ThinkBusiness Today - August 2nd

E kaaro o, Ututu Oma, Barka da Safiya - Good morning, and a warm welcome to ThinkBusiness Nigeria, your Monday – Friday dose of commentary, contexts, and insights on business and economic news that matter to you.

Did you read the story of four Nigerians rescued by Brazilian police after traveling near 6,000km from Lagos to Sao Paulo? They had planned to travel to Europe by illegally hiding in a cargo ship rudder from Lagos. After 10 days in the journey, they ran out of food and water but survived another four days by drinking sea water. No doubt, another reminder of the kind of risks that some Nigerians are prepared to take to give themselves a chance at better life. All four survived but two have returned to Nigeria while the other two seeks asylum in Brazil.

On the same day, FIFA says it will now “ring fence” players pay because the Nigerian football federation has refused to pay the girls thriving in Australia and New Zealand. These are very clear indications that we don’t yet have a country that takes care of everyone. That system needs to be designed. It can’t be adhoc and it can’t be subjected to human caprices.

Until then, we will continue to be embarrassed like we were yesterday.

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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 week loss of 1.43%, a 4-week gain of 3.86%, and an overall year-to-date gain of 25.53%. Key share price movement include Dangote Sugar Refinery

  (-10%), Ecobank Transnational (-10%), Livestock Feeds (-10%) and NPF Microfinance Bank (-10%).

• Corporate Results - Notore has recorded revenue of N7.92 billion Q2 2023, following a very challenging period for the company with disruption to its gas supply. Lasaco Assurance Plc has said it will pay 15 kobo dividends on every share, translating to a total value of N183m for the financial year ended 31st December 2022. BUA Cement reported a 17.2% y/y revenue growth to N221.07 billion in H1 2023 from N188.56bn in the prior period (H1 2022).

• Oil prices edged lower on Tuesday. Brent crude futures for October settled at US $84.91 a barrel on Tuesday, down 52 cents or 0.6%. Front-month Brent settled on Monday at its highest since April 13. U.S. West Texas Intermediate crude futures closed at US $81.37 a barrel, down 43 cents, or 0.5%, from the previous session's settlement, which was its highest since April 14.

• Naira was down at the official and street markets. At the I&E window, the Naira depreciated by 1.74%, resulting in a closing rate of N789.08 against the US dollar. Simultaneously, in the street market, the Naira slid slighty by 1.75%, down to N867.50 against the US dollar.

• U.S. natural gas futures fell around 3% on Tuesday on forecasts for less demand over the next two weeks than previously expected.  

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National Headlines

• Nigeria’s business confidence low – Unsurprisingly, the purchasing managers’ index, a key indicator of Nigeria’s business outlook reached its lowest point in history, according to July data released by Stanbic IBTC. The index declined from 53.2 in June to 51.7 in July. The reasons for low confidence are soaring inputs costs and dampened demand.

• Crude oil production fall again – Nigeria and Saudi Arabia had the biggest decline in crude oil production under the umbrella of the Organization of Petroleum Exporting Countries (OPEC) in July 2023. Declining crude oil production, especially in the face of high oil prices and pressures on Naira is the greatest risk to Nigeria’s short term economic prospects and growth. President Bola Tinubu should focus more attention on this. Imagine the impact of additional 300,000 barrels per day.

• Average electricity generation up by 8.6% but remains under 4,000MW – It appears Nigeria’s electricity growth has defied logic. Recent data shows that Nigeria’s average electricity generation rose by 8.6% y /y to 3,970.33 megawatts in July 2023, a level it has remained many years after privatization, restructuring and billions of investments. Just focusing on the huge administrative structure built around electricity, including the establishment of the National Electricity Regulatory Commission (NERC), National Bulk Electricity Trader (NBET), Nigerian Electricity Liability Management Company (NELMCO), Nigeria Electricity Management Services Agency (NEMSA), and National Power Training Institute (NAPTIN). Recently, constitutional changes were made to speed up electricity development by allowing States further inroads into the sector. But what households and businesses want to see is electricity and for years, remain under 4,000MW.

• Diaspora remittances – Diaspora remittances is expected to rise to US $25 billion by 2025, according to a new report by Augusto & Co. It was US $20.1 billion in 2021, second highest in Africa, after Egypt with US $28.3 billion. (See Analysis below)

Global Headlines

• Fitch downgrades US long term rating to AA+ from AAA – After the US avoided a default in May, it came as a surprise that Fitch has downgraded US long term rating yesterday to AA+ from AAA. It follows placing the rating on currency negative watch during the debt ceiling debacle in May. Fitch cites expected fiscal deterioration over the coming years as reason for its downgrade. Specifically, Fitch expects that fiscal deficits will rise further in the coming years, reaching 6.3% of GDP.

• U.S. job openings fell to the lowest level in more than two years – Meanwhile, US job openings fell in June to level last seen more than two years ago. Notwithstanding, the job market shows tight labour conditions and resilience. There were 1.61 job openings for every unemployed person in June, up from 1.58 in May.

• South Africa is working with Russia to do another grain deal – South Africa foreign minister Naledi Pandor has said that the country is working to persuade Russia to do another grain deal that ensures the reopening of the black sea. Russia did not renew the initial grain deal when it expired last month after a year. The deal allows Ukraine to export wheat and other grains. Before the deal in July 2022, food prices had skyrocketed across the world, but the deal helped to stabilize prices.

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News Analysis - Diaspora Remittances

According to the latest International Payment data released by the Central Bank of Nigeria, diaspora remittances to Nigeria experienced a substantial decline H1 2023. This decline has dealt a significant blow to Nigeria's aspirations of bolstering its foreign exchange liquidity through remittances.

An in-depth analysis of the data indicates that Nigeria witnessed a gradual increase in remittances during the course of 2023. In January, the country received US $79.2 million in remittances, which saw a slight rise to US $83.8 million in February. The trend continued with a notable surge in March, reaching a total of US $138.6 million in direct remittances. Subsequently, April recorded $150 million in direct remittances, followed by a further increase to $202.9 million in May. By June 2023, the total direct remittances reached $297.5 million, showcasing a consistent upward trajectory in remittances. Agusto & Co. predicts that remittance flows into Nigeria should rise from US $20.1 billion in 2021 to approximately US $26 billion by 2025 following rise in Nigeria’s emigrant base and optimistic economic outlook in developed economies.

This Week

• Bank of England monetary committee meets on Thursday 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.