Nigeria: Economic Dashboard @ 060123

Nigeria Economy

Economists Unimpressed by Nigeria’s 2023 Budget

Following the passage of the 2023 budget and the 2022 Finance Bill, Analysts have raised concerns about the capacity of the 2023 budget to alter the trajectory of the Nigerian economy. According to them, the rate of unemployment which was 33.3% as of 2020, would not improve going by the Federal Government’s (FG’s) plan to spend only N5.97trn (28% of the 2023 budget) on Capital expenditure even while fiscal deficits have risen since last year from 26% of the budget to over 50%. Analysts believe that growth would continue to be unimpressive so long as FG, the economy's largest spender, allocates spending inefficiently. At the same time, the miscellany of new excise duties and taxes contained in Finance Bill 2022 would worsen inflation in 2023.

Nigeria’s Energy Sector May Not Achieve Vision 30:30:30

According to the latest data on electricity generation in Nigeria, available generation capacity in Nigeria's power sector dropped in 2022, crashing from 6,336.52MW in 2021 to 5,346.82MW. The fall was despite earlier optimism expressed last year by the Ministry of Power that the first phase of the deal with Siemens AG would deliver 7,000MW by 2022 and 25,000MW by 2025. Under the vision 30:30:30, the Ministry of Power also targets electricity generation of 30,000MW by 2030. With average annual power generation at just 100MW, however, Analysts note that unless urgent steps are taken to improve power generation by onboarding the private sector, the 2025 and 2030 targets will be left unmet. Analysts also say that the mounting annual capacity payment loss of N1.8trn over the nine years 2015 – 2022 suggests that the demand for public power is dropping as more businesses and households have opted for privately generated electricity which is steadier and more reliable.

Ogun, Kaduna and Kaduna Pass Smaller 2023 Budgets 

The State Governors of Ogun, Kaduna, Kano, Nasarawa, and Ekiti have signed their respective 2023 Appropriation Acts into law. But with the States in question, each having budgets less than $1bn, Analysts have noted with concern the sizes of the planned spending of the sub-nationals. For instance, Ogun State's N472.3bn budget is 21.7% less than the 2022 budget, while Kano's N376.5bn 2023 budget is also significantly less than the N481.03bn budgeted for 2022. Analysts noted that while pre-election year budgets have typically outsized those of the subsequent years, Nigerian sub-national budgets have not been impactful over the years. With most of the spending being allocated to recurrent spending, such states have little wiggle room to provide the infrastructure needed to encourage private-sector investment.

As a result, such 'civil service' states have most of their working population engaged in the public service. This creates a vicious cycle whereby the civil service becomes a burden on the states' finances rather than being lean and fit for purpose. Analysts say that with such uninspiring budgets, budgetary appropriations would fail to meet the UN-required spending-to-GDP ratio in critical sectors such as Health and education.   Analysts recommend that the poor fiscal condition of sub-nationals needs to be addressed by increasing revenue sources to fund larger and more ambitious budgets, reducing the predominance of recurrent expenditure, as well as ensuring greater monitoring and implementation of projects

Manufacturers’ Contribution to GDP to Decline in 2023

The scarcity of fx for the import of critical inputs needed by Manufacturers as well as several other logistical challenges is expected to impact the outcomes of the Manufacturing sector in 2023. According to official GDP figures, the Manufacturing sector recorded a -1.9% contraction in Q3 2022 while its contribution to overall GDP also dropped to 8.96% compared to the 8.65% recorded in Q2 2022. According to Analysts, the recent decline in the country’s foreign trade in Q3 2022 and the decline in the import of equipment suggests that the depreciation of the currency may already be taking a toll on Manufacturers. This they fear may lead to the death of domestic industry and a greater reliance on imported goods.  The government must deploy monetary and fiscal policy instruments to address rising inflation rates, unstable currency, and foreign exchange scarcity.

Global Economy

NFP Data shows that US Labour Market is Resilient

Official Data released by the Bureau of Labor Statistics on Friday shows that the US Labour Market added 223,000 new jobs. Friday’s data topped forecasts which were averaged at 202,000. Unemployment rate dipped again to 3.5% corroborating the strong ADP figures released on Thursday. Meanwhile, Atlanta Fed had said that Monthly recruitment must not exceed 85,000 to keep unemployment rates at 3.7%. The Fed raised Federal Funds Rate seven times to 4.5% in 2022 with terminal rates now estimated at 5% in a bid to curtail inflation which spiked to double digit in Wage growth however came softer further signaling disinflation in 2023.  The Federal Open Market Committee (FOMC) is set to hold its first meeting of the year at the end of the month and Analysts are already penciling-in a 25bp rate hike.

