Nigeria: Economic Dashboard @ 100223

Nigeria Economy

A Few Days into 2023, Nigerians are Already Counting the Cost of Policy Missteps

Less than fifty days into 2023, the Nigerian economy has suffered at least five self-improvised crises, involving fuel scarcity reflecting distribution glitches; the unprecedented creation of a local black market for the purchase and sale of the local currency, the naira, following the central bank’s (CBN’s) currency redesign policy; tumbling national productivity on the back of disruptions to physical mobility; financial instability, brought about by the after-effects of the federal government’s naira redesign policy; and policy-induced uncertainty about the future of the country as presidential candidates become embroiled in controversies (see illustration 1 below).

Analysts believe there is a total disconnect between the government and the governed as the priority of politicians misaligns with the needs of citizens. The poor statecraft has heightened anxiety among citizens’ leading to collective anger. Nevertheless, analysts note that on burning national issues, there are short-term fixes that could reduce the severity of citizens’ pain. The old and the new currencies should be allowed to cohabit for a period. Economists realize the need for this, considering the impact of the velocity of money on nominal national output.

Illustration 1: 

Economists at the CBN may wrongly believe that creating currency flow disruptions would slow the inflation growth rate. Early signs of the impact of the currency redesign policy are a reversal in the growth of real output (projected to settle at 3.2 by the IMF). The Proshare outlook projection for real GDP growth in 2023 was 2.9% but the disruptions to consumer spending, investment, and production could see growth melt to 2.8% down from an estimated 3.0% in 2022.  

Recognizing the need to reduce socioeconomic tension on the cusp of national elections, the Lagos State Government has offered a 50% discount on public transport.  Analysts believe that in the heat of concerns about fuel price increases the FGN should gradually reduce the outlay on petrol subsidy and use the proceeds to purchase mass transit buses that use compressed natural gas (CNG). Apart from creating a more efficient pricing template for petrol, the use of CNG would grow the domestic gas value chain and reduce the cost of local mass transportation.

Currency Redesign Policy Worsens Plight of Nigerians as Anxiety Heightens

The Central Bank of Nigeria’s (CBN’s) currency redesign policy has sent the economy into a creepy uncertainty as citizens lose faith in the banking system and a growing number of poor people become agitated at their inability to access money. Surprisingly in the face of citizens’ pain, government agencies are prioritizing different issues. The federal government (FG) is focusing on the handover process by setting up a transition committee while convening a Council of State meeting.   The CBN and the Ministry of Justice are at loggerheads with the Supreme Court over the phasing out of old naira notes. The downstream oil regulator and marketers are yet to fully grasp how best to stabilize the market as inflated pump prices persist in a few fuel stations. Meanwhile, the electoral umpire, INEC, is also befriending some controversial transport unions for the distribution of electoral materials. On another hand, Nigerians are faced with uncertainty about the timeline for the legality of the old notes, arbitrage in petrol pump prices, and the credibility of the forthcoming general election. Analysts believe the country is currently in a problem wrapped in a conundrum tied in confusion. The short-term prognosis for the economy is unflattering. For the average Nigerian, the options for easing current discomfiture are to keep as much new cash as possible, ramp up the adoption of digital payments, and reduce their expenditure on transportation, entertainment, and leisure.

Oil and Gas 

Hope of Resolving Fuel Scarcity Challenges Heightened as Stakeholders Parley

If the recent engagement of all stakeholders in the downstream oil industry fails to address the scarcity and pricing challenges, it is likely to become endemic till the national and Dangote refineries come on stream. The Group CEO of NNPCL, Mele Kyari, has said the scarcity is not a supply but a distribution problem. While it is difficult to dispute the claim as the national oil company continues to report the evacuation of over 64m litres of fuel daily, independent marketers say the products are yet to be available in sufficient quantities. Howbeit, some marketers claim the scarcity and differential pricing will soon fade as all stakeholders have agreed to comply with a pricing framework, but some marketers are currently selling at higher prices to exhaust existing stocks. Analysts expect that panic-buying will continue to stoke demand, while supply will be threatened by arbitrage, smuggling, and opaque regulations. Analysts are hopeful that the challenges will be resolved in days but believe some saboteurs may undermine the agreed framework, which could leave no further relief for the industry till the subsidy is fully removed.

