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What to Expect from the Markets this Week - 130323

Mar 11, 2023   •   by Proshare Research   •   Source: Proshare   •   eye-icon 579 views

Nigeria Economy Dashboard @ 100323


Nigeria Economy 

 

CBN’s Open Banking Could Spur Tighter Competition  

In a recent circular, the Central Bank of Nigeria issued operational guidelines for open banking in Nigeria. The new policy allows financial service providers to access the banking history of prospective customers with other banks. This would be through application programming interfaces (APIs), and with the explicit consent of the customers. It basically allows customers to share their banking data with other financial service providers, enabling them to access a wider range of products and services. Analysts say the initiative would further ensure the deepening and stability in the nation’s financial system. Through the Open Banking Registry which the CBN would establish and manage the regulatory oversight would be enhanced. The most important gain derivable from the new data-sharing policy is the degree of competition and a greater level of efficiency that would be promoted among banks. While the recent circular on Open banking has generated interest amongst fintech entrepreneurs nevertheless, for open banking to function well, developers will need to find solutions to integration issues that may make it impossible to communicate financial data securely and seamlessly.

 

Nigeria’s Export to Africa Rose by 121% in Q4 2022

According to the Q4 2022 Foreign Trade Data released on Thursday by the National Bureau of Statistics (NBS) Nigeria’s foreign trade rose by 0.2% in Q4 2022 compared to the corresponding period of 2021. According to the report, foreign trade came in at N11.72trn in Q4 2022 of which Total Imports was N5.36trn while Merchandise Exports amounted to N6.36trn.  While exports rose 10% Y-o-Y from N5.8trn to N 6.3trn, Imports declined by -10.1% Y-o-Y to N5.4trn culminating in a N997bn Merchandise trade surplus . While Petroleum and Natural Gas imports accounted for 88% of imports, the sharpest decline in imports last quarter were recorded in  the importation of Arms and Ammunition (-56%)  and works of Arts(-67%). Crude Oil exports accounted for 73% of exports, the lowest export contribution since March 2021. While Spain was Nigeria’s top export destination in Q4 2022, the exports to Africa also increased y 121% in Q4 2022. Analysts say that the Dangote Refineries and the full implementation of the AfCFTA both of which are set to kick in in the second half of the year would change the dynamics of Nigeria’s trade data.

 

Multiple Levies and Dollar-Denominated Charges Hurt BargOperations

According to the Barge Operators Association of Nigeria (BOAN) the multiple hidden tariffs that they pay to terminal operators when moving containers, are affecting the barging industry negatively. Operators in the industry which came to life when the Nigerian Ports Authority signed a Memorandum of Understanding with AP Moller Capital to adopt barges as an alternative to cargo evacuation by trucks are charged US$500 per container (a barge may haul as many as 30 containers) and another N150,000 charge paid to terminal operators. Being that the charges are multiple and partly denominated in dollars imposes a huge cost on the operators.


 As a result, barge operators charge importers between N300,000 to N400,000 to move a container from the port to its destination, whereas moving the same container by trucks would cost less (N200,000) despite the numerous charges levied at illegal tolls by non-state actors on highways. Analysts say that the duplication of charges on Barge operators could bring an end to the industry which has enormous potential. Apart from the impact of the charges on the business of operators, Analysts say that the livelihood of local fabricators who manufacture up to 80% of the barges used in Nigeria is at risk.

 

Why the CBN Must React to Supreme Court Judgement

The Supreme Court last friday, March 03, 2023, ruled that the old N200, N500, and N1000 currency notes remain legal tender till December 31, 2023. The CBN’s Naira Redesign and Currency Mop-up policies have seen N1.77trn of old currency withdrawn. The impact of the demonetization policy has been severe, with many MSMEs recording low turnover due to the lack of cash. While the drive for a cashless economy is a good initiative, contracting currency in circulation could be economically harmful.


