The Nigerian Economic Dashboard @ 170223

Nigeria Economy

CBN Denies Directive Allowing Banks to Accept Old N500 and N1000

The Central Bank of Nigeria (CBN) on Friday, denied directing Banks to collect the old N500 and N1000 notes as contained in several media reports that surfaced on Friday. The news media had been awash with a supposed CBN directive sanctioning the collection of the old banknotes by banks as the February 17 deadline within which the old N500 and N1000 notes were meant to be deposited in CBN Branches across the country lapsed. Meanwhile, President Muhammadu Buhari had on Thursday directed that the old N200 bank notes be returned to circulation to address the cash crunch challenges which have adversely affected commerce and threatened social stability. In his early morning address on Thursday, he said that the N200 notes would be allowed to circulate as legal tender with the new N200, N500, and N1,000 banknotes for another 60 days to April 10, 2023, after which, the old N200 note would cease to be legal tender. Analysts believe that the decision to extend the use of the old N200 notes until after the elections suggests that the Federal Government (FG) has implicitly given up on supporting the vote-buying objective of the policy.  Although the President in his remarks stated that the policy would serve to diminish the influence of money politics, Analysts argue that the old N200 notes would serve the same purpose of inducing voters albeit with a slightly higher cost of carry relative to the higher denominations. Despite the President’s address, violent protests and pockets of conflicts have erupted in Edo, Oyo, and Lagos states, and Analysts fear that the situation may spread to other parts of the country as the cash crunch persists. 

Repatriation of $954,807 Loot again raises the question of Transparency.

The United States has agreed to repatriate a sum of $954,807 allegedly looted by former Bayelsa State Governor Diepreye Alamieyeseigha. According to the Ministry of Justice, the $954,807.40 derived from properties in Maryland and Massachusetts in the U.S. have been earmarked for funding various sectors of the economy, including the government’s poverty alleviation schemes. The government had disclosed that over US$1bn had been recovered as looted funds by the present administration in the last seven and half years but Analysts note have not only has there been inconsistencies in the figures presented by the government but the utilization of such recovers loot to fund such social intervention programs (such as NPower, and Trader Money) necessitates a holistic impact assessment. Analysts believe that such looted funds would be better utilized were an Asset Recovery Management Agency to be established such an agency would also provide credible statistics and data on the recovery of such funds.

Buhari Attends AfCFTA-themed AU summit in Addis Ababa

President Muhammadu Buhari departed Abuja Thursday for Addis Ababa, Ethiopia, to participate in the 36th Ordinary Session of the Assembly of the African Union (AU) themed: Acceleration of the African Continental Free Trade Area (AfCFTA) Implementation. President Buhari will participate in three high-level meetings: on peace and security, climate change, and the political situation apart from attending an extraordinary summit of the Authority of Heads of State and Government of ECOWAS on the sidelines of the summit. Analysts say that  Nigeria’s development of customs infrastructure needed to implement the AfCFTA obligations is slow. Infrastructure and systemic capabilities for trade facilitation is integral to the implementation of the AfCFTA.

Global Economy

US inflation eases to 6.4% in January 2023 amid sticky prices.

US inflation rate fell marginally in January to 6.4% from 6.5% in December 2022. In January, inflation increased by 0.5% month on month, compared to the 0.1% recorded earlier. The Fed's strong monetary policy tightening in 2022 actually assisted in lowering inflation rates from a recent peak of 9.1% in June 2022. High gas prices, increased rent, other housing costs, and food price hikes such as the 8.5% increase in egg prices all contributed to the surge.  Analysts stress that despite the decline from peak inflationary figures, it has only taken small steps toward meeting the Fed's 2% target. But overall, declining Inflation, rising retail sales, strong labor market numbers, and a 3.4% unemployment rate characterized the world’s largest economy in January. Yet, if the Fed continues to push inflation down, unemployment will rise, cooling the labor market as pay growth slows.

Japan’s Q4 2022 GDP figures fall short as export growth weakens.

