Tighter Financial Conditions for FMCGs

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.

The Falcons lost to England yesterday. I really wanted them to win, given the most remarkable way they have handled all the challenges thrown at them, including from those that were supposed to support them.

Ifeoma Onumonu, one of the players said this to the UK Guardian after the game:

“I’ve seen what [resources] England have access to,” said the forward, who plays her club football for NJ/NY Gotham FC in the US. “In Nigeria we don’t have access to much. Our training fields aren’t great. Where we sleep isn’t great. Sometimes we share beds.

“It’s not good enough. In terms of recovery, we don’t have much of any of that. We don’t have access to a gym in camp Nigeria.

“There’s a lot that needs to be done. Hopefully more people start to talk about it. Coming here it’s hard to adjust. We do what we can because we love playing for our country but hopefully they make it easier for us to do our best.”

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Markets

• The Nigerian equities market started the first trading week on a positive note as the benchmark NGX All-Share Index (ASI) inched up 138.72 (0.21%) points to close at 65,336.80, representing a week gain of 1.55%, a 4-week gain of 1.13%, and an overall year-to-date gain of 27.48%. Nigerian Enamelware led the gainers with 9.86% share price appreciation closing at NGN 19.50 per share, followed by Wema Bank (9.77%), University Press (9.73%) and Sunu Assurances Nigeria (9.68%).

• Brent crude futures eased toward US $85 per barrel on Monday, hovering close to their four-month high following six weeks of consecutive gains.

• Naira was down at the I & E and on the streets. At the I&E window, Naira depreciated by 4.17%, closing at N774.78 against the US dollar. However, in the street market, the Naira down by 1.14%, reaching N887.5 against the US dollar.

• US natural gas futures extended gains to over US $2.7/MMBtu, the highest in nearly two weeks driven by expectations of heightened demand for air conditioning.

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National Headlines

• 45 Ministers confirmed, 3 delayed – 45 out of the 48 ministerial nominees of the President have been confirmed, but three have been delayed. The three confirmations delayed are that of the former governor of Kaduna State, Mallam Nasir El Rufai, Stella Okotete, the nominee from Delta State, and Sani Danladi of Taraba. Let me highlight two things. It shows that the “successful” screening of the nominees does not mean confirmation. The second is that there is no suggestion yet that these names will not be confirmed as I expect compromise will made – Nigerian politics.

• The Falcons made Nigeria proud – The Falcons went out of the women’s world cup yesterday on penalties against England, the European champions and one of the favourites. Unlike many other teams, the Falcons endured poor preparations, poor public relations that is not their fault, and weak support from the government. So, to reach the last 16 is commendable. It is even more important that they have shown tremendous progress since the last world cup.

• The potential for solar powered electricity is huge – The scope for solar powered electricity is extremely huge, the representative of Nigeria’s generating companies, Joy Ogaji, has said in Abuja, according to Punch reports. She estimated that the country can generate over 450,000 MW from Solar, compared to about 4,000MW total generation today. The possibility stems from the natural solar radiation of 3.5 – 7.0kWh/m2 per day in the country but cost is currently prohibitive. Cost of renewable energy in Nigeria at approximately $0.55 to $0.6/kWh is not competitive compared to utility, which is approximately $0.105/kWh.

Global Headlines

• Closure of Niger’s airspace and ramifications – After Niger’s closure of its airspace weekend, international airlines are scrambling for new routes, raising uncertainties and fares. Most links between Europe and Southern and Western Africa nations involve using the Nigerien airspace. The closure now means additional 15 minutes to 2 hours additional times depending on the route. Meanwhile, Victoria Nuland, the US acting deputy secretary of State has visited Niger and the UK Guardian reported that she had “frank and difficult discussions”, especially as she was not allowed to see the ousted president, Mohamed Bazoum.

• Paypal launches Stablecoin – Paypal, US payments said on Monday it has launched a U.S. dollar stablecoin, according to Reuters. It becomes the first major financial technology firm to embrace digital currencies for payments and transfers. While stablecoins - crypto tokens whose monetary value is pegged to a stable asset to protect from wild volatility - have been around for years now, they are yet to successfully make headway into the mainstream consumer payments ecosystem.

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News Analysis - Tighter Financial Conditions for FMCGs

Rising interest rates, Naira’s weakness and foreign exchange volatility, and the impact of the removal of fuel subsidies have escalated already daunting business conditions for FMCGs. Most of Nigeria’s FMCGs rely on foreign inputs, have heavy logistics costs, and huge exposure to banks. Combined, FMCGs are extremely vulnerable to Nigeria’s worsening economic conditions.

The data obtained from the 10 leading companies listed on the Nigerian Exchange Limited (NGX) paints a concerning picture of the industry's financial health. The dramatic 411.2% increase in finance cost from borrowings, soaring to N330.972 billion in H1'23 from N64.745 billion in H1'22, is a clear indication of the growing challenges these companies are facing in managing their debt obligations. The unprecedented surge in finance cost follows Central Bank of Nigeria's (CBN) continuous upward adjustments of the Monetary Policy Rate (MPR), currently 18.75%.

This Week

• United State will release its inflation rate for the month of July on Thursday August 10, 2023. The annual inflation rate in the US slowed to 3% in June of 2023, the lowest since March of 2021 and compared to 4% in May and expectations of 3.1%

• On Friday 11^th July 2023, the United Kingdom will release its GDP data for second quarter 2023. Britain's quarterly economic growth was confirmed at 0.1 percent in the first quarter of 2023, remaining unchanged from the previous three-month period. Analysts expects that the GDP rate for Q2 might be 0.1%.