Nigeria: Economic Dashboard @ 200123

Nigeria Economy

Sober Festivities Induce Decline in Inflation in December

According to the National Bureau of Statistics (NBS) CPI report, Inflation fell as expected by 13 basis points (bp) to 21.34% in December. Analysts chalked up the slight tumble to price resistance on the part of consumers who demanded less food and discretionary items than they usually would in the festive period. December’s figure brings the FY 2022 Inflation to 18.77% 179bp up from the 16.98% for FY 2021. Meanwhile, month-on-month (M-o-M) Inflation which slid till November, rose last month to 1.71%. Likewise, core inflation stepped up from 18.24% to 18.49% suggesting that the decline in overall inflation in December may be a blip. An analysis of the components of the composite CPI, inflation on Imported food declined M-o-M to 1.47%, a reflection of the slight appreciation in the Naira in December. Yearly, however, inflation related to Beverages, Clothing, and Recreation declined in December, indicating that seasonal demand and prices fell lower than in the corresponding period of 2021. The Monetary Policy Committee (MPC) meets next week for its first meeting of the year, and there, committee members would consider the recent decline in global inflation as well as the blip in domestic CPI data. Members are expected to vote for a more modest rate hike to further temper down inflation (see chart 1 below).

Chart 1:

Proshare Sees Growth Slowing in 2023 on the Back of Rising Taxes and Higher Inflation

Analysts at Proshare have projected that the Nigerian economy would record a 2.9% growth rate in 2023. The forecast of the firms will be released in the 2023 outlook report which expects the Agricultural sector to grow at 1.97%. The industrial sector is expected to continue to contract on the back of rising interest rates, higher electricity costs, and new import duties proposed in the Finance Bill. The Services would continue to make the largest contribution to the country’s GDP although growth in the Telecoms sector would be moderated by the new duties contained in the 2022 finance bill.  In terms of the policy environment, Analysts say that the actual deficits would exceed 5% of the budget despite the performance on VAT, Customs collections as well as Corporate Income Tax (CIT). Meanwhile, the monetary policy rate is expected to reach 18% by year-end as the MPC continues to tamp down inflation.

Nigeria’s chances of Surviving a Global Recession are Bright Say Economists

Speaking at the sidelines of the World Economic Forum (WEF) in Davos, Switzerland, Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, stated that the Nigerian economy is positioned to survive in the event of a global recession. Analysts believe that the global economy would slow to 1.7%, the slowest pace since the 1993 recession. Meanwhile, reacting to the Minister’s argument that the country’s foreign reserves at $37bn are adequate to cover six months, Analysts say that a global recession would affect crude oil prices and federal government revenue. Diaspora remittances would also be affected as major economies contract. The FG targets GDP growth of 3.75%, but forecasts by the World Bank put it at 3% and Proshare Analysts defer to a more conservative 2.9%. Proshare economists are less optimistic partly because of the transmission links between the domestic and global economies. 

Global Economy

UK Inflation Fell to 10.5% in December

According to the Office for National Statistics, UK CPI fell to 10.5% in December 2022 from 10.7% in November, matching analysts’ forecasts. The core CPI, which excludes food, energy, alcohol, and tobacco was steady in the month at 6.3%. Analysts believe that inflation may have reached its peak, but prices will remain high in the coming months.  The moderation in December consumer price inflation came from lower prices of energy, clothing, and recreations, offsetting hikes in food, non-alcoholic beverages, housing and household services. Inflation in UK have spiked across months in 2022, fuelled by high energy prices as Western Sanctions blocked access to Russian oil and gas supplies. Analysts say the drop in inflation lowers the risk of wage-price spiral in the UK (see chart 2 below).

Chart 2: 

Mainland China GDP Data 

China reported GDP growth for 2022 that beat expectations. According to the National Bureau of Statistics, the Chinese economy grew by 3% in 2022, higher than the forecast of 2.8%. The number did miss the official target of around 5.5% but outweigh analysts’ projections. In 2021, the Chinese economy rebounded by 8.4% from just 2.2% growth in 2020. Fourth-quarter GDP rose by 2.9%, beating expectations from the Reuters poll of 1.8% growth. Analysts say businesses in China are still facing many operational difficulties; scientific and technological innovations are not strong enough; and people are having difficulties in gaining employment. The unemployment rate stood at 5.5% as of December, while unemployment rate for younger Chinese aged 16 to 24 is much higher at 16.7%.

