Being an Analyst Note issued by Proshare Research on October 20th, 2022 

Crude Oil Theft Containment Receives a Shot in the Arm as NNPC Strengthens Surveillance

The scale of oil theft has reduced significantly following the discovery of many illegal pipelines. The GCEO of Nigerian National Petroleum Company Limited (NNPCL), Mele Kyari, disclosed this at the 2022 Energy and Labour Summit organized by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN). As of September 2022, the country's total oil production, including crude oil and condensate, maintained its falling posture, dropping from 1.18mb/d in August to 1.14mb/d. Proshare analysts noted that a genuine reduction in oil theft could only be assessed by an increase in the country's crude oil production volume. Analysts at Financial Derivatives Company Limited (FDC) believe that successful intelligence and surveillance of the country's pipeline will save the country an estimated $700m per month. Proshare analysts argued that the process of curbing oil theft should begin with judicial prosecution of supply chain partners outside the country. This should be followed with the extradition of local partners for prosecution, noting that the involvement of high-ranking individuals in the criminal cartel may undermine the judicial process locally. 

Nigeria to Convert FGN’s Ways and Means Debt into a 40-year Bond 

Nigeria plans to convert N20 trillion loans taken from the central bank (Ways and Means) to 40-year bonds at a 9% interest rate, and it will be added to the official debt figures currently at N42.84trn as of June 30, 2022. The funds accumulated gradually from 2015 when FG opted for loans to cover the government expenditure after revenues collapsed on lower oil prices and production. Some analysts stated that the conversion implies a higher total debt stock and the debt-to-GDP ratio with room for more borrowings from CBN. Meanwhile, the interest rate attached to the 40-year bond is relatively low, lower than the 10-year FGN bond trading at 14.34%. Analysts doubt any rational individual and institutional investors will want to invest in such a negative yield asset considering the high inflation expectations. However, they believe that FG will rely on pension fund administrators for subscriptions, eventually reducing the value of pensioners' funds. 

FGN Revenue Underperforms by 36%, New Finance Bill to Remove Tax Support from Old Sectors

At the Ministerial presentation of the 2023 Budget, Minister of Finance Zainab Ahmed stated that as of August 2022, the Federal Government (FG) generated a total of N4.23trn, an equivalent of 64% of the targeted N6.65trn revenue. Notably, the oil component of revenue performance further dropped in the period, as total oil revenue generated over the eight-month period came in at N395.06bn (a 27.1% performance). While the actual fiscal deficit was N430.82bn higher than the prorated budget deficit, Analysts note that this would have been larger had expenditure been fully implemented. The report showed that the Federal Government's expenditure as of August 31, 2022, was N9.51trn, an 82.3% performance of the targeted expenditure. 

Meanwhile, the 2022 Finance Bill, which the Minister also discussed at the event on Wednesday, highlighted, amid other points, the need to reform tax incentives by gradually transitioning from expensive and redundant tax incentives.  Analysts believe that the 2022 Finance Bill, upon passage and implementation, would see the government take a detour from supporting established sectors to providing more efficient tax incentives to new high-growth sectors.

Buhari Signs Nigeria Startup Bill into Law, Analysts Optimistic About Success

The Nigeria Startup bill (NSB), a joint Initiative by Nigeria's tech startup ecosystem and the presidency to harness the potential of Nigeria's digital economy through co-created regulations, has been signed into law by President Muhammed Buhari. In July 2022, the Senate passed the Nigeria Startup bill following a report by its committee on ICT and cyber security. According to the document, startups can also access a special seed fund created under the law. The fund will provide labelled startups with finance and relief to technology laboratories, accelerators, incubators, and hubs. With the document, companies will be required to obtain a certificate known as the 'startup label' before they can be regarded as a startup. Analysts believe the public-private sector collaboration will boost economic dominance and digital transformation. The bill will contribute to creating an enabling environment for the growth and protection of investment in tech startups. 

 NGX Winter Gathers as Analysts Gear Up for a Negative Year-to-Date (YTD) Yield

Industry Heavyweight Airtel further pulls down the NGX (ASI) Index by -2.31% to close at 44,318.15 index points as against the -2.16% loss recorded the previous day. The market's sectorial performance was broadly negative, with six (6) sectors index closing positive, while nine (9) sectors closed negative and three (3) sectors stayed flat. The NGX ASI is presently recording its lowest Index point since January 2022, and the month-to-month (M-o-M) loss rose to -9.6%, while the Year-to-Date (YTD) gain stood at +3.75%. The Equity Market has recorded a loss of N1.743trn in the first two trading days of the week. Analysts note that with rising inflation, the equity market is less attractive to investors, and more selloffs by heavyweight investors could further plunge the market into a negative (see table 1 below).

Table 1: NGX TOP GAINERS AND LOSERS 

Crypto-Coins Drop Further on Growing Global Uncertainty

The cryptocurrency market continues its struggle as major coins correlate with unclear patterned high-sell and low-buy bets. The global crypto market cap has retested again, declining by -0.5%. This has seen other crypto coins move in tandem with the market volatility in the futures market, despite reduced prices. According to coin glass statistics, US$55.68m has been liquidated in the past day, with market sentiment displaying a degree of extreme fear among investors, as it has been in this position since June when Bitcoin was around US$17,500. Analysts noted that a respite could only be possible if coins could move swiftly from their recent support levels toward profitable resistance levels. Bitcoin's value has fallen by -0.5% in the last 24 hours, from US$19,309.39 to US$19,140.72. Similarly, Ethereum and the other top 500 cryptocurrencies in terms of market cap fell behind their previous performance (see chart 1 below).

 Chart 1: Crypto Fear and Greed Index