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In: Economy
24 Dec 2010Here is B.J. Rewane’s Year End Economic Outlook presented at the monthly Lagos Business School Executive Breakfast session for December 2010.
I encourage you to read it in full. It is loaded with information and statistics.
As you know, the Monthly Economic Reports from CBN are usually a few months behind. The Economic Report for August 2010 was recently released. Here is the excerpt from the summary. You can also download the full report below: Growth in the key monetary aggregate accelerated in August 2010 relative to the level in the [...]
Here is the CBN Annual Report And Statement of Accounts For Year Ended Dec 31st 2009. It provides information on the corporate activities of the Central Bank and the monetary policy and surveillance activities and operations of the bank. The second part of the report includes reports on the global economy and the Nigerian economy with a particular emphasis on the financial sector.
CBN 2009 Annual Report (571)The Monetary Policy Committee of the Central Bank of Nigeria held their regular meeting on November 22nd and 23rd. The key decisions were:
1. To Retain the Monetary policy Rate (MPR) at 6.25 per cent.
2. To adjust the corridor to +/- 200 basis points, implying Standing Lending Facility (SLF) rate of 8.25 per cent, and Standing Deposit Facility (SDF) rate of 4.25 per cent.
3. Maintain the policy stance of a stable exchange rate.
4. Continue to monitor inflationary trends with a view to taking appropriate steps as and when necessary.
5. On the stance of monetary policy in the year ahead, the Committee reaffirmed that monetary policy would seek to exert pressure on aggregate demand, thereby helping to lower inflation expectations.
The report is below:
Afrinvest released a report on the Nigerian Economy. It is more a scorecard of the Nigerian Economy so far for 2010. As usual, it is a very comprehensive review.
I must say, it is not comforting in any way. Here are some reasons for concern – Nigeria’s investment rating has been downgraded from Stable to Negative, there has a huge depletion of the foreign reserves, the government is still on a borrowing binge, and the Naira is reducing value. And dont forget the upcoming elections.
Some excerpts are below. But to get the full benefit, read the entire report.
Afrinvest 2010 Nigerian Market Review (367)<blockquote>On the macroeconomic front, an analysis of provisional data provided by the National Bureau of Statistic (NBS) indicates that real GDP grew by 7.7% in Q2 2010, up from the 7.4% recorded in Q1 2010. The CBN has revised the GDP estimates upwards, forecasting a 7.8% growth in GDP for 2010 (with growth estimates of 7.7% and 8.2% in Q3 and Q4 respectively). The upward review in GDP forecasts rides on the back of favourable rainfall (a critical input for agricultural produce), improved crude oil and natural gas production, and the relative stability in crude oil prices. The non-oil sector is expected to remain the key driver of overall growth. External reserves stood at $36.6bn as at mid September, compared to $37.2bn by the end of July 2010. This range is expected to hold, depending on the stability of oil prices and output.
Oil production has remained relatively stable around the 1.9–2.1mbpd range (year to date), following the return of stability to the Niger-Delta earlier in the year and the success of the on-going amnesty programme. Oil prices have however been volatile all through the year; it stood at $83.30 at the end of Q3 ’10, which is above the country’s benchmark oil price of $60.00. We re-iterate our belief that oil prices will hover between the $70.00 – $80.00 range in the near term as the global economy firms up. The Naira, which remained fairly stable in the first two quarters of the year, saw more volatility in the third quarter and closed the quarter in the CBN, inter-bank and parallel market windows at N149.85/US$1.00, N154.60/ US$1.00 and N156.00/US$1.00 respectively.
The devaluation is not unconnected with the huge surge in dollar demand, particularly at the tail-end of the third quarter. The CBN Governor, Sanusi Lamido Sanusi, explained that this was as a result of an increase in the volume of petroleum products as well as rice imports, following enhanced credits from the Federal Government’s Petroleum Stabilization Fund (“PSF”) and waivers granted to rice importers. By the end of October, the Naira had appreciated to N148.50/US$1.00, N150.85/US$1.00 and N154.00/ US$1.00 at the CBN, inter-bank and parallel market windows respectively. The CBN has promised to intervene and defend the naira where necessary while it continues to monitor developments in the market, taking measures to eliminate speculative demand and exchange rate volatility.
