa’s recession-hit biggest economy in a year that first saw the central bank make it almost impossible to repatriate profits from ticket sales as it tried to prevent a currency collapse.

The crash in the naira since a devaluation in June has led firms who market jet fuel locally, such as Total, Sahara and ConocoPhillips, to double the price to 220 naira a litre in August, and to as much as 400 naira this month, an airline executive said.

Even at the higher costs, marketers’ lack of dollars has made fuel scarce. Some carriers have had aircraft stuck, or were forced to cancel planned journeys, after frantic last-minute calls from ground staff warned there was no fuel available.

“The economy is crying out for investment, and now it is going to be even harder for anyone to visit,” said John Ashbourne, economist with Capital Economics. “Who is going to want to park a billion dollars in a country that you can’t even easily fly to? It sends the worst possible signal.”

A spokesman for state oil company NNPC did not answer calls for comment.

The central bank hoped floating the naira would attract dollar inflows, but the naira sunk by 50 percent, forcing oil firms to charge airlines, stuck with piles of naira, in dollars for jet fuel.

“It’s an impossible situation. The oil marketers don’t want to sign long-term agreements anymore so we have to accept whatever prices they demand,” one airline executive said. “We sell tickets in naira and now they want us to come with dollars.”

Spain’s Iberia and United Airlines cancelled their Nigeria services earlier this year, and two local carriers also halted operations. Other international airlines responded by boosting ticket prices within Nigeria, charging its globe-trotting elite as much as $2,000 for an economy class ticket to Europe to cut losses – more than double the cost of a Lagos ticket bought abroad.

WELL-HEELED PASSENGERS

Dubai-based Emirates has started a detour to Accra, Ghana, to refuel its daily Abuja-bound flight, a spokesman said. The airline already cut its twice-daily flights to Lagos and Abuja to just one.

The move was aided by a substantial drop in Ghana’s jet prices amid tax reform last month, according to the Ghana Chamber of Bulk Oil Distributors.

Air France-KLM said it had refueled abroad in “very exceptional cases” by juggling suppliers and stomaching extra costs.

Germany’s Lufthansa is loading more fuel in Frankfurt for its Lagos flight, where the ground staff doubt their ability to refuel for the final destination of Malabo, the capital of Equatorial Guinea, an executive said. The airline did not respond to official requests for comment.

The scarcity has even pitted airlines against local consumers; a surge in demand for cooking and heating kerosene during the rainy season, when households cannot easily burn wood or charcoal, means if the airlines do not pay up, marketers will sell to locals.

Airlines met with transport ministry officials last week in Abuja to press for fuel at lower prices, industry sources said.

Nigeria used to be one of the most profitable markets for foreign airlines, landing planes with plenty of first and business class to cater to executives and officials jetting around under former President Goodluck Jonathan.

President Muhammadu Buhari cut air travel allowances for officials in a bid to tackle graft; others simply have less spending power with consumer inflation running at an 11-year high of 17 percent.

British Airways, a popular choice for well-heeled Nigerians, said it is using smaller aircraft on its Lagos-London route, as did Air France-KLM.

Turkish Airlines’ use of smaller planes has added another inconvenience: passengers complained there is not always space for luggage on the smaller aircraft, delaying it for days. The airline did not respond to requests for comment.

Nigeria hikes rates to lift naira, fight inflation

Abuja (AFP) – The Central Bank of Nigeria (CBN) on Tuesday raised its benchmark interest rate to 14 percent from 12 percent in move to stabilise the country’s currency, the naira, and tame soaring inflation.

CBN governor Godwin Emefiele told reporters the monetary policy committee which meets every two months “voted to increase the MPR (interest rate) by 200 basic points from 12 percent to 14 percent.”

MPR is the benchmark rate at which the CBN lends to commercial banks and it has been a key instrument in stabilising prices.

Financial analysts welcomed the decision.

“Given the cost-push nature of inflation in Nigeria, which largely stems from the shortage of foreign exchange, we believe that this was the right thing to have done,” said Razia Khan of Standard Chartered Bank.