After one week, Analysts maintain that the CBN must address the uncertainty associated with the Supreme court judgment if the economy is to avoid spiraling into a near recession.  Analysts argue that the Cashless policy has been in overdrive given that Currency in Circulation in Nigeria as a proportion of the Money Supply is only 5.8% less than what is obtainable in more sophisticated economies. Currency in Circulation as a ratio of Money Supply in the US is about 11%, in Canada the ratio is 9.4% while in the Eurozone the same ratio is 9.9%, suggesting that Nigeria was not comparatively bad. Overall, the CBN need not shut MSMEs out of cash to promote a cashless/digital economy. According to the Stanbic IBTC PMI survey, Nigeria’s business activity plummeted from 53 in January to 44.7 in February 2023, essentially because of the cash crunch. The slowdown in business activity would persist in many sectors if the CBN fails to comply with the Supreme court ruling.

 

Global Economy 

 

Strong NFP Data and Biden’s 25% Billionaire Tax

Joe Biden on Thursday presented the US$6.8trn budget for 2024. According to the plan, budget deficit would be cut by $3trn over the next decade. Biden’s budget would impose a 25% minimum tax on billionaires as part of a series of proposed tax hikes on wealthy individuals and corporations. The government also plans to retain Medicare and other public services by increasing taxes on oil and gas companies, hiking the corporate tax rate to 28% from 21%. Analysts have however reacted to the billionaire tax with skepticism. They say high earners would explore moving their assets to other climes where they can pay less taxes.   While Analysts assessed the budget which outsized the US$6.41trn forecast of the Congressional Budget Office, the Non-Farm Payroll (NFP) reading for February was released by   US Bureau of Labor Statistics showing a higher than expected 311,000 new jobs added.  Analysts had pencilled-in 205,000 following the 517,000 jobs recorded in January (later revised to 504,000). Friday’s data shows that unemployment rate rose to 3.6%.  While the Federal Open Market Committee (FOMC) would be encouraged to further raise rates, the decline in yearly wages by 4.6% may moderate Analysts expectation. Overall, Analysts would be on the look out for Tuesday’s CPI data for guidance on the FOMC’s next step.

 

South Africa’s GDP shrinks -1.3% in Q4 2023.

The surge in power blackouts in recent months was responsible for Seven out of ten industries in South Africa shrinking last quarter. According to official data, the country’s Q4 GDP was down -1.3% q/q worse than Analysts’ expectations. Analysts who had predicted -0.4% contraction now say that last quarters figures may be foreshadowing a recession in the second largest economy in sub-Saharan Africa. Unemployment data released last week had shown that unemployment rate nudged down to 32.7%. But the power sector crisis has had a far reaching impact on productivity in South Africa, banks have had a downward review of their Asset quality due to the loadshedding crisis.

 

Oil and Gas

 

NNPCL’s Contemplates Market Listing 

Nigerian National Petroleum Company Limited (NNPCL) Chief Financial Officer (CFO), Umar Ajiya, has revealed that the company’s initial public offering (IPO) might occur in 2024 and that the company would soon determine where it intends to list, whether a listing locally or internationally. The CFO of the national oil company stated, during a panel discussion at the CERAWEEK Energy Conference in Houston, that internal preparation to get the company ready for an IPO will be finalized by the middle of 2023. This supports our prior prediction that the national company's transition process is still in progress and that it would not be ready for an initial public offering this year. We believe that the NNPCL's listing in 2024 would be advantageous for the company, providing it with visibility on a global scale, brand marketing, price discovery, and the ability to draw in investors who would unavoidably demand efficiency and sound corporate governance. We reckon that the company's dual listing would increase visibility and access to capital, diversify the investor base, enhance liquidity, and improve valuations.

 

Oil Pipeline Explosion May Pressure Output and Dampen Investment Inflow

Following an oil pipeline explosion from an illegal oil bunkering site in Rumuekpe community of Emohua Local Government Area in Rivers State Nigeria, at least 12 fatalities have been confirmed. Analysts believe that the susceptibility of the Trans Niger Pipeline (TNP), a major liquid hydrocarbon delivery channel that was under force majeure for the most part of 2022, would have attracted a greater degree of surveillance under the ongoing security surveillance projects of the NNPC Ltd. However, it seems the pipeline is too long to be surveillance effectively. Aside from the fact that the country’s oil output may fall in the month due to the explosion, investors will remain conscious of investing in the country's oil sector. Unlike in Guyana, a country that recently discovered oil in commercial quantities, where at least 10 major oil companies, including Shell, Chevron, Petrobras, and others are looking to invest in its upcoming auction of 14 offshore oil blocks, Nigeria’s auction of 7 deep offshore blocks may garner the interest of mainly local investors as foreign investors price-in the many uncertainties in the Nigerian oil industry. 