The Japanese economy rose by 1.1% to ¥546trn in 2022, down from 2.1% in 2021. Growth forecasts were lower than expected due to higher inflation, a drop in business investment, and weaker export demand.   However, the expansion was aided by consistent private consumption demand and more inbound tourists, resulting in a 0.6% annualised growth rate throughout the quarter. Analysts expect lower industrial demand to linger throughout the year, while other advanced economies are expected to enter a minor recession. The reopening of the border will ideally boost tourism demand and strengthen the economy, while Japan's growth may decline further in 2023 due to more deteriorating export growth.

Hike in India’s food prices spurs inflation in January 2023

Heightened inflationary pressures in India caused a 13% appreciation in CPI from 5.72% in December 2022, to 6.5% in January 2023.   This is because of the hike in food price inflation as prices of cereals, milk, and eggs appreciates as well as the 6.2% rise in household goods. January figures crossed the reserve bank’s 6% targeted limit, and the bank has already taken moves to tighten monetary policy rates as core inflation remained essentially steady, falling to 6.09% in January from 6.10% in December. The reserve bank is projected to continue tightening the repo rate to restrain demand, increasing the cost of borrowing thereby lowering inflationary pressures in Q1.

Oil and Gas 

Brent had a weekly decline of -0.93% (see Table 1 below).

Metals

Gold declined by -2.30% while Silver declined by -4.47% W-o-W (see Table 1 below).

Agriculture

Cocoa prices advanced +8.37% W-o-W. 

Corn prices advanced by +0.15% W-o-W and Sugar prices advanced by +1.08% (see Table 1 below).

Table 1: Commodity Prices

*Data for the 17^th of February 2023 is as of 05: 09 pm (Nigerian Time)

Commodities

Nigerian Farmers Blame Naira Scarcity for Low Prices

Nigerian farmers have been among those hit the hardest by the problems associated with the naira redesign policy and currency scarcity. After returning the cash on hand to the banks, they found it difficult to access new notes for daily transactions. Many farmers require cash to pay labourers employed to cultivate the farm or harvest crops, as they only accept cash. Farmers also have loans to settle and find it difficult to accept transfers to their accounts as they feel it would be difficult to get the cash to the creditors. This has forced them to sell their produce at a reduced price to prevent complete loss even after spending high on inputs. Fertilizer prices have not come down in Nigeria even as Natural gas prices have dropped globally by about 80% so farmers still pay a lot to get fertilizer even though there are 3 major fertilizer companies in Indorama, Dangote, and Notore. With the possibility of prices of commodities dropping down as farmers try to clear out stock before they get spoilt, Nigeria could witness a drop in the number of farmers in the country as they look to other income-generating sources, thus making it more difficult to meet the self-sufficiency goal for the country.

Nigeria Dithers in Global Health Recommendations on Trans-fat and Salt Consumption

The Nigerian Health Foundation (NHF), cardiologists, and nutritionists have advocated a review of national guidelines for food production over worries of rising cases of cardiovascular diseases in the country, especially hypertension. The World Health Organisation (WHO) reported that 76.2 million Nigerians are living with different levels of high blood pressure. While eliminating trans-fat seems to be the easiest method to reduce the number of hypertensive citizens, doctors also decried excessive salt consumption which leads to hypertension, heart failure, stroke, and heart attack. According to studies of cardiovascular diseases in Nigeria, high levels of salt consumption from homemade foods. Medical Experts have called on consumers to be more conscious of the food they consume to increase to avoid long-run health challenges.

Will the EU’s Deforestation Bill Have Side Effects

The EU passed a bill to place a ban on imports of goods linked to deforestation. That bill picked goods such as soy, palm oil, cattle, coffee, cocoa, timber, rubber, and derived products. While they claim this is a move against global deforestation and forest degradation which could help reduce greenhouse gases, Malaysia and Indonesia claim that the EU is being protectionist by trying to ensure that they cater to uncompetitive EU Farmers. Malaysia and Indonesia have sent a trade mission to the EU to discuss the terms pointing out that they have kept to regulations on the palm oil industry and agreed about preserving the environment and clearing land for plantations. While Indonesia’s Coordinating Minister for Economic Affairs, Airlangga Hartato has indicated that an export boycott would not be used to pressure the EU, a review of imports from the EU, or a slowing down in the trade are on the table. The EU’s ban won’t place a problem for these countries as the volume of exports to the EU has decreased by 40% in the last seven years dropping by 9.4% in 2022 but might put a strain on prices of commodities such as palm oil from Indonesia and Malaysia or Soy from Brazil as consumers in the EU might have to brace up for higher prices of these products especially after facing higher prices of some commodities in 2022.

