ThinkBusiness Today - August 3rd

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.

This may sound very cruel, but I believe organised labour, led by the Nigeria Labour Congress (NLC), has lost its relevance. It has become part of the Nigerian elite and it is hypocritical to suggest it is fighting for the poor or its members. Strike is the start and finish of its approaches to resolving conflict and the engagement process with members is weak. No wonder that after the meeting with the President, it now has “deeper understanding” of the palliatives. Just like every area of Nigerian life, organised labour has become part of the problem, but it can also be part of the solution.

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Markets

• The market rebounded on Wednesday as the benchmark NGX All-Share Index (ASI) inched up 75.16 (0.12%) points to close at 64,267.36, representing a week loss of 2.16%, a 4-week gain of 4.46%, and an overall year-to-date gain of 25.4%. Key share price movement include National Salt Company (10%), Abbey Mortgage Bank (10%), Chams (10%) and Skyway Aviation Handling Co. (9.96%).

• Corporate Results – FCMB Group has recorded a 148% growth in PBT of N38.2 billion for H1 2023 compared to N15.4 billion in the corresponding period of 2022. Lafarge Africa reported its Q2 2023 showing PBT grew by 29.02% y/y, reaching N32.787 billion. This took the H1 2023 PBT to N55.315 billion versus N46.879 billion in the same period last year. Dangote Sugar in its H1 2023 results reported a 9.3% y/y growth in revenue to N202.78bn from N185.46bn in H1 2022. Its topline performance was driven by growth in sales of sugar (50kg), sugar (retails) and molasses to N194.19bn (+8.3% y/y), N5.86bn (+70.8% y/y) and N1.54bn (+7.9%) respectively in H1 2023 while Freight Income declined by 13.2 y/y to N1.19bn in the period. Fidelity Bank reported its 2023 Q2 2023 showing PBT by 184.08% y/y, reaching N43.58 billion. This took H1 2023 half-year PBT to N61.19 billion versus N25.67 billion in the same period last year.

• Brent crude oil futures erased earlier gains and fell toward US $83 per barrel on Wednesday. Crude oil futures fell under pressure despite fresh data showing that US crude oil inventories fell by 17.05 million barrels in the last week of July, the most on record.

• At the I&E window, Naira appreciated by over 6%, resulting in a closing rate of N741.64 against the US dollar. Simultaneously, on the streets, Naira slid slighty by 0.64%, down to N867.50 against the US dollar.

• US natural gas futures fell to below $2.5/MMBtu in the beginning of August, the lowest level since mid-June, prompted by prospects of lower demand and ample supplies.

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National Headlines

• Strike suspended? – The leadership of the Nigeria Labour Congress (NLC), the umbrella organization for organized labour, led by Comrade Joe Ajaero met with President Bola Tinubu yesterday. Following the meeting, the leadership of the labour movement says it will go back to a larger group before determining their next line of action. But the government says further protests have been called off.

• Supplementary Ministerial list – President Bola Ahmed Tinubu has sent a list of 19 more ministerial nominees to the Senate for confirmation. With those additional 19 names, we now have a complete list of ministerial nominees of the President. The expectation is that once the confirmation process is completed, the ministers will be assigned their portfolios. So far, what do we know? The 47-name list is rather huge, much more than 42 that was expected. Mind you, given the constitution, they are all supposed to report to the President. That is unwieldy and one of the reasons for poor performance. Also, from all indications, it is most likely we will have Wale Edun as Minister for Finance, Bosun Tijani as Minister for communications and digital economy, and Mohamed Ali Pate as Minister for Health. Those are the names and portfolios that looks straightforward for now.

Global Headlines

• BRICS expansion is on – The South Africa ambassador to BRICS, the economic body of Brazil, Russia, India, China, and South Africa says the body will make announcement on its expansion during its summit later this month. South Africa, the current chair of the group will host the summit later this month August 22 – 24.

• Markets react to AA+ Fitch Rating – Wall Street and other global markets dropped on Wednesday in response to the move by rating agency Fitch to downgrade the US government's credit rating. As mentioned here yesterday, Fitch downgraded the United States credit rating to AA+ from AAA, citing expected fiscal deterioration over the next three years as well as growing government debt. Many economists, including Larry Summers, former US Treasury secretary, Mohamed El-Erian, chief economic adviser for Allianz and Janet Yellen, current US treasury secretary all criticized the downgrade. Fitch was the second major agency to cut the country's rating. In 2011 Standard & Poor's stripped the country of its triple-A grade and the leader of the team at the time has said that AAA rating is not “god given right”.

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News Analysis - Purchasing Managers’ Index (PMI) shows economic strain

In July, Stanbic IBTC's headline Purchasing Managers' Index (PMI) recorded a reading of 51.7, down from 53.2 in June. This indicates a moderate improvement in the private sector business conditions. The private sector's health showed a softer improvement, primarily due to slower growth in both output and new orders.

Notably, both output and new orders experienced the weakest rates of growth, signaling a slowdown since the sector's expansion after the earlier cash crisis in the year. Elevated price pressures were a key factor restraining the pace of growth in business activities within the Nigerian private sector during the month. As a result, overall input costs reached a record high level, and selling prices spiked rapidly in response.

Consequently, business confidence hit a new low, marking the lowest level in just over 9 years of data collection. Some firms managed to secure new contracts due to rising customer numbers, but others struggled to cope with the negative impact of surging prices on demand.

Rising input prices posed a significant concern for businesses which was primarily caused by reforms around FX and subsidy removal and with overall input costs experiencing the most substantial increase in over nine-and-a-half years of data collection. These challenges highlight the delicate state of the private sector amid the current economic conditions.

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.