ThinkBusiness Today - July 10th

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.

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This morning, I am delighted to share with you the ThinkBusiness Insights for July 2023. I hope you find its useful, and please share so we can continue to build a community of business thinkers.

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Markets

• The equities market sustained the upward movement on Friday as NGX ASI rose by 1.65% to close at 63,040.41, representing a week gain of 3.4%, 4-week gain of 12.49%, and an overall year-to-date gain of 23%. Key share price movement include that of Presco (10%), FTN Cocoa Processors (+10%), Omatek Ventures (+10%) and Afromedia (+10%), DANGCEM (3.45%) and MRS (+8.98).

• Oil prices climbed near 3% to a nine-week high on Friday as supply concerns and technical buying outweighed fears that further interest rate hikes could slow economic growth and reduce demand for oil. Brent futures rose US $1.95, or 2.6%, to settle at US $78.47 a barrel, while U.S. West Texas Intermediate crude (WTI) rose US $2.06, or 2.9%, to settle at US $73.86. That was the highest close for Brent since May 1 and WTI since May 24. Both benchmarks ended up about 5% for the week.

• Naira fell at both the I & E and street markets, 1.87% and 2.11%, respectively. They closed at N776.9 and N797.5, respctively.

• U.S. natural gas futures fell about 1% to US$2.58 on Friday to a two-week low, as drillers pulled record amounts of gas out of the ground and after a bigger-than-expected storage build last week.

Price of Gold increased by 53% in 5 years but grow by 6% year to date

Over the past five years, the price of Gold has seen an increase of 53%. Starting from an average of US$1,240 in July 2018, it has climbed steadily to reach approximately US$1,900 in early July 2023.

Gold Price in US $ July 2018 – Date

Gold has exhibited a modest increase of approximately 6% year-to-date despite high inflation in many economies. But over the last five years, it has shown its resilience during a combination of rise in producer prices, money supply and bank deposits. Compared to other components of the Bloomberg Commodity index, gold has emerged as a top performer on an annualized basis.

Gold is still expected to endure as the global economy moves past the Federal Reserve's hawkish monetary stance, significant levels of uncertainty and volatility, and global weak growth. Data shows central banks in emerging markets (EM) are actively acquiring gold, driven by geopolitical risks and the trend of de-dollarization, supporting its trajectory for price appreciation, albeit potentially at a slower pace than previously witnessed. Notwithstanding, the market does not expect gold price to return to the peak of US $2074 of August 2020, given the interest rate dynamics today. In summary, the outlook for gold suggests a positive upward trend, albeit with a more gradual progression, as market conditions evolve, and the Federal Reserve's monetary policies come into play.

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National Headlines

• Swapped Funds between Nigeria and Ethiopia – Over the weekend, it emerged that Nigeria and Ethiopia Central Banks have swapped US $100 million. There are many dimensions to this deal. One is that they are both short of US dollars and they both have trapped funds in their respective economies. Underlying all this is how capital works. If there were no respective investments in these countries, it would not have been possible. All other trapped funds are evidence that the capital direction is one way. So, emerging economies like Nigeria needs to always promote business environment that help keeps investment in the country until it grows its own capital. Even then, it must continue to do so because capital everywhere, including domestic capital, can leave.

• Board Room Politics – First Bank is in the news again, for the usual reason. Former chairman Oba Otudeko announced he had acquired shares to make the largest shareholder of the bank at 13.3%. In the process, the bank’s shares nearly doubled in a year. As you can imagine, the current board are not happy. Oba Otudeko was removed by the suspended Central Bank Godwin Emefiele April 2021 after he had removed the Managing Director Dr. Adesola Adeduntan. In the next few days and weeks, there will be many permutations and arguments about this development, just as it was when Femi Otedola acquired about 5% shares of the bank. My only concern in all of this is whether the Security and Exchange Commission (SEC) is alive to its responsibilities, ensuring that all its rules are diligently followed.

