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

Scarcity Lingers as Petrol Price Increases Despite Subsidy

Despite regulating petrol price at N165 per litre, the national average price of petrol (also called Premium Motor Spirit, PMS) increased by 29.81% year-on-year (Y-o-Y) to N202.48 per litre. The marketers’ associations have attributed domestic fuel scarcity and rising petrol prices to forex scarcity, multiple dollar charges, and bad roads. Nevertheless, resolving these issues will not provide a long-term solution until the subsidy is removed. Analysts strongly oppose the continuous petrol subsidy regime, arguing that subsidy has promoted corruption, arbitrary pricing, and wider distribution challenges. Stakeholders believe that government officials benefiting from false sales claims have kept the programme in place. Analysts say that with sustained subsidy, petrol prices will remain unstable, and Nigerians will groan under rising costs.       

Meanwhile, aside from the increase in the average retail petrol price, the NBS petroleum products price watch for November 2022 also shows that other petroleum products inched up in the 12 months to November 2022 and on a month-on-month basis (see chart 1 below).

Chart 1: 

Review of Tax Waivers to Improve FG’s Revenue in 2023

In its bid to support the budgeted revenue for the 2023 budget, the Federal Government (FG), through the Finance Bill, would reclassify some businesses that had hitherto claimed tax waiver benefits under the Pioneer Status Initiative in the past. The pioneer status was an incentive offered by the Federal Government, which exempts companies from paying income tax for a certain period. 

According to the Minister of Finance, such companies now categorized as matured industries include Dangote Coal Mines Limited, Seven/Up Bottling Company Limited, and Mikano International Limited. Analysts say that the decision of the Federal Government to rationalize and reassign Tax waivers is commendable. Along with the regressive subsidy regime, Tax waivers deprived the FG of up to N10trn while revenue underperformed by as much as 36% as of August. According to Analysts, Tax waivers are useful for promoting domestic production and protecting infant industries. However, the fiscal drag and high debt cost the FG faces require some austerity measures.

Ghana’s External Debt Payment Suspension May Lead to Default 

The Ghanaian Government announced the suspension of debt payments on some external debts on Monday. The suspension will be on Eurobonds, commercial term loans, and some specific bilateral debts, excluding new multilateral debts, contracted after December 19 2022 and debt related to certain short-term trade facilities. According to the statement, the suspension is an interim emergency measure pending future agreements with all relevant creditors. Earlier this month, the country restructured the domestic debts, where the existing securities were exchanged for new securities that will offer a zero coupon in the first year, 5% in the second, and 10% in the third year as she seeks to acquire a US$3bn relief from IMF. 

The country reached a staff-level agreement with IMF on December 13 or a $3bn bailout package to tackle its economic difficulties. The suspension will prompt a restructuring that will rob investors of some of their returns as the country will offer lower coupons on restructured debt. However, the suspension will affect the country’s future issuance in the international market, as extremely high coupons will be needed to lure investors.   

Stakeholders Monitor International Breweries and Nigerian Breweries Share price in Build-up to the Yuletide.

International Breweries has witnessed positive sentiments in the last three trading sessions as market capitalization grew by 8.33% to close at N4.55 and N9.402bn increase in its market capitalization. As we gear towards the festive period, analysts expect the consumer goods sub-sector to observe an increase in revenue with an increase in consumption of beverage. The beverage company has recorded a +7.06% growth Month-on-Month (MOM) while their competitor, the Nigeria Breweries, with a present share price of N38, also recorded a MOM growth of 13.10%. Analysts expect more buy interest in the beverage company as investors want to take advantage of increased revenue growth toward the end of the year for improved dividends (see chart 2 below). 

Chart 2: 

Global Internet Growth Slows Post COVID-19

As the world is welcoming its eight billion inhabitants, data from the International Telecommunication Union (ITU) point to slower growth in internet users than at the height of COVID-19. The COVID-19 pandemic gave us a big connectivity boost. The report indicated that an estimated 5.3bn people in the world are now using the internet, representing a growth rate of 6.1% over 2021 and leaving 2.7bn people offline, showing just how much remains to be done if the target of universal and meaningful connectivity that the world set is met. Only 23% of Nigerians and other Africans in rural areas used the internet in 2022, compared to 64% of their urban counterparts (see chart 3 below). 

Chart 3:

Analysts believe that achieving universal connectivity will become increasingly difficult as many offline live in remote and hard-to-reach areas. The challenges include limited affordability of hardware and subscription packages, inadequate digital skills and awareness, literacy barriers, gender discrimination, and lack of reliable power sources. 

Visa Proposes Collaboration with Ethereum as a Means of Payment

The global payments giant Visa has released a paper highlighting the potential of collaborating with the Ethereum blockchain to enable automatic payments directly from the users’ self-custodial wallets. Visa is looking for ways to adopt crypto into the system, particularly for users with bank accounts, to make crypto transactions more reachable to users and to make real-world transactions possible. Analysts hope for a better future for Ethereum, with Visa and PayPal coming on board for easy transactions. There is also a possibility of seeing Ethereum trading far above US$1,500 next year with the influence of these two combos. Although Ethereum is currently trading at US$1,210.02 with a market cap of about US$145bn despite the pushdowns evolving in the crypto world with the likes of FTX and Blockchain filing for bankruptcy (see chart 4 below)

Chart 4: