Being an Analyst Note issued by Proshare Research on March 20th, 2023 

Oil production Bounces up on the Back of Rising Rig Counts 

Stakeholders note that Nigeria's oil rig count remained flat in February 2023, however, it did rise from an average of 7 units in 2021 to 13 units in January 2023, its highest level since January 2020, according to the Organization of Petroleum Exporting Countries (OPEC) Monthly Oil Market Report (MOMR) for March 2023. Since September 2022, rising rig counts have resulted in higher month-on-month oil output (see chart 1 below). 

Chart 1: 

According to secondary OPEC sources, Nigeria's oil output increased from 1.087m barrels per day (mb/d) in September 2022 to 1.308mb/d in January 2023 and further increased to 1.380mb/d in February 2023, the highest by any OPEC member for the second consecutive month. Analysts expect additional oil finds in frontier basins, which would involve the offering of new offshore blocks and the restart of drilling in other offshore rigs. Yet, pipeline infrastructure vandalism and oil theft may continue to pose challenges. Furthermore, we believe another problem for the industry, especially the NNPCL is monetizing oil output in the midst of rising petrol subsidies.

Raising VAT Could Lead to ‘Deadweight’ Losses

The Minister of Finance, Zaynab Ahmed recently advised the incoming government to increase the Value Added Tax (VAT) rate to widen the government’s fiscal space. According to her, Nigeria’s Tax rate of 7.5% is significantly lower than the African average of 18%. In reaction to the recommendation of the Minister, Analysts say that the government needs to consider the deadweight and inflationary impact of VAT on household purchasing power and consumption. Analysts noted that with economic growth slowing the government has a better chance of raising more revenue via the privatization of its redundant national assets as against taxes.  The government also needs to justify the current tax revenue through greater efficiency of tax spending. According to official data, the Federal Government has in the last seven years generated N10.1tn from the collection of Value Added Tax with the larger numbers being recorded after the raise in the consumption tax rate from 5% to 7.5% in 2020. According to the National Bureau of Statistics (NBS) proceeds from VAT rose from N759.4bn in 2015, to N2.1tn in 2021 before reaching N2.5tn in 2022 (see chart 2 below).

Chart 2:

Meta Launches Subscription Service in the U.S. 

Meta launched its subscription service in the U.S. which allows Facebook and Instagram users to pay for verification in the same vein as Elon Musk-owned Twitter and Snapchat+. The Meta Verified service will give users a blue badge after they verify their accounts using a government ID and will cost US$11.99 per month on the web or US$14.99 a month on Apple's iOS system and Google-owned Android. It is currently being tested in Australia and New Zealand. 

Given a broader audience reach and a bigger revenue for creators, Analysts believe that the service will likely be refined and improved over time as Meta could outperform the subscription ramp.  It could help influencers increase visibility and reach with a badge and potentially higher positioning in search and content results. Considering the subscription services costs US$11.99 a month, the BoFA analysts said that Meta could generate US$1.7 billion in high-margin revenue in 2024.

Bitcoin Surges Despite Global Banking Crisis 

An interesting movement over the weekend as the price of Bitcoin surged to US$28,463 amid fears of another global financial crash. BTC sees a great increase of 26.8% in a week with a market cap of US$542bn, where the overall value of the global crypto market now stands at US$1.21trn. Over the weekend, we saw Investment Bank Credit Suisse rescued by UBS Group in a proposed US$3.25bn deal which significantly weaken its US$8bn market cap on Friday (see chart 3 below). As part of the agreement, the Swiss National Bank committed to providing up to US$110bn in liquidity to UBS. On the other hand, Signature’s deposits and loans are now set to be sold to Flagstar Bank, a subsidiary of New York Community Bancorp, but crypto-related deposits will not be part of the deal. With rumours around the corner about other regional banks in the US at risk of failure, Analysts hope that we would see a lot of rallies round around the crypto market as an alternative to the monetary system.

Meanwhile, Microsoft is said to be working on integrating a Crypto Wallet feature into its Edge browser. This new feature will allow users to store, send, and receive crypto funds, as well as store non-fungible tokens (NFTs) with the wallet. With this upcoming feature, Microsoft Edge would become a comprehensive platform for all things related to cryptocurrency and blockchain-based assets.

Chart 3: