Nigeria: Economic Dashboard @ 020922 

Nigerian Economy

PMI drops to 52.3  in August as Private sector activity growth eases 

Nigeria’s Purchasing Managers’ Index (PMI) reading for August fell to 52.3 in August, down from 53.2 in July. The figure signals another improvement in business conditions, although expansion was softer than the series average. PMI had risen to a two-month high in July after a borderline reading of 50.9 in June. Analysts observed that of the four monitored subsectors, three registered output growth, with Agriculture ranking highest while Manufacturers recorded a fall in output levels during August. Analysts believe that PMI figures would stay around the same range signaling tepid growth for the rest of the year.

Capital Flows Decline -5.04% Q-o-Q, as Global Recession fears threaten Nigeria's Capital Imports in H2 2022

Recently released capital importation data by the National Bureau of Statistics (NBS) shows that capital imports declined by -5.04% Q-o-Q to hit $1.53bn in Q2 2022. Analysts attribute the Decline to the significant depreciation of the Naira in Q2 2022. Analysts note that Foreign Direct Investment (FDI) contributed only 10% to the country's capital account in the period, while other less patient forms of capital accounted for 90%. Analysts note that upgrading the country's hard and soft infrastructure is a sine qua non for improving the volume of FDI imports. Analysts also observed that the UK accounted for $781m of the $1.53bn received last quarter, with the UK being a major country of origin for capital imports to Nigeria. Analysts also note that the rising fears of a recession in the UK could induce a pullback in capital imports in the year's second half

Traffic Returns to Apapa Ports as Scheduling Platform Fails

The recent designation of parts of the ports corridor as Priority Lanes has generated criticisms from Analysts.  According to them, re-introducing the Priority lanes is an admittance of the failure of the Eto (e-call up system). The Eto was designed to schedule the movement of trucks in the port corridor to starve off traffic gridlock. Analysts believe truckers would not need to use the priority lanes if the Eto had been operational. Analysts note that a Maritime strategy would improve the cargo clearing logistics at the ports and address the fundamental administrative challenges facing the Maritime sector. A sound maritime strategy would unlock opportunities in the country's ocean economy since foreign investors would be incentivized to invest in the much-needed infrastructure required in the sector.

FG's 2023 budget deficit Violates the Fiscal Responsibility Act.

While presenting the Medium-Term Expenditure Framework (MTEF 2023-2025) to the House of Representatives on Monday, the Minister of Finance stated that the Federal Government is proposing an N19.76trn budget for 2023. This represents a +15% growth compared to the 2022 budget. Meanwhile, Analysts noted that as the budget deficit is expected to rise to between N11.3trn and N12.41trn in 2023 (5.01% of the GDP), the size of the proposed budget deficit violates the Fiscal Responsibility Act (2020). Analysts, however, note that the Fiscal budget deficit of N7.35tn in the 2022 budget had also exceeded the 3% threshold stipulated by the Act. The implication is that Federal Government would add up to N11trn to its debt profile. Also, according to the document, the Federal Government may not be able to make provisions for treasury-funded capital projects in the 2023 fiscal year due to subsidy payments. Subsidy payment is expected to amount to N6.7trn if the subsidy regime is retained for the whole year and N3.36trn if the subsidy regime is removed by June 2023. 

Global Economy

Non-Farm Payroll shows the US gained 315,000 jobs in August

According to US Labor Department report released on Friday, employers added 315,000 new jobs in August as more people entered the workforce. In July a massive 526,000 jobs were added suggesting that the US economy was still hot. Private payrolls (ADP) had earlier in the week, reported an unimpressive 132,000 in August. Despite the job gains,  unemployment rate unexpectedly rose to a six-month high of 3.7%, the first increase since January. Analysts have attributed the rise in the unemployment rate to an increase in the participation rate. Analysts also believe that the August jobs data,  high inflation as well as gains in Manufacturing PMI (51.5) in August all signal a further hawkish decision from the fed when it meets later in the month.

