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Naira Devaluation: Expect Price Hike, Telcos Tell Subscribers

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Telecommunication firms have said they are working with their regulator, the Nigerian Communication Commission, to review the prices of their services to reflect prevailing market realities, especially the recent unification of the foreign exchange market.

According to the telcos, a price review is needed for their industry to remain sustainable. The president, Association of Licensed Telecoms Operators of Nigeria, Gbenga Adebayo, disclosed this to The PUNCH in an interview. He explained that the price review is needed to reflect the cost of production.

This is following a new FX policy regime introduced by the Central Bank of Nigeria. The apex bank recently asked Deposit Money Banks to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market, to enable the free float of the naira against other foreign currencies.

This is to bridge the gap between the official and parallel rates of the naira. This move, according to Adebayo, has tipped the scale in favour of a price review in the industry.

He told The PUNCH, “For our industry to remain sustainable, our prices have to reflect the cost of production. This goes without saying that we will also review rates at the appropriate time after consultation with all the stakeholders to reflect the current cost of inputs.”

Adebayo noted that telcos are not isolated or immune from what is happening in the economy. He stated, “When the input cost goes up, prices will also go up. So, in order for the industry to be sustainable, and for us to continue to maintain the grade of service that we deliver, it is only realistic that we review prices.

“We are providing all the necessary information to the regulators.”

He clarified that these discussions have been ongoing for a while, with telcos getting approval to review prices for a while under the last administration. However, he said that the new Forex regime has made an increase paramount.

Adebayo said, “We’ve been discussing this before the end of the last administration, and in actual fact, approval was granted for price review at the time, but we had some interventions that asked that it should be put on hold, which again does not reflect the reality of what we face. So, it is only normal to expect that there will be a price review.

“But it is not only FX that will influence this. It is in addition to other elements and parameters of the cost that we had mentioned in our previous submission to get a review of rates. This other condition will constitute further information, reason, and basis to justify the review of prices.”

Recall that in 2022, telcos wrote a letter to the NCC requesting for a 40 per cent hike in the price of data, calls, and SMS due to the rise in their cost of operations.

They were seeking to increase the floor price of calls from N6.4 to N8.95 and the price cap of SMS from N4 to N5.61.

They said, “Upward review of the price determination for voice and data and SMS. Given the state of the economy and the circa 40 per cent increase in the cost of doing business, we wish to request for an interim administrative review of the mobile (voice) termination rate for voice; administrative data floor price, and cost of SMS as reflected in extant instruments.”

A telecom expert, who asked not to be named, also confirmed that telcos were pushing for an increase in the delivery cost. The expert noted that the industry has not been able to respond to price shocks and it has begun to affect it.

The expert said, “If we keep pegging prices and we cannot respond or adjust based on the reality on ground, we can’t keep subsidising consumption indefinitely.

“This will eventually lead to a price review. This should have happened before now. It has been on the table, we had been putting up with a lot of things, we need some type of help. We have been leveraging on volume, but it is a business we need to keep investing in, upgrading the tech, and it is money.”

Since the President Bola Tinubu administration began with the removal of fuel subsidy on May 29, 2023, prices of many goods and services have risen. Mobile telecommunication service is crucial to the Nigerian economy and is a crucial component of its GDP.

As of April 2023, there are 223.34 million mobile subscriptions in the country. Raising prices of telecom services is set to affect everyone, the president, National Association of Telecoms Subscribers, Adeolu Ogunbanjo, told The PUNCH.

He said, “They can’t increase prices now, that will be totally insensitive. Fuel subsidy is gone, electricity is planning an upward review, we are against this. It will affect businesses again, telecoms is everything to us.”

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Inflation To Fall In 2024 — CBN

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The Central Bank of Nigeria’s governor Yemi Cardoso expects headline inflation to fall to 21.4 per cent in 2024.

The apex bank’s governor disclosed this during his keynote speech at the launching of the Nigerian Economic Summit Group macroeconomic outlook report for 2024.