 

Meanwhile, analysts reckon that there is an urgent need for alignment between different federal government ministries under the incoming administration, unlike the present administration. We consider it weird that the Ministry of Science and Technology and its research unit had not been an integral part of the efforts of the Ministry of Petroleum Resources and NNPC Ltd to tame crude oil theft through technological innovations. We believe that the Federal Executive Council (FEC) meeting should be an opportunity for different ministries to integrate their positions in the interest of resource optimization, increased accountability, and containing duplication.

 

Oil Associations Claim Automation Guarantees Cost-effective Distribution 

The Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Clement Isong, has called for the operators in the downstream oil sector and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) to embrace automation as part of measures to entrench transparency and eliminate fraud and corruption in the sector. Analysts believe that the automation of operations and services in the downstream sector is long overdue given the state of technological adoption in the global oil industry. Automation will play a crucial role in driving efficiency, transparency, safety, and profitability of all activities in the downstream oil sector, including refining, distribution, and marketing. 

 

For tank farm operations, automated tank systems can help in managing inventory, tracking sales, and improving customer service. Similarly, automation at dispensing stations reduces human errors and inefficiencies while promoting accurate and efficient fueling. For the regulator, automation, as it is used in Ghana (Bulk Road Vehicle Tracking System, BRVTS) and India (Automated System for Oil Movement and Storage, ASOMS), will provide an objective view of Nigeria’s fuel consumption and smuggling market by monitoring the locations, capacity, mass, quality, and fuel consumption of trucks convening petroleum products across the country. We reckon that both the operators and regulators need to invest heavily in automation infrastructure across the supply value chain.

 

Industry Challenges and Others Pressure OML 18 Erstwhile Operator 

The Nigerian National Petroleum Company Limited (NNPCL) and OML 18 Energy Limited, the non-operating Joint Venture (JV) partners in OML 18 have appointed the NNPC Eighteen Operating Limited as operator of OML 18 to replace Eroton Exploration and Production Limited (Eroton). Besides the many governance and operational challenges facing Eroton, the NNPCL based its operatorship change on the Eroton’s inability to develop some of the fields on the block, and net crude oil production declined from about 30,000 b/d to zero production from the producing fields. The 71.20% cumulate ownership equity of the non-operating partners (NNPCL, 55%, and OML 18 Energy, 16.20%) and the provisions of the Joint Operating Agreement (JOA) empower the non-operators to remove Eroton to protect the JV investment. Analysts believe the industry challenges which led to the closure of the fields’ evacuation line – the Nembe Creek Trunk Line (NCTL), the absence of proactive commitment of the non-operating partners to protect their equity interests, and the inadequate regulatory oversight over the operators added to the challenges of Eroton. In the interest of the market, analysts say the regulatory agencies should be more proactive in promoting a culture of compliance, proper audits, transparency, and close oversight to make the industry attractive to investors. 

 

Nigeria’s Oil Production on its 13Months Rising Trajectory 

Contrary to information presented by Mr. Mele Kyari, the Group CEO of the Nigerian National Petroleum Company Limited (NNPCL), who recently disclosed that the country's oil production had increased to 1.6 million barrels per day (mb/d), the Nigerian Upstream Petroleum Regulatory Commission's (NUPRC) most recent oil production status report indicates that production stood at 1.547mb/d in February 2023. According to the data, Nigeria's crude oil output increased by 3.82% month-on-month (M-o-M) from 1.258mb/d in January to 1.306mb/d in February, the highest level in 13 months. 