Early Estimates of Nigeria’s Oil Production Shows Stagnation 

Whether Nigeria will meet its 2023 budget assumption on oil production and OPEC quota depends on continuous clamp down on oil theft and increased investment. Analysts had argued that the country’s oil output is on track, having increased in Oct-Dec 2022, to meet its 1.69mb/d projection in H1 2023 if ongoing efforts to curb oil theft are sustained. Howbeit, early estimates of the country’s oil production in Jan 2023 by Reuters Survey and Refinitiv Eikon, a company that tracks export flows, showed that output stagnated at the 1.2mb/d it did in Dec 2022. Punch report valued the underproduction at about N500bn below what the country would have made under the OPEC quota. Analysts expect the official report of oil production from the Nigerian Upstream Petroleum Regulatory Commissions (NUPRC) to validate Nigeria’s laggard in oil production as the initial campaign against oil theft and vandalism seems to be petering out. Much more, analysts say investors are still uncertain about returns on investment in Nigeria due partly to the lingering oil theft, which increases production cost and drain values, and partly to the fiscal and regulatory loopholes in the industry.

Stakeholders Monitor Regulations that Promote Discipline in Upstream Oil Market

The primary responsibility of the upstream regulator – the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) – is the technical, operational, and commercial regulations of the upstream petroleum resources. To provide a broad-based regulatory framework, the commission is expected to develop specific regulations on different aspects of the upstream oil segment in line with the provisions of the Petroleum Industry Act 2021. The NUPRC, on Monday, unveiled five draft regulations in the third phase of its consultation with stakeholders on regulations development. These include Upstream Petroleum Measurement Regulations; Advance Cargo Declaration Regulations; Significant Discovery Regulations; Gas Flaring, Venting, and Methane Emissions Regulations; and Domestic Crude Oil Supply Obligation Regulations. The Commission disclosed that the first two are specifically drafted to tackle oil theft. While there are obvious reasons to be optimistic that the regulations will result in accurate measurement and reporting of loading and offloading of crude oil, analysts say the regulations will do little to capture the large-scale actions and inactions of non-state actors operating in the black market.  

Nigeria’s Oil Industry Losses Shine as Investors Pullback from Sector

Nigeria’s oil and gas sector has witnessed notable investor pullback as the sector reels from a myriad of problems that range from oil theft to misaligned market pricing in the downstream sector. The Petroleum Industry Act (2021) provides that the Minister of Petroleum should promote an enabling environment for investment in the Nigerian petroleum industry. However, insecurity, pricing uncertainty, and regulatory ambiguity, which have persisted, have made the sector unattractive. In the upstream industry, analysts note that not adopting the quick and dirty fixes of resolving oil theft as recommended by Proshare in its #AnatomyofCrudeOilTheft report, has hampered the sector from optimizing a sustainable increase in oil ouput. Analysts believe that the resolution of the current petrol scarcity through fresh loading of premium motor spirit (PMS) at specified depots is a temporary measure that may be unsustainable. A more sustainable solution would be to combine functional refineries with clear regulations and an efficient pricing.  

Oil Prices Rise for the Week but are Set to Seesaw

Despite ending the week low, oil prices recovered on optimism over demand growth in China, easing concerns about sharp interest rate hikes by the US Fed, and concerns over supply shortages following the shutdown of an export terminal in Turkey. The selloffs in the week were due to gains in the greenback and high inventories in the US. Analysts expect the oil market to remain choppy on fears of a recession hitting the US and China’s demand recovery. In the domestic fuel market, analysts expect the normalization of activities in the distribution network to continue into the new week with more marketers selling petrol around N200 per litre and diesel prices falling below N800 per litre as diesel prices moderate in the international market.

Commodities

Brent had a weekly decline of -3.63% (see Table 1 below).

Metals

Gold declined by -4.12% while Silver declined by -2.74% W-o-W (see Table 1 below).

Agriculture

Cocoa prices advanced +1.96% W-o-W while ccorn prices advanced by +0.18% W-o-W and Sugar prices advanced by +0.94% (see Table 1 below).

