Nigeria: Economic Dashboard @ 130123 

Nigeria Economy

Inflation May Have Declined in December 2022 but CBN to Remain Hawkish

Ahead of the release of the CPI report for Nigeria by the National Bureau of Statistics (NBS). Forecasts by Analysts suggest that Headline Inflation may have declined in December on the back of a slight appreciation in the Naira at the Parallel Market and a decline in food prices. According to recent surveys, consumers resisted price increases resulting in low patronage for many sellers. Meanwhile, the Naira’s appreciation at the parallel market by 3.72% to N740/$ also meant that a major driver of inflation moderated in the period. If the 21.28% forecast for December holds, the decline (from 21.47% in November 2022) would be the first since January 2022 while bringing inflation for the year to 18.76%. In 2021, Inflation averaged 16.98% and inflation moderated in eight out of twelve months Nevertheless, December Inflation at around 22% would remain at a record high as the Monetary Policy Committee prepares to meet at the end of the month for its first meeting this year analysts say that the decision would likely remain hawkish with slight moderations to reflect slowing GDP.

World Bank Projects Slower Growth in Nigeria  and Sharp decline in the Global Economy

According to the World Bank’s Global Economic Prospects Report released on Tuesday, the global economy is expected to see a long-lasting slowdown in 2023. Growth is expected to decline in virtually all regions of the world with the global economy slipping to 1.7%. Meanwhile, in Nigeria, the economy is expected to record a 2.9% real GDP growth in 2023 after growing by 3.1% last year. The multilateral organization’s outlook for Nigeria is premised on the continued weakness in the oil sector despite a slight improvement in the growth of the non-oil sector. The World Bank expressed concerns about debt sustainability and deteriorating investor sentiment leading to higher borrowing costs. Analysts have maintained that the flash floods which occurred last year and the spate of insecurity would affect food insecurity and poverty levels. On the public finance front, the report states that the Federal Government’s (FG’s) fiscal position is expected to remain weak due to high borrowing costs, lower energy prices, sluggish growth of oil production, and subdued activity in the non-oil sectors.

Alleged Insolvency Cripples Power Distribution Companies and Prevents Operational Efficiency

Figures from the Nigerian Electricity Regulatory Commission (NERC) suggest that Power distribution companies owe a total of N128.3bn to NBET and TCN for the period January and June 2022. For Q2 2022 the outstanding balance was N58.32bn which corresponds to 68.5% remittance performance by the distribution companies. Officials identified large Aggregate Technical and Commercial Collection (ATC&C) losses.  ATC&C loss refers to the combination of system loss, electricity theft& unbilled as well as unpaid consumers. While noting that the Discos have often had to rely on support from the CBN to settle their obligations to operators down the value chain, Analysts say that a large amount of system loss is due to the lack of solvency of the Discos and the consequent inability to fund large scale capital projects. Analysts say that the current loans may have indentures that restrict the ability of the banks to approach other lenders. Also, Analysts say the spate of losses would be stemmed, if stiffer penalties would be put in place to deter electricity theft.

The Brief of Nigeria’s Next President 

In the run-up to the Presidential Elections, Private sector think-tank, Nigerian Economic Summit Group (NESG) plans to hold a series of dialogues on the Nigerian economy. Analysts believe that the discussions should center around how to bring Nigeria back to its long-run average growth rate. According to official data, Nigeria’s growth has been slow, and unable to address the high levels of unemployment (33% Q4 2020). 

The Nigerian economy grew by 2.97% in 9M 2023, while growth for the year is likely to come in at around 3%. This is not only less than the country’s long-term growth (5%) but lower than the country’s population growth rate. Analysts believe that such slow growth, coupled with elevated levels of inflation, would only serve to widen income inequality and social restiveness. The dialogues should also address the diversification of government revenue away from oil, and funding for the country’s critical infrastructure needs such as security, transportation, and flood control. The candidates should also be allowed to share their ideas on how to derisk the country’s Fx earnings by increasing non-oil exports as well as through opening a foreign investment deals book.

