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Analysts Recommended Social Impact Assessment on Tax Levy and Reviewed Nigeria’s Oil Discovery

Nov 21, 2022   •   by TheAnalyst, Proshare Research   •   Source: Proshare   •   eye-icon 124 views

Being an Analyst Note issued by Proshare Research on November 21st, 2022


FGN’s Proposed 20% Ad Valorem Tax Prompts Call for Social Impact Assessment

Proshare analysts noted that the new Ad Valorem or percentage tax of 20% on fizzy drink products could put some revenue gains on government coffers. Howbeit, its adverse impact on the economy would outweigh the gains. The immediate pain points would include the high unit cost of products, fall in demand, decline in corporate revenues, lower foreign direct investment (FDI), and rising job losses. Analysts believed the tax advocates had no social impact assessment before proposing the excise tax on carbonated drinks. The one-sided narrative that considered economic justification of taxes without social impact assessment has unintended consequences. For growth and market stability, analysts expect government and its development partners to advance tax increases with an understanding of the operational effects on the corporations and their social impact on the economy. 

 

New Oil Discovery in Northern Nigeria Raises Optimism and Concern

Following the announced discovery of oil in commercial quantities by the Nigerian Petroleum Development Company (NPDC) in October 2019 at the Kolmani River in Bauchi and Gombe States, official drilling of crude oil is about to kick off. President Muhammadu Buhari, in the company of the Minister of State for Petroleum and the Group CEO of NNPCL, will supervise the drilling from Kolmani Oil Prospecting Lease (OPLs) 809 and 810 on Tuesday (22/11/2022). While there are reasons to be optimistic, there are also pain points that raise concerns for analysts. Analysts are confident the discovery and drilling would increase commitment for more search, supported by the Frontier Exploration Fund of the PIA 2021 and would increase the country’s crude oil reserve and revenue. Some analysts argued the discovery might be more political than economical, and the large scale of insecurity in the north may undermine the country’s capacity to ramp up crude oil reserve and production from the fields. A consensus among analysts is the need to derive the optimal returns from the 30% commitment of the NNPCL profits to the frontier basins exploration.     

 

Nigerian Farmers Recount Challenges as Dry Season Commences

Taraba state farmers have recounted the losses experienced this year as a result of the flooding experienced in the nation this year. However, they are determined to solve the problem by beginning dry season farming early with a view to harvesting twice before the next rainy season commences. The farmers added beans to the dry season farming basket, which initially comprised Rice, Maize, and Wheat. 

 

Elsewhere, tomato farmers in Kano state have expressed fears over the recent approval given by the federal government to some companies to import tomato paste and concentrates. The Tomato Growers Association of Nigeria (TOGAN) claimed that the tomato importation approval to nine companies with a 10% duty and 20% levy would be detrimental to many farmers and that many might not plant tomatoes in the dry season. 

 

Meanwhile, Bauchi farmers have faced the dilemma of having to deal with the late arrival of inputs and the hike in fuel price to run the water pump, along with the invasion of herders’ animals, especially cattle and goats that graze into the greener posture of the wheat farms because of the dry season. Last season, many farmers abandoned wheat farming due to late inputs. Many farmers claim that this reoccurring problem would cause reduced production as it did last year.

 

Dangote Cement Plans Further Share Buybacks 

Dangote Cement Plc plans to buy back 10% of its issued share capital, with the transaction valued at more than N406bn. This is the second share buyback by Dangote cement for the year as the company seeks to buy back 1.74bn shares from its existing 17.04bn ordinary shares. The company seeks to mop up its shares in the stock market in line with its corporate strategy, an indirect way to increase return on equity and shareholders’ value. Analysts expect more selloffs in Dangote cement share price this week which should cause a depreciation in the share price as investors sell at market value. At the close of Friday’s trade session, Dangote Cement trades at N238.5 per share with a Year-to-Date return of -7.2% (see chart 1 below).

 

Chart 1: SHARE PRICE MOVEMENT OF DANGOTE CEMENT FROM NOVEMBER 1– 18, 2022

 

Bearish Fixed Income Market to Persist in 2023, Say Analysts 

The global monetary tightening to curb rising inflation has raised yields to record high in the fixed-income market this year; US and UK yields rose significantly above 4%. In the domestic market, the average benchmark yields for FGN bond hovers around 14 and 15%, compared to the single digit in the previous year. The yields at the Nigerian Treasury bills have experienced similar adjustment, rising to a double-digit for the 180-day and 364-day tenors. For the Eurobond market, the yields have more than doubled to 13% from 6.5% recorded in the previous year. The upward adjustment in yields generates a higher borrowing cost. It might discourage borrowing from countries like Nigeria, which plans not to visit the Eurobond market this year. The fall in bond prices should extend to 2023 as countries signal a continuous hawkish monetary policy next year and investors continue to rally to the safe-haven (dollar).    

 

NCC says 5G Bidders Must pay 10% of the Reserve Price as Deposit

The NCC has set a deposit price for its remaining lots of 2 (100MHz) in the 3.5GHz spectrum band. This was disclosed in the final information memorandum on the 3.5GHz spectrum auction scheduled to take place on December 19, 2022. With a deposit amount representing 10% (US$27.36m) of the spectrum’s US$273.6m reserve price as an intention-to-bid deposit to support 5G development in the nation. Analysts believe this deposit will bind the applicant to take up a license at the reserve price or any higher bid submitted during the process.

 

FTX hackers cause a significant crash over the weekend

FTX hackers have been immensely active over the weekend after securing approximately $600m worth of crypto from the bankrupt exchange FTX on November 12. Analysts believe the hackers seem to be leveraging crypto bridges and decentralized pools to clean the exploited funds. This action had a major impact on Bitcoin as they experienced selloffs over the weekend as the hackers offloaded their holdings from the amount stolen from the FTX exchange. Over 1,990 $ETH worth US$2.40m was swapped for 140.03 renBTC worth US$2.32m. This strange move caused panic over the weekend, triggering a 10% crash in Ethereum. Analysts believed the hackers could use the panic to their absolute best advantage by opening short positions before swapping ETH for BTC. The stolen funds could also be swapped for different assets so that the hackers can capture maximum profit.             

 

 

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