“Today’s monetary policy decision demonstrates a commitment to foreign exchange liberalisation, which alone will undo some of the bottlenecks that have contributed to inflation,” Khan added.

Inflation hit an 11-year high of 16.5 percent in June as prices of food and energy jumped after the government freed up the naira currency in April, allowing it to plummet against the US dollar.

Nigerians are struggling with spiralling cost of living after a 67 percent hike in the price of petrol in April and last month’s scrapping of the peg of the naira exchange rate at 197/199 to the dollar.

The naira now trades at around 370 to the dollar on the black market. The official rate is at about 300 to the dollar.

The International Monetary Fund said last week it expected Nigeria’s economy to contract by 1.8 percent in 2016 after having forecast a 2.3-percent expansion in April, but the finance Minister Kemi Adeosun said there was nothing to worry about.

Nigeria, one of Africa’s main oil producers, normally gets 70 percent of its revenue from oil sales. But the global fall in crude prices since mid-2014 has left the government cash-strapped and even unable to pay wages.

The nation’s economic woes have been exacerbated by sabotage to oil and gas facilities in the oil-producing south by militants wanting self-determination for the delta region.

Nigeria’s currency just tumbled to a record low

The Nigerian naira just dipped past 300 per dollar for the first time ever. The currency weakened by 2.3% to 300.25 per dollar around 8:41 a.m. ET, according to data from Bloomberg. The naira is trading around 296.50 per dollar as of 9:51 a.m. ET, according to Investing.com’s data. Back in late June, the Central Bank of Nigeria finally unpegged the naira from the US dollar, which sent the currency down by 30% to about 280 per dollar. It was pegged around 197-198 per dollar. Notably, some analysts and economists have noted in recent weeks that the currency is looking a lot less “free” than was promised last month, and had argued that the currency probably needed to fall below 300 per dollar. (Investing.com)
As for the rest of the world, here’s the scoreboard as of 9:41 a.m. ET:

The British pound is down by 1.0% at 1.3096 against the dollar after some ugly data. Composite reading for Markit flash PMI fell to 47.4 in June, its lowest reading since March 2009. Additionally, manufacturing PMI sank to a 44-month low of 49.1 and services PMI tumbled to an 87-month low of 47.4. All three readings were below the 50.0 level, which theoretically indicates a contraction. “This spooked understandably spooked investors and sent the pound tumbling,” wrote Business Insider’s Will Martin.
The euro is little changed at 1.1016 against the dollar as the eurozone economy showed “surprising resilience” after the Brexit vote. The Markit PMI composite reading came in at 52.9 for June, down slightly from May’s reading of 53.1 but ahead of the 52.5 that economists were forecasting. Germany’s services sector impressed with a print of 54.6, while its manufacturing sector disappointed with a reading of 53.7. Readings in France impressed across the board, but the manufacturing sector remained in contraction at 48.6, a four-month high.
The US dollar index is little changed after Markit flash manufacturing PMI rose to an 8-month high. Separately, the Baker Hughes rig count will be out at 1 p.m. ET.
The Japanese yen is little changed at 105.95 per dollar.

Nigeria is finally going to do the painful thing everyone said it has to do

Business Insider/ Nigeria is finally going to do the painful thing everyone said it has to do.

The central bank announced on Wednesday that the naira peg will be abandoned on Monday, June 20, and the currency will be allowed to float freely.

Although, Central Bank of Nigeria Governor Godwin Emefiele also said that the bank will intervene “as the need arises.”

As for what this means for Nigeria’s economy, in the short-term it’s going to get ugly. But in the long-term, things should start to pick up.

“Over the long-run, a weaker currency will help Nigeria’s economy by encouraging import substitution and attracting foreign investors, who have shunned the country for fear of a devaluation,” wrote Capital Economics’ Africa economist John Ashbourne in a note.

“But the move will be painful over the short term. Higher import prices will add to inflation, which reached 15.6% y/y in April. This will probably force the authorities to tighten monetary policy,” he added.