He said, “Inflationary pressures are expected to decline in 2024 due to the CBN’s inflation-targeting policy, which aims to rein in inflation to 21.4 per cent.”

According to him, the inflation targeting will help the government in its battle against inflation which hit 28.9 per cent in December. Lower rates will ultimately affect businesses, he alluded.

“The outlook for decreasing inflation in 2024 will have a profound impact on businesses, providing a more predictable cost environment and potentially leading to lower policy rates, stimulating investment, fueling growth, and creating job opportunities,” Cardoso said.

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Petrol Prices To Fall Over Refineries’ Take Off, Says Cardoso

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The pump prices of Premium Motor Spirit (PMS) petrol will moderate this year as government and private-owned refineries begin operation, Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso has said.

He spoke on Wednesday, January 24, at the launch of the Nigerian Economic Summit Group (NESG) 2024 Macroeconomic Outlook Report in Lagos.

Cardoso said the expected stabilisation or reduction in fuel costs is poised to have far-reaching implications across various sectors, contributing significantly to overall economic efficiency and resilience.

While Dangote Refinery has already commenced production, the Port Harcourt Refinery is expected to begin production anytime from now.

Cardoso said the apex bank, the Ministry of Finance and the NNPCL have collaborated to ensure that all FX inflows are returned to the Central Bank to boost reserves accretion.

He described the naira, which exchanges around N1,370 to the dollar at the parallel market as undervalued.

“We believe that the naira is currently undervalued and, coupled with coordinated measures on the fiscal side, we will expedite genuine price discovery in the near term,” he said.

In summary of the NESG 2024 Macroeconomic Outlook Report in Lagos, the Chief Economist at NESG, Dr. Olusegun Omisakin, listed some economic outcomes of achieving a stable and appropriate pricing of the exchange rate in Nigeria.

The NESG report advised that stabilising the exchange rate through a functional and transparent foreign exchange market entails enhancing market liquidity through regular auctions, reducing administrative restrictions, and ensuring efficient allocation of FX reserves.

“Adopting a managed float system, regulating speculative activities, and encouraging foreign investments would bolster market confidence. Besides, access to FX needs to be realigned to facilitate international trade and transactions – as such, local access needs to be to the limit of the Naira equivalent. Reinforcing monetary policies for inflation control and export diversification would promote currency stability,” the report advised.

Cardoso acknowledged the challenges facing the economy and the resistance to proposed solutions by various stakeholders, assuring that the economy is now at a turning point, and the bold reforms being undertaken across different segments of the economy, while initially challenging, are ultimately directed towards addressing these challenges in a sustainable manner.

“I am confident that we are already witnessing positive outcomes, and these will undoubtedly become more apparent in the near future. The dedicated and relentless efforts being made are certain to bring about significant and positive changes for our economy.”

“Indeed, recent reports from international rating agencies such as Fitch, Moody’s, and commendations from multilateral banks like 3 Classified as Confidential the World Bank reflect this, with upgrades to Nigeria’s ratings from stable to positive. These reports acknowledge the possible reversal of the deterioration in the country’s fiscal and external position due to the authorities’ reform efforts,” Cardoso said.

“While noting the painful adjustments, they all identify a direction of travel that will unlock the much needed growth and development for our economy in the medium to long term.”

He said the rising costs of food prices and volatility in the forex market will soon be addressed.

On economic growth, he said the global economy is currently grappling with persistent challenges, including inflation and subdued growth prospects.

Despite Gross Domestic Product (GDP) growth outperforming expectations in 2023, it is projected to further moderate in 2024 due to tightened financial conditions, sluggish trade expansion, and reduced business and consumer confidence. The International Monetary Fund (IMF) anticipates a mild slowdown in global economic growth to 2.9 percent in 2024, down from the 3.0 percent growth observed in 2023, with Asia driving the majority of the projected global growth in 2024, similar to the previous year.

