Being an Analyst Note issued by Proshare Research on February 8th 2023

Nigeria’s Oil Industry Losses Shine as Investors Pullback from Sector

Nigeria’s oil and gas sector has witnessed notable investor pullback as the sector reels from a myriad of problems that range from oil theft to misaligned market pricing in the downstream sector. The Petroleum Industry Act (2021) provides that the Minister of Petroleum should promote an enabling environment for investment in the Nigerian petroleum industry. However, insecurity, pricing uncertainty, and regulatory ambiguity, which have persisted, have made the sector unattractive. In the upstream industry, analysts note that not adopting the quick and dirty fixes of resolving oil theft as recommended by Proshare in its #AnatomyofCrudeOilTheft report, has hampered the sector from optimizing a sustainable increase in oil ouput. Analysts believe that the resolution of the current petrol scarcity through fresh loading of premium motor spirit (PMS) at specified depots is a temporary measure that may be unsustainable. A more sustainable solution would be to combine functional refineries with clear regulations and an efficient pricing.  

NGX Forms Digital Technology Advisory Board 

The Nigerian Exchange Limited (NGX) has created the NGX Digital and Technology Products Advisory Panel to support its efforts toward digital transformation. The panel, according to the bourse, would serve as a venue for NGX to interact with the capital market community and the fintech sector, to enhance and expand its digital product offerings. Although the NGX Technology Board was established in Q4 2022, it has yet to have any companies listed under it. However, analysts believe the establishment of this panel would provide valuable insights for potential companies interested in listing. Additionally, they would provide thought leadership by developing whitepapers, creating frameworks, and making recommendations on market trends and risks. The panel was established after the SEC approved the Rules for Listing on the NGX Technology Board in December 2022. According to Dr. Olufemi Oyenuga, the Chief Digital Officer of the NGX, the panel would provide a space for the exchange to explore new opportunities, collaborate on innovative ideas and strategies, and address creativity, innovation, and sustainability.

Fixed Income Market Turns Bullish on Naira Redesign Policy 

With the influx of money into the banking system in response to the Central Bank of Nigeria’s (CBN’s) naira redesign policy, liquidity has eased. The robust liquidity has benefited the fixed-income market, dropping yields to a record low, especially at the short-term instruments. The Nigerian treasury bill yields for 91-day, 182-day, and 364-day have dropped to 0.29%, 1.80%, and 4.78% at the last primary auction while the bond market has followed a bullish trend. Predominantly, the liquidity seems to direct the course of the market while undermining other factors like inflation, MPR hike, pre-election uncertainty, real negative return, and debt sustainability risk. Analysts noticed investors decided to opt for fixed-income instruments instead of leaving the funds in the banks where inflation can rob its value. The market outcome might persist in the interim with the current cash crunch situation in the country.  

High Fertilizer Prices Could Drive Hunger Worldwide in 2023

Higher fertilizer prices could drive hunger worldwide in 2023 as they increase the cost of food production. Farmers rely on fertilizers to grow crops, but the recent surge in prices in recent years has put pressure on them making it difficult to make ends meet. With reduced fertilizer usage, more land would be required to meet up to the current food production rate. This could lead to deforestation, which in turn would lead to the reduction of trees to capture carbon emissions leading to more pollution of the environment, then climate change worsens, and food production drastically reduces. This could lead to food shortages and ultimately, hunger. The rise in fertilizer prices is due to various factors, including rising energy and transportation costs and increasing demand for food. The failure to address this issue could have devastating consequences, including widespread hunger and food shortages (see chart 1 below).

ESG Investment Slowdown Raise Concerns for Environmental Sustainability

A recent report by Escaslent cogent syndicated report showed a slowdown in previous ESG investment growth projections as financial advisers are drawing back on their use of the investment category. This is especially because of the growing anti-ESG backlash, particularly in America. Although affluent investors continue to indicate interest in the category, fund managers require more clarity from the legislature using ESG investments. Anti-ESG proponents argue that by focusing too heavily on environmental and social concerns companies risk neglecting their fiduciary duty to maximise returns for their clients and shareholders. Nonetheless, the importance of sustainability need not be overemphasized as it has a spillover effects on all economic agents. Both concerns are valid so there is a need for comprehensive regulatory guidelines on ESG investing.