World Economic Forum 2023 Concluded in Davos, Switzerland

The World Economic Forum (WEF) 2023 in Davos, Switzerland saw heads of state and business leaders discussed red-hot global economic matters. Global leaders sought to address concerns over a possible global recession and soaring inflation. There was also the worrisome challenge of climate change and the ongoing war in Ukraine, which is tightening the global grain market and stoking threat of famine in Sub-Saharan Africa. Analysts say global economic trends, including high cost of living and the fragmentation of world trade, among others are unlikely to see meaningful reversal following the conclusion of the World Economic Forum 2023. 

Oil and Gas 

Nigeria’s Oil Output Rises in December Against Lower Average Annual Production in 2022

Proshare analysts note that Nigeria is on track to meet its 2023 oil production benchmark of 1.69million barrels per day (mb/d) while the Group CEO of the NNPC Ltd, Malam Mele Kyari, observed that the country is positioned to restore oil and condensate outputs to 2.2mb/d in 2023. The 1.519mb/d Dec ‘22 output assumed by the NNPC boss at his recent interview with Gulf Intelligence, OPEC’s Monthly Oil Market Report (MOMR), shows that Nigeria produced 1.235mb/d in Dec ’22 (1.413mb/d including condensates). This is up from 1.185mb/d in Nov ’22, based on direct communication. Based on secondary sources, the country’s output increased to 1.267mb/d in Dec ’22 (1.445mb/d including condensates) from 1.175mb/d in Nov ’22. Nigeria’s crude oil production for 2022 averaged 1.143mb/d (1.379mb/d with condensate), but lower than the 1.323mb/d (1.620mb/d with condensate) average in 2021. while the country’s output increased in Q4 2022 on a tougher crackdown on oil theft, Analysts attributed the lower average output in 2022 to the country’s aging oil infrastructure and the notable drop in production in Q3 due to the large-scale oil theft and pipeline vandalism.

New Oil Discovery in Nasarawa

The Group CEO of NNPC Ltd, Mele Kyari, announced it is set to spud -in the first oil well in Nassarawa State in March 2023, under the hydrocarbon exploration activities in the country’s inland basins. Analysts commend the exploration activities of the NNPC Ltd in the frontier basin, noting that it somewhat justified the commitment of 30% of NNPC profits to the Frontier Exploration Fund. However, analysts express worry about the fate of the new fields in northern Nigeria. Aside from low investment in the oil-rich Niger Delta, militancy and oil theft have eroded the existing investments in the sector. Being the hotspot of insecurity in the country, analysts worry that committing huge resources to explore oil in the north may rather enrich the rogues and terrorists. Analysts are also concerned that despite declaring this period as the decade of gas, no explicit provision is made for gas in the frontier basin, especially as the world is moving away from fossil fuels. Thus, with the Benin trough holding huge gas deposits, analysts say the Keana field discovered in Nasarawa should focus more on gas deposits. 

NLNG Rebounds from Gas Line Disruptions 

Following a report by Bloomberg that Nigeria LNG Ltd has canceled several shipments due to vandalism on gas pipelines that have disrupted its operations, NLNG Ltd has disclosed that its Bonny Island plant is still active. Although faced with feed gas supply challenges leading to the declaration of force majeure, the GM of External Relations and Sustainable Development of the NLNG, Andy Odeh, hinted that the company would continue to ensure steady operation, producing LNG and LPG based on feed gas received. 

Analysts say NLNG accounts for about 7% of the European LNG supply and 40% of the domestic gas supply in Nigeria, making it strategic to local and European gas markets. But being unable to secure sufficient gas supply from Asia and Africa, Europe is attracting most of its LNG imports from the US. Domestically, NLNG supply disruptions also threaten domestic LPG pricing. Nigeria’s oil and gas supply deliveries have suffered flooding, theft, and pipeline vandalism in recent times. Analysts say gas supply disruptions and threats of disruptions have resulted in higher gas pricing. According to the News Agency of Nigeria (NAN), the average retail cost of refilling a 12.5kg gas cylinder rose to N9,700 in December 2022 as against N7,800 earlier.   