Nigeria Trapped in A Cowpea Dilemma 

Nigeria is the highest producer of cowpea in the world but it is equally the highest importer in Africa spending about N16bn on imports. Cowpea is a staple in Nigeria which is why the demand is high but different issues have caused production to underperform. Generally, the Nigerian climate is not ideal for the growing of cowpeas. Cowpeas require hot and dry conditions while not tolerating excessively wet conditions. The soil quality has also been a problem for farmers who want to grow crops. According to the IITA, the ideal soil would be sandy, well-drained loam soil. Then the problem with pests and disease, which in recent times has reduced given the new variant of cowpea (Pod-Borer resistant cowpea) which has been said to have an early maturity, is resistant to pod borer and has the potential of high yields.

Oil and Gas 

Nigeria’s Oil Output Rebound Remain in Doubt 

Nigeria's ability to reach its estimated 2023 budgeted oil output of 1.69 million barrels per day (mb/d) and its 1.8mb/d OPEC quota is in doubt. Official data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) shows crude oil output increased, albeit slightly, by 28,000 b/d to 1.258 mb/d in January '23 from 1.235 mb/d in December '22, contrary to early estimates by Refinitiv Eikon and Reuters Survey that Nigeria's oil production in January stagnated at 1.2 mb/d. Total production—which includes condensates—rose from 1.414 mb/d in December ‘22 to 1.494 mb/d as a result of higher output from the Brass, Escravos, and Odudu terminals month over month offset by lower output from the Bonny, Qua Iboe, and Forcados terminals, among others. We believe the inclusion of condensates in the output increases optimism of fulfilling the country's oil output targets, despite the meager growth in crude oil production dampening hopes of a comeback in production level.

OPEC’s MOMR Confirms Rise in Nigeria’s Oil Output

The Organization of the Petroleum Exporting Countries (OPEC) Monthly Oil Market Report (MOMR) for February 2023 raises optimism for rising oil production in Nigeria, in contrast to our uncertain outlook for Nigeria's oil production in 2023 based on official data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) on January oil output. OPEC's secondary sources, a more reliable gauge of Nigeria’s output by foreign investors, reveal that the country's crude oil output increased by 65,000b/d from 1.271mb/d in December '22 to 1.336mb/d in January 2023, while OPEC direct source data remains as reported by NUPRC. 

The latest report showed that the nation's rig count, which measures the level of activity in the oil and gas industry, grew by one unit from 12 units to 13 units, adding to the sense of confidence. We attribute the increase in crude oil output to a mix of surveillance contracts, aerial monitoring from a control assessment center, and the whistleblower’s policy. However, we question if the surveillance contract, which is estimated to cost N48 billion a year, will be sustainable, although we believe there are prospects in tech-enabled monitoring and modernized pipeline infrastructures, unlike the existing aged and abandoned infrastructures.

Fuel Scarcity Persists Despite Pricing and Supply Agreement with Marketers

The availability of petrol directly affects the transportation sector and other essential sectors like logistics, healthcare, and education that rely heavily on transportation and power generation from petrol (also known as PMS). As a result, the country's transportation, logistics, and other commercial activities are less productive during petrol scarcity and pricing inefficiency. Following a series of resolutions to ease the scarcity and pricing differentials, some marketers are still selling the product above the set price of N184 per litre, even after the monitoring exercise of the Minister of States for Petroleum Resources, Timipre Sylva, during his recent visit to Lagos. Analysts contend that since all parties involved reached an agreement on supply channels and pricing structure weeks ago, all marketers should have sold off all old stock. Marketers selling above the set price is therefore an attempt to take advantage of the system and reduce the effectiveness of the downstream oil business.

Oil Sector Stakeholders Observe that Better Database Management Could Promote Accountability

Nigeria's oil production, inventory, and distribution have suffered from inconsistent data, financial losses, problems with regulatory compliance, erroneous inventory management, and ineffective operations as a result of the oil and gas sector's unreconciled data. The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) is required by the Petroleum Industry Act 2021 (PIA) to regularly reconcile data on crude oil terminal receipts, exports, refinery delivery, oil and gas transportation, and other statistics that are relevant to the Federation because they have a direct impact on the remittance of royalties. 

