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The Week Ahead

Sugar imports restricted to Dangote, BUA and Golden sugar from the week ahead

The apex bank said only BUA Sugar Refinery Limited, Dangote Sugar Refinery Plc and Golden Sugar Company can be allowed to import sugar into the country through any of the official foreign exchange sources.

The decision by the CBN is because of the reasonable progress made by the 3 firms in achieving backward integration, a programme introduced by the Federal Government, in the sector.

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This disclosure was contained in a circular with reference number TED/FEM/PUB/FPC/01/006, issued on Friday, July 16, 2021, and signed by CBN’s director, Trade and Exchange Department, Dr Ozoemena Nnaji.

The CBN in the circular to all authorized dealers said that henceforth, no company outside the aforementioned 3 firms should be allowed to open Form M or allowed to access foreign exchange from the foreign exchange market to import sugar into the country without its prior or express approval.

It can be recalled in April 2021, the CBN governor, Godwin Emefiele, announced plans to include sugar and wheat in the foreign exchange restriction list as part of measures to conserve foreign exchange and boost local production of these items.

Also, in April 2021, the Federal Government through a letter issued by the Nigerian Ports Authority (NPA), banned the importation of refined sugar and its derivatives from the country’s Free Trade Zones (FTZs).

The circular from the CBN reads, “The Federal Government of Nigeria, under the National Sugar Development Council, established the Nigerian Sugar Master Plan to encourage and incentivise sugar refining companies in their Backward Integration Programme for local sugar production.

“Accordingly, the underlisted three companies, who have made reasonable progress in achieving backward integration in the sector, shall only be allowed to import sugar into the country: BUA Sugar Refinery Limited, Dangote Sugar Refinery Pic and Golden Sugar Company.

“In view of the foregoing, authorised dealers shall not open Forms M or access foreign exchange in the Nigerian foreign exchange market for any company including the three listed above for the importation of sugar without the prior and express approval of the Central Bank of Nigeria as the bank is charged with the mandate of monitoring the implementation of the backward integration programmes of all the companies.”


INEC Postpones physical registration to July 26 following the coming week’s holidays

The Independent National Electoral Commission (INEC) has announced it has postponed the commencement of physical registration in the Continuous Voter Registration from July 19 to July 26, due to public holidays.

This was disclosed in a statement issued by Festus Okoye, the INEC National Commissioner and Chairman, Information and Voter Education, on Friday, in Abuja, according to the News Agency of Nigeria.

INEC said that following the declaration of July 20 and July 21 as public holidays, it postponed the commencement of physical registration by a week,
“Also, facing the prospects of interruption of their registration schedules are some of the online registrants who have scheduled their appointments for the completion of their registrations on dates likely to clash with the same public holidays.

“The commission promised thereafter to meet on Thursday, July 15, to review the situation and provide clarity on the matter. This is what it has done.

“With the declaration of Tuesday, July 20 and Wednesday, July 21, as public holidays by the Federal Government, the date scheduled for the commencement of physical registration has to be adjusted.

“Consequently, the physical registration of voters will now commence on Monday, July 26,” INEC announced.


NBS economy data release calendar for the week ahead

The NBS release calendar for the coming week indicates the following:

Monday 19th July 2021: Automotive Gas oil (DIESEL) Price Watch June 2021, Liquefied Petroleum Gas (COOKING GAS) Price Watch June 2021 and National Household Kerosene Price Watch June 2021,

Tuesday 20th July 2021: Selected Food Prices June 2021, Transport Fare Watch June 2021 and PUBLIC HOLIDAY,

Wednesday 21st July 2021: PUBLIC HOLIDAY,

Thursday 22nd July 2021: Federation Account Allocation Committee (FAAC) June 2021 Disbursement


Gold Bullish over US Federal Reserve chairman’s stance

Gold started the London session today bullish, as U.S. Federal Reserve Chair, Jerome Powell signalled the central bank’s “powerful support” for economic recovery.

