BusinessDay
Nigeria's leading finance and market intelligence news report.

The Week Ahead

Railway Project: Lagos to divert traffic at Brewery, Ijora from Sunday, July 4th 

The Lagos State Government has announced the diversion of traffic flow at Brewery and Ijora Level Crossings for the railway modernisation project from Sunday, July 4 to August 1.

The construction is in line with the Nigerian railway modernisation project, Lagos-Ibadan section, with an extension to Lagos Port at Apapa.

According to the News Agency of Nigeria (NAN), this is contained in a statement issued by the Lagos State commissioner for transportation, Frederic Oladeinde, on Friday, July 2, 2021, in Lagos.

Oladeinde revealed that the construction company, China Civil Engineering Construction Company (CCECC) Nigeria Ltd. would commence asphalt and drainage works on the first lane from July 4 to July 18 and then afterwards, proceed to the second lane from July 18 to August. 1.

He said, “a counter flow will be created on the lane that is free when rehabilitation works are ongoing on the other to enable motorists to ply the route and reach their various destinations without much difficulty. We urge road users to comply with the Lagos State Traffic Management Authority (LASTMA) to minimise inconveniences that may be experienced while the construction lasts.’’

Read Also: Pulling down the railway tracks

The Lagos State government had recently temporarily closed some roads for construction work as part of the Nigerian Railway Modernisation project. Some of the roads earlier closed include those at Agege, Iganmu, Apapa dockyard, Ilupeju and so on.

FG to fine passenger airlines $3,500 for not complying with new COVID-19 protocols from the coming week

The Federal Government is set to fine airlines the sum of $3,500 per passenger or ban them from flying in Nigeria if they fail to comply with its new COVID-19 pre-boarding requirements.

This was disclosed by the Chairman, Presidential Steering Committee, (PSC), Boss Mustapha, on Wednesday.

One of the pre-boarding requirements, according to PSC, is that incoming passengers must now perform a COVID-19, Polymerase Chain Reaction (PCR) test three days before boarding.

Mustapha said, “The test detects the presence of a virus if you are infected at the time of the test. The test could also detect fragments of the virus even after you are no longer infected. This is part of the new reviewed travel restrictions in the country. Passengers must perform a COVID-19 PCR test not more than three days (72 hours) before boarding. The PCR test done more than 72 hours before departure is not valid and the person will not be allowed to board. Rapid antigen or antibody tests are not acceptable; only PCR tests can be used for this purpose.”

“Test validity commences from the time of sample collection. For passengers with multiple connections before arrival in Nigeria.”

According to him, passengers must bring along an electronic or hard copy of their COVID-19 PCR test for presentation at the departure airport and upon arrival in Nigeria. The PSC chairman also said that foreigners without a PCR test would be deported.

“Passengers who are Nigerians or holders of a permanent residence permit will be allowed entry. However, passengers, who visited Turkey, Brazil, India, South Africa within 14 days, will be denied entry into Nigeria.”

Read Also: Again, Emirates bans Nigeria flights, extends South Africa route suspension

OPEC’s last-minute brawl halts oil price rally while COVID-19 Delta variant supports gold prices  

The black liquid hydrocarbon drifted slightly lower in London at the last trading session of the week after recent fundamentals reveal the Organisation of the Petroleum Exporting Countries and allies (OPEC+) are not all on the same table regarding output levels, amid surging global demand.

Oil prices fell 2% to a one-week low on Monday after hitting their highest since 2018, as a spike in COVID-19 cases in Asia and Europe put a break on the rally before OPEC+ Meeting. 

Prices on Wednesday extended the previous day’s small gains after an industry report showed U.S. crude stockpiles fell last week, overriding trader and investor concerns about transportation curbs in some countries as COVID-19 cases surge. On Thursday, oil prices rose roughly 2% on indications that OPEC+ producers could increase output more slowly than expected in the coming months while rising global fuel demand causes supply to tighten.

Prices inched lower on Friday after OPEC+ ministers delayed a meeting on output policy as the United Arab Emirates baulked at a plan to add back 2 million barrels per day (BPD) in the second half of the year. Brent had a weekly growth of 0.04%. 

Gold appreciated by 0.17% while Silver also inched up by 1.27% W-o-W 

In the coming week, oil prices are expected to be mixed as OPEC+ seeks agreement on oil output policy after initial talks end in disarray. The spread of the Delta variant is likely to pare gains in the near term.