Eurozone’s declining PMI and Negative Consumer Confidence send signals of a recession

Private sector productivity contracted in the Eurozone in August. S&P Global estimated the zone’s PMI at 49.6 in August down from a 49.9 reading in July. Meanwhile, Final Consumer Confidence Index came in at -24.9 in August which matched expectations but outperformed the -27 recorded in July. Analysts consider the negative consumer confidence numbers a reason why households would be pulling back spending just as the PMI figures indicate a contraction in the private sector. Analysts see the Eurozone entering a recession on the back of economic disruptions occasioned especially by the cut in gas supplies.

Analysts warn that UK inflation could top 20%, heightening recession fears

Economists see UK inflation rising above 20% early next year if spiraling gas prices fail to dissipate. A week ago, Britain’s energy regulator Ofgem had announced that annual power bills will rise 80% to an average of $4,188 by October. Analysts believe that unless the government bails households out, many households would be plunged into fuel poverty leaving businesses also at risk. Meanwhile, Analysts maintain that recession would begin in the UK by the fourth quarter, with the world’s fifth largest economy set to contract by 0.6% in 2023. Nevertheless, Analysts expect the BoE to raise interest rates again by 50 basis points to 2.25% at the next policy meeting.

Strong demand and exports t Support the Turkish economy to a +7.6%  GDP Growth in Q2 

Strong domestic demand and buoyant exports helped Turkey record a 7.6% year-over-year growth inQ2 2022. The Turkish economy extended its growth last quarter beating expectations. The government’s unorthodox monetary policy has seen it reduce the base rate (to 13%) even in the face of rising inflation. The policy prioritizes production. Official data suggests that Turkey’s exports of goods and services increased by +16.4% in the second quarter compared with a year ago while Household consumption added 13.6 percentage points to growth. 

Oil and Gas Sector

Nigeria Could Find Oil Respite in Dangote Refinery

The Group CEO of the Nigeria National Petroleum Corporation Limited (NNPCL), Mallam Mele Kyari, has stated that NNPCL has the first right of refusal to supply the Dangote refinery with about 300,000 barrels per day (b/d) of crude oil over 20 years. With a 20% stake in the Dangote refinery, NNPCL would also have access to 20% of the produce from the refinery. Analysts noted that if the government and upstream operators sell more crude to the Dangote refinery, it would be a respite for the country's many challenges. There would be an increase in oil revenue, a halt in petroleum products importation, and a halt in the subsidy regime, albeit the PMS price will rise above the current price. Additionally, freight and insurance charges will drop significantly, and there may be moderate oil theft, given its subsea pipelines. The Dangote Refinery, expected to come online in H1 2023, is projected to be the largest refinery in Africa  

On Smuggling and Subsidy Fraud Claim by the NCS

The Comptroller-general of Nigerian Customs Service (NCS), Hameed Alli, has faulted the N6trn claim as subsidy on premium motor Spirit (Petrol) in the 2022 fiscal year by the Nigerian National Petroleum Corporation (NNPC) Limited. The NCS boss argued that the NNPC could not scientifically prove the 98m litres/day it says the country consumes. He also questioned how 38m litres supplied over the assumed daily consumption of 60m litres can be smuggled out of Nigeria daily.

Proshare analysts argued that the country's effective consumption is less than 60m litres, given the ratio of petrol vehicle engines to non-petrol vehicle engines. However, a price differential between Nigeria and its neighbours creates incentives to smuggle fuel out of the country, which needs to be corrected by allowing market-determined fuel prices. The CBN's Q1 2022 oil revenue report on the subsidy figures shows that petrol subsidy payment amounted to N675bn in Q1 2022. If annualized, that would amount to N2.7trn for FY2022. Indeed, the N6trn subsidy claim suggests a racket of incredible proportions

Emergency Interventions Needed in the Oil and Gas Industry

The low production volume and the high operating cost are twin problems affecting Nigeria's oil and gas producers in terms of cost overrun and thin profit margin, as well as affecting the country's ability to take advantage of the rising crude oil prices. While Nigeria is losing as high as 400,000 b/d to crude oil losses such as theft, vandalism and other operational issues, the country's oil production cost is also one of the highest among oil-producing nations at US$15-17 per barrel. Comparatively, Saudi Arabia has a cost of production between US$4-5 per barrel. Analysts believe Nigeria's oil and gas industry is bleeding from all sides and urgently need intervention. The industry requires emergency regulatory and supervisory interventions and full compliance with the provisions of the PIA to salvage the situation.

