ThinkBusiness Today - August 1st

E kaaro o, Ututu Oma, Barka da Safiya - Good morning, and welcome to the month of August.

Happy New Month! 

A warm welcome to ThinkBusiness Nigeria, your Monday – Friday dose of commentary, contexts, and insights on business and economic news that matter to you.

Yesterday, the President made a national broadcast for the first time since his inauguration 29^th of May. Better late than never. Some of his ministers were also screened, and as expected, the Senate does not see ministerial screening as important as it continued its laughable tradition of bow and go. Any wonder why we have unprepared ministers in office.

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Markets

•  The benchmark NGX All-Share Index (ASI) declined 718.87 (-1.1%) points to close at 64,337.52, representing a 1-week loss of 1.43%, a 4-week gain of 3.86%, and an overall year-to-date gain of 25.53%. Key price movements include Dangote Sugar Refinery (-10%), Ecobank Transnational (-10%), Livestock Feeds (-10%) and NPF Microfinance Bank (-10%).

• Corporate Results – Transnational Corporation Plc has reported H1 2023 revenue growth of 31% of N82.1 billion. Wema Bank reported 97% growth in profit after tax for H1 2023 of N10.48 billion. Meanwhile, the board of directors of Custodian Investments Plc has proposed an interim dividend of N882.28 million for the half year ended June 30, 2022, 15 kobo per unit of 50 Kobo ordinary shares for its shareholders for the 2022 financial year.

• Oil prices were poised early on Monday to end July trading with the biggest monthly gain since January 2022, buoyed by tightening supply, expectations of a record demand, slower inflation in the U.S., and a still resilient American economy. Brent crude futures rose 74 cents higher to US $85.82 a barrel while U.S. West Texas Intermediate crude climbed 98 cents to US $81.56 a barrel, rising more than $1 earlier in the session.

• Naira’s divergence experience at the I & E and the streets is becoming significant. At the I&E window, Naira appreciated by 0.29%, closing at N775.76 against the US dollar. On the streets, Naira slid slighty by 1.75%, down to N870 against the US dollar.

• US natural gas futures fell to a 1-week low to around US $2.6/MMBtu, as investors anticipate homes and businesses would use less gas and the weather would be cooler in the next two weeks.

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National Headlines

• The President spoke – President Bola Ahmed Tinubu made his first national broadcast yesterday. As expected, his focus was on the Nigerian economy, his ongoing reforms, and what he expects the reforms will deliver. He reiterated the success of the fuel subsidy removal in terms of government savings and curbing corruption, especially noting that there was no provision for fuel subsidy in the second half of this year. He rolled out the palliative measures of the government, including loans to manufacturers, support to SMEs, and conditional grant to 1 million nano businesses. Overall, the speech was overdue because the government had left too much communication gap open after those critical and heavy reforms.

• Lagos followed FG – Meanwhile, the Lagos State government has followed the lead of the federal government in providing palliatives for the those in the State, slashing the costs of transportation of all state-owned transport systems by 50% from tomorrow Wednesday August 2^nd . The government says it will work with the informal transport system to slash price by 25%.

• Ministers confirmed – As expected, most of the 28 the ministerial nominees of the President were confirmed yesterday. While I have always argued that our democracy is evolving and maturing, unfortunately, it has not improved the selection and confirmation of ministers. Ideally, every minister should have designated portfolio before they appear in the Senate. That will help provide platform of detailed scrutiny, gauge the understanding of the nominee, and provide the citizens a glimpse of the plans of such a Minister for the role and position. As usual, what we had yesterday were pedestrian screening process, and the outcome will turn out the same – unprepared Ministers.

• Cash outside banks - Currency outside banks rose to N2.26tn at the end of June 2023, according to the latest figures from the Central Bank of Nigeria, a 185.68% rise between January and June 2023. (See Graph below).

Global Headlines

• Weak Italian Economy – Italy’s economy came weaker than expected in Q2 2023, data as shown. GDP contracted by 0.3% compared to Q1, but up 0.6% year-on-year. The expectation was a growth of 1%. Meanwhile, Euro zone inflation fell in July to 5.3%, lower than the 5.5% expected, but remains above the 2% target.

• Export Controls – The geopolitical tension between the West, led by the US and China will continue over medium term and now shaping trade and investments continuously. Yesterday, China announced export controls on some drones and drone-related equipment, saying it wanted to safeguard "national security and interests" over access to technology. Some of the banned exports include drone engines, lasers, and communications equipment. It will have immediate impact because over 50% of drones in the US are made in China. Recently, the US has also limited technology trade with China by US owned companies.

• Niger in trouble – The ramifications of the coup in Niger last weekend continue to expand. After meeting in Abuja, ECOWAS has given the new military head a week to return to power to ousted president. It is becoming increasingly clear that the coup, either instigated by Russia or not, has made the country an expanded open ground for hostilities between the West and Russia. For instance, protesters stormed French embassy carrying Russian flags in capital city Niamey. Also, the Niger government has banned exports of key minerals to France. For Nigeria, besides the ECOWAS wide military rule concern, it is whether this will worsen the security situation in the Sahel and by extension, the North East part of the country.

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News Analysis

The currency in circulation in the country rose by 87.05 per cent (N1.21tn) from N1.39tn in January 2023 to N2.6tn in June 2023, according to the latest figures from the Central Bank of Nigeria. It had earlier dipped by 235.03 per cent to N982.09bn at the end of February from N3.29tn at the end of October 2022, on the back of the naira redesign policy of the CBN. The increase in Currency in Circulation was triggered by the rise in currency outside the bank which rose by 185.68 per cent (N1.47tn) between January 2023 (N792.18bn) and June 2023 (N2.26tn).

This Week

• Bank of England monetary committee meets on Thurday 3^rd August 2023. The Bank of England raised its policy interest rate by 50 basis points to 5.0% during its June meeting, marking the 13th consecutive hike. This decision surprised market expectations of a smaller 25 basis point rate hike and pushed borrowing costs to their highest level since the 2008 financial crisis, all to combat persistent inflation.