Jambo Africa Online’s Senior Correspondent, Francois Fouche, gives us news tit-bits from within the continent and across the world that impacts on our economies.
The Nigerian state takes an interest in oil refineries
For more than 4 decades, Nigeria ran its state refineries into the ground, putting the country in the unusual position of being one of the world’s biggest crude oil exporters, but major gasoline importer at the same time. Rather unique position.
Now that private investors, most significantly Aliko Dangote — Africa’s richest man — are rushing to open their own plants, the state has stepped in again.
The Nigerian National Petroleum Corp (NNPC) wants stakes in at least 6 planned refineries, including Dangote’s monster 650,000 barrels-per-day plant. There’s no explanation of how the cash-strapped state firm will pay thouhg. The NNPC says its vision is to boost the domestic refining capacity and to become a net exporter of petroleum products.
Nigeria’s partly private fuel-import system had long been riddled with patronage and maladministration.
Fuel was imported only to be smuggled to neighbouring states, and labour unions and civic groups accused the government of making billions of dollars of illegal payments for fuel subsidies. Idled government refineries served that system well.
The state’s record at managing its own refineries speaks for itself — none of them have worked in years. This is just how a small, but influential network of traders likes it.
While the NNPC may not be looking to control the plants, its influence would still be outsized. It’s likely to be relied upon for crude, and the government is responsible for permits and rules that need to be adhered to for a private business to succeed.
Since stakes weren’t in the draft reform bill sent by the presidency to the National Assembly, the NNPC’s proposal may not come to pass. Still, the move raises the whiff of interference from entrenched lobbies seeking to dilute the reform process.
While the NNPC says it wants to turn Nigeria into a fuel-products exporter, it hasn’t demonstrated the capability to do so. The government may be best advised leaving it to others.
Less interventions and more consistent and transparent policies will serve many an Africa country well.
Take heed, South Africa…
Four Factors Behind the Metals Price Rally
As economies reopen in various parts of the world, the price of some commodities has soared, including the prices of prominent industrial metals.
The extent to which the metals price rally may lose steam depends on how multiple factors will play out.
As the latest IMF chart of the week shows, metals prices have increased by 72% relative to their pre-pandemic levels—reaching a 9-year high in May (in inflation adjusted terms).
The increase has been broad-based across industrial metals—copper is up 89% in May (year-over-year), iron ore is up 116%, and nickel is up 41%.
The prices of most agricultural and energy commodities are also tracking upward, but at a slower rate.
Energy commodities (oil, coal, and natural gas), in particular, sit only a few % above pre-pandemic levels.
Why have metals prices increased much more than other commodities?
Here are four reasons:
1. A manufacturing-based recovery
Manufacturing activity did not slump as much at the start of the pandemic and recovered more quickly than services, especially in China, which is the major user of metals.
At the same time, sectors in which energy commodities feature prominently, like the transportation sector, remain depressed.
For example, global road fuels consumption is still at 93% of pre-pandemic levels, restraining a further rebound of petroleum prices.
2. Supply-side factors
Many mining operations were temporarily disrupted by COVID-19.
What’s more, freight rates for the transportation of bulk materials reached a 10-year high due to congestion in key ports, quarantine restrictions, ongoing problems staffing shipping crews, and a rebound in fuel prices from the deep troughs in Spring 2020.
This all added to the cost of metals.
3. Expectations for faster energy transition and infrastructure spending
Buoyant expectations about the pace of the transition to a greener economy and ambitious infrastructure programs gave metals prices an additional boost.
Both would increase the “metal intensity” of the global economy.
A fast energy transition, for example, could require a 40-fold increase in the consumption of lithium for electric cars and renewables, while the consumption of graphite, cobalt, and nickel for these purposes may rise around 20 to 25 times, according to the International Energy Agency.
Ambitious infrastructure programs in the European Union and the United States would drive up the demand for copper, iron ore, and other industrial metals.
4. Storability of metals
Metals are easier to store than crude oil or some agricultural goods, which need special facilities.
This makes their pricing more forward looking and, thus, more sensitive to changes in interest rates (lower interest rates reduce the “cost of carry,” which also includes cost of storage, insurance, and other expenses, and, thus, tend to support commodity prices) and market expectations, such as the ones about a faster energy transition and infrastructure spending.
Will metals’ prices keep increasing or retrench?
This is a challenging question.
Market participants seem to expect a peak in metals prices relatively soon, as factors (1) and (2) are supposedly temporary in nature.
Indeed, futures markets suggest an increase of industrial metal prices by 50% in 2021 (year-over-year), but a decrease by 4% in 2022.
Still, prices are expected to remain high and could rise further, especially if demand from an energy transition accelerates.
On the flip side, prices may decrease more than expected if legislative approval and government actions required for the energy transition and infrastructure programs do not materialise as expected.
This article first appeared here: https://blogs.imf.org/2021/06/08/four-factors-behind-the-metals-price-rally/
Rwanda on the rise
In this the second Africa Rising mini economic documentary by Prof. Adrian Saville from the Centre for African Management and Markets at the Johannesburg-based Gordon Institute of Business Science (GIBS) and Bronwyn Nielsen focus on the miracle of the Republic of Rwanda.
Rwanda is often referred to as “the Land of a Thousand Hills” is regularly identified as one of the fastest growing countries in Africa.
The World Economic Forum ranks Rwanda as the 9th safest country in the world and the World Bank says it is the 2nd easiest place to do business in Africa.
In 16 minutes, we dive into the Rwanda of today and tomorrow and examine progress being made as the city draws inspiration from Singapore.
Click here to watch the video clip: https://www.youtube.com/watch?v=GInlG5XRGv8