Conflicting Figures on Oil Theft in the Oil and Gas Industry 

Nigeria's Chief of Naval Staff, Vice Admiral Awwal Gambo, has disagreed with the oil theft figures reported by the minister of state for petroleum, the upstream regulator, and the Nigerian National Petroleum Company Limited (NNPC Ltd). The naval boss argued that 20,000-200,000 b/d (equivalent to several million litres of daily oil trips) could not have moved through the estuaries nor the heavy security presence in Nigeria's waterways. Indeed, the oil and gas industry is constrained by several challenges beyond crude oil theft. Proshare analysts have raised concerns about the inconsistency in oil and gas industry activity data. There are inconsistencies in production volumes and underreported production shut-in and maintenance-related force majeure. 

There are crude oil thefts associated with pipeline vandalism by local communities, which supply the artisanal refineries. These kinds of thefts are not routed through the heavily guarded waterways. Elsewhere, some thefts are conducted through the estuaries with forged bills of lading or underreported loadings, which might escape the security checks. Indeed, the Nigerian Navy has made significant progress with its surveillance technologies, such as the Falcon Eye Alignment system and Satellite Boat Tracking System. However, analysts have raised a broader conversation on the need to fast-track the development of Nigeria's Maritime Strategy 

Oil Theft and Technology, the Search for Production Sustainability 

A new security infrastructure involving video surveillance, similar to that of Saudi Aramco, is set to be launched by the Nigerian National Petroleum Company Limited to protect the country's oil pipeline and curb large-scale oil theft. Indeed, security and surveillance technology delivers high-quality intelligence systems with minimal manual configuration. Proshare analysts have argued in their forthcoming Oil Theft Report that Pipeline monitoring technologies provide an intelligent system to operate in hazardous and non-hazardous environments. The monitoring is done by collecting real-time data from oil fields through pipelines or vessels to the farm tanks and storing the data in a cloud-based application that can be shared and accessed on all devices from any location. Analysts expect that the security infrastructure's ability to curb oil theft would depend on who is deploying superior technologies. 

The inaction of the Government and Oil Theft

While there have been differing figures on the actual volume of oil theft in the country, an established consensus is that it is an organized cartel with local and international collaborators, including security personnel and some so-called elites. Proshare analysts believe the underlining factor that had supported the spike in oil theft, as with other issues in the country, is the low importance given to data for accountability and transparency. There has consistently been a wide gap between the official oil production volume and the secondary sources reported by OPEC. There have also been reports of underreported crude volumes loaded at some terminals with no regulatory action on culprits. The lack of apparent punishment for previously arrested oil thieves has consistently incentivized more oil thieves. 

Brent's weekly growth was -5.18% (see Table 1).

Commodities

Metals

Gold dropped by -1.39%, while Silver also dropped by -3.97% W-o-W (see Table 1).

Agriculture

Cocoa prices dropped up by -0.25% W-o-W. 

Corn prices increased by +0.56% W-o-W, and Sugar prices dropped by -1.41% (see Table 1).

