Nigerian stocks and Eurobonds are now taking a breather from Bola Tinubu’s blistering start to life as President with signs emerging that the 71-year old may start reversing some of his bold policy reforms that once excited the markets.
The stock market closed lower for the third consecutive day Wednesday while the country’s sovereign Eurobonds were the worst performers in emerging market credit for a second day.
Investors have gone from trading an average of N11.8 billion worth of Nigerian stocks everyday in June to an average of N5 billion in August, according to BusinessDay’s analysis of NGX data.
That’s a more than 100 percent drop, in a sign of how investor confidence has tailed off since Tinubu’s fast-paced reforms from fx liberalistaion to the removal of petrol subsidies boosted confidence in the country’s economic outlook.
Nigeria’s Eurobonds have also gone from world beaters to big losers. After rallying through June, the government’s dollar bonds are selling-off again.
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Eight Nigerian bonds in Bloomberg’s EM Sovereign Total Return Index featured among the 20 worst performers globally on Wednesday. Notes due Sept. 2033 were down 1.1 cents on the dollar to 75.19, the lowest since June. The 2033 bonds have lost value for 10 of the past 13 days.
The renewed sell-off in Nigerian stocks and Eurobonds comes on the heels of concerns about Tinubu slowing down and even reversing some of his policy decisions like the costly petrol subsidies he removed in June.
Tinubu said the government will suspend further increases to petrol prices after the product’s landing cost, now at N651.75 per litre, surpassed the average retail price of N617 per litre. The exchange rate which is a key factor in determining the price of petrol has depreciated sharply since the bold move to float the currency in June but has come under even more pressure in the last one week.
According to some sources, Nigeria’s experiment with enthroning a petrol price regime anchored on the people paying for the fuel they use, is ending, at least temporarily.
It is confirmation, say some, that the new government of President Bola Tinubu had not fully estimated or under-estimated the consequences of allowing the Naira to float. In the words of a source “It is a humiliating policy reversal for the new president.”
Tinubu had without fanfare announced on his inauguration day that the petrol subsidy was gone and days later the state oil company, NNPCL published new petrol prices for key cities in Nigeria.
On July 18, the same NNPCL further adjusted petrol price upwards as with the company’s CEO Mele Kyari saying, “we have the marketing wing of our company.
“They adjust prices depending on the market realities. This is really what is happening; this is the meaning of making sure that the market regulates itself so that prices will go up and sometimes they will come down also. This is what we have seen, and in reality, this is what (how) the market works,” he said.
However, Kyari was forced to eat his own words on Monday when the NNPCL was compelled to say it will not be raising prices of petrol despite the adjustment in the rate of the Naira to the dollar as well as the jump in international crude prices which would have taken petrol pump price to near N1,000 a litre in some cities in the country.
The first signs that there was trouble for the government came on Monday when the acting governor of the Central Bank was seen leaving the villa where he had met the president who had come under severe pressure to do something about the Naira exchange rate.
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The naira has fallen sharply against the dollar in the parallel market in the last one week after it emerged that the CBN has less firepower in external reserves than it claimed to have previously. In its first financial accounts since 2015, the CBN revealed data showing reserves were closer to $15 billion than the $33 billion widely publicised.
The naira fell to a record low of N950 in the parallel market even though it has now pared some of those losses, trading at N910 on Wednesday.
Earlier Tuesday, the social media platform of the state owned television NTA released a message to say the presidency had assured Nigerians that there will be no increase in the petroleum products price.
Later Tuesday a formal statement was issued by the government saying President Tinubu had said there would be no fresh increase in the pump price of petrol, adding that his administration would maintain the current price without reintroducing a subsidy.
The president, speaking through Ajuri Ngelale, his special adviser on media and publicity, also said that his administration was working on clearing the inefficiencies in the supply chain to ensure that the current pump price is sustained.
In an apparent reference to the threats by the Nigeria Labour Congress (NLC) to embark on an indefinite strike from August 14, 2023 should there be a fresh increase in fuel pump price, President Tinubu assured that his administration would not allow fuel pump price beyond the current levels.
He declared that the “country can maintain the current pump price of petrol without necessarily reversing the fuel subsidy removal policy.”
Contrary to this claim, there will be subsidy only that the government is not calling it what it is and it is not saying who will bear the cost given there is no budget cover for the payment.
“After rallying sharply on the back of Tinubu’s ambitious reform shift, the reality has set in that the next stage of reforms is likely to be much more difficult,” Patrick Curran, senior economist at Tellimer Ltd. in London.
“The FX liberalization process has hit a bump in the road with an overly loose monetary policy stance, continued monetization of the budget deficit and re-emergence of a large parallel-market premium,” Curran said.
The gap between the official rate and parallel market rate has re-emerged after narrowing in the first days of the reform in June. The official rate closed stronger at N755 per dollar on Wednesday while the parallel market rate also strengthened to N910/$, bringing the gap to N155 per USD.
The NNPCL’s $3 billion loan from the Afrexim bank is however expected to bring some relief to the naira in the short-term but investors are curious to see a more sustainable approach to boosting supply in the market.
