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Labour union plans showdown with Nigeria’s president over petrol subsidy removal

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Following the decision by Nigeria’s new administration to end subsidies on petroleum products, the labour union in the country has announced a plan to embark on a nationwide strike next Wednesday.

The Nigeria Labour Congress (NLC) President, Joe Ajaero, after an emergency meeting of the union’s executive council in Abuja, called for the reversal of the policy by the state oil company, NNPC.

“The Nigeria Labour Congress decided that if by Wednesday next week that NNPC, a private limited liability company that illegally announced a price regime in the oil sector, refuses to reverse itself for negotiations to continue, that the Nigeria Labour Congress and all its affiliates will withdraw their services and commence protests nationwide until this is complied with,” Ajaero said.

The country was thrown into confusion on Monday as the new president, Bola Tinubu, during his inaugural address, remarked that “fuel subsidy is gone”.  The market reacted sharply as long queues followed at fuel stations, and a sharp increase in the price of Premium Motor Spirit, popularly known as petrol, occurred.

The Nigerian government under former president Buhari had announced that the controversial subsidy regime would be discontinued by June this year. The then minister of finance, Zainab Ahmed had reiterated on occasions that Nigeria had no provision for fuel subsidy in the 2023 appropriation bill beyond June.

The country spent 4.39 trillion Naira ($9.7 billion) on petrol subsidies in 2022 and reportedly expended over N1.15 trillion in 2021 alone.

Some observers have argued that the hike in petrol price will put financial stress on the majority of Nigerians who depend on cheap petrol to power their businesses, as well as transportation, based on the poor state of public transit systems in the country.

The situation is compounded by the wage levels in the country. The minimum wage in Nigeria is 30,000 naira ($65). According to the National Bureau of Statistics, 63% of people living in Nigeria are poor, while the World Bank said in a report last year that as many as four in 10 Nigerians live below the national poverty line.

Meanwhile, President Tinubu has promised to review the minimum wage during a meeting with the ruling party state governors at his office in Abuja, adding that revenue collection should be strengthened.

“We need to do some arithmetic and soul-searching on the minimum wage,” Tinubu said

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Nigeria’s Dangote Sugar Refinery issues commercial papers worth N42.79 billion at rates of 25%, 23%

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Nigeria’s Dangote Sugar Refinery has declared the issuance of its N42.79 billion Series 4 and 5 commercial papers, offered at 25% and 23%, respectively, were successfully issued. The company’s N150 billion commercial paper issuance program included issuing the papers.

The 181-day Series 4 and the 265-day Series 5 were issued for a total of N12.93 billion and N29.86 billion, respectively. The notification released by the company states that institutional and individual investors, along with pension and non-pension asset managers, participated in the CP issuance.

Dangote Sugar Refinery has issued N39.39 billion in 266-day Series 1 notes at a 17.08% discount rate as part of its N150 billion commercial paper program. Furthermore, at a 19.84% discount rate, the corporation has issued N6.15 billion in 184-day Series 2 notes.

At a discount rate of 21.30%, the business issued 254-day Series 3 notes for N53.47 billion. Therefore, Dangote Sugar has raised N141.8 billion through its Series 1 to 5 CPs. The letter to the group states that the corporation plans to diversify its funding sources through the issuance of commercial papers. The money raised will go toward meeting finance needs and sustaining short-term operating capital.

According to Dangote Sugar’s Q1 2024 financial reports, interest costs on commercial papers totalled N543.2 million, while interest costs on bank loans came to N21.48 million. This suggests that commercial papers rather than bank loans are the company’s primary source of funding.

These commercial papers’ high discount rates are a reflection of Nigeria’s high-interest monetary environment at the moment. The CBN increased Nigeria’s benchmark interest rate by 750 basis points to 26.25% in 2024, which had an impact on manufacturers’ capacity to finance working capital.

In essence, the CBN’s decision has caused banks to significantly raise their lending rates. For instance, UBA’s loan rates to the manufacturing sector ranged from 28.50% to 32.00% as of May 17, 2024. Due to this increase, businesses are now looking for alternate sources of funding, and debt securities like bonds and commercial papers are one such choice.

However, treasury bills (NT-bills) and OMO bills issued by the CBN are vying with commercial papers for investors’ attention in the market for short-term debt securities. Furthermore, the CBN’s yield rates on NT notes and OMO bills in 2024 have shown to be extremely competitive. For instance, the June 5, 2024, 182-day and 364-day NT bills have respective discount rates of 17.5% and 20.67%.

Companies have been obliged to implement rather high interest rates for these CPs to compete favourably. Series 3, 4, and 5 CPs from Dangote Sugar are available at discounts of 21.30%, 23%, and 25%, respectively. It has also forced other issuers to adopt high interest rates. Series 1 and Series 2 CPs were issued by Coronation Group with respective discount rates of 19.83% and 21.81%.

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Nigeria’s inflation increases to a record 28-year high in May

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According to official figures released on Saturday, Nigeria’s annual inflation reached a record 28-year high of 33.95% in May, exacerbating the hardships that have stoked popular ire against President Bola Tinubu’s economic reforms.

Inflation increased for the eighteenth consecutive month, up from 33.69% in the previous month.

Tinubu’s measures, which primarily cut energy and gasoline subsidies and devalued the naira twice in a single year, have increased price pressure.
Labour unions, who asked for a new minimum wage through an industrial strike that was called off after two days, have maintained that the reforms disproportionately affect the poor and have left millions of people facing the biggest cost-of-living crisis in decades.

The National Bureau of Statistics data indicated that in May, food and non-alcoholic beverages remained the main drivers of inflation.

The majority of Nigeria’s inflation was driven up by food prices, which increased to 40.66% from 40.53% in the previous month. Analysts say the major causes of Nigeria’s inflation are rising food prices and a declining value of the naira.

The report read, “In May 2024, the headline inflation rate increased to 33.95% relative to the April 2024 headline inflation rate which was 33.69 per cent. Looking at the movement, the May 2024 headline inflation rate showed an increase of 0.26 per cent compared to the April 2024 headline inflation rate.

“On a year-on-year basis, the headline inflation rate was 11.54 per cent points higher compared to the rate recorded in May 2023, which was 22.41 per cent. This shows that the headline inflation rate (year-on-year basis) increased in May 2024 when compared to the same month in the preceding year (i.e., May 2023).

For the third time this year, the central bank increased interest rates in May in reaction to the ongoing increase in inflation. Rates will remain high for as long as it takes to reduce inflation, according to Governor Olayemi Cardoso.

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