The NBS recently revised and rebased the Consumer Price Index (CPI) to a November 2009 base period, in a bid to reflect the current consumption structure. Subsequently, inflation rose by 70bps from July to August 2010, and dropped marginally by 10 bps in September, closing at 13.6%. Afrinvest Research is of the opinion that fiscal injections related to election expenses may spur an upward trend in inflation. We however observe that the CBN is actively combating inflation through tighter monetary policies, an example of which is the recent increase in MPR to 6.25% and Standing Deposit Rate (SDR) to 3.25%.
The stock market was up 20.2% by the end of October 2010, after varying degrees of oscillation in the course of the year. This is however an improvement from the 30.5% decline recorded in the corresponding 2009 period.
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Stability in Oil Prices…
Crude oil prices remained stable during the quarter with a Q3 2010 average (Bonny light) of $77.84 per barrel, a slight drop from the $80.06 per barrel recorded in Q2 2010. This drop in price has been compensated for by an increase in daily production, from approximately 2.35 million barrels per day in Q2 2010 to about 2.41 million in Q3 2010. Consensus analysts’ forecasts indicate that the outlook on oil prices is stable both in the short and medium term. Investor expenditure on commodities picked up during Q3 2010 after very strong flows during the tail end of 2009. Recognizing this upward trend in oil prices, analysts have reviewed their forecasts up towards the $95.00 mark over the next 12 months. Afrinvest Research expects fundamentals and investor flows to drive oil prices, though the potential increase in production quota/output may lead to a supply glut and check an upward movement in price.
With the return of stability in the country’s leadership, President Jonathan has taken a number of steps, seemingly in the right direction, aimed at boosting economic performance in the third quarter. Top on the list is the unveiling of a very articulate strategy designed to put an end to Nigeria’s chronic power shortages through the privatization of the country’s inefficient power generation and distribution facilities. The recent sanitization of the Nigerian Stock Exchange (NSE) (which should help rebuild investor confidence) and the incorporation of the Asset ManagementCompany of Nigeria (AMCON), are further indications that the president seeks to create the desired enabling environment for economic growth and development.
The exchange rate assumption of N150.00/US$1.00 is proving difficult to sustain given the drastic reduction in the nation’s foreign reserves, the depletion of the windfall oil savings and the fact that inflation has climbed to a high of 13.6%, a sharp contrast to the 11.2% assumed for the budget. We believe that this will pose a threat to exchange rate stability with the exchange rate at N151.50/US$1.00 as at end of October 2010. Cost efficiency ratios are also a major concern, as the quality of government expenditure is suspect, while the level of budget performance remains poor.
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Piling Debt Despite Increasing Revenues…
A Sovereign Wealth Fund (SWF) is a state-owned investment fund composed of financial assets, which include money, stocks, bonds, property and other financial instruments. In the Nigerian context, the SWF is expected to replace the current Excess Crude Account (ECA). The ECA was set up as a stabilization fund to bridge budget deficits and fund domestic infrastructure investments. It was however set-up as a political arrangement (and without legal backing) during the Olusegun Obasanjo administration. The bill for the National SWF was submitted to the National Assembly on the 13th of September, to ensure that it has a legal underpinning. About N153.0bn (US$1.0bn) has been set aside as seed capital for its take-off. The fund is to be used for three distinct purposes; savings for the future generation, an economic stabilization fund, and an infrastructure fund for co-investment with other investors.
The Debt Management Office (DMO) released figures in Q3 2010 showing an outstanding domestic debt of N4.2tn (US$28.2bn) from N3.8tn (US$25.3bn) in Q2 2010. FGN bonds accounted for 64.0% of the Q2 2010 domestic debt amount, while Non-treasury Bills (NTBs) and Treasury Bills accounted for 23.9% and 10.4% respectively. Development Stocks and Promissory Notes made up the balance of the debt figure with both responsible for just less than 2.0% of the domestic debt figure. The increase in domestic debt can mainly be attributed to the financing of Federal Government budget deficits and expenditure on capital projects. The DMO also released its issuance calendar for 2010 showing a quarterly increment FGN auctions from N300.0bn in Q2 2010 to N330.0bn in Q3 2010, with a scheduled issuance of N408.8bn in Q4 2010.