Gold prices are expected to be mixed in the coming week, as the dollar strengthens, and while the spread of the Delta variant is expected to support gold as it can delay economic recovery.

Currency Market

The currency market was bearish this week at the bureau de change (BDC) market while it appreciated slightly at the official window.

It depreciated against the US dollar by +1.01%, appreciated against the British Pound by -0.56% while it remained flat against the Euro on a week-on-week (W-o-W) basis at the BDC window. 

At the I & E FX window, the Naira appreciated week-on-week by +0.10% and +0.14% at the NAFEX window. 

The Naira closed the week at $/N411.25 at the I&E FX window, at the NAFEX (spot market) it closed at $/N410.42.

More of the same is expected in the week ahead as the Naira is anticipated to continue to hover around N406/$1-N412/$1 threshold in the NAFEX window.

Money Market

Money market rates continued their double-digits trend last week, however, on a W-o-W basis, both overnight rates and open buyback fell significantly.

At the close of the trading session last week, funding rates fell. Open Buyback (OBB) closed at 12.00% while Overnight (O/N) rates closed at 12.50% indicating a W-o-W decline of -45.45% for OBB and -45.65% for O/N rates.

Funding rates are expected to continue their double digits trend in the coming week in the absence of any maturity.

Treasury bills

The Treasury Bills Market started the previous week on a bullish note, with the average benchmark falling by 38bps. Although the bullish sentiment was not maintained throughout the week.

At the close of the market on Friday, average benchmark yields for T-bills fell by -4.71% to 6.58% while OMO bills rose marginally by +1.87% W-o-W to close at 9.92%, CBN’s Special Bill fell by -2.46%.

The CBN sold N163.61 billion worth of notes against N81.72 billion offered at its NTB auction this week. The 91-day, 182-day & 364-day notes were allotted at 2.50%, 3.50%, & 9.15% respectively. Compared to the previous auction, rates on the 91-day & 182-day were unchanged while the 364-day paper fell slightly by 25bps.

We expect activity next week to be dictated by the market liquidity situation. 

FGN and Euro bonds market

The Bond market opened in a relatively bullish trend at the start of the week as demand was seen across the board and continued for most of the trading session in the week.

At the close of the week, the overall market was bullish with buying interest seen across the board.

The overall average benchmark yields closed at 9.62% for the week which fell W-o-W by -2.17%.

The relatively weak trend in the Eurobond market persisted last week, as renewed covid-19 concerns coupled with the rising US inflation, continue to dampen demand across the board.

Read Also: Nigerian states in more trouble as oil prices rise

The relatively weak trend in the Eurobond market persisted last week, as renewed covid-19 concerns coupled with the rising US inflation, continue to dampen demand across the board.

We expect market sentiment to remain soft as inflation concerns continue to linger.

Nigerian Capital Market

The Nigerian bourse closed the previous week on a positive note inching up by +1.47%. The Nigerian Stock Exchange gained N292.39bn thus, year-to-date return moderated to -5.11%.

Sectoral performance across sectors tracked was significantly bullish last week as the NSE Consumer Goods was the highest gainer for the week with +5.15% while NSE-Oil and Gas recorded the highest decline with -1.05%. NSE-IND, NSE Pension, NSE-30 and, NSE Banking closed the week positive with +2.10%, +1.88%, +1.89%, and +1.34% respectively.

In the coming week, we expect the possibility of sustained bargain hunting as investors look to take advantage of good bargains, however, press releases from listed companies and other macroeconomic developments are likely to impact investors’ decisions.

In addition, we expect investors to monitor the movement of yields in the fixed income market.

The Nigeria economy in retrospect

The Minister of Finance, Budget, and National Planning disclosed on Thursday at the presentation of the draft for the 2022-2024 Medium Term Expenditure Framework and Fiscal Strategy Paper that the Federal Government had spent 92.7 % of the prorated budget, which amounts to N4.8tn. Of which, N1.8tn an equivalent of 37.5%was released for debt servicing, while N1.5tn (31.25%) was spent on personnel cost, and N973.13bn (20.2%) was spent on capital projects. Also at the event, the minister disclosed that the government would spend up to N900bn on petrol subsidy in 2022.