Global Economy

U.S. inflation rate cools to 6.5% in December

According to US CPI report released Thursday by the U.S. Bureau of Labor Statistics Inflation for the month of December came in at 6.5% from 7.1%, as forecast by analysts. The report which showed that inflation declined six months in a row also showed that on a monthly basis, average prices declined by 0.1% between November to December. Reviewing the December numbers, Analysts say that the most important driver for the decline was a large decline in the price of gasoline. Pump prices fell by 9.4% to $3.27 per gallon during the month. Unlike the prices of gas and other physical goods like cars, clothing and furniture which declined from record highs, service sector inflation remained high. Transportation cost for instance stayed rose by 14.6% y-o-y. The Federal Open Market Committee (FOMC) meets at the end of the month and is expected to announce its decision on February 1, markets are pricing in a 25 – 50bp rate hike, a situation which could raise rates to up to between 4.5% and 4.75%.  

China CPI and Trade Data

Official data from China suggests that China’s exports fell further in December as global demand continued to drop off, adding to pressure on the economy as it charts an uncertain path out of Covid Zero. Exports in US dollar terms fell 9.9% in December, a figure which beat economists’ estimate for an 11.1% drop and compared with a decrease of 8.7% in the previous month. For the full year, exports however rose 7% to a record $3.6 trillion. Meanwhile, Inflation numbers released prior to Friday’s Trade data by the National Bureau of Statistics (NBS) showed that China’s Inflation rose in December to 1.8%, advancing from 1.6% in November. This brought average FY2022 inflation in China to 2%, a figure slightly below the PBoC target of 3%. Analysts say that weaker Trade data despite a relatively weak Yuan portends a weakness in overall growth in the fourth quarter. Although the prospects of the economy appear better with the recent ease of the strict covid policy.  

Oil and Gas 

Oil Production Rise Holds Limited Prospect for Nigeria’s Fiscal Policy

Nigeria’s crude oil production increased by about 50,000 barrels per day (b/d) in December ’22 to 1.235mb/d from 1.186mb/d in November, the highest in nine months and above analysts' expectation of 1.225mb/d. However, condensate production dropped by the same magnitude, keeping total oil production at par with the November figure at 1.414mb/d. According to the oil production data released by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), oil production increased in Bonny, Brass, Qua Iboe, and Forcados terminals, among others on continued recovery of flow at those terminals. 

Analysts believe that the increased crude oil production reflects the continuous efforts of NNPC Ltd, security agencies, and private contractors to stem the tide of crude oil theft, vandalism, and other insecurities in the industry. However, the inability to meet OPEC’s quota is due largely to the country’s weakened oil infrastructure and sustained insecurity across oil-producing regions. Economists have argued that rising oil production, projected to meet budget provisions in H1 2023, and relatively stable oil prices would not ease the country’s fiscal challenges considering the subsidy regime and the commercialization of NNPC Ltd. 

Petroleum Ministry Predicts Local Refining in Q1 2023 but Analysts Remain Cold

In line with analysts’ prognosis that the Port Harcourt Refinery is not feasible by 2022 but likely by the first quarter of 2023, the Minister of State for Petroleum Resources, Timipre Sylva, has disclosed that the 60,000 b/d refinery will begin operation in Q1 2023. The minister also mentioned that the FG had acquired stakes in four refineries to also begin operation this year, including the 650,000b/d integrated Dangote Refinery with 20% equity stakes; 12,000b/d Azikel Modular Refinery with 20% equity stakes; 5,000b/d Waltersmith Modular Refinery with 30% stakes; and 10,000b/d Duport Modular Refinery with 30% stakes. While Dangote has secured its feedstocks from the NNPC Ltd, delivery to other refineries hangs on the balance, underscoring the inability of the NNPC Ltd to meet even the domestic crude oil requirements, based on current production volume. Analysts are not so optimistic about the new timeline for onboarding the refineries and ceasing petroleum importation. Upstream industry challenges and political maneuvers might yet delay the operations of those refineries.

Stakeholders Bemoan Fuel Scarcity and Gripe at Petrol Equalization Fund

Despite the reoccurrence of fuel scarcity and differential pricing of petrol across the country, the Federal Government through the ministry of petroleum resources disclosed that it has discharged over 25.5bn litres of PMS and disbursed N173.2bn as equalization for 11.6bn litre of petrol between 2019 and 2022. Although the Petroleum Industry Act (PIA) 2021 makes no provisions for the equalization fund (a reimbursement of marketers to ensure uniform pricing across the country), it remains a significant component of the pricing template with enormous demands by oil marketers as bridging claims. Analysts say failure to fully deregulate the sector promotes arbitrary structures, activities, and industry pricing. In the meantime, there is a need for an audit (by NEITI) of the equalization funds in value and usefulness given the prevalence of differential pricing nationwide. 