….
The Federal Government also plans to issue a N75.0bn (US$500.0m) Eurobond to fund outstanding infrastructural projects. This is expected to be a five year bond with a fixed coupon rate of 8.625% that will also help finance the budget deficit in the country. This means that the country’s domestic debt figure could climb to over N4.5tn (US$30.0bn) by Q4 2010. In a related development, the international rating agency, Fitch Ratings, downgraded Nigeria’s credit rating to a BB-, and from a stable to a negative outlook. This was based on certain factors, including the near total drawdown of the excess crude account and the continuous fall in foreign reserves.
A depleted excess crude account, amid oil revenues of N7.2tn (US$48.0bn) is a major cause for concern, while the quality of Government expenditure remains worrisome. Apart from the cost incurred from Nigeria’s bureaucratic structure, there is a risk that if a project funded through an FGN Bond is unsuccessfully completed either through mismanagement or poor execution by the contractor, the Federal Government would have to redeem its initial debt on the maturity and re-issue another debt instrument for the same project. This, coupled with the interest paid on any debt facility, means that a project could cost 2-3 times its original price. The Minister of Finance however noted that the steps needed to ensure that Nigeria’s outlook be upgraded to stable are already being implemented. Standard & Poor’s Rating Agency however affirmed Nigeria’s B+/B global scale rating and the NGA+/NGA-1 national scale rating. They also confirmed a stable outlook, reflecting expectations that the country will maintain her strong external and fiscal balance sheet, and improve in budgetary performance.
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Our Overall Expectation: 2010
With election related activities on the rise, we fear that progress on the roadmap to reforms in the power sector may stall. The revival of the power sector is a key factor in the continuous growth of industries and businesses in particular and the economy in general. There is therefore an urgent need to follow through on these reforms. We expect that the relative peace in the Niger Delta, as well as stability in crude oil prices, will enhance the country’s foreign exchange revenues. The excess revenue, which will be saved in the SWF, is expected to be used to improve on infrastructure and close budget deficits where necessary.
The CBN stipulated a September 2010 deadline for AMCON to become fully operational. This has however not been the case. We however hope to see some clarity as to the direction of the banking sector when AMCON becomes fully operational. There has also been interest in certain banks by both local and foreign participants, suggesting that mergers and acquisitions are likely to occur. We also believe that the banks will resume lending, although at a gradual pace. Persuasive mechanisms by the CBN may also encourage this to happen as quickly as possible. The resilience of many listed companies in the face of harsh macroeconomic and business conditions has been shown by the relatively decent financial results released. We expect investors to continue to show interest in stocks with positive results and growth potential, as well as a high level of transparency and corporate governance.
The drive by the SEC to ensure transparency and corporate governance in the NSE is expected to boost investors’ confidence and renew interest in equities. The uncertainty around the outcome of the forensic audit on the NSE has somewhat dampened this. We therefore believe that the timely conclusion and release of the audit findings will help restore investor confidence and encourage positive sentiments towards the equities markets. Participants will however remain cautious and eager to lock in any significant short term gains. This suggests that there will be constant profit-taking activities in the market, signifying volatility in trading which may persist till the end of the year.
In our Q1 2010 Market Review, we re-iterated our expectations of significant volatility within the NSE ASI 20,000 to 28,000 points range. Afrinvest Research remains bullish on equities, although we are slightly cautious. We review our forecast to a bear case scenario of a 10.0% -15.0% downside and a bull case of a 5.0% – 10.0% upside from around the 25,000 mark. We also expect lending rates to slowly dip and savings rate to rise as the year comes to an end. </blockquote>
Late last month, <a href=”http://online.wsj.com/article/BT-CO-20101022-710047.html”>Fitch lowered Nigeria’s outlook primarily because of the withdrawals from the Crude Accounts</a>. Here is an excerpt from the report in the Wall Street Journal:
<blockquote>Fitch Ratings moved toward a possible downgrade of Nigeria’s junk-level ratings, raising concerns about the country pulling money from a crude-oil account the help fund government operations.