NNPC Tax Credit would Bridge Infrastructure Gap but Comes with Worries 

The Federal Executive Council (FEC) has approved the recommendation of the Nigerian National Petroleum Corporation Limited (NNPC Ltd) and its subsidiaries to invest N1.9trn in the reconstruction of 44 federal roads under the tax credit policy. In September 2022, President Muhammadu Buhari disclosed that Nigeria has a huge infrastructure gap, valued at N348trn over a 10-year period, which cannot be met with the annual capital expenditure. In Dec ’22, NNPC Ltd said it had released N621bn for selected road construction and planned to release over a trillion naira more. Other companies that had participated in the infrastructure tax credit scheme are Dangote cement plc, MTN Nigeria, Transcorp group, Access bank, NLNG, and BUA, among others. Analysts consider the scheme important to improve the ease of doing business and channel funds directly to key infrastructure that affect the operations of the company, acknowledging the need for public-private sector partnerships to bridge the infrastructure gap.  However, analysts expressed worry over the objective values of the sequential tax credit accorded the NNPC Ltd and its implication on the budgetary revenue projection. 

FAAC Sub-Committee Decry NNPC Opaqueness

The Post-Mortem Sub-Committee (PMSC) of the Federation Account Allocation Committee (FAAC) has raised concerns about the lack of clarity and the many deductions of the NNPC Ltd from the federation account. The PMSC accused the NNPC of (1) non-disclosure of government priority projects it inherited and those it did not inherit; (ii) deducting over N3.3trn from Jan-Nov ’22 from the federation account to pay subsidy; (iii) non-remittance of oil proceeds into the federation account in 2022; and (iv) using a lower official CBN FX rate on domestic crude oil sales. Analysts believe the PMSC report reechoes the many concerns of analysts on the operations and capacity of the NNPC Ltd and the opaque model of transitioning from the old to the new NNPC. Analysts say the market cannot estimate the book value of NNPC Ltd given that the assets and liabilities of the new company are not publicly transferred nor audited.  

Resolving Pricing Issues Will Ease Petrol Scarcity

While oil prices sell between N200 and N300 per litre at filling stations in major cities in Nigeria, black marketers discharge the product at between N350-450 per litre, depending on the location. Media reports suggest that the federal government, through the downstream regulator, has quietly raised the approved petrol price from N165-170 per litre to about N185 per litre. Analysts observed that oil marketers have already adjusted their pump prices to the new price while labour unions have kicked against the price adjustment. Although the price adjustment was meant to provide respite for oil marketers by raising their margins, analysts say without addressing the fundamental issue of subsidy and the non-market reflective pricing, fuel scarcity will persist with a higher level of severity. In Lagos, the situation will be dearer following the directive by the Lagos State Commissioner for Transportation asking oil marketers along major roads to operate only between 9 am and 4 pm daily. Whereas the directive was intended to facilitate the free flow of traffic, shortening operation time will lengthen the queues at operating hours and further halt traffic flows leading to a ‘Cobra’ effect where the solution is worse than the initial problem. 

Oil Prices Surge for the Week on Rebound in Chinese Demand

Oil prices gained for a second straight week, spurred partly by the brightening economic prospects for China following the lifting of strict Covid-19 curbs and partly by uncertainty around the Russian oil industry striving under sanction. Price dipped in a few trading sessions after China posted its weakest economic growth in decades and the US reported a build in oil inventory and declines in retail sales and manufacturing outputs. Analysts expect the market to tighten further in the coming week on rising fuel demand in China and the dovish tendency of monetary authorities. In the local market, analysts expect petrol prices to trade above N200 per litre across major and independent filling stations on inactions of the regulator to check the differential pricing. 

Fixed Income Market 

Currency Market

This week, naira appreciated for most of the trading sessions both at Investor and Exporter FX fixing (I&E) and Nigerian Autonomous Foreign Exchange fixing (NAFEX) fixing.

On a weekly basis, naira appreciated by -0.09% and -0.01% for both the Investor and Exporter FX fixing and NAFEX Fixing to close at N461.50 and N461.25 respectively (see table 1 below). 

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

Source: FMDQ, Proshare Research

Money Market

This week, funding rates stayed flat for most trading sessions. On Friday, the Open repo rate (OPR) and Overnight rate (O/N) increased to 11.00% and 11.50%, a week-on-week rise of +13.75% and +15.00% (see table 2 below).

Table 2: Money Market

Source: FMDQ, Proshare Research

We expect interbank rates to decline to single digits next week on the back of FAAC inflow.

Treasury Bills Market 

The Nigerian Treasury bill market traded bearish this week; the average benchmark grew by 964bps (W-o-W) to 3.79%. 

The OMO bill’s average benchmark yield dropped to 2.83% by 1844bps week-on-week (See table 3 below). 

Table 3: Treasury Bills Market

Source: FMDQ, Proshare Research

We expect the Nigerian Treasury bill to resume the bullish sentiment in the coming week. 