He said the projections for the nation’s economy paint an optimistic trajectory as the Federal Government of Nigeria anticipates real GDP growth of 3.76 percent in 2024, slightly surpassing the estimated 3.75 percent for 2023.

The optimism, he said, was underpinned by the implementation of key government reforms set to shape the economic landscape. Foremost among the factors contributing to this positive outlook is the expectation of improved crude oil prices and production, highlighting the crucial role the oil industry is expected to play in driving economic growth.

Cardoso said the positive outlook for Industry, Services, Agriculture, and Mining, Electricity, Gas & Water Supply sub-sectors reflects the potential effect of market-based reforms through private investment and SMEs-led growth that would contribute to business improvement and confidence.

“Government reforms in the mining and energy sub-sectors are expected to serve as a catalyst for growth and development. 3. While the potential for growth exists in 2024, each sector may encounter unique challenges and opportunities,” he said.

He said that inflationary pressures are expected to decline in 2024 due to the CBN’s inflation-targeting policy, which aims to rein in inflation to 21.4 percent.

This will be aided by improved agricultural productivity and the easing of global supply chain pressures, benefiting businesses by boosting consumer confidence and purchasing power.

He explained that the CBN’s adoption of the inflation-targeting framework involves clear communication, use of monetary policy instruments, and collaboration with fiscal authorities to achieve price stability, fostering market confidence and positively influencing consumer behaviour.

“The outlook for decreasing inflation in 2024 will have a profound impact on businesses, providing a more predictable cost environment and potentially leading to lowered policy rates, stimulating investment, fueling growth, and creating job opportunities,” he said.

Cardoso said the expected stability in the foreign exchange market for 2024 can be attributed to the reduction in petroleum product imports and the recent implementation of a market-determined exchange rate policy by the CBN.

“This reform is designed to streamline and unify multiple exchange rates, fostering transparency and reducing opportunities for arbitrage. The resulting consistent and stable exchange rate will not only boost investor confidence but also attract foreign investment, elevating Nigeria’s appeal to global investors,” he said.

Cardoso said the NESG’s Macroeconomic Outlook Report for 2024 emphasises the necessity of economic transformation under the central theme, “Economic Transformation Roadmap: Medium-Term Policy Priorities.”

“This theme underscores the requirement for a clearly outlined roadmap comprising distinct yet interconnected phases and essential policy recommendations. This resonates with me as we have just last week, launched a new 5-year Strategy for the Central Bank of Nigeria for the period 2024-2028 that provides a clear roadmap for achieving our mandates,” he said.

The NESG report explained that when exchange rates are stable, everyone is better off. Price stability supports economic growth and employment. It allows people to make more reliable plans for borrowing, saving, and expanding businesses.

“Decreased volatility of the exchange rate helps to support stability in inflation, which mainly affects low-income households because they have fewer resources to protect themselves. In the situation of price stability, it helps to maintain social cohesion and stability. History has shown that episodes of high inflation tend to be associated with social unrest,” the report.

According to the report, increased capital inflows will fortify the nation’s external reserves, establishing a robust defence against external shocks.

“This can only happen with the stability of the exchange rate. Capital inflows, comprising foreign investment, loans and remittances, elevate the reserve levels, bolstering Nigeria’s financial stability and economic resilience,” it said.

The NESG report advised that in addition to nominal enhancements in revenue, the country’s revenue-to-GDP ratio must reach a minimum threshold of 15 percent to substantiate the processes of economic growth and stabilisation.

“The country must significantly decrease its current public debt service-to revenue ratio, aiming for a reduction to less than 22 percent from the current high of 80.2 percent as of 2022. This reduction is crucial to create fiscal space, enabling the government to reallocate funds toward economic development and stability initiatives.

“A moderate fiscal deficit can be a useful tool for financing essential investments and stimulating economic activity. Hence, the optimal level of fiscal deficit that supports economic growth and stability in Nigeria requires a careful balance. A fiscal deficit of less than three per cent as stipulated in the FRA 2007 is considered appropriate for the economy,” it said.

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