Being an Analyst Note issued by Proshare Research on August 5^th  , 2022

Legacy Challenges Stall AKK Project as Analysts Urge Fresh Approach 

Analysts and operators have identified lack of funding and insecurity as the major reasons the US$2.8bn Ajaokuta-Kaduna-Kano (AKK) pipeline project was not delivered as scheduled last month-June 2022. The 614km pipeline was meant to connect eastern, western, and northern Nigeria into a network of pipelines and further target markets in the Trans-Sahara and Europe. However, with a bleak outlook for the AKK project, Analysts expect the Federal Government to leverage the US$5bn funding commitment of the African Export-Import Bank (Afreximbank) to the NNPC earlier in the year to fund alternative projects such as the Trans-Sahara Gas Pipelines (TSGP) to scale investment in the oil and gas industry in Nigeria and to harness the renewed interest of the European Union for Nigeria gas export to the Union.  

World Bank Calls for the Re-allocation of Subsidy Payments to Health, Others

While announcing a US$8.5bn fund to support education and agriculture in Nigeria, the World bank’s Country Director in Nigeria on Thursday once again called on the Federal Government to remove the Subsidy on Premium Motor Spirit (PMS) and to reallocate the government’s resources to more productive ends such as Health and Education. Proshare Analysts note that the Subsidy scheme is riddled with a lack of transparency and rent-seeking, a situation which has prompted the Nigerian Legislature to conduct an investigation into the actual volume of Petrol the country consumes daily. Proshare Analysts are of the view that although the fear of surging inflation has led to the retention of the subsidy, the scheme needs to be properly managed to prevent racketeers. In 2022 alone, the Federal Government budgeted N4trn for fuel subsidy, this exceeds the allocation to critical sectors such as Education (N1.23trn), Health(N0.87trn), and Infrastructure(N1.42trn).

Analysts Worry as Global Rice Exports at Risk on Adverse Weather Conditions

Rice helped reduce the effect of rising food prices amid supply disruptions after the Covid-19 pandemic hit, and the conflict between Russia and Ukraine. Extreme weather has been affecting major rice exporting countries, particularly Asia which accounts for 90% of the world's rice output. Sporadic rainfall in India, the heatwave in China, quality reduction in Vietnam, and flooding in Bangladesh is set to reduce the production of rice in 4 out of the 5 top rice exporters.

While we witness export curbs around the world in a view to providing food for domestic markets at cheaper prices, reduced output in these top producers and exporters could see them employ food protectionism, thus reducing the amount of food available in the international market. With higher rice prices which have generally been accessible, we could witness a hunger issue that has no direct alternative, especially for low-income earners.

Analysts Support SEC Warnings on Illegal Crowdfunding Platforms 

The Securities and Exchange Commission (SEC) has issued a warning to investors against unregistered investment crowdfunding platforms. In a secular dated August 3, 2022, SEC stated that it has observed with concern the fraudulent activities of some unregistered crowdfunding investment platforms and advised the public against such platforms. It had in January 2021, published its crowding funding rules, and requested well intending crowdfunding platforms to register with the commission and comply with the rules.

Proshare analyst is worried about the future of crowdfunding in Nigeria. Whereas there has been a relative success in countries like the United Kingdom, North America, Europe, and Asia showing impressive growth, African countries appear to be lagging attributable to weak regulations, lack of awareness of fraud, and corruption. Moreso, the success rate of startups reaching their crowdfunding goal is around 22.4%.

Analaysts Note that Rising Selloffs Sentiments Dominate Bond Market 

Proshare Analysts noticed the selloffs at the short and long end of the curve as investors seek higher returns on other assets. The overall average benchmark yield grew by 15bps to settle at 12.54%, analysts believe the upward trend of yield should persist for the second half of 2022 as investors stick to short-term investment to evade rising inflation expectations (see table 1 below).  

Table 1: FGN Bonds Market 

FG to Generate N160bn from Call and Data Taxes, Analysts Unconvinced of Timing

Recently, the Federal Government disclosed a plan to implement a five-present excise duty on telecom services in the country. According to the Nigerian Communication Commission (NCC), the combined revenue of operators in the GSM, fixed wired, and internet services was N3.21trn in 2021 and the implementation of the five percent excise duty on telecom services will raise the amount by N160.46bn. Proshare analysts believe the imposition of the excise duty will have little effect on the revenue of the telecom service providers as telecom consumers will bear the full burden of the 5 percent tax.

Rising Cost of Energy and Reneging on Pre-Pandemic Carbon Emission Rules Raise Analysts Concerns

The persistent rise in the cost of fossil fuel has led to soaring prices beyond the reach of many people in developing countries. The global cost-of-living crisis is threatening to push more people into food insecurity and extreme poverty by the end of 2022, as prices of goods and services kept rising across the world. Coupled with this, energy demand has returned to pre-pandemic levels as global economies emerged from lockdown. Russia’s invasion of Ukraine and a surge in demand has propelled the energy system into a turbulent period. The rising energy cost and the threat of power shortages have caused carbon emissions to rebound to pre-pandemic levels. Analysts warned that the possibility of Africa and the global economy limiting global warming to 1.5 degrees Celsius by the end of the decade is very low. Nonetheless, the share of renewable energy in the global energy market is on the rise as alternative energy is aided by technological advances. 

Voyager Digital Holdings Received Approval of a Refund, But Analysts Simply Shrug 

The US Bankruptcy court in New York ruled that Voyager Digital Holding Inc has provided a basis to support its claims for the Chapter 11 bankruptcy acts filed last month, and approved the return of US$270mn held at Metropolitan Commercial Bank to Voyager's customers. Analysts noted that some days ago, the digital company was accused by the FDIC of misleading its customers with false claims that it was covered by FDIC insurance and was issued a cease-and-desist order by the regulator.

This week, Bitcoin has trended slowly from the US$24,563.19 resistance, losing the 200-day simple moving average of US$22,800. Early this morning, Bitcoin recaptured its short-term crucial level of US22,600 and pushed forth to the US$23,144.91-price level. Analysts are of the view that for Bitcoin to regain its bullish stance, it needs to maintain its current levels and push beyond the US$24,563.19 resistance (see chart 3 below).

Chart 3: Bitcoin Price Movement