ThinkBusiness Today - July 27th

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.

Today is the day! At least, that is my hope – that the President will send the list of Ministers to the Senate for screening and the expectation will be that by next week, we have them in place.

Please have a great day.

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Markets

• NGX ASI (Nigerian Exchange All-Share Index) declined 0.41% in Wednesday trading, shedding 303.86 points to close at 65,687.16, representing a week gain of 3.03%, a 4-week gain of 10.7%, and an overall year-to-date gain of 28.17%. Seplat Petroleum Development Co. led the gainers with 10% share price appreciation closing at NGN 1,693.60 per share, followed by NCR Nigeria (+10%), Courteville Business Solutions (+10%) and FTN Cocoa Processors (+9.92%).

• Oil prices dipped on Wednesday. Brent crude futures down 48 cents, or 0.8 %, at US $83.16 a barrel while U.S. West Texas Intermediate (WTI) crude was at US $78.92, down 68 cents, or 0.9%.

• Supply concerns remain, fueling the divergence between the rates at the I & E window and that on the streets. Yesterday, Naira closed at N740.08 at the I & E window, appreciating by 6.45% while it reached N854 on the streets, appreciating by 1.91%, both against the US dollar.

• U.S. natural gas futures slid over 3% on forecasts of less demand this week and less hot weather over the next two weeks than previously expected.

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National Headlines

• Google Play Payments in Naira – Those that have been frustrated by their inability to make purchases from googly play because of the US $ requirements can now breathe easy. Google play will accept payments in Naira going forward. Google is making this happen through partnership with Verve, the largest domestic card scheme in Africa. Verve is part of the Interswitch group.

• Naira troubles – The House of Representatives turned down a motion urging the Federal Government to intervene and take necessary steps to ‘stabilise’ the Naira. The motion was by Hon. Beni Lar, representing Langtang North and South Federal constituency expressing her concern about the ability of students in foreign countries to pay their tuition following the adjustment of the exchange rates last month. The motion sparked a huge debate but was denied. Meanwhile, Cadbury has posted a loss before of N17 billion in Q2 2023 following the adjustments to Naira’s exchange rate to the US $. Also, according to data from the Central bank, Nigeria's external reserves have experienced a significant decline of approximately US $3.1 billion this year, from US $37 billion at the beginning of the year to around $33.9 billion as of July 2023. (See analysis below)

Global Headlines

• Coup in Niger – Niger, Nigeria’s landlocked neighbour to the North, bordering Sokoto and Katsina experienced attempted coup yesterday. The President, Mohamed Bazoum was arrested yesterday by the presidential guard, triggering a standoff with the army. So far, there is no conclusion on whether the ‘military’ has fully taken over. The attempt has been condemned by the international community including President Bola Tinubu, head of ECOWAS. It is another reminder of the spectre of coups in Africa.

• Rate hike in the US – As expected, the US Federal Reserve raised interest rates by a 25 basis points after the conclusion of its July meeting yesterday. It was the 11^th in 12 meetings, after a pause in May, and the highest policy rate in 22 years. The rate is now 5.25% - 5.5% range. Jeremy Powell last month had suggested there may two more rate hikes this year. The Fed has three more meetings this year and depending on key economic data in the coming weeks and months, there may be another 0.25% hike in interest rate.

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News Analysis - Nigeria's external reserves

According to data from the Central Bank, Nigeria's external reserves have seen a decline from US $37 billion to US $33.9 billion as of July 2023, a decline of US $3.1 billion, following significant and rising macroeconomic risks – crude oil theft, weak FDI, and rising uncertainty. Meanwhile, demand and supply have remained inelastic, even after exchange rate adjustments while there are debt repayments, capital flights and continuous inflationary pressures.

In the last two months, since the inception of the Tinubu administration on May 29th, 2023, external reserves have dropped by almost US $billion dollars. This decrease occurred despite efforts to unify the naira and implement a managed exchange rate float. The external reserve typically relies on funding from crude oil proceeds, external debts, and foreign investor inflows.

This is the largest half-year decline since 2015 when the external reserves fell from US $34.4 billion at the year's end of 2014 to $28.1 billion by the end of the first six months of June 2015, following dramatic declines in oil prices. Nigeria's central bank attributes current decline in reserves to a lack of external debt financing. The country is unlikely to tap into the foreign debt market this year due to higher global interest rates, particularly affecting emerging market Eurobonds, though this has started to fall.

Platform Capital - AFRICA WALK 2023

Platform Capital proudly presents Africa Walk 2023.

Join us in Dakar, Senegal (July 24-27) and Lagos, Nigeria (July 28-31), to explore the continent's investment landscape and witness the extraordinary talent within the African creative industry.

For participation and registration