The Revenue Mobilisation Allocation and Fiscal Commission have disclosed that it would soon commence the review of the allocation formula applicable to the revenue retained in the Federation Account. 

The review would begin with the vertical sharing formula which shows the proportion of revenues allocated to the three tiers of government. This will be followed by the horizontal formula which addresses sharing among states and local governments. An official of the commission concluded that whatsoever the commission fixes are final and cannot be surpassed.

According to data obtained from the Central Bank of Nigeria (CBN), banks’ credit to Nigeria’s private sector increased by +4% (N1.29 trillion) in Q1 2021 to reach N31.44 trillion in Q1 2021. This is coming on the back of the bank’s continued effort to encourage lending to the real sector to stimulate Nigeria’s economic growth. Meanwhile, credit advanced to the public sector reduced by N410.7 billion in the review period. A further breakdown of the figures reveals that while total credit to the economy rose by+2% (N880.65 billion) in Q1 2021, from N42.55 trillion as of December 2020 to N43.44 trillion at the end of Q1 2021. Meanwhile, credit allocation to the government declined by -3% (N410.62 billion) from N12.4 trillion to N11.99 trillion.

The federal government stated in the week that electricity subsidy has been reduced by N20bn per month. This is following record-high tariff collections of N65bn in the December 2020 cycle up from an average of N39bn).  

The Minister of Power, however, stated that the Federal Government still paid over N50bn monthly to subsidise electricity supply in the country. You would recall that the International Monetary Fund had in its ‘Resilience through reform’ report expressed concern over the subsidies in Nigeria.

Group managing director of the Nigerian National Petroleum Corporation, Mele Kyari, disclosed on Tuesday that the price of petrol should be more than N280/litre which is the price of Automotive Gas Oil(diesel). PMS which unlike diesel is subsidized by the government currently sells for N162/litre. According to the NNPC Group Managing Director, AGO (diesel) should normally sell for above the price of PMS.

The National Pension Commission PenCom announced on Wednesday that the Federal Government has approved payment of outstanding accrued pension rights for verified and enrolled retirees of treasury-funded MDAs that retired but are yet to be paid their retirement benefits, as well as the backlog of death benefits claims due to beneficiaries of deceased employees of treasury funded MDAs.

In keeping with the Pensions Reform Act (2014), the Federal Government is required to contribute the payment of the 10% rate as an employer under a pension contribution for its employees, while the employees contribute 8%).

On Monday, the landing cost of Premium Motor Spirit being imported into Nigeria surged by more than 60 percent between December 2020 and mid-June this year. From an average of N143.60 per litre in December, the landing cost of petrol rose to N231.98 per litre on June 16 this year on the back of the rally in global oil prices and the depreciation of the naira against the dollar. 

On Tuesday, the price of Automotive Gas Oil, also known as diesel, jumped to N280 per litre amid the recent increase in global prices and naira devaluation.

The Senate on Thursday passed the Petroleum Industry Bill and approved that three percent of the profit made by oil firms should be shared to host communities. The Senate also approved that 30 percent of profits accruing from oil and gas operations by the Nigeria National Petroleum Corporation would be set aside for exploration of oil in the frontier basin.

Fiscal authorities have, despite dwindling earnings, maintained an aggressive posture. The government is making disbursements under the Special Public Works Programme and has recently announced its plan to expend $1bn on the construction of 3 major highways in the country, all to reflate the economy. 

With the unemployment rate at 33%, analysts are concerned about whether or not jobs would be growth elastic, especially as job creation is the medium through which growth impacts households and individuals. Similarly, there are concerns about the discounting effect associated inflation could have on purchasing power.

On the monetary side, the CBN in collaboration with RIFAN recently sought to reduce the food price level by supplying 27,000 metric tons of paddy rice to millers across the country. There have been fears that food prices were, in the month, on the rise with increases recorded in the prices of staples, spices, and condiments. The MPC would consider the next inflation figures for June 2021 to determine whether MPR should be raised when it meets in July.

In the external sector, we have continued to see net imports rise as well as a reduction in government earnings amidst OPEC production cuts. This critically constrains CBN’s capacity to defend the Naira against the Dollar in the long term.

On the global scene, stimulus packages have continued to boost recovery although the Delta variant of the COVID-19 infection has now been reported in 85 countries. Full economic recovery, therefore, depends on whether the positive sentiments and improved consumer confidence earlier seen are sustained.

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