Sunak Lines Up Legislation to Clampdown on Strikes, As UK home prices decline

Strike actions have disrupted activities in the health and train services in the United Kingdom (UK). Rail workers and other unions have taken part in a series of large-scale strikes over more than six months. In view of their severe impacts, British Prime Minister has stated that the government will work towards a new anti-strike legislation in the weeks to come.  Meanwhile, British house prices slid in December capping the largest quarterly drop since the financial crisis, mortgage declined. Analysts say that sustained rate hikes by the Bank of England (BoE) which brought the base lending rate to 3.5% in the UK were responsible for the decline in home prices. The Monetary Policy Committee is expected to maintain its hawkish tone despite a slight reduction in inflation especially as domestic wage and price pressures remained elevated.

inflation Moderates in Eurozone

Analysts have chalked the decline in EU Inflation to lower energy prices last month. The European Commission reported on Friday that cconsumer prices in the zone slowed to an annual rate of 9.2% in December, down from the double-digit levels of 10.1% in November and 10.6% in October.  Analysts believe that inflation on the continent may have finally peaked. However, Analysts say that while headline rate of inflation has eased, core inflation has not followed the same pattern. In December, the eurozone’s core rate of inflation rose to 5.2%, from 5% the month before.

Oil and Gas

Fuel Queues Persist but Optimism of Supply Restoration Buoys Marketer Confidence 

Against analysts' expectations of a moderation in fuel scarcity after the seasonal holiday, fuel queues at filling stations have persisted across the country. However, the National Operations Controller of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mike Osatuyi, disclosed that there was no more fuel scarcity in the country, but the continuous price differential creates fuel queues at stations selling below N200 per litre. Available evidence suggests that NNPC Ltd retail outlets are selling petrol at around N179 per litre, major marketers selling at about N180 per litre, while independent marketers are selling above N200 per litre. Analysts remain optimistic that the scarcity will ease in days as independent marketers registered with the NNPC retail, getting the products at the regulated ex-depot price of N148 per litre. 

Analysts Call for Review of Security Strategy in the Oil & Gas Sector

In line with the ongoing efforts to curb crude oil theft, NNPC Ltd, in collaboration with its private security contractor and government security, has arrested and destroyed a barge loaded with stolen crude oil and a filling station dispensing the illegal fuel. The NNPC Ltd disclosed that it arrested the MT Brighton 1 barge at one of the creeks running into the Ramos River in Agge Community, a village between Delta and Bayelsa states. Analysts questioned the immediate destruction of arrested vessels, noting that security surveillance agencies are often quick to destroy evidence. They noted that the quick destruction of arrested vessels would not deter crude oil thieves as the gains from the theft outweighed the cost of building vessels. They also expressed worries that the project is yet to finger or publicly prosecute any culprit.

Stakeholders insist Burning of Oil Trucks Reflect Poor Security Operating Procedures

Analysts have also raised concerns about the immediate destruction of arrested trucks by the security agencies, arguing that it is neither effective at deterring illegal activities nor aligning with global standard operating procedures. This comes as Members of the Petroleum Tanker Drivers branch of the National Union of Petroleum and Natural Gas Workers (NUPENG) threatened to stop loading petroleum products nationwide following the illegal destruction of two trucks conveying High Pour Fuel Oil (HPFO) popularly known as black oil by military agents. 

The association argued that the military task force burnt the trucks without investigation, reflecting a lack of professionalism and acting in ignorance. Analysts attributed the situation to the lack of standard operating procedure as it relates to identifying or verifying petroleum products' standards/qualities. Analysts also questioned the high points of the collaboration between the regulators and the security agencies on industry sanctity, noting that the regulators may have dropped the ball in educating relevant security personnel on product standards. 

EFCC Echoes Analysts’ Worry on Petrol Subsidy 

A report from the Economic and Financial Crimes Commission (EFCC) noted that the commission has recovered N12.998bn as proceeds of illegal payment under the petrol subsidy regime between 2017 and 2021. According to the report, N4.67bn was recovered in 2017, N4.29bn in 2018, N2.41bn in 2019, N416.51m in 2020, and N1.22bn recovered in 2021. Analysts have been calling for an end to the subsidy regime, arguing that there are many inadequacies in the under-recovery programme. From over-invoicing to a lack of accurate data on the daily fuel consumption volumes and the apparent smuggling of the products to neighbouring countries, these factors continue to propagate fraudulent activities in the sector. While subsidy gulped N1.43trn in 2021, it is expected to drain the system of nothing less than N5trn in 202 and over N3.3trn in the first six months of 2023. The EFCC report validates analysts’ position that there are many opportunities for fraudulent activities in the oil and gas sector from extraction to sales of refined products to consumers, buoyed by the lack of reliable equipment to measure flows and consumption of crude oil and petroleum products, respectively. 