That and a continued gradual fall of international reserves at a time of high oil prices and record oil production is a major concern, according to Fitch. It also raises vulnerability to any renewed fall in oil prices and threatens macroeconomic stability.
Fitch director Veronica Kalema said that while there were plans to remedy the situation through the establishment of a sovereign wealth fund and removal of the fuel subsidy currently taken out of the country’s excess crude account, implementing those actions “will be challenging before elections expected in April next year.” The poll has increased short-term political uncertainty, Fitch said.
Other major constraints on the rating — low per capita income, weak transparency and governance and the infrastructure deficit, especially the power shortage — remain in place. Nigeria’s national infrastructure is poor and power generation is grossly inadequate, resulting in low industrial production while offices and homes go for days without electricity.
Fitch revised Nigeria’s outlook to negative.
Fitch did note that Nigeria’s ratings — which stand at BB-, or three notches into junk — are supported by robust non-oil sector growth, and low public and external debt ratios. The recovery in oil production in the fourth quarter last year, and renewed reform momentum this year, also support the ratings.
In August, the nation said gross domestic product grew 7.4% in the first half of the year, building on 5.9% growth the same time in 2009. The enhanced economic development was linked to growth in non-oil sectors and improvement in oil production.
Earlier this month, the International Monetary Fund said the economies of sub-Saharan Africa will be among the best performing in the world this year and next, lagging only behind those in emerging Asia. It raised its growth forecasts for Nigeria’s economy to 7.4% in both 2010 and 2011 from 7% and 7.3%, respectively.</blockquote>
But in the last week, Fitch affirmed it’s long-term investment rating of B+ for Nigeria. Here is the excerpt of that report from Bloomberg:
<blockquote>Standard & Poor’s Ratings Services affirmed its ‘B+’ long-term rating on Nigeria, Africa’s most populous nation and top oil producer, with a stable outlook before a $500 million Eurobond sale next month.
The agency also affirmed its ‘B’ short-term foreign and local currency sovereign credit ratings on the West African nation, it said in a statement today.
“The outlook is stable, reflecting our expectation that Nigeria will maintain its strong external and fiscal balance sheet and that its budgetary performance will gradually improve over the next few years,” it said.
The announcement “will help to allay the concern of potential investors in Nigeria’s Eurobond,” especially after Fitch Ratings cut its outlook on the country to negative from stable on Oct. 22, said Bismarck Rewane, chief executive officer of Financial Derivatives Co. Ltd., a fund manager.
Nigeria plans to appoint bookrunners next week for its first-ever Eurobond sale, planned for mid-December, Abraham Nwankwo, director general of the Debt Management Office, said today.
“The ratings on Nigeria are constrained by high political risk, but supported by a strong balance sheet,” Standard & Poor’s said in the statement.
Elections
The nation of about 150 million people is scheduled to hold general elections in April in which incumbent President Goodluck Jonathan, from the mainly Christian south, has said he will run. Politicians from the predominantly Muslim north say that decision runs counter to an agreement by the ruling People’s Democratic Party to reserve the office for the region until 2015. Jonathan stepped in to the office after the death of former President Umaru Yar’Adua, a northern Muslim, on May 5.
Fitch Ratings lowered its outlook on Nigeria’s BB- rating to “negative” on Oct. 22, concerned about withdrawals from the excess crude account and a drop in foreign currency reserves. The decline in reserves increased the risk to the economy from any renewed drop in oil prices, Fitch said.
Nigeria’s foreign-exchange reserves fell 7.6 percent to $33.9 billion in the month to Oct. 21, according to data on the website of the Central Bank of Nigeria.
Nigeria’s economy, the second-biggest on the continent after South Africa, is expected to grow 7.8 percent in 2010, up from 7 percent last year, driven by non-oil industries such as agriculture, central bank Governor Lamido Sanusi said on Sept. 21. </blockquote>
To get the full details, you can download a copy of their report below. I believe that the report by Fitch is the most detailed analysis and description of the Nigerian economy.
Fitch Ratings For Nigeria 2010 (188)
Proshare has been doing a consistently good job of preparing a detailed review and analysis of the NSE every month. Here is their report for the month of October. It has a detailed breakdown of the NSE activity for the month as well as the company results reported during the month.