Table 1: Commodity Prices

*Data for the 2nd of September 2022 is as of 06: 41 pm (Nigerian Time)

Analysts Fear Risks of Global Fertilizer Scarcity 

Fertilizer scarcity has plagued many farmers this year since the war in Ukraine. Russia holds a good position in the international market for fertilizer export accounting for about 23% of ammonia exports, 14% of urea export, 10% of processed phosphate exports, and 21% of potash exports. Brazil, the 4th largest global fertilizer consumer (behind China, India, and the United States), imports 95% of its nitrogen fertilizer from Russia. It has been affected by reduced supply from Russia owing to logistics issues. Demand shifted to other nations in search of an alternative to Russian fertilizer. Dangote noted that he already had increased demand from Brazil even before its launch. Other west African states have found it challenging to access fertilizer, and many farmers in Nigeria have complained about a lack of fertilizer supply. It has become a cause for concern as three major fertilizer producers, Dangote, can supply 3MMT (million metric tons) of fertilizer, Indorama, with a supply capacity of over 1.5MMT, and Notore, with a supply of 0.5MMT. The fertilizer scarcity globally could seriously impact food availability next year as we could witness a worse food crisis. In 2020, India stood as the highest importer of Urea fertilizer; a continued scarcity could severely impact a nation hit by extreme weather conditions this year.

Global Wheat Market Gets Tighter Amid Extreme Weather Conditions.

As extreme weather conditions ravage big economies, food products have increased. The United States experienced drought in many eastern parts of the country. China experienced a heatwave of about 40 degrees Celsius, the U.K. was equally affected by a heatwave, and India experienced flooding in some parts of the country. These extreme conditions in different countries have caused a drop in food production, as China and the United States have witnessed a reduction in the production of some agricultural products.

While this poses bad news for food exports, Canada has begun its harvest bringing good news to the market. The world's third highest exporter has noted that the harvest would be more than they harvested last year and the second highest in 9 years. Estimates point toward about 34.6 million tonnes, about a 55% increase from 2021 production. This output follows Proshare's expectations after noting that we would witness a price increase in the period between harvest from U.S. and Canada. Proshare Analysts expect a downtick in wheat price, particularly in September, but could see an uptick in October as countries plant Winter wheat. Wheat currently has a YTD of +8.1%.

USDA Encourages Farmers to Engage in Double Cropping

The Ukraine war caused a significant disruption in the wheat trade. Russia and Ukraine account for about 30% of total wheat production globally (778.6 MMT), which would stand at around 233.58 MMT. The war highlighted the gaps between supply and demand as no country could immediately cover the deficit caused by the war. The US is a significant producer and second-largest exporter of wheat but could do little to cover the demand caused by undersupply from Ukraine and Russia.

The large-scale U.S. wheat export has prompted the U.S. Department of Agriculture (USDA) to initiate policies to encourage American farmers to begin double cropping to increase their wheat production. While some farmers have refused to take to the prompt, others have complied. Double cropping reduces each crop's size compared to when a crop is planted. The benefit of double cropping is an increased size of the harvest and increased inflow in revenue.

China to Increase Soybeans Import Ahead of Festivities

China is the world's largest soybean buyer and will increase imports to meet rising domestic demand and prepare for their festivals. Most soybeans cargoes currently loading are for September and October 2022, while some contracts are for 2023. China had slowed purchases in the year's first half amid negative margins for crushing beans into meal and oil, reducing inventories before the busy festival period.

Now increasing their import of soybeans from Brazil, the U.S., and Argentina, they are taking a precaution against Brazil's potential weather issue, having also witnessed severe weather conditions for a long time. Analysts Note that the drought experienced by China could force them to import more food crops to either meet rising demand ahead of their festivities or increase inventories ahead of next year. Increased demand from China, the second largest economy in the world, could drive food prices upwards.

Currency Market

At the parallel market on Friday, Naira stayed at N700/$1 which it recorded for most trading sessions this week.

For the Investor & Exporter FX fixing, the currency closed at N431.5/$1 depreciating by +0.27% week-on-week basis while on Thursday, the NAFEX fixing (spot market) closed at N428.90/$1, depreciating by +0.11% week-on-week basis (see table 2 below).

Table 2: Naira/Dollar at the I&E FX Window and NAFEX Market

Source: FMDQ, Proshare Research

Money Market

The funding rates dropped to a single digit following the inflow of FAAC allocation on Monday and declined for the rest of the week.