Table 1: Commodity Prices

*Data for the 10^th of February 2023 is as of 06: 01 pm (Nigerian Time)

Analysts Query Impact of Naira Redesign on Agricultural Sales

Food traders in different parts of the country have been adversely hit by the CBN’s Naira redesign policy as Northern farmers blame it for the low patronage forcing them to reduce prices. In Kano State, traders compared the price of primary commodities noting that a 100kg bag of maize sold at N22,000 last week now sells at N14,000 with cash and N18,000 with bank transfers. A 100kg bag of millet sold at N25,000 last week but is now selling at N15,000 cash and N18,000 using transfer and while a 100kg bag of paddy rice is now N13,000 as against N23,000 sold last week. These price differences have not generally affected markets in Lagos and Ogun states as prices have stayed the same. Some traders claim that not having cash has significantly affected their sales and profits.

Rice, Maize, Cassava, Yam, and Tomatoes are generally harvested in March which could mean that middlemen and store owners could sell off many old stocks to make space for new harvests. While this could push prices down, perishables could be the ones to suffer the most as quick disposal could force lower prices. So while the Naira redesign might affect the ease of doing transactions given its scarcity, the incoming harvest season could be a reason prices have could off in the Northern part of the country while the southern part still blames transportation costs as a reason prices may continue to stay elevated.

Nigeria’s Oil Palm Market Under Siege, as Poor Infrastructure, Remains a Bane

Nigeria’s oil palm industry has struggled to attract significant investment, both from the government and from the private sector which has hindered the development of the sector thus limiting its ability to grow and compete with other major producers like Indonesia and Malaysia. Although claims had been made that Malaysia obtained its palm oil seeds from Nigeria, it was debunked in 2013 by the then Director of Production, NIFOR, Dr. Christy Okwuagwu who claimed it originated from Amsterdam. Nigeria is the highest producer and consumer of palm oil in Africa but has not been able to become a major exporter of the commodity because of poor infrastructure which does not support large-scale production, and old and inefficient production methods that affect the quality and quantity of the commodity produced.

High Fertilizer Prices Could Drive Hunger Worldwide in 2023

Higher fertilizer prices could drive hunger worldwide in 2023 as they increase the cost of food production. Farmers rely on fertilizers to grow crops, but the recent surge in prices in recent years has put pressure on them making it difficult to make ends meet. With reduced fertilizer usage, more land would be required to meet up to the current food production rate. This could lead to deforestation, which in turn would lead to the reduction of trees to capture carbon emissions leading to more pollution of the environment, then climate change worsens, and food production drastically reduces. This could lead to food shortages and ultimately, hunger. The rise in fertilizer prices is due to various factors, including rising energy and transportation costs and increasing demand for food. The failure to address this issue could have devastating consequences, including widespread hunger and food shortages

Nigeria-France Agricultural Grant Could Improve Output

Nigeria and France have signed a grant agreement of €1.2m to develop a strategy for agriculture and food markets in Nigeria. This grant is to finance a one-year technical program to assist the Federal Ministry of Agriculture and Rural Development to design a national agrifood market development strategy. This programme, to be implemented by French company Semmaris, should result in an inventory of the existing agricultural market, an in-depth analysis of current distribution channels and agrifood logistics, a legal and regulatory framework adapted to market development, and technical recommendations to rehabilitate or build three terminal markets.

Analysts are taking a holistic look at Nigeria’s agricultural system, as they consider issues related to security and the price of inputs in a country where many farmers are smallholder farmers and cannot afford some of these materials. If prices of inputs drop, analyst point to insecurity which has plagued many farmers, driving some of them from their lands or forcing them to pay these trouble peddlers just to have access to their farms, but the research if properly followed by the support of the Federal Project Management Unit (FPMU) of the Rural Access and Agricultural Marketing Project (RAAMP) under the Federal Ministry of Agriculture and Rural Development along could result in the reduction of certain problems like the education of farmers, the irrigation of farms and the logistics of farm produce

Rising Cost of Inputs, Security, Threatens Food Production in Northern Nigeria

Food production in Nigeria is facing numerous challenges that threaten the ability to meet the demands of over 200 million people. The largest challenges are the rising cost of inputs, such as seeds, fertilizer, and labour coupled with rising insecurity, which is making it difficult for farmers to access their lands and markets. The high cost of inputs has put a strain on prices while reducing farmers’ profit and increasing consumer spending. 