Plus, if Nigeria’s central bank can’t get inflation back under control, then the country might end up getting stuck in a “vicious” cycle of high inflation that leads to a weaker naira, noted Marc Chandler, the global head of currency strategy at Brown Brothers Harriman. And that, then, could lead to higher inflation.

“This is one reason why devaluations can be so painful, as central banks typically jack up interest rates afterwards. Recessions are often seen post-devaluation,” he wrote. “Yet if Buhari has finally relented on maintaining what we viewed as an unsustainable peg, the longer-term outlook for Nigeria will have improved.”

Analysts have long been arguing that Nigeria will eventually have to capitulate and devalue its currency given that the government’s controversial agenda of currency and price controls created a bunch of economic stresses in Africa’s largest economy. Most recently, inflation soared to a six-year high.

Still, devaluing the currency peg will not magically fix all of Nigeria’s problems.

The country continues to suffer from numerous headaches, including lower oil prices, the fuel-shortage crisis, and ongoing oil-production disruptions by the Niger Delta Avengers. Plus, the Nigerian Bureau of Statistics recently revealed that the country’s economy shrank by 0.4% year-over-year in the first quarter, which was way worse than expected.

“A weaker currency is, at best, a necessary but insufficient condition of an economic recovery,” concluded Ashbourne.

But at least it’s a step in the right direction.

Investors decry deal as China’s Africa push reaches currencies

Bloomberg News May 16, 2016

Strategists are criticizing Nigeria’s latest plan to rescue its currency — this time by relying on Chinese cash.

On a visit to Beijing last month, President Muhammadu Buhari signed a currency agreement aimed at encouraging trade with China and reducing Nigeria’s demand for dollars to relieve pressure on its dwindling foreign reserves.

While the deal, details of which are still being negotiated, helps China’s push into Africa’s largest economy, it will buy Nigeria a few months, at most, before it’s forced to follow the lead of other oil exporters and devalue, according to Citigroup Inc. and Bank of America Corp.

The naira-yuan swap agreement is “very unlikely” to relieve pressure on the naira or Nigeria’s reserves, said Andrew Howell, a New York-based frontier-markets strategist at Citigroup, the world’s biggest foreign-exchange trader. “The market wants to see a clear path toward achieving a sustainable exchange rate, where supply and demand for foreign exchange are balanced.”

Nigeria has held the naira at 197-199 per dollar since March last year, even as oil revenue and export earnings plummeted and other crude producers from Angola to Russia let their currencies weaken. Reserves have fallen 29 percent since mid-2014 to the lowest in more than 10 years as the central bank’s capital controls slowed foreign investment to a trickle.

While the level of devaluation implied by naira forward contracts has dropped as Buhari resists calls to let the currency weaken, they still predict a 37 percent decline in the next year. With the economy set to expand this year at the slowest pace since 1999, according to the International Monetary Fund, Buhari last week signed off on a record budget that leaves the government with a deficit of 2.2 trillion naira ($11 billion).

Oil Rebound

The recent rebound in oil prices hasn’t helped: Nigeria needs to produce 2.2 million barrels a day and sell them at $38 a barrel to meet its fiscal targets. Production slumped to 1.7 million barrels in April, the lowest since 1994, because of militant attacks on oil facilities in the Niger delta. The country relied on oil and gas for about 70 percent of government revenue and 90 percent of export earnings in 2014.

Details of the currency swap agreement, such as its size, maturity and exchange rate, have yet to be announced, making it hard for investors to have faith in the accord. The People’s Bank of China didn’t respond to faxed questions and Isaac Okorafor, a spokesman for the Abuja-based Central Bank of Nigeria, declined to comment when contacted by phone.

Beijing has signed several bilateral currency swaps in the past eight years, including with South Korea, Malaysia and Argentina, in a push to let the yuan trade more freely. South Africa, which took on a 30 billion yuan ($4.6 billion) three-year swap in April 2015, is the only other African country to have agreed such a deal with China. Nigeria and China are considering a swap of about 20 billion yuan, Lagos-based newspaper ThisDay reported last month, citing unidentified sources in the Nigerian president’s office.

