Being an Analyst Note issued by Proshare Research on January 24th 2023

Falling Naira Raised Diesel Prices in 2022, as Inflation Fears Persist 

Challenges in the downstream oil industry are not limited to scarcity and pricing uncertainty of Premium Motor Spirit (PMS, also called Petrol). According to the December Petroleum Price Watch of the National Bureau of Statistics (NBS), the retail price of Automotive Gas Oil (AGO, also called diesel) surged by +184.03% between January (N288/litre) and December 2022 (N818/litre) (see chart 1 below). With diesel being the major energy source for big businesses and heavy-duty vehicles, Analysts say diesel prices are pretty much higher in most parts of the country at around N850/litre and it’s a major contributor to rising inflation. Operators in the industry attributed the increase to the high cost of crude oil; high refining costs; marketers' margin; multiple taxes and other government policies, and imbalances between demand and supply of diesel. Analysts believe that although diesel prices are unregulated, a multiple exchange rate system is a disincentive for investors and competitive pricing of diesel in addition to the falling value of the naira which is raising the landing cost of the fuel.  

Chart 1: 

FIRS Collects N10trn in 2022 but Revenue Retention Remains a Concern

Nigeria’s Federal Inland Revenue Service (FIRS) disclosed that it raked in N10.1trn as tax revenues in 2022, the highest tax revenue in its history and a little lower than its target of N10.44trn. The Service earned N4.09trn in oil revenues and N5.96trn in non-oil revenues, 41% and 59% contribution, respectively. Companies Income Tax contributed N2.83trn, Value Added Tax contributed N2.51trn, Electronic Money Transfer Levy contributed N125.65bn, and Earmarked Taxes contributed N353.69bn. Analysts say the tax revenue is 58% above the N6.4trn earned in 2021, a notable improvement in tax collection for which the Service should be commended. However, analysts are concerned that the total revenue earned as of November 2022 was N6.5trn, suggesting that close to half of the tax revenue collected by the Service was retained. Analysts called on relevant authorities to provide clarity on the retention policy of revenue-collecting and generating agencies.

GCR assigns a Stable Outlook Rating for MTN Nigeria’s Operations 

GCR assigns AAA(NG) rating to MTN Nigeria Communication Plc’s N115bn series 1 (Tranche A and B) Senior Unsecured Bond issue with a Stable outlook. The rating reflects the issuer’s strong competitive position, robust financial profile, and the group’s overall performance. The stable outlook suggests that GCR expects sustained strong earnings and cash flow performance which should support MTN Nigeria’s liquidity and leverage positions. Despite the increase in debt in 9M 2022, the rating company believes MTN Nigeria should remain financially strong and liquid. However, pressure could result from higher CAPEX costs amid foreign exchange illiquidity. Analysts believe Nigeria’s slow economic growth might affect the company's performance and the rating seems overly optimistic. The depreciating welfare of Nigerians should affect data consumption and sim registration, leading to a possible drop in revenue.  

Microsoft Announces New Multibillion-Dollar Investment in ChatGPT

Microsoft has been working with OpenAI since 2019 when it backed OpenAI with US$1bn. The investment made Microsoft the exclusive provider of cloud computing services to OpenAI before it became a massive hit with its AI services such as ChatGPT and DALL-E. Microsoft has now said it will be extending the partnership with a multi-year investment. Currently, the chatbot remains free, but in January, OpenAI announced on its Discord server that soon a paid, professional version might be available to the public. Microsoft Azure customers will be able to access ChatGPT through Azure OpenAI Service soon. Analysts believe that in this next phase of the companies’ partnership, developers and organizations across industries will have access to the AI infrastructure, models, and toolchain with Azure to build and run their applications. 

Milan Luxury Real Estate Gains Momentum as Bankers Leave London for Italy

The luxury housing market in Milan has seen strong buy-interest as thousands of foreigners and Italians relocate to Milan. Interest in Milan is growing and hinges on the generous tax breaks being offered by the government. In addition, Italy is gaining popularity as an attractive holiday spot further fuelling interest in using Milan as a good spot for locating their second home destination. Nonetheless, demand for high-end housing in Milan is outpacing supply and there’s little opportunity for reconstruction and redevelopment which has led to price hikes. Inflation of property prices might materialise which could lead to a reversal. This drop might see investors that took positions at the height of the housing bubble record significant losses especially since market participants seem to be mainly drawn in by the government’s tax relief scheme. It is worth noting that the country still struggles with excessive debt challenges, political instability, energy crisis, and cost of living issues and these factors might further restrict purchasing power of buyers. 

Binance Down as Banking Partner Plans to Ban Crypto Trading Transfers Under US$100K

Binance, the world’s largest cryptocurrency exchange will not be able to trade crypto through SWIFT transfers of less than US$100,000 from 1st of February. The new minimum will be imposed as part of the lender’s decision to limit its exposure to digital-asset markets. Worth noting that SWIFT is the most widely used global system for interbank transfers and the new change concerns retail traders with accounts serviced by Signature. Binance has assured its customers of the new plans to seek a new partner for SWIFT transfers in U.S. dollars where customers will be able to use their credit or debit cards to buy or sell cryptocurrencies. Analysts assume the situation to be the best time regulation should step in to protect the interest of citizens. Citizens should have a legally protected right to withdraw their crypto to fiat. Quite a number of users depend on centralized crypto exchange withdrawals to pay crypto income and capital gains taxes. However, Binance could also make use of this great opportunity to become a bank to serve as a crypto backbone.