As farmers have found it difficult to purchase fertilizer in recent years, food production has gradually reduced. Wheat and Rice farmers particularly point to the serious reduction witnessed in their harvest in recent seasons. Farmers in Jigawa state, the highest rice producer and second-highest wheat producer in the country, have lamented about the situation of their farms with many experiencing a halving of their previous harvests as fertilizer costs have driven them to the reduction of fertilizer usage. Niger State farmers also added that herders have presented problems to their growing crops as they encroach in the night and graze on the planted crops making irrigation farming seem futile. This has led to many farmers switching professions by taking up commercial motorcycle riding to fend for themselves.  A reduction in production in many northern states could push food prices up at a time when consumers are already stretched in their spending for food.

Fixed Income

Currency Market

This week, the naira appreciated at both Nigerian Autonomous Foreign Exchange (NAFEX) fixing and Investor and Exporter FX fixing (I&E), settling at N461.20 and N461.50 respectively (See table 1 below).

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

Source: FMDQ, Proshare Research

Money Market

The robust liquidity kept interbank rates flat for most trading sessions this week. On Friday, the Open repo rate (OPR) and Overnight rate rose to 10.75% and 11.13% respectively, a week-on-week rise of 238bps and 344bps (see table 2 below).

Table 2: Money Market

Source: FMDQ, Proshare Research

Interbank rates to edge higher next week as FGN bond auction mop up liquidity.

Treasury Bills Market 

The Treasury Bill market was largely bullish this week, with buying interest across all maturities. The average benchmark yield dropped by 978bps (W-o-W) to 1.66%

Also, the OMO bill’s average benchmark yield declined to 1.29% by 4163bps week-on-week (See table 3 below). 

Table 3: Treasury Bills Market

Source: FMDQ, Proshare Research

We expect the bullish sentiment to linger next week.

Soaring Demand Cuts Stop Rate at Nigeria’s Treasury Bill Auction 

Investors' demand at the Nigerian Treasury Bill primary auction market remained strong, seeing a subscription of N1,056.08trn as against N217.06bn on offer. The Debt Management Office (DMO) allotted N417.06bn by acquiring an extra N200bn at the 364-day tenor. The stop rates for 91-day, 182-day, and 364-day dropped by 65bps, 83bps, and 53bp to 0.10%, 0.30%, and 2.24% respectively. The intense demand suggests that investors are pivoting towards safe haven investment instruments despite the low nominal rates and high domestic inflation.  Analysts attribute the large buy interest to institutional investors, who are statutorily required to invest a portion of their income in domestic treasuries (see table 4 below).

Table 4: Nigerian Treasury Bills Auction Result

Source: Commercio paper

FGN Bond Market

This week, the FGN bond market traded mixed. The buying interests were skewed at the short end of the curve while selloffs were seen at the Mid to long end of the curve. On a weekly basis, the average benchmark yield fell by 198bps to 13.40% (See table 5 below).

Table 5: FGN Bonds Market

Source: FMDQ, Proshare Research 

We expect a bearish outcome in the coming week.

Digital Payments Rise to N38trn in January 2023 as Citizens Groan Under Cash Scarcity

According to the Nigeria Interbank settlement system (NIBBS), instant electronic payment rose to N38.77tn in January 2023 from N26.65trn as of January 2022, a +45.52% year-on-year (Y-O-Y) increase. The NIBSS attributed the increase to the CBN naira redesign policy and cash withdrawal limits initiated in November 2022. The policy strong-armed bank customers to use alternative payment channels like internet banking, mobile apps, point of sales (POS) vendors, and unstructured supplementary service data (USSD), for transactions.  However, analysts insist that there was already a rapid transition toward digital payment platforms before the currency redesign policy. Meanwhile, the congestion on digital payment systems triggered by the currency redesign policy has multiple service choke points leading to regular transaction failures. Analysts argue that the country needs a reliable, efficient national digital payment architecture with adequate latent capacity to support service expansion.  

