Being an Analys Note issued by Proshare Research on August 2^nd  , 2022

Analysts Blink as Federal Government Denies Fuel Subsidy Removal

In what seems like a relief for Nigerians on the recent increase in petrol pump price, the Minister of State for Petroleum, Timipre Sylva, denied government involvement in the price hike – from N165 per litre to between N169 to N220 per litre depending on the state – noting that the government is still subsidizing petrol prices. Proshare Analysts had pointed out that the regulator's silence on the price hike implied government compliance. 

The fact that filling stations owned by the NNPC have also raised their pump prices to about N175 per litre justifies the government's compliance with the increase in fuel prices and suggests that the price increase is here to stay, if not more. Meanwhile, because the Minister attributed the increase to marketers and just intended to engage the regulator suggests that there is a deliberate attempt by the downstream regulator to play neutral on the petrol price hike. 

Commentators Express Concerns about FG's Capacity to Fully Fund PPI Project 

Under the Presidential Power Initiative (PPI), the Federal Government is set to take possession of Transformers worth €63m by September. The deal, which has Siemens as a counterparty, is meant to improve power supply from 5000MW/h to 7000MW/h in 2022 and 25000MW/h by 2025. While the PPI, through its five (5) workstreams, is expected to bring about Brown and Greenfield investments in the Transmission link of the electricity value chain, Analysts express concerns about the Federal Government's ability to fund the project given its fragile fiscal position fully. If fully implemented, the project would ensure an upgrade of Power distribution lines. The initiative would also see to the development of a Meter Data Management System as well as provide training for local engineers (see chart 1 below).

Chart 1: The Five Workstreams of the Presidential Power Initiative (PPI)

Source: FGN Power Company, Proshare  Research 

Nigeria Fritters Away Energy as Renewable Sources Remain Under Explored

Renewable energy, particularly in Nigeria and other emerging economies, has become more appealing. This stems from the ever-increasing need to pay more attention to climate change concerns and to source alternative power supplies to provide a more stable form of electricity. Proshare analysts observed that Nigeria receives solar radiation that amounts to about 4,000 times the crude oil production in a day and about 13,000 times natural gas production. Yet, the country suffers from an unstable power supply. According to Stears Data, about 40% of Nigerian residents have no access to electricity from the national grid. 

Due to rising power concerns, several initiatives, such as the Nigeria Electrification Project (NEP), have led to a massive surge in sales of off-grid products and the rise of several companies. Blue Camel and Virtitus Solaris have taken the initiative to provide solar panels. Meanwhile, with sustained effort to pursue energy transition, the campaign by foreign investors to reduce funding for fossil fuel investments is quite counterproductive as it could severely stifle the economies of developing nations. African and other developing countries have posited that a viable solution will be for international agencies to provide funding for developing nations to achieve a smooth transition to renewable energy.

Analysts Suggest Ways to Address Gaps in the Agricultural Sector

Food insecurity, primarily fueled by the conflict in Ukraine, has prompted stakeholders to come together in search of solutions to a potentially looming food crisis globally. Stakeholders in Nigeria came together to discuss issues bedevilling the agricultural sector in the country. One such was the Code Cash Crop 3.0, where stakeholders spoke about gaps in the farming sector and proffered advice to farmers and those in the agricultural value chain. With the absence of value addition to products currently exported, the country doesn't benefit enough from the commodities exported. 

Another stakeholder forum called for farmers to embrace the use of genetically modified crops in planting to improve yield, resistance to pests and diseases, and resistance to drought. One of those spoken-about crops is the pod-borer-resistant cowpea which was touted to be able to cut down the deficit in supply and demand of beans. Nigeria currently stands as the highest producer of the crop and highest consuming nation, which causes a supply deficit that is covered by imports. Adopting the pod-borer-resistant cowpea, the Tela maize, and other genetically modified food crops could well shovel Nigeria into achieving Food security.