Global Headlines

• Germany wants nurses from Africa – The motivation is simple. In developed economies, they are growing older (life expectancy in Germany is 80 yrs.), requiring more medical care, but they are not replenishing their populations following low birth rates (9 births per 1,000 people). Meanwhile, they have the capital. In Africa, we have a very young population (36 per 1,000 / four times the birth rate in Germany), life expectancy is low (52 in Nigeria), and we do not have the capital. Match made in heaven. Not surprisingly, according to reports in Business Day South Africa, Germany is in conversation with South Africa about recruiting nurses for the 500,000 shortfalls in the largest economy in Europe. Meanwhile, South Africa has 20,000 unemployed nurses.

• Geopolitics and Investments – Following Reuters report, it has now emerged that Saudi National Bank (SNB) wanted to increase its stake in Credit Suisse to around 40% from 9.88% before the bank was acquired by UBS. The Central Bank of Switzerland denied the SNB that opportunity, for obvious geopolitical reasons. The SNB now has 0.5% of UBS.

• NATO leaders gather in Lithuania this week – This week, NATO (North Atlantic Treaty Organisatio) leaders gather in Vilnius, Lithuania amidst ongoing Russia / Ukraine war. NATO. The 31-member organisation is divided over whether to admit Sweden as the 32^nd member, and division remains over who the next secretary general should be.

• Jack Ma is back – Jack Ma, arguably China’s most popular businessman, appears to have finally resolved the matter between Ant, his financial group and the country’s central bank. On Friday, the China central bank asked Ant Group to pay a fine equivalent of US $985 million over violations of corporate governance, consumer protection and money laundering regulations. The group’s initial public offering of expected US $37 billion was scrapped in 2020.

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Strategy for Winning - Twitter Vs Threads, the Power of Platforms

There is no price for guessing I will dwell on this in this section today. It has been the news of the week. To comment somewhat intelligently, I joined threads yesterday. Please follow me @oghookiti

Context – Twitter, established in 2006, had more than 100 million users by 2012 and became 10 of the most visited websites by 2013. By 2019, it had more than 330 million active users, though about 15% of that was estimated to be fake by 2020.

Elon Musk acquired and gained control of Twitter October 2022 for US $44 billion. Before then, growth had slowed. What culminated in the purchase of Twitter was not a business motivated purchase but frustration about the platform’s commitment to free speech and democracy. So, he initially bought shares but was not allowed to join the board – poison pill.

Since its purchase, Twitter, at best, has been characterised by volatility, and that is what has “annoyed” users and driven away advertisers. In the space of six months, Twitter has banned platform linkages, stopped tweet Bot working, removed legacy verification badges, and limited the number of tweets users can see.

Unsurprisingly, Meta pounced and launched Threads, reaching almost 100 million users in 72 hours, all signing up through their Instagram accounts (the only way to sign up for now).

What are the lessons:

• Platforms are powerful. Platforms (anywhere with the capacity to bring large ‘gathering’ of people) have always been there e.g., Coca Cola or Kodak advertising during world cups before any of these technology platforms started. But technology has provided opportunity for scale never seen before.

• Competition is fierce, more than ever before. Yes, competition have always been there, but technology has also made it fiercer than ever by making it possible to compete faster and at a scale never seen before. So, businesses are not able to freely get away with lapses, forgiven in the past.

• Stability and motivation are key. Elon Musk never really considered the business case for Twitter. His consideration were freedom of speech and democracy. Though successfully ran businesses in the past, none like Twitter. Twitter involves managing some emotions of 330 million people.

• Finally, and perhaps most critically, rely on your strengths for success. Leverage on your strengths for success. Winning is all about leveraging strengths. That is what Meta, through Instagram has done. Meta’s share price is now at 18 months high.

The Week Ahead

• Wednesday July 12 the National Bureau of Statistics (NBS) will release the labour statistics report. The latest data shows that Nigeria unemployment rate stood at 33.33%. We expect to see an increase in the numbers.

• Saturday July 15 the NBS is expected to release inflation report for June 2023. This is highly expected as it will give the early indication of the jump in prices of goods and services, following the removal of fuel subsidies and the about 200% increase in fuel prices.

• Other international reports: United Kingdom will release its employment data on Tuesday 11^th July 2023; United State inflation June report on Wednesday 12^th July 2023.