 

Total oil production, which includes blended and unblended condensates, increased from 1.494 mb/d in January to 1.547 mb/d in February. Analysts believe that in addition to the campaign against oil theft and vandalism, the increase in the country’s oil rig count in the January OPEC report indicates that more in-fill wells from some oil fields are currently being drilled. This is possibly related to the restart of some shut-in well and the recent auction of marginal oil fields. Analysts say, to maintain the trajectory of increasing oil production to analysts’ forecast of 1.661mb/d, the sector must internalize security surveillance and technological innovations as done in Saudi Arabia and Russia.

 

Oil Prices Fall as Investors Brace up for Steep Interest Rate Hikes

Oil prices fell on Friday, stoking the biggest weekly loss in five weeks on China’s lower-than-expected growth target, worries about the prospect of sharp interest rate hikes in the US and Europe slowing growth and hitting fuel demand, and Chevron’s CEO comment of limited spare capacity in the market. However, on account of a larger-than-expected decrease in U.S. crude stocks, better-than-expected US employment data, and expectations for recovering China’s demand, oil prices did hold steady for a few days. Analysts expect oil prices to maintain the downtrend on fear of steep interest rate hikes by monetary policy authorities and the uncertainty around the Russian oil supply.  In the local market, analysts expect the fuel queues to ease out in Abuja and neighbouring cities while activities remain stable across retail stations in other cities in the coming week. 


Fixed Income Market 


Currency Market

The naira closed the week positive, appreciating by 5bps and 1bps (W-o-W) at the Investor and Exporter FX Fixing and NAFEX FX Fixing to settle at N461.50/US$1 and N461.29/US$1 respectively(See table 1 below). 


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

Average Benchmark Yields

 

03-Mar-23

10-Mar-23

W-o-W% Change

I&E FX

461.75

 461.50

  0.05%

NAFEX ($/N)

461.33

461.29

  0.01% 

Source: FMDQ, Proshare Research


Money Market

Despite the treasury bill auction settlement this week, interbank rates drop for most trading sessions. The Open repo rate (OPR) and Overnight rate fell week-on-week by -1344bps and -1303bps to 10.50% and 10.81% respectively (see table 2 below).


Table 2: Money Market

Money Market Rate

 

03-Mar-23

10-Mar-23

W-o-W % Change

OPR (%)

   12.13

   10.50

     -13.44%

O/N (%)

   12.43

   10.81

     -13.03%

Source: FMDQ, Proshare Research


We expect interbank rates to linger around current levels as liquidity remains robust.


Treasury Bills Market 

The Nigerian Treasury bill market was quiet for most trading sessions this week, as investors tilt to the NTB primary auction. On Friday, the average benchmark yield declined to 3.67%. 


The average benchmark yield for the OMO bills stayed flat at 3.01% (See table 3 below). 


Table 3: Treasury Bills Market

Average Benchmark Yields

 

03-Mar-23

10-Mar-23

W-o-W % Chg

T. Bills (%)

  4.17

    3.67

  -11.99%

OMO Bills (%)

  3.01

     3.01

  0.00% 

Source: FMDQ, Proshare Research


The bullish sentiment should reappear next week. 


Nigeria Treasury Bill Auction Result

Taking advantage of the robust liquidity, DMO bought N324.50bn worth of treasury bills as against the N224.50bn offered at the NTB Primary auction on March 9th, 2023. Like the previous issuance, demand remained strong with subscription at N906.21bn. The rates attached to the 182-day and 364-day rose by 85bps and 1bps to 6% and 10% respectively while the 91-day rate dropped by 52bps to 1.44% (see table 4 below).


 Table 4Nigerian Treasury Bills Auction Result

Nigerian Treasury Bills Auction 

 

 

 Tenor

Amount offered (N’bn)

Total Subscription (N’bn) 

Amount Sold

 (N’bn) 

 

Stop Rate 

(%)

Previous rate (%)

 

 

91-days

        1.03

4.35

1.03

1.44

3.00

182-days

        10.55

11.31

10.55

6.00

3.24

364-days 

        224.50

890.55

312.92

 

10.00

 

9.90

Source: Commercio paper, Proshare Research 

 

FGN Bond Market

For this week, the bond market had buying interests at the short and long tenor of the curve with few selloffs. The average benchmark yield dropped by 178bps (W-o-W) to 13.28% (See table 5 below).