NSE Monthly Report - Proshare NG - October 2010 (136)And here are the official NSE reports for the month of September and October 2010
NSE Monthly Report - Sept 2010 (144).
NSE Activity Report For October 2010 (181)FSDH has also released the Economic and Financial Review for Q3 2010 and their outlook for Q4. It is a very thorough and detailed report. Please take time to read it. It is worth the time.
FSDH - Quarterly Economic Review - Q3 2010 (692)The team at Access Bank have prepared a very detailed and informative review of the Nigerian economy for the 3rd quarter. You can read below.
In: Economy|Market Analysis|News|special reports|stock exchange
20 Oct 2010Below is the Monthly Economic News and Views presentation given by B.J Belgore for October 2010. As usual, it is a very very detailed and informative presentation. You will do well to read the entire thing.
LBS Executive Breakfast Session - October 2010 (252)In recent weeks, the CBN has released some press releases and statements and guidelines. You can read them below as well as the recent speech by the CBN Governor at the CIBN Conference.
CBN - Circuiar On The Universal Banking Model - Sept 7 2010 (108).
CBN - Commercial Banking License Guidelines (163).
CBN - Guideline For Granting Liquid Asset Status To State Govt Bonds (140).
CBN - Press Release - Update On Capitalization of Wema Bank and Unity Bank - Oct 4th 2010 (109).
CBN Power Initiative To Slash banks Overhead By 30 (120).
CBN Governor Keynote Address At 4th Annual Banking And Finance Conference of CIBN (362).
Communique for September 21 MPC (160)The <a href=”http://www.nigerianstat.gov.ng/”>National Bureau of Statistics</a> recently released the Consumer Price Index for August 2010. You can read the full report below. But here is the summary:
<blockquote>CONSUMER PRICE INDEX: AUGUST 2010
(BASE PERIOD NOVEMBER 2009 = 100)
BRIEF METHODOLOGY:
This edition of the Statistical News contains the revised Consumer Price Index (CPI) based on Nigeria Living Standard Survey (NLSS) 2003/2004. The consumption expenditure data were revalued to November 2009 which is the base period for the revised CPI.The May 2003 based and September 1985 based indices are being continued using factors derived from the new CPI. All of these indices will yield the same price change for any commodity group contained in all the series.
A new sub index – Imported Food Index- is available in the revised CPI.A TOTAL of 10534 informants spread across the country provide price data for the compilation of theNew CPI each month. Also, 740 product specifications are priced in each centre for computation of the New CPI. More enquiries relating to the CPI revision can be obtained from ofnwaboku@nigerianstat.gov.ng or kocimo@nigerianstat.gov.ng.
ALL ITEMS INDEX
The Composite Consumer Price Index (CPI) rose by 13.7 percent year-on-year in August 2010. This is higher than 13.0 percent recorded in the previous month in the new CPI series. The monthly change of the CPI was 1.8 percent increase when compared with July 2010. The urban All Items monthly index rose by 1.3 percent while the corresponding rural index recorded 2.1 percent increase when compared with the preceding month. The year-on-year average consumer price level as at August 2010 for Urban and Rural dwellers rose by 10.9 and 15.6 percent respectively. The percentage change in the average composite CPI for the twelve-month period ending August 2010 over the average of the CPI for the previous twelve-month period was 13.5. This was marginally higher than what was recorded by making similar comparison in July 2010. The corresponding 12- month average percent change for urban and rural indices rose by 10.2 and 15.3 respectively.
FOOD INDEX
Average monthly Food prices rose by 2.0 percent in August 2010 when compared with July of same year. The level of the Composite Food Index was higher than the corresponding level a year ago by 15.1 percent. The average annual rate of rise of the index was 14.7 percent for the twelve-month period ending August 2010. The rise in the index was caused mainly by slight increase in the prices of some food items like yam, potatoes, meat, fish, cooking oil, fruits and vegetables.