Surveys Suggest Production Rise but Nigeria Still Undershoots Target

Surveys by Reuters and Bloomberg on OPEC crude oil production in December 2022 showed a significant rebound in Nigeria’s oil production, accounting for the most increase in the group’s output. The Reuters survey showed that Nigeria’s oil production rose by 170,000 b/d in December 2022, contributing largely to the 120,000 b/d increase in OPEC output for the year. However, the Bloomberg survey showed Nigeria’s oil production hit an eight-month high of 1.35mb/d, raising OPEC’s production by 150,000 b/d above November figure. 

The increase in Nigerian output strengthened the country’s compliance with OPEC quota to 161% from 163% on November 22 but remains the largest restraint in meeting quota guidelines. Whilst waiting for official data to confirm the increase, Analysts remain optimistic that Nigeria would meet its oil production benchmark for 2023 (1.69mb/d) in Q1 2023 and OPEC quota within the year. Nevertheless, this will depend on the continuous campaign against oil theft and insecurity, leading to the recovery of oil at major terminals. 

Regulatory Review of Beneficial Ownership of Oil Blocs to Promote Industry Clarity

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has issued a seven-day ultimatum to all lease and license holders operating in Nigeria’s oil and gas sector to disclose their beneficial owners under its beneficial ownership reporting system. Analysts observe that the directive is pursuant to the Nigeria Extractive Industries Transparency Initiative’s (NEITI) Beneficial Ownership (BO) register and to achieve proper industry oversight. While blocking the loopholes in the governance of companies in the upstream oil industry, analysts expect proper enforcement of the directives to resolve conflicts of interest and provide clarity on ownership, capacities, and tax liabilities in the industry. This is expected to attract investors and reduce business risk as ownership is clearly established. 

Oil Price Volatile Keeps Analysts on Vigil

Oil prices were volatile in the first trading week of the year but both Brent and WTI contracts dropped for the week. Prices slid on weak market sentiment due to China’s economic data and IMF projection of a tougher 2023 but rebounded on a weak dollar, lower than expected inventories draw, and China demand boost. Analysts expect oil prices to trade higher on China’s reopening optimism buoyed by the stimulus measures to boost activities in the property market. In the domestic petroleum market, analysts expect differential pricing to persist while fuel queues continue to abate. 

Brent had a weekly decline of -4.32% (see Table 1 below).

Metals

Gold advanced by +2.39% while Silver declined by -0.25% W-o-W (see Table 1 below).

Agriculture

Cocoa prices advanced +0.89% W-o-W. 

Corn prices declined by -3.94% W-o-W and Sugar prices declined by -6.09% (see Table 1 below).

Table 1: Commodity Prices

*Data for the 06^th of January 2023 is as of 06: 29 pm (Nigerian Time)

Commodities

Africa to Become the Go-to-Source for Rare Earth Minerals from 2023

Rare earth elements (REE) are used in various industrial applications from electronics to clean energy and defence. Its use is largely for magnets, catalysts, and polishing. As demand for rare earth increases, China still seems to be the primary beneficiary of the sale of rare earth elements, given that the country holds about 60% of global production. With countries trying to reduce their reliance on China's output, African countries could leverage this to increase their share in the global market. The Steenkampskraal mine in South Africa is said to have the highest grade of REEs in the world, containing about 15 REEs. This gives South Africa hope to become a significant supplier in the global market, especially after setting a US$900m annual mineral exploration target. Africa's mining budget has largely dropped over the years, affecting the amount of REE produced in Africa.

Pakistan’s Poultry Industry Faces Harsh Times as Soybeans Prices Spike

The poultry market in Pakistan has faced a major downturn as traders and poultry farmers claim that the affordability of chicken might be a thing of the past. Since the sharp spike in the price of poultry in October 2022 after customs stopped the release of genetically modified (GMO) soybean arriving from Brazil and the US, the market has slumped. Generally, Pakistan does not allow the import of GMO products. Soybean meal is a key ingredient in poultry feed and its shortage has made prices of poultry feed spike on rising demand. The Pakistan Poultry Association equally claimed that they are paying US$0.4 million daily as demurrage for the seized ships which could mean that even when imports of soybeans are allowed into the nation, the price of poultry could stay elevated.