Gold futures are up 0.46%, trading at $1,833.45 an ounce, remaining above the $1,800 mark. The dollar index, which usually moves inversely to Gold is currently down 0.11%, currently trading at 92.203 basis points as of the time of writing this report.

During the first day of the two-day testimony before the House of Representatives Financial Services Committee, the chairman of the Federal Reserve of the United States, Jerome Powell stated that monetary policy would remain accommodative.

While insisting inflationary pressures were temporary, he added that the Federal Reserve expects to continue its bond-buying until there is “substantial further progress” in the job market, predicting that interest rates will likely remain near zero until at least 2023. Jerome Powell’s second day of testimony will take place later in the day.

In other news shaping the market, the Bank of Korea kept its interest rate unchanged at 0.5% as it handed down its policy decision during the Asian trading session. The Bank of Japan will wrap the week up by handing down its decision on Friday. Gold appreciated by 0.29% while Silver dipped by -1.72% W-o-W.

Also, investors digest data released earlier in the day in China that revealed a slowdown in the country’s economic recovery from COVID-19. The second-quarter GDP grew 7.9% year-on-year while growing 1.3% quarter-on-quarter. The data also said industrial production grew 8.3% year-on-year in June and that the unemployment rate was unchanged at 5%.

ANZ analyst Daniel Hynes told Reuters that the rising inflation is going to keep investors on edge but they are becoming more comfortable about the Fed’s stance and will continue to build positions in the market. He also added, “The conditions are relatively supportive of further gains in gold… It’s not going to be a sprint but a very gentle, gradual trend higher for 2021 at the moment.”

Gold prices are expected to dip in the coming week, amid a stronger dollar and rebounding yields.


Oil Prices hit biggest weekly loss in 3 months

Oil prices remained steady on Monday as investors and traders awaited the crucial talks by OPEC following the disagreement over output within the group that could lead to major producers opening their taps to gain market share.

United Arab Emirates (UAE) on Monday maintained that it accepts a proposal to raise output in stages by about 2 million bpd from August to December 2021 but rejects an extension of cuts beyond April 2022 without adjusting its baseline production.

The International Energy Agency (IEA) on Monday noted that the rebound in global gas demand to 2024 following a record fall last year is set to knock down the global climate goal of achieving net-zero emissions by 2050.

Crude oil futures fell on Monday as concerns over slowing global growth prevailed over the prospect of tightening supply after talks among key producers to raise output in coming months came to a halt.

China’s crude oil imports in the first half (H1) of the year fell by 3% from a year earlier, the first contraction for H1 of a year since 2013.

The Energy Information Administration’s (EIA) monthly drilling productivity report shows that crude output from seven major shale formations is expected to rise by 42,000 bp/d in August to 7.907 million bp/d, compared with a 28,000 bp/d rise in July.

The International Energy Agency (IEA), on Tuesday, reported that the oil market will see tighter supply in the short run amid dispute inside OPEC+ about how to ease production curbs but it may face the risk of a battle for market share if disagreement persists.

The July OPEC report released on Thursday shows world oil demand would rise in 2022 to reach a level like before the pandemic and this will be led by growth in the United States, China, and India. OPEC maintained its prediction that demand would grow by 5.95 mb/d or 6.6% in 2021 and grow by 3.4% to 99.86 mb/d in 2022.

Oil prices fell on Friday as expectations of more supplies shocked investors on the hope that OPEC is likely to add more outputs to meet a potential revival in demand as more countries recover from the pandemic. Brent had a weekly decline of -2.36%.

In the coming week, oil prices are expected to be mixed on oversupply fears as OPEC wrangles an agreement.

Currency Market Outlook

The currency market was flat last week at the BDC market while it depreciated at the official window.

It remained flat against major at the BDC, to close at US$1/N500, £1/N700, and against the Euro at €1/N600.

At the I & E FX window, the Naira appreciated week-on-week by +0.13% and +0.02% at the NAFEX window.

The Naira closed the week at $/N411.20 at the I&E FX window, at the NAFEX (spot market) it closed at $/N411.20.

