July, FAAC highest this year

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.

India is on the rise. The country has been on the rise since its economic reforms started in 1991, but it has truly been remarkable in the last 10 years.

• It has become the fifth largest economy in the world

• One of its banks is now in the top 10

• Yesterday, “India is on the moon”

The country has built its economy on serious education and technological foundations, liberal policies, and exceptional statecraft.

Nigeria can do the same, but not with politicians with myopic and mediocre mindsets that sees personal mansions and bullet proof cars as successes.

Please, also share so we can continue to build a community of “business thinkers”.

Markets

• The benchmark NGX All-Share Index (ASI) inched up 4.25 (0.01%) points to close at 65,492.92, representing a week gain of 1.34%, a 4-week loss of 0.3%, but an overall year-to-date gain of 27.79%. Associated Bus Company led the gainers with 9.62% share price appreciation closing at NGN 0.57 per share, followed by Thomas Wyatt Nigeria (+9.3%), Transcorp Hotels (+8.99%) and Courteville Business Solutions (+8.33%).

• Oil prices were down 1% on Wednesday as a build in US gasoline stocks fed worries about demand after Japan and Europe posted gloomy manufacturing data. Brent crude was down 93 cents, or 0.76%, at US $83.39 a barrel bouncing off a 2.5% decline earlier in the session. U.S. West Texas Intermediate crude was down 82 cents, or 1.03%, at US $78.82.

• Naira was down at both the I&E Window and the street market. On the I&E exchange, Naira depreciated by 0.35%, ultimately closing at a rate of N773.42 against the US dollar. On the streets, Naira was down by 0.57%, reaching a value of N885.00 against the US dollar.

• US natural gas futures fell below $2.6/MMBtu Wednesday amidst weather signals and production declines.

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National Headlines

• A bag of rice now over N50,000 – The price of an average bag of rice has surpassed the N50,000 mark in the last week. The price of an average bag of rice, previously set at between N18,000 and N20,000 early last year has more than doubled in 12 months following two critical factors. The first was the flooding of November 2022 that affected rice planting areas like Taraba, Jigawa, Kebbi, Niger, and Kogi. Second is the Naira’s exchange rate to the US dollar, with Naira depreciating by more than 40% in under three months. As we enter the last few months of the year and in preparation for Christmas, the expectation is that the price will go up further due to seasonal demand.

• Manufacturers groan over input prices – The greatest casualty of dramatic increase in prices is often manufacturers. Not surprising therefore, the Manufacturer Association of Nigeria (MAN) says its group has spent near N8 trillion in three years to import inputs. It says it has been forced to source for foreign exchange on the streets as the Central Bank of Nigeria is unable to meets its forex demands. The group says it has improved local sourcing of raw materials to about 53% of its inputs compared to 51.5% in 2021. But the challenge before manufacturers and other businesses in Nigeria is not the ratio of local inputs but overall productivity.

• July FAAC highest this year – The Federation Account Allocation Committee says it shared N966.11bn among the three tiers of government for July 2023, a marginal increase of N59.06bn compared to the N907.05bn shared for June 2023, the highest this year. (See News Analysis Below).

Global Headlines

• Zimbabwe Polls – Zimbabwe went to the polls yesterday for the second time since the removal of late President Mugabe in 2017. The national election is to elect a President, national legislators and local government leaders. 11 candidates are on the presidential ballot, including the 80-year-old current President Emmerson Mnangagwa of the Zanu – PF and the main opposition party Nelson Chamisa, a 45-year-old head of the Citizens Coalition for Change (CCC). By evening, while voting was still on, opposition claimed there was extensive rigging and voter suppression. This election is about economics. More than 50% of Zimbabweans live in poverty and June inflation was 175%. The election result is expected within five days.

• BRICS nations agree expansion – The BRICS summit holding in South Africa concludes later today. Yesterday, South Africa announced that they agreed mechanisms for admitting new members into the group, following growing enthusiasms from many developing countries about joining the group. Earlier, China has advocated for speed in relation to admitting new members. Meanwhile, India, hosting the G20 meetings next month Sept. 9 – 10 has advocated that the Africa Union be made a permanent member of the G20.

• Wagner boss died before he could “help” Africa – The leader of the Wagner group, a mercenary group funded by the Russian State, Yevgeny Progozhin died in a plane crash with 9 others near the village ff Kuzhenkino in Russia. His last publicly made statement was that he would help set Africa free in relation to the problems in Niger. He led a failed mutiny in June, and it is widely speculated that this plane crash is not an accident. The mercenary group was founded in 2014 and has steadily grown its military influence in Africa and other troubled spots. It was used in Syria and Ukraine and has been involved in Africa in Central African Republic (CAR), Libya, Mali, Sudan – countries with tensed relationships with the West and unstable.

• India has landed on the moon – This year, India became the fifth largest economy in the world. This year also, one of its banks entered the global top 10 banks for the first time. Yesterday, the country recorded another remarkable feat – India is on the moon. Chandrayaan – 3 spacecraft has successfully landed on the South Pole region of the moon, the first to do that. India has thus become the fourth nation and joined a list of exclusive countries that have successfully landed on the moon – US, China, and the former Soviet Union.

News Analysis - FAAC in July

The Federation Account Allocation Committee (FAAC) has announced the distribution of N966.11 billion among the three tiers of government for July 2023. This figure reflects a slight uptick of N59.06 billion when compared to the N907.05 billion shared in June 2023, marking the highest distribution for this year. The total distributable revenue of N966.11 billion is composed of N397.42 billion statutory revenue, N271.95 billion in VAT, N12.84 billion from Electronic Money Transfer Levy revenue, and N283.904 billion from Exchange Difference revenue.

The Federal Government received N374.49 billion, state governments received N310.67 billion, and Local Government Councils received N229.41 billion. Additionally, a sum of N51.55 billion was allocated to relevant states as 13 percent derivation revenue.

In terms of specifics, a gross statutory revenue of N1,150.42 billion was recorded for July 2023, representing a decrease of N2.5 billion from the N1,152.92 billion received in June 2023. Meanwhile, the gross revenue from VAT stood at N298.79 billion, indicating an increase of N5.38 billion compared to the N293.41 billion in June 2023. From the N12.84 billion generated from the Electronic Money Transfer Levy, the Federal Government received N1.93 billion, state governments received N6.42 billion, and Local Government Councils received N4.49 billion.

Lastly, the Exchange Difference revenue of N283.9 billion was allocated as follows: the Federal Government received N141.28 billion, state governments received N71.66 billion, Local Government Councils received N55.25 billion, and N15.72 billion was shared among the relevant states as 13 percent mineral revenue.

Import and Excise Duties, along with Electronic Money Transfer Levy, experienced significant increases, while VAT saw a modest rise. Meanwhile, PPT, CIT and Oil and Gas Royalties all declined, following reduction in oil production, despite an increase in oil prices. International oil prices rose by 6% from an average of US$77.9 in June to US$82.3 in July. However, oil production dropped by 14% from 1.25 million barrels per day in June to 1.08 million barrels per day in July.

This Week

• Friday 25^th August 2023, the highly anticipated Nigerian Gross Domestic Product by Output Report (Q2 2023) will be released. The latest statistics shows that Nigeria's GDP grew by 2.31% y/y in real terms in Q1 2023, from 3.11% recorded Q1 2022, and 3.52% in Q4 of 2022.