Flooding costs up to US $7 billion

E kaaro o, Ututu Oma, Barka da Safiya - Good morning, and a warm welcome to ThinkBusiness Nigeria, your Monday – Friday dose of commentary, contexts, and insights on business and economic news that matter to you.

For the second time in about two weeks, the Senate President, Godswill Akpabio has been caught in the most pedestrian attitude to public office. In the first instance, Godswill Akpabio was caught laughing off the concept of “let the poor breathe”. This time, after a plenary session, he announced the release of some payments to the Senators for the “enjoyment” of their recess. For his sake, I hope the Senate President will quickly realize that governance is serious business and Nigerians, certainly after the trauma of the last eight years, demand that those in government take them seriously.

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Markets

• The NGX All-Share Index (ASI) declined by 1,142.26 points (-1.75%) yesterday, closing 64,167.39. This signifies a loss of 0.16% over the past week, a gain of 0.19% over the course of four weeks, and a year-to-date performance of 25.2%. Among the declining stocks are National Salt Company (-10%), Multiverse Mining & Exploration (-10%), John Holt (-9.77%), and Dangote Cement (-9.09%).

• Oil prices hit new peaks on Wednesday with the global Brent benchmark touching its highest since January after a steep drawdown in U.S. fuel stockpiles and Saudi and Russian output cuts offset concerns about slow demand from China. Brent crude settled US $1.38 or 1.52% higher at US $87.48 a barrel, its highest since Jan. 27. West Texas Intermediate crude (WTI) closed US $1.48, or 1.8%, higher at US $84.40, at its highest since November 2022.

• We are now clearly back to where we were eight weeks ago – signficant gap between I & E window and street rates. At the I&E window, Naira depreciated by 3.42%, closing at N782.88 against the US dollar. However, on the streets, Naira down by 0.89%, reaching N905 against the US dollar.

• U.S. natural gas futures jumped nearly 7% to a five-month high on Wednesday as sustained hotter-than-normal weather kept air conditioning demand high, especially in Texas. Front-month gas futures for September delivery on the New York Mercantile Exchange were up 16.1 cents, or 6.73%, to US $2.96 mmBtu.

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National Headlines

• NLG’s force majeure continues – The Nigeria Liquefied Natural Gas (NLNG) has announced that the force majeure that started October 2022, almost a year ago, remains in place. Following flooding, there have been limited upstream gas supplies to the 22.2mtpa plant in Bonny. Besides the effect of flooding on gas supplies, the plant has also suffered from poor gas supplies due to oil theft that forced pipeline closures that also affected its gas supplies.

• Fixing fiscal policies and taxation – It is refreshing and exciting to see that President Bola Ahmed Tinubu appears determined to fix a core area of our poor economic outcomes – weak taxation and fiscal policy in general. First, he appointed a special adviser for revenue in Zach Adedeji. He followed that up by establishing and inaugurating yesterday the committee on fiscal policy and taxation, led by Taiwo Oyedele, formerly of PwC. Great. However, in the last few weeks, serious fundamental changes to the structure of taxation and fiscal policy have been dribbling from them. I would have thought that the committee will complete its job and make those recommendations to the government. Dribbling can have unintended consequences and all the great efforts of the committee becoming futile.

• Flooding costs up to US $7 billion – The Federal Government has said the financial worth of direct economic damage in Nigeria caused by flooding in 2022 is US $7bn. On Tuesday, the government also said over 600 lives were lost following the disaster. (See News Analysis below)

Global Headlines

• 41 Migrants die in Shipwreck near Italy – 41 migrants, including seven children died an hour after leaving Tunisia shores near Italian Island of Lampedusa few days ago, the Red Cross has announced. This is the latest disastrous result of frequent journeys across the Mediterranean seas by migrants trying to leave behind economic hopelessness in countries in Sub Saharan Africa (SSA), Egypt, Bangladesh, Pakistan etc. CNN estimated that about 2000 people have already lost their lives this year, while 94,000 have crossed the journey this year, compared to half of that this time last year.

• Italy backtracks on windfall tax on banks – After the share price of Italian banks went down in yesterday trading, following the announcement of a windfall tax on banks two days ago, the Italian government has backtracked on its plans. Its revised plan will be much limited compared to the scope two days ago. As I mentioned yesterday, the Italian government had proposed the windfall tax on banks on the back of revenues on rising interest rates which were not passed on to depositors.

• Other global economy news – According to Reuters, Mexico saw its annual inflation rate slow for the sixth consecutive month in July to 4.79%, continuing a downward trend spurred by a long cycle of interest rate hikes. The deceleration in recent months has largely been propelled by a decline in energy and food prices. Also, Central Bank of Sri Lanka has cut the statutory reserve ratio for commercial banks by 200 basis points to 2%, effective Aug. 16, it said on Wednesday. The decision was taken to inject liquidity into the banking system and further reduce the market liquidity deficit on a permanent basis, the bank said in a statement.

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News Analysis - Climatic Changes affecting Nigeria

During the UN Framework Convention on Climate Change held in Abuja, Vice President Kashim Shettima disclosed that the devastating flood experienced in 2022 had inflicted a staggering economic toll of approximately US $7 billion (equivalent to N4.2 trillion) on Nigeria. This staggering financial loss was equivalent to a substantial 1.6 percent of Nigeria's estimated Gross Domestic Product for the year 2021. 600 people died in the flooding. It was a stark reminder of the dire impacts of climate change, showcasing its most harrowing face within Nigeria's borders.

A glimpse into the past underscores the escalating severity of this issue. Data shows that the economic loss caused by floods had mounted from N1.43 trillion in 2020 to N1.59 trillion in 2021. Such a trajectory signaled a disconcerting escalation in the vulnerability of Nigeria's economy to climatic upheavals.

The cataclysmic flood event of 2022 engulfed 34 out of Nigeria's 36 states, leaving in its wake a trail of destruction, tragedy, and upheaval. Communities across the nation were afflicted by the loss of life, damage to property, and the devastation of once-fertile farmlands. According to the National Emergency Management Agency (NEMA), the 2022 flood disaster exacted a grim toll, claiming the lives of 662 individuals and causing injuries to 3,174 more. Furthermore, a staggering 2,430,445 people were uprooted from their homes, forcibly displaced by the merciless onslaught of the waters.

Regrettably, the 2022 floods etched themselves into the annals of Nigeria's history as the most severe ever documented, showing Nigeria’s increasing vulnerability of to the adverse consequences of climatic changes.

This Week

• United State will release its inflation rate for the month of July today Thursday 10 August 2023. The annual inflation rate in the US slowed to 3% in June of 2023, the lowest since March of 2021 and compared to 4% in May and expectations of 3.1%.

• On Friday 11^th July 2023, the United Kingdom will release its GDP data for second quarter 2023. Britain's quarterly economic growth was confirmed at 0.1 percent in the first quarter of 2023, remaining unchanged from the previous three-month period. Analysts expects that the GDP rate for Q2 might be 0.1%.