Black Market

Buhari and central bank Governor Godwin Emefiele claim that letting the naira drop would hurt Nigerians by raising prices in a country that imports the bulk of its finished goods. Most businesses are forced to use the black market exchange rate, which trades about 60 percent weaker than the official rate, at 320 to the dollar. That’s boosting inflation, which accelerated to 12.8 percent in March, the highest in almost four years.

“Nigeria runs a persistent trade deficit with China,” said Oyin Anubi, a London-based economist at Bank of America. “Unless China is willing to take more naira than it needs to buy Nigerian crude, which it doesn’t tend to do in big quantities, then Nigeria’s deficit in foreign exchange, whether yuan or dollars, is likely to continue.”

Investors are shunning Nigerian stocks and bonds until there’s a devaluation, according to Howell at Citi, who predicts the central bank will be forced to let the currency depreciate to 226 per dollar by the end of 2016. Investors who still hold Nigerian assets are reluctant to sell as they’d struggle to the buy foreign-exchange needed to exit the country, he said.

Nigerian equities have dropped 10 percent this year, the most in Africa after Zambia’s. The Nigerian Stock Exchange All Share Index has lost more than 25 percent since Buhari was sworn into office at the end of May last year. Local-currency government bonds have lost 6 percent in dollar terms, the only debt not to have gained among 31 emerging markets monitored by Bloomberg, aside from Egypt and Mexico.

While Buhari may use a swap with China to try and delay a devaluation, it won’t give him much respite, according to JPMorgan Chase & Co. The deal may simply increase the nation’s trade deficit with China, which ran to $15 billion in 2015.

“It’s unlikely to have any meaningful impact in the short term,” said Yvette Babb, a sub-Saharan Africa strategist at the New York-based lender, which forecasts an exchange rate of 240-260 per dollar by year-end. “A swap has limited ability to influence the structural mismatch between supply and demand.”

PZ Cussons Pays 70% Premium for Dollars in Nigeria on Shortage

Paul Wallace | Bloomberg/PZ Cussons Plc said it is paying as much as 70 percent more than the official rate for dollars in Nigeria as central-bank trading restrictions reduce availability of foreign currency in Africa’s biggest economy.

“Whilst the official naira exchange rate continues to be stable, a lack of availability at that rate is resulting in the majority of dollars being purchased at a premium of 50-70 percent,” the Manchester-based maker of Imperial Leather soap said in a trading update on Thursday. “The resultant cost impact is being managed through changes to relative pricing in an environment where trading conditions remain challenging. The situation in Nigeria remains extremely fluid.”

While oil revenue and exports in Africa’s biggest crude producer have plummeted since 2014, central bank Governor Godwin Emefiele and President Muhammadu Buhari have refused to let the naira weaken. They have pegged it since March 2015 at 197-199 against the dollar through currency-trading and import restrictions that have deterred foreign investment and made it tough for manufacturers to buy inputs from abroad. The black market rate has fallen to 320, around the level PZ Cussons implies it is buying dollars.

Listed companies in Nigeria still try and source foreign-exchange from their banks at the official rate, even though it’s becoming harder. Unilever Plc, which like PZ Cussons has a subsidiary trading on the Nigerian Stock Exchange, said last month it would be“very insane” for the country to persist with the currency policies.

Nestle SA said its local unit has had to widen the number of banks it uses so that it can access enough foreign exchange. Last year, it was waiting as long as six weeks to be allocated dollars, according to Renaissance Capital Ltd. analysts.

PZ Cussons Nigeria Plc’s shares have fallen 8.6 percent to 23.50 naira this year. The country’s All Share Index has dropped 14 percent, the fifth-most globally among 93 indexes tracked by Bloomberg.

Nigerian Government must stop rejecting the Naira as a legal tender

Section 20 of the CBN Act of 2007 clearly states that the Naira “shall be legal tender in Nigeria at their face value for the payment of any amount.” Yet this law has meant nothing to many Nigerian businesses which commonly reject the Naira in preference to the US Dollar. But these businesses are not alone. The Nigerian government is also guilty of the same charge. Perhaps this practice is not new by any stretch and far predates the current Buhari government, but an eye-witness account below exposes a specious dynamic.