Fuel Scarcity Persist on NNPC Ltd Actions and Inactions 

Contrary to analysts’ expectations, oil marketers’ associations, particularly independent marketers, have warned that petrol supply glitches and the associated scarcity and queues at filling stations may persist till June 2023. Marketers argued that all factors responsible for the scarcity are yet to be resolved, including the monopoly of NNPC Ltd on petrol import, subsidy regime, dollar-denominated charges, dollar scarcity, and high ex-depot prices. Although NNPC Ltd is now solely an operator, analysts say the undue advantage accorded the national oil company continues to distort the market, especially since the company is having difficulties meeting its supply and demand obligations.  

However, the marketers align with analysts’ prognosis that the operation of domestic refineries will be a game changer for the downstream oil industry. Although President Buhari is expected to commission the Dangote refinery on Jan 24, 2023, analysts still expressed concern about the lack of public disclosure of when commercial refining will actually begin at the 650,000b/d refining capacity project. This is particularly important given the budgetary provision for subsidy in 2023 to run for six months. Analysts questioned whether the government intends to subsidize Dangote fuel for the period, demanding answers and scenario analysis from relevant ministries, departments, and agencies (MDA).   

Private Pipeline Security Surveillance Records Further Success 

Further success has been recorded in the fight against oil theft and vandalism in Nigeria. A joint effort of local youths, the Nigerian Army, Department of State Services (DSS), Tantita Security Service Ltd, and Tai Local Security Force have discovered new illegal tapping points along the Trans Niger Pipeline (TNP) operated by Shell Petroleum Development Company of Nigeria. The illegal point is said to have been in operation for over seven years and is capable of loading 33,000 litres of crude oil. The taps were discovered at Nonwa Uedume Community of Tai LG in River State. The successes of the surveillance projects have raised the country’s oil production (including condensate) to about 1.4mb/d in December 2022. Without dispelling the possibility of accomplices by some operators, Analysts say the pipeline surveillance project continues to uncover illegal points because it leverages community efforts. However, analysts have raised concerns about the sustainability of the surveillance contract and what it would mean for the country’s medium to long-term oil production. 

Oil Prices Gain on Recovering Demand from China and a Weak Dollar

Oil prices rose for the week with Brent jumping by about 7.3% in the week and WTI up by about 7.1%, recouping most of last week's losses on strong demand growth in China, weaker dollar pressured by expectations of less aggressive rate hikes in the US, and concerns over the impact of sanctions on Russian oil. The price growth was, however, moderated by the global recession concerns and unexpected large build in US crude and fuel inventories. Analysts expect oil prices to hover around US$80 per barrel with a bound of +/-$5 with a greater tilting for higher oil prices on strong demand from China and a depressing dollar. In the domestic petroleum market, analysts expect both petrol scarcity and differential pricing to persist next week due to NNPC Ltd's failure to honour its promises to sell at the ex-depot price of N148 per litre to independent marketers. 

Fixed Income Market 

Currency Market

The naira depreciation continued this week at both the Investor and Exporter FX fixing (I&E) and Nigerian Autonomous Foreign Exchange fixing (NAFEX). Naira closed at 461.90/US$1 and 461.29/US$1, a weekly depreciation of +0.04% and +0.06% respectively (see table 1 below). 

Table 1: Naira/Dollar at the I&E FX Window and NAFEX Market

Source: FMDQ, Proshare Research

Money Market

Interbank rates were relatively stable for most trading sessions this week, hovering around single digits. On a weekly basis, the Open Repo rate (OPR) and Overnight rate (O/N) dropped to 9.67% and 10% by 1474bps and 2340bps respectively (see table 2 below).

Table 2: Money Market

Source: FMDQ, Proshare Research

FGN bond auction should push interbank rates up in the coming week.

Treasury Bills Market 

The Nigerian Treasury bill market reversed the buying interest seen in the previous week. The average benchmark yield rose by 453bps (W-o-W) to 3.46%. 

The OMO bill’s average benchmark yield remained unchanged at 3.47 week-on-week (See table 3 below). 

Table 3: Treasury Bills Market

Source: FMDQ, Proshare Research

The cherry-picking should persist next week. 