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 Outlook

System liquidity was elevated for the most part last week, due to a massive N711bn Bond and NTB maturity repayments. Accordingly, interbank rates dipped, with the Open Buy Back (OBB) and Overnight (OVN) Rate’s trading falling to a record low.

At the close of the trading session last week, funding rates declined significantly. Open Buyback (OBB) closed at 4.50% while Overnight (O/N) rates closed at 4.75% indicating a W-o-W fall of -77.22% for OBB and -76.83% 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 Market Outlook

The treasury bill market started the previous week on a quiet note, at the end of the week, the overall trading session closed bullish.

At the close of the market on Friday, average benchmark yields for T-bills fell by -2.85% to 6.69% while OMO bills fell more significantly by -6.02% W-o-W to close at 9.29%, CBN’s Special Bill fell by -8.22% to close at 8.37%.

The CBN sold N150.00 billion worth of notes against N109.43 billion offered at its NTB auction today. The 91-day, 182-day & 364-day notes were allotted at 2.50%, 3.50%, & 8.67% respectively. Compared to the previous auction, rates on the 91-day & 182-day were unchanged while the 364-day paper fell by 48bps.

Activity next week is expected to be dictated by the market liquidity situation.


FGN bond and Eurobond market outlook

The Bullish momentum in the Bond market waned last week as attention was drawn towards the PMA auction last week.

At the close of the week, the overall market was bearish with selling interest seen across the board.

The overall average benchmark yields closed at 9.69% for the week which rose W-o-W by +1.56%.

Pockets of demand were seen across the board last week, buoyed by the decline in the U.S. 10-year Treasury yield. The decline in oil on a W-o-W basis also sent negative sentiment to the Eurobond market.

We expect the relatively quiet trend to persist in the near term.


The Nigerian Capital Market

The Nigerian bourse started the previous week on a negative note while market sentiment remained weak, albeit with occasional bargain hunting. The NGXASI closed the week on a negative note with a decline of -0.12%. The Nigerian Stock Exchange lost N24.49bn thus, year-to-date return moderated to -5.77%, while the market capitalization settled at N19.77 trillion.

The volume and value of stocks traded on the exchange this week advanced by +66.72% and +228.05% respectively.

Sectoral performance across sectors tracked was mixed this week as the NGX Oil and Gas was the highest gainer for the week with +1.81% while NGX Insurance recorded the highest decline with -1.07%. NGX Banking, NGX-30, NGX-IND, and NGX Consumer Goods closed the week with +0.09%, -0.19%, -0.30% and -0.85% respectively.

Market breadth for the week closed positive with 29 gainers led by FTNCOCOA and NCR as against 32 losers led by IKEJA HOTEL and HMARKINS.

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 Nigerian Economy in Retrospect

According to consumer price index (CPI) data released on Friday, headline inflation for the month of June 2021 was 17.75 % (year-on-year). This is 0.18 percentage points lower than the rate recorded in May 2021 (17.93) %.

This implies that prices continued to rise in June 2021 but at a slightly slower rise than they did in May 2021. While the Food index rose by 22.28% in May 2021, it rose by less (21.83%) in June 2021. The core sub-index also rose by less in June (13.09%) than it did in May (13.15%).

Former President Olusegun Obasanjo has warned that Nigeria’s rising population might result in an economic crisis if not urgently addressed. Recall that the World Bank report in its recent Macroeconomic Outlook of the Nigerian Economy noted that given the current annual population growth rate of 3.2% about 15 million to 20 million more Nigerians would be trapped into poverty by 2022. Currently, half the country’s population line is below the poverty line.

According to the report, the impoverishment of the populace was worsened by the 2020 recession (-6.1% in Q2 2020 and -3.6% in Q3 2020) the country’s deepest since 1980.

AfDB President, Akinwumi Adesina represented by The Director-General of the Group’s Nigeria Country Department, Lamin Barrow, said at an event held earlier in the week that the Nigerian government’s plan to lift 100 million Nigerians out of poverty by 2030 is being threatened by the high rate of unemployment and income inequality in the country.