Ikenga, a fellow Nigerian citizen resident in Houston, Texas, is a researcher in an international Oil & Gas project. Not long ago, the funding group voted to cite its multimillion dollar project in Africa, and Ikenga passionately lobbied for a Nigerian destination. Along with three expatriates he entered Nigeria this March to explore the project feasibility. Ikenga had arrived Nigeria with his Nigerian passport and planned to travel back into the US with his American passport since he is a dual citizen.

On departure back to the United States, he was informed by the officials of United Airlines that he might not travel because his Nigerian passport had expired a month before. Ikenga was told that such cases typically require a $200 Nigerian Visa in order to travel back to the United States of America. Yes, a Nigerian Visa to travel to USA! If you have a problem connecting the dots, please you are quite in order… Be that as it may, the manager at the United Airlines, Mrs. Sue Gongul, was kind to intervene with uncommon leadership, untangling the quagmire with candor, and finally stating that the Nigerian Visa charge is usually waived if the passenger could show any proof of having paid for Nigerian passport renewal fees anywhere.

Ikenga quickly explained that he had indeed paid the e-passport renewal fees of $106, but it was not processed before his trip due to another bizarre experience very deserving of another perplexing thesis. In any case, he was advised to authenticate the receipt at the Nigerian Immigration Service (NIS) office at the Murtala Muhammed International Airport (MMA) Lagos.

Now at the NIS desk, Ikenga’s predicament seemed not to matter to Mrs. C. A. Dibi, the Comptroller of Immigration on duty at the airport on March 22, 2016. Mrs. Dibi wasted no time to insist that the $200 must be paid regardless. Having missed his flight a night before due to a heavy Lagos traffic provoked by long queues at fuel stations, Ikenga simply accepted to pay the charge—even if that could finally prompt his traveling project team to say ‘bye-bye to Nigeria’. But this piece would not have made it to the reading media if the payment or the amount was still the problem.

The emergent problem is that when Ikenga requested to make the payment with the Naira equivalent of the $200, he was told point-blank by Mrs. Dibi that the NIS—a primary agency of the Federal Government of Nigeria—does not honor the local currency for the service being rendered. In Dibi’s words, “Go and ask anywhere; we do not accept Naira for visa fees.” In other words, though Ikenga had the Nigeria’s currency to tender, a comptroller of the nation’s Immigration Service encouraged him to employ the services of the illegal “Black Market” to change the naira into dollar. Obviously dazed, Ikenga grudgingly made the payment after buying the foreign dollar at the illegal rate of N323 instead of the naira equivalent at the official rate of N198. Ikenga’s view of Nigeria since then, including any notion of attracting foreign investment to his beloved native country, is better imagined than written.

The whole scheme is pennywise pound-foolish for Nigeria and ought to stop henceforth. While plucking dollars by hook or crook from expatriates or Diaspora Nigerians may appear superficially attractive, the illicit pattern does nothing but continually weaken the local currency, since there has been an ocean of naira competing for the few dollars in the marketplace. Even worse, the pattern not only typifies endemic corruption, it also serves as an echo chamber for Nigeria’s shady image.

In attempt to shore up foreign investment, President Muhammadu Buhari has been doing a marvelous job shuttling outside Nigeria to salvage our battered image. But his tireless efforts will amount to naught if the government is seen as promoting shady schemes targeted against expatriates inside the country. Moreover, the president made the appreciation of the Naira a campaign issue. Though he is understandably still blurred by the dizzying economic blues from the immediate past regime, any hope for the International Monetary Systems to appreciate the very naira without the desired example by Nigerian government agencies is sheer wishful thinking.

■ Dr. SKC Ogbonnia, Ph.D., is the current president of Nigerians in Diaspora Organization (NIDO) – Houston Chapter. SKCOgbonnia@firsttexasenergy.com

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