Nigerian Treasury Bill Auction 

The strong buy interest in short-term treasury instruments continued into the new year. The Nigerian Treasury Bill Primary Auction saw a high subscription of N389.04bn as against N56.93bn offered. The debt management office sold exactly the amount offered of N56.93bn. Compared to the previous auction, the huge demand pulled down the rates on the 91-day, 182-day, and 364-day by 75bps, 282bps, and 1992bps to 2%, 4.33%, and 7.30% respectively. The bid-to-cover ratio across the three papers stood at 14.45x, 37,72x, and 5.76x (see table 4 below).

Table 4: Nigerian Treasury Bills Auction Result

Source: Commercio paper

FGN Bond Market

Activities at the bond market were mixed this week. The selloffs outweighed the buying interests pushing the average benchmark yield up by 154bps week-on-week basis to close at 13.22% (See table 5 below).

Table 5: FGN Bonds Market

Source: FMDQ, Proshare Research 

Selloff sentiment should persist in the coming week in expectation of inflation figures. 

DLM Capital Group Issues N5bn Commercial Papers (CPs)

DLM Capital Group Limited has issued a N5 bn series 10 and 11 Commercial Paper (CP) series to fund the working capital requirements of its two subsidiaries; CitiHomes Finance Company and Links Microfinance Bank. The issuance has two tenors of 180 days and 268 days with a discount rate of 16.32% and 16.87% and an implied yield of 17.75% and 19.25%. The offer would run from January 11 to January 17, 2023, and a minimum of N5m is required to invest. DLM capital group has a rating of A (low risk) assigned by Datapro. Analysts expect the high yields on the unsecured short-term instruments to attract investors, seeing that the risk-free assets offer a single-digit yield of 4.33% for 182 days and 7.30% for 364 days. 

CBN Maintains Swap Deadline despite Low New Notes Circulation 

Amidst the low circulation of the new notes, the CBN has insisted that January 31, 2023, will remain the deadline for old notes, indicating 22 days to go. For more accessibility, the apex bank has ordered deposit banks to stop the swap of the note to customers over the counter but rather load their Automated Teller Machines (ATMs) with only new notes to aid circulation across the country. Meanwhile, the adoption of ATM distribution will improve availability, the remaining 22 days might impede effective circulation, pushing people to seek other alternatives to safeguard their funds. The inadequate supply will promote a cashless policy (internet banking) but can trigger a further naira depreciation as demand for the dollar might spike. 

Equity Market

NGX – Listed Equities

• The Nigerian bourse ended the week on a positive note as market sentiment turned negative.  The NGXASI closed the week with a gain of 2.52% as against a -0.06% loss recorded last week. The Nigerian Exchange recorded N702.71b gain in naira terms. 
• Year-to-date, the NGXASI closed positive at close the week with a gain of 2.46% as market capitalization settled at N28.602trn.
• Sectoral performance across sectors was broadly positive W-o-W. At the close of trading on Friday, fourteen (14) sectors closed positive YTD while two (2) sector closed negative W-o-W while one (1) Sector closed flat W-o-W. NGX MERIVAL topped the gainer’s chart with a gain of +4.69% W-o-W while NGX GROWTH sector index closed negative with -4.40% W-o-W (see chart 1 below).

Chart 1: Movement of NGXASI Index Points 3^rd JAN. 2022 – 13^TH JAN. 2022

Source: NGX, Proshare Research

NASD OTC Exchange - Unlisted Equities

The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week on a positive note.  The NSI and Market capitalization closed the week at 705.87 points and 927.53 with an increase of 0.27% respectively (see table 6 below).

Table 6 : NASD W-o-W Change

Source: NGX, Proshare Research

Gote And Toni Index

Gote Index closed the week at 141.06 index points from 136.66 index points recorded previous week, representing an increase of 3.22% W-o-W. DANCEM and DANGSUGER  closed the week positive with 3.05% and 7.50% respectively W-o-W while NASCON closed the week negative with -0.47%  (see table 7 below).

Table 7: Gote Index W-o-W Change

Furthermore, the Toni Index closed positive at 123.92 index points from 119.39 index points recorded previous, representing an increase of 3.79% W-o-W, UBCAP, AFRIPRUD, TRANSCORP and UBA closed the week positive with 3.85%, 3.33%, 4.27% and 4.38% respectively W-o-W while TRANSCOHOT and closed the week flat W-o-W (see table 8 below).

Table 8: Toni Index W-o-W Change

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