ThinkBusiness Today - May 30th

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An immense priviledge

This morning, His Excellency Asiwaju Bola Ahmed Tinubu, GCFR wakes up after day one of being Nigeria’s 16^th President.

What I want you to note in the above statement is the “16^th ”. A nation of over 60 years, with 45 million people in 1960, now estimated at over 200 million people, we have had only 15 people lead the country before now. I am not a mathematician, but I suspect that the mathematical probability of being a Nigerian president is extremely small.

So, as President Bola Ahmed Tinubu begins his first full day in office, I hope he understands the immense privilege that God has bestowed on him. And after such an immense privilege, I have always wondered why some ill prepared ones in the past focus on corruption (when money could not have bought you that privilege) or be clannish / ethnic (when you can have 200 million people behind you).

Markets

• Markets closed in Nigeria yesterday as a new President and 28 governors were sworn in.

• Oil prices slipped on Monday as worries over further interest rate hikes that could curb energy demand trumped a tentative U.S. debt ceiling deal. Brent crude futures slipped 46 cents, or 0.42%, to $76.63 a barrel while U.S. West Texas Intermediate crude was at $72.44 a barrel, down 24 cents, or 0.3%.

• Following the swearing in of President Bola Ahmed Tinubu, Naira appreciated at 0.12% to close at N768/$.

• Natural gas futures slid about 2.65% to US$2.35 on Monday. The U.S. Energy Department's weekly inventory release showed a lower-than-expected increase in natural gas supplies. Despite the positive inventory numbers, futures slumped nearly 16% week over week, overwhelmed by expectations for comfortable temperatures and, therefore, lighter heating or cooling demand.

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National Headlines

A new President and 28 governors sworn in – Yesterday, after 8 years, Nigeria has a new President in Bola Ahmed Tinubu. 28 governors were also sworn in, signaling a new set of leadership for the country for the next four years. No doubt, old realities and challenges remain. So, as expected, the new President tackled them one after the other in his speech.

• Budgetary reform / stimulating the economy without engendering inflation

• Accessible electricity

• Multiple taxation and other anti-investment inhibitions

• Fuel subsidies removal. This is the most critical, not only because of the financial costs, but because of its staggering opportunity costs (See Analysis).

• Unified exchange rates. This is also critical to significantly reduce the distortions in the economic and investment decisions.

Global Headlines

• China’s youth unemployment – China’s youth 16 – 24 years old unemployment reached 20.4% in April, new data shows. It signals jobs pressure during economic difficult time in the country, following the end of zero Covid – 19 policy.

• Are there enough votes to raise the debt ceiling? – The US President and House Speaker Kevin McCarthy continue to work on the number of votes required for the raise in debt ceiling deal reached weekend. The vote is expected to hold before the weekend deadline for the Treasury to run out of cash.

• Turkish Lira continues slide – A day after the election victory of the incumbent President, Recep Tayyip Erdogan, the country’s currency continue to slide against the US $, reaching 20.15 early hours of this morning. It traded at 18.5 December 2022.

News Analysis – Is this the end of over 50 years fuel subsidies in Nigeria?

Yesterday evening, fuel queues emerged at filling stations in Lagos and Abuja. It followed the announcement by President Bola Tinubu that “fuel subsidy is gone”. For the origins of fuel subsidies in Nigeria, see my article written in 2016.

https://businessday.ng/columnist/article/removal-of-subsidy-semantics-half-truths-and-dithering/

Today, let me quote the portion of his speech that touched on the point: “Subsidy can no longer justify its ever-increasing costs in the wake of drying resources”.

I agree, but I even think my scope of “costs” is much broader than that of the government. There are three dimensions of costs of subsidy that have limited our growth, investments and jobs.

• Financial costs to the government - The data below shows how the costs of fuel subsidy has tremendously increased over time. In the last 10 years, Nigerian government has spent over N12.1 trillion on subsidy and specifically in 2022, N4trillion was spent which is equivalent to 24% of the 2022 budget.

Financial Costs of Fuel Subsidy in Nigeria in Naira: 2012 - 2022

• Opportunity Costs – The President referred to this when he said that the increasing costs cannot be justified in the context of drying resources. It means the little resources we have should be priortised elsewhere – education, health, infrastructure etc.

• Distortions in Investment – This is perhaps the greatest part of the opportunity costs rarely mentioned. There are investments – industrial, refineries, transport and logistics, rails, that would have been made by the government and the private sector if fuel subsidies did not distort prices in the industry, with greater implications for other industries. And with the lack of these investments, the economy lost in growth and jobs.

Finally, Mr. President, I sincerely hope you can hold your nerve. Tell everyone opposed to subsidy removal that, “subsidy is gone, but let us discuss what the resources should be used for”.

The Week Ahead

• OPEC+ will meet on Sunday June 4, 2023. At the last meeting April 3, 2023, it announced output cuts of 1.16 mbpd. Some OPEC+ members announced voluntary production cuts in April that would take effect in May, but oil prices have continued to decrease due to concerns about economic growth and interest rate hikes.

• The NBS will release the Q1 2023 capital importation data on Wednesday 31st May 2023. The latest data shows that the capital importation has been declining since Q4 2021. Put in perspective, the capital importation declined by 20% to US$5.3billion in 2022 from US$6.7 billion in 2021.

• Also, the NBS will release Q1 data on selected banking data on Wednesday 31^st May 2023. This data cut across credit, payment channel, staff strengths among others.

• On Tuesday, May 30, 2023, Japan will release the data for unemployment rate for the Month of April. Japan’s unemployment rate unexpectedly rose to 2.8 percent in March 2023 from 2.6 percent in February, above market consensus of 2.5 percent. This was the highest reading since January 2022, as the number of unemployed increased by 150 thousand to 1.95 million.

• On Wednesday 31^st May 2023, France, Italy, France, and Canada are expected to release their various reports on Inflation report for the Month of April.

• Also, Euro area GDP and inflation report is expected to be released on Thursday, June 1^st , 2023

• Friday June 2, 2023, the United State will release its monthly unemployment rate for the month of May.