ThinkBusiness Today - July 11th

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.

As I write this introduction, thought to mention that I have not had to use my generator in the last 72 hours. What is the connection? A major chunk of the consumption of PMS and diesel is because of our peculiar anomaly and resulting inefficient use of resources. Neither PMS, nor diesel is regarded as optimal use for powering our homes. While PMS consumption is down 28% since the removal of subsidy, improvement in the power situation in the country will bring it down, given current economic dynamics.

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Markets

• The equities market sustained the upward movement on Monday as NGX ASI rose by 2.48% as Dangote Cement Plc announces the commencement of the Tranche I share buyback program. The benchmark NGX All-Share Index (ASI) soared 1,563.28 points to close at 64,603.69, representing a week gain of 4.28%, a 4-week gain of 15.31%, and an overall year-to-date gain of 26.05%. Dangote Cement led the gainers with 10% share price appreciation closing at NGN 330.10 per share, followed by MRS Oil Nigeria (+10%), Neimeth International Pharma (+10%) and Jaiz Bank (+10%).

• Oil prices slipped on Monday, retreating from Friday’s ten-week high amid continued concerns about the world’s two biggest economies – U.S. and China. WTI Crude traded at US $73.15, down by 0.96% on the day. The international benchmark, Brent Crude, was down by 0.29% at US $78.24.

• Both the I & E and street markets saw Naira up – by 4,23% to close N744.07 at the I &E, and by 1.94%, closing at N782.50 on the streets.

• U.S. natural gas futures climbed about 3% to US$2.65, a one-week high on Monday on forecasts for hotter weather that should boost cooling demand more than previously expected through late July, especially in Texas.

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National Headlines

• What does the report on capital importation mean for Nigeria? – This data is now keenly watched as we attempt to glean how the business environment in Nigeria is perceived from outside. Latest report shows capital importation declined for Q1 2023 by 28%, compared to Q1 2022 at US $1.13 billion. See analysis below.

• Price, substitution effect, and more – As expected, after the removal of fuel subsidy since 29^th of May, daily PMS consumption in the country has declined by 28%. What is not clear yet, and we may never have an accurate data for it is how much is due to reduction in consumption following prices increases, how much of it is due to the elimination of arbitrage responsible for smuggling, and how much is due to the consumption of alternatives, where possible, due to the price changes. There are many dimensions of the use of PMS, and it will take more than one month for us to fully understand the impact of price on each use. For instance, with every improved light situation, PMS use also falls.

• Party disease – Yes, there is a party disease in Nigeria, at least that of the political variety. In the ruling All Progressives Congress (APC), the chairman is making frantic efforts to keep its job. In the People’s Democratic Party (PDP), the internal crisis that contributed to their loss at the polls will not go away. Then, in Nigeria’s politics, it does not matter whether the party wins or loses, there is always some sort of crisis.

Global Headlines

• Who wins the award for annual inflation? – As many economies battle rising costs of living and inflation, perhaps it is time to give award to countries with the highest level of inflation. Excluding countries with significant political, economic, and social dislocations such as Venezuela, Sudan, Lebanon, Syria, the highest inflation numbers have come from Zimbabwe 60%, Argentina 51%, Turkey 36.1%, Iran 35.2%, Ethiopia 33%, and Egypt 36% this year. As with all other developing and emerging economies, they face structural and frictional price systems. Same with Nigeria.

• NATO expansion – Yesterday, Turkey agreed to the admission of Sweden to the North Atlantic Treaty Organisation (NATO). When ratified, Sweden will become the 32^nd member of the security organization established after World War II in 1949 to provide collective security against the Soviet Union (Russia). The colouration has changed since the end of the cold war, leading to admissions of countries such as the Czech Republic, Hungary, and Poland, (1999) Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia (2004), and Albania and Croatia (2009). Meanwhile, it appears the current secretary general Jens Stoltenberg will continue for another year as the group fails to reach a consensus on comes next.

• Key economic developments – Further signs of a slowing Chinese economy emerged this week. Its producer prices fell at their fastest pace in over seven years in June, while consumer prices teetered on the edge of deflation. It fell for a 9^th consecutive month to 5.4%, steepest decline since 2015. In the US, Microsoft says there will be further job cuts on top 10,000 announced in January. Meanwhile, Canada is expected to raise rate again for the second consecutive month after positive labour market data but still sticky inflation.

• Twitter traffic has stalled – Following the launch of Threads last week, which has reached 100 million after days, Twitter’s traffic has stalled.

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News Analysis – The data on capital inflows and its meaning

According to the latest report from the National Bureau of Statistics, Nigeria experienced a 28% decline in total capital inflow in Q1 2023. The capital inflow for the first three months amounted to US $1.13 billion, indicating a drop of $441 million compared to the corresponding quarter of 2022, which stood at US $1.5 billion. However, compared to the preceding quarter Q4 of 2022, the capital inflow increased by 6.78% from US $1.06 billion.

Capital Importation in Nigeria in Millions of US $

Despite the overall decline in capital inflow, Nigeria saw a significant rise in portfolio investments into the equity market Q1 2023, attracting US $222.3 million, a substantial 4,472% increase compared to the immediate past quarter Q4 of 2022. In contrast, Nigeria only managed to attract US $56 million in foreign portfolio investments (FPI) in equity throughout 2022 as investors remained cautious due to forex policies. FDI also amounted to little, US $468 million in 2022, showing miserly appetite for investment in Nigeria.

Given critical macroeconomic policy changes in the last six weeks, the expectations is that foreign interest in Nigeria’s investment will rise significantly. How significantly and how soon is difficult to tell because those measures, by themselves, are not sufficient to attract investment.

The Week Ahead

• On Wednesday July 12, 2023, the NBS will release the labour statistics report. The latest data shows that Nigeria unemployment rate stood at 33.33%.

• On Saturday July 15, the NBS will also release the inflation report for June 2023. The expectation is that the inflation rate for June will increase as the report will reflect the full effect of the removal the removal of fuel and exchange rate cap.

• 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.