According to the AfDB President, the rally in oil prices, increase in the country’s VAT rate to 7.5 % and the proposed removal of fuel subsidies are positive developments that should provide some fiscal space.

The minister of Works and Housing disclosed on Wednesday that the Federal Executive Council has approved the award of a contract to Dangote Industries for the construction of five roads totalling 274.9 km at the cost of N309.9bn to be paid for by the advance of tax credit to the company. The roads include Bama to Banki in Borno State; Dikwa to Gamboru-Ngala; and the Nnamdi Azikiwe Road in Kaduna; the deep seaport access road sections 1 and 3 in Lagos State, through Epe to Shagamu Expressway; and the Obele/Ilaro/Papalanto to Shagamu Road, in Ogun State.

Vice President Yemi Osinbajo on Wednesday said the Federal Government would henceforth look for the right type of investors in its privatization and commercialization drive. He further explained that the regime would also be looking out for the right models to look at funding available to the investors over an extended period as the government is strongly committed to this approach to national economic development and would put in place the necessary reforms.

The Vice President noted that past sector reforms in Nigeria had led to increased opportunities and extensive economic and social progress, highlighting the pension scheme, telecommunications, port, and power sectors.

Acting upon the annual report of the auditor-general for the Federation on the accounts of the federation for the year ended 31st December 2015, the Senate demanded that 59 Federal Government parastatals return allegedly misappropriated funds which amount to N300bn back to the federation account within 60 days. The concerned agencies include the Nigerian Ports Authority (NPA) and the Bureau of Public Enterprises (BPE).

Meanwhile, the Senate has ruled the under-remittance of Nigerian National Petroleum Corporation (NNPC) which it estimates at N3.88tn.

The minister of state for Petroleum Resources, Chief Timipre Sylva, on Monday, said subsidy on petrol will end immediately after President Muhammadu Buhari signs the Petroleum Industry Bill in Law. He further noted that the government would soon begin the rehabilitation of the Warri and Kaduna refineries to increase domestic refining of petrol.

The director-general of the Bureau of Public Enterprises, Alex Okoh, on Monday noted that the Federal Government has halted its plan to privatise Nigeria’s refineries following demands by the NNPC to allow the corporation to revamp the dormant facilities.

Fuel marketers and Trade Union Congress of Nigeria, on Tuesday, expressed their opposition to a new provision in the Petroleum Industry Bill that seeks to give only active refinery licence holders the right to import petroleum products into the country.

The House of Representatives Committee on Public Petitions and the Department of Petroleum Resources (DPR) collided on Tuesday over the Dawes Island marginal oil field lost by Eurafric for allegedly holding the national asset for 17 years without production. The DPR had re-awarded the field to Petralon 54 Limited and its partners during the last bid round.

The National Assembly on Wednesday included a clause in the PIB that says penalties paid by oil and gas companies for flaring gas will be invested to build midstream gas infrastructure in the host communities.

According to the OPEC July report, Nigeria’s oil output dropped 11.47% year-on-year (Y-o-Y) in the second quarter (Q2) of 2021. Precisely, Nigeria produced 1.372 mb/d of oil in April, 1.344 mb/d in May, and 1.313 mb/d in June 2021.


Fiscal Policy

In the face of dwindling oil revenues, the government appears to be considering the diversification of its revenue heads by the adoption of alternative project financing models such as the recent grant of tax credit to Dangote Industries in return for the construction of federal roads, we also find that the government is adopting much more aggressive commercialization and privatization drive by putting 38 state-owned assets up for sale or concession.

It is hoped that the processes will be transparent and devoid of the typical human factor problems that have bedevilled such initiatives in the past.


Monetary Policy

Given that growth is currently fragile at 0.51%, inflation is still elevated at 17.75% and MPR is at 11.5%, real returns are negative just as they have been for close to 2 years, placing the MPC right in between the rock and a hard place.

If rates are hiked domestic investment drops, growth slows further, and unemployment worsens but even if rates are raised negative real returns persist. We, therefore, expect the MPC to continue to strike a balance between containing the general price level and supporting growth till unemployment reaches its natural rate.

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