Being an Analyst Note issued by Proshare Research on November 25th 2022 

Analysts React to Real GDP growth of 2.25% in Q3 2022

On Thursday, the National Bureau of Statistics released the GDP figures for Q3 2022. The data suggest that the Nigerian economy grew by 2.25%, with the growth largely supported by the services, which grew by 7.01%, while Agriculture managed a 1.34% growth. The industries sector, however, declined by -8%. A further breakdown of the sectors into activity areas shows that the best-performing areas were those in the Services, namely Transportation (41.59%), Financial and Insurance (12.7%), ICT (10.53%), and Arts and Entertainment Sectors (7.79%). The Mining sector was the worst-performing sector as it contracted by -21.3%, reflecting the underproduction in the oil and gas sector. Apart from the Mining sector, Electricity (-3.56%) and Manufacturing (-1.91%) also recorded large contractions in the quarter, reflecting the higher cost and unavailability of petroleum products, the cost of inputs, higher taxes and government levies, as well as higher cost of borrowing associated with the aggressive rate hikes by the Monetary Policy Committee in the period. Analysts say that the elevated inflation and higher cost of funds would depress private sector growth and household spending in the fourth quarter, bringing the expected real GDP growth for the year to around 3% (see chart 1 below). 

Chart 1: 

Oil Prices Balanced Demand Concerns against Supply Threat 

Oil prices traded downward for the week as concerns over fuel demand from China, the strong U.S. dollar, and receded supply worries weighed on prices. While record-high covid infection cases limited Chinese crude imports and the strong U.S. dollar made oil dearer for holders of other currencies, investors considered the proposed Russian oil price cap at US$65-70 a barrel too high for Russia to retaliate. The downtrend was, however, moderated by a larger-than-expected U.S. crude inventory drawdown and a few sessions of easing dollars. Analysts expect a further downtrend in oil prices on lower fuel demand from China and monetary authorities' rates hikes across most economies. However, further output cuts by OPEC could increase oil prices in the near term. In the domestic petroleum market, analysts expect the petrol price to hover around N200-250 per litre in the coming week. 

Ghana's Bondholders to Lose 30% Principal and Interest Payment with Debt Restructuring 

Ghana plans to ask its international bondholders to accept a 30% loss on principal and forgo some interest payments as a restructuring plan to qualify for the IMF bailout it has been negotiating since September. Ghana is negotiating a US$3bn program with IMF after being shut out of the international debt market amid the persistent selloff that elevated yields to a distress level. As of Thursday, the country's US$1.2bn 2032 Eurobonds had a 30.49% yield, higher than most emerging market yields. Domestic bond investors would be asked to exchange their existing securities for new securities that will offer a zero coupon in the first year, 5% in the second, and 10% in the third year. Previously, the Fitch rating lowered the country's long-term issuer default to CC from CCC negative outlook in August. The restructuring plan might trigger another downgrade and pressure more selloffs. However, the proposal will be set for negotiations with both local and foreign bondholders. 

Equity Market Gradually Becomes Safe Haven for Investors

The Nigeria Equity Market recorded its 5th consecutive positive trade session as the market capitalization gained N202.93bn. The NGX All-Share index advanced by 0.81% to close at 46,604.94 index points against 46,232.37 at the end of the trading session. Although with the 100bps hike in MPR, Nigeria's equity market performed above analysts' expectations as we gear towards a positive week-on-week result with the year–to–date standing at 9.10% and the Month-on-Month gain standing at +6.3%. Sectoral performance was broadly negative in the last trade session, as three (3) NGX sector indexes closed positive, twelve (12) closed negative, and three (3) closed flat. The NGX Main Board index advanced by 2.05% to top the gainers' chart, and the NGX AFRBVI Index declined by -1.92% (see chart 2 below).

Chart 2: 

ICT Contributed 15.35% of Nigeria’s GDP 

The NBS' GDP Q3 2022 report revealed that the ICT sector, which is composed of four activities of telecommunications and information service, motion picture, broadcasting, and sound & music production, contributed 15.35% to the nation's real GDP in Q3 2022 as against 14.20% it recorded in the same period last year. However, on a quarterly basis, the sector recorded a decline in contribution compared with the 18.44% it added in Q2, 2022, which was the highest contribution of ICT to GDP.

Analysts attributed the quarterly reduction to the challenging macroeconomic conditions that have impeded productive activities. However, the economy is steadily relying on the non-oil sector, which now contributed 94.34% to the nation’s GDP. The performance of the non-oil sector was driven mainly by growth in ICT, financial institutions, and agriculture, boosting total GDP by 2.25% year-on-year.

Binance CEO urges Support to Afflicted Crypto Firms to Cure the Spread of FTX Bankruptcy

The co-founder and CEO of Binance, the world's largest cryptocurrency exchange, pledged US$2bn to aid crypto firms facing financial hardships following the bankruptcy of rival exchange FTX. Although the initial plan was a US$1bn recovery fund, he promised to increase the amount to US$2bn in the future as the need arises with the support of other investment firms. This decision comes as former FTX owner Sam Bankman-Fried's is going through a bankruptcy proceeding, which has put a growing number of crypto companies that have had exposure to the trading platform and its related businesses on the brink of collapse. Analysts believe the helpful decision could also lead to a rise of other struggling coins and increase productivity.