Although long overdue, the NMDPRA plans to create a comprehensive and common database to determine the best practices for the transportation and bulk storage of crude oil and natural gas and the volume evacuated through trucking, barging, and pipelines. This will be done in collaboration with agencies like the CBN, the upstream regulator, and the Nigeria Extractive Industries Transparency Initiative (NEITI). The database also includes a reconciliation component that is anticipated to offer insightful information for NEITI audit, OPEC survey, and Joint Oil Data Initiative. The database, according to analysts, can be used by industry regulators to strengthen regulatory supervision, enhance data quality, promote transparency, and stop leaks in the volume of the nation's consumption while operators boost operational effectiveness and better manage inventory.

Oil Prices Fall on Mounting speculation over Fed Policy

Oil prices fell at the end of the week on concerns that the Federal Reserve would further tighten monetary policy to combat inflation, which would threaten fuel demand, as well as refinery maintenance in Asia and the US, the US's proposed release of 26m barrels of oil from its Strategic Petroleum Reserve (SPR), and a significant buildup in US crude stockpiles. Recovering Chinese demand continues to be the lone driving force holding oil prices steady. Analysts expect that, barring any potential supply disruption, the ongoing buildup of US inventory and the danger of an economic slowdown brought on by monetary tightening will keep oil prices lower in the coming week. In the local market, we anticipate that the nation's oil regulator will strengthen oversight of erring oil marketers who sell petrol beyond the regulated price of N184 per litre in the coming week.

Fixed Income Market

Currency Market

The cash crunch has triggered a demand for the dollar, the naira depreciated to a record low of 780/US$1 on Thursday and settled at 770 on Friday at the parallel market.

However, at the Investor and Exporter FX fixing (I&E), the naira saw a week-on-week appreciation of 0.05 to settle at N461.25/US$1 while at the Nigerian Autonomous Foreign Exchange (NAFEX) fixing, the naira depreciated by 0.01 to N461.25/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

The FGN bond primary auction mopped up liquidity this week, pushing interbank rates up. On Friday, the Open repo rate (OPR) and Overnight rate settled at 17.13% and 17.81%, a week-on-week rise of 5935bps and 6016bps respectively  (see table 3 below).

Table 3: Money Market

Source: FMDQ, Proshare Research

Interbank rates should remain at current levels in the absence of any significant inflow.

Treasury Bills Market 

The Treasury Bill market diverted from the bullish run this week, with selloff sentiment across all maturities as investors react to January inflation figures which rose to 21.82%. The average benchmark yield rose significantly to 4.24% by 15542bps week-on-week.

Similarly, the OMO bill’s average benchmark yield grew by 19225bps week-on-week to 3.77% (See table 4 below). 

Table 4: Treasury Bills Market

Source: FMDQ, Proshare Research

We expect some cherry-picking next week.

FGN Bond Market

The FGN bond market reversed the buying interest seen in the previous week. Investors sold off both at the short and mid-to-long tenor, raising the average benchmark yield to 13.49%, a week-on-week rise of 67bps (See table 5 below).

Table 5: FGN Bonds Market

Source: FMDQ, Proshare Research 

Selloffs should persist as liquidity remains depressed.

FGN Bond Primary Auction 

Contrary to the bond offer of N360bn for the February FGN bond auction, the DMO sold N770.56bn as investors’ subscriptions remained strong at N992.11bn. Across the four tenors, only Apr 2032 had a low subscription of N78bn and an allotment of N51.12bn while others had above N200bn allotment. The rates in 2028, 2032, 2037, and 2049 maturities settled at 13.99%, 14.90%, 15.90%, and 16% respectively (see table 6 below). 