FGN Bond Market

Despite the moderation in December inflation figures, the bond market took a bearish direction. Selloffs dominated the market activities this week. The average benchmark yield rose to 13.94%, a 545bps week-on-week rise (See table 4 below).

Table 4: FGN Bonds Market

Source: FMDQ, Proshare Research

The bearish sentiment should persist with the upcoming MPC meeting.

Scarcity of New Notes Drives up Demand for US Dollar at the Parallel Market

As the deadline for the phase-out of old currency notes draws closer, the circulation of the new notes remains relatively low. Most banks are yet to adhere to CBN’s instruction to load their automated teller machine (ATM) with strictly new notes, seeing that the majority of the ATMs still dispense old notes. The ticking clock (11 days) is beginning to make people opt for other means of safekeeping their funds with the demand for the US dollars having picked up in the parallel market. The naira fell to N757/US$1 yesterday from 745/US$1 in the previous session. The demand pressure at the parallel market might worsen if the money supply remains low.  The CBN plans to sanction banks still issuing old notes through their ATMs. Analysts expect the sanction to slightly improve money in circulation, however, 11 days seems insufficient for effective circulation. 

Nigeria’s Eurobond Market Remains Bullish 

Coming into 2023, the Nigeria Eurobond market has held a strong bullish slant inherited from Q4 2022. The US inflation moderation has fuelled strong buy interest despite a credit rating downgrade to B3 from B2 in 2022. Although yields still remain at double-digits, yields have declined from a peak of 14% in August 2022 to between 10% and 11% in Q1 2023. The rising demand indicates improved investor confidence fuelled by the expectation of lower inflation numbers. Analysts expect the buying interests to continue into Q1 2023, as the US inflation rate continues to decline. 

CBN Spends US$15.3bn to Stabilise Naira from January to October 2022 

Between January and October 2022, the Central Bank of Nigeria (CBN) spent US$15.3bn to support the naira at the official market. The strong dollar in 2022 battered the naira, making the CBN inject higher than the previous year. However, on a quarterly basis, the amount spent has declined from US$4.86bn for Q1 to US$4.81 in Q2 and eventually, US$4.18bn in Q3. The bank spent only US$1.46bn in October, a +31.7% increase from US$1.11bn in September, which suggests higher figures for the last quarter of the year. The forex was sold across five windows: namely interbank/invisible window, matured swaps, Investors and Exporter (I&E), Secondary market intervention sales (SMIS), and Small and Medium Enterprises (SME), pointing back to the multiple exchange rate. Analysts believed that the excess windows contributed to the rising intervention figures and suggest neglect of some of the windows to lessen the amount spent. 

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 0.16% as against a 2.52% gain recorded last week. The Nigerian Exchange recorded N62.06b gain in naira terms. 
• Year-to-date, the NGXASI closed positive at close the week with a gain of 2.62% as market capitalization settled at N28.66trn.
• Sectoral performance across sectors was broadly negative W-o-W. At the close of trading on Friday, seven (7) sectors closed positive while nine (9) sectors closed negative W-o-W. NGX INSURANCE topped the gainer’s chart with a gain of +1.78% W-o-W while NGX AFRBVI sector index closed negative with -2.66% W-o-W (see chart 3 below).

Chart 3: Movement of NGXASI Index Points 3^RD JAN. 2022 – 20^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 706.97 points and 928.96 with an increase of 0.15% respectively (see table 5 below).

Table 5: NASD W-o-W Change

Source: NGX, Proshare Research

Gote And Toni Index

Gote Index closed the week negative at 138.51 index points from 141.06 index points recorded previous week, representing a decrease of 1.81% W-o-W. NASCON  closed the week positive with 0.95% W-o-W while DANCEM and DANGSUGER closed the week negative with -1.85% and 1.16% respectively WoW (see table 6 below).

Table 6: Gote Index W-o-W Change

Furthermore, the Toni Index closed negative at 121.48 index points from 123.92 index points recorded previous, representing a decrease of 1.97% W-o-WTRANSCORP and UBA closed the week positive at 0.82% W-o-W while, UBA, UBCAP and AFRIPRUD closed the week negative with -2.99%, -1.35% and -1.61% respectively   W-o-W while TRANSCOHOT close the week flat (see table 7 below).

Table 7: Toni Index W-o-W Change

In the coming week, Analyst expects a bearish market as election uncertainty and increasing energy cost weigh in on investors.

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