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Analysts Appraise Nigeria's Oil Output, Q3 Foreign Trade Data, and FGN Sukuk Bond Issuance

Dec 06, 2022   •   by TheAnalyst, Proshare Research   •   Source: Proshare   •   eye-icon 229 views

Being an Analyst Note issued by Proshare Research on December 6th 2022


Economist Review Oil and Gas Industry's Hope and Despair

The FG, through the Minister of State for Petroleum Resources, Timipre Sylva, has again raised optimism that Nigeria will meet its OPEC crude oil production quota of 1.8mb/d in May 2023, discover more oil in the northeast, and exit petroleum products importation by Q3 2023. While it is valid to be optimistic about meeting the OPEC quota based on the ongoing surveillance of the country's pipeline infrastructures, analysts noted that there are no sufficient deterrents yet to curb the growing scale of oil theft. Tracking and blocking leakages across the oil pipeline does not necessarily translate to a deterrent, given the organized and sophisticated nature of the criminal cartel and their armouries. Regarding refineries onboarding, the continuous extension of the timeline for completing the national refineries speaks to the uncertainty of domestic refining under the current administration. 

 

Meanwhile, the presidential candidate of both the Labour Party (LP) and People's Democratic Party (PDP) have stated their intent to support private sector players in running the downstream oil and gas industry if elected president of Nigeria. Peter Obi of LP listed three priorities for the sector: establishing a green army to tap global climate finance, incentivizing the private sector for boutique refineries, and enforcing the mandatory National Strategic Reserve of major petroleum products. Atiku Abubakar of PDP intends to fully private the NNPCL and the national refineries. While both ambitions align with the market system, analysts doubt the credibility of the privatization process, calling for global best practices in such process for anyone elected as president.  

 

Trade Surplus Declines as Fall in Critical Imports Foreshadows Slow Growth

Nigeria's Trade Surplus declined from ₦1.97trn in Q2 2022 to ₦270bn in Q3 2022 as Total Trade declined from ₦12.86trn to ₦11.6trn in Q3 2022. On a year-on-year basis, however, the trade balance still appreciated 40.92% from ₦190bn in the corresponding period of last year.  The decline in the trade balance was also associated with the 21% decline in crude oil exports inducing a 9.7% decline in overall export earnings.

 

In reaction to the 3.82% Y-O-Y decline in Imports, Analysts say that a similar trend was observed quarterly between Q4 2021 and Q3 2022. They noted, however, that it does not necessarily indicate a declining preference for and frivolous demand for foreign products by the household in response to the devaluation of the naira.  The data suggests that over the period, the demand for industrial products and Premium Motor Spirit (PMS), two critical inputs for manufacturers, declined by 20.25% and 14.45% Y-o-Y respectively. Analysts say that the decline in imports explains the contraction in the manufacturing sector, which recorded a -1.91% decline in the third quarter of 2022.

 

Analysts also noted with concern that while the reliance on crude oil exports is increasing, crude oil export itself is declining, painting a grim picture for Trade balance and BOP projections. As such, analysts call for greater diversification of the country's exports and the divergence from primary products to more complex products as exports (see table  1 below).

 

Table 1: 

 

 

Meanwhile, Spain accounted for 14.72% of export trade to overtake India as the country's largest trading partner(exports). India came second on the list with 10.44%, France was 7.25%the Netherlands accounted for 7.09%, and Indonesia with 7% (see chart 1 below).

 

Chart 1: 

 

FGN Sukuk Bond Issuance Records 165% Oversubscription 

The Debt Management Office announced that the N100bn Sovereign Al' Ijarah Sukuk had an oversubscription of 165%, receiving an extra N130bn from investors. The DMO stated that "the level of subscription suggests investors' confidence in the use and impact of Sukuk in the construction and rehabilitation of road infrastructure across the country." Since the Sukuk Bond was introduced in 2017, the issuance has raised a total of N612.56bn for the federal government and has helped in funding 71 roads and six bridges which have increased to N742.56bn with the current issuance. With the rental rate at 15.64%, analysts had expected the subscription to be low on high inflation at 21.09%. However, analysts believe that the considerable subscription by investors is an attempt to prevent holding cash as the deadline for currency swap draws near. The recent buying interests have also been seen in the fixed-income market, particularly in the bond market.    

 

Analysts Cringe as NALDA Claims 'No Food Shortage' for Nigeria in 2023

Many Nigerians have expressed concern over low purchasing power to get necessary items. Still, the National Agricultural Land Development Authority (NALDA) has claimed that since awareness is being created towards farming, 2023 should be a year of high production. The Chief Executive of NALDA noted that with youth tilting towards agriculture and support encouragement from the government, more people have been able to venture into agriculture which would prevent food shortages in 2023 in the country.

 

Analysts, however, claim they might be looking at it at face value as problems beyond the number of farmers have posed the most significant threat to production. Climate change caused severe flooding in several states this year, destroying many farmlands and rendering many close-to-harvest crops useless. Food prices have shot up due to reduced production caused by higher fertilizer costs and fuel costs. Many companies have had to lay off workers to keep afloat as the cost of production and staff payment cannot be adequately covered by income. With the holiday season approaching, and reduced harvest witnessed in different parts of the country, food prices could stay elevated till the end of Q1 2023.

 

Nigerians With NIN Hits 92.63m0

The number of individuals with National Identification Numbers grew to 92.63m in November, according to NIMC. These new statistics revealed that 19.93m Nigerians got their NINs in 2022 and a total of 1.9m new enrolments in November, as the database stood at 90.68m at the end of October. In gender distribution, the NIMC data revealed that 52.1m people representing 56% of Nigerians captured so far, are males, while the remaining 40.5m representing 44%, are females. The top 5 states for NIN holders are Lagos (10.33m), Kano (8.09), Kaduna (5.47m), Ogun (3.87m), and Oyo (3.68) (see chart 2 below). Analysts observed that for years, the Federal Government of Nigeria has struggled to create a credible national database through the NIN without success. The government's mandate introduced in December 2020 made many Nigerians enrol for the NIN and link their lines to restore communication.

 

Chart 2: 

 

Australian Cryptocurrency Exchange Swyftx to Lay off 35% of its Staff 

The Co-founder and CEO of the Australian cryptocurrency exchange, Alex Harper, made a statement to the public announcing the layoffs of 35% of its talented Staff at the Brisbane-based firm following a company-wide town hall meeting. The layoff is to help them prepare for a prolonged crypto winter; although the company has no direct exposure to FTX, they are part of the fallout or collapse of FTX. Analysts believe the effect of FTX would cause major crypto companies laying off now to strategize and plan for a period of diminished trading activity.

 

Although Congresswoman Marine Waters has invited the former CEO of FTX, Sam Bankman-Fried, to testify to help the public grasp what happened with the exchange, SBF is unlikely to make this appearance despite granting multiple public appearances over the past weeks. Should SBF honour this invitation, there is a deep assurance that investors' hope would come alive and ease the tension.

 

 

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