Being an Analys Note issued by Proshare Research on September 20^th, 2022

FG to increase Minimum Wage Due to Inflation, Analysts Mull Long-term Solutions

At a public presentation on Monday, Minister of Labour and Employment, Dr.  Chris Ngige disclosed the Federal Government’s plan to adjust the minimum wage to reflect global inflation. The 2019 Minimum Wage Act has a clause for review if rapid inflation threatens the welfare of workers. Proshare Analysts note that there has been a 60% rise in the inflation rate between August 2019 and August 2022, reflecting how much the purchasing of workers has diminished over the period. While an adjustment is necessary to mitigate the misery of the average Nigerian household, Analysts believe it is necessary that the government addresses the drivers of inflation. The transport and electricity infrastructure means that Nigerians have to part with more of their income to meet such essential needs. Likewise, the government must address the problem of money stock growth, Analysts note that between June 2021 and June 2022, money stock has grown by 25% while the economy has only grown by 3.7%, this creates a problem of domestic inflation and demand pressure for foreign exchange (see chart 1 below).

Chart 1: Money Stock (M2) (N'trn) (2021-2022)

Private Sector Participants in Renewables Engage in Off-Grid Energy Supply 

ICE Commercial Power develops solar energy projects that allow small businesses and underserved communities to connect to reliable and affordable clean energy, monitor their energy usage online, and better manage their power consumption. Businesses taking part in the scheme may see exactly how much energy they use, and the expense involved. Twenty solar microgrids were installed by ICE to connect 170 underprivileged microbusinesses in three locations. However, the business was confronted with several problems, including the collection of data on these various communities and the difficulty of receiving payments from clients in more than + methods.

To establish a platform where users can make payments and precisely track their energy consumption, the company entered a collaboration with Microsoft, which offered tech-based solutions. This would benefit Nigeria's renewable energy industry in the long term as these companies access a steady supply of electricity, encouraging private sector participants to switch to sustainable and alternative sources and thus reducing harmful emissions (see chart 2 below).

Chart 2: On-grid Electricity Supply in Nigeria Q1- Q2 (GWh)

Consumers Should Brace for Higher Palm Oil Prices.

Farmers across Asia are busy planting trees to boost palm oil production, but nurseries are finding it hard to meet up to the demand for seedlings and sprouts. This shortfall in seedlings could cause slow production thereby keeping palm oil prices high. The COVID-19 pandemic affected the production growth of palm oil as Malaysia and Indonesia experienced labour shortages due to lockdowns.

Malaysia and Indonesia are focusing on replacing old trees, stating that the current plants are cumbersome to harvest and less productive. This has led to a shortage of available seedlings in the market which has led to palm oil prices rising. Generally, new plants take four years to grow before harvest meaning palm oil prices would increase in the near term, but with a move like this aimed at increasing production, we should witness a cooling in prices once the higher yielding trees start producing more seeds for palm oil production (see chart 3 below).

Chart 3:  Palm oil Price Movement from January 3, 2022, to September 19, 2022

The Oil and Gas Sector Pulled Down the Equity Market

Following the subsequent decline in the equity market last week, the market slipped again yesterday with the oil and gas sector pulling down the NGX All-share index (ASI) to 49,440.21 base point from 49,475.42 recorded at the close of the previous trade session. The oil and gas companies topped the loser’s chart with the index declining by -1.94% from 532.15 to N529.84. Although Seplat Energy was the most traded stock by value at N615.12m, the share price dropped to N1,250 from N1,300 recorded at the close of the previous trade session. Analysts believe the decline in oil prices and rising oil theft are the triggers of the selloffs in the sector. The oil and gas sector is the strongest performing sector to date with a positive YTD yield of +51.26% (see chart 4 below).

Chart 4: Oil and Gas NGXASI from August 29, 2022 – September 19, 2022

iPhone 14 Brings Emergency Satellite Communications

Apple’s iPhone is going into space. Well not literally, but it is the first iPhone to be able to connect not only to terrestrial cellular and WI-FI but also to satellites high above the Earth. For now, this service is limited to emergencies and is called Emergency SOS via Satellite. Apple’s satellite feature service will go live in the United States and Canadian markets in November and will be free for iPhone owners for two years. The feature is not allocated for picture messaging or even casual text chat but rather for emergencies only. Analysts believe that bringing satellite connectivity to a mainstream handset is the biggest innovation by Apple and should pull up the demand for the products. 

Rising Total debt stock as domestic borrowing increases 

According to Debt Management Office, Nigeria’s total public debt stock has risen to N42.84 trn as of June 2022 from N42.84trn recorded in the first quarter of the year, indicating the country secured a total of N1.24trn in Q2 2022. With the external debt stock staying unchanged at N16.61trn, the domestic debt stock contributed solely to the rise as the government borrows to finance the deficit in the 2022 Appropriation Act. The country’s total public debt to GDP fell marginally to 23.06% in June from 23.27% recorded in March 2022. However, analysts are still concerned about debt sustainability with the rising debt servicing cost, as of April, the country spent a total of N1.2trn on domestic debt, N334.34bn on foreign debt, and N405.93bn on ways and means for the first four months of the year. 

At the primary auction yesterday, the amount offered was oversubscribed by 16.2% at N261.50bn worth of bonds as against the N225bn offered. The rates for 2025, 2032, and 2037 maturities rose by 200bps, 35bps, and 50bps to settle at 13.50%, 13.85%, and 14.50% respectively. Analysts expect the improved yields to mildly pull some buying interests to the secondary bond market today (see table 1 below). 

Table 1: Nigerian Bond Auction results Auction

Sellers Struggle to Take Profit on Ethereum Moving Averages

The crypto market pulled up by +3.65% to US$936.64bn. The rise is anticipated to be short-lived, as sellers are keen to profit from any decent advance in major coins. Bitcoin has also risen from US$18,419.30 to US$19,357.46 in the last 24 hours, rising by +4.72%. Similarly, most major altcoins have begun a decent upward correction. Ethereum increased slightly from its 24-hour low of US$1,291.85 to US$1,360.67. According to Analyst, Ethereum is struggling to settle above the 50hr-simple moving average of US$1,569.46, as overall indicators suggest a bearish trendline on the daily timeframe (see chart 5 below).

Chart 5: Ethereum Major Indicators