Honeybees Get Survial Hope with New Vaccine

Honeybees have been on the decline in the United States since 2006 as they have witnessed an annual reduction in honeybee colonies. While different issues affect the health of honeybees ranging from parasites to diseases, including Colony Collapse Disorder a phenomenon that occurs when most worker bees in a colony disappear and leave behind a queen which has been said to be caused by different management practices. The new vaccine would prevent fatalities from American foulbrood disease which is a bacterial condition known to weaken colonies by attacking bee larvae. This could help reduce the amount spent on the treatment of bees as the focus is diverted to improving bee health. Bees are important in the agricultural ecosystem as they help plant survival through pollination. As of 2018, the FDA pointed out that bee pollination accounts for about US$15bn in added crop value.

Fixed Income Market 

Currency Market

For the first week of the year, the naira fell by 4bps week-on-week to N461.67 at the Investor and Exporter FX fixing while at Nigerian Autonomous Foreign Exchange fixing (NAFEX), the naira remained unchanged at N461/US$1 (see table 2 below). 

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

Source: FMDQ, Proshare Research

Money Market

Funding rates stayed within single digits for the most part of the week. However, Friday’s CRR debit mopped up liquidity, raising the Open Repo rate (OPR) and Overnight rate (O/N) to 13% and 14.50% respectively. A week-on-week rise of +14.74% and +23.40% (see table 3 below).

Table 3: Money Market

Source: FMDQ, Proshare Research

Funding rates should remain higher in the coming week with the NTB primary auction

Treasury Bills Market

The buying interests in the Nigerian treasury bill market persisted all week, pushing the average benchmark yield to 3.31% on Friday, a week-on-week decline of -37.43%. 

 The OMO bill’s average benchmark yield stayed flat at 3.47 week-on-week (See table 4 below). 

Table 4: Treasury Bills Market

Source: FMDQ, Proshare Research

The bullish sentiment to persist in the interim

FGN Bond Market

The bond market started the year bullish, with the average benchmark yields dropping to 13.02% on Friday from 13.31% in the previous week (See table 6 below).

Table 5: FGN Bonds Market

Source: FMDQ, Proshare Research 

Ways and Means (W & M) Securitization to Raise Nigeria’s debt stock to N77trn 

According to the Debt Management Office (DMO), the securitization of the Ways and Means (W & M) advances borrowed from the central bank (CBN) will make the country’s debt rise to N77trn. A breakdown of the amount shows; N44.06trn for the current public debt stock, N22.72trn Ways and Means, N11.134trn 2023 budget deficit, and N1trn supplementary budget.  Although the approval of the loan-to-bond swap was rejected by the Senate, referring to the Financial Responsibility Act section 38(b), the rejection might be reviewed. However, analysts fear that the approval of the swap might encourage the continuous violation of the Financial Responsibility Act. The excess borrowing from CBN has had an adverse effect on the country’s currency and inflation.

DMO Lowers Borrowing Rates for FGN Savings Bonds in 2023

January 2023 FGN savings bond commenced today to close on January 6, 2022. The interest rate for the 2-year tenor at 9.60% and 3-year at 12.60% per annum are lower than the December interest rate at 12.255% and 13.255%, respectively. The coupon payment will be quarterly on April 11, July 11, October 11, and January 11. Investors can subscribe with a minimum of N5,000 to a maximum of N50,000,000. Analysts expect the decline in interest rates to affect investors' subscriptions slightly. 

Equity Market

NGX – Listed Equities

• Year-to-date, the NGXASI closed negative at close the week with a loss of -0.60% as market capitalization settled at N27.899trn.
• 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 CONSUMER GOODS topped the gainer’s chart with a gain of +6.44% W-o-W while NGX INDUSTRIAL sector index closed negative with -0.58% W-o-W (see chart 1 below).

Chart 1: Movement of NGXASI Index Points 1^st DEC. 2022 – 6^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 negative note.  The NSI and Market capitalization closed the week at 704.00 points and 925.06 with a decrease of -1.48% 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 136.66 index points from 136.23 index points recorded previous week, representing an increase of 0.32% W-o-W. DANCEM closed the week positive with 0.38% W-o-W while NASCON and DANGSUGER closed the week negative with -4.95% and  -0.31% W-o-W respectively (see table 7 below).

Table 7: Gote Index W-o-W Change

Furthermore, the Toni Index closed positive at 119.39 index points from 115.01 index points recorded previous, representing an increase of 3.85% W-o-W, UBCAP, TRANSCORP and UBA closed the week positive with 2.14%, 3.54% and 5.26% respectively W-o-W while TRANSCOHOT and AFRIPRUD closed the year negative with -4.76% and -5.59%  W-o-W (see table 8 below).

Table 8: Toni Index W-o-W Change 

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