Table 5FGN Bonds Market

Average Benchmark Yields

 

03-Mar-23

10-Mar-23

% Change

Short Tenor

 9.71

 9.32

 -4.02%

Mid Tenor

 14.03

 13.88

  -1.07%

Long Tenor

 15.29

 15.04

  -1.64%

Source: FMDQ, Proshare Research 


We expect the market to turn bearish next week with the release of February inflation figures.

 

Lagos Free Trade Zone Issues N25bn Senior Secured Bond 

Lagos free zone company has issued an N25bn LFZC Funding SPV PLC. The 20-year fixed-rate senior guaranteed bond is the third series under its N61bn bond issuance programme. Infrastructure Credit Guarantee Company Limited serves as a guarantor for the issuance, supporting the large subscription in previous issuances. The issuance has a book-building price guidance of 14.75% - 15% and a callable option in whole or in part after 5 years from the issue date and thereafter on each payment date up to the maturity date. The coupon will be paid on a semi-annual basis while principal repayments will be amortized by equal debt service payments semi-annually each year commencing 66 months after the issue date. The offer opened on March 09, 2023, and will close on March 15, 2023, with a minimum subscription of N1,000. Analysts believe the listing of the bond on both the Nigeria Exchange Limited (NGX) and FMDQ Securities Exchange will give room for a wider range of investors. Also, the strong rating of Aaa from Agusto and AAA from GCR should attract investors. 

 

March FGN Savings Bond Interest Rates drop by 5% 

March FGN savings bond interest rates dropped to 9.465% and 10.465% for the 2-year (March 15, 2025) and 3-year (March 15, 2026) from 10.043% and 11.043% in February. The Primary auction commenced on Monday, March 06, 2023, and will close on March 10, 2023, with coupon payment dates of June 15, September 15, December 15, and March 15. Investors can subscribe with a minimum of N5,000 and a maximum of N50m. Analysts believe the excess demand from previous issuances triggered the fall in interest rates.

 

MTN’s Commercial Paper (CP) Issuance Records 125% Oversubscription 

At the Commercial paper Auction concluded on March 1st, MTN Nigeria raised N125bn against the N100bn offered. The liquidity glut, double-digit yield, and strong credit rating supported the company's large subscription. The issuance was divided into two tenors of 188-day and 267-day with 11% and 12.50% yield respectively. The Company has a rating of AAA(NG) for the long term and A1+(NG) for the short term with a stable outlook. Analysts believe the oversubscription shows strong investor confidence in the company.

 

Equity Market

 

NGX – Listed Equities

  • The Nigerian bourse ended the week on a positive note as market sentiment remained positive.  The NGXASI closed the week with a gain of 0.48% as against a 1.06% gain recorded last week. The Nigerian Exchange recorded N144.96b gain in naira terms. 
  • Year-to-date, the NGXASI closed positive at close the week with a gain of 8.87% as market capitalization settled at N30.39trn.
  • Sectoral performance across sectors was broadly positive 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 GROWTH topped the gainer’s chart with a gain of 3.60% W-o-W while AFRBVI index topped the losers’ chart with a loss of -2.04% W-o-W (see chart 1 below).

 

Chart 1: Movement of NGXASI Index Points 1st FEB. 2023 – 10th MAR. 2023

 

Chart, line chart

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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 727.42 points and 955.83 with an increase of 0.34% 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 150.82 index points from 145.86 index points recorded previous week representing an increase of 3.38%. DANSUGAR closed the week positive at 0.26%, W-o-W while DANGCEM closed the week negative at 3.47% W-o-W and NASCON closed the week flat (see table 7 below).

 

Table 7: Gote Index W-o-W Change

 

Furthermore, the Toni Index closed negative at 124.74 index points from 126.86 index points recorded previous, representing a decrease of -1.16% W-o-W UBA and AFRIPRUD closed the week positive at 4.24% and 5.93% W-o-W while UBCAP and TRANSCORP closed negative at -0.34% and -7.25% respectively W-o-W  and TRANSCOHOT closed the week flat (see table 8 below).

 

Table 8: Toni Index W-o-W Change

 

  

 

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