However, at the close of trading on Friday, the interbank rates climbed back to a double-digit at 12.00 and 12.50 for both the Open Repo rate (OPR) and overnight rate (0/N). On a week-on-week basis, it fell by -11.1% and -8.6% respectively (see table 3 below).

Table 3: Money Market

Source: FMDQ, Proshare Research

Analysts expect a double-digit figure in the coming week in the absence of any significant inflow

Treasury Bills Market

The treasury bills market was mostly quiet all week, although with few buying interest seen at some selected maturities.

On Friday, the treasury bills closed bullish as the average benchmark yield declined to 7.82 by -4.75% (W-o-W). 

However, the OMO bills closed bearish with the average benchmark yield rising by +7.83% (W-o-W) to settle at 11.16 (See table 4 below).

Table 4: Treasury Bills Market

Source: FMDQ, Proshare Research

We expect a bearish sentiment next week as inflation expectation rises

FGN Bond Market

As liquidity improved, activity in the bond market traded mixed this week.

At the close of the trading session on Friday, the market was relatively quiet as the average benchmark yield remained at 13.15. On a week-on-week basis, it closed bullish as the average benchmark yield curve compressed by 23bps (W-o-W) from 13.18% in the previous week to settle at 13.15% (See table 5 below).

Table 5: FGN Bonds Market

Source: FMDQ, Proshare Research 

Analysts expect selloffs to dominate the market activity next week 

Datapro Gives Positive Rating of A+ (short term) and A1 (long term) to Nova Merchant Bank

Datapro approved Nova Merchant Bank Limited's long-term rating of 'A+' and "A1" for its short-term, indicating an investment grade credit quality and satisfactory capacity for timely payment of financial commitments. Similarly, the rating shows low risk, sound financial strength, and operating performance after assessing the bank's financial performance. The Full-year result for 2021 reported a 25.7% growth in gross earnings and a 76.9% growth in loans and advances. DataPro specified that the rating would be for a maximum shelf life of 12 months (2021/2022). Analysts believe the ratings should assist investors' decision-making regarding investment in the financial lender.

Cedi's Depreciation to Slow as Ghana Receives Bailout of US$750m

On the depletion of Ghana's currency, the Chief executive of the Ghana Association of Bankers, Mr Awuah, stated that the activities of speculators are the primary catalyst of the depreciation margin of the currency. The economy suffers a fiscal gap, soaring inflation, FX supply, dwindling reserves, and interest rate differentials that adversely weigh on the cedi. He alluded that individuals and companies buying and hoarding the currency have triggered the persistent Decline. In that view, the government has sought loans to salvage the falling reserves and support the currency. On Wednesday, Finance Minister Mr John Kumah announced the country had received US$750m from African Export-Import Bank (Afreximbank). Analysts expect the syndicated loan to pull up the country's reserve at US$7.68 billion and help slow down the currency's depreciation rate against the dollar. 

Equity Market

NGX – Listed Equities

Chart 1: Movement of NGXASI Index Points 22 AUG 2022- 2 SEP. 2022

Source: NGX, Proshare Research

NASD OTC Exchange - Unlisted Equities

The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week positively.  The NSI and Market capitalization closed the week at 762.12 points and 1003.27 with a growth of+0.16%, 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 positive at 128.39 basis points from 128.25 basis points recorded the previous week, representing an increase of +0.11% WoW DANGCEM, NASCON remained flat. In contrast, DANGSUGER recorded a gain to close with +2.44% WoW (See table 6 below).

Table 6: Gote Index W-o-W Change

Source: NGX, Proshare Research

Furthermore, the Toni Index closed positive at 108.44 basis points from 106.78 basis points recorded the previous week, representing an increase of +1.97% W-o-W UBA, TRANSCORP and UBCAP closed the week positive with +1.40%, +5.77% and 1.27% respectively while TRANSCOHOT and AFRIPRUD closed the week flat W-o-W (See table 7 below).

Table 7: Toni Index W-o-W Change

Source: NGX, Proshare Research

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