Table 6: Nigerian Bond Auction Result Auction

Source: Debt Management Office (DMO)

FX Challenges Could Delay Bank’s Loan Repayment 

As the country suffers an acute foreign exchange shortage, Moody’s rating says that the CBN might delay repayment of foreign exchange to domestic lenders. This comment was made on the basis that $10.4bn with the central bank in the form of derivative transactions including swaps and forwards might experience some difficulties due to the current shortage which may temporarily prolong those contracts beyond their original maturity date. The possible payment delay has caused lenders to reduce their derivative contracts and amounts placed with the central bank by cutting the tenor of such contracts to 12 months from 24 months. The delay in repayment could lead to banks fixing their foreign-currency shortages and could constrain their ability to repay their foreign-currency liabilities. Previously, the rating company had linked some banks’ credit profiles to their country’s sovereign risk as a significant portion of their total assets is in sovereign debt holdings. The delay in government repayment will directly slow down banks’ payments to their foreign borrowers. Analysts believe this comment could trigger a selloff sentiment in the FGN Eurobond and the bank’s unsecured Eurobond, as investors worry about debt sustainability. 

Julius Berger’s N30bn Commercial Paper (CP) Oversubscribed  

Julius Berger Nigeria Plc has completed its N30bn series 1 and 2 Commercial Paper (CP) issuance. The 14.00% and 15.00% yield for the 182-day series 1 and 267-day series 2 attract investors to the issuance. The CP issuance was 2.3x subscribed from a wide range of investors including pension fund administrators, asset managers, insurance companies, banks, and high net-worth individuals. The company intends to use the fund to meet its short-term working capital as the company implements its strategic initiative to diversify economically significant sectors starting with the launch of the cashew processing business. Analysts believe the low yields on risk-free instruments such as 1.80% for the 182-day at the last primary auction, have made investors opt for unsecured instruments with higher yields which lessens the impact of elevated inflation. 

FG Project Debt servicing to Revenue to drop to 82% in 2023.

The Federal Government has projected to spend 82% of its revenue on interest payments in 2023. The projections suggest an improvement in debt servicing to the revenue which grew to 96.3% in 2022 from 86.1% and 87.8% in 2020 and 2021 respectively. According to IMF, the country’s external debt (including the private sector) is expected to rise to $121.6bn which suggests a near-term downside risk of high debt-servicing costs with the country’s inability to benefit from the global high oil prices in 2022. Analysts believe the optimistic projection by FG was built on the expectation that revenue will grow with the estimated 1.69mbpd oil production for the 2023 budget and subsidy removal. However, analysts doubt the possibility of the 82% debt servicing to revenue in 2023 as domestic borrowing has increased from N225bn monthly bond issuance to N360bn and the securitization of ways and means will bring total debt to N77trn. The large debt rises interest payments while oil production which contributes 80% of revenue remains at 1.26mbpd. 

Equity Market

NGX – Listed Equities

• Year-to-date, the NGXASI closed positive at close the week with a gain of 4.98% as market capitalization settled at N29.31trn.
• Sectoral performance across sectors was flat W-o-W. At the close of trading on Friday, eight (8) sectors closed positive while eight (8) sector closed negative while one (1) sector closed flat W-o-W. NGX GROWTH topped the gainer’s chart with a gain of +7.15% W-o-W while NGX MAIN BOARD index closed negative with -2.07% W-o-W (see chart 1 below).

Chart 1: Movement of NGXASI Index Points 1^st FEB. 2022 – 17^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 712.28 points and 935.94 with an increase of 0.94% respectively (see table 7 below).

Table 7: NASD W-o-W Change

 Source: NGX, Proshare Research

Gote And Toni Index

Gote Index closed the week flat at 141.06 index points from 141.06 index points recorded previous week. DANSUGAR closed the week positive with 0.59% W-o-W while NASCON  closed the week negative with -3.57% W-o-W while DANGCEM closed the week flat WoW ( see table 8 below).

Table 8: Gote Index W-o-W Change

Furthermore, the Toni Index closed negative at 124.80 index points from 124.02 index points recorded previous, representing a decrease of -0.63% W-o-W UBCAP closed the week positive at 0.66% W-o-W while TRANSCORP close the week negative at -6.98% while  AFRIPRUD, UBA and TRANSCOHOT closed the week flat (see table 9 below).

Table 9: Toni Index W-o-W Change

Analysts Expectation:

Analysts expects a bearish market as cash scarcity and election uncertainty would deter investors in the coming week

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