Being an Analyst Note issued by Proshare Research on November 11th , 2022 

CBN Stops Anchor Borrowers Programme amidst Flash Floods 

Speaking to journalists on Thursday, the All-Farmers Association of Nigeria (AFAN) claimed that the Central Bank of Nigeria (CBN) had stopped funding the Anchor Borrower's Programme (ABP). The ABP which was introduced in 2015, was meant to increase the domestic production of rice, wheat, and maize. According to the CBN, as of June 2022, under the Anchor Borrowers' Programme (ABP), the Bank had released the sum of N1.01trn to over 4.21m smallholder farmers cultivating 21 commodities across the country. Analysts speculate that the decision by the apex bank may have been motivated by the repeated cases of default by beneficiaries, the persistent problem of insecurity and now the flash floods which have displaced many people, including farming communities in as many as 30 states across the country. Before the development, Analysts had expressed worries over the structure of the intervention, which seemed to distort monetary policy guidance given that lending under the scheme was at a concessionary rate. In contrast, monetary policy tightening was being undertaken to rein in inflation. Also, rather than have the CBN interfere in retail lending under the ABP, Analysts say a better alternative would have been to encourage commercial banks to provide such loans at commercial rates while the government provides guarantees (see chart 1 below).

Chart 1: 

Oil Prices Down but Uptick Factors Remain as Nigerians face Higher Pump Price

Oil prices traded lower for most of the week as recession concerns, larger than expected increase in US crude stockpiles, and China's commitment to its strict Covid policy to contain the rising cases of infection dashed hope of oil demand recovery. There was, however, a slight reversal towards the end of the week as oil prices edged higher on easing Covid policy in China and the weaker dollar as the inflation rate moderated in the US. Analysts saw the possibility of an uptick in fundamentals on the horizon as Western Allies mull a cap on Russian oil and gas while the OPEC output cut put a floor on oil prices. With the NNPC Ltd arguing that market conditions, importation and retail cost has raised sustainable petrol pump price to N410 per litre, analysts expect high crude oil prices to continue to disrupt the stability of petrol supply in Nigeria at the subsidized N170 per litre.  

Analysts Anticipate Fiscal Challenges in SSA Due to Higher Borrowing Costs and Softer Currencies 

According to a recently released report by Fitch Solutions, higher global inflation and the aggressive rate hikes by Monetary policy authorities will continue to pressure the finances of Sub-Saharan Africa (SSA) next year. Many emerging economies have experienced declining revenues in the wake of the Covid 19 pandemic while coping with increased spending pressures.  The Ukraine tension, on the hand, and monetary policy tightening would continue to cause tighter financing conditions and downward pressure on emerging market (EM) currencies. Fitch Solutions believes that EMs would have to make recourse to domestic debts with adverse implications for private sector borrowing as well as the rates on newly issued commercial papers (CPs). According to the report, Ghana and Nigeria would be the most vulnerable to higher debt servicing costs. This is plausible given the large share of revenues the countries commit to debt payment. Proshare Analysts believe that the downgrade on countries' bonds in October lends credence to the position (see chart 2 below).

Chart 2: 

Bond Market Traded Bullish Amidst Persistent Selloffs  

Amidst persistent selloffs, the domestic bond market traded bullish yesterday as the buying interests at the short tenor outweighed the selloffs at the long end of the curve. The average benchmark yields contracted from 14.81 to settle at 14.79. Analysts believe the buying interest will rescind today, bringing the bond market to a week-on-week bearish outcome (see table 1 below). 

 Table 1: 

Musk Warns of Bankruptcy as More Senior Executives Quit 

After Musk reportedly laid off 50% of Twitter's 7,000 employees and introduced new subscription rules, senior executives in vital roles such as advertising, which is the primary source of revenue, resigned. The social network firm has a significant debt burden from the acquisition and has seen a pullback from some advertisers concerned about Musk's plans for content moderation.

Musk, in an email, warned employees that the company might not survive the economic downturn without significant subscription revenue. The social media boss wants to shift the company's business to one that generates at least half its revenue from subscriptions and can become less reliant on advertising. Analysts believe that charging US$8 a month to verify their accounts is unlikely to cover much of the debt service cost resulting from Musk's acquisition of the social media company.

Huge Buy Interest in Dangote Cement Pulls Up The Equity Market

Bullish sentiments drove the equity market's trading session yesterday as buy interest persisted in large-cap companies. Dangote Cement recorded a 7.77% increase in their share price to close at N238.50 against N221.30. The renewed buy interest in Dangote Cement comes after a subsequent selloff by investors. Dangote Cement recorded a gain of 293bn at the close of the previous trade session with a market capitalization of N4.06 trn

Meanwhile, the equity market advanced by 1.07% and closed at 43,942.82 Index against the 44,447.48 index point it closed in the previous trading session. The buying interest in the equity market caused an N253.46bn gain, with market capitalisation settling at N23.934trn, posting a Year-to-Date of +2.87%. Sectoral performance was broadly positive as twelve (12) NGX sector indexes closed northward, three (3) closed southward, and three (3) closed flat. The NGX Industrial index advanced by 3.51% to top the gainers' chart, while the NGX Insurance index dipped by 1.72% to top the losers' chart (see chart 3 below).

Chart 3:

Crypto Accounts at Risk as Binance and FTX Failed to Reach Agreement

Sam Bankman-Fried (SBF), the FTX owner, has assumed that Binance could help him raise as much as $8bn to save his crypto operation. Over a million crypto accounts belonging to customers are at risk after Binance, the popular crypto exchange, said it was abandoning its rescue takeover of the rival exchange, FTX. As of Wednesday evening, the FTX website was down and has since been facing some constraints, making it difficult for customers to access their crypto accounts. 

Meanwhile, Bitcoin, Ethereum and other cryptocurrencies bounced back from the last crisis with a 4.5% increase in Bitcoin and a 7.2% increase in Ethereum within the last 24hrs. This stokes bullish sentiment in the crypto market, with a global cryptocurrency market cap of about $914bn, a 4.0% change in the last 24 hours.