Sectoral Performance Improves, but Analysts Note Market Still Remains Bearish

The sectoral performance improved at the close of trading yesterday as ten (10) NGX sector indexes closed positive, five (5) closed southward, and three (3) closed flat. The NGX Growth Index increased by 4.97% to top the gainers, while NGX Industrial Index dipped by -4.18% to the losers' chart. While the improvement in sectoral performance could be attributed to the release in financials, Analysts observed that the NGX All-Share Index dipped by 0.83% to close at 49,950.32 basis points as against a 1.42% gain recorded at the end of the previous trading session. The NGX Market CAP records a loss of N226.45bn in Naira terms. 

The total volume traded declined by -30.90% to close at 176.03m, valued at N2.27bn, and traded in 4,965 deals. GTCO was the most traded stock by volume with 21.37m units sold, while ZENITH BANK was the most traded stock by value put at N429.28m. Analysts observed that BUA CEMENT and NEIMETH contributed significantly to the bearish market (See chart 2 below).

Chart 2: Share Price Movement of BUA CEMENT   and NEIMETH

Source: NGX, Proshare Research

Bearish Sentiment as Investors Focus on the FGN Savings Bond Auction 

The Debt Management Office (DMO) announced the issuance of the Federal Government Savings bond consisting of 2-years and 3 years tenor. The interest rates for the 2-years and 3-years are 9.413% and 10.413% per annum, respectively. However, compared to the previous auction, the rate is higher than 8.075%and 9.075% recorded at the July auction because of the hawkish MPR. The auction is ongoing and closes on Friday 05 August with a minimum subscription of N5000 and a maximum of N50,000. Analysts expect the raised interest rate should attract investors interested in less risky investments.  

The bullish outcome on Friday retracted yesterday as multiple selloffs at some selected maturities outweighed the demand. The average benchmark yield protruded outward by 49bps to 12.32%; Proshare analysts expect a tepid market today with attention drawn to FGN saving bond auction (see table 1 below). 

Table 1: FGN Bonds Market 

Economists Agree with Pantami to Reject 5% Excise Duty on Telecoms 

The Minister of Communication and Digital Economy, Isa Pantami, has said he is against attempts by the Federal Government to introduce a 5% excise duty on telecommunication services. According to him, the move would impact the sector and Nigerians negatively. 

He added that the telecom sector already contributes a lot to the Nigerian Economy and urged the government to consider taxing other sectors of the economy that are yet to contribute significantly to national development. The telecom companies already pay a 2% duty to the NCC, and telecom consumers also pay 7.5% for consuming telecom services. Analysts believe an additional tax on the telecom companies will weigh in on their operators and might hurt businesses and individuals that depend on telecom services for their livelihoods. 

Meanwhile, tech stock performance on equity markets was mixed in yesterday's trading, with the five monitored stocks seeing slight movements in share prices. Analysts attributed modest tech stock performances to global recession fears (see table 2below).

Table 2: Tech Stocks Price Movement

US SEC Charges Forsage for operating a pyramid Ponzi scheme in 2020

While the continuation of pyramid Ponzi schemes has resulted in victims' financial loss and economic impairment, the US SEC charged the four Forsage founders and seven Americans with promoting the 2020 pyramid scheme. 

According to the regulator, the Montana commissioner of securities and insurance, as well as the Securities and Exchange Commission of the Philippines, filed a cease-and-desist action against Forsage in September 2020 for operating as a fraud, to which the defendant responded by denying the claims in several YouTube videos and continuing to promote the scheme. According to analysts, the pyramid scheme evolved due to a high return on investment and warned investors to avoid illegal investments.

The bearish trend for the global cryptocurrency market continues this morning with a heavy efflux of sell-offs. Bitcoin pulled back from the US$24,193.59 resistance level to US$22,688.47. over the last trading session; Bitcoin fell by -1.62% from US$23,464.75 to US$22,658.39 (see chart 3 below).

Chart 3: Bitcoin Price Movement