ALL ITEMS LESS FARM PRODUCE
The “All items less Farm Produce” index which excludes the prices of agricultural products rose by 1.5 percent in August 2010 when compared with July 2010. The increase was due to price rise observed with some pharmaceutical products and household equipments. In the twelve-month to August 2010, the index rose by 12.4 percent while the average annual rate of rise of the index was 11.5 percent for the twelve-month period ending August 2010.</blockquote>
They also released the Revised GDP for 2009 and the Estimates for Q1 and Q2 2010. The GDP economy grew by over 7% in Q2 2010. Here is an excerpt:
<blockquote>On an aggregate basis, the economy when measured by the Real Gross Domestic Product (GDP), grew by 7.69 percent in the second quarter of 2010 as against 7.45 percent in the corresponding quarter of 2009 as shown in Figure 1.
The 0.24 percentage point increase in Real GDP growth observed in the first quarter of 2010 was accounted for by the increase in production in the oil sector and wholesale & retail trade activities in the economy. The nominal GDP for the second quarter of 2010 was estimated at 6,824,477.43 million naira as against the 5,872,694.58 million naira during the corresponding quarter of 2009 thus indicating an increase.
The economy, which can be broken into two broad output groups, that is, Oil and Non-oil sectors, had both sectors witnessing increased output in the second quarter of 2010. The non-oil sector growth was driven by growth in activities recorded in the wholesale & retail trade sector, while the oil sector output increased as a result of the Federal Government’s amnesty and post amnesty development programme for the Niger Delta which restored peace in the area thereby ensuring re-entry/ recommencement of operations and encouraging investments in the sector.</blockquote>
You can download the report below:
National Bureau of Statistics - Revised 2009 GDP and Estimates for Q1-Q2 2010 (635)
In: Economy
27 Sep 2010In August, the Federal Government of Nigeria received the report of the Presidential Task Force given the responsibility of coming up with a road map for reforming the power sector. Here is their executive summary:
Introduction and Executive Summary
The growth, prosperity and national security of any country is critically dependent upon the adequacy of its electricity supply industry. Indeed the link between electricity supply and economic development is such that the health of the industry is a matter of deep and personal concern to all citizens. Nigeria is no exception. Over the past two decades, the stalled expansion of Nigeria’s grid capacity, combined with the high cost of diesel and petrol generation, has crippled the growth of the country’s productive and commercial industries.
It has stifled the creation of the jobs which are urgently needed in a country with a large and rapidly growing population; and the erratic and unpredictable nature of electricity supply has engendered a deep and bitter sense of frustration that is felt across the country as a whole and in its urban centres in particular. Electricity consumers and the citizenry as a whole demand a fundamental reversal of the long and debilitating malaise which has blighted the industry and, in doing so, bridled the tremendous energy and creativity of this great and populous nation. More particularly they demand real and immediate improvements in service levels.
In response to this demand, the Federal Government will not pretend that the task ahead will be an easy one. But it is determined to root out the canker which lies at the very heart of the industry. More particularly, the Federal Government has stressed the need to return to the task of pursuing the fundamental changes to the ownership, control and regulation of the sector that have been outlined in the National Electric Power Policy (2002) and enshrined in the Electric Power Sector Reform (EPSR) Act of 2005.
To meet our Vision 20:2020 target of 40,000MW will require investments in power generating capacity alone of at least US$ 3.5 billion per annum for the next 10 years. Correspondingly large investments will also have to be made in the other parts of the supply chain (i.e. the fuel-to-power infrastructure and the power transmission and distribution networks). These sums cannot and will not be funded and directed by the Federal Government. Rather, central to the development of the sector will be the need to incentivise the private sector to partner with government in this endeavour. At the same time, however, the Federal Government is acutely aware that improvements in service levels cannot wait until the industry has been commercialised.
The Government is, therefore, taking active steps to ensure modest but genuinely realisable improvements in the amount and quality of electricity supplied to customers in all regions of the country. In summary, this Roadmap outlines our plan to accelerate the pace of activity with respect to reforms already mandated under the EPSR Act and, at the same time and in support of this, a renewed drive to improve on short term service delivery.
You can read the abridged and full versions of their reports below:
Presidential Task Force – Roadmap for Power Sector Reform – Full
Presidential Task Force – Roadmap For Power Sector Reform – Summary
This blog is dedicated to informing users on the latest business and economic news news from the CBN and Nigerian Stock Exchange. Happy reading!