Fixed Income Market Turns Bullish on Naira Redesign Policy 

With the influx of money into the banking system in response to the Central Bank of Nigeria’s (CBN’s) naira redesign policy, liquidity has eased. The robust liquidity has benefited the fixed-income market, dropping yields to a record low, especially at the short-term instruments. The Nigerian treasury bill yields for 91-day, 182-day, and 364-day have dropped to 0.29%, 1.80%, and 4.78% at the last primary auction while the bond market has followed a bullish trend. Predominantly, the liquidity seems to direct the course of the market while undermining other factors like inflation, MPR hike, pre-election uncertainty, real negative return, and debt sustainability risk. Analysts noticed investors decided to opt for fixed-income instruments instead of leaving the funds in the banks where inflation can rob its value. The market outcome might persist in the interim with the current cash crunch situation in the country.  

Rising Liquidity May Favour February FGN Savings Bond 

The FGN Savings Bond for February has a slight adjustment in the interest rate at both the 2-year and 3-year tenors. The 2-year tenor increased to 10.043% per annum from 9.60% at the previous issuance while the 3-year tenor drop slightly to 11.043% from 13.255%. The offer began on February 6, 2023, and is to close on February 10, 2023, with the settlement date on February 15, 2023. The coupon payment dates are May 15, August 15, November 15, and February 15. Investors can subscribe with a minimum of N5000 to a maximum subscription of N50m. Analysts noticed robust liquidity has positively impacted the fixed-income market, leading to huge buying interest in recent times. Subject to that, analysts expect the savings bond auction to receive a high subscription.

S&P Nigerian Outlook Turns Negative as Debt Concerns Worsen 

On Friday, S & P rating agency affirmed Nigeria’s credit rating at ‘’B-/B’’ but turned negative on its outlook, citing increasing risk to the country’s debt servicing capacity over the next one-to-two years as the main trigger for the downgrade. While other rating agencies Moody’s and Fitch lowered the country’s rating by one notch last year, S&P kept the rating at ‘B-/B’ with a stable outlook in 2022. This downgrade is the second in 2023 after Moody’s agency downgraded the country to ‘Caa1’ from ‘B3’, owing to the deteriorating government’s fiscal and debt position. S&P mentioned that Nigeria’s debt servicing capacity has weakened due to high fiscal deficits and increased external pressures. Analysts believe the multiple downgrades narrow Nigeria’s access to external funding and limit borrowing to only the domestic market. The dollar-denominated government bond should turn bearish in reaction to the S&P rating, seeing that Moody’s downgrade pulled down the market last week.

Equity Market

NGX – Listed Equities

• The Nigerian bourse ended the week on a positive note as market sentiment stayed positive.  The NGXASI closed the week with a gain of 0.21% as against a 2.95% gain recorded last week. The Nigerian Exchange recorded N62.59b gain in naira terms. 
• Year-to-date, the NGXASI closed positive with a gain of 6.00% as market capitalization settled at N29.590trn.
• Sectoral performance across sectors was broadly negative W-o-W. At the close of trading on Friday, six (6) sectors closed positive while ten (10) sector closed negative while one (1) sector closed flat W-o-W. NGX Premium topped the gainer’s chart with a gain of +1.04% W-o-W while NGX Insurance sector index closed negative with -3.32% W-o-W (see chart 1 below).

Chart 1: Movement of NGXASI Index Points 3^rd JAN. 2022 – 10^TH FEB. 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 705.64 points and 927.21 with a decrease of 1.60% 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 positive at 141.06 index points from 139.42 index points recorded previous week, representing an increase of 1.11% W-o-W. NASCON and DANGCEM closed the week positive with 2.75% and 1.16% W-o-W while DANSUGAR closed the week negative with -0.29% W-o-W (see table7 below).

Table 7: Gote Index W-o-W Change

Furthermore, the Toni Index closed negative at 124.80 index points from 125.22 index points recorded previous, representing a decrease of -0.34% W-o-W AFRIPRUD, and UBCAP closed the week positive at 1.64%, and 2.70% W-o-W respectively while TRANSCORP, and AFRIPRUD close the week negative at -1.53% and -1.18% respectively while TRANSCOHOT closed the week flat (see table 8 below).

Table 8: Toni Index W-o-W Change

Analysts expect a bearish market in the coming week as naira scarcity continue to weigh in on investors.

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